Income Taxes
Income taxes for the fiscal year are determined on the basis of the taxable income, computed in accordance with the laws currently in force. Starting with the fiscal year just ended and the 2006 and 2007 tax years, Edison Spa elected to file a national consolidated tax return. This decision required the formal adoption of specific regulations governing the relationship between the Group and the subsidiaries included in the consolidated tax return.
The accrued tax liability is recognized in the balance sheet under Taxes payable. Deferred taxes are computed using as a basis the differences between the values attributed to assets and liabilities for statutory and tax purposes and taking into account items that, while not attributable to assets and liabilities, can have a deferred-tax impact (e.g. tax loss carryforward, accelerated and supplemental depreciation and amortization, maintenance expenses in excess of allowed ceilings and deductible in subsequent years, provisions for doubtful accounts, etc.). Deferred-tax assets and liabilities are determined on the basis of the tax rates in effect in the year when the respective temporary difference arises. In subsequent years, this accrual is adjusted if a different tax rate is in force at the end of each fiscal year. Deferred-tax assets are recognized only if their future recoverability is reasonably certain and are written down to reflect any change in recoverability expectations. Taking a conservative approach, valuations of deferred-tax assets are made taking into account the length of Company plans or the length of time for which plans approved by the Company's Board of Directors that provide a reasonable expectation of recoverability are available. Deferred-tax liabilities are recognized only when they arise from taxable temporary differences that produce an actual tax liability. Deferred-tax liabilities are offset only when, under the tax laws, the taxpayer has the right to make such offsets for tax purposes. The resulting amount is posted to the Reserve for current and deferred taxes if it is a liability, otherwise it is posted to an asset account called Deferred-tax assets.
In order to avoid that the deduction only for tax purposes of negative income components from a company's earnings results in the distribution of untaxed earnings, companies are required to set up restricted reserves, other than the Statutory reserve, for an amount equal to that of the negative income components deducted for tax purposes but not for reporting purposes, net of the portion of the reserve for deferred taxes attributable to the deducted amounts.
NOTES TO THE BALANCE SHEET – ASSETS
B) Fixed Assets
Fixed assets totaled 8,694,012,000 euros. The net decrease of 142,091,000 euros compared with December 31, 2004 is the net result of additions for the year, depreciation and amortization expense and disposals of financial fixed assets. The table below presents a breakdown of fixed assets and the changes that occurred in 2005:
Fixed assets 2005 2004 Change
B.I.) Intangibles 2,836,493 3,017,146 (180,653)
B.II.) Property, plant and equipment 3,129,676 2,931,942 197,734
B.III.) Financial fixed assets 2,727,843 2,887,015 (159,172)
  8,694,012 8,836,103 (142,091)
The individual items that comprise fixed assets are reviewed below.
B.I) Intangibles
The main components of intangibles, which totaled 2,836,493,000 euros, are:
  • 2,569,443,000 euros for the portion of the loss upon merger generated by the mergers by absorption of 2002, 2003 and 2004 that could not be allocated to assets and was booked as goodwill. The amortization expense booked in 2005 for this item, which is estimated to have a useful life of 20 years, amounted to 155,927,000 euros.
  • 214,405,000 euros representing the carrying value of 46 mineral concessions for the exploitation of hydrocarbon deposits. This amount includes 89,114,000 euros representing the net loss upon merger allocated to this item.
The table that follows provides a breakdown of intangibles and shows the changes that occurred in 2005:
  B.I.1) B.I.2) B.I.4) B.I.5) B.I.6) B.I.7) Total
Startup and R&D and Concess., licenses, Goodwill Work in Other  
  expansion advertising trade-marks   progress intangibles  
  costs expenses and similar rights   and advances    
Balance at 12/31/04 (A) 6,032 3,396 245,467 2,724,794 8,184 29,273 3,017,146
Changes in 2005:              
- Contributions upon merger 290 - 256 - - 566 1,112
- Alloc. of loss upon merger - - - 387 - - 387
- Additions - 2,433 22,550 - 613 - 25,596
- Writedowns - - (499) (8,388) - - (8,887)
- Reversals of writedown - - - 8,577 - - 8,577
- Amortization (6,322) (5,829) (28,907) (155,927) - (10,126) (207,111)
- Reversal of tax items - -   - - - -
- Other changes - - 7,483 - (7,467) (343) (327)
Total changes (B) (6,032) (3,396) 883 (155,351) (6,854) (9,903) (180,653)
Balance at 12/31/05 (A)+(B) - - 246,350 2,569,443 1,330 19,370 2,836,493
Breakdown:              
Historical cost 75,356 300,589 677,025 3,192,954 1,330 88,343 4,335,597
Writedowns (-) (91) (27,273) (82,681) (23,645) - (1,454) (135,144)
Accumulated amortization (-) (75,265) (273,316) (347,994) (599,866) - (67,519) (1,363,960)
Net carrying value - - 246,350 2,569,443 1,330 19,370 2,836,493