Tiscali 2003 Annual Report Download - page 71

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7373
then discounted at euribor plus the risk premium attributed by the market to the Tiscali Group at that time.
The values obtained in this way were compared, for the purpose of preparing the 2002 accounts, with those of the shareholdings
recorded in the parent Company accounts as of the same date, and with the related goodwill recorded in the consolidated
accounts, and the detailed analysis carried out for each country in which Tiscali operates showed that no write-downs were neces-
sary, except in certain cases.
Specifically, no write-down of the consolidation difference was necessary, as the impairment test did not reveal any situations likely
to lower the value of goodwill in the various countries.
In the accounts for the year ending 31 December 2002, write-downs related to the companies wound up in 2002, as well as to
the former Czech subsidiary CD Telekomunikace Sro. At the end of December 2002, Tiscali signed an agreement to sell this
Company, whereby the book value was adjusted to the agreed sales price. The subsidiary Tiscali ITS S.r.l. (valued at equity) was
also written down after it paid Tiscali S.p.A. a dividend for the year, so as to bring its book value into line with the reduced sha-
reholders’ equity value following the dividend payout.
As well as analysing the results of the impairment test and in light of the improved internal reporting system, the Group analysed
the main changes in the shareholdings and goodwill in 2001 while preparing the accounts to 31 December 2002.
The analysis focused in particular on goodwill relating to subsidiaries operating in the UK, whose book value—after amorti-
sation relating to UK subsidiaries World Online Telecom Ltd and World Online Holdings Plc—was EUR 309 million at 31
December 2001. As a result, a variance in the values of the consolidation difference (goodwill) was noted, as described
below.
The reports commissioned by Tiscali in February 2002 for the 2001 accounts, to assess the value of the UK subsidiaries, poin-
ted up an average equity value of EUR 155 million. This indicated that write-downs amounting to EUR 154 million should be
made. The board of directors carried out a further check of intragroup goodwill, which it then wrote down by a further EUR 58
million, taking the total write-down to EUR 212 million.
At the end of 2002, an analysis of the UK subsidiaries—renamed Tiscali UK Ltd and Tiscali Holdings Plc—revealed that the sha-
reholders’ equity values that should have been compared with the equity value shown in the consultant’s reports was EUR 94 mil-
lion lower, and that the value of goodwill that could be estimated based on the minimum value of the independent reports (EUR
129 million) was therefore EUR 223 million.
A comparison of this value with the book value of goodwill relating to UK subsidiaries (EUR 309 million) shows a difference of
EUR 86 million, which represented the maximum value of the write-down that should have been booked in the accounts for the
previous year. After the write-down of EUR 212 million was made in 2001, it emerged that the write-down of goodwill in the UK
subsidiaries was EUR 126 million higher than necessary.
Despite the greater visibility of the business and the fact that the valuation of the UK assets according to the impairment test car-
ried out for the 2002 accounts showed that goodwill relating to the UK subsidiaries was worth significantly more than the book
value, the board of directors decided to increase the Group’s consolidated shareholders’ equity (to correct the higher than neces-
sary write-down made in 2001), but as a precautionary measure, by only 50% of the surplus amount, and to record this solely
under shareholders’ equity.
This was in line with the write-down (EUR 58 million) decided by the board of directors in 2001, to adjust the goodwill that was
mistakenly considered to be intragroup, and which was added to the initial write-down of EUR 154 million.