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With regard to the Argentina CGU, the nominal growth rate was set equal to 9.33%, a value below current inflation, and for purposes of the estimate of the terminal value an investment rate (capex/revenues) was used equal to 14.85%. On the basis of these elements, the post-tax and pre-tax weighted average cost of capital and the relative capitalization rates (WACC - g) have been estimated for each cash-generating unit (the values of Brazil refer to flows in reais and those of Argentina to flows in pesos) as follows: Core Domestic % International Wholesale % Brazil % Argentina % WACC post-tax 8.90 9.36 11.87 22.60 WACC post-tax – g 8.90 9.36 8.74 13.27 WACC pre-tax 12.91 13.77 16.07 29.14 WACC pre-tax – g 12.91 13.77 12.94 19.81 It should be emphasized that the cost of capital of the Core Domestic CGU recorded a significant increase compared to December 31, 2010, principally piloted by the rise in long-term rates of the sovereign securities of Italy, from 7.90% to 8.90%. The differences between the values in use and the carrying amounts at December 31, 2011 of the four CGUs before the impairment tests amount to: (millions of euros) Core Domestic International Wholesale Brazil Argentina Difference between values in use and carrying amounts -4,125 +5 +5,151 +90 On preparation of the annual financial statements, the Telecom Italia Group repeated the impairment test that had been carried out in the first half of 2011 that led to the recognition in the half-year condensed consolidated financial statements at June 30, 2011 of an impairment loss of -3,182 million euros on the Core Domestic CGU; in light of the difference between the value in use and the carrying amount, indicated above, a further impairment loss was recognized for -4,125 million euros over and above the amount recorded in the first half of 2011. For purposes of the sensitivity analysis, four principal variables were considered for the three CGUs whose value in use is in excess of the carrying amount: the pre-tax discount rate, the growth rate in the terminal value (g), the compound annual growth rate (CAGR) of EBITDA in the years 2012-2014 (CAGR 2012-2014) and capital expenditures in proportion to revenues (capex/revenues). The following tables report the values of the key variables used in estimating the value in use and the changes in such variables needed to render the recoverable amount of the respective CGUs equal to their carrying amount. Value of key variables used in estimating the value in use Core Domestic % International Wholesale % Brazil % Argentina % Pre -tax discount rate 12.91 13.77 16.07 29.14 Long-term growth rate (g) 0.0 0.0 3.13 9.33 Compound Annual Growth Rate (CAGR) of EBITDA 2012-2014 -0.66 -4.24 16.35 15.35 Capital expenditures rate (Capex/Revenues) from 16.30 to 18.68 from 6.85 to 8.39 from 13.32 to 15.91 from 14.85 to 20.17 Telecom Italia Group Consolidated Financial Statements Note 4 – Goodwill 182
Changes in key variables needed to render the recoverable amount equal to the carrying amount International Wholesale % Brazil % Argentina % Pre-tax discount rate 0.08 9.06 0.53 Long-term growth rate (g) -0.10 -13.62 -0.73 Compound Annual Growth Rate (CAGR) of EBITDA 2012-2014 -0.80 -11.73 -0.62 Capital expenditures rate (Capex/Revenues) 0.05 7.70 0.41 A second level impairment test was then conducted to test for impairment at the level of the entire Group, in order to include the Central Functions and the financial cash-generating units of the Group without any goodwill allocation (Olivetti). The total recoverable amount of all the cash-generating units of the Group was compared to the carrying amount of the total operating capital referring to the same units/segments post-impairment losses at the first level. No impairment losses resulted at this further level of testing. Telecom Italia Group Consolidated Financial Statements Note 4 – Goodwill 183
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Annual Report 2011 Relazione interm
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Statements of Comprehensive Income
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Letter to the Shareholders To the S
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Key Operating and Financial Data -
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The trend of the key operating and
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Liquidity margin: at December 31, 2
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Consolidated Operating and Financia
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Review of Operating and Financial P
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The fixed-line area, with a contrac
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- lower expenses of 246 million eur
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Business Unit (-329 million euros)
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Income tax expense Income tax expen
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eflect the definitive fair value of
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Capital expenditures on an accrual
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Finance expenses, income taxes and
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The financial risk management polic
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On August 3, 2011, a bilateral stan
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Research and Development As for “
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Consolidated Financial Statements -
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Consolidated Statements of Financia
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Consolidated Statements of Cash Flo
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Highlights - The Business Units of
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The Business Units of the Telecom I
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International Wholesale (millions o
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compared to the same period of 2010
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In detail: (millions of euros) 2011
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Cubomusica GRATIS per 1 anno. Durin
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In particular, for the unbundling c
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International roaming On July 6, 20
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For the telecommunications operator
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Brazil The Telecom Italia Group ope
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EBIT EBIT is 2,294 million reais, i
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Argentina The Telecom Italia Group
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Mobile telephony service: Telecom P
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Again with regard to value-added se
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Revenues Revenues amount to 238 mil
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Principal changes in the regulatory
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• it erroneously attributed the m
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European sales recorded a good tren
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Review of Operating and Financial P
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The reduction of 483 million euros
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(162 million euros, on the basis of
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Equity Equity amounts to 20,537 mil
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Dividends flow Dividends paid amoun
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Bonds Bonds at December 31, 2011 to
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Financial Statements - Telecom Ital
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Statements of Financial Position (m
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Additional Cash Flow Information (m
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Corporate Boards at December 31, 20
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Macro-Organization Group at Decembe
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other sources of information, the p
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Relative performance by Tim Partici
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Related Party Transactions In accor
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the Dow Jones Sustainability World
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Economic value generated and distri
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Type of customer care customer Over
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Involvement initiatives For the fif
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Vehicles Telecom Italia S.p.A. 2011
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• cogeneration/trigeneration: 5 l
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• an increase in emissions attrib
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channels have been registered as "D
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• Network and service platform in
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• E-learning and evolved teaching
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Tim Brasil Group (units) 12.31.2011
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Development The 2010 Group performa
Page 131 and 132: Internal communication The main act
Page 133 and 134: introduced on this subject. The agr
Page 135 and 136: On August 2, 2011 the second phase
Page 137 and 138: The Risk Management department mana
Page 139 and 140: Net financial debt is calculated as
Page 141 and 142: Bundle. Commercial offer including
Page 143 and 144: HFC (Hydrofluorocarbons). Hydrofluo
Page 145 and 146: Shared Access. Methods of shared ac
Page 147 and 148: Consolidated Financial Statements a
Page 149 and 150: Note 34 - Other income (expenses) f
Page 151 and 152: Equity and Liabilities (millions of
Page 153 and 154: Consolidated Statements of Comprehe
Page 155 and 156: Consolidated Statements of Cash Flo
Page 157 and 158: Note 1 - Form, content and other ge
Page 159 and 160: • Argentina: includes fixed (Tele
Page 161 and 162: Note 2 - Accounting policies Going
Page 163 and 164: case of loss of control of a subsid
Page 165 and 166: Impairment of intangible and tangib
Page 167 and 168: • held to maturity (originally mo
Page 169 and 170: Inventories Inventories are measure
Page 171 and 172: Revenues are recognized to the exte
Page 173 and 174: Use of estimates The preparation of
Page 175 and 176: Note 3 - Business combinations Acqu
Page 177 and 178: Acquisition of control of Sofora Te
Page 179 and 180: Note 4 - Goodwill Goodwill shows th
Page 181: Core Domestic International Wholesa
Page 185 and 186: Concessions, licenses, trademarks a
Page 187 and 188: Note 6 - Tangible assets (owned and
Page 189 and 190: Gross carrying amount, accumulated
Page 191 and 192: Gross carrying amount, accumulated
Page 193 and 194: Aggregate data for 2011 and 2010, p
Page 195 and 196: Note 9 - Financial assets (non-curr
Page 197 and 198: Note 10 - Miscellaneous receivables
Page 199 and 200: The temporary differences which mak
Page 201 and 202: In addition to this effect, the inc
Page 203 and 204: Note 13 - Trade and miscellaneous r
Page 205 and 206: Note 14 - Equity Equity includes: (
Page 207 and 208: • the reduction of share capital
Page 209 and 210: • to mandate the board of directo
Page 211 and 212: Gross financial debt according to t
Page 213 and 214: The following table lists the bonds
Page 215 and 216: Nortel Inversora S.A. Preferred Ser
Page 217 and 218: Such obligation, required by nation
Page 219 and 220: Revolving Credit Facility The follo
Page 221 and 222: Note 17 - Financial risk management
Page 223 and 224: of market parameters, even though t
Page 225 and 226: In order to limit the risk of the n
Page 227 and 228: Note 18 -Derivatives Derivative fin
Page 229 and 230: Note 19 - Supplementary disclosures
Page 231 and 232: Comparison between carrying amount
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Carrying amount for each class of f
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Fair value hierarchy level for each
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Note 20 - Employee benefits Employe
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The effect on the income statement,
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Note 22 - Miscellaneous payables an
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Note 24 - Contingent liabilities, o
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On December 16, 2011 Telecom Italia
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In a judgement on November 2, 2011,
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Greece -DELAN During 2009, the comp
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c) Commitments and guarantees Guara
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Note 27 - Acquisition of goods and
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Note 29 - Other operating expenses
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Note 32 - Gains (losses) on disposa
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Note 34 - Other income (expenses) f
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Finance expenses Finance expenses d
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Note 36 - Profit (loss) for the yea
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Future potential changes in share c
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Note 38 - Segment reporting a) Repo
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Headcount by Operating Segment (num
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The effects on the individual line
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Transactions with associates and jo
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Transactions with companies control
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Transactions with other related par
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(millions of euros) 12/31/2011 12/3
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In the 2011, the contributions paid
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Description of other Telecom Italia
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Calculation of fair value measureme
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Note 41 - Significant non-recurring
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Note 42 - Positions or transactions
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c) Operating leases Revenue related
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Note 44 - Events subsequent to Dece
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Name Head office Currency Share cap
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Name Head office Currency Share cap
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Certification of the Consolidated F
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Consolidated Financial Statements T
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Contents Telecom Italia S.p.A. Sepa
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Statements of Financial Position As
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Separate Income Statements (euros)
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Statements of Changes in Equity Sta
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Additional Cash Flow Information (t
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Profit (loss) before tax from conti
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• the capitalized costs can be me
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Intangible and tangible assets with
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Financial liabilities hedged by der
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Starting from January 1, 2007, Ital
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Finance income and expenses Finance
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• IFRIC 19 (Extinguishing Financi
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The cost of capital used for the es
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Type of license The net carrying am
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Note 5 - Tangible assets (owned and
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12/31/2010 Accumulated impairment l
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Note 6 - Investments Investments de
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(thousands of euros) Carrying amoun
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5,620 thousand euros for receivable
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Note 8 - Miscellaneous receivables
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The temporary differences which mak
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Note 10 - Inventories Inventories a
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Trade receivables amount to 4,162,0
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Note 12 - Equity Equity is composed
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Share capital carries a restriction
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The following statement provides ad
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With regard to additional capital i
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Note 13 - Financial liabilities (no
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The main components of financial li
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elating to items classified as curr
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• the loan contract signed by Tel
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Note 14 - Net financial debt As req
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Total Financial liabilities (at the
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Financial liabilities - Maturities
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Currency of denomination Notional a
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Carrying amount for each class of f
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Fair value hierarchy level for each
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Comparison between carrying amount
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Gains and losses by IAS 39 category
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Under IAS 19, employee severance in
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Note 19 - Provisions Provisions dec
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Note 21 - Trade and miscellaneous p
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Note 22 - Contingent liabilities, o
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outcome is considered probable. As
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Federazione Anti Pirateria Audiovis
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offers, contractual profile changes
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Note 23 - Revenues Revenues decreas
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Note 26 - Employee benefits expense
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Note 30 - Depreciation and amortiza
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Note 34 - Finance income and Financ
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Note 35 - Related party transaction
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STATEMENT OF FINANCIAL POSITION LIN
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Transactions with subsidiaries The
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Total income (expenses) from invest
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(thousands of euros) 12/31/2011 12/
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STATEMENT OF CASH FLOWS LINE ITEMS
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Remuneration to key managers In 201
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The beneficiaries were identified i
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Parameters used to determine fair v
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Note 37 - Significant non-recurring
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Expense related Telecom Italia has
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Note 41 - List of investments in su
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Certification of the Separate Finan
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Telecom Italia S.p.A. Separate Fina
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Report of the Board of Statutory Au
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The Board of Auditors has overseen
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amendments Agreed procedures and de
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PricewaterhouseCoopers S.p.A. commu
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On 7 July 2011, after the alignment
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met the Chairman of the Conselho Fi
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Regarding the provisions of article
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18. No significant facts that shoul
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non-compliances imputable to the ex
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corporate bodies, and in particular
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amount equal to 2% of the par value
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curricula vitae are attached) as Di
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at least twenty-five days before th
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Authorization to increase share cap
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and this is confirmed in a report p
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5.6 - For five years starting from
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Proposed Resolution The Shareholder
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9.8 - In appointing directors who f
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only one slate. 17.10 - The Board o
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17.17 - At the first renewal of the
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