Notes to the Parent Company
1) Activity of the company
RAI-Radiotelevisione Italiana SpA (hereinafter Rai) is exclusively assigned the public service broadcasting of radio and television programmes using any technical media.
Following authorisation by the Italian Ministry of Communications, the company may enlist the aid of subsidiaries for activities relating to the performance of the pertinent services.
Rai’s operations must be conducted in compliance with the applicable regulations in force contained in Law 103 of 14 April 1975 (“New regulations governing radio and television broadcasting”), Law 223 of 6 August 1990 (“Regulation of
the public and private radio and television system”), the “Measures governing the concession holder for the public radio and television broadcasting service” issued with Law 206 of 25 June 1993 and subsequent amendments, Law 249 of 31
July 1997 on the “Establishment of the Communications Authority and regulations governing telecommunications and the radio and television system” and Law 112 of 3 May 2004 (“Regulations establishing principles for the organization of the radio and television system and Rai-Radiotelevisione Italiana SpA, as well as granting authority to the Government to issue a consolidated radio and television law”). With Legislative Decree 177 of 31 July 2005 approval was given to the Consolidated Law governing Radio and Television, incorporating additional clauses, amendments and cancellations necessary for the co-ordination of the services or their proper implementation. The Consolidated Law also contains the provisions of Law 112/04, relating to the radio and television general public service and, consequently, articles 3 and 5 of Law 206/93 not repealed by Law 112/04.
The general public radio and television service concession is assigned to Rai until 6 May 2016, on the basis of the Consolidated Law governing Radio and Television, issued with article 49 of Legislative Decree 177 of 31 July 2005.
Article 45 of the same Consolidated Law envisages that the general public radio and television service be provided by the concession holder on the basis of a National Service Agreement lasting three years, entered into with the Italian Ministry of Communications, identifying the rights and obligations of the concession holder.
With ministerial decree of 6 April 2007, published in Official Gazette no. 123 of 29 May 2007, approved the National Service Contract entered into on 5 April 2007 between the Ministry of Communications and Rai for 2007-2009.
The contract became valid the day following its publication and will expire on 31 December 2009.
The rationale underlying the above regulatory framework lies in the public interest functions entrusted to the concession holder.
Under these regulations, Rai has special institutional characteristics and operating constraints, in addition to the specific obligations undertaken with the Service Contract.
The Parent Company financial statements at 31 December 2008 are prepared in conformity with the relevant provisions of the Italian Civil Code. They are supplemented with annexes featuring the reclassified statements comprised of tables for the analysis of the balance sheet and income statement, and of cash flows.
In order to render the 2008 financial statements fully comparable with those of the preceding year, certain minor items have been reclassified.
The financial statements are expressed in euros, without decimals; the Notes to the financial statements and the related detailed schedules are stated in thousands of euros.
Rai’s financial statements have been audited by PricewaterhouseCoopers SpA, which has also been engaged to conduct the audit procedures under Article 2409 bis of the Civil Code, in accordance with the resolution of the Shareholders’ Meeting of 16 July 2007.
3) Accounting policies
Before examining the individual items, we have provided an overview of the main accounting policies used in drafting the financial statements, which were adopted from the perspective of the Company as a going concern and comply with the
provisions of Articles 2423 et seq. of the Civil Code. Such policies are unchanged from those applied in the preceding year. There are no exceptional cases requiring derogation from the requirements under Article 2423-bis et seq. of the Civil Code.
a) Industrial patents and intellectual property rights:
The acquisition and production costs of programmes, composed of external costs that can be allocated directly to each project and the cost of internal resources used to create programmes, are recorded according to the following criteria:
1) costs for repeat-use television productions are capitalised under intangible assets and, if such productions are usable at year-end, are carried under industrial patents and intellectual property rights and amortised on a straight-line basis
over the period of their estimated useful life. If such programmes are not yet usable at year-end, the costs are carried under intangible assets under development and payments on account.
The objective difficulty of establishing an appropriate correlation between advertising revenues and licence fees and the amortisation of the rights, which is further complicated by the many ways in which they can been used, has prompted
Rai to designate three years as the useful life of repeat-use programmes, represented by TV series, cartoons and comedies, and four years for that of library exploitation rights for sports events.
Costs for concession rights with a shorter duration are amortised over the period they are available.
In addition, an impairment provision has been established for programmes for which transmission or re-broadcasting is at risk.
2) Costs for immediate-use television programmes are expensed in a single year, which is normally that in which they are used. More specifically:
• News, light entertainment and all radio programming. Costs are expensed in the year in which they are incurred, which is normally the year in which the programmes are broadcast.
• Sports events. Costs are booked to the year in which the event takes place.
• Documentaries. Costs are charged against income in a single amount at the time the programmes are ready for broadcasting or the rights are usable.
b) Software licences are carried with industrial patents and intellectual property rights net of amortisation and are amortized over three years from the year they enter service.
c) Costs incurred for the construction of the digital terrestrial network are capitalised under intangible assets net of amortisation and amortised on a straight-line basis over the forecast period of use from the date the service is activated.
d) Trademarks are amortized over ten years from the year they enter service.
e) Deferred charges are carried under other intangible assets net of accumulated amortisation. They regard improvements to leased or licensed property. Amortisation for leasehold improvements is determined on the basis of the shorter of the residual duration of the related contracts and the estimated period of benefit of the costs, calculated using amortisation rates which reflect the rate of economic deterioration of the relative assets.
f) Tangible non-current assets – which are shown net of accumulated depreciation – are recorded at cost, increased by internal personnel costs incurred in preparing them to enter service, and revaluations pursuant to laws. The costs of fixed
assets as determined above are depreciated in accordance with Article 2426 (2) of the Civil Code. Ordinary maintenance costs are expensed in the year in which they are incurred.
g) Equity investments are carried at purchase cost adjusted in the event of permanent impairment in value. The value of companies with negative shareholders’ equity is set at zero and Rai’s share of the deficit is specifically provided for under the provisions for risks and charges. Adjustments for permanent impairment are reversed in the event that such impairment is
subsequently recovered due to sufficient operating earnings by the investee company.
h) Fixed-income securities carried as non-current financial assets are valued at purchase cost. Positive or negative differences between purchase cost and redemption value are taken to income in the amount accruing for the year.
i) Non-current assets which, at the balance sheet date, have suffered a permanent impairment in value, are carried at the lower value. Should the reasons for the writedown made in previous years no longer apply, the assets are revalued within
the limits of the amount of the writedown.
j) Other securities carried under current financial assets are valued at the lower of purchase cost – determined as the weighted average cost – and estimated realisable value, which is given by market value.
k) Inventories of raw materials, supplies and consumables (technical materials) are valued at purchase cost, which is determined on the basis of weighted average cost, written down taking account of market trends and estimated non-use due to
obsolescence and slow turnover. Inventories of items for resale (relating to periodicals and book publishing) are carried at the lower of purchase cost, which is determined on the basis of weighted average cost, and estimated realisable value as determined by market prices.
l) Accrued income and prepaid expenses, and accrued expenses and deferred income, are recorded on an accruals basis for the individual entries.
m) Provisions for pension and similar liabilities, which comprise the provision for supplementary staff severance pay, the social security benefits provision and the company supplementary pension fund, are made in accordance with collective
bargaining agreements. The Company supplementary pension fund is valued on the basis of an actuarial appraisal.
n) The provision for taxes includes probable tax liabilities arising out of the settlement of tax disputes and includes deferred tax liabilities calculated on timing differences which have resulted in lower current taxes. Deferred tax assets arising from charges which are tax-deductible on a deferred basis and from tax losses are taken up under Current Assets caption 4 ter (“Deferred tax assets”) if there is reasonable certainty that they will be recovered in the future.
o) Other provisions for risks and charges include provisions to cover specific losses or liabilities, the existence of which is certain or probable, but the amount or date of occurrence of which is uncertain. They are set up on a case-by-case basis
in relation to specific risk positions and their amount is determined on the basis of reasonable estimates of the liability that such positions could generate.
p) The provision for staff severance pay is determined in conformity to applicable law and labour contracts. It reflects the accrued entitlement of all employees at the balance-sheet date net of advances already paid.
q) Payables are shown at nominal value; receivables are carried at estimated realisable value, net of the provision for bad debts as determined on the basis of a case-by-case assessment of the solvency risks of the individual debtors.
r) Payables and receivables denominated in currencies other than the euro – with the exception of hedged positions, which are valued at the rate applying to the financial instrument – are recorded at the exchange rates applying at the balance sheet date. Profits and losses ensuing from such conversion are taken to the income statement as components of financial income or expense. Any net profit is taken to a specific non-distributable reserve until the profit is realised.
s) Payments on account include advances paid by customers for services that have not yet been performed.
t) Costs and revenues are taken to the income statement on a consistently applied accruals basis.
u) Dividends are taken to income in the year in which they are received.
v) Income taxes are recorded on the basis of an estimate of taxable income in conformity with applicable regulations, taking account of deferred tax positions. The tax liability to be settled on presentation of the tax declaration is carried under taxes payable, together with liabilities relating to taxes already assessed and due.
The Company has opted for the Group to be taxed on a consolidated basis and accordingly, as the consolidating entity, attends to all requirements connected with the settlement of IRES tax for all companies within the consolidated taxation
w) In order to hedge interest rate and exchange rate risk, the Company uses derivative contracts to hedge net exposures arising from specific transactions. Interest differentials to be collected or paid on interest rate swaps are taken to the income statement on an accruals basis over the duration of the contract. Accrued interest differentials that have not been settled at the end of the year or which have been settled before they actually accrue are taken to accrued income and prepaid expenses, or accrued expenses and deferred income, as the case may be. Derivative contracts hedging exchange rate risks are used to cover contractual commitments in foreign currencies and entail adjusting the value of the underlying item.
The premium or discount arising from the differential between the spot and future exchange rates for hedging transactions carried out via future acquisition of value and premiums paid in relation to options is taken to the income statement over
the duration of the contract.
If the market value of derivatives contracts that do not fully qualify for hedge accounting is negative, a specific risk provision is set up for this value.
x) Collections are recorded by bank transaction date; for payments account is likewise taken of the instruction date.
4) Parent Company Balance Sheet
This caption includes the cost of non-physical factors of production with lasting utility, net of amortisation and writedowns in the event of permanent impairment of value.
Industrial patents and intellectual property rights. This caption records the costs of television programmes available for use.
As indicated in schedule 1, they amount to 274,704 thousand euros, which has risen by 35,555 thousand euros during the year.
This increase is represented by the difference between new assets for 324,694 thousand euros (of which 96,165 thousand euros transferred from intangible assets under development and payments on account for rights that became available during the year), a writedown against the risk of non-transmission and/or repeatability of certain programmes amounting to 22,174 thousand euros and the amortisation charge for the year of 266,965 thousand euros.
The total value of these items at 31 December 2008, before the writedown, comprises the following:
• rights to television programmes owned or held under unlimited-term licences amounting to 256,974 thousand euros (at 31 December 2007: 214,645 thousand euros);
• rights to television programmes owned or held under fixed-term licences amounting to 48,981 thousand euros (at 31 December 2007: 52,290 thousand euros).
Overall investment in television programmes made in 2008 amounts to 328,570 thousand euros, including 100,041 thousand euros in programmes which are not yet available at 31 December 2008, which are carried under intangible assets under development and payments on account.
Analysing investments by type, at 31 December 2008, 284,972 thousand euros have been invested in fiction programmes (series, miniseries, TV movies, soap operas etc), 11,893 thousand euros in documentaries, 17,905 thousand euros in cartoons and comedy programmes, 12,400 thousand euros in football libraries and 1,400 thousand euros in other categories.
Concessions, licences, trademarks and similar rights. These items, which are stated net of accumulated amortisation, include costs incurred on the acquisition of licences for digital terrestrial frequencies and own trademarks (for example, the Rai logo). They total 24,704 thousand euros, of which 24,667 thousand euros relating to digital network frequencies.
Intangible assets under development and payments on account. These amount to 150,570 thousand euros, including:
• 148,845 thousand euros for the cost of television programmes which are not yet available, and therefore not subject to amortisation; compared with the figure at 31 December 2007, this has shown a net increase of 3,453 thousand euros, as
shown in schedule 1. Specifically, the aforementioned increase is equal to the balance between increases for new assets (100,041 thousand euros), decreases for items transferred to Industrial patents and intellectual property rights in that they relate to productions and/or acquisitions which have become usable during the period in question (96,165 thousand euros) and eliminations for 423 thousand euros;
• 1,486 thousand euros refer to alterations and improvements under way on property under leasehold or concession;
• 239 thousand euros refer to software licences.
For television programmes that have not yet become available, the total of 148,845 thousand euros includes:
• 108,779 thousand euros for television programmes owned by the Company that were not ready at 31 December 2008 or for which usage rights began after 31 December 2008 (at 31 December 2007: 111,784 thousand euros);
• 40,066 thousand euros regarding third-party television programmes held on fixed-term licence beginning after 31 December 2008 (at 31 December 2007: 33,608 thousand euros).
Other intangible assets. The amount of 10,665 thousand euros includes:
• 10,515 thousand euros for costs incurred, net of accumulated amortisation, on alterations and improvements to property under leasehold or concession (at 31 December 2007: 11,193 thousand euros);
• 150 thousand euros for the purchase of a right to the first negotiation and option on the broadcasting of football matches granted by a leading football team, net of amortisation calculated over the concession period.
These comprise the costs and related revaluations of non-current tangible assets with a useful life of several years that are owned by the Company and used in operations. They are carried net of standard depreciation and writedowns for lasting value impairments if any.
The standard depreciation rates applied are listed below:
Tangible assets at 31 December 2008 amount to 344,968 thousand euros, showing an overall net decrease of 24,114 thousand euros on 31 December 2007 comprising the balance between 59,417 thousand euros and decreases of 85,531
thousand euros, as detailed in schedule 2.
It should be noted that new assets recorded, which reflect investments made in the year, comprise 5,186 thousand euros for the capitalisation of the cost of internal personnel engaged in the construction of buildings, plant and machinery.
As regards disclosure of financial lease transactions it should be noted that since 2004 only the building located in Aosta was acquired under this type of contract, to serve as the regional headquarters for Valle d’Aosta. The statements required under article 2427 (22) of the Civil Code, referred to in Document 1 of the Organismo Italiano di Contabilità (Italian Accounting Board), showing the effects on the balance sheet and the income statement of the so-called financial method, are presented hereunder.
The gross value of revaluations recorded under tangible assets is reported below, listed according to the applicable regulations:
• 58,959 thousand euros gross in implementation of Law 576 of 2 December 1975 and Law 72 of 19 March 1983, the purchase cost of which was 74,633 thousand euros. This comprises property acquired by 31 December 1946,
the gross value of which, amounting to 430 thousand euros, includes revaluation pursuant to Law 74 of 11 February 1952;
• 57,627 thousand euros gross in implementation of Law 413 of 30 December 1991;
• 520,962 thousand euros gross in implementation of Decree Law 263 of 29 April 1994, the effects of which were ratified by Law 650 of 23 December 1996.
Non-current Financial Assets
These represent the cost of durable financial investments and related revaluations, net of any writedowns described in the comments on the individual items.
Equity investments: these amount to 308,038 thousand euros and include investments in shares or other forms of equity in companies, including consortiums. They are reported in the balance sheet under separate headings arranged by decreasing levels of ownership.
The components of the value of equity investments, their distribution among the individual investee companies and transactions during the period are detailed in schedule 3. Schedule 4 shows the list of investments in subsidiaries and associated
companies pursuant to article 2427, item 5, of the Civil Code.
The following section discusses the more significant developments in investee companies and the consequent impact on the Rai financial statements:
Equity investments in subsidiaries
• NewCo Rai International SpA (99.953994% Rai): the share capital of 500 thousand euros is represented by 500,000 shares with a par value of 1 euro each. On 10 April 2008 the company Chairman asked the shareholders to make
a capital payment, each in proportion to their shareholdings, bringing the total up to 500,000 euros. The shareholders Rai and Rai Trade both complied with the aforementioned request, making payments of 499,770 and 230 euros
respectively on 28 April 2008. The shareholders’ meeting held on 28 April 2008 resolved the coverage of the losses totalled at 31 December 2007 for 604,424 euros with reserves of 500,000 euros. The remaining amount of 104,424
euros was covered via reduction of the share capital from 500,000 euros to 395,576 euros. Simultaneously, the replenishment of the share capital at 500,000 euros was resolved, taking the amount necessary from the capital account.
The company ended 2008 with a loss of 559 thousand euros and the value of the shareholding was written down accordingly.
• Rai Cinema SpA (99.997678% Rai): the share capital of 200,000 thousand euros is represented by 38,759,690 shares with a par value of 5.16 euros each. During 2008, the company paid a dividend for 2007 of 12,403 thousand euros,
which Rai recorded under Income from equity investments in the amount pertaining to it. 2008 ended with a net profit of 16,415 thousand euros.
• Rai Click SpA (99.94% Rai): the share capital of 177 thousand euros is represented by 340,000 shares with a par value of 0.52 euros each. Rai purchased the entire e.Bismedia shareholding during the year, increasing its share by 40%. The operation was completed with the share sale agreement registered on 23 December 2008. The company ended 2008 with a loss of 1,229 thousand euros, covered by the Share premium account.
• Rai Corporation (100% Rai): the share capital of 500,000 thousand US$ is represented by 50,000 shares with a par value of 10 US$ each. The holding is carried at a gross value of 8,712 thousand euros and includes the payment on account of share capital of US$ 10,000,000 which was made during 2005. At 31 December 2008 the value of the holding, already written down at 31 December 2007 for 2,097 thousand euros, was revalued for 499 thousand euros to adjust it to the equity held in the company, at the exchange rate in force on 31 December 2008.
• RaiNet SpA (99.9% Rai): the share capital of 5,160 thousand euros is represented by 1,000,000 shares with a par value of 5.16 euros each. At 31 December 2008 the gross value of the holding, 47,894 thousand euros which had been written down at 31 December 2007 by 41,581 thousand euros, was revalued by 1,624 thousand euros in view of the profit earned by the company in 2008.
• RaiSat SpA (94.9% Rai): the share capital of 2,585 thousand euros is represented by 500,000 shares with a par value of 5.17 euros each. The company ended 2008 with a profit of 6,958 thousand euros. During the same period it paid a dividend of 3,600 thousand euros relating to the 2007 result, of which 3,416 thousand euros pertained to Rai, which was taken to income from equity investments.
• Rai Trade SpA (100% Rai): the share capital of 8,000 thousand euros is represented by 100,000 shares with a par value of 80 euros each. The company ended 2008 with a profit of 2,627 thousand euros. During 2008 it paid a dividend of 1,700 thousand euros on the result for 2007, which was taken to Income from equity investments.
• Rai Way SpA (99.99926% Rai): the share capital of 70,176 thousand euros is represented by 13,600,000 shares with a par value of 5.16 euros each. The company ended 2008 with a profit of 19,724 thousand euros.
• Sacis SpA in liquidation (100% Rai): the share capital of 102 thousand euros is represented by 200,000 shares with a par value of 0.51 euro each. The company, which has been in liquidation since 23 January 1998, reported a profit of 2,771
• Sipra SpA (100% Rai): the share capital of 10,000 thousand euros is represented by 100,000 shares with a par value of 100 euros each. The company ended 2008 with a profit of 5,515 thousand euros. During 2008 it paid a dividend of 9,000 thousand euros on the result for 2007, which was taken to Income from equity investments.
Equity investments in associated companies
• Audiradio Srl (30.23% Rai): the company ended the year with a profit of 64 thousand euros. The share capital of 258,000 thousand euros is represented by 258,000 shares with a par value of 1 euro each.
• Auditel Srl (33% Rai): the company ended the year with a profit of 98 thousand euros. The share capital of 300,000 thousand euros is represented by 300,000 shares with a par value of 1 euro each.
• San Marino Rtv SpA (50% Rai): this company was established in 1991 by Rai and E.RA.S. - Ente di Radiodiffusione Sammarinese with an equal holding in the company. It was set up pursuant to Law 99 of 9 April 1990 ratifying the collaboration treaty between the Republic of Italy and the Republic of San Marino concerning radio and television. It closed 2008 with a net profit of 2 thousand euros. The share capital of 516 thousand euros is represented by 1,000 shares with a par value of 516.46 euros each.
• Euronews (formerly Secemie) - Société Anonyme (21.25 % Rai): the company ended the year with a profit of 1,112 thousand euros. The share capital of 3,901 thousand euros is represented by 260,043 shares with a par value of 15 euros
• Tivù Srl (48.25% Rai): the company was incorporated on 24 September 2008 for the promotion and development of the digital terrestrial and satellite platform. The share capital of 1,000 thousand euros was subscribed by Rai and R.T.I. – Reti
Televisive Italiane SpA – with equal shares of 48.25% and by TI Media – Telecom Italia Media SpA – for the remaining 3.5%.
The company ended 2008 with a loss of 11 thousand euros, which was not written down as the company has only recently begun operation.
Equity investments in other companies
• Almaviva – The Italian Innovation Company SpA (1.201% Rai). The value of the holding is unchanged from 2007, amounting to 324 thousand euros. The share capital is represented by 107,567,301 ordinary shares with a par value of 1.00 euro each.
• C.F.I – Consorzio per la Formazione Internazionale (consortium for international education): the investment, which was carried at the value of the share in the consortium paid in upon joining, 30 thousand euros, has been fully written off since, under the bylaws of the consortium, withdrawal does not entitle members to reimbursement of their contribution.
• Consorzio Nettuno – Consorzio per la realizzazione di università a distanza (consortium for the distance learning university): the investment of 21 thousand euros, has been fully written off since, under the bylaws of the consortium, withdrawal does not entitle members to reimbursement of their contribution.
• Consorzio Sardegna Digitale – Consorzio per la transizione dalla televisione analogica alla televisione digitale terrestre nel territorio della regione Sardegna (Consortium for the transition from analogue to digital terrestrial television in the Sardinia region). The investment of 13 thousand euros, has been fully written off since, under the bylaws of the consortium, withdrawal does not entitle members to reimbursement of their contribution.
• Consorzio Valle d’Aosta Digitale – Consorzio per la transizione dalla televisione analogica alla televisione digitale terrestre nel territorio della regione Valle d’Aosta (Consortium for the transition from analogue to digital terrestrial television in the
Valle d’Aosta region). The investment of 7 thousand euros, has been fully written off since, under the bylaws of the consortium, withdrawal does not entitle members to reimbursement of their contribution.
• International Multimedia University Umbria SpA (1.533% Rai): the investment has been fully written off since there is no longer any certainty that the amounts paid in can be recovered.
• Istituto Enciclopedia Treccani SpA (0.83% Rai): the investment is carried at a gross value of 478 thousand euros, already written down at 31 December 2007 by 110 thousand euros, has been revalued by 17 thousand euros as a result of the
profit earned by the company. The share capital is represented by 750,000 shares with a par value of 51.65 euros each.
Receivables: are valued, as shown in schedule 5, at 4,676 thousand euros (at 31 December 2007: 6,160 thousand euros).
Receivables consist of 2,400 thousand euros of advances paid in relation to mandates for the sale of production rights and distribution of actions concerning football club libraries, 1,812 thousand euros for guarantee deposits and 464 thousand euros for loans to employees. Schedule 9 details their distribution by maturity and schedule 10 by geographic area.
Other securities: carried at 3,769 thousand euros, they relate entirely to securities pledged as collateral; details of their composition and articulation are given in schedule 6.
Inventories amount to 712 thousand euros net of the inventory provision (at 31 December 2007: 858 thousand euros). As shown in schedule 7, they comprise:
• Raw materials, supplies and consumables: these amount to 497 thousand euros net of the inventory provision for 15,385 thousand euros. They consist entirely of supplies and spare parts for maintenance and the operation of equipment, considered as consumables since they are not directly incorporated into products.
• Finished goods and merchandise: these consist entirely of inventories associated with the book and periodicals publishing business, amounting to 215 thousand euros net of a writedown of 644 thousand euros to bring them into line with their
estimated realisable value.
Receivables total 1,002,631 thousand euros, showing a decrease of 97,663 thousand euros on 31 December 2007, as can be seen in schedule 8, which gives a breakdown of receivables, and in schedules 9 and 11 which show their distribution by maturity, type and by currency. Their distribution by geographic area is shown in schedule 10.
Receivables from customers: these relate to trade receivables, excluding those from subsidiaries and associated companies, which are carried under separate headings. They total 198,515 thousand euros, with a nominal value of 213,090 thousand euros which has been written down by 14,575 thousand euros to bring them to their estimated realisable value and compared with 31 December 2007 they show a increase of 36,094 thousand euros.
Details of the caption are divided into:
• receivables for public broadcasting services to central government and other public entities: as shown in the following table, these amount to a nominal 110,920 thousand euros, up 36,530 thousand euros on 31 December 2007, equivalent to the balance between the increase in invoices issued and for amounts accrued for 2008 less collections.
The following should be noted in connection with the above receivables:
– Prime Minister’s Office: receivables for television, radio and multimedia broadcasts abroad in Slovenian, French, German and Ladin relate to services rendered in 2007 for 30,000 thousand euros and to services rendered in 2008 for
56,774 thousand euros;
– Ministry for the Economy and Finance: in relation to the management of television licence fee collection, the receivable of 11,776 thousand euros refers to 2008;
– Autonomous Region of Valle d’Aosta: the receivable of 7,653 thousand euros relates to the reimbursement of costs incurred for the operation of equipment for the reception of French-language programmes for the years from 1994 to
• Net receivables for licence fees: these amount to 20,063 thousand euros, up 203 thousand euros on 31 December 2007, representing licence fees not yet transferred to Rai.
With the internal provision issued in December 2008, the Ministry for the Economy and Finance made a reduction of 25 million euros in the provision for 2008 in balance sheet section no.3836 “licence fees for transfer to the Concession
Holder”, thus determining a reduction for said amount in the liquidation of the year end instalment.
Via this reduction the Ministry allocated provisions for said amount to the new section no. 3855 “sums payable to Rai for exemption from payment of the licence fee granted to the elderly on a low income”, destined to hedge costs ensuing from the abolition of payment of the licence fee for those over the age of 75, pursuant to art. 1 c. 132 of law 244 of 24/12/2007.
Law no. 31 of 28/2/2008 establishes that, in relation to the charge ensuing from the abolition of the licence fee for the categories concerned, “Provision shall be made via a corresponding reduction in the provision booked, for the purposes of
the financial statements for the 2008-2010 triennium, to the special current reserve of the State of prevision of the Ministry of the Economy and Finance for 2008…”.
On this basis, and in consideration of the broader framework of reference in terms of liquidation of fees to the Concession Holder, there is believed to be no reasonable doubt as to the collection of the amounts in question.
• Other receivables: these amount to nominal value 82,107 thousand euros, up 217 thousand euros on 31 December 2007. They relate to the sale of rights, technical assistance to third parties etc.
Receivables from subsidiaries: these amount to 602,086 thousand euros (at 31 December 2007: 682,673 thousand euros). They represent the year-end balance of transactions with subsidiaries, as shown in schedule 8. They include financial
receivables of 208,908 thousand euros (248,937 thousand euros at 31 December 2007) and non-financial receivables of 393,178 thousand euros (433,736 thousand euros at 31 December 2007).
Receivables from associated companies: these amount to 74 thousand euros (50 thousand euros at 31 December 2007).
They represent the balance of transactions with San Marino Rtv.
Tax receivables: these are carried at nominal value of 36,175 thousand euros (28,046 thousand euros at 31 December 2007). They comprise 27,230 thousand euros for the balance of Group VAT credits, 7,494 thousand euros for IRAP credits
and 1,391 thousand euros for tax refunds requested, with the remainder relating to minor items.
Deferred tax assets: these amount to 10,703 thousand euros and represent the credit deriving from items deductible on a deferred basis for tax purposes, as explained more fully in the section dealing with “income taxes”, for 10,434 thousand euros, in addition to which there are items transferred from Group companies participating in the consolidated taxation arrangement.
Details of deferred tax assets, including the movements in 2008, are provided in the following table:
As already mentioned in the accounting policies, receivables for deferred taxes have been provided, for their determination and recording in the financial statements, when there is reasonable certainty that they will be recovered in the future.
Other: these other receivables amount to 155,078 thousand euros (210,238 thousand euros at 31 December 2007). Net of writedowns of 1,348 thousand euros, they reflect the value of other types of receivables as described below:
• advances to suppliers on sports events filming rights, carried at nominal value of 114,548 thousand euros;
• miscellaneous advances to suppliers carried at nominal value of 20,924 thousand euros;
• advances to Social Security Departments on contributions payable for artistic activities, carried at nominal value of 9,581 thousand euros;
• receivables from personnel carried at nominal 6,899 thousand euros. They are entirely composed of advances of various types, mainly for travel expenses (3,312 thousand euros) and production expenses (1,789 thousand euros);
• receivables from the European Union for subsidies and grants for nominal 83 thousand euros, consisting entirely of receivables for research projects;
• receivables from others, carried at nominal value of 3,043 thousand euros.
Cash and cash equivalents
These are listed in Schedule 12, and comprise:
• Bank and post office deposits: these amount to 31,861 thousand euros (at 31 December 2007: 124,796 thousand euros).
They represent sight or short-term balances on deposit or current account with banks, financial institutions and the Post Office.
• Cheques: these amount to 14 thousand euros (at 31 December 2007: 1 thousand euros).
• Cash and cash equivalents on hand: these amount to 327 thousand euros (381 thousand euros at 31 December 2007) and include liquid funds in the form of cash and equivalent instruments (duty stamps, cashier’s cheques or bank-guaranteed
cheques etc) held by the Company at 31 December 2008.
Schedule 11 gives a breakdown of the caption by euros and other currencies and schedule 24 shows amounts at banks and the Post Office held with Group Companies and restricted by attachments.
ACCRUED INCOME AND PREPAID EXPENSES
Accrued income and prepaid expenses total 24,100 thousand euros. They are detailed in Schedule 13.
Shareholders’ equity totals 576,790 thousand euros.
The components of shareholders’ equity and the effects of operations carried out in 2008 and 2007 are shown in schedule 14.
Schedule 15 presents the classification of the shareholders’ equity items in compliance with their origin, possibility of use and distribution, as well as their use during the previous three years.
The notes indicated hereunder provide further details on the contents of the individual items.
At 31 December 2008 the share capital was represented by 242,518,100 ordinary shares of par value 1 euro each, owned by the Ministry of the Economy and Finance (241,447,000 shares, equal to 99.5583% of the share capital) and SIAE, the Italian Association of Authors and Publishers (1,071,100 shares, equal to 0.4417% of share capital).
The legal reserve amounts to 6,977 thousand euros.
Other reserves total 358,445 thousand euros. This combination of items comprises:
• 341,144 thousand euros, of merger surplus;
• 1,262 thousand euros, in the reserve for capital grants;
• 16,039 thousand euros, in Other Reserves.
Profits brought forward
These amount to 5,860 thousand euros representing the balance of unallocated profits.
Net loss for the year
This amounts to 37,010,139.30 euros.
Provisions for risks and charges
These amount to 422,992 thousand euros, down 15,690 thousand euros net on 31 December 2007. The composition of these items and details of the decrease are shown in schedule 16. The notes which follow provide additional information on the individual provisions.
Provision for pension and similar liabilities: this amounts to 153,978 thousand euros and comprises the supplementary seniority benefits provision, the retirement benefits provision and the company supplementary pension fund.
• The provision for supplementary seniority benefits amounts to 2,229 thousand euros (at 31 December 2007: 2,815 thousand euros). It represents the liability in respect of indemnities in lieu of notice towards employees hired before 1978 who have reached the compulsory retirement age. The amount is revalued each year for consumer price inflation. In the event of early termination of employment, or changes in category, the amounts accrued are released.
• The provision for retirement benefits amounts to 442 thousand euros (at 31 December 2007: 616 thousand euros), includes amounts accrued until 31 December 1988 and supplementary amounts allocated in subsequent periods in order to protect the real value of the provision for eligible employees in accordance with the terms of the national collective labour agreement.
Since 1 January 1989 retirement benefits paid by Rai and withholdings from employees have been paid into CRAIPI (supplementary retirement fund for Rai employees) and FIPDRAI (supplementary retirement fund for Rai managers), associations which are responsible for managing retirement funds under the agreements entered into between Rai and the trade unions.
Upon retirement, the funds accumulated by Rai, CRAIPI and FIPDRAI are paid out unless employees opt, at the time they obtain the pension rights, to obtain equivalent life annuities. In this case, the Rai, FIPDRAI and CRAIPI funds remain with the associations to finance the said life annuities.
• The provision for supplementary seniority benefits amounts to 151,307 thousand euros (at 31 December 2007: 147,388 thousand euros). It includes:
– 140,836 thousand euros for supplementary pension benefits currently being paid (at 31 December 2007: 137,888 thousand euros) consisting of funds accrued for employees who have opted for the supplementary pension plan under the
trade union agreements, which are kept at an adequate level to ensure said benefits, with respect to actuarial reserves;
– 10,471 thousand euros (at 31 December 2007: 9,500 thousand euros) for supplementary pensions that will be paid to eligible managerial staff still in service in the event that some of these opt for the supplementary pension plan. Benefits
are calculated on the basis of pay earned, seniority and financial and demographic parameters normally used in similar cases.
Provision for current and deferred taxes: this amounts to 26,369 thousand euros (at 31 December 2007: 37,912 thousand euros). The following table shows a breakdown of the item and changes during 2008.
Other provisions: 242,645 thousand euros (at 31 December 2007: 249,951 thousand euros). They include provisions for costs or losses the existence of which is certain but the amount of which cannot be exactly determined, or which are probable and the amount of which can be reasonably estimated. The main items are detailed in schedule 16.
As regards pending litigation with employees and third parties, the amount carried in the provisions for liabilities and risks is the best estimate of the likely liability based on the most up-to-date information available.
Provision for staff severance pay
The provision totals 334,526 thousand euros (at 31 December 2007: 349,565 thousand euros). The provision for staff severance pay is determined at individual level in conformity to the provisions of art. 2120 of the Italian Civil Code, complemented by Budget Law 2007 (Law 296 of 27 December 2006), which established the entry into force of the new legislation on pension funds (Legislative Decree 252 of 5 December 2005) as 1 January 2007.
By effect of the new legislation, provisions for staff severance pay converge into pension funds other than those inside the company, unless employees ask to maintain the severance pay within the company. In this case, the provisions are paid into a reserve managed by the INPS, which will transfer to the company all the benefits disbursed by the latter in the event of payment of advances or termination of the employment contract, as envisaged by Article 2120 of the Civil Code.
The composition of the provision and changes during the year are shown in schedule 17.
Payables amount to 804,457 thousand euros, down 119,326 thousand euros on 31 December 2007. More specifically, financial debt to banks and other lenders totals 2,377 thousand euros, with a net decrease of 2,856 thousand euros on the figure disclosed in the 2007 financial statements. No payables covered by collateral in the form of company assets are recorded.
A breakdown of the caption is given in schedule 18, while schedules 19 and 20 show the composition of payables by maturity, type and currency.
With regard to geographic distribution, the greater part of payables (about 94%) relates to Italian residents, for an amount of about 757 million euros on a total of 804 million euros.
The notes indicated hereunder provide further details on the contents of the individual items.
Due to banks: these amount to 2,377 thousand euros (5,233 thousand euros at 31 December 2007), representing current account overdrafts with certain banks.
Advances: these amount to 287 thousand euros (at 31 December 2007: 275 thousand euros) relating entirely to miscellaneous advances.
Suppliers: these relate to trade payables, excluding those to subsidiaries and associated companies, which are carried under separate headings. They amount to 456,591 thousand euros (at 31 December 2007: 530,098 thousand euros) and show a decrease of 73,507 thousand euros with respect to the figure disclosed for the previous year.
Accounts payable to subsidiaries: these amount to 155,669 thousand euros (at 31 December 2007: 202,440 thousand euros), as detailed in schedule 18. They include financial debt for 41,737 thousand euros (at 31 December 2007: 70,822 thousand euros) and non-financial payables of 113,932 thousand euros (at 31 December 2007: 131,618 thousand euros).
Accounts payable to associated companies: these amount to 3,261 thousand euros (at 31 December 2007: 3,989 thousand euros), as detailed in schedule 18. They include financial debt for 90 thousand euros (at 31 December 2007: 1,418
thousand euros) and non-financial payables of 3,171 thousand euros (at 31 December 2007: 2,571 thousand euros).
Tax payables: these amount to 54,938 thousand euros (at 31 December 2007: 46,385 thousand euros) and show an increase of 8,553 thousand euros with respect to the figure disclosed for the previous year. They consist of:
As regards debt in relation to IRES, as reported in the accounting policies, the Company has opted for group taxation, transferring to the Group, as consolidating entity, the activities inherent in liquidation and payment of the tax with regard to the following companies: 01 Distribution, NewCo Rai International, Rai Cinema, Rai Click, Rai Way, RaiNet, RaiSat, Sipra and Rai Trade, within the consolidated taxation arrangement. All companies are entitled to make use of the consolidation tax arrangement until financial year 2009, apart from Sipra and Rai Trade, for which the last financial year available for use of this arrangement is 2010.
Accounts payable to social security institutions: these amount to 42,661 thousand euros (at 31 December 2007: 45,144 thousand euros). They reflect contributions due on remuneration paid to employees and consultants, to be paid over to the institutions at the scheduled dates. They consist of:
Other payables: these amount to 88,673 thousand euros (at 31 December 2007: 90,219 thousand euros), and show a net decrease of 1,546 thousand euros on the previous year, as follows:
Accrued expenses and deferred income
This caption totals 52,705 thousand euros. Details and a comparison with the previous year are provided in schedule 21.
The caption contains the entire amount contributed of 48,083 thousand euros, net of the amount already disclosed in the income statement, disbursed by the Ministry for Communications during 2007 and 2008, in support of initiatives to accelerate the switch-over to the digital terrestrial platform, consisting of operations on systems and adaptation of the site infrastructures to extend areas covered by the digital signal and improve reception and the quality of service perceived by the user.
The task of making the necessary investments is entrusted to the subsidiary Rai Way SpA, which is also responsible for the design, installation, construction, maintenance, implementation, development and operation of the telecommunications networks.
The contribution is disclosed in the income statement for the year in relation to amortisation booked by the subsidiary following the entry into operation of the investments made.
5) Memorandum accounts
Memorandum accounts amount to 515,285 thousand euros. A breakdown by type is provided in the table attached to the Parent Company balance sheet and they are analysed in detail in schedules 22, 23 and 24.
The terms of the hedge contracts covering the specific own commitments or those taken on for the subsidiaries Rai Cinema SpA and RaiSat SpA, relating to fair value are summarised in schedule 25.
On the whole, hedging contracts entered into are, in observance of the Group Policy, of a reasonable amount in relation to the overall entity of the commitments subject to such risks.
The purchase commitments also include the Dear property complex, with a value of 49,431 thousand euros, deriving from the exercise of the option right envisaged in the lease agreements.
The final transfer agreement, scheduled for 5 June 2008, was not signed due to the lack of cooperation by the other party, which failed to turn up for the appointment with the Notary Public, denying Rai the right to become owner of the property and generating legal action in which it applied for the declaration of non-existence of the obligation to transfer ownership of the asset.
In emphasising the fact that the option right had been validly exercised, Rai made the purchase price available to the other party and took legal action of its own to acquire acknowledgement of its rights.
At 31 December 2008 there were no commitments, other than those highlighted among the memorandum accounts, of particular significance for the purchase or sale of goods and services in addition to those taken on in the normal course of
business that would require specific information to be given for a better understanding of the Company’s financial position.
6) Income Statement
Revenues from sales and services: these amount to 2,878,438 thousand euros (at 31 December 2007: 2,889,212 thousand euros). They basically include revenues pertaining to the year from licence fees and advertising. A breakdown into major components is given in schedule 26. As can be seen from the distribution of revenues by geographic area, they almost all originate in Italy.
Changes in inventories of work in progress, semi finished and finished goods: these amount to 11 thousand euros (at 31 December 2007: 75 thousand euros). They are entirely attributable to the increase in the value of inventories associated with the book publishing and periodicals business.
Internal cost capitalisations: the amount of 14,728 thousand euros (at 31 December 2007: 11,767 thousand euros) represents internal costs associated with non-current assets, which were capitalised under the specific asset captions. Details are shown in schedule 27.
Other production-related income: this amounts to 164,562 thousand euros (at 31 December 2007: 101,239 thousand euros), as detailed in schedule 28.
This caption comprises costs and shortfalls related to ordinary activities, excluding financial operations. The costs shown here do not include those relating to tangible and intangible assets, which are recorded under the respective asset accounts.
Raw materials, supplies, consumables and merchandise: these total 25,942 thousand euros (at 31 December 2007: 22,609 thousand euros), which includes purchases of technical materials for inventory – excluding items used in the construction of plant, which are allocated directly to tangible assets – production materials (sets, costumes etc) and miscellaneous operating materials (fuel, office supplies, printed documents etc), net of discounts and allowances, as shown in schedule 29.
Services: these amount to 831,026 thousand euros (at 31 December 2007: 820,211 thousand euros) and comprise costs for freelance workers and other external services, net of discounts and allowances, as shown in schedule 30. Among other things, they include emoluments, remuneration for special functions, attendance fees and reimbursement of expenses paid to Directors for 2,177 thousand euros and to Statutory Auditors for 195 thousand euros.
Use of third-party assets: these amount to 857,690 thousand euros (at 31 December 2007: 731,493 thousand euros), and expresses costs for rents, leases, usage rights and filming rights, as detailed in schedule 31.
The significant increase for filming rights is due to the costs connected with the important four-yearly sports events (European Football Championships and the Olympic Games).
Personnel costs: employee-related costs amount to 902,714 thousand euros (at 31 December 2007: 896,079 thousand euros), broken down as indicated in the income statement. The average number of employees on the payroll in 2008 was
11,698, including employees on fixed-term contracts (at 31 December 2007: 11,676 units), as detailed in schedule 32.
Amortisation, depreciation and writedowns: these amount to 381,195 thousand euros (at 31 December 2007: 363,755 thousand euros). The breakdown is shown directly in the income statement. In detail, amortisation in relation to intangible assets refers basically to industrial patents and intellectual property rights for 266,965 thousand euros (at 31 December 2007: 235,976 thousand euros), while schedules 33 and 34 provide details of amortisation of tangible assets and writedowns in relation to non-current assets. They include a writedown of capitalised programmes amounting to 22,174 thousand euros, which was made to take account of the risk that certain programmes may not be transmitted or re-broadcast.
Changes in inventories of raw materials, supplies, consumables and merchandise: the amount of 156 thousand euros (at 31 December 2007: 731 thousand euros) represents the decrease in net inventories carried under current assets at 31 December 2008 with respect to the previous year.
Provisions for risks: these amount to 13,009 thousand euros (at 31 December 2007: 10,444 thousand euros) and indicate allocations to provisions for risks. The most significant items are detailed in schedule 16.
Other provisions: these amount to 1,619 thousand euros (at 31 December 2007: 2,403 thousand euros). The main items are shown in schedule 16.
Miscellaneous operating costs: these amount to 98,612 thousand euros (at 31 December 2007: 89,751 thousand euros).
Their composition is shown directly in the income statement and further information is provided in schedule 35.
Financial income and charges
Income from equity investments: these amount to 26,519 thousand euros (31 December 2007: 39,716 thousand euros), representing dividends distributed in 2008 by investee companies, as shown in schedule 36.
Other financial income: this amounts to 14,910 thousand euros (at 31 December 2007: 15,617 thousand euros) broken down as follows:
• from non-current receivables: this amounts to 34 thousand euros, as shown in schedule 37.
• From non-current securities other than equity investments: this amounts to 176 thousand euros and relates to interest receivable on securities.
• Financial income other than the above: this amounts to 14,700 thousand euros and mainly relates to interest on current receivables as shown directly in the income statement and detailed even further in schedule 38.
Interest and other financial charges: these amount to 7,767 thousand euros (at 31 December 2007: 7,726 thousand euros). They relate to interest expense, commission expense for financial services received and other charges for financial
operations, as shown directly in the income statement and in further detail in schedule 39.
Foreign exchange gains and losses: these show a total loss of 4,067 thousand euros (at 31 December 2007: 2,854 thousand euros), representing the balance of foreign exchange charges and premiums on foreign currency hedge transactions as well as the effect of translating the value of payables and receivables in foreign currencies at year-end exchange rates or the rate in force at the time of the hedge in the case of exchange risk hedges, as detailed further in schedule 40.
Value adjustments to financial assets
Revaluations: these amount to 2,140 thousand euros (at 31 December 2007: 959 thousand euros). They reflect the recovery of losses incurred by subsidiaries in previous years for 2,123 thousand euros, and by other investee companies for 17
Writedowns: these total 559 thousand euros (at 31 December 2007: 1,309 thousand euros). They comprise writedowns of non-current financial assets following losses incurred for the year.
Exceptional income and charges
Exceptional items comprise income of 1,028 thousand euros, as detailed in schedule 41.
Current income taxes for the year, and deferred tax charges and credits
These amount to 14,991 thousand euros. They represent the total tax charge for the year, made up as follows:
The following table shows the origin and effects of deferred tax items during the year.
The following table presents the estimated reconciliation between the statutory result for the year and the taxable amount for IRES and IRAP purposes.
On the taxable amount for IRAP, current taxes of 29,500 thousand euros have been calculated.
7) Result for the year
The year closed with a loss of 37,010,139.30 euros.
8) Other information
For significant events subsequent to the year-end and related-party transactions, reference should be made to the information given in the Report on operations.