Tiscali 2003 Annual Report Download - page 69

7171
The “other changes” column mainly includes the restatement of research, development and advertising costs and intangible assets
in the course of acquisition as industrial property rights, concessions, licences and trademarks, due to the application of the same
criteria across different Group companies.
Consolidation difference
In light of the importance of the item and the significant changes that have taken place over a number of financial years, a sum-
mary of the changes that have been made to the consolidation difference and the reasons behind them are set out below.
Preliminary remarks
Following an intense acquisitions campaign, the Tiscali Group has grown significantly over the years and is now present in over
15 countries. As a result, the Company has a very complex structure.
In 2000-2001, Tiscali paid for many of its acquisitions in shares (under art. 2343 of the Italian civil code, which regulates pay-
ments in kind). These shares were issued in capital increases carried out by Tiscali S.p.A. without pre-emptive rights, based on
paragraph IV, art. 2441 of the civil code. The issue prices were calculated based on the stock market average over a period in
close proximity to the shareholders’ meeting to approve the capital increase.
The process of consolidating its stakes in the companies acquired also generated substantial goodwill (i.e. resulting from the
difference between shareholders’ equity and the market value of the companies) as is the case with many Internet companies.
In 2001, the Group began the process of reorganising and simplifying its structure by merging, integrating and liquidating
companies, while the management and reporting system was adapted to the new size and complexity of the Group.
Specifically, the Tiscali Group consisted of parent Company Tiscali S.p.A. and two sub-holding companies, World Online
International and Liberty Surf Group, both of which produced a set of “consolidated” accounts. These in turn were used in the
preparation of the consolidated accounts for the whole Group.
As part of the reorganisation of the Tiscali Group by country (business unit), the World Online and Liberty Surf Groups took part
in several share swaps. In the second half of 2001, certain divisions of the UK companies belonging to the Liberty Surf Group
were transferred to companies belonging to the UK subsidiaries of World Online.
The share prices of Internet companies plummeted in 2001, and the Tiscali stock fell from its highs of around EUR 100 in April
2000 to around EUR 9 in January 2002.
Accounts for the year ending 31 December 2001When the 2001 accounts were prepared, the directors began a process of adju-
sting the value of shareholdings included in the accounts to their market value, to reflect the significant financial market correc-
tion and change in the Company organisation.
In light of the Group reorganisation and as part of it, the directors reviewed the value of the shareholdings together with the con-
solidation difference (goodwill) recorded in the consolidated accounts.
It was not practical to apply a method such as a discounted cash flow valuation to the individual companies acquired, given that
following the reorganisation described above, the businesses of the companies acquired were well integrated within the Group,
and could no longer be identified separately (although they had yet to become true business units at country level). The Group
therefore needed to adopt a valuation method that took into account its use of shares to finance acquisitions, or to use a more
precise valuation method where possible.
For acquisitions carried out via the issue of new shares, the Group concluded that the most accurate method of valuing the com-
panies acquired was the valuation based on the Tiscali share price. Given that the value of the stock fell in the last few months