Net Income

Net income from continuing operations at December 31, 2011 was up 37.1% to euro 312.6 million, compared with euro 228 million in 2010.

Changes in Italian tax regulations governing the use of losses imposed a limit equal to 80% of taxable income on the amount of losses that can be used to offset total taxable income in any one year; however, those tax amendments also extended indefinitely the period during which those losses can be used. These changes resulted in recognition of deferred tax assets carried forward with a non-recurring benefit of euro 128.1 million, which is shown separately after net income from continuing operations. Consequently, total net income was euro 440.7 million, compared with euro 4.2 million for the previous year. The result for the previous year reflected the negative impact from discontinued operations of the spin-off of real estate activities and disposal of access networks amounting to euro 223.8 million.

In 2011 the increase in tax liabilities stemmed exclusively from the improvement in results, while the tax rate fell to 34.2% from 37.6% in 2010, due to changes in the mix of countries that produce profits and release of prior-period provisions for certain units, whose impact totalled about 1.5 percentage points.

In 2011 financial expenses rose from euro 65.8 million to euro 89.5 million, due to growth in average indebtedness and an increase in the average cost of debt. This stemmed partly from issuance of the 2011-2016 bond, which improved the Group’s financial structure by extending maturities and diversifying financing sources. The average cost of debt in 2011 was 5.5%.

The total net income attributable to owners of Pirelli & C. S.p.A. at December 31, 2011 was a positive euro 451.6 million (0.926 euro per share), compared with euro 21.7 million at December 31, 2010 (euro 0.045 per share).