1.1MB - Pirelli

Pirelli S.p.A. Milan Annual Report 1999

Preliminary Information Directors’ Report Consolidated Financial Statements Extraordinary Part 

Call to AGM 

Contents 

Pirelli S.p.A. 

Group Structure 

Pirelli S.p.A. on the 

Stock Market 

Selected Financial Data 

Chairman’s Letter 

CALL TO ANNUAL GENERAL MEETING 

The shareholders of Pirelli Società per Azioni are called to the ordinary and extraordinary 

shareholders’ meeting to be held in Milan at the Istituto per gli Studi di Politica Internazionale in 

Via Clerici 5 at 3:00 P.M. 

– on Thursday, April 27, 2000 in first call 

– on Monday, May 8, 2000 in second call 

to pass resolutions on the following 

AGENDA 

Ordinary part 

1) The Board of Directors’ report on operations, the Board of Statutory Auditors’ report, the 

financial statements at December 31, 1999; the appropriation of net income. 

2) The proposal for the purchase of treasury shares and procedures for disposition of the same, 

after canceling the resolutions voted by the shareholders' meeting of December 22, 1998 and 

May 24, 1999, as they were not used. 

Inherent and consequent resolutions. Conferring of powers. 

Extraordinary part 

1) Confirmation, limited to a maximum of No. 14,118,300 shares, of the resolution voted by the 

extraordinary shareholders' meeting of May 15, 1998 authorizing the Directors, pursuant to 

art. 2443 of the Italian Civil Code, the right to issue ordinary shares to be assigned to the 

employees of the Group. 

Authorization to the Directors, pursuant to art. 2443 of the Italian Civil Code, of the right to 

further increase the share capital, in one or more instances, by a maximum amount of Euros 

78 million, through the issue of ordinary shares to be assigned to the executives and cadres of 

Pirelli S.p.A. and of the companies controlled by same and of those controlling same and 

likewise of the other companies controlled by the latter, in Italy and abroad, according to the 

terms of art. 2441 and/or 2349 of the Italian Civil Code. 

Consequent amendment to article 5 of the by-laws. 


2) Amendment to art. 23 of the by-laws (interim dividends). 


Pirelli S.p.A. V.le Sarca, 222 20126 Milano Web site: http://www.pirelli.com E-mail: info@pirelli.com 1


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CONTENTS 

Preliminary Information 

Page 

1 

Call to AGM 1 

Pirelli S.p.A. 3 

Group Structure 4 

Pirelli S.p.A. on the Stock Market 5 

Summary of selected Consolidated Financial Data 6 

Chairman’s Letter 7 

Directors’ Report on Operations 9 

The Group 11 

Cables and Systems Sector 16 

Tyres Sector 30 

Financial Activities 42 

Information Systems 44 

Ecology and the Environment 46 

Personnel 48 

Related Party Disclosures 49 

Investments held by Directors, Statutory Auditors 51 

and General Managers 

Stock Option Plans 52 

Corporate Governance 53 

Summary data of Pirelli S.p.A. 54 

Shareholders’ Resolutions 56 

Consolidated Financial Statements at December 31, 1999 59 

Consolidated balance sheets 60 

Consolidated statements of income 64 

Notes to consolidated financial statements 65 

Supplementary information 87 

Independent auditors’ report 101 

Extraordinary Part of Shareholders’ Meeting 103 

Web site: http://www.pirelli.com E-mail: info@pirelli.com 2


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PIRELLI S.P.A. 

Board of Directors 

Chairman and Chief Executive Officer 

Deputy Chairman 

Directors 

Secretary to the Board 

Marco Tronchetti Provera 

Alberto Pirelli 

Carlo Buora 

Eugenio Coppola di Canzano 

Carlo De Benedetti 

Alberto Falck 

Giovanni Ferrario 

Giuseppe Gazzoni-Frascara 

Georg F. Krayer 

Angelo Marchiò 

Giuseppe Morchio 

Luigi Orlando 

Riccardo Perissich 

Giampiero Pesenti 

Ennio Presutti 

Carlo Alessandro Puri Negri 

Vincenzo Sozzani 

Frank Vischer 

Sergio Lamacchia 

Board of Statutory Auditors 

Chairman 

Standing members 

Alternate members 

General Managers 

Finance and Administration 

Tyres Sector 

Cables and Systems Sector 

Luigi Guatri 

Rosalba Casiraghi 

Giorgio Oggioni 

Mario Brughera 

Alfredo Malguzzi 

Carlo Buora 

Giovanni Ferrario 

Giuseppe Morchio 

Independent Auditors 

PricewaterhouseCoopers S.p.A. 

Note: With respect to the powers conferred to the Chairman and CEO and the General Managers, see page 53 

under “Corporate Governance”. 



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STRUCTURE OF PIRELLI GROUP 

AT DECEMBER 31, 1999 



Stock Market 

Pirelli & C. 



30.575% 


Pirelli 

Tyre Holding N.V. 

99.82% 100% 

Pirelli 

Cavi e 

Sistemi S.p.A. 

88% 92% 

0.18% 

Tyres 

Cables 

and Systems 

12% 

Minority 

interests 

8% 

Cables and Systems 

Tyres 

Argentina 

Australia 

Brazil 

Canada 

China 

Finlandia 

France 

Germany 

Hungary 

Indonesia 

Italy 

Ivory Coast 

Olanda 

Portugal 

Rumania 

Slovacchia 

South Africa 

Spain 

Turkey 

United Kingdom 

United States 

Argentina 

Brazil 

Egitto 

Germany 

Italy 

Spain 

Turkey 


United States 

Venezuela 



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PIRELLI S.P.A. ON THE STOCK MARKET 

Movements in Pirelli S.p.A.’s share capital from January 1, 1996 

Date 

Share capital 

(in millions) 

Transactions 

January 1, 1996 Lire 1,557,020 

December 1996 Lire 1,557,090 Bond conversion (POC 5% 1994-98 

of Lire 1,011,309 million) 

December 1997 Lire 1,748,208 Bond conversion (POC 5% 1994-98 


January 1998 Lire 1,942,623 Bond conversion (POC 5% 1994-98 


June 1998 Lire 1,983,123 Issue of 23 million bonus shares 

assigned to all employees of the 

Group to celebrate the 125th 

anniversary of the founding 

of the company; issue of 17.5 

million bonus shares assigned 

to the executives of the Group 

March 1999 Lire 1,984,558 Bonus shares assigned to executives 

of the Group 

June 1999 Euro 1,031.970 Share capital expressed in Euros 

by translation of par value from 

Lire 1,000 to Euro 0.52 

December 1999 Euro 1,032.152 Assignment of bonus shares to 

executives of the Group 

115 

110 

105 

100 

95 

90 

85 

80 J F M A M J J A S O N D 

1999 

MIB index (monthly average) 

Market price of ordinary shares 

(monthly average) 

Market trading on the Milan stock exchange 

Number of shares Amount 

traded (in millions of euros) 

Pirelli S.p.A. - ordinary shares 1,851,674,000 4,692 

Pirelli S.p.A. - savings shares 45,455,000 83 

18,000 

16,000 

14,000 

12,000 

10,000 

8,000 

6,000 

4,000 

2,000 

0 J F M A M J J A S O N D 

1999 

Monthly average number of ordinary 

shares traded on the Milan 

stock exchange (in thousands) 



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FIVE-YEAR SUMMARY OF SELECTED 

CONSOLIDATED FINANCIAL DATA 

in millions of euro 1995 1996 1997 1998 1999 

Sales revenues 5,626 5,288 5,818 5,487 6,482) 

Gross operating profit 612 624 687 721 678) 

Operating profit 328 351 392 412 331) 

Net income 157 225 264 276 305) 

Net income attributable 

to Pirelli S.p.A. 133 200 238 249 293) 

Earnings per share 

(in euro) 0.09 0.13 0.14 0.13 0.15) 

Fixed assets 2,252 2,116 2,259 2,427 3,062) 

Net working capital 987 881 946 1,013 1,200) 

Net invested capital 3,239 2,997 3,205 3,440 4,262) 

Shareholders’ equity 1,954 1,918 2,283 2,453 2,454) 

Provisions 559 555 674 722 791) 

Net financial debt 726 524 247 265 1,017) 

Net equity attributable 

to Pirelli S.p.A. 1,687 1,690 2,089 2,283 2,275) 

Equity per share 

(in euro) 1.08 1.09 1.20 1.15 1.15) 

Free cash flows 192 313 268 179 114) 

Net cash flows 20 179 24 (253) (507) 

R&D expenditures 156 163 183 196 200) 

Capital expenditures 250 279 320 415 469) 

Gross operating profit / Sales revenues 10.89% 11.79% 11.80% 13.15% 10.47% 

Operating prodit / Sales revenues 5.84% 6.64% 6.74% 7.52% 5.10% 

Net income / Net equity* 8.37% 11.63% 12.58% 11.65% 12.44% 

Operating profit / Net invested capital* 10.34% 11.26% 12.65% 12.41% 8.59% 

Net financial debt / Net equity 0.37 0.27 0.11 0.11 0.41 

Pirelli S.p.A. ordinary shares 

(No. in millions) 1,469 1,469 1,660 1,895 1,897) 

Pirelli S.p.A. savings shares 

(No. in millions) 88 88 88 88 88) 

Total Pirelli S.p.A. shares (No. in millions) 1,557 1,557 1,748 1,983 1,985) 

Treasury shares (No. in millions) – – 5 59 173) 

Factories (number) 74 71 72 73 87) 

Personnel (number at 12.31) 38,106 36,534 36,211 38,209 40,103) 

Sales revenues per employee 

(in thousands of euros) 144 140 159 149 162) 

* Average amounts 

(in euro/millions) 

Sales revenues 

7000 

6500 

6000 

5500 

5000 

1997 1998 1999 

Gross operating profit 

900 

800 

700 

600 

500 

1997 1998 1999 

Net income 

350 

300 

250 

200 

150 

1997 1998 1999 

Shareholders’ equity 

2500 

2400 

2300 

2200 

2100 

1997 1998 1999 

Capital expenditures 

500 

450 

400 

350 

300 

1997 1998 1999 



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CHAIRMAN’S LETTER 

Dear Shareholders, 

1999 shows Pirelli during a strong evolution phase, welcoming 

the opportunities offered by the new technologies. A path that 

has been prepared in the latest years, with the creation of IT 

infrastructures that enable the company to exploit to the full 

the new possibilities opened up by the Internet. 

Pirelli will soon be a company with integrated on-line 

operations, from purchasing to production, from distribution to 

sales. An objective within reach, enhanced by the technological 

asset of the Group, which gives us competitive strength in both 

sectors of activity. 

The technological revitalization of the Internet offers unique 

opportunities for improvement. In order to seize them with the 

necessary speed, we have undertaken actions in various 

company areas. The initiatives currently in progress will ensure 

considerable efficiency in terms of costs as well as a more 

transparent and timely exchange of know-how within and 

outside the Group. Behind our competitiveness, however, lies 

our capacity for research and development into ever more 

advanced technologies. 

In the Cables and Systems Sector, the competitive scenario 

witnesses almost daily evolution. In telecommunications, the 

market constantly requires more innovative solutions at more 

competitive costs, designed for users who are growing, not only 

in terms of numbers. The strategic alliance with Cisco Systems, 

quite apart from the considerable gains from which the financial 

statements for 2000 will benefit, will significantly strengthen 

our presence in the U.S. The position of the Group in optical 

technology is important and highly diversified: into fibers, 

cables, components, and submarine systems. The recent 

creation in the United States of a company for optic 

components with American management, open to exploiting 

every possible valorization hypothesis, is further proof of our 

capacity and strongfelt wish to compete on the most advanced 

market in the world. 

In the field of power transmission, too, the scenario is evolving, 

with acquisitions, mergers and privatizations taking place on all 

the world markets. The integration of the Siemens activities, the 

new acquisitions of Metal Manufacturers in Australia and NKF 

in Holland, as well as that recently announced of BICCGeneral 

in the United Kingdom, have strengthened the leadership of our 

Group. In this way, we have created a European pole able to 

face up to the giants on the other side of the ocean. 



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Rapid changes have also been taking place in the Tires Sector. 

In Original Equipment, the union of the purchasing departments 

of the leading American automobile companies makes evermore 

rapid and effective responses necessary. In the 

Replacements market, the Internet offers great advantages with 

innovative services for the final customer. New challenges for 

which the Tires Sector is well prepared, thanks also to the 

Manufacturing Integrated Robotized System, (MIRS) the new 

revolutionary production system which has made it possible to 

overturn the traditional profitability values of the sector, 

lowering the total cost of the product together with a drastic 

improvement in terms of quality. In addition, the system makes 

it possible to restrict production to a very limited space, with 

total automation and absolute flexibility, placing Pirelli firmly 

on the cutting edge. Furthermore, the decisive renewal of the 

product range has led to the recent introduction of the PZero 

Rosso and the P2500 Euro, the first tire to be conceived 

expressly for the net. 

The figures for the first few months of the year show a further 

gain. The initiatives currently in progress and those 

implemented enable us to look forward with a responsible 

sense of confidence. The Group has the appropriate men and 

women, technologies and financial structures to face up to the 

new challenges, creating value for its shareholders, customers 

and employees. 



Introduction 

The Group 


Sector 

Tyres Sector 

Financial Activities 

Information Systems 

Ecology and the 

Environment 

Personnel 

Related Party Disclosures 

Investments 

Stock Option Plans 

Corporate Governance 

Summary Data of 


Shareholders’ 

DIRECTORS’ REPORT ON OPERATIONS 

Shareholders, 

The year 1999 ends with a consolidated net income of Euros 

305 million, compared to Euros 276 million in 1998 (+10.6 

percent). 

Extraordinary income, net, is Euros 89 million which can be 

compared to extraordinary expense, net, of Euros 8 million in 

the prior year. 

The net income attributable to Pirelli S.p.A. is Euros 293 million 

(equal to earnings per share of Euros 0.15), compared to Euros 

249 million (equal to earnings per share of Euros 0.13) in 1998. 

It has to be indicated that the net income for the year does not 

include the sale of our terrestrial optical systems business to 

the US group Cisco which was concluded on February 14 of the 

current year. This deal involved the collection of the sale price 

of Euros 1,575.3 million which, taking into account the related 

expenses connected to the sale, led to an improvement at the 

level of the net result of Euros 1,131 million. 

Furthermore, apart from the financial importance, the strategic 

merit of this alliance also seals the partnership struck by Pirelli and 

Cisco Systems in submarine optic components and systems, both 

high-technology sectors believed to offer a high rate of growth. 

MIRS: building phase 

Cisco Systems is partner 

of Pirelli’s components 

and systems 

® 

Net sales revenues 

Net sales revenues amount to Euros 6,482 million, with an 

increase of 18.1 percent compared to 1998, due mainly to the 

consolidation of the units acquired during the year, for the 

Cables and Systems Sector (the former Siemens A.G. units and 

Metal Manufacturers Limited) and for the Tyres Sector 

(Alexandria Tire Co. S.A.E.) for a total of +14.8 percent, the 

gain in volumes (+9.1 percent) and mix (+4.8 percent) which 

were countered by a reduction in prices (-5.2 percent), a 

negative currency exchange effect on the translation into Euros 

(-4.4 percent) and the exclusion from consolidation of the 

Agriculture business (-1 percent). 


The gross operating profit is Euros 678 million (10.5 percent of 

sales revenues), compared to Euros 721 million in 1998 (13.1 

percent). 

The decrease is due primarily to the Cables and Systems Sector 

which was particularly hit by the negative trend in prices and 

by the consolidation of the former Siemens energy businesses 

which had been expected and was due to the integration phase. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party Disclosures 

Investments 






Resolutions 

Operating profit 

Operating profit is Euros 331 million, equal to 5.1 percent of 

sales revenues, a reduction compared to Euros 412 million in 

1998 (7.5 percent of sales revenues) on account of the same 

reasons mentioned above. 

Net cash flows 

Free cash flows prior to the acquisitions showed a positive 

balance of Euros 214 million, while net cash flows presented a 

negative balance of Euros 507 million (Euros 253 million in 

1998) produced by the new acquisitions of Metal Manufacturers 

Ltd in Australia, Alexandria Tire Co. S.A.E. in Egypt, the 

completion of the process to integrate the former Siemens 

activities, as well as the acquisition of the remaining 50 percent 

of F.O.S. – Fibre Ottiche Sud S.p.A. and PT Pirelli Cables 

Indonesia. 

Net debt position 

The net debt position went from Euros 265 million at the end of 

1998 to Euros 1,017 million. This is an increase of Euros 752 

million, of which Euros 291 million is due to acquisitions, Euros 

229 million to the merger of Pirelli S.p.A. and Société 

Internationale Pirelli S.p.A. with the consequent consolidation 

of debt, Euros 106 million to the buyback of treasury shares, 

Euros 163 million to dividend payments and the other 

differences in working capital. 

Web site home page of the P2500 

Euro, the first tyre conceived 

for the Net 

1999 shows an increase of Pirelli’s 

optical fibre production 

Parent Company 

The financial statements at December 31, 1999 of Pirelli S.p.A., 

the parent company, show a net income of Euros 229 million, 

with a growth of 13.4 percent compared to Euros 202 million in 

1998. 



The Group 

1999 Economic and 

Financial Review 

Significant 

Subsequent Events 

Outlook for the 

Current Year 

THE GROUP 

1999 ECONOMIC AND FINANCIAL REVIEW 

The year 1999 was again marked by strong price tensions in 

both business segments and by fluctuations in the financial 

markets of South American, Brazil in particular, where the local 

currency underwent a sharp devaluation and then stabilized in 

the second part of the year. 

In view of the Group’s important presence in Brazil, this factor 

had a negative impact on the net income for the year. 

Given this general scenario, the Group adopted the appropriate 

actions to reduce costs and improve productive efficiency. Such 

actions were accompanied by measures directed to 

MIRS: vulcanisation phase 

development, investments and new acquisitions. These led, 

among other things, to the completion of the process to acquire 

the Power Cables Division from Siemens A.G. begun in 1998, the purchases of the Power and 

Construction Cables Division from Metal Manufacturers Limited (Australia), Alexandria Tire Co. 

S.A.E. (Egypt), the further 50 percent of FOS – Fibre Ottiche Sud S.p.A. and the remaining 50 

percent of PT Pirelli Cables Indonesia. 

The previously announced agreements became operative for trade cooperation with Cooper in 

the USA and with Michelin for the joint development of a new tyre using PAX System technology. 

On December 20, 1999 – as mentioned in the introduction to the report – a strategic accord was 

reached between Pirelli Group and Cisco Systems, US leader in Internet-related technology, that 

was concluded on February 14, 2000. 

Highlights of the consolidated financial statements are indicated below: 

Millions of euros 1999 (1) 1998 (2) 1998) 

at Dec. 31, 1999 

exchange rates 

• Sales revenues 6,482) 5,289) 5,487) 

• Gross operating profit 678) 678) 721) 

% of sales 10.5%) 12.8%) 13.1%) 

• Operating profit 331) 378) 412) 

% of sales 5.1%) 7.1%) 7.5%) 

• Financial income and expenses (24) (12) (0) 

• Extraordinary items 89) (8) (8) 

• Income taxes (91) (118) (128) 

• Net income 305) 240) 276) 

% of sales 4.7%) 4.5%) 5.0%) 

• Shareholders’ equity 2,454) 2,486) 2,453) 

• Net financial debt 1,017) 288) 265) 

• Capital expenditures 469) 397) 415) 

• R&D expenditures 200) 191) 196) 

• No. of employees (at period end) 40,103) 38,209) 38,209) 

• No. of factories 87) 73) 73) 

(1) Includes the former Siemens units consolidated line-by-line (Germany, Hungary, Rumania, Turkey, Italy, Spain Austria, Slovakia) 

and the Egyptian unit Alexandria Tire Company S.A.E., the acquisition of Metal Manufacturers Ltd in Australia; furthermore, in 

December 1998, the Tivoli (Agriculture) factory was sold and the 1998 figures for sales and profits were as follows (in millions 

of Euros): 

- Agriculture sales revenues 52.5 

- Agriculture operating profit 11.4 

- Agriculture net income 8.6 

(2) In view of the significance of the devaluation of the Brazilian real in January 1999, for purposes of a better understanding of the 

situation, the economic and financial results for the year 1998 have been presented using the exchange rates at December 31, 

1999. 



The Group 




Significant 



Current Year 

Sales revenues total Euros 6,482 million compared to Euros 

5,487 million in the prior year. 

The increase of 18.1 percent is due to the following: 

– Currency exchange effect – 14.4% 

– Prices – 15.2% 

– Volumes + 19.1% 

– Mix and other + 14.8% 

– Effect of consolidating units purchased + 14.8% 

– Effect of excluding Agriculture unit from consolidation – 11.0% 

+ 18.1% 

Tyres 

Cables and 

Systems 

The distribution of sales revenues by sector and geographic 

area is as follows: 

Sector 1999 1998 

Cables and Systems 60% 51% 

Tyres 40% 49% 

Group sales in 1999 

by Sector and geographical 

area 

Italy 

Other European 

countries 

Geographical area 1999 1998 

Italy 11.9% 15.0% 

Other European countries 45.5% 39.5% 

North America 15.2% 13.9% 

Central and South America 17.4% 22.5% 

Australia, Africa and Asia 10.0% 9.1% 


Operating profit is Euros 331 million, a reduction from Euros 412 million in 1998; operating profit 

as a percentage of sales revenues is 5.1 percent (7.5 percent in 1998). The reduction in sales 

prices was only partly compensated by the increase in volumes and by the decrease in fixed and 

variable costs, raw materials in particular, and fixed costs. In addition, depreciation and 

amortization also increased by Euros 39 million. 

Extraordinary items 

Extraordinary items shows an income balance of Euros 89 million compared to an expense 

balance of Euros 8 million in 1998. Extraordinary income mainly includes deferred tax assets 

arising from the application of the related accounting principle (Euros 85 million) and the gain 

on the sale of Comit and BHF shares belonging to Société Internationale Pirelli S.p.A., the 

company merged with Pirelli S.p.A. (Euros 83 million), while extraordinary expenses consist of 

restructuring costs (Euros 86 million). 

Details are provided in the Notes to consolidated financial statements. 

Net income 

North America 

Central and South America 

Australia, Africa and Asia 

Net income totals Euros 305 million compared to Euros 276 million in 1998, with an increase of 

Euros 29 million. 

The reduction in operating profit of Euros 81 million from the prior year was more than 

recovered by the difference in extraordinary income of Euros 97 million and the reduction in tax 

charges of Euros 37 million, whereas the net expense balance of financial income and expenses 

rose by Euros 24 million due to a higher debt position compared to the prior year. 



The Group 



Significant 



Current Year 

Shareholders’ equity 

Shareholders’ equity went from Euros 2,453 million at the end 

of 1998 to Euros 2,454 million at the end of 1999, a change of 

Euro 1 million due to: 

• Translation adjustments 33) 

• Net income for the year 305) 

• Dividends to third parties paid by: 

– Pirelli S.p.A. (140) 

– Other Group companies (23) (163) 

• Effect of Pirelli S.p.A./SIP S.p.A. merger (156) 

• Other changes (18) 

1) 

Net financial debt 

Net financial debt went from Euros 265 million at December 31, 

1998 to Euros 1,017 million at December 31, 1999. The increase 

of Euros 752 million, owing principally to new acquisitions, 

investments, the merger with Société Internationale Pirelli 

S.p.A., the buyback of treasury shares and dividend payments, 

is detailed in the following table (in millions of euros): 

• Exchange difference (22) 

• Operating profit 331) 

• Depreciation and amortization 348) 

• Net investments: (647) 

– Intangible assets and property, 

plant and equipment (549) 

– Financial assets (98) 

• Change in working capital 34) 

• Change in provisions 34) 

• Other changes 14) 

• Free cash flows 114) 

• Dividends paid (163) 

• Buyback of treasury shares (106) 

• Income taxes (91) 

• Financial income and expenses (54) 

• Other changes (*) (207) 

• Net cash flows (507) 

• Effect of SIP Spa and Pirelli Spa merger (229) 

• Other changes in shareholders’ equity 6) 

(752) 

(*) of which Euros 159 million of net debt is from acquired companies 

Debt to equity ratio 

The debt to equity ratio is equal to 0.41 compared to 0.11 in 

1998. The ratio was affected by the net financial debt subsequent 

to the investments for the acquisitions of the former Siemens 

A.G. businesses, Alexandria Tire Co. S.A.E. and the debt of the 

merged company Société Internationale Pirelli S.p.A.. 

R&D expenditures 

R&D expenditures were totally charged to the statement of 

income and amounted to Euros 200 million, compared to 

Euros 196 million in 1998. They represent 3.1 percent of sales 

revenues (3.6 percent in 1998). 

The new tyre advertising 

campaign 

The laying of a submarine 

optical amplifier 


Capital expenditures during 

the year totalled Euros 469 

million compared to Euros 415 

million in 1998; the capital 

expenditures to depreciation 

ratio is 1.50 (1.46 in 1998). The 

completion of the process to 

integrate the Power Division 

purchased from Siemens A.G. 

and Alexandria Tire Co. S.A.E. 

led to higher investments 

equal to Euros 19 million. 

Factories 

The number of factories went 

from 73 at the end of 1998 to 

87 at the end of 1999; the 

increase is due to the new 

acquisitions from Siemens 

A.G., Metal Manufacturers 

Limited and Alexandria Tire 

Company S.A.E. (Egypt). 



The Group 



Significant 



Current Year 

Personnel 

Personnel rose during the year, compared to 1998, as a consequence 

of acquisitions, and now number 40,103 (38,209 at December 31, 

1998). During 1999, 8,406 units were added and 6,512 units left for a 

net increase of 1,894 units. Considering the same companies in 

consolidation of 1998, the number of personnel decreased by 812 units. 

The workforce can be analyzed as follows: 

12/31/1999 12/31/1998 

Total workforce 40,103 38,209 

of which, temporary 2,062 2,211 

temporary, former Siemens units 126 

temporary, Alexandria Tire Co. S.A.E. units 4 

Active workforce 37,911 35,998 

of which: former Siemens units 3,866 1,983 

former Metal Manufacturers 488 

Alexandria Tire Company S.A.E. 699 

Workforce excluding acquisitions 34,920 36,226 

Agriculture Tyres 494 

Work force with same companies in consolidation 34,920 35,732 

Headquarters of Pirelli Telecom 

Cables Co. Ltd. at Wuxi, China 

Economic value added 

Economic value added has for some time now been included among the measurements of 

operating results used by Pirelli Group. It is defined as the difference between the net return on 

capital invested and its cost. 

in millions of euros 1999 1998 

• Economic value added 13 15 

Economic added value is a positive figure of Euros 13 million which is lower than in 1998 mainly 

on account of the lower profits of the more recently acquired units. 

SIGNIFICANT SUBSEQUENT EVENTS 

On February 14, 2000, the Company concluded the sale of Pirelli’s terrestrial optical systems 

business to Cisco Systems Management B.V., a wholly-owned subsidiary of Cisco Systems. The 

price (net of debt transferred) of US $1,551.5 million was fully collected. Taking into account the 

related expenses connected to the sale, this deal led to an improvement at the level of the net 

result of Euros 1,131 million. 

The agreement also calls for: 

• an earn-out formula under which Cisco Systems will pay Pirelli a variable amount up to a 

maximum of US $450 million if specific goals are met at agreed dates; 

• the acquisition, by Cisco Systems, of 10 percent of the capital of the two companies being set 

up that operate in the optic components and submarine systems communication segment. The 

amount of this stake was set at US $100 million. 

On January 14, 2000, the acquisition of the majority interest in Pirelli Telecom Cables Co. Ltd 

Wuxi (China) was concluded and the stake is now 66.47 percent. 

On January 31, 2000 and March 3, 2000, Pirelli Cavi e Sistemi concluded the acquisition of a part 

of the power cables business for electricity companies from NKF. The business includes the 

production of high, medium and low voltage power cables for utilities with two factories, at Delft 

(Holland) and Pikkala (Finland). The net sales revenues from these operations in 1998 amounted 

to Dutch guilders 250 million (Euros 115 million), with about 450 employees. 



The Group 



Significant 



Current Year 

On February 10, 2000, Pirelli Group reached an understanding with BICCGeneral for the 

purchase of the power cables business which had belonged to the BICC plc British group and 

was bought last year by the US group General Cable. 

In 1999 this business reported sales revenues of about Euros 700 million, with 3,500 employees 

and 11 factories in the UK and Italy (which together account for over 80 percent of sales 

revenues in 1999), Africa and Asia, including a joint venture in China. 

A price of about US $216 million will be paid for these operations. 

With this acquisition, the Cables and Systems Sector will reach about Euros 3,400 million in 

revenues in the power cables sector in 2000. Actions will also be taken for the production 

rationalization and integration of the product portfolio. 

During the course of the year numerous undertakings were begun in the e-business sector with 

the aim of bringing the group increasingly closer to the market and the consumer, in addition to 

rendering the entire corporate process more efficient and transparent. 

OUTLOOK FOR THE CURRENT YEAR 

Like the previous year, 2000 will also be more or less marked by 

the efforts to integrate the former Siemens and former BICC 

businesses (in the later, this will take place after the 

appropriate authorizations are received from the antitrust 

authorities). 

Ceaseless attention will nevertheless be given to increase the 

value of the traditional businesses and to search for new 

opportunities in the various markets. In order to raise the 

company's competitiveness, actions will be undertaken to 

restructure and rationalize productive operations which will 

involve extraordinary expenses still to be exactly defined but 

which can be quantified, at consolidated level, at around Euros 

248 million, of which a quarter of the amount is for the Cables 

and Systems Sector and three-quarters for the Tyres Sector. This 

restructuring should be completed in the next fifteen months 

and will give a quick return. 

R&D commitments will be stepped up for both products and 

processes. In particular, during the current year the new tyre 

production process MIRS (Modular Integrated Robotized 

System) will go into production after passing the experimental 

stage and this will have an important impact in terms of costs, 

products and services. 

In the Cables and Systems area, conversely, efforts will be 

intensified for the optics, fibers and components businesses in 

order to raise the level of competitiveness and economic value. 

The deal with Cisco Systems, as previously mentioned, taking 

into account the related expenses connected to the sale, led to 

an improvement at the level of the net result of Euros 1,131 

million, in addition to income from ordinary operations, which 

should show an improvement over 1999. 

Pirelli pump laser for optical 

amplifiers 





Overall Performance 

Holding Company 

Performance by 

Geographical Area 

Performance of the 

Main Companies in the 

Sector 

Outlook for the Current 

Year 

CABLES AND SYSTEMS SECTOR 

OVERALL PERFORMANCE 

In Europe, the results of the sector – despite being positive – were negatively influenced by 

competitive pressure generated partly by the restructuring taking place in industry, and in South 

America, by the devaluation of the Brazilian currency. 

All sectors of activity recorded a fall in prices, which was only partly compensated by higher 

volumes, reductions in the unit cost of materials and improvements in productive efficiency. 

During the year the acquisition of the Power Cables Division from Siemens A.G. (Italy, Spain, 

Austria, China and Slovakia) was completed and integration activities progressed successfully. 

Overall, the companies formerly belonging to Siemens that have been acquired and consolidated 

line-by-line are as follows: 

Company 

Country 

Pirelli Kabel und Systeme Holding GmbH 

Germany 

Pirelli Kabel Grundstücksverwaltungs GmbH 

Germany 

Pirelli Kabel und Systeme Beteiligungs GmbH 

Germany 

Bergmann Kabel und Leitungen GmbH 

Germany 

Pirelli Kabel und Systeme GmbH & Co. K.G. 

Germany 

Pirelli Kabel und Systeme Verwaltungs GmbH 

Germany 

Türk Pirelli Kablo ve Sistemleri A.S. 

Turkey 

Pirelli-Oekw GmbH 

Austria 

Codelca Due S.p.A. (now merged in Pirelli Cavi e Sistemi S.p.A.) Italy 

Pirelli Romania Cabluri si Sisteme SA 

Rumania 

Fercable S.A. 

Spain 

Kablo Bratislava Spol. S.R.O. 

Slovakia 

MKM Magyar Kabel Muvek RT. 

Hungary 

The factory at Balassagyarmat, 

Hungary, acquired from Siemens 

During the first months of 1999, the Australian affiliate Pirelli Cables Australia Ltd acquired the 

activities of the Power Cables and Construction Division of the Australian company Metal 

Manufacturers Ltd. 

The further 50 percent of F.O.S. – Fibre Ottiche Sud S.p.A. has been acquired from Sirti S.p.A.; as 

a result of this operation, Pirelli Cavi e Sistemi S.p.A. now controls 100 percent of this company. 

Full control of the investment in PT Pirelli Cables Indonesia has been achieved, with the 

remaining 50 percent being acquired from third parties. 

On May 26, 1999 Pirelli Cables and Systems and Draka Holding reached an agreement for the 

sale of part of the power cables activities for the electricity companies of NKF, a Dutch cable 

company with sales revenues of approximately Dutch Guilders 1,000 million (Euros 450 million), 

of which Draka Holding took over the remaining operations. 

The activities acquired by Pirelli Cables and Systems include the production of high, medium, 

and low-voltage power cables for utilities, with two factories: one at Delft (in Holland) and the 

other at Pikkala (in Finland). This agreement was completed in the first months of 2000. 

On December 20, 1999 Pirelli Cables and Systems and Cisco Systems Management B.V. reached a 

strategic agreement in the sphere of the Optical Transmission Systems and Components activities 

of Pirelli Group. The deal was completed on February 14, 2000. The main features of the 

agreement are the transfer to Cisco Systems Management B.V. of the activities and intellectual 

property relating to the Terrestrial Optical Systems of the Pirelli Group for a value of US $1,700 

million, gross of debt transferred, and the setting up of two joint ventures in the field of 

Submarine Optical Systems and Optical Components respectively, in each one of which Cisco 










Sector 


Year 

Systems Management B.V. will have a holding equal to 10 

percent of the capital with an agreed investment of US $100 

million. 

On February 10, 2000, an agreement was reached with BICC 

General for the acquisition of its power cables activity with 

sales revenues of approximately Euros 700 million. 

Cables and Systems for telecommunications 

The impact of the fall in prices, which was in part counterbalanced 

by the growth in volumes and by the recovery in the variable costs 

of materials, was particularly significant in the cables and systems 

activities for telecommunications in the area of fiber optic cables. 

The production of optical fibers is on the increase compared to the 

previous year, according to the established investment programs. 

The large portfolio acquired at the end of 1998 and the new orders 

generated a significant increase in photonics sales compared to the 

prior year. 

Submarine systems 

The activity of submarine systems, despite the presence of 

nonrecurring operating costs associated with installation 

activities in the sphere of business telecommunications, again 

generated a satisfactory result. 

As far as submarine systems for telecommunications are 

concerned, the following contracts were completed: Columbus 

(linking Mazara and the Azores); Atlantis 2 (linking Lisbon and 

Dakar); Ntl-Sirius, Solas, Esat (linking Ireland and the United 

Kingdom); Taiwan; Festoons Sicily. The Mazara-Tripoli project 

is already at an advanced stage, and is scheduled for 

completion in the first quarter of 2000. 

The segment of submarine power cables systems made a 

positive contribution to the operating result for the year, thanks 

to the conclusion of the Cozumel contract (in the Bay of 

Cozumel in Mexico), the Chugach project (in Alaska), the 

Marathon Oil project (in Gabon), the contract in Trinidad and 

Tobago, as well as the Jawa-Bali 2 contract (in Indonesia) 

which is being concluded using the cable-laying vessel “Giulio 

Verne”. In addition, progress was made in the production and 

installation of the Italy-Greece project according to plan and is 

scheduled for completion early in 2001. 

At the end of the year, a long-term contract of about Euros 100 

million was acquired from Viking, scheduled to start in 2001 and 

end in 2004, which involves a submarine connection between 

Norway and Germany, and which will be the longest submarine 

continuous-current connection ever to have been laid. 

Power cables 

Power cables activities 

suffered from the erosion of 

prices, which was only partly 

compensated by the increase 

in volumes, resulting in an 

impact on overall profitability. 

Exports 

Exports towards countries 

where the Group has no local 

presence recorded a positive 

increase in volumes, especially 

for low-voltage and telephone 

cables. Important deals were 

also concluded in the Middle 

East, Africa, India and South 

America. 

Pirelli’s cableship, Giulio Verne 

Fedafjord (Norway) 

Brunsbuttel (Germany) 

The Viking link, between Norway 

and Germany 

Joint Ventures 

In the area of joint ventures, in addition to the already mentioned acquisition of the total control 

of PT Pirelli Cables Indonesia, on January 14, 2000, the majority interest was purchased in the 

Chinese company Pirelli Telecom Cables Co. Ltd. Wuxi, in which the Group currently holds a 

66.47 percent investment. 










Sector 


Year 

In Southeast Asia, the economic crisis which marked 1998, persisted, albeit to a lesser degree. 

Indonesia, in particular, is still feeling the effects of a situation of instability with a consequent 

slump in the demand. 

In China, the power cables market was characterized by a dramatic erosion of prices in the 

second half of the year. Our position in the telecommunications cable market continues to be 

consolidated, as demonstrated by the contracts signed recently with China NetCom Corporation 

Ltd. for the supply of 150,000 km of optical fiber – destined for the first national high-speed 

connection – and with the national body, the State Power Corporation, for the most important 

supply of OPGW cables ever awarded in China. The acquisition of the former BICC factory at 

Baoying (Shanghai) also makes it possible to consolidate our position even further on the power 

cable market, thus allowing the Group to contribute to the future development of the Chinese 

power network. 

In South Africa, measures to reduce costs begun in 1999 will continue in 2000, with a view to 

endowing African Cables Ltd’s operations greater equilibrium. 

The monitoring of markets in the emerging countries which interest our Group continues. 

Consolidated Highlights 

The consolidated highlights of the Cables and Systems Sector are as follows: 

in millions of euros 12/31/1999 12/31/1998 (1) 12/31/1998) 

• Sales revenues 3,921 2,698) 2,787) 

• Gross operating profit 355 372) 391) 

% of sales 9.1% 13.8%) 14.0%) 

• Operating profit 183 240) 256) 

% of sales 4.7% 8.9%) 9.2%) 

• Extraordinary items 8 (12) (12) 

• Net income 136 129) 145) 

% of sales 3.5% 4.8%) 5.2%) 

• Net financial debt 700 418) 398) 

• Capital expenditures 210 213) 209) 

• R&D expenditures 99 92) 93) 

• No. of employees (at period end) 19,046 16,906) 16,906) 

• No. of factories 65 52) 52) 


situation, the economic and financial results for the year 1998 have been presented using the 1999 exchange rates. 


Sales revenues amount to Euros 3,921 million 

(+40.7 percent compared to 1998). 

In particular, the increase is detailed as follows: 

– Currency exchange effect – 14.6% 

– Prices – 17.3% 

– Volumes + 17.8% 

– Effect of consolidating units purchased + 27.8% 

– Mix + 17.0% 

+ 40.7% 

Milan’s optical technology research 

white room 










Sector 


Year 

The distribution of sales revenues by geographic area and 

product category can be analyzed as follows: 

Geographical Area 1999 1998 

Europe (of which Italy: 11.1%) 54% 48% 

South America 15% 21% 

North America 21% 21% 

Oceania 5% 3% 

Asia 4% 5% 

Other areas 1% 2% 

Product category 1999 1998 

Power cables 31% 28% 

Telecommunications 29% 29% 

Building wires, special cables, enameled wires 26% 32% 

Accessories, installation activities, other activities 14% 11% 


Gross operating profit decreased by Euros 36 million compared 

to 1998, owing, among other things, to the negative currency 

exchange effect of Euros 19 million. Note should also be taken 

that in 1998 the gross operating profit included income of Euros 

25 million deriving from the agreement reached with Ciena, 

a US company operating in the photonics sector. 


Operating profit totals Euros 183 million (4.7 percent of sales 

revenues) compared to Euros 256 million at December 31, 1998 

(9.2 percent of sales revenues). 

The reduction of Euros 73 million refers to: 

• Currency exchange effect – 116 

• Prices – 196 

• Change in per unit costs and other – 163 

• Volume and mix + 182 

• Effect of consolidating units purchased + 133 

• Per unit materials cost + 160 

• Efficiency + 143 

• Higher depreciation/amortization – 116 

– 173 

Europe 

South America 

North America 

Asia 

Oceania 

Other areas 

Cables and Systems: 1999 sales 

by geographical area and product 

category 

Power cables 

Telecommunications 

Building wires, special 

cables, enameled wires 

Accessories, installation 

activities, other activities 


Extraordinary items show an 

income balance of Euros 8 

million. Extraordinary 

expenses chiefly include the 

costs incurred for the 

rationalization of productive 

operations, whereas 

extraordinary income mainly 

includes deferred tax assets 

from prior years and gains on 

the sale of real estate property. 

Net income 

Net income of Euros 136 million 

(3.5 percent of sales revenues) 

shows a slight reduction 

compared to the prior year 

(Euros 145 million, 5.2 percent 

of sales revenues), mainly on 

account of the negative currency 

exchange effect. 

Net debt position 

The net debt position is equal to Euros 700 million at December 

31, 1999, with a change, compared to Euros 398 million at the 

end of 1998, of Euros 302 million due to new acquisitions for 

Euros 148 million, dividend payments for Euros 112 million and 

management for the difference. 










Sector 


Year 

Factories 

At the end of 1999, considering the same companies in consolidation of 1998 the number of 

factories, was 49 Units, the same as the prior year. 14 factories should be added for those 

purchased from Siemens A.G. and two from Metal Manufacturers Ltd., which brings the total to 

65 units. Distribution by geographic area shows 44 in Europe, 6 in North America, 6 in South 

America and 9 in Australia, Asia and Africa. 

During the year the telecommunications cables factories were utilized to produce volumes that 

were much higher than the prior year. 

As for power cables, the increase in volumes following the addition of the units purchased from 

Siemens and Metal Manufacturers Ltd involved a considerable effort in terms of production 

rationalization and integration. 

The goals to reduce transformation costs were reached during 1999 thanks to the continuous 

improvement in productivity indices and raw materials efficiency. 

All of the 65 productive Units of the Group, which had already been ISO 9001 certified for at 

least two years, obtained confirmation of Certification during 1999. 

The ISO 14001 Environmental Certification process begun in 1997 in various Units of the Group 

is proceeding according to plan; during 1999, 16 production facilities were certified, in addition 

to the 10 already certified at the end of 1998, for a total of 26 Units. 

Workforce 

The total workforce of the sector at December 31, 1999 numbers 19,046 employees (including 

1,779 with temporary work contracts) 

The change compared to December 31, 1998 can be summarized as follows: 

Workforce at December 31, 1998 16,906) 

Additions former Siemens units 2,355) 

Additions former Metal Manufactures units 778) 

20,039) 

Net change (993) 

Workforce at December 31, 1999 19,046) 

The organizational structure of the Sector was further strengthened to meet market evolution 

and specialization. 

At December 31, 1999, the workforce can be analyzed as follows: 

1999 1998 

• Management 2.0% 1.8% 

• Staff 31.7% 30.3% 

• Operatives 66.3% 67.9% 


Capital expenditures in 1999 totalled Euros 210 million (+0.5 

percent compared to 1998) and equal 136 percent of depreciation. 

Capital expenditures, significant in the area of 

telecommunications and submarine systems, can be analyzed by 

geographic area as follows: 


Europe 63% 66% 



Oceania, Asia, other 3% 4% 

Europe 

1999 investments by 

geographical area 

South America 

North America 

Oceania, Asia, other 










Sector 


Year 

Materials 

As far as the trend in the purchase prices of materials is 

concerned, prices increased constantly during 1999, especially 

for oil-derivative products, which caused higher average prices 

in 1999 than in the previous year. 

Further price increases are forecast for the first half of the new 

year, led by an improvement in the international economic 

scenario and by a demand/supply ratio that is more balanced 

than in 1999. 

With regard to non-ferrous metals, while lead was substantially 

stable, copper and aluminum quotations fell by 5 percent 

compared to 1998. Despite the unmistakable recovery 

in the second half, aided in this by productive cuts and an 

increase in demand, especially in China and the Far East, 

the forecast for 2000 is for decidedly higher levels than the 

averages in 1999. 

Superconductivity laboratory 

experiments 

A lithium niobate switch for optical 

systems 

Research & Development 

R&D, which is coordinated at the worldwide level, is conducted by an integrated structure of 

research centers and development and engineering units in various nations. 

A total of 934 persons was involved in R&D during the year just ended and expenditures totalled 

2.5 percent of total sales, much the same as the prior year. 

The distribution of R&D expenditures by geographic area can be summarized as follows: 


Europe 92% 89% 



Australia 1% 1% 

Significant R&D projects include: 

in the field of power cables: 

• an innovative process for the production of medium-voltage cables for which the feasibility 

study has been completed; 

• the development of superconductivity cables and systems for European and American 

production networks and the characterization of high-voltage direct and alternating current 

prototype cables obtained using innovative materials; 

• network installation of an innovative medium-voltage cable with expanded polymer protection 

in Milan. 

in the field of photonics: 

• the installation for Global Crossing of an optical wave division multiplexing transmission 

network based on technology at 10 Gbit/s per channel, extended throughout the entire surface 

of North America; 

• the development and experimentation of optic and electronic technologies for transmission at 

40 Gbit/s per channel, displayed at Telecom ’99 in Geneva; 










Sector 

in the field of telecommunications and fiber optic cables: 

• the presentation of the Pirelli optic fiber cable for submarine systems called DeepLight TM at 

Telecom ’99; 

• the development and start of the supply of optical submarine cables using hybrid fibers, which 

are also able to capitalize on the high transmission capacities of the new fibers on long 

transoceanic links; 

• the start of the supply of loose tube optical cables containing the new FreeLight TM fibers for 

very high transmissive capacity terrestrial systems (first customer: Swisscom); 

• the development and supply of new OPGWs up to 72 fibers. 


Year 

Latest generation Pirelli optical fibres 

HOLDING COMPANY 

The balance sheet and statement of income of Pirelli Cavi e Sistemi S.p.A. for 1999 

are presented below: 

Balance sheet (in millions of euros) 1999) 1998) 

Intangible assets 19.0) 13.0) 

Property, plant and equipment, net 148.2) 120.1) 

Financial assets 848.5) 766.6) 

Net working capital 119.6) 95.6) 

1,135.3) 995.3) 

Shareholders’ equity 621.3) 592.9) 

Provisions 65.7) 62.6) 

Net financial debt 448.3) 339.8) 

1,135.3) 995.3) 

Statement of income (in millions of euros) 1999) 1998) 

Production value 845.4) 734.7) 

Production costs: 

• Raw materials and services (686.2) (607.0) 

• Personnel (129.5) (127.1) 

• Depreciation (31.2) (26.2) 

• Other (17.2) 14.8) 

Operating profit (18.7) (10.8) 

Financial income and expenses 140.5) 132.7) 

Income before extraordinary items and income taxes 121.8) 121.9) 

Extraordinary items, net (2.8) 2.6) 

Income taxes (6.4) (11.3) 

Net income for the year 112.6) 113.2) 










Sector 


Year 

PERFORMANCE BY GEOGRAPHICAL AREA 

Italy 

The sales of Pirelli Cavi e Sistemi S.p.A. in Italy increased 

compared to the previous year, partly as a result of the merger 

with Codelca Due S.p.A. (which formerly belonged to Siemens) 

operating in the special and power cables sector. 

In the general market, there was a falloff in the demand in the 

first months of the year with signs of recovery from June 

onwards. 

The Giovinazzo factory, Italy 

The power cables business ended 1999 with a higher volume of sales than in the previous year, 

despite the constant pressure on prices. 

The processes aimed at rationalizing production and recovering efficiency had a positive 

influence on limiting production costs. 

The increase in volumes concentrated particularly on medium-voltage cables, thanks partly to 

the investments made by ENEL S.p.A., aimed at improving safety and service. 

Business was positive in the high-voltage segment, especially associated with installations in the 

metropolitan areas of Rome, Naples and Palermo. 

As far as fiber optic telecommunications cables are concerned, the falloff of investments on 

the part of Telecom Italia S.p.A. affected the market. Volumes were modest despite the 

emergence of new operators, Infostrada in particular. 

Copper telecommunications cables closed 1999 with a lower volume of sales than the previous 

year, making the economic equilibrium of the activity critical; it was therefore decided to close 

the factory at Battipaglia during 2000. 

The accessories market for high voltage was in line with expectations, and was marked by 

supplies associated with the Italy-Greece contract. 

In the area of medium and low-voltage accessories, sales volumes increased, particularly of 

aerial lines and resin accessories, although prices fell yet again. 

The sales outlook for 2000 is for an increase in volumes in association with the extension of the 

range of low-voltage accessories. 

The special cables market recorded an increase in revenues and margins despite the fall in 

prices. A key factor was the effort to develop new products destined for specific segments of the 

market, such as data transmission cables, railway cables and special cables for 

telecommunications applications. 

Exports also recorded a significant rise in sales, compensating (especially in the area of 

instrumentation cables produced by the former Siemens unit) the reduction in certain niches of 

the domestic market. A further growth of activity is expected next year. 

Competition in the segment of enameled wires generated a significant decline in prices; 

because of the excess supply, volumes, which also fell, were not able to recover the reduction in 

margins. 

The affiliate F.O.S. – Fibre Ottiche Sud S.p.A. recorded a fall in sales due to the reduction of 

prices on international markets during the first half of the year; the second half of the year was 

more positive. 










Sector 


Year 

France 

In France, the affiliate Câbles Pirelli S.A. suffered from a 

continuous pressure on prices that was worsened by the 

increase in the purchase prices of raw materials; despite 

continued efforts to improve efficiency, the year closed with a 

lower result than in 1998. 

The general market suffered most from this situation, even 

though the tension on prices lessened somewhat in the second 

half of the year. However volumes and market shares remained 

stable. 

On the national market, the fall that has been in progress for 

many years in the power utilities business accelerated, with a 

negative influence on levels of profitability, despite the positive 

contribution of foreign markets. 

Blaabjerg (DK) 

Manasquan (US) 

Mevagissey(UK) Katwijk (NL) 

Tuckerton (US) 

Norden (D) 

Bude (UK) 

St. Valery (Fr) 

The TAT 14, an optical ring which 

connects France, Northern Europe 

and the USA 

The special cables business was positive for the second consecutive year, with a satisfactory 

number of orders in portfolio. 

The telecommunications market recorded a stable trend in the demand for cables, albeit at a 

fairly unsatisfactory level. The sector of systems for telecommunications recorded satisfactory 

progress, including important growth in the area of photonics. 

The sector of car cables also suffered from a significant fall in prices. 

The connections business, after a first half of the year strongly influenced by the marked fall 

in volumes, began to recover towards the end of the year. 

During the year, Câbles Pirelli completed the task of concentrating its accessories production 

activities at its Sens factory, and closed the factory at Marne la Vallée. 

A massive restructuring plan oriented towards recovering profitability was started at the end of 

1999. Amongst other things, it calls for the closing of the plant at Laon (with the partial transfer 

of operations to Paron) and the transfer of activities to St. Maurice. The outlook for 2000 points 

to a recovery of profitability. 


In the United Kingdom, Pirelli General Plc continues, through 

its Operating Units, to produce, market and install 

telecommunications and power cables on both the domestic 

and foreign markets. 

With respect to Pirelli Cables Ltd., the domestic 

telecommunications sector recorded a growth in the demand in 

1999 and the affiliate maintained its market position, despite 

increasing pressure from competition. The export markets also 

grew with the acquisition of contracts in Europe and India. The 

increase in the demand is expected to continue in 2000. 

As far as power cables are concerned, there was a significant 

reduction in the demand for high-voltage cables and accessories 

compared to 1998, particularly on the export markets. 

Douglas 

(Isle of Man) 

Bispham (U.K.) 

A high-voltage submarine link 

between the Isle of Man and the 

United Kingdom mainland 










Sector 


Year 

As for the general market, in 1999, the affiliate strengthened its position on the domestic 

market, while exports weakened as a result of the instability that characterized the Far East. 

Although the Utilities market remained stable during the year, significant new contracts were 

acquired. The overall profitability of the unit deteriorated and it was therefore decided to 

proceed with a rationalization of production which will affect the Eastleigh factory in 2000. 

In the field of installations, Pirelli Construction Co. operates on both the domestic and foreign 

markets. Its specific activities are directed to the development and management of a wide range 

of installation projects relating to power and telecommunications networks. 

In the power cables segment, in Great Britain the second important contract was completed 

with Northern Ireland Electricity to lay 110 kV XLPE cables; the project was also completed with 

the National Grid Company to move 270 kV DC cables to make way for the railway line under 

the English Channel; work was also completed at Manchester Airport to replace aerial lines with 

sections of underground 400 kV lines using laminated polypropylene (PPL) cables which ensure 

high performance. 

As far as the exports of telecommunications cables are concerned, contracts were acquired 

in Kuwait and in Honduras. Work on large projects acquired in previous years proceeded in 

Thailand and Lebanon, while important contracts were completed in Kuwait and China. 

Emergency repair services were supplied to Bangladesh, Argentina and Zambia. 

In the area of exports of telecommunications cables, 1999 saw the acquisition and execution of 

contracts in Hungary and the Philippines. 

Germany 

The German affiliate, Pirelli Kabel und Systeme Holding 

GmbH is going through a difficult market phase. After the 

acquisition of the power cables activity from Siemens A.G., 

restructuring measures were implemented involving the 

reduction of staff, geared to improving profitability, with results 

that point to continuous improvement. 

On the general market there was a fall in volumes and greater 

pressure on prices. The increase in the prices of raw materials 

in the second half of the year was not completely compensated 

by the increase in selling prices. 

The power utilities market fell by approximately 10 percent 

because of lower investments by the major customers. After the 

liberalization of the power market in Germany, two of the three 

largest utilities companies will merge and other mergers are 

expected. 

The special cables activity maintained the same levels as 

previous years. 

In future it is planned to complete the restructuring program 

begun in 1999 and to proceed with the measures geared to 

reducing working capital. 

The making of a high-voltage cable 

in the Berlin energy cable factory, 

acquired from Siemens 










Sector 


Year 

Spain 

The Spanish affiliate, Pirelli Cables y Sistemas S.A., 

recorded higher sales than in 1998, especially on account of the 

positive performance of its systems engineering activity. 

The telecommunications cables segment was characterized by 

the low level of prices; the expansion of OPGW cables 

continued, winning widespread prestige abroad. 

On the power cables market, sales were higher than they had 

been the previous year thanks to the growth of the Spanish 

economy, the recovery of the level of activity of the electric 

companies, the improvement in the service and the commercial 

efforts achieved. 

Turkey 

In Turkey, Türk Pirelli Kablo ve Sistemleri A.S. is going 

through a period of adjustment. 

The affiliate has partly compensated the reduction in prices 

with higher sales volumes, in the presence of a fall in the 

domestic market. 

In the power cables segment, the market gradually diminished 

in 1999, mainly because of a reduction in investments on the 

part of the government and private enterprise. The company 

reacted with an aggressive marketing policy, and raised the 

market share. 

The effects of lower prices and lower volumes, especially in 

exports, were compensated by measures geared to reduce 

costs. 

In the telecommunications cables segment, the company is 

enlarging its portfolio; in 2000 there is expected to be a 

recovery of investments by Türk Telecom. 

The Villanueva y la Geltrù factory, 

Spain 

Austria 

In Austria, Pirelli OEKW 

GmbH operates through 

marketing and installation 

activities. 

Despite a climate of heavy 

pressure on prices, the 

company maintained its stable 

position in the utilities market 

and measures were taken to 

strengthen its position on the 

general market and in the 

telecommunications segment. 

Slovakia 

In Slovakia, Kablo Bratislava Sro improved its internal 

efficiency in all sectors. Despite the recession which hit the 

Czech and Slovak Republics, the affiliate was able to improve 

its position on the domestic market. In the area of exports, a 

promising recovery was recorded in the last months of the year. 

In 2000 new products will be introduced to the domestic 

market, export activities will be developed and the company 

will play a growing role as a supplier to other companies in the 

Group. 

Rumania 

In Rumania, the affiliate Pirelli Romania Cabluri si Sisteme 

SA was affected by the block on investments by RomTelecom, 

the deterioration of the financial situation of the leading cable 

The Pirelli stand at Telecom 1999, 

Geneva 










Sector 


Year 

distributor in the country, and the economic and political 

problems connected with neighboring countries. All of this led 

to a fall in sales volumes. 

The devaluation of the Leu against the US dollar by 57 percent 

made its effects felt on the costs of the company, but revenues 

were not able to adapt as rapidly because of market conditions. 

The company did not succeed in finding alternative outlets on 

the export market. 

North America 

In North America, Pirelli Cables and Systems Llc and 

Pirelli Optical Systems North America Inc. in the United 

States and Pirelli Cables and Systems Inc. in Canada 

reached improved positive results for the third consecutive 

year. 

In North America, the telecommunications market proceeded to 

expand, with the continuous acquisition of new customers; the 

telecommunications division achieved the highest ever levels in 

terms of sales revenues and profitability, despite a marked fall 

in prices. 

Hungary 

In Hungary, where the affiliate 

Magyar Kabel Muvek RT 

operates, the economy 

recorded the highest growth 

in Eastern Europe. 

On the domestic market, the 

company is currently the only 

cable manufacturer of 

importance. 

Pirelli optical technology on show 

at the Optical Fiber Conference 

2000, Baltimore, USA 

The market for telecommunications cables is expected to 

grow in 2000 despite the presence of a continuous erosion of 

prices. The efforts of the telecommunications division will be concentrated on increasing 

productive capacity and reducing production costs. 

In 1999 the trend of the power cables market was similar to that of the previous year, in terms 

of volumes, although prices fell. The continuous progress on the front of internal productive 

efficiency and an increased market share enabled the power division to maintain a satisfactory 

level of profitability. 

In 2000, the power cables market is expected to grow slowly, and to be characterized by a 

continuous fall in prices, due to the widespread excess of productive capacity. Efforts will be 

concentrated on developing new products, on continuously improving the level of service and 

limiting production costs. 

Brazil 

In Brazil, where Pirelli Cabos S.A. operates, 1999 was affected 

by devaluation of the currency, which led to a marked rise in 

the prices of imports and an economic slump. The companies 

that use imported products were affected by a significant 

erosion of profitability. 

In this scenario (with the growth of GDP close to zero), the 

activity of Pirelli Cabos also slowed compared to the previous 

year. 

The main segments to be hit by the crisis were those related to 

construction, the automotive industry, the generation and 

distribution of energy, and the production of consumer 

durables, causing a reduction in sales volumes. 

Cables installation for Tele Centro 

Sul, Brazil 










Sector 


Year 

There was a positive result in the telecommunications segment, 

which benefited not only from the positive trend of the sector 

in general, but also from investments resulting from 

privatization. 

In order to reduce the effects of the drop in volumes, the fall in 

prices and the increase in costs, measures to improve efficiency 

and effect rationalizations were carried out at all levels. 

One of the principal projects was the implementation of a optic 

ring for the client Telecentrosul (Telecom Italia), which 

involved more than 3,500 km of fiber optic cables. 

In 2000, there is expected to be an improvement in the 

economic scenario; this recovery, accompanied by a continuous 

effort to achieve greater efficiency, will be a decisive factor in 

the improvement of profitability. 

Research at the Sorocaba cable 

factory in Brazil 

Argentina 

In Argentina, where Pirelli Cables SAIC operates, economic 

activity, which has been growing significantly in recent years, 

suddenly came to a halt. The reduction of economic activity in 

the second half of 1998 because of the international financial 

crisis was accompanied by the recessive effect of the 

devaluation of the Brazilian currency. 

The demand for cables, which grew during the first half of the 

year, inverted the trend in the second half of the year owing to 

the deep recession which hit the country, while in the optical 

fiber market, it succeeded in maintaining a sustained and 

growing level of demand. 

Consequently, in terms of volumes, sales diminished in 

conjunction with a sharp fall in unit prices. In this context, 

despite the measures taken to improve global and structural 

efficiency, the results obtained were lower than the previous 

year. 

There was a growth of the installation activity in both Chile 

and Uruguay. 

Transporting cables from Brazil to 

Argentina 

Australia 

In Australia, for Pirelli Cables Australia Ltd., 1999 was a 

year of marked change in terms of organization. 

The acquisition and integration of the activity of Metal 

Manufacturers Ltd. more than doubled the size of the company 

and confirmed its position of leadership on the Australian 

market. The affiliate achieved profitability by means of 

initiatives aimed at reducing costs and rationalizing operations. 

As far as the telecommunications cables segment is concerned, 

there was significant growth both in metallic cables and fiber 

optic cables. 










Sector 


Year 

PERFORMANCE OF THE MAIN COMPANIES IN THE SECTOR 

The most significant figures as they appear in the financial statements prepared by the boards of 

directors and approved or being approved by the respective shareholders' meetings are given below. 

The amounts are expressed in local currency and are compared to those of the preceding year: 

Câbles Pirelli S.A. – France (in thousands of Euros) 1999) 1998) 

• Sales revenues 441,087) 490,937) 

• Net income (27,757) 11,309) 

• Net financial position (9,052) (11,864) 

• Shareholders’ equity 130,227) 192,357) 

Pirelli Cables y Sistemas S.A.-Spain-consolidated (in thousands of Euros) 1999) 1998) 


• Net income 3,393) 9,418) 

• Net financial position 3,097) (5,487) 


Pirelli General plc- U.K. – consolidated (in thousands of £) 1999) 1998) 


• Net income (5,110) 22,887) 

• Net financial position 10,723) 24,570) 


Pirelli Cables and Systems LLC – U.S.A. (in thousands of U.S. $ ) 1999) 1998) 


• Net income 36,776) 61,805) 

• Net financial position (49,034) 26,638) 


Pirelli Cables and Systems Inc. – Canada (in thousands of $ Canadian) 1999) 1998) 


• Net income 13,767) 15,674) 



Pirelli Cabos S.A. - Brasile – consolidated (in thousands of Reais ) 1999) 1998) 


• Net income 28,567) 56,049) 



Pirelli Cables SAIC – Argentina (in thousands of Pesos) 1999) 1998) 


• Net income 1,104) 7,329) 



Pirelli Cables Australia Ltd – consolidated (in thousands of $ aus.) 1999) 1998) 


• Net income 5,270) 5,018) 




The results of the first few months of 2000 show an improvement compared to the same period 

in 1999; the completion of the process of integrating the operative units acquired in 1999, the 

effect of restructuring programs and the alliance with Cisco Systems, together with greater 

stability in international markets suggest that the improvement in the economic and financial 

results will be confirmed during the rest of the year. 



Tyres Sector 





and Business Unit 


Main Companies 

in the Sector 


Current Year 

TYRES SECTOR 

OVERALL PERFORMANCE 

The highlights of the Tyres Sector are presented below: 

in millions of Euros 12/31/1999 (1) 12/31/1998 (2) 12/31/1998 

• Sales revenues 2,559) 2,587 2,695 

• Gross operating profit 349) 314 339 

% of sales 13.6%) 12.1% 12.6% 

• Operating profit 185) 155 176 

% of sales 7.2%) 6.0% 6.5% 

• Extraordinary items (11) 8 8 

• Net income 112) 97 119 

% of sales 4.4%) 3.7% 4.4% 

• Net financial debt 535) 323 311 

• Capital expenditures 255) 185 193 

• R&D expenditures 101) 99 103 

• No. of employees (at period end) 20,332) 20,697 20,697 

• No. of factories 22) 21 21 

(1) In December 1998 the Tivoli factory (Agriculture) was sold to a joint venture with Trelleborg Wheel Systems S.p.A.. For 

purposes of a better reading and comparison of the financial statements, the figures relating to 1998 are summarized below 

(in millions of Euros): 

- Agriculture sales revenues Euro 52.5 million 

- Agriculture operating profit Euro 11.4 million 

- Agriculture net income Euro 18.6 million 


situation, the economic and financial results for the year 1998 have been presented using the exchange rates at December 31, 

1999. 

Italy 

Other European 

countries 


Sales revenues fell by 5 percent compared to 1998, mainly as a 

consequent of the currency exchange effect. The favorable 

trend in the sales mix and the entry in the scope of 

consolidation of Alexandria Tire Co. S.A.E. (which contributed 

+1.3 percent) were not sufficient to compensate for the erosion 

in prices (-3.0 percent), the exclusion from consolidation of the 

agriculture operations in Europe (-1.9 percent) and the currency 

exchange effect (-4.0 percent). 

The distribution of sales revenues by geographic area and by 

product category can be summarized as follows: 


Italy 13% 15% 

Other European countries 49% 45% 



Asia 7% 7% 

Other areas 4% 2% 

North America 

South America 

Asia 

Other areas 

Tyres: 1999 sales by 

geographical area and product 

category 

Car Tyres 

Industrial and 

commercial 

vehicles Tyres 

Product category 1999 1998 

Car tyres 55% 52% 

Industrial and commercial vehicles tyres 30% 30% 

Agriculture tyres 2% 4% 

Motorcycle tyres 7% 7% 

Other tyres 6% 7% 

Other Tyres 

Agriculture 

Tyres 

Motorcycle 

Tyres 



Tyres Sector 








in the Sector 


Current Year 


Operating profit, in absolute terms, shows an improvement of 

more than 5 percent, with the Return on Sales (ROS) at 7.2 

percent compared to 6.5 percent in 1998. The positive 

contribution of the sales mix and the measures taken to reduce 

costs more than compensated for the negative change in sales 

prices and the increase in the prices of raw materials. 

Specifically, the increase of Euros 9 million compared to the 

prior year is due to: 

Currency exchange effect – 121 

Exclusion of agriculture business from consolidation – 111 

Sales prices – 178 

Raw material per unit cost – 123 

– 133 

Volumes and mix + 174 

Effect of consolidation ATCo + 126 

Industrial efficiency and services + 143 

Change in per unit cost and other + 119 

+ 142 

Total change + 129 

PZero Rosso and Ferrari: 

a prancing pair 


Extraordinary items show an expense balance of Euros 11 

million. Extraordinary income includes deferred tax assets of 

Pirelli North America Inc. (Euros 27 million). The extraordinary 

expenses also include the costs for lay-offs (Euros 40 million) 

under the reorganization of the central and country staff 

structures. 

Net income 

Net income reflects higher 

extraordinary expenses and 

totals Euros 112 million 

compared to Euros 119 million 

in 1998. 

Net financial debt 

Net financial debt shows an increase of Euros 224 million which can be ascribed, net of the 

currency exchange effect (Euros 12 million), to higher investments and the purchase of an 

additional interest in Alexandria Tire Co. S.A.E. (Egypt), increasing the stake from 11.6 percent to 

64.6 percent, for Euros 51 million and the consolidation of the related debt of Euros 100 million. 


In 1999, capital expenditures totaled Euros 255 million, equal 

to 166 percent of depreciation and 10 percent of sales revenues, 

and represent an increase over the prior year of 32.1 percent 

The year 1999 was characterized by notable investment 

commitments including the new R&D building 

(Euros 47 million), the increase in production capacity 

in Brazil, in particular for Motorcycle tyres, and in Turkey, 

the new Pirelli – MIRS process and the extraordinary 

investments, always in Turkey, following the earthquake. 

In particular: 

The tent city built by Pirelli 

for the people of Izmit after the 

earthquake 

• Car tyres: innovative processes were introduced in Europe 

directed to quality and the improvement in performance with 

the introduction of new machines in the factories. 



Tyres Sector 








in the Sector 


Current Year 

Mention should be mode of the development of the new 

production process for high-performance tyres using MIRS 

technology (Modular Integrated Robotized System) and the 

development of Run-Flat tyres. In South and North America 

actions are continuing in all the factories to rationalize 

productive capacity and reduce costs. 

• All-Steel truck tyres: work continues to increase 

productive capacity in Brazil and Turkey to meet the market 

demand in terms of volumes and mix; in all factories actions 

were taken to step up the technology and processes to raise 

the level of standardization and quality; investments were 

made to increase productive capacity in Alexandria Tire Co. 

S.A.E., purchased last year. 

• Motorcycle tyres: programs directed to improve efficiency 

and increase the “two-wheel” productive capacity are 

continuing in Germany and Brazil. 

• Other tyre lines: the plan to increase the productive 

capacity for Steel Cord in Brazil and Turkey has started, while 

actions continue to increase efficiency and adapt new 

products in Italy. 

Production 

Total production in tons 

registered a decrease of 1.5 

percent due mainly to the 

earthquake in Turkey (-20 

percent) and the strikes over 

the renewal of the labor 

contract in Spain (-4.7 

percent). 

Distribution of production by 

geographic area is as follows: 

1999 1998 

• Europe 

(including Turkey) 53% 57% 

• North America 5% 5% 

• South America 40% 38% 

• Africa 2% – 

Total 100 100 

Research & Development 

R&D expenditures totaled Euros 101 million in 1999, 

representing 3.9 percent of sales revenues. 

1999 was a highly successful year for the development and 

launch of new products, new processing technologies and 

strategic alliances. 

The first half of the year witnessed the start of two strategic 

cooperation agreements to develop new product technologies. 

The first was the trade collaboration with Michelin for the joint 

development of the Pax System technology; Pirelli contributed 

its experience with the Run-Flat tyre relating to the “Highperformance” 

segment. 

The second was the trade cooperation with Cooper in the multibrand 

segment. 

With reference to product development, in the car tyre market, 

the P3000 Energy, launched at the beginning of last year, is the 

top product in the “Standard” segment of our new generation 

with a low rolling resistance. Type-testing activities are 

proceeding successfully and this tyre has become the 

benchmark for the European Original Equipment market, thanks 

to the continuous evolution of performance and technology. 

In the “High-performance” segment, the beginning of the year 

saw the launch of the new more hi-tech version of the P6000, 

The home page of the 

Pax System web site 

The Subaru Impreza WRC 

competing in the Rally of Greece 



Tyres Sector 








in the Sector 


Current Year 

the P6000 Powergy, which has already passed numerous typetests 

in Original Equipment and is becoming ever more 

competitive on the market, thanks to improved comfort, lower 

noise levels and a lower rolling resistance. 

In the “Ultra high-performance” segment, in 1999, an innovative 

hi-tech product was developed: the PZero Rosso, presented in 

February 2000. With its new directional and asymmetrical tread 

design, new profile and new materials, this is Pirelli’s answer to 

the new requirements for high performance in the Original 

Equipment sector for sports cars, and for the cars of the new 

millennium. 

In the “Winter” segment, a new asymmetrical tyre was 

launched: the SnowSport. Thanks to its innovative tread and 

the improved technological compound, it has received 

widespread approval from the most prestigious German car 

manufacturers. In addition, an improved version of the Winter 

tyre has been added to this segment, the Winter ICE Plus, 

which uses a special compound to improve performance in 

extreme conditions. 

Both products have passed many winter tests and have 

received excellent reports from the specialized Press. 

The new PZero Rosso for the 

millennium’s top-of-the-range cars 

The P6000 Powergy, an evolution 

of the P6000, launched in 1999 

For the “Recreational” segment, the innovative Scorpion Zero is consolidating its position as the 

number one tyre in this segment and is extending its popularity as Original Equipment. 

In the “Motorcycle” segment, the beginning of the year saw the launch of a new motorcycle tyre, 

the Dragon EVO, which uses a new zero-degree metal belt, a new tyre carcass with hi-tech fiber, 

the Pentec, and the latest technological innovation of tread design with variable grooves 

combined with a new silica-based compound. 

Another new feature in this segment was the introduction of the Dragon GTS, on which the 

Dragon EVO was based, now with improved comfort, and high mileage and excellent grip on wet 

surfaces. 

With reference to new processing technologies, in the second half of 1999 a new production 

system was launched: the MIRS (Modular Integrated Robotized System), which has already been 

mentioned. This is a highly flexible system for producing a whole range of high performance 

tyres with completely new characteristics. Robotized construction methodologies drastically 

reduce the processing phases from 14 to only 3. Traditional profitability values are overturned 

thanks to a 25 percent reduction in the total product cost, a 100 percent improvement in quality, 

an 80 percent increase in labor productivity and a reduction in the investment per tyres/day of 

approximately 50 percent. 

The development and increasing use of sophisticated modeling and predictive testing methods 

have enabled us to rapidly renew and extend the product portfolio and improve our 

competitiveness in relation to car manufacturers. 

In 1999, collaboration continued with leading Italian universities and research institutes to 

develop new technologies for manufacturing tyres. 



Tyres Sector 








in the Sector 


Current Year 

Workforce 

At December 31, 1999, the workforce numbered 20,332, including 

409 persons with temporary employment contracts; compared to 

the prior year this shows an overall reduction of 365 units. 

The main changes in the component of the work force are as 

follows: 

• the entry of 711 units, as a result of the acquisition of 

Alexandria Tire Co. S.A.E.; 

• the entry of 63 units, as a result of the commercial joint 

venture in Japan; 

• the entry of 62 units, as a result of commercial expansion in 

South America; 

• the reduction of 494 units, due to the sale of agriculture tyre 

activities. 

The reduction in the work force was therefore equal to 707 

units, net of new entries. 

Measures intended to improve structural efficiency, undertaken 

during the year through specific projects, made it possible to effect 

a significant reduction in clerical staff and management (395 units, 

net of the entries mentioned above, equal to -7 percent). 

Within the framework of revitalization, the R&D, Sales and 

Industrial Departments recruited a significant number of new 

university graduates (98). 

Young executives were promoted and new staff were hired with 

the aim of filling key executive posts. 

The international mobility of young talent increased 

significantly within the structured programs of the Industrial 

and R&D departments. 

In the field of training, mention should be made of the 

investment in training sales staff in the area of accounting and 

channel management and a program was started for young 

executives with high potential about how to handle change. 

Corporate organization was reviewed according to certain 

guidelines: focusing on business areas, strengthening the 

European structure, mainly in the Sales and Industrial 

departments, reducing the number of organizational levels, with 

more delegation of responsibilities, centralizing R&D and 

orienting the sales structures more towards channels than 

geographical areas. 

The workforce at December 31, 1999 can be analyzed as follows: 

PZero Rosso fitted to the latest 

Porsche Model 

Two pictures from the 2000 

tyre advertising campaign 

1999 1998 

• Management 1.1% 1.2% 

• Staff 25.6% 26.1% 

• Operatives 73.3% 72.7% 



Tyres Sector 








in the Sector 


Current Year 

HOLDING COMPANY 

The unconsolidated balance sheet and statement of income for 1999 of Pirelli Tyre Holding N.V., 

the lead company in the Sector, are presented as follows: 

Balance sheet (in millions of Euros) 1999 1998) 

Intangible assets – 0.4) 

Financial assets 854.2 871.8) 

Net working capital 18.3 3.6) 

872.5 875.8) 

Shareholders’ equity 832.3 833.1) 

Net financial position 40.2 42.7) 

872.5 875.8) 

Statement of income (in millions of Euros) 1999 1998) 

Net income of subsidiaries 65.3 107.6) 

Other costs and revenues 40.4 (10.3) 

Net income for the year (pertaining to the Company) 105.7 97.3) 

PERFORMANCE BY GEOGRAPHICAL AREA AND BUSINESS UNIT 

Europe 

In Europe, the positive trend of the demand continued, albeit at 

a lower level than the exceptional growth recorded in 1998. 

In Original equipment for cars in Europe, there were higher 

rates of growth than expected and there was positive growth in 

Replacements in the “Premium” segments, especially in the 

“Ultra high performance” and “Winter” segments, where market 

share continues to grow. 

1999 was also a positive year for the “Sport/Recreational” 

segment, with the “Original equipment” segment stabilizing after 

the record growth of 1998, while “Replacements” remained in 

line with the economy in general. 

In terms of quantity and quality, sales revenues were 

satisfactory with a significant increase in relation to the leading 

vehicle manufacturers and a further step in the right direction 

was made in terms of aligning our market shares in the various 

European countries. 

The closing estimate for 1999 and the forecast for 2000 are the 

following: 

Scorpion Zero: top of the Pirelli 

4x4 range 

Size of European market 1996 1997 1998 1999 2000 

(in millions of units sold) 

estimate forecast 

Car tyres: 

• Original equipment 69.5 74.2 78.2 80.2 80.6 

• Replacements 141.5 147.8 157.1 159.9 162.6 

Total 211.0 222.0 235.3 240.1 243.2 

Truck tyres: 


• Replacements 10.3 10.4 10.9 11.3 11.4 

Total 13.3 13.7 14.8 15.1 15.1 



Tyres Sector 








in the Sector 


Current Year 

In 1999, the range of car, light truck and S.U.V. (Sports Utilities Vehicles) tyres was thoroughly 

renewed and expanded, both in the “Summer” and “Winter” segments. 

The “High performance” segment welcomed the P6000 Powergy, the latest tyre to be conceived 

in the new generation P6000 range, developed to respond to the new and ever more 

sophisticated requirements of original equipment. The Powergy has met with approval of the 

specialized Press, passing numerous tests, and been involved in a series of important type-tests 

conducted by BMW, Fiat, Ford, Lancia, Mercedes Benz, Peugeot, Rover, Volkswagen and Volvo. 

In the “Winter” segment, Pirelli launched the new Winter SnowSport, the top product in its 

segment, which was given the speed code V (up to 240 km/h), the first time it has been applied 

to a winter tyre. 

Pirelli Winter SnowSport dominated all the tests in the field conducted by the top specialized 

Press and the results in terms of sales far exceeded expectations. 

The S.U.V. (Sport Utilities Vehicles) segment saw the extension of the Scorpion Zero range, with 

21”-22” diameters that are ideal for the more extreme tuners. 

North America 

The North American car tyre market recorded marked growth 

compared to the prior year, especially in original equipment 

(+6 percent) with a growth of 3 percent in replacements. 

Following the agreement with Cooper in February 1999, our 

local affiliate is concentrating its sales on the Pirelli brand 

name. This led to a reorganization of the sales structure and a 

reduction in sales volumes in keeping with the brand name 

strategy, in the “Standard” segment. 

The market trend was as follows: 

Pirelli made its debut with Cadillac 

at the 24 Hours of Daytona 

The commercial agreement with 

Cooper Tire in the USA continues 

Size of North American market 1996 1997 1998 1999 2000 



Car tyres: 


• Replacements 188.8 193.0 199.5 205.5 211.6 

Total 257.2 262.7 268.2 279.0 286.3 

South America 

The market trend in the area as a whole is as follows: 

Size of South American market 1996 1997 1998 1999 2000 



Car tyres: 


• Replacements 29.6 30.4 30.6 31.8 32.6 

Total 42.5 45.3 43.3 43.0 44.8 

Truck tyres: 


• Replacements 8.9 9.5 9.2 8.7 9.1 

Total 9.4 10.3 9.9 9.3 9.8 



Tyres Sector 








in the Sector 


Current Year 

Brazil 

In the difficult national scenario (the volatile exchange rate, 

inflationary pressure, rise in unemployment, fall in real salaries, 

etc.) the Brazilian car sector has experienced one of the worst 

years on record, with a decline in vehicle production of 

approximately 15 percent compared to 1998, and of 34 percent 

compared to 1997, and this despite the agreement signed with 

the government to reduce taxes in exchange for maintaining 

jobs. 

Despite the negative forecasts for the year, in the third quarter 

the economic indicators began to improve: interest rates fell, 

there was a slight recovery in industrial production and retail 

sales, the unemployment rate fell, the exchange rate stabilized 

and the inflation rate came within the parameters set by the 

IMF. 

Despite the economic crisis of 1999, the volume of our sales on 

the domestic market showed a growth of approximately 6 

percent compared to the prior year. 

The Replacements market recorded sales volumes that were 

11 percent higher, due to the growth of 16.5 percent in sales of 

light truck tyres and of 13.3 percent in sales of tyres for trucks 

and buses. 

The volumes of original equipment fell by 4 percent compared 

to 1998 with light truck tyres down by 32 percent and truck 

tyres down by 11 percent; these trends reflected the fall in 

automotive production. However, there was a positive trend in 

the sales of car tyres (+9 percent compared to 1998), despite 

the fall of 15 percent in the production of light vehicles. 

There was a positive trend in exports both to South American 

markets (+9 percent compared to 1998) and intragroup (+19 

percent) due particularly to the transfer of the production of 

conventional car and truck tyres from Turkey because of the 

earthquake. 

Truck tyre sales increase 

in Brazil 

Argentina 

The macro-economic scenario in Argentina was characterized 

by a deep recession, the first signs of which had appeared at 

the end of the prior year and which was accentuated by the 

devaluation of the Brazilian currency at the beginning of the 

year. 

The GDP recorded a marked fall after a positive period 

following the 1995 crisis. 



Tyres Sector 








in the Sector 


Current Year 

In this difficult economic scenario, the tyre market recorded a marked slowdown both in the 

replacements channel, particularly for truck tyres, and original equipment. 

The trend of sales volumes expressed in tons reflected the falloff in the market, with a reduction 

in the market share for car tyres. There was severe pressure on prices, compensated by 

continuous action to improve efficiency. 

It should be emphasized that there was a consolidation of exports, especially to Brazil, a sign of 

the ever increasing integration of the unit in the South American context. 

Venezuela 

In 1999, the Venezuelan macro-economy was characterized by a marked shrinkage of the 

economy and by a complex political process which resulted in structural change on an 

administrative and constitutional level. 

As a consequence of this situation, GDP fell by 7.2 percent, while inflation fell compared to the 

prior year, from 30 percent to 20 percent, largely justified by the fall in the domestic demand. 

The Bolivar was devalued by approximately 15 percent. 

The level of production fell by 13 percent compared to 1998 and the sale of imported products 

grew by 98 percent, partly due to the greater competitiveness of products from Brazil (also 

sustained by the devaluation of the Brazilian currency) and partly to a strategy of rationalization 

of the production mix. 

The market share (19 percent) was consolidated at the levels of the previous year despite the 

important presence of imported products on the local market. 

BUSINESS UNITS 

Business Unit Truck 

For the Truck tyre B.U., 1999 was characterized by external 

events which affected the operation of the business unit in 

various ways. The devaluation of the Brazilian currency against 

the US dollar, reducing the competitiveness of importers, made 

it possible to increase prices and improved the profitability of 

exports of Brazilian production. However, this triggered heavy 

pressure on production costs because of the increase in the 

cost of raw materials. The earthquake in Turkey had serious 

consequences, with the loss of approximately 130,000 pieces of 

production. In June 1999, the acquisition of the majority holding 

in the Alexandria Tire Co. S.A.E. was completed, the economic 

results of which are included in the consolidated financial 

statements starting from July 1. The Alexandria Tire Co. S.A.E. 

The new TR25 truck tyre for drive 

wheels 



Tyres Sector 








in the Sector 


Current Year 

will help to integrate Pirelli’s European production with highquality 

products. The company, which leads the Egyptian 

market, constitutes an investment which strengthens Pirelli’s 

presence in North Africa and the Middle East and re-confirms 

its development strategy in the truck tyre sector. 

On more highly evolved markets, particularly in northern 

Europe, there was growth in the area of service systems for 

large fleets, making it necessary to tackle the business area 

from a different point of view to that of traditional sales. 

Product research continued to accelerate the development of a 

new “triangled” technology. 

Business Unit Motorcycle 

As far as the Motorcycle tyre B.U. is concerned, sales in Europe 

in 1999 were in line with those of 1998. Production of tyres for 

scooters also increased, even though not at the very high levels 

recorded in previous years. 

Sales in “Original equipment” recorded a rise, especially in the 

radial segment, in Japan and Germany. The competitiveness of 

our radial products with zero-degree technology remains high 

both for front and rear tyres, which are considered a 

benchmark by many motorcycle manufacturers. 

The Alexandria Tire Co truck tyre 

factory, Egypt 

The new Dragon range 

of motorcycle tyres 

Goal-oriented investments made it possible to increase production, improve quality and curb 

costs compared to the previous year. 

For the radial segment, 1999 was a record year in terms of production, which looks set to grow 

further in the future. The investments necessary for achieving this have already been approved 

and will be completed in 2000. The “Standard” segment will rely more on Brazilian production, 

which will make it possible to increase profitability and guarantee greater competitiveness on all 

the markets. 

Business Unit Steel Cord 

In 1999 the Steel Cord B.U. operated in a world market with a global growth rate equal to 2.6 

percent and stable consumption in North America and Europe, where, in the last part of the year, 

there was a slight fall in the demand. 

In the European market the demand is gradually moving towards the East, geographically 

following the movement of tyre production. 

The current expansion of the Celikord A.S. plant in Turkey, which was not significantly delayed 

by the Izmit earthquake, constitutes the logical evolution of the productive capacity towards lowcost 

areas, in the direction of increasing consumption. 

In South America the program to augment the capacity at the Sumaré plant by 15 percent 

continued, also benefiting from the local devaluation which improved its competitiveness in 

terms of exports. 

2000 is expected to be characterized by a cautious market, with concentrations of purchasing 

groups (Good Year/Dunlop) and higher market shares of super steel cord and high tensile 

products. 



Tyres Sector 








in the Sector 


Current Year 

PERFORMANCE OF THE MAIN COMPANIES IN THE SECTOR 

The most significant figures as they appear in the financial statements prepared by the boards of 

directors and approved or being approved by the respective shareholders' meetings are given below. 

The amounts are expressed in local currency and are compared to those of the preceding year: 

Pirelli Pneumatici S.p.A. – Italy (in thousands of Euros) 1999) 1998) 


• Net income 15,782) 51,893) 



Pirelli Reifenwerke GmbH – Germany (in thousands of DM) 1999) 1998) 


• Net income 28,238) 17,710) 



Pirelli UK Tyres Ltd – consolidated (in thousands of £) 1999) 1998) 


• Net income 6,722) 4,706) 



Pirelli Neumaticos S.A. – Spain (in thousands of Euros) 1999) 1998) 


• Net income 1,973) 2,079) 



Metzeler Reifen GmbH – Germany (in thousands of DM) 1999) 1998) 


• Net income 10,432) 10,813) 

• Net financial position (3,155) 9,211) 


Türk Pirelli Lastikleri A.S. – Turkey (in thousands of US$) 1999) 1998) 


• Net income 30,837) 32,426) 



Pirelli Pneus S.A. – Brazil - consolidated (in thousands of Reais) 1999) 1998) 


• Net income 118,590) 101,519) 



Pirelli Tire Llc – USA (in thousands of US$) 1999) 1998) 


• Net income (10,708) (8,501) 



Pirelli Neumaticos S.A.I.C. – Argentina (in thousands of Pesos) 1999) 1998) 


• Net income (733) 7,962) 



Pirelli de Venezuela C.A. – Venezuela (in thousands of US$) 1999) 1998) 


• Net income (7,284) (9,690) 





Tyres Sector 








in the Sector 


Current Year 


In 2000 there is expected to be an acceleration of the world 

economy. Many indicators suggest a growth of more than 3 

percent (compared to 2.9 percent in 1999), with the European 

Union in the ascendant phase of the cycle and the United States 

showing a slowdown. This will have repercussions on interest 

rates which will be higher on average. Inflation will, very 

probably, be higher than in 1999 due to the increase in the price 

of oil and the effects on the general level of prices of a more 

sustained demand. 

The strategy of the Sector calls for confronting the increase in 

the prices of raw materials and costs in general by 

implementing programs to improve the efficiency of 

organizational structures, with the innovation of technological 

processes and the introduction of ever more competitive 

products. 

MIRS: picture of a building drum 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

FINANCIAL ACTIVITIES 

The net debt position was equal to Euros 1,017 million, an 

increase of Euros 752 million compared to the prior year, but 

the scope of consolidation was different owing to the 

acquisitions made during the year. In analyzing the change, 

consideration should also be given to the merger of Société 

Internationale Pirelli S.p.A. in Pirelli S.p.A. on December 10, 

which alone involved an increase of about Euros 229 million for 

the merged company's net debt. 

Net debt is largely (89.9 percent of the total) concentrated in 

Euro-zone countries and is composed as follows: 

• medium and long-term loans for Euros 1,480 million, equal to 

70.3 percent of gross financial debt. Such loans therefore 

increased by Euros 389 million compared to the prior year 

when medium/long-term debt accounted for 68 percent of 

total gross debt. 

• short-term loans for Euros 643 million (Euros 506 million in 

1998), including the short-term portion of medium/long-term 

debt for about Euros 40 million. 

• liquidity and loans receivable for Euros 1,098 million; cash 

and banks of the Group amount to Euros 502 million and 

loans receivables are about Euros 383 million. Cash and 

banks show a reduction of Euros 11 million compared to 1998 

and continue to be mainly concentrated in Europe (about 

Euros 402 million), in South America (Euros 24 million) and 

in Turkey (Euros 56 million). Total cash and banks in other 

countries amount to Euros 20 million. 

Two floating long-term loans were secured in 1999 from Banca 

Europea degli Investimenti: a loan of Euros 16 million against 

investments made by Pirelli Cavi e Sistemi S.p.A. in the Arco 

Felice factory and a loan of US $40 million against investments 

made by Pirelli Pneus S.A. in various Brazilian factories. As for 

the latter loan, the exchange and interest rate risks have been 

adequately hedged. 

Medium-term financing was obtained to cover R&D 

expenditures for Euros 9 million. 

The Italian companies of the Group have received capital grants 

under laws 46/82, 64/86 and 488/92 for Euros 6 million. 

The submarine cable factory at 

Arco Felice, Naples 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

RISK MANAGEMENT 

The total annual volume of insurance premium paid by the 

Group has been further reduced by 10 percent. The total 

reduction over the last three years thus increased to 24 percent. 

Particularly significant events during 1999 were: 

• the reduction again obtained on the Group insurance plan for 

property damage and business interruption; the premium 

decreased, in fact, by 17 percent. The total reduction for this 

plan over a six-year period is now equal to about 65 percent 

of the initial premium, confirming the positive effect of the 

efforts undertaken during the same period in the area of loss 

prevention. 

• the reduction of about 35 percent in insurance brokerage fees 

The energy cable factory in Delft, 

the Netherlands, acquired from 

NKF 

which, starting the second half of the year, are now calculated as flat fee instead of on a 

commission basis. 

As in past years, all reductions were obtained while at least maintaining the same insurance 

coverage and, in many cases, with better coverage in terms of deductibles, ceilings and 

conditions. 

Activities for loss prevention have continued and include, among other things, the completion of 

some important installations of automatic fire-fighting systems and an overall reduction in risk 

measured by the HPR Rating, a parameter recognized by insurers internationally used to quantify 

risk in relation to the level of protection available. During 1999, seven factories reached the 

optimum rating level, defined as Highly Protected Risk (HPR), in addition to the 13 factories 

which had previously been classified as HPR. 

The businesses acquired from Siemens have all been integrated into the insurance plans and Risk 

Management of the Group. Moreover, the basis for integrating the Draka-NKF operations has also 

been laid by conducting an analysis of the risks and the existing insurance coverage as part of a 

due diligence review. 

The insurance aspects surrounding the damages suffered as a result of the earthquake in Turkey 

were managed in such a way as to ensure the collection of about a 50 percent advance for the 

damages two months after the date of the earthquake and laying the foundations for closing the 

claim with the insurers (which occurred in mid-February 2000). Furthermore, the continuity of 

the Group's coverage was guaranteed and, among other things, the ceilings eroded by the event 

in Turkey were replenished. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

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Resolutions 

INFORMATION SYSTEMS 

During 1999, a new phase began in the development of the Group’s 

information systems, aimed at exploiting the basic applications 

(SAP) and Infrastructure platform (APIS and Intranet) to better 

support the Group to gain competitive economic value added. 

Action was taken in three different areas: 

– the creation of the first systems of Data Warehouse and 

Management Information System, both in the Tyres Sector 

(at the Italian unit) and the Cables and Systems Sector 

(at the English unit); 

– the Supply Chain Management project was started for the 

European Tyres Sector which will gradually deliver solutions 

during the course of 2000; 

– the first prototypes for Electronic Commerce were 

completed, in particular: 

– business to business for the Tyres Sector; 

– business to consumer again for the Tyres Sector; 

– business to business for the Cables and Systems sector. 

Much effort was put into integrating the companies acquired by 

the Cables and Systems sector (formerly belonging to Siemens 

and Metal Manufacturers). APIS and SAP were integrated in the 

following countries: 

Germany, Hungary, Slovakia, Austria, Turkey, Australia. 

The dynamic activity of acquisitions, mergers and disposals was 

supported by participating in all the activities of due diligence. 

Another important initiative last year was the SIS-P project of 

the Tyres Sector, aimed at supporting the activities of 

standardization, starting with the technical development of new 

products right up to the completion of the cycle of 

industrialization and the start-up of production (a single 

worldwide data base of product/process specifications, 

integrated with the SAP systems in the factory). Brazil and Italy 

were involved in the pilot project. 

1999 also saw the expansion of the Group’s strategic 

information platform, reaching 9,500 active APIS users and 

exceeding 8,500 SAP users. 

We can report that all the work and investments made in 

relation to the Y2K project were completely successful, 

ensuring a soft landing in 2000 for all the units in the Group. 

Finally, despite the increased distribution of information 

services, costs were lower than anticipated. 

Between the Pirelli’s Intranet 

services there is also 

a multi-media library 

Cables@Pirelli: the Cables 

and Systems’ Extranet for B2B 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

THE “YEAR 2000” PROBLEM 

The activities put into place during the two-year period 1998- 

1999 by the Pirelli Group within the framework of the “Year 

2000” project, aimed at ensuring the compatibility of its 

information systems and the certification of suppliers and 

commercial partners, avoided the manifestation of any sign of 

problems associated with the transition into the new 

millennium. 

All the planned time-scales were respected, both in terms of the 

repair, replacement and certification of critical components, 

and of testing (individual and integrated tests). 

All the activities organized were accurately documented and 

spread throughout the organization using a special site visible 

on the internal Pirelli network. 

The “Year 2000” project concluded 

successfully 

In addition, a contingency plan was devised for each unit with the aim of planning the necessary 

action to tackle any problems that might arise, and consequently providing the most rapid, 

effective response possible. 

On a central level, there was a team with a dual purpose: on the one hand to guarantee the 

presence of technical experts who could take immediate action in the most critical areas, and, on 

the other, to permit the constant monitoring of events and coordination on a global scale. 

No problems of any significance were encountered in any of the four domains considered in the 

project: information systems, factory systems, R&D or the chain of customers and suppliers. 

As far as the information systems and factory systems are concerned, following numerous 

controls and tests executed in the course of 1999, no malfunctioning occurred and normal 

support for the business was guaranteed. 

The R&D systems continued to function in the usual way, thus guaranteeing standards of quality. 

The chain of suppliers and customers, the area where the greatest uncertainties existed, since 

they were not directly controlled by Pirelli, responded adequately to expectations. All the 

services were distributed according to the scheduled time-scales and the usual quality standards. 

The problem associated with the fact that 2000 is a leap year did not cause any malfunctioning 

within the Pirelli organization. 

We can therefore conclude that the results achieved are the result of a considerable effort on the 

part of the Pirelli Group, which can be defined as organizational, in terms of defining common 

standards within the Group, control and consolidation mechanisms, and the allocation and 

evaluation of the work; technical, as far as the practical solving of the problems was concerned; 

and economical in terms of costs at the end of the two-year period 1998-1999. 

With reference to the latter, the costs of 1999, which were completely expensed during the year, 

amounted to Euros 7 million, of which Euros 3.7 million was incurred in the Information sector 

and the remaining Euros 3.3 million in non-information technology areas. 

As in 1998, the write-downs made to property, plant and equipment sold in 1999 had no 

significant impact. 

The total cost of the project, over the two-year period 1998-1999, was equal to Euros 10.5 million, 

less than the initial budget estimates. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

ECOLOGY AND THE ENVIRONMENT 

The Group’s commitment in the management of environmental 

problems and safeguarding the environment, already 

demonstrated in past years, continued in 1999 with new 

important activities. 

With reference to the implementation of an Environmental 

Management System (EMS) according to the ISO 14001 

standard in all the operational units of the Group, the program 

established at the beginning of the year was respected, and 

EMS certification was acquired in 21 production units, of which 

12 units in the Cables and Systems Sector and 7 units in the 

Tyres Sector, which can be added to the 13 units already 

certified in previous years. 

When the planned activities have been completed and according 

to the established objectives, in 2000, 23 more sites are destined 

to acquire certification. In addition, the current program was 

recently extended to all the recent acquisitions, and the new 

deadline set for them to acquire certification is by the end of 2001. 

The spread of the EMS with univocal, shared rules and 

methodologies throughout the Group, thanks partly to the 

presence of a team of auditors who ensure its systematic 

application, permits a precise control of the various 

environmental aspects of the operational units. 

With the aim of precisely monitoring the environmental 

performance of the various sites in the world, work has begun 

on the systematic acquisition of data of environmental interest, 

by using the databank managed by the corporate Ecology and 

Health function. This databank makes it possible to process the 

various indices of efficiency and to make a direct comparison 

between the various operational units with the aim of 

pinpointing opportunities for improvement, identifying the best 

technological applications and guaranteeing an effective 

exchange of information. 

From the point of view of production activities, the new MIRS 

(Modular Integrated Robotized System) was launched for 

manufacturing tyres, which, apart from completely 

revolutionizing traditional production technologies and 

methods, has major implications in terms of the environment. 

The reduction of the processing phases and their integration 

within a continuous process leads to considerable savings in 

terms of energy, and, at the same time, reduces transport flows 

with obvious advantages for the environment. 

In 1999, other studies and research continued to assess the 

environmental impact of products with the aim of establishing 

life cycles (from the selection of the raw materials to the 

disposal and treatment of the product after use) which deserve 

greater attention from the point of view of safeguarding the 

environment. 


Pirelli mechanised cable laying 

system with zero impact on the 

environment 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

A Life Cycle Assessment (LCA) was concluded according to the 

international ISO 14040 quality standard with the general aim of 

comparing the environmental impact of several products with 

the same function. In particular, the analysis focused on three 

high-voltage power cables (ARG7H1E 1*1600 87-150 kV; 

RG7H1E 1*1000 87-150 kV; RG7LE 1*1000 87-150 kV) and an 

aerial conductor (31.5 mm 132 kV), leading to important results 

in terms of knowledge about the environmental performance of 

the products and the relative margins for improvement, within 

the framework of developing long-term strategies. 

In 1999, Pirelli consolidated its network of relations with 

organisms and working groups operating in the field of LCA and 

started the first initiatives to involve some important suppliers, 

with the aim of improving the phases of collecting data relating 

to raw materials and power consumption, as well as evaluating 

the reliability of the international databanks available. 

The application of methodologies and tools for assessing the 

life cycle of products has resulted in the definition of products 

with better environmental performance, the rationalization of 

the use of raw materials and the selection of materials with a 

low impact on the environment. 

Ultra-high voltage tests 

at the cable factory in Milan 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

PERSONNEL 

The effective workforce of the Group at December 31, 1999 

numbered 40,103, with an increase of 1,894 units compared to 

the same date in the prior year. 

The distribution of the work force by sector and geographic 

area is as follows: 

Sector 

Cables and Systems 47% 

Tyres 51% 

Others 2% 

Geographical area 

The percentage breakdown of the workforce is as follows: 

Management 647 2% 

Staff 11,284 28% 

Operatives 25,980 65% 

Temporary employment 2,192 5% 

Total 40,103 

Personnel costs for the year totalled Euros 1,419 million, an 

increase of 6.3 percent compared to the prior year, representing 

21.9 percent of total sales revenues (24.3 percent in 1998). 

During the year, important initiatives were started in terms of 

organizational rationalization which led to a marked reduction 

in the number of staff employed. 

DEVELOPMENT ACTIONS HUMAN RESOURCES 

Special attention was given to introducing new qualified resources to personnel development. 

Many projects begun in 1999 will continue in 2000, with the following priorities: 

• to develop a customer and value creation oriented; 

• to internationalize management; 

• to search and develop new talent. 

Europe (of which Italy 21%) 61% 

Others 

North America 6% 


South America 23% 

Australia, Africa, Asia 10% Distribution of Group personnel 

by Sector and geographical 

area 

Europe 

Organizational and training initiatives were carried out aimed at encouraging behavior 

oriented towards economic value creation for the company and the customer. Work was geared 

to integrating needs analysis, innovation and service processes, involving personnel at all levels. 

Stock option plans were introduced with the aim of connecting economic recognition with 

value creation in the medium term for the company and shareholders. 

In 1999 international training programs as part of Career Development involved young 

university graduates, managers and executives with potential from all the Affiliates in the Group. 

International mobility increased by 30 percent. 

In order make the most of young people with high managerial potential, career development 

programs were devised aimed at offering rapid opportunities for growth within the Group, 

through multi-departmental and international experience. 

Inter-departmental and international training and development programs for technical staff were 

defined through the “Growing-up in Manufacturing” project. 

Tyres 

North America 

South America 

Australia, Africa, Asia 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

RELATED PARTY DISCLOSURES 

Required disclosure under Consob Communication No. 97001574 of February 20, 1997 and No. 

98015375 of February 27, 1998, which deals with related party transactions among Group 

companies, is presented below according to the effects of such transactions on the balance sheet 

and statement of income of the consolidated financial statements at December 31, 1999. 

As allowed by IAS 24, no disclosure is made of the effects deriving from the transactions 

between Pirelli S.p.A. and its subsidiaries and eliminated upon the preparation of the 

consolidated financial statements. 

All the transactions fall within the ordinary operations of the Group, governed by market terms, 

and there are no transactions of an unusual and exceptional nature. 

The following table presents the major transactions at December 31, 1999 that Pirelli S.p.A. 

Group has entered into with the parent companies (Pirelli & C. A.p.A. and Pirelli & C. 

Luxembourg S.A.) and the subsidiaries of the latter companies, which are included in the scope 

of consolidation of Pirelli & C. and do not fall in the scope of consolidation of Pirelli S.p.A.. 

(in millions of euros) 

Type of transaction With parent With subsidiaries of Total 

companies 

Pirelli & C. A.p.a. 

Trade receivables and other 0.1) 27.4) 27.5) 

Trade payables and other (0.5) (9.0) (9.5) 

Financial receivables 33.1) 143.8) 176.9) 

Financial payables (102.0) (64.9) (166.9) 

Revenues for goods and services 0.6) 2.0) 2.6) 

Costs for goods and services (1.8) (9.9) (11.7) 

Financial income 4.0) 3.3) 7.3) 

Financial expenses (11.1) (1.7) (12.8) 

Transactions of Pirelli S.p.A. and its subsidiaries with the parent companies mainly refer to the 

following: 

• financial receivables, relating to loans receivable by Pirelli Finance Luxembourg S.A. 

(subsidiary of Pirelli S.p.A.) from Pirelli & C. Luxembourg S.A.; 

• financial payables, relating to payables from transactions on the current account by Pirelli 

Servizi Finanziari S.p.A. with Pirelli & C. A.p.A.; 

• revenues for goods and services, relating to the performance of various services rendered 

by Pirelli S.p.A. and its subsidiaries to Pirelli & C. A.p.A.; 

• costs for goods and services, relating to costs for the corporate secretarial services 

rendered by Pirelli & C. A.p.A. on behalf of Pirelli S.p.A.; 

• financial income and expenses, relating to interest income and expense on the 

aforementioned current account transactions and loans, as well as costs and revenues for 

hedging transactions carried out by Pirelli Finance Luxembourg S.A. (subsidiary of Pirelli 

S.p.A.) on behalf of Pirelli & C. A.p.A. and Pirelli & C. Luxembourg S.A.. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

Transactions of Pirelli S.p.A. and its subsidiaries with the subsidiaries of Pirelli & C. A.p.A. 

mainly refer to the following: 

• trade receivables and other, relating to the remaining receivable by Pirelli Cavi e Sistemi 

S.p.A. (subsidary of Pirelli S.p.A.) from Lambda S.r.l. (indirect subsidiary of Pirelli & C. A.p.A.), 

deriving from the sale of the property located at Viale Sarca 222 in Milan; 

• trade payables and other, relating to services rendered by companies in the Group of Milano 

Centrale S.p.A. (subsidiary of Pirelli & C. A.p.A.) to Pirelli S.p.A. and its subsidiaries and 

trading transactions by Pirelli Energie Deutschland Gmbh and Turk Pirelli Enerji A.S. 

(subsidiary of Pirelli & C. A.p.A.) with companies in the Tyres Sector; 

• financial receivables, relating to receivables from transactions on the current account by 

Pirelli Servizi Finanziari S.p.A. with companies of the Group of Milano Centrale S.p.A. 

(subsidiary of Pirelli & C. A.p.A.); 

• financial payables, relating to payables from transactions on the current account by Pirelli 

Servizi Finanziari S.p.A. with companies of the Group of Milano Centrale S.p.A. (subsidiary of 

Pirelli & C. A.p.A.); 

• revenues from goods and services, relating to cost recoveries for various services rendered 

by Pirelli S.p.A. and Pirelli Informatica S.p.A. (subsidiary of Pirelli S.p.A.) on behalf of Milano 

Centrale e Servizi S.p.A. and its subsidiaries; 

• costs for goods and services, relating to costs for property management services incurred by 

Pirelli S.p.A. and its subsidiaries for the services rendered by companies of the Group of 

Milano Centrale S.p.A. (subsidiary of Pirelli & C. A.p.A.); 

• financial income and expenses, relating to interest income and expense on the 

aforementioned current account transactions. 

Furthermore, in March 1999, Trefin S.r.l. (subsidiary of Pirelli S.p.A.) purchased No. 3,430,000 of 

Banca Commerciale Italiana S.p.A. shares from Pirelli & C. Luxembourg S.A., later sold to third 

parties. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

INVESTMENTS HELD BY DIRECTORS, STATUTORY 

AUDITORS AND GENERAL MANAGERS 

Pursuant to article 79 of Consob Regulation approved by resolution No. 11971 of May 14, 1999, 

the following information is provided as regards the investments held in the company Pirelli 

S.p.A., and its subsidiaries, by the Directors, Statutory Auditors and General Managers, as well as 

spouses, not legally separated, and minor children, either directly or through subsidiaries, trustee 

companies or individual persons, as resulting from the shareholders’ register at December 31, 

1999, from notices received or other information acquired from the same Directors, Statutory 

Auditors and General Managers. 

Name Company in which No. of shares held No. of No. of No. of shares 

investment held at prior year-end shares shares held at current 

acquired sold year-end 

Pirelli Alberto Pirelli S.p.A. 682,517 (*) –(*) 682,517 – 

Buora Carlo Pirelli S.p.A. 1,742,517 (*) 400,000 (*) 2,100,000 42,517 

Coppola di Canzano 

Eugenio Pirelli S.p.A. 39,152 (*) – (*) – 39,152 

De Benedetti 

Carlo (***) Pirelli S.p.A. – (*) 350,000 (*) 59,000 291,000 

Ferrario Giovanni Pirelli S.p.A. 1,227,517 (*) – (*) 1,052,517 175,000 

Morchio Giuseppe Pirelli S.p.A. 1,302,517 (*) 400,000 (*) 1,700,000 2,517 

Perissich Riccardo Pirelli S.p.A. 577,517 (*) – (*) 575,000 2,517 

Presutti Ennio Pirelli S.p.A. 30,000 (*) – (*) – 30,000 

Puri Negri Carlo 

Alessandro Pirelli S.p.A. 430,000 (*) 350,000 (*) – 780,000 

Sozzani Vincenzo Pirelli S.p.A. 32,483 (*) – (*) – 32,483 

Tronchetti Provera 

Marco Pirelli S.p.A. – (*) 8,000 (*) 8,000 – 

Guatri Luigi (**) Pirelli S.p.A. 60,000 (*) – (*) – 60,000 

(*) Bonus shares assigned by Company. 

(**) Shares held by spouse. 

(***) Shares held through COFIDE S.p.A. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

STOCK OPTION PLANS 

The Group has had employee stock option plans since 1998. These plans are intended, on the 

one hand, to further create a sense of allegiance and, on the other hand, to ensure a constant 

focus on the development of the Group both by rewarding specific contributions made and 

important goals reached and by establishing incentive plans. 

As you will recall, by virtue of the resolutions voted by the shareholders' meeting of May 15, 

1998: 

a) No. 23,000,000 new ordinary shares were assigned to all employees of the Group, in Italy and 

abroad, to commemorate the 125 th anniversary of its founding; 

b) No. 6,500,000 new ordinary bonus shares were assigned as special bonuses to those 

executives who had significantly contributed to the Group's recovery over the last five years; 

c) No. 11,000,000 new ordinary bonus shares were assigned to executives of the Group as part of 

the incentive plan which called for the eventual sale, partial or total, without charge, to Pirelli 

S.p.A. of the same shares, in the event their assigned goals had not been met in full or in part. 

The same shareholders' meeting, for the purpose of allowing the incentive plan to be maintained 

and further extending recourse to the assignment of shares and thus increasingly involve 

executives and cadres in the risk capital, voted to authorize the directors to assign new ordinary 

shares to the employees of these categories, up to a maximum of No. 45,000,000, by the date 

of April 30, 2003. 

* * * 

As for the changes during 1999 in the above-described plan, the following should be mentioned. 

1) While the assignments referred to in a) and b) took place and were concluded in 1998, as 

regards the No. 11,000,000 new shares assigned under an incentive plan based on reaching set 

goals, the verification of such circumstance led to the sale, free of charge, of No. 2,476,300 to 

Pirelli S.p.A.. 

2) The Board of Directors, by availing itself of the aforementioned authorization ex art. 2443 of 

the Italian Civil Code, voted - during the year - two share capital increases through the issue 

of a total of No. 1,785,000 bonus ordinary shares which were assigned to the executives of the 

Group who reached specific goals. 

3) Finally, during the year an incentive plan was started that consists in the assignment, to about 

440 executives and cadres of the Group, of options to subscribe to the same number of 

issuing shares (up to a maximum of No. 22,304,300). 

The exercise of these options can be made by March 15, 2003 and is linked to certain fixed 

goals being reached by each of the interested persons. 

At December 31, 1999, after the options were exercised, a resolution was passed to issue No. 

3,500,000 new shares (resolution of the Board of Directors of December 20, 1999) while the 

number of unexercised rights at the end of the year corresponds to a total of No. 16,104,300 

new shares which could possibly be issued. 

4) During 1999, therefore, a resolution was passed to issue, also as part of the stock option plans 

previously started, No. 5,285,000 new shares equal to 0.28 percent of ordinary share capital at 

December 31, 1998; the No. 16,104,300 new shares which could possibly be issued in 

reference to point 3), correspond to 0.85 percent of ordinary share capital at December 31, 

1999. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

CORPORATE GOVERNANCE 

The Board of Directors, elected by the shareholders' meeting of May 24, 1999, confirmed the 

powers granted to the Chairman-CEO necessary to carry out all the acts pertaining to corporate 

activity, to have single signature powers, with the exception of the power to issue guarantees for 

obligations of the Company and the subsidiaries in excess of single amounts of Lire 50 billion or 

guarantees in the interest of third parties for obligations in excess of single amounts of Lire 20 

billion; in these last cases, a joint signature with the General Manager of the Finance and 

Administration Department is required. 

Specific and more limited powers were conferred to the General Managers and Management, to 

be used in carrying out their specific responsibilities. 

Also during 1999, the Chairman, the General Managers and Management used the powers 

conferred to them to carry out the normal operations of the company (of which the Directors of 

the company were periodically informed), waiving such powers in the case of significant 

transactions in terms of quality or value from an economic and financial standpoint, and 

submitting them to the same Board of Directors. In accordance with art. 18 of the by-laws, the 

directors have advised the board of statutory auditors concerning the activities and any 

important economic, financial or equity transactions carried out by the company or the 

subsidiaries as well as transactions involving any potential conflict of interest. 

It should also be considered that in view of the organization structure of the Group, 

characterized by the existence of autonomous companies in several countries operating in the 

two main business segments, individual acts are not frequently carried out – within the parent 

company taken alone – which have a considerable impact on the economic-equity situation of 

the Group itself; instead, at this level, strategic and operating guidelines are defined, as well as 

the coordination of the specific segments and functions of the Group. 

Both the parent company and the subsidiary companies, however, are required to follow the 

policies and rules which govern the main areas of business, in addition to the administrative 

principles and rules of the Group governing the accounting treatment of administrative events 

and the preparation of the consolidated financial statements and period statements. 

Within the internal control system of the Group, organized in such a way as to ensure proper 

disclosure and an adequate system of control of all its activities and, in particular, in the major 

areas of corporate risk, there is also a planning and control system, by sector and operating unit, 

which monthly produces a detailed report to the General Managers - so that they have a useful 

instrument with which to monitor specific activities. 

In order to follow through on the strategies and guidelines adopted by the parent company, the 

General Managers of the Sectors and Management also sit on the boards of directors of the 

largest subsidiaries. 

Furthermore, reporting directly to the Chairman of the parent company Pirelli & C. is the 

Auditing Department (not involved in financial operating activities and in the preparation of the 

financial statements and period statements) which has the main responsibility for seeing that the 

system of internal control of the Group is functioning and is adequate in terms of effectiveness 

and efficiency. 

Finally, the Board of Directors passed a resolution last November to adopt the Corporate 

Governance Code drawn up by Borsa S.p.A.; subsequently, as the first action taken in applying 

the Code, the Company internally set up a Remuneration Committee and an Audit Committee. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

SUMMARY DATA OF PIRELLI S.P.A. 

(in millions of Euros) 

Balance sheet 1999) 1998) 

Intangible assets 12.3) 11.2) 

Property, plant and equipment 29.0) 31.3) 

Investments 2,235.9) 1,908.5) 

Net working capital 181.8) 152.5) 

2,459.0) 2,103.5) 

Shareholders’ equity 2,181.4) 2,094.0) 

Provisions 65.8) 46.9) 

Net financial position 211.8) (37.4) 

2,459.0) 2,103.5) 

Statement of income 1999) 1998) 

Financial income and expenses 310.4) 254.1) 

Value adjustments to financial assets (1.3) (5.2) 

Other operating income (expenses) (23.1) (5.7) 

Results from ordinary operations 286.0) 243.2) 

Extraordinary items 53.5) (3.5) 

Income taxes (110.6) (37.8) 

Net income for the year 228.9) 201.9) 

Financial position 

The balance sheet structure of the company changed between December 31, 1998 and 1999 due 

to the merger of Société Internationale Pirelli S.p.A. by incorporation in Pirelli S.p.A., concluded 

on December 10, 1999, as voted by the shareholders' on May 24 and 25, 1999 and also as a result 

of the following movements: 

• net invested capital rose compared to the prior year mainly due to the increase in treasury 

shares, as follows: 

– No. 45,060,000 (Euros 105.7 million) shares were purchased on the market as voted by the 

shareholders' meeting on December 22, 1998 and in accordance with procedures by it 

established; 

– No. 66,671,014 (Euros 192.4 million) shares were received from Société Internationale Pirelli 

S.p.A. as a result of the aforementioned merger. 

On December 31, 1999, treasury shares in portfolio total No. 173,074,249 ordinary shares, equal to 

8.72 percent of share capital, for an amount of Euros 449 million at a weighted average price of 

Euros 2,595 per share. 

• Shareholders’ equity increased by the net income for the year (Euros 228.9 million) and 

takes into account the pay out of dividends relating to the prior year. 

• the net financial position went from a liquidity position of Euros 37.4 million at December 

31, 1998 to a debt position of Euros 211.8 million on account of the above-mentioned changes 

and the addition of the debt position of the merged company Sociètè Internationale Pirelli 

S.p.A.. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

Results of operations 

The net income for the year 1999 of Pirelli S.p.A., the parent company, net of income taxes of 

Euros 110.6 million, is Euros 228.9 million, compared to Euros 201.9 million in the prior year. 

The improvement is due to investment income and extraordinary income, countered by an 

increase in income taxes. 

Components of the results of operations 

• Financial income and expenses of Euros 310.4 million (Euros 254.1 million in 1998) are 

composed of investment income of Euros 320 million (Euros 236.7 million in 1998) and by a 

net interest expense balance of Euros 9.6 million (a net interest income balance of Euros 17.4 

million in 1998). 

• Extraordinary items, net, include extraordinary income of Euros 92.6 million and 

extraordinary expenses of Euros 39.1 million. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

SHAREHOLDERS’ RESOLUTIONS (°) 

Appropriation of net income 

The year ended December 31, 1999 shows a net income of Euros 228,916,054. 

The Board of Directors proposes the distribution of a dividend, before withholding taxes, of: 

• Euros 0.0826 for each ordinary share 

and 

• Euros 0.0930 for each savings share. 

The proposed dividends carry a tax credit equal to 58.73 percent. 

The tax credit amounts to: 

• Euros 0.0485 for the proposed dividends on ordinary shares; 

• Euros 0.0546 for the proposed dividends on savings shares. 

The small amount of taxes available according to art. 105, paragraph 1, letter a) of D.P.R. 917/86 

does not permit the assignment of a tax credit with the right of refund (ordinary credit) for a 

significant amount; therefore, a proposal is made for the assignment of the tax credit without the 

right of refund (limited credit) for the entire amount of the credit due. 

If in agreement with our proposal, we ask you to pass the following 

resolution 

The shareholders’ meeting: 

• having taken note of the directors’ report to the financial statements; 

• having taken note of the board of statutory auditors’ report; 

• having examined the financial statements at December 31, 1999 which show a net income 

of Euros 228,916,054 

votes 

a) to approve: 

• the directors’ report to the financial statements; 

• the balance sheet, statement of income, the notes to financial statements for the year ended 

December 31, 1999 which show a net income of Euros 228,916,054 as presented by the 

Board of Directors in their entirety and in the individual entries, with the proposed accruals; 

b) to appropriate the net income for the year of Euros 228,916,054 as follows: 

• to the legal reserve until it reaches one-fifth of share capital Euro 1,590,921 

• to the shareholders: 

– Euros 0.0826 to each of the 1,727,333,224 ordinary shares, for a total of (*) Euro 142,677,724 

– Euros 0.0930 to each of the 88,006,016 savings shares, for a total of Euro 8,184,559 

• to the directors, 1 percent of the amount established in art. 23 of the by-laws Euro 1,747,036 

• to retained earnings Euro 74,715,814 

(*) Net of 173,074,249 treasury shares held by the Company at December 31, 1999, as well as a further 288,000 shares purchased up to today’s date. 

c) to assign the following tax credits to the profits distributed: 

• to the ordinary shares, a limited tax credit (art. 105, paragraph 1, letter b) of D.P.R. 917/86 

of Euros 0.0485; 

• to the savings shares, a limited tax credit (art. 105, paragraph 1, letter b) of D.P.R. 917/86 

of Euros 0.0546. 

(°) Version containing the changes made in the shareholders’ meeting of May 8, 2000. 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

Proposal to purchase treasury shares and procedures for disposition of the same 

Shareholders, 

By resolution passed on December 22, 1998, you authorized the purchase of treasury shares 

(ordinary or savings shares) up to a maximum amount of Lire 300 billion and for a period 

of 18 months from the date of the resolution. 

Based on said resolution and in accordance with the procedures established therein, up to March 

17, 2000 purchases were made for No. 45,288,000 ordinary shares, equal to 2.28 percent of share 

capital, for a total of about Euros 106.3 million (equal to about Lire 205.8 billion) and thus at an 

average price of about Euros 2,347 (equal to approximately Lire 4,545) per share. 

The above authorization, which, however, has almost been entirely used, will expire on June 21, 

2000. 

Furthermore, by resolution passed on May 24, 1999, you have authorized the directors to dispose 

of the treasury shares deriving from the merger by incorporation of Société Internationale Pirelli 

S.p.A. in Pirelli S.p.A. and the shares refused and rendered by the interested employees under the 

incentive plan voted by the shareholders on May 15, 1998. 

With regard to the purchase of treasury shares, the same opportunities now exist which 

persuaded the directors to propose to you the December 1998 resolution, that being the 

convenience of taking action (in accordance with the law and ensuring equal treatment to the 

shareholders), in relation to contingent market situations, to act as a stabilizing force in 

improving the liquidity of the market, favor normal trading and facilitate consistency between the 

maximum list price and the intrinsic value of the stock. 

The opportunity also exists to include the authorization to dispose of the treasury shares 

currently held in the same resolution which we are proposing to you. 

We therefore propose, with today’s shareholders’ meeting, to proceed to issue the new 

authorization, canceling the existing authorizations since they were not used; the related 

procedures for the purchase and sale, as well as the procedures for the sale of the treasury 

shares already held in portfolio are contained in the following resolution. 

If in agreement with our proposal, we ask you to pass the following 

resolution 

“The shareholders’ meeting, 

• having taken note of the proposal of the Directors; 

• having taken note of the provisions of art. 2357 and 2357-ter of the Italian Civil Code; 

• having taken note that, as of today, the company holds No. 173,362,249 ordinary shares equal 

to 8.72 percent of share capital amounting to Euros 1,033,890,774.28. 

votes 

a) to cancel the resolutions passed by the shareholders on December 22, 1998 and May 24, 1999 

authorizing the purchase of treasury shares and the disposition of the same, as they were not 

used; 

b) to authorize the purchase of treasury shares (ordinary and savings shares) of par value Euro 

0.52 each for a maximum amount of Euros 150 million, establishing that: 

– the purchase can be made in one or more instances within 18 months of the date of this 

resolution; 

– the purchase price of each share shall not be either lower or higher, in both case, than a 



Introduction 

The Group 


Sector 

Tyres Sector 




Environment 

Personnel 

Related Party 

Disclosures 

Investments 






Resolutions 

maximum of 15 percent of the average reference price registered by the Italian stock 

exchange in the three trading sessions prior to each single transaction; 

– the maximum number of shares purchased shall not be higher than that representing 5 

percent of the shares constituting the share capital each time, also in observance of the total 

limit of ownership of 10 percent established by law; 

– the purchase shall be made by using retained earnings and/or the share premium reserve as 

shown in the latest approved financial statements, setting up a reserve for treasury shares in 

the manner and limits established by law; 

– the Board of Directors can dispose, without any time limit, of the treasury shares already 

held or thus purchased even before having completed all the purchases; the sale can occur 

in one or more instances; the shares shall be sold through a sale or exchange (also through 

a public offer, to the shareholders, to employees – also as part of any stock option plans –); 

in the event of sale, the price shall not be less than the lower of the purchase price or, for 

shares acquired free of charges or through a merger, not less than 10 percent compared to 

the average reference prices recorded on the Italian stock market in the thirty trading 

sessions prior to each single sales transaction; the shares can also be sold by being attached 

to bonds or warrants for their exercise. 

c) to confer to the Board of Directors and on its behalf the Chairman and Deputy Chairman, 

separately, any and all powers necessary to make purchases and sales and in any case to carry 

out the preceding resolutions, also through those holding power of attorney, fulfilling that 

eventually required by the appropriate authorities.” 

The Board of Directors 

Milan, March 20, 2000 



Consolidated Financial Statements at December 31, 1999 



Consolidated balance sheets 

Assets 

(in thousands of euros) 

12.31.1999 12.31.1998 

A) Capital subscription rights 

Portion uncalled 24 20 

B) Fixed assets 

I) Intangible assets 

Formation costs 6,331 5,931 

Patents and design patent rights 7,473 7,093 

Concessions, licenses, trademarks and similar rights 3,729 597 

Goodwill 11,531 12,990 

Consolidation difference 70,473 – 

Intangible assets in progress and payments on account 3,367 6,961 

Other intangible assets 68,777 44,050 

Total intangible assets 171,681 77,622 

II) Property, plant and equipment 

Land and buildings 654,203 598,062 

Plant and machinery 1,324,374 1,120,961 

Industrial and commercial equipment 143,875 114,046 

Other property, plant and equipment 156,044 89,453 

Assets under construction and payments on account 146,275 139,066 

Total property, plant and equipment 2,424,771 2,061,588 

III) Financial assets 

Investments in: 

a) Subsidiaries 8,863 25,140 

b) Associated companies 29,269 32,143 

c) Other companies 91,592 79,276 

Financial receivables: 

a.2) Subsidiaries due beyond 1 year 14,662 – 

b.2) Associated companies due beyond 1 year 14,041 201 

d.2) Other companies due beyond 1 year 60,799 57,785 

Other securities 21,295 17,945 

Treasury shares 335,706 151,093 

Total financial assets 576,227 363,583 

Total fixed assets 3,172,679 2,502,793 

C) Current assets 

I) Inventories 

Raw materials, auxiliaries and consumables 220,366 192,893 

Work in process and semifinished products 265,054 163,843 

Work in progress against orders 112,808 243,580 

Finished products and goods for resale 526,661 499,955 

Advances 10,981 7,078 

Total inventories 1,135,870 1,107,349 

II) Receivables 

Trade 1,509,676 1,279,457 

Subsidiaries 563 5,694 

Associated companies 27,626 47,913 

Parent companies 33,196 271,091 

Other receivables 1,104,133 700,934 

Total receivables 2,675,194 2,305,089 



Assets (continued) 


12.31.1999 12.31.1998 

III) Current financial assets 

Other securities 221,054 300,411 

Total current financial assets 221,054 300,411 

IV) Cash and banks 

Bank and postal deposits 493,641 500,146 

Checks 5,104 6,056 

Cash on hand 3,723 7,024 

Total cash and banks 502,468 513,226 

Total current assets 4,534,586 4,226,075 

D) Accrued income and prepaid expenses 

Accrued income 79,265 158,123 

Prepaid expenses 34,781 21,381 

Total accrued income and prepaid expenses 114,046 179,504 

Total assets 7,821,335 6,908,392 



Liabilities and shareholders’ equity 


12.31.1999 12.31.1998 

A) Shareholders’ equity 

– Of the company 2,274,907 2,283,097 

I) Share capital 1,032,152 1,024,198 

II) Share premium reserve 270,083 461,727 

III) Revaluation reserves 2,855 2,855 

IV) Legal reserve 204,840 180,575 

V) Reserve for treasury shares in portfolio 335,706 151,093 

VI) Statutory reserves – – 

VII) Other reserves: 

a) consolidation reserve 29,271 142,325 

b) sundry reserves 43,002 43,002 

VIII) Retained earnings 63,871 28,635 

IX) Net income for the year 293,127 248,687 

– Minority interest 179,042 170,183 

a) Capital and reserves 167,007 142,935 

b) Net income for the year 12,035 27,248 

Total shareholders’ equity 2,453,949 2,453,280 

B) Provisions for liabilities and expenses 

Pension and similar obligations 224,738 252,729 

Income taxes 152,423 139,447 

Other 246,362 170,607 

Total provisions for liabilities and expenses 623,523 562,783 

C) Provision for employees’ leaving indemnity 167,581 159,098 

D) Payables 

Bonds 500,004 500,020 

Bank borrowings 1,288,076 910,229 

Other financial companies 210,929 137,274 

Advances from customers 323,900 366,091 

Trade 1,164,801 923,611 

Subsidiaries 44 – 

Associated companies 23,108 12,363 

Parent companies 102,488 29,686 

Taxes 286,533 230,996 

Social security 51,276 46,118 

Other payables 337,117 249,138 

Total payables 4,288,276 3,405,526 

E) Accrued liabilities and deferred income 

Accrued liabilities 264,050 313,571 

Deferred income 23,956 14,134 

Total accrued liabilities and deferred income 288,006 327,705 

Total liabilities and shareholders’ equity 7,821,335 6,908,392 



Memorandum accounts 


12.31.1999 12.31.1998 

Personal guarantees 

– Sureties on behalf od other companies 319 1,158 

– Endorsements on behalf of other companies 12,883 – 

13,202 1,158 

Third party assets held in deposit 

– Securities held in deposit 78,237 444,621 

– Goods in process 2,305 1,385 

80,542 446,006 

Assets held by third parties 

– Securities held as guarantees and sureties 23,433 12,745 

– Shares held in deposit 1,089,224 915,931 

– Goods in process 8,988 3,774 

1,121,645 932,450 

Commitments 

– Capital expenditures 27,396 16,276 

27,396 16,276 

Other memorandum accounts 

– Potential losses for risk of default on discounted bills 240 1,778 

240 1,778 

1,243,025 1,397,668 



Consolidated statements of income 


12.31.1999) 12.31.1998) 

A) Production value 

Revenues from sales and services 6,482,335) 5,486,582) 

Changes in inventories of work in process, semifinished and finished products 39,913) 100,543) 

Changes in work in progress against orders (74,882) 103,377) 

Increase in property, plant and equipment 19,331) 10,259) 

Other revenues and income: 

a) Miscellaneous 98,399) 116,738) 

b) Government grants 7,519) 4,213) 

Total production value 6,572,615) 5,821,712) 

B) Production costs 

Raw materials, auxiliaries, consumables and goods for resale (3,123,347) (2,591,325) 

Service expenses (1,041,311) (989,370) 

Lease and rent expenses (62,704) (57,968) 

Personnel costs (1,418,672) (1,335,077) 

Amortization, depreciation and write-downs: 

a) Amortization of intangible assets (35,591) (24,465) 

b) Depreciation of property, plant and equipment (312,122) (284,459) 

c) Other write-downs of fixed assets (998) (113) 

d) Write-downs of receivables included in current assets and cash and banks (19,570) (12,866) 

Changes in inventories of raw materials, auxiliaries, consumables and goods for resale 34,512) 38,938) 

Other accruals (29,312) (12,307) 

Other operating expenses (232,744) (140,345) 

Total production costs (6,241,859) (5,409,357) 

Difference between production value and production costs 330,756) 412,355) 

C) Financial income and expenses 

Investments income 31,305) 7,864) 

Other financial income: 

a) from receivables included in fixed assets 839) 636) 

b) from securities included in fixed assets 1,254) 3,584) 

c) from securities included in current assets 11,171) 45,874) 

d) Income other than the above 334,803) 220,999) 

Interest and other financial expenses (402,600) (273,511) 

Total financial income and expenses (23,228) 5,446) 

D) Valuation adjustments to financial assets 

Revaluations 2,199) 790) 

Write-downs (2,342) (6,470) 

Total adjustments (143) (5,680) 

E) Extraordinary items 

Extraordinary income 223,350) 52,709) 

Extraordinary expenses (134,502) (60,482) 

Total extraordinary items 88,848) (7,773) 

Income before income taxes 396,233) 404,348) 

Income taxes (91,071) (128,413) 

Net income for the year 305,162) 275,935) 

Group 293,127) 248,687) 

Minority interest 12,035) 27,248) 



Notes to consolidated financial statements 

at December 31, 1999 

Form and content 

The consolidated financial statements for the year ended December 31, 1999 have been drawn up in accordance with the 

provisions introduced by Legislative Decree No. 127 of April 9, 1991 which incorporate those of the VII directive of the EC. 

The consolidated financial statements include the financial statements of Pirelli S.p.A., the parent company, and the Italian 

and foreign companies in which Pirelli S.p.A. holds, directly or indirectly, control as defined by Legislative Decree 127/91, 

art. 26. 

The subsidiaries which fall under the cases indicated in Legislative Decree 127/91, art. 28 are excluding from the scope of 

consolidation. 

A list of the companies included in the scope of consolidation is provided on pages 91 to 97, and is considered an integral 

part of these notes. 

The co-ordination of the audits and the aggregation of the audit reports have been carried out by PricewaterhouseCoopers 

S.p.A.. 

The audit report on the consolidated financial statements has been issued by PricewaterhouseCoopers S.p.A. for a fee of 

Euros 106 thousand. 

The fees for the audit of the individual Group companies have been borne directly by the companies concerned; the 

equivalent Euro amount of fees for the year 1999 have amounted to approximately Euros 1,872 thousand, including the fees 

for the limited review of the six-month financial statements. 

Principles of consolidation 

The financial statements used in consolidation are those at December 31, 1999 prepared locally for approval by the 

shareholders of the individual companies and adjusted, where necessary, to agree with the “Common Accounting Principles” 

of the Group, which conform to those established by Legislative Decree 127/91 and those issued by the National Boards of 

Dottori Commercialisti and Ragionieri. 

The financial statements of subsidiaries operating in high-inflation countries have been adjusted to take into account the 

changed purchasing power of the local currency, in accordance with the principles for inflation accounting. 

The financial statements expressed in foreign currency have been translated into Euros at rates prevailing at year-end for 

the balance sheet and at average exchange rates for the statement of income, with the exception of the financial statements 

of companies operating in high-inflation countries, whose statements of income have been translated at rates ruling at 

year-end. 

The differences arising from the translation of beginning shareholders’ equity at year-end exchange rates have been 

recorded in the consolidation reserve. 

The exchange rates which have been applied are presented under “Other information” in the notes. 

All the subsidiaries in the scope of consolidation have been consolidated on the line-by-line consolidation method, which 

may be summarized as follows: 

– the assets, liabilities, revenues and costs are consolidated in full and the share of net equity and results of operations 

attributable to minority interest are shown separately; 

– the carrying value of companies consolidated has been eliminated against the related underlying net equity; 



– the gains and losses arising from transactions between consolidated companies, if not yet realized through transactions 

with third parties, have been eliminated if the amount is significant, just as receivables, payables, revenues and costs 

related to transactions between consolidated companies have been eliminated, if the amount is significant. 

For investments in consolidated companies and for those valued using the equity method, the differences, at acquisition, 

between the carrying value of the investments and the corresponding share of net equity have been accounted for as 

follows: 

– negative differences have been recorded in the consolidation reserve; 

– positive differences, where not attributable to the assets or liabilities of the investee companies, have been recorded as a 

reduction of the consolidation reserve up to the amount of same and the remaining amount has been recorded as an asset 

in “consolidation difference”. 

The reconciliation between the net results and shareholders’ equity of Pirelli S.p.A. at December 31, 1999 and the 

corresponding consolidated figures is presented on page 90. 

Summary of significant accounting policies 

The accounting policies adopted are those set forth by the provisions of art. 2426 of the Italian Civil Code, cited and 

integrated by the provisions of CONSOB and by the accounting principles issued by the National Boards of Dottori 

Commercialisti and Ragionieri. 

The accounting principles have been applied on a basis consistent with the prior year except for deferred taxes which, in 

applying the new accounting principles issued by the National Boards of Dottori Commercialisti and Ragionieri, calls for 

recording deferred tax assets if there is a reasonable assurance of recovery. 

Unless otherwise indicated, the accounting principles applied in the valuation of the components of the consolidated 

financial statements are in conformity with those adopted in the financial statements of the parent company. 

Specific disclosure is made of the different treatment for the reverse merger between Pirelli S.p.A. and Société 

Internationale Pirelli S.p.A. which in the consolidated financial statements has been accounted for using the historical cost 

method, which ensures the continuity of the accounting values of the two combined companies. The historical cost or the 

continuity of values method calls for the elimination of the effects associated with the merger, in this specific case, the 

deficit on the exchange equal to Euros 156 million against the consolidation reserve carried in the consolidated financial 

statements. This approach is in accordance with international accounting practice applied to transactions between entities 

under common control. 

• Intangible assets 

“Formation costs” relate to the capital increase costs of consolidated companies and are amortized over a period of five years. 

“Research and development expenditures and advertising costs” are charged to the statement of income in the year incurred. 

“Patents and design patent rights”, “concessions, licenses, trademarks and similar rights” are amortized over their 

expected economic lives, estimated in a period of five years. 

“Goodwill” includes the amount paid for this purpose by the Group companies for the acquisition of companies or other 

corporate transactions. Goodwill is amortized over a period of ten years, which identifies the possible period of 

utilization. 

“Consolidation difference”, relating to the acquisition of investments, is amortized over a period of between ten and 

twenty years; this period identifies the possible period of utilization. 

The caption “other intangible assets” includes sundry costs benefiting future periods, and in particular refers to: 

– applied software acquisition costs, amortized over a period of five years; 

– leasehold improvements, amortized over the duration of the lease and, in any case, not more than five years; 

– image awareness costs benefiting future periods, amortized over the duration of the contract and, in any case, not more 

than five years; 



– loan acquisition costs, amortized over a period not exceeding the duration of the loan and, in any case, not more than 

five years. 

• Property, plant and equipment 

Property, plant and equipment are stated at purchase or production cost including directly attributable incidental 

expenses and increased by revaluations effected in accordance with specific laws. 

Depreciation is calculated starting from the month in which the asset is available and ready for use or potentially able to 

provide economic benefits. 

Depreciation is calculated on the straight-line method on a monthly basis at rates designed to completely write-off the 

assets over their estimated useful lives or, for disposals, up to the last month of utilization, as follows: 

– Buildings 3% - 10% 

– Plant 7% - 10% 

– Machinery 5% - 10% 

– Tools and equipment 10% - 33% 

– Furniture 10% - 33% 

– Vehicles 10% - 25% 

In addition, property, plant and equipment are written down when there is a permanent diminution to below their net 

book value, in accordance with article 2426, point 3 of the Italian Civil Code. 

Ordinary maintenance costs are expensed in the year incurred. 

Government investment grants relating to property, plant and equipment are recorded in a special provision under 

liabilities and are released to income in proportion to the future depreciation of the assets to which they refer. 

Assets acquired under financial leasing contracts are accounted for as property, plant and equipment with a counter-entry 

to financial payables and are therefore capitalized and depreciated over their estimated useful lives. The lease installment 

is divided between interest expense, recorded in the statement of income, and the repayment of principal, recorded as a 

deduction of the financial liability. 

• Investments 

Equity investments in unconsolidated subsidiaries are valued at cost, reduced for any permanent diminution in value; the 

original amount is reinstated whenever the reasons for the adjustment no longer apply. 

Equity investments in associated companies are valued using the equity method, in accordance with article 2359 of the 

Italian Civil Code. 

Equity investments in other companies are valued at cost reduced for any permanent diminution in value; the original 

amount is reinstated whenever the reasons for the adjustment no longer apply. 

• Treasury shares 

Treasury shares are valued at purchase cost. An undistributable reserve for the same amount is recorded in shareholders’ equity. 

• Receivables and payables 

Receivables (under both fixed assets and current assets) are stated at estimated realizable value. Payables are stated at 

nominal value. 

Receivables and payables in foreign currencies other than the functional currency of the individual companies are 

adjusted to the year-end exchange rates or the agreed exchange rates under hedging contracts; related exchange gains or 

losses are recorded in the statement of income. 



• Accruals and prepayments 

Accruals and prepayments are recorded on the accrual basis. 

• Other securities 

Other securities are stated at the lower of cost and estimated realizable value. 

• Cash and banks 

Cash and banks are stated at nominal value. 

• Inventories 

Inventories are stated at the lower of cost, determined on the FIFO basis, and estimated realizable value. Work in process 

on long-term contracts is stated in proportion to the stage of completion of the work on the basis of agreed prices and 

taking into account estimated losses. 

• Provisions for pensions and similar obligations 

These provisions refer to pensions, health care and other benefits in favor of employees, not included in specific laws but 

covered by local labor agreements, and benefit plans operating at some Group companies. 

The principle applied is that of allocating the entire cost at maturity over the service lives of the employees based on 

entitlement earned, using actuarial methods. 

In accordance with FAS 106, which states that United States companies which in the past recorded such costs on a cash 

basis must set up or adjust existing provisions in the financial statements so that adequate funds exist at retirement to 

cover the payment of future benefits, Pirelli Group has decided to amortize the amount prospectively over a period of 20 

years starting from the year 1993. 

• Provisions for liabilities and expenses 

Provisions for liabilities and expenses include liabilities likely to be incurred but uncertain as to the amount or the date 

on which they will arise. 

• Provision for employees’ leaving indemnity 

The provision for employees’ leaving indemnity includes amounts payable to employees accrued on their behalf in 

accordance with specific laws or national labor contracts. 

• Provision for income taxes 

Current income tax liabilities are determined on the basis of a realistic estimate of the expenses payable under current 

tax laws in the country; the related liability is shown net of advance payments, withholdings and tax credits in the Taxes 

payable. 

Deferred taxes are calculated on the timing difference existing between the value of assets and liabilities in the balance 

sheet and their tax basis (liability method). Any deferred tax liabilities are recorded in the provision for income taxes. 

Deferred tax assets are recorded only where is a reasonable certainty of recovery and these are recorded in Other 

receivables. 



• Financial instruments 

Forward contracts and derivatives used for hedging purposes are recorded under commitments at the time the contract is 

stipulated, for the notional amount. Income and expenses, as well as any effects, corresponding to the difference between 

the original contract amount and the fair value at the end of the year, are accounted for on the accrual basis. 

• Recognition of revenues 

Revenues from the sale of products are recognized at the time of transfer of title of ownership which generally coincides 

with the delivery or shipment of the goods. Revenues from sales are shown net of discounts and allowances. 

• Dividends 

Dividends are recorded on the cash basis, gross of tax credits. 



CONSOLIDATED BALANCE SHEETS 

Assets 

B) Fixed assets 

I) Intangible assets 

Intangible assets may be analyzed as follows: 


12.31.1998 Translation Change in scope Increase Decrease Amortiz. 12.31.1999 

difference of consolidation 

• Formation costs 5,931 (4) – 3,574 –) (3,171) 6,331 

• Patents and design patent rights 7,093 –) – 3,348 (4) (2,964) 7,473 

• Concessions, licenses, trademarks 

and similar rights 597 32) 8 4,607 –) (1,515) 3,729 

• Goodwill 12,990 853) – 2,707 –) (5,019) 11,531 

• Consolidation difference – –) – 72,319 –) (1,846) 70,473 

• Other 51,011 963) 2,713 40,835 (2,302) (21,076) 72,144 

77,622 1,844) 2,721 127,391 (2,306) (35,591) 171,681 

“Formation costs” refer to the corporate formation expenses and capital increase costs of subsidiaries and related 

expenses. The increase is principally due to the effect of the merger of Société Internationale Pirelli S.p.A. in Pirelli S.p.A. 

and the capital increase expenses of the Japanese subsidiary P & A.K.K.. 

The increase in “patents and design patent rights” refers mainly to the completion of the acquisition of the utilization 

rights to the patents relating to fiber optics and fiber optic cables by Pirelli Cavi e Sistemi S.p.A. and expenses incurred for 

new patents. 

“Concessions, licenses, trademarks and similar rights” principally include the costs incurred for the acquisition of 

software rights inherent to the use of the new integrated information system (SAP/Oracle) by Pirelli S.p.A.. 

“Consolidation difference” includes the consolidation differences arising from the acquisitions, during 1999, of Alexandria 

Tire Co. S.A.E. for the Tires Sector and FOS – Fibre Ottiche Sud S.p.A. and PT Pirelli Cable Indonesia for the Cables and 

Systems Sector. 

The major items included in “other” refer to software applications costs, corporate reorganization expenses, loan 

acquisition costs, leasehold improvements, image awareness costs etc.. 



II) Property, plant and equipment 

The movements in property, plant and equipment during the year are as follows: 


12.31.1999) 12.31.1998) 

Gross values 

Opening balances 5,220,159) 5,262,257) 

Translation difference 48,165) (240,602) 

Change in scope of consolidation 331,610) –) 

Additions 468,895) 415,313) 

Disposals (243,060) (216,809) 

5,825,769) 5,220,159) 

Accumulated depreciation 

Opening balances 3,158,571) 3,196,313) 

Translation difference 7,124) (172,125) 

Change in scope of consolidation 107,409) –) 

Depreciation charge for the year 312,122) 284,459) 

Disposals (184,228) (150,076) 

3,400,998) 3,158,571) 

Net values 2,424,771) 2,061,588) 

The net increase in comparison with the prior year is due to the combination of the following: 

– translation differences, in reference to property, plant and equipment included in the financial statements of foreign 

companies, and due to the weakness of the euro against the currencies in the countries in which the Group companies 

operate; 

– the change in the scope of consolidation refers to the units purchased from Siemens A.G. in the Cables and Systems 

Sector, and Alexandria Tire Co. S.A.E. in the Tyres Sector; 

– additions, higher than those of the prior year by Euros 53,582 thousand, equal to 1.5 times depreciation; 

– disposals, mainly in reference to plants as a consequence of production rationalization; 

– depreciation, higher by 9.7 percent over 1998. 

Gross values include about Euros 61,339 thousand of assets which are no longer in use and are being held for transfer to 

other Group companies or disposal to outside parties. 

III) Financial assets 

“Investments in subsidiaries” amount to Euros 8,863 thousand and refer to the following: 


Company Country % of holding Amount 

Tianjin Top Power Cables Co. Ltd Cina 51.15% 5,243 

Kabel Keszletertekesito BT. Hungary 100.00% 3,299 

“Kabel” Gepgyarto Epitoipari Es Szolgaltato KFT. Hungary 100.00% 28 

AFCAB Holdings (Proprietary) Ltd South Africa 50.00% 197 

Pirelli Cables and Systems N.V. Holland 100.00% 50 

Pirelli Cables and Systems OY Finland 100.00% 10 

Pirelli Kabelwerke und Systeme GmbH Austria 100.00% 36 

Total 8,863 



The investments in Tianjin Top Power Cables Co. Ltd and Kabel Keszletertekesito BT have not been consolidated on a lineby-line 

basis in the December 31, 1999 financial statements as it was not possible to obtain the necessary information on a 

timely basis. The remaining investments have not been consolidated line-by-line as the companies have only recently been 

set up and, in any case, are not material to the financial statements. 

“Investments in associated companies” amount to Euros 29,269 thousand, and show a reduction compared to Euros 

32,143 thousand at the end of the prior year, mainly as a result of the sale of the investment in Eurofly Service S.p.A. by 

Pirelli S.p.A.; the most important investments refer to the following (in thousands of euros): 

• Drahtcord Saar GmbH & Co. K.G. (Germany) Euro/000 5,962 

• Rodco Ltd (United Kingdom) ” 5,025 

• Upper Bright Ltd (British Virgin Islands) ” 4,838 

• SICREM S.p.A. (Italy) ” 3,644 

• Kabeltrommel Gesellschaft mbH & Co. K.G. (Germany) ” 3,084 

• K.M.P. Cabos Especiais e Sistemas Ltda (Brazil) ” 2,786 

• SMP Melfi S.r.l. (Italy) ” 2,760 

• Maristel S.p.A. (Italy) ” 511 

• Trelleborg Wheel System S.p.A. (Italy) ” 413 

• Other minor amounts ” 246 

Euro/000 29,269 

“Investments in other companies” amount to Euros 91,592 thousand and include Euros 51,076 thousand of stocks owned 

in companies listed on the stock exchange and held in the portfolios of Pirelli S.p.A., Trefin S.r.l. and Pirelli Cavi e Sistemi 

S.p.A.. The investments consist of stocks in Mediobanca, Sirti, Cartiere Burgo, Impregilo, Società Metallurgica Italiana, 

Generale Industrie Metallurgiche, Compagnia Finanziaria De Benedetti, Banca Commerciale Italiana, Banca Intesa. 

“Financial receivables from other companies” amount to Euros 60,799 thousand, and include: 

– Euros 11,013 thousand of fixed rate loans; the carrying value approximates fair value at the end of the year; 

– Euros 40,916 thousand of fixed rate obligatory deposits; 

– Euros 5,614 thousand of floating rate loans; 

– Euros 2,292 thousand of non-interest bearing guarantee deposits; 

– Euros 964 thousand of non-interest bearing loans. 

Receivables due beyond five years total Euros 45,019 thousand. 

“Other securities” total Euros 21,295 thousand and largely relate to long-term securities held by Pirelli Financial Services 

Company N.V.. 

“Treasury shares” amount to Euros 335,706 thousand, compared to Euros 151,093 thousand in the prior year. They refer 

to No. 173,074,249 ordinary shares, equal to 8.72 percent of share capital (9.12 percent of ordinary shares). The number 

of treasury shares in portfolio include No. 66,671,014 ordinary shares coming from the merger of Société Internationale 

Pirelli S.p.A. in Pirelli S.p.A.. 

As provided by art. 2357-ter of the Italian Civil Code, a “reserve for treasury shares in portfolio” has been established 

for the same amount. 



C) Current assets 

I) Inventories 

Inventories total Euros 1,135,870 thousand, compared to Euros 1,107,349 thousand in the prior year, and may be analyzed 

as follows: 


12.31.1999 12.31.1998 

• Cables and Systems Sector 689,144 734,169 

• Tyres Sector 446,722 373,174 

• Other 4 6 

Total 1,135,870 1,107,349 

II) Receivables 

Receivables rose from Euros 2,305,089 thousand in the prior year to Euros 2,675,194 thousand at the end of 1999, 

and can be analyzed as follows: 


12.31.1999 12.31.1998 

Financial Trade and other Financial Trade and other 

• Trade 1,509,676 1,279,457 

• Subsidiaries 563 5,694 

• Associated companies 4,650 22,976 7,003 40,910 

• Parent companies 33,102 94 258,868 12,223 

• Other receivables 224,763 879,370 162,745 538,189 

262,515 2,412,679 428,616 1,876,473 

Specifically: 

– Trade receivables from customers: these may be analyzed by due date as follows: 


12.31.1999) 12.31.1998) 

• due within 12 months 1.592.065) 1.341.630) 

• due beyond 12 months 1.053) 10.186) 

• less: allowance for doubtful receivables (83.442) (72.359) 

1.509.676) 1.279.457) 

No receivables are due beyond five years. 

The carrying value of receivables, adjusted for probable future losses, approximates estimated fair value at the end 

of the year. 

– Receivables from associated companies: as for financial receivables, these include a loan made to Drahtcord Saar 

Gmbh & Co. K.G. by Pirelli Deutschland A.G. (Euros 4,022 thousand). 

As for trade receivables, the most significant amount refers to Maristel S.p.A. (Euros 18,065 thousand compared to Euros 

23,126 thousand at December 31, 1998) consequent to transactions with Pirelli Cavi e Sistemi S.p.A. and Trelleborg Wheel 

Systems S.p.A. (Euros 4,760 thousand) as a result of transactions with Pirelli Pneumatici S.p.A.. 

All amounts are due within one year. 

– Receivables from parent companies: these amount to Euros 33,196 thousand and mainly relate to the financial 

receivables of Pirelli Finance (Luxembourg) S.A. from Pirelli & C. Luxembourg S.A. (Euros 33,102 thousand). 



– Other receivables: other receivables include financial receivables of Euros 224,763 thousand primarily consisting of 

receivables from banks on forward exchange transactions and receivables from companies in the Pirelli & C. A.p.A. 

Group; the carrying value approximates the fair value at the end of the year. 

“Other receivables - Trade and other”, which amount to Euros 879,370 thousand, include the balance of deferred tax 

assets of Euros 115,184 thousand, amounts due from the tax authorities of Euros 448,091 thousand; receivables from the 

sale of fixed assets of Euros 11,353 thousand; advances to suppliers of Euros 21,171 thousand; receivables from 

employees of Euros 7,584 thousand and receivables from social security agencies, export refunds and other minor 

amounts of Euros 276,007 thousand. 

The amount due beyond one year and within five years is Euros 90,255 thousand, while receivables due beyond five years 

total Euros 28,230 thousand. 

III) Current financial assets 

– Other securities: other securities amount to Euros 221,054 thousand and consist of: 

• Euros 51,573 thousand of floating rate securities issued and guaranteed by banking institutions; 

• Euros 10,608 thousand of fixed rate securities issued and guaranteed by governments of various countries; 

• Euros 42,024 thousand of equity shares intended for sale; 

• Euros 115,605 thousand of fixed rate securities issued and guaranteed by banking institutions; 

• Euros 1,244 thousand of fixed rate bonds; 

The securities are held in safe-keeping at leading banking institutions. 

IV) Cash and banks 

– Bank and postal deposits: bank and postal deposits are concentrated in the financial companies, holding companies 

and subholding companies of the Group. Available liquidity is mainly invested in the short-term deposits market at leading 

banking counterparts primarily at interest rates reflecting the market rates at year-end. 

D) Accrued income and prepaid expenses 

– Accrued income: accrued income went from Euros 158,123 thousand to Euros 79,265 thousand. The amount is 

determined on the accrual basis and mainly relates to the portion of exchange differences on hedging transactions (Euros 

36,708 thousand), insurance (Euros 13,802 thousand), interest income and hedging revenues. 

– Prepaid expenses: prepaid expenses went from Euros 21,381 thousand at December 31, 1998 to Euros 34,781 thousand 

at December 31, 1999 and mainly refer to prepaid insurance, property rent, etc.. 



Liabilities and shareholders’ equity 

A) Shareholders’ equity 

Of Pirelli S.p.A. 

“Share capital” totals Euros 1,032,152 thousand and consists of No. 1,896,902,473 ordinary shares and 88,006,016 savings 

shares, all with a par value of Euros 0.52 per share and normal dividend rights. 

The “share premium reserve” went from Euros 461,727 thousand to Euros 270,083 thousand; the change can principally 

be ascribed to the withdrawal of Euros 184,613 thousand to integrate the “Reserve for treasury shares in portfolio” for the 

purchase of shares made during the year and Euros 7,031 thousand for the translation of share capital into Euros. 

The “revaluation reserves”, ex law No. 413/1991, have remained unchanged compared to the prior year. 

The “consolidation reserve” amounts to Euros 29,271 thousand (Euros 142,325 thousand in the prior year) and represents 

the difference between the carrying value of equity investments in consolidated companies and the underlying share of net 

equity. The reduction during the year is principally due to the effect of the merger of Société Internationale Pirelli S.p.A. in 

Pirelli S.p.A.. 

The changes in shareholders’ equity are presented on page 89. 

Minority interest 

The minority interest in shareholders’ equity is equal to Euros 179,042 thousand, compared to Euros 170,183 thousand in the 

prior year. The increase is mainly attributable to the line-by-line consolidation of the new acquired companies (Alexandria 

Tire Co. S.A.E., P. & A.K.K., Türk Pirelli Kablo ve Sistemleri A.S.), countered by a reduction due to the further 50 percent 

investment in F.O.S. - Fibre Ottiche Sud S.p.A., the balance between the increase for 1999 net income and the payment of 

dividends referring to the prior year and the translation adjustment for conversion of financial statements into Euros. 

The percentage ownership of investments held by the minority interest is as follows: 

12.31.1999 12.31.1998 

Celikord A.S. (Turkey) 49.00% 49.00% 

Sicable S.A. (Ivory Coast) 49.00% 49.00% 

Pirelli Cables Australia Ltd (Australia) 49.00% 49.00% 

Türk Pirelli Lastikleri S.A. (Turkey) 37.81% 37.81% 

Pirelli Pneus S.A. (Brazil) 13.03% 13.23% 

Pirelli Cabos S.A. (Brazil) 14.92% 15.08% 

Pirelli Tyre Holding N.V. (The Netherlands) 0.18% 0.19% 

Pirelli Deutschland A.G. (Germany) 1.06% 1.06% 

Pirelli de Venezuela C.A. (Venezuela) 3.78% 3.78% 

Solac Soc. Laminadora Ltda (Brazil) 11.00% 11.00% 

P & A K.K. (Japan) 49.00% – 

Türk Pirelli Kablo ve Sistemleri A.S. (Turkey) 16.25% – 

Alexandria Tire Co. S.A.E. (Egypt) 35.43% – 

B) Provisions for liabilities and expenses 

Provisions for pensions and similar obligations 

These provisions include accruals for pensions, health care and other benefits in favor of employees, not governed by 

specific laws but covered by local labor agreements and benefit plans operating at some Group companies. 

They also include, in accordance with FAS 106, funds to cover the payment of future benefits which United States 

companies must set aside that are being amortized prospectively over a period of 20 years. At December 31, 1999, the 

liabilities still to be accrued for this purpose amount to Euros 19,610 thousand. 



Provisions for income taxes 

The provisions for income taxes include accruals relating to income taxes likely to be incurred but uncertain as to the 

amount or as to the date on which they will arise, as well as deferred taxation, as follows: 


12.31.1999 12.31.1998 

• Provision for current taxes 26,237 30,329 

• Provision for deferred taxes 126,186 109,118 

152,423 139,447 

The tax charge for the year is composed of the following: 


12.31.1999) 12.31.1998 

• Current taxes 98,330) 121,650 

• Deferred taxes (7,259) 6,763 

91,071) 128,413 

Income taxes represented 23 percent of pretax income of the Group (compared to 32 percent last year), less than the 

average tax rate in the various countries in which the Group operates, mainly made possible by the utilization of tax loss 

carryforwards and the recording of deferred tax assets generated during the period. 

Furthermore, by using dividend tax credits it was possible to recover a part of the income taxes payable by subsidiary 

companies. 

Current income taxes which are definite and certain in amount are shown under income taxes payable, whereas the income 

taxes paid in advance are shown under taxes receivable. 

The tax rates in the principal countries in which the Group operates are as follows: 

Europe: United States 35% 

Italy 41% Canada 43%-46% 

France 42% Australia 36% 

Spain 35% South America: 

Germany 45% Argentina 33% 

United Kingdom 30% Brazil 33% 

Turkey 41.5% Venezuela 34% 

Other provisions 

The movements during the year in other provisions are as follows: 


Restructuring costs) Other) Total) 

Balance at December 31, 1998 94,369) 76,238) 170,607) 

Translation difference 1,743) 691) 2,434) 

Utilization (87,677) (14,152) (101,829) 

Increase 140,423) 34,727) 175,150) 

Balance at December 31, 1999 148,858) 97,504) 246,362) 



Utilizations of the provision for restructuring costs were in respect of the Cables and Systems Sector for Euros 82,417 

thousand and the Tyres Sector for Euros 5,260 thousand. The balance of the provision relates to the Cables and Systems 

Sector for Euros 104,703 thousand and the Tires Sector for Euros 44,155 thousand. 

The increase in the provision for restructuring costs is mainly in reference to the reorganization plan for the industrial 

structures of the companies in the Cables and Systems Sector, also with regard to the recent acquisitions. 

The total of other provisions of Euros 97,504 thousand consists of accruals for litigation, industrial risks and claims, 

product warranties, and other contingencies. 

D) Payables 

Payables shows an increase from Euros 3,405,526 thousand to Euros 4,288,276 thousand and may be analyzed as follows: 


12.31.1999 12.31.1998 

Financial Trade and other Financial Trade and other 

• Bonds 500,004 500,020 

• Bank borrowings 1,288,076 910,229 

• Other financial companies 210,929 137,274 

• Advances from customers 323,900 366,091 

• Trade 1,164,801 923,611 

• Subsidiaries 44 

• Associated companies 4,114 18,994 1,766 10,597 

• Parent companies 101,956 532 29,675 11 

• Taxes 286,533 230,996 

• Social security 51,276 46,118 

• Other payables 337,117 249,138 

2,105,079 2,183,197 1,578,964 1,826,562 

An analysis of payables by due date is as follows: 

Financial payables 


12.31.1999 12.31.1998 

within beyond within beyond 

1 year 1 year 1 year 1 year 

• Bonds 4 500,000 20 500,000 

• Bank borrowings 357,186 930,890 336,019 574,210 

• Other financial companies 162,232 48,697 120,911 16,363 

• Associated companies 4,114 1,766 

• Parent companies 101,956 29,675 

625,492 1,479,587 488,391 1,090,573 

Financial payables are covered by liens and mortgages for Euros 357,477 thousand. 

Financial payables due beyond five years total Euros 619,827 thousand. 

Additional disclosure is provided as follows: 



Bonds 

These refer to the Pirelli S.p.A. 1998-2008 bonds of Euros 500 million, issued on October 21, 1998 with interest at 4.875 

percent. 

Bank borrowings 

Bank borrowings due within one year amount to Euros 357,186 thousand and include the current portion of long-term debt 

for Euros 35,790 thousand. 

Bank borrowings due beyond one year amount to Euros 930,890 thousand and consist of floating rate loans for Euros 

345,931 thousand and fixed rate loans for Euros 584,959 thousand. 

Payables to other financial companies 

The amount due beyond one year includes an amount of Euros 37,718 thousand payable after five years. 

Payables to associated companies 

As regards financial payables, the amount refers to loans payable by Pirelli Cavi e Sistemi S.p.A. to Maristel S.p.A.. 

Payables to parent companies 

These primarily refer to current account transactions between Pirelli Servizi Finanziari S.p.A. and Pirelli & C. A.p.A. (Euros 

101,946 thousand). 

Trade and other payables 


12.31.1999 12.31.1998 

within beyond within beyond 

1 year 1 year 1 year 1 year 

• Advances from customers 323,900 366,091 

• Trade 1,164,801 923,611 

• Subsidiaries 44 

• Associated companies 18,994 10,597 

• Parent companies 532 11 

• Taxes 207,139 79,394 198,430 32,566 

• Social security 47,343 3,933 46,118 

• Other payables 306,557 30,560 231,148 17,990 

2,069,310 113,887 1,776,006 50,556 

Payables to associated companies 

As for trade payables, the most significant amounts refer to SICREM S.p.A. (Euros 7,638 thousand), Trelleborg Wheel 

Systems S.p.A. (Euros 7,684 thousand), Drahtcord Saar Gmbh & Co. K.G. (Euros 1,077 thousand), Maristel S.p.A. 

(Euros 2,339 thousand). 



Payables to parent companies 

These refer to amounts payable by Pirelli S.p.A. to Pirelli & C. A.p.A. for corporate secretarial services. 

Other payables 

These amount to Euros 337,117 thousand and include payables to employees for Euros 63,615 thousand, guarantee 

deposits from customers for packaging for Euros 22,645, legal and consulting fees for Euros 9,684 thousand, purchases 

of fixed assets for Euros 36,408 thousand, notes payable for Euros 40,542 thousand and other minor items for Euros 164,223 

thousand. 

E) Accrued liabilities and deferred income 

Accrued liabilities 

Accrued liabilities went from Euros 313,571 thousand to Euros 264,050 thousand and include the portion of exchange 

differences on hedging transactions (Euros 39,222 thousand), property leases payable, hedging costs, etc.. 

Deferred income 

Deferred income went from Euros 14,134 thousand to Euros 23,956 thousand and include advance installment payments. 



MEMORANDUM ACCOUNTS 

Memorandum accounts total Euros 1,243,025 thousand compared to Euros 1,397,668 thousand in the prior year. 

Personal guarantees 

Sureties on behalf of other companies 

These are mainly given to guarantee loans received and job orders in the process of being delivered or tested. 

Third party assets held in deposit 

Securities held in deposit 

These include securities stated at par value, owned by third parties and held in deposit by Pirelli S.p.A., in addition to 

securities entrusted for administration. 

Assets held by third parties 

Securities held as guarantees and sureties 

These include securities owned by the Group and held by third parties in deposit as guarantees or entrusted for 

administration and sureties given by Pirelli S.p.A. against commitments and contractual obligations. 

FINANCIAL INSTRUMENTS 

It is the Group’s policy to reduce financial risks deriving from international activities conducted in research, manufacturing 

and distribution through operating and financial management decisions. 

To this end, the Group uses forward exchange contracts and derivatives to protect its operating results from 

unfavorable fluctuations regarding exchange and interest rates and the prices of raw materials. The Group has a policy 

of being party to financial instruments in the normal course of business and not for speculative purposes. With an overall 

view towards reducing exposure to risk the Group deals exclusively with leading bank counterparts and in highly liquid 

instruments. 

Outstanding financial instruments and related fair values at December 31, 1999 are presented in the following table together 

with maturity dates: 

(in millions of euros) 

Gross contractual amounts Fair Maturing within Maturing beyond 

(at year-end exchange rates) value one year one year 

Exchange rate risk 

• Forward contracts 3,556 3,630 3,625 5 

• Futures contracts 79 79 79 – 

• Swaps contracts 67 69 69 – 

• Other contracts 20 20 20 – 

Interest rate risk 

• Interest rate swaps 90 91 91 – 

Raw materials price risk 

• Futures contracts 26 32 32 – 

The fair value of the financial instruments used to hedge exchange, interest rate and materials price risks approximates the 

fair value of the positions being hedged. 



CONSOLIDATED STATEMENTS OF INCOME 

A) Production value 

Revenues from sales and services 

The distribution of sales by geographic area of destination and industry sector are reported in the following table: 


12.31.1999 12.31.1998 

Geographic area 

Europe: 

• Italy 771,924) 11.91%) 820,756) 14.96%) 

• Other European countries 2,945,560) 45.44%) 2,167,367) 39.50%) 

North America 986,737) 15.22%) 762,876) 13.90%) 

Central and South America 1,128,686) 17.41%) 1,236,515) 22.54%) 

Oceania, Africa and Asia 649,428) 10.02%) 499,068) 9.10%) 

6,482,335) 100.00%) 5,486,582) 100.00%) 

Sector 

Cables and Systems 3,920,956) 60.49%) 2,787,102) 50.80%) 

Tyres 2,558,777) 39.47%) 2,694,633) 49.11%) 

Other sectors 74,831) 1.15%) 82,116) 1.50%) 

Inter-eliminations (72,229) (1.11%) (77,269) (1.41%) 

6,482,335) 100.00%) 5,486,582) 100.00%) 

The distribution of sales by destination and by major product category for the two sectors has been commented on in the 

Directors’ report on operations. 

Other revenues and income 

The caption “miscellaneous” includes rent income, commissions, insurance indemnities and refunds, gains from the 

ordinary disposal of property, plant and equipment and other minor items. 

B) Production costs 

Service expenses 

Service expenses total Euros 1,041,311 thousand and include selling expenses of Euros 286,903 thousand, ordinary 

maintenance of Euros 53,489 thousand, outside processing costs of Euros 113,091 thousand, electrical power of Euros 

120,851 thousand, EDP expenses of Euros 38,897 thousand, insurance of Euros 31,663 thousand, consulting fees of Euros 

33,959 thousand, technical assistance and other minor expenses. 

Lease and rent expenses 

Lease and rent expenses mainly consist of rent expenses of Euros 46,066 thousand, operating lease installments of Euros 

11,184 thousand and patent utilization rights of Euros 5,454 thousand. 



Personnel costs 

Personnel costs consist of the following: 


12.31.1999 12.31.1998 

Salaries and wages 1,109,332 1,034,499 

Social security costs 237,565 220,386 

Leaving indemnity 36,116 31,348 

Pension and similar costs 6,475 18,577 

Other costs 29,184 30,267 

1,418,672 1,335,077 

Amortization, depreciation and write-downs 

The depreciation charge for property, plant and equipment may be analyzed as follows: 


12.31.1999 12.31.1998 

Buildings 30,682 34,342 

Plant and machinery 207,479 188,459 

Commercial and industrial equipment 40,992 32,095 

Other assets 32,969 29,563 

312,122 284,459 

Other operating expenses 

Other operating expenses rose from Euros 140,345 thousand to Euros 232,744 thousand and include administrative expenses 

of Euros 19,054 thousand, travel expenses of Euros 61,763 thousand, revenue stamps and local taxes of Euros 31,857 

thousand, losses on the elimination of property, plant and equipment of Euros 1,405 thousand, legal fees of Euros 8,667 

thousand, association dues of Euros 8,138 thousand, entertainment, audit fees and other minor expenses. 

C) Financial income and expenses 

Investment income 

Investment income refers to dividends received from equity investments in other companies. 

Other financial income 

“Income other than the above” consists of the following: 


12.31.1999 12.31.1998 

Interest from associated companies 1,019 394 

Interest from parent companies 3,952 2,586 

Bank interest and other interest 96,127 61,078 

Other financial income from parent companies – 149 

Miscellaneous financial income 71,039 74,126 

Gains on exchange 162,666 82,666 

334,803 220,999 

Miscellaneous financial income includes revenues on forward contracts, gains on the sale of fixed rate securities, interest 

on receivables to be collected from the tax authorities and other minor financial income. 



Interest and other financial expenses 

These expenses include: 


12.31.1999 12.31.1998 

Interest to associated companies 330 113 

Interest to parent companies 3,640 1,117 

Bond interest 28,942 4,740 

Bank interest and interest to other financial companies 101,871 86,246 

Other financial interest to parent companies 7,421 10,981 

Miscellaneous financial expenses 97,473 74,545 

Losses on exchange 162,923 95,769 

402,600 273,511 

Miscellaneous financial expenses include costs on forward contracts, losses on the sale of fixed rate securities, bank 

commissions, etc. 

Financial expenses, net, with specific reference to currency transactions, again reflect increased currency operations by 

Group companies in 1999, which led to an increase in losses on exchange and a corresponding increase in related gains on 

exchange, as seen in the preceding table. 

Financial expenses, net, excluding amounts not directly associated with receivables and payables, amount to Euros 33,685 

thousand. 

E) Extraordinary items 

Extraordinary income 

Extraordinary income amounts to Euros 223,350 thousand compared to Euros 52,709 thousand in the prior year, and may be 

analyzed as follows: 


12.31.1999 12.31.1998 

Gains on disposal 106,563 11,355 

Miscellaneous 116,787 41,354 

223,350 52,709 

“Gains on disposals” include gains on the sale of property, plant and equipment for Euros 16,373 thousand, of which Euros 

10,307 thousand derive from the sale of a building complex by Pirelli Cavi e Sistemi S.p.A. to companies in the Pirelli & C. 

A.p.A. Group, Euros 1,748 thousand from the sale of buildings in the Bicocca area by Pirelli S.p.A. to companies in the 

Pirelli & C. A.p.A. Group, Euros 2,425 thousand from the sale of the business segment by Turk Pirelli Kablo ve Sistemleri 

A.S. and Euros 1,796 thousand from the sale of the warehouse by Turk Pirelli Lastikleri A.S.. The gains on the sale of 

financial assets, equal to Euros 90,190 thousand, include Euros 85,067 thousand of gains by Pirelli S.p.A. from the sale of 

ordinary shares referring to Banca Commerciale Italiana S.p.A., BHF, Eurofly Service S.p.A. and Consortium S.p.A., and 

Euros 4,983 thousand of gains by Trefin S.r.l. from the sale of Banca Commerciale Italiana S.p.A. ordinary shares. 

“Miscellaneous” includes Euros 85,000 thousand relating to the recording of deferred tax assets, Euros 5,280 thousand 

released from the provisions for liabilities and expenses accrued in prior years, Euros 26,507 thousand of prior period 

items deriving from the positive outcome of litigation (Titan), the Invim refund for 1980, insurance refunds and other 

minor items. 



Extraordinary expenses 

Extraordinary expenses amount to Euros 134,502 thousand compared to Euros 60,482 thousand in the prior year, 

and may be analyzed as follows: 


12.31.1999 12.31.1998 

Losses on disposals 26,266 3,805 

Miscellaneous 108,236 56,677 

134,502 60,482 

“Losses on disposals” mainly include losses on the disposal of property, plant and equipment, and in particular Euros 

25,828 thousand for the write-off of assets damaged by the earthquake in Turkey. 

“Miscellaneous” includes Euros 85,789 thousand of reorganization and restructuring costs, Euros 4,379 thousand of 

inventory write-downs and the remaining Euros 18,068 thousand for claims, plant transfer expenses, donations other minor 

items. 

Other information 

Directors’ and statutory auditors’ fees 

Fees to the directors and statutory auditors of Pirelli S.p.A., who also carry out these functions in other companies included 

in consolidation, are as follows: 


Directors 6,824 

Statutory Auditors 196 

7,020 

Employees 

The average number of employees in companies included in consolidation, by category, is a follows: 

Management 671 

Staff 11,345 

Operatives 25,694 

Temporary employment 2.397 

40,107 



Exchange rates 

(local currency against Euros) (Italian lire against local currency) (*) 

Period-end Average Period-end Average 

Change 

Change 

12/31/1999 1999 12/31/1999 12/31/1998 in % 1999 1998 in % 

Europe 

Italian lira 1,936.27 1,936.27 – – –) – – –) 

German mark 1.95583 1.95583 990.00 990.00 0.00%) 990.00 986.88 0.32%) 

Dutch guilder 2.20371 2.20371 878.64 878.64 0.00%) 878.64 875.48 0.36%) 

French franc 6.55957 6.55957 295.18 295.18 0.00%) 295.18 294.41 0.26%) 

Spanish peseta 166.386 166.386 11.64 11.64 0.00%) 11.64 11.62 0.15%) 

Belgian franc 40.3399 40.3399 48.00 48.00 0.00%) 48.00 47.84 0.33%) 

British pound 0.62170 0.66021 3,114.48 2,763.16 12.71%) 2,932.81 2,886.25 1.61%) 

Swiss franc 1.6051 1.6002 1,206.32 1,208.41 (0.17%) 1,210.02 1,198.74 0.94%) 

Greek drachma 330.300 325.581 5.86 5.80 1.07%) 5.95 5.88 1.14%) 

North America 

American dollar 1.0046 1.0680 1,927.40 1,653.10 16.59%) 1,812.99 1,737.71 4.33%) 

Canadian dollar 1.4608 1.5881 1,325.49 1,066.17 24.32%) 1,219.24 1,168.51 4.34%) 

South America 

Brazilian real 1.7972 1.9393 1,077.36 1,368.12 (21.25%) 998.45 1,497.87 (33.34%) 

Argentine peso 1.0046 1.0680 1,927.40 1,653.10 16.59%) 1,812.99 1,737.71 4.33%) 

Oceania 

Australian dollar 1.5422 1.6554 1,255.53 1,013.35 23.90%) 1,169.67 1,095.83 6.74%) 

Africa 

Ivory Coast franc 655.957 655.957 2.95 2.95 (0.01%) 2.95 2.94 0.40%) 

(*) the exchange rates are also shown in Italian lire against local currency to allow comparison of the data with the corresponding periods 

of the prior year 

Net financial position 

The composition of the net debt position presented below, which shows an increase compared to the prior year, was 

commented on in the introduction to the report: 


12.31.1999) 12.31.1998) 

Short-term financial payables 625,492) 488,391) 

Accrued interest expenses 18,011) 17,560) 

Cash and banks (502,468) (513,226) 

Other securities (221,054) (300,411) 

Short-term financial receivables (262,515) (428,616) 

Accrued interest income (9,143) (13,224) 

Capital subscription rights – portion called up (24) (20) 

Net short-term financial position (351,701) (749,546) 

Medium/long-term financial payables 1,479,587) 1,090,573) 

Medium/long-term financial receivables (89,502) (57,986) 

Other securities (21,295) (17,945) 

Net medium/long-term financial position 1,368,790) 1,014,642) 

Net financial position 1,017,089) 265,096) 



R & D expenditures 

In 1999 the Group incurred research and development expenditures and technical management costs for a total of Euros 

200 million, entirely charged to operating expenses, compared to Euros 196 million in the prior year. 1999 expenditures 

represent 3.1 percent of consolidated sales revenues. 

The geographical breakdown of these expenditures is as follows: 

Europe 91% South America 4% 

North America 4% Oceania 1% 

A number of research programs are subsidized by the governments of various countries. In particular, in Italy, where the 

research activities are mainly concentrated, the projects financed under the various laws are numerous and apply, in 

differing proportions, to all sectors of activity. 



Supplementary information 



Consolidated statements of cash flows 

1/1-12/31/1999 1/1-12/31/1998 

Net debt at beginning of year (265,096) (247,120) 

Translation adjustments (22,420) (26,018) 

Operating profit 330,756) 412,355) 

Depreciation and amortization 347,713) 308,924) 

Increase in intangible assets (125,127) (36,557) 

Increase in property, plant and equipment (468,895) (415,313) 

Increase in financial assets (100,333) (46,041) 

Disposal of intangible assets 42) 70) 

Disposal of property, plant and equipment 44,872) 42,493) 

Disposal of financial assets 2,528) 1,574) 

Net investments (646,913) (453,774) 

Changes in inventories 3,038) (436,010) 

Changes in trade and other accounts receivable/payable 31,161) 358,157) 

Changes in working capital 34,199) (77,853) 

Changes in provisions for liabilities and expenses 33,985) 15,669) 

Other changes 14,082) (26,208) 

Free cash flow 113,822) 179,113) 

Extraordinary items, net 88,848) (7,773) 

Financial income/expenses (54,445) (2,178) 

Income taxes, net (91,071) (128,413) 

Purchase of treasury shares (105,741) (142,791) 

Other (295,892) 2,620) 

Cash flow before dividends (344,479) (99,422) 

Dividends paid (162,791) (153,949) 

Net cash flow (507,270) (253,371) 

Effects of the merger by incorporation in Pirelli S.p.A. of S.I.P. S.p.A. (229,338) –) 

Share capital increase Pirelli S.p.A. for conversion of bonds –) 261,058) 

Share capital increase (minority interests) 7,035) 355) 

Changes in share capital 7,035) 261,413) 


Changes in net debt (*) (751,993) (17,976) 

Net debt at end of year (1,017,089) (265,096) 

(*) Financed by: 

Increase (decrease) in long-term loans 354,148) 430,641) 

Increase (decrease) in short-term loans 307,730) (447,206) 

Decrease (increase) in cash and banks and cash equivalents 90,115) 34,541) 

751,993) 17,976) 



Consolidates statements of changes in shareholders’ equity 


Legal reserve 

other reserves 

Share 

retained earnings 

Share premium Consolidation net income for 

capital reserve reserve the year Total 

Balance at December 31, 1997 902,874 431,372) 245,882) 509,186) 2,089,314) 

Profit distribution, as per resolution of May 15, 1998: 

• dividends to shareholders (120,886) (120,886) 

• to directors (885) (885) 

Conversion of bonds 5% Lire 1,011,309,130,000 100,407 160,651) 261,058) 

Assignment of bonus shares to employees 20,917 (20,917) 

Reinstatement of share premium reserve 

for tax on equity 1997 32) 32) 

Withdrawal from share premium reserve to set up 

reserve for treasury shares in portfolio (130,328) 130,328) 

Adjustment to net equities of subsidiary companies 18,308) (90,666) (72,358) 

Translation adjustment (121,865) (121,865) 


Balance at December 31, 1998 1,024,198 461,727) 142,325) 654,847) 2,283,097) 

Profit distribution, as per resolution of May 24, 1999: 

• dividends to shareholders (140,081) (140,081) 

• to directors (1,396) (1,396) 

Translation adjustment for change from Lire to Euros 7,031 (7,031) 

Assignment of bonus shares to employees 923 (923) 

Effects of the merger by incorporation 

in Pirelli S.p.A. of S.I.P. S.p.A. (156,200) (156,200) 

Withdrawal from share premium reserve to set up 

reserve for treasury shares in portfolio (184,613) 184,613) 

Adjustment of net equities of subsidiary companies 8,477) (46,786) (38,309) 

Translation adjustment 34,669) 34,669) 


Balance at December 31, 1999 1,032,152 270,083) 29,271) 943,401) 2,274,907) 



Reconsiliation of net results and shareholders’ equity of Pirelli S.p.A. 

and corresponding consolidated figures 


Share 

Consolidation 

capital Reserves reserve Net income Total 

Pirelli S.p.A. 1,032,152 920,357 228,916) 2,181,425) 

Earnings for the year of consolidated companies 

(before consolidation adjustments) 256,020) 256,020) 

Capital and reserves of consolidated companies 

(before consolidation adjustments) 1,820,167) 1,820,167) 

Consolidation adjustments: 

– carrying value of investments in consolidated companies (1,843,180) (1,843,180) 

– intragroup dividends 237,284) (237,284) –) 

– other (185,000) 45,475) (139,525) 

Consolidated 1,032,152 920,357 29,271) 293,127) 2,274,907) 



List of investments 

Companies consolidated using the full consolidation method 

Percentage Percentage 

Company Activity Headquarters Share Capital ownership of vote Held by 

Subsidiaries 

Europe 

Austria 

Pirelli Gesellschaft mbH Tyres Vienna AS/000 10,000 100.00% Lunares S.A. 

Pirelli-Oekw GmbH (formerly 

Oekw Montagegesellschaft 

der Österreichischen 

Kabelwerke GmbH) Cables and Systems Vienna Euro 2,071,176 100.00% Pirelli Cable Holding N.V. 

Belgium 

Pirelli Tyres Belux S.A. Tyres Brussels Euro 694,102 100.00% Lunares S.A. 

France 

Cables Pirelli S.A. Cables and Systems Saint Maurice FF/000 900,000 100.00% Pirelli Cable Holding N.V. 

Eurelectric S.A. Cables and Systems La Bresse FF/000 26,325 100.00% Cables Pirelli S.A. 

Pirelli Optical Systems 

France S.A. (formerly Pirelli 

Exploitation S.A.) Cables and Systems Saint Maurice FF/000 36,250 100.00% Pirelli Optical Systems Holding B.V. 

Pneus Pirelli S.A. Tyres Puteaux Euro 3,062,400 100.00% Lunares S.A. 

Germany 

Bergmann Kabel und 

Leitungen GmbH Cables and Systems Schwerin DM/000 2,000 100.00% Pirelli Kabel und Systeme Holding GmbH 

Deutsche Pirelli Reifen 

Holding GmbH Financial Breuberg/Odenwald DM/000 15,050 100.00% Pirelli Tyre Holding N.V. 

ISO Ind. Spedition 

Odenwald GmbH Tyres Breuberg/Odenwald DM/000 50 100.00% Pirelli Reifenwerke GmbH & Co. K.G. 

Materialverwertungsgesellschaft 

Breuberg GmbH Tyres Breuberg/Odenwald DM/000 50 100.00% Deutsche Pirelli Reifen Hold. GmbH 

Metzeler Reifen GmbH Tyres Breuberg/Odenwald DM/000 32,000 100.00% Pirelli Deutschland A.G. 

Pirelli Deutschland A.G. Tyres Breuberg/Odenwald Euro 26,075,886 98.94% Deutsche Pirelli Reifen Hold. GmbH 

Pirelli Kabel und Systeme 

Holding GmbH Cables and Systems Berlin DM/000 50 99.00% Pirelli Cable Holding N.V. 

1.00% Pirelli Cavi e Sistemi S.p.A. 

Pirelli Kabel 

Grundstücksverwaltungs GmbH Cables and Systems Berlin DM/000 50 100.00% Pirelli Kabel und Systeme Holding GmbH 


Beteiligungs GmbH Cables and Systems Berlin DM/000 50 100.00% Pirelli Kabel und Systeme Holding GmbH 


GmbH & Co. KG Cables and Systems Berlin DM/000 10,000 100.00% Pirelli Kabel und Systeme Beteiligungs GmbH 


Verwaltungs GmbH Cables and Systems Berlin DM/000 50 100.00% Pirelli Kabel und Systeme Beteiligungs GmbH 


Deutschland GmbH 

(formerly Pirelli Quante GmbH) Cables and Systems Wuppertal DM/000 6,050 100.00% Pirelli Optical Systems Holding B.V. 

Pirelli Reifenwerke 

GmbH & Co. K.G. Tyres Breuberg/Odenwald DM/000 70,001 100.00% Pirelli Deutschland A.G. 

Pirelli Reifenwerke 

Geschaeftsfuehrungs GmbH Services Breuberg/Odenwald DM/000 50 100.00% Deutsche Pirelli Reifen Hold. GmbH 

Pneumobil GmbH Tyres Breuberg/Odenwald DM/000 507 99.62% Pirelli Reifenwerke GmbH & Co. K.G. 

Veith Wohnungsbau GmbH Real estate Breuberg/Odenwald DM/000 250 100.00% Pirelli Deutschland A.G. 





Greece 

Antem Representations & 

Trading Co. Ltd. in liq. Tyres Athens Drs./000 1,000 100.00% Pirelli Hellas S.A. 

Diafimisis Roda Ltd 

(in liquidation) Advertising Athens Drs./000 3,000 99.33% Elastika Pirelli S.A. 

0.33% Antem Repr.&Trading Co Ltd 

Elastika Pirelli S.A. Tyres Athens Drs./000 557,000 99.90% Lunares S.A. 

0.10% Pirelli Pneumatici Holding S.p.A. 

Pirelli Hellas S.A. 

(in liquidation) Tyres Athens US $/000 22,050 79.86% Pirelli Tyre Holding N.V. 

Hungary 

MKM Magyar Kabel Muvek RT. Cables and Systems Budapest HUF/000 6,981,070 100.00% Pirelli Cable Holding N.V. 

Pirelli Construction Hungary 

Limited Cables and Systems Budapest HUF/000 1,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Hungary Tyre Trading 

and Services Limited Tyres Budaors HUF/000 1,000 100.00% Lunares S.A. 

Italy 

Centro Servizi Amministrativi 

Pirelli S.r.l. Services Milan Euro 51,000 100.00% Pirelli S.p.A. 

Fibre Ottiche Sud - 

F.O.S. S.p.A. Optical fibers Battipaglia (SA) Lire/mil. 10,000 100.00% Pirelli Cavi e Sistemi S.p.A. 

Fintheta S.p.A. Real estate Milan Euro 255,000 100.00% Pirelli S.p.A. 

Kallithea Immobiliare S.r.l. Real estate Milan Euro 10,400 100.00% Pirelli S.p.A. 

Istituto Piero Pirelli S.p.A. 

(in liquidation) Training Milan Euro 135,000 80.00% Pirelli S.p.A. 



Italagom S.r.l. Tyres Varese Lire/mil. 100 98.00% Agom S.A. Bioggio 

Neri Gomme & C. S.r.l. 

(in liquidation) Tyres Milan Lire/mil. 20 100.00% Sistema Puntogomme S.p.A. 

Pirelli Componenti Ottici S.p.A. 

(formerly Steelcord S.p.A.) Cables and Systems Milan Euro 510,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Cavi e Sistemi S.p.A. Cables and Syst. hold. c. Milan Euro 182,694,200 98.75% Pirelli S.p.A. 

1.25% Pirelli Société Générale S.A. 

Pirelli Informatica S.p.A. Information Systems Milan Euro 520,000 100.00% Pirelli S.p.A. 

Pirelli Metzeler Motovelo S.r.l. Tyres Milan Euro 4,590,000 100.00% Metzeler Reifen GmbH 

Pirelli Nastri Tecnici S.p.A. 

(in liquidation) Sundry Milan Euro 384,642 100.00% Pirelli S.p.A. 

Pirelli Optical Systems Italia 

S.r.l. (formerly Pirelli Optical 

Systems Italia S.p.A.) Cables and Systems Milan Euro 21,000,000 100.00% Pirelli Optical Systems Holding B.V. 

Pirelli Pneumatici 

Holding S.p.A. Financial Milan Euro 59,800,000 100.00% Pirelli Tyre Holding N.V. 

Pirelli Pneumatici S.p.A. Tyres Milan Euro 190,320,000 100.00% Pirelli Pneumatici Holding S.p.A. 

Pirelli Servizi Finanziari S.p.A. Financial Milan Euro 1,976,000 100.00% Pirelli S.p.A. 

P S F S.r.l. (in liquidation) Cables and Systems Milan Lire/mil. 198 51.00% Pirelli Cavi e Sistemi S.p.A. 

Pirelli Submarine Telecom 

System Italia S.r.l. (formerly 

Operazione Zara S.r.l.) Cables and Systems Milan Euro 10,400 100.00% Pirelli Cable Holding N.V. 

Polo Viaggi S.r.l. Travel Agency Milan Euro 46,800 100.00% Pirelli S.p.A. 





Servizi Aziendali Pirelli S.C.p.A. Services Milan Euro 104,000 93.00% Pirelli S.p.A. 


1.00% Pirelli Pneumatici S.p.A. 

1.00% Polo Viaggi S.r.l. 


Soc. Italiana Cavi Elettrici - 

Sice S.p.A. (in liquidation) Cables and Systems Milan Lire/mil. 10,000 100.00% Pirelli Cavi e Sistemi S.p.A. 

Sistema Puntogomme S.p.A. Tyres Milan Euro 3,060,000 100.00% Pirelli Pneumatici Holding S.p.A. 

Tortona Test Area S.p.A. 

(in liquidation) Tyres Milan Lire/mil. 1,000 100.00% Pirelli Pneumatici S.p.A. 

Trefin S.r.l. Financial Milan Euro 4,242,476 100.00% Pirelli S.p.A. 

Luxembourg 

Gamirco S.A. Financial Luxembourg SF/000 2,100 99.99% Pirelli Société Générale S.A. 

Pirelli Finance 

(Luxembourg) S.A. Financial Luxembourg Euro 270,228,168 100.00% Pirelli S.p.A. 

The Netherlands 

Pirelli Cable Holding N.V. Cables and Syst. hold. Delft Euro 272,515,065 100.00% Pirelli Cavi e Sistemi S.p.A. 

Pirelli Cable Overseas N.V. Cables and Systems Delft Euro 10,000,000 100.00% Pirelli Cavi e Sistemi S.p.A. 


Holding B.V. (formerly Pirelli 

Finance (Holding) N.V.) Cables and Systems Delft Euro 24,589,897 100.00% Pirelli Cable Holding N.V. 

Pirelli Tyre Holding N.V. Tyre holding comp. Amsterdam Nlg/000 1,240,880 99.82% Pirelli S.p.A. 

Pirelli Tyres Nederland B.V. Tyres Breukelen Euro 18,152 100.00% Lunares S.A. 

Sipir Finance N.V. Financial Rotterdam Euro 41,146,522 100.00% Pirelli Tyre Holding N.V. 

Poland 

Pirelli Polska Sp.zo.o. Tyres Warsaw Zloty 6,257,708,500 100.00% Lunares S.A. 

Portugal 

Desco Fabrica Portuguesa 

de Material Electrico 

e Electronico S.A. Cables and Systems Arcozelo Vngaia Escudos/000 309,000 70.91% Cables Pirelli S.A. 

29.09% Eurelectric S.A. 

Rumania 

Pirelli Romania Cabluri si 

Sisteme S.A. (formerly S.C. 

Elcaro S.A.) Cables and Systems Slatina RL/000 42,221,625 100.00% Pirelli Cable Holding N.V. 

Slovak Republic 

Kablo Bratislava Spol. S.R.O. Cables and Systems Bratislava SK 300,000,000 100.00% Pirelli Cable Holding N.V. 

Spain 

Fercable S.A. Cables and Systems Barcelona Ptas./000 600,000 100.00% Pirelli Cables y Sistemas S.A. 

Omnia Motor S.A. Pneumatici Barcelona Ptas./000 250,000 100.00% Pirelli Neumaticos S.A. 

Pirelli Cables y Sistemas S.A. Cavi e Sistemi Barcelona Ptas./000 5,700,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Neumaticos S.A. Pneumatici Barcelona Ptas./000 7,500,000 100.00% Pirelli Tyre Holding N.V. 

Pirelli Esmar S.A. Cavi e Sistemi Torredembarra Ptas./000 1,450,000 100.00% Pirelli Cables y Sistemas S.A. 

Sweden 

Pirelli Tyre Nordic AB (formerly 

Pirelli Scandinavia AB) Tyres Stockholm SK/000 950 100.00% Lunares S.A. 





Switzerland 

Agom S.A. Tyres Conthey SF/000 50 51.00% Lunares S.A. 

Agom S.A. Bioggio Tyres Bioggio SF/000 250 51.00% Lunares S.A. 

Agom S.A. Locarno Tyres Locarno SF/000 50 51.00% Lunares S.A. 

Agom S.A. Lugano Tyres Lugano SF/000 102 51.00% Lunares S.A. 

Biasi S.A. Tyres Lugano SF/000 250 51.00% Lunares S.A. 

Lunares S.A. Tyre holding comp. Basel SF/000 10,000 100.00% Pirelli Tyre Holding N.V. 

Pirelli Cables and Systems S.A. Cables and Systems Basel SF/000 500 95.00% Pirelli Cable Holding N.V. 

5.00% Pirelli Société Générale S.A. 

Pirelli Produkte Holding A.G. 

(formerly Pirelli Produkte A.G.) Cables and Systems Basel SF/000 9,500 100.00% Pirelli Cable Holding N.V. 

Pirelli Société 

de Services S.a.r.l. Financial Basel SF/000 50 100.00% Pirelli Société Générale S.A. 

Pirelli Société Générale S.A. Financial Basel SF/000 140,000 100.00% Pirelli S.p.A. 

Pirelli Tyre (Europe) S.A. Tyres Basel SF/000 1,000 100.00% Lunares S.A. 

RTS Ring Tread System 

(Suisse) S.A. Tyres Bioggio SF/000 50 51.00% Lunares S.A. 

Turkey 

Celikord A.S. Tyres Istanbul TL/mil. 3,490,000 50.47% Pirelli Tyre Holding N.V. 


0.27% Pirelli Deutschland A.G. 

Türk-Pirelli Lastikleri A.S. Tyres Istanbul TL/mil. 17,300,000 61.58% Pirelli Tyre Holding N.V. 

0.08% Pirelli Deutschland A.G. 

0.08% Pirelli UK Tyres Ltd 


0.08% Lunares S.A. 


0.08% Metzeler Reifen GmbH 

0.08% Pirelli Reifenwerke Gmbh & Co. K.G. 

0.08% Pirelli Neumaticos S.A. 

Türk-Pirelli Kablo ve Sistemleri 

A.S. (formerly Türk Siemens Kablo 

ve Elektrik Sanayii A.S.) Cables and Systems Mudania/Bursa TL/mil. 1,260,000 83.75% Pirelli Cable Holding N.V. 

Zalsan Zirai Arac Lastikleri A.S. Tyres Istanbul TL/mil. 5,000 70.00% Turk-Pirelli Lastikleri A.S. 


Aberdare Cables Ltd Cables and Systems London £/000 610 100.00% Pirelli General plc 

CTC 1994 Limited Tyres London £ 984 100.00% Central Tyre Ltd 

Central Tyre Ltd Tyres London £/000 100 100.00% Pirelli UK Tyres Ltd 

Courier Tyre Company Ltd Tyres London £/000 10 100.00% Pirelli UK Tyres Ltd 

CPK Auto Products Ltd Tyres London £/000 10 100.00% Pirelli UK Tyres Ltd 

P & AJ Limited 

(in liquidation) Cables and Systems London £/000 6,250 100.00% Pirelli General plc 

Focom Systems 

International Ltd Cables and Systems London £/000 10 100.00% Pirelli General plc 

Pirelli Cables Ltd Cables and Systems London £/000 100 100.00% Pirelli General plc 

Pirelli Construction 

Company Ltd Cables and Systems London £/000 8,000 100.00% Pirelli General plc 

Pirelli Focom Ltd Cables and Systems London £/000 6,447 100.00% Pirelli General plc 





PFN Limited (formerly Pirelli 

Focom Networks Ltd) Cables and Systems London £ 2 100.00% Pirelli General plc 

Pirelli General plc Cables and Systems London £/000 102,100 100.00% Pirelli UK plc “B” 

Pirelli Tyres Ltd Tyres London £/000 16,000 100.00% Pirelli UK Tyres Ltd 

Pirelli UK Employee Share 

Trustee Limited Financial London £ 2 100.00% Pirelli UK plc “C” 

Pirelli UK Finance Ltd Financial London £/000 6,969 100.00% Pirelli UK plc “C” 

Pirelli UK plc “A” Tyre holding comp. London £/000 57,354 100.00% Pirelli Tyre Holding N.V. 

Pirelli UK plc “B” Cables and Syst. hold. c. London £/000 54,299 100.00% Pirelli Cable Holding N.V. 

Pirelli UK plc “C” Finance holding comp. London £/000 11,626 100.00% Pirelli S.p.A. 

Pirelli UK Tyres Ltd Tyres London £/000 56,819 100.00% Pirelli UK plc “A” 

North America 

Canada 

Pirelli Cables and Systems Inc. Cables and Systems St Jean sur Richelieu Can.$/000 40,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Tire Inc. Tyres Ottawa Can.$/000 6,000 100.00% Lunares S.A. 

U.S.A. 

Metzeler Motorcycle Tire 

North America Corp. Tyres Seattle (Washington) US.$/000 150 100.00% Metzeler Reifen GmbH 

Pirelli Cables and Systems LLC Cables and Systems Wilmington (Delaware) US.$ 1 100.00% Pirelli North America Inc. “B” 

Pirelli Construction 

Services Inc. Cables and Systems Dover (Delaware) US.$/000 1 100.00% Pirelli Cables and Systems LLC 

Pirelli Jacobson Inc. Cables and Systems Dover (Delaware) US.$/000 2 100.00% Pirelli Cables and Systems LLC 

Pirelli Optical Systems North 

America Inc. (già 

Pirelli Newco, Inc.) Cables and Systems Wilmington (Delaware) US.$ 0.1 100.00% Pirelli Optical Systems Holding B.V. 

Pirelli North America Inc. “A” Tyres Wilmington (Delaware) US.$ 3 100.00% Pirelli Tyre Holding N.V. 

Pirelli North America Inc. “B” Cables and Systems Wilmington (Delaware) US.$ 7 100.00% Pirelli Cavi e Sistemi S.p.A. 

Pirelli Tire LLC Tyres Wilmington (Delaware) US.$ 1 100.00% Pirelli North America Inc. “A” 

Central/South America 

Argentina 

Fipla S.A. Cables and Systems Buenos Aires Peso 130 66.97% Pirelli Cons. Cond. Inst. SAIC 

Pirelli Consultora Conductores 

e Instalaciones S.A.I.C. Cables and Systems Buenos Aires Peso 2,227 100.00% Pirelli Cable Holding N.V. 

Pirelli Argentina 

de Mandatos S.A. Services Buenos Aires Peso/000 500 100.00% Pirelli Société Générale S.A. 

Pirelli Cables S.A.I.C. Cables and Systems Buenos Aires Peso/000 44,509 74.72% Pirelli Cons. Cond. Inst. SAIC 

24.69% Pirelli Cable Holding N.V. 

Pirelli Neumaticos S.A.I.C. Tyres Buenos Aires Peso/000 19,017 99.02% Pirelli Tyre Holding N.V. 


Tel 3 S.A. Cables and Systems Buenos Aires Peso/000 11,075 51.00% Pirelli Cables S.A.I.C. 

Brazil 

Muriae’ Ltda Financial Santo Andrè Real 80,000,000 100.00% Pirelli Pneus S/A 

Pirelli Pneus Nordeste Ltda Tyres Feira de Santana Real 29,991,402 100.00% Pirelli Pneus S/A 

Pirelli Produtos Especiais Ltda Cables and Systems Cerquilho Real 43,143,421 100.00% Pirelli Cabos S/A 

Pirelli S.A. Financial Santo Andrè Real 29,545,309 100.00% Pirelli S.p.A. 





Pirelli Pneus S/A Tyres Santo Andrè Real 264,618,982 42.45% 0.00% Pirelli Pneumatici S.p.A. 

41.32% 79.78% Pirelli Tyre Holding N.V. 

3.20% 0.00% Pirelli S.A. 

Pirelli Cabos S/A Cables and Systems Santo Andrè Real 153,367,981 73.81% 68.40% Pirelli Cavi e Sistemi S.p.A. 

11.28% 9.25% Pirelli S.A. 

Pneuac Comercial 

e Importadora Ltda Tyres San Paolo Real 12,913,526 100.00% Pirelli Pneus S/A 

Same da Amazonia Ltda Cables and Systems Manaus Real 48,291,480 99.99% Pirelli Cabos S/A 

0.01% Pneuac Com. e Import. Ltda 

Solac - Sociedade Laminadora 

de Cobre Ltda Cables and Systems Jacarei Real 8,485,100 89.00% Pirelli Cabos S/A 

Chile 

Pirelli E y T S.A. Cables and Systems Santiago Ch.Peso/000 600,000 60.00% Pirelli Instalaciones Chile S.A. 

Pirelli Instalaciones Chile S.A. Cables and Systems Santiago Ch.Peso/000 918,707 90.00% Pirelli Cons. Cond. Inst. SAIC 

10.00% Cite S.A. 

Pirelli Neumaticos 

Chile Limitada Tyres Santiago US.$/000 20 95.00% Pirelli Pneus S/A 

5.00% Pneuac Com. e Import. Ltda 

Columbia 

Pirelli de Colombia S.A. Tyres Santa Fe De Bogota Col.Peso/000 3,498,470 94.95% Pirelli Pneus S/A 

4.97% Pirelli de Venezuela C.A. 

Dutch Antilles 

Pirelli Financial Services 

Company N.V. Financial Curaçao US.$/000 11,000 100.00% Pirelli Société Générale S.A. 

Pirelli Insurance & 

Reinsurance Company N.V. Insurance Curaçao US.$/000 10,000 100.00% Pirelli Financ. Services Co. NV 

Mexico 

Pirelmex S.A. de C.V. Tyres Mexico City Mex. Peso 1,832,600 99.54% Pirelli Pneus S.A. 

0.46% Pneuac Comercial e Importadora Ltda 

Uruguay 

Cite S.A. Cables and Systems Montevideo Ur.Peso/000 4,900 100.00% Pirelli Cables S.A.I.C. 

Venezuela 

Neumaticos de Venezuela C.A. Tyres Caracas Bol. 4,650,980 96.21% Pirelli Tyre Holding N.V. 

Pirelli de Venezuela C.A. Tyres Valencia Bol./000 13,062,679 96.22% Pirelli Tyre Holding N.V. 

Africa 

Egypt 

Alexandria Tire 

Company S.A.E. Tyres Alexandria EGP 211,876,600 52.97% Pirelli Pneumatici Holding S.p.A. 


Ivory Coast 

SICABLE - Société Ivoirienne 

de Cables S.A. Cables and Systems Abidjan CFA Fr./mil. 740 51.00% Cables Pirelli S.A. 

Oceania 

Australia 

Pirelli Cables Australia Ltd Cables and Systems Liverpool - N.S.W. Austr.$/000 21,500 51.00% Pirelli Cavi e Sistemi S.p.A. 

Pirelli Tyres Australia Pty Ltd Tyres Pymble - N.S.W. Austr.$/000 150 100.00% Lunares S.A. 





New Zealand 

Pirelli Cables NZ Ltd Cables and Systems Auckland nz$/000 10 100.00% Pirelli Cables Australia Ltd 

Pirelli Tyres (NZ) Ltd Tyres Wellington nz$ 100 100.00% Pirelli Tyres Australia Pty Ltd 

Asia 

India 

Pirelli Cables (India) 

Private Limited Cables and Systems New Delhi Ind. Rupie10,000,000 100.00% Pirelli Cable Holding N.V. 

Indonesia 

PT Pirelli Cables Indonesia Cables and Systems Jakarta US$/000 50,000 99.30% Pirelli Cable Holding N.V. 

0.70% Pirelli Produkte Holding AG 

Japan 

P & A K.K. Tyres Tokyo Yen/000 1,700,000 51.00% Pirelli Tyre Holding N.V. 

Pirelli K.K. Tyres Tokyo Yen/000 40,000 100.00% Lunares S.A. 

Malaysia 

Submarine Cable Installation 

Sdn Bhd Cables and Systems Kuala Lumpur Ringgit/000 10 99.00% Pirelli Cavi e Sistemi S.p.A. 

1.00% Pirelli Cable Systems Pte Ltd 

Singapore 

Materials Purchasing Pte Ltd Tyres Singapore Sing$/000 250 100.00% Pirelli Tyre Holding N.V. 

Pirelli Asia Pte Ltd Tyres Singapore Sing$ 2 100.00% Lunares S.A. 

Pirelli Cable Systems Pte Ltd Cables and Systems Singapore Sing$/000 25 50.00% Pirelli General plc 

50.00% Pirelli Cable Holding N.V. 



Investments accounted for using the equity method 



Associated companies 

Europe 

Germany 

Drahtcord Saar 

Geschäftsführungs GmbH Tyres Merzig DM/000 60 50.00% Pirelli Deutschland A.G. 

Drahtcord Saar 

GmbH & Co. K.G. Tyres Merzig DM/000 9,000 50.00% Pirelli Deutschland A.G. 

Kabeltrommel Gesellschaft 

mbH & Co. K.G. Cables and Systems Colonia DM/000 20,000 27.48% Pirelli Kabel und Systeme GmbH & Co. KG 

Italy 

Axxium Italia S.r.l. Tyres Acqui Terme (AL) Lire/mil. 90 49.00% Sistema Puntogomme S.p.A. 

Maristel S.p.A. Cables and Systems Milan Lire/mil. 2,000 50.00% Pirelli Cavi e Sistemi S.p.A. 

Servizio Titoli S.r.l. Services Turin Lire/mil. 100 25.00% Pirelli S.p.A. 

SMP Melfi S.r.l. Tyres Melito (NA) Lire/mil. 6,800 50.00% Pirelli Pneumatici Holding S.p.A. 

Sicrem S.p.A. Tyres Pizzighettone (CR) Lire/mil. 18,000 33.33% Pirelli Pneumatici Holding S.p.A. 

Spain 

Optiwire S.L. Cables and Systems Barcellona Ptas./mil. 1 50.00% Pirelli Cables y Sistemas S.A. 


Rodco Ltd Cables and Systems Gravesend £/000 5,000 40.00% Pirelli General plc 


Argentina 

Lineas de Transmision 

de Buenos Aires S.A. Cables and Systems Buenos Aires Peso/000 12 20.00% Pirelli Argentina de Mandatos S.A. 

Brazil 

K.M.P. Cabos Especiais 

e Sistemas Ltda Cables and Systems San Paolo Real 6,600,916 40.00% Pirelli Cabos S.A. 

MCM Empreendimentos 

Imobiliaros - Empresa Pirelli 

& C. Ltda (formerly Milano 

Centrale Mercosul Ltda) Real estate Santo Andrè Real 2,000,000 30.00% Pirelli S.A. 

British Virgin Islands 

Upper Bright Ltd Cables and Systems Tortola US$/000 17,100 50.00% Pirelli Produkte Holding A.G. 

Asia 

China 

Pirelli Telecom Cables Co. 

Ltd Wuxi (già Wuxi Tong 

Ling Cable Company Ltd) Cables and Systems Xuelang Town US$/000 25,141 68.02% Upper Bright Ltd 

Arabia Saudita 

Sicew-Saudi Italian Co. 

for Electrical Works Ltd Cables and Systems Jeddah Saudi Rials/000 1,000 34.00% Pirelli Cable Holding N.V. 



Other investments in subsidiaries and associated companies 



Europe 

Austria 

Pirelli Kabelwerke 

und Systeme GmbH Cables and Systems Vienna AS/000 500 100.00% Pirelli Cavi e Sistemi S.p.A. 

Finland 

Pirelli Cables and Systems OY Cables and Systems Helsinki Euro 10,000 100.00% Pirelli Cable Holding N.V. 

France 

LDS France - Soc. de Transport 

et Distribution S.A. Distribution La Courneuve FF 657,500 100.00% Pirelli S.p.A. 

S.T.L. France S.a.r.l. 

(in liquidazione) Diversified Prod. Saint Maurice FF 56,600 70.67% Eurelectric S.A. 

29.33% Cables Pirelli S.A. 

Italy 

Trelleborg Wheel System S.p.A. Tyres Milan Lire/mil. 2,000 40.00% Pirelli Pneumatici S.p.A. 

Hungary 

Ipoly Kabeldob KFT. Cables and Systems Szecseny HF/000 36,330 25.16% MKM Magyar Kabel Muvek Rt. 

Kabel Keszletertekesito BT. Cables and Systems Budapest HF/000 1,239,841 100.00% MKM Magyar Kabel Muvek Rt. 

“Kabel” Gepgyarto Epitoipari 

Es Szolgaltato KFT. Cables and Systems Budapest HF/000 328,330 100.00% MKM Magyar Kabel Muvek Rt. 

MKM Balassagyarmati Kabelgyar 

KFT. (in liquidation) Cables and Systems Balassagyarmat HF/000 3,000 100.00% MKM Magyar Kabel Muvek Rt. 

MKM Erosaramu Kabelgyar 

KFT. (in liquidation) Cables and Systems Budapest HF/000 3,000 100.00% MKM Magyar Kabel Muvek Rt. 

MKM Kisteleki Kabelgyar 

KFT. (in liquidation) Cables and Systems Kistelek HF/000 3,000 100.00% MKM Magyar Kabel Muvek Rt. 


Pirelli Cables and Systems N.V. Cables and Systems Delft Euro 50,000 100.00% Pirelli Cable Holding N.V. 

Africa 

South Africa 

AFCAB Holdings 

(Proprietary) Ltd Cables and Systems Sandton Rands 4,000 50.00% Pirelli Cable Holding N.V. 

African Cables Ltd Cables and Systems Vereeniging Rands 9,886,098 100.00% AFCAB Holdings (Proprietary) Ltd 

ATC (Proprietary) Ltd Cables and Systems Brits Rands 632,912 21.00% African Cables Ltd 

Asia 

China 

Tianjin Top Power Cables 

Co. Ltd Cables and Systems Tianjin Municipality US$/000 13,100 51.15% Pirelli Cable Holding N.V. 


Venezuela 

Comercializadora de 

Neumaticos 2050 C.A. Tyres Valencia Bol. 100,000 100.00% Pirelli de Venezuela C.A. 

Oceania 

Australia 

Cable Management Australia 

Pty Ltd Cables and Systems Moss Vale Austr.$/000 300 50.00% Pirelli Cables Australia Ltd. 

MM Cables Energy Products 

Superannuation Pty Ltd Cables and Systems Sidney Austr.$ 2 100.00% Pirelli Cables Australia Ltd. 



Other investments considered significant as per Consob resolution no. 11971 of May 14, 1999 



Australia 

Optix Australia Ltd Cables and Systems Tottenham (Victoria) Austr.$ 4,000,000 15.00% Pirelli Cables Australia Ltd 

France 

Pneu Holding S.A. Tyre Grenoble FF 110,779,200 14.21% Sipir Finance N.V. 

Sci Croisly Société Civile Cables and Systems Saint Maurice FF 10,000 18.00% Cables Pirelli S.A. 

Germany 

Pirelli Energie Deutschland 

GmbH Cogeneration Breuberg/Odenwald DM 3,000,000 19.00% Pirelli Deutschland A.G. 

Italy 

Eurofly Service S.p.A. Services Caselle Torinese Lire/mil. 2,375 16.33% Pirelli S.p.A. 

F.C. Internazionale 

Milano S.p.A. Sport Milan Lire/mil. 50,194 13.25% Pirelli S.p.A. 

Hermes S.p.A. Financial Treviso Lire/mil. 900 16.67% Pirelli S.p.A. 


MB Venture Capital Fund I 

Participating Company G.N.V. Financial Amsterdam Euro 50,000 14.00% Pirelli Finance (Luxembourg) S.A. 

Tunisia 

Société Tunisienne des Industries 

de Pnéumatiques S.A. Tyres Tunis T.D. 28,979,500 15.83% Pirelli Pneumatici S.p.A. 

Turkey 

Turk-Pirelli Enerji A.S. Cogeneration Istanbul T.L. 900,000,000,000 13.98% Turk Pirelli Lastikleri A.S. 

4.99% Celikord A.S. 



Independent Auditors’ Report 





Extraordinary part of shareholders’ meeting 

Dear Shareholders, 

You have been called to the extraordinary shareholders’ meeting to examine two proposed resolutions authorizing the 

Directors to increase share capital by issuing shares to be assigned to the executives and cadres of the Group under the 

stock option plans. 

To this end, we would like to remind you that, with the resolution passed on May 15, 1998, you voted a series of resolutions 

connected to a program for the involvement of the Group’s employees in various aspects of risk capital tending to further 

develop a sense of allegiance and ensure a constant focus on the development of the Group. 

Among these resolutions, one was voted giving authorization to the issue – by the date of April 30, 2003 – of a maximum of 

45 million ordinary shares to be assigned to the executives and cadres of the Company and of the companies controlled by 

same and of those controlling same and likewise of the other companies controlled by the latter, in Italy and abroad, 

according to articles 2441 and/or 2349 of the Italian Civil Code. 

The Board of Directors, as authorized by the aforementioned resolution, in its meetings of February 2 and November 16, 

1999 voted two share capital increases by issuing of total No. 1,785,000 bonus ordinary shares which were assigned to the 

executives of the Group on the basis of having achieved certain goals. 

Again in 1999, a new incentive plan was started that consists in the assignment, to about 440 executives and cadres of the 

Group, of options for subscribing to the same number of issuing shares. 

The exercise of these options is linked to certain fixed goals being reached by each of the interested persons. 

As of March 20, 2000, after the options were exercised, a resolution was passed to issue No. 5,486,000 new shares (voted by 

the Board of Directors on December 20, 1999 and March 20, 2000, against which No. 3,343,000 shares have been subscribed 

to up to date). Options, moreover, are still outstanding for the subscription of a further No. 14,118,300 shares. 

Since the Directors feel it necessary to initiate new risk capital sharing plans, mainly based on the assignment of options for 

the purchase of shares, whose features take into account, on the one hand, the new tax legislation and, on the other hand, 

as preannounced in the aforementioned shareholders’ meeting, the tendency to favor employee loyalty, further inspiring a 

sense of allegiance to the Group, and encouraging the achievement of specific goals, we propose: 

– to confirm, up to a maximum limit of No. 14,118,300 shares, the above resolution in order to cover the eventual exercise 

of options that have so far been granted to executives and cadres; 

– at the same time, to authorize the Board of Directors, to issue, within the next five years, in one or more instances, up to 

a maximum of No. 150 million Pirelli S.p.A. ordinary shares; 

The following proposed resolution contains the procedures regarding the authorization for the directors. 

* * * * * 

We also propose to amend art. 23 of the by-laws to include a proviso allowing the payment of interim dividends, 

in accordance with the law, which had previously not been included. 

If in agreement with our proposal, we ask you to pass the following. 



First resolution 

“The shareholders’ meeting 

• having taken note of the proposal of the Directors; 

• having taken note that, as of today’s date, options have been assigned to executives and cadres of the Group for the 

purchase of No. 14,118,300 ordinary shares 

votes 

a) to confirm, up to a maximum limit of No. 14,118,300 ordinary shares that eventually could be issued against options for 

the subscription of ordinary shares of the Company that have so far been assigned to executives and cadres, the 

resolution voted by the shareholders’ meeting of May 15, 1998 authorizing the Board of Directors, pursuant to art. 2443 of 

the Italian Civil Code, to issue, in one or more instances, up to a maximum of 45 million Pirelli S.p.A. ordinary shares set 

aside for employees of the Group by the date of April 30, 2003; 

b) to authorize the Board of Directors, pursuant to art. 2443 of the Italian Civil Code, to issue, in one or more instances, up 

to a maximum of No. 150 million Pirelli S.p.A. ordinary shares by the date of March 31, 2005, to be assigned to the 

executives and cadres of the Company and its subsidiaries and also the parent companies and its subsidiaries, in Italy 

and abroad, according to articles 2441 and/or 2349 of the Italian Civil Code, in conformity with existing laws in the 

countries of the beneficiaries; in the case of shares assigned as a bonus, their value shall be withdrawn from the profits, 

eventually including that of retained earnings, as shown in the latest approved financial statements of the Company; in 

the case of shares assigned against payment, their unit price shall be between the par value of the share and that 

established at the time of assigning options to the employees to subscribe to the shares of the Company; 

c) to amend the next to the last paragraph of art. 5 of the by-laws as follows: 

“By the combined resolutions voted by the shareholders’ meetings of May 15, 1998 and ……… , 2000, the Directors were 

granted the power to issue up to a maximum of 14,118,300 ordinary shares, in one or more instances, by the date of April 

30, 2003, to be assigned to executives and cadres of the Company and of the companies controlled by same and of those 

controlling same and likewise of the other companies controlled by the latter, both in Italy and abroad, according to the 

terms of art. 2441 and/or 2349 of the Italian Civil Code”; 

d) to further amend art. 5 of the by-laws, adding the following paragraph before the last, as follows: 

“By resolution voted by the shareholders’ meeting of ………… , the Directors were granted the power to issue up to a 

maximum of 150 million ordinary shares, in one or more instances by the date of March 31, 2005, to be assigned to the 

executives and cadres of the Company and of the companies controlled by same and of those controlling same and 

likewise of the other companies controlled by the latter, both in Italy and abroad, according to the terms of art. 2441 

and/or 2349 of the Italian Civil Code”; 

e) to separately grant the Chairman and Deputy Chairman the fullest power to comply with all formalities so that the 

resolutions are approved under law, with the power to introduce any changes which are required for this purpose, also at 

the time of homologation. 

Second resolution 

“The shareholders’ meeting, having taken note of the proposal of the directors 

votes 

a) to amend art. 23 of the by-laws, adding the following after the last paragraph: “Interim dividends can be paid, in 

observance of the law”. 

b) “to separately grant the Chairman and Deputy Chairman the fullest power to comply with all formalities so that the 

resolutions are approved under law, with the power to introduce any changes which are required for this purpose, also at 

the time of homologation.” 

The Board of Directors 

Milan, March 20, 2000 



Amendments to by-laws 

Present wording 

Article 5 

The share capital is Euro 1,032,152,414.28 divided into No. 

1,896,552,473 ordinary shares and No. 88,006,016 savings 

shares, with a par value of Euro 0.52 each. 

With a resolution passed by the extraordinary general 

meeting held on the 15 May 1998 the Directors were granted 

the power to increase the share capital, in one or more 

instances, by a maximum amount of Euro 258,228,449.54 

and for a maximum time period of five years as from the 

date of the said resolution. 

The share capital increase may be carried out by issuing, 

also with a premium, both ordinary and savings shares, with 

the same features as those already outstanding and must be 

reserved for shareholders and holders of convertible bonds. 


meeting held on the 22 December 1998 the Directors were 

granted the power to issue bonds, in one or more instances, 

including bonds that are convertible both into ordinary 

shares or into savings shares, or with warrants valid for the 

underwriting of the said shares, for a maximum face value 

amount of Euro 516,456,899.08 and for a maximum time 

period of five years as from the date of the said resolution, 

with the consequent possible increase of the share capital 

serving the bond conversion. 

With a resolution passed by the shareholders’ meeting held 

on the 15 May 1998 the Directors were granted the power to 

issue up to a maximum of No. 45 million ordinary shares, in 

one or more instances, by the date of 30 April 2003 to be 

attributed to executives and cadres of the company and of 

the companies controlled by same and of those controlling 

same and likewise of the other companies controlled by the 

latter, both in Italy and abroad, pursuant to the terms of 

articles 2441 and/or 2349 of the civil code. 

In the event of the issue of bonds which are convertible into 

shares, the amount of share capital will be determined 

according to the extent to which conversion rights on same 

are exercised. 

New wording 

Article 5 

The share capital is Euro 1,032,152,414.28 divided into No. 

1,896,552,473 ordinary shares and No. 88,006,016 savings 

shares, with a par value of Euro 0.52 each. 


meeting held on the 15 May 1998 the Directors were granted 

the power to increase the share capital, in one or more 

instances, by a maximum amount of Euro 258,228,449.54 

and for a maximum time period of five years as from the 

date of the said resolution. 

The share capital increase may be carried out by issuing, 

also with a premium, both ordinary and savings shares, with 

the same features as those already outstanding and must be 

reserved for shareholders and holders of convertible bonds. 

With a resolution passed by the extraordinary general meeting 

held on the 22 December 1998 the Directors were granted the 

power to issue bonds, in one or more instances, including bonds 

that are convertible both into ordinary shares or into savings 

shares, or with warrants valid for the underwriting of the said 

shares, for a maximum face value amount of Euro 516,456,899.08 

and for a maximum time period of five years as from the date of 

the said resolution, with the consequent possible increase of the 

share capital serving the bond conversion. 

By the combined resolutions voted by the shareholders' 

meetings of 15 May 1998 and ……… 2000, the directors were 

granted the power to issue up to a maximum of 14,118,300 

ordinary shares, in one or more instances, by the date of 

April 30, 2003, to be assigned to executives and cadres of the 

Company and of the companies controlled by same and of 

those controlling same and likewise of the other companies 

controlled by the latter, both in Italy and abroad, according to 

the terms of art. 2441 and/or 2349 of the civil code. 

By resolution voted by the shareholders' meeting of ………… , 

the directors were granted the power to issue up to a 

maximum of 150 million ordinary shares, in one or more 

instances by the date of March 31, 2005, to be assigned to the 

executives and cadres of the Company and of the companies 

controlled by same and of those controlling same and 

likewise of the other companies controlled by the latter, both 

in Italy and abroad, according to the terms of art. 2441 and/or 

2349 of the Italian Civil Code. 

In the event of the issue of bonds which are convertible into 

shares, the amount of share capital will be determined 

according to the extent to which conversion rights on same 

are exercised. 



Present wording 

Article 23 

After all the appropriations to the reserves prescribed by 

law have been carried out, the annual profits shall be 

distributed as follows: 

– savings shares shall be attributed an amount of up to 

seven per cent of their par value; if, in any financial 

period, a dividend of less than seven per cent of the par 

value has been distributed to the savings shares, the said 

difference is calculated as an increase to be added to the 

preference dividend during the following two financial 

periods; 

– the Board of Directors is attributed an amount equivalent 

to 1% of the net profits remaining in excess of: 

a) the relevant appropriation to the legal reserve; 

b) the quota equivalent to 7% of the par value of the 

savings shares; 

c) the quota equivalent to 5% of the par value of paid-up 

share capital represented by ordinary shares; 

– any profits remaining after the aforesaid appropriations 

and provisions and which the meeting resolves to 

distribute, shall be distributed amongst all the shares in 

such a manner that the savings shares shall receive a total 

dividend which is increased, compared to the dividend 

received by the ordinary shares, by an amount equivalent 

to 2% of their par value. 

In the event of distribution of reserves, savings shares shall 

have the same rights as the other shares. 

New wording 

Article 23 

After all the appropriations to the reserves prescribed by 

law have been carried out, the annual profits shall be 

distributed as follows: 

– savings shares shall be attributed an amount of up to 

seven per cent of their par value; if, in any financial 

period, a dividend of less than seven per cent of the par 

value has been distributed to the savings shares, the said 

difference is calculated as an increase to be added to the 

preference dividend during the following two financial 

periods; 

– the Board of Directors is attributed an amount equivalent 

to 1% of the net profits remaining in excess of: 

a) the relevant appropriation to the legal reserve; 

b) the quota equivalent to 7% of the par value of the 

savings shares; 

c) the quota equivalent to 5% of the par value of paid-up 

share capital represented by ordinary shares; 

– any profits remaining after the aforesaid appropriations 

and provisions and which the meeting resolves to 

distribute, shall be distributed amongst all the shares in 

such a manner that the savings shares shall receive a total 

dividend which is increased, compared to the dividend 

received by the ordinary shares, by an amount equivalent 

to 2% of their par value. 

In the event of distribution of reserves, savings shares shall 

have the same rights as the other shares. 

Interim dividends can be paid, in observance of the 

law. 


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