185000000 IT Holding Finance SA

IT HOLDING S.p.A. Notes to the consolidated financial statements for the year ended December 31, 2003
Communication expenses
Communication expenses, which include advertising, public relations and visual display expenses, are expensed as
incurred.
Operating lease payments
Payments made under operating leases are recognized in the income statement on a straight-line basis over the term of
the lease. Lease incentives received are recognized in the income statement as an integral part of the total lease
expense.
Financial income (charges)
Financial income (charges) comprise interest payable on borrowings calculated using the effective interest rate
method, interest receivable on fund invested, dividend income, foreign exchange gains and losses, and gains and
losses on hedging instruments that are recognized in the income statement.
Interest income is recognized in the income statement as it accrues, taking into account the effective yield on the
asset. Dividend income is recognized in the income statement on the date that the dividend is declared.
The interest expense component of finance lease is recognized in the income statement using the effective interest rate
method.
Income taxes
Income taxes on the profit or loss for the year comprise current and deferred tax. Income tax is recognized in the
income statements except to the extent that it relates to items recognized directly to equity, in which case it is
recognized in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially
enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.
Deferred taxes are provided, using the liability method, to reflect the net tax effects of temporary differences between
the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that
are expected to be in effect in each of the relevant jurisdictions when such differences are expected to reverse. The
effect of changes in the statutory tax rate is reflected in the statement of income in the period of such changes.
Deferred tax assets and liabilities have been offset only when they relate to the same tax jurisdiction.
A valuation allowance is provided against net deferred tax assets, which are not considered probable of realization
based on historical and expected profitability of the individual subsidiaries. Such assets are recognized when realized
or when, based on expected future results, it becomes probable that they will be realized in future periods.
Segment reporting
A segment is a distinguishable component of the Group’s business that is engaged either in providing products or
services (business segment), or in providing products or services within a particular economic environment
(geographical segment), which is subject to risks and rewards that are different from those of other segments.
Net income per share
Basic net income per share is calculated by dividing the net income for the period by the weighted average number of
common shares outstanding during the period. Diluted net income per share is calculated by dividing the net income
for the period by the weighted average number of common shares outstanding during the period adjusted for the
effects of all potentially dilutive shares (i.e. employee stock options).
Cash flow statement
The cash flow statement has been prepared applying the indirect method. The cash and cash equivalents in the cash
flow statement comprise the balance sheet item cash at banks and in hand and the bank overdrafts and short-term
loans forming part of the current liabilities. Cash flows in foreign currencies have been translated at estimated average
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