Non-current assets

[13] Property, plant and equipment

The following table reports movements in 2009 and 2008 in property, plant and equipment, stated net of accumulated depreciation.

Investments in property, plant and equipment in the year, totaling Euro 94,181 thousand, mainly related to:

-acquisitions of properties for commercial use and the modernization and refurbishment of points of sale for the purposes of expanding the commercial network, particularly in Russia, Italy, Turkey, India, Mexico, France and Spain;

-investments for increasing production capacity in Romania , Italy and Istria ( Croatia ); in addition, a grant of Euro 2,495 thousand has been obtained in respect of the production center built in Tunisia in 2008.

Leasehold improvements mainly refer to the cost of restructuring and modernizing stores belonging to third parties.

"Business combinations" reflect the acquisition of commercial operations in Italy during 2009, details of which can be found in "Other information - Business combinations".

Disposals in the year amount to Euro 15,470 thousand and mainly refer to the sale of four commercial properties in Italy .

In addition, Euro 10,233 thousand in impairment has been recognized to adjust certain commercial assets to their recoverable amount; more details can be found in the paragraph on impairment testing.

The gross amount, accumulated depreciation and impairment and related net book value of the Group's property, plant and equipment are analyzed below:

The net book value of land and buildings is analyzed according to use as follows:

Leased assets are analyzed as follows:

The long-term portion of the outstanding principal contained in lease repayments at December 31, 2009 is recognized as "Lease financing" under non-current liabilities, while the short-term portion is reported in current liabilities.

A portion of property, plant and equipment has been pledged with banking institutions as collateral against loans whose outstanding repayments total Euro 399,6 million at December 31, 2009.

[14] Intangible assets

The following table reports movements in the principal categories of intangible assets:

Investments in intangible assets in the year, totaling Euro 22,390 thousand, mainly related to:

-the acquisition of deferred commercial charges, for developing the commercial network, particularly in Italy and Mexico ;

-investments in Information Technology, of which the most significant were those in implementing and developing the SAP application software at certain Italian and foreign subsidiaries and in developing software for the various production, logistics, commercial and product areas.

"Business combinations" reflect the acquisition of commercial operations in Italy during 2009, details of which can be found in "Other information - Business combinations".

Disposals in the year amount to Euro 1,324 thousand and mainly refer to the sale of certain "fonds de commerce" in France .

In addition, Euro 10,674 thousand in impairment has been recognized to adjust certain commercial assets to their recoverable amount; more details can be found in the paragraph on impairment testing.

The gross amount, accumulated amortization and impairment and related net book value of the Group's intangible assets are analyzed below:

"Goodwill and other intangible assets of indefinite useful life" consist of consolidation differences and residual amounts of goodwill arising on the consolidation of acquired companies.

"Deferred charges" mainly consist of lease surrender payments to obtain the lease of buildings for use as stores ("key money"), which are amortized over the term of the related lease contracts (with the exception of "fonds de commerce" which are amortized over 20 years). "Other" mainly comprises Euro 27,521 thousand in costs for the purchase and development of software (of which Euro 5,425 thousand generated internally) and Euro 6,118 thousand in costs for assets under construction and advances (of which Euro 366 thousand generated internally).

"Concessions, licenses, trademarks and similar rights" include the net book value of the following brands:

Killer Loop is the subject of a specific brand repositioning plan meaning that, despite the modest results achieved in 2009, its book value is fully supported by future forecast cash flows.

A portion of intangible assets has been pledged with banking institutions as collateral against loans whose outstanding repayments total Euro 399.6 million at December 31, 2009.

Impairment testing

As required by IAS 36 and internal procedures, the Group has:

-checked the existence or otherwise of any indication that its property, plant and equipment and intangible assets of finite useful life might be impaired;

-compared the recoverable amount of its intangible assets of indefinite useful life and of its intangible assets not yet available for use with their corresponding carrying amounts. Such a comparison was carried out irrespective of the occurrence of events indicating that the carrying amount of such assets might be impaired.

The results of impairment testing in 2009 are summarized in the following table which reports, by operating segment, the impairment losses recognized during the year and recorded in the statement of income under "Other expenses/(income)".

The principal impairment losses and reversals recognized in 2009 as a result of impairment testing were as follows:

-commercial assets: all the impairment losses for the year refer solely to this class of assets and relate to stores operated both directly and by partners. Each individual store is treated like a separate CGU, for which the present value of its net future cash flows is determined in order to establish the asset's value in use. If the value in use of the CGU is less than its carrying amount, an impairment loss in respect of the CGU's assets is recognized accordingly. The only exceptions to this method of testing relate to the "fonds de commerce" and "buildings", whose valuation was based on the fair value determined by expert appraisals. Impairment losses recognized in 2009 against the commercial assets of certain stores reflected a reduction in their cash flows, caused by an unexpected decline in their sales (both actual and future), except in some cases when it was possible to express a market value. These assets included furniture and fittings, key money and leasehold improvements. All these assets were adjusted to their value in use, estimated on the basis of forecast future cash flows. The impairment losses relate to stores mainly located in the United States , Germany , India , France , Austria and Italy . A pre-tax rate of 8% (7.4% in 2008) was used for the purposes of discounting cash flows except in Turkey where a rate of 15.79% was applied (14.6% in 2008). As a result of the various appraisals, impairment losses totaling Euro 3,227 thousand were recognized against the value of two buildings, located in Vilnius and Porto respectively.

-goodwill: the principal assumptions adopted by the Group are listed below:

Goodwill relating to the subsidiaries My Market S.r.l and Benver S.r.l., acquired from Bencom S.r.l., Aerre S.r.l. and S.C. Anton Industries S.r.l. was not tested for impairment, since these are all recent acquisitions supported by appraisals and have an insignificant amount of goodwill.

The Group has carried out sensitivity analyses for all assets tested for impairment with the value in use method, in which it has assumed a hypothetical 1% increase in the discount rate while leaving all other variables equal. The results of these simulations have revealed a potential amount of Euro 1 million in higher impairment.

Other non-current assets

[15] Investments

Investments in subsidiary and associated companies relate mainly to commercial companies not included in the consolidation because they were not yet operational or were in liquidation at the balance sheet date. Investments in other companies are stated at cost and refer to minority stakes in a number of companies in Switzerland , Japan and Italy . The change in this balance is mainly due to completion in 2009 of the acquisition of the subsidiary My Market S.r.l. for which an advance had been paid at the end of 2008. Details are as follows:

[16] Guarantee deposits

The guarantee deposits reported at December 31, 2009 primarily relate to lease contracts entered into by Indian and Japanese subsidiaries in particular.

[17] Medium/long-term financial receivables

The overall balance of 4,711 thousand euro includes loans mostly given by Group subsidiaries to third parties, which earn interest at market rates. A total of Euro 1,658 thousand in new loans were granted during the year, of which Euro 164 thousand repayable in 2010 and classified as current assets.

[18] Other medium/long-term receivables

This line item, totaling Euro 9,413 thousand, includes Euro 4,803 thousand in customer trade receivables (stated net of Euro 2,661 thousand in provisions for doubtful accounts), Euro 2,133 thousand in receivables for fixed asset disposals, Euro 2,388 thousand in VAT recoverable and sundry other receivables for immaterial amounts.

[19] Deferred tax assets

The following table provides a breakdown of net deferred tax assets:

The Group offsets deferred tax assets against deferred tax liabilities for Italian companies that have made the group tax election and for foreign subsidiaries to the extent legally allowed in their country of origin. This balance is mostly attributable to taxes paid in advance as a result of differences in calculating the depreciable/amortizable base of assets. The associated deferred tax assets have been recognized on the basis of the Group's future expected profitability following its reorganization in 2003. The balance also includes deferred tax assets recognized on provisions and costs already reported in the financial statements that will become deductible for tax in future periods. The potential tax benefit associated with carried forward tax losses of Group companies is Euro 243 million (about Euro 237 million in 2008) but has been adjusted by Euro 226 million for amounts that are currently unlikely to be fully recovered.

Details of these unrecognized benefits are analyzed by year of expiry as follows: