MILAN, Italy (March 28)—Pirelli S.p.A.'s Tire Business Staff Reported a 4.4-percent drop in operating income last year, but returned to the black on a net basis. The value of sales fell 1.7 percent, to $2.53 billion, despite volume sales edging up slightly and the price/product mix improving. Instead Pirelli blamed the sales and earnings decline on the negative effects of currency exchange rate fluctuation, higher labor costs and the failure of prices to keep pace with raw material cost changes. The drop in operating income, to $154 million, pushed down the operating ratio slightly to 6.1 percent. Capital spending rose 21.3 percent to $234.6 million as Pirelli invested in its MIRS automated manufacturing program. The net result of $30.4 million contrasts with a loss of more than $140 million last year.