Gruppo EditorialeL’Espresso · Musica!, Salute, Viaggi LEspresso Division: L’Espresso MicroMega - Limes - Le Guide de L’Espresso 95 66,67 35 35 70 30 ALTRIMEDIA ELE TV 5 Radio

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Gruppo Editoriale L’Espresso Società per a zioni

ANNUAL REPORT 2001

(Translation of the original Italian document)

GRUPPO

EDITORIALE

L’ESPRESSO

Società per Azioni

ANNUAL REPORT 2001

(Translation from the original issued in Italian)

Report of the Board of Directors 13

Allocation of net profit for the year ended December 31, 2001 37

Consolidated Financial Statements at December 31, 2001 40

Notes to the Consolidated Financial Statements at December 31, 2001 49

Attachments 88

Reclassified Consolidated Financial Statements 94

Attachments: Revenues, Group employees, Circulation 98

Report of the Independent Auditors 103

Information on Corporate Governance 107

5

CONTENTS

7

Company Gruppo Editoriale L’EspressoSocietà per Azioni

Capital stock euro 64,596,763.20

Registered office Rome, Via Po, 12Secondary office Rome, Piazza Indipendenza, 23/c

Board of Directors:

Chairman Carlo Caracciolo

Managing Director Marco Benedetto

Directors Oliviero Maria BregaCristina BusiGiulia Maria Crespi MozzoniCarlo De BenedettiRodolfo De BenedettiPierluigi FerreroMilvia FioraniFranco GirardAntonio GrigoliniPaolo MancinelliGianluigi MelegaAlberto MillaPiero OttoneAlberto PiaserVittorio Ripa di Meana

Executive Committee: Carlo CaraccioloMarco BenedettoOliviero Maria BregaRodolfo De BenedettiAlberto Piaser

Board of Statutory Auditors:

Chairman Vittorio Bennani

Auditors Claudio BerliriFederico Gamna

Independent Auditors Arthur Andersen SpA

8

CONSOLIDATED FINANCIAL DATA

(in millions of euro) 1998 1999 2000 2001

Revenues 775 848 953 923

Value added 306 356 358 376

Gross operating profit 107 144 126 131

Operating profit 71 100 70 74

Net profit 32 41 129 1

Capital employed (excluding employee severance reserve) 481 522 592 602

Net financial position (32) (93) (61) (111)

Shareholders’ equity 346 335 431 392

Net profit + depreciation 68 84 185 58

Employees 2,930 3,095 3,498 3,394

RATIOS

1998 1999 2000 2001

Gross operating margin 13.9% 16.9% 13.2% 14.2%

Operating margin 9.2% 11.8% 7.3% 8.0%

ROCE 14.8% 19.2% 11.8% 12.3%

ROE 9.3% 12.2% 29.8% 0.3%

ESPRESSO GROUP

FINANCIAL HIGHLIGHTS

PER SHARE DATA

(euro) 1998 1999 2000 2001

Operating profit 0.17 0.23 0.16 0.17

Net profit 0.07 0.09 0.30 0.00

Net profit + depreciation 0.16 0.20 0.43 0.13

(in millions)

No. of shares 123.1 430.6 430.6 430.6

Adjusted no. of shares 426.7 430.6 430.6 430.6

Per share data was calculated on the basis of the adjusted number of shares in order to take into account thestock split resolved by the Extraordinary Shareholders’ Meeting of October 20, 1999

PER EMPLOYEE DATA

(in thousands of euro) 1998 1999 2000 2001

Revenues 264.50 274.01 272.36 271.99

Operating profit 24.35 32.39 19.98 21.73

Net profit 11.00 13.22 36.79 0.32

9

ESPRESSO GROUP

FINANCIAL HIGHLIGHTS

REPORT OF THE

BOARD OF DIRECTORS

REPORT OF THE BOARD OF DIRECTORS

The Espresso Group closed the 2001 financial year – a difficult year due to a weak adver-tising market – reporting consolidated revenues down from euro 952.7 million in 2000 toeuro 923.1 million (down 3.1%) while a gross operating profit of euro 130.7 million(14.2% of revenues), up from euro 125.9 million (13.2% of revenues). Consolidated ope-rating profit amounted to euro 73.7 million (8% of revenues), up from euro 69.9 millionin 2000 (7.3% of revenues).

The improvement is due to the strong reduction in Kataweb’s operating losses, decliningfrom euro 71 million in 2000 to euro 34.8 million in 2001, partly offset by the decline inadvertising sales and the increase in the price of paper (up 18%).

Consolidated net profit in 2001 was euro 1.1 million, as compared with euro 128.7 mil-lion in 2000. The two results are however not comparable. Without taking into account theeffect of extraordinary operations, in fact, the Group’s consolidated net profit for 2001would have been equal to euro 13.9 million, as compared with a loss of euro 25.3 millionin 2000. Net profit for 2001 was affected by the euro 12.8 million write-down in the valueof a number of Kataweb’s subsidiaries, mainly in the web solutions area, to bring theirbook value into line with current market values. In 2000, net profit had been positivelyaffected by capital gains amounting to euro 154 million.

Consolidated turnover, excluding the Internet area, amounted to euro 904.6 million, ascompared with euro 934.1 million in 2000 (down 3.2%). Gross consolidated operatingprofit amounted to euro 188 million to euro 157.7 million, while increasing as a marginon sales from 20.1% to 17.4%. Consolidated operating profit amounted to euro 108.5million (12% of revenues) as compared with euro 141 million (15.1% of revenues) in2000. Net profit, excluding Kataweb, amounted to euro 49.3 million, as compared witheuro 70.2 million in 2000.

The Group’s consolidated net financial position at December 31, 2001 was negative byeuro 111.3 million, as compared to negative euro 61.3 million at December 31, 2000.Consolidated Shareholders’ Equity at December 31, 2001 amounted to euro 392.4 mil-lion, down from euro 431.4 million at December 31, 2000.

At the end of the year, the Group had 3,394 employees (of which 343 in the Internet areaand 87 new employees resulting from the decision to transfer to the Group printing activi-ties carried out at the Livorno facility), as compared with 3,498 employees at December31, 2000 (of which 495 in the Internet area).

* * *

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100% ownership unless indicated

71

MANZONI

S.E.T.A.(Alto Adige)

E.N.E.(Sentinella del Canavese)

EDITORIALE LA NUOVA SARDEGNA

CIMA BRENTA

E.A.G.(Provincia Pavese +AGL)

EDITORIALE LA CITTÁ(La Città di Salerno)

EDITORIALE LIBERTÁLibertà di Piacenza

ELEMEDIA

SELPI

FINEGIL EDITORIALE

Div. Oper. di Padova: Mattino diPadova, Tribuna di Treviso, La NuovaVeneziaDiv. Oper. di Mantova: Gazzetta diMantova, Gazzetta di Modena, Gazzettadi Reggio, Nuova FerraraDiv. Oper. di Pescara: Il CentroDiv. Oper. di Livorno: Il Tirreno

92

EDITORIALE FVGDiv. Oper. di Trieste:Il PiccoloDiv. Oper. di Udine: Messaggero Veneto

EDIGRAF

ROTOSUD

CPS

EDIZIONIla Repubblica

SOMEDIA

CLUBLa Repubblica

LE SCIENZE 50

95

EditorialePUBLIETAS

5

STUDIO VIT 70

SIAS 70

ESPERYA

KATAWEB

KATAWEB NEWS

KSOLUTIONS

Gruppo Editoriale L’Espresso Spa

la Repubblica Division:la Repubblica, Venerdì, “D”, Affari & Finanza, Musica!, Salute, Viaggi

L Espresso Division:L’Espresso MicroMega - Limes - Le Guide de L’Espresso

95

66,67

35

35

3070

ALTRIMEDIA

ELE TV

5

Radio Dee JayRadio CapitalItalia Radio

DL-AMS MEDIA(DEEJAY BUDAPEST)

95

QUADRANTE 70

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151515

The radical change in the outlook resulted in a strong restructuring effort on the Internetarea. Kataweb’s foreign activities were closed, while the Group abandoned progressivelye-commerce activities, concentrating its efforts on the development of content and theoffer of web solutions.

At the same time, the Espresso Group continued to devote its efforts to cost reductionthrough the renegotiation of all supply contracts, the elimination or downsizing of a num-ber of services offered for free and a reduction in personnel, declining by 152 employees(30% of the total). In the context of this streamlining process, the merger of Ksolutionsand two other companies active in the web solutions sector, Uhuru and Web Bridges, wascompleted after the acquisition of all minority shares in the latter.

Web solutions companies, which in 2000 were prevalently active providing services withinthe Group, developing site technologies – a key element for the development and the suc-cess of sites – turned in 2001 to the market, now harder and more fiercely competitive.

Measures implemented and currently underway are aimed at reaching a gross operatingprofit breakeven in 2003.

The contraction in the advertising market was more marked starting in the secondQuarter, involving in particular national advertising, affected by the sharp decline inexpenditure from the telecommunications and finance sectors, in addition to the nearabsence of advertising investments by new economy companies, a high number of whichhave disappeared or are undergoing restructuring.

In addition to the downturn in the advertising market, Group activities were affected bythe increase in the price of newsprint, growing by 18% over 2000, whose impact has beenpartly offset by hedging contracts on part of the Group’s paper needs concluded in pastyears.

All costs for each company were monitored, devising and implementing measures thatallowed to achieve structural savings, whose positive effect will be enjoyed also in theyears to come. New projects aimed at better exploiting synergies within the Group weredeveloped, in addition to joint-marketing and brand extension projects in part alreadyimplemented and in part made operational in 2002.

In such context, L’Espresso newsstand distribution and subscription management activi-ties – managed until December 2001 by Arnoldo Mondadori Editore – were transferred tothe Group. Starting January 2002, all newsstand activities were entrusted to la RepubblicaDivision, while subsidiary Somedia is in charge of the management and development ofsubscription activities.

Test broadcasting of the Deejay Television digital satellite TV channel began in February2001. The new channel aims at exploiting the Deejay radio trademark in another media.The downturn in the advertising market caused a slowdown in its development plans,which will resume at their original pace whenever more favorable conditions allow.

A new project aimed at increasing subsidiary Rotosud’s printing capacity was launched in2001 with the acquisition of a new rotary press to be used to print supplement D-laRepubblica delle Donne, currently carried out by third parties.

Moreover, between the end of November and the beginning of December, the price ofnewspapers, unchanged at euro 77 cents (lire 1,500) since 1995, was increased to euro 88cents and subsequently euro 90 cents from March 1, 2002. Such move resulted for thepresent time in a slight decline in circulation and a positive economic impact, that will befelt in full starting with 2002.

Finally, it is worth mentioning that measures taken in view of the introduction of the euroinvolving information systems, carried out according to plans, were extended to a moregeneral revision of all Group information flows, with the aim of improving quality andtimeliness of information, increasingly important in the strategic decision making process.

* * *

The first months of 2002 were characterized by the continuing negative performance ofthe advertising market, expected not to be overcome before the second half of the year. Labiblioteca di Repubblica (la Repubblica’s library) sales initiative, that consists in the offerof fifty contemporary literature classics sold optionally with the newspaper, met with agreat success. The first issues exceeded 600,000 copies sold per book, resulting in a strongprofit for the company. An additional benefit is expected to come in 2002 with the declinein the price of newsprint, registering in February a 10% decline over December 2001.

The Board of Directors’ meeting held on February 25, 2002 acknowledged the intentionof Giulio Anselmi, editor in chief of L’Espresso to leave his position. The Board hasappointed Daniela Hamaui, editor of La Repubblica’s women supplement D – laRepubblica delle donne in his place. To Giulio Anselmi, who will remain within theGroup as Vice-Chairman of Finegil Editoriale, go the appreciation and thanks for hiswork in consolidating the prestige of the magazine.


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The table that follows shows Espresso Group key reclassified financial data for the 2001and 2000 financial year, in addition to financial data relating to “traditional activities”that excludes Kataweb and the capital gain realized on the acquisition of a share in thecompany by Unicredito in 2000:

Excluding Kataweb Including Kataweb (in millions of euro) 2000 2001 ch. % 2000 2001 ch. %

Revenues 934.1 904.6 -3.2% 952.7 923.1 -3.1%of which:• Circulation 297.0 311.2 +4.8% 297.2 310.9 +4.6%• Advertising 608.8 568.5 -6.6% 613.9 577.1 -6.0%.Gross operating profit 188.0 157.7 -16.1% 125.9 130.7 +3.8%Operating profit 141.0 108.5 -23.1% 69.9 73.7 +5.5%Interest income (expense) (6.4) (8.3) (8.5) (7.0)Net profit 70.2 49.3 128.7 1.1Shareholders’ equity 378.2 387.5 431.4 392.4Net financial position (123.5) (118.1) (61.3) (111.3)Employees 3,003 3,051 3,498 3,394

The strong contraction in the advertising market, affecting particularly newspapers, resul-ted in a marked decline in revenues from traditional activities.

Advertising revenues of la Repubblica and its supplements registered a performance inline with the market, declining by 10.4% due to the factors discussed above. Advertisingsales for local editions of the newspaper (up 5.5%), supplements Salute (up 17.5%),Affari&Finanza (up 2.2%) and women’s supplement D – la Repubblica delle Donne (up7.5%), performed however well.

The Group’s local newspapers also registered a good performance, with advertising salesposting a 4.1% increase due primarily to local advertising and the full use of color prin-ting capabilities, while L’Espresso closed, after a good start, registering a 4.7% decline inadvertising revenues. The Group’s radio stations reported a slight increase in advertisingrevenues, despite the 12.5% decline in the overall market for radio advertising. Internetsites, finally, recorded a 19% decline in advertising.

Circulation revenues increased by 4.6%, thanks to buoyant sales and the strong success ofproducts sold optionally in conjunction with the publications and the mentioned increasein the price of newspapers, whose effect applied only to the last two months of the year.The number of issues was also higher than in the previous year in which numerous strikesresulted in the cancelation of several issues.


17

CONSOLIDATEDFINANCIAL DATA

Cost cuts and streamlining in the Internet area resulted in an improvement in profit mar-gins: gross operating profit increased from euro 125.9 million in 2000, to euro 130.7 mil-lion in 2001, while its margin increased from 13.2% in 2000 to 14.2% in 2001.

Investments in production facilities, the update of equipment and the acquisition of fre-quencies, continued in the year. A total of euro 65.3 million were employed, of which euro11.1 million relating to the Repubblica division, euro 9.6 million to local newspapers,euro 12.4 million to the rotary press area, euro 13.1 million to the radio broadcasting sec-tor, and euro 15.7 million to the Internet sector (of which euro 5.8 million relating to theVivacity project, a joint venture with the Unicredito Group).

The net financial position declined from negative euro 61.3 million at December 31,2000, to negative euro 111.3 million at December 31, 2001 due to the above mentionedcapital expenditure, the acquisition of Hungarian broadcasting company Dl-Ams MediaLlc for euro 1.4 million, and the distribution of dividends amounting to euro 40 million,all of which absorbed an amount higher than the cash flow generated by operations.

Net financial charges declined from euro 8.5 million to euro 7 million, due primarily tothe lower average net debt resulting from the amount generated by the capital increasereserved to Unicredito.

At the end of the year the Group employed 3,394 persons, 104 less than at December 31,2000. Personnel in the Internet area declined by 152 employees, while the number ofemployees of other Group companies declined by 39, partly offset by the hiring of 87workers following the decision to transfer to the Group printing activities carried out atthe Livorno facility (where Il Tirreno and part of the copies of la Repubblica are printed),formerly managed by a cooperative.


18


The table that follows shows parent company Gruppo Editoriale L’Espresso SpA keyfinancial data for 2001 and 2000. The company is the publisher of L’Espresso weeklymagazine and la Repubblica daily newspaper, in addition to providing strategic supportand coordinating the activity of subsidiaries:

(in millions of euro) 2000 2001 ch. %

Revenues 557.1 527.5 -5.3%of which:• Circulation 194.1 204.6 +5.4%• Advertising 353.1 314.8 -10.9%Gross operating profit 104.6 75.4 -27.9%Operating profit 90.2 59.5 -34.1%Interest income (expense) (7.3) (9.2)Net profit 61.3 37.1Shareholders’ equity 301.0 298.1Net financial position (163.2) (168.8)Employees 863 839

Operating results of the Parent company are illustrated in the Operating Review. In thesection that follows we comment upon the financial performance of the parent companyand the management of its equity investments.

Net revenues from investments amounted to euro 9.6 million, as compared with euro 15million in 2000. They include dividends amounting to euro 12.9 million and euro 3.3 mil-lion of write-downs. No write down in the value of the investment in Kataweb was carriedout since its book value is lower than the value in the share held in the company’s sha-reholders’ equity at December 31, 2001.

Net financial expense increases from euro 7.3 million in 2000 to euro 9.2 million in 2001due primarily to the increase in average debt and the negative spread between the cost offunds and the yield of short-term investments. The Group parent company launched infact in July 2000 a 5-year, euro 200 million bond issue to obtain medium-term financingfor the development of its activities, the proceeds of which have not been utilized in full.

Investments made by the Group holding company in 2001 amounted to euro 11.4 million,the majority of which refers to la Repubblica division for the upgrade of its printing capa-city and information systems.

The cash flow generated in the year was more than offset by expenditure made for thedistribution of dividends (euro 40 million) and investments (euro 11.4 million). As aresult, debt increased (reaching euro 168.8 million at December 31, 2001) over the pre-vious year.

19

GRUPPOEDITORIALEL’ESPRESSO


20

Relationships with related partiesThe Group’s parent company Gruppo Editoriale L'Espresso holds with its subsidiaries andaffiliated companies both trade relationships and relationships involving the provision ofservices and of operating and financial advice as illustrated in the table on page 21.Among the most important trade relationships are those held with subsidiary A. Manzoni& C., concessionaire for the advertising space of L’Espresso and la Repubblica, thosewith subsidiary Kataweb for the advertising on the Internet and the management of sites,those held with subsidiaries Rotosud and CPS, supplying typeset and printing services,those with subsidiaries Publietas for the editing of weekly supplement D – la Repubblicadelle Donne and Edizioni la Repubblica for the preparation of multimedia products soldin conjunction with L’Espresso.

Gruppo Editoriale L'Espresso SpA manages a current account for transactions within theGroup to which most subsidiaries and affiliated companies participate according to indi-vidual debit and credit positions. All relationships within the Group are regulated atmarket rates.

Gruppo Editoriale L'Espresso receives in turn from its parent company CIR services andadvice on strategic, administrative, financial and tax matters. The provision of such servi-ces on the part of the parent company is deemed as preferable than the provision of thesame on the part of third parties thanks, among other things, to the wide knowledge andexperience CIR has acquired over time on the company and the sector in which GruppoEditoriale L'Espresso operates.

Relationships with companies controlled by the parent company are not relevant.

RELATIONSHIPS BETWEEN GRUPPO EDITORIALE L’ESPRESSO SPA AND THE OTHER GROUP-COMPANIES

(in thousands of euro)

Costs Revenues Financial Financial Receivables Payables Guaranteescharges income

(*)

SUBSIDIARIES

Finegil Editoriale 8,033 2,516 264 9,445 644 22,180 19,319

Editoriale La Nuova Sardegna 2,353 258 718 - 111 18,598 127

E A G 1,902 363 306 - 108 9,959 1,916

Edizioni Nuova Europa - 26 32 - 11 957 -

Editoriale La Città 1 29 13 - 9 231 -

Cima Brenta - - - 302 - -

S.E.T.A. 217 485 60 - 123 1,528 1,192

Editoriale FVG 5 480 355 2,089 239 12,698 -

Edigraf - - - - - - -

Artigraficheriva - - - - - - -

Elemedia 31 1,112 - 1,614 29,053 - 516

EleTv - 61 95 - - 1,059 -

DL-AMS Media LLC - - - - - - 350

A. Manzoni & C. 7,555 314,635 56 453 116,981 3,918 -

Rotosud 25,838 281 6 249 7,262 7,015 5,766

C.P.S. 3,421 283 46 - - 1,928 -

Editoriale Publietas 14,172 996 2,290 - 141 58,193 -

Selpi 178 10 142 722 45 2,989 -

Edizioni La Repubblica 6,825 311 320 362 132 12,605 516

Somedia 1,032 584 - 64 1,610 379 -

Club La Repubblica 462 30 40 - 17 1,366 -

Kataweb 441 2,181 289 4 457 16,732 -

Kataweb News 268 45 - 6 - 382 -

Ksolutions 334 52 2 1 3,529 133 -

Esperya (formerly I.F.E. 73 - - 10 4,995 81 624

Quadrante 39 - - - 1,461 43 -

Studio Vit - 39 1 - - 334 -

Sias - - - 1 1,081 - -

Cellularmania.com - - - - 75 - -

Rotocolor (in liquidation) - 282 - 282 5,600 - -

AFFILIATED

Le Scienze 66 41 66 41 50 398 -

CNN Italia 35 39 35 39 13 9 -

Centro Europa Ricerche - - - - - 17 -

PARENT COMPANY

CIR 2,072 - - - - - -

(*) including dividends received from the the parent company


21


22


Revenues 88.8 97.9 +10.3%of which:• Circulation 50.6 61.5 +21.4%• Advertising 36.2 34.6 -4.4%Gross operating profit (*) (2.8) 8.9 n.s.Operating profit (*) (3.8) 8.0 n.s.

(*) Includes the share, calculated according to revenues of parent company common costs

The operating profit of the Espresso Division, though affected by the mentioned reductionin advertising revenues, improved significantly over the previous year, thanks primarily tothe good sales performance of products sold optionally in conjunction with the magazinethat contributed to the 21.4% increase in circulation revenues.

Among the most successful initiatives were musical series LP on CD (47 thousand copieson average per issue), National Geographic’s Maps and CD ROM collections ZanichelliDictionaries (50 thousand copies on average per issue), Le Epoche Storiche, History’sEpochs (39 thousand copies on average per issue), and the art book series on TwentiethCentury Masters (71 thousand copies on average per issue). The average number ofcopies sold per issue was 430,000, representing a 6.9% increase over 2000.

Other titles of the division contributed to the improvement in profit margins thanks to thestrong circulation achieved by weekly supplements La Primavera di Micromega publishedin the pre-electoral period (56 thousand copies on average per issue), and to the goodperformance of Limes (22 thousand copies on average per issue) and its 4 supplements,dedicated to important current issues (over 41 thousand copies on average per issue).

Good sales were registered also by L’Espresso’s Restaurant Guide and the new WineGuide, published for the first time in November 2001.

At December 31, 2001, the Division employed 118 persons (128 at December 31, 2000).

L’ESPRESSODIVISION


23


Revenues 468.3 429.5 -8.3%of which:• Circulation 143.4 143.1 -0.2%• Advertising 316.9 280.2 -11.6%Gross operating profit (*) 107.4 66.5 -38.1%Operating profit (*) 93.9 51.5 -45.2%

(*) Includes the share, calculated according to revenues of parent company common costs

The decline in advertising revenues has already been discussed in this report. Revenuesform the sale of the la Repubblica remained stable, with circulation climbing from 643thousand to 652 thousand average copies per issue. Despite the lower contribution of pro-ducts sold in conjunction with the newspaper, as a result of the decision to cancel the tra-ditional autumn promotion, the increase in the price of the newsprint since December 3,2001 and the extra 6 issues over 2000 allowed revenues to remain in line with the pre-vious year.

The decline in advertising sales, together with a marked increase in the price of new-sprint, affected strongly the Division’s profits. The operating margin decreased from20.1% in 2000, to 12% in 2001.

To counter the reduction in margins, la Repubblica introduced already in the first monthsof the year, a number of cost cutting measures, ranging from the renegotiation of majorsupply contracts to changes in its promotion strategy and operating cost reduction, inclu-ding the cost of personnel. Such measures did not affect investments, both in the editorialand technical sectors.

Supplements Il Venerdì and I Viaggi were restyled, while the graphic design of Salute wasimproved. The Bari local edition consolidated its position, while investments in the edito-rial system, network and telecommunications security and the upgrade in printing capa-city continued.

Personnel of the Division, including term contracts, at December 31, 2001 amounted to699 employees, 10 less than at the end of 2000.

LA REPUBBLICADIVISION


Operating Review

As discussed in this report, the restructuring of the Kataweb Group in 2001 resulted inthe closing of all activities abroad, the gradual discontinuation of e-commerce activitiesand the streamlining of companies in the web solutions area. The joint venture withFeltrinelli, Zivago, company T.C.D. TriesteCittàDigitale, US subsidiaries Esperya USAand Kataweb Inc. were placed in liquidation, while Kataweb España, Beenz Italia.com,Easy Commerce and e-viaggi were sold.

In the web solutions area, the merger of Uhuru Digital Design and Web Bridges inKsolutions (formerly Aleph) became effective December 21, 2001. Minority shares in themerged companies had been acquired prior to such date.

In the first months of 2002, the streamlining of Kataweb’s equity investments continuedwith:

• the signing of an agreement with Unicredito Italiano for the transfer of the Vivacitybusiness to a company controlled by the banking group;

• the acquisition of the minority share, equal to 30%, in Studio Vit (owner of theFantacalcio trademark), bringing Kataweb’s share in the company to 100%.

The table that follows shows key consolidated financial data for 2001 and 2000:


Revenues 31.8 27.1 -14.7%Gross operating profit/(loss) (61.9) (27.0) +56.5%Operating profit/(loss) (71.0) (34.8) +51%Financial income (expense) (2.1) 1.3Net profit/(loss) (95.3) (50.9)Shareholders’ equity 80.4 29.5Net financial position 62.2 6.9Employees 495 343

In 2001, the audience of Internet sites of the Kataweb/Espresso Group registered prevalen-tly visitors interested in contents, due to the decision to reduce or eliminate free services.In January 2002 the network totaled 230 million page views and over 8.7 million uniqueusers. Information sites continued to be very successful, particularly in the period subse-quent to September 11, 2001 events: 16 million page views recorded by a total of 1 mil-lion unique users. Site Repubblica.it recorded in September almost 70 million page viewsand almost 73 million page views in October. Editorial sites are very popular and catalyzethe interest of advertising investors. Recent market surveys (Barometro LemonAd, January

24

KATAWEB GROUP


2002) confirm in fact that such sites attract about 43% of all advertising on the net.

The success registered with the public, however, was not reflected in advertising revenueswhich instead declined by about 19% to euro 10.7 million. Turnover of companies opera-ting in the web solutions area declined also. Consolidated turnover in this sector decrea-sed from euro 12.7 million to euro 10.5 million, due to difficult market conditions. Thesale of contents registered instead an increase, reaching a turnover of euro 1.5 million.

Though facing a decline in turnover, the Kataweb group more than halved operating los-ses, decreasing from euro 71 million to euro 34.8 million.

The content production process, now organized into a single editing department, feedingall sections of sites on the network, was radically reviewed. Main supply contracts wererenegotiated, while the workforce was reduced by 30% with 152 employees leaving thegroup. Such measures resulted in savings of euro 42 million, equal to about 58% of totaloperating costs in 2000.

New products denominated “Kataweb Extra” were launched in the last Quarter of 2001.Kataweb Extra offers the user, for a monthly fee, access to a wide range of value addedservices relating to themes contained in site kataweb.it (news, finance, sports, mail, etc.).

In 2001 Kataweb wrote-down the value of its subsidiaries’ goodwill by euro 12.8 billion,bringing it prudentially into line with its current market value (euro 3.7 million).

25


The table that follows shows key financial data for 2001 and 2000 of A. Manzoni & C., inaddition to restated data for 2000 that includes also financial data of company GMP,incorporated in 2001 and operating in the free press sector:

(in millions of euro) 2000 2000 2001 ch. %restated

Gross advertising revenues 683.9 691.0 646.9 -6.4%Net revenues 617.3 624.4 588.2 -5.8%Gross operating profit 4.4 5.6 6.1 8.1%Operating profit 3.0 4.1 4.6 11.4%Interest income (expense) (0.8) (0.7) (1.1)Net profit 0.1 1.8 1.7Net financial position (25.1) (22.7) (24.9)Employees 482 510 510

Market outlookThe advertising market for classic media – press, television, radio, outdoor and cinema –in 2001 recorded a 3.2% decline on the previous year according to AC Nielsen’s estima-tes. Advertising revenues for the press as a whole declined by 2.9% (source: FCP), by 4%for television (source: AC Nielsen), and by 12.5% for radio (source: AC Nielsen).

The decrease registered by the press sector resulted from a moderate increase in revenuesreported by magazines (up 2.6%) and a 6.1% decline registered by newspapers, with astrongly difference performance between national and local advertising.

In the periodicals segment, women’s weekly magazines reported an increase of 2.7%,while men’s magazine’s advertising revenues declined by 4%.

After four years of double digit growth, advertising revenues of newspapers registered in2001 their strongest decline since 1993. Revenues were affected primarily by the sharpdrop in national display advertising (down 13.3%), representing over half of newspapers’revenues, particularly in those sectors that had more strongly contributed to its growth in2000. Local advertising gave instead a strong positive contribution, increasing by 10.5%.

ResultsIn this context, Manzoni & C.’s gross advertising revenues declined by 6.4% due to theprevalence of newspapers in its portfolio.

To counter the negative market situation, the company took measures to reduce costs andstreamlined its business units. In this context, radio and television sales networks were mer-ged. No new relevant advertising concession was acquired, while some relating to Internetsites were lost, though not significantly affecting revenues. Advertising concessions for

26

A. MANZONI & C.

local newspapers La Nuova Basilicata and Quotidiano di Sicilia, in addition to that for thesale of advertising on the Studio Universal television theme channel were also lost.

Both the gross operating profit and the operating profit benefited from the more than pro-portional reduction in costs over sales and by streamlining action implemented. The ope-rating profit increased by 11.4% over the restated operating profit registered in 2000.

The net f inancial position decreased from a debt position of euro 22.7 million atDecember 31, 2000, to euro 24.9 million at December 31, 2001.

Personnel at December 31, 2001 amounted to 510 employees and is unchanged on 2000.

LOCAL NEWSPAPERS SECTOR

The table that follows shows key financial data for 2001 and 2000 of local newspapers ofthe Espresso Group:


Revenues 225.7 233.8 3.6%of which:• Circulation 99.0 103.7 4.7%• Advertising 104.4 107.7 3.2%Gross operating profit 45.1 47.8 6.0%Operating profit 28.0 30.2 7.8%Interest income (expense) 0.4 1.2Net profit 13.3 13.9Net financial position 26.9 46.2Employees 1,249 1,313

Average circulation per issue of Espresso Group local newspapers remained constant atabout 508,000 copies, while circulation revenues increased thanks to the higher numberof issued as compared with 2000 affected by numerous strikes), and to the increase inprice between November and December 2001. Advertising sales registered a good perfor-mance due to the strong growth in color advertising and steady local advertising.

Gross operating margin increased more than proportionally as compared with revenues,thanks to a reduction in operating costs and benefits resulting from the merger, in 2000,of companies controlling Group newspapers in the North-Eastern regions. The gross ope-rating margin increased from 20% to 20.4%, while the operating margin grew from12.4% to 12.9%.

The net financial position improved thanks to the good management of the business,increasing from positive euro 26.9 million at December 31, 2000, to euro 46.2 million atDecember 31, 2001, despite capital expenditure amounting to euro 9.6 million and euro


27


28

11.8 million distributed as dividends.

The number of employees increased from 1,249 at December 31, 2000, to 1,313 atDecember 31, 2001, due exclusively to the mentioned transfer of personnel of a coopera-tive formerly working in the Livorno division of Finegil Editoriale.

Key financial data for 2001 and 2000 is reported in the table that follows:


Revenuess 155.0 161.8 4.4%of which:• Circulation 70.3 73.8 4.9%• Advertising 69.9 72.4 3.7%Gross operating profit 32.1 34.7 8.1%Operating profit 21.7 23.8 9.5%Interest income (expense) 0.3 0.7Net profit 11.4 11.7Net financial position 16.7 31.2Employees 780 864

Consolidated revenues of local newspapers controlled by Finegil Editoriale (12 newspa-pers and 1 by-weekly magazine) increased by 4.4% over 2000, growing from euro 155million to euro 161.8 million, due to higher circulation and advertising revenues. The firstbenefited from an increase in the cover price, an increase in circulation and a higher num-ber of issues over 2000.

Average circulation per issue reached 364,100 copies, representing an increase of about1% over the 360,700 average copies per issue in 2000, though spread unevenly among thedifferent publications. Circulation of newspapers Città di Salerno was up by 8.2%, ilMattino di Padova grew by 3.7%, Nuova Ferrara by 3.6% and Nuova Venezia increasedby 3.2%, while all other newspapers’ circulation remained in line with the previous year.

Gross operating profit grew by 8.1%, increasing from euro 32.1 million to euro 34.7 mil-lion, despite the strong increase in the cost of paper and printing material, improving itsmargin from 20.7% to 21.4%.

Operating profit increased by 9.5%, growing from 21.7 to 23.8 million, representing a9.5% margin on sales. The economic impact of the introduction of color printing resultedin the achievement in 2001 of the planned breakeven.

At December 31, 2001, employees were 864, growing by 84 over December 31, 2000, dueto the hiring of personnel formerly working independently at the Livorno facility.

FINEGILGROUP


Editoriale FVG, in which Gruppo Editoriale L’Espresso holds a 92% share, is organizedinto two operating divisions, based in Udine and in Trieste, relating respectively to new-spapers Messaggero Veneto and Il Piccolo.

Key financial data for 2001 and 2000 is reported below:


Revenues 50.1 51.1 1.9%of which:• Circulation 20.7 21.6 4.2%• Advertising 23.5 24.3 3.2%Gross operating profit 10.6 11.9 12.0%Operating profit 5.6 6.3 12.1%Interest income (expense) 0.1 0.5Net profit 2.5 2.9Net financial position 8.2 14.2Employees 324 311

Revenues in 2001 grew by 1.9% following an increase in circulation revenues and higheradvertising revenues (up 3.2%), due to local advertising (up 5.8%) and the sale of coloradvertising space (up 18%), while national advertising revenues registered a decline.Printing carried out for third parties also declined.

In a region characterized by a general decline in circulation, the two newspapers held theirmarket share while circulation was in line with the previous year: 54,000 average copiesper issue for Messaggero Veneto and 49,500 for Il Piccolo.

Gross operating profit grew by 12.0%, determining a higher margin despite the increasein the price of paper, thanks to cost reduction following streamlining made possible by themerger carried out in the previous year, a decline in promotional activities and labor costcuts.

Operating profit increased by 12.1%, growing from euro 5.6 million to euro 6.3 million,while the net financial position improved from positive euro 8.2 million at December 31,2000 to euro 14.2 million at December 31, 2001 as a result of a positive cash flow, afterinvestments amounting to euro 2.5 million and the distribution of euro 2.3 million individends.

Personnel at December 31, 2001 amounted to 311 employees, 13 less than at the end ofthe previous year.

29

EDITORIALEFVG


30

CIMA BRENTAAND S.E.T.A.

Cima Brenta, in which Gruppo Editoriale L’Espresso holds a 71% share, controls 100% ofsubsidiary Seta, publisher of Bolzano and Trento’s newspaper Alto Adige and the Bellunoedition of Corriere delle Alpi.

Though registering an overall increase of 500 average copies per issue, growing from39,600 to 40,100 copies, circulation of the newspaper registered an uneven performancein the individual areas in which it is distributed. In the Trento and Belluno provincesnewsstand sales increased by 1.6% and 14% respectively, while in the Bolzano Provincethey registered a decline of 2.6%.

Sales grew by 3% on 2000, increasing from euro 19.2 million to euro 19.8 million, fol-lowing an increase in circulation revenues due to the higher number of issues over theprevious year. Advertising revenues were unchanged.

Gross operating profit was halved, declining from euro 2.3 million to euro 1.2 million,following an increase in promotional expenses aimed at supporting circulation in Trentoand the increase in the price of paper. Operating profit declined also from euro 1.3 millionin 2000 to euro 0.4 million in 2001.

The net financial position declined from euro 1.6 million at December 31, 2000 to euro0.7 million as a result of investments amounting to euro 0.4 million and the distribution ofeuro 0.3 million in dividends.

The number of employees decreased from 122 at December 31, 2000, to 119 at December31, 2001.


31

RADIO BROADCASTING

The table that follows shows financial data for 2001 and 2000 of Elemedia, owner ofRadio DeeJay, Radio Capital and Italia Radio national radio stations:


Revenues 48.8 50.0 2.4%Gross operating profit 19.3 18.8 -2.7%Operating profit 10.1 9.9 -1.7%Interest income (expense) (0.9) (1.6)Net profit 5.7 4.7Net financial position (26.0) (28.5)Employees 136 134

In 2001 Elemedia’s sales increased by 2.4% despite a very negative advertising market inthe radio sector (down 12.5%, source: AC Nielsen).

The good performance was favored by the good quality of programs and the improvementof signal coverage on the national territory following new investment in frequencies andthe upgrade of existing equipment for a total amount of euro 12.4 million. Radio frequen-cies increased from 732 in 2000 to 813 in 2001.

The last Audiradio survey (fourth cycle of 2001) attributed to Radio DeeJay, RadioCapital and Italia Radio over 7 million listeners in an average day, equal to 20% of thewhole national radio audience.

Gross operating profit was equal to euro 18.8 million, as compared with euro 19.3 millionin the previous year. The euro 0.5 million decline is linked to the higher equipment opera-ting cost.

Operating profit declined from euro 10.1 million in 2000 to euro 9.9 million in 2001,while the operating margin decreased in the same period from 20.7% to 19.8%.

Elemedia acquired Hungarian company Dl-Ams Media LLC, owner of a radio stationbroadcasting in the Budapest area which adopted in the year the format and trademark ofRadio Deejay, achieving in a short period of time a strong increase in audience. Theexport of the trademark and formats that made Radio Deejay the second Italian radio sta-tion is being experimented on other media (digital television) and in other contexts(Eastern Europe), with the obvious advantage of building on a successful experience.

The net financial position at December 31, 2001 was negative by euro 28.5 million, as

ELEMEDIA

compared with euro 26 million in the previous year, absorbing almost in full strong inve-stments in frequencies and technologies, in addition to the mentioned acquisitions and theeuro 2.4 million loan extended to Dl-Ams Media LLC.

At December 31, 2001 the company employed, including term contracts, 134 persons, 2less than at the end of 2000.

* * *

With an audience of 5,558,000 listeners in 2001 (average day) Radio DeeJay confirmedits ranking as first national commercial radio station, second in absolute terms only toState controlled Radio RAI1.

The offer of Radio DeeJay was made stronger by its Internet site, whose success with thepublic continues to grow. Page views increased from 22.4 million in 2000 to 26.6 millionin 2001. For the second consecutive year, Radio DeeJay’s Internet site has been awarded aprestigious national design award.

Radio Capital, thanks to the fine tuning of its “classics and news” format and the impro-vement in the national signal coverage, was able to achieve a strong growth in audienceon the average day, increasing from 1,210,000 listeners in 2000, to 1,390,000 in 2001.

The radio station’s Internet site proved to be an important complement to the servicesoffered by the broadcaster, offering news comments and information. Page views increa-sed from a monthly average of 3.2 million in 2000, to 5.4 million in 2001. The MovieFinder and Good Star services became very popular, reaching an average monthly num-ber of page views respectively of 1.1 million and 2.2 million.

Italia Radio continued its investment program to improve its signal coverage, completingthe coverage of Province capitals. The radio audience remained in line with the previousyear (177,000 listeners for the average day), while in the second half of the year new pro-duct strategies were elaborated. These will involve changes in the current positioning ofthe radio station towards an elder public.


32


33

OTHER ACTIVITIES

The company is the publisher of the Italian edition of National Geographic, and offerssince 2000 a multimedia product service for other companies of the Espresso Group, inparticular for L’Espresso.

Revenues in 2001 amounted to about euro 10 million, down 8.2% on the previous year,due to the decline in circulation of National Geographic, dropping from 165,056 copies to145,222 copies per issue, compensated only in part by the increase in advertising reve-nues (up 7.4%).

Despite the reduction in revenues, the operating profit registered a strong increase fromeuro 0.4 million to euro 1.5 million, thanks to lower promotional costs and an improve-ment in production efficiency. Net profit increased strongly from euro 0.4 million in2000, to euro 1.1 million in 2001.

The net financial position at December 31, 2001 was positive by euro 8.9 million (euro8.1 million at the end of 2000), while the company employed 21 persons (as comparedwith 19 at December 31, 2000).

The rotary press center for Espresso Group periodicals reported in 2001 a turnover ofeuro 25.8 million, down 7.2% on the previous year, due to the decline in printing activi-ties for L’Espresso magazine and la Repubblica’s supplement Il Venerdì.

Despite the lower turnover, operating profit improved by 14.4%, increasing from euro 6.6million to euro 7.6 million, thanks to restructuring that lead to a reduction in personneland to cost cutting.

Net profit improved significantly from euro 0.5 million to euro 3.2 million, thanks to theexpiration of a number of 10-year leasing contracts.

The net financial position at December 31, 2001 was negative by euro 12.3 million, ascompared with euro 8.7 million at the end of 2000, due primarily to euro 12 million ininvestments made in the year. To upgrade printing capacity and increase productivity, afourth color rotary press, expected to come into operation in June 2002, was purchased.

Personnel was reduced from 128 at the end of 2000, to 124 persons at the end of 2001,following the mentioned restructuring.

ROTOSUD

EDIZIONILA REPUBBLICA


CPS, the company active in preparing Espresso Group magazines for printing, reported in2001 revenues of euro 3.4 million, in line with the previous year.

Operating profit is unchanged at euro 0.7 million. To face a slowdown in the market,however, the company was reorganized and a number of investments, for a total of euro0.4 million, were made to improve productivity through the acquisition of new serversand licenses for the use of software for the editing and storage of digital data.

Net profit amounted to euro 0.4 million, up 19% on 2000.

The net financial position improved from positive euro 1 million at the end of 2000, topositive euro 1.3 million at December 31, 2000, while personnel declined from 34 to 33persons.

A new project for the management of the Group’s data base, and in particular the sub-scription fulfillment service, was developed in the year. The new system became operatio-nal with the first 2002 issue of L’Espresso. Through this operation, Somedia’s activitieswere repositioned, making it the reference point of all marketing and customer care activi-ties of the Group’s titles.

Thanks to the development of new activities and the good performance of publishing,convention and call center activities, the company’s turnover increased by 9.5%, reachingeuro 5.2 million, as compared with euro 4.8 million in the previous year.

The increase in revenues was not however sufficient to compensate for higher costs incur-red by the company in the development of its activities, resulting in a strong contractionin operating profit, declining from positive euro 0.2 million in 2000, to negative euro 1million in 2001. Net profit declined from positive euro 0.1 million in the previous year, toa loss of euro 1 million in 2001.

At December 31, 2001, the net financial position, after investments amounting to euro 0.9million, was negative by euro 1.2 million, as compared with negative euro 0.4 million atthe end of 2000. At the same date, personnel amounted to 16 persons, 5 more than atDecember 31, 2000.

* * * *

In execution of the resolution taken by the Board of Directors in its meeting held on April24, 2001, using in part the mandate conferred by the Shareholders’ Meeting held on April6, 2001, the Group’s parent company acquired on the regulated market 500,000 own sha-res to be allocated to its stock option plan, representing 0.12% of the company’s capitalstock, at an average price of euro 5.62 each.

34

SOMEDIA

CPS


SUBSEQUENT EVENTS AND MANAGEMENT EXPECTATIONS OF OPERATIONS

In the first months of 2002, the circulation of the Group’s publications are declining sligh-tly, particularly those of a number of local newspapers that did not absorb in full the effectof the price increase carried out last November.

La Repubblica’s library sales initiative, that consists in the offer of contemporary literatu-re classics sold optionally with the newspaper, is meeting great success. L’Espresso’s salesinitiatives, among which continues the series of monographs dedicated to great painters,continue also to be well received by the public.

Advertising revenues continue to be negative, while a recovery is not expected before thesecond half of the year. A positive factor for publishing companies is instead representedby the decline in paper prices, significantly lower than in December 2001 (down 10%)and expected to decline further.

In line with the objective of achieving an operating breakeven by 2003, Kataweb’s lossesare expected to decline further in 2002, while profits of traditional activities are expectedto improve thanks to the effect on all twelve months of the year of the increase in the priceof newspapers and the structural reduction of operating costs.

35

ALLOCATION OF NET PROFIT FOR THE YEAR ENDED DECEMBER 31, 2001

The Shareholders’ Meeting held on April 17, 2002 approved the following allocation ofnet profit of the Gruppo Editoriale L’Espresso SpA, amounting to euro 37,074,390.00:

- euro 36,562,332.48 to ordinary dividends, representing a distribution of euro 0.085 toeach of the 430,145,088 ordinary shares (keeping into account of 500,000 own sharesheld by the Company) with rights accruing January 1, 2001, for which shareholderswill be entitled to a full tax credit pursuant to articles 14 and 105, 1st comma, para-graph a) of Presidential Decree no. 917/86, to be paid on April 25, 2002, against pre-sentation of coupon no. 5 on April 22, 2002;

- euro 512,057.52 to voluntary reserve.

The allocation of net income keeps into account the issue, on March 31, 2002, in execu-tion of stock option plans for the Espresso Group a total of 20,400 shares of nominalvalue euro 0.15, with rights accruing January 1, 2001, and the provisions contained inarticle 2357 ter, 2nd comma of the Italian Civil Code, providing for dividends accrued byown shares to be distributed proportionally to other shares.

37

CONSOLIDATED

FINANCIAL STATEMENTS

AT DECEMBER 31, 2001

CONSOLIDATED BALANCE SHEET

40

in thousands of euro

ASSETS Dec. 31, 2000 Dec. 31, 2001

A - Receivables from shareholders 250 -

B - Fixed assetsI. Intangible assets

Incorporation and startup costs 668 157Research, development and advertising costs 146 196Industrial patents and intellectual property rights 725 1,924Concessions, licenses and trademarks 9,690 8,731Goodwill on titles 304,616 295,158Consolidation differences 44,929 30,120Goodwill on other assets 30,673 35,753Work in progress and advances 3,485 9,274Capital improvements on leased assets 5,894 5,316Other 2,751 3,476

TOTAL INTANGIBLE ASSETS 403,577 390,105

II. Tangible assetsLand and buildings 26,177 27,293Plant and equipment 71,872 62,968Technical equipment 486 418Other assets 19,098 18,597Work in progress and advances 5,015 19,983

TOTAL TANGIBLE ASSETS 122,648 129,259

III. Financial assetsInvestments 30,374 28,249Receivablesshort-term 55 202long-term 7,066 5,999Other fixed financial assets 6,065 4,993Own shares - 2,812

TOTAL FINANCIAL ASSETS 43,560 42,255

TOTAL FIXED ASSETS 569,785 561,619


41


ASSETS Dec. 31, 2000 Dec. 31, 2001

C - Current assetsI. Inventories

Raw materials 25,198 28,017Work in progress and semi-finished products 1,052 1,621Finished goods 4,467 5,089

TOTAL INVENTORIES 30,717 34,727

II. ReceivablesTrade receivablesshort-term 259,390 252,123

Affiliated companiesshort-term 3,819 337

Contributions receivableshort-term 1,442 1,443

Other receivablesshort-term 50,851 44,791long-term 577 1,349

TOTAL RECEIVABLES 316,079 300,043

III. Marketable securitiesInvestments 1 1Securities 42,702 85,112Financial assets 20 -

TOTAL MARKETABLE SECURITIES 42,723 85,113

IV. Liquid assetsBanks 136,765 43,511Cheques 88 404Cash 703 219

TOTAL LIQUID ASSETS 137,556 44,134

TOTAL CURRENT ASSETS 527,075 464,017

D - Accrued income and prepaid expensesAccrued income 4,275 5,971Prepaid expenses 11,628 10,557

TOTAL ACCRUED INCOME AND PREPAID EXPENSES 15,903 16,528

TOTAL ASSETS 1,113,013 1,042,164


42


LIABILITIES Dec. 31, 2000 Dec. 31, 2001

A - Shareholders’ equity I. Capital stock 64,594 64,594II. Share premium reserve 127,046 124,234III. Revaluation reserves 2,879 2,789IV. Legal reserve 12,919 12,919V. Reserve for own shares - 2,812VI. Statutory reserves - -VII. Other reserves 95,220 183,978VIII. Profit (loss) carried forward - -IX. Profit (loss) 128,697 1,075

CONSOLIDATED SHAREHOLDERS’ EQUITY 431,355 392,401

Minority interests 15,002 11,218

CONSOLIDATED SHAREHOLDERS’ EQUITYAND MINORITY INTERESTS 446,357 403,619

B - Reserve for risks and chargesProvision for retirement benefits 7,690 6,605Deferred taxes 7,167 8,254Other reserves 18,783 18,555

TOTAL RESERVES FOR RISKS AND CHARGES 33,640 33,414

C - Employee severance reserve 76,645 80,358


43


LIABILITIES Dec. 31, 2000 Dec. 31, 2001

D - Payables

Bonds 200,000 200,000

Banksshort-term 29,331 18,802long-term 25,280 34,555

Other financial institutions short-term 2 1long-term 82 58

Advances short-term 2,077 1,987

Trade payables short-term 201,818 174,409

Affiliated companies short-term 1,957 424

Taxes payable short-term 37,067 24,443

Health and social security institutionsshort-term 11,731 12,714

Other payables short-term 32,360 33,710

TOTAL PAYABLES 541,705 501,103

E - Accrued liabilities and deferred income 14,666 23,670

TOTAL LIABILITIES 1,113,013 1,042,164

Memorandum accountsGuarantees 1,493 1,981Other commitments 53,576 34,244

CONSOLIDATED INCOME STATEMENT

44


2000 2001

A - Production valueRevenues from sales and services 952,723 923,142Change in work in progress, semi-finished andfinished goods inventories 830 (882)Self-developed capital improvements 7,998 10,451Contributions 222 246Other 7,454 17,764

TOTAL PRODUCTION VALUE 969,227 950,721

B - Production costsRaw materials, auxiliaries and goods 168,849 166,658Services 384,627 348,426Leases and rentals 47,786 42,314Personnel- Wages and salaries 161,494 170,552- Social security contributions 49,553 52,092- Employee severance 13,083 14,000- Retirements benefits 1,157 1,643- Other costs 6,996 7,239Depreciation and writedowns- Amortization of intangible assets 27,785 27,092- Depreciation of tangible assets 28,247 29,911- Writedown of intangible assets 8,483 13,735- Writedown of tangible assets - -- Writedown of current assets 3,175 3,097Change in inventories (4,431) (4,400)Provisions for risks and charges 7,657 7,731Sundry operating costs 8,376 8,929

TOTAL PRODUCTION COSTS 912,837 889,019

DIFFERENCE BETWEEN PRODUCTION VALUE AND

PRODUCTION COSTS 56,390 61,702

CONSOLIDATED INCOME STATEMENT

45


2000 2001

C - Financial income and chargesIncome from investmentsDividends 61 -

Other financial incomeFrom long-term receivables 88 74From securities and other financial assets 320 3,890

Other financial incomeFrom other parties 4,149 6,165

Interest and other financial chargesPayable to third parties (13,027) (17,124)

TOTAL FINANCIAL INCOME AND CHARGES (8,409) (6,995)

D - Adjustments to the value of financial assetsRevaluationsOf investments 326 803

Write-downsOf investments (13,055) (3,000)Of other long-term financial assets - (2,091)

TOTAL ADJUSTMENTS (12,729) (4,288)

E - Extraordinary itemsProfitsGains on disposal of assets 154,569 1,085Other income 1,767 3,202

ChargesOther charges (1,347) (5,050)

TOTAL EXTRAORDINARY ITEMS 154,989 (763)

Profit before taxes 190,241 49,656

Taxes payablecurrent (62,743) (51,963)deferred 976 419

Profit before minority interest 128,474 (1,888)

Minority interests 223 2,963

NET PROFIT 128,697 1,075

NOTES TO THE

CONSOLIDATED

FINANCIAL STATEMENTS

AT DECEMBER 31, 2001

The consolidated financial statements include the financial statements at Dec. 31, 2001and 2000 of Gruppo Editoriale L’Espresso SpA, the Group parent company, and the com-panies in which it holds, either directly or indirectly, a majority share (more than 50%) ofvoting rights. Subsidiaries under liquidation have been recorded at cost. Other invest-ments are recorded at equity or cost, as described more in detail in the paragraphs thatfollow.

The financial statements are presented in accordance with the provisions of the ItalianCivil Code.

To allow more clarity in the exposure of the Balance Sheet and Income Statement, nume-rals have been omitted, while entries with a zero balance in the two years under considera-tion have not been reported. The financial statements at Dec. 31, 2001 are reported ineuro, as the company adopted the euro as its currency of account. Amounts in Italian lirereferring to the financial statements for the previous year have been converted in euro byapplying the fixed exchange rate between the two currencies. The Balance Sheet andIncome Statement have been prepared in euro, with no decimals. In the notes to theaccounts, amounts are expressed in thousands of euros, as relevant.

To provide a more complete information and clearer understanding of the financial state-ments, a reclassified Balance Sheet and Income Statement have been enclosed, in additionto a Statement of Cash Flows and a Statement of Changes in the ConsolidatedShareholders’ Equity.

Financial data of subsidiaries relate to amounts contained in the respective companies’statutory accounts, prepared according to current applicable regulations by the boards ofdirectors of individual companies. Financial data has been adjusted where necessary tobring it into line with accounting principles adopted by the Group, which are consistentwith those established by the Italian Accounting Profession. Where appropriate, entriesmade exclusively for tax purposes relating to accelerated depreciation and gains reinve-sted pursuant to article 54, Presidential Decree 597/1973 have been eliminated.

Group companies closing their financial year at a date different from the date of the con-solidated financial statements prepared interim reports for consolidation purposes.

The reconciliation between net profit and shareholders’ equity of the parent company andconsolidated net profit and shareholders’ equity is shown in the table below:

Net profit Shareholders’ equity2000 2001 2000 2001

Parent company’s statutory accounts 61,255 37,074 301,028 298,073Dividends (23,674) (18,246) - -Consolidation differences 91,116 (17,753) 130,328 94,328Consolidated financial statements 128,697 1,075 431,356 392,401

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

49

PRINCIPLES OFCONSOLIDATION

A list of companies included in the consolidation area is enclosed in the financial state-ments as Attachment 4.

Main events occurred in 2001 were the following:

New inclusion in the consolidation area and change in ownership share

Acquisition of companies

• DL-AMS Media Llc Hungarian company, owner of a radio station broadcasting inthe Budapest area, owned by Elemedia with a 95% share and ELE TV with a 5%share. The price paid for the acquisition was euro 1,411 thousand. The capital stock ofDL-AMS Media Llc amounts to HUF (Hungarian florins) 50 million, represented by500 shares of nominal value HUF 100,000.

Changes in ownership share

• The share held in Uhuru Digital Design, was increased to 100% through the acquisi-tion of the residual 7.5% share at a price equal to euro 706 thousand. The companyhas been subsequently merged into Ksolutions.

• The share held in Web Bridges, was increased to 100% through the acquisition of theresidual 40% share at a price equal to euro 210 thousand. The company has been sub-sequently merged into Ksolutions.

Exit from the consolidation areaSubsidiary Kataweb – the Group’s holding company for the Internet sector – sold or put inliquidation a number of companies in 2001:

Sales

• Kataweb España S.A., controlled by Kataweb with a 90% share in and consolidatedin 2000 line-by-line.

• E-Viaggi.com SpA, in which Kataweb held a 50% share, consolidated on a proportio-nal basis in 2000.

• Easy Commerce Srl, controlled by Kataweb with an 80% share, and Quadrante witha 2.1% share, consolidated in 2000 line-by-line.

Liquidation

• Zivago SpA, a company active in the sale on the Internet of books and records, heldwith a 50% share and consolidated on a proportional basis in 2000.

• Kataweb Inc., a wholly-owned subsidiary of Kataweb SpA based in Salt Lake City(USA) and operating in the field of Internet services, consolidated in the past on aline-by-line basis.

• Esperya USA Inc., a company active in the sale on the Internet of food products onthe American market, a wholly-owned subsidiary of Esperya SpA, consolidated in thepast on a line-by-line basis.


50

AREA OFCONSOLIDATION

Main consolidation principles adopted were:

• The value of investments held by the parent company and other companies includedin the consolidation was netted against the relating portion of shareholders’ equity ofthe consolidated company, according to the line-by-line method. The premium paidover the value of the shareholders’ equity acquired at the time of the acquisition isrecorded as merger difference or, in case of publishing companies, to the goodwill oftitles up to their fair market value, the difference being recorded as consolidation dif-ference;

• debits and credits, costs and revenues and all relevant transactions among consolida-ted companies have been eliminated;

• minority interests in consolidated companies are recorded in a specific item under lia-bilities, while the relating share in the net profit of such companies is reported separa-tely in the consolidated income statement;

• the underwriting of capital increases of consolidated companies or companies valuedon equity carried out through the issue of new shares can determine, in the case ofminority interests, a change in the share of ownership held by the Group’s parent com-pany. In case of a reduction in the ownership share and where the transaction can beconsidered as a sale, the resulting economic effect is debited or credited to the conso-lidated income statement. In case of an increase in the share, the resulting economiceffect is recorded as a consolidation difference;

• tax entries, such as accelerated depreciation and capital gains reinvested pursuant toarticles 54 of Presidential Decree no. 597/73, are eliminated in the consolidated finan-cial statements;

• financial statements stated in currencies other than euro are converted into euro usingthe current exchange rate method, providing for the conversion of all assets and liabi-lities at the exchange rate in force at the closing date of the financial statements, sha-reholders’ equity amounts at the historical exchange rate, and net profit and otherincome statement items at the average exchange rate for the period. Exchange rate dif-ferences arising from the conversion are recorded under “Other reserves”.

Intangible assetsIntangible assets are recorded at the acquisition or production cost, inclusive of any auxi-liary cost. They are depreciated over the their expected useful economic life.

The item includes goodwill on titles, corresponding to the premium paid on the acquisi-tion of titles over the share in the shareholders’ equity acquired at the date of the purcha-se, attributed to titles up to their fair market value.

Titles are depreciated over a period of 40 years from their acquisition, according to theirresidual useful life. Such term is periodically reviewed in light of the expected economicfuture performance of subsidiaries.

51

CONSOLIDATIONPRINCIPLES

VALUATIONCRITERIA


The item includes also the consolidation difference between the cost of the acquisition ofsubsidiaries and affiliated companies and the share in the shareholders’ equity acquired,not attributable to specific asset and liability items of the company to which it refers.Consolidation differences are depreciated over 10 years from the date of acquisition,according to the estimated residual useful life. In case such differences relate to titles,they are amortized over 40 years, as described further on.

Costs incurred in the startup of activities in the Internet sector relating to specific projectsare amortized over three years, in line with prudent criteria and in accordance with theexpected term for the retrieval of costs. In case, therefore, during the amortization periodan investment reaches its full operation stage or the possibility of retrieving costs incurredceases to exist, the unamortized portion is charged to the income statement in the year inwhich such event occurs.

Tangible assetsTangible assets are recorded at cost, adjusted upwards in the case of some assets accor-ding to the provisions of Law no. 72, March 19, 1983, Law no. 413, Dec. 31, 1991 andLaw no. 342, November 21, 2000. Depreciation is calculated on a straight line, accordingto the rates shown in the table that follows, deemed representative of the residual usefullife of the assets and in line with ordinary depreciation rates:

Buildings 3%

Plant and equipment 10% - 20%Furniture, office equipment and motor vehicles 12% - 25%

Depreciation rates of assets acquired during the year are reduced by half. Assets having avalue below that established by comma 6, article 67 of the Testo Unico tax law, have beenexpensed in full.

Where a durable loss in value occurs, the value of the asset is written-down accordingly.In case, in subsequent year, such loss in value is reversed, the asset’s original value isrestored, net of depreciation.

Equity investmentsInvestments in unconsolidated companies, on which the parent company exercises eitherdirectly or indirectly (generally with an ownership share between 20% and 50%) signifi-cant influence, are valued at equity. Other investments (generally held with a share below20%) are recorded at cost, written down where appropriate to keep into account permanentloss in value. The original value is restored in subsequent fiscal years in case of a reversal.

Companies which have not yet become operational or whose accounts are not relevant areexcluded from the consolidation.

Long-term investmentsLong-term investments are recorded at cost, adjusted where necessary in case a perma-


52

nent loss in value is assessed.

Own sharesWithin the limits set by article 2357 of the Italian Civil Code and in accordance withterms resolved by the Shareholders’ Meeting, own shares are recorded at cost and inclu-ded under financial assets.

Pursuant to article 2357 ter, 3rd comma of the Italian Civil Code, a reserve for own shareswas accrued from part of retained earnings.

InventoriesRaw material inventories are recorded at the lower between acquisition cost, determinedusing the weighted average method, and the expected realizable value, set equal to themarket value at the closing date of the financial year.

Finished goods inventories and work in process are valued at the lower of the acquisitionor production cost and the expected realizable value.

ReceivablesReceivables are recorded at face value, adjusted downward as deemed appropriate toreflect their expected realizable value.

Marketable securitiesEquity investments and other marketable securities are recorded at the lower between costand market value.

Marketable securities are valued at the lower between cost and market value. Interestaccrued at the time of acquisition and at the closing date of the financial statements isrecorded under accrued income.

Repurchase and resell agreements have been recorded at the present value of the amountinvested. Interest payable or receivable on the above transactions, inclusive of the portionmatured between the spot and forward price, is recorded in the income statement underthe appropriate item.

Cash and cash equivalentsThey are represented by cash on hand, demand and short-term bank and Post Office depo-sits. They are recorded at the lower of face value and the expected retrievable value.

Accrued income and prepaid expenses, accrued liabilities and deferred incomeThese are costs and revenues whose effect spans over one or more years, whose amountvaries according to time. They are recorded on the accrual method.

Provision for risks and chargesThe provision for risks and charges covers losses or payables whose nature and existenceare certain or likely for which at the closing date of the financial statements the amount orthe expiration date cannot be determined.


53


54

Provision for employee termination indemnitiesThe provision covers amounts due to employees upon termination of their employmentaccording to current regulation, collective labor contracts and independent agreementswith the company.

PayablesPayables are recorded at face value.

BondsBonds issued by the company are recorded at face value. Discounts and issue costs areclassified among accrued liabilities and have been deferred and amortized over the life ofthe bond issue to which they refer. Interest accrued at the end of the year has been recor-ded under accrued liabilities.

Loans and financingLoans and financing received are recorded at face value. Interest accrued at the end of theyear is recorded under accrued liabilities.

Hedging instrumentsHedging instruments held to hedge against the risk of fluctuations in the value of specificassets or liabilities are valued in line with assets and liabilities hedged, and valued at cost.Differentials accrued on hedging contracts on assets or liabilities that generate interestflows are recorded in the Income Statement applying the same criteria used to record inte-rest. Differentials accrued on “paper swap” transactions are debited or credited to the costof the paper supply to which they refer.

Cost and revenue recognitionThe criteria used in recording costs and revenues relating to ordinary operations are thefollowing:

• revenues from the sale of publications are recognized at the time of shipping, net ofrelated returns;

• revenues from the sale of advertising space are recognized at the time at which theadvertising is published.

Costs are recorded in the financial statements according to the same criteria used for reve-nues, and in any case in accordance with the accrual method.

Income taxesThe provision for income taxes is accrued in accordance with expected taxable profit.Deferred and prepaid taxes are also recorded.

Prepaid taxes are recorded in accordance with prudent criteria and of the reasonable cer-tainty of their retrieval in future years.

Prepaid taxes are recorded under item “Deferred taxes” in the income statement, andunder “Prepaid taxes receivable” under assets


55

The tax effect resulting from the elimination of entries made exclusively for tax purposes(such as accelerated depreciation) in the financial statements of individual companies,was recorded.

Conversion of amounts originally expressed in foreign currenciesTransactions denominated in foreign currencies are recorded in euro at the exchange rateapplicable at the time of the transaction. At the time at which receivables and payablesdenominated in foreign currencies are collected or paid out, exchange rate differences arerecorded in the income statement.

Payables and receivables denominated in foreign currencies at the closing date of thefinancial statements are recorded in the same at the exchange rate in force at the said clo-sing date. Gains and losses resulting from the conversion of individual credits and debitsare credited and debited as appropriate to the income statement, keeping into accounthedging transactions.

Explanation added for translation into EnglishThe consolidated financial statements and the related notes have been translated intoEnglish from the original Italian version. They have been prepared in accordance withItalian accounting principles, which differ in certain aspects from the accounting princi-ples of other countries.

A – RECEIVABLE FROM SHAREHOLDERS

At Dec. 31, 2001 no amount was due to shareholders as capital not paid-in.

B – ASSETS

Intangible assets

The breakdown and changes in intangible assets are shown in Attachment 1 and relate toindividual entries in the consolidated balance sheet. At Dec. 31, 2001, intangible assetsamounted to euro 390,105 thousand, declining by euro 13,472 thousand on Dec. 31, 2000.

Investments in 2001 amounted to euro 29,205 million. Depreciation amounted to lire27,092 million, while write-downs totaled euro 13,735 thousand.

The item breaks down as follows:

Incorporation costs Dec. 31, 2000 Dec. 31, 2001

Startup costs 225 23

Other incorporation costs 443 134

Total 668 157

Startup costs at December 31, 2001 amount to euro 23 thousand and relate exclusively toCellularmania.com. The decline on December 31, 2000 is due to the exit from the conso-lidation area of Eviaggi.com and the amortization expense of startup costs relating toCellularmania.com for the year.

Other incorporation costs are made up primarily by stamp duties and other charges incur-red by Group companies on capital increases and relate primarily to Editoriale FVG (euro112 thousand) for stamp duties paid on the capital increase carried out by former NCE-Newco Edit in 1998.

Investments made in the year amounted to euro 6 thousand, while the amortization expen-se was euro 155 thousand.

Research, development and advertising costs Dec. 31, 2000 Dec. 31, 2001

146 196

Capitalized expenses at December 31, 2001 relate almost entirely to R&D costs of subsi-diary Sias.

Industrial patents and intellectual property rights Dec. 31, 2000 Dec. 31, 2001


5656

BALANCE SHEETASSETS

725 1,924

These are made up mainly by software developd for the editing of local newspapers (euro60 thousand), the administration of the Group’s advertising concessionaire (euro 188thousand), and for Internet application of subsidiaries Ksolutions (euro 1,112 thousand),Studio Vit (euro 448 thousand) and Sias (euro 103 thousand).

Investments made in the year amount to euro 2,085 thousand, while depreciation amountsto euro 955 thousand.

Concessions, licenses and trademarks Dec. 31, 2000 Dec. 31, 2001

9,690 8,731

The item refers mainly to licenses for the use of software packages expected to have auseful life spanning over several years.

Total investments for the year amounted to euro 3,066 thousand million, while deprecia-tion amounted to euro 3,637 thousand.

The most significant investments were:

• the Group’s parent company (euro 1,250 thousand) and local newspapers (euro 175thousand) for the upgrade of editing, administrative and distribution systems;

• Kataweb (euro 1,054 thousand) mainly due to the upgrade of database and advertisingsales management software, in addition to the development of contents and valueadded services (euro Kataweb Extra);

• Other companies in the Internet area (euro 217 thousand), primarily for the develop-ment of sites and e-commerce systems of Esperya (euro 172 thousand);

• Elemedia (euro 126 thousand) for the upgrade of the software that manages radio pro-grams and the registration of Internet domains and radio trademarks in Italy and abroad.

Goodwill of titles Dec. 31, 2000 Dec. 31, 2001

la Repubblica 177,982 172,216Local newspapers 48,866 47,292Free press 2,559 2,475Il Piccolo 28,446 27,677Messaggero Veneto 46,761 45,497Other Internet titles 2 1

Total 304,616 295,158

The decline of euro 9,458 thousand on December 31, 2000 is due exclusively to the


57

depreciation expense for the year.

Consolidation differences Dec. 31, 2000 Dec. 31, 2001

Equity investments in the radio sector 2,174 2,341

La Repubblica editions 8 4

Friuli Venezia Giulia Region companies 24,760 24,077

Internet companies 17,987 3,697

Total 44,929 30,120

Consolidation differences relate to the difference between the price paid for the acquisi-tion of new investments and the value of the related share in the shareholders’ equityacquired.

The change of euro 14,809 thousand is due primarily to the write-down in the value ofequity investments in the Internet area to bring into line with current market valuesgoodwill paid on the acquisitions made in 1999 and 2000.

Main changes are listed below:

Acquisition of equity and changes in the share of ownership

• On January 19, 2001, Elemedia acquired 100% of Hungarian company DL-AMSMedia Llc, owner of radio station Star Radio broadcasting in the Budapest area, sub-sequently selling in April a 5% share in the investment to subsidiary Ele TV. The con-solidation difference of euro 1,389 million is due to the difference between the pricepaid for the acquisition (euro 1,411 thousand) and the related share in the sharehol-ders’ equity acquired (euro 22 thousand).

• On July 18, 2001, Kataweb acquired a further 7.5% share in Uhuru Digital Design,reaching a full ownership share. The price paid for the acquisition was euro 706 thou-sand, resulting in a difference of euro 685 thousand with respect with the relatedshare in the shareholders’ equity acquired.

• On October 18, 2001, Kataweb acquired a further 40% share in Web Bridges, rea-ching a full ownership share. The price paid for the acquisition was euro 210 thou-sand, resulting in a difference of euro 55 thousand with respect with the related sharein the shareholders’ equity acquired.

Write-downs

• Consolidation differences relating to companies Sias and Cellularmania.com werewritten-down in full, respectively by euro 635 thousand and euro 222 thousand.

• The investment in company Ksolutions and Quadrante were written-down respecti-vely by euro 7,489 thousand and euro 1,199 thousand, bringing their value prudential-


58

ly into line with current market values.

The amortization expense for the year amounted to euro 4,174 thousand.

Goodwill on other assets Dec. 31, 2000 Dec. 31, 2001

30,673 35,753

Goodwill on other activities refers to goodwill paid by Group radio stations for the acqui-sition of broadcast frequencies.

In 2001, investment in frequencies amounted to euro 10,093 thousand relating to 81 newFM posts aimed at improving the quality of service and the coverage of the signal for thetree radio stations of the Group.

The amortization expense for the year amounted to euro 4,876 thousand.

Work in progress and advances Dec. 31, 2000 Dec. 31, 2001

3,485 9,274

Work in progress includes 8,514 thousand of costs relating to the Vivacity project for thecreation of a local portal network. Such assets will be transferred to company VivacitySpa, incorporated by Unicredito Italiano in November 2001. The agreement with thebanking group provides in fact for the transfer of Kataweb’s Vivacity business to the newcompany in which Kataweb will underwrite in the next few months, through a capitalincrease, a 10% share in the new company’s capital.

Costs relating to the Vivacity project capitalized in 2001 amount to euro 5,812 thousand.

In addition to costs relating to the above project, subsidiary Selpi made investments (euro281 thousand) for the development of software for the central management of the Group’spaper inventories, while Finegil’s Livorno facility carried out investments amounting toeuro 153 thousand for the update of editing software. Reclassification to other work inprogress and advances on intangible assets totaling euro 558 thousand, were carried outfollowing the coming into service of the said assets.

Other intangible assets Dec. 31, 2000 Dec. 31, 2001

Leasehold improvements 5,894 5,316

Other 2,751 3,476

Total 8,644 8,792

Leasehold improvements relate primarily to the restructuring of leased offices in whichGroup companies are based and the cost of rotary presses acquired through leasing con-


59

tracts by subsidiary Rotosud. Investments in the year amounted to euro 1,922 thousand,while the amortization expense was euro 2,298 thousand.

The most significant investments related to the renovation of Kataweb’s Rome offices(euro 706 thousand), and those of A. Manzoni & C.’ branches (euro 411 thousand).

Other intangible assets include mainly accessory costs (euro stamp duties, notary publicexpenses) incurred by Elemedia for the acquisition of new businesses (euro 1,029 thou-sand), costs for the subscription management software developed by Somedia (euro 976thousand), in addition to costs for the production of sites incurred by Kataweb (euro 1,353thousand).

Investments in the year amount to euro 3,161 thousand and depreciation to euro 2,288thousand.

Tangible assetsThe breakdown and changes in tangible assets for each individual balance sheet item areshown in Attachment 2.

At December 31, 2001, tangible assets amounted to euro 129,259 thousand, registering anincrease of euro 6,611 thousand on December 31, 2000. They are made up by buildingsand office furniture owned by consolidated companies and are used in ordinary businessactivities.

Investments made in the year amounted to euro 38,458 thousand, while the depreciationexpense was euro 29,911 thousand.

The most significant investments referred to:

• the Group parent company (euro 10 million) for the second section of the newspaper(euro 5.6 thousand), the completion of projects aimed at increasing color printingcapacity (euro 1.3 million), the upgrade of editing systems and of information andnetwork systems (euro 2.7 billion) and the renovation of a building in Milan that hosteditorial offices (euro 0.5 million);

• local newspapers (euro 8.7 million), for the purchase of plant and equipment belon-ging to the former Livorno cooperative (euro 1.2 million), completion of printingcapacity enhancement projects (euro 4.3 million), the upgrade of editing systems(euro 0.5 million) the enhancement of network information systems (euro 1 million),the acquisition of a plot of land on which to expand the Mantova printing facility(euro 0.4 million) and office furniture and equipment (euro 0.6 million);

• subsidiary Rotosud (euro 11.9 million) for the acquisition of a new rotary press (euro


60

9.3 million), the upgrade of existing plant for automatic and electronic printing (euro2.2 million), and industrial building improvement (euro 0.4 million);

• subsidiary Elemedia (euro 2.4 million) for environmental compliance and upgrade ofterrestrial and satellite broadcasting equipment (euro 2.0 million) and technologicalupgrade of low-frequency audio equipment;

• subsidiary Ele TV (euro 0.8 million) for equipment used in the production of televi-sion programs (euro broadcasting, editing, production, Betacam recording);

• advertising concessionaire A. Manzoni & C. (euro 0.6 million) for furniture andaccessories used in the renovation of central office and branches;

• Internet area (euro 3.7 million) for the hardware necessary for the development andmanagement of Kataweb sites (euro 1.4 million) and those of subsidiary Ksolutions(euro 1.5 million).

Some subsidiaries make use of leased assets, as shown in the commitments section of thebalance sheet and commented in the notes.

A number of subsidiaries have carried out revaluations of tangible assets pursuant to spe-cial laws.

Guarantees have been pledged on some tangible assets in favor of banks that have exten-ded subsidized loans to subsidiaries, as reported in the commitments section of the balan-ce sheet and commented in the notes.

Financial assetsFinancial assets at December 31, 2001 amounted to euro 42,255 thousand (euro 43,560thousand at December 31, 2000), declining by euro 1,305 thousand.

InvestmentsAt December 31, 2001, investments amounted to a total of euro 28,249 thousand (euro30,374 thousand at December 31, 2000), and were made up by:


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% ownership Book value31-12-00 31-12-01 31-12-00 31-12-01

Investments valued at equity:Indipendenza 50% 50% 2,063 2,091Le Scienze 50% 50% 328 316Saire 50% 50% 280 293La Rivista dei Libri 50% - 22 -CNN Italia 30% 30% 34 45Editoriale Libertà 35% 35% 20,917 20,808Altrimedia 35% 35% 735 685Total investments valued at equity 24,379 24,238

Unconsolidated subsidiaries valued at cost:Rotocolor (in liquidation) 100% 100% 88 88Enotrya (in liquidation) 70% 70% 54 -Enotrya USA Inc. (in liquidation) 100% 100% - -Esperya Usa Inc. (in liquidation) 100% 100% - -Total investment in unconsolidated subsidiaries 142 88

Investments valued at costE.N.A. Ltd (in liquidation) 25% 25% 12 12Ansa 19.6% 20.4% 2,185 2,185E Ink Corporation Inc. 1.1% 1.1% 1,481 1,481Presto Technologies Inc. 7.8% 7.8% 596 -DAB Servizi 12.5% 12.5% 132 132Trento Press Service 14.4% 14.4% 37 37Cooperativa Libera Stampa (in liquidation) 12.5% 12.5% 14 14A.G.F. 10% 10% 10 10Gutemberg 2000 (in liquidation) 1.5% 1.5% 5 5Centro Europa Ricerche 20% 20% 2 2Beenz.com Inc. (in liquidation) 3.6% 3.6% - -Beenz.com Italia (in liquidation) 49% - 765 -T.C.D. TriesteCittàDigitale (in liquidation) 30% 31.3% 546 -Other investments 67 45Total investments valued at cost 5,852 3,923

Total investments 30,374 28,249

Investments in companies valued at equity

Sale of companies

• On June 27, 2001, the Group parent sold its investment in company La Rivista deiLibri, recording a capital loss of euro 21 thousand.

Other changes

• The book value of company Saire increases by euro 12 thousand as a result of the


62

share in net profit for the period.

• The book value of company Le Scienze declines by euro 12 thousand as a result of theshare in net profit for the period equal to euro 43 thousand, and dividends distributedequal to euro 55 thousand.

• The book value of company Indipendenza increases by euro 28 thousand due to theshare in the profit reported for the year.

• The book value of company Editoriale Libertà declines by euro 109 thousand as aresult of the net profit for the year amounting to euro 614 thousand and euro 723thousand of dividends distributed.

• The book value of company Altrimedia declines by euro 50 thousand as a result of thenet profit for the year amounting to euro 95 thousand and euro 145 thousand of divi-dends distributed.

• The book value of company CNN Italia increases by euro 11 thousand as a result ofthe net profit for the year.

Investments in unconsolidated subsidiaries

Sale of companies

• On May 17, 2001, Kataweb sold its 49% share in Beenz.com Italia to US companyBeenz.com. The sale resulted in the canceling of the investment and the recording of acapital loss of euro 275 thousand, recorded among extraordinary losses.

Write-downs

• Investment in company Presto Technologies was written off to take into account thenegative outlook of companies in the Internet sector.

• Investment in company T.C.D. Trieste Città Digitale, put in liquidation in the year,was written-off.

Long-term receivablesDec. 31, 2000 Dec. 31, 2001 of which

expiringover 5 years

Guarantee deposits 1,484 1,404 39Tax receivables for advances on taxes payableon Employee termination indemnities 5,637 4,797 -

Total 7,121 6,201 39

Guarantee deposits at December 31, 2001 relate mainly to leasing contracts.

Tax receivables on Employee termination indemnities are made up by to tax advancespaid pursuant to Law 140/97 on amounts accrued by employees upon termination ofemployment at December 31, 1997, revalued yearly. The net decrease of euro 840 thou-


63

sand on December 31, 2000 is due to the use of the provision for personnel terminatingemployment during the year.

Other long-term securitiesThese amount to euro 4,993 thousand (euro 6,065 thousand at December 31, 2000). Theamount relates to General Motors Acceptance Credit (GMAC) floating-rate bonds expi-ring August 29, 2003, with a coupon set at 3-months Euribor plus 20 basis points and aface value of euro 5,000 thousand, underwritten by the Group parent company and pled-ged as guarantee for subsidized loans. The decrease of euro 1,072 thousand on December31, 2000 is due to the repayment of Mediocredito Lombardo 1997-2001 floating-ratebonds expiring in April 2001.

Own sharesThe Group parent company, pursuant to the resolution of the Board of Directors datedApril 24, 2001, using part of the mandate conferred by the Shareholders’ Meeting held onApril 6, 2001, acquired on the regulated market in the month of May 500,000 own sharesat an average price of euro 5.62, for a total expense of euro 2,812 thousand, earmarked forthe implementation of the employee stock option plan.

Pursuant to article 2357 ter, third comma, of the Italian Civil Code, a reserve for Ownshares was created using part of the Reserve for paid-in capital in excess of par value.

C - SHORT-TERM ASSETS

Inventories

Dec. 31, 2000 Dec. 31, 2001

Paper 23,684 26,518Materials for offset and printing 1,514 1,499Work in process and semi-finished goods 618 303Order work in progress 434 1,318Publications 1,364 601Other finished products and multimedia materials 2,625 3,823Accumulated depreciation of finished productsand multimedia materials (1,711) (2,293)e-commerce goods 1,654 1,088Other goods 661 2,109Goods accumulated depreciation (126) (239)

Total 30,717 34,727

Paper inventories increase by euro 2,834 thousand on December 31, 2000, due mainly tohigher paper prices. Paper swap contracts concluded in the previous year reduced the


64

negative impact of paper price increases by euro 2,702 thousand.

Inventories of materials for offset and printing decrease by euro 15 thousand overDecember 31, 2000.

Work in progress and semi-finished goods inventories include production costs (paper,printing and offset) of the “Euro Guide” and of Repubblica’s il Venerdì supplement, distri-buted in the first days of January 2002.

Order work in progress relates to orders under completion by companies in the Internetarea, in particular Ksolutions (euro 832 thousand).

Publications inventories at December 31, 2001 relate to the first issue of L’Espresso for2002 and to books distributed with the magazine in the same year. At December 31, 2000,inventories included National Geographic’s “Maps” and the first issue of L’Espresso for2001.

Other finished products and multimedia materials inventories increase due invento-ries of “gifts” accrued by Somedia following the taking over of subscription managementactivities of magazine L’Espresso.

E-commerce goods inventories relate mainly to Esperya (euro 1,052 thousand), active inthe retail of food and wines. The decline of euro 566 thousand on December 31, 2000 isdue mainly to the elimination from the consolidation of former subsidiaries Zivago andEsperya USA.

Other goods inventories increase over December 31, 2000 by euro 1,335 thousand, net ofaccumulated depreciation, due to software and hardware acquired by Ksolutions for resa-le.

ReceivablesTrade receivables

Dec. 31, 2000 Dec. 31, 2001

Newsstands and distributors 20,002 28,375Provision for returns to be received (9,372) (12,858)Advertising receivables 246,737 226,784Sundry receivables 15,430 22,804Provision for doubtful accounts (13,407) (12,982)

Total 259,390 252,123

Receivables from newsstands and distributors net of the provision for returns to bereceived, increase by euro 4,887 thousand, primarily due to the increase in the price ofnewspaper la Repubblica and of a large part of local newspapers, growing in December2001 from euro 77 cents to euro 88 cents, in addition to the higher number of issues overthe previous year, affected by strikes.

Advertising receivables decline by euro 19,953 thousand due to lower sales.


65

Sundry receivables include mainly receivables against the sale of rejects and returns, thesale of videotapes to be demagnetized, printing services provided to third parties and torevenues from web solutions and e-commerce activities.

The increase of euro 7,374 thousand over December 31, 2000 is due mainly to receivablesfrom subscribers following the transfer of subscription management for the Group’s publi-cations to subsidiary Somedia, and to trade receivables of Kataweb.

Other receivables

Dec. 31, 2000 Dec. 31, 2001

VAT receivable 12,984 1,376Corporate and local taxes receivable 21,736 23,157Other tax receivables 4,358 4,993Advances to personnel, suppliers, agents 3,196 4,053Receivable from social security institutions 344 359Other receivables 9,286 12,672Provision for doubtful accounts (476) (470)

Total 51,428 46,140

VAT receivables decline by euro 11,608 thousand over December 31, 2000 due to theentry of Kataweb and Ksolutions in the Group’s VAT procedure.

Corporate and local taxes receivable are made up mainly by tax refunds (euro 10,010thousand), prepaid deferred tax receivable (euro 5,183 thousand) and prepayments madein the first half of 2001 (euro 7,964 thousand). The euro 1,421 thousand increase from theend of the previous year is due to higher tax prepayments.

Other tax receivables relate mainly to interest accrued by the parent company on corpo-rate taxes (euro IRPEG) paid in previous years to be reimbursed. The increase of euro 635thousand over December 31, 2000 is due to interest accrued for the year.

Advances to personnel, suppliers and agents increase by euro 857 thousand overDecember 31, 2000 mainly due to Somedia (euro 706 thousand) for advances to suppliersof costs relating to the management of subscriptions of the Group’s publications startingin 2002.

Other receivables include mainly:

• payables of subsidiary Rotocolor (in liquidation), which, at December 31, 2001 had adebit exposure with the parent company amounting to euro 5,600 thousand;

• other financial receivables, amounting to euro 2,681 thousand, relating mainly to thecurrent account no longer existing held by the parent company with A. MondadoriEditore, distributor of L'Espresso, having a positive balance at December 31, 2001 ofeuro 2,516 thousand;

• sundry trade receivables amounting to euro 4,386 thousand.


66

There do not exist receivables of a significant amount expiring over five years.

Marketable securities

• Other securitiesThese are securities and commercial paper amounting to euro 85,112 thousand held bythe Group parent company (euro 80,009 thousand) and by subsidiary Editoriale FVG(euro 5,103 thousand). A description of these securities is included in the table below:

Gruppo Editoriale L'Espresso Securitization companies

Issuer Security Face value Expiration Rate Amount(in thousands (in thousands

of euro) of euro)

INAIL Società di Floating-rate 14,500 May 25, 2006 6-mo. 14,508cartolarizzazione per bonds EuriborAzioni + 30 bp

ULISSE Società p.a. Floating-rate 5,000 June 9, 2016 6-mo. 5,002di cartolarizzazione – M.P.S. bonds Euribor

+ 50 bp

Banca Pop. Milano Società Floating-rate 5,000 Jan. 15, 2033 3-mo. 5,000di cartolarizzazione bonds Euribor

+ 26 bp

DUCATO CLASS A Floating-rate 5,000 Oct. 15, 2011 3-mo. 4,993soc. di cartolarizzaz. bonds Euribor

+ 42 bp

MANTEGNA Finance Srl Floating-rate- 2,500 Dec. 13, 2030 6-mo. 2,500società di cartolarizzazione bonds Euribor

+ 19 bp

Banca Pop. Verona Floating-rate 2,500 Oct. 15, 2021 3-mo. 2,499Mortgages Srl di bonds Euribor cartolarizzazione + 18 bp

S.C.C.P.P. Srl soc. di Floating-rate 5,000 June 6, 2003 3-mo. 5,001cartolarizzazione incassi bonds EuriborLotto–serie 1 + 16 bp

S.C.C.P.P. Srl soc. di Floating-rate 2,500 June 6, 2004 3-mo. 2,501cartolarizzazione di incassi bonds EuriborLotto–serie 2 + 21 bp

Locat Securitisation Vehicle Floating-rate 2,500 June 12, 2017 3-mo. 2,500soc. a r.l. di cartol. bonds EuriborCrediti leasing + 27 bp

S.C.I.P. Srl società di Floating-rate 2,500 Dec. 21, 2005 3-mo. 2,500cartolarizz. Immobili bonds Euribor Pubblici – serie 1 + 17 bp

S.C.I.P. Srl società di Floating-rate 2,500 Dec. 21, 2005 3-mo. 2,500cartolarizz. Immobili bonds Euribor Pubblici – serie 2 + 22 bp

Total securitization companies 49,500 49,504


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Corporate bonds


of euro) of euro)

Tecnost International NV Convertible 5,000 Nov. 3, 2005 3-mo. 5,000bonds 1% (Put Option) Euribor

Nov. 3, 2003 + 220 bp

Lavoro Bank Overseas Floating-rate 13,000 Feb. 28, 2004 3-mo. 13,000bonds Euribor

+ 10 bp

FONDIARIA NV Convertible 10,000 June 29, 2004 3-mo. 10,000Netherlands bonds - 0.875% (Put Option) Euribor

June 29, 2002 + 130 bp

Asterisque S.A. Floating-rate 2,500 March 19, 2002 3,90% 2,505bonds

Total 30,500 30,505

Editoriale FVG


of euro) of euro)

INAIL Società di Floating-rate 2,500 May 25, 2006 6-mo. 2,501cartolarizzazione SpA bonds Euribor

+ 30bp

Tecnost International NV Convertible 2,500 Nov. 3, 2005 3-mo. 2,500bonds 1% (Put Option) Euribor

Nov. 3, 2003 + 220 bp

Tecnost International NV Floating-rate 100 June 23, 2004 3-mo. 102bonds Euribor

+ 185 bp

Total 5,100 5,103

Cash and cash equivalentsCash and equivalents amount to euro 44,134 thousand (euro 137,556 thousand atDecember 31, 2000) and are made up mainly by bank deposits and short-term moneymarket investments held with Italian and foreign banks.

The decline from December 31, 2001 of euro 93,422 thousand is due primarily to the to thedifferent type of financial instrument in which liquid assets at the end of the year are held.

Money market transactions were carried out by the Group parent company and Kataweb.A description of transactions at December 31, 2001 is provided in the table that follows:

Gruppo Editoriale L’EspressoBank Expiration Type Rate Amount

(in thousandsof euro)

Banca Toscana Free Time deposit 3.25% 30,355


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Kataweb Bank Expiration Type Rate Amount

(in thousandsof euro)

Banca Toscana Free Time deposit 3.25% 450

D - ACCRUED INCOME AND PREPAID EXPENSES

The item breaks down as follows:

Dec. 31, 2000 Dec. 31, 2001

Accrued income• Interest 4,262 5,944• Other 13 27Total accrued income 4,275 5,971

Prepaid expenses• Promotional costs 1,794 4,612• Rents and leases 1,789 1,506• Bond issue costs 1,416 1,119• Other prepaid expenses 6,629 3,320Total prepaid expenses 11,628 10,557

Total 15,903 16,528

Accrued interest includes euro 5,414 thousand of interest accrued at December 31, 2001on interest rate swap contracts concluded to hedge interest rate fluctuation risks relatingto the bond issue, and euro 527 thousand of interest accrued on the parent company andEditoriale FVG’s (euro 90 thousand) bond portfolios.

Prepaid promotional expenses include royalties on videotape and CD ROM copyrightsacquired by L’Espresso in 2001 (euro 1,810 thousand) to be published, in addition toadvertising expenses relating to products sold optionally with the first issue of L’Espressofor 2002 (euro 1,466 thousand), and costs relating to Repubblica’s (euro 1,319 thousand)promotional initiatives to be launched in the future.

Leases and rentals relate to subsidiary Rotosud (euro 1,437 thousand) and relate to theresidual portion of leasing payments and pre-leasing service costs of a rotary press. Thedecrease over the end of 2000 is due to the portion paid in the year.

Bond issue costs refer to issue discounts and costs incurred in the organization and theplacement of bonds issued by the Group parent company.

Other prepaid expenses include mainly costs for 2002 relating to agency fees, marketresearch and insurance costs, in addition to Internet connection fees. The euro 3,309 thou-sand decrease over December 31, 2000 is due mainly to lower costs relating to Kataweb.


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A – CAPITAL STOCKChanges in the Shareholders’ Equity for the year are shown in the table enclosed.Below we discuss changes occurred in Shareholders’ Equity in the year.

Capital stock Capital stock amounts to euro 64,593,703.20, is made up by 430,624,688 shares of parvalue 0.15 euro and is unchanged from December 31, 2000.

Reserve for own sharesAs described in the note on “Own shares”, the Group holding company, pursuant to theresolution of the Board of Directors dated April 24, 2001, using part of the mandate con-ferred by the Shareholders’ Meeting held on April 6, 2001, acquired on the regulatedmarket in the month of May 500,000 own shares at an average price of euro 5.62, for atotal expense of euro 2,812 thousand.The reserve was created using part of the Reserve for paid-in capital in excess of parvalue.

Reserve for paid-in capital in excess of par valueIt amounts to euro 124,234 thousand (euro 127,046 thousand at December 31, 2000). Itdeclines by euro 2,812 thousand on December 31, 2000 due to the above mentioned usefor the creation of the Reserve for own shares.

Revaluation reserveIt amounts to euro 2,789 thousand (euro 2,879 thousand at December 31, 2000). Thedecline of euro 90 thousand is due to the lower revaluation carried out by Rotosud ascompared with the amount recorded at December 31, 2000, with the resulting reclassifi-cation to other reserves.

Legal reserveIt amounts to euro 12,919 thousand and is unchanged on December 31, 2000.

Other reservesOther reserves amount to euro 183,978 thousand (euro 95,220 thousand at December 31,2000). The increase of euro 88,758 thousand on December 31, 2000 is due to the alloca-tion of 2000 net profit amounting to euro 88,665 thousand to the non-mandatory reserve,after the distribution of euro 40,032 thousand as dividends and the mentioned reclassifi-cation of euro 90 thousand to the Revaluation reserve, and grants received by the Groupparent company amounting to euro 3 thousand.

Net profitNet profit amounts to euro 1,075 thousand (euro 128,697 thousand at December 31, 2000).

Minority interestsThe amount of euro 11,218 thousand (euro 15,002 thousand at December 31, 2000) repre-sents the share in the Shareholders’ equity belonging to third parties. The change on the


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BALANCE SHEETLIABILITIES

previous year is due, in addition to the minority share in net profit, to the exit from theconsolidation area of Internet companies in liquidation and the acquisition of residualminority shares in Web Bridges and Uhuru Digital Design.

Dec. 31, 2000 Dec. 31, 2001

Editoriale FVG 8,001 8,072Edigraf 230 139ArtigraficheRiva 20 14Cima Brenta 1,562 1,381Kataweb 3,972 1,462Other Internet companies 1,217 150

Total 15,002 11,218

B – PROVISIONS FOR RISKS AND CHARGES

Dec. 31, 2000 Accruals Uses Dec. 31, 2001

Retirement provision 7,690 1,643 (2,728) 6,605Deferred taxes 7,167 2,126 (1,039) 8,254Provision for legal proceedings 12,158 6,333 (3,260) 15,231Provision for renewal of labor contract 1,567 31 (1,553) 45Risk provision 5,058 1,363 (3,142) 3,279

Total 33,640 11,496 (11,772) 33,414

The retirement provision, accrued according to expectations of amounts payable accor-ding to labor contracts in force, includes indemnities for journalists and management. Theaccrual for the year refers to amounts accrued, while uses of the provision relate to settle-ments of amounts due to managers who left their employment with the Group.

The provision for legal proceedings is accrued against the risk of potential charges resul-ting from legal proceedings and litigation. The provision has been accrued prudentiallykeeping into account the particular nature of the activity carried out, despite the difficultyencountered in assessing the amount of potential charges relating to each individual legalproceeding underway. In addition to potential libel claims, affecting all publishers, itincludes also risks relating to commercial and labor issues, in addition to possible socialsecurity audits.

The provision for the renewal of labor contracts, which at December 31, 2000 includedthe amount accrued against possible charges resulting from the renewal of the contract forthe journalism profession, declines following the conclusion of the contract.

Uses of the risk provision in 2000 include winding-up costs relating to Zivago, costsrelating to Finegil Editoriale for the restructuring of its Livorno Division and uses made


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for Kataweb. Accruals made in 2001 relate to Kataweb’s and the Parent company’srestructuring.

C - PROVISION FOR EMPLOYEE SEVERANCE INDEMNITY

The provision covers amounts accrued by personnel at December 31, 2001 pursuant tocurrent laws and regulations.

Changes occurred in the first half of the year are shown in the table below:

Employee severance indemnity Dec. 31, 2000 Accruals Uses Dec. 31, 2001

76,645 14,000 (10,287) 80,358

Uses of the provision relate to withdrawals for indemnities paid to personnel terminatingtheir employment with the Group and advances made to employees.

The table below shows the average number of employees by category:

2000 2001

Journalists 1,169 1,190Workers 370 411Employees 1,448 1,543Managers 104 120Term employees 240 210

Total 3,331 3,474

The increase of 143 employees from the previous year is due, in addition to the transfer toFinegil’s Livorno facility of personnel formerly employed by Cooperativa Libera Stampa-Società Cooperativa, to the higher average number of employees in the Internet area.

D – PAYABLES

BondsThe amount of euro 200 million relates to a fixed-rate, five-year bond issue, listed on theLuxembourg Stock Exchange, launched by the Group parent company on August 1, 2000to obtain long-term financing to be used for the development of the Group. ChaseManhattan Bank and Banca Commerciale Italiana acted as joint-bookrunners and leadmanagers of the issue. The bonds have a 6.5% annual coupon and were placed with suc-cess with Italian and foreign institutional investors. Bonds were issued at 99.75% and areredeemable at par.

The Group parent company subsequently entered into interest rate swap transactions with amajor investment bank. Such contracts allow the Group to convert fixed rate exposure to a


72

range of variable rates exposures, allowing to lower considerably the overall cost of debt.

Bank payables

Dec. 31, 2000 Dec. 31, 2001

Short-term payablesOverdrafts 17,482 14,330Ordinary loans 6,197 -Current portion of secured mortgages 4,358 3,445Current portion of unsecured mortgages 1,294 1,027Total short-term payables 29,331 18,802Long-term payablesMortgages 15,193 25,506Loans and unsecured mortgages 10,087 9,049Total long-term payables 25,280 34,555

Total 54,611 53,357

At December 31, 2001, short-term bank debt was made up almost exclusively by advan-ces on receivables of subsidiary A. Manzoni & C.

An euro 6,197 thousand ordinary loan extended in 1999 by Mediocredito di Roma to theGroup parent company, with an original term of 18 months less one day, repayable in June2001, bearing a fixed interest rate of 3.80%, was reimbursed in June 2001.

Secured mortgages are extended against leans on equipment financed and other companyassets. They benefit from subsidies provided for by Italian legislation on publishing.

On July 31, 2001, subsidiaries Finegil Editoriale, SETA and EAG stipulated withMediocredito Centrale secured subsidized mortgages (Law 416/81) amounting respecti-vely to euro 10,694 thousand, 1,192 thousand and 1,736 thousand, expiring June 30, 2011at an annual rate of interest of 3.05%.

Unsecured loans are extended against leans on securities and financial assets pledged.They are recorded in the balance sheet under item “other securities”.

A total of euro 5,272 thousand of debt was reimbursed in the year.

Payables to other financing entitiesPayables to other financing entities amount to euro 59 thousand (euro 84 thousand atDecember 31, 2000) and are made up mainly by a middle-term loan extended by FidiToscana to subsidiary Sias.

Advances receivedAdvances received amount to euro 1,987 thousand (euro 2,077 thousand at December 31,2000). They are made up primarily by advances received by the Udine Division ofEditoriale FVG (euro 1,259 thousand) upon renewal of the contract for the printing ofinsert of the newspaper Il Sole – 24 Ore.


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Trade payables

Dec. 31, 2000 Dec. 31, 2001

Paper suppliers 45,840 37,405Printing suppliers 21,571 27,334Capital goods suppliers 14,125 9,043Promotion suppliers 18,596 17,192Other suppliers 101,686 83,809

Total 201,818 174,783

The main changes occurred on December 31, 2000 relate to:

Newsprint payables decrease by euro 8,435 thousand due to lower quantities acquired inthe last months of the year over the previous one, in which inventories had increased dueto an expected increase in paper prices and in the number of pages of publications.

Payables for printing services increase by euro 5,763 thousand due mainly to the longerpayment terms adopted by the Group parent company with suppliers, and the increase incosts from the previous year.

Payables on the acquisition of fixed assets decrease by euro 5,082 thousand mainly dueto lower investments made in the second half of the year.

Payables to suppliers for promotion decrease by euro 1,404 thousand due mainly toreduced promotion by Kataweb.

Payables to other suppliers decline by euro 17,877 thousand, particularly due to reducedactivity in the Internet area (down euro 14,701 thousand), in addition to lower payables toagencies and other publishers, due to lower advertising sales registered by A. Manzoni &C. (down euro 4,708 thousand).

Payables to affiliated companiesPayables to affiliated companies amount to euro 424 thousand (euro 1,957 thousand atDecember 31, 2000) and are made up by euro 347 thousand of financial payables (euro965 thousand at December 31, 2000) to Le Scienze, in the context of the Group currentaccount managed by the parent company, euro 77 thousand of trade payables (euro 992thousand at December 31, 2000), relating mainly to the sale of advertising carried out byA. Manzoni & C. for magazine Le Scienze and Internet site CNN Italia.

Tax payables

Dec. 31, 2000 Dec. 31, 2001

Income taxes payable 21,195 8,078VAT payable 6,678 7,218Other taxes payable 9,194 9,147

Total 37,067 24,443


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Income taxes payable decrease by euro 13,117 thousand following the payment of incometax balances and advances.

Social security payablesPayables to social security institutions amount to euro 12,714 thousand (euro 11,731thousand at December 31, 2000) and are made up mainly by social security contributionson salaries paid to employees in December 2001.

Other payables

Dec. 31, 2000 Dec. 31, 2001

Payable to personnel for paid leave 9,939 11,164Other payables to personnel 12,351 12,761Payables for purchase of equity investments 7,230 7,314Other payables 2,840 2,097

Total 32,360 33,336

Amounts payable to personnel for paid leave refer to the number of vacation daysaccrued and not enjoyed by Group employees.

Other payables to personnel relate to retributions, Sunday indemnities, overtime andother amounts pursuant to contractual agreements.

Amounts payable for the acquisition of equity investments relate to the residual sharein Ksolutions acquired by Kataweb in 2000 (euro 7,230 thousand), payable on December31, 2002, in addition to Elemedia (euro 84 thousand) for the adjustment to the purchaseprice paid for DL-AMS Media Llc.

Other payables includes amounts payables to directors and statutory auditors, sharehol-ders and affiliated companies excluded from the area of consolidation.

E - ACCRUED LIABILITIES AND DEFERRED INCOME

Dec. 31, 2000 Dec. 31, 2001

Accrued liabilities• Interest 7,032 9,322• Other 2,283 2,759

Total accrued liabilities 9,315 12,081

Total deferred income 5,351 11,589

Total 14,666 23,670

Accrued interest payable includes the share in the interest expense of the Group parentcompany relating to the bond issue and payable August 1, 2001 (euro 5,449 thousand),and


75

interest accrued on interest rate swap transactions concluded to hedge the interest rate riskrelating to the bond issue (euro 3,762 thousand) and the loan extended to Editoriale FVG(euro 110 thousand).

Other accrued liabilities relate mainly to deferred salaries.

Deferred income relates mainly to the advance payment of subscriptions for Repubblica,National Geographic and local newspapers. The increase is due to the transfer of themanagement of L’Espresso subscriptions to the Group.

GuaranteesGuarantees amount at December 31, 2001 to euro 1,981 thousand and are made up mainlyby guarantees given by subsidiary A. Manzoni & C. for the leasing of the building loca-ted in Milan, via Nervesa 21 and of its branches.

Other commitmentsOther commitments amount at December 31, 2001 to euro 34,244 thousand, decreasingby euro 19,332 thousand on December 31, 2000.

In the first months of the year, following the merger of Friuli Venezia Giulia Region com-panies into Editoriale FVG, the guarantee of about euro 25 million issued against a colla-teral deposit made pursuant to article 2503, first comma, of the Italian Civil Code withBanca Commerciale Italiana as guarantee for creditors, has been released.

Commitments are made up by:

• Commitments relating to contracts for the acquisition of plant and equipment (euro1,557 thousand), primarily for la Repubblica.

• Risks connected to a collateral deposit (pursuant to article 2503, first comma civilcode) made with Banca INTESA BCI amounting to euro 12,911 thousand and expi-ring in the first months of 2002, as guarantee for creditors of companies Web Bridgesand Uhuru Digital Design merged into subsidiary Ksolutions.

• Risks connected to notes discounted (euro 9,821 thousand), relating mainly to adverti-sing concessionaire A. Manzoni & C.

• Leasing payments (euro 8,445 thousand), with a principal share amounting to euro7,205 thousand.

• Guarantees and other minor commitments (euro 1,510 thousand).

Had the companies adopted in the preparation of their accounts international accountingprinciples (IAS 17), net profit would have resulted higher by euro 145 thousand and sha-reholders’ equity at December 31, 2001 higher by euro 4,087 thousand, gross of the rela-ted tax effect.


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MEMORANDUMACCOUNTS

A-PRODUCTION VALUE

Revenues from the sale of products and services

2000 2001

Net circulation revenues 297,158 310,886Net advertising revenues 613,942 577,129Hardware and software products 5,205 3,219Internet services and software development 6,264 5,430E-Commerce products 2,238 2,130Other products 3,931 2,835Other revenues 23,985 21,513

Total 952,723 923,142

Net circulation revenues increase by euro 13,728 thousand over the first half of 2000,thanks to a slight growth in circulation, to a higher number of issues than in 2000, markedby strikes, and to the increase in the price of newspapers resolved between November andDecember 2001.

Circulation of la Repubblica is stable, following the lower contribution of products sold inconjunction with the newspaper over the previous year, offset by the higher number ofissues and the increase in the cover price. Despite the decision to cancel the traditionalAutumn promotion, circulation increased from 643,000 to 648,000 average copies (up1%), following important national events (national elections), the success ofRepubblica@scuole (Repubblica-in-school) initiative, and the growing attention towardsprinted information following September 11 events. Two CD-ROM series, “Tutto Internet2001” and “Quattro Lingue”, dedicated to Internet and foreign languages were issued inthe year.

Circulation revenues of the Espresso Division, which include revenues from L’Espressomagazine and those of publications Limes, Micromega e Guide dell'Espresso, increasedby euro 10.8 million. L’Espresso’s circulation increased by 6.9%, increasing from 402,000to 430,000 average copies per issue. The magazine had 5 more issues than in 2000, whilesales of products sold optionally with L’Espresso were good, particularly those of“Twentieth Century Masters” and “National Geographic’s Maps”.

Minor titles recorded an extraordinary success, due in particular to supplement series laPrimavera di Micromega launched in the pre-electoral period (58 thousand average copiesper issue), special reviews of Limes, dedicated to current issues, and the launch of theWine Guide.

Circulation of local newspapers increased slightly (up 1%), reaching 508,000 averagecopies per issue.


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INCOMESTATEMENT

Advertising revenues declined by 6% over 2000, decreasing by euro 36,813 thousand.

In 2000, the sale of advertising space on la Repubblica and its supplements declined by10.4%, in line with the market as a whole, and L’Espresso, after a good start, closed down4.7%.

The Group’s local newspapers registered a good performance, with advertising salesposting a 4.1% increase due primarily to local advertising and the full use of color prin-ting capabilities, while the Group’s radio stations reported a slight increase in advertisingrevenues, despite the 12.5% decline in the overall market for radio advertising. Internetsites, finally, recorded a 19% decline in advertising.

Revenues from the sale of hardware and software products relate to the activity ofsubsidiaries Ksolutions, Quadrante and Sias, operating in the web solutions area. Thedecline of euro 1,986 thousand on 2000 is due to the difficult market situation.

Revenues from the sale of Internet services and software development declined byeuro 834 thousand over 2000 due to lower activity reported by Internet companies in theweb solutions area.

Revenues from the sale of products on the Internet relate mainly to subsidiary Esperyaand decrease by euro 108 thousand over 2000 for the effect of the exit of Zivago andEsperya USA Inc. from the consolidation area.

Revenues from the sale of other products decline by euro 1,096 thousand over 2000 andrelate mainly to Edizioni la Repubblica multimedia products whose sale had been signifi-cantly reduced in 2000 in favor of the development of products to be sold in conjunctionwith L’Espresso.

Item other revenues relates to advisory services supplied by Internet companies, theorganization of conferences and Somedia’s training courses, the sale of rejects and returnsand residual activities of publishing companies and advertising concessionaire A.Manzoni & C. The decline of euro 2,472 thousand is entirely due to consulting activitiesin the Internet field.

Change in work in process, semi-finished and finished goods inventoriesWork in process inventories are made up by La Repubblica’s supplements and the firstissue of L’Espresso, both produced in December 2001 and distributed in January 2002.The negative change amounts to euro 882 thousand.

Increase in assets due to self-developmentCapital improvements amount to euro 10,451 thousand and relate to the supply of Internetsystems by companies in the web solutions area on behalf of Kataweb, in addition to thecapitalization carried out by the same of costs incurred for the Vivacity project.


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Other revenues

2000 2001

Contributions received 222 246Extraordinary gains 3,076 7,003Retrieval of costs 2,125 4,539Capital gains on the disposal of assets 143 308Rent received 268 326Other revenues and income 1,842 5,588

Total 7,676 18,010

Contributions received relate primarily to subsidiary Elemedia (euro 207 thousand) forthe refund of part of costs incurred in subscribing to information agencies’ services and totelephone and electricity services (pursuant to Law no. 250, August 7, 1990).

Extraordinary gains are made up by euro 1,220 thousand relating to the Group parentcompany for adjustments to 2000 sales figures, euro 1,438 thousand to local newspapersfor social security refunds, shares in financing provided pursuant to Law 341/95 on inve-stments made in previous years and telephone service discounts, euro 734 thousand rela-ting to Elemedia for the retrieval of costs relating to electricity consumption, rent andmaintenance, euro 1,977 thousand relating to Kataweb following the review of supply andfreelance contracts, and euro 796 thousand relating to A. Manzoni & C.

Retrieval of costs includes mainly amounts charged by A. Manzoni & C. to agents for theuse of company assets, and amounts charged to customers, agencies and other publishersfor uncollectibles, in addition to the retrieval of costs relating to Kataweb from companiesincluded in the consolidation.

Rent received is made up mainly by lease payments for the industrial building located inBologna owned by La Repubblica Division and leased to printing company SABO.

Other revenues and profit increase by euro 3,746 thousand over the first half of 2000due to the conclusion of an arbitration in favor of the Group parent.


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B - PRODUCTION COSTS

Raw material purchases

2000 2001

Paper 126,273 130,601Printing supplies 10,990 10,268Other consumables 4,448 4,268Promotional material 6,891 5,546Multimedia products for resale 8,871 9,077E-commerce goods 3,211 1,258Other goods 8,166 5,640

Total 168,849 166,658

Newsprint purchases increase by euro 4,328 thousand (up 3.4%) despite a reduction inconsumption due to price increases, offset in part by paper swap contracts concluded atthe beginning of the previous year, resulting in savings of euro 2,702 thousand. One of thefinancial counterparts in with which the Group concluded paper swap transactions (for anominal amount of 30,000 tons of paper for newspapers and periodicals) is Enron Capitaland Trade Resources Corporation, controlled by Enron Corp., a US company who filedfor bankruptcy procedures in November 2001. The default on the contract resulted in thediscontinuation of swap differential payments from the company in the months ofNovember and December, causing a loss of income for the Group of euro 339 thousand.Such loss is widely covered by the provision for doubtful accounts recorded in theBalance Sheet. As allowed by contractual agreements with the counterpart, the Grouprequested the termination of all contracts and the right to compensate, as provided in caseof default, current receivables with amounts due to the company in the future.

Printing material purchases declined by euro 722 thousand due mainly to Rotosud’sdecision to replace during the year fuel oil with industrial natural gas for its steamers(classified among “costs for the acquisition of services”).

Other consumables include the purchase of books and newspapers, stationary and othermaterials. They decline on 2000 by euro 180 thousand due primarily to lower purchasesby Internet area companies.

Promotional material purchases decline by euro 1,345 thousand due to lower purchasesmade by la Repubblica that cancelled its Autumn promotion.

Purchases of multimedia products for resale increase by euro 206 thousand due mainlyto the change in the mix of products distributed with la Repubblica.

E-commerce goods purchases relate mainly to Esperya. The decline of euro 1,953 thou-sand is due to a reduction in inventories and the exit from the consolidation area of


80

Zivago, active in the on-line sale of books and music CDs.

Other goods purchases are made up mainly (euro 5,173 thousand) by hardware andsoftware purchased by subsidiary Ksolutions for resale as integrated solutions. Part ofsuch goods have been sold to Kataweb, giving rise to the mentioned increase in assets dueto self development.

Services received

2000 2001

Printing and other work carried out by others 93,156 92,815Publishers fees 22,393 22,701Transports 27,902 27,813Commissions and agents fees 31,441 26,347Advertising and promotional services 57,975 35,811Photographs and editorial services 43,236 45,324Traveling expenses 11,395 10,673News agencies 7,497 8,040Postage, telephone and data transmission 14,020 13,582Maintenance 7,490 8,233Utilities 5,799 7,264Services and technical assistance for Internet sites and TV 9,244 7,975Sundry services 53,079 41,848

Total 384,627 348,426

Printing costs decline by euro 341 thousand. The increase in printing costs of the Groupparent (euro 3,805 thousand), following the increase in printing capacity of the nationaledition of la Repubblica and the reaching of capacity of pre-printing, was accompanied bya sharp reduction in Edizioni la Repubblica’s printing costs (euro 432 thousand) thanks tothe lower number of copies of National Geographic printed and to Finegil Editoriale’sLivorno division (euro 3,053 thousand), following the decision made in the year to tran-sfer to the Group printing activities carried out by third parties in 2000.

Publishers’ fees increase by euro 308 thousand, due to higher advertising revenues regi-stered by other parties’ newspapers for which A. Manzoni & C. is the advertising conces-sionaire.

Transport costs decline by euro 89 thousand, mainly due to the exit from the consolida-tion area of Zivago, offset in part by the increase in Esperya transportation costs derivingfrom higher volumes sold.

Agents and agency’s fees decrease by euro 5,094 thousand due to lower advertising sales.

Promotional expenses decline by euro 22,164 thousand due to Kataweb’s and the Parent


81

company’s lower promotional expenses.

Photographs and editorial services increase by euro 2,088 thousand due to the highernumber of issues as compared with the 2000, to Repubblica’s new local Bari edition andto content production for DeeJay TV.

Postage, telephone and data transmission expenses declined by euro 438 thousand dueto a decline in telephone expenses resulting from a renegotiation of tariffs, offset in partby an increase in postage expenses for the delivery of publications to subscribers.

Maintenance and utility costs increased overall by euro 2,208 thousand due to thereclassification of Rotosud costs and the increase in the number of transmission stationsinstalled by Elemedia (813 against 732 at December 31, 2000).

Services and technical assistance for Internet sites and TV production decline by euro1,269 thousand over 2000 due to the streamlining of costs and lower activity of Internetcompanies.

Other services decline by euro 11,231 thousand over 2000. The item includes, amongother things, consulting, subscriptions management, investigations and research, insuran-ce, auditing and certification costs, in addition to receivable collection and cleaning costs.

The decline is due primarily to lower consulting, investigation and research costs of com-panies in the Internet area.

Leases and rentals

2000 2001

Reproduction and copyrights 22,441 16,677Rent 11,745 13,866Leases 6,576 3,012Other costs 7,024 8,759

Total 47,786 42,314

Copyright costs relate to royalties paid for the publication of L’Espresso andRepubblica’s inserts, radio rights and reproduction rights for Internet sites’ contents. Thedecline of euro 5,764 thousand over 2000 is due mainly to the decline in sales of productssold in conjunction with the publications, in addition to lower royalty costs for L’Espressoand la Repubblica’s promotional activities and products.

Rent increased by euro 2,121 thousand due to the higher number of radio posts of subsi-diary Elemedia and Kataweb’s new main offices, in addition to adjustments due to inflation.

Leases decline by euro 3,564 thousand due to the termination of a number of leasing con-tracts stipulated by Rotosud in 1988 and in 1992 with Fime Leasing for the acquisition of


82

rotary presses.

Other lease and rental costs include motor vehicle leasing costs, the lease of satellitesfor radio broadcasting, Internet connection fees and the rental of office equipment. Theincrease of euro 1,735 thousand is due mainly to Deejay TV and the Group’s three radiostations’ satellite uplink costs, in addition to the decision to outsource the management ofmotor vehicles.

Personnel costsThe cost of personnel, amounting to euro 245,526 thousand, increased by euro 13,243thousand, up 5.7% over the same period in the previous year (euro 232,283 thousand).Cost increases are due mainly to the decision made in the year to transfer to the Group 87employees formerly working in a cooperative at Finegil Editoriale’s Livorno facility, inaddition to the renewal of collective labor contracts and company labor agreements.

Depreciation and write-downsDepreciation and write-downs amount to euro 73,835 thousand (euro 67,689 thousand atDecember 31, 2000). Intangible and tangible asset depreciation and write-downs for theyear are shown in attachements 1 and 2.

2000 2001

Intangible asset amortization 27,785 27,092Tangible asset depreciation 28,247 29,911Write-down of intangible assets 8,483 13,735Write-down of receivables 3,175 3,097

Total 67,689 73,835

Amortization of intangible assets decrease by euro 693 thousand on 2000 due to lowerinvestments in the Internet area.

Tangible asset depreciation increases by euro 1,664 thousand due to higher depreciationcharges on plant and equipment owned by la Repubblica and Editoriale FVG.

Fixed asset depreciation increases by euro 5,252 thousand due to the write-down of thegoodwill in the web solutions Internet area, done to adjust the values to the currentmarket.

Receivables write-down declines by euro 78 thousand.

Change in raw materials and merchandise inventoriesRaw materials and merchandise inventories decrease by euro 4,400 thousand.

Accruals to risk provisionAccruals to the risk provision amount to euro 7,727 thousand (euro 7,657 thousand in


83

2000) and include mainly accruals made against risks relating to tax, legal and socialsecurity litigation.

Other operating costs

2000 2001

Taxes and duties payable 1,222 1,177Public relations and gift expenses 1,012 964Membership fees 806 834Transactions and reimbursements 1,938 783Other charges 1,447 2,573Extraordinary losses 1,952 2,598

Total 8,376 8,929

C - FINANCIAL INCOME AND EXPENSES

Other financial incomeOther financial income amounts to euro 10,129 thousand (euro 4,557 thousand in 2000).It includes mainly interest on financial investments, interest on securities pledged as col-lateral for subsidized loans, interest on tax receivables and differentials accrued on intere-st rate swaps concluded by the Group to hedge interest rate risks on bonds issued. Theincrease is due mainly to interest earned on the investment of excess liquidity resultingfrom the bond issue in addition to the payment received from Unicredito Italiano for theacquisition of a 5% share in Kataweb, and gains recorded interest rate swaps. By conclu-ding such contracts, the company was able to take advantage of the reduction of interestrates occurred in the year over the 6.5% fixed rate provided by the bond issue, achieving areduction in the cost of funds amounting to euro 2,507 thousand.

Interest and other financial chargesInterest and other financial charges amount to euro 17,124 thousand (euro 13,027 thou-sand in 2000). They are represented by interest payable on current accounts held withbanks and on other short-term financing amounting to euro 794 thousand, by interest onlong-term financing amounting to euro 1,359 thousand, interest on bonds issued amoun-ting to euro 13,000 thousand and bank fees, foreign exchange losses and other financialcharges amounting to euro 1,971 thousand. The increase in average debt following thementioned bond issue and the shift from short- to long-term debt, coupled with an increa-se in interest rates, had a negative effect on the overall cost of funds.


84

D – ADJUSTMENTS TO THE STATED VALUE OF FINANCIAL ASSETS

Revaluations These include the share in the profit of affiliated companies. They amount to euro 803thousand and relate to Editoriale Libertà (euro 614 thousand), Altrimedia (euro 95 thou-sand), Le Scienze (euro 43 thousand), Saire (euro 12 thousand), Indipendenza (euro 28thousand), and CNN Italia (euro 11 thousand).

Write-downsWrite downs amount to euro 5,091 thousand. They represent the write-down in the valueof financial assets of euro 2,091 thousand, and the write-down of equity investmentsamounting to euro 1,928 thousand (Kataweb Inc., euro 224 thousand, TCD Trieste CittàDigitale, euro 546 thousand, Presto Technologies, euro 596 thousand, Enotrya, euro 54thousand, Esperya Usa, euro 475 thousand, Alsoft, euro 10 thousand and UhuruMultimedia, euro 3 thousand), in addition to euro 1,072 thousand relating to the coverageof losses reported by subsidiaries Easy Commerce (euro 594 thousand) and Zivago (euro478 thousand).

E – EXTRAORDINARY ITEMS

Extraordinary gainsExtraordinary gains amount to euro 4,287 thousand. In 2000 they amounted to euro156,336 thousand and included the euro 153,875 thousand capital gain resulting from theacquisition on the part of Unicredito of a 5% share in Kataweb.

Extraordinary chargesCharges amount to euro 5,050 thousand (euro 1,347 thousand in 2000), and include euro2,159 thousand of extraordinary charges resulting from the sale of equity investments (ofwhich euro 1,829 thousand relating to Kataweb España, euro 275 thousand relating toBeenz.com Italia, euro 34 thousand relating to Easy Commerce and euro 21 thousandrelating to La Rivista dei Libri), extraordinary charges relating to early retirement incenti-ves amounting to euro 782 thousand, extraordinary losses totaling euro 505 thousand, andother extraordinary charges amounting to euro 1,604 thousand.

Taxes Taxes payable for the period amount to euro 51,544 thousand (as compared with euro61,767 thousand in 2000), and are made up by current taxes amounting to euro 51,963thousand, of which euro 36,206 thousand of corporate income taxes (Irpeg) and euro15,757 thousand of corporate tax (Irap), net of euro 419 thousand of prepaid taxes.

The high corporate income tax rate is due mainly to operating losses recorded byKataweb, for which no prepaid tax has prudentially been recorded.


85

ATTACHMENTS

CHANGES IN ASSETS OCCURRED DURING THE YEAR ENDED DECEMBER 31, 2001 (in thousands of euro)

ATTACHMENT 1 - INTANGIBLE ASSETS

Change in Change in Cost Revaluations Write-down Accum. Beginning Increases Decrease Reclassifications consolid. Increases Decrease Reclassifications consolid. Cost Revaluations Write-down Accum. Ending

provision depreciation balance area area provision depreciation balance

Incorporation costs 6,940 - (1,255) (5,017) 668 6 (2) - (441) (155) - - 81 6,503 - (1,254) (5,092) 157

Research&Development and avertising costs 4,800 - (2,770) (1,884) 146 376 (169) 48 (157) (220) 139 - 33 4,898 - (2,741) (1,961) 196

Industrial patents and

ntellectual property rights 8,050 - - (7,325) 725 2,085 (83) 87 (2) (955) 84 (18) 1 10,137 - (45) (8,168) 1,924

Concessions, licenses and trademarks 21,795 - (30) (12,075) 9,69 3,066 (7) 164 (975) (3,637) 2 - 428 24,043 - (20) (15,292) 8,731

Goodwill on titles 375,948 - (53) (71,279) 304,616 - - - - (9,458) - - - 375,948 - (53) (80,737) 295,158

Consolidation differences 58,008 - (3,694) (9,383) 44,93 2,129 (391) - - (16,940) 391 - - 59,746 - (16,147) (13,479) 30,120

Goodwill on other assets 40,419 - - (9,746) 30,673 10,093 (553) 286 (31) (4,876) 155 - 6 50,214 - - (14,461) 35,753

Work in progress and advances 3,485 - - - 3,485 6,367 (20) (558) - - - - - 9,274 - - - 9,274

Other intangible assets 36,581 - (3) (27,935) 8,644 5,083 (572) (80) (270) (4,586) 533 18 23 40,742 - (774) (31,176) 8,792

TOTAL 556,026 - (7,805) (144,644) 403,577 29,205 (1,797) (53) (1,876) (40,827) 1,304 - 572 581,505 - (21,034) (170,366) 390,105

ATTACHMENT 2 - TANGIBLE ASSETS

Land and buildings 34,052 2,319 - (10,194) 26,177 1,770 (4) 407 66 (1,147) 50 - (26) 36,291 2,319 - (11,317) 27,293

Plant and equipment 210,597 1,452 - (140,177) 71,872 12,587 (2,340) 737 185 (21,728) 1,422 334 (101) 221,877 1,341 - (160,250) 62,968

Technical equipment 2,479 5 - (1,998) 486 237 (64) (89) (79) (213) 44 89 7 2,484 5 - (2,071) 418

Other assets 59,104 315 - (40,321) 19,098 6,906 (2,527) 983 (726) (6,823) 2,012 (423) 97 63,742 313 - (45,458) 18,597

Work in progress and advances 5,015 - - - 5,015 16,958 (5) (1,985) - - - - - 19,983 - - - 19,983

TOTAL 311,247 4,091 - (192,690) 122,648 38,458 (4,940) 53 (554) (29,911) 3,528 - (23) 344,377 3,978 - (219,096) 129,259

and write-downs

ENDING BALANCECHANGES DURING THE YEARBEGINNING BALANCE

Cost and revaluations Accumulated depreciation

ATTACHMENT 3in thousands of euro

Capital Share Legal Other Reserve for Revaluation Netstock premium reserve reserves own shares reserve profit Total

Balance at Dec. 31, 1999 64,594 127,046 12,919 88,577 - 1,367 40,908 335,411

Allocation of net income:

Dividends - - - - - - (33,360) (33,360)

Accrued to reserves - - - 7,548 - - (7,548) -

Revaluations - - - - - 607 - 607

Transfers between reserves - - - (905) - 905 - -

Net profit 128,697 128,697

Balance at Dec. 31, 2000 64,594 127,046 12,919 95,220 - 2,879 128,697 431,355

Allocation of net income:

Dividends - - - - - - (40,032) (40,032)

Accrued to reserves - - - 88,665 - - (88,665) -

Capital grants - - - 3 - - - 3

Transfers between reserves - (2,812) - 90 2,812 (90) - -

Net profit - - - - - - 1,075 1,075

Balance at Dec. 31, 2001 64,594 124,234 12,919 183,978 2,812 2,789 1,075 392,401

STATEMENT OF CHANGES IN THE CONSOLIDATED SHAREHOLDERS’ EQUITY

89

GROUP COMPANIES

ATTACHMENT 4

Capital % Shares Company Seat stock owned owned by

PARENT COMPANY

Gruppo Editoriale L’Espresso SpA Rome 64,594publishing

COMPANIES CONSOLIDATED LINE-BY-LINE• Finegil Editoriale SpA Rome 18,161 100 Gruppo Editoriale L’Espresso SpA

publishing• Editoriale La Nuova Sardegna SpA Sassari 776 100 Finegil Editoriale SpA

publishing• EAG SpA Pavia 815 100 Finegil Editoriale SpA

publishing• Cima Brenta SpA Trento 775 71 Gruppo Editoriale L’Espresso SpA

holding • S.E.T.A. SpA Bolzano 1,036 100 Cima Brenta SpA

publishing• Edizioni Nuova Europa SpA Ivrea 104 100 Finegil Editoriale SpA

publishing (TO)• Editoriale La Città SpA Salerno 774 100 Finegil Editoriale SpA

publishing• Editoriale FVG SpA Udine 87,960 91.95 Gruppo Editoriale L’Espresso SpA

publishing• Edigraf Srl Trieste 312 66.67 Editoriale FVG SpA

printing• Artigraficheriva Srl Trieste 52 100 Edigraf Srl

printing• A. Manzoni & C. SpA Milan 8,000 100 Gruppo Editoriale L’Espresso SpA

advertising concessionaire• Elemedia SpA Milan 3,000 100 Gruppo Editoriale L’Espresso SpA

radio broadcasting• EleTV SpA Milan 5,000 95 Gruppo Editoriale L’Espresso SpA

digital television 5 Elemedia SpA• Edizioni La Repubblica SpA Rome 517 100 Gruppo Editoriale L’Espresso SpA

publishing• Editoriale Publietas SpA Rome 52,000 100 Gruppo Editoriale L’Espresso SpA

publishing• Somedia Srl Milan 50 100 Gruppo Editoriale L’Espresso SpA

multimedia services/conventions• Rotosud SpA Oricola 2,860 100 Gruppo Editoriale L’Espresso SpA

printing (AQ)• C.P.S. SpA Rome 520 100 Gruppo Editoriale L’Espresso SpA

pre-printing• Selpi SpA Rome 3,202 70 Gruppo Editoriale L’Espresso SpA

services 30 Finegil Editoriale SpA• Club La Repubblica SpA Rome 1,020 95 Gruppo Editoriale L’Espresso SpA

services 5 Editoriale Publietas SpA

Note: in thousands of euro unless otherwise specified

90


• Kataweb SpA Rome 21,053 95 Gruppo Editoriale L’Espresso SpAInternet services

• Kataweb News Srl Rome 10 100 Kataweb SpAInternet publishing

• Ksolutions SpA San Giuliano 1,000 100 Kataweb SpAInternet services Terme (PI)

• Esperya SpA Porto Recanati 500 100 Kataweb SpAe-commerce (MC)

• Quadrante Srl Bologna 10 70 Kataweb SpAInternet services

• Studio Vit Srl Milan 25 70 Kataweb SpAInternet services

• Sias Srl S.Giuliano Terme 101 70 Kataweb SpAInternet services (PI)

• DL-AMS Media LLC Budapest 50,000 (,000) HUF 95 Elemedia SpAradio station Hungary 5 Ele TV SpA

• Cellularmania.com Srl Rome 10 80 Kataweb SpAInternet services

AFFILIATED COMPANIES CONSOLIDATED ON EQUITY

• Le Scienze SpA Milano 103 50 Gruppo Editoriale L'Espresso SpApublishing

• Indipendenza Srl Rome 2,600 50 Gruppo Editoriale L'Espresso SpAprinting

• Saire Srl Milano 47 50 Gruppo Editoriale L'Espresso SpAprinting

• Editoriale Libertà SpA Piacenza 1,000 35 Finegil Editoriale SpApublishing

• Altrimedia SpA Piacenza 517 35 Finegil Editoriale SpAadvertising concessionaire

• CNN Italia SpA Rome 104 30 Kataweb SpAInternet publishing

AFFILIATED COMPANIES AND UNCONSOLIDATED SUBSIDIARIES

• Kataweb Inc. in liquidation Salt Lake City 250 (,000) US$ 100 Kataweb SpAservizi internet Utah, Stati Uniti

• Esperya Usa Inc. in liquidation Wilmington, 460 (,000) US$ 100 Esperya SpAe-commerce Delaware (USA)

• Enotrya Srl in liquidation Rome 78 70 Kataweb SpAe-commerce

• Uhuru Multimedia Srl non operativa Rome 10 100 Ksolutions SpAInternet services

• Enotrya USA Inc. in liquidation Wilmington, 1 US$ 100 Esperya USA Inc.e-commerce Delaware (USA)

• Zivago SpA in liquidation Milan 3,096 50 Kataweb SpAe-commerce

• Rotocolor SpA in liquidation Rome 774 100 Gruppo Editoriale L’Espresso SpAprinting

9191


• Media Est Srl in liquidation Udine 103 99 Editoriale FVG SpAadvertising concessionaire

• Benedettine Srl in liquidation Piacenza 255 35 Finegil Editoriale SpAreal estate

• Alsoft Srl in liquidation San Giuliano 52 100 Ksolutions SpAInternet services Terme (PI)

• T.C.D.-TriesteCittàDigitale SpA in liquidation Trieste 1,742 31.34 Kataweb SpAInternet services

• European Newspapers Associated Ltd Londra 636 (,000) £ UK 25 Gruppo Editoriale L'Espresso spAin liquidation (UK)

• Centro Europa Ricerche Srl Rome 10 20 Gruppo Editoriale L'Espresso spAeconomic research

MAIN INVESTMENTS IN OTHER COMPANIES

• A.G.F. Srl Rome 102 10 Gruppo Editoriale L'Espresso SpAphoto agency

• Agenzia ANSA s. coop. a r.l. Rome 11,210 3.18 Gruppo Editoriale L’Espresso SpA press agency 6.37 Finegil Editoriale SpA

3.18 Editoriale La Nuova Sardegna SpA3.18 Editoriale FVG SpA1.91 EAG SpA2.55 S.E.T.A. SpA

• Beenz.com Inc in liquidation New York 335,496 (,000) US $ 3.6 Kataweb SpAweb marketing (USA)

• DAB Servizi SpA Milan 1,040 12.5 Elemedia SpAradio broadcasting services

• Club DAB Italia - consorzio Milan 23 11.11 Elemedia SpAradio broadcasting services

• E-Ink Corporation Inc Cambridge (MA) 11,404 (,000) US $ 1.1 Gruppo Editoriale L’Espresso SpA printing technologies (USA)

• Presto Technologies Inc. Cambridge (MA) 7,664 (,000) US $ 7.83 Kataweb SpAInternet services (USA)

• Consorzio Energia Sassari Sassari 4 12.5 Editoriale La Nuova Sardegna SpApurchase of electricity

• Agenzia Informativa Adriatica d.o.o. Capodistria 10 19 Editoriale FVG SpAproduction and provision of information Slovenia

• Trento Press Service Gardolo di Trento 260 14.4 S.E.T.A. SpAnewspaper distribution (TN)

• Gutenberg 2000 in liquidation Torino 10 1.5 S.E.T.A. SpApublishing of periodicals

• Immobiliare Editori Giornali Srl Rome 830 0.17 S.E.T.A. SpAreal estate 0.12 Editoriale La Nuova Sardegna SpA

• Protagon Periodici SpA under bankruptcy proceedings Perugia 10 Finegil Editoriale SpApublishing of periodicals

• Cooperativa Libera Stampa a r.l. in liquidation Livorno 17 12.5 Finegil Editoriale SpAprinting

• Consuledit Srl (già Consedit Srl) Milan 20 6.62 Gruppo Editoriale L'Espresso SpAreaders' market research 3.99 Finegil Editoriale SpA

0.62 Editoriale La Nuova Sardegna SpA0.39 EAG SpA0.49 S.E.T.A. SpA0.47 Editoriale FVG SpA

Note: in thousands of euro unless otherwise specified

GROUP COMPANIES

92

RECLASSIFIED

CONSOLIDATED

FINANCIAL

STATEMENTS

RECLASSIFIED CONSOLIDATED BALANCE SHEET

94


Dec. 31, 2000 Dec. 31, 2001

Net fixed assets 122,648 129,259Capitalized costs 54,033 64,827Goodwill on titles 304,615 295,158Consolidation differences 44,930 30,120Net investments 30,375 31,062

Trade receivables, net 261,110 252,465Inventories 30,718 34,727Trade payables (188,719) (165,817)

Net current assets 103,109 121,375

Income taxes (payable) receivable (6,627) 6,825Other taxes (payable) receivable 1,470 (9,996)Payable to personnel, health and social security institutions (34,021) (36,639)Employee severance reserve (84,335) (86,963)Other reserves (18,783) (18,555)Other assets (liabilities) (9,779) (11,604)

Net capital employed 507,635 514,869

Short-term financial assets 188,324 137,527Short-term debt (30,304) (19,156)Long-term debt (219,298) (229,621)

Net financial position (61,278) (111,250)

Capital stock 64,594 64,594Other reserves 238,064 326,733Net profit 128,698 1,075

Shareholders’ equity 431,356 392,401

Minority interests 15,002 11,218

RECLASSIFIED CONSOLIDATED INCOME STATEMENT

95


2000 2001

REVENUES

Circulation 297,158 310,886Advertising 613,941 577,129Other revenues 41,623 35,127

TOTAL REVENUES 952,723 923,142

PRODUCTION COSTS

Paper (122,723) (127,756)Printing and other supplies (94,269) (91,893)Maintenance and technological costs (24,042) (26,843)Other production costs (14,070) (14,710)

Total production costs (255,104) (261,202)

OPERATING COSTS

Promotion (75,005) (54,198)Distribution (29,413) (28,110)Publisher fees (22,393) (22,701)Agent/agency fees (31,441) (26,347)Copyrights (22,316) (16,654)Other operating costs (158,660) (137,799)

Total operating costs (339,227) (285,809)Labor costs (232,459) (245,384)

Gross operating profit 125,933 130,747

Depreciation of assets (38,177) (38,495)Amortization of goodwill (17,854) (18,508)

Operating profit 69,901 73,744

Net financial income (expense) (8,470) (6,995)Leasing payments (6,576) (3,012)Income (expense) on investments (12,667) (2,197)Extraordinary income (expense) 148,053 (11,884)

Profit before taxes 190,241 49,656

Taxes (61,767) (51,544)

Profit before minority interests 128,474 (1,888)

Minority interests 223 2,963

NET PROFIT 128,698 1,075

CONSOLIDATED STATEMENT OF CASH FLOWS

96


Dec. 31, 2000 Dec. 31, 2001

NET FINANCIAL POSITION AT THE BEGINNING OF THE YEAR (92.943) (61.278)

Net profit 128,697 1,075Share in affiliate’s net profit, net of dividends received (249) 447Minority interest in net profit (224) (2,963)Depreciation and amortization 56,031 57,003Net change in employee severance and retirement reserves 5,954 2,628Capital (gains) / losses (154,547) 909(Revaluations) / Write-downs 21,460 15,485

CASH GENERATED FROM NET PROFIT

BEFORE CHANGES IN CURRENT ASSETS 57,122 74,584

(Increase) / decrease innet trade receivables (44,655) 8,645(Increase)/Decrease in inventories (5,544) (4,009)Incremento/(Decremento) in trade payables 38,298 (22,902)

Change in net current assets (11,901) (18,266)

Change in income taxes payable (2,279) (13,452)Change in other taxes payable/receivable (3,771) 11,466Change in employee severance reserve 2,696 2,618Change in other reserves 5,689 (228)Change in other assets/liabilities 1,577 6,824

NET CASH GENERATED FROM OPERATING ACTIVITIES 49,133 63,546

Net equity investments 93,683 (6,827)Net investments in fixed assets (77,790) (66,662)

Net cash used in investing activities 15,892 (73,489)

Contributions received - 3Dividends distributed (33,360) (40,032)

CHANGE IN NET FINANCIAL POSITION 31,666 (49,972)

NET FINANCIAL POSITION AT THE END OF THE YEAR (61,278) (111,250)

ATTACHMENTS:

REVENUES,

GROUP EMPLOYEES,

CIRCULATION

CONSOLIDATED REVENUES

98

(in thousands of euro)

2000 2001

Gruppo Editoriale L’Espresso 557,134 527,462

SUBSIDIARIES

Finegil Editoriale 110,505 115,092Editoriale La Nuova Sardegna 26,626 28,009E.A.G. 18,691 19,362Edizioni Nuova Europa 2,020 2,151Editoriale La Città 2,019 2,089Cima Brenta e S.E.T.A. 19,198 20,096Editoriale FVG 50,099 51,070Edigraf 978 899Artigrafiche Riva 1,408 1,205Elemedia 48,797 49,956EleTV 775 1,500Star Radio - 127Edizioni La Repubblica 10,853 9,962Somedia 4,760 5,209A. Manzoni & C. (*) 617,348 588,235Gmp (*) 7,080 -Editoriale Publietas 14,106 14,212Rotosud 27,784 25,784C.P.S. 3,438 3,418S.E.L.P.I. 1,926 751Club La Repubblica 1,363 570Kataweb 15,431 13,677Kataweb News 6,342 7,662Ksolutions (**) 18,843 18,134Uhuru Digital Design (**) 5,840 -Web Bridges (**) 2,429 -Esperya (formerly I.F.E.) 1,500 2,271Easy Commerce 103 -Quadrante 1,716 1,500Studio Vit 907 733SIAS 774 1,221Cellularmania.com 36 49Esperya USA Inc. 205 -Kataweb Inc. 387 -E-Viaggi.com 169 -Zivago 873

1,582,460 1,512,406less: intra-group transactions (629,738) (589,264)

Consolidated revenues 952,723 923,142

(*) In 2001 A.Manzoni&C. merged with Gmp (**) In 2001 Ksolutions merged with Uhuru Digital Design and Web Bridges

GROUP EMPLOYEES

99

EMPLOYEES AT YEAR-END Dec. 31, 2000 Dec. 31, 2001(including term contracts)

• Corporate 26 22• L'Espresso Division 128 118• la Repubblica Division 709 699

Gruppo Editoriale L’Espresso 863 839A. Manzoni & C. (*) 510 510

• Finegil Editoriale 502 585• Editoriale La Nuova Sardegna 149 148• E.A.G. 91 92• Editoriale La Città 26 27• Edizioni Nuova Europa 12 12

Finegil Group 780 864S.E.T.A. 122 119

• Editoriale FVG 324 311• Edigraf 10 8• Artigrafiche Riva 13 11

FVG Group 347 330• Radio DeeJay 56 55• Radio Capital 46 47• Italia Radio 34 32

Elemedia 136 134Eletv 4 8Dl-Ams Media Llc* - 1

• Rotosud 126 124• Cps SpA 34 33

Printing sector 160 157Editoriale Publietas 50 51Somedia 11 16Edizioni La Repubblica 19 21Selpi 1 1

• Kataweb 137 84• Kataweb News 78 60• Ksolutions (**) 133 135• Esperya (formerly I.F.E.) 26 25• Easy Commerce 4 -• Quadrante 10 15• Studio Vit 10 5• SIAS 13 19• Esperya USA Inc. 10 -• Kataweb Eña SA 38 -• Kataweb Inc. 2 -• E-Viaggi 12 -• Zivago 22 -

Internet sector 495 343

Total group employees 3,498 3,394

(*) The figure for 2000 includes personnel of Gmp, merged into A.Manzoni&C. in 2001

(**) The figure for 2000 includes personnel of Uhuru Digital Design and Web Bridges merged into Ksolutions in 2001

(number of copies) 2000 2001

L’Espresso 402,293 430,036 la Repubblica 643,000 651,600

• Il Tirreno 90,290 90,763 • La Nuova Sardegna 62,982 63,256 • Gazzetta di Mantova 37,749 37,187 • Gazzetta di Reggio 15,957 16,128 • Nuova Gazzetta di Modena 12,786 13,031 • La Nuova Ferrara 12,729 13,192 • Il Mattino di Padova 29,920 31,013 • La Tribuna di Treviso 18,171 18,686 • La Nuova Venezia 9,902 10,214 • Il Centro 24,259 24,701 • La Provincia Pavese 25,421 25,312 • La Città 6,043 6,538 • La Sentinella del Canavese (by-weekly) 14,505 14,102 Finegil Group 360,714 364,123

Alto Adige/ Corriere delle Alpi 39,572 40,092 Il Piccolo 49,950 49,475 Messaggero Veneto 53,921 54,080

National Geographic (monthly) 165,056 145,222 Le Scienze (monthly) 70,681 69,004 Limes (quarterly) 15,329 22,191 Micromega (bi-monthly) 29,752 29,290 Surplus (bi-monthly) 4,196 -

Source: 2000 - ADS Accertamento Diffusione Stampa

2001 - Data supplied by publisher being audited

CIRCULATION

100

REPORT OF THE

INDEPENDENT

AUDITORS

INFORMATION

ON CORPORATE

GOVERNANCE

Information on Corporate Governance pursuant to Section IA.2.12 of Italian StockExchange Regulations

Following resolutions of the Board of Directors held on February 23, 2001, illustrated tothe Shareholders’ Meeting held on April 6, 2001, Gruppo Editoriale L'Espresso S.p.A.(the “Company”) adopted a corporate governance model in line with the Self-DisciplineCode issued by the Corporate Governance Committee of Listed Companies and promo-ted by the Italian Stock Exchange (the “Code”).

Below we include a description of the Corporate Governance system adopted and adescription of the norms for its implementation.

Composition and role of the Board of Directors (Art.1 - 5)The Company operates in accordance with the provisions of the Italian Civil Code regar-ding joint-stock companies. The By-laws provide for the Board of Directors to be investedwith ordinary and extraordinary management powers, and to be empowered to carry outany action it deems necessary towards the achievement of the corporate goal, with theexclusion of those specifically reserved to the Shareholders’ Meeting by law. The Boardof Directors is therefore in charge of objectives and functions indicated in articles 1.1 and1.2 of the Code.

The By-laws of the Company provide for the Board of Directors to be called quarterly byits Chairman or any time the Company’s business so requires, also upon request of at leasttwo Directors, after notice is given to the Chairman of the Board.

In accordance with the By-laws, the Board of Directors is called by its Chairman or theperson acting in his capacity, by certified letter with return receipt, telegram, telex, fax orequivalent means, at least five days prior to the date of the meeting. In case of urgency,the term for the notice will be reduced to two days.

Board of Directors’ meetings are chaired by its Chairman or, in case he is absent, by oneof the Vice-Chairmen or, in case neither of them is absent, by the Company’s ManagingDirector. Board meetings may be held by audio or video conference.

The Chairman is also required to deliver to the Directors, according to the terms and man-ner established in agreement with the Managing Director and in good time before themeeting – with the exception of those cases in which the nature, confidentiality andurgency of the resolutions to be taken at the meeting otherwise requires – all documentsand information necessary to allow the Board of Directors to take fully informed resolu-tions on matters submitted to its examination and approval.

Directors of Gruppo Editoriale L’Espresso are aware of the tasks and responsibilities inhe-rent to their office and the Managing Director is responsible for reporting to the Board ofDirectors on any legislative and regulatory change relating to the Company and its corpo-rate bodies.

INFORMATION ON CORPORATE GOVERNANCE

107

The Board of Directors regulated the flow of information from the Chairman, ManagingDirector and Executive Committee, providing for the same to report periodically on theexercise of the functions for which they hold proxies, with a frequency set in relation tothe activity carried out, which should at least be quarterly.

The By-laws contain provisions regulating the flow of information to the Board ofStatutory Auditors. Directors are required in fact to report without delay, and in any caseat least quarterly, to the Board of Statutory Auditors on the most important economic andfinancial activities of the Company, and in particular on operations that may result in apotential conflict of interest. Information may be supplied directly, either in writing orverbally, also by telephone, whenever it is preferable to do so due to urgency.

In accordance with the By-laws, the Board of Directors is made up by between seven andnineteen members.

The Shareholders’ Meeting held on April 14, 2000 set at sixteen the number of Directors,appointed a new Board and determined its term that expires upon the Meeting called toapprove the financial statements for the year ending December 31, 2002. Subsequently,the Shareholders’ Meeting held on April 6, 2001 increased the number of Directors fromsixteen to seventeen, appointing to the Board Mr. Paolo Dal Pino, at that time GeneralManager of La Repubblica Division and Managing Director of subsidiary Kataweb. TheBoard of Directors’ meeting held on October 24, 2001, following the resignation of Mr.Paolo Dal Pino, co-opted on the Board Mr. Alberto Piaser, General Manager of parentcompany CIR.

Consequently, the Board of Directors currently in office is made up by: Carlo Caracciolo(Chairman), Marco Benedetto (Managing Director), Oliviero Maria Brega (non-executi-ve), Cristina Busi (independent); Giulia Maria Crespi Mozzoni (independent); Carlo DeBenedetti (non-executive); Rodolfo De Benedetti (non-executive); Pierluigi Ferrero (non-executive); Milvia Fiorani (non-executive); Franco Girard (non-executive); AntonioGrigolini (independent); Paolo Mancinelli (independent); Gianluigi Melega (non-executi-ve); Alberto Milla (independent); Piero Ottone (non-executive); Alberto Piaser (non-exe-cutive); Vittorio Ripa di Meana (non-executive).

* * *

In accordance with the provisions of the By-laws, the Board of Directors appointedamong its members Carlo Caracciolo as Chairman, and Marco Benedetto as ManagingDirector. The Board appointed also an Executive Committee made up by the Chairman,Managing Director and non-executive directors Oliviero Maria Brega, Rodolfo DeBenedetti and Alberto Piaser. The Executive Committee reports to the Board of Directorson its resolutions at the first available occasion. In the years 2000 and 2001, the ExecutiveCommittee never met, as the Chairman has always called full Board Meetings.

The Board of Directors delegated the Chairman and Managing Directors powers to con-


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duct ordinary business, establishing nature and limit of spending powers, both individualand joint. Powers to conduct extraordinary business remain with the Board, together withthe power to resolve on ordinary business of particular relevance.

In 2001 the Board of Directors met six times, two of which to use the mandate given bythe Shareholders’ Meeting to increase the Company’s capital to comply with stock optionplans. At all meetings, the Chairman and Managing Director informed the Board of acti-vities carried out pursuant to mandates given, bringing Directors up to date on majorcompany issues, measures taken and transactions concluded, including those carried outwith related parties or for which a potential conflict of interest may arise.

Handling of confidential information (art.6)The Managing Director, implementing the resolutions taken by the Board of Directors atits meeting held on February 23, 2001, adopted an internal regulation for communicatinginformation and delivering documents outside the Company, with reference in particularto price sensitive information. The Managing Director is moreover in charge of handlingconfidential information.

Directors, who are bound to confidentiality by current regulations, are required to keepconfidential the documents and information acquired in carrying out their office and toabide by internal procedures regarding confidentiality.

Appointment of Directors (art. 7)The appointment of Directors takes place according to the Law, based on proposals madeby Shareholders. It is customary to deposit curricula of candidates to the post of Directorin good time before the Company’s Shareholders’ Meeting.

The Board of Directors has not created an internal committee to review proposals for theappointment of Directors.

Director compensation (art. 8)In accordance with the By-laws, compensation due to members of the Board of Directorsare determined by the Shareholders’ Meeting. Expenses incurred by Directors in the con-text of their office are reimbursed.

Pursuant to the By-laws and in accordance with article 2389, 2nd comma of the ItalianCivil Code, compensation of administrators holding specific positions provided for by theCompany’s Incorporation Deed, is determined by the Board of Directors in agreementwith the Board of Statutory Auditors.

The Board of Directors created an internal Compensation Committee made up by the


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Chairman, Carlo Caracciolo, the Managing Director, Marco Benedetto, non-executiveDirectors Rodolfo De Benedetti and Franco Girard, and independent Director AlbertoMilla, determining its responsibilities pursuant to article 8 of the Code.

In the year the Compensation Committee met on several occasions to determine, amongother things, the emolument to be paid to the Chairman of the Board and the ManagingDirector for 2001, submitting to the approval of the Board of Directors a stock optionplan in favor of employees of the Company and its subsidiaries, parent companies andaffiliated companies, in addition to a stock option plan for the Managing Director, descri-bed in the Annual Report.

The Committee reviewed also top management retributions, providing incentives contin-gent upon the achievement of specific targets.

Internal audit (art. 9 - 10)The Board of Directors created an Internal Audit Committee made up by non-executiveDirectors Pierluigi Ferrero, Oliviero Maria Brega and Milvia Fioriani, and by independentDirector Paolo Mancinelli, determining its responsibilities pursuant to article 10 of theCode.

The Company implemented an internal audit system enabling it to verify that internaloperating and administrative procedures are followed.

The audit system reflects the Group’s structure, organized into business areas made up bycompanies and operating divisions having own administrative and control departments.

The Company, moreover, elaborated a reporting and management control system allowingto manage procedures and information flows, providing management with managerial andfinancial reporting at least monthly.

The Managing Director appointed Mr. Fabio Tacciaria, General Manager of the Group’sparent company and thus hierarchically independent from the heads of operating divi-sions, as Director of Internal Audit.

The Internal Audit Committee, verified through periodical meeting with departmentheads, the Board of Statutory Auditors and the Independent Auditors, the efficacy andeffectiveness of management procedures, the reliability of financial information and therespect of applicable norms. No issue worth of note emerged from such verifications.

Upon appointing the Independent Auditors to audit the Company’s financial statementsfor the years 2001-2003, the Internal Audit Committee reviewed proposals made by theIndependent Auditors for such appointment, communicating to the Board of Directors itsopinion.


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Relations with institutional investors and Shareholders in general (art. 11)The person responsible for relations with shareholders in general and, in particular, withinstitutional investors is Alessandro Alachevich, Director of Investor Relations, who,together with the Company’s Managing Director and top management, held during theyear continuous relationships with institutional investors.

Shareholders’ Meetings (art. 12)The Shareholders’ Meeting held on April 6, 2001, approved a set of Rules, that is not partof the By-laws, regulating the orderly and functional holding of Shareholders’ Meetings,both ordinary and extraordinary, of the Company.

The Rules upholds the right of any shareholder to intervene in the discussion relating tothe business in agenda.

Board of Statutory Auditors (art. 13)According to the By-laws, the Board of Statutory Auditors is made up by three Auditorsand three Substitute Auditors, appointed for a term of three years. Auditors may be re-appointed. Minority shareholders are entitled to the appointment of one Auditor and oneSubstitute Auditor.

The appointment of the Board of Directors takes place from lists submitted by sharehol-ders in which candidates are indicated next to a numeral. Only shareholders who, eitherindividually or in groups represent at least 5% of the voting shares are entitled to submit alist of candidates.

Lists submitted by Shareholders must be deposited together with related curricula anddocuments proving that the Shareholder or group of Shareholders are entitled to submitlist of candidates, at the Company’s Registered Office at least five days prior to the dateset for the Shareholders’ Meeting on first call, so that the notice of the meeting shallinclude mention of such list being submitted. By the above mentioned term and togetherwith each list, declarations with which candidates accept the candidacy and attesting,under their own responsibility, that there does not exist any reason preventing the appoint-ment, or any conflict relating to the same, in addition to the existence of the requisites forthe appointment to the respective offices provided either in the By-laws and other regula-tions, must be included with the list. Lists that do not possess the above requisites will beconsidered as not submitted.


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