to download Telecom Italia Annual Report 2011 - Company Reporting

Note 3 – Goodwill
Goodwill at December 31, 2011 refers to the goodwill included in the domestic segment of Telecom
Italia S.p.A., equal to 34,627,445 thousand euros, after recognition of an impairment loss of 5,376,000
thousand euros (of which 1,251,000 thousand euros relates to the impairment loss recorded in the first
half of 2011). The amount also includes the goodwill allocated to the International Wholesale CGU as a
result of the impairment test in the consolidated financial statements.
Goodwill, under IAS 36, is not amortized but is tested for impairment annually or more frequently if
specific events or circumstances indicate that it may be impaired. For purposes of the impairment test,
goodwill must be allocated to cash-generating units (CGU) or groups of CGUs according to the maximum
aggregation limit which cannot exceed the operating segment identified in accordance with IFRS 8. The
allocation of goodwill considers the lowest level at which goodwill is monitored for internal management
purposes.
The impairment test regarded the domestic segment of Telecom Italia S.p.A. which represents the CGU
to which the major part of domestic goodwill is allocated, and International Wholesale. In the
Telecom Italia S.p.A. separate financial statements, the International Wholesale CGU is composed of the
investment in Telecom Italia Sparkle S.p.A. and the goodwill allocated consistently with the treatment in
the consolidated financial statements equal to 412,000 thousand euros.
The impairment test consists of comparing the recoverable amount of the CGU to which the goodwill is
allocated with the carrying amount of its operating assets. The recoverable amount is the higher of the
value in use (present value of expected earnings flows) and the fair value less costs to sell.
The value used to determine the recoverable amount of the domestic segment of Telecom Italia S.p.A.
and International Wholesale is the value in use, which was calculated according to the same parameters
used, respectively, for the impairment test of the Core Domestic CGU and the International Wholesale
CGU for purposes of the consolidated financial statements.
The basic assumptions for the calculation of the value in use are presented in the following table:
Telecom Italia S.p.A. domestic segment
EBITDA margin (EBITDA/revenues)
during the period of the plan
Growth of EBITDA during the period of the plan
Capital expenditures rate (capex/revenues)
Cost of capital
Long-term growth rate
International Wholesale
EBITDA margin (EBITDA/revenues)
during the period of the plan
Growth of EBITDA during the period of the plan
Capital expenditures rate (capex/revenues)
Cost of capital
Long-term growth rate
The estimate of the value in use of the domestic segment of Telecom Italia S.p.A. and International
Wholesale is based on the data in the 2012-2014 Plan. The expected flows beyond 2014 have been
capitalized in perpetuity. The earnings flows used to estimate the value in use are cash nopat, equal to
(EBITDA – Capex) x (1-Tc).
The nominal growth rate used to estimate the terminal value is the following:
Telecom Italia S.p.A. domestic segment
International Wholesale
0% 0%
Such rates fall within the range of growth rates applied by the analysts who follow Telecom Italia stock
(as can be seen in the reports published after the presentation of the Group’s business plan 2012-2014
and up to March 1, 2012).
Telecom Italia S.p.A. Separate Financial Statements Note 3 – Goodwill 326