Tiscali 2003 Annual Report Download - page 70

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of 2001, as a precaution, the Group chose to use the most up to date information possible, specifically the average share price
in January 2002. This was then multiplied by the number of shares issued for each operation, and the value of the shareholding
was then adjusted to the value obtained.
To value companies sold within the Group as part of the restructuring process—particularly the ISPs—the number of active users
(subscribers) was multiplied by a market value attributed to each subscriber. For other businesses that could not be valued using
these criteria (such as companies operating in the telecoms sector), the current value was calculated using more tailored valua-
tion methods.
For the key German and UK markets, the Group commissioned reports from independent consultants, while in France, the Group
used an impairment test carried out by Liberty Surf Group S.A. on its shareholdings.
In addition, the difference between the value of the holdings (valued at cost) and their market value was calculated, both at con-
solidated level and within the World Online International and Liberty Surf Group sub-groups.
Three types of valuation were used: the current market value, calculated by multiplying the number of Tiscali shares issued for
the transfer of shares in the companies in question by the average Tiscali share price in January 2002, and then adding: i) any
additional sums paid as part of the acquisition/transfer; ii) any capital contributions made following the acquisition/transfer and;
iii) any additional costs incurred in the acquisition/transfer.
To value the Group’s stakes in Guglielmo GmbH, Tiscali France S.A. and Nets S.A., the sale prices (as per the relevant contracts)
were used, while the Group commissioned reports from independent consultants for the shareholdings and the underlying assets
held in the UK and Germany.
In this context, the Tiscali board of directors that approved the 2001 accounts then made further write-downs of around
EUR 106 million as a precautionary measure. The main write-downs relate to the stake in World Online Holdings Plc
(EUR 58 million) in respect of intragroup goodwill (and as such, was therefore eliminated) and the shareholdings in
Germany (EUR 29.5 million). As a precautionary measure, and given the difficulties of integrating the businesses in
Germany, it was decided to adopt the minimum value given in the independent reports, and not the average value as ori-
ginally proposed.
Total extraordinary write-downs and amortisation relating to the consolidation difference (goodwill) included in the consolidated
accounts to 31 December 2001 were EUR 861 million (see table showing changes in the consolidation difference below).
Accounts for the year ending 31 December 2002
In 2002, with the simplification of the Company structure that involved the direct consolidation of all Group shareholdings, Tiscali
enhanced its reporting and forecasting system, and made it more reliable.
Tiscali’s directors therefore decided that the values of shareholdings and consolidation differences (goodwill) recorded in the
consolidated accounts for the year ending 31 December 2002 must be subject to an impairment test, by comparing the book
values with those obtained using a discounted cash flow model, the method generally applied in these cases. This method
is applied based on the business plan for the next six years, which was drawn up in consideration of: (i) information con-
cerning the market in the different countries in which the Tiscali Group operates; (ii) the performance of the various Group
companies; and (iii) the Group’s organisation and management model, which had been introduced in the Group’s core mar-
kets in the meantime.
Based on this business plan, estimated cash flows were extrapolated for the period under consideration. These cash flows were