Pirelli S.p.A. Milan Annual Report 2002

Pirelli S.p.A. Milan Annual Report 2002

Preliminary Information Directors’ Report Consolidated Financial Statements Extraordinary Session 

Call to AGM 

Contents 

Officers 

Structure of Pirelli 

Group at December 

31, 2002 

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 sessions 

of the shareholders’ meeting to be held in Milan at the Associazione Industriale Lombarda in Via 

Pantano 9 

– on Monday, May 5, 2003 at 4:00 P.M. in first call 

– on Tuesday, May 6, 2003 at 10:30 A.M. in second call 

to pass resolutions on the following 

AGENDA 

Ordinary session 

The Board of Directors’ Report on Operations, the Board of Statutory Auditors’ Report, the 

financial statements at December 31, 2002 and the appropriation of net income. 

Extraordinary session 

Approval of the plan of merger by incorporation in Pirelli & C. A.p.A. (Pirelli & C. S.p.A., after 

its transformation to a corporation) of Pirelli & C. Luxembourg S.p.A. (a wholly-owned 

subsidiary of Pirelli & C.) and of Pirelli S.p.A., involving, among other things, the issuance of a 

maximum 1,398,203,116 new ordinary shares and a maximum 113,580,020 new savings shares of 

Pirelli & C. – with dividend rights from January 1 of the year in which the merger comes into 

effect with third parties – respectively, to the ordinary and savings shareholders of Pirelli S.p.A. 

in a ratio of 4 new Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. ordinary shares and 10 

new Pirelli & C. savings shares for every 7 Pirelli S.p.A. savings shares. 

Inherent and consequent resolutions. 

Conferring of powers. 

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


Call to AGM 

Contents 

Officers 





Stock Market 



CONTENTS 

Preliminary Information 

Pag. 

1 

Call to Annual General Meeting 1 

Officers 3 

Structure of Pirelli Group at December 31, 2002 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 21 

Energy Cables and Systems Sector 22 

Telecommunications Cables and Systems Sector 39 

Tyres Sector 50 

Information Systems 62 

Ecology and the Environment 64 

Human Resources 66 

Proforma Data 69 

Related Party Disclosures 71 

Equity Investments held by Directors, 

Statutory Auditors and General Managers 73 

Stock Option Plans 74 

Corporate Governance 79 

Pirelli S.p.A. - Summary Data 100 

Shareholders’ Resolution 102 

Consolidated Financial Statements at December 31, 2002 103 

Consolidated Balance Sheets 104 

Consolidated Statements of Income 108 

Notes to Consolidated Financial Statements 109 

Supplementary Information 133 

Independent Auditors’ Report 149 

Extraordinary Session of the Shareholders’ Meeting 150 

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


Call to AGM 

Contents 

Officers 





Stock Market 



OFFICERS 

Board of Directors 

Chairman and Chief Executive Officer 

Deputy Chairman 

Managing Directors and General Managers 

Directors 

Secretary to the Board 

Marco Tronchetti Provera 

Alberto Pirelli 

Carlo Buora 

Giovanni Ferrario 

Gilberto Benetton 

Carlo Ciani 

Eugenio Coppola di Canzano 

Carlo De Benedetti 

Alberto Falck 

Giuseppe Gazzoni-Frascara 

Mario Greco 

Georg F. Krayer 

Massimo Moratti 

Luigi Orlando 

Giampiero Pesenti 

Ennio Presutti 

Carlo Alessandro Puri Negri 

Vincenzo Sozzani 

Frank Vischer 

Sergio Lamacchia 

Board of Statutory Auditors 

Chairman 

Standing members 

Alternate members 

Luigi Guatri 

Rosalba Casiraghi 

Paolo Francesco Lazzati 

Franco Ghiringhelli 

Sebastiano Guido 

General Managers 

Energy Cables and Systems Sector 

Telecommunications Cables and Systems Sector 

Tyres Sector 

Administration and Control 

Finance 

Valerio Battista 

Kevin Riddett 

Francesco Gori 

Claudio De Conto 

Luciano Gobbi 

Independent Auditors 

PricewaterhouseCoopers S.p.A. 

Note: The nature of the powers delegated to the Chairman, Managing Directors and General Managers is 

described on page 79 under Corporate Governance 



Call to AGM 

Contents 

Officers 





Stock Market 



STRUCTURE OF PIRELLI GROUP 

AT DECEMBER 31, 2002 

39,2% 

Pirelli & C. A.p.A. 

Pirelli S.p.A. 

100% 100% 100% 

Pirelli 

Tyre Holding N.V. 

Pirelli Cavi e Sistemi 

Energia S.p.A. 


Telecom S.p.A. 

90% 95% 95% 

Tyres 

Energy Cables 

and Systems 

Telecom Cables 

and Systems 

10% 

3% 3% 

Minority Interets 

Cables and Systems 

Tyres 

Argentina 

Australia 

Brazil 

Canada 

China 

Finland 

France 

Germany 

Holland 

Hungary 

Indonesia 

Italy 

Ivory Coast Spain 

Malaysia Turkey 

Portugal United Kingdom 

Romania United States 

Slovak Republik 

South Africa 

Argentina 

Brazil 

Egypt 

Germany 

Italy 

Spain 

Turkey 

United Kingdom 

United States 

Venezuela 



Call to AGM 

Contents 

Officers 





Stock Market 



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 of Lire 

1,011,309 million) 

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

1,011,309 million) 

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 shared assigned to the executives of the 

Group 

June 1999 Euros 1,031.970 Share capital expressed in euros by translation 

of par value from Lire 1,000 to Euro 0.52 

December 1999 Euros 1,032.152 Bonus shares assigned to executives of the 

February- 

December 2000 

Group 

Euros 1,035.261 Issue of No. 5,078,100 ordinary shares at par 

value and No. 900,000 ordinary shares at a 

price per share of Euros 2.774 each which, as 

voted by the board of directors on December 

20, 1999, March 20, 2000 and November 7, 

2000, have been assigned to executives and 

cadres of the Company ans its subsidiaries as 

well as its parent companies and other 

subsidiaries of the latter, in Italy and outside 

Italy. 

January- Euros 1,043.094 Issue of No. 5,602,900 ordinary shares at par 

December 2000 

value and No. 9,426,000 ordinary shares at a 

price per share of Euros 2.774 and No. 35,200 

ordinary shares at price of Euros 2.742 which, 

as voted by the board of directors on March 

20, 2000 and November 7, 2000, have been 

assigned to executives and cadres of the 

Company ans its subsidiaries as well as its 

parent companies and other subsidiaries of the 

latter, in Italy and outside Italy. 

January- Euro 1,043.604 Issue of No. 980,888 ordinary shares at par 

March 2002 

value as voted by the board of directors on 

March 20, 2000 and November 7, 2000, have 

been assigned to executives and cadres of the 

Company and its subsidiaries as well as its 

parent companies and other subsidiaries of the 

latter, in Italy and outside Italy. 

140 

100 

60 

20.000 

18.000 

16.000 

14.000 

12.000 

10.000 

8.000 

6.000 

4.000 

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

MIBTEL Index (monthly area) 

Market price of ordinary shares 

Market trading on the Milan Stock Exhange 

Shares traded 

in millions 

Volume 

(of euros) 

Pirelli S.p.A. - ordinary shares 3,666,288,370 4,965 

Pirelli S.p.A. - savings shares 18,268,161 28 

2.000 

0 

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

2002 

Average monthly volume of ordinary 

shares traded on the Milan Stock 

Exchange (in thousands) 



Call to AGM 

Contents 

Officers 





Stock Market 



FIVE-YEAR SUMMARY OF SELECTED 

CONSOLIDATED FINANCIAL DATA 

in milions of euro 2002 2001 2000 1999 1998 

Net sales 6,311 7,509 7,477 6,482 5,487 

Gross operating profit 480 666 820 678 721 

Operating profit 117 295 437 331 412 

Net income (loss) (610) 86 3,626 305 276 

Net income (loss) attributable 

to Pirelli S.p.A. (614) 82 3,632 293 249 

Earnings per share (in euros) (0.31) 0.04 1.82 0.15 0.13 

Fixed assets 6,114 6,686 3,331 3,062 2,427 

Net working capital 768 971 253 1,200 1,013 

Net invested capital 6,882 7,657 3,584 4,262 3,440 

Shareholders’ equity 4,576 5,660 5,958 2,454 2,453 

Provisions 837 908 1,121 791 722 

Net financial (liquidity)/debt position 1,469 1,089 (3,495) 1,017 265 

Net equity attributable to Pirelli S.p.A. 4,394 5,462 5,756 2,275 2,283 

Equity per share (in euros) 2.19 2.72 2.89 1.15 1.15 

Free cash flows 419 (152) 173 214 179 

Net cash flows (376) (4,617) 4,413 (507) (253) 

R&D expenditures 219 237 213 200 196 

Capital expenditures 325 643 562 469 415 

Gross operating profit / Net sales 7.61% 8.87% 10.97% 10.47% 13.15% 

Operating profit / Net sales 1.85% 3.93% 5.86% 5.10% 7.52% 

Net income / Net equity* n.s. 1.48% 86.21% 12.44% 11.65% 

Operating profit / Net invested capital* 1.61% 5.25% 11.14% 8.59% 12.41% 

Net financial position / Net equity 0.32 0.19 (0.59) 0.41 0.11 

Pirelli S.p.A. ordinary shares 

(No. in millions) 1,919 1,918 1,903 1,897 1,895 

Pirelli S.p.A. saving shares 

(No. in millions) 88 88 88 88 88 

Total Pirelli S.p.A. shares 

(No. in millions) 2,007 2,006 1,991 1,985 1,983 

Treasury shares (No. in millions) 163 163 195 173 59 

Factories (number) 79 84 87 87 73 

Employees (at year-end) 36,079 39,127 41,914 40,103 38,209 

Net sales per employee 

(in thousands of euros) 167 185 183 162 149 

* Average amounts 

(in millions of euros) 

Net income 

4000 

2825 

1650 

475 

-600 

2000 2001 2002 

Net sales 

8000 

7500 

7000 

6500 

6000 

2000 2001 2002 

Shareholders’ equity 

6000 

5500 

5000 

4500 

4000 

2000 2001 2002 

Gross operating profit 

900 

775 

650 

525 

400 

2000 2001 2002 

Capital expenditures 

700 

600 

500 

400 

300 

2000 2001 2002 



Call to AGM 

Contents 

Officers 





Stock Market 



CHAIRMAN’S LETTER 

To the shareholders, 

2002 was a particularly difficult year for the Pirelli Group on 

account of the serious crisis in one of its main reference 

markets – that of Telecommunications infrastructures – and 

the decline of investments in utilities in the energy sector. 

Management of the Group reacted promptly to the crisis by 

implementing a Plan to improve efficiency in the sectors 

affected. 

The Telecommunications Cables and Systems Sector, in 

particular, suffered from an unprecedented fall in demand on a 

worldwide scale, calculated at more than 70 percent in terms of 

value, which seriously impacted the performance of companies 

operating in the sector in the major developed world markets. 

Despite the failure of investments to recover, stemming from 

the international economic slowdown and uncertain 

macroeconomic prospects, the Energy Cables and Systems 

Sector reported a slight gain in profitability. The Tyres Sector 

continued the pace of growth of recent years, consolidating its 

leadership position in the high-performance tyre range. 

During 2002, therefore, the Group’s commitment to measures 

to improve efficiency was stepped up, considerably increasing 

cash flows and keeping financial exposure under control. In 

November, in a particularly complex economic context, 

management decided to implement further reorganization 

measures, with an impact of Euros 275 million, in order to be 

ready to take advantage of any upturn in the markets. 

By the end of 2002, as efficiency measures were intensified, 

the first improvements were observed in the Telecommunications 

and Energy Cables and Systems Sectors, which carried 

through to the first months of the current year along with the 

continuing growth in the Tyres Sector. 

In March, the Pirelli Group launched a plan to streamline the 

corporate structure, which calls for the merger by incorporation 

of Pirelli S.p.A. in Pirelli & C. 

The move to bring all of the main businesses under a single 

holding company – including the real estate activities of Pirelli 

& C. Real Estate, which continues to generate excellent results 

– will make it possible to reduce the costs of non-operational 

activities and optimize economic and financial flows. 

The transformation of the company’s legal status from a 

limited partnership to a corporation – without having to 

abandon the prestigious Pirelli & C. trademark – is a mark of 

revitalization and transparency, since it involves changes to the 

by-laws and the adoption of corporate governance regulations 

which are better suited to market expectations. 



Call to AGM 

Contents 

Officers 





Stock Market 



But, more particularly, the merger means that Pirelli will be able 

to create new synergies and fully express its growth potential, 

partly through more a flexible management of its resources and 

its assets in portfolio. A contributory factor will be the new 

financial injection from the share capital increase, which will 

make it possible to strengthen the equity structure further and to 

continue to invest in R&D in order to maintain the company’s 

technological and market leadership in sectors with a higher 

level of profitability. 

The Pirelli Group’s plan to simplify the corporate structure – 

parallel to the one launched by the Olivetti-Telecom Italia Group, 

in which Pirelli has a major stake – constitutes a decisive step in 

the company’s new medium-to-long-term strategy. As we 

announced two years ago, it will lead to the foundation of a new 

Pirelli Group, with a corporate structure that is radically 

different in terms of organization and business, and enhanced in 

such a way as to maximize the creation of value. 



Introduction 

The Group 


Sector 

Energy Cables and 

Systems Sector 

Telecom Cables and 


Tyres Sector 

Information Systems 

Ecology and the 

Environment 

Human Resources 

Proforma Data 

Related Party 

Disclosures 

Equity Investments 

held by Directors, 

Statutory Auditors and 


Stock Option Plans 

Corporate Governance 

Pirelli S.p.A. - 

Summary Data 

Shareholders’ Resolutions 

DIRECTORS' REPORT ON OPERATIONS 

Dear Shareholders, 

The year 2002 closes with a consolidated net loss of Euros 610 

million compared to a consolidated net income of Euros 86 

million in 2001. 

The result includes Euros 275 million of restructuring charges, 

Euros 13 million of extraordinary income, Euros 138 million of 

writedowns and Euros 150 million for the effect of valuing the 

investment in Olimpia S.p.A. using the equity method. Net of 

the above, the net loss for the year would have been Euros 60 

million. 

The net loss attributable to Pirelli S.p.A. is Euros 614 million 

(equal to a loss per share of Euros 0.31), compared to a net 

income of Euros 82 million in the prior year (equal to earnings 

per share of Euros 0.04). 

Net sales 

The X-Pressure system for 

measuring the air pressure inside 

the tyre. 

Net sales amount to Euros 6,311 million and show a reduction of 10.6 percent compared to 

2001, net of the foreign exchange effect (decrease of -5.4 percent). The change is principally due 

to lower volumes (-9.3 percent) and the negative price/mix effect (-1.3 percent). The fall in 

revenues of the Telecom Cables and Systems Sector alone (-70 percent) led to a 9 percent 

reduction in net sales overall, again net of the exchange effect. 

Gross operating profit 

Gross operating profit is Euros 480 million, with a decrease of 

27.9 percent compared to Euros 666 million in 2001. 

The reduction is entirely due to the contraction in the Telecom 

Cables and Systems Sector (Euros 156 million), owing to the 

intensification of the crisis in the TLC market, and the end of 

the supply contract with Cisco Systems (Euros 59 million), 

partly offset by growth in the Energy Cables and Systems 

Sector and the Tyres Sector. 

Pirelli Labs: a clean room for 

research on new optical 

technologies. 

Operating profit 

Operating profit is Euros 117 million, equal to 1.9 percent of net sales, compared to Euros 295 

million in 2001 (3.9 percent of net sales). Constant and continuing attention to the efficiency of 

production factors, in addition to the efforts taken by management to reduce costs through the 

restructuring plan, led to a gross reduction in costs of Euros 215 million in 2002. However, 

these savings were not sufficient to contain the negative effects of the economic scenario, 

particularly with regard to the Telecommunications Cables and Systems Sector. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


In any event, the Energy Cables and Systems Sector bettered its performance and the Tyres 

Sector reported a strong gain in results especially compared to the competitive panorama of the 

reference industries. 

The Group’s priority commitment to research and technological innovation is again confirmed 

by R&D expenditures which stand at roughly 3.5 percent of net sales compared to 3.2 percent in 

2001. 

Net cash flows and net financial position 

Free cash flows from operations, in spite of the trend of the 

Group’s operating profit, were a positive Euros 419 million 

thanks to a careful management of working capital and a 

selective investment policy. 

Net cash flows were a negative Euros 376 million (a negative 

Euros 4,617 million in 2001, including Euros 3,170 million for 

the investment in Olimpia S.p.A.). They reflect disbursements 

for the reorganization programs in the current and previous 

years of Euros 155 million, the final payment of income taxes 

on the sale of Optical Technologies to Corning of Euros 263 

million, the payment of dividends of Euros 149 million and are 

offset by the sale of tax receivables to Unicreditfactoring S.p.A. 

and Mediofactoring S.p.A. of Euros 113 million in the first six 

months of the year. 

Consequently, the net financial debt position went from Euros 

1,089 million at the end of 2001 to Euros 1,469 million at 

December 31, 2002. 

Testing an Air Bag cable’s 

resistance to impact. 

Parent company 

The financial statements at December 31, 2002 of Pirelli S.p.A., 

the parent company, show a net income of Euros 112 million 

compared to Euros 1,489 million in 2001. 

The 2002 financial statements essentially comprise the 

dividends paid by the subsidiaries Optical Technologies The 

Netherlands B.V. (Euros 250 million) and Pirelli Tyre Holding 

N.V. (Euros 70 million) and the writedowns of the investments 

in F.C. Internazionale Milano S.p.A., in Caltagirone Editore 

S.p.A. and in the subsidiaries Pirelli Finance (Luxembourg) S.A. 

and Pirelli Cavi e Sistemi Telecom S.p.A. for a total of Euros 

178 million. 

Last year, the results benefited from dividends related to the 

sale of the Optical Components Business to Corning (Euros 

1,000 million) together with dividends paid by the subsidiaries 

Pirelli Cavi e Sistemi S.p.A. (Euros 25 million) and Pirelli Tyre 

Holding N.V. (Euros 30 million). 

A phase in the production of a new 

MIRS Moto, which is operative at 

Bicocca, Milan. 



The Group 

Economic and 

Financial Review 

of 2002 

Outlook for the 

Current Year 

THE GROUP 

ECONOMIC AND FINANCIAL REVIEW OF 2002 

The performance of the Group in 2002 was sharply affected by 

the unprecedented crisis in the telecommunications 

infrastructures market, which had serious repercussions on 

the performance of companies in the sector in all the major 

countries of the Western world. This market has been the 

focus of a worldwide contraction in demand of more than 70 

percent in terms of value. 

In addition, in defiance of the negative trend of the 

international economy, combined with uncertainties in the 

economic scenario, the Energy Cables and Systems Sector, 

reported a slight improvement in profitability, although 

investments have so far failed to regain momentum. 

Conversely, it should be emphasized that the Tyres Sector 

continued to deliver growth. 

Undergrounding a power cable. 

This being the case, management of the Group showed a high 

capacity for reacting to the drastic changes of the market, on 

the one hand, by implementing measures to limit costs, 

leading to considerable savings in operating expenses and a 

reduction of the breakeven point, and, on the other, by 

focusing even greater attention on the management of cash 

flows, which was confirmed by a significant growth in free 

cash flows and better control over net indebtedness. 

Against the market background described above, in November, 

the Group decided to step up and intensify action already in 

progress in the various operating sectors to improve 

efficiency, in order to create the optimum conditions for 

acting upon any signs of a recovery as soon as they are 

perceived. The restructuring plan, which concentrated on the 

Energy and Telecom Cables and Systems Sectors and focused 

on rationalizing resources and industrial facilities, impacted 

2002 results for a total of Euros 275 million. 

The efficiency measures are running according to schedule and most will have been entirely 

implemented by March 2003. 

In fact, the last quarter of 2002 showed the first signs of an improvement in the Energy Cables 

and Systems Sector, as well as continued growth in the Tyres sector. 

There follows a description of the major events in 2002, in chronological order: 

The P Zero Corsa, fitted as original 

equipment to the Ferrari Challenge 

Stradale. 

– in February, Pirelli Finance (Luxembourg) S.A. signed a derivative equity swap agreement 

with J.P. Morgan on 100,000,000 Olivetti S.p.A. shares, expiring December 2006. Settlement 

can either be made through the physical delivery of the shares or through the payment of the 

differentials compared to the market prices. 

The initial price is equal to Euros 1.4213 per share plus quarterly interest at the 3-month 

Euribor plus a spread of 143 bps; 



The Group 

Economic and 




Current Year 

– in March, the placement was completed for bonds of Euros 500,000,000 issued by Pirelli 

Finance (Luxembourg) S.A., maturing April 4, 2007, with a fixed interest rate of 6.5 percent. 

The bond issue serves to satisfy the objective of refinancing short-term debt by optimizing the 

financial structure of the Group from the standpoint of both interest rates and maturity dates. 

The proceeds from the issue were received at the beginning of April; 

– on April 22, 2002, an agreement was signed for the sale of the 25.3 percent interest in 

EPIClink S.p.A., a company specialized in provided outsourcing services in the area of 

Information and Communication Technology, to Telecom Italia S.p.A.. The sale took place on 

August 1, 2002, once authorization was received from the antitrust authorities; 

– on October 29, 2002, the first stage of the Tiglio project was completed, with the formalization 

of the deeds for the transfer of the assets and the real estate designated for the initiative. 

For the Pirelli S.p.A. Group, the assets transferred to Tiglio I totaled a sum of about Euros 15 

million (of which about Euros 10 million were from Pirelli S.p.A. and Euros 5 million from 

Pirelli Cavi e Sistemi Energia Italia S.p.A.). The transaction led to a gross gain, on 

consolidation, of about Euros 8 million; 

– on December 19, 2002, a transaction was approved to expand the shareholder base of Olimpia 

S.p.A., with the consequent strengthening of the shareholders’ equity and financial structure 

of the company. The transaction provides for the early redemption of the bonds issued with a 

face value of Euros 1 billion by Olimpia S.p.A. to Hopa S.p.A. (hereinafter Hopa), maturing in 

2007 and repayable with Olivetti shares, and the merger by incorporation in Olimpia S.p.A. of 

Holy S.r.l. (hereinafter Holy) a wholly-owned subsidiary of Hopa. In exchange for the 

contribution of this company, which has a net equity of Euros 961 million, Hopa will receive a 

16 percent stake in Olimpia S.p.A. 

Subsequent to the merger, Olimpia S.p.A.’s share capital will be held by the following: 

Pirelli 50.4% 

Edizione Finance International 16.8% 

Hopa 16.0% 

Intesa BCI 8.4% 

Unicredito Italiano 8.4% 

This transaction will permit Olimpia S.p.A. to reach the following important objectives: 

•a stronger balance sheet structure due to the reduction in debt of some Euros 476 million 

(following the early redemption of the bonds); an increase in shareholders’ equity of Euros 

961 million owing to the merger with Holy and an improvement in the net financial position 

due to the injection of liquidity of approx. Euros 99 million which will occur as a result of the 

merger with Holy, with a better gearing ratio which decreases from 0.7 to 0.5; 

• the greater flexibility that will be reached with the cessation of the restrictions and financial 

expenses connected with the bond issue which is expected to be almost totally extinguished. 

The redemption of the bonds and the merger of Olimpia S.p.A. and Holy will take place as 

described below: 

• Olimpia will offer early redemption to the bondholders with the delivery of not only Olivetti 

shares, as planned, but with a combination of about 99 million Olivetti shares and some 164 

million Olivetti convertible bonds; 



The Group 

Economic and 




Current Year 

• Holy, at the time of the merger, will have liquidity of about Euros 99 million, some 100 million 

Olivetti shares, around 164 million Olivetti bonds, in addition to a 19.99 percent interest in 

Holinvest. Holy’s shareholders’ equity will be equal to Euros 961 million; 

• Holinvest – 80.001 percent held directly and 19.999 percent held indirectly by Hopa, through 

Holy – will have assets consisting of some 135 million Olivetti 1.5% 2001-2010 convertible 

bonds, the right to obtain, by June 30, 2003, about 164 million Olivetti 1.5% 2001-2010 

convertible bonds acquired from the repayment of the same number of Olimpia S.p.A. bonds 

and about 486 million CDC indexed bonds and the same number of Olivetti ordinary shares 

and 2,431 Olivetti shares. 

- 

As a result of the new agreement that Hopa signed with Olimpia S.p.A.’s shareholders, Hopa will 

have the right to nominate a director in Olimpia S.p.A. and in the main listed companies of the 

Olivetti-Telecom Group. Hopa, which will hold no veto rights in Olivetti, in the event of dissent 

concerning important extraordinary transactions or if certain ratios are not met by Olimpia 

(1:1 debt to equity ratio), can obtain the spin-off of Olimpia S.p.A., whereas Olimpia S.p.A. can 

obtain the spin-off of Holinvest. Accordingly, Hopa would receive the proportional share of 

Olimpia S.p.A.’s assets and liabilities and Olimpia S.p.A. would receive the proportional share of 

Holinvest’s assets and liabilities. Regardless, the spin-off can not take place until 36 months 

have passed since the agreements came into force, unless extraordinary events occur of unusual 

severity. 

Olimpia’s rights as a shareholder in Holinvest will also be regulated by Holinvest’s by-laws as 

well as by an agreement with Hopa which attributes a veto right to Olimpia on certain specific 

matters and resolutions voted in the extraordinary session of the shareholders’ meetings. 

There will also be lock-ups and pre-emptive rights relating to financial instruments held by 

Holinvest and on the co-sale of the Hopa investment in Holinvest. 

Moreover, Holinvest will keep at least the majority of the financial instruments and the Olivetti 

convertible bonds for a period of 20 months from the date of signing of the agreements. 

Subsequently, a pre-emptive right on said instruments and bonds will be granted to Olimpia, at 

the same conditions. At the end of the agreement, a further pre-emptive right for a period of 

two years will be granted to Olimpia S.p.A.. 

on December 23, 2002, Pirelli S.p.A., through the subsidiary Pirelli Cavi e Sistemi Energia S.p.A., 

and the private equity fund Investitori Associati III (Alfieri Associated Investors), reached an 

agreement for the purchase, on the part of Investitori Associati, of the manufacturing and 

marketing business carried out by Pirelli in the enameled wires and transposed conductors 

sector in Europe and China through the affiliates Invex and Icew Insulated Conductors, as well 

as the option to purchase the business in Brazil at net equity value by September 2004. 

The deal falls under a broader plan for the rationalization of Pirelli’s Energy Cables and 

Systems Sector, announced last November, which focuses on business segments with higher 

value-added. 

According to the understanding reached, Pirelli sold Investitori Associati the Invex plant 

facilities in Quattordio (Alessandria, Italy) and in Baoying (China), which, with about 350 

employees and 2001 sales of some Euros 110 million, are specialized in the manufacture of 

copper and aluminum wires used as conductors in the production of engines and transformers. 

The transaction had a negative impact on the 2002 statement of income of about Euros 6 million 

and will have a positive impact on the net financial position of about Euros 28 million. 



The Group 

Economic and 




Current Year 

Key figures of the consolidated financial statements can be summarized as follows: 

2002 2002 2001 

in millions of euros 

(excluding Olimpia) 

• Net sales 6,311 6,311 7,509 

• Gross operating profit 480 480 666 

% of net sales 7.6% 7.6% 8.9% 

• Operating profit 117 117 295 

% of net sales 1.9% 1.9% 3.9% 

• Financial income (expenses) (173) (*) (173) (*) (22) (*) 

• Share of earnings (losses) of equity investments (80) (230) (33) 

• Extyraordinary items (262) (262) (16) 

• Income taxes (62) (62) (138) 

• Net income (loss) (460) (610) 86 

% net sales n.s. n.s. 1.1% 

• Net income (loss) attributable to Pirelli S.p.A. (614) 82 

• Earnings (loss) per share (in euros) (0.31) 0.04 

• Shareholders’ equity 4,576 5,660 

• Net equity attributable to Pirelli S.p.A. 4,394 5,462 

• Equity per share (in euros) 2.19 2.72 

• Net financial (liquidity)/debt position 1,469 1,089 

• Capital expenditures 325 643 

• R&D expenditures 219 237 

• Employees (at year-end) 36,079 39,127 

• Factories (number) 79 84 

(*) includes adjustments to securities for Euros 38 million in 2002 and for Euros 16 million in 2001 



The Group 

Economic and 




Current Year 

Net sales 

Net sales amount to Euros 6,311 million, compared to Euros 

7,509 million in the prior year. 

The reduction is due to: 

• Currency exchange effect - 5.4% 

• Volumes - 9.3% 

• Prices/Mix - 1.3% 

- 16.0% 

Energy Cables 

and Systems 

The distribution of net sales by sector and geographical area is 

as follows: 

Sector 2002 2001 

Energy Cables and Systems 48% 47% 

Telecom Cables and Systems 7% 15% 

Tyres 45% 38% 

Geographical area 2002 2001 

Italy 17,9% 15,7% 

Other European countries 43,8% 45,0% 

North America 11,6% 13,6% 

Central and South America 12,3% 12,1% 

Australia, Africa and Asia 14,4% 13,6% 

Tyres 

Group sales in 2002 by Sector 

and geographical area 

Italy 

Telecom 

Cables and 

Systems 

Other European 

Countries 


Operating profit is Euros 117 million and shows a decrease 

from Euros 295 million in 2001; operating profit as a 

percentage of net sales is 1.9 percent (3.9 percent in 2001). 

The change is due to the following: 

in milions of euros 

• Currency exchange effect - 34 

• Prices (excluding metals)/Mix - 32 

• Volumes - 190 

• Per unit materials cost - 9 

• Per unit labor cost - 33 

• Efficiencies + 199 

• Supply agreement with Cisco Systems - 59 

• Other - 20 

- 178 

Efficiencies led to a gross reduction in labor costs and other 

costs of Euros 215 million, countered by the negative effects 

on variable costs of Euros 16 million caused by the contraction 

in production volumes. 

North America 

Central and South America 

Australia, Africa and Asia 

Financial income (expenses) 

The balance of financial 

income (expenses) is an 

expense of Euros 173 million 

compared to Euros 22 million 

in the prior year. The balance 

includes Euros 38 million to 

adjust the value of securities 

in portfolio to market prices 

while the remaining amount of 

Euros 135 million represents 

the balance of financial 

income and expenses 

(including exchange gains and 

losses and accessory charges) 

relating to net indebtedness. 



The Group 

Economic and 




Current Year 

Share of earnings (losses) of equity investments 

The share of the earnings (losses) of equity investments is a loss of Euros 230 million and refers 

to the share of the result of Olimpia S.p.A., accounted for using the equity method (Euros 150 

million), the writedown of the investment in F.C. Internazionale Milano S.p.A. (Euros 18 

million), the writedown of the investment in e.Biscom S.p.A. (Euros 35 million) and the 

writedown of the investment in Caltagirone Editore S.p.A. (Euros 24 million). 

Extraordinary items 

Extraordinary items show an expense of Euros 262 million 

compared to an expense of Euros 16 million in 2001. The 

current year mainly includes restructuring costs connected 

with the new rationalization measures focused on the Energy 

and Telecom Cables and Systems Sectors (Euros 275 million), 

offset by gains realized by Pirelli S.p.A. (Euros 17 million) on 

the sale of the building used as the representative offices in 

Rome and the historical Bicocca degli Arcimboldi to Pirelli & 

C. A.p.A., as part of the broader process for the reallocation of 

properties. 

The historic Bicocca degli Arcimboldi 

building, property of Pirelli. 

In 2001, extraordinary items included the gain on real estate transactions by the Cables and 

Systems Sector (Euros 61 million), an earn-out at the end of the agreements with Cisco Systems 

(Euros 70 million) and restructuring costs (Euros 151 million). 

Net income (loss) 

The net result for 2002 is a net loss of Euros 610 million compared to a net income of Euros 86 

million in 2001. Before consolidating Olimpia S.p.A. using the equity method, the net loss is 

Euros 460 million. 

Shareholders’ equity 

Consolidated shareholders’ equity went from Euros 5,660 million at the end of 2001 to Euros 

4,576 million at the end of 2002. 

Such reduction can be analyzed as follows: 

in million of euros 

• Translations adjustments (314) 

• Net loss for the year (610) 

• Dividends to third parties paid by: 

- Pirelli S.p.A. (148) 

- Other Group companies (1) (149) 

• Directors’ compensation (13) 

• Other changes 2 

(1,084) 



The Group 

Economic and 




Current Year 

Net financial position 

At December 31, 2002, the net debt position is Euros 1,469 million compared to Euros 1,089 

million at December 31, 2001. The change of Euros 380 million is mainly due to: 

in million of euros 

• Exchange differences (5) 

• Operating profit 117 

• Depreciaiton and amortization 362 

• Net investments: (375) 

- intangible assets and property, plant and equipment (332) 

- financial assets (43) 

• Change in working capital 373 

• Change in provisions and other (58) 

• Free cash flow 419 

• Reclassification of derivatives referring to Olivetti securities (*) (77) 

• Extraordinary items (262) 

• Financial income (expenses) (173) 

• Income taxes (62) 

• Dividends paids (149) 

• Other changes (72) 

• Net cash flows (376) 

• Changes in shareholders’ equity 1 

• Changes in financial position (380) 

(*) Olivetti S.p.A. 2010 convertible bonds and Share Swap Transactions on Olivetti S.p.A. shares / Olivetti S.p.A. 2010 convertible 

bonds held by the subsidiary Pirelli Finance (Luxembourg) S.A. that were previously classified as current financial assets. 

“Other changes” principally include the final payment of income taxes inherent to the sale of 

Optical Technologies to Corning (Euros 263 million), the impact on cash of the restructuring 

charges accrued in prior years (Euros 130 million), partly offset by the sale of tax receivables to 

Unicreditfactoring S.p.A. and Mediofactoring S.p.A. (Euros 113 million) and the reversal of the 

non-cash effects relating to new accrued restructuring charges (Euros 190 million). 


Capital expenditures total Euros 325 million in 2002 compared to Euros 643 million in 2001. 

The ratio of capital expenditures to depreciation is 1.04. 

R&D expenditures 

R&D expenditures are entirely charged to the statement of income and amount to Euros 219 

million (3.5 percent of net sales) compared to Euros 237 million in 2001 (3.2 percent of net 

sales). 



The Group 

Economic and 




Current Year 

Pirelli Labs 

Pirelli Labs was established in 2001 and is the Group’s cuttingedge 

hi-tech research center. 

As far as Materials Innovation is concerned, activities 

concentrate on research in the field of materials science for 

applications in Pirelli’s traditional areas of business, on 

distributed power generation, as well as basic research work. 

With regard to Optical Innovation, work is mainly focused on 

research in the field of photonics and in the world of 

telecommunications. 

Eight inch wafer with test pattern. 

Pirelli Labs is the benchmark for all the Pirelli research 

activities throughout the world and, thanks to a series of 

agreements and consortiums, is directly linked to important 

private and university research centers in Italy and worldwide. 

Since the beginning of 2002, there has been intensive and highly successful collaboration on 

joint projects between Pirelli Labs and Telecom Italia Lab, the research center of the Telecom 

Italia Group. This kind of collaboration is of reciprocal advantage to both groups: Pirelli will 

gain access to information about the future development of telecommunications networks/services 

and, as a result, will be better able to direct the development of equipment and subsystems to 

sell on the market to potential suppliers of telecommunications operators; similarly, Telecom 

Italia will gain access to information about the evolution of innovative enabling technologies for 

the development of innovative networks and services. 

Through Pirelli Labs, the Pirelli Group intends to become a “Knowledge company” in its own 

right, a company that will evolve and create value by developing innovative know-how and 

technologies. The technological center, which is equipped with hi-tech laboratories, is the 

Group’s hub of technological excellence. Here, new ideas and technologies are developed for 

the products of the next generation which will emerge in the medium and long term. 

Pirelli Labs Optical Innovation 

With regard to telecommunications, the efforts of the new 

laboratories have concentrated on photonics and the 

development of fiber optic equipment based on new 

technologies (particularly nanotechnologies), and also on 

innovative systems and subsystems destined mainly for 

applications in metropolitan and access networks. 

Since the technological platform was completed at the 

beginning of 2002, activities have concentrated on the 

development of innovative equipment which will mature into 

products over the coming years, with effect from the second 

half of 2003. Major projects in the short/medium term include 

a tunable laser for long-distance and regional fiber optic 

network applications and a completely fiber optic routing 

device based on nanotechnologies, which constitutes the first 

example of an integrated fiber optic circuit. 

Widely tunable laser for optical 

networks, produced in the Pirelli 

Labs. 

In addition, a Radio over Fiber system has been developed to carry mobile signals on optical 

cables in the context of third-generation mobile networks (UMTS). This system will be 

integrated with the equipment of the main mobile network suppliers. As far as broadband 

access solutions are concerned, an innovative residential ADSL access terminal is being 

developed which will make it possible to introduce broadband applications to the domestic 

sphere that are controlled by smart cards and which eliminate the use of personal computers. 



The Group 

Economic and 




Current Year 

Pirelli Labs Material Innovation 

The strategy pursued in 2002 was to give priority to projects to 

be completed in the short and medium term. 

The most important results were achieved in the development 

of CCM (Continuous Compound Mixing) technology, both 

through the testing and modeling of the process. Innovative 

solutions were also developed in connection with the Cyber 

Tyre project. 

For the Telecom Cables business, new house coatings for fiber 

optics were tested and patented. 

With regard to medium-term projects, work in the area of Fuel 

Cells made it possible to register a series of patents for critical 

components, of both the PEM (Polymer Electrolyte 

Membrane) and SOFC (Solid Oxide Fuel Cell) type. 

The most interesting results in the field of long-term activities 

were achieved in the Bio-electromagnetism project. 

The new CCM (Continuous 

Compound Mixing) technology, 

integrated into the MIRS plant at 

Bicocca, Milan. 

Employees 

The number of employees was 36,079 at December 31, 2002, 

compared to 39,127 at December 31, 2001. 

The workforce can be analyzed as follows: 

12/31/2002 12/31/2001 

Total workforce 36,079 39,127 

of which, temporary employees 2,257 2,672 

As a result of the acceleration of the restructuring program 

prior to the end of 2002, which led to a significant reduction in 

the headcount as at December 31, 2002, on January 1, 2003 the 

workforce totaled 35,610. 

A bundle of optical fibres. 

Factories 

Compared to 2001, the number of factories decreased from 84 to 79: four in the Energy Cables 

and Systems Sector and two in the Telecom Cables and Systems Sector. In the Tyres Sector, a 

new factory was opened in the U.S.A. (in Rome), which is completely run on the new MIRS TM 

technology. 

Economic value added 

Economic value added is negative, amounting to Euros 207 million, which represents a 

reduction from last year, mainly as a result of the significant decrease in operating profit. 

(in millions of euros ) 2002 2001 

Economic value added (207) (69) 



The Group 

Economic and 




Current Year 

OUTLOOK FOR THE CURRENT YEAR 

The uncertainty surrounding the current economic and political situation does not allow for 

assumptions about an impressive upswing in the reference markets of the Group. More 

particularly, in the Telecom Sector, no signs of improvement are expected until towards the end 

of the year, whereas, in the Energy Sector, selective investments in utilities are expected to 

continue and a slow recovery in demand is forecast for the other application sectors. The Tyres 

Sector will continue its policy of focusing on the high performance segment, which is expected 

to grow. 

In this scenario, the Group, in capitalizing on the benefits from restructuring measures, will aim 

to increase the operating profit of the Energy Cables and Systems Sector, partly through a major 

focus of its products portfolio on higher value-added segments. In the Telecom Cables and 

Systems Sector, the previously mentioned restructuring actions should lead to a breakeven in 

the operating result in the fourth quarter, while the Tyres Sector is expected to report a further 

increase in operating profit compared to 2002. 

The first MIRS factory overseas went into operation at Rome, Georgia, (United States). 




Sector 

CABLES AND SYSTEMS SECTOR 

For purposes of a comparison with the prior year, the combined highlights of the Cables and 

Systems Sector for the year ended December 31, 2002 are presented in the following table: 

Combined 

Total 

in millions of euros 2002 2001 

• Net sales 3,489 4,688 

• Gross operating profit 136 357 

% of net sales 3.9% 7.6% 

• Operating profit (29) 179 

% of net sales n.s. 3,8% 

• Financial income (expenses) (98) (33) 

• Extraordinary items (242) 11 

• Income taxes (14) (81) 

• Net income (loss) (383) 76 

% of net sales n.s. 1.6% 

• Net financial (liquidity)/debt position 804 890 





Development continues of innovative solutions for high voltage power transmission. 




Systems Sectors 

ENERGY CABLES AND SYSTEMS SECTOR 

Sector Holding 

Company 

Performance by 

Geographical Area 

Business Units 

Performance of the 

Main Companies in the 

Sector 

Outlook for the Current 

Year 

The highlights of the consolidated financial statements of the Energy Cables and Systems Sector 

can be summarized as follows: 


• Net sales 3,021 3,532 



• Operating profit 55 52 


• Financial income (expenses) (44) n.d 

• Extraordinary items (121) n.d 

• Income taxes (10) n.d 

• Net loss (120) n.d 

% of net sales n.s. n.d 


• Capital expenditures 75 n.d 

• R&D expenditures 44 n.d 


• Factories (number) 50(*) 54 

(*) four of these are shared with the Telecommunications Cables and Systems Sector 

Net sales 

Net sales amount to Euros 3,021 million and show a decrease 

of 14.5 percent from the prior year, due to: 

Europe 

North America 

South America 

• Currency exchange effect - 3.9% 

• Volumes - 7.7% 

• Metal prices - 1.4% 

• Prices/Mix - 1.5% 

- 14.5% 

The distribution of net sales is as follows: 


Europe (of which Italy 16%) 65% 55% 

North America 14% 16% 

South America 7% 16% 

Oceania 4% 2% 

Asia 9% 10% 

Africa 1% 1% 

Africa 

Asia 

Oceania 

Energy Cables and Systems: 2002 

sales by geographical area and 

product category. 

Bulding wires,special cables 

and enameled wires 

Energy 

Product category 2002 2001 

Power cables 48% 33% 

Building wires, special cables and enameled wires 26% 31% 

Accessories, installation activities and other activities 26% 36% 

Accessories, installation 

activities and other 

activites 






Company 






Sector 


Year 


Operating profit is Euros 55 million (1.8 percent of net sales), 

compared to Euros 52 million in the prior year (1.5 percent of 

net sales). 

The most important changes from the prior year can be 

summarized as follows: 



• Prices (excluding metals)/Mix - 15 


• Per unit materials cost + 9 



• Other + 2 

+ 3 


Extraordinary items show an 

expense balance of Euros 121 

million and mainly include 

restructuring expenses of 


Net loss 

The net result is a loss of 

Euros 120 million after 

financial expenses of Euros 44 

million, extraordinary 

expenses of 121 million and 

income tax expenses of Euros 

10 million. 


The net financial position is a debt position of Euros 373 

million. This is a significant improvement over Euros 526 

million at the end of the prior year and is attributable to a 

selective policy of investments and actions taken to optimize 

working capital. 


New capital expenditures amount to Euros 75 million. 

The ratio of capital expenditures to depreciation is 0.8 percent. 

The main projects include: 

– investments associated with the paper-insulated submarine 

cables business 

– re-location of the new Cavimar factory in Spain 

– machinery upgrading for production and technological 

requirements (new products) 

– increasing the production capacity of Special Accessories 

and Cables 

A special cable of the DRYLAM ® 

family. 

Capital expenditures can be analyzed by geographical area as 

follows: 

Geographical area 2002 

Europe 78% 

South America 10% 

North America 5% 

Rest of the World 7% 

Armouring of a submarine umbilical 

cable. 






Company 






Sector 


Year 

Research & development 

In the field of Energy R&D, work is organized in a linear, 

compact way, with the aim of focusing on innovative projects 

for current and future business. 

In 2002, 410 people were engaged in research activities for 

expenditures of Euros 44 million, representing 1.5 percent of 

total sales. 

The Networking-OPT (Opto-power Technologies) group has 

been set up within Energy Research & Development. Together 

with the other four groups (Functional Modules, Stratified 

Systems, Extruded Systems and Experimental Electrical Labs), 

its objective is the research and development of innovative 

and breakthrough solutions. 

In addition to cables and accessories, a study of network 

A generator of impulses for the 

study of high voltage. 

dynamics has been identified, with the aim of developing components, special systems and 

solutions which will meet the needs of the clientele, by anticipating future scenarios in the sector. 

The most important projects in 2002 include: 

• research and development of methods of thermal management for cable systems and of new 

Optopower TM – Networking technologies for lines with high-voltage cables applied to the 

following links: 

– Nunthorpe-Newby (UK) 

– Tilbury-Gravesend (UK) 

– Delta (Netherlands) 

– Elia (Belgium) 

– Barajas (Spain) 

• development and construction of cables, junctions and terminations for the 400-kV Madrid 

Airport – Barajas project to replace existing overhead lines with highly reliable underground 

Compact TM Cable Systems; 

• research into distributed fiber optic sensors for the distributed measurement of mechanical 

deformations induced by flexion of cables in the framework of Optopower TM – RTMM (Real 

Time Mechanical Monitoring); 

• research and development of WPM (Water Penetration Monitoring) systems; 

• research and development of a proprietary system - SIDIAT (High-voltage Diagnostic System) 

for cable systems diagnostics. In particular, a system/sensor has been developed to be 

integrated in 220 kV – 400 kV junctions for the measurement of partial discharges; 

• development of an innovative model for the automated management of very high-power 

transmission lines (2 x 1750 MVA) in tunnels. Development of the management system 

software controlling the flow of cooling air and the logic of intervention of alternating fans; 

• research and development of a screening system for magnetic fields produced by HV cables, 

for rapid installation. An application has already been found for this new technology, known 

as the Pit-Stop TM – EMC Cable System, on a 6.5-km link in the Naples area for ENEL; 

• research into innovative components and systems for HECCS (High Electrical Capacity 

Components System), to stabilize electrical energy distribution networks. Research findings were 

presented in South America for future applications; 

• development and creation of innovative network components: Surf-fit/60 kV which already 

meets international standards, and Surf-fit/90 kV which will obtain international qualification 

shortly; 

• development and qualification of the new MT Elaspeed TM junction with a collapsible support 

and automatic elastic ejection; 






Company 






Sector 


Year 

• long duration (6,000 hours) EDF test successfully conducted 

over a 400 kV cable and accessories with innovative 

composite terminations; 

• research, development and qualification of 275 kV-class EGS 

dry termination. The prototype was also used in China for 

qualification of the complete 220-kV system; 

• development of technology for Oil-free Terminations from 

60 kV to 275 kV; 

• research and development for HVDC extruded DC systems. 

Development of up to 200 kV junctions completed. 

Type tests passed by the developed prototypes; 

An Air Bag high voltage cable 

system. 

• development and qualification of new types of link-box and link components (250 and 400 A 

for EDF and ENEL), according to international standards; 

• development of Mechanical-Type Air-Bag TM technology, from Light versions to VHICP (Very 

High Impact and Crash Performance) versions; 

• research and development of Air-Bag TM - EMW (Electrical Mechanical and Water blocking) 

technology for multi-functional, integrated applications; 

• research and development of innovative modules for long-distance submarine links. The new 

concepts were presented within the framework of the BASSLINK project; 

• development of solutions for on-shore and off-shore Wind Generation applications. 

In particular, a rigid 132-kV junction was created and qualified for the off-shore Wind Park 

being built under the SEAS contract; 

• research and development of variable geometry cabled systems for industrial automation 

with innovative connecting components (SIEMENS); 

• development of new lines of FP fire-proof cables and systems and research into breakthrough 

technologies for the future Fire-Fit TM lines. The prototypes have passed the tests required by 

the main international standards; 

• development of innovative electrically driven integrated polymeric modules which are to replace 

metallic components traditionally used in Mining and Crane systems; 

• development of special EPR-Compact TM systems for industrial applications which require 

high levels of flexibility and thermal performance; 

• research and development of innovative technologies in the sphere of MICS (Mobile Integrated 

Cable Solutions). In particular, research concentrated on the creation of systems with miniaturized 

components for marine and land-based applications. 

Employees 

At December 31, 2002, total employees in the Energy Sector were 12,479 (including 683 

employees with temporary contracts). Compared to December 31, 2001, there was a reduction 

of 2,044 (including 450 employees with temporary contracts). 

It should be emphasized that, as a result of the acceleration of the rightsizing program prior to 

the end of 2002, which led to a significant reduction in the headcount as at December 31, 2002, 

on January 1, 2003 the workforce in the Energy Sector totaled 12,187, with a decrease of a 

further 292 compared to December 31, 2002. 

At December 31, 2002, the workforce (excluding employees with temporary contracts) may be 

analyzed as follows: 

12/31/2002 12/31/2001 

Senior executives 1.4% 1.8% 

Staff 27.2% 28.0% 

Blue-collar 71.4% 70.2% 






Company 






Sector 


Year 

Development of human resources 

Within the context of the Energy Sector, a survey of the areas of expertise of commercial 

resources has been conducted with the aim of completing a census of the professional skills 

present and drawing up improvement programs where necessary. 

Measures designed to monitor the professional growth and plan the careers of talented young 

employees, which began in 2001, continued in 2002 with particular reference to industrial and 

commercial functions in Europe. 

Factories 

At year-end 2002, there were 50 factories operating in the Energy Cables and Systems Sector 

(of which 4 are shared with the Telecom Cables and Systems Sector), compared to 54 in 

December 2001. 

During 2002, the closing of factories in Berlin, Southampton, Clayton and Settimo Torinese was 

completed, while the closing of the factories in Erith and Colusa began and is scheduled for 

completion by the first quarter of 2003. 

Geographically, the factories are distributed as follows: 35 in Europe, 4 in North America, 6 in 

South America and 5 in Australia, Asia and Africa. 

A Industrial operations 

During 2002, power cable factories produced volumes which, 

although lower than expected, were substantially in line with 

those of the prior year. 

During the first half of the year, the closing of the Berlin 

factory was completed, its volumes having been re-allocated to 

Schwerin and Balassagyarmat. During the second half of the 

year, building work began in Spain on the new plant facilities 

to which the Cavimar (Energy and Telecom) factory will later 

be transferred. In the last quarter, with the closing of the 

factories at Settimo Torinese and the planned closing of the 

factory at Erith, the program to focus the manufacture of High 

Voltage Cables in three centers (located at Gron, Delft and 

Pikkala) and the manufacture of Submarine Cables in a single 

factory located at Arco Felice was set in motion. 

In parallel, the aim of reducing transformation costs in 

factories was kept under strong and constant pressure, 

especially in the second half of the year. In particular, a 

program was started to improve work efficiency which will 

already produce significant results in 2003. 

In 2002, variable and fixed transformation costs were reduced 

by approximately 5 percent. 

The program to obtain ISO 14001 certification for the 

corporate Environmental Management System for production 

facilities proceeded as planned. In 2002, the certification was 

awarded to 41 more factories. 

Most of the remaining factories are expected to obtain ISO 

14001 certification in 2003. 

The Arco Felice (Naples) factory, 

the centre of technological 

excellence for the submarine 

businesses. 

The programme of Certification of 

the Environmental Management 

System (ISO 14001) is progressing. 






Company 






Sector 


Year 

Materials 

As far as the trend of raw materials prices for power cables is concerned, in 2002, the following 

took place: 

• in 2002, non-ferrous metals quoted on the LME reported an average fall in prices compared to 

2001: copper -1 percent, aluminum -6 percent and lead -5 percent. This confirms the weak 

demand which persisted throughout the year. 

Prices are expected to increase in 2003, and there are already signs of a recovery following 

high demand, especially in China; 

• as far as the main commodities are concerned, after the continuous decline in prices in 2001, 

which reached a record low at the beginning of 2002, prices began to recover during the first 

six months of 2002, followed by a fall again in the second half of the year. 

There are conflicting forecasts for 2003: on the one hand, the price of oil and oil-derivatives is 

expected to rise and, on the other, there is expected to be a general weakness in demand in 

Europe and North America. Furthermore, manufacturers have reacted by closing facilities, 

some permanently, others in order to carry out extensive maintenance work; 

• with regard to specialties, in 2002, prices were generally weak; the forecast for 2003 is for a 

similar trend. 

Overall, in 2002, on average, the prices of raw materials (commodities and specialties) were two 

percentage points lower than in 2001. 

In 2003, the markets are expected to maintain the same prices as in 2002, except for possible 

sharp rises in the price of oil. 






Company 






Sector 


Year 

ENERGY SECTOR HOLDING COMPANY 

The statutory financial statements of Pirelli Cavi e Sistemi Energia S.p.A. for the year ended 

December 31, 2002 are summarized in the following balance sheet and statement of income. The 

statement of income is not comparable with that of the prior year as 2001, following the spin-off 

process during the year, did not represent a full year of operations. 


Balance sheet 2002 2001 

Intangible assets 4.2 2.7 

Property, plant and equipment, net 15.1 30.8 

Financial assets 780.3 848.0 

Net working capital (28.0) 37.6 

771.6 919.1 

Shareholders’ equity 399.1 432.9 

Provisions 17.3 44.5 

Net financial (liquidity)/debt position 355.2 441.7 

771.6 919.1 


Statement of income 2002 2001 

Production value 158.1 17.5 

Production costs: 

- raw materials and services (92.8) (12.1) 

- personnel (28.7) (2.6) 

- depreciation and amortization (5.3) (0.4) 

- other (51.5) – 

Operating profit (loss) (20.2) 2.4 

Financial income (expenses) (13.2) (1.4) 

Share of earnings (losses) of equity investments 23.1 – 

Income (loss) before extraordinary items and income taxes (10.3) 1.0 

Extraordinary items (18.3) – 

Income taxes (5.1) (0.6) 

Net income (loss) (33.7) 0.4 






Company 






Sector 


Year 

PERFORMANCE BY GEOGRAPHICAL AREA 

Italy 

Pirelli Cavi e Sistemi Energia Italia S.p.A. operates in the 

field of Energy in Italy. The year 2002 was marked by the 

following performance: 

• in the General Market, coverage of the distribution market 

continued to increase, while promotion activities were 

stepped up nationwide. In addition, the range of Afumex 

cables was completed with the development and 

introduction of the new MT range (Afumex MV Power 105) 

and the line of multicore building wire cables for mobile 

laying installations (Afumex Flex); 

• in terms of volumes, the market for medium and low voltage Power Cables reported a 

New families of Afumex cables have 

been introduced to the market. 

positive start to the year, which was followed by a fall in the last quarter due to a slowdown 

in demand from important customers. An opposite trend was reported in high voltage cables 

and systems, where there was a good jump in orders in the second half of the year. As for 

prices, there were modest increases in the prices of medium voltage cables; 

•in 2002, the Accessories market fell slightly in terms of volumes compared to the prior year. 

A decrease in medium voltage accessories and a modest increase in high voltage accessories 

were noted in particular. In the case of the latter, the shift in the mix towards high range 

products, thanks to some 400-kV systems in Spain and Italy, proved to be positive; 

• in 2002, sales of Special Cables remained fairly steady compared to the prior year, with price 

pressure owing to the weakness in demand, and exports just below 50 percent. Exports were 

generated by the Oil & Gas sector (cables for underwater pumps and for offshore platforms), 

petrochemical plants and railway systems dedicated to new technologies both in Italy and 

elsewhere in Europe with prospects of a further increase in business. 

On the domestic market, positive results were reported in the sector of special heavy cables, 

whereas the finer electro-engineering cables and the electronics cables (mainly for 

telecommunications) fell sharply. 

F 

France 

With regard to Pirelli Energie Câbles et Systèmes France 

S.A., in 2002, the company was forced to operate in a market 

with a highly irregular trend marked by a fall in demand, 

especially in the second half of the year. 

In the General Market and Special Cables business areas, the 

negative nature of the market was accompanied by strong price 

pressures. 

In the Utilities market, sales volumes fell compared to the prior 

year owing to a reduction of orders from EDF. This was partly 

offset by higher exports in the high voltage market, for projects 

in Mexico, Spain and Tunisia. 

The energy cable factory at Gron, 

France. 

The High Voltage market also saw the conclusion of the Barajas project, making it possible to 

qualify the cutting-edge technology of the Gron factory. 

This market situation will prevail throughout 2003 and, for this reason, the company has taken 

measures to improve its efficiency. 






Company 






Sector 


Year 

Spain 

In 2002, the trend of the Spanish economy was not particularly negative, compared to other 

European countries. 

The results of Pirelli Cables y Sistemas S.A. exceeded expectations. 

In the General Market business, the fall in margins was offset by a considerable increase in 

sales volumes. 

In the Utilities market, the company acquired orders and supplied the main high voltage 

projects. 

In 2002, 25 percent of the land of the Cavimar factory was sold to new owners and construction 

of the new factory began at Villanueva y la Geltrù. 


Pirelli Cables Limited continues to operate in the Energy 

Sector and, since the year-end, merged the installations 

business hitherto operated by Pirelli Construction Company 

Ltd.. 

The General Market business was affected by growing 

competition and erosion of prices, both on the domestic market 

and on the export market, generating a fall in results. 

Expectations of a recovery in 2003 are focused on the search 

for new customers and the introduction of new products. 

The High Voltage Cables market was marked by the 

completion of the installation of the 400-kV PPL cable for the 

NGC. 

After the cancellation of the Viking project, demand in the 

submarine cable sector gradually diminished, thus increasing 

the situation of production overcapacity on the world market. 

The company therefore decided to close the factories at 

Southampton and Erith (the closing of the latter will be 

completed in the first quarter of 2003). 

In the Power Distribution market, the company consolidated 

its position on the market by acquiring contracts with leading 

customers on the domestic market. 

The new high voltage cable 

developed using innovative PPL 

(Paper Polypropylene Laminate) 

technology. 

Germany 

Pirelli Kabel und Systeme Holding GmbH, the German company had to face a persistently 

difficult economic situation in the country and was forced to operate in a domestic market that 

has been contracting for seven consecutive years. Despite the fall in sales, both in terms of 

volumes and prices, the company succeeded in improving its situation thanks to a restructuring 

program which included the closing of one of its production plants. The benefit of these 

measures was a significant increase in the operating result and the net result. 

In the General Market business, the reduction in volumes and pressure on prices continued, 

but the restructuring measures which had begun led to an improvement in profitability. 

The Utilities market increased net sales by 5 percent, due to a favorable situation in prices, 

which also led to an improvement in results. 

Sales of Special Cables contracted, both on the domestic and international markets, because 

of economic difficulties experienced by some of the major customers. 






Company 






Sector 


Year 

Holland 

Pirelli Cables and Systems N.V. achieved its planned 

results, despite the difficulties of the market. 

In the domestic market there was a contraction of volumes in 

all business areas, with the exception of the High Voltage 

market, which reported good results thanks to two important 

contracts, NUON Full Power and TZH InterGen, which 

generated sufficient production volumes. 

With regard to international markets, positive volumes were 

reported in the United States and in China in the field of High 

Voltage Accessories. 

Installations continued to grow. 

Sales volumes in the General Market business area reported 

higher sales volumes, despite being affected by the world 

crisis. 

In the Special Cables market, sales also increased, mainly 

due to the high quality of the products. 

400 Click-Fit ® joints will be supplied 

to the Dutch utility NOUN. 

Finland 

Pirelli Cables and Systems OY operates in the field of energy in Finland and, through its 

affiliates, also in Sweden and Norway. 

Sales volumes remained at the same level as the prior year, since the worsening of market 

conditions in Northern Europe was offset by a considerable increase in exports. 

In the Utilities market, the demand for high voltage cables increased in the United States, 

Spain and the Far East. This led to a positive performance of the whole business area. 

In the Power Distribution market, the company maintained its market position in Finland and 

in the Baltic States, and achieved significant gains in exports. 

The General Market business reported volumes similar to those in the prior year, whereas the 

Industrial and Special Cables market reported a negative performance, particularly in cables 

destined for the naval sector. 

Slovakia 

In 2002, Kablo Bratislava Spol. S.R.O., the Slovak affiliate 

confirmed the positive trend of recent years. 

By rationalizing costs, it succeeded in compensating the 

growing pressure on prices, strengthening its position on the 

domestic market and also its place in the Czech Republic. It 

also confirmed its position on international markets, despite 

the recession of the global economy. 

Austria 

In Austria, despite the 

unfavorable market situation, 

Pirelli-OEKW GmbH again 

succeeded in maintaining its 

leadership position in the 

Utilities sector in 2002. 

The reduction in fixed costs 

made it possible to reduce the 

impact of costs as a 

percentage of net sales by 2.5 

percent. 






Company 






Sector 


Year 

Hungary 

In Hungary, Pirelli operates in the Energy Sector through MKM Magyar Kabel Muvek RT, 

which, despite price pressures and volume reductions on the domestic market, succeeded in 

maintaining its leadership position, both in the General Market and Utilities sectors, through 

goal-oriented commercial initiatives. 

The reduction of volumes on the domestic and international market was offset by the increase 

in intercompany sales. Great efforts were made to reduce fixed costs, despite huge inflationary 

pressure. 

Romania 

In Romania, where S.C. Pirelli Romania Cabluri si Sisteme S.A. operates, performance 

suffered not only from the uncertainty of the domestic market and the legislative instability 

which have prevailed in the country for a number of years, but also from the restructuring 

process which involved the company’s main customers, Electrica and RomTelecom. 

The company confirmed its market share and again endeavored to be more competitive on the 

international market. 

Despite the general state of the economy, results were satisfactory. 

Turkey 

Crisis continues to affect the performance of the financial 

markets in Turkey and, as a result, domestic demand and 

results also continue to fall. In 2002, there was a notable drop 

in inflation to 31 percent (89 percent in 2001), a figure well 

below the target set by the IMF, and the Turkish lira weakened 

against the Euro by 34 percent (105 percent in 2001). 

Turk Pirelli Kablo ve Sistemleri A.S. improved its results 

despite the unfavorable market conditions, while sustaining 

restructuring expenses and improving its financial position. 

A picture of the TÜRK PIRELLI 

Kablo ve Sistemleri A.S. commercial 

site. 

North America 

The North America Energy business, operated by Pirelli Power Cables and Systems USA 

LLC, significantly improved its results compared to the prior year, despite the stagnation of the 

economy. 

Net sales increased and margins improved considerably thanks to efficient action to reduce 

fixed and variable overheads. 

The company announced the closing of its factory in Colusa, California, at the end of the year. 

This restructuring measure will generate greater efficiency in costs and will make it possible to 

improve profits in 2003. 






Company 






Sector 


Year 

In 2002, the submarine cable installation company, Pirelli 

Jacobson Inc., was consolidated with the high voltage 

installation business, thus achieving a significant reduction of 

costs. The installations business, however, had an excellent 

year, reporting high volumes and profits. Important contracts 

were completed for Exelon (ComEd and PECO), Oncor (TXU), 

PSE&G and Sierra Pacific (Nevada Power). Pirelli Power 

Cables and Systems LLC is well positioned in the North 

American market and is likely to benefit considerably from the 

recovery of the economy forecast for 2003. 

Brazil 

View of the laboratories for high 

voltage studies. 

The Brazilian economy was seriously affected by the instability of the local currency caused 

mainly by the uncertain political situation and by the negative impact of the international 

economy (especially the crisis in South America). 

Pirelli Energia Cabos e Sistemas do Brasil S.A. operates in the Energy Sector. 

In 2002, the company succeeded in maintaining sales at a level comparable to the prior year 

despite the fall in volumes, mainly in the General Market business. 

The result was influenced by the restructuring measures which also involved the Brazilian 

affiliate and amounted to 43 percent of last year’s result. 

Argentina 

In Argentina, where Pirelli Energia Cables y Sistemas de Argentina S.A. operates, there 

was a serious recession which affected the whole market. 

During the first half of the year, the economic policy of “Convertibilidad” (U.S. $1 = Argentine 

peso 1) was abandoned, working capital was severely restricted and all the payables and 

receivables in U.S. dollars were converted to the local currency. This forced the company to renegotiate 

the expiry dates of payables with most of its suppliers. 

During the second half of 2002, a halt to the decline in value of the local currency and the 

restitution of funds that had been blocked by the banks led to a gradual recovery of industrial 

activity and a greater focus on export markets. 

Australia 

In Australia, excellent results were achieved after the radical restructuring which took place in 

2001. 

Pirelli Power Cables & Systems Australia PTY Ltd succeeded in maintaining its strong 

position in the Utilities market and achieved substantial growth in the Special Cables market, 

mainly in the oil sector. 

With regard to future operations, in a context marked by a rapid fall in prices, especially in the 

Utilities sector, variable and fixed overheads must continue to be kept under control in order 

to improve results. 






Company 






Sector 


Year 

Indonesia 

P.T. Pirelli Cables Indonesia reported a positive performance, despite the persisting 

stagnation of the Indonesian economy, achieving the planned results. Priority was given to 

controlling fixed and variable overheads by improving efficiency. 

In the Power Cables segment, volumes remained constant with sales on export markets 

exceeding those on the domestic market. 

China 

Tianjin Top Power Cables Co. Ltd, the Chinese affiliate 

which operates in the area of products for Utilities, reported 

an increase in sales of 15 percent compared to the prior year, 

despite strong pressure on prices. 

The company also reported significant export volumes. 

It is worth mentioning that the company doubled its sales 

volumes compared to 1999, the year in which Pirelli 

established the joint venture, and that a high level of 

efficiency has been achieved. 

The energy cable factory at 

Baosheng, China. 

In July 2002, Pirelli increased its stake in the company from 51 percent to 67 percent. 

BICCGeneral Baosheng Cable Co. Ltd, acquired at the end of 2000, again reported positive 

results in 2002, fulfilling all the forecasts made at the beginning of the year. The company 

completed the type-testing for a 220-kV XLPE cable at the Settimo Torinese factory and in the 

laboratory at Wuhan (the test center in China). The cable will be completed in 2003. Marketing 

of high voltage cables was stepped up with the aim of enabling the company to achieve the 

leadership position on the market for this kind of technology. 

Malaysia 

Power Cable Malaysia Sdn Bhd, (not consolidated) continued to raise profitability in 2002. 

The company was awarded long-term contracts with CLP Hong Kong and PowerGrid Singapore, 

thus placing itself in a good position in the Utilities market. 

South Africa 

African Cables Ltd (not consolidated) significantly increased its sales revenues, and again 

reported improved results, thanks partly to excellent control of its financial position. 

In 2003, the company is expected to succeed in maintaining its satisfactory level of profitability. 






Company 






Sector 


Year 

BUSINESS UNITS 

Overall performance of the Energy Cables and Systems business 

At the end of its first year of operations as an independent entity, the Energy Cables and 

Systems Sector reported a contraction of sales revenues (-14.6 percent of which 8 percent refers 

to volumes and 4 percent to the foreign exchange effect) compared to the prior year, due to a 

notable decline fall in volumes and a considerable contraction of prices worldwide. 

Despite the difficult market situation in which the sector operates, overall operating profit was 

equivalent to 1.8 percent of sales and increased 5.7 percent compared to the result in the prior 

year. 

The net result of the sector was negatively affected by restructuring costs, which refer to all the 

main affiliates of the sector, with the primary aim of reducing fixed overheads and improving 

production efficiency. 

As part of the far-reaching restructuring plan, the primary aim of which is to focus on the 

business segments with the highest value-added, the sale of the Enameled Wires business was 

announced in December. 

In particular, the sale refers to the manufacturing and marketing activities in the sector of 

enameled wires and transposed conductors in Europe and China. 

General Market Business Unit 

The year 2002 was marked by a continuous fall in prices worldwide. There was a general 

contraction in volumes, with the exception of Spain, Scandinavia, Australia and Canada, where 

modest growth was recorded. In this market situation, Pirelli maintained its market share and 

avoided a serious decline in the result by implementing measures aimed to reduce fixed 

overheads. 

Utilities Business Unit 

Net sales were slightly lower than in 2001, in particular: 

• in High Voltage Systems, overall, net sales in 2002 

remained stable, with a reduction in South America and an 

increase in China. The approach to the market of “turn-key” 

solutions was strengthened and will permit greater 

penetration in the European and North American markets. 

Price levels deteriorated in the 150-kV segment, whereas 

they improved in the 220-kV and 400-kV segments. 

Furthermore, industrial rationalization led to a better result 

than in the prior year; 

• in the Power Distribution segment, sales contracted, 

especially in South America due to foreign exchange effects, 

while in Europe the reduction in volumes can be attributed 

to the fall in investments on the part of the largest utilities. 

Price levels showed some signs of recovery, especially in the 

United Kingdom and in Germany, despite increasing 

competition; 

A phase in the installation of a 

system with Click-Fit ® joints. 

• in the Accessories business, the market was stable in 2002. In China, Pirelli won the first bid 

for medium voltage systems. Industrial reorganization was completed in the high voltage 

segment. 






Company 






Sector 


Year 

Industrial Markets Business Unit 

The Business Unit reported a significant reduction in 2002, compared to the prior year. 

The operating profit of the four segments of the business unit can be analyzed as follows: 

• the Industry and Specials segment reported a contraction of activity, especially in Germany 

and Italy. In these countries, the weakness of the Original Equipment Manufacturer channel, 

which is the most important buyer of high-margin cables, was accentuated in the last quarter 

of the year because of a widespread fall in investments. 

In the Contractor channel, the delay in the start-up of international projects caused a 

reduction in net sales, especially in the exploitation of natural resources; 

• in Enameled Wires, the negative trend of falling prices which began at the end of 2001 

continued, with stagnant volumes and an installed capacity that was greater than demand. 

With regard to transposed conductors, after a promising start in 2002, there was slowdown in 

demand in North America. In Brazil, net of the weakness of the local currency, activities 

reflected expectations. In the last month of the year, the new Chinese company Invex 

Insulated Conductors (Baoying) Co. Ltd for the manufacture of transposed conductors 

became operational; 

• Automotive Cables reported a deterioration in margins due to the erosion of selling prices 

as a result of fierce competition. The joint venture in Tunisia, begun the prior year, became 

operational; 

• the Branchement business succeeded in combating the negative effect of price erosion 

thanks to higher sales volumes. 

Submarine power systems 

In 2002, the Submarine Power System Business saw the start 

of the Basslink contract, which involves the supply and 

installation of a 400-kV interconnection system between 

Australia and Tasmania. 295 km of paper-insulated cable and 

195 km of extruded cable are required for the project, 

ensuring full production for the Arco Felice (Naples) factory 

over the next two years. In addition, in 2004 and 2005, the 

installation work will be conducted by our cable-laying vessel, 

Giulio Verne. Overall, the contract is worth approximately 


In 2002, the activities of the business included the supply and 

installation of the 132- kV cable for SEAS (Denmark), to 

connect the mainland to one of the largest off-shore windmill 

parks in the world, situated 11.2 km off the island of Sjaelland 

in Denmark. The contract, worth more than Euros 16 million, 

will make a significant contribution to the spread of “clean” 

energy in Denmark. 

High voltage submarine cable in 

production. 

Furthermore, business is growing in the field of off-shore cables, with the production of cables 

for Saipem Panyu (China), Zadco (Arab Emirates) and NPCC Soorosh-Noorosh (Iran). 

At the same time, the business unit also carried out a restructuring project, concentrating its 

manufacturing activities in one single production site at Arco Felice. 






Company 






Sector 


Year 

PERFORMANCE OF THE MAIN COMPANIES IN THE SECTOR 

Key data as they appear in the financial statements prepared by the boards of directors and 

approved or in the process of approval by the respective shareholders' meetings are given 

below. 

All amounts are expressed in local currency. However, the economic results are not 

comparable with the prior year as 2001, following the spin-off during the year, did not represent 

a full year of operations. 

Pir.Energie Câbles et Systèmes France S.A. - France (in thousands of euros) 

2002 2001 

• Net sales 352,275 393,638 

• Net income (loss) (15,055) (3,914) 

• Net financial (liquidity)/debt position (15,701) (3,707) 


Pir. Cables y Systemas S.A. (consolidated) - Spain (in thousands of euros) 

• Net sales 205,.570 265,146 

• Net income (loss) 8,779 27,702 

• Net financial (liquidity)/debt position 4,690 (25,259) 


Pir. General plc - U.K. - “B1” (in thousands of £) 

• Net sales 323,621 n.a. 

• Net income (loss) (41,188) n.a. 



Pir. Kabel und Systeme Holding Gmbh (consolidated) - Germany (in thousands of euros) 

• Net sales 279,439 345,140 


• Net financial (liquidity)/debt position (41,731) 8,687 


Pir. Power Cables and Systems USA LLC - United States (in thousands of U.S. $) 

• Net sales 299,862 281,471 




Pirelli Power Cables and Systems Canada Ltd - Canada (in thousands of Canadian $) 

• Net sales 179,790 303,992 




Pir. Energia Cables y Sistemas de Argentina S.A. (cons.) - Argentina (in thousands of Pesos) 

• Net sales 99,307 118,583 









Company 






Sector 


Year 


Pir. Energia Cabos e Sistemas do Brasil S.A. (consolidated) - Brazil (in thousands of Reais) 

• Net sales 501,973 682,333 




Pir. Power Cables & Systems Australia PTY Ltd (consolidated) - Australia (in thousands of Australian $) 

• Net sales 205,450 104,312 

• Net income (loss) (5,217) (386) 




The forecast for the current year is for stable macro-economic conditions without signs of a 

recovery in the market. 

Actions taken to improve efficiency will continue for all of 2003 with the principal aim of 

mitigating the negative effects arising from the current market situation and making it possible 

to reach the forecast results. 






Company 

TELECOMMUNICATIONS CABLES AND SYSTEMS SECTOR 

The highlights of the consolidated financial statements of the Telecommunications Cables and 

Systems Sector can be summarized as follows: 






Sector 


Year 

in milions of euros 2002 2001 

• Net sales 468 1,230 

• Gross operating profit (loss) (22) 134 


• Operating profit (loss) (84) 76 


• Financial income (expenses) (54) n.d 

• Extraordinary items (121) n.d 

• Income taxes (4) n.d 

• Net loss (263) n.d 

% of net sales n.s. n.d 


• Capital expenditures 78 n.d 

• R&D expenditures 45 n.d 


• Factories (number) 11 (*) 13 

* four of these are shared with the Energy Cables and Systems Sector 

Net sales 

Net sales amount to Euros 468 million and show a decrease of 

62 percent from the prior year. 

The change is due to: 

• Currency exhange effect - 3.5% 

• Volumes - 48.6% 

• Prices/Mix - 19.5% (*) 

- 62.0% 

Europe 

North America 

South America 

Oceania 

(*) calculated on the basis of the prior year adjusted by the volume variance 

The distribution of net sales is as follows : 


Europe (of which Italy 9%) 49% 20% 



Oceania 12% 15% 

Asia 8% 9% 

Africa 3% 2% 

Africa 

Asia 

Telecom Cables and Systems: 

2002 sales by geographical area 

and product category. 

Copper Cables 

Optical Cables 


Copper Cables 30% 12% 

Optical Cables 60% 77% 

Submarine Cables 3% 1% 

Accessories, istallation activities, optic fibres, other activities 7% 10% 

Submarine Cables 

Accessories, installation 

activities, optic fibres, 

other activities 






Company 






Sector 


Year 

Operating profit (loss) 

The operating loss is Euros 84 million compared to an operating 

profit of Euros 76 million in the prior year. The efficiencies 

achieved in respect of the structures and processes were not 

sufficient to offset the negative impact from the fall in volumes 

and the deterioration in the mix associated with the market trend. 

The operating result includes insurance compensation of Euros 

6 million from the fire which started at Fibre Ottiche Sud’s 

factory in Battipaglia in 2001. 


summarized as follows 



• Prices (excluiding metals)/Mix - 119 


• Per unit material cost + 46 



• Other (*) + 50 

- 160 

(*) of which Euros 35 million for lower accruals on receivables and Euros 6 million for 

insurance compensation relating to Fibre Ottiche Sud 


Extraordinary items show an 

expense balance of Euros 121 

million and mainly include 

restructuring expenses of 

Euros 118 million to 

implement the new measures 

aimed at rendering the 

restructuring actions more 

incisive. 

Net loss 

The net result is a loss of 

Euros 263 million after 

financial expenses of Euros 54 

million (of which Euros 35 

million are for the writedown 

of the investment in 

e.Biscom), extraordinary 

expenses of Euros 121 million 

and income tax expenses of 



Capital expenditures amount to a total of Euros 78 million. 

Capital expenditures can be analyzed by geographical area as 

follows: 

Geographical area 2002 

Europe 94% 

South America 1% 

North America 2% 

Rest of the world 3% 


The net financial position is a 

debt position of Euros 431 

million compared to Euros 367 

million at December 31, 2001. 

The change is attributable 

principally to operating 

requirements during the year 

that were accentuated on 

account of the decline in 

results and only partly 

compensated by measures to 

reduce working capital. 


R&D is conducted by an integrated structure of research centers and development and 

engineering units in various countries. 

A total of 184 persons were engaged in R&D and expenditures totaled Euros 45 million, equal to 

9.6 percent of net sales. 






Company 






Sector 


Year 

The main projects include: 

in the field of fiber optics 

• development and introduction to the market of 50/125mm 

and 62.5/125mm multimode optical fibers (Standard ITU-T 

G.651), with bandwidth optimized at 850nm or 300nm with 

coating suitable for EPFU (Enhanced Performance Fiber 

Unit) cables for blown fiber applications; 

• further development of the FineLight TM fiber for applications 

in the sphere of LAN (Local Area Networks), obtaining 

10GigaEthernet performance; 

The Banka Nazionale of Bulgaria, 

cabled with the “blown fibres” 

system. 

• development of the new release of FreeLight TM fiber (compliant with ITU-T Rec. G.655) 

featuring excellent spliceability performance. Average splice loss is as low as 0.030 dB 

improving considerably the system power budget; 

• introduction of two new versions of the standard monomodal fibers SMR (Standard ITU-T 

G.652) with extremely low PMD (Polarization Mode Dispersion) values: 

– SMR Gold with PMD ≤ 0.2ps/÷km 

– SMR Platinum with PMD ≤ 0.1ps/÷km. 

in the field of telecommunications 

• development and supply of a new optical cable for application 

on Italy’s railway network, with a tough dielectric outer sheath 

of the AIRBAG type, (a Pirelli trademark), made with materials 

that do not contain halogens and produce low levels of fumes 

in the event of fire. This cable has been installed in tunnels 

both on roads crossing the Apennines (Bologna - Florence - 

Rome) and along the Tyrrhenian coast (Genoa - La Spezia); 

• completion of a new range of optical cables with smaller 

diameters and a potential of up to 288 fiber counts (ACTION 

cables - a Pirelli trademark) suitable for pneumatic or 

traditional installation methods; 

• development and qualification of a new series of microoptical 

cables for pneumatic installation in small tubes, with a 

potential of up to 72 fiber counts and a maximum outer 

diameter of 6.5 mm; 

One ACTION cable, which 

belongs to the family of reduced 

diameter optical cables. 

• development of a 12-fiber micromodule with a diameter of 1.4 mm for customer head-ends; 

• development and supply of a 24-fiber count optical cable with a central tube and rodent-proof 

metallic covering for Telecom Italia’s new broadband access network; 

• development and supply of a new ribbon optical cable for the Libyan network, with a tough 

covering of steel wires and an anti-corrosion sheath; 

• development and supply of a range of dielectric ribbon optical cables for the Scandinavian 

access network, with a potential of up to 48, 96 or 192 fiber counts; 

• qualification and supply of two new optical ground wires with a very small diameter and a 

central tube with potentials of 24 and 48 fiber counts, providing a suitable and competitive 

solution for a vast range of overhead lines in Europe and worldwide. 

Employees 

At December 31, 2002, total employees in the Telecommunications Sector were 2,546 (including 

52 employees with temporary contracts). 

Compared to December 31, 2001, there was a reduction of 1,143 (including 190 employees with 

temporary contracts). 






Company 






Sector 


Year 

It should also be emphasized that, as a result of the acceleration of the rightsizing program 

prior to the end of 2002, which led to significant reduction in the headcount as at December 31, 

2002, on January 1, 2003 the workforce in the Telecommunications Sector totaled 2,408, with a 

decrease of a further 138 compared to December 31, 2002. 

At December 31, 2002, the workforce (excluding employees with temporary contracts) may be 


12/31/2002 12/31/2001 

Senior executives 2.7% 2.3% 

Staff 32.5% 32.0% 

Blue-collar 64.8% 65.7% 

Organizational development 

In the light of the above-mentioned market difficulties, in 2002, the Telecom Sector began and 

completed a “delayering” process, with the aim of making the organization structures more 

streamlined and effective, with the focus on macro-geographical areas. 

Development of human resources 

The training program developed downstream of last year’s assessment of the expertise of 

commercial resources was completed for the sales network in 2002. 

Measures designed to monitor the professional growth and plan the careers of talented young 

employees, which began in 2001, continued in 2002 with particular reference to industrial functions. 

Factories 

At year-end 2002, there were 11 factories compared to 13 in 2001. Of the 11 factories, 4 are 

shared with the Energy Cables and Systems Sector. 

Geographically, the factories are distributed as follows: 7 in Europe, 1 in North America, 1 in 

South America, 2 in Australia and Asia. 

At year-end 2002, it was announced that the fiber optic manufacturing department at the factory 

in Bishopstoke (U.K.) would be closed at the beginning of 2003. 

Industrial operations 

During 2002, telecommunications cables factories produced volumes that were significantly 

lower than those recorded in the prior year. The total reduction in the volume of optical cables 

was approximately 60 percent, whereas the volume of copper cables decreased by 

approximately 40 percent, compared to the prior year. 

Materials 

As far as the trend in the prices of raw materials for telecommunications cables is concerned, in 

2002, there was a reduction of 20 percent compared to 2001. Because of market dynamics, 

significant reductions were also recorded in prices of optic and glass fibers, as well as in prices 

of some plastic components used for the manufacture of optical cables. 

In 2003, the erosion of prices seems likely to continue although less dramatically than in 2002. 






Company 






Sector 


Year 

TELECOMMUNICATIONS SECTOR HOLDING COMPANY 

The statutory financial statements of Pirelli Cavi e Sistemi Telecom S.p.A. for the year ended 

December 31, 2002 are summarized in the following balance sheet and statement of income. 




Property, plant and equipment, net 13.7 7.6 


Net working capital 11.5 9.1 

289.4 431.8 



Net financial (liquidity)/debt position 161.1 144.9 

289.4 431.8 



Production value 56.9 12.6 

Production costs: 

- raw materials and services (59.0) (8.9) 

- personnel (15.6) (1.4) 

- depreciation and amortization (6.1) (0.5) 

- other (0.6) (1.7) 

Operating profit (loss) (24.4) 0.1 

Financial income (expenses) (4.2) (0.1) 

Share of earnings (losses) of equity investments (102.9) – 

Loss before extraordinary items and income taxes (131.5) – 

Extraordinary items (1.0) – 

Income taxes 15.6 (0.6) 

Net loss (116.9) (0.6) 


Italy 

Pirelli Cavi e Sistemi Telecom Italia S.p.A. operates in the field of telecommunications. 

Optical Cables for telecommunications, manufactured at the factory in Livorno Ferraris 

(Vercelli), were affected by the depressed market situation on a global scale. Not only were 

volumes and results lower than the prior year but they were also lower than forecasts. As far as 

Copper Cables are concerned, also manufactured in Livorno Ferraris, the results in terms of 

volumes were higher than forecasts and the prior year, whereas profitability was penalized by a 

change in the mix. 






Company 






Sector 


Year 

The subsidiary Fibre Ottiche Sud S.p.A. (FOS), which 

manufactures optical fibers, recorded lower net sales and 

results than the prior year. This can mainly be attributed to 

the contraction in demand for fibers due to the world crisis in 

the telecommunications sector. 

However, investments to raise production capacity continued 

and are being carried out in relation to the trend of the market. 

France 

The FOS (Fibre Ottiche Sud SpA) 

factory at Battipaglia, Salerno. 

With regard to the subsidiary Pirelli Telecom Câbles et Systèmes France S.A., 2002 was a 

particularly difficult year. The decrease in volumes, which appeared evident in the second half 

of 2001, became more widespread during the course of 2002 and affected all sectors of activity. 

Volumes of Optical Cables and related connectivity equipment were very low indeed. After a 

first quarter in line with expectations, volumes of Copper Cables fell sharply. 

Conversely, in the segment of aerial (OPGW) cables, penetration of the Algerian market was 

satisfactory, and is expected to continue at the same pace in 2003. 

The forecasts for 2003 do not predict a recovery of volumes, however action will continue to 

rationalize the structure and costs in order to cope with the dramatic contraction of the market. 

Spain 

The positive performance of the spanish economy, especially 

in the first half of the year, and the stepping up of export 

activities, which, at the year-end, represented 68 percent of net 

sales, enabled Pirelli Telecom Cables y Sistemas España 

S.L., to obtain a positive result in its first full year of 

operation, with operating profitability equal to approximately 

8 percent of net sales. 

Sales mainly refer to aerial (OPGW) cables and various 

equipment for their installation in infrastructures operated by 

electricity companies. 

As always, priority was given to company management, 

leading to a considerable reduction of working capital and 

indebtedness. 

Work continues on the construction 

of the new factory at Villanueva y la 

Geltrù, Spain. 

During the year, work continued on construction of the new factory on the outskirts of 

Villanueva y la Geltru’, to which all the manufacturing and administrative activities will 

gradually be transferred during 2003. 

Despite the marked reduction in margins associated with the erosion of selling prices, prospects 

for the current year look promising, with the possible acquisition of some important contracts. 


At Pirelli Telecom Cables & Systems UK Ltd, action continued to rationalize production 

capacity and reduce operating costs in a context marked by the dramatic slowdown of the 

world optical fibers and optical cables market. In 2002, the factories in Newport and Harlow 

were closed. Production of optical cables was concentrated in the Bishopstoke factory. At yearend 

2002, the company announced the closing of the department of the factory which produces 

optical fibers. 






Company 






Sector 


Year 

These measures made it possible to maintain the market share and the operating profit in 2002, 

and, at the same time, adapt the production capacity of optical fibers to the demand forecast for 

2003. Furthermore, the company seized two important business opportunities in 2002: a 

contract – worth approximately Euros 30 million – to supply copper cables to Railtrack in 

connection with the plan to upgrade the railway network, scheduled to begin early in 2003; and 

a contract worth approximately Euros 10 million a year with British Telecom, for the supply of 

optical connectivity equipment. 

Germany 

In 2002, Pirelli Telekom Kabel und Systeme Deutschland GmbH, which is responsible 

for marketing Copper and Optical Cables for telecom applications on the German market, had 

to face not only the collapse of the world telecommunications market, but also a drastic 

reduction in demand from the main operators on the German market. However, constant 

attention to fixed costs made it possible to record an operating profit representing 3.3 percent 

of sales. 

North America 

The North American telecommunications market reported a significant contraction in the first 

quarter of 2002, and then settled at a very low level for the rest of the year. 

In this context, Pirelli Communications Cables and Systems USA LLC continued action to 

restructure operations and adopted strict measures to control costs in an endeavor to minimize 

the impact of the contingent market situation. At the same time, the American subsidiary 

concentrated its efforts on action to improve its market position vis-à-vis its most important 

customers. The results achieved are intended to allow the American subsidiary to take 

advantage of its position as soon as the first signs of a recovery become apparent. 

In fact, in 2003, the North American telecommunications market is expected to display a 

gradual but constant improvement, starting in the second half of the year. 

Brazil 

In 2002, the Brazilian economy was seriously affected by the 

instability of the local currency, political uncertainty 

associated mainly with presidential elections, and the 

persisting international economic crisis, which had dramatic 

repercussions in South America. 

The telecommunications market showed no signs of emerging 

from the serious recession which hit the market in the second 

half of 2001 and the affiliate Pirelli Telecomunicações 

Cabos e Sistemas do Brasil S.A. reported a drastic fall in 

volumes (-68 percent compared to the prior year). 

The headquarters of Pirelli Cables 

Brazil in Santo Andrè. 

The operating result was seriously impacted by the unfavorable economic situation. 

Furthermore, reorganization costs were sustained to adapt the structures to the new market 

situation. 






Company 






Sector 


Year 

Australia 

For the affiliate Pirelli Telecom Cables & Systems 

Australia PTY Ltd, the year 2002 was marked by a rise in 

demand for Optical Cables compared to the prior year and 

by a slight fall in demand for Copper Cables. In fact, despite 

the slump in the general demand, the optical cables business 

benefited from two contracts in particular (Telstra and IP1), 

which made it possible to achieve results that were higher 

than the average of the local market. A continuous reduction 

in the cost of materials together with action to improve 

efficiency also made it possible to achieve satisfactory levels 

of profitability. 

Pirelli Telecom Cables and Systems 

Australia has won a Telstra contract. 

In 2003, there is expected to be a fall in volumes and prices compared to 2002, and a worsening 

of the mix, with a marginal impact on the profitability of the australian affiliate. 

. 

China 

2002 was a particularly difficult year for Pirelli Telecom Cables Co. Ltd Wuxi, owing to the 

depressed domestic market for optical cables. In fact, excess supply of both fibers and cables, 

combined with a drastic reduction in demand completely destabilized the market. 

In this situation, the greatest efforts were concentrated on export markets and on copper 

cables, in an attempt to keep losses to a minimum, and, at the same time, to preserve the 

market share and maintain close relations with the most important customers. 

The development of new strategic products continued and local production began of aerial 

(OPGW) cables, which have been enormously successful in China for several years. The aim is 

to improve the affiliate’s strategic positioning on the market. 

BUSINESS UNITS 

Overall performance of Telecom Cables and Systems business 

Terrestrial Cables and Systems 

The global decline in the world of telecommunications, which began in the second half in 2001 

and continued throughout 2002, particularly affected areas which have been traditionally strong 

for Pirelli, such as North America and Western Europe. 

Investments by telecommunications companies underwent a drastic reduction and, 

consequently, the world market of cables and fibers reported a contraction of more than 50 

percent compared to 2001. Furthermore, the financial crises affecting some of the largest 

carriers and telephone operators also eroded the confidence of investors in the 

telecommunications market. 

In this context, dominated by an excessively high supply of optical cables and fibers, the 

Telecommunications Cables and Systems Sector continued the measures begun in 2001 to 

rationalize and consolidate its operations. Some factories were closed and production capacity 

was concentrated in others, with the aim of reducing operating costs and improving efficiency. 

The workforce was reduced by approximately 50 percent compared to the second half of 2001. 






Company 






Sector 


Year 

Current market forecasts show that the falling trend in 

demand has slowed down, suggesting that a period of greater 

stability lies ahead. However, it would not be realistic to 

forecast a recovery of the market in the short term. An 

improvement is not expected until the end of 2003. 

Submarine Cables and Systems 

Despite the extremely negative market conditions (the worst 

in the last decade), for submarine telecommunications cables 

and systems, 2002 proved to be a year marked by a gradual 

increase in operating and commercial activities compared to 

2001 (overall, Pirelli Submarine Telecom Systems Italia S.p.A.’s 

market share increased by 15 percent). 

In particular, the Palma – Algiers link project was completed; 

work on the Sumatra Backbone project continued (including 

surveying operations, cable production and cable-laying 

activities in Indonesia, where the link is scheduled for delivery 

in the first half of 2003). In addition, the Albacom link 

between Palmi and Mortelle was completed and delivered. 

Product development activities also continued, together with 

the restructuring of the business, with the aim of an overall 

curbing of costs and an improvement in the quality of services 

and products. 

Finally, at year-end, after a lengthy selection process, Pirelli 

succeeded in winning the most important bid in 2002 in the 

submarine telecommunications sector. In fact, Pirelli 

Submarine Telecom Systems Italia S.p.A. was awarded the 

turn-key contract, for the Icelandic company, Farice, to create 

an optical submarine system approximately 1,400 km long, to 

connect the networks of Iceland, Scotland and the Faeroe 

Islands. The contract, worth a total of Euros 30 million, is 

scheduled for completion by the end of 2003. 

The cable laying ship Giulio Verne. 

Sey isfjör ur 

Funningsfjör ur 

Dunnet Bay 

Pirelli has won a contract for the 

installation of a submarine cable 

link in optical fibre between Iceland, 

Scotland and Faroe Islands. 






Company 






Sector 


Year 



approved or in the process of approval by the respective shareholders' meetings are given 

below. 

All amounts are expressed in local currency. However, the economic results are not 

comparable with the prior year as 2001, following the spin-off process during the year, did not 

represent a full year of operations. 


Pir. Cavi e Sistemi Telecom Italia S.p.A. - Italy (in thousands of Euros) 

• Net sales 115,488 62,281 




Pir. Telecom Câbles et Systèmes France S.A. - France (in thousands of Euros) 

• Net sales 36,347 65,530 

• Net income (loss) (10,769) 2,092 


• Patrimonio netto 8,913 21,637 

Pir. Telecom Cables y Systemas España S.L. - Spain (in thousands of Euros) 

• Net sales 63,252 13,307 




Pir. Telecom Cables & Systems UK Ltd - United Kingdom (in thousands of £) 

• Net sales 49,482 n.a. 

• Net income (loss) (24,837) n.a. 



Pir. Telekom Kabel und Systeme Deutschland GmbH - Germany (in thousands of Euros) 

• Net sales 10,037 22,192 

• Net income (loss) 283 929 

• Net financial (liquidity)/debt position (157) (6,613) 

• Shareholders’ equity 1,175 953 

Pir. Communications Cable and Systems USA LLC - United States (in thousands of U.S. $) 

• Net sales 85,388 323,336 



• Shareholders’ equity 12,747 76.180 






Company 






Sector 


Year 


Pir. Telecomunicações Cabos e Sistemas do Brasil S.A. - Brazil (in thousands of Reais) 

• Net sales 78,849 99,599 

• Net income (loss) (19,543) 4,807 



Pir. Telecom Cables & Systems Australia PTY Ltd (consolidated) Australia (in thousands of australian $) 

• Net sales 99,789 200,985 

• Net income (loss) 7,039 (513) 

• Net financial (liquidity)/debt position (5,256) 27,601 



No significant changes in the economic scenario are forecast for the current year. 

The restructuring program begun in 2002 will make it possible to capitalize on efficiencies in 

costs which will allow an improvement in the operating result. 



Tyres Sector 

Tyres Sector 

Holding Company 



Consumer Market 

Industrial Market 



Sector 


Year 

TYRES SECTOR 

The highlights of the consolidated financial statements of the Tyres Sector can be summarized 

as follows: 


• Net sales 2,857 2,831 


% of net sales 12.8% 12.3% 

• Operating profit 191 172 


• Financial income (expenses) (55) (75) 

• Extraordinary items (11) (27) 

• Income taxes (47) (36) 

• Net income 78 34 







Net sales 

Net sales are moderately higher than in 2001 as a whole and 

the significant growth in volumes (+5.9 percent) and the 

price/mix (+3.6 percent) more than offset the negative 

currency exchange effect (-8.6 percent). 

Africa, Asia, 

Pacifico 

Italy 

Other European 

countries 

The distribution of net sales is as follows: 


Italy 14% 13% 

Other European countries 46% 46% 



Africa\Asia\Pacifico 13% 12% 


Car tyres 62% 61% 

Commercial vehicle tyres 26% 28% 

Motorcycle tyres 8% 7% 

Steelcord/Other tyres 4% 4% 

North America 

South America 

Tyres: 2002 sales by geographical 

area and product category. 

Car tyres 

Commercial 

vehicles tyres 

Other 

tyres 

Motorcycle 

tyres 



Tyres Sector 

Tyres Sector 








Sector 


Year 


Operating profit is Euros 191 million, representing 6.7 percent 

of net sales, compared to Euros 172 million in the prior year, 

equal to 6.1 percent of net sales. The positive contribution by 

volumes, prices and mix along with actions to reduce costs, 

have more than offset the negative currency exchange effects 

and the increase in both raw material costs and labor costs. 


summarized as follow: 



• Prices (excluding metals)/Mix + 102 

•Volumes + 59 

• Per unit material cost - 64 



• Other (*) - 61 

+ 19 

(*) of which Euros 25 million for amortization and depreciation and 

MIRS/CCM start-up, Euros 22 million for local inflation costs in South 

America, Euros 9 million for fixed overheads charged to/from inventories 

and hyperinflation adjustments. 

There was a considerable increase 

in collaboration with car 

manufacturers in 2002. 

The Scorpion STR tyre, latest 

addition to the Sport Utility Vehicle 

segment. 


Extraordinary items show an expense balance of Euros 11 

million (including restructuring costs of Euros 9 million) 

compared to Euros 27 million in 2001 (including Euros 26 

million for layoff expenses). 

Net income 

Net income is Euros 78 million (after financial expenses of 

Euros 55 million, extraordinary expenses of Euros 11 million 

and income tax expenses of Euros 47 million) compared to 

Euros 34 million in the prior year (after financial expenses of 

Euros 75 million, extraordinary expenses of Euros 27 million 

and income tax expenses of Euros 36 million). 

With Burton-on-Trent (United 

Kingdom), installation of MIRS 

lines outside Italy continues. 


The net financial position is a debt position of Euros 492 million, a reduction of Euros 192 

million from the end of 2001. 

The positive change is due to the capital increase with a share premium subscribed to by the 

parent company Pirelli S.p.A., equal to Euros 80 million, partly offset by the payment of 

dividends to the same parent company (Euros 30 million), actions taken in the management of 

working capital and investments focused and correlated to cash flows produced by depreciation. 



Tyres Sector 

Tyres Sector 








Sector 


Year 


Capital expenditures amount to Euros 182 million in 2002 for a 

ratio of 1.1 to depreciation and representing 6.4 percent of net 

sales. 

Industrial investments constitute 79 percent of the total and – 

in line with Group strategy and market demand – were 

directed to developing innovative processes, adjusting 

production capacity and launching new products. 

In particular: 

• Car tyres: in the area of innovative processes, the 

revolutionary new CCM process (Continuous Compound 

Mixing) was launched on an industrial scale and the use of 

MIRS (Modular Integrated Robotized System) was extended 

to new lines in Germany, the United Kingdom and Georgia 

(U.S.A.), with focus on the manufacture of high-performance 

and run-flat tyres. 

In South America and Europe, action continued to convert 

the production capacity to high-performance products and 

to re-qualify processes with machinery using traditional 

technology. 

With the aim of meeting increased market demand, while at 

the same time reducing manufacturing costs, production 

capacity in Turkey and Argentina was increased and 

construction began on a new Car Tyres factory being built in 

Bahia (Brazil). 

The industrialisation of compounds 

made using the revolutionary CCM 

(Continuous Compound Mixing) 

process has begun. 

MIRS technology has also been 

applied to the production of 

motorcycle tyres. 

• Commercial vehicle tyres: production capacity in Turkey, Brazil and Egypt was optimized 

through debottlenecking measures and actions to improve quality in the processing stages. 

In addition, the strategy to revitalize the product range and extend plans to improve efficiency 

continued in all the factories in the Group. 

• Motorcycle tyres: MIRS technology is being successfully applied ever more widely and is 

now also used to produce radial high-performance tyres for motorcycles, thanks to the startup 

of a new system at the Metzeler factory in Germany. 

In the field of traditional technology, production capacity continues to be adapted in the 

factories in Brazil and Germany. 

• Steel Cord: the plan to augment production capacity in Brazil and Turkey continues. 

New products are being developed to meet the requisites of the MIRS process and quality 

and productivity are being improved. 



Tyres Sector 

Tyres Sector 








Sector 


Year 


In 2002, R&D expenditures totaled Euros 122 million, equal to 

4.3 percent of net sales, and were focused on revitalizing the 

product range and pursuing the development of products and 

MIRS TM technology. 

During the first months of the year, the revolutionary new CCM 

(Continuous Compound Mixing) system was officially 

introduced. This is an innovative production process for 

compounds that ensures extremely precise control over the 

quality of the materials, which completes the MIRS TM process, 

strengthening Pirelli’s leadership in the high-performance range. 

During the year, new systems based on MIRS TM technology 

were introduced in Germany, the United Kingdom and the 

United States for manufacturing high-performance tyres. 

Pirelli already holds a substantial market share, which is likely 

to grow even further, thanks to this innovative process. 

As in previous years, collaboration continued with leading 

universities and research institutes to develop know-how, 

particularly in the area of materials research. 

As a result of all these activities, in 2002, prestigious 

homologations were obtained in the SUV (Sport Utility 

Vehicle) segment, which is growing rapidly, in the UHP (Ultra 

High Performance) segment, with the P Zero Rosso and in the 

HP (High Performance) segment, where the P6 and P7 

complete the range of Premium products, while the P6 Four 

Seasons was designed specifically for vehicles destined 

The MIRS plant, which is in 

operation in Breuberg, Germany. 

Pirelli continues to compete at top 

level in the World Rally 

Championship. 

for the American market: an ever more complete and reliable portfolio of high-performance and 

Premium Brand products in terms of performance, quality and durability. 

Product and process know-how was further developed with the aim of expanding the market 

range of “run-flat” products. These are tyres that guarantee that the vehicle can be driven even 

with a puncture or air-leak. The new run-flat tyre Eufori@, which has a self-supporting sidewall 

and is mounted on standard wheel rims, obtained its first homologation certificate with the Mini 

Cooper and has become a benchmark product in the market, driven partly by the global success 

of the car. 

Still in the sphere of application of Total Mobility, work on “self supporting” technology, 

optimized on the MIRS process, has been speeded up and PAX technology is being developed 

using a new wheel rim standard. 

Finally, new products were introduced for Passenger Cars: the P Zero Nero in the UHP segment, 

the Cinturato P4 for the South American market and the Winter Carving for the North European 

market. New products were also developed for the Motorcycle and Commercial Vehicles segments. 

In the Racing segment, the Pirelli brand participated in Rally and Track events, achieving 

brilliant results both in the GT Championship and in the World Rally driving Championship, 

during which Pirelli triumphed at Monte Carlo, in the African Safari, in Argentina, at the 

Acropolis and at the British Rally, the last event of the WRC. 

In 2003, not only the Ferrari Challenge but also the new Maserati Trophy will be equipped with 

the Pirelli P Zero tyres, confirming not only the excellence of the product, but also a historical 

partnership which dates back to the very beginning of the Italian automobile industry. 

Furthermore, the repercussions of the technical solutions put to the test in races has been 

extremely useful from the point of view of technical innovation in the UHP and HP market 

segments where Pirelli predominates. 

As far as Motorcycle Racing is concerned, during the 2002 season, the foundations were laid to 

achieve a decisive improvement in performance in the World Superbike Championship: in fact, 

tyres made with MIRS TM technology and with compounds made with the new CCM process have 

produced much better results than standard tyres produced with traditional technology. 

Moreover, Pirelli’s traditional supremacy in the World Motocross Championship was confirmed, 

with victories in the 250-cc and 500-cc classes. 



Tyres Sector 

Tyres Sector 








Sector 


Year 

Employees 

At December 31, 2002, employees in the Tyres Sector were 20,222, including 1,515 employees 

with temporary contracts. 

Compared to December 31, 2001, there was a reduction of 252 management and staff, of which 

24 are employed under temporary contracts, owing to the continuation of programs and 

measures which have the aim of rationalizing the structures. 

With regard to the number of blue-collar workers, there was an increase of 229 permanent 

workers to support MIRS production activities in Germany, the U.K. and the U.S.A., and 251 

workers on temporary contracts, which particularly refer to Turkey, Brazil and Germany, to 

cover production requirements associated with seasonal highs. 

With regard to organizational development, the Business Unit structure has been confirmed. 

This structure was implemented last year with the aim of ensuring a greater concentration of 

corporate resources and expertise. 

In keeping with this strategy, the Central Functions of each Sector have the fundamental 

responsibility for supplying services and being used as centers of expertise for the Business 

Units, whereas the Geographical Areas monitor the territory and ensure operational efficiency. 

In the sphere of the development of human resources, during 2002, the expertise survey was 

completed, focusing special attention on management and staff with high potential; the program 

to obtain OSHA 18001 certification for security and hygiene in the industrial environment 

continued; training and development activities took place to support the innovative MIRS TM , 

CCM and Tyre Systems. 

Factories 

At year-end 2002, the number of factories was 22 compared to 21 at year-end 2001 due to the 

opening of the new MIRS TM factory in Rome (U.S.A.). 

TYRES SECTOR HOLDING COMPANY 

The statutory financial statements of Pirelli Tyre Holding N.V. for the year ended December 31, 

2002 (not consolidated) are summarized in the following balance sheet and statement of income. 



Intangible assets 2.0 – 


Net working capital 6.3 6.4 

555.7 614.3 


Net financial (liquidity)/debt position (128.3) (138.7) 

555.7 614.3 



Net earnings of affiliates 64.2 33.2 

Other income (expenses) 6.3 (0.3) 

Net income 70.5 32.9 



Tyres Sector 

Tyres Sector 








Sector 


Year 


Europe and the rest of the world 

For the Car market, the year 2002 confirmed the presence of a scenario marked by a growth in 

volumes of the Replacements market (+2.7 percent), and a decrease in the Original Equipment 

market (-1.7 percent). 

In this scenario, Pirelli increased its share of the Passenger Car market, thanks to growth within 

the most attractive segments of the Replacements channel (HP/UHP, Winter, SUV), and the 

Original Equipment channel, through a strategy of selective growth which has led Pirelli to be 

regarded as a key partner by car manufacturers. 

Although there were some improvements in inflation and in the decline in value of foreign 

currencies in South America, the trend of prices remained generally critical, but was more than 

offset by the positive trend of the product mix, due to the success of new products which were 

launched in all the most attractive tyre segments. 

The Turkish market made a strong recovery, with growth of more than 40 percent in the Passenger 

Car segment, where the increase in Pirelli’s sales was more than proportional to market growth. 

The market of tyres for Commercial Vehicles in Europe decreased slightly, but was offset by the 

positive performance of the Turkish and Egyptian markets. Overall, our sales in this area 

increased at a faster pace than the market. 

North America 

In 2002, the North American Passenger Car segment reported a 

downturn in the Replacements market (-2.5 percent) and a 

considerable increase in the Original Equipment market 

(+5.3 percent) compared to 2001. 

Net sales of our products followed the negative trend of the 

Replacements market, although there has been a growth as a 

result of the mix. 

With regard to Original Equipment, the first supplies were 

delivered to Ford and the foundations have been laid to 

increase sales volumes significantly in 2003. 

In 2002, the alliance with Cooper was limited to the area of 

logistics and, consequently, a new commercial structure was 

implemented at the new headquarters in Georgia, where the new MIRS factory has been built 

and production of Scorpion Zero and P Zero Nero tyres has started. 

South America 

The trend in the South American market was considerably 

influenced by the economic and financial crises prevailing in the 

area, and figures reported there were generally lower than the 

prior year. In particular: 

Brazil 

With the end of energy rationing and due to the perception of 

a lower country risk at the end of 2001, economic activity 

improved slightly in the first quarter of 2002. 

The crisis of confidence associated with possible changes in 

economic policy altered the scenario from June onwards. 

The new P6 Four Seasons tyre, 

designed specifically for the 

American market. 

The tyre factory at Feira de 

Santana, Brazil. 

In the second half of the year, there was a reduction in international trading and interbank 

credit lines and the repatriation of investments of non-residents, leading to a strong decline in 



Tyres Sector 

Tyres Sector 








Sector 


Year 

the value of the Brazilian real against the U.S. dollar. 

The agreement signed in August with the International Monetary Fund (IMF) was not sufficient 

to invert the crisis of confidence. The situation stabilized only when presidential elections were 

held, after the declarations of the new President ratifying the country’s commitment to the 

objectives of the IMF program. 

The effect of the weak currency on prices resulted in inflation reaching a two-digit figure for 

the first time since 1995. One positive factor coming from the weakness of the Brazilian real 

against the U.S. dollar was the generation of a significant balance of trade surplus. 

In 2002, the automotive sector reported a reduction of 1.6 percent in production compared to 

the prior year. 

In this economic scenario, the total volume of Pirelli sales showed a positive trend throughout 

its product range, compared to the prior year, and close to double-digit growth, due both to the 

steady trend of the domestic market and the growth of exports. 

Argentina 

After the default occurred in December 2001, in January 2002, 

the Government decided to abandon the fixed exchange rate 

with the U.S. dollar. The 1-to-1 parity rate gave way to a 

fluctuating exchange system with strict currency control that 

had economic repercussions as well as political and legal 

consequences which, to date, are delaying the sealing of an 

agreement with the IMF. 

Despite the lack of international help, the increase in prices as The tyre factory at Merlo, Argentina. 

a result of the currency crisis was lower than that reported by 

other economies in similar situations. 

Especially in the second half of the year, bringing inflation under control was one of the main 

objectives achieved by the economic authorities, and the Government succeeded in controlling 

prices to some extent. 

In this economic scenario, Pirelli reported a reduction in sales volumes on the domestic market, but 

not in its market share. However the reduction was more than offset by the increase in exports. 

Venezuela 

Political and social unrest contributed to higher unemployment, inflation and the loss of 

currency values. 

The economy deteriorated in the last quarter of 2002 and particularly in December, leading to a 

“Civic Strike” which stopped the production and sale of oil. 

In this highly unstable scenario, Pirelli reported a reduction in sales volumes on the domestic 

market, which was partly offset by an increase in exports. 

CONSUMER MARKET 

Car Tyres Business Unit 

In 2002, the market trend for passenger cars varied according to 

the different geographical areas and in relation to the 

Replacements or Original Equipment sales channels. 

The Replacements business closed 2002 on a global scale with a 

marked increase in volumes compared to the prior year in 

Europe, in export markets, in Turkey and South America. 

The only place where volumes decreased was North America, 

where the review of the agreements with Cooper affected sales 

operations for the first half of the year. 

Pirelli P Zero Rosso is fitted to all 

Porsche models. 



Tyres Sector 

Tyres Sector 








Sector 


Year 

After the successful launch in 2001 of the P6 and the P7, key 

products in the HP segment, 2002 saw the introduction of the 

P Zero Nero, completing the P Zero collection, regarded as a 

benchmark by all the competitors in the HP segment. 

On the Replacements market, the new P6 FourSeasons was 

presented in North America. This HP tyre is already very 

popular and has been chosen as Original Equipment by Audi, 

BMW, Daimler Chrysler, Ford, Jaguar and Saab for cars in the 

North America market. 

The return of Original Equipment in North America with a key 

The Pirelli Scorpion range is 

homologated for all the most 

prestigious models in the Sport 

Utility Vehicle segment. 

HP All Seasons product reinforces the image of Pirelli as a company that is technologically on 

the cutting edge, a vital factor for re-launching the brand on the Replacements market. 

Prestigious homologations were obtained for the P Zero Rosso (in 2002 it was also homologated 

on the Audi Quattro, Mercedes AMG, Volvo “R”, Porsche, Ferrari and Maserati), while the P6 

and P7 were homologated and approved on the new models of Alfa Romeo, Audi, BMW, Daimler 

Chrysler, Fiat, Ford, Peugeot, Volvo and GM/Saab. 

Development activities concluded with the homologations of the Scorpion on the SUV vehicle 

which leads world sales in its category, the Ford F150/F250, and on the new models of the 

Range Rover, Porsche Cayenne, VW Touareg and Volvo XC90. 

Motorcycle Tyres Business Unit 

In 2002, the motorcycle tyres market reported significant 

growth in the most important markets, albeit at a lower level 

than in the prior year, enabling the Motorcycle Tyres Business 

Unit to confirm a good overall result. 

In the Replacements channel, the highest growth was reported 

in the North American and Australian markets, where Pirelli 

already held a strong position. In Europe, the market grew by 7 

percent and the market share also improved due to the new 

products launched in the radial sporting tyre sector. In South 

America, the year was affected by the economic and financial 

crisis, especially in Argentina. 

In the Original Equipment channel, sales volumes of Motorcycle 

tyres increased in Europe and South America. In Europe, the 

slump in scooter production continued. 

The program to revitalize the product range went ahead, with 

the aim of satisfying the requirements of the most demanding 

The new press advertising 

campaign for the Diablo tyre. 

customers. Sales of new products were very satisfactory, including the super-sport Pirelli 

Supercorsa and the Metzeler Sportec M1 in the Hypersport segment. 

The end of 2002 saw the launch of the new Pirelli Diablo radial sporting tyre, which is expected 

to be very successful in the coming years owing to a significant improvement in performance 

under all driving conditions. The new MIRS process, applied to the production of motorcycle 

tyres, has made it possible to produce the new super-sport Pirelli Diablo Corsa, scheduled to be 

launched at the beginning of 2003. 

From an industrial standpoint, the transfer of the manufacture of conventional products from 

Germany to Brazil was completed and the focus of the German factory is now on radial tyres, 

using both the traditional process and the new MIRS process. 

In the Racing segment, in addition to a long series of victories at national level, Pirelli 

confirmed its reputation in the World Cross Championship, again winning the 250-cc class with 

M. Pichon riding a Suzuki and the 500-cc class with S. Everts racing a Yamaha. However, it was 

in speed-racing that Pirelli had the greatest successes, winning the World Supersport 

Championship with F. Foret on a Honda, the Tourist Trophy held in the Isle of Man with D. 

Jefferies on a Suzuki, and making good progress in the second year of participation in the World 

Superbike Championship. 



Tyres Sector 

Tyres Sector 








Sector 


Year 

INDUSTRIAL MARKET 

Truck Tyres Business Unit 

In 2002, Pirelli confirmed its commitment to re-launch the 

Truck Tyres Business Unit. 

The competitive scenario was marked, in the first half of the 

year, by pressure on selling prices, radical measures on the 

part of the main competitors to rationalize production, and the 

search for low-cost production sources. The market in Europe 

was slightly negative. 

The Turkish market emerged from the crisis which had 

prevailed since 2001, with growth of more than 30 percent, 

followed by a similar growth in Pirelli sales, and opportunities 

were confirmed in African and Eastern markets where our 

Egyptian affiliate has further improved sales in the area. 

During the second half of 2002, the whole world was affected by 

an increase in the cost of raw materials derived from oil and 

natural rubber. Finally, the South American market suffered as a 

result of the weakness of the Brazilian real and the crisis 

affecting Venezuela and Argentina, but the macroeconomic 

factors were more than offset by the growth of demand in Brazil 

(+8 percent), which favored the growth of sales in the area. 

In this scenario, Pirelli increased sales and strengthened its 

market share, and in the second half of the year implemented 

measures to reposition prices. 

The Business Unit has an optimal production framework. 80 

percent of production takes place in countries where the 

transformation cost is low, while the remaining 20 percent of 

manufacturing facilities are located in Italy. 

Improvements in performance were introduced to the main 

product lines, the product range was rationalized and new 

products were launched to be introduced in new markets. 

The new generation FR25 radials 

for trucks. 

Steelcord Tyres Business Unit 

In 2002, the worldwide Steelcord market closed the year with an increase of more than 2 

percent compared to the prior year, driven in particular by emerging markets such as China, 

Eastern Europe and South America. The mature markets (Western Europe and NAFTA) closed 

with an equivalent reduction of consumption. 

The decrease in world demand for hose wire (-7 percent compared to 2001) signaled the failure 

of the economy to improve in the second half of the year as had been expected. From the point 

of view of supply, the concentration process was stepped up in 2002. 

In this general scenario, the Steelcord Tyres Business Unit closed the year with an increase in 

net sales due to the consolidation of Pirelli’s market share with some important customers and 

the sales volumes of Pirelli products. 

From the industrial point of view, the two low-cost factories in Turkey and Brazil expanded 

their production capacity and reported improved performance compared to 2001, due to the 

increase of production volumes and constant control over fixed and variable overheads. 

In 2003, the world steelcord tyres market is expected to grow slightly compared to 2002, driven 

once again by emerging markets. The situation of the hose wire markets will remain unchanged. 



Tyres Sector 

Tyres Sector 








Sector 


Year 



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

All amounts are expressed in local currency and compared to the prior year. 

Pirelli Pneumatici S.p.A. - Italy (in thousands of Euros) 


• Net sales 1,443,558 766,144 




Pirelli Reifenwerke GmbH - Germany (in thousands of Euros) 

• Net sales 554,356 528,263 




Pirelli UK Tyres Ltd - consolidated - United Kingdom (in thousands of £) 

• Net sales 245,320 247,658 




Pirelli Neumaticos S.A. - Spain (in thousands of Euros) 

• Net sales 267,329 257,128 




Metzeler Reifen GmbH - Germany (in thousands of Euros) 

• Net sales 124,208 114,086 




Turk Pirelli Lastikleri A.S. - Turkey (in thousands of Euros) 

• Net sales 206,430 199,988 




Pirelli Pneus S.A - Brazil (in thousands of Brazilian Reais) 

• Net sales 1,733,549 1,335,307 




Pirelli Tire Llc - United States (in thousands of US $) 

• Net sales 154,327 158,523 



• Shareholders’ equity (10,844) (74,242) 



Tyres Sector 

Tyres Sector 








Sector 


Year 


Pirelli Neumaticos S.A.I.C - Argentina (in thousands of Pesos) 

• Net sales 321,842 103,517 

• Net income (loss) (12,622) (302) 

• Net financial (liquidity)/debt position (16,883) 586 


Pirelli de Venezuela C.A - Venezuela (in thousands of US $) 

• Net sales 57,740 67,243 

• Net income (loss) 1,892 (1,006) 

• Net financial (liquidity)/debt position (6,028) 382 



The year 2003 began with hopes of a possible transition of the world economy towards a 

recovery which, partly because of the numerous factors of uncertainty still unresolved, 

nevertheless will be slow and will in all likelihood occur only in the second half of the year. 

In the United States, the uncertain trend of consumption and 

the climate of confidence among consumers and companies 

require a certain amount of caution when formulating forecasts 

about growth. However, due partly to the expansive orientation 

of monetary policy and possible tax relief, for this year, annual 

average growth of 2.7 percent is expected, in line with the 

growth reached in the last part of 2002. 

In Europe, prospects of a growth in the economy are linked to 

recovery in the United States, an improvement in the climate of 

confidence among operators and the re-absorption of the effect 

of the changeover to the Euro, which dampened consumption in 

2002. In 2003, recovery in domestic demand, combined with a 

boost from a possible cut in interest rates could constitute one 

of the main factors of growth in the area, which should reach 

an annual average of 1.6 percent (compared to 1 percent 

recorded in 2002). 

Overall, the situation in South America seems to have 

stabilized and to be heading towards a modest recovery. 

However, the situation is still critical in some countries such as 

Argentina and Venezuela. Conversely, in Brazil, uncertainty 

The Pirelli advertising campaign has 

achieved prestigious international 

recognition. 

seems to be setting in again and this year the country could record growth of approximately 2 

percent, slightly higher than the figure recorded in 2002. 

In Asia, the situation of Japan remains fragile. Here, despite some signs of an improvement in 

recent months, domestic demand is still feeble and is partly compensated by the positive trend 

of exports. This dependence on foreign sales, together with persisting deflation, justifies the 

forecast of weak growth for this year (0.4 percent). On the other hand, prospects are good for 

the other countries in the Pacific area (+3.9 percent) and for China and the Indian subcontinent 

(+6.8 percent). 

As far as the trend in consumer prices is concerned, whereas worldwide an increase similar to 

that recorded in 2002 is expected (2.7 percent), in the U.S.A., after the deceleration of the prior 

year, inflation is expected to return to a figure of over 2 percent. In the euro-zone, on the other 



Tyres Sector 

Tyres Sector 








Sector 


Year 

hand, the rise in prices at year-end 2002 should be followed by a gradual decline and annual 

average inflation should settle at approximately 2 percent. 

Finally, there is great uncertainty about the trend of the oil market due to the complex 

international political situation. It is therefore possible that oil prices may remain higher than 

U.S. $30 a barrel in the first part of 2003, and then descend gradually. 

With regard to the European passenger car market, 2002 was not a good year. Registrations 

of new cars diminished almost everywhere in Europe (-3.1 percent). 

It is difficult to predict the trend in 2003, when, in any case, the possible fall in car production 

will be more than offset by the consolidation of the positive evolution of the mix in demand for 

Replacements. 

In 2002, the market in the United States also reported a contraction. However, forecasts for 

the current year suggest that there will be a recovery in demand for Replacements. 

An improvement is also forecast for the market in South America, where the positive results of 

Brazil should be accompanied by a slight recovery in other countries in the area for all tyre 

products. 

With regard to truck tyres for the Commercial Vehicles market, the prospects are more 

uncertain in Europe, whereas the positive trend in South America is confirmed. Furthermore, 

the production and registration of new Commercial Vehicles are less vital for the equilibrium of 

production capacity than Passenger Cars, whereas the trend in demand for Replacements is 

expected to be more stable as a whole and in line with that of the Passenger Car business. 

In this difficult world scenario, the Tyres Sector will continue to pursue its strategy of 

concentrating on the high performance tyre segment, supported by the Business Unit 

organization and thus by a focus on the product. The Tyres Sector will give priority to all 

operational and workable measures which will enable it to achieve an improvement in its 

operating profit compared to 2002. 

Pirelli continues to be a sponsor of the Ferrari Challenge single-marque racing series. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


INFORMATION SYSTEMS 

The year 2002 was marked by a period of adjustment after a 

period of intensive development, particularly as a result of 

Internet initiatives undertaken in the two prior years. This did 

not prevent Pirelli from promoting new goal-oriented initiatives 

to support the growth of business. All of the above confirms the 

stability achieved by the Group information and computer 

systems, from the point of view of applications (SAP) and 

infrastructures (APIS). 

After considerable expansion in 2001 and part of 2002, the 

development of web applications is returning to a trend of 

normal growth. In connection with the Internet, it should be 

mentioned that the priority given last year to the quality of the 

service distributed by Pirelli websites in terms of content, 

availability and service, has led to a considerable increase in 

the number of hits and the number of new users registered on 

the actual sites. 

The new joint SAP-Pirelli press 

advertising campaign. 

In terms of hardware platforms, software and network infrastructures, the consolidation and 

spread of the new e-APIS 2000 architecture continued, and advantage was taken of the new 

design opportunities which have emerged, especially in the area of mobile computing to support 

the sales forces. 

With the transfer of the SAP R/3 system of the German affiliate of the Cables Sector to Milan, 

the consolidation of European SAP environments was completed. 

With regard to the search for opportunities of synergies and improvement of technological 

governance, the Data Center of the Turkish Cables Sector was consolidated with that of the 

Tyres Sector in Istanbul. 

With the gradual consolidation of the SAP applications platform, the number of users has risen 

to approximately 10,300 and led to the consequent continuous expansion of the APIS 

infrastructure platform which, at year-end 2002, had approximately 16,100 users. 

In the Tyres Sector, operations focused on extending and enhancing B2B initiatives, creating the 

CRM platform and consolidating the SAP environments. 

In particular: 

– CRM (Contact Center and Mobile Sales Automation): mySAP CRM tool choice, kernel 

definition, U.K./Germany/Italy/Spain activation; 

–SFA (salespersons portal): roll-out in 12 European countries and the U.S.A.; 

– e-CRM (Customer Relationship Management): covers 10 markets, 50 percent increase in final 

user DB profiling, development of dealer applications, management of B2B2C campaign; 

– B2B Dealer: improved performance and enhanced content (7,300 customers activated), 

development of U.S.A. platform, Multi-brand Order application for long channel, "Motorsport" 

and "Safety & Innovation", on-line promotional catalog (Jakala); 

– Consolidation and standardization of SAP environments: go live "One business" project for the 

U.K. and Germany, activation of new European availability control processes; 

– SAP implementation in South Africa, kernel alignment in U.S.A. and profitability Greece; 

– DNI (Demand Network Integration): issue of DRP (SNP of SAP APO) module; 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


– Data Warehouse: preparation of Logistics and Sales basic data; 

– SMS (Specification Management System): issue of all modules for Italy, Spain and Brazil; 

– PCS (Production Control System): kernel definition, production scheduling tool choice, issue 

of WMS module for Germany; 

– Motorcycle Tyres BU: Continuous Alignment procedures and systems in use for all functional 

areas; 

– Sales report. 

In the Telecom Cables and Systems Sector, the centralization on a European scale of SAP 

infrastructures and applications was completed, in order to provide better support for the 

business model which requires a highly centralized governance of the Sector. 

Implementation involved the following systems: 

– Common Analysis: completion of European roll-out; 

– CRM: Common coding for Raw Materials at factories in France (cables and accessories); 

– SAP TLC: roll-out at Telecom cables factories (U.K.) and accessories factories (France and the 

U.K.) and also the sales affiliate in Germany; 

– SAP TLC: Upgrade of the European system to the new software release; 

– SAP BW: roll-out of the Business Intelligence system at the affiliates in the U.K. and Germany 

and on the Accessories product line; 

– E-KAM (Key Account Mgmt.): Customer Relationship Management pan-European tool - rollout 

in Germany and the U.K.. 

In other non-European affiliates, projects were started to upgrade the SAP system releases. In 

particular, in North America a B2B project was started with the most important customers of 

the sector. 

In the Energy Cables and Systems Sector, a serious endeavor was made to contain the costs of 

new computer initiatives while ensuring that the systems were upgraded to meet the evolution 

of the reference businesses. Consequently, the promotion of initiatives was conducted very 

selectively. The initiatives include: 

– common classification of Products/Customers/scope of the Business Units worldwide; 

– creation of a centralized Data Warehouse for commercial/logistics reporting across Europe; 

– extension of KPI Purchases Reporting to non-European countries; 

– upgrade to the SAP 4.6.c Release for systems in the U.S.A. / Germany / the U.K./ Brazil and 

Argentina; 

– activation of the centralized system (Steadynet) to manage intercompany purchases / sales 

flows; 

– spread of the Common Analysis to all European countries; 

– installation of the production programming system (Cyberplan) to the pilot plant at Neustadt 

in Germany; 

– implementation of new functions within the SAP R/3 system. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


ECOLOGY AND THE ENVIRONMENT 

In continuing to pursue the path towards sustainable growth in 

2002, Pirelli not only achieved the objectives it had set itself 

but laid the foundations for further progress in the practical 

application of its policy for safeguarding the environment. 

In particular, more than 90 percent of the Operating Units had 

an environmental management system, certified according to 

the ISO 14001 quality certification, applying methodological 

criteria which are now consolidated in the various corporate 

activities, from the management of suppliers to the acquisition 

of products. Before very long, all the Operating Units will have 

been certified, including those recently acquired, which have 

rapidly been adapted to meet Pirelli standards. 

These same methodological criteria and the high qualitative 

standard of the Sector and Corporate functions involved have 

induced Pirelli to undertake an ambitious program of safety 

management, which will gradually lead to the certification of 

the Operating Units according to the OHSAS 18001 international 

standard. During 2002, seven units were certified and a 

significant number of other units are expected to be certified 

in 2003. 

The Environmental Report, now in its third edition, benefited 

from the centralized management of data, which is now 

consolidated, through a simple and efficient Environmental 

Data Bank. 

The capacity to manage and assess data in a standard way 

contributed decisively to Pirelli’s inclusion in two prestigious 

Sustainability Indexes: those of the New York and London 

stock exchange – the Dow Jones and the FTSE4Good. 

With a view towards continuous improvement, in 2002, even 

greater priority was given to the evaluation of the data 

collected, so that every chance could be seized to minimize the 

impact of the factories on the environment (energy consumption, 

water, raw materials, production emissions, and so on). 

In some cases, this methodological process led to an 

assessment of the impact of the whole production process, 

resulting in improvement not only in terms of the impact on 

the environment but also on the final product. 

One example of the application of this methodology is the new 

MIRS TM tyre manufacturing process which, in previous years, 

has already shown that it can reduce the quantity and improve 

the quality of emissions, as well as minimize energy 

consumption. Furthermore, in association with the MIRS TM 

manufacturing process, Pirelli has taken another step forward 

by designing and building a new compound mixing room which 

has made it possible to drastically reduce the amount of 

industrial emissions both towards the external environment 

and the internal work environment. 

The new CCM compound room for 

MIRS ensures a drastic reduction 

in the emission of pollutants. 

The run flat construction enables 

the tyre to function, even at zero 

pressure. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


In the Cables Sector, Pirelli has taken decisive action to obtain 

products with a low impact on the environment by using 

knowledge acquired through the analysis of the life cycle of 

products (Life Cycle Assessment). Examples include the cables 

of the Action line (a smaller quantity of raw materials is used), 

the Dry-Dry and Drylam lines (the lead content has been 

removed), Afumex (eliminates the build-up of toxic fumes in 

the event of fire) and Air Bag (plastic now replaces metal). 

In some cases, life-cycle assessment has led to different 

strategic choices with regard to marketing: the Micro Tunneling 

technique (used to lay underground cables) minimizes the 

environmental impact on the actual cables during the 

installation process. 

Since Pirelli regards the application of its Environmental Policy 

as a strategic lever from the point of view of creating value, it 

has oriented some of the research activities of Pirelli Labs 

towards leading-edge technologies that will contribute to 

Sustainable Growth. For example, in 2002, some research 

projects were started in the field of the environment, such as 

an investigation into aspects of the recycling of waste (end-oflife 

tyres) and innovative systems for producing clean energy 

(fuel cells and photovoltaic processes). 

Finally, pursuing the principles which originally inspired the 

Environmental Policy in 2002, Pirelli followed up its 

commitment to improve industrial areas by reclaiming those 

that have been abandoned or are in the process of being 

abandoned, and making them suitable for residential use, thus 

helping to give a new status to numerous urban areas. 

Laying cables underground 

minimises the environmental impact 

of the cables themselves during all 

stages of installation. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


HUMAN RESOURCES 

At December 31, 2002, the overall workforce of the Group totaled 36,079, with a reduction of 

3,048 compared to the same date of the prior year. 

As a result of the acceleration of the rightsizing program in the latter part of 2002, at January 1, 

2003 the workforce decreased to 35,610, with a reduction of 3,517 compared to December 31, 

2001. 

During 2002, organizational rationalization continued in the three sectors, focusing on fixed 

structure cost reduction, particularly in the Energy and Telecom Cables and Systems Sectors. 

At December 31, 2002, the workforce can be analyzed as follows: 

Sector 

Energy Cables and Systems 12,479 34.6% 

Telecom Cables and Systems 2,546 7.1% 

Tyres 20,222 56.0% 

Others 832 2.3% 

Geographical area 

Europe 61.5% (of which Italy 21.3%) 

North America 3.7% 

South America 23.0% 

Other areas 11.8% 

Composition 

Senior executives 508 1.4% 

Staff 9,068 25.1% 

Blue-collar 24,246 67.2% 

Temporary employment 2,257 6.3% 

Personnel costs for the year totaled Euros 1,352 million, with a reduction of 10 percent 

compared to the prior year; as a percentage of total net sales, personnel costs represent 21.4 

percent, compared to 20 percent in 2001. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


TRAINING AND DEVELOPMENT OF HUMAN RESOURCES 

The considerable investment in Intranet technologies and the 

in-house portal (Employee on Line) continued in 2002. 

The main aim of the portal is to generate a direct relationship 

between the company and its employees by creating a virtual 

corporate meeting-place, where people can find much of the 

information they require for their daily work. 

With this in mind, further improvements have been made to the 

“Learning Lab”, or internal training portal. Thanks to this portal, 

employees can organize their own training programs according 

My appraisal, the new evaluation 

form of a person’s own 

performances. 

to their role in the company, in a combination of on-line and classroom training activities. The 

range of training courses has been enhanced with new e-Learning programs and packages, part 

of which have been purchased and part developed in-house. 

Another important innovation in the internal training portal enables all Pirelli employees to 

access the performance assessment sheet (“My Appraisal”) on-line. As a result, the annual 

process between department heads and staff of assigning work objectives, verifying progress 

over time and assessing the results can be supported on-line. A new training program on 

performance assessment supported the launch of this application. 

Data about portal: No. of connections No. of Contacts/Service Users 

Employee On Line 18,000 12.000/month 

Learning Lab (only in Italy) 1,000 100/month 

My Appraisal (connection only on request) 1,500 1,100 

Investment in international training activities, devoted to particularly talented employees and 

staff with high potential working at all the affiliates, proceeded along the lines of the 

investments made in the prior year. The program involved 70 new graduates considered to have 

high managerial potential and 50 employees with high potential, already occupying middle 

management positions and growing in their careers. 

As for management development, in addition to the aforementioned specific training, work days 

were organized – involving Top management of the Group and local management – at all the 

affiliates, devoted to a review of local management (“People Days”) and to pinpointing specific 

action for individual employees to develop and reinforce their professional skills. 

With reference to the difficulties experienced by some of the Businesses in 2002, priority was 

given to creating direct, internal communication within the Group. 

In fact, Top Management of the Group organized Road Shows with all the management and 

some of the staff in every country where Pirelli has a significant presence, with the aim of 

illustrating the performance of the Businesses and Sectors in which the Group operates, and to 

describe the three-year plan. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


In 2003, the main lines of action on which the Group will focus will involve the following areas: 

• Communication 

The experience of direct communication between Top Management and the affiliates tried in 

2002 will be repeated, considering the high success rate and usefulness. 

In addition, a new version of the “Employee on Line” portal will be created, with the aim of 

providing information about the company and the main work tools in a more timely and userfriendly 

way; 

• Strengthening the expertise of key players in Pirelli’s businesses 

The main objective is to supply management with adequate expertise with which to sustain 

the important challenges posed by business. Two areas of work have already been identified. 

The first involves a large investment in commercial resources through trenchant action to 

assess the suitability of existing expertise and implement the resulting action (replacing 

personnel if and where necessary, training and individual development plans). The second 

aims to tackle the training of Senior Executives with a different approach, namely by 

satisfying the need to provide support to the large number of executives occupying new and 

challenging positions for the first time; 

• Development of talent and turnover of management 

The “People Days” held at Pirelli affiliates will be continued so that the growth of talented 

employees can be monitored even more closely and the levers of international development, 

already employed to a significant degree by the Group (international job mobility and special 

international posts), and the potential offered by inter-business mobility can be exploited even 

more. 

Finally, in order to ensure turnover of management in the medium term, recruiting campaigns 

will be promoted with an international slant, focusing on talented young employees for the 

most critical functions or Businesses. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


PROFORMA DATA 

Proforma consolidated financial data assuming the line-by-line consolidation of 

Olimpia S.p.A. and the use of the equity method to value its investment in Olivetti 

S.p.A.. 

Proforma consolidated financial data at December 31, 2002 of Pirelli S.p.A. is presented below, 

assuming the consolidation line-by-line of Olimpia S.p.A. and the use of the equity method to 

value Olimpia S.p.A.’s investment in Olivetti S.p.A.. 

Proforma adjustments 

Consolidated Elimination of Olimpia S.p.A Consolidation Totale Proforma 

financial Olimpia S.p.A. line-by-line adjustments proforma consolidated 

statements net result consolidation and valuation of adjustments financial data 

2002 Pirelli attributable to Olivetti S.p.A. 2002 Pirelli 

S.p.A. (1) Pirelli S.p.A. (60%) using the equity S.p.A. (2) 


method 

Condensed Statements of Income 

• Net sales 6,311 – – – – 6,311 

• Operating profit 117 – (1) – (1) 116 

• Financial income (expenses)/ 

Valuation adjustments 

to financial assets (403) 150 (241) (440) (531) (934) 

• Extraordinary items (262) – (4) – (4) (266) 

• Income taxes (62) – – – – (62) 

• Net income (loss) (610) 150 (246) (440) (536) (1,146) 

• Net income (loss) - Pirelli S.p.A. (614) 150 (148) (264) (262) (876) 

Goodwill amortization effect 3 – – 589 589 592 

Net income (loss) 

(excluding goodwill amortization) (607) 150 (246) 149 53 (554) 

Net income (loss) - Pirelli S.p.A. 

(excluding goodwill amortization) (611) 150 (148) 89 91 (520) 

Reclassified Balance Sheet 

• Fixed assets 6,114 169 8,541 (3,597) 5,113 11,227 

• Net working capital 768 – 58 – 58 826 

• Total net invested capital 6,882 169 8,599 (3,597) 5,171 12,053 

Financed by: 

• Shareholders’ equity 4,576 169 4,923 (3,597) 1,495 6,071 

– of which shareholders’ equity 

Pirelli S.p.A. 4,394 169 2,954 (3,406) (283) 4,111 

• Provisions 837 – – – – 837 

• Net financial (liquidity)/ 

debt position 1,469 – 3,676 – 3,676 5,145 

(1) Pirelli S.p.A. consolidated financial statements (investment in Olimpia S.p.A. accounted for using the equity method) 

(2) proforma data (line-by-line consolidation of Olimpia S.p.A.and equity method valuation of Olivetti S.p.A.) 

The proforma consolidated financial data has been prepared using the statutory financial 

statements of Olimpia S.p.A. at December 31, 2002 and the consolidated financial statements of 

the Olivetti S.p.A. Group at the same date approved by the Boards of Directors. 

The net loss for the year of Olimpia S.p.A. (Euros 246 million) was mainly due to financial 

expenses of Euros 173 million and the loss of Euros 68 million since the Olivetti 2001-2002 

warrants were not exercised. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


The principal proforma adjustments included in the above table are as follows: 

• in the column “Elimination of Olimpia S.p.A. net result attributable to Pirelli S.p.A. (60%)”: 

elimination of the statement of income and balance sheet effects of valuing Olimpia S.p.A. with 

the equity method in the Pirelli S.p.A. consolidated financial statements at December 31, 2002; 

• in the column “Olimpia S.p.A. line-by-line consolidation”: inclusion of the assets, liabilities, 

revenues and costs resulting from the financial statements for the year ended December 31, 

2002 of Olimpia S.p.A., attributing the share of net equity and results of operations to the 

minority interest; 

• in the column “Consolidation adjustments and valuation of investment in Olivetti S.p.A. using 

the equity method”: inclusion of the effect of accounting for Olivetti S.p.A. using the equity 

method, giving rise to a negative valuation adjustment of Euros 440 million, of which Euros 

220 million relate to the amortization of implicit goodwill for 12 months out of a total twentyyear 

period, and Euros 220 million to Olimpia S.p.A.’s share of the year 2002 results of the 

Olivetti Group. 

The “goodwill amortization effect” on the net result is detailed as follows: 

• in the column “Consolidated financial statements at December 31, 2002 Pirelli S.p.A.”, the 

amount of Euros 3 million refers to the amortization charge for the year on the goodwill 

booked by Pirelli S.p.A. in respect of Olimpia S.p.A.; 

• in the column “Consolidation adjustments and valuation of investment in Olivetti S.p.A. using 

the equity method”, the amount of Euros 589 million includes Euros 220 million for the 

goodwill booked by Olimpia S.p.A. in respect of Olivetti S.p.A. and Euros 369 million for the 

goodwill booked by Olivetti S.p.A. in respect of Telecom Italia S.p.A.. 

A comparison of shareholders’ equity and net debt between the consolidated financial statements 

of Pirelli S.p.A. and the proforma consolidated financial data of Pirelli S.p.A. at December 31, 

2002 and December 31, 2001 is presented below, assuming: 

• the line-by-line consolidation of Olimpia S.p.A. and the valuation of the investment in Olivetti 

S.p.A. using the equity method; 

• the line-by-line consolidation of both Olimpia S.p.A. and the Olivetti S.p.A. Group 

Patrimonio netto Shareholders’ Net debt Net debt Shareholders’ 

equity Shareholders’ equity 

in millions of euros equity Pirelli S.p.A. 

2002 2001 2002 2001 2002 2001 2002 2001 

Pirelli SpA Group: consolidated 

financial statements at 12/31 4,576 5,660 1,469 1,089 0.32 0.19 4,394 5,462 

Pirelli SpA Group: proforma 

consolidated data with Olimpia S.p.A. 

consolidated line-by-line 

and Olivetti S.p.A. valued 

using the equity method 6,071 7,739 5,145 4,598 0.85 0.59 4,111 5,469 

Pirelli SpA Group: proforma 

consolidated data with Olimpia S.p.A. 

and Olivetti Group consolidated 

line-by-line 23,378 30,435 38,544 42,960 1.65 1.41 4,111 5,469 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


RELATED PARTY DISCLOSURES 

With reference to the disclosure required by Consob Communications No. 97001574 of February 

20, 1997 and No. 98015375 of February 27, 1998 which refer to related party transactions among 

Group companies, the effects of such transactions on the balance sheet and statement of 

income of the consolidated financial statements at December 31, 2002 are presented in the 

following table. 

The effects of the transactions between Pirelli S.p.A. and its subsidiaries are disclosed 

in the financial statements and in the notes of the same parent company just as transactions 

among subsidiaries are eliminated upon the preparation of the consolidated financial 

statements. 

All the transactions, including those between the parent company and its subsidiaries and 

among subsidiaries, are part of the ordinary operations of the Group and are carried out at 

arm’s length and there are no transactions of an unusual and exceptional nature, or constituting 

a potential conflict of interest. 

The following table presents the major transactions at December 31, 2002 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. A.p.A.. 


Type of transaction With With subsidiaries Total 

parent companies 

of Pirelli & C. A.p.A. 

Trade receivables and other 0.5 0.4 0.9 

Trade payables and other (1.2) (2.9) (4.1) 

Financial receivables – – – 

Financial payables (1.3) (17.4) (18.7) 

Revenues for goods and services 1.2 3.4 4.6 

Costs for goods and services (5.2) (9.7) (14.9) 

Financial income 1.4 7.1 8.5 

Financial expenses (23.3) (0.6) (23.9) 

Exraordinary income 16.5 – 16.5 

Extraordinary expenses – (1.2) (1.2) 

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

the following: 

• 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 Pirelli Informatica S.p.A. to Pirelli & C. A.p.A.; 

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

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

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

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

hedging transactions carried out by Pirelli International Ltd. (subsidiary of Pirelli S.p.A.) on 

behalf of Pirelli & C. A.p.A.; 

• extraordinary income relating to the gain realized by Pirelli S.p.A. on the sale of the 

representative offices in Rome and Bicocca degli Arcimboldi to Pirelli & C. A.p.A.. Such sale 

originated from the opportunity of allocating the assets to Pirelli & C. A.p.A., the parent 

company, since these properties are used by the entire Group. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


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

mainly refer to the following: 

• trade payables and other, relating to services rendered by companies in the Pirelli & C. 

Real Estate S.p.A. Group (subsidiary of Pirelli & C. A.p.A.) to Pirelli S.p.A. and its subsidiaries; 

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

Pirelli Servizi Finanziari S.p.A. with companies in the Pirelli & C. Real Estate S.p.A. Group 

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

• revenues for 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 Pirelli 

& C. Real Estate 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 in the Pirelli & C. 

Real Estate S.p.A. Group (subsidiary of Pirelli & C. A.p.A.); 

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

aforementioned current account and loan transactions. 

Furthermore, in order to provide more complete information, the transactions in 2002 between 

the Pirelli S.p.A. Group and the Olivetti-Telecom group are described below. These transactions 

fall within the ordinary operations of the Group, are carried out at arm’s length and there are no 

transactions of an unusual and exceptional nature. Such transactions refer to: 

• revenues for goods and services, relating mainly to the supply of telecommunications 

cables (Euros 53 million); 

• costs for goods and services, mainly relating to telephone services received (Euros 10 

million); 

• trade receivables, relating to the supply of the goods and services described above (Euros 8 

million); 

• trade payables, relating to the telephone services described above (Euros 1,6 million); 

• other income, relating to the gain of Euros 6.8 million on the sale of the 25.3 percent stake 

held by Pirelli S.p.A. in EPIClink (sales price of Euros 17.7 million) and to the gain of Euros 

0.8 million realized by Pirelli Informatica on the sale of a business segment to EPIClink (sales 

price of Euros 3 million). 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


EQUITY 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 equity 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, resulting from the shareholders’ register 

at December 31, 2002, from notices received or other information acquired from the same 

Directors, Statutory Auditors and General Managers. 

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

equity investment held at prior purchased shares sold held at current 

held year-end year-end 

Tronchetti Provera 

Marco 


(indirect ownership) (1) 30,513,000 6,848,855 – 37,361,855 

Buora Carlo Pirelli S.p.A. 42,517 – – 42,517 

Coppola di Canzano 

Eugenio Pirelli S.p.A. 39,152 – – 39,152 

Ferrario Giovanni Pirelli S.p.A. 415,000 – – 415,000 

Perissich Riccardo Pirelli S.p.A. 2,517 – – 2,517 

Presutti Ennio Pirelli S.p.A. 30,000 – – 30,000 

Sozzani Vincenzo Pirelli S.p.A. 32,483 – – 32,483 

Battista Valerio Pirelli S.p.A. 5,050 – – 5,050 

Cristianci Oscar 

Carlos Pirelli S.p.A. 500,000 – – 500,000 

De Conto Claudio Pirelli S.p.A. 37,920 – – 37,920 

Gori Francesco Pirelli S.p.A. 11,304 – – 11,304 

Riddett Kevin Edward Pirelli S.p.A. 2,517 105,088 105,088 2,517 

Guatri Luigi Pirelli S.p.A. (2) 100,000 – – 100,000 

(1) Shares held through Camfin S.p.A. 

(2) Shares held by spouse 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


STOCK OPTION PLANS 

No new stock option plans were introduced in 2002. 

The following disclosure is provided, also pursuant to the recommendations of Consob, on the 

progress of stock options plans begun in previous years and still in existence. 

1. INCENTIVE PLAN 1999-2000 

Features of the plan: option rights granted, non-transferable to third parties, for the 

subscription of future new issues of Pirelli S.p.A. ordinary shares. 

Start of plan: plan begun in 1999. 

End of plan: March 15, 2003. 

Beneficiaries: 439 employees (managers and cadres) of Pirelli S.p.A. or its subsidiaries or the 

parent company Pirelli & C. A.p.A. and other subsidiaries of the latter. 

Conditions for exercising options: 

a) continuance of employment in one of the above companies; 

b) specific targets reached in the two-year period 1999-2000 (minimum and maximum, with a 

consequent proportional number of exercisable options), granted by the appropriate 

functions to each beneficiary. 

Subscription price per share: Euros 0.52. 

Period for exercising options: from February 16, 2001 to March 15, 2001, from July 1, 2001 to 

August 31, 2001 in addition to the same periods in 2002 and, not extendable, from February 16, 

2002 to March 15, 2003. 

Maximum number of shares for which the offer was initially open: 

No. 22,304,300, equal to about 1.18 percent of outstanding ordinary shares. 

Maximum number of shares for which the offer was still open at January 1, 2002: 


Maximum number of shares for which the offer was still open at December 31, 2002: 

No. 198,160, equal to about 0.01 percent of outstanding ordinary shares. 

Shares issued, against the exercise of the option rights, at March 15, 2003: 

No. 11,860,048, equal to about 0.6 percent of outstanding ordinary shares at that date, granted to 

409 employees. 

Maximum number of shares for which the offer was still open at March 15, 2003: 

none; the plan was definitively closed. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


2. PIRELLI TO PEOPLE 


subscription of future new issues of Pirelli S.p.A. ordinary shares or, as decided by the latter, 

for the purchase of treasury shares of Pirelli S.p.A.. 

Objective of the plan: to strengthen allegiance and loyalty. 

Beneficiaries: 725 employees (managers, cadres, employees with a “high potential”) of Pirelli 

S.p.A. or its subsidiaries or the parent company Pirelli & C. A.p.A. and other subsidiaries of the 

latter. 

Conditions for exercising options: continuance of employment with one of the above 

companies. 


Period for exercising options: up to nine years from the date the options are granted but not 

before one year has passed from that date for 50 percent of the options, two years for another 

25 percent and three years for the remaining 25 percent. 

Maximum number of shares for which the offer was initially open: 


Maximum number of shares for which the offer was open at December 31, 2002: 

No. 32,313,300, equal to about 1.68 percent of outstanding ordinary shares (of which 50 percent 

can be exercised starting from November 5, 2002) for 636 employees. 

Options expiring during the period as a result of persons leaving the Group: 

No. 4,736,300. 

Shares issued during the year: none 

3. GROUP SENIOR EXECUTIVES 


subscription of future new issues of Pirelli S.p.A. ordinary shares or, as decided by the latter, 

for the purchase of treasury shares of Pirelli S.p.A.. 

Beneficiaries: 51 managers of Pirelli S.p.A. or its subsidiaries or the parent company Pirelli & 

C. A.p.A. and other subsidiaries of the latter. 

Conditions for exercising options: 

a) continuance of employment in one of the above companies; 

b) specific targets reached in the two-year period 2000-2001 (minimum and maximum, with a 

consequent proportional number of exercisable options), granted to each beneficiary. 




Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


Maximum number of shares for which the offer was open: 

No. 15,811,563 (equal to 0.82 percent of outstanding ordinary shares); number determined – at 

May 2002 – on the basis of the performance targets effectively reached (against a theoretical 

maximum number of 22,390,000). 

On November 5, 2001, based on a provisional estimate of the minimum performance targets – 

definitively reached – No. 7,164,800 options were granted; on May 10, 2002, the remaining 

8,646,763 options were granted – definitively – to the beneficiaries. 

Period for exercising options: 

a) for the options already granted on November 5, 2001 (No. 7,164,800), up to nine years from 

the date the options are granted but not before one year has passed from that date for 50 

percent of the options, two years for another 25 percent and three years for the remaining 25 

percent; 

b) for the options granted definitively on May 10, 2002 (No. 8,646,763), up to May 31, 2009 but 

not before June 1, 2002 for 50 percent of the options and not before January 1, 2003 for the 

remaining 50 percent. 

Maximum number of shares for which the offer was open at December 31, 2002: 

No. 14,516,392, equal to about 0.76 percent of outstanding ordinary shares for 46 employees. 

Options expiring during the period as a result of persons leaving the Group: 

No. 1,295,171. 

Shares issued during the year: none 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


Changes in the aforementioned plans are presented in the following tables. 

Table 1 Year 2002 

Incentive plan 1999-2000 

Number Annual average Market price 

of shares exercise price in € in € * 

Option existing at 1/1/2002 1,179,048 0.52 1.97 

Option granted during the period – – – 

(Options exercised during the period)980,888 0.52 1.80 

(Option expired during the period) – – – 

Options existing at 12/31/2002 198,160 0.52 0.9 

Year 2001 


of shares exercise price in € in € 

14,053,300 0.52 3.858 

– – – 

5,602,900 0.52 3.80 

7,271,352 0.52 – 

1,179,048 0.52 1.97 

* The market price is the average of the market prices at the various exercise dates, weighted for the quantity of options exercised: 

• January 2001 No. 55,200 € 3.88; February 2001 No. 2,493,484 € 3.97; March 2001 No. 2,565,206 € 3.77; July 2001 No. 386,230 € 3.30 

and August 2001 No. 102,780 € 2.31 

• January 2002 No. 209,310 € 2.08; February 2002 No. 377,188 € 1.64 and March 2002 No. 394,390 € 1.81 

Table 2 Options granted - existing at December 31, 2002 

Exercise price 

Residual contract life 

2 years Total 

€ 0.52 198,160 – – 198,160 

* already exercised during the period February 20 - March 10, 2003 


Pirelli to People 




Option granted during the period – – – 

(Options exercised during the period) – – – 

(Option expired during the period 

due to person leaving group) 4,736,300 1.712 – 

Options existing at 12/31/2002 32,313,300 1.712 0.9 

of which exercisable at 12/31/2002 16,156,650 – – 

Of which exercisable 

Average residual contract life 

Totale 

– – 

Year 2001 



– – – 

37,049,600 * 1.712 1.61 

– – – 

– – – 

37,049,600 1.712 1.97 

– – – 

* date granted, November 5, 2001 


Exercise price Residual contract life Of which exercisable 

>2 year* Total from 11/5/02 from 11/5/03 from 11/5/04 

€ 1.712 32,313,300 32,313,300 16,156,650 8,078,325 8,078,325 

* up to November 5, 2010 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


Group Senior Executives 



Year 2001 




– – – 

Option granted during the 

period 8,646,763** 1.712 1.56 7,164,800 * 1.712 1.61 

(Options exercised during 

the period) – – – 

– – – 

(Option expired during the period 

due to person leaving group) 1,295,171 – – 

– – – 

Options existing at 12/31/2002 14,516,392 1.712 0.9 7,164,800 1.712 1.97 

of which exercisable at 12/31/2002 7,258,196 1.712 – 

– – – 

* date granted, November 5, 2001 

** in reference to the Group Senior Executives plan of November 5, 2001, balance of options granted - definitively - on May 10, 2002 


Exercise price Residual contract life Of which exercisable ** 

>2 years * Total Year 2002 Year 2003 Year 2004 

€ 1.712 14,516,392 14,516,392 7,258,196 5,641,396 1,616,800 

* up to May 31, 2009 

** exercise dates: from June 1, 2002 No. 4,024,596; from November 5, 2002 No. 3,233,600; from January 2, 2003 No. 4,024,596; 

from November 5, 2003 No. 1,616,800 and from November 5, 2004 No. 1,616,800 

Stock Options granted to the Directors and General Managers 

Options held Options granted Options Options Options 

at the beginning of year during year exercised expired held at end 

during year during year of year 


(A/B) (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) (11) = (12) (13) 

1+4-7-10 

Name/Post held Numbers Average Average Number Average Average Numbers Average Exercise Number Number Average Average 

of options exercise expiration of exercise expiration of exercise price of of exercise expir. 

price date options price date options price per options options price date 

(*) share € 

Buora Carlo, 

Managing Director 320,000 a) 1.712 – 680,000 a) 1.712 – – – – – 1,000,000 a) 1.712 – 

Ferrario Giovanni, 

Managing Director 320,000 a) 1.712 – 680,000 a) 1.712 – – – – – 1,000,000 a) 1.712 – 

Battista Valerio, 

General Manager 320,000 a) 1.712 – 417,600 a) 1.712 – – – – – – – – 

Energy Cables and Systems Sector 500,000 b) 1.712 – – – – – – – – 1,237,600 a)+b) 1.712 – 

De Conto Claudio, 


Administration and Control 308,000 b) 1.712 – – – – – – – – 892,080 a)+b) 1.712 – 

Gobbi Luciano, 

Finance General Manager 224,000 a) 1.712 – 360,080 a) 1.712 – – – – – – – – 

270,000 b) 1.712 – – – – – – – – 854,080 a)+b) 1.712 – 

Gori Francesco, 


Tyres Sector 500,000 b) 1.712 – – – – – – – – 900,000 a)+b) 1.712 – 

Riddett Kevin Edward, 


Telecom Cables 

and Systems Sector 150,000 b) 1.712 – – – – – – – – 282,000 a)+b) 1.712 

105,088 c) 0.52 – – – – 105,088 0.52 1.675 – – – – 

Notes - Each option corresponds to the subscription or purchase of a share: a) "Group Senior Executives" Stock Option Plan of November 5, 2001; 

(*) In reference to the Group Senior Executives Stock Option Plan of November 5, 2001, balance of options granted - definitively - May 10, 2002; 

b) "Pirelli to People" Stock Option Plan; c) Inventive Plan 1999-2000 (in reference to options granted in 1999). 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


CORPORATE GOVERNANCE 

Introduction 

On November 16, 1999, the Company informed the market about the adoption of the “Code of 

Self-discipline of listed companies” (hereinafter “Code”), recommended by Borsa Italiana S.p.A.. 

In conformity with the Instructions for the Regulations of the markets organized and managed 

by Borsa Italiana, here below, the Company wishes to represent its corporate governance 

system which has gradually come to be formed over time. 

1. Board of Directors 

1.1 The role of the Board of Directors 

The Company is administered by a Board of Directors composed of from seven to nineteen 

members who serve for three years (unless a shorter period is established by the 

shareholders’ meetings when the Directors are appointed) and can be re-elected (art. 12 of 

the by-laws). 

Pursuant to the by-laws (art. 18), the Board is empowered with the management of the 

Company and, for this purpose, is invested with the fullest powers of administration, except 

those, which according to the by-laws or by law, are reserved for the shareholders’ meetings. 

The Board, in fact, exercises its powers in conformity with point 1.2 of the Code, that is: 

– examines the corporate, industrial and financial plans of the Company and the corporate 

structure of the Group which the Company heads; 

– assigns and revokes the delegation of powers to the Directors, establishing the limits 

and manner of exercising such powers; 

– establishes, after examining the proposals of the specific compensation committee and 

after having consulted the Board of Statutory Auditors, the compensation to be paid to 

the Managing Directors and those who hold specific posts, as well as dividing the total 

compensation to which the Directors are entitled among the individual members of the 

board, if this has not already been decided by the shareholders’ meeting; 

– monitors the general performance of operations, with special attention being paid to the 

conflicts of interest, taking into account, in particular, the information received from the 

Managing Directors and the Audit Committee for internal control and corporate 

governance, as well as comparing the results with the budgets on a regular basis; 

– examines and approves transactions that have a significant economic, financial or equity 

impact, with particular reference to related party transactions; 

– generally, at the board meetings, held at least quarterly, the Board of Statutory Auditors 

– through the delegated boards – is kept posted about the activities carried out and the 

most important transactions entered into, also by the subsidiaries; 

– verifies the adequacy of the general organizational and administrative structure of the 

Company and group as organized by the Managing Directors; 

– keeps the shareholders informed at the shareholders’ meetings. 

1.2 The appointment of Directors 

In conformity with point 7 of the Code, from now on, as a normal rule, the proposals for 

the post of Director will be accompanied by exhaustive disclosure concerning the personal 

and professional characteristics of the candidates and will be deposited at the corporate 

offices, if possible, at least ten days prior to the expected date of the shareholders’ meeting. 

The Board of Directors did not deem it necessary to form an internal committee to nominate 

candidates for the post of Director, since, at present, the assumptions for doing so as 

contemplated by the Code do not apply to the Company and, particularly because no special 

difficulties are envisaged in nominating candidates, in view of the actual shareholder base. 

Lastly, the by-laws do not contemplate the mechanism of voting by lists for the 

appointment of the Directors. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


1.3 The composition of the Board of Directors 

The Board of Directors, since May 9, 2002, is composed of the following members: 

Dott. Marco Tronchetti Provera – Chairman and Chief Executive Officer 

Dott. Alberto Pirelli – Deputy Chairman 

Dott. Carlo Buora – Managing Director 

Dott. Giovanni Ferrario – Managing Director 

Gilberto Benetton 

Dott. Carlo Ciani 

Dott. Eugenio Coppola di Canzano 

Ing. Carlo De Benedetti 

Dott. Alberto Falck 

Dott. Giuseppe Gazzoni Frascara 

Dott. Mario Greco 

Dott. Georg F. Krayer 

Dott. Massimo Moratti 

Dott. Luigi Orlando 

Ing. Giampiero Pesenti 

Ing. Ennio Presutti 

Carlo Alessandro Puri Negri 

Dott. Vincenzo Sozzani 

Prof. Frank Vischer 

Therefore, the Board is composed of 19 Directors of which four are executive, with the 

Executive Directors being, according to point 2.1 of the Code, - the Chairman – and CEO 

Dott. Marco Tronchetti Provera, the Deputy Chairman Dott. Alberto Pirelli (who carries 

out management functions in the Tyres Sector), the Managing Directors and General 

Managers Dott. Carlo Buora and Dott. Giovanni Ferrario. 

The Code provides, at point 3, that “independent Directors” are those who: 

a) do not have, directly, indirectly or on behalf of third parties, nor have recently had 

economic relationships with the Company, with its subsidiaries, the executive Directors, 

the shareholder or groups of shareholders which control the Company, of such 

significance as to influence the independence of opinion of the Company; 

b) do not hold, directly, indirectly or on behalf of third parties, equity stakes of such entity 

as to allow them to exercise control over the Company or exercise a significant 

influence, nor do they belong to shareholder pacts for the control of the same 

Company; 

c) are not close relatives of the executive Directors of the Company or individuals which 

are in the situations indicated in the previous letters a) and b). 

Based on this definition, the Board of Directors has determined that seven of the 

remaining 15 Directors (Ing. Carlo De Benedetti, Dott. Alberto Falck, Dott. Giuseppe 

Gazzoni Frascara, Dott. Georg F. Krayer, Ing. Giampiero Pesenti, Ing. Ennio Presutti and 

Prof. Frank Vischer) can qualify as “independent Directors” while another six (Mr. Gilberto 

Benetton, Dott. Carlo Ciani, Dott. Eugenio Coppola di Canzano, Dott. Mario Greco, Dott. 

Massimo Moratti and Dott. Luigi Orlando) represent companies which belong to the voting 

trust of Pirelli & C. A.p.A., the de facto parent company, of Pirelli S.p.A.. 

Finally, the independent Directors do not include Mr. Carlo Alessandro Puri Negri, in view 

of the executive responsibilities performed within the Pirelli & C. Group, and – only in 

consideration of the long period in which he has carried out such positions in the same 

group – Dott. Vincenzo Sozzani. 

The term of office of the current Directors expires on May 9, 2005. 

A list of the posts held as Director or statutory auditor by each of the Directors in 

other listed companies in regulated markets, also abroad, in financial, banking, insurance 

or other companies of significant size are presented at the end of this section of the 

report. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


1.4 The meetings of the Board 

A Chairman, and if necessary, one or more Deputy Chairmen shall be appointed from 

amongst the members of the Board. 

In the event of the Chairman being absent, the chair shall be taken by a Deputy Chairman 

or a Managing Director, in that order; if there should happen to be two or more Deputy 

Chairmen or Managing Directors, the chair shall be taken respectively by the senior in age. 

The Board shall appoint a Secretary who is not necessarily a member of the Board. 

The Board shall meet at the invitation of the Chairman or whomsoever is acting on his 

behalf, at the registered office of the Company or in any other place stated in the letter of 

convocation, every time he considers it in the best interests of the Company, or whenever 

a meeting has been requested by one of the Managing Directors or by at least two standing 

statutory auditors. 

To this end, the by-laws do not establish a minimum number of meetings; it is nevertheless 

the practice to hold at least six meetings a year (to examine the preliminary data at June 

30, and December 31, the draft financial statements and the quarterly and semiannual 

reports). 

Meetings of the Board may be held by teleconference or videoconference. 

In this case the following must be guaranteed: 

a) identification of all the participants at each point in the teleconference or 

videoconference; 

b) the possibility for each participant to intervene, to orally put forward same’s own 

opinion, to view, receive and transmit all documentation, as well as the contextuality of 

considerations and resolutions; 

c) meetings are considered to be held in the place in which the Chairman and the 

Secretary must be simultaneously. 

Board meetings shall be convened by means of a letter, telegram, telex or fax sent to the 

address of each Director and each standing statutory auditor, at least five days before 

(or in urgent cases at least six hours before) the day set for the meeting. 

However, the Board may validly pass resolutions, even failing any formal convocation, if 

all the board members and all the statutory auditors in office are present. 

The presence of at least half the members plus one is necessary for the resolutions of the 

Board to be deemed valid, and the favorable vote of the majority of those attending is 

required. 

In the event of a tie in votes, the casting vote shall be that of the Chairman. 

The resolutions of the Board, even when passed by meetings held through 

videoconference, are recorded in a special book signed by the Chairman and the Secretary. 

Any copies and extracts thereof, that have not been drawn up by a notary public, shall be 

certified as true copies by the Chairman. 

In 2002, eight Board meetings were held; total attendance by the Directors at the meetings 

was approx. 80 percent; attendance by the independent Directors was about 66 percent. 

Except in exceptional circumstances, the Directors are provided with the necessary 

documentation and information reasonably in advance of the meetings in order to allow 

the board to express its opinion knowledgeably on the matters under examination. 

Two meetings have already been held in 2003 and at least another four are planned. 

1.5 The compensation to the Directors 

The compensation of the Board of Directors consists of the part-share of profits 

established under article 23 of the by-law; precisely, a sum is attributed to the board equal 

to 1 percent of the net profits which exceed: 

a) the amount set aside in the legal reserve; 

b) the amount equal to 7 percent of the par value of the savings shares; 

c) the amount equal to 5 percent of par value paid-in represented by ordinary shares. 

Furthermore, the shareholders’ meeting may assign a fixed annual amount to the members 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


of the Board, currently established in Lire 15 million for each Director (Euros 7,746.85), 

which remain fixed and unchanged until the shareholders’ meeting resolves otherwise. 

In addition to this, the members of the Board shall be reimbursed for all expenses 

incurred during the course of their duties. 

The Board has internally set up the “Compensation Committee”, establishing that: 

a) as regards its functions: 

-– proposals are presented to the Board for the compensation of the Managing 

Directors (a part of which is linked to the economic results achieved by the Group 

and, eventually, specific targets) and those who have particular responsibilities in 

addition to, as indicated by the Managing Directors, the determination of the criteria 

for the remuneration of the top management of the Company; 

-– preliminary examinations are made of the proposals for stock option plans; 

b) as regards its composition: 

– in general, it is exclusively composed of non-executive Directors (not less than three 

in number) who shall appoint the Chairman and a Secretary, who is not necessarily a 

member of the Board; 

– the Board of Statutory Auditors and Managing Directors shall also attend the Board 

meetings; 

– the Managing Directors shall absent themselves the meeting when their 

compensation is being discussed and also in the event of discussions which interest 

them personally; 

c) as to its working format: 

– meetings are held any time the Chairman deems it necessary or when a request has 

been made by another member or a Managing Director; 

– for convening meetings and for the validity of their constitution and the resolutions, 

the same rules apply as those stated in the by-laws for the meetings of the Board of 

Directors. 

The “Compensation Committee” is currently composed of the Directors Ing. Ennio 

Presutti, who is Chairman, Dott. Luigi Orlando and Ing. Giampiero Pesenti. Five meeting 

were held in 2002. 

2. Granting of power. Information provided to the Board of Directors 

The Board of Directors granted the Chairman-CEO, Dott. Marco Tronchetti Provera the 

following powers: 

– relations with the shareholders and information provided to them; 

– coordination of the activities of the Directors with delegated powers; 

– the determination, in agreement with the Directors with delegated powers, of the 

general strategies and development policy of the Company and the Group, as well as 

the extraordinary transactions, to be submitted to the Board of Directors; 

– the proposals, in agreement with the Directors with delegated powers, for the 

nomination of the members of the general management and, after having consulted the 

Compensation Committee, the fees to be paid to them, to be submitted to the Board of 

Directors; 

– the chairmanship of the management Committees with strategic functions; 

– the appointment of consultants and professionals, after having consulted the Directors 

with delegated powers, and with the right to delegate powers to same; 

– external communication in any form, with the right to delegate to the Directors with 

delegated powers; 

– the right to acquire all data and information considered necessary for carrying out the 

functions mentioned above from the Directors with delegated powers and from the 

management of the Group. 

The Board, moreover, for purposes of a broader capacity to represent the Company before 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


third parties, has conferred to him the necessary powers to carry out all acts pertinent to 

the corporate business purpose in its various forms, to be exercised with 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 Euros 25 million or 

guarantees in the interest of third parties for obligations in excess of single amounts of 

Euros 10 million; in these last cases, a joint signature with another Managing Director is 

necessary. 

Dott. Carlo Buora, a Managing Director – and still holding the position of General Manager 

– has been entrusted with all finance and administration activities, has been granted every 

and all powers, pertinent to the specific functions, with quantitative limits for the most 

significant transactions; similar powers, to be exercised in the typical activities of the 

industrial sectors, have been delegated to the other Managing Director – the General 

Manager Dott. Giovanni Ferrario. 

Specific and more limited powers were conferred to the other executives of the Company, 

to be used in carrying out their specific responsibilities. 

Also during 2002, as in the past, the Chairman-CEO, the General Managers and executives 

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, (which is in compliance with that set forth by art. 150, 

paragraph 1 of Legislative Decree No. 59 of 1998), the Board of Directors and the Board of 

Statutory Auditors have also been kept posted – on a quarterly basis – about 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, 

supplying all the elements necessary for an understanding of these transactions. To this 

end, it should be pointed out that in July 2002, the Company adopted a specific procedure 

(the text of which is presented at the end of this section of the report) which defines, in 

precise terms, the rules to be followed to comply with the above-mentioned disclosure 

obligations. 

On this occasion, the principles of conduct were also established (the text of which is 

presented at the end of this section of the report) for carrying out transactions with 

related parties. 

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 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. 

Finally, as regards the information provided to the Board, the Managing Directors inform 

the Directors and, if necessary, discuss any major new legislation and regulations that 

refer to the Company and the corporate boards. 

Lastly, it should be pointed out that, starting from December 1, 2002, in accordance with 

the regulations of Borsa Italiana, a Code of Conduct on Insider Dealing was adopted (the 

text of which is presented at the end of this section of the report) which states the rules 

according to which transactions effected by relevant persons on the listed securities of the 

Group should be disclosed to the market. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


3. Internal control 

The internal control system of the Group is 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 for the General Managers - so 

that they have a useful instrument to monitor specific activities. 

In order to follow through on the strategies and guidelines adopted by the parent 

company, the competent General Managers and executives of the Sectors and functions 

also sit on the Boards of Directors of the largest subsidiaries. 

Furthermore, reporting directly to the Chairman of the parent company Pirelli & C. A.p.A. 

is the Internal Audit Function (not involved in financial operating activities and in the 

preparation of the financial statements and period statements) which has the main 

responsibility for verifying that the system of internal control of the Group is working and 

is adequate in terms of effectiveness and efficiency. To this end, it should be pointed out 

that in 2002, activities continued in order to spread and develop the methodology for 

managing operating risk within all the major units of the Group. The Internal Audit 

Function has given support to the Sectors in defining an action plan to update and monitor 

the “risk portfolio” of the operating units. 

In relation to Legislative Decree No. 231/2001, based upon the guidelines published by 

Confindustria, the Internal Audit Function has assisted the Group in implementing a 

specific methodology aimed at ensuring a compliance with the Decree itself, which will be 

aimed at the construction of a model for organization, management and control in 2003. 

In line with the audit program for payments (Italy and abroad) begun in 2001, periodical 

tests were carried out during the year on selected types of financial payments. 

The Board of Directors has internally set up an “Audit Committee” for internal control and 

corporate governance, establishing that: 

a) as regard its functions: 

– carries out advisory and proposal functions for the Board of Directors and, in particular: 

• assists the Board in determining the guidelines of the internal control system and in 

the periodical testing of its adequacy and its effective functioning, in order to be 

sure that corporate risks are suitably managed; 

• evaluates the adequacy of the accounting principles used together with the persons 

in charge of the financial functions of the Company and the auditors; 

• evaluates the work plan prepared by those in charge of internal control and receive 

their reports periodically; 

• evaluates the proposals formulated by the independent audit firms in order to be 

appointed as auditors as well as the audit work plan and the results expressed in 

the report and letter of recommendations; 

• informs the Board about the work carried out and the adequacy of the system of 

internal control at least every six months, at the time of the approval of the annual 

financial statements and six-month financial statements; 

• performs the additional tasks assigned by the Board of Directors, particularly with 

regard to relations with the independent audit firm; 

• monitors the continuous update of the rules of corporate governance and ascertains 

that the principles of conduct eventually adopted by the Company and its 

subsidiaries are followed; 

b) as regard its composition: 

– it is exclusively composed of non-executive Directors (not less than three in number) 

who shall appoint the Chairman and a Secretary, who is not necessarily a member of 

the Board; 

– the Board of Statutory Auditors and Managing Directors shall also attend the 

meetings, as well as, by invitation, the person in charge of the Internal Audit Function 

and one or more General Managers; 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


c) as regard its working format: 

– meetings are held at least twice a year, before the Board meetings for the approval of 

the annual financial statements and the six-month financial statements, or at any time 

the Chairman deems it necessary or a request has been made by another member or a 

Managing Director; 

– for convening meetings and for the validity of its constitution and the resolutions, the 

same rules apply as those stated in the by-laws for the meetings of the Board of 

Directors. 

The “Audit Committee” for internal control and corporate governance is currently 

composed of the Directors Dott. Giuseppe Gazzoni Frascara, who is Chairman, Dott. 

Alberto Falck and Ing. Ennio Presutti. 

Three meetings were held in 2002. Again in 2002, the Internal Audit function reported on 

its work to the Chairman at least monthly and to the Audit Committee three times. 

The Audit Committee for internal control and corporate governance and the Board of 

Directors, also on the basis of indications received from the Board of Statutory Auditors, 

have deemed the system of internal control to be adequate. 

4. The Board of Statutory Auditors 

It is felt that the entire article 21 of the by-laws should be reported herein, as follows: 

“The Board of Statutory Auditors is composed of three standing statutory auditors and two 

alternate statutory auditors who must hold the requisites required by the existing laws and 

also by regulations; to this end, account will be taken that the matters and sectors of 

business strictly inherent to those of the Company are those indicated in the corporate 

business purpose with particular reference to companies or entities operating in the 

financial, industrial, banking, insurance, real estate and services sectors in general. 

The ordinary shareholders’ meeting shall elect the Board of Statutory Auditors and 

determine its compensation. The minority shareholders shall appoint one standing 

statutory auditor and one alternate statutory auditor. 

With the exception of the provisions of the second last paragraph of the present article, 

the appointment of the Board of Statutory Auditors is made on the grounds of lists put 

forward by the shareholders in which candidates are listed under progressive numbers. 

Each list contains a number of candidates which does not exceed the number of members 

to be appointed. All shareholders who, alone or together with other shareholders, 

represent at least 2 percent of the shares with voting rights in the ordinary shareholders’ 

meeting, have the right to put forward a list. 

The lists of candidates, undersigned by the parties presenting them, must be filed at the 

Company’s registered office at least ten days before the day fixed for the meeting in first 

call. A description of the professional résumé of the individuals standing for election must 

be enclosed with the lists together with statements whereby the single candidates accept 

the nomination and attest, under their own personal responsibility, that no circumstances 

exist for ineligibility or incompatibility, and that they comply with requirements prescribed 

by law or by the articles for the position. 

Any lists put forward which do not comply with the aforesaid provisions shall be 

considered not to have been put forward. 

Each candidate may be included on only one list, under penalty of ineligibility. 

Likewise, any individuals who are not in possession of the requisites established by the 

applicable rules and regulations or who already hold the position of statutory auditor in 

more than five companies with stocks listed on official Italian markets, with the exception 

of controlling companies and subsidiaries of Pirelli S.p.A., may not be appointed as 

statutory auditors. 

Each individual with voting rights may vote for only one list. 

The election of the members of the Board of Statutory Auditors is performed as follows: 

two standing statutory members and one alternate member are taken from the list which 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


has obtained the highest number of votes, in the progressive order in which they are listed 

thereon; the remaining standing statutory member and the other alternate member are 

taken from the list which has obtained the highest number of votes from the meeting after 

the first list, again in the progressive order in which same are listed thereon; in the event 

of several lists obtaining the same number of votes, a new run-off vote between the said 

lists will be cast by all the shareholders present at the meeting, and the candidates on the 

list which obtains the simple majority of the votes will be appointed. 

The Chairman of the Board of Statutory Auditors shall be the statutory member indicated 

as the first candidate on the list which obtained the highest number of votes. 

In case of death, waiver or resignation of a Statutory Auditor, the alternate belonging to 

the same list as the resigned Statutory Auditor shall replace him. In the event of 

replacement of the Chairman of the Board of Statutory Auditors, the chair shall be taken 

by the other statutory member on the list to which the resigning chairman belonged; if it is 

not possible to perform substitutions and replacements as set out hereinabove, then a 

meeting shall be convened to integrate and complete the Board of Statutory Auditors and 

which shall pass resolutions with a relative majority. 

When the meeting has to make provisions, pursuant to the terms of the aforegoing paragraph 

or to the terms of law, for the appointment of statutory auditors and/or alternates needed to 

complete the Board of Statutory Auditors, it shall proceed as follows: if statutory auditors 

appointed from the majority list have to be replaced, then the appointment is made with a 

relative majority vote without being tied to any list; if, on the other hand, statutory auditors 

appointed by the minority shareholders have to be replaced, the meeting shall replace them 

with a relative majority vote choosing names where possible from amongst the candidates 

indicated on the list on which the Statutory Auditor to be replaced appeared. 

If only one single list has been put forward, then the meeting shall cast its vote in relation 

to that list; if the list obtains a relative majority, then the first three candidates on the list 

in progressive order shall be appointed as the standing Statutory Auditors, and the fourth 

and fifth candidate shall be appointed as alternate Statutory Auditors; Chairman of the 

Board of Statutory Auditors shall be the person indicated at the top of the list put forward; 

in case of death, waiver or resignation of a Statutory Auditor, and in the event of 

substitution of the Chairman of the Board of Statutory Auditors, they shall be replaced 

respectively by an alternate Statutory Auditor and a standing Statutory Auditor in the 

order arising from the progressive numbering of the said list. 

Failing any lists, the Board of Statutory Auditors and its Chairman shall be appointed by 

the shareholders’ meeting with the majorities prescribed by law. 

Resigning Statutory Auditors may be re-elected”. 

The shareholders’ meeting of May 9, 2002 appointed as standing Statutory Auditors: Prof. 

Luigi Guatri (Chairman), Dott. Paolo Francesco Lazzati and – based on the list presented 

by the minority shareholders - Dottoressa Rosalba Casiraghi. 

Rag. Franco Ghiringhelli and Rag. Sebastiano Guido were appointed as alternate Statutory 

Auditors. The current Board of Statutory Auditors will remain in office until May 9, 2005. 

5. The shareholders’ meetings 

It is the Company’s consistent policy to use the shareholders’ meetings to provide the 

shareholders with information about the Company and its prospects; this obviously is 

complied with in accordance with the rules governing price sensitive issues and, therefore, 

where necessary, by providing the market with such information. 

It is also the Company’s policy to call attention to the location, date and time of the 

meeting in order to facilitate the participation of the shareholders at the meetings; 

furthermore, where possible, all the Directors and statutory auditors try to attend the 

shareholders’ meetings, in particular the Directors who, because of the posts they hold, 

can make a useful contribution to the discussion. 

Lastly, the Board of Directors makes known that it does not feel – at the present time – 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


that the Company has a need to establish rules for conducting shareholders’ meetings, 

deeming that what is envisaged in the by-laws on this matter is sufficient for the orderly 

and proper execution of the shareholders’ meetings. 

6. Relations with investors and the other shareholders 

The Company has always actively tried to establish a dialogue with its shareholders and 

institutional investors based on an understanding of the reciprocal roles, and also by planning 

periodical meetings with members of the Italian and international financial community. 

Moreover, as early as March 1999, an Investor Relations office was established under the 

General Office of the Finance and Administration function, now entrusted to Dott. Roberto 

Rivellino. 

7. Treatment of confidential information 

The management of confidential information, with special reference to price sensitive 

information, is under the direct responsibility of the Chairman-CEO. 

Outside communications regarding documents and information about the Company and its 

subsidiaries are conducted – always in agreement with the Chairman-CEO – by the 

Secretary to the Board and the Corporate Secretary for communications to the authorities 

and the shareholders, by the External Relations function for communications to the press 

and the Investor Relations function for communications directed to institutional investors. 

The Chairman-CEO and those in charge of the aforementioned functions are invariably 

able to join together to issue any urgent external communications. 

Posts held as director or statutory auditor by the members of the Board of Directors 

in other listed companies, in financial, banking, insurance, other important or other 

companies of significant size 

Marco Camfin S.p.A. Chairman 

Tronchetti Provera G.P.I. - Gruppo Partecipazioni Industriali S.p.A. Chairman 

Marco Tronchetti Provera & C. S.a.p.A. 

Chairman 

Olimpia S.p.A. 

Chairman 

Pirelli & C. S.a.p.A. 

Chairman 

Pirelli & C. Ambiente S.p.A. 

Chairman 

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

Chairman 

Telecom Italia S.p.A. 

Chairman 

Olivetti S.p.A. 

Deputy Chairman e Managing Director 

Alberto Pirelli G.P.I. - Gruppo Partecipazioni Industriali S.p.A. Deputy Chairman 



Camfin S.p.A. 

Director 

G.l.M. - Generale Industrie Metallurgiche S.p.A. Director 


Director 


Director 

SMI - Societa Metallurgica Italiana S.p.A. Director 

Carlo Buora Tim S.p.A. Chairman 


Managing Director 




General Partner 

HDP Holding di Partecipazioni Industriali S.p.A. Director 

Mediobanca S.p.A. 

Director 


Director 


Director 


Director 

Ras S.p.A. 

Director 

Giovanni Ferrario Pirelli Tyre Holding NV Chairman 

Pirelli Cavi e Sistemi Telecom S.p.A. 

Director 

Pirelli Labs S.p.A. 

Director 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


Gilberto Benetton Autogrill S.p.A. Chairman 

Edizione Holding S.p.A. 

Chairman 







A.C.E.S.A. Infraestructuras 

Director 

Autostrade S.p.A. 

Director 

Banca Antoniana Popolare Veneta 

Director 

Benetton Group S.p.A. 

Director 

Beni Stabili S.p.A. 

Director 

HMS Host Corp. 

Director 

LloydAdriatico S.p.A. 

Director 


Director 

Schemaventotto S.p.A. 

Director 

Carlo Ciani Centro Cardiologico Monzino Director 

Istituto Europeo di Oncologia S.r.l. 

Director 

Siat S.p.A. 

Director 

Eugenio Coppola Transocean Holding Chairman 

di Canzano Banco Vitalicio de Espana Director 

Gefina Intl Ltd 

Director 

Generali Assurances Generales 

Director 

La Federation Continentale 

Permanent representative 

of Assicurazioni General S.p.A. 

Carlo De Benedetti CDB Web Tech S.p.A. Chairman 

CIR S.p.A. 

Chairman 

COFIDE S.p.A. 

Chairman 

SOGEFI S.p.A. 

Chairman 

Gruppo Editoriale L’Espresso S.p.A. 

Director 

Valeo SA 

Director 

Alberto Falck Actelios S.p.A. Director 

Camfin S.p.A. 

Director 

Falck S.p.A. 

Director 

Italcementi S.p.A. 

Director 

Milano Assicurazioni S.p.A. 

Director 

RAS - Riunione Adriatica di Sicurtà S.p.A. Director 

RCS Editori S.p.A. 

Director 

Giuseppe GTS Group S.p.A. Chairman 

Gazzoni-Frascara Bologna Football Club 1909 S.p.A. Director 

Euromobiliare Corporate Finance S.p.A. 

Director 

Fondo “Sofipa Equity Fund” gestito 

Supervisory Board 

da MCC - Sofipa SGR S.p.A. 

Mario Greco L’Assicuratrice Italiana Danni S.p.A. Chairman 

Investitori Holding S.p.A. 

Chairman 

Investitori SGR S.p.A. 

Chairman 

AGF RAS Holding BV 


Allianz Subalpina S.p.A. 


CreditRas Assicurazioni S.p.A. 


CreditRas Vita S.p.A. 


Mondial Assistance Italia S.p.A. 


RAS Asset Management SGR S.p.A. 


Rasbank S.p.A. 


RAS International NV 


RAS - Riunione Adriatica di Sicurtà S.p.A. Managing Director 

Allianz Compania de Seguros y Reaseguros Director 

Allianz Suisse Lebensersicherungs 

Director 

Allianz Suisse Versicherungen 

Director 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


e.Biscom S.p.A. 

Fastweb S.p.A. 

Genialloyd S.p.A. 

GIM - Generale Industrie Metallurgiche S.p.A. 

IFIL S.p.A. 

Istituto Europeo di Oncologia S.r.l. 

L’Assicuratrice Italiana Vita S.p.A. 


Ras Altemative Investments SGR S.p.A. 

Rasfin SIM S.p.A. 

Unicredito Italiano S.p.A. 

Director 

Director 

Director 

Director 

Director 

Director 

Director 

Director 

Director 

Director 

Director 

Georg F. Krayer Bank Sarasin & Cie AG Chairman 

Baloise Holding 

Director 

Massimo Moratti F.C. Internazionale Milano S.p.A. Chairman 

Interbanca S.p.A. 

Director 


Director 

Luigi Orlando Europa Metalli S.p.A. Honorary Chairman 

Orlando & C. - Gestioni Finanziarie S.a.p.A. Chairman 

G.l.M. - Generale Industrie Metallurgiche S.p.A. Chairman 

SMI - Societa Metallurgica Italiana S.p.A. Chairman 

Pirelli & C. S.a.p.A 

General Partner 


Giampiero Pesenti Italmobiliare S.p.A. Chairman and Managing Director 

Intermobiliare S.p.A. 

Chairman 

Italcementi S.p.A. 


Ciment Francais 


Fincomind AG 


Ciments du Maroc 

Director 

Compagnie Monegasque de Banque 

Director 

Credit Mobilier de Monaco 

Director 

Finter Bank France 

Director 

Finter Bank Zurich 

Director 

G.l.M. - Generale Industrie Metallurgiche S.p.A Director 

Mittel S.p.A. 

Director 


Soparfinter SA (Luxembourg) 

Director 

Ennio Presutti ABB Italia S.p.A. Advisor Board Member 

Air Liquide Italia S.p.A. 

Director 

Carlo Alessandro Partecipazioni Real Estate S.p.A. Chairman 

Puri Negri Pirelli & C. Real Estate S.p.A. Deputy Chairman e Managing Director 

Camfin S.p.A. 




GPI - Gruppo Partecipazioni Industriali S.p.A. Managing Director 


General Partner and General Manager 

Aon Italia S.p.A. 

Director 


Director 


Director 

Permasteelisa S.p.A. 

Director 


Director 

Vincenzo Sozzani Banco di Desio Director 


Director 


Director 


Director 

Frank Vischer Pirelli Société Générale SA Director 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


PROCEDURE FOR COMPLIANCE WITH THE 

REQUIREMENTS OF ART. 150, PARAGRAPH 1, 

OF LEGISLATIVE DECREE NO. 58 OF 1998 

Introduction 

In accordance with article 150, paragraph 1, of Legislative Decree No. 58 of 1998 (hereinafter, 

the “Italian Income Tax Code”) “the Directors shall report to the Board of Statutory Auditors, on 

a timely basis, in accordance with the procedures set out in the by-laws and at least quarterly, 

on the activities performed and on transactions carried out by the company or its subsidiaries 

that have a significant economic, financial or equity impact; in particular, they shall report on 

transactions involving a potential conflict of interest” 1 . 

The present procedure, pursuant to the above-cited provision and in light of the 

communications by Consob relating to corporate controls 2 , defines the individuals and 

transactions involved in the information flows of which the Statutory Auditors of Pirelli S.p.A. 

(hereinafter “Pirelli” or “the Company”) are the recipients, and the phases and timing 

characterizing those flows. In particular, the procedure sets out: 

1. the method, frequency and content of the information; 

2. the collection of the information. 

Attached to this procedure is an illustrative report that considers the issues underlying the 

definition of the information flows in question and the decisions made. 

Consequently, the main objective of this procedure is to provide the Board of Statutory Auditors 

with the information that is necessary for the performance of its monitoring and oversight 

activities as required by the Italian Income Tax Code (article 149). 

Secondly, this procedure implements the corporate governance tools, allowing for the tangible 

realization of the recommendations contained in the Code of Self-discipline prepared by the 

Committee for Corporate Governance of Listed Companies which Pirelli has complied with since 

its release. In particular, by increasing the transparency of the Company’s management, this 

procedure allows each Director to participate in that management in a more knowledgeable and 

informed manner. Furthermore, this procedure sets in motion the information flows between the 

Directors with delegated powers and the Board of Directors, recommended by the Code of Selfdiscipline 

and aimed, on the one hand, at endorsing the “centrality” of the Company’s 

management body in its entirety and, on the other hand, at strengthening the internal control 

functions. 

Method, frequency and content of the information 

The Board of Directors, also through its delegated bodies, shall send a specific written report to 

the Board of Statutory Auditors on a quarterly basis: 

a) on the activities performed; 

1 This provision was incorporated in Pirelli S.p.A.’s by-laws; article 18, paragraph 2 of the by-laws states that “The 

Board of Directors, also through its delegated bodies, shall report on a timely basis to the Board of Statutory 

Auditors on the activities performed and the most significant economic, financial and equity transactions carried 

out by the Company and its subsidiaries; in particular, it reports on the transactions involving a potential conflict 

of interest. The information is delivered, at least quarterly, during the meetings of the Directors or the Executive 

Committee or through written communication to the Board of Statutory Auditors”. 

2 See, currently, Consob Communication No. 97001574 dated February 20, 1997 and Consob Communication No. 

1025564 dated April 6, 2001. See also, Consob Communication No. 2064231 dated September 30, 2002 which 

defines the concept of related parties. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


b) on transactions that have a significant economic, financial or equity impact; 

c) on transactions involving a potential conflict of interest, i.e.: 

c1) on intra-group transactions; 

c2) on transactions with related parties, other than intra-group transactions; 

d) on atypical or unusual transactions and on every other activity or transaction that it 

considers appropriate to communicate to the Board of Statutory Auditors. 

The information provided shall refer to the activities performed and transactions carried out 

during the period subsequent to the previous report. 

The report shall be sent simultaneously to all Directors and Standing Statutory Auditors. 

1. Activities performed 

The information shall regard executive activities and the status of transactions already 

approved by the Board of Directors, as well as the activities of Committees (Audit Committee, 

Compensation Committee and other internal committees); in particular, Executive Directors 

report on the activities performed by them – also through the Company’s and its subsidiaries’ 

structures – in exercising the powers delegated to them, including the initiatives adopted and 

the projects introduced. 

2. Transactions having a significant economic, financial or equity impact 

The information shall focus on transactions that have a significant economic, financial or equity 

impact, highlighting, in particular, the strategic aims, consistent with the budget and the 

industrial plan, manner of execution (including terms and conditions, both economic and 

otherwise, of their realization) and developments, as well as any conditions and implications 

that they carry for the Pirelli Group’s activities. 

For the purposes of this procedure, the following transactions carried out by Pirelli or its 

subsidiaries - in addition to the transactions reserved for the Board of Directors in accordance 

with article 2381 of the Italian Civil Code and the by-laws - are considered to have a significant 

economic, financial or equity impact: 

1) the issue of financial instruments for a total equivalent value in excess of Euros 100 million; 

2) the granting of real or personal guarantees in the interest of subsidiaries (and, in the interest 

of Pirelli in the case of real guarantees) against obligations in excess of single amounts of 

Euros 25 million; 

3) the granting of financing or guarantees to the benefit of or in the interest of third parties in 

excess of Euros 10 million; 

4) the granting of financing to subsidiaries, investment and divestiture transactions, also 

including real estate transactions, and transactions involving the acquisition and disposal of 

equity investments, of companies or business segments of companies, of property, plant and 

equipment and of other assets, in excess of Euros 100 million; 

5) merger and demerger transactions, involving subsidiaries, if at least one of the following 

parameters, where applicable, is equal to or in excess of 15 percent: 

a. total assets of the incorporated (merged) company or the activities subject to 

demerger/total assets of the Company (data taken from the consolidated financial 

statements); 

b. result before tax and extraordinary items of the incorporated (merged) company or the 

activities to be demerged/result before tax and extraordinary items of the Company (data 

taken from the consolidated financial statements); 

c. total shareholders’ equity of the incorporated (merged) company or the business segment 

subject to demerger/total shareholders’ equity of the Company (data taken from the 

consolidated financial statements). 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


However, transactions involving the merger (by incorporation or by pooling of interests) of 

listed companies as well as the merger by pooling of interests of a listed company with an 

unlisted company or by incorporation of a listed company into an unlisted company are 

considered, for the purposes of this procedure, transactions that have a significant economic, 

financial or equity impact. 

The information shall also include transactions that, while individually below the thresholds 

specified above or those that determine the exclusive responsibility of the Board of Directors, 

are interconnected within the same strategic or executive structure and therefore, when 

considered in the aggregate, exceed the relevant thresholds. 

3. Transactions involving a potential conflict of interest 

3a) Intra-group transactions 

The information concerning intra-group transactions shall illustrate the underlying interests and 

the significance from the Group perspective, as well as how the transactions are executed 

(including the terms and conditions, both economic and otherwise, of their realization) with 

particular regard to the valuation methods followed. 

Specific emphasis shall be placed on transactions with a value exceeding Euros 50 million, or 

less if those transactions are not finalized at arm’s length conditions 3 . Emphasis should also be 

placed on transactions that, while individually below the specified threshold, are interconnected 

within the same strategic or executive structure and therefore, when considered in aggregate, 

exceed that threshold. 

For the purposes of this procedure, intra-group transactions 4 shall be those transactions carried 

out by Pirelli or its subsidiaries with: 

a) companies that, directly or indirectly (i.e. also through fiduciary companies or nominees), 

control Pirelli pursuant to article 2359, paragraphs 1 and 2, of the Italian Civil Code and 

article 93 of the Italian Income Tax Code; 

b) companies that, directly or indirectly (i.e. also through fiduciary companies or nominees), 

are controlled by Pirelli pursuant to article 2359, paragraphs 1 and 2, of the Italian Civil 

Code and article 93 of the Italian Income Tax Code; 

c) companies that, directly or indirectly (i.e. also through fiduciary companies or nominees), 

are controlled by the same companies that control Pirelli pursuant to article 2359, 

paragraphs 1 and 2, of the Italian Civil Code and article 93 of the Italian Income Tax Code; 

d) associated companies of Pirelli pursuant to article 2359, paragraph 3, of the Italian Civil 

Code and those that exercise significant influence on Pirelli; an associated company 

relationship does not exist with the associated company of an associated company. 

3b) Transactions with related parties, other than intra-group transactions 

The information concerning transactions with related parties, other than intra-group 

transactions shall highlight the underlying interests and illustrate how the transactions are 

executed (including the terms and conditions, both economic and otherwise, of their 

realization) with particular regard to the valuation methods followed. 

3 For the purposes of this procedure, transactions finalized at standard conditions are those transactions entered 

into at the same conditions as the Company applies to all arm’s length transactions with whatsoever party. 

4 For the purposes of this procedure, intra-group transactions cover the disposal, with or without consideration, of 

personal or real property and of transferable economic rights, transactions involving the performance of works 

and services, the granting or securing of financing and guarantees, and cooperation agreements for conducting 

and developing the Company’s business. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


For the purposes of this procedure, transactions with related parties 5 shall be those transactions 

carried out by Pirelli or its subsidiaries with parties directly or indirectly related to Pirelli. 

Parties directly related to Pirelli are: 

a) individuals who hold (directly or indirectly, i.e. also through fiduciary companies or 

nominees) an investment equal to or exceeding 10 percent of the share capital represented 

by ordinary shares of Pirelli; 

b) individuals who, even though holding (directly or indirectly, i.e. also through fiduciary 

companies or nominees) an investment below the percentage indicated in a), may, by virtue 

of shareholders’ agreements, nominate, alone or jointly with the other parties adhering to 

the agreements, a majority of the members of Pirelli’s Board of Directors; 

c) individuals who, even though holding (directly or indirectly, i.e. also through fiduciary 

companies or nominees) an investment below the percentage indicated in a), command, by 

virtue of shareholders’ agreements, alone or jointly with the other parties adhering to the 

agreements, a majority of the exercisable votes in Pirelli’s ordinary shareholders’ meetings; 

d) Pirelli’s Directors and Standing Statutory Auditors; 

e) Pirelli’s General Managers, Secretary to the Board of Directors and Heads of Business 

Units/Central Functions/Operating Activities who report directly to the Chairman and the 

Managing Directors (so-called first reports). 

Parties indirectly related to Pirelli are: 

f) spouses, not separated, of the parties referred to in a) to e) above; 

g) relatives by blood or affinity, up to the second degree, of the parties referred to in a) to e) 

above; 

h) companies in which the parties referred to in a) to g) above hold, directly or indirectly 

(i.e. also through fiduciary companies or nominees) an investment equal to or exceeding 10 

percent (if a listed company) or 20 percent (if an unlisted company) of the share capital 

represented by shares having voting rights in the ordinary shareholders’ meetings; 

i) companies in which the parties referred to in a) to g) above, although holding investments 

below the percentage indicated in h), may, by virtue of shareholders’ agreements, nominate, 

alone or jointly with the other parties adhering to the agreements, a majority of the members 

of that company’s Board of Directors; 

j) companies in which the parties referred to in a) to g) above, although holding investments 

below the percentage indicated in h), command, by virtue of shareholders’ agreements, alone 

or jointly with the other parties adhering to the agreements, a majority of the exercisable 

votes in that company’s ordinary shareholders’ meetings; 

k) companies in which the parties referred to in a) to g) above have a strategic management 

role, and their subsidiaries; 

l) companies that have a majority of their Directors in common with Pirelli. 

The following are also related parties: 

those adhering, even indirectly, to shareholders’ agreements referred to in article 122, paragraph 

1, of Legislative Decree No. 58/98, the objective of which is the exercise of voting rights, if the 

interests covered by such agreements constitute the controlling interest. 

Information should be given of transactions exceeding Euros 500 thousand, or less if not 

finalized at arm’s length conditions, carried out (also through nominees) with parties directly or 

indirectly related to Pirelli. Further, evidence should be provided of transactions that, while 

individually below the specified threshold, are interconnected within the same strategic or 

executive structure and therefore, when considered in the aggregate, exceed that threshold. 

5 See note 4. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


4. Atypical or unusual transactions and other transactions 

The information on atypical or unusual transactions, including those carried out by subsidiaries, 

and on every other activity or transaction on which it is considered appropriate to provide 

information, shall highlight the underlying interests and illustrate the manner in which the 

transactions are executed (including the terms and conditions, both economic and otherwise, of 

their realization) with particular regard to the valuation methods followed. 

For the purposes of this procedure, atypical or unusual transactions shall be those transactions, 

which, by object or nature, are outside the normal course of the Company’s business and those 

that show particular critical elements due to their characteristics and to the inherent risks, the 

nature of the counterpart, or the time of their completion 6 . 

Procedure for the collection of information 

The Board of Directors shall report to the Board of Statutory Auditors through the 

delegated bodies. For the purposes of preparing the specific report, the information should be 

transmitted to the Chairman and the Managing Directors, in accordance with the following 

procedure. 

1. Information on the activities performed, on transactions that have a significant 

economic, financial or equity impact, on intra-group transactions and on atypical 

or unusual transactions 

Pirelli’s General Managers and Heads of Business Units/Central Functions/Operating Activities, 

who report directly to the Chairman and Managing Directors (so-called first reports) through 

the General Administration and Control function, shall report monthly to the Chairman and the 

Managing Directors, by specific communication, on the activities performed by their structure 

in the period, giving details on transactions that have a significant economic, financial or equity 

impact, intra-group transactions exceeding Euros 50 million, or less if not finalized at arm’s 

length conditions, atypical or unusual transactions, executive activities and the status of 

transactions already approved by the Board of Directors, as well as the principal activities 

performed by Directors in exercising the powers delegated to them, comprising the most 

important projects introduced and the most significant initiatives adopted. 

They should also communicate transactions that, while individually below the previously 

specified thresholds or those that determine the exclusive responsibility of the Board of 

Directors, are interconnected within the same strategic or executive structure and therefore, 

when considered in the aggregate, exceed the relevant thresholds 7 . 

Information on the activities of the Audit Committee, Compensation Committee and other 

internal committees are provided by the respective Chairmen. 

Each quarter, the General Administration and Control function shall prepare and send to the 

Chairman and Managing Directors summary reports containing the aggregate data of the above 

transactions that were carried out during the period subsequent to the previous report. 

Further, details should also be provided of transactions that, while individually below the 

previously specified threshold, are interconnected within the same strategic or executive 

structure and therefore, when considered in the aggregate, exceed the cited threshold 8 . 

6 Transactions carried out in proximity to the end or beginning of the year. 

7 In such case, the transactions are relevant also if carried out over a period of time exceeding the three months 

covered by the report. 

8 See note 7. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


2. Information on transactions with related parties, other than intra-group 

transactions 

2.1 Pirelli’s General Managers and Heads of Business Units/Central Functions/Operating 

Activities who report directly to the Chairman and Managing Directors (so-called first 

reports) shall send to the General Administration and Control function, by specific 

communication, a list of transactions with related parties, other than intra-group 

transactions, carried out by Pirelli or its subsidiaries exceeding Euros 500 thousand or 

less if not finalized at arm’s length conditions, using the same methods and with the same 

frequency as in point 1) above. 

Pirelli’s Directors and Standing Statutory Auditors, Secretary to the Board of Directors, 

General Managers and Heads of Business Units/Central Functions/Operating Activities 

who report directly to the Chairman and Managing Directors (so-called first reports) 

communicate to the General Management Administration and Control – in accordance 

with the format laid down in Appendix A – any transactions carried out with Pirelli or 

with its subsidiaries by each of them or by parties indirectly related to Pirelli through 

them 9 that exceed Euros 500 thousand, or less if not finalized at arm’s length conditions, 

within fifteen days of the transaction’s conclusion. 

2.2 In providing the information on transactions with related parties, other than intra-group 

transactions, set forth in point 2.1, above, emphasis should also be given to transactions 

that, while individually below the previously specified threshold, are interconnected 

within the same relationship and therefore, when considered in the aggregate, exceed the 

mentioned threshold 10 . 

2.3 Each quarter, on the basis of the information received in accordance with points 2.1 and 

2.2 above, the General Administration and Control function shall send a summary to the 

Chairman and Managing Directors containing all of the elements necessary to comply 

with the disclosure requirements related to the above transactions. 

Rules of conduct for carrying out transactions with related parties 

1. Transactions with related parties, including intra-group transactions, with the exception of 

transactions that are typical or usual or to be finalized at standard conditions shall be 

approved in advance by the Board of Directors. 

2. Typical or usual transactions are those transactions, which, by subject or nature, are not 

outside the normal course of the Company’s business and that do not present particular 

critical elements due to their characteristics or to the risks inherent to the nature of the 

counterpart or to the time of their completion. Transactions finalized at standard conditions 

are those transactions entered into at the same conditions as the Company applies to all 

arm’s length transactions with whatsoever party. 

3. The Board of Directors shall receive adequate information on the nature of the relationship, 

the manner in which the transaction is to be executed, the conditions, both economic and 

otherwise, for its realization, the valuation method followed, the underlying interests and 

motivations and any risks to the Company. In the event that the relationship is with a 

9 This declaration is requested mainly in view of the difficulty, if not impossibility, for Pirelli to know or to identify 

with certainty parties indirectly related to it through the aforementioned individuals; nor would it appear 

appropriate, first and foremost for reasons of privacy, to request from each of those individuals a list of said 

possible parties. 

10 See note 7. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


Director or with a party related through a Director, the Director concerned shall limit his 

involvement to providing clarification and shall leave the Directors’ meeting at the time the 

decisions are taken. 

4. In relation to the nature, value or other characteristics of the transaction, the Board of 

Directors, in order to avoid that the transaction is entered into at unsuitable conditions, is 

assisted by one or more experts who, depending on the circumstances, express an opinion 

on the economic conditions, and/or the legitimacy, and/or the technical aspects of the 

transaction. 

5. With respect to transactions with related parties, including intra-group transactions, that are 

not submitted to the Board of Directors in that they are typical or usual and/or at standard 

conditions, the Directors with delegated powers or managers responsible for the realization 

of the transaction, except for the observance of the specific procedure as per article 150, 

paragraph 1, of the Italian Income Tax Code, shall collect and conserve, including by 

transaction type or group, adequate information on the nature of the relationship, the 

manner in which the transaction is to be executed, the conditions, both economic and 

otherwise, for its realization, the valuation method followed, the underlying interests and 

motivations and any risks to the Company. One or more experts may be appointed also for 

these transactions as provided above. 

6. The choice of experts shall be from among individuals with recognized professional 

credentials and expertise on the subject matter, who shall be carefully evaluated in terms of 

their independence and the absence of conflicts of interest. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


PIRELLI S.P.A.’S CODE OF CONDUCT ON 

INSIDER DEALING 

1. Introduction 

Further to the provisions set by article 180 and subsequent articles of Legislative Decree No. 

58/1998 on the topic of misuse of privileged information, this Code of Conduct of Pirelli S.p.A. 

(the “Code”) aims to regulate the binding obligations referring to the declaration requirements 

and conduct inherent to Transactions carried out by Relevant Persons and the related 

disclosure to the market. 

2. Definitions 

For the purposes of this Code, it is intended by: 

A. Relevant Persons: the Directors (executive and non-executive), the Standing Statutory 

Auditors, the General Managers, the Secretary to the Board of Directors, the Heads of 

Departments and the Head of Investor Relations. Furthermore, Relevant Persons are 

considered to be the Heads of the functions which form the General Administration and 

Control function, the General Finance function and the Department of Legal Affairs. 

The heads of the following Departments of Pirelli & C. Accomandita per Azioni are 

also considered Relevant Persons: the Legal and Corporate Affairs Department, 

Financial Statements and Administration Department, External Communications 

Department and Audit Department, as well as the heads of the functions which form 

such Departments. 

Each of the above identified Relevant Persons may indicate other Relevant Persons, in 

relation to the activity they carry out or their assigned job, for a indefinite or limited 

period of time; immediate communication of such identification – and of the respective 

time limits, if set – should be made to the person concerned and to the Referee. 

B. Financial Instruments: (i) negotiable financial instruments listed on Italian and foreign 

regulated stock markets issued by Pirelli S.p.A., its subsidiaries and its parent companies, 

excluding non-convertible bonds; (ii) listed or unlisted financial instruments that 

attribute a right to subscribe to, acquire or sell the instruments referred to in (i), above, 

and the certificates representative of the instruments referred to in (i), above; (iii) 

derivative financial instruments, and covered warrants, having as their underlyings the 

financial instruments referred to in (i), above, even when their exercise occurs through 

the payment of a cash differential. 

C 

Transaction(s): any type of act creating, modifying or extinguishing rights on Financial 

Instruments, even if carried out within an individual investment portfolio management 

relationship. Included in such category are also acts for exercising any stock options or 

options rights on Financial Instruments. 

D. Significant Transaction: every Transaction that, alone or in aggregate with other 

Transactions carried out in the previous three months and not yet declared to the 

Company, exceeds Euros 80,000. The notional equivalent value of derivative financial 

instruments or covered warrants is calculated as the product of the number of shares on 

which the instrument is based and the official price of the underlyings recorded on the 

day of conclusion of the transactions. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


E. Referee: the Secretary to the Board of Directors of Pirelli S.p.A., responsible for the 

receipt of declarations and administration of the information relating to Transactions 

carried out by Relevant Persons, who shall provide for the subsequent disclosure to the 

market in accordance with the procedures provided by the Code. 

3. Declaration Requirements of Relevant Persons 

Within the seventh calendar day after the end of each calendar quarter, Relevant Persons shall 

send the Referee the list of Transactions carried out in the quarter on Financial Instruments, 

that in total amount to or exceed Euros 35,000. 

In the event that a Significant Transaction was carried out, the Relevant Person should declare 

this without delay to the Referee, together with the list of Transactions carried out in the 

preceding three months and not yet declared to the Company. 

Transactions carried out by the Relevant Person’s spouse, if not legally separated, or minor 

children, or delegated to be carried out by nominees, trustees or subsidiaries are also subject to 

the declaration requirements. 

The declaration to the Referee should be made on the form corresponding to the one required 

by Borsa Italiana S.p.A. in the Instructions for the Regulation of Markets Organized and 

Managed by Borsa Italiana S.p.A. for information purposes. 

4. Exemption from Transaction declaration requirements 

The Transactions carried out – even through nominees or trustees – between the Relevant 

Person and his or her spouse, if not legally separated, or minor children, are excluded from the 

declaration requirements to the Referee. 

Also excluded are transactions involving the loan of securities, in the case where the Relevant 

Person, directly or indirectly, his or her spouse, if not legally separated, or minor children, acts 

as the lender, and Transactions creating liens or beneficial interests. 

5. Limitations on carrying out Transactions 

Transactions carried out – directly or through nominees – by Relevant Persons, excluding nonexecutive 

Directors and Statutory Auditors, is permitted only from the day after the first release 

of final or preliminary economic-financial data regarding each quarter 1 until the closing of next 

quarter. The non-executive Directors and Statutory Auditors shall abstain from carrying out 

Transactions from the day of convocation of the Directors’ meeting called to examine the 

above-cited economic-financial data, or from the time that they became acquainted with that 

data, if earlier, until the day after its release. 

Relevant Persons may carry out Transactions outside the allowed period only in the event of 

exceptional situations of personal necessity that are adequately justified by the person 

concerned. The assessment of the existence of a situation of personal necessity is referred to 

the Chairman of the Board of Directors. 

The limitations referred to in the first paragraph of this article shall not apply in the event of 

exercising the stock options or option rights on Financial Instruments and the consequent 

Transactions, provided that they are carried out at the same time the options or rights are 

exercised. 

1 Or, the six months or full year, in the case of exemption from the publication of the second and fourth quarter 

reports, respectively. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


The Board of Directors can identify additional periods or circumstances in which Transactions 

are subject to limits and conditions, providing the Referee and the Relevant Persons with 

immediate communication. 

6. Disclosure of transactions to the Market 

The Referee discloses the information received from the Relevant Persons to the market within 

the tenth trading day of the stock market after each calendar quarter by means of the 

transmission of a specific communication to Borsa Italiana, in accordance with the procedures 

provided in the Regulation of Markets Organized and Managed by Borsa Italiana and in the 

related Instructions. 

Significant Transactions shall be disclosed to the market without delay, by means of the 

procedures stated in the previous paragraph. 

7. Sanctions 

Apart from the possibility of Pirelli S.p.A. seeking compensation for any damages and/or liability 

that may result from conduct in violation of the Code, the breach of the declaration 

requirements or of the limitations on carrying out Transactions shall lead to: (i) for employees, 

the imposition of disciplinary sanctions as provided by the laws in force and the applicable 

collective national labor contract; (ii) for any other collaborators, the termination – with or 

without notice – of the relationship; (iii) for Directors and Statutory Auditors, the Board of 

Directors may propose the revocation of their appointments to the next shareholders’ meeting. 

8. Acceptance 

Acceptance of this Code by each Relevant Person shall be by signing the form attached as an 

Appendix. 

9. Updating of the Code and treatment of personal data 

The Referee is responsible for monitoring the application and effectiveness of the Code in 

respect of its intended purpose, and the submission of any modifications or integrations to the 

Board of Directors. 

The Referee shall conserve the written declarations by which the Relevant Persons confirm 

their full knowledge and acceptance of the Code and grant their consent, in accordance with 

Law No. 675/1996, for the treatment of the requested data. 

10. Transitory regulations 

The regulations of the Code shall become effective as from December 1, 2002. 

Transactions carried out during the month of December 2002 shall be accumulated, for the 

purposes of the declaration requirements referred to in article 3, with those of the first quarter 

of 2003. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


SUMMARY DATA OF PIRELLI S.P.A. 




Property, plant and equipment 40.6 27.5 

Investments 5,646.0 5,707.3 

Net working capital 132.9 (86.1) 

Financial position 

5,834.0 5,664.5 

Shareholders’ equity 4,936.2 4,984.9 


Net financial debt 825.0 630.5 


5,834.0 5,664.5 


Financial income and expenses 305.1 1,061.1 

Valuation adjustments to financial assets (177.9) (38.2) 

Other operating expenses (35.1) (37.0) 

Income before extraordinary items and income taxes 92.1 985.9 

Extraordinary items 13.0 767.9 

Income taxes 7.0 (264.5) 

Net income 112.1 1,489.3 

The balance sheet structure of the company between December 31, 2001 and December 31, 2002 

changed as a result of the merger by absorption of Pirelli Cavi e Sistemi S.p.A. in Pirelli S.p.A.. 

The merger was carried out on December 30, 2002 in execution of the resolutions passed by the 

shareholders’ meetings on May 9, 2002. Other changes during the period were mainly due to the 

following movements: 

• property, plant and equipment increased by Euros 13.1 million primarily as a result of the 

buildings that were acquired upon the merger by absorption of Pirelli Cavi e Sistemi S.p.A. in 

Pirelli S.p.A. (Euros 25.4 million); 

• investments decreased by Euros 61.3 million compared to December 31, 2001. The reduction 

was principally due to the sale of the investment in EPIClink S.p.A. (Euros 10.9 million), the 

writedown of the investments in subsidiaries (Euros 135.4 million) and in other companies 

(Euros 42.5 million) and the cancellation of the shares of the merged company Pirelli Cavi e 

Sistemi S.p.A. (Euros 24.9 million). The reduction was partly compensated by the capital 

contribution to Pirelli Tyre Holding N.V. (Euros 80 million) and F.C. Internazionale Milano 

S.p.A. (Euros 40.9 million), the purchase of Sipir Finance N.V. (Euros 19 million) and the 

shares included in the investment portfolio of Pirelli Cavi e Sistemi S.p.A. acquired as a result 

of the aforementioned merger (Euros 10 million); 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


• net working capital increased by Euros 219 million compared to December 31, 2001, mainly 

as a result of the decrease in taxes payable (Euros 235.9 million), which were partly 

compensated by the sale of Irpeg tax receivables (Euros 86.5 million); 

• shareholders’ equity increased by the net income for the year and takes into account the 

payment of dividends relating to the prior year; 

• the net financial position, after these movements, is a net debt position of Euros 825 

million compared to Euros 630.5 million at December 31, 2001. 

Results of operations 

The net income for the year 2002 was Euros 112.1 million compared to Euros 1,489.3 million in 

the prior year. 

The change is mainly due to the reduction in dividends, the writedown of investments and the 

decrease in extraordinary income, countered by a reduction in income taxes. 

Components of the results of operations 

• Financial income and expenses of Euros 305.1 million (Euros 1,061.1 million in 2001) 

include income from investments in subsidiaries of Euros 326.3 million and other companies 

of Euros 9.7 million and the net interest expense balance of Euros 30.9 million. 

• Valuation adjustments to financial assets include writedowns made to the cost of the 

investments in Pirelli Finance (Luxembourg) S.A. of Euros 75 million, Pirelli Cavi e Sistemi 

Telecom S.p.A. of Euros 60 million, Caltagirone Editore S.p.A. of Euros 24.1 million and F.C. 

Internazionale Milano of Euros 18.4 million. 

• Extraordinary items include extraordinary income of Euros 25.9 million and extraordinary 

expenses of Euros 12.9 million. 



Introduction 

The Group 


Sector 





Tyres Sector 



Environment 


Proforma Data 

Related Party 

Disclosures 








Summary Data 


SHAREHOLDERS’ RESOLUTIONS 

Appropriation of net income 

The year ended December 31, 2002 shows a net income of Euros 112,098,471. 

The Board of Directors proposes the distribution of dividends, before withholding taxes, of: 

• Euros 0.0364 for each savings share 

The proposed dividends carry an ordinary tax credit equal to 56.25 percent (art. 105, letter a) of 

D.P.R. 917/86). 

Therefore, dividends on: 

• savings shares 

carry a reimbursable tax credit of Euros 0.02047. 

If in agreement with our proposal, we ask you to pass the following 

resolution 

The shareholders' meeting: 

• having taken note of the Directors’ Report on operations; 

• having taken note of the Board of Statutory Auditors’ Report; 

• having examined the financial statements at December 31, 2002 which show a net income of 

Euros 112,098,471. 

votes 

a) to approve: 

• the Directors’ Report on operations; 

• the balance sheet, the statement of income, the notes to financial statements for the year 

ended December 31, 2002 which show a net income of Euros 112,098,471 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 112,098,471 as follows: 

• to the legal reserve to reach 20 percent of share capital Euros 102,012 

• to the shareholders: 

Euros 0.0364 to each of the 88,006,016 savings shares for a total of Euros 3,203,419 

• to the directors, 1 percent of the amount established 

on the basis of art. 23 of the by-laws Euros 588,958 

• to retained earnings Euros 108,204,082 

c) to authorize the directors, in the event treasury shares are purchased before presentation of 

the coupons in b), to appropriate the amount of the dividends to which such shares are 

entitled to retained earnings, and to charge the same item for the balance of roundings which 

may arise at the time of the payment of the dividends. 

The Board of Directors 

Milan, March 11, 2003 



Consolidated Financial Statements at December 31, 2002 



Consolidated balance sheets 

Assets 

(in thousands of euros) 

12.31.2002 12.31.2001 

A) Capital subscription rights 

B) Fixed assets 

I) Intangible assets 

Formation costs 2,651 3,557 

Patents and design patent rights 2,932 4,048 

Concession, licenses, trademarks and similar rights 6,866 8,076 

Goodwill 8,819 11,840 

Difference on consolidation 59,825 64,226 

Intangible assets in progress and payments on account 1,119 7,358 

Other intangible assets 79,317 78,924 

Total intangible assets 161,529 178,029 

II) Property, plant and equipment 

Land and buildings 735,045 799,830 

Plant and machinery 1,231,336 1,332,006 

Industrial and commercial equipment 134,567 147,790 

Other property, plant and equipment 90,135 106,700 

Assets under construction and advances to suppliers 201,175 434,922 

Total property, plant and equipment 2,392,258 2,821,248 

III) Financial assets 

Investments in: 

a) Subsidiaries 197 197 

b) Jointly controlled subsidiaries 3,000,888 3,150,840 

c) Associated companies 30,390 43,595 

d) Other companies 135,940 176,546 

Financial receivables: 

a.2) Subsidiaries due beyond 1 year 14,662 14,662 

b.2) Associated companies due beyond 1 year 5 22 

c.1) Other companies due within 1 year 2,222 1,068 

c.2) Other companies due beyond 1 year 55,159 65,509 

Other securities 79,000 7,462 

Treasury shares 315,334 315,334 

Total financial assets 3,633,797 3,775,235 

Total fixed assets 6,187,584 6,774,512 



Assets (continued) 


12.31.2002 12.31.2001 

C) Current assets 

I) Inventories 

Raw materials, auxiliaries and consumables 223,703 247,662 

Work in process and semifinished products 145,274 160,488 

Contract work in progress 58,304 83,792 

Finished products and goods for resale 465,192 524,826 

Advances 13,865 8,758 

Total inventories 906,338 1,025,526 

II) Receivables 

Trade 1,248,155 1,653,795 

Subsidiaries 1,728 287 

Associated companies 1,133 1,628 

Parent companies 565 97,094 

Other receivables 482,169 1,107,826 

Total receivables 1,733,750 2,860,630 

III) Current financial assets 

Other securities 189,925 552,952 

Total current financial assets 189,925 552,952 

IV) Cash and banks 

Bank and postal deposits 324,234 427,309 

Checks 2,027 7,267 

Cash on hand 2,454 7,485 

Total cash and banks 328,715 442,061 

Total current assets 3,158,728 4,881,169 

D) Accrued income and prepaid expenses 

Accrued income 41,876 35,150 

Prepaid expenses 41,246 36,041 

Total accrued income and prepaid expenses 83,122 71,191 

Total assets 9,429,434 11,726,872 



Liabilities and shareholders’ equity 


12.31.2002 12.31.2001 

A) Shareholders’ equity 

- Parent company interest 4,394,054 5,461,812 

I) Share capital 1,043,604 1,043,094 

II) Share premium reserve 311,958 313,808 

III) Revaluation reserve 2,855 2,855 

IV) Legal reserve 208,619 207,052 

V) Reserve for treasury shares in portfolio 315,334 315,334 

VII) Other reserves 228,809 1,926,993 

VIII) Retained earnings 2,896,918 1,570,377 

IX) Net income (loss) (614,043) 82,299 

- Minority interest 181,673 198,163 

a) Capital and reserves 177,923 194,181 

b) Net income 3,750 3,982 

Total shareholders’ equity 4,575,727 5,659,975 

B) Provisions for liabilities and expenses 

Pensions and similar obligations 205,232 237,806 

Income taxes 181,424 197,264 

Other 307,648 376,334 

Total provisions for liabilities and expenses 694,304 811,404 

C) Provision for employees’ leaving indemnity 143,640 96,616 

D) Payables 

Bonds 1,000,004 500,004 

Bank borrowings 938,818 1,787,153 

Other financial companies 116,913 114,210 

Advances from customers 84,484 128,962 

Trade 1,054,892 1,224,004 

Subsidiaries 2 - 

Associated companies 21,312 3,165 

Parent companies 2,488 206,439 

Taxes 148,484 495,492 

Social security agencies 52,913 47,523 

Other payables 335,315 395,557 

Total payables 3,755,625 4,902,509 

E) Accrued liabilities and deferred income 

Accrued liabilities 239,465 226,690 

Deferred income 20,673 29,678 

Total accrued liabilities and deferred income 260,138 256,368 

Total liabilities and shareholders’ equity 9,429,434 11,726,872 



Memorandum accounts 


12.31.2002 12.31.2001 

Personal guarantees 

- Sureties on behalf of other companies 45,165 8,648 

- Credit guarantees on behalf of other companies 10,656 34,969 

55,821 43,617 

Thir party assets held in deposit 

- Securities held in deposit 163,608 167,072 

- Third-party goods held in deposit 7,625 2,339 

171,233 169,411 

Assets held by third parties 

- Securities held as guarantees and sureties 16,892 40,867 

- Shares held in deposit 1,689,809 2,353,169 

- Goods held by third parties 9,103 10,757 

1,715,804 2,404,793 

Commitments and contingencies 

- Capital expenditures 45,581 57,635 

- Nominal value of put options given to third parties 2,151,517 2,165,102 

- Sale of tax receivables 102,052 – 

2,299,150 2,222,737 

Other memorandum accounts 

- Potential losses for risk of default on discounted bills 31,500 67,188 

- Forward securities purchase 200,000 200,000 

231,500 267,188 

Total 4,473,508 5,107,746 



Consolidated statements of income 



A) Production value 

Revenues from sales and services 6,311,476 7,509,220 

Changes in inventories of work in process, semifinished and finished products (13,707) (99,559) 

Changes in contract work in progress (14,042) (37,988) 

Increase in property, plant and equipment 11,194 16,313 

Other revenues and income: 

a) Miscellaneous 98,610 193,770 

b) Government grants 5,188 7,516 

Total production value 6,398,719 7,589,272 

B) Production costs 

Raw materials, auxiliaries, consumables and goods for resale (3,117,734) (3,822,787) 

Service expenses (1,074,485) (1,181,035) 

Lease and rent expenses (70,209) (80,077) 

Personnel costs (1,352,431) (1,501,738) 

Amortization, depreciation and writedowns: 

a) Amortization of intangible assets (50,506) (46,571) 

b) Depreciation of property, plant and equipment (311,954) (324,062) 

d) Writedowns of receivables included in current assets and cash and banks (37,651) (77,174) 

Changes in inventories of raw materials, auxiliaries, consumables and goods for resale (1,493) (6,511) 

Other accruals (19,598) (30,521) 

Other operating expenses (245,268) (223,881) 

Total production costs (6,281,329) (7,294,357) 

Difference between production value and production costs 117,390 294,915 

C) Financial income and expenses 

Investments income 15,457 7,754 

Other financial income: 

a) from receivables included in fixed assets 250 196 

c) from securities included in current assets 12,487 3,073 

d) income other than the above 501,721 445,852 

Interest and other financial expenses (703,228) (478,195) 

Total financial income and expenses (173,313) (21,320) 

D) Valuation adjustments to financial assets 

Revaluations – 43 

Writedowns (230,147) (33,396) 

Total valuation adjustments (230,147) (33,353) 

E) Extraordinary items 

Extraordinary income 46,519 230,025 

Extraordinary expenses (309,182) (246,388) 

Total (loss) extraordinary items (262,663) (16,363) 

Income (loss) before income taxes (548,733) 223,879 

Income taxes (61,560) (137,598) 

Net income (loss) (610,293) 86,281 

Parent company interest (614,043) 82,299 

Minority interest 3,750 3,982 



Notes to consolidated financial statements 

at December 31, 2002 

Form and content 

The consolidated financial statements for the year ended December 31, 2002 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 

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 excluded from the scope of 

consolidation. 

A list of the investments included in the scope of consolidation is provided in the supplementary information which is 

considered an integral part of these notes. 

All amounts are expressed in thousands of Euros, unless otherwise indicated. 

The audit report on the consolidated financial statements has been issued by PricewaterhouseCoopers S.p.A. pursuant to 

art. 159 of Legislative Decree No. 58 of February 24, 1998 and takes into account the CONSOB recommendation of February 

20, 1997, in execution of the resolution passed by the shareholders on May 9, 2002 which appointed the audit firm for the 

three-year period 2002-2004. The agreed audit fee is Euros 140 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 2002 has amounted to approximately Euros 2,916 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, 2002 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 comply with 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 year-end rates. 

The differences arising from the translation of opening shareholders' equity at year-end exchange rates have been recorded 

in translation adjustments in shareholders’ equity. 

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 using 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 interests are shown separately; 

– the carrying value of investments in consolidated companies has been eliminated against the related underlying net 

equity; 

– receivables, payables, revenues and costs related to transactions between consolidated companies, including dividends 

paid within the Group, have been eliminated; 



– the gains and losses arising from transactions between consolidated companies, if not yet realized through transactions 

with third parties, have been eliminated. 

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 are shown as a deduction from fixed assets, except those of definite amount; any additional negative 

difference is 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 “difference on consolidation”. 

The reconciliation between the net results and shareholders' equity of Pirelli S.p.A. at December 31, 2002 and the 

corresponding consolidated figures is presented in the supplementary information. 

Summary of significant accounting policies 

The accounting policies adopted are those set forth by the provisions of art. 2426 of the Italian Civil Code, referred to and 

supplemented 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. Unless otherwise indicated, the 

accounting principles applied in the valuation of the components of the consolidated financial statements are in compliance 

with those adopted in the financial statements of the parent company. 

• Intangible assets 

“Formation costs” relate to the capital increase costs of consolidated companies and are amortized over a period of five 

years. 

“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. 

“Difference on consolidation”, relating to the acquisition of investments, is amortized over a period 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 between three and five years; 

– leasehold improvements, amortized over the period of the lease and, in any case, not exceeding five years; 

– image awareness costs benefiting future periods, amortized over the duration of the contract and, in any case, not 

exceeding five years; 

– loan acquisition costs, amortized over a period not exceeding the duration of the loan and, in any case, not exceeding 

five years. 

• Property, plant and equipment 

Property, plant and equipment are stated at purchase or production cost including directly attributable incidental 

expenses and eventually increased by revaluations effected in accordance with specific laws. 



Depreciation is calculated starting from the month when 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: 

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 the net recoverable amount is permanently impaired 

and lower than the net book value, in accordance with article 2426, point 3 of the Italian Civil Code. 

Ordinary maintenance and repair 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 contra-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. 

• Financial assets 

– Investments 

Equity investments in unconsolidated subsidiaries and other companies are valued at cost, reduced for any permanent 

impairment in value; the original amount is reinstated whenever the reasons for the adjustment no longer apply. 

Equity investments in jointly controlled subsidiaries are valued using the equity method. 

Equity investments in associated companies are valued using the equity method, in accordance with article 2359 of the 

Italian Civil Code. 

– Other securities 

Other securities are stated at cost, reduced for any permanent impairment in value. 

– Treasury shares 

Treasury shares are valued at purchase cost using the LIFO method and adjusted for any permanent impairment in 

value. An undistributable reserve for the same amount is recorded in shareholders' equity. 

• Current assets 

– 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. 

The cost of strategic inventories of metals (copper, aluminum, etc.) is determined using the LIFO method. 



– 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; the effects of hedging contracts are recorded in accrued income and accrued 

liabilities; related exchange gains or losses are recorded in the statement of income. 

– Other securities 

Other securities are stated at the lower of cost and fair value. 

– Cash and banks 

Cash and banks are stated at nominal value. 

– Accruals and prepayments 

Accruals and prepayments are recorded on the accrual basis. 

• Provisions for liabilities and expenses 

– 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 accounting method is based on the allocation of the entire cost at maturity over the service lives of the employees 

based on entitlement earned, using actuarial methods. 

– Provision for income taxes 

The provision includes deferred tax liabilities and tax losses that are certain or likely to be incurred but uncertain as 

to the amount or the date on which they will arise; definite and certain income taxes payable are recorded in a 

specific account in the balance sheet. 

– Other provisions 

Other provisions include liabilities that are certain or 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. 

• Financial instruments 

Forward contracts and derivative financial instruments 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. 

• Research & development and advertising costs 

"Research & development and advertising costs" are charged to the statement of income in the year incurred. 

• Dividends 

Dividends are recorded on a cash basis, gross of tax credits. 

• Income taxes 

Current income tax liabilities are determined on the basis of a realistic estimate of the tax expense payable under the 

current tax laws of the country; the related liability is shown in taxes payable net of advance payments, withholdings and 

tax credits. 

Deferred taxes are calculated on the temporary 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 accounted for only where is a reasonable certainty of recovery and these are recorded in 

Other receivables. 



CONSOLIDATED BALANCE SHEETS 

Assets 

B) Fixed assets 

I) Intangible assets 

Intangible assets can be analyzed as follows: 


12/31/2001 Translations Increase Decrease Amor- 12/31/2002 

adjustment 

tization 

• Formation costs 3,557 (2) 1,018 - (1,922) 2,651 

• Patents and design patent rights 4,048 9 1,367 - (2,492) 2,932 

• Concessions, licenses, trademarks and similar lights 8,076 (266) 2,367 (477) (2,834) 6,866 

• Goodwill 11,840 (606) - (720) (1,695) 8,819 

• Difference on consolidation 64,226 - 45 - (4,446) 59,825 

• Other 86,282 (5,545) 36,815 - (37,116) 80,436 

178,029 (6,410) 41,612 (1,197) (50,505) 161,529 

The increase in “formation costs” is due to the registration tax capitalized by Pirelli Tyre Holding N.V. – Amsterdam – as a 

consequence of the increase in share capital subscribed to by Pirelli S.p.A.. 

The increase in “patents and design patent rights” is mainly due to costs incurred by Pirelli Cavi e Sistemi S.p.A. 

(a company merged in Pirelli S.p.A.) to file industrial patents. 

“Concessions, licenses, trademarks and similar rights” mainly include the costs incurred to extend the number of 

software user rights for Pirelli S.p.A.’s new integrated information system (SAP/ORACLE). 

The major items included in “other” relate to software applications costs, expenses for the development of a new 

commercial and financial reporting system, expenses for the Tyre Sector’s CCM project, expenses for the implementation of 

e-business solutions, loan acquisition costs and leasehold improvements. 



II) Property, plant and equipment 

The movements in property, plant and equipment during the year are as follows: 


12/31/2002 12/31/2001 

Gross value 

• Opening balances 6,394,890 6,238,375 

• Translation adjustment (714,050) (269,905) 

• Additions 324,963 642,651 

• Disposals (270,834) (216,231) 

5,734,969 6,394,890 

Accumulated depreciation 

• Opening balances 3,573,642 3,635,206 

• Translation adjustment (390,047) (224,702) 

• Depreciation charge 311,954 324,062 

• Disposals (152,838) (160,924) 

3,342,711 3,573,642 

Net book value 2,392,258 2,821,248 

The net increase from the prior year is due to the combination of the following: 

– translation adjustments, in reference to property, plant and equipment included in the financial statements of foreign 

companies; 

– additions, which are lower than the prior year, equal to 1.04 times depreciation; 

– disposals, mainly in reference to plants as a consequence of production rationalization. 

Gross values include about Euros 21,147 thousand of assets which are no longer in use and are being held for transfer to 

other Group companies or disposal to third parties. 

III) Financial assets 

“Investments in subsidiaries” amount to Euros 197 thousand and refer to the investment in AFCAB Holdings 

(Proprietary) Ltd (50 percent). 

“Investments in jointly controlled subsidiaries” amount to Euros 3,000,888 thousand and refer to the investment in 

Olimpia S.p.A. (60 percent) which has been accounted for using the equity method. This amount includes goodwill that will 

be amortized over 20 years (Euros 47,030 thousand). 

“Investments in associated companies” amount to Euros 30,390 thousand and decreased from Euros 43,595 thousand at 

the end of the prior year. The reduction is mainly due to the sale of the 25.3 percent investment in EPIClink S.p.A. to 

Telecom Italia S.p.A.. 

The most important investments in associated companies relate to the following: 


• Power Cables Malaysia Sdn Bhd (Malaysia) 9,243 

• Drahtcord Saar GmbH & Co. K.G. (Germany) 5,403 

• Rodco Ltd (United Kingdom) 4,131 

• Kabeltrommel GmbH & Co K.G. (Germany) 2,810 

• STIP Tunisi (Tunisia) 2,410 

• SMP Melfi S.r.l. (Italy) 1,807 

• Auto Cable Tunisie (Tunisia) 1,796 

• K.M.P. Cabos Especiais e Sistemas Ltda (Brazil) 1,353 

• Industriekraftwerk (Germany) 521 

• Euros Drive Car S.L. (Spain) 129 

• Other minor investments 787 

30.390 



“Investments in other companies” amount to Euros 135,940 thousand and include Euros 66,130 thousand of shares 

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 Telecom S.p.A.. Such investments consist of shares held in Mediobanca, Impregilo, Società Metallurgica Italiana, 

Generale Industrie Metallurgiche, Banca Intesa, Caltagirone Editore and e.Biscom. 

The change from the prior year is mainly attributable to the writedown of the investment in e.Biscom S.p.A. by Euros 34,666 

thousand, the writedown of the investment in Caltagirone Editore S.p.A. by Euros 24,079 thousand and the subscription to 

the share capital increase by F.C. Internazionale Milano S.p.A. for Euros 40,890 thousand, which was offset by the 

writedown of the same investment for Euros 18,437 thousand. 

“Financial receivables from other companies”, due beyond one year, amount to Euros 55,159 thousand, and include: 

– Euros 4,502 thousand of interest-bearing fixed rate loans; the carrying value approximates fair value at the end of the year; 

– Euros 26,639 thousand of interest-bearing fixed rate obligatory deposits; 

– Euros 8,505 thousand of interest-bearing variable rate loans; 

– Euros 2,307 thousand of non-interest bearing security deposits; 

– Euros 13,206 thousand of non-interest bearing loans. 

Receivables due beyond five years total Euros 26,859 thousand. 

“Other securities” total Euros 79,000 thousand compared to Euros 7,462 thousand at December 31, 2001. The change is 

mainly due to the reclassification from current financial assets of Convertible Bond Asset Swaps on Olivetti S.p.A. 2010 

convertible bonds and Share Swap Transactions on Olivetti S.p.A. shares / Olivetti S.p.A. 2010 convertible bonds held by the 

subsidiary Pirelli Finance (Luxembourg) S.A.. The strategic value of the Olivetti S.p.A. securities was taken into 

consideration in making this reclassification. The effect of adjusting these securities to market value, had they remained in 

current financial assets, would have been a writedown of about Euros 69 million. 

“Treasury shares” amount to Euros 315,334 thousand, unchanged compared to the prior year. They relate to 163,263,699 

ordinary shares, equal to 8.13 percent of share capital (8.51 percent of ordinary shares) for a weighted average carrying 

price of Euros 1.93 per share. 

46,154,000 of such shares are earmarked for the exercise of subscription rights on Pirelli S.p.A. warrants relating to the 

IntesaBci Mediocredito S.p.A. (former Mediocredito Lombardo S.p.A.) bonds linked to the loan received of Euros 149,646 

thousand. Such rights can be exercised in July 2003 at a price of Euros 3.24 per share. 

A comparison of the treasury shares with the average market prices shows a lower value of Euros 153.2 million. 

The valuation at cost, which approximates the net equity per share, has been maintained in the financial statements as there 

is no permanent impairment in value. 



C) Current assets 

I) Inventories 

Inventories amount to Euros 906,338 thousand, compared to Euros 1,025,526 thousand in the prior year, and may be 



12/31/2002 12/31/2001 

• Energy Cables and Systems Sector 385,211 441,529 

• Telecommunications Cables and Systems Sector 91,144 128,240 

• Tyres Sector 429,983 455,756 

• Other – 1 

Total 906,338 1,025,526 

II) Receivables 

Receivables, which decreased from Euros 2,860,630 thousand in the prior year to Euros 1,733,750 thousand at the end of 

2002, can be analyzed as follows: 

12/31/2002 12/31/2001 


Financial Trade and other Financial Trade and other 

• Trade – 1,248,155 – 1,653,795 

• Subsidiaries – 1,728 – 287 

• Associated companies – 1,133 1,298 330 

• Parent companies 48 517 96,935 159 

• Other receivables 25,069 457,100 340,563 767,263 

25,117 1,708,633 438,796 2,421,834 

Specifically: 

– Trade receivables 

Trade receivables from customers by due date are detailed as follows: 


12/31/2002 12/31/2001 

• Due within 1 year 1,393,681 1,80,271 

• Due beyond 1 year 540 6,471 

• Allowance for doubtful receivables (146,066) (159,947) 

1,248,155 1,653,795 

No receivables are due beyond five years. 

The carrying value of receivables, adjusted for probable future losses, approximates estimated fair value at year end. 



– Other receivables 

Financial receivables amount to Euros 25,069 thousand and mainly consist of receivables from third-party companies. The 

reduction from the prior year was mainly due to the repayment of loans receivable from companies in the Pirelli & C. A.p.A. 

Group. 

“Other receivables - Trade and other”, which amount to Euros 457,100 thousand, include the balance of deferred tax assets 

of Euros 83,109 thousand; amounts due from the tax authorities of Euros 157,061 thousand; receivables from sales of fixed 

assets of Euros 1,542 thousand; receivables from employees of Euros 9,223 thousand and receivables from social security 

agencies, export refunds and other minor amounts of Euros 206,165 thousand. Part of the reduction from December 31, 

2001 is due to the sale of tax receivables to Unicreditfactoring S.p.A. and Mediofactoring S.p.A.. for Euros 112,815 thousand. 

The amount due beyond one year and within five years is Euros 86,895 thousand, while receivables due beyond five years 

amount to Euros 85,475 thousand. 

III) Current financial assets 

“Other securities” amount to Euros 189,925 thousand and include the following: 

– Euros 60,838 thousand of fixed rate bonds issued and guaranteed by banking institutions; 

– Euros 66,953 thousand of variable rate bonds issued and guaranteed by banking institutions; 

– Euros 5,525 thousand of fixed rate bonds issued and guaranteed by governments of various countries; 

– Euros 3,183 thousand of variable rate bonds issued and guaranteed by governments of various countries; 

– Euros 5,189 thousand of bonds issued and guaranteed by primary issuers; 

– Euros 33,589 thousand of equity securities intended for sale; 

– Euros 14,648 thousand of premiums paid on call options on Olivetti S.p.A. ordinary shares or Olivetti S.p.A. 2001-2010 

convertible bonds. 

The securities are held in safe-keeping at leading banking institutions. 

IV) Cash and banks 

“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”, calculated on the accrual basis, went from Euros 35,150 thousand to Euros 41,876 thousand. Accrued 

income mainly relates to hedging revenues, interest income, insurance and other minor items. 

“Prepaid expenses” increased from Euros 36,041 thousand at December 31, 2001 to Euros 41,246 thousand at December 

31, 2002. Prepaid expenses mainly relate to prepaid insurance and building rent. 



LIABILITIES AND SHAREHOLDERS’ EQUITY 

A) Shareholders’ equity 

Parent company interest 

“Share capital” amounts to Euros 1,043,604 thousand at December 31, 2002 and consists of 1,918,925,561 ordinary shares 

and 88,006,016 savings shares, all with a par value of Euros 0.52 per share and normal dividend rights. 

During the year, 980,888 ordinary shares were issued at par value which, as voted by the Boards of Directors’ Meetings on 

March 20, 2000 and November 7, 2000, were assigned to the managers and cadres of the Company and its subsidiaries, as 

well as the parent companies and other subsidiaries of the latter, in Italy and abroad. 

The “share premium reserve”, equal to Euros 311,958 thousand, decreased by Euros 1,850 thousand due to the 

replenishment of the contribution reserve ex Law 904/77, according to and as set forth in art. 22, paragraph 8 of Law 85/95, 

following the merger by incorporation of Pirelli Cavi e Sistemi S.p.A. in Pirelli S.p.A.. 

The “revaluation reserve” which includes the reserve ex law No. 413/1991 of Euros 1,883 thousand and the reserve ex law 

No. 72/1983 of Euros 972 thousand, has remained unchanged compared to December 31, 2001. 

The statement of changes in shareholders’ equity is presented in the supplementary information. 

Minority interest 

The minority interest in shareholders' equity amounts to Euros 181,673 thousand, compared to Euros 198,163 thousand at 

the end of the prior year. The change derives from the balance of the results for the year 2002, the payment of dividends 

and the translation adjustment from the conversion of foreign currency financial statements to Euros. 

The main percentage of investments held by the minority interest is as follows: 

12/31/2002 12/31/2001 

Celikord A.S. (Turkey) 49.00% 49.00% 

Sicable S.A. (Ivory Coast) 49.00% 49.00% 

P & A.K.K. (Japan) 32.85% 49.00% 

Tianjin Top Power Cables Co. Ltd (China) 33.00% 48.86% 

Turk Pirelli Lastikleri A.S. (Turkey) 36.94% 36.94% 

BICCGeneral Baosheng Cable Co. Ltd (China) 33.00% 33.00% 

Pirelli Telecom Cables Co. Ltd Wuxi (China) 28.16% 30.90% 

Alexandria Tire Co. S.A.E. (Egypt) 13.19% 17.27% 

Turk Pirelli Kablo ve Sistemleri A.S. (Turkey) 16.25% 16.25% 

Solac Soc. Laminadora Ltda (Brazil) 11.00% 11.00% 

Pirelli Submarine Telecom Systems Holding B.V. (The Netherlands) 10.00% 10.00% 

Pirelli de Venezuela C.A. (Venezuela) 3.78% 3.78% 

Pir. Telecomunicaçoes Cabos e Sistemas S.A. (Brazil) 0.59% 0.67% 

Pirelli Energia Cabos e Sistemas S.A. (Brazil) 0.59% 0.67% 

Pirelli Pneus S.A. (Brazil) 0.31% 0.44% 



B) Provisions for liabilities and expenses 

“Provisions for pensions and similar obligations” 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. 

In those companies operating in the U.S.A. and the United Kingdom where the defined benefit pension schemes are in place, 

the comparison between the liability for future obligations towards those entitled to benefits and the value of assets 

invested by the plans shows, at December 31, 2002, a deficit valued at about Euros 150 million, which will be amortized 

over the remaining service period of the participants in the plan in accordance with suitable actuarial methods. The deficit 

arose in the last part of the year as a result of the continuous deterioration of the financial markets with the consequent 

reduction in the value of plan assets. 

The “provisions for income taxes” include accruals relating to income taxes likely to be incurred but uncertain as to the 

amount or the date on which they will arise, as well as deferred taxation, as follows: 


12/31/2002 12/31/2001 

• Provision for current taxes 37,264 25,593 

• Provision for deferred taxes 144,160 171,671 

181,424 197,264 

The tax charge for the year is composed of the following: 


12/31/2002 12/31/2001 

• Current taxes 57,721 120,594 

• Deferred taxes 3,839 17,004 

61,560 137,598 

The lower current and deferred tax expense compared to the prior year is mainly due to the reduction in results reported by 

companies, especially by the Energy and Telecom Cables and Systems Sectors. 

The Group companies which show tax liabilities generally display tax rates in line with the nominal rates applicable in the 

countries in which they operate. 

The tax rates in the principal countries in which the Group operates are as follows: 

Europe: 

Rest of the World: 

Italy 40.25% U.S.A. 40.00% 

France 35.43% Canada 33.00% 

Spain 35.00% Argentina 35.00% 

Germany 38.00% Brazil 34.00% 

United Kingdom 30.00% Venezuela 34.00% 

Turkey 33.00% Australia 30.00% 



Other provisions 

The movements during the year in “Other provisions” are as follows: 


Restructuring costs Other Total 

Balance at December 31, 2001 200,225 176,109 376,334 

• Translation adjustment (4,621) (6,692) (11,313) 

• Utilization (294,642) (96,152) (390,794) 

• Increase 275,189 58,232 333,421 

Balance at December 31, 2002 176,151 131,497 307,648 

Utilizations of the provision for restructuring costs were in respect of the Energy Cables and Systems Sector for Euros 

133,392 thousand, Telecommunications Cables and Systems Sector for Euros 98,201 thousand and the Tyres Sector for Euros 

31,523 thousand. The balance of the provision relates to the Energy Cables and Systems Sector for Euros 104,557 thousand, 

Telecommunications Cables and Systems Sector for Euros 42,048 thousand and the Tyres Sector for Euros 7,571 thousand. 

The increase in the provision for restructuring costs mainly relates to the reorganization plan for the industrial structures. 

The total of other provisions of Euros 131,497 thousand includes accruals for litigation, industrial risks and claims, product 

warranties, and other contingencies. 

D) Payables 

Payables amount to Euros 3,755,625 thousand, compared to Euros 4,902,509 thousand in the prior year, and may be analyzed 

as follows: 

12/31/2002 12/31/2001 


Financial Trade and other Financial Trade and other 

• Bonds 1,000,004 - 500,004 - 

• Bank borrowings 938,818 - 1,787,153 - 

• Other financial companies 116,913 - 114,210 - 

• Advances from customers - 84,484 - 128,962 

• Trade - 1,054,892 - 1,224,004 

• Subsidiaries - 2 - - 

• Associated companies 752 20,560 71 3,094 

• Parent companies 1,323 1,165 205,966 473 

• Taxes - 148,484 - 495,492 

• Social security agencies - 52,913 - 47,523 

• Other payables - 335,315 - 395,557 

2,057,810 1,697,815 2,607,404 2,295,105 



The analysis of payables by due date is as follows: 

• Financial payables 


12/31/2002 12/31/2001 

within 1 year beyond 1 year within 1 year beyond 1 year 

• Bonds 4 1,000,000 4 500,000 

• Bank borrowings 531,846 406,972 975,560 811,593 

• Other financial companies 58,280 58,633 55,102 59,108 

• Associated companies 752 - 71 - 

• Parent companies 1,323 - 205,966 - 

592,205 1,465,605 1,236,703 1,370,701 

Financial payables are secured by liens and mortgages of Euros 40,098 thousand. 

Financial payables due beyond five years amount to Euros 1,097,445 thousand. 

Additional disclosure is provided as follows: 

– Bonds 

These refer to Pirelli S.p.A. 1998-2008 bonds of Euros 500 million, issued on October 21, 1998, paying interest at 4.875 

percent and repayable in a one-off payment on October 21, 2008. They also includes bonds of Euros 500,000 million issued 

in 2002 by the subsidiary Pirelli Finance (Luxembourg) S.A. maturing April 4, 2007 and paying interest at a fixed rate of 6.5 

percent. 

– Bank borrowings 

Bank borrowings due within one year amount to Euros 531,846 thousand and include the current portion of long-term debt 

of Euros 40,896 thousand. 

Bank borrowings due beyond one year amount to Euros 406,972 thousand and include of floating rate loans of Euros 

250,241 thousand and fixed rate loans of Euros 156,731 thousand. 

– Payables to other financial companies 

The amount due beyond one year includes an amount of Euros 31,901 thousand payable after five years. 

– Payables to parent companies 

These relate to the current balances between Pirelli Servizi Finanziari S.p.A. and Pirelli & C. A.p.A.. 

• Trade and other payables 


12/31/2002 12/31/2001 

within 1 year beyond 1 year within 1 year beyond 1 year 

• Advances from customers 82,493 1,991 128,962 - 

• Trade 1,054,892 - 1,224,004 - 

• Subsidiaries 2 - - - 

• Associated companies 20,560 - 3,094 - 

• Parent companies 1,165 - 473 - 

• Taxes 107,095 41,389 423,279 72,213 

• Social security agencies 52,913 - 47,523 - 

• Other payables 299,275 36,040 362,075 33,482 

1,618,395 79,420 2,189,410 105,695 



– Payables to associated companies 

As for trade payables, the most significant amounts refer to Société Tunisienne des Industries De Pnéumatiques S.A. (Euros 

16,023 thousand) and Drahtcord Saar GmbH & Co. K.G. (Euros 2,399 thousand). 

– Payables to parent companies 

These relate to amounts payable by Pirelli S.p.A. to Pirelli & C. A.p.A. for corporate secretarial services and internal 

auditing. 

– Taxes payable 

The reduction in taxes payable is principally due to the final payment of income taxes on the sale of Optical Technologies to 

Corning, accrued in prior years. 

– Other payable 

These amount to Euros 335,315 thousand and mainly include payables to employees of Euros 77,543 thousand, security 

deposits from customers for packaging of Euros 9,258 thousand, legal and consulting fees of Euros 7,180 thousand, 

purchases of fixed assets of Euros 27,658 thousand and notes payable of Euros 54,047 thousand. 

E) Accrued liabilities and deferred income 

“Accrued liabilities” increased from Euros 226,690 thousand at December 31, 2001 to Euros 239,465 thousand. 

They include the portion of exchange differences on hedging transactions, property leases payable, hedging costs and other 

minor items. 

“Deferred income” decreased from Euros 29,678 thousand to Euros 20,673 thousand. They include installment payments 

received in advance. 



MEMORANDUM ACCOUNTS 

Memorandum accounts amount to Euros 4,473,508 thousand compared to Euros 5,107,746 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 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 also sureties given by Pirelli S.p.A. against commitments and contractual obligations. 

Commitments and contingencies 

– Nominal value of put options given to third parties 

The amount represents the nominal value of the options given to IntesaBci S.p.A. (Euros 520,000 thousand) and Unicredito 

Italiano S.p.A. (Euros 520,000 thousand) (hereinafter, the “Banks”) and to Edizione Holding S.p.A. (Euros 1,040,000 

thousand) in respect of their investments in Olimpia S.p.A., under the Olimpia S.p.A. shareholder agreements. 

The put options granted to the Banks can be exercised from September 2006 or, before that date, in the case of a deadlock 

among the shareholders or in the case of the withdrawal of Pirelli S.p.A. from the shareholders agreements, at a price equal 

to the value of the economic capital of Olimpia S.p.A., plus a premium (the “Price”). This Price shall be determined by the 

parties and shall not be less than the outlays made by the banks (Floor) nor higher than such sum, less any dividends 

received, increased by an annual IRR, before income taxes, equal to 15 percent (Cap). 

The put options granted to Edizione Holding S.p.A. can be exercised in the case of a (I) deadlock situation among the 

shareholders, (II) withdrawal on the part of Pirelli S.p.A. from the shareholder agreements and (III) the occurrence of a 

substantial change in the controlling structure of Pirelli S.p.A. (including for these purposes Pirelli & C. Accomandita per 

Azioni), by which is meant the exercise by parties other than those currently holding the determining power to nominate the 

majority of the components of the management board, with a consequent potential modification of the strategic guidelines. 

The exercise price of the put options granted to Edizione Holding S.p.A. is equal to, respectively, (I) the Price indicated above, 

(II) the Price increased by an additional 50 percent and (III) the Price increased by an amount equal to 200 percent of the 

Price. In this case, however, there is no expectation of a Floor or Cap as in the aforementioned agreements with the Banks. 

This item also includes the nominal value of the option given to Cisco Systems on the Pirelli Submarine Telecom Systems 

Holding B.V. shares which it holds. This amount (U.S. $75 million) is already shown in the financial statements under the 

minority interest in shareholders’ equity. 

Other memorandum accounts 

– Forward securities purchase 

This refers to the forward purchase (expiration date of November 23, 2006) of 200,000,000 Olivetti 2001-2010 convertible 

bonds effected with Credit Agricole Lazard Financial Products Bank as described in the Directors’ Report on operations. 



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 derivative financial instruments to protect its operating results 

from unfavorable fluctuations of exchange and interest rates and the prices of raw materials. The Group policy is to use 

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. 

The following table gives the position of derivative financial instruments in the major currencies: 

Exchange rate risk 


Gross notional amounts Fair Maturing Maturing 

(at year-end exchange rates) value within one year beyond one year 

• Forward contracts 2,430 2,388 2,380 8 

• Swaps contracts 576 694 - 694 

• Futures contracts 225 - - - 

Interest rate risk 

• Forward rate agreement - 1 1 - 

• Interest rate swaps - 43 43 - 

Raw materials price risk 

• Futures contracts 1 1 1 - 

The fair value of derivative 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 geographical area of destination and industry sector are reported in the following table. 



Europe 

• Italy 1,132,272 17.94% 1,181,268 15.73% 

• Other European countries 2,759,848 43.73% 3,377,174 44.97% 

North America 731,366 11.59% 1,017,876 13.56% 

Central and South America 778,441 12.33% 904,938 12.05% 

Oceania, Africa and Asia 909,549 14.41% 1,027,964 13.69% 

Sector 

6,311,476 100.00% 7,509,220 100.00% 

Energy Cables and Systems Sector 3,021,391 47.86% 3,457,938 46.05% 

Telecommunications Cables and Systems 468,151 7.42% 1,230,000 16.38% 

Tyres 2,857,000 45.27% 2,831,171 37.70% 

Other 114,638 1.82% 109,545 1.46% 

Inter-elimination (149,704) (2.37%) (119,434) (1.59%) 

6,311,476 100.00% 7,509,220 100.00% 

The distribution of sales by destination and by major product category is commented 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. Last year, the caption included the supply agreement with 

Cisco Systems (Euros 59 million). 

B) Production costs 

• Service expenses 



• Selling expenses 345,868 385,578 

• Ordinary maintenance costs 71,840 81,265 

• Outside processing costs 35,132 35,678 

• Electrical power costs 166,400 162,320 

• EDP expenses 41,924 44,605 

• Insurance costs 45,600 41,576 

• Advertising costs 117,867 126,655 

• Consulting fees 38,861 46,107 

• Employee loan costs 22,259 23,585 

• Technical assistance and other minor expenses 188,734 233,666 

1,074,485 1,181,035 



• Lease and rent expenses 

Lease and rent expenses mainly consist of rent expenses of Euros 47,661 thousand, operating lease installments of Euros 

17,219 thousand and patent utilization rights of Euros 5,329 thousand. 

• Personnel costs 

Personnel costs consist of the following: 



• Salaries and wages 1,037,277 1,169,424 

• Social security costs 229,052 249,276 

• Leaving idemnity 41,559 38,308 

• Pension and similar costs 26,187 21,898 

• Other costs 18,356 22,832 

1,352,431 1,501,738 

• Depreciation of property, plant and equipment 

The depreciation charge for property, plant and equipment can be analyzed as follows: 



• Buildings 31,139 32,668 

• Plant and machinery 201,814 212,406 

• Commercial and industrial equipment 45,300 41,482 

• Other assets 33,701 37,506 

311,954 324,062 

• Other operating expenses 



• Administrative expenses 13,718 21,992 

• Travel expenses 57,171 68,777 

• Revenue stamps and local taxes 30,870 31,680 

• Losses on the disposal of property, plant and equipment 6,162 7,891 

• Legal fees 7,265 11,140 

• Association dues 8,273 8,177 

• Entertainment expenses 4,851 8,011 

• Other minor expenses 116,958 66,213 

245,268 223,881 



C) Financial income ad expenses 

• Investment income 



• Dividends from subsidiaries 1,388 1,117 

• Dividends from other companies 6,377 5,442 

• Other income 7,692 1,195 

15,457 7,754 

• Other financial income 

“Income other than the above” consists of the following: 



• Interest from subsidiaries - 2 

• Interest from jointly controlled companies - 75 

• Interest from associated companies 585 1,038 

• Interest from parent companies 1,422 3,157 

• Bank interest and other interest 52,233 187,932 

• Other financial income from parent companies 11 155 

• Miscellaneous financial income 55,021 35,940 

• Gains on exchange 392,449 217,553 

501,721 445,852 

Miscellaneous financial income includes revenues from forward contracts, gains on the sale of fixed rate securities, 

interest on receivables due from the tax authorities and other minor financial income. 

• Interest and other financial expenses 

These expenses include: 



• Interest to associated companies 46 46 

• Interest to parent companies 6,021 402 

• Bond interest 48,840 24,375 

• Bank interest and interest to other financial companies 123,213 134,444 

• Other financial expenses to subsidiaries - 38 

• Other financial expenses to associated companies - 102 

• Other financial expenses to parent companies 17,245 11,710 

• Miscellaneous financial expenses 108,926 80,335 

• Losses on exchange 398,937 226,743 

703,228 478,195 



Miscellaneous financial expenses include costs for forward contracts, losses on the sale of fixed rate securities, bank 

commissions and other minor financial expenses. 

Financial expenses net, excluding amounts not directly associated with receivables and payables, amount to Euros 123,880 

thousand. 

D) Valuation adjustments to financial assets 

• Writedowns 

Writedowns amount to Euros 230,147 thousand and mainly include the share of the results of Olimpia S.p.A., accounted for 

using the equity method, of Euros 149,953 thousand, the writedown of the investment in F.C. Internazionale Milano S.p.A. of 

Euros 18,437 thousand, the writedown of the investment in e.Biscom S.p.A. of Euros 34,666 thousand and the writedown of 

the investment in Caltagirone Editore S.p.A. of Euros 24,079 thousand. 

E) Extraordinary items 

• Extraordinary income 

Extraordinary income amounts to Euros 46,519 thousand compared to Euros 230,025 thousand in the prior year, and may be 




• Gains on disposals 31,574 103,643 

• Miscellaneous 14,945 126,382 

46,519 230,025 

“Gains on disposal” mainly include Euros 16,460 thousand on the sale of Bicocca degli Arcimboldi and the representative 

offices in Rome to Pirelli & C. A.p.A., Euros 7,920 thousand on the sale of a portion of the Settimo Torinese building to 

Tiglio I S.r.l., Euros 1,204 thousand on the sale of Minto – Australia and real estate gains realized in Great Britain of Euros 

3,747 thousand. 

Last year, the caption included Euros 30,285 thousand of gains on the sale of Pirelli S.p.A. treasury shares on the market 

and Euros 72,102 thousand of gains on the disposal of real estate properties by the Cables and Systems Sector. 

“Miscellaneous” principally includes the adjustment for the higher tax credit of Euros 5,108 thousand on dividends 

received by the parent company, other prior years’ taxes of Euros 2,465 thousand relating to the company Pirelli Labs and 

the remaining amount relates to insurance compensation, sundry refunds and other minor items. 

Last year, this caption primarily included an earn-out of Euros 70,497 thousand on the closing of agreements with Cisco 

Systems for the sale of the Terrestrial Optical Systems business, the price adjustment with BICC of Euros 16,626 thousand 

for the activities purchased, the gain of Euros 5,927 thousand from the pay-off of part of the share capital of Pirelli Société 

Générale S.A. – Basel and income of Euros 11,000 thousand for higher tax credits on dividends received in 2001. 



• Extraordinary expenses 

Extraordinary expenses amount to Euros 309,182 thousand, compared to Euros 246,388 thousand in the prior year. They 

may be analyzed as follows: 



• Losses on disposals 1,777 1,119 

• Miscellaneous 307,405 245,269 

309,182 246,388 

“Miscellaneous” mainly includes Euros 275 million for the restructuring costs of the industrial structure. 

Other informations 

• 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 12,588 

Statutory auditors 190 

12,778 

• Employees 

The average number of employees in companies included in consolidation, by category, is as follows: 

Senior executives 566 

Staff 9,597 

Blue-collar 24,896 

Temporary employment 2,650 

37,709 



Exchange rates 

The main exchange rates used for the translation of foreign currency financial statements in the consolidated financial 

statements are as follows: 

(local currency against euros) 

Year-end 

Average 

Change 

Change 

12/31/2002 12/31/2001 in % 2002 2001 in % 

Europe 

British pound 0.6505 0.6085 6.90% 0.6288 0.62172 1.14% 

Swiss franc 1.4524 1.4829 (2.06%) 1.4670 1.5102 (2.86%) 

Hungarian forint 236.2900 245.1800 (3.63%) 242.9587 256.5446 (5.30%) 

Slovakian koruna 41.5030 42.2610 (1.79%) 42.6933 43.2811 (1.36%) 

North America 

American dollar 1.0487 0.8813 18.99% 0.9454 0.8954 5.58% 

Canadian dollar 1.6550 1.4077 17.57% 1.4835 1.3865 7.00% 

South America 

Brazilian real 3.7054 2.0450 81.19% 2.7709 2.1062 31.56% 

Venezuelan bolivar 1,471.3261 667.1441 120.54% 1,112.7547 647.6493 71.81% 

Argentine peso 3.5341 1.4100 150.65% 3.0120 0.8954 236.39% 

Oceania 

Australian dollar 1.8556 1.7280 7.38% 1.7374 1.7320 0.31% 

Asia 

Chinese yuan RMB 8.6832 7.2942 19.04% 7.8250 7.3827 5.99% 

Singapore dollar 1.8199 1.6269 11.86% 1.6909 1.6048 5.37% 

Indonesian rupiah 9,338.6735 9,121.0000 2.39% 8,794.7906 9,165.0000 (4.04%) 

Africa 

Egyptian pound 4.8398 4.0187 20.43% 4.3581 3.6236 20.27% 

Ivory Coast franc 655.957 655.957 0.00% 655.9570 655.9570 0.00% 


The composition of the net financial position, the increase of which is commented in the introduction to the Directors’ 

Report on operations, is presented as follows: 



• Short-term financial payables 592,205 1,236,708 

• Accrued interest expenses 50,320 11,702 

• Cash and banks (328,719) (442,061) 

• Other securities (189,925) (552,952) 

• Short-term financial receivables (27,339) (439,864) 

• Accrued interest income (22,233) (7,294) 

Net short-term (liquidity)/debt 74,309 (193,761) 

• Medium/long-term financial payables 1,465,605 1,370,701 

• Medium/long-term financial receivables (69,826) (80,193) 

• Other securities (1,558) (7,462) 

Net medium/long-term debt 1,394,221 1,283,046 

Net financial position 1,468,530 1.089,285 



R & D expenditures 

In 2002, the Group incurred research and development expenditures and technical management costs for a total of Euros 

219 million, entirely charged to operating expenses, compared to Euros 237 million in the prior year. 2002 expenditures 

represent 3.5 percent of consolidated net sales (3.2 percent in 2001). 

Such costs are detailed by geographical area as follows: 

Europe 92% Oceania 1% 

North America 3% South America 4% 

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 flow 


1/1-12/31/2002 1/1-12/31/2001 

Net liquidity (debt), at beginning of year (1,089,285) 3,495,224 

Translation adjustments (5,110) (2,795) 

Operating profit 117,390 294,915 

Depreciation and amortization 362,460 370,633 

Increase in intangible assets (43,264) (90,125) 

Increase in property, plant and equipment (324,963) (642,651) 

Increase in financial assets (61,921) (3,269,807) 

Disposal of intangible assets 764 1,909 

Disposal of property, plant and equipment 35,856 31,601 

Disposal of financial assets 18,116 4,086 

Net investments (375,412) (3,964,987) 

Changes in inventories 16,510 168,448 

Changes in trade and other accounts receivable/payable 356,597 (252,649) 

Changes in working capital 373,107 (84,200) 

Changes in employee - related provisions and other provisions (35,763) (44,136) 

Other changes (22,653) 29,400 

Free cash flow 419,129 (3,398,375) 

Extraordinary items, net (262,661) (16,364) 

Financial expenses, net (173,313) (54,740) 

Income taxes, net (61,561) (137,598) 

Purchase/sale of treasury shares - 94,183 

Other changes (147,936) (816,889) 

Cash flows before dividends (226,342) (4,329,782) 

Dividends paid (149,420) (287,169) 

Net Cash Flows (375,762) (4,616,951) 

Share capital increase Pirelli S.p.A. 510 29,158 

Share capital increase minority interest 1,117 6,080 

Changes in share capital 1,627 35,238 

Changes in net financial position (*) (379,245) (4,584,509) 

Net liquidity (debt), at end of year (1,468,530) (1,089,285) 

(*) Financed by: 

Increase (decrease) in long-term loans 111,175 60,696 

Increase (decrease) in short-term loans (208,303) 580,376 

Decrease (increase) in cash and banks and cash equivalents 476,373 3,943,437 

379,245 4,584,509 



Consolidated statements of changes un shareholders’ equity 

Share Cumulative Other reserves (*) 

Share premium Legal translation retained earnings 

capital reserve reserve reserve net income (loss) Total 

Balance at December 31, 2000 1,035,261 262,160 206,430 107,451 4,144,777 5,756,079 

Profit distribution, as per resolution of May 8, 2001 

• to Legal Reserve 622 (622) - 

• dividends to shareholders (286,217) (286,217) 

• to directors (14,141) (14,141) 

January subscription of No. 355,200 ordinary shares 185 676 861 

February subscription of No. 8,689,484 ordinary shares 4,518 13,966 18,484 

March subscription of No. 4,701,006 ordinary shares 2,444 4,814 7,258 

May subscription of No. 583,900 ordinary shares 304 1,316 1,620 

June subscription of No. 121,000 ordinary shares 63 273 336 

July subscription of No. 510,730 ordinary shares 266 279 545 

August subscription of No. 102,780 ordinary shares 54 54 

Drawn from share premium reserve to reestablish reserve 

for treasury shares in portfolio 30,324 (30,324) 

Adjustment from translation of foreign currency financial statements (105,365) (105,365) 

Net income for the year 82,299 82,299 

Balance at December 31, 2001 1,043,095 313,808 207,052 2,086 3,895,772 5,461,813 

Profit distribution, as per resolution of May 9, 2002 


• to Legal Reserve 1,567 (1,567) - 

• dividends to shareholders (148,409) (148,409) 

• to directors (12,808) (12,808) 

January subscription of No. 209,310 ordinary shares 109 109 

February subscription of No. 377,188 ordinary shares 196 196 

March subscription of No. 394,390 ordinary shares 204 204 

Drawn from share premium reserve to reestablish merger 

reserve ex Law 904/77, according to and for the effects 

of art. 22, paragraph 8, of Law 85/95 (1,850) 1,850 - 

Adjustment from translation of foreign currency 

financial statements (293,008) (293,008) 

Net loss for the year (614,043) (614,043) 

Balance at December 31, 2002 1,043,604 311,958 208,619 (290,922) 3,120,795 4,394,054 

(*) The item "Other reserves" includes the Revaluation reserve, the Reserve for treasury shares in portfolio, the Merger reserve, the Reserve from contributions and the 

Consolidation reserve. 



Reconciliation of net results and shareholders’ equity of Pirelli S.p.A. 

and correponding consolidated figures of the group at December 31, 2001 


Share 

capital Reserves Net income Total 

Pirelli S.p.A. financial statements 1,043,604 3,780,537 112,098 4,936,239 

Earnings (losses) for the year of consolidated companies 

(before consolidation adjustments) (376,774) (376,774) 

Capital and reserves of consolidated companies 

(before consolidation adjustments) 2,506,613 2,506,613 

Consolidation adjustments: 

– carrying value of investments in consolidated companies (2,261,991) (2,261,991) 

– intragroup dividends 252,813 (325,073) (72,260) 

– other (313,479) (24,294) (337,773) 

Group 1,043,604 3,964,493 (614,043) 4,394,054 



List of investments 

Companies consolidated using the full consolidation method 

Percentage Percentage 

Company Business Headquarters Share Capital owner. of vote Held by 

Europe 

Austria 

Pirelli Gesellschaft mbH Tyre Vienna Euro 726,728 100.00% Lunares S.A. 

Pirelli-Oekw GmbH Energy Cables and Systems Vienna Euro 2,071,176 100.00% Pirelli Cable Holding N.V. 

Belgium 

Pirelli Tyres Belux S.A. Tyre Bruxelles Euro 700,000 100.00% Lunares S.A. 

Finlandia 

Pirelli Cables and Systems OY Energy Cables and Systems Helsinki Euro 10,000,000 100.00% Pirelli Cable Holding N.V. 

France 

Pirelli Energie Câbles et 

Eurelectric S.A. Energy Cables and Systems La Bresse Euro 4,036,500 100.00% Systèmes France S.A. 

Pirelli Moto France - PMF S.a.s. Tyre Gonesse Euro 77,000 100.00% Metzeler Reifen GMBH 

Pirelli Energie Câbles 

et Systèmes France S.A. Energy Cables and Systems Paron de Sens Euro 136,800,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Telecom Câbles Telecom Cables 

et Systèmes France S.A. and Systems Bagnolet Cedex Euro 16,295,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pneus Pirelli S.A. Tyre Puteaux Euro 3,062,400 100.00% Lunares S.A. 


Superent Bis France S.A. Energy Cables and Systems Bagnolet Cedex Euro 40,000 100.00% Systèmes France S.A. 

Germany 

Bergmann Kabel und 

Pirelli Kabel und Systeme 

Leitungen GmbH Energy Cables and Systems Schwerin Euro 1,022,600 100.00% Holding GmbH 

Deutsche Pirelli Reifen 

Holding GmbH Financial Breuberg/Odenwald Euro 7,694,943 100.00% Pirelli Tyre Holding N.V. 

ISO Industrie Spedition 

Pirelli Reifenwerke 

Odenwald GmbH Tyre Breuberg/Odenwald Euro 25,565 100.00% GmbH & Co. K.G. 

Materialverwertungsgesellschaft 

Breuberg GmbH Tyre Breuberg/Odenwald Euro 25,565 100.00% Deutsche Pirelli Reifen Holding GmbH 

Metzeler Reifen GmbH Tyre Breuberg/Odenwald Euro 16,361,340 100.00% Pirelli Deutschland A.G. 

Pirelli Deutschland A.G. Tyre Breuberg/Odenwald Euro 26,075,886 100.00% Deutsche Pirelli Reifen Holding GmbH 

Pirelli Kabel 


Grundstücksverwaltungs GmbH Energy Cables and Systems Berlin Euro 25,600 100.00% Holding GmbH 



Beteiligungs GmbH Energy Cables and Systems Berlin Euro 25,600 100.00% Holding GmbH 


Holding GmbH Energy Cables and Systems Berlin Euro 26,000 99.00% Pirelli Cable Holding N.V. 

1.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Pirelli Kabel und Systeme GmbH 

(formerly Pirelli Kabel und Systeme 


Verwaltungs GmbH) Energy Cables and Systems Berlin Euro 50,000 100.00% Beteiligungs GmbH 


Deutsche Pirelli Reifen 

Geschaeftsfuehrungs GmbH Services Breuberg/Odenwald Euro 25,565 100.00% Holding GmbH 


GmbH & Co. K.G. Tyre Breuberg/Odenwald Euro 35,790,943 100.00% Pirelli Deutschland A.G. 





Pirelli Telekom Kabel und Telecom Cables 

Systeme Deutschland GmbH and Systems Berlin Euro 25,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pneumobil GmbH Tyre Breuberg/Odenwald Euro 259,225 99.62% Pirelli Reifenwerke GmbH & Co. K.G. 

Veith Wohnungsbau GmbH Real Estate Breuberg/Odenwald Euro 127,823 100.00% Pirelli Deutschland A.G. 

Greece 

Elastika Pirelli S.A. Tyre Athens Euro 1,632,010 99.90% Lunares S.A. 

0.10% Pirelli Pneumatici Holding S.p.A. 

Pirelli Hellas S.A. (in liquid.) Tyre Athens US $ 22,050,000 79.86% Pirelli Tyre Holding N.V. 

Hungary 

Kabel Keszletertekesito BT. Energy Cables and Systems Budapest Hun. Forint/000 1,239,841 100.00% MKM Magyar Kabel Muvek Rt. 

MKM Magyar Kabel Muvek RT. Energy Cables and Systems Budapest Hun. Forint/000 6,981,070 100.00% Pirelli Cable Holding N.V. 

Pirelli Construction 

Hungary Ltd Energy Cables and Systems Budapest Hun. Forint/000 3,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Hungary Tyre Trading 

and Services Ltd Tyre Budapest Hun. Forint/000 3,000 100.00% Lunares S.A. 

Ireland 

Pirelli Reinsurance 

Company Ltd Reinsurance Dublino US $ 7,150,000 100% Pirelli Finance (Luxembourg) S.A. 

Italy 

Centro Servizi 

Amministrativi Pirelli S.r.l. Services Milan Euro 51,000 100.00% Pirelli S.p.A. 

Driver Italia S.p.A. Commercial Milan Euro 200,000 80.935% Pirelli Pneumatici S.p.A. 

Fibre Ottiche Sud - F.O.S. S.p.A. Optical fibers Battipaglia (SA) Euro 5,200,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Invex S.r.l. Energy Cables and Systems Quattordio (AL) Euro 10,000 100.00% Pirelli Cavi e Sistemi Energia Italia S.p.A. 

Telecom 

Maristel S.p.A. Cables and Systems Milan Euro 1,020,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 


Energy Cables and Systems 

Energia S.p.A. Holding Comany Milan Euro 100,000,000 98.749% Pirelli S.p.A. 

1.251% Pirelli Finance (Luxembourg) S.A. 


Energia Italia S.p.A. Energy Cables and Systems Milan Euro 110,000,000 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 



Telecom S.p.A. Holding Comany Milan Euro 70,000,000 98.749% Pirelli S.p.A. 

1.251% Pirelli Finance (Luxembourg) S.A. 


Telecom 

Telecom Italia S.p.A. Cables and Systems Milan Euro 41,000,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli Cultura S.p.A. Sundry Milan Euro 1,000,000 100.00% Pirelli S.p.A. 

Pirelli Informatica S.p.A. Information Systems Milan Euro 520,000 100.00% Pirelli S.p.A. 

Pirelli Labs S.p.A. Research and Development Milan Euro 10,000,000 100.00% Pirelli S.p.A. 

Pirelli Nastri Tecnici S.p.A. 

(in liquidation) Sundry Milan Euro 384,642 100.00% Pirelli S.p.A. 

Pirelli Pneumatici Holding S.p.A. Financial Milan Euro 121,800,000 100.00% Pirelli Tyre Holding N.V. 

Pirelli Pneumatici S.p.A. Tyre Milan Euro 252,320,000 100.00% Pirelli Pneumatici Holding S.p.A. 

Pirelli Servizi Finanziari S.p.A. Financial Milan Euro 1,976,000 100.00% Pirelli S.p.A. 





Pirelli Submarine Telecom Telecom Pirelli Submarine 

Systems Italia S.p.A. Cables and Systems Milan Euro 50,000,000 100.00% Telecom Systems Holding B.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. 


0.50% Pirelli Cavi e Sistemi Telecom S.p.A. 

1.00% Pirelli Pneumatici S.p.A. 

1.00% Polo Viaggi S.r.l. 


Sistema Puntogomme S.p.A. Tyre Milan Euro 3,060,000 100.00% Pirelli Pneumatici Holding 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 Swiss Franc 2,100,000 100.00% Pirelli Finance (Luxembourg) S.A. 

Pirelli Finance (Luxembourg) S.A. Financial Luxembourg Euro 270,228,168 100.00% Pirelli S.p.A. 

Pirelli Financial Services 

Company S.A. Financial Luxembourg Euro 35,000 100.00% Pirelli Finance (Luxembourg) S.A. 

Pirelli International Finance S.A. 

(formerly Pirelli Finance (N.A.) 

N.V.) Insurance Luxembourg Euro 35,000 100.00% Pirelli Finance (Luxembourg) S.A. 

Norway 

Pirelli Kabler og Systemer AS Energy Cables and Systems Ski Nor. Krone 100,000 100.00% Pirelli Cables and Systems OY 

Poland 

Pirelli Polska Sp.z.o.o. Tyre Varsaw Pol. Zloty/mil. 6,258 100.00% Lunares S.A. 

Portugal 

Desco Fabrica Portuguesa de 

Material Electrico e 


Electronico S.A. Energy Cables and Systems Arcozelo Vngaia Euro 1,545,000 70.93% Systèmes France S.A. 

29.07% Eurelectric S.A. 

Romania 

S.C. Pirelli Romania 

Rom. Leu 

Cabluri si Sisteme S.A. Energy Cables and Systems Slatina /000 208,927,700 100.00% Pirelli Cable Holding N.V. 

Russia 

OOO Pirelli Tyre Russia Commercial Moscow Rus. Rouble 950,000 95.00% Lunares S.A. 

5.00% Pirelli Tyre Holding N.V. 

Solvakia 

Kablo Bratislava Spol. S.R.O. Energy Cables and Systems Bratislava Slov. Korona 523,334,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Slovakia S.R.O. Tyre Bratislava Slov. Korona 200,000 100.00% Lunares S.A. 

Spain 

Fercable S.A. Energy Cables and Systems Barcelona Euro 3,606,073 100.00% Pirelli Cables y Sistemas S.A. 

Omnia Motor S.A. Tyre Barcelona Euro 1,502,530 100.00% Pirelli Neumaticos S.A. 

Pirelli Cables y Sistemas S.A. Energy Cables and Systems Barcelona Euro 24,000,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Esmar S.A. Energy Cables and Systems Torredembarra Euro 8,714,675 100.00% Pirelli Cables y Sistemas S.A. 

Pirelli Neumaticos S.A. Tyre Barcelona Euro 45,075,908 100.00% Pirelli Tyre Holding N.V. 

Pirelli Telecom Cables y Telecom 

Sistemas Espana S.L. Cables and Systems Barcelona Euro 12,000,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 





Sweden 

Pirelli Kablar och System AB Energy Cables and Systems Hoganas Swed. Korona 100,000 100.00% Pirelli Cables and Systems OY 

Pirelli Tyre Nordic AB Tyre Bromma Swed. Korona 950,000 100.00% Lunares S.A. 

Switzerland 

Agom S.A. Tyre Conthey Swiss Franc 50,000 75.00% Lunares S.A. 

Agom S.A. Bioggio Tyre Bioggio Swiss Franc 590,000 75.00% Lunares S.A. 

Lunares S.A. Tyre holding company Basel Swiss Franc 10,000,000 100.00% Pirelli Tyre Holding N.V. 

Pirelli Cables and Systems S.A. Energy Cables and Systems Basel Swiss Franc 500,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Société de Services S.a.r.l. Financial Basel Swiss Franc 50,000 100.00% Pirelli Société Générale S.A. 

Pirelli Société Générale S.A. Financial Basel Swiss Franc 28,000,000 100.00% Pirelli S.p.A. 

Pirelli Submarine Telecom Telecom Pirelli Submarine Telecom 

Systems S.A. (in liquidation) Cables and Systems Basel Swiss Franc 1,230,000 100.00% Systems Holding B.V. 

Pirelli Tyre (Europe) S.A. Tyre Basel Swiss Franc 1,000,000 100.00% Lunares S.A. 

The Netherlands 

ICEW (Insulated Conductors and 

Enameled Wires) N.V. (formerly 

Pirelli Telecom Cables and 

Systems The Netherlands N.V.) Energy Cables and Systems Delft Euro 250,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Cables and Systems N.V. Energy Cables and Systems Delft Euro 5,000,000 100.00% Pirelli Cable Holding N.V. 


Pirelli Cable Holding N.V. holding company Delft Euro 272,515,065 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Telecom 

Pirelli Cable Overseas N.V. Cables and Systems Delft Euro 10,000,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli Submarine Telecom Telecom 

Systems Holding B.V. Cables and Systems Delft Euro 4,500,000 90.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli Tyre Holding N.V. Tyre holding company Breukelen Euro 250,000,000 100.00% Pirelli S.p.A. 

Pirelli Tyres Nederland B.V. Tyre Breukelen Euro 18,152 100.00% Lunares S.A. 

Sipir Finance N.V. Financial Rotterdam Euro 13,021,222 100.00% Pirelli S.p.A. 

Turkey 

Celikord A.S. Tyre Istanbul Turk. Lira/mil. 17,100,000 50.466% Pirelli Tyre Holding N.V. 


0.267% Pirelli Deutschland A.G. 

Turk-Pirelli Lastikleri A.S. Tyre Istanbul Turk. Lira/mil. 88,000,000 62.449% Pirelli Tyre Holding N.V. 

0.076% Pirelli Deutschland A.G. 

0.076% Pirelli UK Tyres Ltd 


0.076% Lunares S.A. 


0.076% Metzeler Reifen GmbH 

0.076% Pirelli Reifenwerke GmbH & Co. K.G. 

0.076% Pirelli Neumaticos S.A. 

Türk Pirelli Kablo ve Sistemleri A.S. Energy Cables and Systems Mudania / Bursa Turk Lira/mil. 9,828,000 83.746% Pirelli Cable Holding N.V. 

Zalsan Zirai Arac Lastikleri A.S. Tyre Istanbul Turk Lira/mil. 1,400,000 70.00% Turk-Pirelli Lastikleri A.S. 






Aberdare Cables Ltd Energy Cables and Systems London British Pound 609,654 100.00% Pirelli General plc 

Cable Makers Properties 

and Services Ltd Energy Cables and Systems East Molesey British Pound 33 63.531% Pirelli General plc 

Central Tyre Ltd Tyre London British Pound 100,000 100.00% Pirelli UK Tyres Ltd 

Comergy Ltd Energy Cables and Systems London British Pound 1,000,000 100.00% Pirelli Cable Holding N.V. 

Courier Tyre Company Ltd Tyre London British Pound 10,000 100.00% Pirelli UK Tyres Ltd 

CPK Auto Products Ltd Tyre London British Pound 10,000 100.00% Pirelli UK Tyres Ltd 

CTC 1994 Ltd Tyre London British Pound 984 100,00% Central Tyre Ltd 

Pirelli Cables (2000) Ltd Energy Cables and Systems London British Pound 118,653,473 100.00% Pirelli General plc 

Pirelli Cables (Industrial) Ltd Energy Cables and Systems London British Pound 9,010,935 100.00% Pirelli General plc 

Pirelli Cables (Supertention) Ltd Energy Cables and Systems London British Pound 5,000,000 100.00% Pirelli General plc 

Pirelli Cables and Systems 

International Ltd Energy Cables and Systems London Euro 100,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Cables Ltd Energy Cables and Systems London British Pound 100,000 100.00% Pirelli General plc 

Pirelli Construction Company Ltd Energy Cables and Systems London British Pound 8,000,000 100.00% Pirelli General plc 

Pirelli Focom Ltd Energy Cables and Systems London British Pound 6,447,000 100.00% Pirelli General plc 

Pirelli General plc Cables and Systems London British Pound 144,139,360 100.00% Pirelli UK plc “B1”/“B2” 

Pirelli International Ltd Financial London Euro 250,000,000 100.00% Pirelli Finance (Luxembourg) S.A. 

Pirelli Metals Ltd Energy Cables and Systems London British Pound 100,000 100.00% Pirelli General plc 

Pirelli Telecom Cables and Telecom 

Systems UK Ltd Cables and Systems London British Pound 100,000 100.00% Pirelli General plc 

Pirelli Tyres Ltd Tyre London British Pound 16,000,000 100.00% Pirelli UK Tyres Ltd 

Pirelli UK Employee Share 

Trustee Ltd Financial London British Pound 2 100.00% Pirelli UK plc “C” 

Pirelli UK Finance Ltd Financial London British Pound 6,969,280 100.00% Pirelli UK plc “C” 

Pirelli UK plc “A” Tyre holding company London British Pound 68,535,300 100.00% Pirelli Tyre Holding N.V. 


Pirelli UK plc “B1” holding company London British Pound 69,188,889 100.00% Pirelli Cable Holding N.V. 

Telecom Cables and Systems 

Pirelli UK plc “B2” holding company London British Pound 27,149,529 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli UK plc “C” Finance holding company London British Pound 11,625,978 100.00% Pirelli S.p.A. 

Pirelli UK Tyres Ltd Tyre London British Pound 68,000,000 100.00% Pirelli UK plc “A” 

North America 

Canada 

Pirelli Power Cables and 

Saint John 

Systems Canada Ltd Energy Cables and Systems (New Brunswich) Can. $ 40,000,000 100.00% Pirelli Cable Holding N.V. 

Pirelli Tire Inc. Tyre Ottawa (Ontario) Can. $ 6,000,000 100.00% Lunares S.A. 

U.S.A. 

Metzeler Motorcycle Tire 

North America Corp. Tyre Seattle (Washington) US $ 150,000 100.00% Metzeler Reifen GmbH 

Pirelli Communications Telecom 

Cables and Systems USA LLC Cables and Systems Wilmington (Delaware) US $ 10 100.00% Pirelli North America Inc. “B1” 

Pirelli Communications 

Pirelli Communications 

Cables Corporation Commercial Wilmington (Delaware) US $ 1 100.00% Cables and Systems USA LLC 





Pirelli Construction 

Pirelli Power Cables 

Services Inc. Energy Cables and Systems Dover (Delaware) US $ 1,000 100.00% and Systems USA LLC 

Pirelli North America Inc. “A” Tyre Wilmington (Delaware) US $ 3.15 100.00% Pirelli Tyre Holding N.V. 

Telecom 

Pirelli North America Inc. “B1” Cables and Systems Wilmington (Delaware) US $ 5.75 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli North America Inc. “B2” Energy Cables and Systems Wilmington (Delaware) US $ 1.10 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Pirelli Power Cables and 

Systems USA LLC Energy Cables and Systems Wilmington (Delaware) US $ 10 100.00% Pirelli North America Inc. “B2” 

Pirelli RNC Inc. Commercial Wilmington (Delaware) US $ 1 100.00% Pirelli Tyre Holding N.V. 

Pirelli Tire LLC Tyre Wilmington (Delaware) US $ 1 100.00% Pirelli North America Inc. “A” 

Central/South America 

Argentina 

Pirelli Consultora Conductores 

Fipla S.A. Energy Cables and Systems Buenos Aires Arg. Peso 1 66.97% e Instalaciones S.A.I.C. 

Pirelli Argentina 

de Mandatos S.A. Services Buenos Aires Arg. Peso 500,000 100.00% Pirelli Société Générale S.A. 


e Instalaciones S.A.I.C. Energy Cables and Systems Buenos Aires Arg. Peso 2,227 99.996% Pirelli Cable Holding N.V. 

Pirelli Energie Câbles 

0.004% et Systèmes France S.A. 

Pirelli Energia Cables y 


Sistemas de Argentina S.A. Energy Cables and Systems Buenos Aires Arg. Peso 44,509,458 74.91% e Instalaciones S.A.I.C. 

24.69% Pirelli Cable Holding N.V. 

Pirelli Neumaticos S.A.I.C. Tyre Buenos Aires Arg. Peso 19,016,500 99.02% Pirelli Tyre Holding N.V. 


Pirelli Telecomunicaciones Cables Telecom 

Pirelli Telecomunicações 

y Sistemas de Argentina S.A. Cables and Systems Buenos Aires Arg. Peso 12,000 100.00% Cabos e Sistemas do Brasil S.A. 

Pirelli Energia Cables y 

Tel 3 S.A. Energy Cables and Systems Buenos Aires Arg. Peso 11,075,000 51.00% Sistemas de Argentina S.A. 

Brazil 

Cordas Metalicas do Brasil Ltda Tyre Sumarè Bra. Real 1,000 99.90% Pirelli Pneus S.A. 

0.10% Muriaè Ltda 

Muriaé Ltda Financial Santo Andrè Bra. Real 80,000,000 99.999% Pirelli Pneus S.A. 

0.001% Pirelli S.A. 

Novacorp Consultora e 

Serviços Corporativos Ltda Holding Santo Andrè Bra. Real 6,000 99.983% Pirelli S.A. 

Pirelli Energia Cabos e 

Sistemas do Brasil S.A. Energy Cables and Systems Santo Andrè Bra. Real 106,824,993 87.202% 88.783% Pirelli Cavi e Sistemi Energia S.p.A. 

12.211% 10.342% Pirelli S.A. 

Pirelli Pneus Nordeste Ltda Tyre Feira de Santana Bra. Real 29,991,402 100.00% Pirelli Pneus S.A. 

Pirelli Pneus S.A. Tyre Santo Andrè Bra. Real 300,617,484 54.826% 19.031% Pirelli Pneumatici S.p.A. 

41.200% 79.719% Pirelli Tyre Holding N.V. 






Pirelli Produtos 

Pirelli Energia Cabos e Sistemas 

Especiais Ltda Energy Cables and Systems Cerquilho Bra. Real 43,143,421 100.00% do Brasil S.A. 

Pirelli S.A. Financial Santo Andrè Bra. Real 45,848,684 100.00% Pirelli S.p.A. 

Pirelli Telecomunicações Telecom 

Cabos e Sistemas do Brasil S.A. Cables and Systems Sorocaba Bra. Real 65,236,771 87.202% 88.782% Pirelli Cavi e Sistemi Telecom S.p.A. 


Pneuac Comercial e 

Importadora Ltda Tyre San Paolo Bra. Real 12,913,526 100.00% Pirelli Pneus S.A. 

Solac-Laminadora 


de Cobre Ltda Energy Cables and Systems Jacarei Bra. Real 8,971,950 89.000% do Brasil S.A. 

Chile 

Pirelli E y T S.A. Energy Cables and Systems Santiago ChilePeso/000 3,072.471 99.82% Pirelli Instalaciones Chile S.A. 


Pirelli Instalaciones Chile S.A. Energy Cables and Systems Santiago Chile Peso/000 918,707 90.00% e Instalaciones S.A.I.C. 

10.00% Cite S.A. 

Pirelli Neumaticos Chile Limitada Tyre Santiago US $ 1,918,451 99.98% Pirelli Pneus S.A. 

Colombia 

0.02% Pneuac Comercial e Importadora Ltda 

Pirelli de Colombia S.A. Tyre Santa Fe De Bogotà Col. Peso/000 10,977,466 94.95% Pirelli Pneus S.A. 

Mexico 

1.63% Pirelli de Venezuela C.A. 

1.14% Muriaè Ltda 

1.14% Pirelli Pneus Nordeste Ltda 

1.14% Pneuac Comercial e Importadora Ltda 

Pirelli Neumaticos de 

Mexico S.A. de C.V. Tyre Mexico City Mex. Peso 35,098,600 99.98% Pirelli Pneus S.A. 

Uruguay 

0,02% Pneuac Comercial e Importadora Ltda 

Pirelli Energia Cabos e 

Cite S.A. Energy Cables and Systems Montevideo Urug. Peso 4,900,000 100.00% Sistemas do Brasil S.A. 

Venezuela 

Pirelli de Venezuela C.A. Tyre Valencia Ven. Bolivar/000 13,062,679 96.22% Pirelli Tyre Holding N.V. 

Africa 

Egypt 

Alexandria Tire 

Company S.A.E. Tyre Alessandria Egy. Pound 393,000,000 80.563% Pirelli Pneumatici Holding S.p.A. 


International Tire Company Ltd Tyre Alessandria Egy. Pound 50,000 96.00% Alexandria Tire Company S.A.E. 

Ivory Coast 

SICABLE - Société Ivoirienne 

Pirelli Energie Câbles et Systèmes 

de Cables S.A. Energy Cables and Systems Abidjan Cfa Franc 740,000,000 51.00% France S.A. 





Sud Africa 

Pirelli Cables & Systems 

(Proprietary) Ltd Commercial Woodmead, S.A. S.A. Rand 100 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Pirelli Tyre (Pty) Ltd Tyre Sandton S.A. Rand 1 100.00% Lunares S.A. 

Oceania 

Australia 

Pirelli Power Cables & Systems 

Australia Pty Ltd Energy Cables and Systems Liverpool - N.S.W. Aus. $ 15,000,000 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Pirelli Telecom Cables & Telecom 

Systems Australia Pty Ltd Cables and Systems Liverpool - N.S.W. Aus. $ 38,500,000 100.00% Pirelli Cavi e Sistemi Telecom S.p.A. 

Pirelli Tyres Australia Pty Ltd Tyre Pymble - N.S.W. Aus. $ 150,000 100.00% Lunares S.A. 

New Zealand 

Pirelli Power Cables & 

Pirelli Power Cables & Systems 

Systems New Zealand Ltd Energy Cables and Systems Auckland NZ. $ 10,000 100.00% Australia Pty Ltd 

Pirelli Telecom Cables & Telecom Pirelli Telecom Cables & Systems 

Systems New Zealand Ltd Cables and Systems Auckland NZ. $ 10,000 100.00% Australia Pty Ltd 

Pirelli Tyres (NZ) Ltd Tyre Wellington NZ. $ 100 100.00% Pirelli Tyres Australia Pty Ltd 

Asia 

China 

BICCGeneral Baosheng 

Cable Co. Ltd Energy Cables and Systems Jiangsu US $ 19,500,000 67.00% Pirelli Cables Asia-Pacific Pte Ltd 

Invex Insulated Conductors 

ICEW (Insulated Conductors and 

(Baoying) Co. Ltd. Energy Cables and Systems Yangzhou Euro 6,000,000 100.00% Enameled Wires) N.V. 

Pirelli Cables (Shanghai) 

Trading Co. Ltd Energy Cables and Systems Shanghai US $ 200,000 100.00% Pirelli Cables Asia-Pacific Pte Ltd 

Pirelli Telecom Cables Co. Telecom 

Ltd Wuxi Cables and Systems Xuelang Town US $ 29,941,250 71.843% Pirelli Cable Overseas N.V. 

Tianjin Top Power 

Cables Co. Ltd Energy Cables and Systems Tianjin Municipality US $ 13,100,000 67.00% Pirelli Cable Holding N.V. 

India 

Pirelli Cables (India) 

Private Ltd Energy Cables and Systems Nuova Delhi India Rupee 10,000,000 99.998% Pirelli Cable Holding N.V. 

Indonesia 


P.T. Pirelli Cables Indonesia Energy Cables and Systems Jakarta US $ 67,300,000 99.48% Pirelli Cable Holding N.V. 

Japan 


P & A K.K. Tyre Tokyo Jap.Yen 2,700,000,000 69.148% Pirelli Tyre Holding N.V. 

Pirelli K.K. Tyre Tokyo Jap.Yen 40,000,000 100.00% Lunares S.A. 

Malaysia 

BICC (Malaysia) Sdn Bhd Energy Cables and Systems Kuala Lumpur Mal. Ringgit 100,000 100.00% Pirelli Cables Asia-Pacific Pte Ltd 

Submarine Cable 

Installation Sdn Bhd Energy Cables and Systems Kuala Lumpur Mal. Ringgit 10,000 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 





Mauritius 

BICCGeneral Asia 

Pacific Holdings Energy Cables and Systems Port Louis US $ 2 100.00% Pirelli Cables Asia-Pacific Pte Ltd 

Singapore 

Pirelli Asia Pte Ltd Tyre Singapore Sing. $ 2 100.00% Lunares S.A. 

Pirelli Cable Systems Pte Ltd Energy Cables and Systems Singapore Sing. $ 25,000 50.00% Pirelli General plc 

50.00% Pirelli Cable Holding N.V. 

Pirelli Cables 

Asia-Pacific Pte Ltd Energy Cables and Systems Singapore Sing. $ 213,324,290 100.00% Pirelli Cable Holding N.V. 

Trans-Power Cables Pte Ltd Energy Cables and Systems Singapore Sing. $ 1,500,000 100.00% Pirelli Cable Holding N.V. 



Investments accounted for using the equity method 



Jointly controlled companies 

Europe 

Italy 

Olimpia S.p.A. Industrial holding company Milan Euro 1,562,596,150 60.00% Pirelli S.p.A. 

Subsidiaries 

Europe 

Germany 

Drahtcord Saar 

Geschaeftsfuehrungs GmbH Tyre Merzig Deut. Mark 60,000 50.00% Pirelli Deutschland A.G. 

Drahtcord Saar 

GmbH & Co. K.G. Tyre Merzig Deut. Mark 30,000,000 50.00% Pirelli Deutschland A.G. 

Kabeltrommel Gesellshaft 

mbH & Co K.G. Energy Cables and Systems Colonia Deut. Mark 20,000,000 27.48% Pirelli Kabel und Systeme GmbH 

Italy 

SMP Melfi S.r.l. Tyre Melito (NA) Euro 3,511,906 50.00% Pirelli Pneumatici Holding S.p.A. 

Spagna 

Optiwire S.L. Energy Cables and Systems Barcelona Euro 6,010 50.00% Pirelli Cables y Sistemas S.A. 


Rodco Ltd Energy Cables and Systems Gravesend BritishPound 5,000,000 40.00% Pirelli General plc 

Central/South America 

Argentina 

Lineas de Transmision de 

Buenos Aires S.A. 

(in liquidation) Energy Cables and Systems Buenos Aires Arg. Peso/000 12 20.00% Pirelli Argentina de Mandatos S.A. 

Brazil 

K.M.P. Cabos Especiais 


e Sistemas Ltda Energy Cables and Systems San Paolo Bra. Real 6,600,916 40.00% do Brasil S.A. 

Pirelli & C. Real Estate Ltda Information Systems Santo Andrè Bra. Real 2,000,000 30.00% Pirelli S.A. 

Asia 

Saudi Arabia 

Sicew-Saudi Italian Co. 

for Electrical Works Ltd Energy Cables and Systems Jeddah S. Arab. Riyal 1,000,000 34.00% Pirelli Cable Holding N.V. 



Other investments in subsidiaries and associated companies 



Europe 

Austria 

Pirelli Kabelwerke 

und Systeme GmbH (*) Energy Cables and Systems Vienna Euro 36,336 100.00% Pirelli Cavi e Sistemi Energia S.p.A. 

Germany 

Industriekraftwerk 

Breuberg GmbH Cogeneration Breuberg/Odenwald Euro 1,533,876 26.00% Pirelli Deutschland AG 

Hungary 

Ipoly Kabeldob KFT. Energy Cables and Systems Szecseny Hun. Forint/000 36,350 25.172% MKM Magyar Kabel Muvek Rt. 

Spain 

Euro Driver Car S.L. Tyre Barcelona Euro 492,000 25.00% Pirelli Neumaticos S.A. 

26.22% Proneus S.L. 

Proneus S.L. (*) Tyre Barcelona Euro 3,005,06 51.00% Pirelli Neumaticos S.A. 

Africa 

South Africa 

AFCAB Holdings 

(Proprietary) Ltd (*) Energy Cables and Systems Sandton S.A. Rand 4,000 50.00% Pirelli Cable Holding N.V. 

African Cables Ltd (*) Energy Cables and Systems Vereeniging S.A. Rand 9,886,098 100.00% AFCAB Holdings (Proprietary) Ltd 

ATC (Proprietary) Ltd Energy Cables and Systems Brits S.A. Rand 632,912 21.00% African Cables Ltd 

Tunisia 

Pirelli Energie Câbles et Systèmes 

Auto Cables Tunisie S.A. (*) Energy Cables and Systems Tunisi Tun. Dinar 4,450,000 51.00% France S.A. 

Société Tunisienne des Industries 

de Pnéumatiques S.A. Tyre Tunisi Tun. Dinar 38,252,940 15.83% Pirelli Pneumatici S.p.A. 

Zimbabwe 

BICC CAFCA Ltd (*) Energy Cables and Systems Harare Zimbabwe $ 15,706,000 73.463% African Cables Ltd 

BICC (CENTRAL AFRICA) 

(Private) Ltd (*) Energy Cables and Systems Harare Zimbabwe $ 200,000 100.00% BICC CAFCA Ltd 

Zimbabwe Cables (Pte) Ltd (*) Energy Cables and Systems Harare Zimbabwe $ 2 100.00% BICC CAFCA Ltd 

Asia 

Malaysia 

Power Cables Malaysia 

Sdn Bhd Energy Cables and Systems Selangor Darul Ehsan Mal. Ringgit 8,000,000 40.00% Pirelli Cables Asia - Pacific Pte Ltd 

(*) These investments have not been consolidated in that they are not material or the rights of the parent company are subject to restriction or the holding were recently acquired. 



Other investments considered significant as per Consob resolution no. 11971 of May 14, 1999 



Australia 

Optix Australia Ltd Telecom Tottenham (Victoria) $ Austr. 4,000,000 15.00% Pirelli Telecom Cables & Systems 


Australia Pty Ltd 

France 

Aliapur S.A. Tyre Vitry sur Seine Euro 262,500 14.286% Pirelli Pneumatici S.p.A. 

Italy 

Eurofly Service S.p.A. Services Caselle Torinese Euro 4,275,000 16.33% Pirelli S.p.A. 

F.C. Internazionale 

Milano S.p.A. Sport Milan Euro 53,465,000 19.485% Pirelli S.p.A. 

Servizio Titoli S.r.l. Services Turin Euro 105,000 12.381% Pirelli S.p.A. 

Poland 

Centrum Utylizacij Opon 

Otganizacja Odzyseu S.A. Tyre Varsaw Pol. Zloty 1,008,000 14.00% Pirelli Polska Sp.z.o.o. 

Switzerland 

Voltimum S.A. Energy Cables and Systems Meyrin Swiss Franc 2,850,120 14.286% Pirelli Cavi e Sistemi Energia S.p.A. 

The Netherlands 

MB Venture Capital Fund 

I Participating Company G N.V. Finance Amsterdam Euro 50,000 14.00% Pirelli Finance (Luxembourg) S.A. 

Turkey 

Türk Sondel Enerji A.S. Cogeneration Istanbul Turk. Lira/mil. 900,000 13.98% Türk-Pirelli Lastikleri A.S. 

U.S.A. 

4.99% Celikord A.S. 

Alloptic Inc. Energy Cables and Systems Pleasanton (CA) US $ 120,675,987 15.441% Pirelli Cavi e Sistemi Telecom S.p.A. 



Independent Auditors’ Report 



Extraordinary session of the Shareholders’ Meeting 

Report of the Board of Directors 

Dear Shareholders, 

The Directors of Pirelli S.p.A. have called you to the shareholders’ meeting to vote on the merger by incorporation in Pirelli 

& C., after transforming the legal structure of the company from a limited partnership company (A.p.A.) to a corporation 

(S.p.A.), (hereinafter “Pirelli & C.”), of Pirelli & C. Luxembourg S.p.A. (hereinafter “Pirelli & C. Luxembourg”, a whollyowned 

subsidiary of Pirelli & C.) and Pirelli S.p.A. (hereinafter the “Merger”) on the basis of the plan of merger which you 

have been called to approve. 

1. Description and reasons for the merger 

The Merger is being proposed in order to simplify the corporate structure of the Group which is headed by the parent 

company Pirelli & C., by concentrating the role of holding company in the latter. In fact, Pirelli & C., after the merger of 

Pirelli & C. Luxembourg and Pirelli S.p.A., will find itself directly holding all the controlling investments in the various 

companies which form the Sectors in which the Group operates (Pirelli Cavi e Sistemi Energia S.p.A. for the Energy Cables 

Sector, Pirelli Cavi e Sistemi Telecom S.p.A. for the Telecommunications Cables Sector, Pirelli Tyre Holding N.V. for the 

Tyres Sector, in addition to Pirelli & C. Real Estate S.p.A. in the real estate area) and other important investments which at 

the moment link Pirelli S.p.A. to Olivetti S.p.A. and therefore to the telecommunications sector. 



The charts that follow depict the structure of the Group headed by Pirelli & C. as of the date of this report and the structure 

as it will be after the Merger. The charts also indicate the percentage of ownership of ordinary share capital. 


100% 

14,2% 


Luxembourg S.A. 

27,5% 

61,2% 


Pirelli & C. 

Real Estate S.p.A. 

Olimpia S.p.A.* 

60% 

100% 







* The investment holding will be reduced to 50.4% after the merger of Holy S.r.l. in Olimpia S.p.A., which will in all 

likelihood take place in May 2003. 

POST-MERGER 

Pirelli & C. S.p.A. 


Real Estate S.p.A. 

Olimpia S.p.A.* 

50,4% 

100% 

61,2% 









The objectives which are meant to be pursued by the merger described above are as follows: 

– to maximize the market capitalization of the Group, on the one hand, eliminating investors’ uncertainty about the stock in 

which to invest (with positive consequences on volatility/arbitrage) and, on the other hand, offering you the possibility of 

exchanging your shares for shares in a larger-size company, with a broader asset portfolio, a much larger shareholder 

base and better features of liquidity and contendability of the underlying security; 

– to help focus management on the creation of value for a single shareholder group instead of two different ones; 

– to increase the unitariness of strategic and operational guidelines, reinforcing the internal control function across the 

board; 

– to speed up the times in the decision-making process, raising the Group’s capacity to interact with the market, with 

strategic partners and with institutions; 

– to create the basis for a more flexible development and management of the assets in portfolio; 

– to optimize economic and financial flows within the Group and with shareholders; 

– to simplify administrative activities. 

From a legal standpoint, the Merger will mean that Pirelli & C. will universally take the place of Pirelli & C. Luxembourg 

and Pirelli S.p.A., as a result of which the merging company will take over all the assets, and rights and obligations of the 

companies to be merged, and therefore, as an example only, all the relative property, plant and equipment and intangible 

assets, accounts receivable and payables accrued or due, the contract positions of the companies to be merged and, in 

general, the entire equity of the same companies without exclusion or limitations whatsoever. 

Moreover, Pirelli & C. will replace: (i) Pirelli & C. Luxembourg as the issuer of the “Pirelli & C. Luxembourg S.A. – 5.125% 

Guaranteed Notes due 2009” of Euros 150,000,000 (ii) Pirelli S.p.A. as the issuer of “Pirelli S.p.A.– 4.875% Notes due 2008” of 

Euros 500,000,000 and (iii) Pirelli S.p.A. as the guarantor of the “Pirelli Finance (Luxembourg) S.A.– 6.50% Guaranteed Notes 

due 2007” of Euros 500,000,000. 

As to the corporate aspects, should the shareholders of Pirelli & C. cast a favorable vote, the Merger will be preceded by: 

(i) the transformation of Pirelli & C. from a limited partnership company to a corporation. This transformation will allow 

our parent company to assume a legal entity that is more easily recognizable by the market – and, in particular, by 

international investors – which provides, by eliminating the subdivision of general partners and limited partners, for a 

more significant participation by all the shareholders in the decision-making process; 

(ii) the change in the corporate business purpose of Pirelli & C. to a more modern and precise formulation, which gives a 

better definition of the role of coordination that will be conducted by the group holding company; 

(iii) a share capital increase by Pirelli & C., separable, against payment for a maximum of Euros 1,014,185,020.68 through 

the issue of a maximum of 1,950,355,809 ordinary shares, with free warrants attached, that can be traded separately 

one from the other, to be granted on option to the Pirelli & C. ordinary and savings shareholders, at the unit price equal 

to par value Euros 0.52 per share, in a ratio of 3 new shares cum warrants for every 1 share of any class of stock held. 

A consequent share capital increase, separable, against payment for a maximum of Euros 253,546,255.04 through the 

issue, at one or more times, of a maximum of 487,588,952 ordinary shares to be reserved exclusively for the exercise of 

the aforementioned warrants, at the unit price equal to par value Euros 0.52 per share. Such warrants give the right to 

subscribe at any time from January 1, 2004 to June 30, 2006, presenting the request by June 20, 2006, to 1 new Pirelli & 

C. ordinary share, with normal dividend rights and with a par value of Euros 0.52, for every 4 warrants held, at a unit 

price equal to par value. 

The agenda for the same shareholders’ meeting also calls for the renewal of the corporate boards. 

The holders of Pirelli & C. ordinary shares absent or dissenting to the resolutions for the transformation into a corporation 

and for the change in the corporate business purpose referred to in the preceding paragraph sub (i) and (ii), and the holders 

of savings shares, will have the right to withdraw pursuant to art. 2437 of the Italian Civil Code, which should be exercised 

before the option is granted as per sub (iii) and, therefore, prior to the date set to execute the Merger. 



2. Values attributed to Pirelli & C. and Pirelli S.p.A. for purposes of determining the exchange ratio 

Since Pirelli S.p.A., unlike Pirelli & C. Luxembourg, has other shareholders besides Pirelli & C., the Merger requires the 

determination of the exchange ratio of Pirelli S.p.A. shares, which will be cancelled as a result of the Merger, with Pirelli & 

C. shares to be assigned in substitution. 

The Directors of Pirelli S.p.A. have entrusted Lehman Brothers International (Europe) - Italian Branch (hereinafter “Lehman 

Brothers”) and Morgan Stanley & Co. Limited (hereinafter “Morgan Stanley”) with the responsibility for drawing up a 

study for the valuation of the economic capitals of the two companies for purposes of determining the merger ratios. 

In particular, Lehman Brothers and Morgan Stanley (jointly, the “Consultants”) were appointed to express, for the internal 

and exclusive use of the Pirelli S.p.A. Board of Directors and to support the determinations of its competence, an opinion 

on the fairness, from a financial standpoint, of the value obtained by Pirelli S.p.A.’s shareholders from the application of the 

merger ratios (hereinafter “Merger Ratios” or “Exchange Ratios”) between the Pirelli S.p.A. ordinary and non-convertible 

savings shares and the Pirelli & C. ordinary and non-convertible savings shares, in relation to the Merger. 

From an economic standpoint, the relative values of Pirelli & C. and Pirelli S.p.A. were arrived at on the basis of the balance 

sheet data of the companies at December 31, 2002, which coincides with their respective year-ends, taking into account the 

following significant events subsequent to that date: 

(i) the purchase by Pirelli & C. of 47,973,139 Pirelli S.p.A. ordinary shares (equal to 2.5 percent of ordinary share capital) 

from BZ Group Holding Limited for a total price of about Euros 43.1 million; 

(ii) the merger of Holy S.r.l. in Olimpia S.p.A. on the basis of the agreements signed between the shareholders of Olimpia 

S.p.A., Olimpia S.p.A. and Hopa S.p.A. and announced to the market on December 19, 2002 (published in accordance 

with the law), after which Pirelli S.p.A.’s investment in Olimpia S.p.A. will be reduced from 60 percent to 50.4 percent; 

(iii) the proposed pay out of dividends from 2002 profits by both Pirelli & C. (Euros 0.08 per ordinary share and Euros 

0.0904 per savings share, for a total of about Euros 52 million) and Pirelli S.p.A. (Euros 0.0364 per savings share for a 

total of about Euros 3 million), submitted to the approval of the respective shareholders’ meetings; 

(iv) the capital increase cum warrants offered on option to the shareholders of Pirelli & C. mentioned in the preceding 

paragraph 1. 

The companies subject to valuation 

The companies being valued, Pirelli & C. and Pirelli S.p.A., principally carry out financial investment activities. Pirelli & C. 

holds control of Pirelli S.p.A., directly and through the investment in Pirelli & C. Luxembourg, which represents the majority 

of its assets. Pirelli & C. also has a controlling investment in Pirelli & C. Real Estate S.p.A., a listed company operating in 

the real estate segment, and certain other minor investments in other listed companies. 

Pirelli S.p.A. heads the group of industrial investments operating in the Cables Sector (Energy and Telecom) and the Tyres 

Sector. It also holds, following the merger of Holy S.r.l. in Olimpia S.p.A., referred to in paragraph 8 of this report, a 50.4 

percent investment in Olimpia S.p.A., the company which holds the approx. 28.5 percent investment in Olivetti S.p.A., 

which, in turn holds the 54.9 percent investment in Telecom Italia S.p.A. 

The valuation methods 

In a merger between companies, the objective of the valuation is to determine the values of economic capital and the 

consequent merger ratio, that is, the proportion between the number of shares of the companies to be merged, destined to 

be withdrawn from circulation, and the number of shares that the merging company will assign to the shareholders of the 

company to be merged. The principal purpose of the valuations of the companies involved in the merger, therefore, is not 

so much the estimate of the absolute values of economic capital of the companies concerned, but rather the availability of 

significantly relative comparable values for purposes of determining the merger ratio. 

The objective of the comparability of the values can also be pursued by choosing a plurality of valuation methods which 

make it possible to effectively express the value of the companies involved in the merger, while keeping well in mind the 



fact that diverse situations can be characterized by different value components according to the origin and that they 

therefore require a proper interpretation. 

The essential features of the methods used in the valuation and the results which were obtained are presented in the 

following paragraph. 

In order to determine the Exchange Ratios, we made an in-depth examination of the study conducted by Lehman Brothers and 

Morgan Stanley, agreeing with both the methodological approach and the conclusions. As part of their study, Lehman Brothers 

and Morgan Stanley decided to use more than one valuation method in order to reach significant results for purposes of 

determining the Exchange Ratios. In particular, the Market Valuation Method and the Sum of the Parts Method were used. 

The Market Valuation Method 

The Market Valuation Method expresses the value of the company that is the subject of the valuation in terms of 

capitalization expressed on the basis of the prices of the stocks, traded on regulated stock markets, representative of the 

company itself. In particular, the Market Valuation Method is considered basic for the valuation of listed companies when 

the average volumes are considered significant. 

Under this method, a right balance must be identified between the need to mitigate, by observations over sufficiently 

extended time frames, the effect of the volatility of the daily stock prices and the need to utilize a current value, indicative 

of a recent market value of the company that is the subject of the valuation. 

For purposes of applying this method, Lehman Brothers and Morgan Stanley analyzed the performance of the market prices 

of the stocks of the companies being valued over a period of one, three and six months, to mitigate the short-term 

fluctuations and speculative movements which could have taken place. 

The Sum of the Parts Method 

The Sum of the Parts Method takes into account the presence of a plurality of operational areas within the companies being 

valued in general, and, in particular, Pirelli S.p.A.’s and Pirelli & C.’s composition, which embody, through their subsidiaries 

and associated companies, the vehicle tyres business, telecommunications cables, energy cables, real estate operations and 

financial activities. 

The Sum of the Parts Method is based upon the consideration that, in the case of financial investment companies, the 

economic value of these companies is mainly represented by the sum of the economic values of the investments held, 

considered as economic entities that can be valued individually. 

Lehman Brothers and Morgan Stanley, moreover, have indicated that the corporate structure is such that the valuation of 

Pirelli & C. is significantly dependent upon the value attributed to Pirelli S.p.A.. 

In detail, under the Sum of the Parts Method, Lehman Brothers and Morgan Stanley have adopted the following criteria: 


• Industrial activities (tyres, telecommunications cables and energy cables): the market multiples method and consensus of 

the analysts, with the application of a strategic bonus in the tyres sector; 

• Investment held in Olimpia S.p.A.: valued on the basis of the value attributed, using the Sum of the Parts Method, to the 

Olivetti S.p.A. shares and convertible bonds held, with the application of a bonus to take into account the situation of the 

shareholder of reference in the share capital of Olivetti S.p.A.; 

• Listed equity investments: Market Valuation Method; 

• Holding costs: value shown in the draft financial statements at December 31, 2002; 

• Net other assets/liabilities: financial statement value, estimates provided by management or results of available 

appraisals. 


• Investment in Pirelli S.p.A.: share of the value resulting from the Sum of the Parts Method applied to Pirelli S.p.A.; 

• Pirelli & C. Real Estate S.p.A.: Sum of the Parts Method with the application of a strategic bonus; 

• Listed equity investments: Market Valuation Method; 

• Holding costs: value shown in the draft financial statements at December 31, 2002; 

• Net other assets/liabilities: financial statement value and estimates provided by management. 



3. Exchange ratio established and criteria followed in arriving at such determination 

Lehman Brothers and Morgan Stanley have indicated the following arithmetic weighted averages of the market prices of 

Pirelli S.p.A. and Pirelli & C. stocks in the last month, in the last three months and in the last six months: 

Average Share Prices of Pirelli S.p.A. 

Euro per share 

Ordinary shares 

Savings shares 

Average price 1 month 0.82 0.83 

Average price 3 months 0.87 0.85 


Prices adjusted to account for proposed dividends 2002 

Average Share Prices of Pirelli & C. 

Euro per share 

Ordinary shares 

Savings shares 

Average price 1 month 1.11 1.06 



Prices adjusted to account for proposed dividends 2002 

And the following market capitalizations: 

Market Capitalization of Pirelli S.p.A. 


Ordinary shares Savings shares Total capitalization 

Average 1 month 1,440 73 1,513 

Average 3 months 1,524 75 1,599 

Average 6 months 1,615 83 1,698 

Prices adjusted to account for proposed dividends 2002. Calculations exclude treasury shares held by company. 

Market Capitalization of Pirelli & C. 


Ordinary shares Savings shares Total capitalization 

Average 1 month 683 36 720 

Average 3 months 728 39 767 

Average 6 months 776 39 815 

Prices adjusted to account for proposed dividends 2002. Calculations exclude treasury shares held by company. 



The Sum of the Parts Method used by the Consultants for Pirelli S.p.A. gives the following values: 

Sum of the Parts Method – Summary of Results 

Total Ordinary shares Savings shares 

Economic Capital Value (Euro mln) 1,653 1,575 78 

Number of shares (mln) 1,756 88 

Value per share (Euro) 0.90 0.88 

The allocation of the economic capital to different classes of stock was made net of treasury shares. 

Whereas for Pirelli & C., the Sum of the Parts Method used by Lehman Brothers and Morgan Stanley gives the following values: 

Sum of the Parts Method – Summary of Results 

Total Ordinary shares Savings shares 

Economic Capital Value (Euro mln) 894 849 45 

Number of shares (mln) 616 34 

Value per share (Euro) 1.38 1.31 


Lehman Brothers and Morgan Stanley, for purposes of determining the Exchange Ratios, assumed that the Pirelli & C. capital 

increase before the Merger, referred to in the preceding paragraph 1, will be entirely subscribed to, also by virtue of the fact, 

among other things, that an underwriting syndicate will be formed that will be headed by Mediobanca – Banca di Credito 

Finanziario S.p.A.. 

As for the valuation of the warrants attached to the shares that will be issued as part of the above capital increase, the 

Consultants have assumed that they will be exercised at the end of the three years and have calculated the present value of the 

corresponding value of the capital increase connected to the issue of the shares underlying such instruments. 

Again for purposes of determining the Exchange Ratios, the Consultants have also valued the effect represented by the potential 

exercise of the right of withdrawal to which the absent and dissenting shareholders of Pirelli & C. are entitled in relation to the 

resolutions passed on the subject of the transformation of the company and the change in the corporate business purpose. 

The price at which the withdrawal can be exercised can only be determined at the time the resolutions are passed and will be 

equal to the “average price for the last six months” (art. 2437 of the Italian Civil Code). 

The Consultants maintain that such effect would in any case be negligible, assuming that such right would only be exercised 

by the shareholders that are not part of the Pirelli & C. Voting Trust (see following paragraph 8). The following table 

summarizes the results of the analyses performed by Lehman Brothers and Morgan Stanley: 

Summary of Valuations 

Pirelli S.p.A. Pirelli & C. 

Market valuation Ordinary shares Savings shares Total Ordinary shares Savings shares Total 

Economic Capital Value (Euro mln) 1,524 75 1,599 1,976 20 1,997 

Number of shares (mln) 1,756 88 3,054 34 

Value per share (Euro) 0.87 0.85 0.65 0.59 

Pirelli S.p.A. Pirelli & C. 

Sum of the Parts Valuation Ordinary shares Savings shares Total Ordinary shares Savings shares Totale 

Economic Capital Value (Euro mln) 1,575 78 1,653 2,103 21 2,124 

Number of shares (mln) 1,756 88 3,054 34 

Value per share (Euro) 0.90 0.88 0.69 0.62 




Exchange Ratios 

Market 

Sum of the Parts 

Pirelli S.p.A. - Ordinary shares 0.87 A 0.90 A 

Pirelli S.p.A. - Savings shares 0.85 B 0.88 B 

Pirelli & C. - Ordinary shares 0.65 C 0.69 C 

Pirelli & C. - Savings shares 0.59 D 0.62 D 

Exchange ratio - Ordinary shares 1.34 A / C 1.31 A / C 

Exchange ratio - Savings shares 1.44 B /D 1.42 B /D 

On the basis of the indications of Lehman Brothers and Morgan Stanley, the Board of Directors of Pirelli S.p.A., taking into 

account the fundamental correspondence of the results obtained from the application of the two methods, has agreed to 

adopt the following Exchange Ratio for the ordinary shares 

• 1.33 Pirelli & C. ordinary shares for each Pirelli S.p.A. share, or 4 Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. 

ordinary shares 

For the savings shares, the Exchange Ratio is set at: 

• 1.43 Pirelli & C. savings shares for every Pirelli S.p.A. savings share, or 10 Pirelli & C. savings shares for every 7 Pirelli 

S.p.A. savings shares 

In reaching the above decisions, also in applying art. 2501, quater, of the Italian Civil Code, the Board of Directors took into 

consideration the fact that the valuations made for purposes of determining the Exchange Ratios contain typical issues 

inherent to this type of analysis. In particular, the detailed type valuation (Sum of the Parts Method) is largely based upon 

preliminary data which, although accurately reflecting the expectations of the company, are subject to risks and 

uncertainties connected with the sectors in which the various businesses operate. On the other hand, the valuations based 

upon market prices, even if mitigated by the fact that averages relating to longer time frames are used instead of precise 

data, are subject to the actual volatility of the financial markets, which appears particularly accentuated in the present 

period. 

Conclusions 

On the basis of what was described above, the Exchange Ratios are set at: 

– 4 Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. ordinary shares; 

– 10 Pirelli & C. non-convertible savings shares for every 7 Pirelli S.p.A. non-convertible savings shares. 

No cash differential is anticipated. 

These Exchange Ratios have received the consent of the directors of Pirelli & C.. 

Moreover, the new Pirelli & C. shares designated for the Exchange Ratio do not carry the right to either receive Pirelli & C. 

dividends for the year ended December 31, 2002 or to participate in the Pirelli & C. capital increase described in the 

preceding paragraph 1. 

Fairness opinion 

The report on the fairness of the exchange ratio was drawn up, in the case of Pirelli & C., by PricewaterhouseCoopers 

S.p.A., the firm charged with the audit of the financial statements of both Pirelli & C. and Pirelli S.p.A.. 

Inasmuch as, pursuant to art. 158, fourth paragraph of Legislative Decree No. 58 dated February 24, 1998, the company 

charged with the audit of more than one of the companies in the merger can draw up the report on the fairness of the 

exchange ratio for only one of the merging companies, Pirelli S.p.A. will petition the President of the Milan Courts to 

appoint an expert as set forth in art. 2501 quinquies of the Italian Civil Code. 



4. Manner of assigning Pirelli & C. shares and the date the dividend rights accrue to these shares 

Pirelli & C. will execute the Merger by: 

– cancellation, without exchange, of the shares representing the entire share capital of Pirelli & C. Luxembourg; 

– cancellation, without exchange, of the Pirelli S.p.A. ordinary and savings shares that, at the date the Merger becomes 

effective, are owned by Pirelli & C. or Pirelli & C. Luxembourg; 

– cancellation, without exchange, of the shares of the company to be merged, Pirelli S.p.A., which, at the date the Merger 

becomes effective, are owned by the same company to be merged; 

– increase of its share capital for a maximum par value of Euros 786,127,230.72 through the issue of a maximum number of 

1,398,203,116 ordinary shares and a maximum number of 113,580,020 non-convertible savings shares of par value Euros 

0.52 each with dividend rights from January 1 of the year in which the Merger comes into effect with third parties, to be 

reserved for the shareholders of Pirelli S.p.A. (other than Pirelli & C. and Pirelli & C. Luxembourg) on the basis of the 

Exchange Ratios indicated in the preceding paragraph 3. 

As a result, art. 5 (share capital) of the by-laws of the merging company will be amended. 

The amount of the capital increase to service the exchange represents the maximum theoretical amount based upon the 

structure of the shareholder base as of the date of this report, assuming: (i) full exercise of the 46,154,000 “Mediocredito 

Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003”, held by a single party, valid for the subscription, in the 

period July 1 – 31, 2003, of 1 Pirelli S.p.A. ordinary share for each 1 warrant held at the price of approx. Euros 3.24 per 

share, and (ii) full exercise of the options granted by Pirelli S.p.A. under the existing incentive plans giving the beneficiaries 

the right to subscribe to 46,829,692 Pirelli S.p.A. ordinary shares. 

In order for the Pirelli S.p.A. shares, that are to be exchanged for the Exchange Ratio to be exactly divisible, up to a 

maximum of 2 ordinary shares and up to a maximum of 6 savings shares of Pirelli S.p.A. will be cancelled and made 

available to a shareholder. The exact amount of the shares to be cancelled will be determined at the time of signing the 

deed of merger, taking into account the number of Pirelli S.p.A. ordinary and savings shares held by Pirelli & C., Pirelli & C. 

Luxembourg and the same Pirelli S.p.A. at that date, as well as the eventual exercise of “Mediocredito Lombardo Warrants – 

Pirelli S.p.A. ordinary shares 1998-2003” and the eventual exercise of the options granted by Pirelli S.p.A. to the 

beneficiaries of the existing incentive plans. 

The Pirelli & C. shares issued under the Exchange Ratios will be made available to those entitled, under conditions of 

dematerialization, through the respective authorized depositary agents registered with Monte Titoli S.p.A. beginning from 

the date the Merger becomes effective, if the stock market is open for trading or from the first trading day thereafter. 

Where necessary, Pirelli S.p.A. will ensure, through a broker charged especially for the purpose, that shareholders can 

purchase or sell the minimum number of Pirelli S.p.A. shares in order to have a whole number of Pirelli & C. shares without 

any additional expenses, revenues stamps and commissions. This information will be announced on a timely basis through 

a specific notice published in at least one national newspaper. 

Pirelli & C. and Pirelli S.p.A. will advise those concerned of the necessary procedures to be followed to exchange the shares 

after the Merger has been executed through publication of a specific notice in at least one national newspaper. 

As from the date the Merger becomes effective, if the stock market is open for trading, or from the first trading day 

thereafter, the Pirelli S.p.A. shares of all classes of stock will be delisted from the Mercato Telematico Azionario organized 

and operated by Borsa Italiana S.p.A.. 

Pirelli & C. shares, including the new shares issued to service the exchange ratio, will continue to be listed on the Mercato 

Telematico Azionario organized and operated by Borsa Italiana S.p.A.. 

Proposal to modify the features of the Pirelli & C. savings shares 

The approval of the Merger on the part of the shareholders of the companies participating in the merger will entail a 

modification of the privileges offered by the Pirelli & C. savings shares as regards the distribution of profits. In fact, the bylaws 

of Pirelli & C. and Pirelli S.p.A. (and, in particular, art. 17 – which will be renumbered art. 18 – of Pirelli & C. and art. 

23 of Pirelli S.p.A.) establishes, respectively, a preference dividend equal to, respectively, 5 percent and 7 percent of the par 



value of the savings shares (Euros 0.52 for both companies) to be paid from the annual earnings calculated net of the 

portion to appropriate to the legal reserve. In view of the fact that the Directors believe it more advisable to choose, 

between the two alternatives, the one that is more advantageous to the holders of savings shares, the by-laws attached to 

the plan of merger, on which your approval is requested, provides for a treatment of the savings shareholders identical to 

that currently established by art. 23 of the by-laws of Pirelli S.p.A.. Therefore, beginning from the date the Merger comes 

into effect with third parties, the Pirelli & C. non-convertible savings shares and, therefore, also those that will be issued to 

service the exchange ratio, will have the same rights and the same features as the Pirelli S.p.A. non-convertible savings 

shares outstanding prior to the date that the Merger takes effect. 

Furthermore, the new formulation of the above art. 18 does not contain the clause, that instead was in art. 23 of the by-laws 

of your company, relating to the portion of profits to be distributed to the members of the Board of Directors. The directors 

of your company, and those of Pirelli & C., think it more advisable to eliminate such clause and leave the determination of 

the compensation to which they are entitled – mindful of the provision of art. 2389, paragraph 2, of the Italian Civil Code – 

to the wish of the shareholders convened in the shareholders’ meeting. 

Delegation of powers ex art. 2443 to the Directors of Pirelli & C. 

The Pirelli & C. shareholders’ meeting called to approve the plan of merger will also be asked to grant the Directors the 

power to increase, at one or more times, the share capital, through the issue of a maximum of 100,000,000 ordinary shares, 

by April 30, 2008, to be granted to the managers and cadres of the company and its subsidiaries and subsidiaries of the 

latter, in Italy and abroad, pursuant to articles 2441 and/or 2349 of the Italian Civil Code. This delegation of power is based, 

on the one hand, upon the wish to allow the beneficiaries of the stock incentive plans approved by the Board of Directors 

of your company on November 5, 2001 to retain the rights granted even after the Merger becomes effective and, on the 

other hand, to have the opportunity to design new plans for sharing in the risk capital of Pirelli & C., the features of which 

take into account the applicable tax legislation and tend to favor the loyalty of the employees by further developing the 

sense of belonging to the Pirelli Group also after the extraordinary transactions that are described in this report. 

Date dividend rights accrue to shares servicing the Exchange Ratio 

The Pirelli & C. ordinary and non-convertible savings shares granted in the exchange will have dividend rights from January 

1 of the year in which the Merger comes into effect with third parties. 

5. Effective date of the Merger 

The deed of merger will establish the date from which the Merger will be in effect ex art. 2504 bis of the Italian Civil Code. 

The date could also be subsequent to the date in which the final registrations required by art. 2504 of the Italian Civil Code 

have been completed. 

In accordance with the combined provision of articles 2504 bis, paragraph 3, and 2501 bis, paragraph 6 of the Italian Civil 

Code, the transactions of Pirelli & C. Luxembourg and Pirelli S.p.A. will be taken up by Pirelli & C. in its financial 

statements beginning from January 1 of the year in which the merger comes into effect with third parties, and this is also 

the date on which the merger becomes effective for tax purposes, pursuant to art. 123, paragraph 7, of D.P.R. No. 917 of 

December 22, 1986 (the “Tuir”). 

6. Tax impact of the Merger on the companies concerned 

The merger transactions are governed, from a tax standpoint, by art. 123 Tuir and Legislative Decree 358/97. 

In general terms, the provisions provide for a neutral tax effect on the transaction since it does not give rise to the 

assumption of either the realization or the distribution of gains of the merged company. 

As a result, it follows that the values fiscally recognized for the assets of the companies that are to be merged will be 

maintained by the merging company. 



Differences upon merger 

The merger, since it involves the unification of the net assets of the companies participating in the transaction, can give rise 

to the need to make specific entries to maintain the accounting equilibrium between the values of the assets and liabilities: 

the surplus or deficit on merger. 

From a fiscal standpoint, the merger surplus (represented by the exchange ratio and/or cancellation of the investment in the 

companies that were merged) is not taxable for the merging company. The merger surplus will become part of 

shareholders’ equity of the merging company, maintaining proportionally the same tax nature (of profits or capital) of the 

shareholders’ equity of the companies being merged prior to the merger. 

As regards, instead, the merger deficit, under civil law, it can be used to the increase the value of the assets of the 

companies being merged. To this end, Legislative Decree 358/97 states that this higher value can be recognized fiscally if 

subjected to an equalization tax of 19 percent. 

Furthermore, fiscal recognition of the merger deficit alone from the cancellation of the investment is allowed, even without 

paying the equalization tax, if and to the extent that the cancelled investments had given rise to gains subjected to taxes by 

the previous owners. 

If the merger deficit is recorded in the income statement, it does not form part of the taxable income of the merging 

company and, therefore, should be considered non-deductible for Irpeg purposes. 

Reserves in abeyance of taxation 

The reserves in abeyance of taxes recorded in the last financial statements of the merged companies will form part of the 

income of the merging company if and to the extent in which they have not been re-established in its financial statements. 

This does not apply to reserves which are taxable only in the event of distribution (for example, the monetary revaluation 

reserves), which must be re-established in the equity of the merging company only if there is a merger surplus or a capital 

increase for a amount that is higher than the total capital of the companies participating in the merger, net of the portion of 

share capital of each of them already owned by the same or by the others. In this case, the reserves form part of the 

income of the company resulting from the merger or of the merging company in the case of the successive distribution of 

the surplus or the reduction of capital due to an excess. 

The reserves already allocated to the capital of the merged companies shall be intended as transferred to the capital of the 

merging company and form part of the income in the case of the reduction of capital due to an excess. 

Loss carryforwards 

The tax losses of the companies participating in the merger, including the merging company, can be carried forward by the 

merging company for the portion of their amount which does not exceed the amount of the respective shareholders’ equity, 

as shown in the most recent financial statements or, if lower, as shown in the balance sheet data pursuant to art. 2502 of the 

Italian Civil Code without taking into account the contributions and payments against capital increases made in the last 

twenty-four months prior to the date of the same balance sheet data. 

The tax losses can, however, be carried forward on further condition that in the statement of income of the company to 

which the losses refer, relating to the year prior to the one in which the merger was decided, the amount of revenues and 

the amount of expenses for personnel costs and related social security costs are 40 percent higher than those resulting from 

the average of the two previous years. 

The losses can not, in any case, be carried forward up to the total amount of the writedowns of the shares of the merged 

companies deducted by the merging company or by the company which sold the shares to the merging company after the 

year to which the losses refer and before the deed of merger. 

Effective date for tax purposes 

The law allows a merger to be effective for tax and accounting purposes on a date prior to that established by civil law. 

Such date can not, however, be prior to the closing date of the last year of the merged companies or, if closer, the merging 

company. 



Registration tax 

A fixed registration tax is applied to mergers. 

Effects on the shareholders of the merged companies 

The exchange of the investments held by the shareholders of the merged companies with shares of the merging company is 

irrelevant for tax purposes since there is neither the realization or distribution of gains nor the attainment of revenues. 

As regards the Merger transaction in question, the following can be said: 

– in view of the year-end closing date of the merged companies, the Merger will be effective for tax purposes from January 

1 of the year in which the Merger itself comes into effect with third parties; 

– the difference on merger arising from the cancellation of the Pirelli S.p.A. shares held by the merging company and the 

exchange of Pirelli S.p.A. shares held by third parties will be recorded for statutory purposes in the balance sheet of the 

merging company; 

– the reserves in abeyance of taxes recorded by the merged companies, which amount to Euros 45,824,199, will be 

recorded by the merging company by booking the merger surplus, whereas the reserve in abeyance of taxes already 

recorded in the capital of the merged companies, for a total of Euros 27,076,810, will be transferred to the capital of the 

merging company (in any case, taking into account the effects represented by the eventual withdrawal of the 

shareholders that has already taken place); 

– a fixed registration tax of Euros 129.11 will be applied to the merger, to be paid at the time of registering the deed of 

merger. 

7. Forecast of the relevant shareholder composition and the controlling structure of Pirelli & C. after the 

Merger 

The shareholder base of Pirelli S.p.A. as of the date of this report is as follows (information is provided on investments 

higher than two percent of subscribed share capital, represented by shares with voting rights, as shown in the shareholders’ 

register, in official information received or in other available information): 

Shareholder / Declaring party No. of Pirelli S.p.A. shares % of ordinary share capital % of share capital 

Pirelli & C. 800,191,375 (1) 41.70 39.87 

Landesbank Baden Wuerttemberg 106,576,882 5.55 5.31 

Pirelli S.p.A. – treasury shares 163,263,699 (2) 8.51 8.13 

Other (*) 849,091,765 44.24 42.31 

Total 1,919,123,721 100.00 95.62 

Savings shareholders (**) 88,006,016 – 4.38 

Grand total 2,007,129,737 100.00 100.00 

Note: 

1. Sum of the investment held directly (272,378,274 shares) and indirectly through Pirelli & C. Luxembourg (527,813,101 shares). 

2. Of which 46,154,000 treasury shares available for eventual exercise of the “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003”. 

(*) Camfin S.p.A. holds 37,361,855 ordinary shares (1.95 percent of ordinary share capital). 

(**) Pirelli & C. holds 8,500,000 savings shares. 



The shareholder base of Pirelli & C. as of the date of this report is as follows (information is provided on investments 

higher than two percent of subscribed share capital, represented by shares with voting rights, as shown in the shareholders’ 

register, in official information received or in other available information; also presented are the investments held by the 

participants of the Pirelli & C. Accomandita per Azioni Voting Trust and the Pirelli & C. treasury shares, even if less than the 

2 percent threshold): 

Shareholder / Declaring Party No. of Pirelli & C. shares % of ordinary share capital % of share capital 

Camfin S.p.A.* 184,854,284 (1) 29.90 28.32 

Serfis S.p.A. 59,269,815 (2) 9.59 9.08 

Assicurazioni Generali S.p.A.* 38,423,166 6.21 5.89 

Holding di Partecipazioni Industriali S.p.A.* 36,731,056 5.94 5.63 

Fondiaria - Sai S.p.A.* 34,735,046 (3) 5.62 5.32 

Edizione Holding S.p.A.* 32,673,670 (4) 5.28 5.01 

Mediobanca S.p.A.* 31,378,375 5.07 4.81 

R.A.S. S.p.A.* 31,377,170 (5) 5.07 4.81 

e.Biscom S.p.A. 29,645,680 (6) 4.79 4.54 

S.M.I. S.p.A.* 12,228,540 1.98 1.87 

Massimo Moratti* 8,120,616 (7) 1.31 1.24 

Sinpar Holding S.A.* 6,115,487 0.99 0.94 

Pirelli & C. - treasury shares 2,617,500 0.42 0.40 

Other 110,147,441 17.83 16.87 

Total 618,317,846 100.00 94.73 

Saving shareholders 34,418,257 – 5.27 

Grand Total 652,736,103 100.00 100.00 

Note: 

1. Sum of the investment held by Camfin S.p.A. (184,852,214 shares) and by the controlling party Marco Tronchetti Provera ( 2,070 shares). 

2. Of which 29,528,225 held through Serfig S.r.l.. 

3. Controlling party: Premafin HP S.p.A.. 

4. Controlling party: Ragione di G. Benetton & C. S.a.p.a.. 

5. Controlling party: Allianz Aktiengellschaft. 

6. Controlling party: Silvio Scaglia. 

7. Of which 6,792,046 shares held through CMC S.p.A.. 

(*) Participants of the Pirelli & C. Accomandita per Azioni Voting Trust. The percentage of ordinary shares covered by the Voting Trust is currently equal to 56.48 percent. 

The following table shows the anticipated composition of the Pirelli & C. shareholder base after the effective date of the 

Merger, calculated by assuming that: 

– the current shareholders of Pirelli & C. will not exercise the right of withdrawal to which they are entitled as a result of 

the resolutions passed concerning the transformation to a corporation and the change in the corporate business purpose 

as more fully illustrated in the preceding paragraph 1; 

– the current shareholders of Pirelli & C. will participate proportionally in Pirelli & C.’s capital increase cum warrants, 

more fully described in the preceding paragraph 1 (therefore subscribing to their share of the stock and exercising the 

free warrants attached to the shares); 

– the “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003” will not be exercised; 

– the options granted by Pirelli S.p.A. under the existing incentive plans which give the beneficiaries the right to subscribe 

to 46,829,692 Pirelli S.p.A. ordinary shares will not be exercised. 



Shareholder / Declaring party % of ordinary shares post- % of ordinary shares post 

capital increase 

capital increase / post-exercise 

and post-Merger 

of warrants and post-Merger 

Camfin S.p.A.* 20.54 21.43 (1) 

Serfis S.p.A. 6.17 6.50 (2) 

Assicurazioni Generali S.p.A.* 4.00 4.21 

Holding di Partecipazioni Industriali S.p.A.* 3.82 4.03 

Fondiaria - Sai S.p.A.* 3.62 3.81 (3) 

Edizione Holding S.p.A.* 3.40 3.58 (4) 

Mediobanca S.p.A.* 3.27 3.44 

R.A.S. S.p.A.* 3.27 3.44 (5) 

Landesbank Baden Wuerttemberg 3.70 3.28 

e.Biscom S.p.A. 3.09 3.25 (6) 

S.M.I. S.p.A.* 1.27 1.34 

Massimo Moratti* 0.85 0.89 (7) 

Sinpar Holding S.A.* 0.64 0.67 

Pirelli & C. - treasury shares 0.07 0.06 

Other 42.29 40.07 

Total 100.00 100.00 

Note: 

1. Controlling party: Marco Tronchetti Provera. 

2. Also through the subsidiary Serfig S.r.l.. 

3. Controlling party: Premafin HP S.p.A.. 

4. Controlling party: Ragione di G. Benetton & C. S.a.p.a. 

5. Controlling party: Allianz Aktiengellschaft. 

6. Controlling party: Silvio Scaglia. 

7. Also through CMC S.p.A.. 

(*) Participants in the Azioni Pirelli & C. Accomandita per Azioni Voting Trust. 

Pirelli & C. is not aware of the existence of individuals and/or legal entities which, after the Merger, could exercise control 

over same. 

After the Merger, and assuming the full subscription to the Pirelli & C. capital increase on option prior to the Merger 

(as well as the full exercise of the warrants), with no change in what was assumed above, the percentage of the total 

investment contributed to the Pirelli & C. Accomandita per Azioni Voting Trust (calculated on the ordinary share capital) 

will decrease from the current 56.48 percent to about 38.32 percent. 

8. Effects of the Merger on relevant Shareholder Agreements pursuant to art. 122 of Legislative Decree No. 58 

of February 24, 1998 


Pirelli & C. Accomandita per Azioni Voting Trust 

As a result of the capital increase earmarked to service the exchange ratio, and also taking into account the diluting effect 

of the Pirelli & C. capital increase cum warrants (as more fully described in the preceding paragraph 1) consequent to the 

offer of ordinary shares made also to savings shareholders, the percentage of the total investment contributed to the Voting 

Trust (calculated on ordinary share capital) will decrease from the current 56.48 percent to about 38.32 percent. 

No other significant effects on the aforementioned voting trust are anticipated. 




Agreement between Pirelli S.p.A. and Intesa Mediocredito S.p.A. and between Pirelli S.p.A. and Fondazione Cariplo 

Iniziative Patrimoniali S.p.A. 

No significant effects are expected on the above agreements, whose date of expiry (August 1, 2003) is presumably before 

the date that the Merger becomes effective. 

Agreements between: (i) Pirelli S.p.A. and Edizione Holding S.p.A. – Edizione Finance International S.A., (ii) Pirelli 

S.p.A., UniCredito Italiano S.p.A. and Intesa S.p.A., and (iii) Pirelli S.p.A. Edizione Holding S.p.A. – Edizione Finance 

International S.A., UniCredito Italiano S.p.A., Intesa S.p.A., Olimpia S.p.A. and Hopa S.p.A. 

The above agreements are finalized to regulate the control and governing of the common quality of shareholders in Olimpia 

S.p.A., the company which holds an investment in Olivetti S.p.A.. 

In executing the agreement signed between Pirelli S.p.A., Edizione Holding S.p.A. - Edizione Finance International S.A., 

UniCredito Italiano S.p.A., Intesa S.p.A., Olimpia S.p.A. and Hopa S.p.A., the Olimpia S.p.A. shareholders’ meeting passed a 

resolution, on March 3, 2003, for the merger of Holy S.r.l., the wholly-owned subsidiary of Hopa S.p.A., in Olimpia S.p.A.. 

After this merger, 50.4 percent of Olimpia S.p.A.’s share capital will be held by Pirelli S.p.A., 16.8 percent by Edizione 

Finance International S.A., 16 percent by Hopa S.p.A. and 8.4 percent by UniCredito Italiano S.p.A. and Intesa S.p.A.. 

The Merger is not expected have any significant effects on the above agreements, except that Pirelli & C. will consequently 

take over the rights and obligations of Pirelli S.p.A.. 

Pirelli & C. Luxembourg 

There are no shareholder agreements covering Pirelli & C. Luxembourg shares. 

Extracts of the agreements cited in this paragraph 8, published in accordance with the law, are presented as an attachment 

to this report. 

9. Evaluation of the Board of Directors on the eventual recourse to the right of withdrawal pursuant 

to art. 2437 of the Italian Civil Code 

The Board of Directors of Pirelli S.p.A. does not believe that the Merger gives rise to the right of withdrawal for the 

shareholders of Pirelli & C. and Pirelli S.p.A. pursuant to art. 2437 of the Italian Civil Code. 

However, the absent or dissenting holders of Pirelli & C. ordinary shares regarding the specific resolutions on the 

transformation of Pirelli & C. to a corporation and the change in the corporate business purpose (more fully described in 

the preceding paragraph 1) and the holders of Pirelli & C. savings shares, will be entitled to the right of withdrawal 

pursuant to art. 2437 of the Italian Civil Code to be exercised in the manner indicated in the specific notice that will be 

published in at least one national newspaper subsequent to the registration of the relative resolutions in the Companies 

Registry. 

10. Amendments to by-laws 

As a result of the Merger, your company will be incorporated in Pirelli & C. which will adopt the by-laws attached to this 

report. 

Except for combining the provisions of certain articles and the consequent re-numbering of the articles, the provisions 

contained in the by-laws which are being proposed for approval as an attachment to the plan of merger, in substance, 

reflect what is currently contained in the by-laws of your company. In fact, the new text re-proposes the type of legal entity 



(art. 1), the corporate business purpose (art. 2), the subdivision of share capital in ordinary and savings shares (art. 6), the 

functioning of the corporate bodies (articles 7 through 9 with regard to shareholders’ meetings and articles 10 through 15 

with regard to the Board of Directors and Executive Committee and article 16 for the Board of Statutory Auditors) and the 

distribution of profits (art. 18). 

The most important changes compared to the by-laws adopted by your company are as follows: 

(i) taking the name of the merging company; 

(ii) a different location for the registered office: from Viale Sarca 222 to Via G. Negri 10, always in Milan; 

(iii) an increase in the maximum number of Board members from the current 19 to 23 (art. 10); 

(iv) the deletion, described in the preceding paragraph 4, of the destination of a part of the profits to compensate the work 

carried out by the Directors (art. 23 of the Pirelli S.p.A. currently in force). 

Art. 5 will also be amended to reflect the new amount of share capital as a result of the Merger. 

Lastly, another paragraph will be added to art. 5 to reflect the delegation of power that will be attributed to the Directors of 

Pirelli & C. to increase share capital through the issue, at one or more times, of a maximum of 100,000,000 Pirelli & C. 

ordinary shares, by April 30, 2008, to be granted to the managers and cadres of the company and its subsidiaries and 

subsidiaries of the latter, in Italy and abroad, pursuant to articles 2441 and/or 2349 of the Italian Civil Code. 

Attached are the plan of merger and the text of the by-laws of the merging company which, when approved by you, will 

become effective on the date the Merger come into force, pursuant to art. 2504 bis of the Italian Civil Code and in 

accordance with that established in the plan of merger. 

* * * 

If in agreement with our proposal, we ask you to pass the following 

resolution 

“The extraordinary shareholders’ meeting: 

• having examined the plan of merger drawn up in accordance with article 2501 bis of the Italian Civil Code and the 

relative report of the Directors; 

• having taken note of the balance sheet data of the company at December 31, 2002; 

• having taken note of the balance sheet data Pirelli & C. Luxembourg at December 31, 2002; 

• having taken note of the balance sheet data Pirelli & C. at December 31, 2002; 

• having taken note of the registration of the plan of merger at the Milan Companies Registry, in accordance with art. 2501 

bis of the Italian Civil Code, under date of April ……, 2003 for Pirelli & C., Pirelli & C. Luxembourg and Pirelli S.p.A., 

and the documentation filed as required by the provisions of art. 2501 sexies and art. 2504 quinquies of the Italian Civil 

Code within the terms of the law; 

• having taken note of the statement by the Board of Statutory Auditors which attests that the current share capital of 

Pirelli S.p.A. of Euros 1,043,707,463.24, represented by 1,919,123,721 ordinary shares and 88,006,016 savings shares, all 

with a par value of Euros 0.52, is entirely subscribed and paid-in; 

• having taken note that Pirelli & C. owns 270,000 Pirelli & C. Luxembourg shares of par value Euros 680.00 each, 

representing the entire share capital of said company; 

• having taken note of the opinion of the experts, ex art. 158, paragraph 4, Legislative Decree No. 58/98, on the fairness of 

the exchange ratio of the shares relating to the merger by incorporation of Pirelli & C. Luxembourg and Pirelli S.p.A. in 

Pirelli & C. issued, pursuant to art. 2501 quinquies of the Italian Civil Code, for Pirelli & C. by PricewaterhouseCoopers 

S.p.A. and for Pirelli S.p.A. by ………. following the decree for nomination by the President of the Milan Courts; 



votes 

to approve the plan of merger by incorporation in Pirelli & C. of Pirelli & C. Luxembourg and Pirelli S.p.A. (attached to 

these minutes) as registered in the Milan Companies Registry, according to the provisions of art. 2501 bis of the Italian Civil 

Code, and thus, for the purpose, with no changes to any other provisions of the same plan: 

a) to merge by incorporation in Pirelli & C., with registered office in Milan, Via G. Negri 10, now with share capital of Euros 

339,422,773.56, Pirelli & C. Luxembourg with registered office in Milan, Via G. Negri 10, with share capital of Euros 

183,600,000 (a wholly-owned subsidiary of Pirelli & C.) and Pirelli S.p.A. with registered office in Milan, Viale Sarca 222, 

now with share capital of Euros 1,043,707,463.24, on the basis of the respective balance sheet data at December 31, 2002, 

with (i) cancellation without substitution of all the Pirelli & C. Luxembourg shares and without a capital increase on the 

part of Pirelli & C., since the latter owns the entire share capital of the merged company, (ii) cancellation without 

substitution of the Pirelli S.p.A. ordinary and savings shares that will be owned, at the date the merger becomes 

effective, by the merging company, by Pirelli & C. Luxembourg and by Pirelli S.p.A., and (iii) the increase of the capital 

of Pirelli & C. for a maximum par value of Euros 786,127,230.72 through the issue of a maximum of 1,398,203,116 

ordinary shares and a maximum of 113,580,020 savings shares, all of par value Euros 0.52 each, with dividend rights from 

January 1 of the year in which the merger comes into effect with third parties, to be assigned to the third-party holders 

of Pirelli S.p.A. ordinary and savings shares in a ratio of 4 new Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. 

ordinary shares and 10 new Pirelli & C. non-convertible savings shares for every 7 Pirelli S.p.A. non-convertible savings 

shares; 

b) to delegate to the Chairman, Deputy Chairman and, where appointed, the Managing Directors pro tempore in office, any 

and all powers, so that each of them, separately, and also through those holding special power of attorney, can execute 

the preceding resolutions, with the right to make changes in form and not substance, that might be required for purposes 

of registration in the Companies Registry, determining every single formality for the individual transactions according to 

the dictates of the plan of merger, reaching an agreement for the stipulation of the deed of merger, and any other act 

inherent to and consequent thereof, once Pirelli & C. has approved the transformation to a corporation with the related 

amendment to the by-laws and the capital increase offered on option to the Pirelli & C. shareholders has been effected 

as submitted for approval to the shareholders on May 7, 2003 in first call and on May 8, 2003 in second call, allowing 

transfers, transcriptions and notes in the public registers and exonerating the Land and Property Registrar and any other 

Public Office from whatsoever responsibility and fulfilling all that is essential for the complete execution of the 

aforementioned resolutions, with all the necessary and appropriate power for this purpose, none excluded or excepted.” 

The Board of Directors 




PIRELLI & C. ACCOMANDITA PER AZIONI VOTING TRUST AGREEMENT 

1. Type of agreement and purpose 

The purpose of the Pirelli & C. voting trust agreement is to ensure a stable shareholder base and a uniform strategy in the management of the company. 

2 Parties to the agreement and Pirelli & C. shares transferred to the voting trust 

Number of shares % of total shares % of total ordinary 

transferred to trust transferred to trust shares issued 

CAMFIN S.p.A. 126,090,714 36.10% 20.39% 

HOLDING DI PARTEC. INDUST. S.p.A. 36,583,598 10.47% 5.92% 

FONDIARIA - SAI S.p.A. 34,685,046 9.93% 5.61% 

MEDIOBANCA S.p.A. 31,378,375 8.98% 5.07% 

EDIZIONE HOLDING S.p.A. 31,377,170 8.98% 5.07% 

R.A.S. S.p.A. 31,377,170 8.98% 5.07% 

ASSICURAZIONI GENERALI S.p.A. 31,377,170 8.98% 5.07% 

S.M.I. S.p.A. 12,228,540 3.50% 1.98% 

Massimo MORATTI (*) 8,120,616 2.33% 1.31% 

SINPAR HOLDING S.A. 6,115,487 1.75% 0.99% 

Total 349,333,886 100% 56.48% 

(*) of which 6,792,046 shares through CMC S.p.A. 

3. The party, if any, which, through the agreement, can exercise control over the company 

There is no party which, through the agreement, can exercise control over Pirelli & C.. 

4. Restrictions on the sale of the shares transferred and on the subscription and the purchase of new shares 

The sale of the shares to third parties (and option rights in the event of a capital increase against payment) is prohibited. Shares can be sold freely and pre-emptively 

to subsidiaries, according to article 2359, paragraph 1, point 1 of the Italian Civil Code, and to the parent companies as well as other participants of the voting trust. 

Each participant may buy or sell additional shares for an amount not in excess of the higher of 20% of the shares already transferred and 2% of the ordinary share 

capital issued; purchases of greater amounts are permitted only with the intent of reaching a holding equal to 5% of the ordinary share capital issued, on condition that 

the amount in excess of the above limits came under the voting trust. 

CAMFIN S.p.A. is authorized to freely purchase additional Pirelli & C. shares; it can transfer shares to the voting trust, but to the extent that, at any one time, the 

shares do not exceed 40% of total shares transferred by all the participants in the voting trust. This has been decided so that a stable predominate position is not 

assumed in the voting trust or a stable veto power is not exercised over common decisions. 

5. Disposition of the shares 

The shares transferred shall remain at the disposition of the participants in the voting trust. 

6. Bodies governing the agreement, criteria and manner of composition, cases when meetings are called and powers delegated 

The Body governing the agreement is the management of the voting trust. 

Management of the voting trust shall consist of a president and vice-president designated by Pirelli & C. from among its directors and by a member representing each 

participant unless a participant has deposited more than 10% of ordinary share capital, in which case another member may be designated: for this purpose, in the 

event the voting trust is composed of several companies related by a controlling relationship or belonging to the same parent company, their aggregate shall be 

considered for this purpose as one sole participant in the voting trust. 

The management of the voting trust shall be convened to evaluate the proposals to be submitted to the Shareholders’ Meetings, for the possible earlier termination of 

the agreement and for the admission of new participants. The Shareholders’ Meeting shall also meet at least twice a year to examine, with the directors of Pirelli & C., 

the half-year performance, the annual results, the general guidelines for the company’s development, the investment policy and proposed significant divestitures. and 

more in general, all the relevant matters of discussion by both the ordinary and extraordinary sessions of the Shareholders’ Meetings. 

The agreement shall be terminated when the majority of the directors of Pirelli & C. do not share the guidelines decided by the management of the voting trust. 

7. Matters covered by the agreement 

Those contemplated in points 4 and 6. 

8. Majority vote required for decisions relating to matters in the agreement 

The management of the voting trust passes resolutions by casting votes in favor by the members representing at least three-fifths of the shares transferred; 

management of the voting trust can designate trustees to represent the shares in the voting trust at the Shareholders’ Meetings in order for voting to take place 

according to the instructions of the management of the voting trust. Whenever the decisions of the management of the voting trust are not voted unanimously, the 

dissenting participant shall have the right to freely exercise his/hers/its vote in the Shareholders’ Meeting. 

9. Term, renewal and cancellation of the agreement 

The agreement shall be valid until April 15, 2004 and shall be tacitly renewed for a period of three years except for withdrawal, which can be exercised between 

December 15 and January 15 prior to the expiration date. In case of withdrawal, the shares transferred by the withdrawing party shall be automatically offered proquota 

to the other participants. The agreement shall remain in force, whenever it is possible, at every expiration date, to renew the agreement for a percentage of 

Pirelli & C.’s subscribed ordinary share capital of not less than 33%. 

10. Penalties for breach of the commitments contained in the agreement 

They are not envisaged by the agreement. 

11. Registration of the agreement at the Company Registry 

The agreement is registered at the office of the Milan Companies Registry. 

Milan, December 31, 2002 



Notice pursuant to art. 10, paragraph 4, Law No. 149 of February 18, 1992 and Consob resolution No. 7835 of March 8, 1994 

Pirelli S.p.A. reached an agreement for a loan of about Lire 290 billion coming from the issue of “Mediocredito Lombardo S.p.A. 1998/2003 2.2% special series bonds cum 

warrants for Pirelli S.p.A. ordinary shares” (the “Loan”) issued by Mediocredito Lombardo S.p.A. (“Mediocredito”) and subscribed to by Fondazione Cariplo Iniziative 

Patrimoniali S.p.A. (“Fondazione”). 

Each bond carries a “Mediocredito Lombardo Warrant - Pirelli S.p.A. ordinary shares 98-03” (the “Warrants”) to acquire at pre-fixed prices, over the next five years, up to a 

maximum of 46,154,000 Pirelli S.p.A. ordinary shares (the “Shares”). The Shares shall be made available by the same Pirelli S.p.A. which will draw them from the treasury 

shares. The Loan contains the so-called cash equivalent clause whereby Pirelli S.p.A. has the right, should Mediocredito declare that the holder of the Warrants intends to 

exercise them, to choose between delivering the shares or paying the difference, if positive, between the market price of the shares, in reference to the arithmetic average 

of the last three official prices available at the time the warrants are exercised, and the price of exercising the Warrants. 

Agreement between Pirelli S.p.A. and Mediocredito Lombardo S.p.A. 


Compendium agreement having the purpose of guaranteeing the issuer Mediocredito the amount of Pirelli S.p.A. ordinary shares or money needed to allow the same 

Mediocredito to fulfill its obligations to the carriers of Warrants at the time they are eventually exercised. 

2. Parties to the agreement 

The parties to the agreement are Mediocredito and Pirelli S.p.A.. 

3. Financial instruments covered by the agreement 

The Pirelli S.p.A. ordinary shares covered by the agreement are a maximum of No. 46,154,000. 

They represent 2.44% of the ordinary share capital of Pirelli S.p.A. as of today’s date. 


There is no party which, through the agreement, can exercise control over Pirelli S.p.A.. 

5. Restrictions on the sale of the shares 

There are no restrictions whatsoever on the Shares or destined in any way whatsoever to limit their disposition. 

6. Disposition of the shares 

The Shares shall remain at the disposition of Pirelli S.p.A.. 

7. Bodies governing the agreement 


8. Matters covered by the agreement. 

Those covered in paragraph 1. 


The agreement runs until the expiration date for the exercise of the Warrants (July 31, 2003) and it is not renewable nor is it subject to cancellation or withdrawal. 



Agreements between Pirelli S.p.A. and Fondazione Cariplo Iniziative Patrimoniali S.p.A. 


Pre-emptive agreement having the purpose of guaranteeing Pirelli S.p.A., or parties indicated by it, the pre-emptive right to acquire the Warrants (or the rights to the 

Warrants) assigned, at issue, to the Loan. 

2. Parties to the agreement 

The parties to the agreement are Fondazione and Pirelli S.p.A.. 

3. Financial instruments covered by the agreement 

Warrants covered by the agreement are a maximum of No. 46,154,000. 

In the event the Warrants are exercised, they give the right to acquire Shares representing 2.44% of the ordinary share capital of Pirelli S.p.A. as of today’s date. 


There is no party which, through the agreement, can exercise control over Pirelli S.p.A.. 

5. Restrictions on the sale of the warrants. 

There are no restrictions whatsoever on the Warrants or destined in any way whatsoever to limit their disposition. 

The sale of the Warrants, or the rights to them, to subsidiaries as set forth by art. 2359, paragraph 1, point l, of the Italian Civil Code and to the parent companies of 

the Fondazione, is freely permitted; to third parties it is allowed by pre-emption; to commercial competitors of Pirelli S.p.A. it is permitted with approval. 

6. Disposition of the warrants 

The Warrants remain at the disposition of the holders. 

7. Bodies governing the agreement 


8. Matters covered by the agreement. 

Those covered in paragraphs 1 and 5. 


The agreement runs until August 1, 2003; it is not renewable nor is it subject to cancellation or withdrawal. 



Milan, December 15, 1998 



Notice pursuant to art. 122 of Legislative Decree No. 58 of February 24, 1998 and the regulation for its introduction adopted with Consob resolution No. 

11971 of May 14, 1999 (and subsequent amendments) 

Agreement between Pirelli S.p.A. and Fondazione Cariplo Iniziative Patrimoniali S.p.A. 

(the extract of which was published in the Press on December 15, 1998) 

Be it communicated, that in accordance with above provisions, that the agreement between Pirelli S.p.A. and Fondazione Cariplo Iniziative Patrimoniali S.p.A., has been 

renewed, in accordance with the original wish of the contracting parties, up to August 2003. 

At this time, be it furthermore communicated, that also the agreement between Pirelli S.p.A. and Mediocredito Lombardo S.p.A. (which was taken over, in the meantime, 

by IntesaBci Mediocredito S.p.A.) will be binding up to August 2003. 

The above agreements have been filed with the Milan Companies Registry. 

Milan, December 22, 2001 

AGREEMENT BETWEEN PIRELLI S.p.A. AND EDIZIONE HOLDING S.p.A. – EDIZIONE FINANCE INTERNATIONAL S.A. 

Notice published according to article 122 of Legislative Decree No. 58 dated February 24, 1998 and to the regulation for its introduction adopted with 

Consob’s resolution No. 11971 of May 14, 1999 (and subsequent changes) 

Provided that: 

• Pirelli S.p.A. (with registered offices in Milan, at Viale Sarca 222, registered in the Milan Companies Registry under tax code and VAT No. 00886890151 hereafter 

referred to as “Pirelli”), and Edizione Holding S.p.A. (with registered offices in Treviso, at Calmaggiore 23, registered in the Treviso Companies Registry under tax 

code No. and VAT No. 00778430264 hereafter referred to as “Edizione”) executed on August 7, 2001 an agreement in order to govern as shareholders a vehicle 

company designated specifically for the acquisition from BELL S.A. and other parties of No. 1,552,662,120 ordinary shares (the “Shares”) and No. 68,409,125 “warrants 

ordinary shares Olivetti 2001-2002”(“Warrants” and together with the Shares, the “Investment”) of Olivetti S.p.A. (hereafter “Olivetti”); 

• On August 9, 2001, Edizione and Pirelli transferred to Olimpia S.p.A. (with registered offices in Milan, at Viale Sarca 222 “Newco” or “Olimpia”) respectively No. 

134,322,250 and No. 130,980,000 Olivetti ordinary shares, equal, respectively, to 1.84% and to 1.80% of Olivetti share capital with voting rights; 

• On August 9, 2001, an additional No. 147,337,880 of Olivetti ordinary shares were transferred to Newco that Pirelli purchased, through a subsidiary, from Bell S.A and 

from another party on July 30, 2001 (equal to 2.02% of Olivetti share capital with voting rights); 

• Effective August 7, 2001, Edizione Finance International S.A. (a subsidiary of Edizione) took over the rights and obligations of Edizione under the Agreement as 

defined below; 

• Pirelli, Edizione and Edizione Finance International S.A. (the “Parties” and individually the “Party”) on September 14, 2001 signed an amendment, publicly announced 

on September 22, 2001, in accordance with existing laws. 

Moreover: 

• the Parties, on February 13, 2002, stipulated a second amendment to the Agreement, which is underlined in bold later in the report in the paragraph “Further 

commitments of the parties”, so that the Parties may purchase (and eventually convert) convertible bonds into Olivetti shares (hereafter referred to as the “Bonds”). 

The entire agreement is summarized below, specifying that Olimpia’s investment in the share capital of Olivetti is equal to approximately 28.7%. 

1. Content of the agreement 

Purpose and content of the agreement 

The Parties have reached an agreement (the “Agreement”) as to the criteria governing the shareholders of a specifically identified vehicle company (Olimpia) for the 

acquisition of the Investment from BELL S.A. and/or other parties designated by it. 

Transfer of Olivetti shares to Newco 

The Investment shall be transferred to Newco. 

Share capital of Newco 

Newco’s share capital is 80% held by Pirelli and 20% by Edizione. Pirelli will have the right, with prior consent from Edizione, to sell up to 20% of the share capital of 

Newco to one or more parties. 

Shareholders’ Meeting, Board of Directors and Board of Statutory Auditors of Newco 

The By-laws of Newco state that the Extraordinary Shareholders’ Meeting shall pass resolutions with 81% of the share capital casting a vote in favor both in first and 

second call. 

The Board of Directors of Newco shall be formed by ten members nominated by voting list. Edizione will have the right to nominate two directors. Pirelli agrees to do 

everything in its power so that, within the limits of law, no decision shall be made by the Board of Directors of Newco without a vote cast in favor by at least one of the 

board members appointed by Edizione (if present) on certain key issues such as: 

• an indication of the vote to be expressed in the Ordinary and Extraordinary Shareholders’ Meetings of Olivetti; 

• the purchase, sale or acts to dispose in any manner of investments with a total value greater than Euros 100,000,000 per single transaction. 

The Parties hereby agree to do everything in their power so that one acting statutory auditor and one alternate statutory auditor of Newco shall be named by Edizione. 

Corporate boards of Olivetti and its listed subsidiaries, resolutions passed by the Board of Directors of Olivetti and its listed subsidiaries 

The Parties agree to do everything in their power, within the limits of law, so that, as regards the directors of Olivetti S.p.A., Telecom Italia S.p.A., TIM – Telecom Italia 

Mobile S.p.A. and Seat Pagine Gialle S.p.A. (hereinafter “Listed Companies”), Edizione may designate one-fifth of the available members of the Boards of Directors for 

nomination (net of the directors nominated by the market and government entities) and the Deputy President with vice-representation in the aforementioned companies. 

• For the entire term of this Agreement, Edizione agrees not to present opposition to the fact that the members of the Board of Directors of Listed Companies and the 

subsidiaries not named by Edizione, the market, or government agencies, shall be named by Pirelli. 

• The parties agree to do everything in their power so that no decision shall be made by the Board of Directors of Olivetti and Listed Companies without a vote cast in 

favor by at least one of the board members named by Edizione on the following points of business: 

– individual investments greater than Euros 250 million; 

– purchase, sale and acts to dispose for any reason whatsoever of subsidiary or affiliate investments with a unit value of greater than Euros 250 million; 

– acts to dispose for any reason whatsoever of companies or business segments individually greater than Euros 250 million; 

– proposals to call the Extraordinary Shareholders’ Meeting; 

– infragroup transactions between the Olivetti group and the Pirelli group for amounts individually greater than Euros 50 million; 

– related party transactions. 

Penalty 

The breach of the provisions of this Agreement shall cause the breaching party to pay to the complying party a penalty equal to 10% of the principal amount invested by 

the complying party, including the right to higher damages. 



Term 

This Agreement shall run for three years and shall be deemed to be tacitly renewed on each expiration date unless notice of withdrawal has been given by Edizione 6 (six) 

months in advance. 

Further commitments of the Parties 

The Agreement provides that the Parties and/or their subsidiaries or parent companies pursuant to article 2359, paragraph 1 of the Italian Civil Code may not purchase 

further shares or bonds which may be converted into Olivetti shares. Nevertheless, the Parties may, with prior notice to the other party, purchase bonds; the 

Party which holds the bonds may exercise the conversion right, with prior notice of 60 days to the other party, only to the extent that the amount of the 

Olivetti shares coming from the conversion (eventually increased by the numbers of Olivetti shares owned at the same date, coming from prior 

conversion), does not exceed after conversion, the percentage of the Olivetti share capital corresponding to the difference between 28.74% and the 

percentage of Olimpia’s investment in the share capital with voting rights in Olivetti at the time of conversion. Such limit may be exceeded with the 

consent of the other Party within the applicable threshold for Takeover Bids (OPA). In this case, the Party which has exercised the conversion right 

shall have the obligation to sell to the other Party, if requested, shares of the same nature and typology of those coming from the exercise of the 

conversion of the Bonds, to the extent that such shares shall be divided between the Parties in relation to the original proportion of the Investment by 

the Parties in the share capital of Olimpia: Pirelli 80% and Edizione 20%. 

In the event that third parties should make a Takeover Bid (OPA) for Olivetti, Edizione hereby agrees, when so requested by Pirelli, not to oppose Newco’s acceptance of 

the OPA. 

In the event of non-renewal of the Agreement upon expiration by Pirelli, Edizione shall have the right to sell to Pirelli, which shall have the corresponding obligation to 

buy, all of its Newco shares. 

The Agreement in addition provides for the terms and conditions to overcome a deadlock situation in Newco or in the Board of Directors of the Listed Companies which 

are resolved as follows: (i) Edizione shall have the right to sell to Pirelli, which shall have the corresponding obligation to purchase all the Newco shares; ii) Pirelli shall 

have the right to purchase from Edizione, which shall have the corresponding obligation to sell all the Newco shares. 

The by-laws of Newco shall provide for a pre-emptive right in case of acts for disposal which will cause a direct or indirect transfer of Newco’s shares and, in accordance 

with the pre-emptive right, a co-sale right in favor of the minority shareholder/s/ where Newco’s shares are offered to third parties by the majority shareholder (50.01%). 

Whenever, during the term of this Agreement, following one or several acts inter vivos carried out for whatsoever reason, there occurs, with reference to the situation that 

existed at the time the agreement was signed, a material change in the controlling structure of Edizione or Pirelli (including Pirelli & C Accomandita per Azioni for these 

purposes), meaning that parties other than those currently having the power may nominate the majority of the members of the governing body with a subsequent possible 

change in the strategic guidelines, this will constitute a “Key Event”. 

In the presence of a Key Event concerning one Party, the other Party shall have the right to transfer all of its Newco shares to the party which caused the Key Event to 

occur. 

2. Registration at the office of the Companies Registry 

The Agreement is registered at the office of the Milan and Turin/Ivrea Companies Registry. 

February 21, 2002 

AGREEMENT BETWEEN PIRELLI S.p.A., UNICREDITO ITALIANO S.p.A. and INTESABCI S.p.A. 

Notice published according to article 122 of Legislative Decree No. 58 dated February 24, 1998 and to the regulation for its introduction adopted with 

Consob’s resolution No. 11971 of May 14, 1999 (and subsequent changes) 

Considering that: 

Pirelli S.p.A., IntesaBCI S.p.A. and Unicredito Italiano S.p.A. on October 24, 2001 have agreed to amend this Agreement, underlined in bold in paragraph 11, Further 

Commitments points 11.1 and 11.2 such as to allow the Parties to subscribe to bonds convertible into Olivetti shares and/or warrants with rights to acquire shares and/or 

bonds convertible into Olivetti shares, the entire agreement is summarized below, which has been updated, and reports the data relating to the investment held by Olimpia 

in Olivetti (paragraph 1, Purpose and content of the agreement) and the equity interest of the shareholders in Olimpia (paragraph 2, Olimpia’s share capital). 

1. Purpose and content of the Agreement 

The Parties as defined herein, have reached an agreement (the “Agreement”) regarding the entry of Unicredito Italiano S.p.A. (”UCI”) and IntesaBCI S.p.A. (“BCI”, BCI 

and UCI together “the New Shareholders”, each of the New Shareholders individually the “New Shareholder” and the New shareholders jointly with Pirelli “the 

Parties”) in Olimpia’s S.p.A. share capital (“Olimpia” or “Company”) and the criteria of the management and rules concerning their quality as Olimpia’s shareholders. 

Olimpia currently owns overall No. 2,019,302,250 Olivetti S.p.A. ordinary shares (“Olivetti”), equal to approximately to 27.7% of Olivetti share capital and No. 68,409,125 

warrants Olivetti ordinary shares 2001-2002. 

2. Olimpia’s share capital 

Olimpia’s share capital is divided as follows: 60% Pirelli, 20% Edizione Finance International S.A. 10% UCI (“Olimpia UCI Investment”) and 10% BCI (“Olimpia BCI 

Investment”). 

3. Olimpia’s Board of Directors 

3.1 It is understood that, within the limits allowed by law and for the entire term of this Agreement: (i) the Board of Directors of the Company will be made up of 10 (ten) 

members; (ii) 1 (one) director out of 10 (ten) shall be appointed at the request and upon indication of UCI; (iii) 1 (one) director out of 10 (ten) shall be appointed at the 

request and upon indication of BCI; (iv) should an Executive Committee be instituted, UCI and BCI will have, respectively, the right to request at any time the inclusion of 

the directors designated by them in said committee. 

3.2 It is understood that the power of UCI and BCI to designate, each, a member of the Board of Directors of the Company will remain valid even after the first expiration 

of this Agreement, if it is extended pursuant to Art. 8.1 (a), provided UCI and BCI hold, jointly, a percentage of the company’s share capital above 10%. However, if the 

joint holding of BCI and UCI in the company’s share capital is 10% or less, then BCI and UCI may designate, jointly, only one director. 

4. Composition of the Board of Directors in Olivetti, Telecom Italia S.p.A. (“Telecom”), Seat- Pagine Gialle S.p.A. (“Seat”) and Telecom Italia Mobile 

S.p.A. (“TIM”) 

4.1 It is understood that, within the limits allowed by law and for the entire term of this Agreement, in the Board of Directors of Olivetti, Telecom, Seat and TIM (the 

“Olivetti Companies”), one director must be appointed at the request and upon designation of UCI and another director at the request and upon designation of BCI. 

4.2 It is understood that the power of UCI and BCI to designate, each, a member of the Board of Directors of the Olivetti Companies will remain valid even after the first 

expiration of this Agreement, if it is extended pursuant to Art. 8.1, provided UCI and BCI hold, jointly, a percentage of the company capital above 10%. However, if the 

joint holding of BCI and UCI in the company capital is 10% or less, then BCI and UCI may designate, jointly, only one director. 



5. Key Issues 

Pursuant to Art. 6 below, the following shall be deemed Key Issues: 

a) the decisions of the Extraordinary Shareholders’ Meeting and those of the Board of Directors of the Company, the latter referring to the following: 

- indication as to how to vote in Olivetti’s Ordinary Shareholders’ Meeting on Key Issues, for the purposes of the application of Articles 104 or 107 T.U. No. 58 of 

February 24, 1998, and in matters of acquisition of treasury shares, as well as voting in Olivetti’s Extraordinary Shareholders’ Meeting; 

- acquisition, sale and acts of disposal under any status (i) of treasury shares in any amount and (ii) holdings (including shares and financial instruments of any 

type issued by Olivetti and/or the Olivetti Companies) at a value, by individual transaction, greater than Euros 100 million; 

- determination of the ratio between equity and debt of the Company and methods, terms and conditions for resorting to outside financing sources; 

- draft proposals to be submitted to the Company’s Extraordinary Shareholders’ Meeting; 

b) resolutions of the Board of Directors of Olivetti and Telecom, referring to: 

- individual investments greater than Euros 300 million; 

- acquisition, sale and acts of disposal under any status (i) of treasury shares in any amount and (ii) affiliate and subsidiary holdings (including shares and other 

financial instruments issued by the Company or the Olivetti Companies) at a value, by individual operation, greater than Euros 300 million; 

- acts of disposal under any status of companies or business segments thereof, with an individual value greater than Euros 300 million; 

- proposals to call the Extraordinary Shareholders’ Meeting for resolutions in matters of modification of the corporate purpose, transactions involving share 

capital of any nature, merger, spin-off, transformation and dissolution; 

- transactions between Olivetti, Telecom and the Pirelli Group, with an individual value greater than Euros 50 million; 

- related party transactions. 

6. Provisions on Deadlock 

6.1 Obligation to Consult 

Pirelli and the New Shareholders, the latter jointly between them, pledge to consult previously each other whenever a decision on one of the Key Issues, identified in 

paragraph 5, must be discussed or decided upon. 

6.2 Manifestation of Will 

Whenever, in the previous consultation referred to in paragraphs 6.1 above, Pirelli and the New Shareholders did not reach an agreement concerning the issues under 

consultation, the dissenting New Shareholders, separately or jointly, will have, or the single dissenting New Shareholder will have, the right to send to Pirelli, by telegram 

or registered letter, pursuant to paragraph 12.02, a “Notice of Deadlock” within 15 (fifteen) days of the end of the consultation referred to in paragraph 6.1. 

6.3 Rights of the New Shareholders. 

(a) Whenever UCI and/or BCI send a Notice of Deadlock, the New Shareholder which sent the Notice of Deadlock will have the right to sell to Pirelli, which will have the 

corresponding obligation to buy from the respective New Shareholder, respectively, all but not part of the Olimpia UCI Investment and/or all but not part of the Olimpia 

BCI Investment at a price determined pursuant to the provisions in item (b) below. 

(b) For the purposes of item (a) above, the Parties agree, including in an aleatory manner, that the object of the decision must be: (x) the price of the Olimpia BCI 

Investment and/or Olimpia UCI Investment, corresponding proportionately to the value of the Company’s economic capital (“Price of the Olimpia UCI Investment” 

and/or “Price of the Olimpia BCI Investment”), as well as (y) an increase expressing the proportion of the increase premium, as if the Olimpia BCI Investment and/or 

Olimpia UCI Investment were the expression of Olivetti’s control, assuming that the latter controls Telecom and the companies controlled by the latter (“Premium”). 

(c) the price owed by Pirelli will not be lower than the amounts paid by the New Shareholder for the acquisition and subscribing of shares in the Company, less any 

dividends received (“Floor”), nor higher than an amount which implies, in connection to the same amounts, less any dividends received, an annual IRR, including taxes, 

equal to 15% (“Cap”). 

7. Penalty 

In the event of breach of one or several commitments made pursuant to the provisions of this Agreement, the breaching Party, at the simple written request of the Parties 

or of the other Party, and without prejudice to any other of its/their rights (including the right to higher damages), will be obligated to pay, as penalty, to the complying 

Party or complying Parties, a single and total amount equal, for each breach, to 5% (five percent) of the amounts paid by the breaching Party for the acquisitions and 

subscriptions of shares made in the Company as of that date. 

8. Term 

8.1 This agreement will have a term of three years from October 5, 2001 (Effective Date) and will be deemed tacitly renewed from time to time on expiration for the 

following two years, in the absence of an opt-out notice from one of the Parties, without prejudice to the provisions of point 9. below. 

8.2 Except in the cases required by law, each of the Parties may opt out of this Agreement before every expiration, with notice sent 6 (six) months in advance. 

9. Absence of Renewal. 

(a) If, before the first expiration of this Agreement or successive ones, Pirelli should send to the New Shareholders, jointly or separately, the opt-out notice referred to in 

point 8.2 above, UCI and BCI will individually have the right to send to Pirelli which, upon simple request, will have the corresponding obligation to acquire, respectively, all 

but not part of the Olimpia UCI Investment and Olimpia BCI Investment held by the New Shareholders which exercised the option right set forth herein, under terms and 

conditions determined, mutatis mutandis, pursuant to paragraph 6.3 (b) above (and the provisions mentioned therein), giving notice to Pirelli within 30 (thirty) Business 

Days, notwithstanding paragraph 6.3(c). The above price will be paid in cash. 

(b) If, on the first expiration date of this Agreement, both or one of the New Shareholders should, jointly or separately, send to Pirelli, the opt-out notice in the terms set 

forth in paragraph 8.2 above, Pirelli will have the right to acquire from both New Shareholders opting out, or from the single New Shareholder opting out, which, upon 

simple request, will have the corresponding obligation to sell, respectively, all but not part of the Olimpia UCI Investment and Olimpia BCI Investment held by the New 

Shareholders which exercised the opt out right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 6.3(b)above (and the 

provisions mentioned therein), less the Premium, giving notice to the New Shareholders which sent the opt-out notice, within 30 (thirty) Business Days. 

(c) If both or one of the New Shareholders should send to Pirelli, at the expiration of the first renewal for the following two years, the opt-out notice referred to in 

paragraph 8.1, and therefore, on the expiration of the fifth year after the effective Date of this Agreement, or on the successive additional expiration dates, both New 

Shareholders opting out, jointly or separately, or the single New Shareholder opting out, will have the right to sell to Pirelli, which, upon simple request, will have the 

corresponding obligation to acquire, respectively, all but not part of the Olimpia UCI Investment and/or all but not part of the Olimpia BCI Investment held by the New 

Shareholders which exercised the opt out right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to paragraph 6.3 (b) above (and the 

provisions mentioned therein), giving notice to the New Shareholders that sent the opt-out notice, within 30 (thirty) Business Days notwithstanding paragraph 6.3(c). 

10. Changes in shareholder base 

10.1 For the purposes of this paragraph, “Change of Control” means a substantial modification in the direct and indirect shareholder control base of Pirelli, which means 

the stoppage of the control of Pirelli & C. Accomandita per Azioni over Pirelli S.p.A., as exercised today. 

10.2 If the Change of Control occurs, each of the New Shareholders will have the right to transfer, respectively, all but not part of the Olimpia UCI Investment and/or all 

but not part of the Olimpia BCI Investment owned by Pirelli which, upon simple request, will have the obligation to acquire, under terms and conditions determined, 

mutatis mutandis, pursuant to paragraph 6.3 (b) above (and the provisions mentioned therein), giving notice to Pirelli within 30 (thirty) Business Days of the date the New 

Shareholders, separately or jointly, declared in writing that they have learned about the Change of Control, or received written communication about this circumstance. It 

is, however, agreed, including in an aleatory manner, that the price owed by Pirelli will not be lower than the amounts paid by the New Shareholder for the acquisitions 

and subscriptions of shares in the Company, less any dividends received (“Floor”), nor higher than an amount which implies, in connection to the same amounts, less any 

dividends received, an annual IRR, including taxes, equal to 15% (“Cap”). 



10.3 If Pirelli intends to divest, in any form, part of its investment in the Company, so that Pirelli would hold less than a majority of the capital thereof, Pirelli may not 

sign any agreement in this sense, being first obligated to give prior timely notice to both the New Shareholders about the planned transfer, fully indicating the terms and 

conditions of the transfer operation and any possible outside agreements (of blockage and vote) with the buyers. 

10.4 Within 30 (thirty) Business Days of receipt of the aforementioned communication, UCI and/or BCI will, individually, have the right to sell to Pirelli, which, upon 

simple request, will have the corresponding obligation to acquire, respectively, all but not part of the Olimpia UCI Investment and/or all but not part of the Olimpia BCI 

Investment held by the New Shareholders that exercised the Option Right set forth herein, under terms and conditions determined, mutatis mutandis, pursuant to 

paragraph 6.3 (b) above, with the understanding, including in an aleatory manner, that the price owed by Pirelli will not be lower than the amounts paid by the New 

Shareholder for the acquisitions and subscriptions of shares in the Company, less any dividends received (“Floor”). 

11. Further commitments 

11.1 For the entire term of the Agreement, the Parties agree, also through their subsidiaries and/or parent companies according to article 2359, paragraph 1, of the Italian 

Civil Code, that they shall neither acquire nor hold Olivetti ordinary shares (including those deriving from the conversion of convertible bonds and/or the 

exercise of the Warrants). Nonetheless UCI and BCI are allowed to acquire and to hold such securities within the maximum limit of 0.40% of the Olivetti’s capital for 

each of them. 

11.2 The Company, unless otherwise agreed among the Parties, may not acquire Olivetti ordinary shares (neither exercise the conversion rights, nor acquire or 

subscribe Olivetti ordinary shares as per paragraph 11.1) in such a measure as to exceed the takeover threshold currently at 30% (thirty percent) and also taking 

into account, for this purpose, the impact of the securities described in paragraph 11.1 held by BCI and UCI and the treasury shares owned directly and indirectly by 

Olivetti, according to the provisions of the law and regulations in force, including the rules issued by Consob. 

12. Disputes 

Any dispute arising from this Agreement will be submitted to the unappealable judgement of an Arbitration Board. 

13. Registration of the agreement at the Companies Registry 

The agreement is registered at the office of the Milan and Turin/Ivrea Companies Registry. 

Milan, November 3, 2001 

Agreement between Pirelli S.p.A. - Edizione Finance International S.A – Edizione Holding S.p.A. - Banca Intesa S.p.A. - Unicredito Italiano S.p.A. - 

Olimpia S.p.A. - Hopa S.p.A. 

Notice according to article 122 of Legislative Decree No. 58/98 and articles 127 and 129 of the Regulations adopted by CONSOB with resolution No. 11971/99 

According to article 122 of Legislative Decree 58/98 and articles 127 of the Regulations adopted by CONSOB with resolution No. 11971 of May 14, 1999 (as subsequently 

modified with resolutions No. 12475 of April 6, 2000, No. 13086 of April 18, 2001, No. 13106 of May 3, 2001, No. 13130 of May 22, 2001, No. 13605 of June 5, 2002 and No. 13616 

of June 12, 2002), Pirelli S.p.A., with registered offices in Milan, at Viale Sarca 222, registered in the Milan Companies Registry under tax code and VAT No. 0088689015, 

(“Pirelli”) states that it has stipulated on February 21, 2003 the agreement (“Agreement”) with Edizione Finance International S.A., with registered offices at Place d’Armes 1, 

L-1136, registered with the Luxembourg Chamber of Commerce under number B77504, (“Edizione Finance”); Banca Intesa S.p.A. (formerly Intesa BCI S.p.A.), with registered 

offices in Milan, at Piazza Paolo Ferrari 10, Administrative Offices at Via Monte de Pietà 8, registered in the Milan Companies Registry under tax code No. 00799960158 and 

VAT No. 108107000152 (“Intesa”); Unicredito Italiano S.p.A., with registered offices in Genoa, at Via Dante 1, Central Administration in Milan, Piazza Cordusio, registered in 

the Genoa Companies Registry under tax code No. and VAT No. 00348170101 (“Unicredito”); Olimpia S.p.A., with registered offices in Milan, at Viale Sarca 222, registered in 

the Milan Companies Registry under tax code No. and VAT No. 03232190961 (“Olimpia”); Hopa S.p.A., with registered offices in Brescia, at Corso Zanardelli 32, registered in 

the Brescia Companies Registry under tax code No. and VAT No. 03051180176 (“Hopa”) and Edizione Holding S.p.A., with registered offices in Treviso, at Calmaggiore 23, 

registered in the Treviso Companies Registry under number 13945, tax code No. and VAT No. 00778430264 (as the guarantor of the Edizione Finance bonds “Edizione”) 

including, inter alia, the following clauses of the shareholders’ agreement which - by wish of the contracting parties - is published herein in its entirety: 

OMISSIS 

Article I - Definitions 

1.01 “Olivetti Shares”: ordinary shares with voting rights in Olivetti (as defined in paragraph 1.23 below). 

1.02 “Current Olimpia Shareholders”: Pirelli, Edizione Finance, Unicredito and Intesa, collectively. 

1.03 “Hopa Controlling Companies”: Fingruppo Holding S.p.A., Banca Monte dei Paschi di Siena, S.p.A., Compagnia Assicuratrice Unipol S.p.A., Banca Popolare di Lodi 

S.c.a.r.l. and other private individuals signatory to the voting trust with regard to Hopa. 

1.04 “Notice of Deadlock”: shall have the meaning set forth in paragraph 8.04(d) below. 

1.05 “Notice of Accelerated Deadlock”: shall have the meaning set forth in paragraph 8.06 (b)(i) below. 

1.06 “Control”, “to control”, “Subsidiaries,” and “Controlling companies”: other than cases that expressly differ from the context herein, shall have the meaning set forth in 

Article 2359, paragraph 1, No. 1 and No. 2 of the Italian Civil Code. 

1.07 “Relevant Date”: shall have the meaning set forth in paragraph 9.01 of the present Contract. 

1.08 “Term of Agreement”: shall have the meaning set forth in paragraph 6.00 below. 

OMISSIS 

1.12 “Business Day”: every calendar day other than Saturday, Sunday, and other days when as a general rule the banks of Milan are not open for performing their usual 

activities. 

1.13 “Holinvest”: Holinvest S.p.A., with registered offices in Brescia, at Corso Zanardelli 32, issued capital of _ 700,000,000 and subscribed capital of _ 514,000,000.00, 

registered in the Brescia Companies Registry under registration No., tax code No. and VAT No. 03562710172. 

1.14 “Holy”: Holy S.r.l., with registered offices in Brescia, at Corso Zanardelli 32, capital of _ 10,000.00, registered in the Brescia Companies Registry under registration No., 

tax code No., 

and VAT No. 03517530170. 

OMISSIS 

1.16 “Net Financial Borrowings”: unless otherwise specified with regard to specific cases, shall be the algebraic sum on a consolidated basis (with the understanding that 

for each case net financial borrowings for Olimpia, borrowings for Olivetti and its Subsidiaries will not be taken into account) of the following items entered in the 



balance sheet prepared pursuant to Art. 2424 of the Italian Civil Code: “bonds (D1) = convertible bonds (D2) + due to banks (D3) + due to other financial backers (D4) + 

financial debts owed to unconsolidated subsidiaries (D8) + financial debts owed to affiliates (D9) + financial debts owed to controlling companies (D10) – amounts due 

from unconsolidated subsidiaries (C II 2) – amounts due from affiliates (C II 3) – amounts due from controlling companies (C II 4) – financial assets other than fixed 

assets (C III) – liquid assets (C IV).” Any existing present value must be added to this amount, for financial leases, if such are not included in the aforementioned items. 

OMISSIS 

1.18 “Key Issues”: shall have the meaning set forth in paragraph 6.02 below. 

1.19 “Net Asset Value”: shall mean the valuation method used for calculating the value, according to market practice and at current values, of financial assets and 

liabilities. 

1.20 “Olimpia Bonds”: 1.5% Olimpia bonds, 2001-2002, each of which is an “Olimpia bond.” 

1.21 “Olivetti Bonds”: 1.5% convertible bonds, 2001-2010, convertible to Olivetti Shares issued by Olivetti, each of which is an “Olivetti Bond”. 

OMISSIS 

1.24 “Extraordinary Transactions”: every merger or spin-off involving Olivetti, on the one hand, and one or more of its direct or indirect subsidiaries, on the other. 

1.24bis “Capital Transactions”: such extraordinary transactions as may involve Olivetti capital and which change the number of shares or which result in, by way of 

example though not exclusively: stock splits, reverse splits, assignments of Olivetti shares to shareholders for bonus increases in share capital. 

1.25 “Holy holding in Holinvest”: Holy holding in Holinvest capital, or 19.999% of this capital. 

1.26 “Hopa holding in Holinvest”: Hopa holding in Holinvest capital, or 80.001% of this capital. 

1.27 “Olivetti holding”: alternately: 

(i) when there are no Extraordinary Transactions, holding with full voting rights equal to at least 25% of Olivetti capital on the date the present Contract is signed, or 

(ii) when there are Extraordinary Transactions, the entire package of Olivetti Shares and/or Financial Instruments (granting equal voting rights) arising from the 

exchange of shares with voting rights equal to at least 25% of Olivetti capital that would be attained through Extraordinary Transactions executed prior to the 

Relevant Date. 

OMISSIS 

1.29 “Net Assets”: the difference – to be determined in accordance with Accounting Principles – between assets and liabilities on the “statutory” balance sheets of a 

corporation where, upon drafting the resultant consolidated balance sheet, it is understood that for purposes of determining Olimpia’s Net Assets the assets of Olivetti and 

its Subsidiaries are not taken into account. 

1.30 “Agreements”: agreements among shareholders set forth in Articles VI and VII of the present Contract. 

OMISSIS 

1.32 “Increase Premium”: shall have the meaning set forth in paragraph 10.00 below. 

1.33 “Accounting Principles”: Accounting principles as provided by law, and when not specifically stated therein, those set forth by the National Council of Professional 

Accountants, or otherwise by the International Accounting Standards Committee. 

1.34 “Debt/equity ratio”: the ratio between Net Assets (as defined in paragraph 1.29 above) and Net Financial Borrowings (as defined in paragraph 1.16 above). Possible 

derivative instruments (as defined in Decree Law No. 58 dated February 24, 1998,– Draghi Law, Article 1, paragraph 2), not for hedging, (as defined by Banca d’Italia 

Measure of July 30, 2002) put into place as of November 30, 2002, must be valued at cost or market price, whichever is less, and any necessary write-off must result in a 

reduction in Net Assets. Possible derivative instruments for hedging must be valued in a manner consistent with the asset or liability being hedged, with it understood that 

the so-called equity swap underwritten by Olimpia on November 20, 2001, will be valued at cost as a matter of course. 

OMISSIS 

1.36 “Spin-off”: shall have the meaning set forth in paragraph 9.01 below. 

1.37 “Holinvest Spin-off”: shall have the meaning set forth in paragraph 9.05 below. 

OMISSIS 

1.39 “Holy Position”: Balance sheet of Holy at December 31, 2002, with the accompanying reports, attached hereto as number 5.02(ii) which – in accordance with the 

provisions of paragraph 5.02(ii) below – shall represent the Holy financial position of reference for the plan of Merger. 

1.40 “Olimpia Position”: Balance sheet of Olimpia at November 30, 2002, with the accompanying reports, attached hereto as number 5.02(i) which – in accordance with the 

provisions of paragraph 5.02(i) below – shall represent the Olimpia financial position of reference for the plan of Merger. 

1.41 “Olivetti Companies”: Telecom, TIM, and Seat, collectively. 

1.42 “Deadlock”: shall have the meaning set forth in paragraph 8.01 below. 

1.42bis “Accelerated Deadlock”: shall have the meaning set forth in paragraph 8.06 below. 

1.43 “Financial Instruments”: every financial instrument (including Olivetti Instruments as defined below) that directly or indirectly grants subscription rights to Olivetti 

Shares (which, by way of example and not exclusively, includes convertible bonds, forward contracts, call options, and prepaid swaps). 

1.44 “Olivetti Instruments”: instruments with the characteristics as set forth in the attached document 1.44. 

OMISSIS 

1.46 “Initial Term”: shall have the meaning set forth in paragraph 8.05 below. 

OMISSIS 

Article II - Object of Contract 

(a) Under the present Contract, the various transactions governed thereby and the Shareholder Agreements contained herein, the Current Olimpia Shareholders, Olimpia, 

and Hopa hereby agree on the terms and conditions for creating a partnership with strategic connotations. 

(b) The partnership referred to in the previous paragraph shall be achieved by Hopa’s joining its capital to that of Olimpia (by Holy’s merger with Olimpia) together with 

the Current Olimpia Shareholders, and the subsequent joining of Olimpia’s capital to that of Holinvest, together with Hopa. 



(c) The following stipulations in the present Contract shall, inter alia, govern: 

(i) the steps taken to achieve the aforesaid situation (setting the terms and conditions thereof), in particular with regard to the provisions of Articles II, IV, and V 

below; 

(ii) the rules of corporate governance and other provisions in shareholders’ agreements to which the Parties have agreed, in particular with regard to the provisions 

of Articles VI and VII below; 

(iii) 

(A) the mechanisms for settling possible Deadlocks or Accelerated Deadlocks such as may arise in the administration of Olimpia (also with regard to voting 

instructions for Olivetti Extraordinary Shareholders’ Meeting) and/or of Holinvest; and 

(B) the means of any possible dissolution of the partnership carried out under the present Contract, with regard to confirming a Deadlock or Accelerated 

Deadlock, as well as to the failure to renew Agreements upon their expiration; 

with particular regard to the provisions of Articles VIII, IX, and X below. 

Article III - Preliminary Obligations of the Parties 

OMISSIS 

Article IV – Suspensive Conditions 

OMISSIS 

Article V - Merger 

OMISSIS 

5.09 Olimpia and Holinvest post-Merger ownership. The Parties mutually recognize that, on the basis of the Stipulated Exchange Rate: 

(i) Olimpia post-Merger shall be owned as follows: 

Pirelli : 50.40%; 

Edizione : 16.80%; 

Hopa : 16.00%; 

Unicredito 

: 8.40%; and 

Intesa : 8.40%. 

(ii) Holinvest post-Merger shall be owned as follows: 

Hopa 

: 80.001%; and 

Olimpia : 19.999%. 

OMISSIS 

Article VI – Shareholder Agreements concerning Olimpia and Olivetti Companies 

6.00 Agreements and Term of Agreement. (a) The Parties mutually recognize that the provisions in this Article VI, as well as those in Article VII below (collectively, the 

“Agreements”) shall be effective for the entire period (“Term of Agreement”) between the effective date of the Merger and the earlier of either: 

(i) the natural expiration of such Agreements, as regulated under paragraph (b) below; or 

(ii) the date on which, in compliance with the applicable provisions herein, (A) – as a result of a Deadlock, the Spin-off and Holinvest Spin-off become effective; (B) 

as a result of an Accelerated Deadlock, the Current Olimpia Shareholders receive an Notice of Accelerated Deadlock. 

(b) The Agreements shall have a term of three years as from the effective date of the Merger, and upon expiration shall be deemed tacitly extended [for an equal period], 

unless a notice of termination is served by either Party to the other, subject to the provisions in paragraph (c) below. 

(c) Without prejudice to the provisions of the law, the Parties may withdraw from the Agreements, effective on the expiration date, by written notice to the other Party 3 

(three) months before such expiration date. 

6.01 Board of Directors of Olimpia. (a) For the entire Term of the Agreements, the Board of Directors of Olimpia will be made up of a fixed and unchangeable group of 10 

members, one of which will be appointed upon designation by Hopa. The first Director appointed by Hopa will be Emilio Gnutti. 

(b) In the event the Director appointed by Hopa should cease to be on the Board, a replacement shall be designated within the next 20 (twenty) Business Days, and it is 

understood that the designation of the replacement will be still made by Hopa, with the consent of Pirelli, which shall not withhold it unreasonably. 

(c) 

Should Hopa wish to revoke one or more of the Directors it designated, the Current Olimpia Shareholders will cooperate fully, in order for this revocation to proceed 

as rapidly as possible. Hopa shall have the right to designate – in accordance to what was set forth in the preceding paragraph (b) – the Director to be appointed as a 

replacement for the Director who was revoked, subject to the consent of Pirelli, which shall not withhold such consent unreasonably. 

(d) The Parties commit to holding each other exonerated and discharged and to holding Olimpia exonerated and discharged from any onus or damage deriving from the 

revocation without just cause of the Directors that each one of them from time to time designates, pursuant to paragraph 6.01. 

6.02 Key Issues. (a) For the purposes of this contract and in particular of subsequent Article VIII the following shall be considered to be Key Issues: 

(i) 

In reference to the resolutions to be adopted by Olimpia’s Extraordinary Shareholders’ Meeting in relation to any subject that pertains to it, any time the 

resolution is adopted: 

(A) In opposition to a proposal by Olimpia’s Board of Directors passed with the agreement of the Directors appointed by Olimpia’s Current Shareholders and by 

Hopa; or 

(B) In agreement with a proposal by Olimpia’s Board of Directors passed without the agreement of the Director appointed by Hopa; 

(ii) In reference to the resolutions to be adopted by Olimpia’s Board of Directors in relation to those pertaining to: 

(A) The suggested vote to be cast during Olivetti’s Extraordinary Shareholders’ Meeting; 

(B) the purchase, sale and transfer of any interest valued over _ 100,000,000.00 per transaction, or for multiple transactions carried out during the same calendar 

year, with the exception of that which is provided for in the subsequent paragraph (b); 

(C) Acts or initiatives that modify or will modify the debt/equity ratio from a 1:1 ratio (while keeping open the option to remedy this situation pursuant to the 

procedure outlined in subsequent paragraph 8.07(a)(ii) and with the understanding that in this case it will not be considered to be a situation causing a 

Deadlock) and/or that concern the definition of the terms and conditions for using outside sources of financing; 

(D) Proposals for resolutions to be submitted to Olimpia’s Extraordinary Shareholders’ Meeting. 

(b) The Parties reciprocally acknowledge that – in spite of being slightly different from what was outlined in the preceding paragraph (a) (ii) (B) – the following shall not 

be considered Key Issues for the purposes of this Contract: actions relating to the purchase or sale of Olivetti shares, the conversion of convertible Olivetti bonds into 

Olivetti shares or equivalent financial instruments, as long as Olimpia’s debt/equity ratio remains below 1:1 even after these transactions. 



6.03 Board of Directors of Olivetti Companies. (a) For the entire Term of the Agreements the Current Olimpia Shareholders will do whatever is in their power to ensure 

that, in the meetings of the Boards of Directors of the Olivetti Companies, a director shall be appointed as a result of being designated by Hopa. The first directors that 

Hopa designates to this end are those indicated in the attached document by number 6.03(a). 

(b) The new Boards of Directors of the Olivetti Companies, made up according to the dispositions in the preceding paragraph (a), will be appointed as soon as possible 

after the Merger and in any event within and no later than 60 Business Days after the effective date of the Merger itself. 

(c) 

The dispositions in the preceding paragraphs 6.01(b) and (c) will apply, mutatis mutandis, also regarding the meetings of the Board of Directors of the Olivetti 

Companies. 

6.04 Tender Offers for Olivetti Shares. Hopa commits itself to the fact that, in the event Olivetti Shares are subject to a tender offer, the Director that it designated in 

Olimpia’s Board of Directors – if the Current Olimpia Shareholders requests it in writing – will not oppose Olimpia’s agreeing to such tender offer. 

6.05 Deadlock. (a) Except for what is set forth in the subsequent paragraph (b) or expressly provided for by this Contract, the Current Olimpia Shareholders and Hopa 

(also with respect to its respective controlling companies and subsidiaries) commit themselves not to purchase Olivetti Shares for the Term of the Agreements, and agree 

to the fact that Olimpia – in partial derogation from this limitation - notwithstanding what is set forth in subsequent paragraph 8.06, will have the right to buy and sell 

Olivetti Shares as long as these transactions do not cause the limits described in paragraph 4.01(iii) to be exceeded, notwithstanding the fact that in order to calculate the 

threshold specified in the aforementioned paragraph, one shall have to take into account the quantities allowed by paragraph (a) of Article III. 

(b) The following cases are exceptions to the Deadlock commitment specified in paragraph 6.05(a): 

(c) 

(i) 

The exercise on Pirelli’s part of the rights already acquired before executing this Contract, in relation to the exercise of call options and swap contracts relating 

to the purchase of Olivetti Shares and Bonds (which are described in detail in the attached document designated by number 6.05(b)(i); 

(ii) For purchases of Olivetti Shares which were already allowed: 

(A) to Unicredito and Intesa, by the current Shareholder Agreements agreed to by these entities with Pirelli, which is described in the attached document 

designated by number 6.05 (b) (ii) (A); and 

(B) to Edizione, within the limits outlined by the current Shareholder Agreements agreed to by this entity with Pirelli, which are described in the attached 

document designated by number 6.05(b) (ii) (B). 

(iii) The maximum number of Olivetti Shares that the Hopa Controlling Companies are authorized to possess pursuant to paragraph 4.01. 

Notwithstanding the above mentioned rights, furthermore, the Parties reciprocally acknowledge that the purchase by one Party of convertible bonds and/or warrants 

that grant the right to subscribe to bonds convertible into Olivetti Shares and the exercise of the rights that go with it will be allowed only following the consent of 

the other Party, consent that shall not be unreasonably withheld, with the proviso that in the event of a request by Hopa there will have to be the unanimous consent 

of all the Current Olimpia Shareholders that at the time of this request are Olimpia shareholders. 

6.06 Olimpia’s Business Purpose. The Current Olimpia Shareholders commit themselves not to change Olimpia’s business purpose (as reflected in the sample by-laws 

which are found under attachment 5.07 (b) up to the latter of the following dates (i) the date of the natural expiration of the Agreements as set forth by paragraph 6 

(b) of this Contract; and (ii) in the event of a Deadlock or an Accelerated Deadlock, the effective date of the Spin-off and the Holinvest Spin-off. 

6.07 Other Commitments Relating to Olimpia. The Current Olimpia Shareholders commit to make it so that, for the entire term of the Agreements, Olimpia: 

(i) 

Does not have other holdings or financial investments other than its holding in Olivetti, Olivetti’s bonds, Olivetti’s instruments and the holding by Olimpia in 

Holinvest possessed as a result of the Merger; 

(ii) Has a debt/equity ratio that does not exceed 1:1; and 

(iii) Does not sell its holding in Olivetti to entities controlled by Olimpia or that are parts of groups whose ownership can be ascribed to the Current Olimpia 

Shareholders. 

6.08 Co-sale Rights and Obligations. (a) Except when otherwise set forth in this Contract and in particular in the following paragraph 8.06(b)(iii) and 8.07(b)(ii), for the 

entire Term of the Agreements – and in any case until the effective date of the Spin-off and of the Holinvest Spin-off – if the holding of Pirelli in the capital of Olimpia is 

reduced by transfer, contribution, assignment (including by spin-off), or sale of a portion thereof, directly or indirectly, or a financial instrument that may be converted 

and/or which gives right to a holding in the capital of Olimpia (hereinafter collectively the “Assigned Holding”) for payment, free of charge, for cash, or for payment in 

kind, under any status, including in several tranches as compared to that held as of the signing date of this Contract, Hopa will have the right to claim (and therefore 

Pirelli will be obligated to cause) that the buyer (hereinafter the “Third-Party Buyer”) – pursuant to the applicable provisions of this paragraph 6.08: 

(i) 

whenever, notwithstanding the transfer and/or sale of the Assigned Holding, Pirelli, together with Unicredito and Intesa, maintains absolute majority in the capital 

of Olimpia, acquires: 

(A) a percentage of the holding of Holinvest equal to the percentage between the Assigned Holding and 50.4% according to the following formula: 

PPiH : PiH = PC : 50.4% 

Where: 

PPiH: is the holding percentage of Hopa in Holinvest that Hopa may claim transfer to the Third-Party Buyer; 

PiH: is the total holding (expressed as a percentage of the capital of Holinvest) of Hopa in Holinvest; 

PC: is the Assigned Holding (expressed as a percentage of the capital of Olimpia); 

or, as an alternative 

(B) a percentage of the Olivetti Instruments and/or of the Olivetti Shares and/or of the Financial Instruments held by Holinvest on the date Pirelli communicates its 

intent, equal to the percentage between the Assigned Holding and 50.4% according to the following formula: 

PSOH : SOH = PC : 50.4% 

Where: 

PSOH: is the portion of the Olivetti Instruments and/or Olivetti Shares and/or of the Financial Instruments held by Holinvest on the date Pirelli communicates its 

intent, for which Hopa may claim transfer to the Third-Party Buyer; 

SOH: the total number of Olivetti Instruments and/or Olivetti Shares and/or of the Financial Instruments on the date Pirelli communicates its intent, held by 

Holinvest; 

PC: is the Assigned Holding (expressed as a percentage of the capital of Olimpia); 

and therefore 

(C) a percentage of its own holding in Olimpia equal to the percentage between the Assigned Holding and 50.4%: 

PPiO : PiO = PC : 50.4% 

Where: 

PPiO: is the portion of Hopa’s holding in Olimpia for which Hopa may claim transfer to the Third-Party Buyer; 

PiO: the total holding held by Hopa in Olimpia; 

PC: Assigned Holding (expressed as a percentage of the capital of Olimpia); 

(ii) whenever the sale and/or transfer with price paid in kind (contribution and/or spin-off) of the Assigned Holding implies the loss of the absolute majority in the 

ordinary capital of Olimpia by Pirelli together with Unicredito and Intesa, acquires the entire holding held by Hopa in Olimpia and/or Holinvest; 

(iii) whenever the sale and/or transfer with the price paid in cash of the Assigned Holding implies the loss of the absolute majority in the ordinary capital of Olimpia, 

by Pirelli, together with Unicredito and Intesa, Hopa will also have the obligation to sell (and, respectively, Pirelli will have the obligation and the right to cause 



Hopa to sell) to the Third-Party Buyer the entire holding of Hopa in Olimpia and/or in Holinvest; 

with the understanding that: 

(x) for the purposes of this paragraph 6.08, the financial instruments whose acquisition by the Third Party-Buyer must be imposed by Hopa, exercising the alternative 

power set forth in this paragraph 6.08(a), will be identified as “Instruments to be Assigned”; 

(i) 

once Hopa communicates – pursuant to the following paragraph (c) – to Pirelli that it wishes to exercise the co-sale right set forth in this paragraph 6.08(a), 

Hopa will be obligated to sell the Instruments to be Assigned under the terms and conditions set forth in this paragraph 6.08 and, in particular, the following 

paragraphs (d) and (e); and 

(ii) the choice between the options referred to in the previous paragraph 6.08(a)(i) will be exercised discretionally by Hopa and will be final. 

(b) In order to allow Hopa to exercise the rights set forth in the previous paragraph (a), Pirelli undertakes to communicate to Hopa any intention to sell, transfer, assign 

(including by spin-off) or otherwise transfer under any status all or part of its own holding in Olimpia, as soon as allowed by the negotiations with the Third-Party 

Buyer (taking into consideration possible reasons of confidentiality), communicating to Hopa the nature of the Third-Party Buyer and the terms and conditions of the 

possible transfer transaction. 

(c) Hopa, after receiving the communication about the plan to transfer the Assigned Holding by Pirelli, must communicate to Pirelli within twenty (20) Business Days 

from receipt of the communication, whether or not it intends to exercise its own co-sale right and whenever Pirelli’s communication refers to a transaction of the type 

indicated in the previous paragraph (a)(i), which of the options set forth in Sections (A) through (C) of said paragraph (a)(i) it intends to choose. 

(d) Should Hopa exercise the co-sale right set forth in this paragraph 6.08, the transfers of the Instruments to be Assigned to the Third-Party Buyer following such 

exercise must be perfected simultaneously with the transfer of the Assigned Holding by Pirelli to the Third-Party Buyer. 

(e) The transfer price of the Instruments to be Assigned must be established pursuant to the following provisions: 

(i) 

whenever Hopa exercised the co-sale right set forth in its favor in the previous paragraph 6.08(a)(i)(C) or 6.08(a)(ii), the latter in the portion referring to the 

Olimpia holding, the price will be equal to the same price for each Olimpia share obtained by Pirelli from the sale of the Assigned Holding; 

(ii) whenever Hopa exercised the co-sale right in its favor pursuant to the previous paragraph 6.08(a)(i)(A) or 6.08(a)(ii), the latter in the portion referring to the 

holding in Holinvest, the price will be established by considering the implicit value assigned by the Third-Party Buyer to the Olivetti shares and to any Financial 

Instrument held by Olimpia valuing Holinvest on this basis at Net Asset Value; 

(iii) whenever Hopa exercised the co-sale right in its favor pursuant to the previous paragraph 6.08(a)(i)(B), the price of the Olivetti Instruments will be established 

considering the implicit value assigned by the Third-Party Buyer to the Olivetti shares and to any Financial Instrument held by Olimpia. 

with the understanding that, for the purposes of this paragraph, the Net Asset Value (referred to in the previous paragraph (ii)) and the price of the Financial 

Instruments (referred to in the previous paragraph (iii)) will be established pursuant to the previous paragraph (e) and, in the event of disagreement between Pirelli 

and Hopa, by an audit firm included among the so-called “Big Four” – appointed by the Parties by mutual agreement or, in the absence of such agreement, by the 

Presiding Judge of the Court of Milan at the request of the most diligent Party; with the understanding that – the determinations made by audit firm will be 

unappealable and final. 

(f) It is understood between the Parties that the obligations set forth in this paragraph 6.08 must be considered exclusively at the charge of Pirelli, excluding any joint 

liability of the Current Olimpia Shareholders. 

6.08bis Co-sale Rights concerning Olimpia’s assets. (a) For the entire Term of the Agreements – and in any event until the effective date of the Spin-off and of the 

Holinvest Spin-off – if Olimpia’s holding is reduced to a level below 25% of Olivetti’s capital or, whenever it is so reduced, it is further reduced by transfer, assignment 

(including by spin-off) or sale of a portion thereof for payment, free of charge, for cash or by payment in kind, under any status, including in several tranches (hereinafter, 

together, the “Assigned Olivetti Holding”), Holinvest will have the right to claim (and therefore Olimpia will be obligated to cause) that the buyer (hereinafter the “Third- 

Party Buyer of Olivetti Instruments”) – pursuant to the applicable provisions of this paragraph - acquire a percentage of the Olivetti Shares (and/or Financial Instruments) 

held by it on that date, equal to the percentage between the Assigned Olivetti Holding and Olimpia’s holding in Olivetti, held before the assignment of the Assigned Olivetti 

Holding: 

PAOH : AOH = POC : PO 

Where: 

PAOH: is the number of Olivetti Shares (and/or Financial Instruments) held by it, for which Holivest [sic] may claim the transfer to the Third-Party Buyer; 

AOH: is the total number of Olivetti Shares (and/or Financial Instruments) held by Holinvest on the date Olimpia communicates its intent to transfer the Assigned 

Investment; 

POC: is the Assigned Olivetti Holding (expressed as a percentage of the Olivetti Shares (and/or of the Financial Instruments) held by Olimpia on the date Olimpia 

communicates its intent to transfer the Assigned Olivetti Holding); 

PO: the total holding in Olivetti and/or all Financial Instruments held by Olimpia before the assignment of the Assigned Olivetti Holding; 

with the understanding that: 

(x) for the purposes of this paragraph 6.08bis, the Olivetti Shares and/or Financial Instruments for which Holinvest must impose the acquisition of the Olivetti 

Instruments by the Third-Party Buyer will be identified as “Olivetti Instruments to be Assigned”; 

(y) 

once Holinvest communicates – pursuant to the following paragraph (c) – to Olimpia that it wishes to exercise the co-sale right set forth in this paragraph 6.08bis, 

Holinvest will be obligated to sell the Olivetti Instruments to be Assigned under the terms and conditions set forth in this paragraph 6.08bis and, in particular, the 

following paragraphs (d) and (e); and 

(b) In order to allow Holinvest to exercise the rights set forth in the previous paragraph (a), Olimpia undertakes to communicate to Holinvest any intention to sell, 

transfer, assign (including by spin-off), or otherwise transfer under any status all or part of its own holding in Olivetti, as soon as allowed by the negotiations of the 

Olivetti Instruments with the Third-Party Buyer (taking into consideration possible reasons of confidentiality), communicating to Holinvest the nature of the Third- 

Party Buyer of the Olivetti Instruments and the terms and conditions of the possible transfer transaction. 

(c) Holinvest, after receiving the communication about the plan to transfer the Assigned Olivetti Holding by Olimpia, must communicate to Olimpia within twenty (20) 

Business Days from receipt of the communication, whether or not it intends to exercise its own co-sale right. 

(d) Should Holinvest exercise the co-sale right set forth in this paragraph 8.06(ii)[sic], the transfers of the Assigned Olivetti Instruments to the Third-Party Buyer of the 

Olivetti Instruments to be Assigned following such exercise must be perfected simultaneously with the transfer by Olimpia to the Third-Party Buyer of the Olivetti 

Instruments of the Assigned Olivetti Holding. 

(e) The transfer price of the Olivetti Instruments to be Assigned will be equal to the price for each Olivetti share (and/or Financial Instrument) obtained by Olimpia from 

the transfer for the assignment of the Assigned Olivetti Holding. 

(f) The Parties mutually take note and agree that – as a partial exception to the provisions of this paragraph 6.08bis – whenever Holinvest exercises the co-sale right 

referred to in this paragraph 6.08bis, the assignment of the Assigned Olivetti Holding which – pursuant to the terms of the preceding paragraph would give rise to an 

event of Accelerated Deadlock – will not be considered Accelerated Deadlock. 

6.09 Taking Note. The parties mutually take note that: 

(i) the Agreements set forth in this Contract do not replace and therefore do not impair the validity, efficacy and enforceability of the Agreements referred to in the 

Shareholder Agreement executed on September 14, 2001 between Pirelli, Unicredito, and Intesa; 

(ii) in light of the preceding paragraph (i), the exercise by Unicredito and/or Intesa of the rights set forth in their favor in the Shareholder Agreement referred to in the 

previous paragraph (i) may not in any manner represent nonperformance of any commitments assumed by Unicredito and Intesa (as Current Olimpia Shareholders) 



under this Contract, nor cause under any other status any liability for Unicredito and Intesa themselves; 

(iii) whenever Unicredito and/or Intesa exercise the put right pursuant to the Shareholder Agreement referred to in the preceding paragraph (i), they will immediately be 

released from any obligation towards Hopa arising from this Contract, regardless of the date of the actual transfer of the Olimpia shares subject to the put, without 

prejudice to the fact that Pirelli will be automatically obligated towards Hopa to perform all such obligations towards Hopa itself; 

(iv) whenever Unicredito and/or Intesa exercise the put right referred to in the previous paragraph (iii), Edizione Finance and Hopa waive, as of now, exercising the preemptive 

right established in their favor in the by-laws. 

Article VII – Shareholder Agreements Concerning Holinvest 

7.01 Board of Directors of Holinvest. 

(a) For the entire Term of the Agreements, the Board of Directors of Holinvest will be made up of a fixed, unchangeable number of 7 members, one of whom will be 

appointed by Olimpia’s designation. 

(b) The provisions of the previous paragraphs 6.01(b), (c) and (d) will apply, mutatis mutandis, to the Board of Directors of Holinvest. 

7.02 Lock-up Commitments. 

(a) As of the date of this Contract and for a period of twenty months from the effective date of the Merger, Hopa: 

(i) undertakes not to: 

(A) offer, constitute in pledge, sell, carry out preliminary sales, lend or otherwise transfer or assign (including by contribution or partial spin-off), directly or 

indirectly, Hopa’s Holinvest Holding or any financial instrument that may be converted or which would give right to a holding in the capital of Holinvest, or 

(B) execute swap contracts and other acts and/or contracts transferring to a different party, in full or in part, any risk or economic profit arising from Hopa’s 

ownership of the Holinvest Holding, regardless of the fact that the transactions described in the preceding points (A) and (B) must be liquidated by delivery 

of Hopa’s Holinvest Holding or of the aforementioned financial instruments, for cash or otherwise. 

(ii) it pledges – without prejudice to the provisions of the following paragraphs (b) and (c) – to take all necessary steps to prevent Holinvest from: 

(A) offering, selling, carrying out preliminary sales, lending, granting in pledge to guarantee obligations of third parties or otherwise transferring or assigning 

(including by contribution or partial spin-off), directly or indirectly, the Olivetti Instruments which, as of the date of this Contract, are owned by it, or any 

other financial instrument that may be converted or which gives right to a holding in the capital of Olivetti; or 

(B) executing swap contracts or other acts and/or contracts transferring to a different party, in full or in part, any risk or economic profit arising from the 

ownership of the Olivetti Instruments which, as of the date of this Contract, are owned by it, regardless of the fact that the transactions described in the 

preceding points (A) and (B) must be liquidated by delivery of the Olivetti Instruments or of the other aforementioned financial instruments, for cash or 

otherwise. 

(b) Concerning the provisions of the following paragraph 7.03: 

(c) 

(i) 

the Parties mutually take note of their awareness of the following: 

(A) Holinvest gave in pledge to the banks which financed it (the “Creditor Banks”) the Olivetti Instruments which, as of the date of this Contract, are owned by 

it (as identified in the document enclosed herewith under No. 7.02(b)(ii)(A)) as guarantee of the obligations to reimburse the financing granted to it by said 

Creditor Banks; 

(B) Hopa undertakes to take all possible steps to avoid any enforcement of the pledge by the Creditor Banks and therefore to preserve the pre-emptive rights in 

favor of Olimpia referred in paragraph 7.03 below; 

(ii) in light of the provisions of the preceding paragraph (i), the Parties agree that: 

(A) following the execution of this Contract, Hopa will do everything possible so that the Creditor Banks: 

(1) consent that, in the event of sale of the Olivetti Instruments following the enforcement of the pledge referred to in the preceding paragraph (i)(A), 

Olimpia be granted a pre-emptive right concerning the acquisition of the Olivetti Instruments so sold; or, whenever such hypothesis is not feasible, 

(2) accept – in the event that the pledge referred to in the preceding paragraph (i)(A) must be enforced – to transfer to Olimpia the financing contracts and 

the respective guarantees, at a price equal to the market value as of that date of the credit granted by the Creditor Banks to Holinvest, under the same 

financing contracts so assigned; on the other hand, it is understood that Hopa undertakes as of now to cause Holinvest – in the event that the Creditor 

Banks declare their availability to transfer the contract as indicated in this paragraph (ii)(A)(2) to accept – and therefore consent to – such assignments: 

(B) without limitation to the provisions of the preceding paragraph (A), immediately after the execution of this contract, the Parties will send a joint 

communication to the Creditor Banks to inform them of the existence of the pre-emptive right referred to in paragraph 7.03 below, and also requesting the 

Creditor Banks to a meeting to discuss the provisions of the aforementioned paragraph (ii)(A); 

(C) in order to help Olimpia achieve the purposes set forth in the previous paragraph (i)(C), Hopa will allow a representative of Olimpia (chosen by Olimpia with 

the consent of Hopa – which may not be unreasonably denied) to participate in all the meetings with the Creditor Banks which are the consequence or 

related to the provisions of the previous paragraph (ii)(A); 

(iii) the sections in the previous paragraphs(i) and (ii) will apply, mutatis mutandis, also in the case of subsequent financing and the respective pledges, with the 

understanding that the pledges so granted by Holinvest may refer only to the debts contracted by it, to the exclusion of the guarantees pledging the debts of 

other parties. 

Hopa’s obligation referred to in the previous paragraph (a)(ii) is understood in the sense of allowing Holinvest to freely dispose – during the lock-up period – of the 

Olivetti Instruments and/or Financial Instruments (but without application of the pre-emptive right referred to in paragraph 7.03 below) provided that during said 

period, Holinvest keeps its ownership of a number of securities of not less than 65% and not more than 125% of those listed in the previous paragraph 4.01(ii)(A) and 

provided the shares of the companies directly or indirectly controlled by Olivetti do not exceed 10% of the assets of Holinvest, without prejudice to the composition 

of the assets of Holinvest on the Relevant Date. 

7.03 First Pre-emptive Right in Favor of Olimpia. (a) At the end of the Lock-up period referred to in the previous paragraph 7.02(a)(ii) and for the entire residual Term of 

the Agreements – and in any case until the effective date of the Spin-off and of the Holinvest Spin-off – Holinvest may freely dispose of the Financial Instruments and of 

the Olivetti Shares, provided – should it carry out any of the transactions set forth in the previous paragraph 7.02(a)(ii)(A) and (B) – it grants Olimpia (with written 

communication detailing the identity of the potential buyer whenever it is known to Holinvest, regardless of the fact that the sale takes place on the regulated market, and 

all the elements necessary for the adequate evaluation of the offer of the latter and of the elements showing seriousness) a pre-emptive right to the Olivetti Instruments 

which are the object of such transaction. 

(b) It is understood that: 

(i) 

the offer must be presented by the third party within (30) thirty Business Days from the date Olimpia received Holinvest’s communication referred to in the 

previous paragraph 7.03(a); 

(ii) the pre-emptive right referred to in the previous paragraph (b) must be exercised by Olimpia within two (2) Business Days after Olimpia’s receipt of the 

respective denunciatio. 

7.04 Holinvest’s By-laws. Hopa will take all necessary steps so that, by the date of the Merger and not later, Holinvest’s by-laws will be amended to allow Holinvest 

exclusively to engage in the holding and financial activity concerning holding and trading of the Olivetti Shares, Olivetti Instruments and Financial Instruments, as well as 

the shares and/or financial instruments of the companies directly or indirectly controlled by Olivetti; Hopa’s commitment is subject to the admissibility of such amendment 

pursuant to current legislation, without prejudice to the fact that Hopa will not be obligated to make such amendment whenever it implies that Holinvest will be 

prohibited from continuing to hold investments in securities other than those indicated in this paragraph currently held, with the understand that, in this case, Hopa 



undertakes to cause Holinvest not to acquire new investment securities other than those described above. In addition, within the same term, Hopa undertakes to make in 

the current by-laws of Holinvest [sic] the amendments necessary to make it consistent with the model by-laws enclosed herewith under No. 7.04. 

7.05 Second Pre-emptive Right in Favor of Olimpia. 

(a) Unless there is an Accelerated Deadlock, on the expiration of the first three-year period of the Term of the Agreements (but completely independently from the fact 

that the agreements are extended for a subsequent three-year period or not) Hopa will cause Holinvest to execute with Olimpia a pre-emptive rights agreement with a 

term of two years, under which – as of that date – Holinvest – whenever it intends to offer, pledge, sell, carry out preliminary sales, sell any purchase option or 

contract, purchase any sale option or contract, grant any option, right or warrant for acquisition, lend or otherwise transfer, assign or dispose (including by 

contribution or partial spin-off), directly or indirectly, all or part of Olivetti’s holding post-Spin-off – it must offer it pre-emptively to Olimpia to the extent that, due to 

the transaction planned, Hopa and Holinvest would own together less than: 

(i) 65% of the holding in Olivetti belonging to them by the effect of the Spin-off; or 

(ii) 65% of the Olivetti Instruments owned by Holinvest on the reference date of the Spin-off. 

(b The pre-emptive right referred to in the previous paragraph (a) must be exercised by Olimpia within 15 days after its receipt of the respective denunciatio. 

(c) For the entire term of the pre-emptive rights agreement set forth in this paragraph 7.05, the provisions of the previous paragraph 6.05 apply, mutatis mutandis. 

ARTICLE VIII - Deadlock and Accelerated Deadlock 

8.01 Identification of Deadlock cases. For the purposes of this Contract, “Deadlock” means a situation of disagreement, expressed in preliminary consultations or, in the 

absence thereof, in the Extraordinary Shareholders’ Meeting of Olimpia or in the Board of Directors’ Meeting of Olimpia, among the Current Olimpia Shareholders, 

on the one hand, and Hopa, on the other hand, on a Key Issue, at any time during the Term of the Agreements. 

8.02 Obligation of consultation. The Current Olimpia Shareholders undertake to first consult Hopa whenever a Relevant Deliberation must be discussed or approved. 

8.03 Procedure. 

(a) For the performance of the obligation referred to in paragraph 8.02 above, the Current Olimpia Shareholders and Hopa undertake to meet, or to first consult each 

other by telephone conference or videoconference, subject to the appropriate minutes, within and not later than the third (3rd) day prior to the day scheduled for the 

meeting of the board or shareholders of Olimpia, or immediately after they become aware, in the event of urgent invitation to call a meeting of the Board of Olimpia 

pursuant to the applicable by-laws’ provisions. 

(b) In the consultation referred to in this paragraph, the Current Olimpia Shareholders and Hopa will do everything possible to reach an agreement and/or identify a 

common position on the issues submitted to their examination, and undertake for this purpose to act in good faith. 

(c) The unjustified absence of a Party in the preliminary consultation or its abstention from decisions reached during the consultation, implies acceptance of the 

decisions reached by the other Party and imposes on the absent or abstaining Party the obligation to comply with and observe such decisions. 

8.04 Manifestation of will. 

(a) Whenever the Current Olimpia Shareholders and Hopa, in the preliminary consultation referred to in paragraphs 8.02 and 8.03 above, reach an agreement concerning 

the issues submitted to said consultation, they will be obligated to express their will at the relevant level, according to the following provisions: 

(i) by delegating a common representative to participate in Olimpia’s Extraordinary Shareholders’ Meeting and to cast the vote in said meeting, according to the 

decision made; or, as applicable, 

(ii) to cause its representatives on the Board of Directors of Olimpia to participate in the meeting of the board and cast their vote there, according to the common 

decisions reached in the preliminary consultation. 

(b) Otherwise, in the absence of mutual agreement on the issues submitted to consultation, Hopa will be obligated to refrain from participating in the meeting of the 

shareholders or of the board and from casting or causing its vote to be cast at said level and/or refrain from expressing, at any level and mode, its will or position 

concerning the issue subject to said preliminary consultation, except as indicated in point (d) below. 

(c) 

Whenever the preliminary consultation referred to in the previous paragraphs 8.02 and 8.03 does not take place by the fault of the Current Olimpia Shareholders, 

Hopa will have the right to participate in the meeting of the shareholders and/or board and cast or cause casting of its vote at that level and/or to express, at any level 

and mode, its will or position concerning the Key Issue, except as set forth in point (d) below. 

(d) Whenever the situation referred to in point (b) or the situation referred to in point (c) above occur, Hopa will have the right to send to the Current Olimpia 

Shareholders, by telegram or registered letter and pursuant to paragraph 12.03, a “Notice of Deadlock” within the term of 15 (fifteen) days from the end of the 

consultation referred to in paragraph 8.03 or, in the absence of consultation, from the date of the decision referred to in the preceding paragraph 8.04(c). 

(e) Within 30 Business Days from the date the Current Olimpia Shareholders received the Notice of Deadlock, the Parties must submit – for the only purpose referred to 

in paragraph 10.01 below – to the unappealable judgement of an Arbitration Board, to be appointed in accordance with Article XIII below, as regards the 

ascertainment, for the purposes set forth in Article X, of whether or not the Deadlock situation was declared by Hopa in good faith. 

In any event, it is understood in order to avoid any doubt, that Hopa’s right (as referred to in Article IX below) to have the Spin-off [and] the Holinvest Spin-off take 

place without the results of such ascertainment and therefore the Current Olimpia Shareholders must implement all necessary steps for the Spin-off and Holinvest 

Spin-off to take place within the term indicated in paragraph 9.01(c) below. 

8.05 Rights of the Parties. 

(a) 

Whenever Hopa sends to the Current Olivetti Shareholders a Notice of Deadlock pursuant to paragraph 9.04 (c) above, Hopa will have the right (which will be 

deemed exercised by the receipt of the Notice of Deadlock by the Current Olimpia Shareholders pursuant to point (c) paragraph 8.04 above) to claim – as of the end 

of the thirty-sixth (36) month after the date of the Merger (the “Initial Term”) – all necessary steps to be taken so that within 6 months from the Initial Term, the Spinoff 

and Holinvest Spin-off take place pursuant to the applicable provisions of Article IX below. 

(b) The Parties agree that in any case of absence of opt-out of the Agreements and their consequent automatic renewal pursuant to the provisions of paragraph 6.00(b) 

above, the Initial Term must be considered from time to time [the end of the thirty-sixth (36) month after the date of each renewal]. 

8.06 Identification of Cases of Accelerated Deadlock. (a) Whenever - during the Term of the Agreements – one of the following events takes place (each of them an event 

of “Accelerated Deadlock”): 

(i) a decision is made for the merger and/or spin-off of Olimpia and/or Olivetti with companies other than companies directly or indirectly controlled; 

(ii) Olimpia stops owning a holding in Olivetti at least equal to the Holding in Olivetti, also as a consequence of: 

(A) sale and/or assignment (including by spin-off) and/or contribution of all or part of its holding in Olivetti and/or Financial Instruments (with voting right) to 

companies belonging to the groups in which the Current Olimpia Shareholders are members or which are managed by them; or 

(B) sale and/or assignment (including by spin-off) of all or part of its holding in Olivetti and/or Financial Instruments (with voting right) to third parties with 

payment in kind (for example by swap or contribution). 

(iii) Olimpia’s debt/equity Ratio - without prejudice to paragraph (b) below – exceeds 1:1; 

(iv) the Current Olimpia Shareholders decide to contribute all or part of their total holding in Olimpia to companies belonging to groups in which the Current Olimpia 

Shareholders are members or which are managed by them; 

(v) 

without prejudice to the provisions of paragraph 8.06(b) (iii) (C) below, there are plans for transfer, sale and/or assignment (including by spin-off) under any 

status, of all or part of the total holding of the Current Olimpia Shareholders in Olimpia, to companies belonging to groups in which the Current Olimpia 

Shareholders are members or which are managed by them, at a price lower than the market price of Olimpia’s holding in Olivetti plus _ 0.60 per Olivetti Share 

and/or Financial Instrument owned by Olimpia. It is understood that, whenever Extraordinary Transactions or Capital Transactions are carried out, such increase 



of _ 0.60 must be determined for a number of Olivetti Shares and/or Financial Instruments appropriately adjusted or changed as a consequence of such 

Transactions, according to market practice, with the understanding that whenever, due to the determination of such number there is a disagreement among the 

Parties, such determination will be requested by the most diligent Party from a prime business bank chosen by mutual agreement or, in the absence thereof, 

designated by the Presiding Judge of the Court of Milan; 

(vi) there are plans for the sale and/or assignment (including by spin-off) of all or part of the total investment of the Current Shareholders in Olimpia to third parties, 

with payment in kind (for example by swap or contribution), whenever the third party does not assume towards Hopa the same obligations assumed by the 

Current Olimpia Shareholders pursuant to the Agreements, without prejudice to the fact that in such case Hopa will not be subject to any co-sale obligation; 

in all these cases, Hopa will have the right to ask Olimpia and the Current Olimpia Shareholders to take all necessary steps in order to decide – pursuant to the 

applicable provisions of Article IX below – on the Spin-off and Holinvest Spin-off. 

(b) The Parties mutually take note that: 

(i) 

the right granted to Hopa in paragraph (a) above will be deemed exercised when the Current Olimpia Shareholders receive a written communication from Hopa 

indicating to the Current Olimpia Shareholders its desire to enforce its rights established in the event of Accelerated Deadlock, “Notice of Accelerated Deadlock”; 

(ii) this communication must be sent by Hopa to the Current Olimpia Shareholders not later than by the fifteenth (15th) day after the occurrence of one of the events 

referred to in paragraph (a) above; 

(iii) in the event referred to in paragraph 8.06(a)(v) above, Hopa will not have: 

(A) the right to exercise the co-sale rights reserved in its favor in paragraph 6.08(a) above; 

(B) the right to exercise its pre-emptive right established in the by-laws; and 

(C) any co-sale obligation. 

8.07 Exceptions to Cases of Accelerated Deadlock. 

(a) 

In partial derogation to the provisions of paragraph 8.06(a)(iii) above, the Parties mutually take note that: 

(i) the verification of whether the threshold of 1:1 in the debt/equity Ratio of Olimpia was possibly exceeded, relevant for the purposes of paragraph 8.06(iii) above, 

will exclusively be carried out by Olimpia and the Current Olimpia Shareholders and communicated by them to Hopa (including as part of the approval of the 

periodic balance sheet situation and the financial statements of Olimpia by its Board of Directors) quarterly, and at any time following a written request from 

Hopa to Olimpia; and 

(ii) it may be considered that the event referred to in the previous paragraph 8.06(iii) took place only if, following said event, the debt/equity Ratio of Olimpia is not 

restored to a value equal to or lower than 1:1 within the next 5 days from the date of the communication by which Olimpia notifies Hopa that the debt/equity 

Ratio of Olimpia has exceeded 1:1 or, as an alternative, the latter does not irrevocably undertake to restore it, with the understanding that such restoration may 

occur (A) by non-refundable payments to the capital account made by the Current Olimpia Shareholders and without causing economic difficulties for Hopa or 

dilutions of the latter’s holding in Olimpia or (B) by subordinated financing, with the understanding that, in this case, the Current Olimpia Shareholders will be 

obligated (in order to avoid an Accelerated Deadlock) to convert or replace within 60 (sixty) days such subordinated financing by non-refundable payments to 

the capital account, without causing economic difficulties for Hopa or dilution of the latter’s holding in Olimpia. 

(b) In addition, the Parties mutually take note that: 

(i) 

the sale or contribution of their holding in Olimpia will not constitute a case of Accelerated Deadlock pursuant to paragraph 8.06(v) above: 

(A) by one of the Current Olimpia Shareholders, to a company which is (and remains) controlled by it; and 

(B) by Unicredito and Intesa to: 

(1) a company subject to joint control of said parties in their respective bank group and as long as they remain members thereof; and/or 

(2) to Pirelli, pursuant to the provisions of the current Voting Trust Agreement between Pirelli, on the one hand, and Unicredito and Intesa on the other 

hand, provided that Pirelli – simultaneously with such sale or contribution – is subrogated in the obligations assumed by Unicredito and Intesa towards 

Hopa pursuant to the Agreements and in general pursuant to this Contract; 

(C) by Edizione to Pirelli pursuant to the provisions of the current Voting Trust Agreement between Pirelli, on the one hand, and Edizione, on the other hand, 

whereby Pirelli is subrogated as of now, in the event of such sale or contribution, in the obligations assumed by Edizione towards Hopa pursuant to the 

Agreements and, in general, pursuant to this Contract; 

(ii) the sales referred to in paragraph 8.07(b)(i) above will not give Hopa the right to exercise the co-sale rights reserved to it under paragraph 6.08(a) above, nor the 

pre-emptive right established for it in the by-laws, nor will they create any co-sale obligation for Hopa. 

8.08. Relations between Deadlock and Accelerated Deadlock. The Parties mutually take note that whenever, in the event of a Deadlock, there is an event of Accelerated 

Deadlock, the applicable provisions in the case of Accelerated Deadlock will prevail and, whenever there is an Accelerated Deadlock, there may be no Deadlock or a 

subsequent Accelerated Deadlock, with the understanding that in the event of a Deadlock, an Accelerated Deadlock may take place but a subsequent Deadlock may not be 

deemed to occur. 

Article IX - Spin-off and Holinvest Spin-off 

9.00 Triggering Events. Should Hopa exercise the rights set forth in its favor in paragraphs 8.05 and 8.06(a) above, and in the event of failure to renew the Agreements on 

their initial expiration or at the expiration of the subsequent renewals periods pursuant to paragraph 6.00 above: 

(i) 

the Current Olimpia Shareholders undertake to do everything necessary so that – pursuant to the following paragraphs of this Article IX and in particular 

paragraph 9.01 – the Spin-off takes place; and 

(ii) Hopa and Olimpia undertake to do everything necessary so that - pursuant to the following paragraphs of this Article IX and in particular paragraph 9.04 – the 

Holinvest Spin-off takes place. 

9.01 The Spin-off. (a) The Spin-off will consist of a partial spin-off of Olimpia as a consequence of which Hopa will receive the pro-quota of Olimpia’s assets and 

liabilities. 

(b) The reference date, including for the determination of the pro-quota of the assets and liabilities and without prejudice to paragraph 9.02, of the Spin-off (the “Relevant 

Date”) will be: 

(i) the Initial Term, in the event of Deadlock and in the event of failure to renew the Agreements on the original expiration or on the expiration of the subsequent 

renewal periods (without prejudice to paragraph 8.05(b) above); and 

(ii) a date coinciding with the third (3rd) Business Day following the date of the key issue for the purposes of Accelerated Deadlock, in the event of Accelerated 

Deadlock. 

(c) Without prejudice to paragraph 9.06 below, the Current Olimpia Shareholders must take all necessary steps to complete the Spin-off within six (6) months: 

(i) from the Initial Term, in the event of Deadlock and in the event of failure to renew the Agreements on the original expiration or on the expiration of the 

subsequent renewals periods; and 

(ii) from the date of receipt of the Notice of Accelerated Deadlock, in the event of Accelerated Deadlock. 

9.02 Commitment of the Current Olimpia Shareholders. Without prejudice to paragraph 9.07 below for the so-called cash settlements, in all cases in which, pursuant to 

this Contract, it is necessary to proceed with the Spin-off, the Current Olimpia Shareholders must do everything necessary so that, on the Relevant Date: 

(i) the assets of Olimpia consist at least of the Olivetti Holding 



(ii) the share of the Olivetti Holding and Financial Instruments to be attributed to Hopa in the Spin-off is equal to the percentage of Hopa’s holding in the capital of 

Olimpia, without prejudice to the fact that, in the Spin-off, Hopa must be attributed a share of the Olivetti Holding including in the event that, on the Relevant 

Date, Olimpia has a holding lower than the Olivetti Holding, except that, upon the reduction of Olimpia’s holding in Olivetti below the Olivetti Holding, the 

exercise of the co-sale right is obtained by Hopa; in this case, Hopa will be attributed the prorata of Olimpia’s holding in Olivetti and of its financial instruments; 

(iii) Hopa will be attributed a portion, in a percentage equal to Hopa’s holding percentage in Olimpia’s capital, 

(A) of Olimpia’s holding in Holinvest on the Relevant Date; or 

(B) the share reserved to Olimpia in connection with Holinvest’s assets and liabilities on the same date. 

9.03 Further Commitments in the Event of Deadlock, Accelerated Deadlock and Failure to Renew. In addition to the provisions of Paragraph 9.02 above, in the event of a 

Spin-off following a Deadlock, and an Accelerated Deadlock or failure to renew the Agreements, the Current Olimpia Shareholders must take all necessary steps so that 

the debt/equity Ratio of Olimpia on the Relevant Date is not higher than 1:1. 

9.04 Subsequent Commitments only in the Event of Accelerated Deadlock. In addition to the provisions of paragraph 9.02 above, in the event of Spin-off following an 

Accelerated Deadlock (and therefore not in the case of Deadlock or failure to renew the Agreements), the Current Olimpia Shareholders must take all necessary steps so 

that the effects of the event which gives rise to Hopa’s right to enforce the Accelerated Deadlock (provided it does not consist of the events referred to in paragraphs 

8.06(ii) and 8.06(iii) above) do not prejudice the Spin-off. 

9.05 Holinvest Spin-off. 

(a) The Holinvest Spin-off will consist of a partial Spin-off of Holinvest as a consequence of which Olimpia will be attributed the pro-quota of the assets and liabilities of 

Holinvest. 

(b) Without prejudice to paragraph 9.07 below, the reference date of the Holinvest Spin-off will be the Relevant Date of the Spin-off (and must therefore be determined 

pursuant to paragraph 9.01(b) above). 

(c) Without prejudice to paragraph 9.07 below, Hopa must take all necessary steps for the Holinvest Spin-off to be completed within six (6) months: 

(i) from the Initial Term, in the event of Deadlock and in the event of failure to renew the Agreements on the original expiration or on the expiration of the 

subsequent renewals periods; and 

(ii) from the date of receipt of the Notice of Accelerated Deadlock, in the event of Accelerated Deadlock. 

9.06 Commitment of Hopa. In all cases in which the Holinvest Spin-off must be carried out, Hopa will take all necessary steps so that, on the Relevant Date: 

(i) Holinvest’s debt/equity Ratio is not higher than 1:1; and 

(ii) Holinvest’s assets do not include financial instruments other than Olivetti Bonds or other Olivetti Instruments or financial instruments coming from Extraordinary 

Transactions or Olivetti Shares arising from the conversion of the instruments mentioned above, in addition to the Olivetti Shares referred to in paragraph 4.01 

(a) (ii) (A) (4) above. 

9.07 Procedures for the Spin-off and Holinvest Spin-off. 

(a) Without prejudice to the previous paragraphs of this Article IX, the Parties mutually take note that, in order to carry out the agreement of the Parties in the event that 

it is necessary to proceed with the Spin-off and the Holinvest Spin-off: 

(i) the Holinvest Spin-off must proceed and be effective before the Spin-off becomes effective, and must attribute to Olimpia (or, should it so require, in writing, to 

one of its 100%-owned subsidiaries) the pro-quota of the assets and liabilities of Holinvest (as set forth in paragraphs 9.05 and 9.06 above); however, it is 

understood that, whenever Hopa so desires, instead of the Holinvest Spin-off (and therefore instead of the allocation to Olimpia of the pro-quota of the assets and 

liabilities of Holinvest) Hopa may liquidate Olimpia [and therefore buy Olimpia’s holding in Holinvest] with a payment in cash (so-called cash settlement) whose 

amount must be calculated equal to the difference, calculated at market prices on the Relevant Date, between the assets and liabilities which, in the event of the 

Holinvest Spin-off (and therefore in the event of allocation to Olimpia of the pro-quota of the assets and liabilities of Holinvest) would have been reserved for 

Olimpia; with the understanding that this right may be exercised by Hopa only within 15 (fifteen) Business Days from the Relevant Date, and that the payment of 

the aforementioned amount must take place within 15 (fifteen) Business Days after the exercise of said right. 

(ii) subsequently – although uninterruptedly – at the time the Holinvest Spin-off becomes effective, the Spin-off will be carried out attributing to Hopa (or, if it so 

desires, to one of its 100% subsidiaries) the pro-quota of the assets and liabilities of Olimpia (as set forth in paragraphs 9.01 to 9.04 above); however, it is 

understood that, whenever the Current Olimpia Shareholders so desire, instead of the Spin-off (and therefore instead of the allocation to Hopa of the pro-quota of 

the assets and liabilities of Olimpia) the Current Olimpia Shareholders may liquidate Hopa [and therefore buy the pro-quota, unless decided otherwise, of Hopa’s 

entire holding in Olimpia] with a payment in cash (so-called cash settlement) whose amount must be calculated equal to the difference, calculated at market 

prices on the Relevant Date, between the assets and liabilities which, in the event of the Spin-off (and therefore in the event of allocation to Hopa of the proquota 

of the assets and liabilities of Olimpia) would have been reserved for Hopa; with the understanding that this right may be exercised by the Current Olimpia 

Shareholders only within 15 (fifteen) Business Days from the Relevant Date, and that the payment of the aforementioned amount must take place within 15 

(fifteen) Business Days after the exercise of said right. 

(iii) including in the event of cash settlement, Hopa will be paid or attributed the Increase Premium to which it is entitled pursuant to Article X below. 

(iv) the stipulation of the Spin-off instrument will be subject to the stipulation of the pre-emptive right agreement referred to in paragraph 7.05 above, whose 

enforceability will be, in turn, subject, as a suspensive condition, to the completion of the Spin-off. 

(b) Furthermore, the Parties mutually take note of the fact that Olimpia’s liabilities include a “syndicated loan,” in the amount of _ 1.8 billion maturing in October 2006, 

which cannot be distributed as part of the Spin-off between the company subject to spin-off and the beneficiary, and that therefore: 

(i) such syndicated loan will fully remain in the liabilities of Olimpia; 

(ii) as part of the Spin-off, Olimpia will attribute to the beneficiary another financial loan, equal to the portion of the syndicated loan which would be due to the 

beneficiary of the Spin-off, without changing the preexisting pro-quota of the assets and liabilities to which the beneficiary is entitled. 

(c) The Parties mutually take note that, as part of the Holinvest Spin-off, as part of the attribution of the pro-quota of the applicable assets and liabilities, Hopa will be 

attributed 100,000,000 Olivetti Bonds and the respective debt as referred to in paragraph 4.01(ii)(D)(2). 

OMISSIS 

Article X - Increase Premium 

10.00 Description. In all the events in which it is necessary to proceed with the Spin-off, pursuant to the applicable provisions of this contract and in particular Article 9 

above (in the calculation of the pro quota of the assets and liabilities to which the beneficiary is entitled under the Spin off) Olimpia or the Current Olimpia Shareholders, 

if Olimpia fails to do so, must pay to Hopa, by the methods referred to in paragraph 10.04 below, but in addition to any right of Hopa by the effect of the Spin-off pursuant 

to Article IX above, an Increase Premium (the “Increase Premium”) for each Olivetti share and/or financial instrument which, by the effect of the Spin-off, must be 

attributed to Hopa (or should have been attributed to Hopa in the event that the Current Olimpia Shareholders would have exercised their right to the cash settlement 

pursuant to the paragraph 9.07(a) above, to be determined and paid pursuant to the provisions of the following paragraphs of this Article X. It is understood that, 

whenever Extraordinary Transactions or Capital Transactions are carried out, such Increase Premium must be paid for the entire number of Olivetti Shares and/or 

Financial Instruments timely adjusted or changed as a consequence of such transactions, according to market practice, with the understanding that whenever, due to the 

determination of such number there is a disagreement between the Parties, such determination will be requested by the most diligent Party from a prime business bank 

chosen by mutual agreement or, in the absence thereof, designated by the Presiding Judge of the Court of Milan; with the understanding that, without prejudice to 



paragraph (i) above, the Increase Premium will be paid only for the Olivetti shares and Financial Instruments directly or indirectly owned, held, or available to Olimpia as 

of the date of the Spin-off (net of those arising from the Holinvest Spin-off, which will consequently not be considered for the determination of the Increase Premium). 

Whenever actually paid, the Increase Premium must be considered to include all Hopa’s claims following the Deadlock or the Accelerated Deadlock, as the case may be. 

10.01 The Increase Premium in the Event of Deadlock: In the event that the Spin-off takes place following a Deadlock, the Increase Premium must be determined as 

follows: 

(i) 

at € 0.35, whenever the Arbitration Board referred to in Article XIII below, selected by the Parties pursuant to paragraph 8.04(d) above, determines that the 

Deadlock was not declared by Hopa in good faith; or instead 

(ii) at € 0.60, whenever the Arbitration Board referred to in Article XIII below, selected by the Parties pursuant to paragraph 8.04(d) above, determines that the 

Deadlock was declared by Hopa in good faith. 

10.02 The Increase Premium in the Event of Accelerated Deadlock. In the event that the Spin-off takes place following an Accelerated Deadlock, the Increase Premium 

will be equal to € 0.60, without prejudice to the fact that, in the case referred to in paragraph 8.06 (ii) above, the Increase Premium will be equal to € 0.70. 

10.03 The Increase Premium in the Event of Failure to Renew the Agreements. In the event that the Spin-off takes place as the consequence of the failure to renew the 

Agreements, the Increase Premium will be determined according to the following provisions: 

(i) the Increase Premium may not in any event and therefore not even if the Parties resort to the evaluation of the investment banks referred to in paragraph (ii) 

below, be determined at an amount of less than € 0.35; 

(ii) the Increase Premium will be determined by mutual agreement between the Current Olimpia Shareholders and Hopa within 10 business days from the last day of 

the term of the agreement or, in the absence of such agreement, by two “investment banks” with the national standing selected one by each Party; for the 

purposes of this paragraph 10.03. Party means Hopa, on the one hand, and the Current Olimpia Shareholders on the other hand, without prejudice to the fact 

that, whenever the “investment banks” so appointed disagree on the evaluation within 30 business days from their appointment, the evaluation will be made by a 

third “investment bank” with the same standing, selected by agreement between the first two (at the time the Parties give the assignment) or, in the absence of 

agreement, by the Presiding Judge of the Court of Milan; 

(iii) the Presiding Judge of the Court of Milan will be (in the order and in the terms indicated above) also requested to appoint the “investment bank” which one of 

the Parties may have omitted to appoint or to replace it, in the event it is released from its assignment; 

(iv) the evaluation referred to in point (i) above will be final and binding for the Parties pursuant to articles 1349 and 1473 of the Italian Civil Code, for the purposes 

of this Article X and in particular this paragraph 10.03. 

10.04 Terms and Manner of Payment of the Increase Premium. The Increase Premium must be paid or allocated to Hopa by Olimpia – or by the Current Olimpia 

Shareholders pursuant to paragraph 10.00 above – in immediately available funds; 

(i) 

in the event referred to in paragraph 10.01 above; 

(A) concerning the € 0.35, at the time of affecting the Spin-off: and 

(B) concerning the possible balance (equal to € 0.25), within 15 (fifteen) business days from the decision of the Arbitration Board, determining that the 

Deadlock was determined by Hopa in good faith; 

(ii) in the event referred to in paragraph 10.02 above, concerning the _ 0.35, within 30 (thirty) calendar days from receipt of the notice of Accelerated Deadlock by 

the Current Olimpia Shareholders, and the balance of the applicable Increase Premium at the time of perfecting the Spin-off; 

(iii) in the event referred to in paragraph 10.03 above, within 30 (thirty) business days from the determination referred to in points (ii) to (iv) of paragraph 10.03 

above. 

Article XI – Tax expenses 

OMISSIS 

Article XII - General Provisions 

OMISSIS 

Article XIII - Disputes 

OMISSIS 

The full text of the Contract without any OMISSIS): 

(i) will be filed – in accordance with the paragraph 1, letter (c) of article 122 of Legislative Decree No. 58/98 – at the Milan and Turin/Ivrea Companies Registry; and 

(ii) is already available for viewing on the corporate website www.pirelli.com 




Plan for the merger by incorporation in Pirelli & C. A.p.A. (after its 

transformation to a corporation) of Pirelli & C. Luxembourg S.p.A. and Pirelli 

S.p.A. drawn up in accordance with art. 2501 bis of the Italian Civil Code. 

Considering that: 

a. the intention is to proceed with the merger by incorporation in Pirelli & C. A.p.A. (after its transformation, in the same 

shareholders’ meeting called to approve this plan of merger, but with immediate effect, from a limited partnership to a 

corporation – hereinafter Pirelli & C.) of Pirelli & C. Luxembourg S.p.A. (hereinafter Pirelli & C. Luxembourg) and Pirelli 

S.p.A.; 

b. the assumptions for the merger are described in the reports by the Board of Managing Partners of Pirelli & C. and the 

Board of Directors of Pirelli S.p.A. to the respective shareholders’ meetings; 

c. the plan of merger makes reference to the balance sheet data at December 31, 2002 of the companies taking part in the 

merger, that in all cases coincide with the respective annual financial statements. For purposes of determining the 

exchange ratios and the valuations needed of the relative value of the economic capitals of the companies, account was 

also taken of the following significant events subsequent to such date: 

(i) the purchase by Pirelli & C. of 47,973,139 Pirelli S.p.A. ordinary shares (equal to 2.5 percent of ordinary share 

capital) from BZ Group Holding Limited for a total price of about Euros 43.1 million; 

(ii) the merger of Holy S.r.l. in Olimpia S.p.A. on the basis of the agreements signed between the shareholders of 

Olimpia S.p.A., Olimpia S.p.A. and Hopa S.p.A. and announced to the market on December 19, 2002 (published in 

accordance with the law), after which Pirelli S.p.A.’s investment in Olimpia S.p.A. will be reduced from 60 percent 

to 50.4 percent; 

(iii) the proposed pay out of dividends from 2002 profits by both Pirelli & C. (Euros 0.08 per ordinary share and Euros 

0.0904 per savings share, for a total of about Euros 52 million) and Pirelli S.p.A. (Euro 0.0364 per savings share for a 

total of about Euros 3 million), submitted to the approval of the respective shareholders’ meetings; 

(iv) the capital increase cum warrants offered on option to the shareholders of Pirelli & C. referred to in the preceding 

paragraph 2. 

Having said that 

The following plan of merger by incorporation is submitted for approval to the shareholders’ meetings of Pirelli & C., Pirelli 

& C. Luxembourg and Pirelli S.p.A.. 

1. Type, name of company and registered offices of the companies taking part in the merger 

Merging company 

Pirelli & C. A.p.A. (Pirelli & C. S.p.A. after transformation of its legal entity as stated in the introduction), with 

registered office in Milan, Via Gaetano Negri 10, with share capital of Euros 339,422,773.56, fully paid-in, subdivided 

into 652,736,103 shares of par value Euros 0.52 each, of which 618,317,846 ordinary shares and 34,418,257 savings 

shares, Milan Companies Registry number 00860340157, tax code number 00860340157, established in Milan on May 

15, 1883 by deed of the notary public Stefano Allocchio, file number 10752. 

Companies to be merged 

Pirelli & C. Luxembourg S.p.A., with registered office in Milan, Via Gaetano Negri 10, (formerly Pirelli & C. Luxembourg S.A., 

with registered offices in Luxembourg, 13 Boulevard du Prince Henri), share capital of Euros 183,600,000.00, fully paid-in, 

subdivided into 270,000 ordinary shares of par value Euros 680.00 each, Milan Companies Registry number 03913350967, tax 

code number 03913350967, established in Luxembourg on February 28, 1997 by deed of the notary public Jacques Delvaux. 



Pirelli S.p.A., with registered office in Milan, Viale Sarca 222, share capital of Euros 1,043,707,463.24, fully paid-in, 

subdivided into 2,007,129,737 shares of par value Euros 0.52 each, of which 1,919,123,721 ordinary shares and 88,006,016 

savings shares, Milan Companies Registry number 00886890151, tax code number 00886890151, established in Milan on 

November 3, 1920 by deed of the notary public Gerolamo Serina, file number 18657. 

2. By-laws of the merging company and amendments to the by-laws as a result of the merger 

The shareholders’ meeting of Pirelli & C. called to vote on the merger will be asked to pass resolutions, beforehand, on the 

transformation of the merging company to a corporation, the change in the corporate business purpose and a series of 

consequent amendments to the by-laws, the one and the other effective immediately. 

Specifically, amendments will be made to articles 1 (name of the company), 2 (corporate business purpose), 7 (convocation 

of shareholders’ meetings), 8 (constitution of shareholders’ meetings), 9 (chairmanship of shareholders’ meetings), 10 

(management of the company), 11 (convocation of the Board of Directors and majorities), 12 (representation of the 

company), 13 (compensation to the directors), 14 (resignation of the directors) and 17 (distribution of profits) of the bylaws 

of Pirelli & C.. 

A new article will also be inserted between articles 10 and 11 relating to the powers of the Board of Directors and will be 

numbered article 11, with the consequent re-numbering of the following articles. 

The same shareholders’ meeting, always before the resolution on the merger, will be asked to approve a share capital 

increase cum warrants that will be offered on option to shareholders of Pirelli & C. prior to the effective date of the merger, 

as a result of which article 5 of the by-laws of the aforementioned company will be consequently amended. 

Specifically, the shareholders of Pirelli & C. will be asked to approve: 

a) a share capital increase by Pirelli & C., separable, against payment for a maximum par value of Euros 1,014,185,020.68 

through the issue of a maximum of 1,950,355,809 ordinary shares, all with a par value of Euros 0.52, with regular 

dividend rights from January 1, 2003, to be granted on option to the shareholders, in a ratio of 3 new ordinary shares for 

every 1 share of any class of stock held, at a price equal to par value, for a total equivalent spot amount of a maximum 

of Euros 1,014,185,020.68. Each new share issued will also have a free warrant attached, that can be traded separately, 

valid to subscribe, from January 1, 2004 to June 30, 2006, to Pirelli & C. ordinary shares in a ratio of 1 new Pirelli & C. 

share for every 4 warrants held, at a unit price equal to par value; 

b) a consequent share capital increase, separable, against payment for a maximum par value of Euros 253,546,255.04 

through the issue, at one or more times, of a maximum of 487,588,952 ordinary shares, all with a par value of Euros 0.52, 

with regular dividend rights, to be reserved exclusively and irrevocably for the exercise of the warrants attached to the 

shares that will be issued as described in the preceding point a), for a further equivalent amount in the future of a 

maximum of Euros 253,546,255.04. 

Again on the basis of the resolutions that will be proposed to the aforementioned extraordinary shareholders’ meeting, as a 

result of the merger, and effective from the date the merger comes into effect with third parties, articles 5 and 17 

(previously numbered article 18) of the by-laws of the merging company will be further amended. 

As for article 5, the amendments incorporate: (i) the capital increase to service the merger and (ii) the delegation of power 

to the Directors of Pirelli & C. to increase share capital through the issue, at one or more times, of a maximum of 

100,000,000 Pirelli & C. ordinary shares, by April 30, 2008, to be granted to the managers and cadres of the company and its 

subsidiaries, in Italy and abroad, pursuant to articles 2441 and/or 2349 of the Italian Civil Code. 

As for art. 17 (renumbered art. 18), the amendment refers to the increase in the preference dividend from 5 percent to 7 

percent of the par value of the savings shares (Euros 0.52 for both Pirelli & C. and for Pirelli S.p.A.) to be paid from the 

annual earnings calculated net of the portion to appropriate to the legal reserve. This was done in order to render the 

economic treatment of Pirelli & C. savings shareholders the same as Pirelli S.p.A. savings shareholders. 



A copy of the by-laws – in the version reflecting the changes that will be submitted to the extraordinary shareholders’ 

meeting of Pirelli & C. convened to approve, among other things, this plan of merger, described in the preceding paragraphs 

– is attached to the plan of merger. 

The renewal of the corporate boards will also be proposed to the Pirelli & C. shareholders’ meeting. 

3. Share exchange ratio 

The exchange ratio is equal to the following: 

• 4 new Pirelli & C. ordinary shares for every 3 Pirelli S.p.A. ordinary shares; 

• 10 new Pirelli & C. non-convertible savings shares for every 7 Pirelli S.p.A. non-convertible savings shares. 

There is no cash differential anticipated. 

The shares of Pirelli & C. Luxembourg (a wholly-owned subsidiary of the merging company) will be cancelled, without exchange. 

4. Manner of assigning the shares of the merging company 

Pirelli & C. will execute the merger by: 

– cancellation, without exchange, of the shares representing the entire share capital of Pirelli & C. Luxembourg, since it is 

a wholly-owned subsidiary of the merging company; 

– cancellation, without exchange, of the Pirelli S.p.A. ordinary and savings shares that, at the date the merger becomes 

effective, are owned by Pirelli & C. or Pirelli & C. Luxembourg; 

– cancellation, without exchange, of the shares of the company to be merged, Pirelli S.p.A., which, at the date the merger 

becomes effective, are owned by the same company to be merged; 

– increase of its share capital for a maximum par value of Euros 786,127,230.72 through the issue of a maximum number 

of 1,398,203,116 ordinary shares and a maximum number of 113,580,020 non-convertible savings shares of par value 

Euros 0.52 each with dividend rights from January 1 of the year in which the merger comes into effect with third parties, 

to be reserved for the shareholders of Pirelli S.p.A. (other than Pirelli & C. and Pirelli & C. Luxembourg) on the basis of 

the exchange ratios indicated in the preceding paragraph 3. 

The amount of the capital increase to service the exchange ratio represents the maximum theoretical amount based upon 

the structure of the shareholder base as of the date of this report, assuming: (i) full exercise of the 46,154,000 “Mediocredito 

Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003”, held by a single party, valid for the subscription, in the 

period July 1 – 31, 2003, of 1 Pirelli S.p.A. ordinary share for each 1 warrant held at the price of approx. Euros 3.24 per 

share, and (ii) full exercise of the options granted by Pirelli S.p.A. under the existing incentive plans giving the beneficiaries 

the right to subscribe to a maximum of 46,829,692 Pirelli S.p.A. ordinary shares. 

In order for the Pirelli S.p.A. shares, that are to be exchanged for the exchange ratio to be exactly separable, up to a 

maximum of 2 ordinary shares and up to a maximum of 6 savings shares of Pirelli S.p.A. will be cancelled and made 

available to a shareholder. The exact amount of the shares to be cancelled will be determined at the time of signing the 

deed of merger, taking into account the number of Pirelli S.p.A. ordinary and savings shares held by Pirelli & C., Pirelli & C. 

Luxembourg and the same Pirelli S.p.A. at that date, as well as the eventual exercise of “Mediocredito Lombardo Warrants – 

Pirelli S.p.A. ordinary shares 1998-2003” and the eventual exercise of the options granted by Pirelli S.p.A. to the 

beneficiaries of the existing incentive plans. 

The Pirelli & C. shares issued under the exchange ratios referred to in the preceding paragraph 3 will be made available to 

those entitled, under conditions of dematerialization, through the respective authorized depositary agents registered with 

Monte Titoli S.p.A. beginning from the date the merger becomes effective, if the stock market is open for trading or from 

the first trading day thereafter. 



Where necessary, Pirelli S.p.A. will ensure, through a broker charged especially for the purpose, that shareholders can 

purchase or sell the minimum number of Pirelli S.p.A. shares in order to have a whole number of Pirelli & C. shares without 

any additional expenses, stamps, duties and commissions. This information will be announced on a timely basis through a 

specific notice published in at least one national newspaper. 

Pirelli & C. and Pirelli S.p.A. will advise those concerned of the necessary procedures to be followed to exchange the shares 

after the merger has been executed through publication of a specific notice in at least one national newspaper. 

As from the date the merger becomes effective, if the stock market is open for trading, or from the first trading day 

thereafter, the Pirelli S.p.A. shares of all classes of stock will be delisted from the Mercato Telematico Azionario organized 

and operated by Borsa Italiana S.p.A.. 

Pirelli & C. shares, including the new shares issued to service the exchange ratio, will continue to be listed on the Mercato 

Telematico Azionario organized and operated by Borsa Italiana S.p.A.. 

5. Date from which the new Pirelli & C. shares accrue dividend rights 

The new Pirelli & C. ordinary and non-convertible savings shares to service the exchange will have dividend rights from 

January 1 of the year in which the merger comes into effect with third parties. 

6. Date the merger becomes effective 

The deed of merger will establish the date from which the merger will be in effect ex art. 2504 bis of the Italian Civil Code. 

The date could also be subsequent to the date in which the final registrations required by art 2504 of the Italian Civil Code 

have been completed. 

In accordance with the combined provision of articles 2504 bis, paragraph 3, and 2501 bis, paragraph 6 of the Italian Civil Code, 

the transactions of Pirelli & C. Luxembourg and Pirelli S.p.A. will be taken up by Pirelli & C. in its financial statements 

beginning from January 1 of the year in which the merger comes into effect with third parties, and this is also the date on 

which the merger becomes effective for tax purposes, pursuant to art. 123, paragraph 7, of D.P.R. No. 917 of December 22, 1986. 

7. Eventual treatment reserved for specific categories of shareholders and holders of securities other than shares 

The exchange ratio to which the Pirelli S.p.A. ordinary and savings shareholders are entitled are indicated in the preceding 

paragraph 3. 

As a result of the amendment to art. 17 (renumbered art. 18) of the by-laws following the approval of the plan of merger, the 

Pirelli & C. holders of savings shares (including those coming from the exchange ratio with Pirelli S.p.A. shares) will be 

entitled to a preference dividend on profits equal to 7 percent of the par value of the savings shares (Euros 0.52) to be paid 

from the annual earnings, calculated net of the portion to appropriate to the legal reserve. This change will come into force 

from the date the merger comes into effect with third parties, taking into account the comments in the preceding paragraph 5. 

The Pirelli & C. savings shares granted in the exchange ratio for the Pirelli S.p.A. savings shares will have all the features of 

the latter. 

As for the 46,154,000 “Mediocredito Lombardo Warrants – Pirelli S.p.A. ordinary shares 1998-2003”, valid for the 

subscription, in the period July 1 – 31, 2003, of 1 Pirelli S.p.A. ordinary share for each 1 warrant held at the price of approx. 

Euros 3.24 per share, account was taken of the eventual exercise of the warrants for purposes of determining the maximum 

number of shares to be issued to service the exchange. 



Lastly, Pirelli & C. will substitute: (i) Pirelli & C. Luxembourg as the issuer of the “Pirelli & C. Luxembourg S.A. – 5.125% 

Guaranteed Notes due 2009” of Euros 150,000,000 (ii) Pirelli S.p.A. as the issuer of “Pirelli S.p.A.– 4.875% Notes due 2008” of 

Euros 500,000,000 and (iii) Pirelli S.p.A. as the guarantor of the “Pirelli Finance (Luxembourg) S.A.– 6.50% Guaranteed Notes 

due 2007” of Euros 500,000,000”. 

There are no treatments reserved for the holders of securities other than those mentioned above. 

However, the absent or dissenting holders of Pirelli & C. ordinary shares regarding the specific resolutions on the 

transformation of Pirelli & C. to a corporation and the change in the corporate business purpose (more fully described in 

the preceding paragraph 2) referred to in point 1 of the agenda of the extraordinary session of the Pirelli & C. shareholders’ 

meeting called to approve, among other things, the plan of merger, and the holders of Pirelli & C. savings shares, will be 

entitled to the right of withdrawal pursuant to art. 2437 of the Italian Civil Code to be exercised in the manner indicated in 

the specific notice that will be published in at least one national newspaper subsequent to the registration of the relative 

resolutions in the Companies Registry. 

8. Specific advantages eventually proposed in favor of the directors of the merging company and/or merged companies 

There are no particular advantages anticipated for the directors of the merging company and/or merged companies. 


Pirelli & C. Accomandita per Azioni 

The Chairman 


Pirelli Società per Azioni 

The President and CEO 


Milan, April 2, 2003 

Pirelli & C. Luxembourg S.p.A. 

The Chairman 

Pierluigi Zanaboni 



Appendix 1 

BY-LAWS 

COMPANY’S NAME, PURPOSE, REGISTERED OFFICE 

AND DURATION 

Article 1 

A Corporation is hereby incorporated under the name 

Pirelli & C. Società per Azioni. 

Article 2 

The purpose of the Company is the following: 

a) the acquisition of participating interests in other 

companies or corporations, both in Italy and abroad; 

b) the financing, the technical and financial co-ordination of 

the companies or corporations in which it has interests; 

c) the sale, ownership, management or placement of both 

government and private securities; 

The Company may carry out all transactions of any type 

whatsoever - excluding the collection of savings deposits 

from the public - connected to its corporate business purpose. 

Article 3 

The registered office of the Company is in Milan, at Via G. 

Negri 10. 

Article 4 

The duration of the Company is fixed until the date of 

December 31, 2100. 

SHARE CAPITAL 

Article 5 

The share capital is Euros 339,422,773.56 

(threehundredthirtyninemillionfourhundredtwentytwo 

thousandsevenhundredseventythreeandfiftysixcents) divided 

into 652,736,103 

(sixhundredfiftytwomillionsevenhundredthirtysixthousand 

onehundredthree) shares with a par value of Euros 0.52 

(fiftytwocents) each consisting of 618,317,846 

(sixhundredeighteenmillionthreehundredseventeenthousand 

eighthundredfourtysix) ordinary shares and 34,418,257 

(thirtyfourmillionfourhundredeighteenthousandtwohundred 

fiftyseven) savings shares. 

By resolution passed by the extraordinary shareholders’ 

meeting held on December 22, 1998, the Directors were 

granted the power to increase the share capital, at one or 

more times, by a maximum amount of Euros 103,291,379.81 

(onehundredthreemilliontwohundrednintyonethousandthree 

hundredseventynineandeightyonecents) and for a maximum 

time period of five years from the date of said resolution. 

The share capital increase may be carried out by issuing, 

also with a premium, both ordinary and savings shares, and 

must be reserved for shareholders and/or holders of 

convertible bonds. 

By resolution passed by the extraordinary shareholders’ 

meeting held on December 22, 1998, the Directors were 

granted the power to issue bonds, at one or more times, 

including bonds that are convertible both into ordinary 

shares or into savings shares, or bonds with warrants valid 

for the subscription of said shares, for a maximum par value 

amount of Euros 206,582,759.63 

(twohundredsixmillionfivehundredeightytwothousandseven 

hundredfiftynineandsixtythreecents) and for a maximum 

time period of five years from the date of said resolution, 

with the consequent possible increase of the share capital to 

serve the bond conversion. 

The extraordinary shareholders’ meeting of ….…. voted the 

following: 

a) to increase share capital, against payment, separable, by 

and no later than December 31, 2003, of a maximum of 

Euros 1,014,185,020.68 (onebillionfourteenmillionone 

hundredeightyfivethousandandtwentyandsixtyeightcents), 

through the issue of a maximum of 1,950,355,809 

(onebillionninehundredfiftymillionthreehundredfiftyfive 

thousandeighthundredandnine) ordinary shares of par 

value Euros 0.52 (fiftytwocents) each, with dividend 

rights from January 1, 2003, to be offered on option to 

the shareholders, at a unit price equal to par value, in a 

ratio of 3 new ordinary shares for every 1 share of 

whatsoever class of stock owned; 

b) to attach to each share referred to in point a) a free 

warrant, that can be traded separately, valid to subscribe, 

at any time from January 1, 2004 to June 30, 2006, in a 

ratio of 1 Pirelli & C. ordinary share, with regular dividend 

rights and a par value of Euros 0.52 (fiftytwocents) for 

every 4 warrants held, at a unit price equal to par value; 

c) to consequently increase share capital against payment, 

separable, by and not later than June 30, 2006, of a 

maximum par value of Euros 253,546,255.04 

(twohundredfiftythreemillionfivehundredfortysixthousand 

twohundredfiftyfiveandfourcents) through the issue, at 

one or more times, of a maximum of 487,588,952 

(fourhundredeightysevenmillionfivehundredeightyeight 



thousandninehundredfiftytwo) ordinary shares, of par 

value Euros 0.52 (fiftytwocents) each, with regular 

dividend rights, to be reserved exclusively and 

irrevocably for the exercise of a maximum of 

1,950,355,809 

(onebillionninehundredfiftymillionthreehundredfiftyfive 

thousandeighthundredninne) warrants attached to the 

shares referred to in the preceding point b). 

The extraordinary shareholders’ meeting of ……. which 

approved the merger by incorporation in Pirelli & C. S.p.A. 

of Pirelli & C. Luxembourg S.p.A. and Pirelli S.p.A. voted to 

increase share capital to service the exchange ratio by a 

maximum par value of Euros 786,127,230.72 

(sevenhundredeightysixmilliononehundredtwentyseven 

thousandtwohundredthirtyandseventytwocents) through the 

issue of a maximum of 1,398,203,116 

(onebillionthreehundredninetyeightmilliontwohundredand 

threethousandonehundredandsixteen) ordinary shares and a 

maximum of 113,580,020 

(onehundredthirteenmillionfivehundredeightythousandtwenty) 

savings shares of par value Euro 0.52 (fiftytwocents) each 

with dividend rights from January 1 of the year in which the 

merger comes into effect with third parties, to be reserved 

for the shareholders of Pirelli S.p.A., other than Pirelli & C. 

S.p.A. and Pirelli & C. Luxembourg S.p.A., on the basis of 

the exchange ratio of: (i) 4 new Pirelli & C. ordinary shares 

for every 3 Pirelli S.p.A. ordinary shares and (ii) 10 new 

Pirelli & C. non-convertible savings shares for every 7 Pirelli 

S.p.A. non-convertible savings shares. 

By resolution voted by the extraordinary shareholders’ 

meeting of ….. , the Directors were granted the power to 

issue, at one or more times, up to a maximum of 100,000,000 

(onehundredmillion) ordinary shares, by April 30, 2008, to 

be granted to the managers and cadres of the Company and 

its subsidiaries and the subsidiaries of the latter, in Italy and 

abroad, pursuant to articles 2441 and/or 2349 of the Italian 

Civil Code. 

Article 6 

The shares are divided into ordinary shares and savings 

shares. 

Ordinary shares give the right to one vote per share; they 

may be either registered or bearer shares insofar as the law 

permits, and in this case may be converted, especially at the 

holder's request and expense, from one type to the other. 

Savings shares do not give the right to vote and, unless the 

law provides otherwise, are bearer shares. 

At the request and expense of the shareholder they may be 

converted into registered shares. 

As well as any rights and privileges provided for by law and 

in other parts of the present by-laws, savings shares shall 

have pre-emptive rights in the matter of paying-off of 

capital up to the full par value of same; in the event of a 

capital reduction due to loss, the par value of the saving 

shares will be reduced only by that part of loss exceeding 

the total par value of the other shares. 

Savings shares keep the rights and privileges foreseen by law 

and by the present by-laws even in the event of exclusion of 

ordinary shares and savings shares from trading. 

In order to ensure the common representative of the 

holders of savings shares, of adequate information about 

any transactions which might influence the trend in the 

market prices of the shares in that class, any 

communications concerning said transactions will promptly 

be sent to same, by the legal representatives. 

In the event of a share capital increase being carried out by 

issuing shares of only one class, same must be offered on 

option to the shareholders of all classes of shares. 

In the event of both ordinary shares and savings shares 

being issued: 

a) the holders of ordinary shares shall have the right to 

receive ordinary shares on option, and savings shares to 

make up any difference; 

b) the holders of savings shares shall have the right to 

receive savings shares on option, and ordinary shares to 

make up any difference. 

SHAREHOLDERS’ MEETING 

Article 7 

The convocation of the shareholders’ meeting, which may 

take place anywhere in Italy including in a place other than 

the registered office, the right to attend meetings and 

representation at same are all governed by law. 

In view of the nature of the Company's business and the 

special requirements arising therefrom, the ordinary 

shareholders’ meeting may be convened within six months 

of the end of the financial period. 

Article 8 

The due convocation of the meeting and the validity of its 

resolutions are governed by law. 

The voting quorum for the appointment of Directors is 

established as a relative majority of the votes. 

Article 9 

The meeting shall be presided over by the Chairman of the 

Board of Directors, by a Deputy Chairman or by a Managing 

Director, in that order; whenever there are two or more 

Deputy Chairmen or Managing Directors, the chair shall be 

taken respectively by the senior in age. In the event of the 

absence of the above-indicated individuals, the chair shall 

be taken by another person chosen by the shareholders’ 



meeting among the shareholders present. 

The Chairman is assisted by a Secretary appointed by the 

meeting; there is no need to appoint a Secretary when the 

minutes of the meeting are drawn up by a notary public. 

It is the duty of the Chairman of the meeting to verify the 

right to attend the meeting, including by means of proxy; to 

ascertain whether or not the meeting has been duly 

constituted and has achieved the quorum required in order 

to pass resolutions; to conduct and moderate the 

discussion; to establish the order and manner of voting as 

well as announce the results thereof. 

The resolutions of the meeting shall be recorded in the 

minutes, which shall be signed by the Chairman and the 

Secretary of the meeting or the notary public. 

The minutes of the extraordinary shareholders’ meeting 

must be drawn up by a notary public appointed by the 

Chairman. 

Any copies and extracts thereof, that have not been drawn 

up by a notary public, shall be certified as true copies by 

the Chairman of the Board of Directors. 

MANAGEMENT OF THE COMPANY 

Article 10 

The Company is managed by a Board of Directors 

composed of between seven and twenty-three members 

who shall remain in office for three years (unless the 

meeting fixes a shorter term of office at the time of making 

the appointment) and may be re-elected. 

A Chairman, and if necessary, one or more Deputy Chairmen 

shall be appointed from amongst the members of the Board. 

In the event of the Chairman being absent, the chair shall 

be taken by a Deputy Chairman or a Managing Director, in 

that order; if there should happen to be two or more 

Deputy Chairmen or Managing Directors, the chair shall be 

taken respectively by the senior in age. 

The Board shall appoint a Secretary, who is not necessarily 

a member of the Board. 

Unless otherwise decided by the shareholders’ meeting, the 

Directors are not bound over by the prohibition mentioned 

under art. 2390 of the Italian Civil Code. 

Article 11 

The Board is empowered with the management of the 

Company and, for this purpose, is invested with the fullest 

powers for administration, except those, which according 

to the by-laws or by law, are reserved for the shareholders’ 

meetings. 

The Board of Directors, also through delegated bodies, 

informs the Board of Statutory Auditors on a timely basis 

about the activities conducted and the most important 

economic, financial and equity transactions carried out by 

the Company and its subsidiaries; it specifically makes 

reference to transactions with potential conflicts of interest. 

The information is provided, at least quarterly, at the board 

meetings or Executive Committee meetings or by written 

communication to the Board of Statutory Auditors. 

The Board is authorized to delegate those powers it wishes 

to confer on one or more of its members, eventually 

through the positions of Managing Directors, attributing 

single or collective signature powers as it deems to 

establish for the administration of the Company. 

It may also delegate its competence to an Executive Committee 

composed of some of its members, whose compensation shall 

be established by the shareholders’ meeting. 

It may also nominate one or more committees with 

consulting functions, also for purposes of updating the 

corporate governance structure to the recommendations 

issued from time to time by the competent authorities. 

Lastly, the Board may appoint General Managers, Deputy 

General Managers, Managers and Deputy Managers and 

persons with power of attorney for single acts or categories 

of acts, establishing powers and competence. The 

appointment of Managers, Deputy Managers and persons 

with power of attorney for individual acts or categories of 

acts, can also be referred by the Board to the Managing 

Directors and the General Managers. 

Article 12 

The Board shall meet at the invitation of the Chairman or 

whomsoever is acting on his behalf, at the registered office 

of the Company or in any other place stated in the letter of 

convocation, every time he considers it in the best interests 

of the Company, or whenever a meeting has been requested 

by one of the Managing Directors or by at least two 

standing statutory auditors. 

However, the Board may validly pass resolutions, even 

failing any formal convocation, if all the board members and 

all the standing statutory auditors in office are present. 

Board meetings shall be convened by means of a letter, 

telegram, telex or fax sent to the address of each Director 

and each Standing Statutory Auditor, at least five days 

before (or in urgent cases at least six hours before) the day 

set for the meeting. 

Meetings of the Board and of the Executive Committee may 

be held by teleconference or videoconference. In this case 

the following must be guaranteed: 

a) identification of all the participants at each point in the 

connection; 

b) the possibility for each participant to intervene, to orally 

put forward same’s own opinion, to view, receive and 

transmit all documentation, as well as the contextuality 

of considerations and resolutions. 



Meetings of the Board of Directors and of the Executive 

Committee are considered to be held in the place in which 

the Chairman and the Secretary must be simultaneously. 

The presence of at least half the members plus one is 

necessary for the resolutions of the Board to be deemed 

valid, and the favorable vote of the majority of those 

present is required. In the event of a tie in votes, the casting 

vote shall be that of the Chairman. 

The resolutions of the Board, even when passed by meetings 

held by teleconference or by videoconference, are recorded in 

a special book signed by the Chairman and the Secretary. Any 

copies and extracts thereof, that have not been drawn up by a 

notary public, shall be certified as true copies by the Chairman. 

Article 13 

Legal representation of the Company vis-à-vis third parties 

and in court proceedings shall be the duty, with separate 

and several signatory powers, of the Chairman of the Board 

of Directors and, if appointed, of the Deputy Chairmen and 

Managing Directors, within the limits of the powers granted 

to them by the Board of Directors. 

Each one of the aforesaid shall in any case have full powers 

to take legal action and file appeals before any judicial 

authority and any court of any degree, including in 

revocation or cassation (supreme court) proceedings, to file 

statements and prosecute in criminal cases, to sue on behalf 

of the Company in criminal proceedings, to begin legal 

proceedings and file petitions before all administrative 

jurisdictions, to intervene and protect the Company's 

interests in case of proceedings and claims against the 

Company, granting for this purpose all necessary mandates 

and powers of attorney ad litem. 

The Board of Directors and, within the limits of the powers 

granted to them by said Board, the Chairman of the Board and, 

if appointed, the Deputy Chairmen and the Managing Directors, 

are authorized to grant Managers and staff in general, and 

when necessary third parties, the power to represent the 

Company vis-à-vis third parties and in court proceedings. 

Article 14 

The members of the Board of Directors are entitled to 

annual compensation established by the shareholders’ 

meeting and shall be reimbursed for all expenses incurred 

during the course of their duties. 

The compensation to Directors invested with special duties is 

established by art. 2389, paragraph 2, of the Italian Civil Code. 

Article 15 

If, due to resignation or any other cause, more than half the 

Directors should leave office, then the entire Board of 

Directors is considered to have resigned with effect as from 

the time of its re-constitution. 

BOARD OF STATUTORY AUDITORS 

Article 16 

The Board of Statutory Auditors is composed of three 

standing statutory auditors and two alternate statutory 

auditors who must hold the requisites required by existing 

laws and regulations; to this end, account will be taken that 

the matters and sectors of business strictly inherent to 

those of the Company are those indicated in the corporate 

business purpose with particular reference to companies or 

entities operating in the industrial, banking, insurance, real 

estate and services sectors in general. 

The ordinary shareholders’ meeting shall elect the Board of 

Statutory Auditors and determine its compensation. The 

minority shareholders shall appoint one standing statutory 

auditor and one alternate statutory auditor. 

With the exception of the provisions of the second last 

paragraph of the present article, the appointment of the 

Board of Statutory Auditors shall be made on the grounds of 

lists put forward by the shareholders in which candidates 

are listed under progressive numbers. 

Each list shall contain a number of candidates which does 

not exceed the number of members to be appointed. All 

shareholders who, alone or together with other 

shareholders, represent at least 2 percent of the shares with 

voting rights in the ordinary shareholders’ meeting, have the 

right to put forward a list. 

The lists of candidates, undersigned by the parties 

presenting them, must be filed at the Company’s registered 

office at least ten days before the day fixed for the meeting 

in first call. A description of the professional résumé of the 

individuals standing for election must be enclosed with the 

lists together with statements whereby the single candidates 

accept the nomination and attest, under their own personal 

responsibility, that no circumstances exist for ineligibility or 

incompatibility, and that they comply with requirements 

prescribed by law or by the articles for the position. 

Any lists put forward which do not comply with the 

aforesaid provisions shall be considered not to have been 

put forward. 

Each candidate may be included on only one list, under 

penalty of ineligibility. 

Likewise, any individuals who are not in possession of the 

requisites established by the applicable rules and regulations 

or who already hold the position of statutory auditor in more 

than five companies with stocks listed on regulated Italian 

markets, with the exception of the subsidiaries of Pirelli & C. 

may not be appointed as statutory auditors. 

Each individual with voting rights may vote for only one list. 

The election of the members of the Board of Statutory 

Auditors is performed as follows: two standing statutory 

members and one alternate member are taken from the list 



which has obtained the highest number of votes, in the 

progressive order in which they are listed thereon; the 

remaining standing statutory member and the other 

alternate member are taken from the list which has 

obtained the highest number of votes from the meeting after 

the first list, again in the progressive order in which same 

are listed thereon; in the event of several lists obtaining the 

same number of votes, a new run-off vote between the said 

lists will be cast by all the shareholders present at the 

meeting, and the candidates on the list which obtains the 

simple majority of the votes will be appointed. 

The Chairman of the Board of Statutory Auditors shall be 

the statutory member indicated as the first candidate on the 

list which obtained the highest number of votes. 

In case of death, waiver or resignation of a Statutory Auditor, 

the alternate belonging to the same list as the resigned 

statutory auditor shall replace him. In the event of 

replacement of the Chairman the Board of Statutory Auditors, 

the chair shall be taken by the other statutory member on the 

list to which the resigning chairman belonged; if it is not 

possible to perform substitutions and replacements as set out 

hereinabove, then a meeting shall be convened to integrate 

and complete the Board of Statutory Auditors and which 

shall pass resolutions with a relative majority. 

When the meeting has to make provisions, pursuant to the 

terms of the aforegoing paragraph or to the terms of law, for 

the appointment of statutory auditors and/or alternates 

needed to complete the Board of Statutory Auditors, it shall 

proceed as follows: if statutory auditors appointed from the 

majority list have to be replaced, then the appointment is 

made with a relative majority vote without being tied to any 

list; if, on the other hand, statutory auditors appointed by 

the minority shareholders have to be replaced, the meeting 

shall replace them with a relative majority vote choosing 

names where possible from amongst the candidates 

indicated on the list on which the statutory auditor to be 

replaced appeared. 

If only one single list has been put forward, then the meeting 

shall cast its vote in relation to that list; if the list obtains a 

relative majority, then the first three candidates on the list in 

progressive order shall be appointed as the standing 

statutory auditors, and the fourth and fifth candidate shall be 

appointed as alternate statutory auditors; Chairman of the 

Board of Statutory Auditors shall be the person indicated at 

the top of the list put forward; in case of death, waiver or 

resignation of a statutory auditor, and in the event of 

substitution of the Chairman of the Board of Statutory 

Auditors, they shall be replaced respectively by an alternate 

statutory auditor and a standing statutory auditor in the 

order arising from the progressive numbering of the said list. 

Failing any lists, the Board of Statutory Auditors and its 

Chairman shall be appointed by the shareholders’ meeting 

with the majorities prescribed by law. 

Resigning statutory auditors may be re-elected. 

FINANCIAL STATEMENTS - DISTRIBUTION OF PROFITS 

Article 17 

The Company's financial period shall end on the December 

31 each year. 

Article 18 

After all the appropriations to the reserves prescribed by 

law have been carried out, the annual profits shall be 

distributed as follows: 

a) 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; 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 two percent of their par value; 

b) aside from what has been established above in respect of 

the total higher dividends attributed to the savings 

shares, the ordinary shares shall be attributed an amount 

up to five percent of their par value. 

The profits remaining shall be distributed among all the 

shares, in addition to the attribution described in the 

preceding letters a) and b), unless the shareholders’ 

meeting, based upon the proposal of the Board of Directors, 

votes special appropriations to the extraordinary reserves, 

or other destination or decides to appropriate a part of such 

profits to retained earnings. 

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. 

GENERAL PROVISIONS 

Article 19 

Insofar as their relationships with the Company are concerned, 

the domicile of the shareholders is understood, for all legal 

purposes, to be that shown in the Shareholders’ Register. 

Article 20 

All matters not provided for in the present by-laws shall be 

governed by the provisions of law. 


Graphic project Ippolito Fassati, CRM S.r.l. - www.crm.it 

Lucini printig, Milan 

Printed on recycled paper

Pirelli S.p.A. Milan Annual Report 2002

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?