Intangible assets / Investments in associates and joint ventures / Other financial assets / Deferred tax assets and liabilities / Trade receivables

9. Intangible assets

The composition and movements in intangible assets are as follows:

(in thousands of euros)

 

12/31/2007

Exchange differences

Discontinued operations

Change in the scope of consolidation

Increase

Decrease

Amortization

Other

12/31/2008

Patents and intellectual property rights

574

-

(10)

553

-

-

(145)

(548)

424

Concessions, licenses and trademarks

22,356

(5)

(80)

(846)

6,470

(883)

(2,817)

875

25,070

Goodwill

634,953

20

(86,752)

(410)

462,025

(2,624)

-

473

1,007,685

Software

10,442

14

(288)

599

7,615

(79)

(6,841)

667

12,129

Other intangible assets

4,215

(8)

(3,508)

(1,533)

594

(231)

(135)

1,406

800

 

672,540

21

(90,638)

(1,637)

476,704

(3,817)

(9,938)

2,873

1,046,108

(in thousands of euros)

 

12/31/2006

Exchange differences

Increase

Decrease

Amortization

Other

12/31/2007

Patents and intellectual property rights

777

-

-

-

(198)

(5)

574

Concessions, licenses and trademarks

24,188

(5)

3,612

(3,823)

(2,401)

785

22,356

Goodwill

479,734

(88)

161,399

(6,619)

-

527

634,953

Software

10,117

(2)

8,337

(899)

(6,438)

(673)

10,442

Other intangible assets

1,558

17

5,088

(42)

(1,462)

(944)

4,215

 

516,374

(78)

178,436

(11,383)

(10,499)

(310)

672,540

“Discontinued operations” refer almost entirely to the deconsolidation of Integra FM B.V. group (formerly Pirelli RE Integrated Facility Management B.V.).

The increase in “Goodwill” mainly refers to:

  • the purchase of the 38.9 percent minority interest in Pirelli Tyre S.p.A. through the acquisition of Speed S.p.A. (Euros 450,920 thousand, corresponding to the difference between the price paid and the net assets acquired);
  • the purchase of the shares of the subsidiary Pirelli & C. Real Estate S.p.A. for Euros 22,064 thousand (equal to 2.8 percent of the total), resulting in further goodwill of Euros 2,407 thousand, equal to the difference between the price paid and accounting net assets;
  • the inclusion in Pirelli Real Estate Group’s scope of consolidation of certain companies in the BauBeCon Group following the acquisition of stakes by Pirelli RE Netherlands B.V. and Pirelli & C. Real Estate Deutschland GmbH (Euros 4,466 thousand).

Accounting for this last business combination led to the recognition of assets and liabilities acquired at fair value, and also residual goodwill, as better detailed in the following table:

(in thousands of euros)

  

Fair value

Carrying amount

A

Purchase price (including costs directly attributable to the business combination)

19,139

 

Property, plant and equipment

622

622

Intangible assets

2,505

2,505

Investments in associates and joint ventures

10,610

4,035

Deferred tax assets and deferred tax liabilities

(300)

(300)

Inventories

-

-

Trade receivables and trade payables

3,733

3,733

Other receivables and other payables

(779)

(779)

Provisions for other liabilities and charges and employee benefit obligations

(11,278)

(11,278)

Cash and cash equivalents

17,801

17,801

Financial payables

(7,291)

(7,291)

B

Assets and liabilities acquired

15,623

9,048

C

Equity attributable to minority interest

(950)

(950)

D

Net assets and liabilities acquired (B + C)

14,673

8,098

E

Goodwill (A - D)

4,466

 

In September 2008, the Pirelli & C. Real Estate group sold 94.9 percent of the share capital of BauBeCon Sanierungstrager GmbH. Following the sale, goodwill was reduced by Euros 2,624 thousand (this reduction is shown in the column “decrease”); therefore, at December 31, 2008, the residual goodwill relating to this business combination amounts to Euros 1,842 thousand.

At December 31, 2008, the breakdown of goodwill according to business segment and cash-generating unit (or groups of cash-generating units) to which it was allocated for purposes of assessing impairment and the configuration of the recoverable amount are shown in the following table:

(in thousands of euros)

Business
segment

Cash generating unit / groups of CGU

Amount

Recoverable amount

Tyre

Consumer

518,415

Value in use

Tyre

Industrial

313,668

Value in use

Other businesses

Eco Technology

4,860

Value in use

Real Estate

Real Estate

32,912

Value in use

Real Estate

Agency

5,719

Value in use

Real Estate

Credit Servicing

5,066

Value in use

Real Estate

Property

13,452

Value in use

Real Estate

Poland

3,257

Value in use

Real Estate

Fund management

29,042

Value in use

Real Estate

Germany - DGAG/BIB

81,142

Value in use

Real Estate

Non-Performing Loans

152

Value in use

  

1,007,685

 

The impairment test consists of estimating the recoverable amount of the cash-generating units and comparing it with the net carrying amount of the relative assets including goodwill.

The value in use corresponds to the present value of future cash flows which are expected to be associated with the cash-generating units, using a discount rate which reflects the risks specific to the individual cash-generating units at the measurement date.

Management uses many assumptions in applying this method, including the estimate of future increases in sales, operating cash flows, the growth rate of the end amounts and the weighted average cost of capital (discount rate). More to the point, the cash flows approved by management used in determining the value of use cover a period of three years.

For the Real Estate sector, the flows relating to the fourth and fifth year are extrapolated from the flows of the third year without applying growth assumptions.

Furthermore, consideration has been given to the cash flows generated from the sale of the cash-generating unit at the end of the explicit period (assumed to be equal to the present value of the return in perpetuity of cash flows generated in the last year of projection); for industrial operations, this flow has been extrapolated by applying a 2 percent growth factor to the flow of the last year (2 percent in 2007).

The discount rates, net of taxes, applied to the cash flow projections are as follows:

Business
segment

Cash generating unit / groups of CGU

Discount rate

2008

2007

Tyre

Consumer

9.20%

8.20%

Tyre

Industrial

9.20%

8.20%

Other businesses

Eco Technology

15.00%

7.80%

Real Estate

Real Estate

6.50%

-

Real Estate

Agency

6.50%

6.20%

Real Estate

Credit Servicing

6.50%

6.20%

Real Estate

Property

6.50%

6.20%

Real Estate

Poland

6.50%

6.20%

Real Estate

Fund management

6.50%

6.20%

Real Estate

Germany - DGAG/BIB

6.50%

6.20%

Real Estate

Non-Performing Loans

6.50%

6.20%

As far as the Real Estate sector is concerned, the Group has indiscriminately allocated Euros 32.9 million being the difference between the purchase on the market over time of minority interests in listed securities and the relative net assets. This higher value recognized is supported by considering the recoverable amount of the sector as a whole.

On the basis of the results of the tests performed, there is no impairment.

A sensitivity analysis was also carried out: in all cases the value in use remains higher than the carrying amounts even assuming a change in the key parameters, such as:

  • a change in the weighted average cost of capital by 50 basis point (hundredths of a percentage point) or
  • for industrial operations, a change in the growth rate by 1 percentage point.

The impairment losses in 2008 on intangible assets other than goodwill, included in the column decrease in the table, amount to Euros 60 thousand (Euros 3,823 thousand in 2007). They are recognized in the income statement under “Amortization, depreciation and impairments” (Note 32).

10. Investments in associates and joint ventures

Investments in associates and joint ventures total Euros 515,300 thousand compared to Euros 534,194 thousand at December 31, 2007.

Movements during the year are as follows:

(in thousands of euros)

 

12/31/2008

12/31/2007

Beginning balance

534,194

3,825,928

Discontinued operations

(5,145)

-

Acquisition/change in share capital and reserves

119,082

260,103

Distribution of dividends and reserves

(30,831)

(164,562)

Impairments

(74,421)

-

Disposals and wind-ups

(25,696)

(3,352,603)

Share of earnings (losses)

(175,964)

118,608

Reclassifications and other

131,916

(159,359)

Movement in provisions for other liabilities and charges

42,165

6,079

Ending balance

515,300

534,194

The following table details the movements in investments in associates:

(in thousands of euros)

 

12/31/2007

Discontinued
operations

Acquisition / change in share capital and reserves / other

Distribution of
dividends / reserves

Impairments

Share of earnings (losses)

Reclassifications and other

Movements in provisions for otherliabilities and charges

12/31/2008

Dixia S.r.l.

5,452

-

25

-

-

(446)

-

-

5,031

Orione Immobiliare Prima S.p.A.

562

-

6,078

-

-

(6,587)

-

-

53

Sci Roev Texas Partners L.P.

1,224

-

-

-

-

(987)

-

-

237

Spazio Investment N.V.

69,026

-

4,153

(6,706)

-

(3,887)

-

-

62,586

Turismo e Immobiliare S.p.A.

5,769

-

2,539

-

-

(610)

-

-

7,698

Eurostazioni S.p.A.

53,686

-

-

(1,303)

-

1,952

-

-

54,335

CyOptics Inc.

-

-

38,279

-

(8,700)

-

-

-

29,579

RCS MediaGroup S.p.A

-

-

-

-

(65,721)

-

132,171

-

66,450

Other PRE group companies

(2,821)

(98)

472

-

-

116

3,016

(468)

217

Other Group companies

1,524

-

842

-

-

194

(969)

93

1,684

Total investments
in associates

134,422

(98)

52,388

(8,009)

(74,421)

(10,255)

134,218

(375)

227,870

Spazio Investment N.V. is listed on the Alternative Investment Market of the London Stock Exchange; the market price at December 31, 2008 is Euros 6 and is equivalent to a total investment value of Euros 30.4 million.

RCS Mediagroup S.p.A. is listed on the Milan Stock Exchange. The market price at December 31, 2008 is Euros 0.9772 and is equivalent to a total investment value of Euros 38.2 million.

The following table details the movements in investments in joint ventures:

(in thousands of euros)

 

12/31/2007

Discontinued
operations

Acquisition / change in share capital and reserves/other

Distribution of
dividends / reserves

Disposals and wind-up

Share of earnings (losses)

Reclassifications and other

Movements in provisions for other liabilities and charges

12/31/2008

Afrodite S.à r.l.

2,950

-

-

-

-

(3,862)

-

912

-

Aida RE B.V.

-

-

(1,810)

-

-

(3,004)

-

4,814

-

Alceo B.V.

564

-

4,897

-

-

(4,879)

-

-

582

Alimede Luxembourg S.à.r.l.

3,167

-

977

-

-

(7,662)

(135)

3,653

-

Alnitak S.à r.l.

2,358

-

-

-

-

319

-

-

2,677

Altair Zander Italia S.r.l.

152

(152)

-

-

-

-

-

-

-

Aree Urbane S.r.l.

6,782

-

-

-

-

(5,002)

-

-

1,780

Artemide S.à r.l.

1,696

-

-

-

-

(2,353)

-

657

-

Austin S.à.r.l.

5,810

-

7

-

-

(1,863)

-

-

3,954

AVW Assekuranzvermittlung der Wohnungs wirts chaft Gmbh

-

-

(47)

(1,226)

-

1,273

-

-

-

Baubecon Sanierungstrager Gmbh

-

-

3,430

-

(3,458)

-

28

-

-

Bicocca S.à.r.l.

112

-

100

-

-

(592)

-

380

-

Bresso Energia S.r.l.

1

(1)

-

-

-

-

-

-

Capitol Immobiliare S.r.l.

68

-

(45)

-

-

(35)

-

12

-

Castello S.r.l.

197

-

-

-

-

(140)

-

-

57

Colombo S.à.r.l.

18,940

-

(356)

-

-

(810)

-

-

17,774

Consorzio ARP

54

-

-

-

(54)

-

-

-

-

Consorzio G6 Advisor

22

-

-

-

-

-

-

-

22

Continuum S.r.l.

3,553

-

-

(1,400)

-

(218)

-

-

1,935

Dallas S.à.r.l.

5,810

-

7

-

-

(1,863)

-

-

3,954

Delamain S.à.r.l.

20,914

-

23

(11,709)

-

(9,024)

-

-

204

Dolcetto sei S.r.l.

-

-

34

-

-

-

-

-

34

Doria S.à.r.l.

18,833

-

(356)

-

-

(805)

-

-

17,672

Elle Dieci S.c.a.r.l.

40

-

(40)

-

-

-

-

-

-

Elle Tre S.c.a.r.l.

40

-

(40)

-

-

-

-

-

-

Erice S.r.l.

1,477

-

(900)

-

(250)

-

-

327

Espelha - Serviços

de Consultadoria L.d.A.

3,402

-

20

-

-

4,726

-

-

8,148

European NPL S.A.

21,758

-

(6,070)

-

-

2,346

-

-

18,034

Fattoria Medicea S.r.l.

484

-

-

(484)

-

-

-

-

Finprema S.r.l.

2

-

7,017

-

-

(1,841)

-

-

5,178

Galatea S.r.l.

70

-

(24)

(120)

(52)

(9)

135

-

-

Gamma RE B.V.

84,631

-

(2,396)

-

-

(2,950)

-

-

79,285

Gatus 372 Gmbh

-

-

11

-

-

-

-

-

11

Golfo Aranci S.p.A. - Società

di trasformazione urbana

2,736

-

824

-

-

(199)

-

-

3,361

Jamesmail B.V.

-

-

-

-

-

-

-

-

-

Immobiliare Prizia S.r.l.

5,949

-

-

-

-

-

(5,949)

-

-

IN Holdings I S.à.r.l.

174

-

-

(410)

-

(107)

-

343

-

Induxia S.r.l.

1,108

-

(9)

-

-

(1,881)

-

782

-

Inimm Due S.à.r.l.

1,330

-

-

(25)

-

820

-

-

2,125

Iniziative Immobiliari S.r.l.

4,015

-

(5)

-

-

(90)

-

-

3,920

Landgesellschaft Schleswing Holstein mbh

19,952

-

-

(1,158)

(19,571)

777

-

-

-

Localto ReoCo S.r.l.

4

-

-

-

-

(2)

-

-

2

Manifatture Milano S.p.A. (formerly Quadrifoglio Milano S.p.A.)

5,263

-

291

-

-

(2,357)

-

-

3,197

Maro S.r.l.

581

-

-

-

-

(245)

-

-

336

(in thousands of euros)

 

12/31/2007

Discontinued
operations

Acquisition / change in share capital and reserves/other

Distribution of
dividends / reserves

Disposals and wind-up

Share of earnings (losses)

Reclassifications and other

Movements in provisions for other liabilities and charges

12/31/2008

Masaccio S.r.l.

195

-

-

-

(195)

-

-

-

-

Masseto I B.V.

305

-

-

-

-

(778)

-

473

-

Max B.V.

4,558

-

-

(4,998)

19

(140)

561

-

-

Mistral Real Estate B.V.

16,434

-

(127)

-

-

4,310

1,200

-

21,817

M.S.M.C. Italy Holding B.V.

9,933

-

58

-

-

(7,997)

(128)

-

1,866

MP Facility S.p.A.

3,840

(3,840)

-

-

-

-

-

-

-

Nashville S.à.r.l.

5,809

-

8

-

-

(1,864)

-

-

3,953

Patrimonio Casa - investment fund

12,395

-

-

-

-

(913)

-

-

11,482

Polish Investments Real Estate Holding B.V.

1,932

-

(481)

-

-

3,049

-

-

4,500

Polish Investments Real Estate Holding II B.V.

1,256

-

2,736

-

-

(2,686)

(6,848)

5,542

-

Popoy Holding B.V.

2,179

-

(1)

(550)

-

(1,177)

-

-

451

Progetto Bicocca La Piazza S.r.l.

1,072

-

(99)

-

-

899

-

-

1,872

Progetto Nuovo Sant'Anna S.r.l.

1,037

(1,037)

-

-

-

-

-

-

-

Progetto Gioberti S.r.l.

28

-

111

-

-

(95)

-

-

44

Resi S.r.l. (già Dolcetto Cinque S.r.l.)

6

-

-

-

-

(1)

-

-

5

Resident Baltic GmbH

262

-

4

-

-

(39)

-

-

227

Resident Berlin 1 P&K GmbH

4,238

-

(3)

-

-

(602)

-

-

3,633

Resident Brandeburg GmbH

1

-

(1)

-

-

-

-

-

-

Resident Sachsen P&K GmbH

159

-

35

-

-

(46)

-

-

148

Resident West GmbH

193

-

10

-

-

(126)

-

-

77

Rinascente/Upim S.r.l.

2,631

-

(111)

-

-

(5,961)

-

3,441

-

Riva dei Ronchi S.r.l.

553

-

2,022

-

-

(4,851)

-

2,276

-

Roca S.r.l.

2,699

-

-

-

-

(1,551)

-

-

1,148

S.AN.CO S.c.a.r.l.

2

(2)

-

-

-

-

-

-

-

Sigma RE B.V.

-

53,568

-

-

(44,931)

(29)

-

8,608

S.I.MA.GEST2 S.c.a.r.l.

15

(15)

-

-

-

-

-

-

-

Sicily Investments S.à.r.l.

820

-

-

-

-

(699)

-

-

121

Solaia RE S.à.r.l.

8,322

-

(4,351)

-

-

(11,248)

2,914

4,363

-

Solaris S.r.l.

2,598

-

(48)

(326)

-

(1,081)

-

-

1,143

S.I. Real Estate Holding B.V.

585

-

-

-

-

(603)

-

18

-

S.I.G. RE B.V.

3,006

-

-

-

-

(1,576)

-

-

1,430

Tamerice Immobiliare S.r.l.

3,877

-

-

-

-

129

-

-

4,006

Theta RE B.V.

31,975

-

(10,710)

-

-

(36,931)

-

15,666

-

Tizian Wohnen 1 GmbH

2,504

-

(3)

-

-

(268)

-

-

2,233

Tizian Wohnen 2 GmbH

1,051

-

24

-

-

(20)

-

-

1,055

Trinacria Capital S.à.r.l.

967

-

-

-

-

(839)

-

-

128

Trinoro S.à r.l.

-

-

34

-

(12)

(19)

-

(3)

-

Trixia S.r.l.

-

-

1,368

-

-

(2,474)

5,949

(930)

3,913

Vespucci S.à.r.l.

18,949

-

(356)

-

-

(802)

-

-

17,791

Vesta Finance S.r.l.

12

-

-

-

-

-

-

-

12

Vivaldi - speculative real estate investment fund

-

-

9,072

-

-

(458)

-

-

8,614

Wameservice Gmbh

-

-

1,663

-

(1,663)

-

-

-

-

Waterfront Flegreo S.p.A.

158

-

36

-

(175)

(19)

-

-

-

Other PRE Group companies

6,467

-

796

-

(51)

(610)

-

141

6,743

Solar Utility S.p.A.

1,750

-

5,000

-

-

(909)

-

-

5,841

Total investments in joint ventures

399,772

(5,047)

66,694

(22,822)

(25,696)

(165,709)

(2,302)

42,540

287,430

The column discontinued operations refers to the companies deconsolidated in 2008 following the sale of Integra FM B.V. (formerly Pirelli Real Estate Facility Management B.V.).

As regards the column share of earnings, reference should be made to Note 38 “Share of earnings (losses) of associates and joint ventures”.

Reclassification and other largely refers to the investment in RCS Mediagroup S.p.A. which was reclassified at December 31, 2008 to the line item “Investments in associates and joint ventures” from the line item “Other financial assets”.

The investment (equal to 5.3 percent of voting capital) forms part of the shareholders’ agreement which aims to ensure the stability of the shareholder base and guide the management of the operations of the RCS Mediagroup S.p.A. in a single direction (the companies in the shareholders’ agreement have contributed 63.5 percent of share capital). The reason for the reclassification lies in the fundamental strengthening of the single orientation within the shareholders’ agreement and the intensification of other forms of exercising the rights of governance

The reclassification led to a writeback of the average purchase cost, equal to Euros 3.38 per share, which resulted in an increase in equity, the offsetting entry to the accumulated losses recognized in a specific equity reserve which at December 31, 2007 were equal to Euros 15,419 thousand and at June 30, 2008 to Euros 74,594 thousand.

At December 31, 2008, the investment was tested for impairment and was adjusted to its value in use (Euros 1.70 per share), determined, with the assistance of a independent appraiser, using a discounted cash flow model which takes into account the generalized decline in the profitability of the sector within the context of the negative trend of the financial markets, with a consequent impairment loss recognized in income equal to Euros 65,721 thousand.

The impairment losses also include Euros 8,700 thousand relating to CyOptics Inc..

Movements in provisions for other liabilities and charges are due to the equity method valuation of some companies in the Real Estate group. The movements also include the accrual to cover the losses in excess of the carrying amount.

Key data relating to associates and joint ventures (at 100 percent) at December 31, 2008 refer to those in the Real Estate sector are indicated as follows:

(in thousands of euros)

 

Associates

Joint Ventures

Non-current assets

684,196

2,705,858

Current assets

517,415

12,884,993

Non-current liabilities

559,494

11,744,744

Current liabilities

124,815

2,265,838

Revenues from sales and services

111,100

1,382,626

Costs

(123,125)

(2,695,753)

Income

(33,491)

(540,717)

Lastly, the investments in associates and joint ventures are pledged for an amount of Euros 96,879 thousand.

11. Other financial assets

Other financial assets amount to Euros 505,899 thousand compared to Euros 958,272 thousand at December 31, 2007.

The movements during the year are as follows:

(in thousands of euros)

 

12/31/2008

12/31/2007

Beginning balance

958,272

1,006,898

Increase

31,864

107,939

Decrease

(30,696)

(24,173)

Impairments

(200,840)

(34,137)

(Gains) losses transferred to the income statement for disposals or impairment losses, previously recognized in equity

1,995

1,019

Changes in fair value

(138,015)

(91,842)

Reclassification

(132,171)

-

Reversal of reserve for reclassification of investments to associates

15,419

-

Reimbursement of shares

-

(7,374)

Other

71

(58)

Ending balance

505,899

958,272

of which:

- financial assets measured at fair value through equity

476,300

926,362

- financial assets measured at fair value through profit or loss

29,599

31,910

Financial assets, whose change in fair value is recognized in the income statement under “Gains (losses) from changes in fair value of financial assets” (Euros 29,599 thousand compared to Euros 31,910 thousand in 2007) refer to shares corresponding to 13.32 percent of the Cloe Fondo Uffici – a reserved unlisted closed-end real estate investment fund, held by Pirelli Real Estate Netherlands B.V..

The classification of such shares in this line item reflects the purpose of the acquisition of the shares, which called for the shares to become part of a common investment platform for buildings intended for office use.

At December 31, 2008, financial assets, whose change in fair value is recognized in equity, are as follows:

(in thousands of euros)

 

12/31/2008

12/31/2007

Listed securities

Telecom Italia S.p.A.

203,539

387,172

Mediobanca S.p.A.

108,979

210,990

RCS Mediagroup S.p.A.

-

112,786

Fin. Priv. S.r.l. (Mediobanca shares)

14,883

28,172

Vittoria Capital N.V. (Vittoria Assicurazioni shares)

6,469

10,320

Avanex Corporation

1,422

19,213

Other companies

105

5,831

 

335,397

774,484

Unlisted securities

Alcatel Submarine SA

44,805

44,805

Alitalia S.p.A.

20,000

-

Gruppo Banca Leonardo S.p.A.

8,444

8,197

Istituto Europeo di Oncologia S.r.l.

6,483

6,024

FC Internazionale S.p.A.

4,627

3,033

Tlcom I LP

2,453

5,249

Equinox Two SCA

2,270

306

Equinox Investment Company S.c.p.A.

970

1,264

Other PRE Group companies

9,115

6,526

Other companies

5,213

5,264

 

104,380

80,668

Closed-end real estate investment funds

Olinda Fondo Shops

17,888

30,964

Berenice Fondo Uffici

-

18,182

Cloe Fondo Uffici

11,170

12,195

Tecla Fondo Uffici

5,122

7,630

Armilla

1,847

2,115

Fondo Abitare Sociale 1

496

124

 

36,523

71,210

 

476,300

926,362

The increase refers mainly to Pirelli & C. S.p.A.’s subscription to Alitalia S.p.A. shares (Euros 20,000 thousand), the purchase of RCS Mediagroup S.p.A. shares (Euros 3,966 thousand) and also the purchase of Equinox shares (Euros 2,146 thousand) on the part of Pirelli Finance (Luxembourg) S.A..

In addition to the increase, there was the decrease that refers mainly to the total sale of the investment in Intek S.p.A. held by Pirelli & C. S.p.A. (Euros 4,008 thousand), the sale of Telecom Italia S.p.A. ordinary shares held by Pirelli Finance (Luxembourg) S.A. (Euros 10,630 thousand) and the sale of shares of the closed real estate investment funds of the Real Estate group (Euros 14,635 thousand).

Impairments are largely in reference to the adjustment made to the 1.32 percent stake held in Telecom Italia S.p.A. (Euros 173,004 thousand) and to the Avanex shares (Euros 24,335 thousand).

Net losses transferred to the income statement refer to the net effect of gains, previously recognized in equity, relating to investments in Intek S.p.A. (Euros 1,152 thousand) and in Berenice Fondo Uffici (Euros 3,399 thousand), transferred to the income statement following the sale of these investments, and losses previously recognized in equity, relating to the investment in Avanex Co (Euros 6,545 thousand), transferred to the income statement as a result of the impairment.

The negative changes in fair value of Euros 138,015 thousand (Euros 136,408 thousand recognized in equity and Euros 1,607 thousand in the income statement) mainly regard the shares of Mediobanca S.p.A. (negative for Euros 102,011 thousand), Fin Priv S.r.l. (negative for Euros 13,289 thousand) and shares of the closed-end real estate funds of the Real Estate group (negative for Euros 17,163 thousand).

For listed securities and closed-end real estate investment funds, the fair value corresponds to the stock market price at December 31, 2008.

For unlisted securities and closed-end real estate investment funds, the fair value has been estimated using appropriate estimation techniques.

Reclassification (Euros 132,171 thousand) refers to the investment in RCS Mediagroup S.p.A., reclassified from “Other financial assets” to “Investments in associates” as described in the note and comment on the line item “Investments in associates and joint ventures”. The reclassification generated a reversal of the cumulative negative fair value changes recognized in equity up to December 31, 2007 (Euros 15,419 thousand).

12. Deferred tax assets and liabilities

The composition of deferred tax assets and liabilities is as follows:

(in thousands of euros)

 

12/31/2008

12/31/2007

Deferred tax assets

72,426

58,524

Deferred tax liabilities

(38,372)

(44,625)

 

34,054

13,899

Since deferred tax assets and liabilities are offset in the financial statements when the income taxes are levied by the same tax authority and where there is a legally enforceable right of offset, the composition of the gross amounts is presented below:

(in thousands of euros)

 

12/31/2008

12/31/2007

Deferred tax assets:

 

150,959

 

156,211

- of which, recoverable within 12 months

37,813

55,188

- of which, recoverable beyond 12 months

113,146

101,023

Deferred tax liabilities:

 

(116,905)

 

(142,312)

- of which, recoverable within 12 months

(2,149)

(4,311)

- of which, recoverable beyond 12 months

(114,756)

(138,001)

  

34,054

 

13,899

The tax effect of the temporary differences and tax loss carryforwards which make up deferred tax assets and liabilities at December 31, 2008 and 2007 is as follows:

DEFFERED TAX ASSETS (in thousands of euros)

 

12/31/2008

12/31/2007

Provision for other liabilities and charges

25,082

27,370

Employee benefit obligations

35,156

25,486

Inventories

14,563

14,063

Tax loss carryforwards

40,786

26,679

Depreciation and amortization

5,547

6,785

Trade and other receivables

7,788

16,719

Trade and other payables

11,154

17,458

Intragroup transactions

3,688

8,650

Other

7,195

13,001

 

150,959

156,211

DEFFERED TAX LIABILITIES (in thousands of euros)

 

12/31/2008

12/31/2007

Depreciation and amortization

(100.962)

(123.037)

Other

(15.943)

(19.275)

 

(116.905)

(142.312)

At December 31, 2008, deferred tax assets relating to temporary differences that have not been recognized amount to Euros 75,213 thousand (Euros 44,958 at December 31, 2007), and those relating to tax losses equal Euros 503,791 thousand (Euros 483,044 thousand at December 31, 2007): such amounts refer to situations in which recoverability is not considered probable.

Unused tax loss carryforwards, by expiration date, for which no deferred tax assets have been recognized, are as follows:

(in thousands of euros)

 

12/31/2008

12/31/2007

2008

-

146,722

2009

288,667

288,531

2010

137,604

137,641

2011

62,922

96,895

2012

533,169

562,307

2013

36,293

547

2014

1,157

607

2015

26,318

-

2016

30,638

30,638

2017

62

-

2021

28,480

26,925

2022

52,807

48,988

2023

6,613

-

without expiration

609,504

397,970

 

1,814,234

1,737,771

The tax effect of gains and losses recognized directly in equity is a positive Euros 11,281 thousand (negative Euros 2,856 thousand at December 31, 2007) and is shown in the statement of recognized income and expenses. Such movements are mainly due to the tax effect on actuarial gains/losses regarding employee benefits and the change in the fair value of available-for-sale financial assets.

13. Trade receivables

Trade receivables can be analyzed as follows:

(in thousands of euros)

 

12/31/2008

12/31/2007

 

Total

Non-current

Current

Total

Non-current

Current

Associates and joint ventures

76,237

-

76,237

122,802

-

122,802

Third parties

765,526

-

765,526

1,020,667

-

1,020,667

Receivables on construction contracts

6,177

-

6,177

9,330

-

9,330

 

847,940

-

847,940

1,152,799

-

1,152,799

Provision for impairment
of receivables

(59,989)

-

(59,989)

(53,872)

(53,872)

 

787,951

-

787,951

1,098,927

-

1,098,927

Receivables on construction contracts, relating to the Real Estate sector, represent the excess of costs incurred and profit recognized using the percentage of completion method, equal to Euros 9,967 thousand at December 31, 2008 (Euros 9,780 thousand at December 31, 2007), over advances received against progress billings on contracts in progress, equal to Euros 3,790 thousand at December 31, 2008 (Euros 451 thousand at December 31, 2007).

Total gross trade receivables of Euros 847,940 thousand (Euros 1,152,799 thousand at December 31, 2007), Euros 164,149 thousand are past due (Euros 260,145 thousand at December 31, 2007).

Writedowns for past due and current receivables are recognized according to the Group’s policies described in the paragraph on credit risk under “Financial risk management policies”.

Receivables that are impaired include both significant single positions written down individually and positions with similar characteristics by group of credit risk written down on a collective basis.

The movements in the provision for impairment of trade receivables are as follows:

(in thousands of euros)

 

12/31/2008

12/31/2007

Beginning balance

53,872

57,068

Discontinued operations

(6,358)

-

Exchange differences

(2,374)

150

Accruals

26,264

15,290

Utilization/release

(10,990)

(20,110)

Change in scope of consolidation

94

1,474

Other

(519)

-

Ending balance

59,989

53,872

The accrual to the provision for writedowns of trade receivables is charged to the income statement in “Other expenses” (Note 33).

The carrying amounts of trade receivables are deemed to approximate fair value.