Planet Inspired

PLANET INSPIRED FINMECCANICA ANNUAL REPORT 2009 “Nature is full of infinite causes that have never occurred in experience”. LEONARDO DA VINCI Nature and its “infinite causes” hold endless lessons for our human “experience” to absorb through inquisitiveness and a dose of humility. Among these, the drive for self-preservation and an ability to evolve are stunningly embodied in the animal kingdom. It is with a deep sense of respect, therefore, that we have decided this year to pair images evoking that kingdom with the various aspects of Finmeccanica’s activities, every one of which is geared to make the world a safer place, and reflects a will to evolve in order to improve. For us, to be Planet Inspired is an attitude rooted in technology, whose most amazing advances were often sparked – and continue to be sparked – by the observation of nature’s intelligence at work. Yet it goes much further than that. It means paying attention to every facet of life on Earth: the environment and its diverse requirements, society and its needs, individuals and their aspirations in the many, many countries in which we operate. CONTENTS BOARDS AND COMMITTEES 12 REPORT ON OPERATIONS AT 31 DECEMBER 2009 Group results and financial position 16 “Non-GAAP” performance indicators 27 Transactions with related parties 29 Performance by division 32 HELICOPTERS 32 DEFENCE AND SECURITY ELECTRONICS 38 AERONAUTICS 46 SPACE 52 DEFENCE SYSTEMS 60 ENERGY 66 TRANSPORTATION 72 OTHER ACTIVITIES 78 Reconciliation of net profit and shareholders’ equity of the Group Parent with the consolidated figures at 31 December 2009 82 Significant events in 2009 and events subsequent to closure of the accounts 82 Finmeccanica and risk management 91 Finmeccanica and the environment 95 Finmeccanica and Research and development 100 Finmeccanica: Human Resources 113 Finmeccanica: Security Policy Statement (SPS) 128 Incentive plans (stock-option and stock-grant plans) 129 Equity investments held by members of administrative and control bodies, by the general manager and managers with strategic responsibilities 133 Finmeccanica and financial communication 133 Corporate Governance Report and Shareholder Structure 138 Outlook 192 ACCOUNTING STATEMENTS AND NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 31 DECEMBER 2009 Consolidated Income Statement 197 Consolidated Statement of Comprehensive Income 197 Consolidated Balance Sheet 198 Consolidated Cash Flow Statement 199 Consolidated Statement of Changes in Shareholders’ Equity 200 Notes to the consolidated financial statements at 31 December 2009 201 1. General information 201 2. Form, content and applicable accounting standards 201 3. Accounting policies adopted 201 4. Significant issues 222 5. Effects of changes in accounting policies adopted 224 6. Significant non-recurring events or transactions 225 7. Segment information 226 8. Intangible assets 228 9. Property, plant and equipment 230 10. Investment properties 231 4 11. Equity investments 231 12. Business combinations 233 13. Financial assets at fair value 234 14. Financial transactions with related parties 235 15. Receivables and other non-current assets 239 16. Inventories 239 17. Contract work in progress and advances received 240 18. Trade and financial receivables 240 19. Current financial assets at fair value 241 20. Income tax receivables and payables 241 21. Other current assets 241 22. Cash and cash equivalents 242 23. Shareholders' equity 242 24. Borrowings 245 25. Provisions for risks and charges and contingent liabilities 249 26. Employee liabilities 254 27. Other current and non-current liabilities 258 28. Trade payables 259 29. Derivatives 259 30. Guarantees and other commitments 261 31. Transactions with related parties 262 32. Revenue 263 33. Other operating income (expenses) 264 34. Raw materials and consumables used and purchase of services 265 35. Personnel costs 265 36. Amortisation, depreciation and impairment 266 37. Work performed by the Group and capitalised 266 38. Finance income and costs 267 39. Share of profit (loss) of equity accounted investments 269 40. Income taxes 269 41. Earning per share 270 42. Cash flow from operating activities 271 43. Financial risk management 271 44. Information pursuant to Article 149-duodecies of the CONSOB Issuer Regulation 278 45. Remuneration to key management personnel 279 Certification on the consolidated financial statements pursuant to Art. 154-bis, paragraph 5 of Legislative Decree 58/98 as amended 283 ATTACHMENTS Report of the Board of Statutory Auditors on the consolidated financial statements at 31 December 2009 287 Auditors’ Report on the consolidated financial statements at 31 December 2009 289 Attachment: List of equity investments pursuant to Article 125 of CONSOB resolution 11971 291 LETTER TO SHAREHOLDERS 6 Pier Francesco Guarguaglini CHAIRMAN/CHIEF EXECUTIVE OFFICER Dear Shareholders, 2009 was a difficult year, characterised by a serious worldwide financial and economic crisis. Nevertheless, starting in the second half of the year, many of the largest countries began coming out of the recession, thanks to significant support measures put into place by governments, avoiding the systemic collapse of the world economy and reestablishing a certain degree of trust in people and companies. Emerging economies showed the first signs of improvement, driven mainly by internal spending, while Western countries were stimulated by public money and, later on, by industrial production. The first months in 2010 confirmed this positive trend, but significant 7 difficulties remain: the job market is weak and world GDP will not return FINMECCANICA to pre-crisis levels before 2012-2014. In other words, the situation is improving but there is still the risk of a relapse. To remain competitive in a constantly ANNUAL REPORT 2009 ANNUAL evolving scenario that is difficult to predict, Your Group has made all necessary efforts to adapt itself quickly to the changes. The uncertainty that characterises the current situation requires great flexibility to meet the challenges and, if possible, take advantage of them: one must be able to implement production, business and organisational strategies that permit reaching established short- and medium-term objectives, but at the same time ensure sustainable growth in the long term. Therefore, carefully planning investments in new technologies and products is fundamental, in order to be ready to take advantage of the opportunities presented by the upturn in demand. It is for this reason, despite the difficult economic situation, that we have increased research and development expenditure to €mil. 1,928, up 10% from the previous year, concentrated mainly in the three strategic pillars of defence and security electronics, aeronautics and helicopters. Today the economy is mainly sustained by public funding. Aided mainly by stimulus packages put into effect by governments, civilian demand is growing strongly. The United States is an interesting example from this point of view. The measures approved by Congress for a total value of US$bil. 787, include significant funding for infrastructures, among which railways. More in general, the guided transport market is among those that will benefit most from the public investments for sustaining the economy. In this context, Ansaldo STS and AnsaldoBreda will be able to take advantage of interesting opportunities, particularly for the development of high-speed rail. The situation in the energy sector is similar, also because of the growing attention towards diversifying energy sources and reducing environmental impact. The exploitation of renewable energy and the relaunch of nuclear energy production programmes in many countries, including Italy, present favourable scenarios for Ansaldo Energia’s business. In the defence sector, despite the effects of the crisis, it can be foreseen that for the next few years budgets will remain, except for a few exceptions, substantially stable in Western countries, while they will grow in some emerging countries. On the other hand, the lack of growth in defence budgets in the traditional markets will be compensated by greater investment in the security sector, which should rise by 7% each year worldwide, particularly pushed by the request for internal security, border control and critical infrastructure protection systems. In the United States, we are seeing a redefinition of the main programmes, with attention being shifted from traditional systems towards products and equipment that better meet the new operating requirements imposed by asymmetric threats. The acquisition of DRS Technologies is a step 8 precisely in this direction. The operation is producing the foreseen results and the contribution of DRS to the 2009 results is considerable, both regarding revenue as well as EBITA. DRS’ capability of quickly meeting the American Armed Forces’ requests has shown itself to be a winning hand. In the future, we must complete the integration process between DRS and the rest of the Group, with two complementary objectives: on one hand, DRS must benefit from Finmeccanica’s international size, significantly increasing its share of exports; on the other, Finmeccanica must take advantage of the acquisition of DRS to consolidate the presence of other Group companies in the United States, becoming a permanent part of the industrial and technological base of that country. The situation in the UK is more difficult. The country has felt the effects of the financial crisis more than others. The new government will have to redefine

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