2. Intangible assets

Intangible assets are described and commented on below.

Intangible assets

(€ 000) 31/12/2010 31/12/2009



Intangible assets with finite useful lives 218,988 229,134
Intangible assets with indefinite useful lives 682,480 675,149
Total intangible assets 901,468 904,283

The following two tables show the changes in intangible assets with a finite useful life in 2009 and 2010.

Intangible assets with finite useful life

(€ 000) 		Titles Expense for taking over shop leasing contracts Software Licenses, patents and rights
Other intangible assets Intangible assets under construction and advances
Total
Cost at 31/12/2009 231,900 29,571 21,858 1,206 4,425 - 288,960
Investments - 2,250 1,358 19 124 - 3,751
Disposals (9,397) - (254) - - - (9,651)
Changes in consolidation area - - - - - - 0
Other changes - - - - - - 0
Cost at 31/12/2010 222,503 31,821 22,962 1,225 4,549 0 283,060
Accumulated amortisation and impairment losses at 31/12/2009 9,142 7,023 18,072 1,109 3,064 - 38,410
Amortisation 7,571 1,645 2,001 53 581 - 11,851
Writedowns/reinstatement of value 4,316 - - - - - 4,316
Disposals (397) - (254) - - - (651)
Changes in consolidation area - - - - - - 0
Other changes - - - - - - 0
Accumulated amortisation and impairment losses at 31/12/2010 20,632 8,668 19,819 1,162 3,645 0 53,926

222,758 22,548 3,786 97 1,361 0 250,550
Net book value at 31/12/2008 201,871 23,153 3,143 63 904 0 229,134
Net book value at 31/12/2009 - - - - - - 0

In 2010 investments concentrated on application software and software dedicated to new digital business development.

Intangible assets with finite useful life
(€ 000) 		Titles Expense for taking over shop leasing contracts Software Licenses, patents and rights
Other intangible assets Intangible assets under construction and advances
Total








Cost at 31/12/2009 222,503 31,821 22,962 1,225 4,549 - 283,060
Investments - - 1,256 61 99 719 2,135
Disposals (400) (85) (5,750) (225) (334) - (6,794)
Changes in consolidation area - - 919
- - 919
Other changes (103) - - (15) - - (118)
Cost at 31/12/2010 222,000 31,736 19,387 1,046 4,314 719 279,202








Accumulated amortisation and impairment losses at 31/12/2009
20,632
8,668
19,819
1,162
3,645
-
53,926
Amortisation 7,177 1,797 1,927 35 297 - 11,233
Writedowns/reinstatement of value 900 - - - - - 900
Disposals (33) (85) (5,732) (225) (334) - (6,409)
Changes in consolidation area - - 682 - - - 682
Other changes (103) - - (13) (2) - (118)
Accumulated amortisation and impairment losses at 31/12/2010
 28,573 10,380 16,696 959 3,606 0 60,214








Net book value at 31/12/2009 201,871 23,153 3,143 0,063 0,904 0 229,134
Net book value at 31/12/2010 193,427 21,356 2,691 87 708 719 218,988

Intangible assets with finite useful life mainly include Mondadori France Group magazine titles, among which Téléstar, Closer, Pleine Vie and Le Chasseur Français. Noteworthy is the transfer of Ciné Chiffres in the last part of the financial year of reference.

It should be noted that on 1 July 2008, the estimated useful life of Mondadori France magazines, changed from indefinite to finite (30 years) and that each title represent a Cash Generating Unit.

There is no restriction on the availability or use of intangible assets.

The following data refers to intangible assets with an indefinite useful life.

Intangible assets with indefinite useful life
(€ 000) 		Titles Series Brands Radio frequencies Goodwill Total







Cost at 31/12/2008 98,158 31,509 6,423 124,165 431,966 692,221
Investments - - 47 3,741 - 3788
Disposals - - - (1,545) - (1,545)
Change in consolidation area - - - - - 0
Other changes - - - - (63) (63)
Cost at 31/12/2009 98,158 31,509 6,470 126,361 431,903 694,401







Impairment at 31/12/2008 10,226 - 1,114 244 304 11888
Writedown/reinstatement of value - - 900 2,666 3,861 7,427
Other changes - - - - (63) (63))
Impairment at 31/12/2009 10,226 0 2,014 2,910 4,102 19,252







Net book value at 31/12/2008 87,932 31,509 5,309 123,921 431,662 680333
Net book value at 31/12/2009 87,932 31,509 4,456 123,451 427,801 675,149

In 2010 investments mainly referred to the radio broadcasting industry, and, specifically, to the purchase of new frequencies, while in the retail sector, investments concentrated on Mondolibri SpA majority control acquisition, with goodwill accounting for €7.7 million .

More detailed information is contained in paragraph 8 of “Accounting standards and other information”.

Intangible assets with indefinite useful life
Titles Series Brands Radio frequencies Goodwill Total
(€ 000)












Cost at 31/12/2009 98,158 31,509 6,470 126,361 431,903 694,401
Investments - - 60 1,676 7,601 9,337
Disposals - - - (341) (652) (993)
Change in consolidation area - - - - - 0
Other changes - - - - (3,655) (3,655)
Cost at 31/12/2010 98,158 31,509 6,530 127,696 435,197 699,090







Impairment at 31/12/2009 10,226 - 2,014 2,910 4,102 19,252
Writedown/reinstatement of value - - 812 - 200 1,012
Other changes - - 1 - (3,655) (3,654)
Impairment at 31/12/2010 10,226 0 2,827 2,910 647 16,610







Net book value at 31/12/2009 87,932 31,509 4,456 123,451 427,801 675,149
Net book value at 31/12/2010 87,932 31,509 3,703 124,786 434,550 682,480

Amortisation, depreciation and value recovery of intangible assets

The following table summarises the amounts recognised in item “Amortisation and impairment of intangible assets” under income statement, following to amortisation, depreciation and value recovery of intangible assets with finite and indefinite useful life

Amortisation and impairment of intangible assets
(€ 000)

2010

2009



Titles 7,177 7,571
Expense for taking over shop leasing contracts 1,797 1,645
Software 1,927 2,001
Licenses, patents and rights 35 53
Other intangible assets 297 581
Total amortisation of intangible assets 11,233 11,851



Writedowns of intangible assets 1,912 9,077
Reinstatement of value of intangible assets - -
Total writedowns (reinstatement) of intangible assets 1,912 9,077



Total amortisation and impairment of intangible assets 13,145 20,928

Impairment test

Pursuant to IAS 36, assets with an indefinite useful life and goodwill are not subject to amortisation but to an impairment test at least once a year.

Assets with a finite useful life are subject to amortisation, according to the useful life of each asset, and upon closing assets items are subject to impairment test to verify occurrence of value losses.

For the purpose of calculating the recoverable value of assets (whichever is higher between fair value and value in use ), Mondadori Group identified Cash Generating Units, broken down by the sectors in which the Group operates, with the values shown here below:

Cash Generating Unit
(€ 000) 		Titles Series Brands Radio frequencies Goodwill Location Total
Group of Cash Generating Unit titles from former Silvio Berlusconi Editore 83,579


731
84,310
Group of Cash Generating Unit titles from former Elemond






Einaudi Cash Generating Units 2,246
12
311
2,569
Sperling & Kupfer Cash Generating Units






Mondadori Education Cash Generating Units
2,991

286
3,277
Piemme Cash Generating Units






Group of Cash Generating Units from R101
1,817

731
2,548
Group of Cash Generating Units from Mondadori France






Group of Cash Generating Units from retail locations
18,933

12,042
30,975
Other Cash Generating Units






Cash Generating Unit Piemme
7,768 519
5,059
13,346








R101 group of Cash Generating Units

372 124,786

125,158








Mondadori France group of Cash Generating Units Mondadori France 193,426


407,788
601,214








Location retail group of Cash Generating Units




21,356 21,356








Other Cash Generating Units 2,108
2,800
7,602
12,510

281,359 31,509 3,703 124,786 434,550 21,356 897,263

Assets with an indefinite useful life and goodwill

Titles with an indefinite useful life, each one of which is a Cash Generating Unit, include:

  • €83.6 million for the acquisition of Silvio Berlusconi Editore in 1994 (the main titles acquired were TV Sorrisi e Canzoni, Chi and Telepiù);
  • €2.2 million for the acquisition of Elemond Group, completed in subsequent steps between 1989 and 1994 (the main titles acquired were Interni and Casabella).

For the purpose of the impairment test, goodwill deriving from the afore-mentioned transactions was allocated either to the individual Cash Generating Units or to groups of Cash Generating Units in the Magazine sector, as follows:

  • €0.7 million to a group of Cash Generating Units resulting from the acquisition of Silvio Berlusconi Editore;
  • €0.3 million to a group of Cash Generating Units resulting from the acquisition of the Elemond Group;

Series include:

  • €18.9 million for the acquisition on the market of the school textbook division that trades under Mondadori Education SpA (former Edumond Le Monnier SpA), and identified as a Cash Generating Unit in the Educational sector; goodwill for this Cash Generating Unit accounted for €12 million;
  • €3 million for the acquisition of Casa Editrice Einaudi (former Elemond Group), identified as a Cash Generating Unit; goodwill for this Cash Generating Unit accounted for €0.3 million;
  • €1.8 million for the acquisition of Casa Editrice Sperling & Kupfer, identified as a Cash Generating Unit; goodwill for this Cash Generating Unit accounted for €0.7 million;
  • €7.8 million for the acquisition of Edizioni Piemme, identified as a Cash Generating Unit; goodwill for this Cash Generating Unit accounted for €5.1 million.

Radio frequencies, each of which is a Cash Generating Unit, refer to a number of acquisitions completed since 2005, including the acquisition of the Radio One-o-One business concern that allowed radio R101 broadcasting on almost the entire territory of Italy.

“Goodwill” attributable to the group of Cash Generating Units resulting from the acquisition of the Mondadori France Group accounted for €407.8 million.

For purpose of the impairment test, goodwill is valued jointly with the value of the relevant titles recognised under intangible assets with finite useful life.

Assets with a finite useful life

Titles with a finite useful life, each one of which is a Cash Generating Unit, include €193.4 million relative to the acquisition of the Mondadori France Group, completed in 2006 (main titles: Téléstar, Closer, Pleine Vie and Le Chasseur Français).

The value attributed to the cost of taking over the rental agreements for retail outlets, each one of which represents a Cash Generating Unit, amounting to €21.4 million, refers to the cost borne for the acquisition of prestige locations, considered strategic for business development.

Noteworthy among these is the Multicenter shop in Corso Vittorio Emanuele in Milan.

Volume trends posted in the last two years in the outlets belonging to the network and the reduction in the financial results led to the decision to subject the above mentioned values to impairment test.

Recoverable value

In order to verify recoverable value, Mondadori Group first calculates value in use. When an impairment loss is identified, the fair value method minus costs of sale is applied before proceeding with write-down

Impairment tests are carried out for each individual titles, series, brands, radio frequencies and locations coinciding with the relevant Cash Generating Unit.

For the purpose of the impairment test, goodwill is allocated to each individual Cash Generating Unit or groups of Cash Generating Units pursuant to IFRS 8 and in compliance with the maximum combination limit envisaged for the relevant business sector.

The following table shows the key elements, better defined below, used to calculate the recoverable value.

Cash Generating Unit Criteria utilised Economics Growth rate on terminal value Calculation rate
Group of Cash Generating Unit titles from former Silvio Berlusconi Editore Value in use PMT 2011-2013 gross operating margin g = 0 6.75%

Value in use PMT 2011-2013 gross operating margin g = 0 6.75%
Group of Cash Generating Unit titles from former Elemond Value in use

Fair value 		PMT 2011-2015 gross operating margin
PMT 2011-2015 revenues		 g = 0

g = 2		 6.50%

6.50%
Einaudi Cash Generating Units Value in use PMT 2011-2013 operational cash flows g = 0 6.75%
Sperling & Kupfer Cash Generating Units Value in use PMT 2011-2013 operational cash flows g = 0 6.75%
Mondadori Education Cash Generating Units Value in use PMT 2011-2013 operational cash flows g = 0 6.75%
Piemme Cash Generating Units Value in use PMT 2011-2013 operational cash flows g = 0 6.75%
Group of Cash Generating Units from R101 Fair value n/a n/a n/a
Group of Cash Generating Units from retail locations Value in use PMT 2011-2013 gross operating margin g = 0 6.75%
Other Cash Generating Units Value in use PMT 2011-2013 gross operating margin g = 0 6.75%

Value in use

For the purpose of calculating the value in use, forecast data included in the three/five-year plans approved by the management of the Mondadori Group was used, which takes into account both the macro-economic scenario and the specific nature of the markets, which the business areas are expected to face in future years.

For the magazine titles, partly in consideration of the negative net working capital resulting from revenue collection speed, gross operating margins contained in the above-mentioned medium-term plans were used as assumption for the financial flows.

For the series, since the Cash Generating Unit coincides with the individual relevant legal entities, gross operating financial flows contained in the above-mentioned medium-term plans were used as assumption for the financial flows.

For the values attributed to locations, in consideration of the negative net working capital resulting from the collection of trade payables mainly in cash, gross operating margins contained in the above-mentioned medium-term plans were used as assumption for the financial flows.

Apart from the analytical forecasts period contained in the medium-term plans, cash flows were assumed to be always constant (g = 0).

The discounting of the expected cash flows relating to the individual assets or Cash Generating Units subject to impairment test was based on a discounting rate consistently with the economics used.

The weighted average cost of capital was estimated by making reference to the capital asset pricing model, representing the specific risks of the individual cash generating units on the basis of the following elements:

  • in order to calculate the cost of company capital, the returns on long-term treasury stocks in each country or market in which the Group operates, were taken as benchmark together with Mondadori beta. For the Country risk, a correction factor between 4% and 5% was used, based on market studies;
  • in order to calculate the cost of third-party capital, the cost of Mondadori debt was used for all Group companies since liquidity is centrally managed.

For the purpose of calculating value in use, a sensitivity analysis of the results was also performed, based on a 1% increase in the rate referred to above, which confirmed the previous results.

Fair value net of costs for sale

For the purpose of calculating the fair value net of costs for sale of French titles, reference was made to the comparable royalty rate method, which is extensively used by major market players when calculating the value of both commercial and editorial brands .

The following parameters were taken into consideration for the application of this method :

  • forecast revenues in the medium-term plan for each title;
  • a royalty rate between 2% and 9% depending on the brand type , strategic positioning, circulation and profitability;
  • a constant cash flow growth rate (g = 2) for the period subsequent to the forecast period. This period corresponds to an estimated residual life of 28 years;
  • a 6.5% discounting, defined based on the capital asset pricing model. In addition, a sensitivity analysis of the results was performed based on a 1% increase in the rate referred to above.

As for radio frequencies, the fair value net of costs for sale was defined by an independent appraiser, who carried out a survey upon acquisition and drafted an update of the valuations upon closing of these financial statements .

For the purpose of the performance of the valuation, the independent appraiser took into account the type and size of the individual plants, the area in which they are located, the relevant technical characteristics and the number of people potentially served.

The valuation criteria adopted to calculate the comprehensive value of each plant and frequency included the following elements:

  • a direct comparison with the current value calculations relative to plants and frequencies recently transferred in the same market;
  • the number of potential listeners who can be reached, utilising an amount between €0.6 and €2 per person as a general reference parameter, depending on the area served and taking into account any peculiarity referring to the nature of that same area in terms of seasonal factors and local economy.

Results of the impairment test process

The impairment test process highlighted the following impairment losses:

  • for the Mondadori France Cash Generating Unit, the value of Le Chasseur Francais was subject to adjustment for €0.9 million;
  • for the residual Cash Generating Units, €0.8 million were written down relative to the value of PC Professionale and €0.2 million were written down relative to goodwill resulting from the acquisition of Electa Napoli.
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