185000000 IT Holding Finance SA

CONFIDENTIAL 

Rule 144A Global Note ISIN XS0203897961 

Regulation S Global Note ISIN XS0203896567 

€185,000,000 

IT Holding Finance S.A. 

9 7 /8% Senior Notes due 2012 

_______________ 

BONDHOLDERS’ REPORT 

_______________ 

Annual report for the year ended 

December 31, 2004

This annual report has been prepared by IT Holding S.p.A. in compliance with the Indenture governing the Senior 

Notes due 2012 issued by IT Finance Holding S.A. and contains substantially the same information required to be 

contained in annual reports on Form 20-F under the Exchange Act, as in effect on the date of the Indenture, including 

(i) audited financial statements prepared in accordance with IFRS and (ii) a presentation of EBITDA of the Company 

derived from such financial statements; with the exception of (a) any reconciliation of any line item to U.S. GAAP or 

any other U.S. GAAP disclosures or any audit under U.S. generally accepted auditing standards, (b) the disclosures 

required by Item 15 (Controls and Procedures), Item 16A (Audit Committee Financial Expert) and Item 16B (Code of 

Ethics), (c) the disclosure required by Section 404 of the Sarbanes-Oxley Act of 2002, (d) the exhibits required by such 

form (including, for the avoidance of doubt, certificates of relevant officers of the Company required by Sections 302 

and 906 of the Sarbanes-Oxley Act of 2002) and (e) separate financial statements for any affiliates of IT Holding 

S.p.A. even if such financial statements would be required to be included on Form 20-F pursuant to a rule or rules 

under Regulation S-X as promulgated by the U.S. Securities and Exchange Commission. 

TABLE OF CONTENTS 

Page 

Presentation of Financial and Other Information and Certain Definitions 

and Other Data .......................................................................................................... 1 

Forward-Looking Statements..................................................................................... 2 

Key Information......................................................................................................... 4 

Risk Factors................................................................................................................ 12 

Description of Business.............................................................................................. 25 

Operating and Financial Review and Prospects......................................................... 37 

Directors, Senior Management and Employees ......................................................... 50 

Principal Shareholders ............................................................................................... 53 

Related Party Transactions......................................................................................... 54 

Index to Financial Statements .................................................................................... F-1

Definitions 

In this annual report: 

PRESENTATION OF FINANCIAL AND OTHER INFORMATION AND CERTAIN 

DEFINITIONS AND OTHER DATA 

• “$”, “U.S.$” or “U.S. dollars” refers to the lawful currency of the United States; 

• “EU” refers to the European Union; 

• “€”, “EUR” or “euro” refers to the single currency of the participating Member States in the Third Stage of the 

European Economic and Monetary Union of the Treaty Establishing the European Community, as amended from 

time to time; 

• “IFRS” means International Financial Reporting Standards of the International Accounting Standards Board; 

• “Italian GAAP” refers to accounting principles used in Italy in the preparation of the consolidated financial 

statements of the Group; 

• “United States” or the “U.S.” refers to the United States of America; 

• “we”, “us”, “our”, “Group” and “Company” refer to IT Holding S.p.A. and its subsidiaries and predecessor 

companies except where the context otherwise requires; and 

• “young lines” refers to a market segment of our business that we define based upon our apparel and accessories 

business. 

Financial Data 

We prepare our financial statements on the basis of a 12-month financial year ending on December 31. Pursuant to 

European Community Regulation EC 1606/2002, companies listed on the Italian stock exchange will be required to 

prepare their consolidated financial statements using IFRS instead of the current Italian GAAP for the financial year 

beginning on January 1, 2005. Unless otherwise indicated, financial information in this annual report has been prepared 

in accordance with IFRS. IFRS differ from Italian GAAP and U.S. GAAP in respects that might be material to your 

evaluation of the financial information included in this annual report. You should consult your own professional 

advisors for an understanding of the differences among Italian GAAP, IFRS and U.S. GAAP and how those differences 

might affect the financial information included in this annual report. 

Our consolidated financial statements at and for the years ended December 31, 2002, 2003 and 2004 included in this 

annual report, have been audited by KPMG S.p.A., independent public accountants, as set forth in their reports 

included herein beginning on page F-2 of this annual report. 

Some financial information has been rounded and, as a result, the numerical figures shown as totals in this annual 

report may vary slightly from the exact arithmetic aggregation of the figures that precede them. 

Market and Industry Data 

We operate in an industry in which it is difficult to obtain precise market and industry information. We have generally 

obtained the market and competitive position data in this annual report from industry publications and from surveys or 

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studies conducted by third-party sources that we believe to be reliable. Industry publications and such reports 

generally state that the information contained therein has been obtained from sources believed to be reliable but that the 

accuracy and completeness of such information is not guaranteed and in some instances state that they do not assume 

liability for such information. Therefore, we cannot assure you of the accuracy and completeness of such information, 

and we have not independently verified such information. 

In addition, in many cases we have made statements in this annual report regarding our industry and our position in the 

industry based on internal surveys, industry forecasts, market research, as well as our own experience. While we 

believe these statements to be reliable, they have not been independently verified and we do not make any 

representation or warranty as to the accuracy or completeness of the market and industry information set forth in this 

annual report. 

FORWARD-LOOKING STATEMENTS 

This annual report includes forward-looking statements. In some cases, these forward-looking statements can be 

identified by the use of forward-looking terminology, including the terms “aim”, “anticipate”, “believe”, “continue”, 

“could”, “estimate”, “expect”, “intend”, “may”, “plan”, “potential”, “should”, “will” or “would” or, in each case, their 

negative, or other variations or other comparable terminology. These forward-looking statements include all matters 

that are not historical facts, including statements regarding our future financial position, results of operations, strategy, 

plans, objectives, goals and targets and future market and industry development. They appear in a number of places 

throughout this annual report and include statements regarding our intentions, beliefs or current expectations 

concerning, among other things, our financial condition, results of operations, liquidity, prospects, growth, strategies 

and the industry in which we operate. 

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on 

circumstances that may or may not occur in the future. We caution you that forward-looking statements are not 

guarantees of future performance and that our actual results of operations, financial condition and liquidity and the 

development of the industry in which we operate may differ materially from those made in or suggested by the 

forward-looking statements contained in this annual report. In addition, even if our financial condition, results of 

operations and liquidity and the development of the industry in which we operate are consistent with the 

forward-looking statements contained in this annual report, those results or developments may not be indicative of 

results or developments in future periods. Important factors that could cause those differences include, but are not 

limited to: 

• risks related to our access to capital; 

• risks related to our ability to maintain and renew our license agreements; 

• risks related to our competitive position; 

• risks related to the reputation of our owned and licensed brands; 

• risks related to levels of consumer spending and economic conditions generally; 

• risks related to our ability to anticipate trends and respond to consumer preferences; 

• risks related to our brand trademarks and other intellectual property rights; 

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• risks related to our principal shareholder; 

• risks related to our use of third-party manufacturers; 

• risks related to the cost of materials; 

• risks related to exchange rate fluctuations; 

• risks relating to certain legal proceedings; and 

• other risks and factors discussed in this annual report. 

The cautionary statements set forth above should be considered in connection with any subsequent written or oral 

forward-looking statements that we, or persons acting on our behalf, may issue. We do not undertake any obligation to 

review or confirm analyst expectations or estimates or to release publicly any revisions to any forward-looking 

statements to reflect events that occur or circumstances that arise after the date of this annual report. All subsequent 

written or oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified 

in their entirety by the cautionary statements referred to above and contained elsewhere in this annual report. 

We urge you to read this entire annual report for a more complete discussion of the factors that could affect our future 

performance and the industry in which we operate. In light of these risks, uncertainties and assumptions, the 

forward-looking events described in this annual report may not occur. 

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Our Company 

KEY INFORMATION 

We are Europe’s leading producer and distributor of branded apparel and accessories targeted at the young lines market 

segment of the apparel and accessories market. We also produce and distribute branded apparel and accessories 

targeted at the luxury market segment. Our products are marketed and sold under a number of internationally 

recognized brands, which we either own or which are licensed exclusively to us by third parties, including luxury 

brands such as Ferré and Malo (which we own), and young lines brands D&G Dolce & Gabbana, Versus, Versace 

Jeans Couture, Just Cavalli and C’N’C Costume National (which we license from third parties) and Extè (which we 

own). From 1992 to 2004, our net revenues grew by a compound annual growth rate of over 18%. For 2004, we 

generated consolidated net revenues and EBITDA of €709.9 million and €106.0 million, respectively, and recorded a 

net loss of €12.6 million. See “Operating and Financial Review and Prospects”. 

Our business requires us to manage a complicated array of activities, including the design, sample production, 

showroom sale, raw material procurement, manufacturing, and distribution of our branded apparel and accessories 

products. Our production process revolves around the annual production of both Spring-Summer and Fall-Winter 

collections for each of our brands. Each year, we source raw materials from over 1,000 suppliers, directly manage the 

production of prototypes and samples, and co-ordinate the manufacturing by third parties of over 8 million items of 

apparel and accessories. We then distribute these items to over 4,000 wholesale customers worldwide through our 

global distribution network. Our customers are comprised primarily of independent multi-brand boutiques but also 

include well-known department stores, international importer-distributors and select duty-free shops. We also 

distribute a smaller percentage of our apparel and accessories through franchised stores owned and operated by 

selected third parties as well as stores owned and directly operated by us. 

Since our formation in 1982, we have grown our business by developing a global distribution system, creating a 

sophisticated and flexible production platform and broadening our product range and portfolio of brands. The most 

recent brand we acquired was Ferré, which we purchased in 2002 and subsequently relaunched in connection with a 

comprehensive repositioning program. We were one of the first producers of apparel and accessories to develop the 

young lines market segment aimed at younger consumers — a segment that we believe is less exposed to fluctuations 

in demand than other market segments of the fashion industry. 

Until recently we also produced, sold and distributed branded eyewear and fragrances. We disposed of our fragrance 

business in March 2004 and our eyewear business in October 2004 in connection with our strategic refocusing 

program. 

IT Holding S.p.A. was incorporated in 1982 in the Republic of Italy as a joint stock company and has a duration until 

December 31, 2100 unless the shareholders pass a resolution for its extension. The registered office of IT Holding 

S.p.A. is located at Zona Industriale, Pettoranello di Molise (IS), Italy whereas the principal executive offices of IT 

Holding S.p.A. are located at Corso Monforte 30, 20122 Milan, Italy (telephone: +39 02 763 0391). 

See “Description of Business” for a more comprehensive discussion of our business operations. 

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Our Strategic Refocusing Program 

During 2004, we implemented a strategic refocusing program intended to concentrate our efforts on our profitable core 

business of producing and distributing branded apparel and accessories and to dispose of certain brands and businesses 

that we did not consider to be essential. Our strategic refocusing program comprised the following principal initiatives: 

• In March 2004, we disposed of our fragrance business for €31.5 million in cash. The financial results of our 

fragrance business have not been included in our consolidated financial results since December 31, 2003. 

• In April 2004, we sold our shares in Gigli S.p.A., through which we held our former Romeo Gigli brands, for total 

consideration comprising €1,000 in cash and certain licensing rights, and also disposed of our former 

Gentryportofino brand for €3.7 million in cash. 

• In October 2004, we sold our eyewear business for total consideration of €62.0 million comprising €5.0 million in 

cash and the assumption of €57.0 million of debt by the purchaser. Of the €5.0 million cash amount, €4.0 million 

was paid at closing and the remaining €1.0 million was paid in December 2004. Prior to its disposal as of October 

5, 2004, our eyewear business generated €56.7 million in net revenues and recorded a net loss of €2.1 million on a 

stand-alone basis. 

• Throughout 2004, we continued to streamline our distribution platform. For example, we completed the elimination 

of approximately 150 underperforming wholesale customers of our Ferré brands and closed our directly operated 

Malo boutiques in London, New York and Chicago. We intend to continue these streamlining efforts and are 

presently evaluating opportunities to convert additional directly operated stores to franchised points of sale on a caseby-case 

basis. Going forward, we expect to pursue future retail growth exclusively through franchising and similar 

arrangements. 

The net effect of these initiatives was to contribute to the reduction of our net financial debt from €427.6 million as of 

December 31, 2003 to €324.4 million as of December 31, 2004. We believe that, now that the implementation of our 

strategic refocusing program is largely complete, we are poised to improve our financial performance by concentrating 

on our profitable core apparel and accessories businesses. 

Our Refinancing Program 

In parallel with our strategic refocusing program, we have also been engaged in a refinancing program, which has 

comprised the following initiatives: 

• In October 2004, we entered into a new senior loan facility that provided us with €85.0 million of term loans (the 

“New Credit Agreement”) to replace our former senior term loan and issued €150.0 million in principal amount of 

9 7 /8% senior notes due 2012 (the “Notes”). We used the proceeds from borrowings under the New Credit 

Agreement and the issuance of the Notes as well as existing cash to repay our former senior term loan, to fund an 

escrow account (the “original Escrow Account”), the proceeds of which would be used to tender for our existing 

7% Guaranteed Notes due 2005 (the “2005 Notes”), approximately €175.0 million of which were outstanding at 

that time, and to pay certain fees and expenses. 

• In December 2004, we launched such a tender offer, which resulted in us repurchasing approximately €80.5 

million in principal amount of our 2005 Notes. All 2005 Notes repurchased by us pursuant to this tender offer, 

which closed in January 2005, were cancelled. Accordingly, following the completion of the tender offer, 

approximately €94.5 million in principal amount of the 2005 Notes remained outstanding. 

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• In March 2005, we issued an additional €35.0 million in principal amount of Notes and used the proceeds thereof 

to fund a second escrow account (the “additional Escrow Account” and, together with the original Escrow 

Account, the “Escrow Accounts”) to ensure that we would have enough cash to satisfy and discharge the entire 

remaining principal amount of 2005 Notes on their maturity date in May 2005, as well as to pay certain fees and 

expenses associated with our refinancing program. 

• On May 10, 2005, we will satisfy and discharge the remaining principal amount of 2005 Notes using the proceeds 

of the Escrow Accounts. 

Our Strengths 

• Strong and balanced portfolio of leading brands. Our portfolio of owned and licensed brands includes wellestablished 

brands targeted to different types of consumers at varying price points. In general, we believe that 

demand for apparel and accessories in the young lines segment where we focus our efforts is typically less volatile 

than the demand for items targeting older customers at higher price points. Moreover, we believe that each of our 

brands benefits from the image of style and quality associated with clothing designed in Italy. We believe that this 

will be an important factor in allowing us to retain the prestige and image associated with our branded products as 

we explore new manufacturing opportunities in low-cost regions. 

• Rapidly growing accessories business. We have increased the net revenues of our accessories business from €24.6 

million in 2002 to €58.3 million in 2004 (equivalent to a compound annual growth rate of approximately 54% 

during that span) and believe that our portfolio of attractive brands and our unmatched production and distribution 

synergies leave us well-positioned to exploit projected growth trends in this market segment and to meet 

competition as it emerges. As a result, we expect to continue to expand our accessories business at a rapid pace 

going forward. 

• Strong licensing relationships. We manage more brands on behalf of Italian licensors and maisons than any of 

our competitors in the young lines segment, including four of the most recognized Italian fashion brands: D&G 

Dolce & Gabbana, Versus, Versace Jeans Couture and Just Cavalli. Since winning the first of our current licenses 

in 1988, we have consistently renewed and extended our licensor relationships, consistently increased our sales of 

licensed brands and, accordingly, consistently increased the amount of royalties paid to our licensors. In addition, 

we believe that our ability to manage and co-ordinate the design, production and distribution of apparel and 

accessories on behalf of our licensors is greater than that of our competitors. None of our licensors has ever failed 

to offer us the opportunity to extend or renew a license, which we believe is the best indicator of the strength of our 

licensing relationships. 

• Extensive distribution network and attractive customer base. Our distribution network currently spans more than 

100 countries and gives us access to more than 4,000 wholesale customers around the world. We believe that the 

size and scope of this network helps us to achieve volumes of sales (and royalty payments) and to generate 

economies of scale that are beyond the reach of our smaller competitors. Accordingly, we feel that our distribution 

network provides us with significant competitive advantages both in distributing our existing brands and in 

competing for new brand licenses. In addition, since the customer base served by our network includes many 

smaller stores and boutiques, for whom we are often the most important supplier, we frequently have considerable 

leverage vis à vis many of our customers – a factor that has contributed to our customer retention rates of more 

than 90% in recent years. We select carefully our new customers and manage the amount of apparel and 

accessories they may order from us in order to protect the image of our brands and control our credit exposures. 

• Flexible business model based on production to order. Our apparel and accessories are typically produced on the 

basis of product orders received in advance from our customers. As a result, we typically hold little unsold 

inventory at the end of a season. In addition, our cost base is highly variable because we outsource most of the 

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manufacturing of our products to third parties. We believe that our flexible “production-to-order” business model, 

combined with our low fixed cost base and our general policy of not permitting our customers to return unsold 

merchandise, allows us to manage our production costs, minimize our unsold inventories of finished goods and 

predict our future revenues to a greater extent than our competitors who manufacture products based on estimated 

future demand or who sell their products primarily through directly operated stores. Thanks to this production 

model, we are able to achieve visibility on our production needs and forecasted revenues with approximately six 

months of lead time. 

• High barriers to entry. In the course of building and growing our business, we have developed a significant level 

of expertise and experience in operating our highly complex business model. For example, in the ordinary course 

of our operations we must co-ordinate the activities of more than 1,000 suppliers and 400 third party 

manufacturing companies, oversee the production of more than 8 million items of apparel and accessories per year 

and manage a complex distribution network that spans more than 100 countries. As a result, we believe that we 

now enjoy economies of scale, operating leverage and industry relationships that could not be duplicated by new or 

existing competitors without significant investments of time, effort and resources, such that any competitor 

desiring to enter our target markets would face high barriers to overcome. We believe that these barriers together 

with our successful track record and strong reputation position us favorably to retain the licensing relationships that 

we already have and to win the licensing rights for any new or existing fashion brands that may become available 

in the future. 

Our Strategy 

• Maintain leadership in young lines market segment. We are Europe’s leading producer of branded apparel and 

accessories in the young lines segment. We intend to maintain this position by retaining our existing licenses, 

bidding for and winning new licenses that complement our existing brand portfolio if any should become available 

and continuing to manage each of our brands in line with their specific characteristics, image and market 

positioning. We were one of the first producers of apparel and accessories to target the young lines market 

segment and believe that our extensive production and distribution experience, our balanced portfolio of attractive 

brands and our strong licensing relationships will allow us to maintain our leading position in this market segment 

of the fashion industry. 

• Capitalize on our luxury brands. We have undertaken numerous initiatives in recent years to unlock what we 

believe is the unrealized potential of our owned luxury brands. We believe that we are now poised to capitalize on 

these initiatives and to improve the financial performance of our luxury brands. 

• Ferré. We have substantially completed the repositioning of our Ferré brand, which has included 

bringing in-house the production of items previously produced by third parties, rationalizing our brand 

presentation by moving from seven separate product lines to three more sharply defined labels, 

launching our GF Ferré young lines label, streamlining our network of wholesale customers, reestablishing 

stricter control over licensees in core product categories, refurbishing our flagship stores 

according to a new design concept, conducting a multi-media marketing campaign and appointing 

Massimo Macchi (formerly President and CEO of Bulgari Perfume and Vice President of the Jewelry 

& Watch Division of the Gucci Group) as the new CEO of our Ferré business. Going forward, we 

intend to broaden the geographic reach of our Ferré brand by developing additional franchising 

relationships, particularly in the United States and the Far East, to extend its reach into additional 

product categories (such as leather accessories, eyewear, fragrances, furs, furniture and jewelry) 

through the use of third-party licensing relationships and to increase its penetration of existing multibrand 

retailers. 

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• Malo. As a result of our efforts to extend the reach of our Malo brand into the apparel and accessories 

segments, we increased its net revenues by approximately 7% from 2003 to 2004 while reducing the 

percentage of sales accounted for by knitwear from approximately 83% in 2003 to approximately 77% 

in 2004. In addition, we have refined our distribution strategy for Malo to focus on high-end 

department stores (such as Neiman Marcus, Harvey Nichols and Itochu) and franchised stores and 

decided to close our directly operated stores in London, New York and Chicago. Going forward, we 

intend to continue extending our Malo product offerings beyond cashmere (capitalizing in particular on 

the recent success of our Malo accessories collections) and expanding the price ranges in which Malo 

products are sold, to increase brand awareness through increased advertising expenditure, to further 

consolidate our distribution platform and to enter new markets in China, the Far East and Eastern 

Europe by adding new wholesale customers and franchising arrangements. 

• Continue to grow our accessories business. We believe that we have a significant opportunity to grow our 

accessories business going forward and we intend to capitalize on this opportunity both by extending our product 

offerings into new product categories as well as by expanding our distribution platform for accessories. In 

particular, we intend to open approximately 200 specialized stores devoted to the sale of accessories in a multibrand 

format around the world by 2009, with the first openings scheduled in Italy, France, Russia and Greece 

before the end of 2005. As these stores will be opened exclusively through the use of franchising arrangements, 

we do not expect to make material capital expenditures in connection with this initiative. As a significant step 

toward this objective, in February 2005 we entered into an agreement with Arts London LLP (“Arts”), a leading 

Eastern European retailer of apparel and accessories, pursuant to which Arts has committed to open at least 16 new 

franchised multi-brand accessories stores by the Spring-Summer 2006 season throughout Eastern Europe and 

Russia, with the possibility of opening up to an additional 125 stores in this region by 2009 if certain conditions 

and financial targets are met. 

• Continue to streamline our distribution platform. In 2004, we began rationalizing the network of single-brand 

Malo or Ferré boutiques that we acquired together with our purchase of these brands with a view to reducing the 

operating expenses and capital expenditures associated with our directly operated retail operations. We are 

presently evaluating opportunities to convert additional directly operated stores to franchised points of sale on a 

case-by-case basis and intend to pursue future retail growth exclusively through the use of franchising and similar 

arrangements. We believe that this strategy should contribute to improvements in our profitability and free cash 

flow while at the same time allowing us to keep control over shop design, advertising and other key factors so that 

we can protect the image of our brands. In addition to the multi-brand accessories initiative described above, we 

plan to open approximately 30 new franchised “IT Stores” during the next two years. Our IT Stores, which 

average approximately 150 to 250 square meters in size, are multi-brand stores that sell apparel and accessories 

from each of our brands except Malo. 

• Reduce our operating cost base. We intend to reduce our operating cost base by outsourcing additional 

manufacturing to third party contractors in low-cost regions, particularly in Asia, Eastern Europe and Northern 

Africa. To this end, we established a pilot program to manufacture in China approximately 150,000 items of 

apparel and accessories (representing approximately 1.8% of our total production) for our 2004/2005 Fall-Winter 

collections. We expect that, over time, the number of items manufactured in such low-cost regions will comprise 

up to 10% of our total production each year. 

• Consolidate improvements to our financial condition and capital structure. Much of our strategy has been 

intended to help us achieve a more balanced financial position by reducing the amount of debt in our capital 

structure. Going forward, we intend to leverage the factors underlying the recent improvements to our profitability 

to maintain our debt/equity ratio at or below its post-offering level. We also intend to maintain our working capital 

at or below its current level of approximately 24% of net revenues by continuing to use our recently opened factory 

outlets to manage our inventory efficiently, by taking advantage of recent Italian tax reforms that allow us to pay 

8

income tax on a consolidated basis and by continuing to optimize and coordinate the collection of value-added-tax 

across our group of companies. 

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SUMMARY FINANCIAL INFORMATION 

The following audited consolidated financial information as of and for the years ended December 31, 2002, 2003 

and 2004 has been extracted or derived from our audited consolidated financial statements and related notes thereto 

included elsewhere in this annual report. 

We have prepared our consolidated financial statements in accordance with IFRS. Consolidated financial 

statements prepared in accordance with IFRS differ in a number of respects from consolidated financial statements 

prepared under Italian GAAP. See the notes to our financial statements included elsewhere herein. 

2002 

Year Ended December 31, 

2003 

(€ in millions) 

2004 

Income Statement Data: 

Net revenues .......................................................................................... € 659.8 € 669.8 € 709.9 

of which royalty income ..................................................................... 13.8 12.9 7.7 

Change in inventory of finished goods and work in progress ................ 15.7 26.8 15.5 

Other operating income.......................................................................... 10.8 11.6 9.6 

Cost of materials .................................................................................... (199.7) (196.9) (197.5) 

Outside services ..................................................................................... (257.9) (292.0) (297.2) 

Personnel expenses ................................................................................ (85.5) (86.8) (84.1) 

Other operating expenses....................................................................... (35.2) (35.8) (50.3) 

Depreciation and amortization ............................................................... (83.4) (146.7) (98.5) 

Operating results .................................................................................... 24.6 (50.0) 7.5 

Financial income (charges) .................................................................... (27.3) (34.7) (29.4) 

Gain on disposal of discontinued operations (1) ....................................... — — 25.8 

Loss on disposal of discontinued operations (1) — — (1.3) 

Income (loss) before taxes ..................................................................... (2.7) (84.7) 2.6 

Income taxes .......................................................................................... 1.9 21.7 (13.8) 

Net income (loss) before minority interest............................................. (0.7) (63.0) (11.2) 

Minority interest..................................................................................... (0.7) (0.3) 1.4 

Net income (loss) for the year................................................................ 0.04 (62.7) (12.6) 

Cash Flow Data: 

Cash flow provided by (used in) operating activities ............................. (27.5) (26.6) 21.9 

Cash flow provided by (used in) investing activities ............................. (211.1) (35.5) 10.7 

Cash flow provided by (used in) financing activities ............................. 239.2 51.6 (54.6) 

Increase (decrease) in cash and cash equivalents ................................... 0.6 (10.4) (22.0) 

Balance Sheet Data (as of end period): 

Cash and cash equivalents (2) ................................................................... 56.4 67.5 201.6 

Net working capital (3) ............................................................................. 172.0 236.0 164.1 

Total current assets ................................................................................ 533.7 645.4 710.1 

Total current liabilities........................................................................... 418.4 522.5 627.4 

Net debt (4) ............................................................................................... 384.4 427.5 324.4 

Total equity............................................................................................ 223.5 157.8 145.1 

Other Data: 

Net income per share (basic and diluted) ............................................... 0.00 (0.26) (0.05) 

Capital expenditures, acquisitions, (5) net of disposals ............................ (30.6) (13.8) (6.9) 

Investments in collection development (6) ............................................... (47.8) (56.2) 66.6 

EBITDA (7) .............................................................................................. 108.0 96.7 106.0 

Adjusted EBITDA (8) .............................................................................. 124.2 

(1) Relates to the disposals during 2004 of IBEX 2001 S.p.A., the company through which we held our fragrance business, 

and Allison S.p.A., the company through which we conducted our eyewear business. 

(2) Cash equivalents include junior notes received under our securitization program and amounts held in the Escrow 

Accounts. 

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(3) Net working capital is defined as the sum of trade receivables, inventories, other current assets, deferred tax assets and 

other non-current assets less the sum of trade payables and accrued expenses, tax liabilities and income tax payable, other 

current liabilities, deferred tax liabilities and other long-term liabilities. 

(4) Net debt represents the sum of our bank overdrafts and short-term loans and our long-term financial payables less cash and 

cash equivalents and short-term financial assets. 

(5) Acquisitions do not include our acquisition of the Gianfranco Ferré Group. 

(6) Investments in collection development are amounts invested to develop prototypes and samples of items comprising our 

collections. The investment capitalized includes the costs of materials and direct labor. These amounts are typically fully 

amortized within twelve months of the time of investment. 

(7) We define EBITDA as earnings before interest, income taxes, depreciation and amortization. EBITDA is presented 

because we believe that it is commonly reported and widely used by securities analysts, investors and other interested 

parties in the evaluation of companies in our industry. However, other companies in our industry may calculate EBITDA 

differently than we do. EBITDA is not a measurement of financial performance under IFRS and should not be considered 

as an alternative to other indicators of our operating performance, cash flows or any other measurement of performance 

derived in accordance with IFRS. 

(8) We calculate Adjusted EBITDA by adding to and subtracting from EBITDA certain non-recurring or unusual items that are 

included in our EBITDA. We believe that Adjusted EBITDA allows for a comparison of our performance on a consistent 

basis without regard to factors that we believe do not reflect the regular operating performance of our business. Accordingly, 

we have included this information in this annual report to permit a more complete and comprehensive analysis of our 

operating performance relative to other companies. The following table shows the adjustments we have made to derive 

Adjusted EBITDA: 

Year Ended 

December 31, 2004 

(unaudited) 


EBITDA ................................................................................................................................ €106.0 

Adjustments: 

Discontinued businessesf(a) ................................................................................................ 9.8 

Redundancy costs(b)................................................................................................................................ 1.3 

Restructuring costs(c) ................................................................................................................................ 8.1 

Eyewear business disposal(d)................................................................................................ (1.0) 

Adjusted EBITDA ................................................................................................................................ €124.2 

(a) Adjustments made in respect of discontinued businesses include the following: 

• The elimination of €3.5 million relating to the disposal of our fragrance business, consisting of costs related to 

our ongoing obligation to promote Ferré brand fragrances; 

• The elimination of the €5.9 million one-time loss resulting from the sale of Gigli S.p.A. recorded in the twelve 

month period ended December 31, 2004; 

• The adding back of €0.4 million to adjust for the net impact of charges incurred by our Gentryportofino business 

during the twelve-month period ended December 31, 2004. 

(b) Represents redundancy costs across various businesses, including costs of €0.6 million relating to the potential 

claims of a terminated manager of IT USA, €0.2 million relating to the termination of certain senior managers of the 

Ferré Group, and €0.5 million in costs relating to redundancies of managers and other employees of MALO S.p.A 

and ITC S.p.A. 

(c) Represents restructuring costs of €8.1 million mainly related to our Ferré and Malo businesses, consisting of facility 

shutdowns and certain contract termination penalties. 

(d) Represents the EBITDA generated by this business in the twelve months ended December 31, 2004. 

11

RISK FACTORS 

We are dependent on our ability to negotiate, maintain and renew license agreements with the owners of leading 

brands. 

We produce apparel and accessories under brands that we either own or are licensed to us. Our portfolio of 

licensed brands includes D&G Dolce & Gabbana, Versus, Versace Jeans Couture, Just Cavalli and C’N’C 

Costume National. In 2004, we derived 66.0% of our consolidated net revenues and, we believe, approximately 

77.9% of our consolidated EBITDA from sales of our licensed brands. The agreements governing these licenses 

expire between 2006 and 2010. In particular, our D&G Dolce & Gabbana license expires upon completion of the 

2006/2007 Fall-Winter season. 

These agreements require us to make minimum guaranteed payments, achieve certain minimum turnover 

thresholds, subject us to restrictive covenants and require us to provide certain design and other services to our 

licensors. If we are unable to fulfil the conditions of these license agreements, they may be terminated by the 

licensor. Moreover, each of our license agreements except one, may be terminated by the relevant licensor in the 

event we cease to be controlled by our current controlling shareholder. 

Our licenses are extremely important to us and we may not be able to negotiate extensions or renewals of our 

license agreements on terms that are acceptable to us, or at all. The termination of, or failure to renew, one or more 

of our licenses could have a material adverse effect on our business, financial condition and results of operations. 

Moreover, even if we are able to renew our licenses when they expire, the future profitability of our licensed brands 

could be impacted as licensors continue their efforts to assert greater control over license terms. See “Description 

of Business—Licenses and Other Intellectual Property” for a summary of the terms and conditions of our principal 

licenses. 

The industry in which we operate is highly competitive, and we may not be able to continue to compete 

effectively. 

The industry in which we operate is highly competitive. We compete with many other designers and manufacturers 

of luxury goods, some of whom are larger, more diversified and have greater financial and other resources than we 

do. We compete on a variety of factors including brand image and recognition, the ability to anticipate and respond 

to changing consumer demands, product quality, manufacturing expertise, marketing, advertising and price. Our 

ability to remain competitive in these areas will be critical to our future success. Our inability to do so could have a 

material adverse effect on our business, financial condition and results of operations. 

Our success depends on the reputations of our brands. 

The success of our business depends on the reputations of our owned and licensed luxury and young lines brands. 

These reputations are influenced by factors such as the style and design of our products, the availability and quality 

of the materials used in making them, the image of our brands and licensors, the quality of our advertising, public 

relations and marketing campaigns, and our general corporate profile. Any decline in the reputations of our brands 

could have a material adverse effect on our business, financial condition and results of operations. 

Demand for our products is heavily influenced by general economic conditions. 

The luxury goods industry is cyclical and heavily dependent on overall levels of disposable income and consumer 

spending, which in turn tend to be affected by the cost of consumer borrowing and economic conditions generally. 

Moreover, continued geopolitical turmoil, additional terrorist attacks or similar events could lead to declines in 

consumer confidence and further affect our business, financial condition and results of operations. 

12

We must anticipate trends and respond to changing consumer preferences. 

Our success depends in large part on our ability and that of our licensing partners to originate and define fashion 

trends, as well as to anticipate and react to changing consumer preferences. Our products must appeal to a broad 

range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change. We 

cannot assure you that we will be able to continue developing appealing products or meet constantly changing 

consumer preferences, nor can we ever be certain that our new products will be successfully received by our 

customers and by consumers. If we fail to anticipate, identify or promptly react to changing consumer demands 

and fashion trends, our brand images may be impaired, which could have a material adverse effect on our business, 

financial condition and results of operations. 

We are dependent on our brand trademarks and other intellectual property rights. 

We believe that our brand trademarks and other intellectual property rights are critical to our ability to create and 

sustain demand for our products. We devote substantial resources to the establishment and protection of these 

rights on a worldwide basis and believe that these efforts have led to successful registration of our brand 

trademarks in our principal markets. Nevertheless, we cannot assure you that the actions taken by us or our 

licensors to establish and protect our brand trademarks and other intellectual property rights will be adequate to 

prevent imitation of our products by our competitors or other third-parties or to prevent these persons from 

asserting rights in, or ownership of, our brand trademarks and other intellectual property rights. 

We require significant working capital and may not have sufficient operating cash flow or access to capital to 

manage our business effectively. 

Pursuant to our business model, we produce items based on product orders received in advance of sales to our 

customers. We therefore require significant working capital to operate our business. Although we believe that our 

expected cash flows from operations together with available borrowings will be adequate to meet our anticipated 

working capital, general liquidity and debt service needs, we cannot assure you that our business will generate 

sufficient cash flows from operations to meet these needs or that future debt or equity financing will be available to 

us in an amount sufficient to enable us to fund our working capital or other liquidity requirements. As of 

December 31, 2004, we believe we would have been able to borrow approximately €90.1 million under our 

Uncommitted Bilateral Loan Facilities. These Uncommitted Bilateral Loan Facilities are uncommitted and 

short-term in nature and are subject to termination or withdrawal by our bilateral lenders at any time. Any such 

termination or withdrawal could lead to or exacerbate liquidity problems. We also rely on a securitization program 

for our liquidity needs. As of December 31, 2004, approximately €73.8 million was available under our 

securitization program. If our working capital requirements exceed our projections, or if our operating cash flow is 

lower than expected, we may be required to seek additional financing, which may not be available on commercially 

reasonable terms, if at all. 

Our ability to arrange financing generally and our cost of capital depends on numerous factors, including general 

economic conditions, the availability of credit from banks, other financial institutions and in the capital markets, 

restrictions in instruments governing our indebtedness and our general financial performance. Our liquidity 

problems would be exacerbated to the extent that our suppliers and third-party manufacturers were to be successful 

in negotiating a shortening of the payment terms we offer to them (which currently range between two and five 

months, on average). Our working capital position would be negatively impacted to the extent that our suppliers 

and third party manufacturers were to be able to negotiate a shortening of these payment terms. Our inability to 

fund our working capital requirements could adversely affect our ability to provide our customers and suppliers 

with payment terms that are acceptable to them or to maintain the inventory levels that are necessary to effectively 

manage our business. See “Operating and Financial Review and Prospects”. 

13

Our business may be adversely impacted as a result of our substantial indebtedness, the servicing of which 

requires the use of a significant portion of our cash flow. Our ability to generate sufficient cash or access 

additional capital in the future depends on many factors, some of which are beyond our control. 

We are highly leveraged and have significant debt obligations. As of December 31, 2004, after giving effect to our 

offering of Notes in March 2005 and the satisfaction and discharge of our 2005 Notes we would have had total net 

third party debt of €325.6 million, of which €185.0 million would have been represented by the Notes, 

€85.0 million would have been represented by the New Credit Agreement, €76.1 million would have been 

represented by our securitization facilities and factoring and €38.1 million would have been represented by our 

Uncommitted Bilateral Loan Facilities and other debt, net of €58.6 million of cash and cash equivalents and junior 

notes received under our securitization program. 

Our substantial indebtedness could have important consequences. For example, it is likely to: 

• require us to dedicate a significant portion of our cash flow from operations to service our debt, thereby 

reducing the availability of cash flow to make dividend payments and to fund our working capital needs, 

capital expenditures, investments in collection development and other general corporate purposes; 

• increase our vulnerability to general adverse economic and industry conditions; 

• limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we 

operate; 

• limit our ability to make strategic acquisitions or pursue other business opportunities that may arise; 

• place us at a competitive disadvantage compared to competitors who have less indebtedness than we do; and 

• limit our ability to borrow additional funds and increase the cost of any such borrowings, particularly because 

of the financial and other restrictive covenants contained in the indenture governing the Notes. 

Our ability to make payments on and repay or refinance our debt and to fund our working capital requirements, 

capital expenditures, investments in collection development or business opportunities that may arise, such as 

acquisitions of other businesses, will depend on our future operating performance and ability to generate cash. This 

will depend, to some extent, on general economic, financial, competitive, market and other factors, many of which 

are beyond our control. 

We believe that our expected cash flows, together with available borrowings, will be adequate to meet our 

anticipated needs. However, we cannot assure you that our business will generate sufficient cash flow from 

operations or that future borrowings will be available to us in amounts sufficient to enable us to pay our debts when 

due or to fund our other liquidity needs. If our future cash flows from operations and other capital resources are 

insufficient to pay our obligations as they mature or to fund our liquidity needs, we may be forced to: 

• reduce or delay our business activities and capital expenditures; 

• sell assets; 

• obtain additional debt or equity capital; or 

• restructure or refinance all or a portion of our debt on or before maturity. 

We cannot assure you that we would be able to accomplish any of these alternatives on a timely basis or on 

satisfactory terms, if at all. In addition, the terms of our existing and future debt may limit our ability to pursue any 

of these alternatives. 

14

We are subject to significant restrictive debt covenants, which may limit our ability to operate our business. 

The indenture governing the Notes contains covenants that limit the discretion of our management with respect to 

certain business matters. For example, these covenants will significantly restrict our ability and that of our 

subsidiaries to, among other things: 

• incur additional debt; 

• pay dividends or distributions on, redeem or repurchase our equity securities; 

• make certain restricted payments and investments; 

• create certain liens; 

• transfer or sell assets; 

• engage in sale and leaseback transactions; 

• merge or consolidate with other entities; and 

• enter into transactions with affiliates. 

These covenants could have a material adverse effect on our ability to finance our future operations or capital needs 

or to engage in other business activities that may be in our best interests. 

In addition, the covenants under the New Credit Agreement require us to meet certain financial ratio and other 

financial tests. Events beyond our control could affect our ability to meet these tests. Our failure to comply with 

these tests could cause an event of default under the New Credit Agreement. If an event of default were to occur, 

our lenders could elect to declare all principal amounts outstanding under the New Credit Agreement and accrued 

and unpaid interest thereon to be immediately due. We cannot assure you that in such circumstances we would 

have sufficient assets to repay all of our obligations. 

We are dependent on our principal shareholder and on certain members of our management. 

Our success is dependent in part on the efforts of certain members of senior management and other key design 

personnel. In particular, Mr. Tonino Perna, our founder, chairman of our board of directors and chief executive 

officer has been and will be instrumental to the establishment, growth and future development of our business. The 

loss of Mr. Perna or other members of our senior management and design teams, or any negative market or industry 

perception arising from such loss, could have a material adverse effect on our business, financial condition and 

results of operations. 

We also rely on our ability to recruit, train and retain skilled personnel to design and market our products and 

participate in the operation of our business. We cannot assure you that we will continue to be able to retain or 

attract a sufficient number of skilled personnel on attractive terms or at all. Any inability to recruit, train or retain 

such personnel could hinder our ability to design and market successful new products and to operate our business. 

15

We are dependent on third-party manufacturers to produce our products on a timely basis and to our 

specifications. 

We depend on independent third-party manufacturers to manufacture our products. The inability of these 

contractors to produce our products on a timely basis or to our specifications could cause us to miss delivery date 

requirements, which could in turn cause our customers to cancel orders, refuse deliveries or negotiate discounts, 

any of which could have a material adverse effect on our business, financial condition and results of operations. 

Increases in the cost of materials used to manufacture our products can decrease our profitability. 

The principal raw materials we use in our business include fabrics made from cotton, wool, silk, cashmere, 

synthetics and cotton-synthetic blends. The prices we pay for these fabrics fluctuate in response to market 

conditions that are in turn influenced by agricultural conditions, supply conditions, government regulations, the 

general economic climate and other factors, most of which are unpredictable and outside our control. Fluctuations 

in petroleum prices may also influence the prices of related items used to manufacture these fabrics such as 

chemicals, dyes and polyester. Increases in the prices of these raw materials would increase our cost of sales and 

reduce our profitability unless we can and are able to pass on these increased costs to our customers or hedge 

against the risk of such price increases. The market price of cashmere, the cost of which typically accounts for 

approximately one-third of the total direct cost of producing our Malo-branded knitwear, is particularly volatile and 

has fluctuated widely in recent years. Although we have adopted a policy of purchasing additional raw cashmere 

for future use when market prices are relatively low, sustained high prices for raw cashmere could significantly 

affect our ability to sell our Malo cashmere knitwear at profitable prices or at all. 

We are exposed to currency-related risks. 

Fluctuations in the value of the euro against other currencies have in the past had, and may have in the future, a 

material adverse effect on our results of operations. We have conducted and will continue to conduct transactions 

in currencies other than euro, particularly U.S. dollars, British pounds and Swiss francs. The euro appreciated 

against the U.S. dollar by 22.9% during 2003 and 7.0% during 2004, based on the average U.S. dollar to euro 

exchange rates for 2002, 2003 and 2004. This trend has negatively affected our revenues and margins and, 

although the negative impact from exchange rate fluctuations has been partially offset by gains on hedging 

contracts, we have recently recorded net losses on foreign exchange. To the extent that we continue to recognize 

revenues in currencies other than euro, we will encounter currency exchange risks. In 2004 approximately 6.7%, 

4.1% and 1.7% of our consolidated operating revenues were denominated in U.S. dollars, British pounds and Swiss 

francs, respectively, while approximately 84.5% of our consolidated operating expenses were denominated in euro. 

We cannot assure you that our hedging arrangements will not result in additional losses or that further shifts in 

currency exchange rates will not have a material adverse effect on us. 

Despite our current levels of indebtedness, we, the Subsidiary Guarantors and our non-guarantor subsidiaries 

may still be able to incur substantially more debt. 

We, the Subsidiary Guarantors and our non-guarantor subsidiaries may be able to incur substantial additional 

indebtedness in the future, including in connection with future acquisitions. The terms of the indenture governing 

the Notes will limit, but not prohibit, us or our subsidiaries from doing so. Our incurrence of additional 

indebtedness could exacerbate the related risks that we now face, as described above. 

If there is a default, the value of the security to be granted following the satisfaction and discharge of the 2005 

Notes may not be sufficient to repay the holders of the Notes and the other first-priority creditors. 

Following the satisfaction and discharge of the remaining outstanding principal amount of the 2005 Notes, we will 

secure our obligations with respect to the Notes with the security as more fully described elsewhere in this annaual 

report. Certain of the assets underlying the security are also pledged on a first-priority basis for the benefit of the 

lenders under the New Credit Agreement. Any recoveries realized under this shared security are required to be 

shared among the holders of the Notes and lenders under the New Credit Agreement on a pro rata basis. In the 

16

event of a foreclosure on the security, the proceeds from the sale of the assets securing the Notes and the New 

Credit Agreement may not be sufficient to satisfy our obligations under the Notes because proceeds from a sale of 

the assets would, under the relevant security documents, be applied to satisfy indebtedness and any other 

obligations under the New Credit Agreement on a proportional basis to any proceeds applied in respect of the 

Notes. 

The value of the security in the event of a liquidation will depend on market and economic conditions, the 

availability of buyers and similar factors. You should not rely upon the book value of the assets underlying the 

security as a measure of realizable value for such assets. By its nature, some or all the security may be illiquid and 

may have no readily ascertainable market value. Likewise, there is no assurance that we will be able to sell the 

assets underlying the security or that there will not be substantial delays in such a liquidation. Accordingly, there 

can be no assurance that the proceeds of any sale of the security following any acceleration of the maturity of the 

Notes would be sufficient to satisfy, or would not be substantially less than, amounts due on the Notes after sharing 

the proceeds with the lenders under the New Credit Agreement. 

If the proceeds of any foreclosure or sale of the assets underlying the security are insufficient to repay all amounts 

due on the Notes, the holders of the Notes (to the extent the Notes are not repaid from the proceeds of the sale of 

the security) would have only an unsecured claim against our remaining assets, which claim will rank equal in 

priority to the unsecured claims of any unsatisfied portion of the obligations secured by the first-priority liens and 

our other unsecured senior indebtedness. 

The liabilities of the Guarantors with respect to the Guarantees of the Notes are structurally subordinated to the 

liabilities of non-guarantor subsidiaries of the Company. 

The holders of Notes will not have a direct claim on the cash flows or assets of the Company’s non-guarantor 

operating subsidiaries. Furthermore, such subsidiaries have no obligation, contingent or otherwise, to pay amounts 

due under the Notes or the Guarantees, or to make funds available to the Issuer or the Company or the other 

Guarantors for those payments, or to the Company to make payments to the Issuer under the Funding Loan. 

The Issuer is a finance subsidiary that has no revenue-generating operations of its own and depends on cash 

received from the Funding Loan in order to be able to make payments on the Notes. 

The Issuer is a finance subsidiary. The Issuer conducts no business operations of its own, and has not engaged in, 

and will not be permitted to engage in, any activities other than the issuance of the 2005 Notes, the Notes, the onlending 

of the proceeds from such issuances to the Company, the meeting of obligations in respect of the Escrow 

Account, the servicing of its obligations under the 2005 Notes and the Notes and other activities related to future 

permitted debt issuances. The Issuer has no subsidiaries and its only material assets and only source of revenues are 

its right to receive payments under the Funding Loan and the Escrow Account. The Issuer’s ability to make 

payments on the Notes is therefore primarily dependent on the payments received pursuant to the Funding Loan. If 

any scheduled payments under the Funding Loan are not made by the Company, for whatever reason, the Issuer 

may not have any other sources of funds available to it that would permit it to make payments on the Notes. In such 

event, holders of the Notes would have to rely upon claims for payment under the Guarantees, which are subject to 

the risks and limitations described below under “—Fraudulent transfer statutes may limit your rights as a holder of 

the Notes”. 

We may not be able to raise the funds necessary to finance a change of control offer required by the indenture. 

Our inability to do so would result in an event of default under the indenture. 

Under the terms of the indenture governing the Notes, we are required to offer to repurchase the Notes upon the 

occurrence of a change of control as defined in the indenture governing the Notes. It is possible that we may not 

have sufficient funds at the time of a change of control to finance such a change of control offer required by the 

indenture governing the Notes. Our inability to repurchase the Notes pursuant to a change of control offer would 

result in an event of default under the indenture governing the Notes, which could then result in the acceleration of 

the Notes. 

17

In addition, the change of control provisions contained in the indenture may not protect holders of the Notes in the 

event of certain highly leveraged transactions, including reorganizations, restructurings or mergers, because these 

transactions may not involve a change in voting power or beneficial interest of the magnitude required to trigger 

the change of control provisions. See “Description of the Notes—Purchase of Notes upon a Change of Control”. 

Your ability to recover under the share charges to be granted following the discharge and satisfaction of the 

2005 Notes will be limited. 

In order to secure our obligations under the New Credit Agreement and the Guarantee of the Notes by the 

Company, the Company will grant first-ranking security interests in the share capital of certain of its direct 

subsidiaries (the “Share Charges”) following the satisfaction and discharge of the 2005 Notes. 

You may not be able to recover on the Share Charges if the proceeds realized from such sale or sales is less than 

the total aggregate amount owed under the New Credit Agreement, the Notes and the 2005 Notes. If so, you will 

not recover anything under the Share Charges or you will not recover the aggregate amount of the obligations 

under the Notes, respectively. 

There are risks regarding the enforceability of the Share Charges under Italian law. Under Italian law, a security 

interest created pursuant to a share pledge is not validly enforceable for the benefit of the beneficiaries who are not 

a party to the relevant pledge agreement creating the security interest. Therefore, The Bank of New York, as 

registered holder of the Notes, and the Trustee are entering into an agreement with the Issuer and the Company 

under which they will become the holder of the secured claim for the benefit of the holders of the Notes. However, 

if a challenge to the validity or enforceability of the security interest created by the Share Charges were successful, 

holders of the Notes might be unable to recover any amounts under the Share Charges. 

The Share Charges are governed by Italian law and provide that the rights with respect to the Notes, the Guarantees 

and the Indenture must be exercised by the Joint Security Agent on behalf of the holders of the Notes and in respect 

of the entire outstanding amount of the Notes. As a consequence, holders of the Notes may not, individually or 

collectively, take any direct action to enforce any rights in their favor under the Share Charge. The holders of the 

Notes may only act through the Joint Security Agent. 

The named beneficiaries in the Share Charges are the Joint Security Agent, the lenders under the New Credit 

Agreement specifically identified as such in the Share Charges, the Trustee and the registered holder of the Notes, 

which will be The Bank of New York Depository (Nominees) Limited. With respect to Share Charges governed by 

Italian law, our Italian counsel has advised us that there is some uncertainty under Italian law (i) if beneficial 

owners of the Notes that are not identified as registered holders in the Share Charges will be deemed to have a valid 

and perfected security interest under the Share Charges and (ii) as to the validity of any security interest created in 

favor of The Bank of New York Depository (Nominees) Limited, as registered holder of the Notes. Also, under 

Italian law, in the event that the Company entered into insolvency proceedings, the security interest created under 

the Share Charges could be subject to potential challenges by a court appointed officer or by other creditors of the 

Company under the “claw-back” provisions of Italian insolvency law. If any challenge to the validity or the 

perfection of the security interest created by the Share Charges was successful, holders of the Notes may not be 

able to recover any amounts under the Share Charges. 

Fraudulent transfer statutes may limit your rights as a holder of the Notes. 

Our obligations under the Notes are guaranteed by the Guarantors. The Guarantors are organized under the laws of 

Italy. Each of the Guarantees may be subject to review under the provisions of Italian law relating to prohibiting 

fraudulent instruments, deeds or acts. The following discussion of Italian law describes generally applicable terms 

and principles, which are defined under Italy’s fraudulent transfer statutes. 

In an insolvency proceeding, it is possible that creditors of the Guarantors may challenge the Guarantees and 

intercompany obligations as fraudulent instruments. If so, such provisions may permit a court, if it makes certain 

findings, to: 

18

• avoid or invalidate all or a portion of the Guarantors’ obligations under the Guarantees; 

• direct that holders of the Notes return any amounts paid under a Guarantee to the relevant Guarantor or to a 

fund for the benefit of its creditors; and 

• take other action that is detrimental to you. 

If we cannot satisfy our obligations under the Notes and any Guarantee is found to be a fraudulent instrument, we 

cannot assure you that we can ever repay in full any amounts outstanding under the Notes. In addition, the liability 

of each Guarantor under the indenture will be limited to the amount that will result in its Guarantee not constituting 

a fraudulent instrument or improper corporate distribution, and there can be no assurance as to which standard a 

court would apply in making any such determination of the maximum liability of each Guarantor. 

In general, in order to avoid or invalidate any of these actions, a court must determine that, at the time the 

Guarantees were issued, the Guarantor: 

• issued such Guarantee with the intent of hindering, delaying or defrauding its current or future creditors; or 

• received less than reasonably equivalent value for incurring the debt represented by the Guarantees on the basis 

that the Guarantees were incurred solely for the Issuer’s benefit or some other basis and (i) was insolvent or 

rendered insolvent by reason of the issuance of the Guarantee, (ii) was engaged, or about to engage, in a 

business or transaction for which the Guarantor’s assets were unreasonably small or (iii) intended to incur, or 

believed it would incur, debts beyond its ability to make required payments as and when they would become 

due. 

Different jurisdictions evaluate insolvency by applying different criteria, but a Guarantor is generally considered to 

have been insolvent at the time it issued a guarantee if: 

• its liabilities exceeded the fair market value of its assets; 

• it could not pay its debts as and when they become due; or 

• the present saleable value of its assets is less than the amount required to pay its total existing debts and 

liabilities, including contingent liabilities, as they mature or become absolute. 

We cannot assure you as to which standard a court would apply in assessing whether a Guarantor was “insolvent” 

as of the date it issued the Guarantees. Nor can we assure you that, regardless of the method of valuation, a court 

would not determine that a Guarantor was insolvent on that date, or that a court would not determine, regardless of 

whether or not a Guarantor was insolvent on the date its Guarantee was issued, that payments to holders of the 

Notes constituted fraudulent instruments on other grounds. 

The insolvency laws of Italy and Luxembourg may not be as favorable to you as the bankruptcy laws of the 

jurisdictions with which you are familiar. 

Italy 

We are subject to Italian laws governing creditors’ rights and bankruptcy, insolvency and restructuring 

proceedings. In general, these Italian laws are considered to be more favorable to debtors and to the trustee in 

bankruptcy than the regimes of certain other jurisdictions, including the United States. Moreover, the enforcement 

of security interests by creditors in Italy can be time-consuming and expensive. 

Under Italian law, a company must be declared insolvent by a court. Insolvency occurs when a debtor is no longer 

able to regularly meet its obligations as and when they become due on a permanent, rather than temporary, basis. 

19

The following restructuring and bankruptcy alternatives are available under Italian law for companies facing 

financial difficulties: 

• Restructuring outside of judicial process. In Italy, restructuring generally takes place through the formal 

judicial proceedings because of the more favorable conditions for the debtor and the fact that informal 

arrangements put in place as a result of a non-judicial restructuring are vulnerable to being reviewed by a court 

in the event of a subsequent insolvency and possibly challenged as voidable transactions. However, in cases 

where a company is solvent, but is facing financial difficulties, it may be possible for the company to enter into 

an out-of-court arrangement with its creditors (concordato stragiudiziale), which may safeguard the existence 

of the company. 

• Court-supervised pre-bankruptcy composition with creditors (concordato preventivo). Prior to a declaration of 

bankruptcy, an insolvent company may seek a court-supervised arrangement with its creditors (concordato 

preventivo), in order to avoid a declaration of bankruptcy and the initiation of liquidation proceedings. Only the 

debtor can request a concordato preventivo, which requires the approval of the company’s shareholders, a 

majority (both in number and amount of claims) of the debtor’s unsecured creditors and the court. During the 

pendency of concordato preventivo proceedings all actions by creditors are stayed. The composition 

arrangement governing the company’s restructuring must provide for sufficient guarantees for the full payment 

of secured creditors and at least 40% of the claims of unsecured creditors or the transfer of all of its existing 

assets, other than those of a personal nature, to its creditors provided that on the basis of the evaluation of such 

assets, it could be deemed that the secured and unsecured creditors will be paid in the percentages described 

above. During the implementation of the arrangement, the company is managed by the debtor but under the 

surveillance of an official appointed by the court, and under the supervision of the court. If the concordato 

preventivo fails, the company will be automatically declared bankrupt by the court and enter bankruptcy 

(fallimento) proceedings (described below). 

• Court-supervised temporary controlled administration (amministrazione controllata). In the event that a 

company is deemed to be experiencing significant but temporary financial or liquidity problems and there is 

definitive evidence that its financial condition can be improved, the company may petition to the court to be 

admitted to a controlled administration proceeding (amministrazione controllata), which can give troubled 

companies up to two years to overcome temporary financial difficulties. Controlled administration proceedings 

can only be initiated at the request of the debtor and subject prior approval by its shareholders. Moreover, the 

amministrazione controllata plan proposed by the company must be approved by a majority of the company’s 

unsecured creditors; secured creditors are excluded from the vote. This approval must be granted in a creditors’ 

meeting to be convened within 30 days of the initial court order. During the proceeding, actions by creditors 

are stayed (subject to certain exceptions) and management can generally continue to operate the company 

under the direction of the court. The court will also appoint a committee of three to five of the company’s key 

creditors to monitor the conduct of the proceeding. These proceeding can be terminated at the request of the 

court official, and, therefore, the company can be declared bankrupt if it appears that the proceeding is 

ineffective or likely to be unproductive. A company can also apply to the court to terminate the administration 

if it overcomes its financial difficulties or to ask for court-supervised pre-bankruptcy meetings with creditors, 

should the conditions therefor be met. 

• Extraordinary administration for large companies (amministrazione straordinaria delle grandi imprese in 

crisi). Under Italian law large industrial and commercial enterprises may avail themselves of special 

administration proceedings. The purpose of the administration proceedings is to rehabilitate a company in 

financial distress in light of the significance of the company’s technical, commercial, productive and 

employment value. The new proceedings enacted following the insolvency of the Parmalat Group are available 

to insolvent companies having more than 1,000 employees and debt (including debt arising from outstanding 

guarantees) of at least €1.0 billion. Thus, based on our current numbers of employees, we may be able to avail 

ourselves of these proceedings. This recent legislation represents a refinement of the old proceedings as it 

expedites the admission to extraordinary administration for the companies which satisfy the aforementioned 

conditions. The substantial effects of the procedure, however, remain unchanged. These consists of: (i) the 

adoption of a rehabilitation program which might alternatively be a program of corporate restructuring (lasting 

20

a maximum of two years); (ii) a program of asset disposals (lasting a maximum of one year); (iii) moratorium 

on actions by creditors; (iv) appointment by the Government of a receiver (commissario straordinario) to 

substitute the existing management in the company’s operations. 

• Bankruptcy proceeding (fallimento). A request to declare a debtor bankrupt and to commence a bankruptcy 

proceeding (fallimento) for the liquidation of a debtor can be made by the debtor, a creditor, a court or a public 

prosecutor. The request must be approved by an insolvency court. Upon a declaration of bankruptcy: (i) subject 

to certain exceptions, all actions of creditors are stayed and creditors must file claims within a defined period; 

(ii) the administration of the debtor and the management of its assets pass from the debtor to the receiver; and 

(iii) any action taken by the debtor after a declaration of bankruptcy with respect to a creditor is ineffective. 

The bankruptcy proceeding is carried out and supervised by a court-appointed receiver, a deputy judge and a 

creditors’ committee. The receiver is not a representative of the creditors. The receiver is responsible for the 

liquidation of the assets of the debtor for the satisfaction of creditors. The proceeds from the liquidation are 

distributed in accordance with statutory priority. In Italy, liquidation proceedings can take a considerable 

amount of time, particularly in cases where the debtor’s assets include real property. As described below, 

Italian insolvency law provides for priority to the payment of certain preferential creditors, including 

employees and the Italian treasury. 

• Post-bankruptcy composition with creditors (concordato fallimentare). A bankruptcy (fallimento) can be 

terminated prior to the receiver’s liquidation by a debtor filing a petition to the insolvency court for a postbankruptcy 

composition with creditors (concordato fallimentare). In such a petition, the debtor must indicate: 

(i) the percentage of the unsecured claims that will be paid; (ii) the timing of the repayment; and (iii) the 

guarantees offered with respect to such repayment. The debtor must pay all debts of the secured creditors. The 

post-bankruptcy composition requires the approval of a majority, both in number and in amount of claims, of 

the debtor’s unsecured creditors and the court. 

In Italy, the highest priority claims (after the costs of the proceedings have been paid and other obligations 

undertaken by the receiver have been satisfied) include the claims of the Italian tax authorities and social security 

administrators and claims for employee wages. Secured creditors are repaid next with any remaining funds and 

payment of insecured creditors follows. 

As in other jurisdictions, there are so-called “claw-back” or avoidance provisions under Italian law that may give 

rise to the revocation of payments or the setting aside of grants of security interests made by the debtor prior to the 

declaration of bankruptcy. Claw-back rules under Italian law are normally considered to be particularly favorable 

to the trustee in bankruptcy in comparison to the rules applicable in the United States. 

In a bankruptcy proceeding (fallimento), Italian law provides for a claw-back period of up to two years. A 

bankruptcy receiver can request that certain transactions of the debtor during the two year-period preceding the 

declaration of bankruptcy be voided. In certain cases, the claw-back period can be extended to up to five years. 

A comprehensive reform of Italian bankruptcy laws is expected in the near future. 

Luxembourg 

Under Luxembourg insolvency laws, your ability to receive payment on the Notes may be more limited than it 

would be under U.S. bankruptcy laws. Under Luxembourg law, the following types of proceedings (collectively 

referred to as insolvency proceedings) may be opened against an entity such as the Issuer having its registered 

office or center of main interest in Luxembourg: 

• Bankruptcy proceedings (faillite), the opening of which may be requested by a company or by any of its 

creditors. Following such a request, the courts having jurisdiction may open bankruptcy proceedings if a 

company (i) stopped making payments as they became due (cessation des paiements) and (ii) has lost its 

commercial creditworthiness. If a court finds that these conditions are satisfied, it may also open bankruptcy 

proceedings, absent a request made by the company or a creditor. The main effect of such proceedings is the 

21

suspension of all measures of enforcement against the company in question, except, subject to certain limited 

exceptions, the enforcement by secured creditors and the payment of the secured creditors in accordance with 

their rank upon the realization of the company’s assets. 

• Controlled management proceedings (gestion contrôlée), the opening of which may only be requested by the 

company and not by its creditors. 

• Composition proceedings (concordat préventif de faillite), which may be requested only by the company and 

not by its creditors. The court’s decision to admit a company to composition proceedings triggers a provisional 

stay on enforcement of claims by creditors. 

In addition to these proceedings, your ability to receive payment on the Notes may be affected by a decision of a 

court to grant a stay on payments (sursis de paiements) or to put the Issuer into judicial liquidation (liquidation 

judiciaire). Judicial liquidation proceedings may be opened at the request of the public prosecutor against 

companies pursuing an activity violating criminal laws or that are in violation of the commercial code or of the 

laws governing commercial companies. The management of such liquidation proceedings will generally follow the 

rules of bankruptcy proceedings. 

The Issuer’s liabilities in respect of the Notes will, in the event of a liquidation of the Issuer following bankruptcy 

or judicial liquidation proceedings, only rank after the cost of liquidation (including any debt incurred for the 

purpose of such liquidation) and those of the Issuer’s debts that are entitled to priority under Luxembourg law. 

Preferential debts under Luxembourg law include: 

• certain amounts owed to the Luxembourg Revenue; 

• value-added tax and other taxes and duties owed to Luxembourg Customs and Excise; 

• social security contributions; and 

• remuneration owed to employees. 

Assets over which a security interest has been granted will in principle not be available for distribution to 

unsecured creditors (except after enforcement of the secured creditor’s intersts and, then, only to the extent a 

surplus is realized). 

During such insolvency proceedings, all enforcement measures by unsecured creditors are suspended. 

Luxembourg insolvency law may affect transactions entered into or payments made by the Issuer during the period 

before liquidation or administration. 

All payments made and all other transactions concluded or performed, during the so-called suspect period (période 

suspecte) are subject to voidance at the discretion of the court if the party receiving the payment or the counterparty 

to the relevant transaction was aware of the situation of suspension of payments (cessation de paiements) of the 

Issuer. Certain defined payments and transactions concluded or performed during the suspect period or the ten days 

preceding the commencement of the suspect period will be subject to non-discretionary voidance by the bankruptcy 

court. 

The suspect period starts on the date of cessation of payments, which date is fixed by the Luxembourg bankruptcy 

court at a date which may not be more than six months before the date on which the Luxembourg court formally 

adjudicates the relevant person bankrupt (except that in certain specific situations the court may set the maximum 

up to six months prior to the filing of controlled management or composition proceedings application). 

In particular: 

22

• pursuant to article 445 of the Luxembourg Code of Commerce specified transactions (such as, in particular, the 

granting of a security interest for antecedent debts; the payment of debts which have not fallen due, whether 

payment is made in cash or by way of assignment, sale, set-off or by any other means; the payment of debts 

which have fallen due by any other means than in cash or by bill of exchange; the sale of assets without 

consideration of for substantially inadequate consideration) must be set aside or declared null and void, if so 

requested by the insolvency receiver; 

• pursuant to article 446 of the Luxembourg Code of Commerce payments made for matured debts, as well as 

other transactions concluded for consideration during the suspect period are subject to cancellation by the court 

upon proceedings instituted by the insolvency receiver if they were concluded with the knowledge of the 

bankrupt’s cessation of payments; and 

• regardless of the suspect period, article 448 of the Luxembourg Code of Commerce and article 1167 of the 

Luxembourg Civil Code (action paulienne) give the creditor the right to challenge any fraudulent payments 

and transactions made prior to the bankruptcy, without limitation of time. 

You may not be able to recover in civil proceedings for U.S. securities laws violations. 

All of our directors and executive officers reside outside the United States, and the great majority of our assets are 

located outside the United States. As a result, you may not be able to effect service of process on us within the 

United States or to recover on judgments of U.S. courts in any civil liabilities proceedings under the U.S. federal 

securities laws. In addition, there is doubt as to the enforceability in Italy, in original actions or actions for the 

enforcement of judgments of U.S. courts, of civil liabilities predicated solely upon the federal securities laws of the 

United States. 

There is no guarantee that you will be able to sell your Notes. 

The Notes are listed on the Luxembourg Stock Exchange and Merrill Lynch has informed us that it and/or its 

affiliates intend to make a market in the Notes. Merrill Lynch and/or its affiliates, however, are under no obligation 

to do so and any of them may cease its market-making at any time without notice. The price at which the Notes 

may trade will depend on many factors, including, but not limited to, prevailing interest rates, general economic 

conditions, our performance and financial results and economic conditions in the markets for similar securities. 

Historically, the markets for non-investment grade debt such as the Notes have been subject to periodic disruptions 

that have caused substantial volatility in the prices of such instruments. The market, if any, for the Notes may be 

subject to similar disruptions which could have an adverse effect on holders of the Notes. 

Transfers of the Notes will be subject to certain restrictions. 

We have not registered the Notes under the U.S. Securities Act or any U.S. state securities laws. Therefore, you 

may not offer or sell the Notes, except pursuant to an exemption from, or in a transaction not subject to, the 

registration requirements of the U.S. Securities Act and applicable state securities laws. You should read the 

discussion under the heading “Notice to Investors” for further information about the transfer restrictions that apply 

to the Notes. It is your obligation to ensure that your offers and sales of Notes within the United States and other 

countries comply with all applicable securities laws. 

The Notes will initially be held in book-entry form and therefore you must rely on the procedures of the relevant 

clearing systems to exercise any rights and remedies. 

Unless and until definitive Notes are issued in exchange for book-entry interests in the Notes, owners of the bookentry 

interests will not be considered owners or holders of the Notes. Instead, the registered holder, or their 

respective nominee, will be the sole holder of the Notes. Payments of principal, interest and other amounts owing 

on or in respect of the Notes in global form will be made to The Bank of New York (as “Principal Paying Agent” 

for the Notes), which will make payments to the common depository, which will in turn distribute payments to 

Euroclear and Clearstream. Thereafter, payments will be made by Euroclear and Clearstream to participants in 

23

these systems and then by such participants to indirect participants. After payment to the common depository, 

neither we, the Trustee nor any paying agents will have any responsibility or liability for any aspect of the records 

relating to, or payments of, interest, principal or other amounts to Euroclear and/or Clearstream or to owners of 

book-entry interests. 

Unlike holders of the Notes themselves, owners of book-entry interests will not have the direct right to act upon our 

solicitations for consents or requests for waivers or other actions from holders of the Notes that we may choose to 

make in the future. Rather, owners of book-entry interests will be permitted to act only to the extent they have 

received appropriate proxies to do so from Euroclear and/or Clearstream or, if applicable, from a participant. We 

cannot assure you that procedures implemented for the granting of such proxies will be sufficient to enable you to 

vote on any such solicitations or requests for actions on a timely basis. 

24

Our Company 

DESCRIPTION OF BUSINESS 

We are Europe’s leading producer and distributor of branded apparel and accessories targeted at the young lines 

market segment of the apparel and accessories market. We also produce and distribute branded apparel and 

accessories for the luxury market segment. Our products are marketed and sold under a number of internationally 

recognized brands, which we either own or which are licensed exclusively to us by third parties, including luxury 

brands such as Ferré and Malo (which we own), and young lines brands D&G Dolce & Gabbana, Versus, Versace 

Jeans Couture, Just Cavalli and C’N’C Costume National (which we license from third parties) and Extè (which 

we own). 

Our business requires us to manage a complicated array of activities, including the design, sample production, 

showroom sale, raw material procurement, manufacturing, and distribution of our branded apparel and accessories 

products. Our production process revolves around the annual production of both Spring-Summer and Fall-Winter 

collections for each of our brands. Each year, we source raw materials from over 1,000 suppliers, directly manage 

the production of prototypes and samples, and co-ordinate the manufacturing by third parties of over 8 million 

items of apparel and accessories. We then distribute these items to over 4,000 wholesale customers worldwide 

through our global distribution network. Our customers are comprised primarily of independent multi-brand 

boutiques but also include well-known department stores, international importer-distributors and select duty-free 

shops. We also sell a smaller percentage of our apparel and accessories through franchised stores owned and 

operated by selected third parties as well as stores owned and directly operated by us. 

Since our formation in 1982, we have grown our business by developing a global distribution system, creating a 

sophisticated and flexible production platform and broadening our product range and portfolio of brands. The most 

recent brand we acquired was Ferré, which we purchased in 2002 and subsequently relaunched in connection with 

a comprehensive repositioning program. We were one of the first producers of apparel and accessories to develop 

the young lines market segment aimed at younger consumers — a segment that we believe is less exposed to 

fluctuations in demand than other market segments of the fashion industry. 

Until recently we also produced, sold and distributed branded eyewear and fragrances. We disposed of our 

fragrance business in March 2004 and our eyewear business in October 2004 in connection with our strategic 

refocusing program. 

Overview of Our Brands 

Each year, we develop, produce and distribute Fall-Winter and Spring-Summer collections featuring a wide variety 

of apparel and accessories for each of our owned and licensed brands. These products consist of a wide range of 

jeans, shirts, jackets, trousers, skirts, blouses, outerwear, underwear, knitwear and other apparel, as well as 

accessories such as silk and wool scarves, silk ties, socks and stockings, caps, shoes, belts, handbags, knapsacks, 

gloves and other small leather items. 

We design all of our owned brand products and we assist our licensors in the creation and development of our 

licensed brand products, in each case through the use of in-house design teams. Each of these teams is dedicated to 

a particular brand or group of related brands and works independently from the others in order to preserve the 

distinctive image and other characteristics of each brand. We believe that the consumer recognition, international 

appeal and the “Made in Italy” cachet associated with most of the brand names we own or license have been 

important factors for our business to date. 

25

Our Luxury Brands 

Our portfolio of owned luxury brands is aimed at an older, more sophisticated market. During 2004, our luxury 

brands accounted for 24.5% of our consolidated net revenues and, we believe, approximately 13.9% of our 

consolidated EBITDA. 

Ferré is a fashion brand originally developed by the designer Gianfranco Ferré, who remains the brand’s chief 

designer. Our Ferré brand is presented in three separate and well-defined labels: 

o Gianfranco Ferré, which features products made from high quality and luxurious materials with a high degree 

of attention to cut, quality and detail that are aimed at the first lines segment of the designer branded apparel 

and accessories market. Competitors of our Gianfranco Ferré label include brands such as Giorgio Armani, 

Paul Smith, Romeo Gigli and Anna Molinari. 

Ferré, which is targeted at consumers who are between 35 and 45 years of age and is intended to reflect an image 

of subtle, elegant and modern sophistication. Competitors of our Ferré label include brands such as Prada and 

Valentino Roma. 

o GF Ferré, a medium-priced fashion label that we developed to complement and capitalize on our Gianfranco 

Ferré and Ferré labels. Our GF Ferré products are targeted at men and women who are between 25 and 35 

years of age and are generally less conservative in style than our other Ferré-branded products. Competitors of 

our GF Ferré label include brands such as Emporio Armani, Hugo Boss and DKNY. 

Each season we also produce a small number of haute couture items for women under our Gianfranco Ferré brand, 

as well as collections of women’s lingerie and children’s clothing. We have licensed the rights to produce Ferrébranded 

fragrances to a third-party and intend to explore licensing opportunities for other Ferré-branded items such 

as furs, furniture and jewelry. 

Malo is a premium-priced fashion brand originally developed by Malo S.p.A. (previously, Manifatture Associate 

Cashmere S.p.A.), a Florence-based company that we acquired in 1999. Our Malo brand is targeted at men and 

women who are between 35 and 60 years of age and is intended to reflect an image of casual, modern and refined 

luxury. We believe that Malo is recognized as a global leader in luxury cashmere knitwear and we intend to 

continue extending our Malo brand into new product categories and geographic segments. Competing with Malo 

are brands such as Loro Piana, Ballantyne, Louis Vuitton and Tod’s. 

Our Young Lines Apparel Brands 

Our portfolio of young lines apparel brands is comprised of brands licensed from some of Italy’s most recognized 

fashion design houses, or maisons as well as the Extè brand, which we own. We believe that our young lines 

brands lead their target markets in terms of image, fashion content, desirability, innovation and quality. During 

2004, our young lines brands accounted for 59.3% of our consolidated net revenues and, we believe, approximately 

80.4% of our consolidated EBITDA. 

Our current license agreements have terms expiring between 2006 and 2010. In particular, our D&G Dolce & 

Gabbana license expires upon completion of the 2006/2007 Fall-Winter season. See “– Licenses and Other 

Intellectual Property” for a discussion of the principal terms and conditions of our license agreements. 

D&G Dolce & Gabbana is a medium-priced fashion brand originally developed as an extension of the Dolce & 

Gabbana brand created by the designers Domenico Dolce and Stefano Gabbana. It is targeted at men and women 

who are between 18 and 35 years of age and is intended to reflect a dynamic, passionate, unconventional and streetwise 

image. D&G Dolce & Gabbana products are typically very fashionable and feature bright, Mediterranean 

colors. Competing with D&G Dolce & Gabbana are brands such as DKNY, Emporio Armani, Miu Miu and Prada. 

26

Versus is a medium-priced fashion brand originally developed as an extension of the Versace brand created by the 

designer Gianni Versace. We have been producing items under our Versus license since 1989, longer than under 

any of our other brands. Versus products are typically innovative in design and feature strong, bold colors. They 

are targeted at men and women who are between 20 and 35 years of age and are intended to reflect a modern, 

aggressive, trendy and cosmopolitan image. Competing with Versus are brands such as CK by Calvin Klein, 

Emporio Armani and Philosophy by Alberta Ferreti. 

Versace Jeans Couture is a low- to medium-priced fashion brand that was developed as an extension of the 

Versace brand. It is targeted at men and women who are between 20 and 45 years of age and is intended to reflect 

a similar but more casual image than the Versus brand. Competing with Versace Jeans Couture are brands such as 

Armani Jeans, CK Jeans, DKNY Jeans and Moschino Jeans. 

Just Cavalli is a low- to medium-priced fashion brand that is an extension of the Roberto Cavalli brand created by 

the designer Roberto Cavalli. It is targeted at men and women who are between 18 and 45 years of age and is 

intended to reflect an image of modern, eccentric individualism. Just Cavalli products are typically highly 

fashionable and opulent in design. Competing with Just Cavalli are brands such as Emporio Armani and Helmut 

Lang Jeans. 

C’N’C Costume National is a medium-priced fashion brand that is an extension of the Costume National brand 

originally developed by the designers Ennio and Carlo Capasa. It is targeted at men and women who are between 

18 and 30 years of age and is intended to reflect an image of trend-setting, iconoclastic individualism. C’N’C 

Costume National products are typically highly fashionable and cutting-edge in design. Competing with C’N’C 

Costume National are brands such as Comme Comme of Comme des Garçons and Diesel Style Lab. 

Extè is a medium-priced fashion brand developed by us and launched in 1996. It is targeted at men and women 

who are between 20 and 35 years of age and is intended to reflect an image that is young, urban, contemporary and 

trendy. Competing with Extè are brands such as Moschino Cheap & Chic, Miu Miu, Blumarine, Iceberg and Prada 

Sport. 

Our Accessories Business 

Our accessories business, which was spun off from our young lines apparel business in 2001, is comprised of our 

young lines brands and our GF Ferré label. Our accessories business focuses on producing “accessible” luxury 

products at a reasonable price, emphasizing product integrity, perceived value and brand awareness. We believe 

that our young lines brands lead their target markets in terms of image, fashion, content, desirability, innovation 

and quality. During 2004, our accessories business accounted for 8.2% of our consolidated net revenues and, we 

believe, approximately 9.9% of our consolidated EBITDA. 

Customers, Sales and Marketing 

Our customers consist primarily of independent multi-brand boutiques, well-known department stores such as 

Bloomingdale’s, Harvey Nichols, Itochu and Neiman Marcus, international importer-distributors and select dutyfree 

shops. We also sell a smaller percentage of our apparel and accessories through a network of stores directly 

operated by us, as well as through a network of franchised stores which are owned and operated by selected third 

parties but whose image, product presentation and design we control through franchise agreements. As of 

December 31, 2004, excluding our direct retail customers, we had relationships with more than 4,000 customers 

worldwide. 

We devote considerable effort to managing our relationships with customers. Senior members of our commercial 

staff meet with our most important customers on a regular basis, and we make available visual merchandising 

consulting services to support the design of window displays. In addition, most of our customers are smaller 

independent stores and boutiques, a significant portion of whose stock in any given year consists of our apparel and 

accessories. We believe that our position as the most important supplier or one of the most important suppliers to 

27

the majority of our customers, combined with our high levels of customer service, has contributed to our customer 

retention rates in excess of 90% in recent years. 

By selling our products primarily on a wholesale basis and producing them mostly to order, we avoid certain of the 

commercial risks faced by those of our competitors whose distribution strategy is based on selling to retail 

customers through their own outlets. The most important of these risks is, we believe, the need to estimate 

customer demand since making incorrect estimates could result in significant inventories of unsold finished goods 

at the end of a season. 

We also sell our apparel and accessories on a wholesale basis through a network of 102 franchised stores (including 

corner shops inside department stores) located in Europe, Asia, North America and the Middle East and 29 directly 

operated retail boutiques located in major cities and exclusive vacation resorts around the world, with most of these 

points of sale consisting of single-brand Malo or Ferré boutiques that we acquired together with our purchase of 

these brands. 

In connection with our retail rationalization strategy, during 2004 we closed our directly operated Malo stores in 

London, New York and Chicago, and intend to continue rationalizing our retail operations and are presently 

evaluating opportunities to convert additional directly operated stores to franchised points of sale on a case-by-case 

basis. Going forward, we expect to pursue future retail growth exclusively through franchising and similar 

arrangements. In this way, we believe we can reduce the operating expenses and capital expenditures associated 

with our directly operated retail stores, improve our profitability and increase our free cash flow. 

To this end, in February 2005 we entered into an agreement with Arts, a leading Eastern Europe retailer of apparel 

and accessories, pursuant to which Arts has committed to opening at least 16 new franchised multi-brand 

accessories stores by the Spring-Summer 2006 season throughout Eastern Europe and Russia, with the possibility 

of opening up to an additional 125 stores in this region by 2009 if certain conditions and financial targets are met. 

In order to protect the distinctiveness and exclusive images of our product lines, we require that the stores 

displaying our products adhere to stringent standards for decor, image and merchandising mix. Before and after 

each season, we evaluate each of our customers on the basis of sales performance and the quality of its display and 

promotion. Our credit department monitors the financial condition of our customers and has the capacity to 

promptly cancel orders and suspend delivery of finished goods if it deems such action to be advisable. Similarly, 

the design, product presentation and other key factors necessary to ensure that our branded products are properly 

sold and marketed by our franchised stores are controlled by us and provided for in franchise agreements we enter 

into with our franchisees. These agreements typically have a term of five years, provide for minimum purchase 

requirements and give us control over shop design, advertising and other key factors in order to protect the image 

and prestige of our owned and licensed brands. 

We begin marketing our new collections to our customers in June and July of each year (for the following year’s 

Spring-Summer collection) and in January and February (for the following year’s Fall-Winter collection). The 

marketing phase of the product development cycle typically lasts approximately two months and principally 

consists of showing sample items in our showrooms to selected customers. We currently operate 10 showrooms 

located in Milan, Rome, Naples, Vicenza, Bari and Palermo in Italy, and in New York, Paris, Düsseldorf and Hong 

Kong. In addition, we make use of 18 showrooms operated by third parties located in Bologna, Reggio Calabria 

and Turin in Italy, and in Antwerp, Athens, Chippendale, Copenhagen, Guadalajara, Madrid, Mexico City, Munich, 

Porto, Sydney, Tokyo, Seoul, Osaka, Toronto, Vienna and Zurich. Once our customers begin placing orders, we 

generate sales projections for each garment or accessory in a collection, and we then continuously update these 

projections as additional orders are received. We confirm orders only for those items whose sales projections 

justify production; all other items are eliminated from the final collection. 

We support the marketing of our products with extensive advertising designed to appeal to our target market of 

youthful, fashion-conscious consumers. In addition, we benefit from brand-name advertising carried out by our 

licensors. Our advertising expenditures totaled €30.6 million, €44.5 million and €36.3 million in 2002, 2003 and 

2004, respectively, representing 4.6%, 6.6% and 5.1% of our net revenues in those years. We advertise principally 

28

in print (fashion magazines and newspapers) and outdoor advertising media, but also make extensive use of video 

for point-of-sale displays. Our worldwide advertising efforts, which are developed in agreement with our licensors, 

are centrally managed by our internal Milan-based advertising and public relations unit, which also manages our 

public relations efforts (e.g., organizing and publicizing fashion shows, interacting with the fashion press and news 

media and promoting our products among celebrities). 

Production and Operations 

The production process for each collection that we bring to market involves five distinct phases: design, product 

development, sourcing, manufacturing and distribution. Each phase of this production process is described in more 

detail below. 

Design 

We design all of our owned brand products and assist our licensors in the creation and development of our licensed 

brand products, in each case through the use of our own design teams. These teams are dedicated to a particular 

brand or group of related brands and work independently from one another in order to preserve the distinct style, 

design and image associated with each of our brands. The teams generally consist of designers, tailors, 

seamstresses and other assistants. We also maintain separate design teams that specialize in accessories. 

The level of our involvement in the design of our licensed products varies in accordance with each brand. 

Typically, however, the owner or individual designer behind one of our licensed brands, who is commonly referred 

to as the maison, will conceive and develop one or more themes and ideas for a collection. These themes and ideas 

are then communicated to the design team dedicated to the brand in question, who proceeds to create and develop 

the individual items that go into the making of a collection for approval by the maison and, thereafter, production. 

Our design teams meet with the designers of each licensor to discuss the basic themes and fashion concepts of each 

new collection approximately one year before sales to the public can begin. During the design phase of our product 

development cycle, which lasts approximately eight to ten weeks, our design teams work to refine these themes and 

concepts so that combinations of styles, colors, patterns and fabrics may be considered and tested before eventually 

being selected. 

All of our products are developed using computer-aided design equipment that allows a designer to view and 

modify two- and three-dimensional images of a new garment. In addition, we maintain computerized pattern 

archives for each garment that is chosen to form part of a collection to support our design teams. We add all of our 

new patterns and designs to these archives to facilitate future reference. Moreover, through the use of our 

management information system, which is linked to our distribution agents around the world, our design teams 

have access to sales data. This data is used to interpret market trends and refine product designs in order to 

anticipate changing consumer preferences. We believe that our ability to integrate such market data into the 

production process gives us a significant advantage over those of our competitors who are not able to do so. 

Product Development 

Once the individual products that comprise a collection have been designed, selected and approved, we use 

facilities located in Pettoranello di Molise (near Isernia) and Campi Bisenzio (near Florence), Bologna and 

Piacenza, to produce garment prototypes that are used to evaluate the proposed designs. Prototypes for our 

licensed brands are subject to review and approval by our licensors in order to ensure consistency with each 

licensor’s overall brand image. Each season, up to approximately 800 prototypes are selected to become part of a 

final collection for each of our brands and are made up as samples for use in marketing. Typically, 10 to 25 

samples are produced of each item included in a final collection for display in showrooms or use in fashion shows 

around the world. Including accessories, we produce more than 150,000 sample items annually. Samples are 

manufactured and assembled by contractors selected and monitored by us pursuant to the same procedures that we 

apply to the production of our finished goods for sale to customers. 

29

Sourcing 

We purchase substantially all of the fabrics and other materials used in our apparel production process directly 

from suppliers and undertake quality control procedures on all such materials before we deliver them to the 

third-party contractors who will undertake the cutting, sewing and assembly. Materials used in our production of 

accessories, underwear, leather apparel and certain knitwear typically are purchased directly by contractors from 

suppliers designated by us, although we also purchase directly certain materials used in the production of 

accessories. We maintain an in-house fabrics research unit that develops new fabrics and other materials. We 

often commission exclusive production runs of these and other custom fabrics for use in our collections. 

In an average season, we source materials from more than 1,000 suppliers, more than 90% of which are located in 

Italy. We have never experienced any significant difficulty in contracting with suppliers or receiving adequate 

supplies of fabrics or other materials. Our planning process takes into account supply of raw materials, production 

lead times and customer orders. Suppliers typically make deliveries within 30 days of receiving a purchase order, 

with certain special materials requiring up to 90 days for delivery. Although, from time to time, we experience 

brief delays in shipments from suppliers, none of these delays has ever had a material effect on our results of 

operations. We maintain online links with many of our principal suppliers in order to enhance further the 

flexibility and efficiency of our sourcing function and production process. 

The most important raw material used in the manufacturing of our Malo knitwear is cashmere. We purchase our 

cashmere directly from its place of origin, typically Mongolia or China, in either raw “flock” or processed “yarn” 

form. Flock accounts for approximately one-third of our total purchases of cashmere. Purchasing cashmere in 

flock form allows us to more easily monitor the quality and cost of the cashmere we use in our production process. 

The cost of cashmere typically accounts for approximately one-third of the total direct costs of producing our Malo 

knitwear. Other raw materials used in our Malo knitwear include cotton and wool. The market price of cashmere 

has fluctuated widely in recent years, and is at present relatively low. In order to benefit from these cyclical 

fluctuations in cashmere prices, we have adopted a policy of purchasing excess raw material at times when prices 

are low. We maintain relationships with several suppliers of cashmere and do not believe that we are dependent on 

any single supplier, either in flock or in yarn. We purchase cashmere from the same group of suppliers used by 

most producers of cashmere knitwear. See the section entitled “Risk Factors—Risks Related to Our Business— 

Increases in the cost of materials used to manufacture our products can decrease our profitability”. 

Manufacturing 

In general, we rely on a network of third-party contractors to manufacture our finished goods, showroom samples 

and accessory prototypes. We contract out the manufacture of our goods to a large number of apparel and 

accessory manufacturing companies, the great majority of which are located in Italy. These contractors typically 

are specialized in the production of a particular garment or accessory, for example, shirts or shoes, or in a particular 

process, such as printing or cutting. Certain of our contractors may in turn outsource part of their production to 

subcontractors. 

Our first-line Ferré-branded products are manufactured at our directly operated facility in Bologna, Italy. In 

addition, we conduct approximately 40% of the weaving (typically the initial and more complex phases) involved 

in the production of our Malo knitwear at our directly operated manufacturing facilities in Campi Bisenzio and 

Piacenza. We outsource the remaining part of this weaving and a greater percentage of the tailoring and finishing 

for our Malo knitwear products to approximately 50 to 60 specialized third-party contract manufacturers. Due to 

the high level of sophistication and specific manufacturing expertise required for the production of high-end 

cashmere knitwear products, our Malo knitwear products have traditionally relied more heavily on internal 

production capabilities than our other apparel and accessories. In the future, however, we intend to increase our 

use of third-party contractors to produce our Malo-branded apparel and accessories lines, subject to our close 

direction and quality control. 

30

We maintain a close working relationship with our third-party contractors. Our production quality technicians 

regularly visit the production facilities of each contractor to offer technical support, monitor adherence to our 

production standards and check production quality. Finished goods manufactured by these contractors and rejected 

by our quality control procedures typically amount to less than 1% of total production. In addition, we collaborate 

with our third-party contractors in a continuous effort to increase production efficiency. For example, by providing 

our contractors with computer-generated tracing sheets for fabric cutting machines, we are able to minimize scrap 

waste in the fabric cutting process, thereby reducing our fabric costs. 

As a result of the flexibility and efficiency of our production network, we are able to deliver finished goods to 

clients as rapidly as 150 to 180 days after the start of production or, in the case of our Malo products, from as soon 

as 70 to 100 days after the start of production. This production cycle permits us to issue production orders on the 

basis of existing purchase orders, thereby limiting our commercial and inventory management risks. Since the 

delivery of our various products is staggered through the season, we can react quickly to evolving consumer 

preferences by changing the mix and composition of the collections we produce. Although from time to time we 

have experienced brief delays in shipments from our contractors, none of these delays has ever had a material effect 

on our results of operations. 

We do not enter into exclusive relationships with third-party contractors. We evaluate each of our contractors after 

the production of each season’s collections is finished on the basis of quality and timeliness of delivery. We then 

determine the amount of work, if any, we will give to these contractors in the next season based upon these 

rankings. In general, we seek to account for no more than 40% to 60% of the total revenues of any contractor. We 

believe that, in view of the fragmented and highly competitive nature of the garment manufacturing industry, we 

would not face material difficulties should we be required to replace our existing contractors or increase our total 

number of contractors in the future. 

We purchase accessories from third-party manufacturers such as Sergiolin S.p.A for the Extè and GF Ferré brands 

and then market, advertise and distribute them ourselves. See “Certain Relationships and Related Party 

Transactions” 

We have also established a pilot program to provide for the manufacture in China of approximately 150,000 items 

of apparel and accessories (representing approximately 1.8% of our total production) for our 2004/2005 Fall- 

Winter collections. We expect that the number of items manufactured in such low-cost regions will eventually 

increase to comprise up to 10% of the total number of items we produce each year. 

Distribution 

Within Italy, which is our most important market in terms of net sales, we distribute apparel and accessories, other 

than our Malo and Gianfranco Ferré products, to customers principally through our showrooms in Milan, Rome, 

Naples, Vicenza, Bari and Palermo showrooms. The most important of these is our Milan showroom, which 

occupies approximately 3,500 square meters and features, on separate floors, self-contained product display 

facilities dedicated to each of our product lines. We use agents to operate our Bologna, Reggio Calabria and Turin 

showrooms. 

We have established wholly-owned distribution companies in the United States, Germany, France and China. We 

reacquired control of the U.S. distribution arrangements for products distributed in our Versace collection from 

Versit LLC, a joint venture formerly controlled 60% by the Versace Group and 40% by us beginning with the 2005 

Spring-Summer collection. We are evaluating whether to establish direct distribution capability in any of our other 

principal markets. 

In the rest of the world, we work with both third-party importer-distributors and distribution agents who typically 

place their orders through us. Importer-distributors acquire products from us at a discount and assume the 

commercial risks associated with reselling such goods to retailers within a defined territory, whereas distribution 

agents assist us in marketing our products to retailers within a defined territory in exchange for a commission, so 

that the commercial risks associated with such sales are retained by us. 

31

We operate an 8,000 square meter warehouse and automated distribution center located in premises adjacent to our 

main production facility in Pettoranello di Molise, Italy, which is used to inspect, package, consolidate and ship our 

products throughout the world. The distribution center has a shipping capacity of 95,000 units per day and is 

equipped with a bar code scanning and automated handling system that is integrated with our management 

information system. In order to ensure the quality of our products, we do not permit finished goods to be shipped 

directly from contractors to our customers, but rather take delivery of all finished goods at our warehouses, so that 

our employees may carry out inspection procedures prior to packaging and shipment to customers. We inspect, 

package, consolidate and ship our Gianfranco Ferré first-line products through the use of another 2,500 square 

meter warehouse and automated distribution center located in Bologna, Italy. 

Our Malo sales and distribution structure comprises our warehouse located in Campi Bisenzio, showrooms in 

Milan, Düsseldorf, New York, Osaka, Tokyo and Seoul, 17 directly operated Malo brand boutiques, 27 franchised 

Malo brand boutiques and a network of wholesalers that distribute Malo products to prestigious department stores 

and multi-brand boutiques in the world. We also operate two factory outlets in Italy, in Campi Bisenzio and 

Serravalle Scrivia, and two in the United States, in Woodbury Commons, New York and Clinton, Connecticut. 

We dispose of most of our end-of-season overstocks at discounted prices through our factory outlet stores. In 

addition, from time to time, we engage specialized distribution agents to dispose of overstocks outside of our 

principal markets pursuant to stringent restrictions on the timing and location of such disposals. Our overstock 

disposals, which typically amount to approximately 2% to 3% of our net sales each season, usually enable us to 

recover our production costs on such items. 

We make use of a sophisticated management information system to support the design, sourcing, manufacturing, 

marketing and distribution functions of our business. Our management information system allows the monitoring 

of, among other things, manufacturing and delivery schedules, raw material and finished goods inventories, client 

accounts receivable, order flow and sales to clients. As a result, our management is able to react promptly to 

changing fashion trends, order volumes, and problems in the production process. 

In addition, our management information system has permitted us to automate certain stages of the prototype 

development process and to achieve real time information flows across our design and manufacturing functions 

with respect to changes in product specifications. We have also adopted a custom-designed “groupware” software 

package that enables, among other things, simultaneous access to product prototype computer files by multiple 

users. We have also integrated our information system with the information systems of our principal contractors, 

fabric suppliers and clients in order to enable us to receive real time data with respect to the status of production, 

shipments and orders. 

Licenses and other intellectual property 

Trademarks and Trade Names. As of the date of this annual report, the principal owned trademarks or trade 

names of our core apparel and accessories business were Gianfranco Ferré, Ferré, GF Ferré, Malo and Extè. 

These trademarks and trade names are registered in the countries in which we sell our relevant apparel and 

accessories products. 

Licenses. We have license agreements with several companies pursuant to which our young lines and accessories 

businesses produce, distribute and market their products. The table below sets forth the brands licensed, 

geographic areas covered and expiration dates of the license agreements for our principal brands: 

32

Licensor and Brands 

Gianni Versace S.p.A. 

VERSUS VERSACE and VERSACE JEANS 

COUTURE 

Dolce & Gabbana S.p.A. 

D&G DOLCE & GABBANA 

IGA Finance B.V. 

JUST CAVALLI 

E.C. S.p.A. 

C'N'C' CoSTUME NATIONAL 

Territory First Granted Renewed Expiration (1) 

Exclusive 

worldwide license, 

excluding Korea, 

India, certain Asian 

countries and dutyfree 

shops 

Exclusive 

worldwide license, 

excluding Japan 

and certain dutyfree 

shops 

Exclusive 

worldwide license 

Exclusive 

worldwide license 

(non-exclusive for 

Japan) 

(1) The expiration dates listed are subject to the early termination provisions contained in our licence agreements, as summarized below. 

33 

November 1998 for 

Versus; April 1990 

for Versace Jeans 

Couture 

March 20, 2002 


comprehensive of 

10 sale seasons 

June 1993 May 29, 2002 Upon completion of 

2006/2007 Fall- 

Winter season 

July 1999 July 4, 2002 

June 2003 


June 30, 2009 

comprehensive of 

10 sale seasons 

ending with the 

2009 Spring- 

Summer season 

The license agrements require us to make royalty payments based on percentage of sales, subject to guaranteed 

minimum payments. These agreements provide certain minimum required expenditures for advertising and 

promotional activities, and all of our advertising, promotional and public relations activities relating to our licensed 

brands are subject to approval by the relevant licensor. 

Versus. Our license to use the Versus brand was granted pursuant to an agreement with Gianni Versace S.p.A. and 

expires on December 31, 2007. It was first granted to us in November 1988 and was subsequently renewed on 

March 20, 2002 under the agreement governing our current license. In addition to granting us the exclusive right to 

produce Versus and Versus Versace-branded apparel and accessories on a worldwide basis, our Versus license also 

grants us the right to distribute such products throughout the world, with the exception of China, Japan, Korea, 

India and certain other Asian countries and duty-free shops. Gianni Versace S.p.A. remains responsible for 

designing each of the collections produced under these brands, and has retained the right to advertise Versus and 

Versus Versace-branded products worldwide. Gianni Versace S.p.A. may, however, require us to conduct such 

marketing and promotion in the territories where we are required to distribute these products. Our Versus license 

agreement may be terminated by Gianni Versace S.p.A. in the event the control of the licensee changes and passes 

to a third-party. 

Versace Jeans Couture. Our license to use the Versace Jeans Couture brand was granted pursuant to an agreement 

with Gianni Versace S.p.A. and expires on December 31, 2007. It was first granted to us in April 1990 and was 

subsequently renewed on March 20, 2002 under the agreement governing our current license. The terms of this 

agreement are substantially similar to those that grant us the right to use the Versus and Versus Versace brands 

described above. Our Versace Jeans Couture license agreement may be terminated by Gianni Versace S.p.A. in the 

event the control of the licensee changes and passes to a third party. 

D&G Dolce & Gabbana. Our license to use the D&G Dolce & Gabbana brand was granted pursuant to an 

agreement with Dolce & Gabbana S.p.A. and expires upon the completion of the 2006/2007 Fall-Winter collection. 

It was first granted to us in June 1993 and was subsequently renewed on May 29, 2002 under the agreement 

governing our current license. In addition to granting us the exclusive right to produce D&G Dolce & Gabbana 

apparel and accessories on a worldwide basis, this license also grants us the right to distribute and sell D&G Dolce 

& Gabbana products throughout the world, with the exception of Japan and certain duty-free shops. In addition to

oyalties, the agreement governing this license also requires us to contribute to advertising and promotional 

expenses incurred by Dolce & Gabbana S.p.A. related to the D&G Dolce & Gabbana brand. Our D&G Dolce & 

Gabbana license agreement may be terminated by Dolce & Gabbana S.p.A. if direct or indirect control of the 

licensee is transferred to another person or company whose principal business is also in the fashion industry. 

Just Cavalli. Our license to use the Just Cavalli brand was granted pursuant to an agreement with IGA Finance 

B.V. in 2002 and expires on December 31, 2010. It was first granted to us on July 29, 1999 and was subsequently 

renewed on July 4, 2002 under the agreement governing our current license. This agreement will be renewed 

automatically for an additional five years upon its expiry unless a notice to the contrary is given by either party at 

least two years prior to such expiration. In addition to granting us the exclusive right to produce and distribute 

certain apparel and accessories throughout the world under the Just Cavalli brand, this license agreement also 

obligates IGA Finance B.V. to offer us the right of first refusal to produce underwear, swimsuits, shoes, handbags 

and small leather items under the Just Cavalli brand should it decide to develop these products in the future. In 

addition to royalties, the agreement governing our Just Cavalli license also requires us to contribute to advertising 

and promotional expenses related to the Just Cavalli brand that are incurred by IGA Finance B.V. Our Just Cavalli 

license agreement allows us and IGA Finance B.V. to terminate the agreement in the event control of the other 

party changes and passes to a third-party. 

C’N’C Costume National. Our license to use the C’N’C Costume National brand was first granted pursuant to our 

agreement with E.C. S.p.A. that we executed on June 21, 2003 and which expires on June 30, 2009. This 

agreement will be renewed automatically for an additional five years upon its expiry unless a notice to the contrary 

is given by either party at least one year prior to such expiration. In addition to granting us the exclusive right 

(non-exclusive for Japan) to produce and distribute certain apparel and accessories throughout the world under the 

C’N’C Costume National brand, this license agreement also obligates E.C. S.p.A. to offer us the right of first 

refusal to produce underwear, swimsuits and jewelry under the C’N’C Costume National brand should it decide to 

develop these products in the future. In addition to royalties, this agreement also requires us to contribute to 

advertising and promotional expenses related to the C’N’C Costume National brand incurred by E.C. S.p.A. Our 

C’N’C Costume National license agreement allows us and E.C. S.p.A. the right to terminate the agreement in the 

event control of the other party changes and passes to a third-party. 

Competition 

We face two types of competition in our core apparel and accessories business. First, we compete with numerous 

other apparel manufacturers inside and outside Italy to obtain licenses from designers to produce, market and 

distribute luxury branded designer apparel and accessories. Although some of these competitors have substantially 

greater financial resources than we do, we believe that our expertise in producing and distributing complete 

collections of luxury designer apparel combined with the high levels of service, product quality and reliability that 

we are able to offer our customers positions us well to meet such competition. 

Second, our products compete with those of numerous designers and manufacturers of luxury designer apparel and 

accessory products throughout the world. Some of these competitors have larger distribution networks and /or 

substantially greater financial resources than we do. Although the level and nature of competition differs among 

market segments and product lines, we believe that we compete primarily on the basis of product assortment, 

customer service, distribution power, brand image and quality of design and workmanship. See “Risk Factors— 

The industry in which we operate is highly competitive, and we may not be able to continue to compete 

effectively”. We believe that our ability to develop, produce and distribute products through the use of our 

sophisticated management information system and flexible and efficient production system enables us to respond to 

the constantly evolving fashion trends and consumer preferences. 

34

Legal proceedings 

Ordinary Course Litigation 

We are currently a party to various claims and legal actions that arise in the ordinary course of business. We 

believe such claims and legal actions, individually and in the aggregate, will not have a material adverse effect on 

our business, financial condition or results of operations. 

Tax Litigation 

In 1998, a preliminary assessment report relating to 1995, 1996 and 1997, pursuant to which MALO S.p.A. 

allegedly realized a higher taxable base for direct tax purposes and transferred prices applied to foreign group 

companies, was followed by notices of assessment for 1995 and 1996. MALO S.p.A. filed an appeal with the 

relevant judicial authorities. In 2001, a preliminary assessment report was served for 1998, 1999 and 2000 relating 

to the same irregularities of the previous years, although no notices of assessment have been issued to date. MALO 

S.p.A. has set aside a provision of approximately €3 million for tax risk due to pending litigation. 

We estimate Ittierre S.p.A.’s potential risks from existing tax litigation and audits to be approximately €2.4 million. 

In particular, Ittierre was the subject of a tax audit in 2004 with regard to the 2001 and 2002 tax years. The 

relevant assessment report allegedly found that certain entertainment and housing expenses had been improperly 

deducted. We estimate the potential tax exposure related to this assessment is approximately €0.7 million. In 

addition, FD, a company that merged with Ittierre in 2001, was subject to a tax audit in 2002 with reference to the 

1999 and 2000 tax years. In that case, the relevant assessment report allegedly found that FD in 1999 paid 

approximately € 2.6 million as consideration for the early termination of certain options and license agreements 

which, according to the tax authorities, should have been subject to VAT payments. The tax authorities assessed a 

cost of €1.7 million, which comprised amounts due plus penalties and interest. 

Other Pending Litigation 

In March 1998, Trussardi S.p.A. brought an action before the Tribunal of Milan claiming a breach by Ittierre S.p.A. 

of a license agreement relating to the Trussardi Jeans trademark, which expired in June 1996. In its action, 

Trussardi claimed the liquidated damages provided for in the license agreement as well as additional damages of 

€50.0 million. In December 2004, the Tribunal of Milan awarded Trussardi S.p.A. €8.3 million plus interest and 

court costs of approximately €700,000. Ittierre S.p.A. has appealed this decision and has obtained an injunction 

suspending payment of these amounts pending the appeal. Any amount awarded to Trussardi S.p.A., if any, in a 

final judgment on this matter would fall within the scope of an indemnity granted to us by PA Investments, which 

has made a provision in its accounts in the amount of €3.5 million in respect of this indemnity. 

In June 2000, Casor S.p.A. brought an action before the Tribunal of Florence claiming breaches by MAC, the 

predecessor of MALO S.p.A., under an alleged five-year license agreement between Casor and MAC regarding the 

distribution of clothes covered by the Malo trademark. In this action, Casor has claimed damages of approximately 

€3.6 million. The management of MALO S.p.A. believes that no such license agreement was entered with Casor 

and that it is unlikely that this dispute will result in an adverse judgment. 

In December 2003, Damap S.r.l. brought two separate actions against Ittierre S.p.A. and two of its licensors for 

damages allegedly deriving from the breach of a patent on the decorative model of a specific denim processing 

used for apparel produced and marketed by Ittierre S.p.A. The amount of the claim is equal to €3.0 million for 

each of these actions. We believe that these claims are unfounded and that an unfavorable outcome appears 

unlikely. We have also brought cross-claim against the manufacturer of the denim fabric in question. 

In April 2004, we disposed of our entire shareholding in Gigli S.p.A. At the time of this disposal, an action was 

pending against Gigli S.p.A. brought by a licensee alleging that the license and agency agreement between such 

licensee and Gigli S.p.A. was void or voidable and requesting restitution of approximately €5.2 million on account 

of royalties, advertising contributions and commissions paid to Gigli S.p.A. and an additional €2.0 million as 

35

compensation for damages. Our agreement with the purchaser of our shares in Gigli S.p.A. requires us to 

indemnify such purchaser against all liabilities arising in relation to this specific pending litigation. However, we 

believe that an unfavorable outcome appears unlikely. 

In January 2004, an attorney brought an action against IT Holding S.p.A., Ittierre S.p.A. and Diners Club Italia 

S.p.A., claiming fees of €3.3 million for legal work in connection with the drafting of certain financial agreements 

among these three companies. IT Holding S.p.A. and Ittierre S.p.A. deny having engaged the claimant or that any 

fees, if any, would exceed €25,000. We believe that this claim is unfounded and that an unfavorable outcome 

appears unlikely. 

In August 2002, Mr. Luigi Giribaldi asked the Tribunal of Isernia to reexamine the two third-party appraisals 

conducted in connection with the acquisition by IT Holding S.p.A. of Gianfranco Ferré S.p.A. on the basis that 

such appraisals were not conducted by independent third-party appraisers. We believe that Mr. Giribaldi’s claims 

are unfounded. A decision by the Tribunal of Isernia is expected during the first half of 2005. 

We have been informed of an action before the Tribunal of Milan that Mr. Luigi Giribaldi brought against PA 

Investments in December 2001 in which Mr. Giribaldi has requested enforcement of an oral contract with PA 

Investments whereby PA Investments agreed to acquire Mr. Giribaldi’s entire shareholding in IT Holding S.p.A. 

PA Investments has denied the existence of any such oral agreement with Mr. Giribaldi. It should be noted that IT 

Holding S.p.A. is not a party to this dispute and in any event benefits from an indemnity granted to us by PA 

Investments. Therefore, we believe that this matter does not give rise to any risk of financial liabilities for us. 

In October 2004, we disposed of Allison S.p.A. At the time of this disposal, an action was pending against Allison 

in the arbitral court of Treviso brought by a supplier who alleged that Allison had breached the terms of a supply 

agreement and claimed damages in the amount of approximately €7.0 million. The arbitral court in a preliminary 

award rejected Allison’s claims that the supply agreement was void. A final arbitral award will be issued by 

August 31, 2005. In connection with our sale and purchase agreement, we agreed to indemnify the purchaser 

against any losses arising from outstanding litigation (including this arbitral proceeding). 

In August 2004, certain companies, including IT Holding S.p.A. and Servizi Moda S.r.l., were served a petition for 

urgent relief put forth by Mr. Romeo Gigli and Romeo Gigli s.a.s. Mr. Gigli claims that he is owed at least €41.0 

million on account of future amounts receivable, damages for alleged breach of contract, and fees accrued and not 

received. Accordingly, he requested the Tribunal of Milan to order provisional remedies to protect his current and 

future claims with respect to all companies involved, including IT Holding S.p.A. and Servizi Moda S.r.l. On 

September 8, 2004, the Tribunal of Milan rejected all the requests made by the petitioners. The petitioners 

appealed this decision and on December 13, 2004, the Tribunal of Milan denied this appeal. In January 2005 Mr. 

Gigli and Romeo Gigli s.a.s commenced a proceeding on the merits against IT Holding S.p.A. before the Tribunal 

of Milan, asking for damages in the amount of approximately €47.0 million in connection with essentially the same 

claims described above. The first hearing in this case has been scheduled for May 17, 2005. 

Tecnostile S.r.l., a company based in Florence, has brought an action against Gianfranco Ferré S.p.A. claiming 

damages of approximately €620,000 in respect of alleged pre-contractual obligations. Evidence has been gathered 

and the next hearing has been scheduled for June 2005. We believe that it is unlikely that this dispute will give rise 

to a liability for the defendant. 

36

OPERATING AND FINANCIAL REVIEW AND PROSPECTS 

The following is a discussion of our results of operations for and financial condition as of and for the years ended 

December 31, 2002, 2003 and 2004. This discussion is based on our audited financial statements. We prepare our 

financial statements in accordance with IFRS. There are significant differences between IFRS and Italian GAAP. 

You should read this discussion together with the other sections of this annual report, including our consolidated 

financial statements and the related notes thereto. 

The following discussion contains forward-looking statements. These statements are subject to risks, uncertainties 

and other factors that could cause our future results of operations or cash flows to differ materially from the 

amounts expressed or implied in such forward-looking statements. Factors that could cause or contribute to such 

differences include, but are not limited to, those discussed below and elsewhere in this annual report, particularly 

under “Forward-Looking Statements” and “Risk Factors”. 

Factors affecting our results of operations 

Acquisition of the Ferré Group 

In June 2002, we acquired the Ferré brand and the fashion business founded by designer Gianfranco Ferré (the 

“Ferré Group”) for total consideration of €181.8 million in cash. This acquisition occurred in two phases and was 

financed with the proceeds of the issuance of our 2005 Notes in May 2002 and part of the proceeds of a rights 

offering to our shareholders. The results and financial position of the Ferré Group were included in our 

consolidated results of operations retroactively from the beginning of 2002, rather than from the date of acquisition. 

Since acquiring the Ferré Group, we have implemented a repositioning program intended to unlock the unrealized 

potential and capitalize on the prestigious and well-recognized image of our Ferré brand. To this end, we brought 

in-house the production of Ferré-branded items previously produced by third parties, rationalized brand 

presentation by moving from seven separate product lines to three more sharply defined labels, launched our new 

GF Ferré young lines label, streamlined our network of wholesale customers, re-established stricter control over 

licensees in core product categories, refurbished our flagship stores, conducted a multi-media marketing campaign 

and appointed a new CEO for the Ferré Group. 

The increased investments in collection development and marketing associated with this repositioning program 

have been completed and we believe that we are now poised to increase revenues and profits from sales of Ferrébranded 

products. Going forward, we intend to broaden the geographic reach of our Ferré brand by developing 

additional franchising relationships, particularly in the United States and the Far East, to extend its reach into 

additional product categories (such as leather accessories, eyewear, fragrances, furs, furniture and jewelry) through 

the use of third-party licensing relationships and to increase its penetration of existing multi-brand retailers. 

The acquisition of the Ferré Group affected our results of operations by generally increasing both revenues and 

costs as a result of bringing in-house the production of Ferré-branded items. It also significantly increased the 

amount of our indebtedness, as a result of the 2005 Notes issued to finance this acquisition. However, as is 

discussed in greater detail under “Key Information—Refinancing Program”, as of May 10, 2005, we will satisfy and 

discharged the entire remaining principal amount of the 2005 Notes using funds contained in the Escrow Accounts. 

37

Trends in the Luxury Goods Industry 

The luxury goods industry consists primarily of producers, manufacturers, distributors, wholesalers and retailers of 

apparel, perfume, cosmetics, jewelry, watches, accessories and other similar products. According to a report 

published in 2003 by Altagamma, a non-profit association of Italian consumer and luxury goods companies 

(“Altagamma”), the apparel and accessories segments of the luxury goods industry together accounted for an 

estimated 49% of luxury goods sold worldwide in 2003. 

Altagamma also estimated that the compound annual growth rate of the luxury goods market in terms of sales was 

9.0% for the period from 1994 to 2001. Since the events of September 11, 2001 and the general worldwide 

economic slowdown that ensued, luxury goods sales have remained essentially flat. Market observers, however, 

are forecasting that the demand for luxury goods will recover somewhat from 2005 onwards 

Licensed Designer Brands 

We produce apparel and accessories under brands, which we either own or which are licensed to us. Our portfolio 

of licensed brands includes D&G Dolce & Gabbana, Versus, Versace Jeans Couture, Just Cavalli and C’N’C 

Costume National. We intend to retain our existing licenses, as well as bid for and win new licenses that 

complement our existing portfolio of brands. We are exposed, however, to the risk that our existing licensors will 

choose not to renew these license agreements. See “Risk Factors—We are dependent on our ability to negotiate, 

maintain and renew license agreements with the owners of leading brands” for a discussion of our dependence on 

our licensed brands. Moreover, even if we are able to renew our licenses when they expire, the future profitability 

of our licensed brands may be impacted by the continuing efforts of licensors to assert greater control over license 

terms. 

Growth of Accessories Business 

During 2004, our accessories business accounted for 8.2% of our consolidated net revenues and, we believe, 

approximately 9.9% of our consolidated EBITDA. We increased the net revenues of our accessories business from 

€24.6 million in 2002 to €58.3 million in 2004 (equivalent to a compound annual growth rate of approximately 

54% during that span) and believe that our portfolio of attractive brands and our unmatched production and 

distribution synergies leave us well-positioned to exploit projected growth trends in this market segment and to 

meet competition as it emerges. 

Exchange Rate Fluctuations 

We conduct, and will continue to conduct, transactions in currencies other than euro, particularly U.S. dollars, 

British pounds, Swiss francs, Canadian dollars and Hong Kong dollars. Consequently, our results are affected by 

fluctuations in the value of the euro against these and other currencies, particularly the U.S. dollar. The euro 

appreciated against the U.S. dollar by 22.9% during 2003 and 7.0% during 2004, based on the average U.S. dollar 

to euro exchange rates for 2002, 2003 and 2004. This trend has negatively affected our revenues. Although the 

negative impact from exchange rate fluctuations has been partially offset by gains on hedging contracts, we 

recorded net gain on foreign exchange of €0.9 in 2004, and net losses of €1.2 million in 2003 and €2.1 million in 

2002. 

Seasonality 

We experience seasonal fluctuations in the level of our revenues. These fluctuations occur because the majority of 

our revenues are recognized in the first quarter of each year, when we deliver most of the orders we receive for 

apparel and accessories from our Spring-Summer collections, and in the third quarter of each year, when we deliver 

most of the orders we receive for apparel and accessories from our Fall-Winter collections. In addition, revenues in 

the third quarter from the sale of our higher priced Fall and Winter collections are typically higher than those in the 

first quarter of our financial year, although margins are higher overall in the first quarter. The nature of our 

production cycle also means that we have greater working capital requirements in the first and third quarters of 

38

each year, when payments to our suppliers are due for apparel and accessories that have been sold to our customers 

during the same period but for which we have not been paid. 

Operating results 

Year ended December 31, 2004 Compared to Year ended December 31, 2003 

The following table shows certain items from our consolidated results of operations and EBITDA for the periods 

indicated. It also shows each of these items as a percentage of consolidated net revenues. 

39 


2003 2004 

(€ in millions, except percentages) 

Net revenues ................................................................................................................................ € 669.8 100.0% 709.9 100.0% 

Cost of materials .......................................................................................................................... (196.9) 29.4 (197.5) 27.8 

Outside services ........................................................................................................................... (292.0) 43.6 (297.2) 41.9 

Personnel expenses ......................................................................................................................(86.8) 13.0 (84.1) 11.8 

Other operating expenses .............................................................................................................(35.8) 5.3 (50.3) 7.1 

EBITDA................................................................................................................................ 96.7 14.4 106.0 14.9 

Depreciation and amortization ................................................................................................(146.7) (1) 21.9 (1) (98.5) 13.9 

Operating income......................................................................................................................... (50.0) (1) 7.5 (1) 7.5 1.1 

Financial income (charges) ................................................................................................ (34.7) 5.2 (29.4) 4.1 

Net gain on disposals of discontinued operations (2) ................................................................ -- -- 24.5 3.4 

Income taxes ................................................................................................................................ 21.7 3.2 (13.8) 1.9 

Net income (loss) for the year................................................................................................ (62.7) 9.4 (12.6) 1.8 

(1) Includes the effect of the non-cash write-downs of the Romeo Gigli trademarks and other intangible and tangible assets during this 

period for a total amount of €56.5 million. 

(2) See Note 7 to our Consolidated Financial Statements. 

Net revenues 

Consolidated net revenues increased by €40.1 million, or 6.0%, to €709.9 million for 2004 from €669.8 million for 

2003. This increase was driven by two main factors: a €31.5 million (7.2%) increase in our sales of licensed 

brands, and a €25.6 million (21.8%) increase in the net revenues generated by Ferrè-branded products (comprising 

a €28.3 million increase in sales of apparel and accessories and a €2.7 decline in royalty income, which reflected 

our decision to internalize the production and sale of certain Ferrè-branded products previously produced under 

license by third parties and for which we only received royalty income). These positive factors were offset in part 

by a €14.5 million decline in our sales of owned brands other than Ferrè and the impact of the disposals of our 

fragrance business, which recorded net revenues of €25.6 million in 2003, and our Romeo Gigli and 

Gentryportofino brands. The sale of our eyewear business in October 2004 had virtually no impact as the net 

revenues of this business up to the date of its disposal were €56.7 million, compared to net revenues for 2003 of 

€57.3 million. 

Cost of materials 

Consolidated cost of materials remained substantially in line with the prior period in absolute terms but decreased 

when expressed as a percentage of consolidated net revenues to 27.8% in 2004 from 29.4% in 2003. This trend 

was primarily driven by lower cost of materials recorded by our eyewear business following a partial transfer of 

production to China. 

Outside services 

Consolidated outside services costs increased in absolute terms by €5.2 million, or 1.8%, to €297.2 million for 

2004 from €292.0 million for 2003, reflecting higher royalties paid to the owners of our licensed brands and

increased amounts paid in respect of third-party manufacturing, transportation and administrative services and 

agents’ commissions, offset in part by a 20.6% decline in advertising costs related to the disposals of our fragrance 

and eyewear businesses. Expressed as a percentage of consolidated net revenues, outside services costs decreased 

to 41.9% in 2004 from 43.6% in 2003. 

Personnel expenses 

Consolidated personnel expenses decreased in absolute terms by €2.7 million, or 3.1%, to €84.1 million in 2004 

from €86.8 million in 2003, mainly reflecting the disposals we made during the year. Expressed as a percentage of 

consolidated net revenues, personnel expenses declined to 11.8% in 2004 from 13.0% in 2003, as our increased 

consolidated net revenues were achieved with substantially the same overall headcount levels. 

Other operating expenses 

Consolidated other operating expenses increased by €14.5 million, or 40.5%, to €50.3 million for 2004 from €35.8 

million in 2003. Expressed as a percentage of consolidated net revenues, other operating expenses increased to 

7.1% in 2004 from 5.3% in 2003. This increase was primarily related to non-recurring expenses recorded in 2004 

including losses incurred on the disposal of our eyewear business and in connection with our sale of Gigli S.p.A. as 

well as certain restructuring and redundancy costs. 

EBITDA 

Consolidated EBITDA increased by €9.3 million, or 9.6%, to €106.0 million for 2004 from €96.7 million for 2003. 

Expressed as a percentage of consolidated net revenues, consolidated EBITDA increased to 14.9% in 2004 from 

14.4% in 2003. Had our eyewear business been sold as of January 1, 2004, our consolidated EBITDA margin 

would have been 16.1%. 

Depreciation and amortization 

Consolidated depreciation and amortization decreased by €48.2 million, or 32.9%, to €98.5 million for 2004 from 

€146.7 million for 2003. This decrease mainly reflected non-recurring impairment losses of €56.5 million 

recognized in 2003 in connection with our Romeo Gigli trademarks and other tangible and intangible assets. 

Partially offsetting this factor, amortization charges on investments in collection development increased by €12.7 

million during 2004 due to our decision to internalize the production and sale of certain Gianfranco Ferrè products 

previously produced under license by third parties as well as costs associated with the launch of our C’N’C’ 

Costume National lines. 

Operating income 

For the reasons set forth above, we recorded consolidated operating income of €7.5 million in 2004, compared with 

an operating loss of €50.0 million in 2003. 

Financial income (charges) 

Consolidated financial charges, net of financial income, declined by €5.3 million, or 15.3%, to €29.4 million in 

2004 from €34.7 million in 2003. This decline was primarily attributable to a capital gain realized in connection 

with our repurchases below par of 2005 Notes as well as the reduction in our net debt achieved during 2004. 

Net gain on disposals of discontinued operations 

The €24.5 million in net gain on disposals of discontinued operations that we recorded in 2004 (compared to €0 in 

the prior year) was an important driver of the improvement in our net income during 2004. See Note 7 to our 

Consolidated Financial Statements. 

40

Income taxes 

In 2004, we incurred a consolidated income tax charge of €13.8 million, compared with net income tax benefits of 

€21.7 million recorded in 2003, as we recorded income before taxes on a consolidated basis in 2004, compared 

with a loss before taxes in 2003 (a year in which we also benefited from a €25.9 million tax credit on dividends 

paid to IT Holding S.p.A. from Ittierre S.p.A.). 

Net income (loss) 

For the reasons set forth above, our consolidated net result improved by €50.1 million, as our consolidated net loss 

declined to €12.6 million for 2004 compared with a consolidated net loss of €62.7 million for 2003. 

Year Ended December 31, 2003 Compared to Year Ended December 31, 2002 

The following table shows certain items from our consolidated results of operations and EBITDA for the periods 

indicated. It also shows each of these items as a percentage of net revenues: 

41 


2002 2003 

(€ in millions, except percentages) 

Net revenues ................................................................................................................................ €659.8 100.0% € 669.8 100.0% 

Cost of materials .......................................................................................................................... (199.7) 30.3 (196.9) 29.4 

Outside services ........................................................................................................................... (257.9) 39.1 (292.0) 43.6 

Personnel expenses ...................................................................................................................... (85.5) 13.0 (86.8) 13.0 

Other operating expenses............................................................................................................. (35.2) 5.3 (35.8) 5.3 

EBITDA................................................................................................................................ 108.0 16.4 96.7 14.4 

Depreciation and amortization................................................................................................ (83.4) 12.6 (146.7) (1) 21.9 (1) 

Operating income.........................................................................................................................24.6 3.7 (50.0) (1) 7.5 (1) 

Income taxes ................................................................................................................................ 1.9 0.3 21.7 3.2 

Net income (loss) for the year................................................................................................ 0.04 0.0 (62.7) 9.4 

(1) Includes the effect of the non-cash write-downs of the Romeo Gigli trademarks and other intangible and tangible assets during this period 

for a total amount of €56.5 million. 

Net revenues 

Consolidated net revenues increased by €10.0 million, or 1.5%, to €669.8 million for 2003 from €659.8 million for 

2002. This was primarily due to increases in sales of Gianfranco Ferré brand apparel and accessories offset by a 

decline in net revenues for our apparel and accessories business related to our Romeo Gigli and Husky brands 

following our granting of sub-licenses for these brands to a third-party. Following this sub-licensing, net revenues 

for our apparel and accessories business related to our Romeo Gigli and Husky brands consisted only of royalty 

payments paid to us by the sub-licensees of these brands. This increase was offset by a decrease in net revenues for 

our eyewear business due primarily to the cancellation of a large order to produce eyewear for a former customer. 

Excluding the effect of exchange rate movements, consolidated net revenues would have increased by 

approximately €28.7 million to approximately €688.5 million for 2003. 

Cost of materials 

Consolidated cost of materials decreased by €2.8 million, or 1.4%, to €196.9 million for 2003 from €199.7 million 

for 2002. This decrease was primarily due to a decrease in eyewear production due to the contract cancellation 

discussed above. 

Outside services 

Consolidated outside services costs increased by €34.1 million, or 13.2%, to €292.0 million for 2003 from €257.9 

million for 2002. This increase was primarily due to increased royalty and advertising costs for our apparel and

accessories business caused by higher royalty fees and advertising commitments payable following the 

renegotiation of our royalty agreements in 2002. Many of these increased royalty and advertising amounts only 

took effect in 2003. This increase was also due to the impact of advertising, design and other similar costs for our 

apparel and accessories business relating to the launch of our Ferré diffusion collections. This increase was also 

due to increased outside services costs for our eyewear business due to the launch of new product lines, and to 

increased outside services costs for our fragrances business. 

Personnel expenses 

Consolidated personnel expenses were essentially flat, at €86.8 million in 2003 compared to €85.5 million in 2002. 

Other operating expenses 

Consolidated other operating expenses were essentially flat, at €35.8 million in 2003 compared to €35.2 million in 

2002. 

EBITDA 

Consolidated EBITDA decreased by €11.3 million, or 10.5%, to €96.7 million for 2003 from €108.0 million for 

2002. This decrease was primarily due to the increase in outside services costs discussed above. 

Depreciation and amortization 

Consolidated depreciation and amortization increased by €63.3 million, or 75.9%, to €146.7 million for 2003 from 

€83.4 million for 2002. This increase was primarily due to our decision to write down all of the €29.2 million book 

value accorded to our Romeo Gigli brands as a result of our decision to discontinue their development, and to 

write-down €23.2 million of goodwill relating to our Malo brand and our eyewear business. The decision to writedown 

the value of this goodwill was made following a revaluation of the brands to which they related and 

conditions in the luxury goods industry generally. This increase also reflects, to a lesser extent, increased 

amortization relating to investments in collection development and increased amortization arising from capital 

expenditures made in connection with the launch of our new GF Ferré brand and to open and renovate additional 

Gianfranco Ferré directly operated stores. 

Operating income 

Consolidated operating income decreased by €74.6 million, to a loss for 2003 of €50.0 million from consolidated 

operating income of €24.6 million for 2002. This decrease was primarily due to the non-cash effect of the writedown 

of the value of our Romeo Gigli brands and of other intangible and tangible assets, as discussed above. 

Income taxes 

Net income tax benefit was €21.7 million for 2003 compared to €1.9 million for 2002. Net income tax benefit for 

2003 reflected the effect of a tax benefit on dividends paid to IT Holding S.p.A. from Ittierre S.p.A. IT Holding 

S.p.A. was able to take advantage of this benefit due to its having tax losses against which the benefit could be 

applied for the period in which the dividend was received. 

Net income 

For the reasons set forth above, consolidated net income decreased by € 62.7 million, to a loss of €62.7 million for 

2003 from net income of €0.04 million for 2002. 

Liquidity and Capital resources 

Our principal sources of funds are cash provided by operations, amounts received from the assignment of trade 

receivables under our securitization program, as well as amounts available under the Uncommitted Bilateral Loan 

42

Facilities and bank overdraft facilities. In 2004 we also generated cash from the disposal of our former eyewear 

and fragrance businesses and our Gentryportofino brand. 

The following table summarizes our consolidated statements of cash flows extracted from our consolidated 

financial statements for the three years ended December 31, 2004 prepared in accordance with IFRS. 

43 


2002 2003 2004 


Cash provided by (used in) operating activities .................................. € (27.5) € (26.6) € 21.9 

Cash provided by (used in) investing activities ....................................... (211.1) (35.5) 10.7 

Cash provided by (used in) financing activities....................................... 239.2 51.6 (54.6) 

Cash and cash equivalents—opening balance ............................................ 46.6 47.2 36.8 

Cash and cash equivalents—closing balance........................................... 47.2 36.8 14.8 

Cash Flow Provided by (Used in) Operating Activities 

Our operating activities provided net cash of €21.9 million in the year ended December 31, 2004, and used net cash 

of €26.6 million in the year ended December 31, 2003 and €27.5 million in the year ended December 31, 2002. 

The improvement in cash flow from operating activities in the year ended December 31, 2004 compared to the year 

ended December 31, 2003 was primarily due to the increase in EBITDA and decreases in net working capital and 

taxes paid during this period, offset in part by higher investments in collection development. 

Cash flow used by operating activities in the year ended December 31, 2003 was essentially the same as that used 

in the year ended December 31, 2002, but was characterized generally by improved management of working 

capital, and particularly by a decrease in our trade receivables. 

Cash used in our operating activities includes cash used in designing, developing and producing sample collections 

of apparel and accessories used in the sale and marketing of our products to our wholesale customers. We used 

€66.6 million of cash in the development of our collections in the year ended December 31, 2004, €56.2 million in 

the year ended December 31, 2003 and €47.8 million in the year ended December 31, 2002. 

Cash Flow Provided by (Used in) Investing Activities 

Our investing activities generated net cash of €10.7 million in the year ended December 31, 2004, and used net 

cash of €35.5 million in the year ended December 31, 2003 and €211.1 million in the year ended December 31, 

2002. 

During the year ended December 31, 2004, cash provided by investing activities comprised €26.2 million in cash 

generated by the sale of our fragrance business in March 2004 and the sale of our eyewear business in October 

2004. This amount was partially offset by cash used for capital expenditure, net of disposals, of €7.0 million and a 

change in short term financial assets of €7.4 million. 

During the year ended December 31, 2003, cash used in investing activities was significantly impacted by a change 

in short-term financial assets of €21.6 million. 

During the year ended December 31, 2002 cash used in investing activities was significantly impacted by our 

acquisition in May 2002 of the Ferré Group. 

Cash used for capital expenditures other than significant acquisitions, or ordinary course capital expenditure, 

relates primarily to our directly operated stores, plants and equipment. We plan to reduce our ordinary course 

capital expenditure to approximately €10 million in each of 2005 and 2006 compared with €30.6 million, €13.8 

million and €14.1 million in 2002, 2003 and 2004, respectively, as most of the investment we allocated to the

epositioning of our Gianfranco Ferré brand and the launch of our GF Ferré brand has been completed and 

because we intend to provide for any expansion of our retail network through franchising, rather than by opening 

directly operated stores. 

Cash Flow Provided by (Used in) Financing Activities 

Our financing activities used net cash of €54.6 million in the year ended December 31, 2004, and provided net cash 

of €51.6 million in the year ended December 31, 2003 and €239.2 million in the year ended December 31, 2002. 

Net cash used by financing activities in the year ended December 31, 2004 consisted primarily of an amount of 

€31.8 million related to the purchase of €25.0 million in principal amount of the 2005 Notes, and includes an 

additional non-cash amount of €6.8 million that we are required to record under IFRS. This trend also reflected 

less use of our securitization program compared with the prior year. 

Net cash provided by financing activities in the year ended December 31, 2003 consisted primarily of €57.2 million 

increase in short-term debt provided by our securitization program, which is described further below. 

Net cash provided by financing activities in the year ended December 31, 2002 consisted primarily of €207.2 

million provided by the issuance of the 2005 Notes and an increase of €110.0 million in shareholders equity 

resulting from a rights issue made to holders of our ordinary shares. Cash provided by these activities was used in 

part to purchase the Ferré Group and in part to repay short-term debt. 

Available Liquidity and Capital Resources 

Our liquidity requirements arise primarily to fund our working capital requirements and meet our ongoing debt 

service requirements. 

We have significant working capital requirements, primarily due to the nature of our production cycle, which 

requires that we invest significant amounts in the development and production of sample collections of apparel and 

accessories. In addition, the nature of our production cycle also means that we have greater working capital 

requirements in the first and third quarters of each year, when payments to our suppliers are due for apparel and 

accessories that have been sold to our customers but for which we have not been paid. Net working capital 

amounted to €236.0 million as of December 31, 2003 and €164.1 million as of December 31, 2004. 

Although we believe that our expected cash flows from operations together with available borrowings will be 

adequate to meet our anticipated working capital, general liquidity and debt service needs, we cannot assure you 

that our business will generate sufficient cash flows from operations to meet these needs or that future debt or 

equity financing will be available to us in an amount sufficient to enable us to fund our working capital or other 

liquidity needs, including making payments under the Notes or our other debt when due. As of December 31, 2004, 

we believe we had approximately €88.0 million available for working capital and other liquidity purposes, which 

was provided under our Uncommitted Bilateral Loan Facilities. These facilities are all uncommitted and may be 

withdrawn at any time. We also rely on a securitization program for our liquidity needs. As of December 31, 

2004, approximately €74.0 million was available under our securitization program. If our working capital 

requirements exceed our projections, or if our operating cash flow is lower than expected, we may be required to 

seek additional financing, which may not be available on commercially reasonable terms, if at all. Our ability to 

arrange financing generally and our cost of capital depends on numerous factors, including general economic 

conditions, the availability of credit from banks, other financial institutions and in the capital markets, restrictions 

in instruments governing our indebtedness and our general financial performance. Our inability to obtain the 

funding necessary for our working capital requirements could adversely affect our ability to provide our customers 

with payment terms that are acceptable to them or to maintain the inventory levels necessary to effectively manage 

our business. 

We are highly leveraged and have significant debt obligations. As of December 31, 2004, we had total 

consolidated third party debt of €525.9 million, consisting of: 

44

• €150.0 million principal amount of Notes; 

• €175.0 million principal amount of 2005 Notes; 

• €85.0 million in debt under the New Credit Agreement; 

• €76.1 million in debt under our securitization facilities and factoring arrangements; 

• €39.8 million in debt under our Uncommitted Bilateral Loan Facilities and other debt; 

Net of €14.8 million of cash and cash equivalents, €148.6 million of cash in the original Escrow Account and €38.1 

million in junior notes received under our securitization program, our net indebtedness as of that date was €324.4 

million. 

Upon the satisfaction and discharge of our 2005 Notes as of May 10, 2005, our equity interests in certain of our 

subsidiaries will be pledged for the benefit of the holders of the Notes and the lenders under our New Credit 

Agreement on an equal and ratable basis. 

New Credit Agreement 

The New Credit Agreement provides for a senior term loan amounting to €85.0 million repayable in nine equal sixmonthly 

instalments commencing in October 2009. Voluntary prepayments are permitted in minimum instalments 

of €1.0 million. Upon the satisfaction and discharge of our 2005 Notes, our obligations under the New Credit 

Agreement will be secured by a first ranking charge over the shares of Ittierre S.p.A., Gianfranco Ferré S.p.A. and 

MALO S.p.A. Such charge will be shared on an equal and ratable basis with the holders of the Notes. 

Furthermore, certain of our subsidiaries have given guarantees for the benefit of the lenders under the New Credit 

Agreement. 

Loans under the New Credit Agreement bear interest for each interest period at a rate per annum equal to 

EURIBOR plus mandatory costs to compensate lenders for the costs of compliance with regulatory requirements, if 

applicable, and a margin of 240 basis points per annum. 

Securitization Program 

On July 8, 2003, we entered into a five-year term securitization program providing for the securitization of trade 

receivables generated by Ittierre S.p.A., Ittierre France SA, Ittierre Moden GmbH, MALO S.p.A., ITF S.p.A. (our 

former fragrance business), Allison S.p.A. (our former eyewear business) and ITC S.p.A. (each, an “originator”). 

Under the securitization program, every month the originators assign trade receivables satisfying specified 

selection criteria to the Milan branch of Credit Lyonnais (“Credit Lyonnais”) and Ester Finance Titrisation S.A. 

(the “Purchasers”) on a non-recourse (pro soluto) basis. The amount of receivables assigned to the Purchasers may 

not exceed at any given time an aggregate amount of €200.0 million. 

The originators act as servicers under the securitization program and, therefore, are responsible for the collection of 

the receivables from the relevant third parties. Moreover, each originator has provided certain representations, 

warranties and undertakings as is customary for transactions of this nature, including undertakings not to sell, 

assign, transfer, subrogate in any way, dispose of, encumber or negotiate any of our receivables and not to take any 

actions that could affect the validity or the recoverability of our receivables. 

As consideration for their assignment of receivables, the originators receive a purchase price equal to a discounted 

aggregate net invoice amount of the assigned receivables. 

The purchase price is funded by the Purchasers through the issuance of senior notes and junior notes offered to 

institutional investors, which are repaid, with preference over the junior notes with the proceeds deriving from the 

45

collection of the receivables assigned. A backup credit line is also provided by Credit Lyonnais in connection with 

the securitization program to be used for the financing of purchases of senior notes in the event they cannot be sold, 

or to reimburse any purchasers if the program is cancelled. 

Following the sale of ITF S.p.A. as part of the disposal of our fragrance business, we reached an agreement with 

Credit Lyonnais for the termination of the securitization program with respect to such company. Under the 

agreement, Credit Lyonnais granted to ITF S.p.A. the right to continue to act as servicer of the trade receivables 

assigned to the Purchasers up to the date of the closing of the sale. On the other hand, we guaranteed to the 

Purchasers the performance by ITF S.p.A. of its obligations as servicer. Under a separate agreement, ITF S.p.A. 

agreed to indemnify us with respect to any cost, expense damage or liability which we may incur as a consequence 

of a breach by ITF S.p.A. of its obligations to service the trade receivables and to pay the amounts collected by it to 

Credit Lyonnais. 

We are in the process of finalizing similar arrangements with respect to the termination of the securitization 

program for Allison S.p.A. following its sale and exit from the Group. 

Bilateral Loan Facilities and Overdraft Facilities 

As of December 31, 2004, our Uncommitted Bilateral Loan Facilities provided for total borrowings of up to €133.4 

million. As of December 31, 2004, approximately €90.1 million was available and €43.2 million was outstanding 

under the Uncommitted Bilateral Loan Facilities (including €5.5 million of factoring). Borrowings under these 

facilities may be denominated in a number of different currencies. 

These Uncommitted Bilateral Loan Facilities and overdraft facilities are uncommitted and short term in nature and 

are subject to termination by the bilateral lender at any time. Any termination or withdrawal of these facilities 

could lead to, or further exacerbate any existing liquidity problems and could decrease our stability. 

Off-balance sheet arrangements 

The following table summarizes our off-balance sheet items for the periods presented. 


2002 2003 2004 


Personal guarantees provided: 

Guarantees and warrants to grant credit provided on 

behalf of third parties ..................................... €45.1 €44.5 €89.4 

Total guarantees provided........................... 45.1 44.5 89.4 

Purchase commitments................................... 0.9 — — 

Total off-balance sheet items....................... €46.0 €44.5 €89.4 

46

Contractual obligations 

The following table summarizes, on a pro forma basis after giving effect to the satisfaction and discharge of our 

2005 Notes, as of December 31, 2004, our contractual obligations and commercial commitments (including 

principal payments we were obligated to make) under our debt instruments, capital and operating leases and other 

agreements. 

47 

Total 

Payments Due by Period 

Less than Between 

1 year 1-5 years 


More than 

5 years 

Long-term debt................................................................................................ €237.4 €11.3 76.1 €150.0 

Other debt obligations ............................................................................................ 40.0 40.0 — — 

Lease and rental obligations ................................................................................... 118.4 17.3 66.8 34.3 

Agent’s termination benefits .................................................................................. 5.7 5.7 — — 

Severance pay fund ................................................................................................ 13.7 13.7 — — 

Amounts due to suppliers ....................................................................................... 229.6 229.1 0.5 — 

Other contractual obligations (1) .............................................................................. 233.2 220.9 12.3 — 

Total contractual obligations............................................................................... €878.0 €538.0 €155.7 €184.3 

(1) Other contractual obligations primarily include securitization, fair value of trading and hedging derivatives, and remuneration to be paid 

to employees, the Board of Directors and our statutory auditors. 

Qualtitative and Quanitative Disclosure About Market Risk 

Currency Risk 

Our reporting currency is the euro. We conduct, and will continue to conduct, transactions in currencies other than 

euro, particularly U.S. dollars, British pounds, Swiss francs, Canadian dollars and Hong Kong dollars. As a result, 

we are vulnerable to foreign exchange rate fluctuations because most of our manufacturing costs are incurred in 

euro while a portion of our revenues is generated in other currencies. For example, a strengthening of the euro 

relative to such other currencies in which we receive revenues could negatively impact our operating margins and 

cash flows. 

In 2004, approximately 6.7% of our consolidated operating revenues were denominated in U.S. dollars, while 

approximately 84.5% of our consolidated operating expenses were denominated in euro. Our remaining operating 

expenses were dominated primarily in Canadian dollars and Hong Kong dollars. 

Our policy is to hedge at least 60% of all trade receivables denominated in a foreign currency and to hedge 80% of 

our estimated foreign currency exposure in respect of sales forecasted for the next 12 months. We use forward 

exchange contracts and currency options to hedge our foreign currency risk. Most of the forward exchange 

contracts have maturities of less than one year after the balance sheet date. Where necessary, the forward exchange 

contracts are rolled over at maturity. We do not enter into derivative transactions for trading or speculative 

purposes. 

Interest Rate Risk 

We are exposed to interest rate risk, as a certain number of our borrowing facilities are subject to floating interest 

rates. As of December 31, 2004, borrowing under facilities subject to floating interest rates amounted to €174.4 

million. We have no cash flow interest rate exposure due to rate changes on our outstanding 2005 Notes because 

they bear interest at a fixed rate. We do have cash flow interest rate risk exposure on our €85 million New Credit 

Agreement because it is based on a variable rate of interest. A 100 basis point change in EURIBOR/LIBOR will 

result in interest expense fluctuating approximately €1.7 million per year.

Our policy is to ensure that between 50 and 60 per cent of this exposure to interest rate is on a fixed rate basis. The 

appropriate mix of fixed and floating rate exposure is achieved by converting floating rate debt to a fixed rate by 

means of floating-to-fixed interest rate swaps. 

Critical Accounting Policies 

Our accounting and valuation policies are described in the notes to our consolidated financial statements. We 

believe the following represent our critical accounting policies. 

Investments in Collection Development 

Investment in the development of all prototypes and samples to be included in our collections is capitalized if the 

amount will be recoverable on the basis of the future economic benefit generated by the new collection. The 

investment capitalized includes the costs of materials and direct labour. Other development expenditure is 

recognized in our income statement as an expense when incurred. Investments in collection development that are 

capitalized are stated at cost, less accumulated amortization and impairment losses. 

Investments in collection development that are capitalized are amortized on a systematic basis in accordance with 

the expected time in which future economic benefits expected to flow to us (i.e., on the basis of the rate of the 

revenues accounted for at year end over the total expected revenues from the sale of the relevant collection, as 

determined by orders received). In general, we expect to realize the future economic benefits related to such 

investments within twelve months. 

Impairment 

The carrying amounts of our assets, other than inventories and deferred tax assets, are reviewed at each balance 

sheet date to determine whether there is any indication of impairment. If any such indication exists, the asset’s 

recoverable amount is estimated. For intangible assets that are not yet available for use, the recoverable amount is 

estimated at each balance sheet date. An impairment loss arises and is recognized whenever the carrying amount of 

an asset or its cash-generating unit exceeds its recoverable amount. The carrying amount of the asset is adjusted to 

its recoverable amount and the impairment loss is recognized in the income statement. 

Property, plant and equipment and other non-current assets, including goodwill, trademarks and other intangible 

assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying 

amount may not be recoverable. 

Calculation of recoverable amount 

The recoverable amount of financial assets carried at amortized cost, including receivables, is calculated as the 

present value of expected future cash flow, discounted at the original effective interest rate inherent in the asset. 

Receivables with a short maturity are not discounted. 

The recoverable amount of a non-financial asset is the greater of its net selling price and value in use. In assessing 

value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that 

reflects the current market assessment of the time value of money and the risks specific to the asset. For an asset 

that does not generate largely independent cash inflows, the recoverable amount is determined for the cashgenerating 

unit to which the asset belongs. 

Reversals of impairment 

An impairment loss in respect of financial assets carried at amortized cost is reversed if the subsequent increase in 

recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. 

48

An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external event of 

an exceptional nature that is not expected to recur, and the increase in recoverable amount relates clearly to the 

reversal of the effect of that specific event. 

In respect of other non-financial assets, an impairment loss is reversed if there has been a change in the estimate 

used to determine the recoverable amount. The reversal is recognized in the income statement and the asset’s 

carrying value is adjusted to its recoverable amount, to the extent that the asset’s carrying amount does not exceed 

the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss 

had been recognized. 

49

Directors and senior management 

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 

Set forth below is certain information regarding the directors and senior management of the IT Holding S.p.A. 

group as at December 31, 2004. 

Year First End of 

Name Age Appointed Term Position 

Tonino Perna ..................................... 58 1996 May 2008 Chairman and CEO 

Luca Giuseppe Solca ......................... 40 2002 May 2008 Executive Vice Chairman 

Bruno Assumma(*) ........................... 59 1997 May 2008 Director 

Antonio Di Pasquale.......................... 41 1996 May 2008 Director 

Carlo Giovanni Mammola(*) ............ 45 2004 May 2008 Director 

Salvatore Vicari(*) ............................ 52 2003 May 2008 Director 

Francesco Ferretti.............................. 46 1999 N/A Vice President, Human Resources 

Stefano Ferro..................................... 43 2003 N/A CEO, MALO S.p.A. 

Alessandro Finizio............................. 44 1999 N/A Vice President, Administration 

Fabio Fusco ....................................... 35 2003 N/A Chief Financial Officer 

Patrizia Grassini ................................ 50 1992 N/A Vice President, Communications 

Sergio Lin.......................................... 50 2003 N/A CEO, Ittierre Accessories S.p.A. 

Massimo Macchi ............................... 50 2005 N/A CEO, Gianfranco Ferré S.p.A. 

Maurizio Negro ................................. 47 2000 N/A COO, Ittierre S.p.A. 

(*)Indicates directors who qualify as independent directors under Italian law. 

Tonino Perna has been Chairman and Chief Executive Officer of IT Holding S.p.A. since our inception in 1982. 

He is also Chairman of Gianfranco Ferré S.p.A., Ittierre S.p.A., MALO S.p.A. and GTP Holding S.p.A. In 1995, 

Mr. Perna was appointed a Cavaliere del Lavoro by the President of Italy. Mr. Perna has been a member of the 

International Board of Directors of the Solomon R. Guggenheim Museum in New York City since 1999 and a 

member of the Directors’ Committee of the Italian Chamber of Fashion since 2004. Mr. Perna studied at the Fine 

Arts Academy in Naples and was awarded an honorary degree in business administration by the Università del 

Sannio in 2000. 

Luca Giuseppe Solca has been Executive Vice Chairman of IT Holding S.p.A. since May 2002. He is also Chief 

Executive Officer of Ittierre S.p.A., Chairman of ITC S.p.A. and a director of Gianfranco Ferré S.p.A. Mr. Solca 

previously worked at Booz Allen & Hamilton and The Boston Consulting Group as Vice President and Director. 

Mr. Solca has a degree in psychology from the Università degli Studi di Padova and an M.B.A from Bocconi 

University. 

Bruno Assumma has been a director of IT Holding S.p.A. since December 1996. Mr. Assumma is the founding 

partner of Studio Legale Assumma, a law firm in Rome, and is an Associate Professor of Law at the University of 

Naples “Federico II”. He has a law degree from the University of Naples. 

Antonio Di Pasquale has been a director of IT Holding S.p.A. since 1996. Mr. Di Pasquale is a partner in the 

Pavia e Ansaldo – Studio Legale, a law firm that advises us and our controlling shareholder on a continuing basis. 

Mr. Di Pasquale previously was a partner in the Rome office of Simmons & Simmons, the international law firm 

and has a law degree from the University of Rome “La Sapienza”. 

Carlo Giovanni Mammola has been a director of IT Holding S.p.A. since May 2004. He is a Managing Director 

of BA Capital Partners Europe and is Chief Executive Officer of BA Capital Advisors. Mr. Mammola also serves 

as a director on the boards of Eldor Corporation S.p.A., Alfatherm S.p.A. and Sadi S.p.A. and is a Professor of 

Business Administration at Bocconi University. He has a degree in engineering from the Polytechnic University of 

Turin and an M.B.A. from Bocconi University. 

50

Salvatore Vicari has been a director of IT Holding S.p.A. since May 2003. He has also served as director and 

Chief Executive Officer of Valdani Vicari & Associati and Valdani Vicari Ricerche. He is currently a director and 

Chief Executive Officer of Business Force and Nexum and also a director of Eldor Corporation S.p.A. Mr. Vicari is 

a Professor of Economics and Management at Bocconi University in Milan. He has an economics degree from 

Bocconi University. 

Francesco Ferretti is Vice President of Human Resources of IT Holding S.p.A.. Prior to joining the Group in 1999 

he served as Director of Human Resources for the Merloni Elettrodomestici S.p.A. Group. Mr. Ferretti has a law 

degree. 

Stefano Ferro joined the IT Holding Group in 2003 as CEO of MALO S.p.A. Prior to joining the Group, he was 

the CEO for the Genny brand, a unit of the Prada Group, from 1999 to 2002. Previously, he was the CEO of GFT 

Donna (an Italian fashion company) from 1989 to 1991, the CEO of Bally (a Swiss producer of shoes and 

accessories) from 1992 to 1994, and the CEO of Gruppo Standa from 1995 to 1999. Mr. Ferro has a degree in 

Nuclear Physics from the Università Statale di Milano and an M.B.A. from Bocconi University. 

Alessandro Finizio is Vice President of Administration of IT Holding S.p.A. and is responsible for our tax, 

accounting and administration functions. From 2001 to 2003, he served as Group Controller in charge of budgeting 

and planning for the IT Holding Group and from 1999 to 2001 he served as Group Accounting Director. He is 

currently the chairman of IT Holding Finance S.A. Mr. Finizio has a degree in economics from the University of 

Naples and has been registered as a Chartered Accountant since 1987. 

Fabio Fusco returned to IT Holding S.p.A. as Chief Financial Officer in January 2004 and is responsible for our 

internal control and finance functions. Mr. Fusco previously was the Insurance and Corporate Finance Director of 

Diners Club Europe. From 1994 to 1999, Mr. Fusco served IT Holding S.p.A. in various capacities including 

Treasurer and Corporate Finance Director. Mr. Fusco is currently a director of IT Holding Finance S.A., Aksia 

S.p.A. and PA Investments and has degrees from L.U.I.S.S. University and Harvard Business School. 

Patrizia Grassini is Vice President of Communications of IT Holding S.p.A. and heads our in-house advertising 

and public relations unit. Prior to joining the Group in 1992, she was Director of Communications for the 

Trussardi Group. Ms. Grassini has a degree in modern literature. 

Sergio Lin joined the IT Holding Group in July 2003 as CEO of Ittierre Accessories S.p.A.. He is a leading Italian 

entrepreneur in the accessories market segment. 

Massimo Macchi joined the IT Holding Group as CEO of Gianfranco Ferré S.p.A. in February 2005, coming to us 

from the Testoni Group. From 2000 to 2004, Mr. Macchi served as Vice President of the Jewelry and Watch 

Division of the Gucci Group and from 1990 to 2000, he worked for the Bulgari Group, rising to become President 

and CEO of Bulgari Perfume. Mr. Macchi has also worked for Procter & Gamble in Italy. 

Maurizio Negro is the Chief Operating Officer of Ittierre S.p.A. and as such is responsible for all operations of 

Ittierre S.p.A.. Prior to joining the Group in 2000, he was the Operations Manager for Stefanel S.p.A.. 

Compensation 

We paid aggregate remuneration to the members of the board of directors of IT Holdings S.p.A. of €1.8 million in 

2004. Certain of our directors have waived their right to receive compensation and therefore are not remunerated 

for their services on the board. There are no service contracts or severance benefits for any of IT Holding S.p.A.’s 

directors. 

Aggregate compensation paid by us to our senior management (excluding directors) amounted to €2.6 million in 

2004, inclusive of amounts accrued for termination indemnities. 

51

Pursuant to Italian Law we maintain a Board of Statutory Auditors composed of three individuals who are required 

to have no other affiliation with the IT Holding S.p.A. Group and who must satisfy certain professional and other 

standards. Aggregate compensation paid to the Board of Statutory Auditors in 2004 amounted to €0.4 million. 

Employees 

As of December 31, 2004, we had 1,720 employees worldwide, of which 451 were production workers, 1,226 were 

salaried office staff and 43 were senior managers. We also employ approximately 278 employees on a temporary 

basis during peak activity periods in order to help us prepare our collections. Historically, we have enjoyed good 

labor relationships with our employees and we are committed to maintaining a positive relationship with them. We 

have never experienced a material job action or labor stoppage that has had a material impact on our business. 

Italian law provides that, upon termination of employment, employees are entitled to severance pay based on their 

annual salary, length of employment and the rate of inflation. As of December 31, 2004, we had reserved €13.7 

million for severance and pension payments, which we believe to be sufficient to cover payments to our current 

employees. 

Various phases of our production process are outsourced to third parties pursuant to standard agreements. There 

can be no assurance that employees of these third parties would not, as a result of certain existing Italian 

employment law and regulations, be considered employees of the Group entitled to the benefits that such a 

relationship would offer. 

Share ownership and stock option plans 

Currently, none of our directors hold any ordinary shares of IT Holding S.p.A. We do not currently have any stock 

option plans involving members of the board of directors or any of our executive officers. 

52

PRINCIPAL SHAREHOLDERS 

The table below sets forth the beneficial ownership of the ordinary shares of IT Holding S.p.A. as of April 27, 

2005: 

Beneficial Owner Number of Shares 

Percentage of 

Outstanding Shares 

PA Investments S.A. .......................................................................................................... 160,391,207 65.23% 

Mr. Luigi Giribaldi............................................................................................................. 52,365,654 21.30 

Mr. Gian Franco Ferré........................................................................................................ 6,962,312 2.83 

GTP Holding S.p.A. ........................................................................................................... 2,500,000 1.02 

Other ................................................................................................................................ 23,654,827 9.62 

Total ................................................................................................................................ 245,874,000 100.00% 

IT Holding S.p.A. is not aware of any party, other than the parties listed above, that directly or indirectly owns 

more than 2% of its issued and outstanding ordinary shares. 

PA Investments 

PA Investments is a Luxembourg joint stock company (société anonyme) and is involved through its subsidiaries in 

the production and marketing of luxury designer apparel and designer home furnishings. PA Investments is 

controlled by GTP Holding S.p.A., which also directly owns 1.02% of the issued and outstanding shares of IT 

Holding S.p.A. Two Italian partnerships (società in accomandita semplice), AP di Tonino Perna s.a.s. and Tonino 

Perna & C. s.a.s., hold 99.0% of the ownership interests in GTP Holding S.p.A. Mr. Tonino Perna, Chairman of the 

Board of Directors and Managing Director of the Company, is the sole managing partner (socio accomandatario) 

of both partnerships and his children are equity partners with no management authority. 

53

RELATED PARTY TRANSACTIONS 

We have entered into a number of agreements with our controlling shareholder, our subsidiaries and other 

affiliates. The following is a summary of the main terms of the agreements with such related parties that we 

believe are material to our business. 

Acquisition of Gianfranco Ferré S.p.A. 

On June 24, 2002, we purchased from our controlling shareholder PA Investments 99.99% of the shares in 

Financière Melpar Holding S.A. (“FMH”), a Luxembourg company holding 90% of the share capital of Gianfranco 

Ferré S.p.A. We paid total consideration of €161.7 million in connection with this transaction, comprising €136.3 

million as the purchase price of certain notes issued by FMH to PA Investments with a nominal value of €125.7 

million, € 21.5 million as consideration for the assignment to us of a claim of the same from a loan provided by PA 

Investments to FMH, and € 3.9 million as the purchase price for the transfer of the 99.99% interest in FMH. In 

addition, we paid PA Investments €2.2 million on account of expenses incurred by it in connection with the 

acquisition of Gianfranco Ferré S.p.A. 

On June 26, 2002, PA Investments transferred the remaining 10% it owned of the share capital of Gianfranco Ferré 

S.p.A. to FMH for €18.0 million, resulting in FMH becoming Gianfranco Ferré S.p.A.’s sole shareholder. On 

December 23, 2003, FMH was liquidated and all of its assets, including its 100% shareholding in Gianfranco Ferré 

S.p.A., were transferred to IT Holding S.p.A. Accordingly, the total consideration paid by IT Holding S.p.A. for 

the acquisition of 100% of the shares in Gianfranco Ferré S.p.A. was €181.8 million. 

Mr. Gian Franco Ferré Put Agreement 

On May 20, 2002, PA Investments transferred 5,667,000 shares of IT Holding S.p.A. to Mr. Gian Franco Ferré at a 

price of €3.00 per share. Under the terms of this agreement, Mr. Gian Franco Ferré is entitled to require PA 

Investments to re-purchase these shares, in whole or in part, at a price equal to the original purchase price paid by 

him for such shares, plus an additional €0.277 per share per year (pro-rated) for the period each such share was 

held. This option was exercisable from January 24, 2004 and will expire on January 24, 2006. 

Supply Agreements 

On December 6, 2001, ITF S.p.A. (“ITF”), a joint venture established in September 2001 by us, Mr. Roberto 

Martone, and I.C.R. – Industrie Cosmetiche Riunite S.p.A., a company controlled by Mr. Martone (“ICR”), entered 

into an exclusive agreement for the supply to ITF of cosmetics and perfume products under the Roberto Cavalli, 

Gianfranco Ferré, Romeo Gigli and Extè trademarks for an initial term of eight years expiring on December 31, 

2009. Under this agreement, orders are placed on the basis of a 52 weekly rolling forecast plan updated by ITF and 

delivered to ICR by the second week of each month. We sold our interest in ITF on March 25, 2004 for a total 

consideration of €31.5 million. 

On April 16, 2004, Ittierre Accessories S.p.A. (“Ittierre Accessories”), a company controlled by IT Holding S.p.A., 

entered into an agreement with Sergiolin S.p.A. (“Sergiolin”), a minority shareholder in Ittierre Accessories and a 

manufacturer of leather items and accessories, for the supply of leather goods, models and samples under the Extè 

trademark for a period of five years, starting with the 2005 Spring-Summer collection. On April 29, 2004, the 

parties agreed that for the 2005 Spring-Summer collection only, design and development of the collection would be 

carried out by and the associated costs would be borne by Sergiolin. On July 1, 2003, a contract with the same 

terms and conditions was entered into by the same parties with regard to the GF Ferré trademark. Sergiolin is 

controlled by Mr. Sergio Lin, who became managing director of Ittierre Accessories on July 23, 2003. 

Legal Services 

We receive legal assistance on a continuing basis from Pavia e Ansaldo – Studio Legale. Antonio Di Pasquale, 

who serves on the Board of Directors of IT Holding S.p.A. is a partner of this law firm. The aggregate amount 

54

invoiced to us by Pavia e Ansaldo – Studio Legale during 2004 was approximately €0.7 million. In addition, we 

received legal assistance from Nike – Istituto di Ricerca S.r.l., a company indirectly related to Bruno Assumma, 

who serves on the Board of Directors of IT Holding S.p.A. The aggregate amount invoiced to us by Nike S.r.l. 

during 2004 was approximately €35,000. 

Loan Agreement 

On May 31, 2004, GTP Holding S.p.A., the holder of a 1.02% interest in our share capital, granted us loans in an 

aggregate amount of €4.5 million at preferential conditions. We repaid these loans in full by December 31, 2004. 

55

IT HOLDING S.P.A. 

INDEX TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS 

Reports of the Independent Auditors for the Audited Consolidated Financial Statements as of and for the 

Years Ended December 31, 2004, 2003 and 2002................................................................................................ 

Consolidated Statements of Income .........................................................................................................................F-5 

Consolidated Balance Sheets................................................................................................................................ F-6 

Consolidated Statements of Cash Flows ..................................................................................................................F-7 

Consolidated Statements of Changes in the Shareholders’ Equity...........................................................................F-9 

Notes to the Consolidated Financial Statements for the Year Ended December 31, 2004....................................... F-10 



F- 1 

Page 

F-2

The Board of Directors 

IT Holding S . p . A . 

REPORT OF THE AUDITORS 

We have audited the accompanying consolidated balance sheet of IT Holding S.p.A. and its subsidiaries (“the Group”) 

as of 31 December 2004, and the related consolidated statements of income, changes in the shareholders' equity and 

cash flows for the year then ended. These consolidated financial statements are the responsibility of the parent 

Company's management. Our responsibility is to express an opinion on these consolidated financial statements based 

on our audit. 

We conducted our audit in accordance with the auditing standards recommended by Consob, the Italian Commission 

for Listed Companies and the Stock Exchange. Those standards require that we plan and perform the audit to 

obtain reasonable assurance about whether the consolidated financial statements are free of material misstatements 

and are, as a whole, reliable. An audit includes examining, on a test basis, evidence supporting the amounts and 

disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used 

and significant estimates made by management, as well as evaluating the overall financial statement presentation. 

We believe that our audit provides a reasonable basis for our opinion. 

Reference should be made to the ruport dated 30 September 2004 for our opinion on the prior year figures which 

are presented for comparative purposes.In our opinion, the consolidated financial statements give a true and fair 

view of the financial position of the Group as of 31 December 2004, and the results of its operations and its cash 

flows for the year then ended in accordance with International Financial Reporting Standards. 

Without qualifying our opinion, we draw your attention to the following matters: 

The Group incurred heavy net losses for the years ended 3l December 2004 and 2003 and the Group's net financial 

debt as of 31 December 2004 is considerable. As reported in the notes, the financial statements have been prepared 

on a going concern basis as management believes that the measures taken by the Group aimed at ensuring the 

Group's ability to repay the debt maturing in 2005 and focusing on its core profitable operations, in order to 

strengthen its market position and facilitate the planned growth for the next few year, will allow the Group to return 

to profitability in the medium term. 

The measures taken to repay the debt maturing in 2005, commenced during 2004, included the partial repurchase, 

and subsequent cancellation, of the Ferrè Finance 7% 05/05 bonds for a nominal amount of Euro 25 million. The 

repurchase was made using the proceeds on the sale of the fragrance company. It also involved the placing of new 

Senior Notes 2012 for Euro 150 million, with an eight-years maturity, and the taking out of a new five-year loan of 

Euro 85 million, granted by a pool of banks led by San Paolo IMI S.p.A.. This loan was used to repay in advance 

the original loan of the same amount (original due date: December 2005). In early 2005, the Group a) finalized the 

tender offer made by IT Holding Finance S.A. for the purchase of the Ferrè Finance 7% 05/05 notes for a nominal 

value of approximately Euro 80.4 million and b) placed another bond issue (Additional Senior Notes 2012) for 

Euro 35 million. The funds obtained with this placing will be used to repurchase or reimburse the Ferrè Finance 

7% 05/05 bonds which expire in May 2005. The Directors have called an extraordinary meeting of the holding 

company's shareholders in April 2005 to approve a proposal to change article 5 of the bylaws and to grant the 

Board, pursuant to article 2443 of the Civil Code, the power to increase the share capital, with the exclusion of the 

option in accordance with paragraph 5 of article 2441 of the Italian Civil Code. 

The focusing on its core business, aimed at developing the businesses of the Ferrè, Extè and Malo brands, mainly 

comprises the sale of the companies active in the fragrance and eyewear businesses, of Gigli S.p.A., the indirect 

owner of the Romeo Gigli brand, and of the Gentryportofino business unit and brand. 

As commented in note 30 to the consolidated financial statements, the subsidiary Ittierre S.p.A. has received 

summons further to claims for damages on the basis of alleged breach of contract in relation to a design 

collaboration agreement signed prior to 31 December 1996. In this respect and with regard to any other potential 

litigation, reference should be made to the description in the notes to the consolidated financial statements of the hold 

harmless agreement signed with the parent company P.A. Investments S.A. to hold harmless and indemnify IT 

Holding S.p.A. and its subsidiaries from any negative consequences of situations which arose before 31 December 

1996. 

Naples, 5 April 2005 

KPMG S.p.A. 

Giovanni Enrico Esposito 

Director of Audit 

F- 2



IT Holding S.p.A. 

We have audited the accompanying consolidated balance sheet of IT Holding S.p.A. and its subsidiaries ("the Group") 

as of 31 December 2003, and the related consolidated statements of income, changes in the shareholders' equity and 

cash flows for the year then ended. These consolidated financial statements are the responsibility of the parent 

Company's management. Our responsibility is to express an opinion on these consolidated financial statements based 

on our audit. 


for Listed Companies and the Stock Exchange. Those standards require that we plan and perform the audit to obtain 

reasonable assurance about whether the consolidated financial statements are free of material misstatement and are, as 

a whole, reliable. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 

consolidated financial statements. An audit also includes assessing the accounting principles used and significant 

estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 

audit provides a reasonable basis for our opinion. 

Reference should be made to the report dated 28 September 2004 for our opinion on the prior year figures which are 

presented for comparative purposes. 

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as 

of 31 December 2003, and the results of its operations and its cash flows for the year then ended in accordance with 

International Financial Reporting Standards. 

Without qualifying our opinion, we draw your attention to the following matters: 

The Group incurred a significant net loss of approximately € 62.7 million for the year ended 31 December 2003. This 

included the write-down of intangible assets amounting to approximately €36.6 million, net of the tax effect. 

Furthermore, the Group's net financial debt as of 31 December 2003 is considerable and comprises €212.5 million 

classified as short-term and additional €221 million due in 2005. 

The notes to the consolidated financial statements indicate the directors' plans to deal with this situation. In particular, 

the directors have specified that the improvement in forthcoming years in the Group's results will depend more on 

measures to recover profitability and efficiency than on assumptions of growth in operating volumes. They plan to 

achieve this aim by focusing on the core apparel and accessories business, leveraging both own and licensed brands. 

In particular, the directors have specified that they plan to reduce the financial debt through a strategic refocusing 

which should generate a recovery in profitability in the short term, an improvement in the management of working 

capital, the containment of the investments, the sale of non-strategic business activities, and the sale of brands which 

had a negative impact on profitability. Furthermore, the directors indicated that, with the assistance of banks, an 

extraordinary financing transaction is underway to refinance the IT Holding Group debt. The structure of such 

transaction, which is still being defined, provides for (a) the issue of a high-yield bond maturing in seven to ten years, 

to replace the "Ferré Finance 05/05" bond maturing in May 2005 and, (b) the subscription of a syndicated loan to 

refinance the "€85 million Dual Tranche Syndicated Facility", headed by Sanpaolo IMI S.p.A., signed on 10 April 

2003. 

As commented in Note 25 to the consolidated financial statement, the subsidiary Ittierre S.p.A. has received summons 

further to claims for damages on the basis of alleged breach of contract in relation to a design collaboration agreement 

signed prior to 31 December 1996. In this respect and with regard to any other potential litigation, reference should be 

made to the description in the notes to the consolidated financial statements of the hold harmless agreement signed 

with the parent company PA Investments S.A. to hold harmless and indemnify IT Holding S.p.A. and its subsidiaries 

from any negative consequences of situations which arose before 31 December 1996. 

Naples, 30 September 2004 

KPMG S.p.A. 



F- 3



IT Holding S.p.A. 

We have audited the accompanying balance sheet of IT Holding S.p.A. and its subsidiaries ("the Group") as of 31 

December 2002, and the related consolidated statements of income, changes in the shareholders' equity and cash 

flows for the year then ended. These consolidated financial statements are the responsibility of the parent Company's 

management. Our responsibility is to express an opinion on these consolidated financial statements based on our 

audit. 


for Listed Companies and the Stock Exchange. Those standards require that we plan and perform the audit to obtain 

reasonable assurance about whether the consolidated financial statements are free of material misstatement and are, as 

a whole, reliable. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the 

consolidated financial statements. An audit also includes assessing the accounting principles used and significant 

estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 

audit provides a reasonable basis for our opinion. 

The consolidated financial statements present the prior year's figures for comparative purposes. Such figures were 

examined by us to the degree that we considered to be necessary in order to express an opinion on the consolidated 

financial statements of the current year. Accordingly, our opinion does not extend to the comparative figures as such. 

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as 

of 31 December 2002, and the results of its operations and its cash flows for the year then ended in accordance with 

International Financial Reporting Standards. 

Without qualifying our opinion, we draw your attention on the following matter: 

As commented in Note 25 to the consolidated financial statement, the subsidiary Ittierre S.p.A. has received summons 

further to claims for damages on the basis of alleged breach of contract in relation to a design collaboration agreement 

signed prior to 31 December 1996. In this respect and with regard to any other potential litigation, reference should be 

made to the description in the notes to the consolidated financial statements of the hold harmless agreement signed 

with the parent company PA Investments S.A. to hold harmless and indemnify IT Holding S.p.A. and its subsidiaries 

from any negative consequences of situations which arose before 31 December 1996. 

Naples, 28 September 2004 

KPMG S.p.A. 



F- 4

IT HOLDING S.p.A. 

CONSOLIDATED STATEMENTS OF INCOME 

Year ended December 31, 

Notes 2002 2003 2004 Notes 

2002 

and 

(audited) (audited) (audited) 

2003 

2004 

(In thousands of Euros) 

Net revenues.............................. (3) 659,814 669,838 709,879 (3) 

of which royalty income 

Change in inventory of finished goods and work in 

13,843 12,925 7,677 

progress ................................... 15,731 26,831 15,661 

Other operating income.............. 10,773 11,540 9.675 

Cost of materials......................... (199,754) (196,948) (197,543) 

Outside services.......................... (257,889) (291,964) (297,218) (4) 

Personnel expenses..................... (4) (85,484) (86,756) (84,147) (5) 

Other operating expenses (35,151) (35,765) (50,340) 

Depreciation/amortization (83,440) (146,780) (98,511) 

Operating result........................ 24,600 (50,004) 7,456 

Financial income (charges) ........ (5) (27,279) (34,768) (29,356) (6) 

Gain on disposal of discontinuing operations — — 25,751 (7) 

Loss on disposal of discontinued operations — — (1,276) (7) 

Income (loss) before taxes........ (2,679) (84,772) 2,575 

Income taxes............................... (6) 1,991 21,729 (13,809) (8) 

Net income (loss) before minority interest (688) (63,043) (11,234) 

Minority interest......................... (730) (335) 1,347 

Net income (loss) for the year . 42 (62,708) (12,581) 

Earnings per share (basic and diluted) (27) 0.00 (0.26) (0.05) (27) 

See accompanying notes to consolidated financial statements 

F- 5


CONSOLIDATED BALANCE SHEETS 

Notes 2002 

As of December 31, 

2003 2004 Notes 

2002 and 2003 (audited) (audited) (audited) 2004 


Assets 

Current assets 

Cash and cash equivalents.......... (10) 47,237 36,770 14,763 (10) 

Short-term financial assets......... (11) 9,172 30,725 186,792 (11) 

Trade receivables, net................. (12) 208,346 230,211 226,640 (12) 

Inventories, net ........................... (13) 146,009 167,313 143,363 (13) 

Other current assets .................... (14) 122,946 180,355 138,585 (14) 

Total current assets 

Non-current assets.................... 

533,710 645,374 710,143 

Long-term financial assets ......... (15) 2,244 2,342 2,317 (15) 

Investment property ................... (16) 1,165 1,122 1,079 (16) 

Property, plant and equipment, net (17) 77,393 76,109 60,677 (17) 

Goodwill, trademarks, other intangible assets (18) 368,609 284,493 255,039 (18) 

Deferred tax assets ..................... (19) 38,469 44,766 41,769 (19) 

Other non-current assets............. 649 730 627 

Total non-current assets .......... 488,529 409,562 361,508 

Total assets ................................ 

Liabilities, minority interests and 

shareholders’ equity 

Current liabilities 

1,022,239 1,054,936 1,071,651 

Bank overdrafts and short-term loans (20) 155,355 212,520 318,802 (20) 

Trade payables and accrued expenses (21) 163,048 198,999 240,543 (21) 

Tax liabilities and income tax payable (22) 19,052 3,847 6,962 (22) 

Other current liabilities............... (23) 80,984 107,147 61,048 (23) 

Total current liabilities ............ 

Non-current liabilities.............. 

418,439 522,513 627,355 

Long-term financial payables..... (20) 285,449 282,451 207,111 (20) 

Pension liabilities and severance indemnities (24) 13,603 14,741 13,681 (24) 

Deferred tax liabilities................ (19) 66,546 63,067 60,428 (19) 

Other long-term liabilities.......... (25) 14,748 14,315 17,985 (25) 

Total non-current liabilities .... 380,346 374,574 299,205 

Total liabilities .......................... 798,785 897,087 926,560 

Minority interests ....................... 1,370 516 (355) 

Result for minority interest ........ (730) (335) 1,347 

Total minority interests ........... 

Shareholders’ equity 

640 181 992 

Share capital ............................... 12,292 12,291 12,294 (26) 

Share premium ........................... 136,706 136,674 101,526 (26) 

Translation reserve ..................... (224) (2,510) (3,699) 

Hedging reserve.......................... (161) (280) (217) 

Legal reserve .............................. 2,627 2,627 2,627 

Retained earnings....................... 35,249 35,291 12,519 

Other reserves............................. 36,283 36,283 31,630 

Net result for the year................. 42 (62,708) (12,581) 

Shareholders’ equity................ (26) 222,814 157,668 144,099 

Total equity ............................... 

Total liabilities, minority interests and 

223,454 157,849 145,091 

shareholders’ equity ............. 1,022,239 1,054,936 1,071,651 


F- 6


CONSOLIDATED STATEMENTS OF CASH FLOWS 

Year ended December 31, 

2002 2003 2004 Notes 

(audited) (audited) (audited) 2004 


Cash flow provided by (used in) operating activities 

—Net result for the year including minority interests (688) (63,043) (11,234) 

—Gain on disposal of IBEX 2001 S.p.A. and its subsidiaries — — (25,751) 

—Loss on disposal of Allison S.p.A. and its subsidiaries — — 1,276 

—Amortization and depreciation .......... 83,360 90,254 98,511 

—Write-downs....................................... 80 56,526 — 

—Accruals (severance pay fund)........... 3,970 3,940 4,570 

—Changes (net of acquisition) in: 

—Trade receivables, net ........................ (43,480) (21,865) (52,505) 

—Inventories, net................................... (12,621) (21,304) (13,712) 

—Trade payables, net ............................ 5,319 35,951 56,230 

—Income tax payable ............................ 12,263 (15,205) 3,981 

—Deferred tax assets ............................. (17,705) (6,297) (2,188) 

—Deferred tax liabilities........................ (7,537) (3,479) (1,073) 

—Other current assets (net of changes in Collection Development) (35,258) (48,745) 28,341 

—Other current liabilities ...................... 33,635 26,163 1,154 

—Other non-current assets .................... (649) (81) 103 

—Other non-current liabilities............... (349) (3,235) 714 

—Investments in Collection Development (47,813) (56,178) (66,557) 

Cash flow provided by (used in) by operating activities (27,473) (26,598) 21,860 

Cash flow provided by (used in) investing activities 

—Capital expenditures, acquisitions, net of disposal (30,605) (13,823) (6,992) 

—Net proceeds from disposal of IBEX S.p.A. and its subsidiaries — — 23,023 

—Net proceeds from disposal of Allison S.p.A. and its subsidiaries — — 3,180 

—Acquisition of the Gianfranco Ferré Group net of cash acquired (180,577) — — 

—Change in short term financial assets (1,992) (21,553) (7,430) (11) 

—Change in long term financial assets 2,057 (98) (1,076) 

Cash flow provided by (used in) investing activities (211,117) (35,474) 10,705 

Cash flow provided by (used in) financing activities 

—Change in short-term debt.................. (126,763) 57,168 649 

—Change in long-term debt .................. 48,809 (3,665) (15,951) 

—Change in short-term financial assets (escrow account) — — (148,637) (11) 

—Issuance of bonds............................... 207,210 664 110,580 

—Change in shareholders’ equity ......... 109,982 (2,562) (1,213) 

Cash flow provided by (used in) financing activities 239,238 51,605 (54,572) 

Increase (decrease) in cash and cash equivalents 648 (10,467) (22,007) 

Cash and cash equivalents at the beginning of the year 46,589 47,237 36,770 

Cash and cash equivalents at the end of the year 47,237 36,770 14,763 

Supplemental disclosures of cash flow information 

—Cash interest paid............................... 13,430 36,360 24,467 

—Cash interest received ........................ 974 6,558 9,712 

—Cash tax paid...................................... 4,669 23,763 2,815 


F- 7

Acquisition of Subsidiary 

During 2002 IT Holding S.p.A. acquired the Gianfranco Ferré Group. The fair value of assets acquired and liabilities assumed were as follows: 

Trade receivables, net .................. 9,515 

Inventories, net............................. 5,137 

Trade payables, net ...................... (11,610) 

Other current assets...................... 5,717 

Income tax payable ...................... (724) 

Deferred tax assets ....................... 1,004 

Deferred tax liabilities.................. (70,718) 

Other current liabilities ................ (2,678) 

Other non-current liabilities......... (3,535) 

Trademark .................................... 175,363 

Goodwill....................................... 73,638 

Other assets .................................. 12,068 

Long term financial assets ........... 316 

Short-term financial debt ............. (10,109) 

Long-term financial debt ............. (2,807) 

Cash and cash equivalents ........... 1,244 

Total purchase price..................... 181,821 

Less: cash and cash equivalents (1,244) 

Cash flow on acquisition net of cash acquired (180,577) 

Sale of Subsidiaries 

During 2004 IT Holding S.p.A. disposed of IBEX 2001 S.p.A. and its subsidiaries and Allison S.p.A. and its subsidiaries: 

The net effect of the sale is as follows: 

IBEX 2001 S.p.A. and subsidiaries Allison S.p.A. and subsidiaries 

Selling price ................................. 31,500 5,000 

Expenses related to the sale 

Cash and cash equivalents included in net assets 

(7,289) (951) 

disposed of 

F- 8 

(1,188) (869) 

Net proceeds from disposals 23,023 3,180 

Other net assets disposed of: 

Trade receivables, net .................. 17,864 39,775 

Inventories, net............................. 7,410 30,252 

Trade payables, net ...................... (16,160) (33,920) 

Other current assets...................... 5,800 12,431 

Income tax payable ...................... (582) (284) 

Deferred tax assets 1,499 3,686 

Deferred tax liabilities (3) (1,563) 

Other current liabilities ................ (2,522) (5,550) 

Other non current liabilities ......... (3,378) (3,083) 

Tangible assets............................. 3,054 10,548 

Long-term financial assets........... 3,416 1,053 

Short-term financial debt ............ (18,796) (47,845) 

Long-term financial debt ............ — (1,063) 

Minority interest........................... (330) 19 

Total ............................................. 2,728 (4,456) 

Gain (loss) on disposal................. 25,751 (1,276) 

See accompanying notes to consolidated financial statements


CONSOLIDATED STATEMENT OF CHANGES IN THE SHAREHOLDERS’ EQUITY 

Share Share Translation Hedging Legal Retained Other 

Net 

income 

capital premium reserve reserve reserve earnings reserve (loss) Total 


Balance at 1 January 

2002 ................................ 9,972 

Allocation of net 

26,264 2,303 6 2,467 37,672 35,949 (1,943) 112,690 

income............................... 

Recognised gain and 

— — — — 160 (2,423) 320 1,943 0 

loss ................................ 

Movement in treasury 

— — — (167) — — — — (167) 

shares ................................ 33 2,943 — — — — — — 2,976 

Translation difference.......... — — (2,527) — — — — — (2,527) 

Capital increase....................2,287 107,499 — — — — — — 109,786 

Other changes....................... 

Net income (loss) of 

— — — — — — 14 — 14 

the year.............................. 

Balance at December 

— — — — — — — 42 42 

31, 2002 (audited)............ 12,292 


136,706 (224) (161) 2,627 35,249 36,283 42 222,814 

2003 ................................12,292 


136,706 (224) (161) 2,627 35,249 36,283 42 222,814 

income............................... 


— — — — — 42 — (42) 0 

loss ................................ 


— — — (119) — — — — (119) 

shares ................................ (1) (32) — — — — — — (33) 

Translation difference.......... 


— — (2,286) — — — — — (2,286) 

the year.............................. 


— — — — — — — (62,708) (62,708) 

31, 2003 (audited)............... 12,291 


136,674 (2,510) (280) 2,627 35,291 36,283 (62,708) 157,668 

2004 ................................12,291 


136,674 (2,510) (280) 2,627 35,291 36,283 (62,708) 157,668 

income............................... 


— (35,245) — — — (22,772) (4,691) 62,708 0 

loss ................................ 


— — — 63 — — — — 63 

shares ................................ 3 97 — — — — — — 100 

Translation difference — — (1,189) — — — — — (1,189) 

Other changes 


— — — — — — 38 — 38 

the year 

Balance at 


— — — — — — — (12,581) (12,581) 

(audited) 12,294 101,526 (3,699) (217) 2,627 12,519 31,630 (12,581) 144,099 


F- 9

IT HOLDING S.P.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR 

ENDED DECEMBER 31, 2004 

(1) General Information 

IT HOLDING S.p.A. (the Company), and its subsidiaries (together the Group) are one of the leading players in the 

luxury goods sector, and produce and distribute high-quality fashionwear under owned brands - Gianfranco Ferré, 

GF Ferré, Malo, Extē , - as well as under license agreements - D&G, Versus, Versace Jeans Couture, Just Cavalli 

and C’N’C Costume National. According to its strategic objectives, the Group rules and sustains the autonomous 

development of its brands through an integrated production and distribution system. Its production facilities are 

located in Italy, while the worldwide distribution network comprises of 29 directly operated stores, 101 other 

mono-brand stores and over 4,000 highly-selected department and specialty stores. 

The Company is a company limited by shares, incorporated and domiciled in Italy. The address of its registered 

office is Zona Industriale, Pettoranello di Molise (IS), Italy. 

The Company is listed on the Italian Stock Exchange (MTA). 

These consolidated financial statements have been approved for issue by the Board of Directors on March 30, 

2005. 

In order to fulfill Italian statutory requirements the Company has also prepared its consolidated financial statements 

for the year 2004 in accordance with Italian generally accepted accounting principles. These financial statements 

were approved for issue by the Board of Directors on March 17, 2005 and are available on the Company’s web site 

(www.itholding.com). 

(2) Significant accounting policies 

The following is a summary of the significant accounting policies applied by the Group in the preparation of its 

financial statements. All policies have been consistently applied to all periods presented unless otherwise stated. 

Statement of compliance 

The consolidated financial statements have been prepared in accordance with International Financial Reporting 

Standards (IFRS) issued by the International Accounting Standards Boards (IASB). 

The accounting policies adopted are consistent with those of the previous financial year. 

The Group has early adopted the IFRS below, which are relevant to its operations: 

IAS 2 (revised 2003), Inventories 

IAS 8 (revised 2003), Accounting Policies, Changes in Accounting Estimates and Errors 

IAS 10 (revised 2003), Events after the Balance Sheet Date 

IAS 16 (revised 2003), Property, Plant and Equipment 

IAS 17 (revised 2003), Leases 

IAS 21 (revised 2003), The Effects of Changes in Foreign Exchange Rates 

IAS 24 (revised 2003), Related Party Disclosures 

IAS 27 (revised 2003), Consolidated and Separate Financial Statements 

IAS 28 (revised 2003), Investments in Associates 

IAS 32 (revised 2003), Financial Instruments: Disclosure and Presentation 

IAS 33 (revised 2003), Earnings per Share 

IAS 39 (revised 2003), Financial Instruments: Measurement and Recognition 

IAS 40 (revised 2003), Investment Property 

The following standards, applicable to the Company’s operations, which have been revised or issued but are not 

effective to date, will be adopted from the annual period beginning on 1 January 2005, their effective date.

IT HOLDING S.p.A. Notes to the consolidated financial statements for the year ended December 31, 2004 

IAS 1 (revised 2003) Presentation of Financial Statements 

IAS 36 (revised 2004) Impairment of Assets 

IAS 38 (revised 2004) Intangible Assets 

IFRS 3 (issued 2004) Business Combinations 

IFRS 5 (issued 2004) Non-current Assets Held for Sale and Discontinued Operations. 

The adoption of IAS 1 (revised 2003) and IFRS 5 (issued 2004) will not result in substantial changes to the 

Group’s accounting policies other than changes in presentation. 

The adoption of IAS 36 (revised 2004) and IFRS 3 (issued 2004) will result in a change in the accounting policy 

for goodwill. Goodwill is currently amortized on a straight line basis over a period of 20 years. From the annual 

period beginning on 1 January 2005, the Group will: 

cease amortization of goodwill; 

eliminate accumulated amortization with a corresponding decrease in the cost of goodwill; 

test goodwill for impairment annually. 

The adoption of IAS 38 (revised 2004) may imply the reassessment of the useful life of certain intangible assets, 

which, under the provisions of the new standard might be considered to have an indefinite useful life. The 

consequences of such an assessment would be the same as those described above for goodwill. 

To improve presentation, certain items on the balance sheet have been reclassified with respect to the prior year. 

Comparative figures have as a consequence been adjusted. These reclassifications are described in the notes to the 

financial statements. 

Basis of preparation 

The financial statements are presented in Euros, rounded to the nearest thousand. 

The consolidated financial statements have been prepared under the historical cost convention except as disclosed 

in the accounting policies set out below. 

The accounting policies have been applied consistently by all Group companies. 

Principles of consolidation 

Subsidiaries 

Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, 

directly or indirectly, to govern the financial and operating policies of the entity so as to obtain benefits from its 

activities. In assessing control, potential voting rights that are presently exercisable or convertible are taken into 

account. Subsidiaries are consolidated from the date that control commences until the date that control ceases. 

The purchase method of accounting is used to account for the acquisition of subsidiaries. The cost of acquisition is 

measured at the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition 

plus costs directly attributable to the acquisition. The excess of the cost of acquisition over the fair value of the 

Group’s share of assets and liabilities of the subsidiary acquired is recorded as goodwill. 

The assets, liabilities, income and expenses of consolidated companies are combined on a line-by-line basis by 

eliminating the book value of the parent’s investment against the Group’s share of equity of each subsidiary at the 

moment of their acquisition. 

The portion of net assets and net income attributable to third parties are stated separately as minority interests. 

All significant intragroup balances, transactions and unrealized profits and losses are eliminated. 

F- 11


Associates 

Associates are those entities over which the Group has significant influence but not control, generally 

accompanying a share holding of between 20% and 50% of the voting rights. Investments in associates are initially 

recognized at cost and subsequently accounted for by the equity method of accounting, whereby, the Group’s share 

of its associates’ post-acquisition profits or losses is recognized in the Group’s income statement and the Group’s 

share of its associates’ post-acquisition movements in reserves is recognized in reserves. The cumulative postacquisition 

movements are adjusted against the carrying value of the investment. 

At December 31, 2004 the carrying value of investments in associates and the Group’s share of associates’ results 

were not material, therefore associates and the Group’s share of associates’ results have not been disclosed 

separately in the financial statements. At December 31, 2003 there were investments in associates. 

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. 

Foreign currency 

Functional and presentation currency 

Items included in the financial statements of each of the Group’s entities are measured using the currency of the 

primary economic environment in which the entity operates (the “functional currency”). The consolidated financial 

statements are presented in euros, which is the Company’s functional and presentation currency. 

Foreign currency transactions and balances 

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the 

dates of transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are 

translated into the functional currency at the exchange rate prevailing at that date. 

Foreign exchange differences arising on the settlement of such transactions and on translation are recognized in the 

income statement, except when arising from derivative financial instruments qualifying as cash flow hedges, in 

which case they are deferred in equity. 

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into 

the functional currency at the exchange rates prevailing at the dates the values were determined. 

Financial statements of foreign operations 

Financial statements of foreign companies whose functional currency is not the Euro are translated into Euro as 

follows: 

• assets and liabilities including goodwill and fair value adjustments arising on consolidation are translated at the 

exchange rates ruling at the balance sheet date; 

• income and expenses are translated into Euro at the average rates for the year; 

• foreign exchange differences arising on translation are recognized as a separate component of equity. Upon 

disposal of the foreign operation, accumulated foreign exchange differences relative to that operation are 

recognized in the income statement. 

Cash and cash equivalents 

Cash and cash equivalents comprise cash balances and call deposits as well as all highly liquid investments 

purchased with an original maturity of three months or less. The investments included in cash and cash equivalents 

are reported at their fair market value. 

Cash and cash equivalents are determined in the same way both for the purposes of the balance sheet and the cash 

flow statement. 

F- 12


Derivative financial instruments 

Derivative financial instruments are used by the IT HOLDING Group solely for the purpose of hedging interest 

rate risk and currency exposure arising from operations. In accordance with its treasury policy, the Group does not 

hold or issue derivative financial instruments for trading or speculative purposes. However, derivatives that do not 

qualify for hedge accounting are accounted for as trading instruments. 

Derivative financial assets and liabilities are stated at fair value and are classified in the balance sheet, respectively 

as other current assets and other current liabilities. 

The market value of Interest rate swaps reflects the present value difference between the fixed rate to be 

paid/received and the interest rate assessed on the basis of the market trend having the same expiry date as the 

swap. The fair value of forward exchange contracts and currency options is estimated by reputable financial 

institutions on the basis of market conditions. The counterparties to derivative contracts are generally highly rated 

banks and financial institutions in order to minimize the risk of non-performance. 

Cash flow hedges 

Changes in fair values of derivatives that are designated and qualify as Cash flow hedges and that are highly 

effective are deferred in the equity account, “Hedging reserve”. Amounts deferred in the “Hedging reserve” and 

any subsequent changes in the value of these derivatives are recorded in the income statement in the same period 

and classified in the same income statement accounts as the related hedged transactions. 

Foreign exchange exposure 

The Group does not consider cost effective the requirements of IAS 39 for the use of hedge accounting in relation 

to the hedge of foreign exchange risk. Derivative financial instruments used to hedge foreign exchange exposure 

of a forecasted transaction (or Group of transactions) or of a recognised monetary asset or liability, are accounted 

for at fair value and the change in fair value recognised in the income statement. 

Non derivative financial assets 

The Group’s non-derivative financial assets are comprised of loans and receivables and hence are non-derivative 

financial assets with fixed or determinable payments that are not quoted in an active market. They are initially 

measured at cost which approximates fair value and subsequently measured at amortised cost using the effective 

interest method. 

Trade receivables are classified as a separate line item in the balance sheet whereas other non-derivative financial 

assets are classified as short-term financial assets and long-term financial assets. 

Trade receivables 

Trade receivables are initially stated at cost which approximates their fair value. Subsequently they are measured 

at amortized cost less provision for impairment. 

Securitization programme 

In July 2003, the Company, along with certain subsidiaries entered into a securitization programme with certain 

Crédit Lyonnais Group companies for the securitization of trade receivables. Trade receivables that satisfy 

specified selection criteria are transferred by the subsidiaries on a monthly basis and a securitization fee being a 

discount of 2.5% on receivables transferred, is charged. Group subsidiaries, under a servicing agreement, remain 

responsible for the collection of these receivables. Against the receivables acquired, the transferee issues senior 

notes placed on the market and junior notes that are subscribed by the Company. The number of junior notes 

issued is calculated as a percentage of total receivables. The junior notes are issued and subscribed on a monthly 

basis, however the repayment of principal and interest on these notes is subordinated to the prior repayment of 

principal and interest on the senior notes. The yield on the junior notes is determined by reimbursing the 2.5% 

discount on receivables transferred that have been successfully collected and by deducting interest accrued on net 

consideration received and losses incurred on receivables transferred. The mechanism of the junior notes maintains 

substantially all the risks and rewards linked to the receivables transferred, within the Group as it is highly 

F- 13


improbable that losses incurred on these receivables will be greater than the value of the junior notes. 

As a consequence, trade receivables transferred under the securitization programme are not derecognized and a 

liability is recognized in the balance sheet caption “bank overdrafts and short-term loans”, corresponding to the 

consideration received, gross of the proceeds reinvested in junior notes. The junior notes subscribed are included 

in the balance sheet caption “short-term financial assets”. The provision for impairment of trade receivables 

includes the provision on receivables transferred, that the Group estimates will not be recovered. 

The discount applied upon transfer of the trade receivables has been included in the balance sheet caption “other 

current assets” as these amounts are recovered once the receivables are collected. 

Interest accrues on consideration received net of the junior notes subscribed. The net interest charged has been 

grossed up and recognized as interest expense for the part pertaining to consideration received gross of the junior 

notes subscribed, and interest income for the part pertaining to the junior notes subscribed. 

Other expenses charged in accordance with the programme are included in the income statement caption “financial 

income (charges)”. 

Inventories 

Inventories are stated at the lower of purchase or production cost and net realizable value. Net realizable value is 

the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling 

expenses. 

Production costs of finished products include the cost of raw materials, consumables and external manufacture and 

the portion of all those direct and indirect production costs which may reasonably be attributed to them, excluding 

financial charges. 

Purchase or production cost is determined using the average cost method. 

Investments in collection development 

Investments in collection development of all models and samples included in the catalogue of the new collection 

are capitalized if it is probable that the amount will be recoverable on the basis of the future economic benefits 

generated by the new collection. The investments capitalized include the cost of materials, and direct labour. Other 

development expenditure is recognized in the income statement as an expense as incurred. Investments in 

collection development are stated at cost less accumulated amortization and impairment losses. 

Investments in collection development are amortized on the basis of the expected path of future economic benefits 

expected to flow to the company (i.e. on the basis of the proportion of revenues accounted for at the balance sheet 

date with respect to the total expected revenues from the sale of the collection, represented by the orders collected). 

The path of future economic benefits related to these investments is generally expected to be realized within twelve 

months, hence these investments have been included under current assets, in the balance sheet caption “other 

current assets”. 

Investment property 

Investment property is stated at cost less accumulated depreciation and impairment loss, if any. Depreciation is 

calculated on a straight-line basis over the estimated useful lives of the fixed assets estimated equal to 33 years. 

Property, plant and equipment 

Property, plant and equipment is carried at cost or deemed cost less accumulated depreciation and impairment loss, 

if any. Depreciation is calculated on a straight-line basis over the estimated useful lives of the fixed assets or the 

term of the lease. 

F- 14


The applicable depreciation rates are as follows: 

% 

industrial buildings 3.0 

general plant, light constructions, and operating machinery 10.0 

general plant and operating machinery purchased after January 1, 1989 12.5 

office furniture and equipment 12.0 

canteen equipment and fittings 12.5 

furnishings 15.0 

electronic machines 20.0 

miscellaneous and small equipment 25.0 

automobiles 25.0 

motor vehicles and internal means of transport 20.0 

Land is not depreciated. 

Leasehold improvements, including expenses for opening and modernizing stores, and general store equipment are 

depreciated over the expected lease term or over the useful life of the asset if shorter. 

The cost of major renovations is included in the carrying amount of an asset when it is probable that future 

economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the 

Group. Major renovations are depreciated over the remaining useful life of the related asset. All other expenditure 

is recognized in the income statement as an expense as incurred. 

Similarly costs for opening and remodernizing stores under lease contracts are capitalized under leasehold 

improvements when it is probable that future economic benefits will flow to the Group. 

Certain items of property and plant have been revalued to fair value at the date of transition to IFRS, January 1, 

2001. In accordance to IFRS 1 the Group has elected to use that fair value as its deemed cost at that date. 

Property that is being constructed or developed for future use as investment property is classified as property, plant 

and equipment and stated at cost until construction or development is complete, at which time it is reclassified as 

investment property. 

Leases 

Finance Leases 

Leases of property, plant and equipment, where the Group assumes substantially all the risks and rewards of 

ownership, are accounted for as finance leases. Plant and equipment acquired by way of financial lease is stated at 

an amount equal to the lower of the fair value of the leased property or the present value of the minimum lease 

payments at the inception of the lease, less accumulated depreciation and impairment losses, if any. Property, plant 

and equipment acquired under finance leases is depreciated over the lease term or over the useful life of the leased 

asset if shorter. 

The interest expense component of financial lease payment is recognized in the income statement using the 

effective interest rate method. 

Operating Leases 

All leases for which the Group does not assume substantially all risks and rewards of ownership are accounted for 

as operating leases. Payments made under operating leases are recognized in the income statement on a straightline 

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. 

Intangible Assets 

Goodwill 

Goodwill represents amounts arising on acquisition of subsidiaries, associates and joint ventures. In respect of 

acquisitions that have occurred since January 1, 2001, the date of transition to IFRS, goodwill represents the 

F- 15


difference between the purchase price and the fair value of the identifiable net assets of acquired businesses at the 

date of acquisition. 

In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents 

the amount recorded under previous GAAP. Goodwill is stated at cost less accumulated amortization and 

impairment losses. 

Negative goodwill arising on acquisition represents the excess of the fair value of the net identifiable assets 

acquired over the cost of acquisition. To the extent that negative goodwill relates to an expectation of future losses 

and expenses that are identified in the plan of acquisition and can be measured reliably, but which have not yet 

been recognized, it is recognized in the income statement when the future losses and expenses are recognized. Any 

remaining negative goodwill, but not exceeding the fair value of the non-monetary assets acquired, is recognized in 

the income statement over the weighted average useful life of those assets that are depreciable/amortizable. 

Negative goodwill in excess of the fair values of the non-monetary assets acquired is recognized immediately in the 

income statement. 

When the acquisition agreement provides for an adjustment to the purchase consideration contingent on future 

events, an estimate of the adjustment is included in the cost of acquisition if the adjustment is probable and the 

amount can be estimated reliably. Any future adjustment to the estimate is recorded as an adjustment to goodwill or 

negative goodwill. 

Patents and trademarks 

Acquired trademarks licenses and permits are stated at cost or at the attributed value at the date of the acquisition 

less accumulated amortization and impairment losses. 

Research and development expenditure 

Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge 

and understanding is recognized in the income statement as an expense as incurred. 

Development costs 

Development costs being design costs incurred to develop store concepts are stated at cost less accumulated 

amortization and impairment losses. 

Other intangible assets 

Other intangible assets expected to benefit future periods are recorded at cost less accumulated amortization and 

impairment losses. 

Key money paid by the Group to enter leases for its stores is included in other intangible assets, amortized over the 

period of the lease and subjected to impairment testing if there is an indication of impairment. 

Subsequent expenditure 

Subsequent expenditure on capitalized intangible assets is capitalized only when it increases the future economic 

benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred. 

Amortization 

Amortization is calculated on a straight-line basis over the estimated useful lives of intangible assets. Goodwill is 

amortized from the date of initial recognition; other intangible assets are amortized from the date they are available 

for use. 

The applicable amortization periods are as follows: 

Goodwill 20 years 

Patents and trademarks 20 years 

Development costs generally 5 years 

Other generally 5 years 

F- 16


Impairment 

The carrying amounts of the Group’s asset, other than inventories and deferred tax assets are reviewed at each 

balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the 

asset’s recoverable amount is estimated. For intangible assets that are not yet available for use, the recoverable 

amount is estimated at each balance sheet date. An impairment loss arises and is recognized whenever the carrying 

amount of an asset or its cash-generating unit exceeds its recoverable amount. The carrying amount of the asset is 

adjusted to its recoverable amount and the impairment loss is recognized in the income statement. 



amount may not be recoverable. 


The recoverable amount of financial assets carried at amortized cost, including receivables, is calculated as the 

present value of expected future cash flow, discounted at the original effective interest rate inherent in the asset. 

Receivables with a short maturity are not discounted. 

The recoverable amount of a non-financial asset is the greater of its net selling price and value in use. In assessing 

value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that 

reflects the current market assessment of the time value of money and the risks specific to the asset. For an asset 

that does not generate largely independent cash inflows, the recoverable amount is determined for the cashgenerating 

unit to which the asset belongs. 


An impairment loss in respect of financial assets carried at amortised cost is reversed if the subsequent increase in 

recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. 

An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external event of 

an exceptional nature that is not excepted to recur, and the increase in recoverable amount relates clearly to the 

reversal of the effect of that specific event. 

In respect of other non-financial assets, an impairment loss is reversed if there has been a change in the estimate 

used to determine the recoverable amount. The reversal is recognized in the income statement and the asset’s 

carrying value is adjusted to its recoverable amount, to the extent that the asset’s carrying amount does not exceed 

the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss 

had been recognized. 

Income Tax 

Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognized in the 

income statement except to the extent that it relates to items recognized directly in equity, in which case it is 

recognized in equity. 

Current tax is the expected tax payable or recoverable 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 income tax is provided, using the liability method, on all temporary differences at the balance sheet date 

between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. 

Deferred income tax liabilities are recognized for all taxable temporary differences except to the extent that the 

deferred tax liability arises from: 

• the initial recognition of goodwill; 

• goodwill for which amortization is not deductible for tax purposes; 

• the initial recognition of an asset or liability in a transaction which is not a business combination and, at the 

time of the transaction, affects neither accounting profit nor taxable profit or loss. 

F- 17


Deferred income tax assets are recognized: 

• for all deductible temporary differences to the extent that it is probable that taxable profit will be available 

against which the deductible temporary difference can be utilized, unless the deferred tax asset arises from the 

initial recognition of an asset or liability in a transaction which is not a business combination and, at the time of 

the transaction, affects neither accounting profit nor taxable profit or loss; 

• for the carryforward of unused tax losses and unused tax credits to the extent that it is probable that taxable 

profit will be available against which the unused tax losses and unused tax credits can be utilised. 

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the 

asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively 

enacted at the balance sheet date. The effect of a change in tax rate is reflected in the income statement in the 

period in which the change occurs. Deferred tax assets and liabilities have been offset only when they relate to the 

same tax jurisdiction. 

Bank overdrafts and loans 

Borrowings are recognized initially at cost which approximates their fair value, net of transaction costs incurred. 

Subsequent to initial recognition, borrowings are stated at amortized cost with any difference between cost and 

redemption value being recognized in the income statement over the period of the borrowings using the effective 

interest method. 

Loans are classified as current liabilities unless the Group has an unconditional right to defer settlement of the 

liability for at least 12 months after the balance sheet date. 

Trade payables 

Trade payables are initially stated at cost which approximates their fair value. Subsequently they are measured at 

amortized cost. 

Provisions 

A provision is recognized in the balance sheet when the Group has a legal or constructive obligation as a result of a 

past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle 

the obligation and the amount of the obligation can be reliably estimated. 

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate 

that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the 

liability. Provisions, where the outflow of economic benefits is expected to occur after 12 months from the balance 

sheet date, have been classified under the balance sheet caption “other long-term liabilities” whereas provisions 

where the outflow of economic benefits is expected to occur prior to 12 months after the balance sheet date, have 

been classified in the balance sheet caption, “other current liabilities”. 

Agents’ termination benefits 

The provision for agents’ termination benefits is calculated on the basis of the compensation to be paid upon 

termination of agency contracts in compliance with law, and has been estimated on the basis of historical data, the 

average length of the relation with the agents and their turnover. 

Tax provision 

The tax provision reflects the estimated tax liability that it is probable some Group companies will have to pay 

following tax disputes currently pending with the tax authorities. 

Returns on sales 

The provision for returns on sales, is set up to cover the unrealized profit arising from the difference between the 

sales value of possible returns to be received after year end, but pertaining to the year, and their estimated recovery 

value. 

F- 18


Litigation provision 

The litigation provision reflects the liability estimated to arise from litigation currently in progress. 

Pension liabilities and severance indemnities 

The Group’s contributions to defined contribution pension plans are charged to the income statement in the period 

to which the contributions relate. 

Severance indemnities are calculated on an actuarial basis or in accordance with applicable local law to the extent 

that the amount of the liability does not differ materially from the amount which would have been calculated on an 

actuarial basis. 

All actuarial gains and losses as at January 1, 2001, the date of transition to IFRS, were recognized. 

Actuarial gains and losses that arise subsequent to January 1, 2001 in calculating the Group’s obligation with 

reference to the severance indemnity for Italian employees (so called TFR) are not deferred and are charged to the 

income statement of the period in which they are calculated. 

Share capital 

Own shares 

When share capital recognized as equity is repurchased, the amount of the consideration paid, including directly 

attributable costs, is recognized as a change in equity. Repurchased shares have been deducted from equity 

allocating the purchase price to capital stock for the nominal value of the shares and to share premium for the 

excess over the nominal value. 

Dividends 

Dividends are recognized as a liability in the period in which they are declared. 

Equity and equity related compensation benefit 

The Group had a stock option programme which was abandoned in 2002. There are no longer any option rights 

open pertaining to the programme. 

Recognition of revenues 

Revenues from the sale of products are measured at the fair value of the consideration received or receivable and 

are recognized on the transfer of ownership to third parties. Royalties are recognized at the time of sale of the 

licensed products and, in accordance with industry practice, are included in revenues. Should any product return or 

be expected to return, or any commercial discount be granted, the corresponding value reduces revenues arising 

from the sale of goods. Cash discounts are recognized as financial costs. 

Rental income from investment property is recognized in the income statement on a straight-line basis over the 

term of the lease. 

Government grants 

Government grants are recognized in the balance sheet initially as deferred income when there is reasonable 

assurance that they will be received and the Group will comply with the conditions attaching to them. Grants that 

compensate the Group for expenses incurred are recognized as revenues in the income statement on a systematic 

basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an 

asset are recognized in the income statement as revenues on a systematic basis over the useful life of the asset. 

Communication expenses 

Communication expenses, which include advertising, public relations and visual display expenses, are expensed as 

incurred. 

F- 19


Financial income and charges 

Financial income 

Financial income comprises interest receivable on funds invested, dividend income and foreign exchange gains 

and gains on derivative financial instruments unless off-set in a hedging relationship. 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. 

Financial charges 

Financial charges comprise interest payable on borrowings calculated using the effective interest method, expenses 

related to the securitization programme, foreign exchange losses and losses on derivative financial instruments 

unless off-set in a hedging relationship. 

The interest expense component of finance leases is recognized in the income statement using the effective interest 

rate method. 

Earnings per share 

Basic earnings per share are calculated by dividing the profit or loss for the period attributable to shareholders of 

the company by the weighted average number of ordinary shares outstanding during the period. Diluted earnings 

per share are calculated by dividing the profit or loss for the period attributable to shareholders of the company by 

the weighted average number of ordinary shares outstanding during the period adjusted for the effects of all 

potentially dilutive shares (e.g. employee stock options). 

Cash flow statement 

The cash flow statement has been prepared applying the indirect method. Cash and cash equivalents in the cash 

flow statement comprise the balance sheet item cash and cash equivalents . Cash flows in foreign currencies have 

been translated at average exchange rates for the year. Income and expenses in respect of interest, dividends 

received and taxation on profits are included in cash flows from operating activities. 

Going concern 

The Group, once again incurred a loss for the year ended December 31, 2004, even though significantly lower than 

the loss incurred in the year ended December 31, 2003. The financial statements have been prepared on a going 

concern basis as Management believes that the measures taken in the course of the year to ensure the Group’s 

ability to repay debt maturing in the year 2005 and to focus the Group on its core profitable operations in order to 

strengthen its market position and facilitate the planned growth for the next few years, will return the Group to 

profitability in the medium term. 

The refinancing project commenced during 2004, included the partial repurchase, and subsequent cancellation, of 

the Ferré Finance 7% 05/05 notes for a nominal value of Euro 25 million. The repurchase was made using the 

proceeds on the sale of the fragrance companies. It also involved the placing of new Senior 2012 Notes for Euro 

150 million, with an eight-year duration, and the taking out of a new five-year loan of Euro 85 million, granted by 

a pool of banks led by Sanpaolo IMI S.p.A.. This loan was used to repay in advance the original loan of the same 

amount (original due date: December 2005). 

In early 2005 the Group: 

a. finalized the tender offer made by IT HOLDING FINANCE S.A. for the purchase of the Ferré Finance 7% 

05/05 notes for a nominal value of Euro 80.4 million; 

b. placed another bond issue (Additional Senior Notes 2012) for Euro 35 million. The funds obtained with this 

placing will be used to repurchase or reimburse the Ferré Finance 7% 05/05 notes which expire in May 2005. 

The Directors have called an extraordinary meeting of the Holding Company’s shareholders in April 2005 to 

approve a proposal to change article 5 of the bylaws and to grant the Board , pursuant to article 2443 of the Italian 

Civil Code, the power to increase the share capital, with the exclusion of the option in accordance with paragraph 5 

of article 2441 of the Italian Civil Code. 

F- 20


The focusing on core business, aimed at developing the businesses of the Ferré, Extē and Malo brands, mainly 

comprised the sale of the companies active in the fragrance and eyewear sectors, the sale of GIGLI S.p.A., the 

indirect owner of the Romeo Gigli brand and the sale of the Gentryportofino business unit and brand. 

(3) Segment information 

Primary reporting format – business segments 

For the year ended December 31, 2003 the Group was organized on a worldwide basis, into three main business 

segments each of which designed, manufactured and distributed in the following distinct sectors of the luxury 

goods market: 

• apparel and accessories; 

• eyewear; and 

• fragrances. 

On March 25, 2004 the Group finalized the sale of its 90% share holding in IBEX 2001 S.p.A. thereby disposing of 

its fragrance business. Control was effectively transferred as from the January 1, 2004 and therefore from this date 

IBEX 2001 S.p.A and the companies it controls have no longer been consolidated. As a consequence the fragrance 

segment has been eliminated for the year ended 31 December 2004 (see note 7 Discontinued operations). 

On October 5, 2004 the Group sold its investment in Allison S.p.A. thereby disposing of its eyewear business. As a 

consequence segment results for the year 2004 show the results of the eyewear business up to the date of sale, 

whereas at the December 31, 2004 there are no segment assets or liabilities for the eyewear business (see note 7 

Discontinued operations). 

The following tables show the financial position and the income statement by business segment: 


Apparel and 

accessories 

Eyewear Fragrances Unallocated 

Eliminations Total 


Sales 662,439 56,724 (9,284) 709,879 

Of which intersegment sales 9,173 111 (9,284) 0 

Of which royalty income 7,677 0 7,677 

Change in inventory 8,993 6,668 15,661 

Other operating income 8,862 915 (102) 9,675 

Cost of materials (174,788) (22,826) 71 (197,543) 

Outside services (276,027) (30,506) 9,315 (297,218) 

Personnel expenses (75,508) (8,639) (84,147) 

Other operating expenses (49,054) (1,286) (50,340) 

Depreciation/amortization (95,828) (2,683) (98,511) 

Operating result 9,090 (1,634) - 

- 

0 7,456 

Financial income (charges) (29,356) (29,356) 

Gain on disposal of discontinuing operation 25,751 25,751 

Loss on disposal of discontinued operation (1,276) (1,276) 

Income (loss) before taxes 2,575 

Income taxes (13,809) (13,809) 

Net income (loss) before minority interest (11,234) 

Minority interest 1,347 1,347 

Net income (loss) for the year (12,581) 

F- 21



Apparel and 

accessories 

Eyewear Fragrances Unallocated Eliminations Total 


Sales 592,135 57,266 25,569 (5,132) 669,838 

Of which intersegment sales 4,818 216 98 (5,132) 0 

Of which royalty income 12,925 12,925 

Change in inventory 17,868 5,684 3,279 26,831 

Other operating income 8,251 1,127 3,162 (1,000) 11,540 

Cost of materials (158,958) (25,024) (13,267) 301 (196,948) 

Outside services (256,217) (25,418) (16,160) 5,831 (291,964) 

Personnel expenses (73,304) (10,901) (2,551) (86,756) 

Other operating expenses (32,876) (2,573) (316) (35,765) 

Depreciation/amortization (137,808) (7,039) (1,933) (146,780) 

Operating result (40,909) (6,878) (2,217) - 

0 (50,004) 


Income (loss) before taxes (84,772) 

Income taxes 21,729 21,729 


Minority interest (335) (335) 


At December 31, 2004 all assets and liabilities were allocated to the apparel and accessories business segment as 

both the eyewear and fragrance segments had been disposed of. 


Apparel and 

accessories 

Intangible assets 255,039 255,039 

Tangible assets 61,756 61,756 

Long-term financial assets 2,317 2,317 

Fixed assets 319,112 - 

- 

- 

- 

319,112 

Inventories 143,363 143,363 

Accounts receivable 226,640 226,640 

Accounts payable and accrued expenses (240,543) (240,543) 

Other net assets (liabilities) 34,558 34,558 

Net working capital 164,018 - 

- 

- 

- 

164,018 

Severance pay fund (13,681) - 

- 

- 

- 

(13,681) 

Net invested capital 

Financed by: 

469,449 - 

- 

- 

- 

469,449 

Short-term financial payables 132,010 132,010 

Long-term financial payables 207,111 207,111 

Cash and cash equivalent (14,763) (14,763) 

Net financial debt 324,358 - 

- 

- 

- 

324,358 

Shareholders' equity and minority interest 145,091 145,091 

Sources of financing 469,449 - 

- 

- 

- 

469,449 

Capital expenditure and acquisitions 11,717 2,343 - 

- 

- 

14,060 

F- 22 


Eyewear Fragrances Unallocated Elimination Total



Apparel and 

accessories 

Intangible assets 281,958 185 2,350 284,493 

Tangible assets 66,274 10,253 704 77,231 

Long-term financial assets 2,029 265 3,416 (3,368) 2,342 

Fixed assets 350,261 10,703 6,470 - 

(3,368) 364,066 

Inventories 136,158 23,745 7,410 167,313 

Accounts receivable 184,021 32,119 17,864 (2,230) 231,774 

Accounts payable (198,970) (21,493) (16,160) 2,230 (234,393) 

Tax 31,730 31,730 

Other net assets (liabilities) 35,220 5,437 (1,081) - 

39,576 

Net working capital 156,429 39,808 8,033 31,730 0 236,000 

Severance pay fund (11,974) (2,587) (180) (14,741) 



494,716 47,924 14,323 31,730 (3,368) 585,325 

Short-term financial payables (171,517) 3,368 (168,149) 

Long-term financial payables (296,097) (296,097) 

Cash and cash equivalent 36,770 36,770 

Net financial debt (430,844) 3,368 (427,476) 

Shareholders' equity and minority interest (157,849) (157,849) 

Sources of financing (588,693) 3,368 (585,325) 

Capital expenditure and acquisitions 13,604 2,364 2,988 0 18,956 

F- 23 


Eyewear Fragrances Unallocated Elimination Total 

Intersegment transfers or transactions are entered into under normal commercial terms and conditions that would be 

available to unrelated third parties. 

Secondary reporting format - Geographical segments 

Net revenues to external customers are reported based on the location of customers. 

Segment assets are reported based on the location of assets. 


Italy Europe Americas Far East and Rest of the Total 


Japan world 

Sales 326,895 235,918 70,679 52,665 23,722 709,879 

Segment assets 939,685 81,973 42,025 7,968 0 1,071,651 

Capital expenditure and acquisitions 8,695 1,349 3,591 425 0 14,060 


Italy Europe Americas Far East and Rest of the Total 


Japan world 

Sales 294,790 230,749 77,838 45,831 20,630 669,838 

Segment assets 874,304 109,932 56,430 12,589 1,681 1,054,936 

Capital expenditure and acquisitions 13,375 4,571 731 279 0 18,956 

The Group is not subject to significant geographically-related risks other than normal business risk.


(4) Outside expenses 

Outside expenses are comprised as follows: 

(In thousands of Euros) 2004 2003 

Outsourcing 85,920 

83,547 

Royalties 66,829 

60,252 

Advertising 36,289 

45,718 

Commissions 22,797 

21,449 

Transport 23,868 

21,237 

Other services 61,515 

59,761 

Total 297,218 291,964 

(5) Personnel 

Personnel expenses are comprised as follows: 


Wages and salaries 63,340 67,532 

Social security contributions 14,363 14,435 

Severance pay fund 4,570 3,940 

Other costs 1,874 849 

Total personnel expenses 84,147 

Employee numbers were as follows: 

Workers 451 

Office staff 1,226 

Executives 43 

Total 1,720 

(6) Financial income (charges) 

Financial income and charges are comprised as follows: 

F- 24 

2004 Average 

number 2004 

2003 

613 

1,427 

49 

2,089 

657 

1,376 

54 

2,087 

86,756 

Average 

number 2003 


Interest expense (28,903) (27,491) 

Interest income 982 1,331 

Financial income (expense) from hedging transaction (439) 183 

Net foreign exchange (gain) loss 860 (1,190) 

Other income 1,861 10 

Other charges (3,717) (7,611) 

Total (29,356) (34,768) 

Interest expense primarily is composed of interest on bonds of Euro 15,953 thousand (2003: Euro 14,710 

thousand), bank interest of Euro 9,419 thousand (2003: Euro 7,827 thousand) and factoring without recourse 

interest of Euro 3,073 thousand (2003: Euro 2,109 thousand). 

Other income for the year 2004, includes the gain of Euro 1,805 thousand realized following the repurchase of 

Euro 25 million of the “Ferré Finance 7% 05/05” bond. 

Other charges for the year 2004, include Euro 1,336 being the loss arising upon the write down of a loan receivable 

664 

1,386 

59 

2,109


from GIGLI S.p.A., a subsidiary disposed of during the year, and Euro 603 thousand being the loss incurred upon 

the partial repurchase of the “Ferré Finance 7% 05/05” bond following the voluntary public tender offer opened on 

December 10, 2004 and closed on January 11, 2005 (see note 9 – significant events after the balance sheet date). 

Other charges for the year 2003 include charges amounting to Euro 3,584 thousand incurred in connection with the 

factoring without recourse programme in being prior to the securitization programme commenced in July 2003. 

(7) Discontinued operations 

In pursuit of its strategy to re-focus on its profitable core business the Group disposed of its fragrance and eyewear 

operations during the course of the year ended 31 December 2004. 

Fragrance business 

On March 25, 2004, the Group finalised an agreement for the sale of its fragrance business by selling its 90% share 

holding in IBEX 2001 S.p.A to I.C.R. - Industrie Cosmetiche Riunite S.p.A., owned by Mr. Roberto Martone. At 

the time of the sale IBEX 2001 S.p.A. had an 80% share holding in ITF S.p.A. (the remaining 20% being held by 

the same Mr. Martone), a company constituted in September 2001 to develop and distribute fragrances and 

cosmetics under brands licensed by the IT HOLDING Group and other third parties. At the time of the sale, ITF 

S.p.A. had 25-year license agreements with certain IT HOLDING Group companies. Control of IBEX 2001 S.p.A. 

was passed to the acquirer on 1 January 2004. 

The results of the fragrance business included in the consolidated income statement for the year 2003 were as 

follows: 


Year ended December 

31, 2003 

Net revenues 25,569 

Operating costs (27,786) 

Operating result (2,217) 

Financial income (charges) (879) 


Income taxes 937 


Minority interest (575) 

Net income (loss) for the period (1,584) 

The fragrance business did not impact operating results for the year 2004. However, a gain of Euro 25,751 

thousand arose on the disposal of IBEX 2001 S.p.A. being the proceeds of disposal, net of related expenses, less 

the carrying amount of the net assets of the fragrance business at January 1, 2004 attributable to the shareholders of 

the Company. The realized gain is not taxable. 

The cash flows attributable to the fragrance business for the year 2003 were as follows: 



31, 2003 

Operating cash flows (467) 

Investing cash flows (2,759) 

Financing cash flows 2,986 

Total cash flows (240) 

Total assets and total liabilities attributable to the fragrance business at December 31, 2003 were as follows: 



31, 2003 

Total assets 34,431 

Total liabilities 35,641 

Net (1,210) 

F- 25


Eyewear business 

On October 5, 2004 the Group sold its investment in ALLISON S.p.A. to Paladin Capital Partners S.p.A., thereby 

disposing of its eyewear business. At the time of the sale, ALLISON S.p.A. had 25-year license agreements with 

certain IT HOLDING Group companies. Control of ALLISON S.p.A, was transferred to the acquirer at the date of 

sale. 

The results of the eyewear business included in the consolidated income statements for the years 2003 and 2004 are 

as follows: 

Period ended October Year ended December 


5, 2004 

31, 2003 

Net revenues 56,724 57,266 

Operating costs (58,358) (64,144) 

Operating result (1,634) (6,878) 

Financial income (charges) (776) (2,679) 

Income (loss) before taxes (2,410) (9,557) 

Income taxes 321 581 

Net income (loss) before minority interest (2,089) (8,976) 


Net income (loss) for the period (2,080) (8,905) 

In addition, in 2004 a loss of Euro 1,276 thousand was recognized in the income statement being the proceeds of 

disposal net of related expenses, less the carrying amount of the net assets of the eyewear business at the date of 

disposal, attributable to the shareholders of the Company. The loss is not deductible for tax purposes. 

The cash flows attributable to the eyewear business were: 



5, 2004 

31, 2003 

Operating cash flows (3,133) (26,720) 

Investing cash flows (3,547) (1,493) 

Financing cash flows 5,561 29,080 

Total cash flows (1,119) 867 

At the date of disposal, October 5, 2004 and at December 31, 2003 total assets and total liabilities attributable to the 

eyewear business were as follows: 



5, 2004 

31, 2003 

Total assets 98,614 82,711 

Total liabilities 93,308 80,380 

Net 5,306 2,331 

(8) Income taxes 

Recognised in the income statement 


Current tax expenses 

Current year 14,140 12,335 

Under/(over) provided in prior years 1,392 - 

Total 15,532 12,335 

F- 26


Deferred tax expense 

2004 2003 


Origination and reversal of temporary differences (2,088) (5,656) 

Benefit of tax losses recognised 365 (2,542) 

Subtotal (1,723) (8,198) 

Tax benefit on parent company's dividends - (25,866) 

Total (1,723) (34,064) 

Total income tax expense in income statement 13,809 (21,729) 

Tax benefit on parent Company’s dividends in the year 2003, represents the receivable that IT HOLDING, which 

was in a tax loss position, earned versus tax authorities on the dividends received during the year 2003 from Ittierre 

S.p.A.. 

The details and movements of deferred tax assets and liabilities are described in note 19, Deferred tax assets and 

liabilities. 

The reconciliation between the actual and theoretical tax rates for 2003 and 2004 is as follows: 


2004 2003 

Income (loss) before tax 2,575 (84,772) 

Income tax using the domestic corporation tax rate 33.00% 850 33.00% (27,975) 

Temporary differences unrecognised (2,841) (5,287) 

Benefit of tax losses unrecognised (12,760) 14,489 

IRAP 6,298 5,424 

Foreign company 902 950 

Permanent differences 19,031 15,889 

Current tax prior years 1,392 - 

Tax benefit on dividends - (25,866) 

Others 937 647 

Total income tax expenses in income statement 13,809 (21,729) 

(9) Significant Events after the Year-end 

On January 11, 2005, IT HOLDING Finance S.A., a wholly-owned subsidiary, concluded the voluntary partial 

tender offer made on December 13, 2004 for the repurchase of 80% of the “Euro 200 million 7% Guaranteed notes 

due 2005” of which Euro 175 million were still outstanding at the offer date. Following the tender offer, the 

Group repurchased notes for a nominal value of Euro 80,434 thousand and total consideration of Euro 84,878 

thousand. The notes were repurchased with part of the proceeds arising from the senior notes due 2012 issued 

October 2004 held in an escrow account (see note 11). The loss realized upon repurchase of the notes, amounting 

to Euro 603 thousand was accrued for at December 31, 2004 and is included in the income statement caption 

“financial income (charges)” (see note 6). 

On March 4, 2005 IT HOLDING Finance S.A. placed an additional Euro 35 million of senior notes due 2012 at an 

issue price of 100.5% to be treated as a single class with the 2012 senior notes issued in October 2004. The net 

proceeds will be used, together with the remaining proceeds from the October 2004 issue, to fund the repurchase 

of the remaining outstanding “Euro 200 million 7% Guaranteed notes due 2005”. 

On March 17, 2005, the Board of Directors called an extraordinary shareholders’ meeting to be held on April 20, 

2005 (April 22, on second call) to grant the Board the power to increase the share capital on one or more occasions, 

through payment and with a share premium, with the exclusion of the option in accordance with paragraph 5 of 

article 2441 of the Italian Civil Code, for a maximum nominal amount of Euro 8 million and a total counter-value 

not to exceed Euro 100 million, as well as to change article 5 of the Company’s bylaws accordingly. Management 

intends to execute the faculty to increase the share capital, at least partially, by December 31, 2005. 

F- 27


(10) Cash and Cash Equivalents 

This caption, comprising bank and P.O. deposits, equal to the face value of current accounts with positive balances 

held with banks, including interest accrued at year end. 

(In thousands of Euros) 12/31/2004 12/31/2003 

Bank and P.O. deposits 14,194 35,670 

Cheques on hand 224 200 

Cash on hand 345 900 

Total 14,763 36,770 

Cash on hand reflects the face value of petty cash at the balance sheet date. 

(11) Short-term financial assets 


Escrow account 148,637 - 

Junior notes 38,128 30,699 

Other 27 26 

Total 186,792 30,725 

The escrow account, deposited with the Luxembourg branch of the Sanpaolo IMI S.p.A. bank, was set up to deposit 

the net proceeds of the Euro 150 million 9 7/8% Senior Notes due 2012, issued in October 2004 (see note 20). Its 

use is restricted to the repurchase of the “Ferré Finance 7% 05/05” bond repayable on May 10, 2005. Euro 80,434 

thousand were used in January 2005 for the voluntary partial tender offer made for the repurchase of 80% of the 

Ferré bond. (see note 9). 

The carrying values of the junior notes and escrow account are estimated to be equivalent to their fair values. 

The junior notes have a 1 month duration and accrue interest at an effective interest rate of 2.18% (2003: 2.14%). 

The escrow account is restricted until May 10, 2005 and accrues interest at an effective interest rate of 2.04%. 

For the purposes of the cash flow statement, cash flows related to the escrow account have been included in 

financing activities, whereas cash flows related to junior notes and other short-term financial assets have been 

included in investing activities. 

(12) Trade receivables, net 

The fair value of trade receivables is estimated by the directors to approximate their carrying value. 


Trade receivables 178,740 178,252 

Trade receivables from associated companies 7,515 - 

Trade bills receivable 47,856 61,910 

Less: Provision for impairment of trade receivables (7,471) (8,388) 

Total 226,640 

F- 28 

231,774 

The provision for impairment of trade receivables has been estimated using analytical criteria on the basis of 

available data and in general on the basis of historical trends. During the year ended December 31, 2004, the 

Group recognized an impairment loss of euro 3,876 thousand (2003: euro 3,778 thousand) on its trade receivables 

in the income statement. 

Certain Group subsidiaries have adhered to the securitization programme described in the significant accounting


policies section, transferring trade receivables to a bank in exchange for cash. At December31, 2004 the balance of 

receivables transferred that have not been derecognized amounts to euro 76,152 thousand (2003: euro 157,029 

thousand). 

In the prior year financial statements, trade receivables at December 31, 2003 were stated as Euro 230,211 

thousand. In the current year financial statements trade receivables at December 31, 2003 amount to Euro 

231,774 thousand due to Euro 1,563 thousand having been reclassified from the provision for impairment of trade 

receivables to reduce other current assets (see note 14). The reclassified amount relates to the discount applied to 

trade receivables upon transfer under the securitization programme. 

(13) Inventories 

Inventories can be analyzed as follows: 

Inventories of raw materials and work in progress mainly refer to the preparation of the Spring/Summer 2005 

collection. 

Finished products mainly refer to the Spring/Summer 2004 collection and for a small part to the remainders of the 

Fall/Winter 2004 collection and past collections. 


Raw, ancillary and consumable materials 32,867 

32,605 

Work in progress 32,013 

24,960 

Finished products and merchandise 78,483 109,742 

Advance payments - 

6 

Total 143,363 

(14) Other current assets 

Other current assets can be analyzed as follows: 

F- 29 

167,313 


Taxation authorities - VAT credit 8,251 

25,152 

Taxation authorities - Tax credit 17,922 

28,726 

Advances to Italian suppliers and/or agents 21,816 

25,219 

Investments in collection development 41,118 

34,753 

Derivative financial assets see note 28 28,797 

38,153 

Other 20,681 

26,789 

Total 138,585 

178,792


Movements in Investments in Collection Development were as follows: 


Balance at 

January 1, 

2004 

Acquisitions Write-offs Balance at Balance at Acquisitions Write-offs Balance at 

December 31, January 1, 

December 31, 

2004 2003 

2003 

Cost 88,513 66,557 (49,579) 105,491 70,259 56,178 (37,924) 88,513 

Balance at 

January 1, 

2004 

Amortization for 

the year 

Write-offs Balance at 

December 31, 

2004 

Amortization (53,760) (60,192) 49,579 (64,373) (44,170) (47,514) 37,924 (53,760) 

Balance at 

January 1, 

2004 

Balance at 

December 31, 

2004 

Net carrying amount 34,753 41,118 26,089 34,753 

F- 30 

Balance at 

January 1, 

2003 

Balance at 

January 1, 

2003 

Amortization 

for the year 

Write-offs Balance at 

December 31, 

2003 

Balance at 

December 31, 

2003 

In the prior year financial statements other current assets at December 31, 2003 were stated as Euro 180,355 

thousand. In the current year financial statements, other current assets at December 31, 2003 amount to Euro 

178,792 thousand, due to a reduction of Euro 1,563 thousand been a reclassification from the provision for 

impairment of trade receivables (see note 12). The reclassified amount relates to the discount applied to trade 

receivables upon transfer under the securitization programme. 

(15) Long-term financial assets 

At December 31, 2004 long term financial assets amounted to Euro 2,317 thousand (2003: Euro 2,342 thousand), 

and are mainly comprised of guarantee deposits amounting to Euro 2,279 thousand (2003: Euro 2,313 thousand). 

(16) Investment property 

The following table presents the carrying amounts and movements in investment property: 


Beginning of the year 

12/31/2004 12/31/2003 

Cost 1,446 

1,446 

Accumulated depreciation (324) 

(281) 

Net carrying amount 1,122 

1,165 

Depreciation charge for the year 

End of the year 

(43) 

(43) 

Cost 1,446 

1,446 

Accumulated depreciation (367) 

(324) 

Net carrying amount 1,079 

1,122 

The fair value of the investment property is estimated to be equal approximately Euro 1.420 thousand. The estimate 

is based on current prices in an active market for similar properties in the same location and condition. 

The amounts included in the income statement related to investment property are as follows: 


Rental income 43 40 

Direct operating expenses arising from properties that generate rental income (177) (234)


(17) Property, plant and equipment, net 

The following table presents the movement in tangible assets: 


Land and 

building 

Year ended December 31, 2003 

Opening net book amount 48,466 10,983 2,618 14,581 745 77,393 

Additions 7,840 1,613 1,948 3,585 24 15,010 

Other movements 669 (218) 16 (576) (492) (601) 

Depreciation charge (5,403) (2,715) (1,584) (4,032) - (13,734) 

Impairment loss (1,264) (598) - (97) - (1,959) 

Closing net book amount 50,308 9,065 2,998 13,461 277 76,109 


Opening net book amount 50,308 9,065 2,998 13,461 277 76,109 

Exchange differences (647) - - (95) - (742) 

Additions 5,865 1,859 1,157 1,891 - 10,772 

Disposal of subsidiaries (4,932) (2,635) (2,293) (2,178) (178) (12,216) 

Disposals (647) (225) (16) (520) - (1,408) 

Other movements (701) - 98 892 (75) 214 

Depreciation charge (4,658) (2,312) (1,228) (3,755) - (11,953) 

Impairment loss (95) - - (4) - (99) 

Closing net book amount 44,493 5,752 716 9,692 24 60,677 

(18) Goodwill, trademarks and other intangible assets 

Movements in intangible assets in 2004 were as follows: 



Plant and Industrial and 

machinery commercial 

equipment 

F- 31 

Other assets Assets in 

formation and 

advances 

Opening net book amount 3,233 186,094 75,571 19,595 284,493 

Exchange differences - (42) (22) - (64) 

Additions 980 2,205 - 103 3,288 

Disposal of subsidiaries (992) (761) (832) - (2,585) 

Disposals - (4,002) - - (4,002) 

Other movements 22 28 (332) 415 133 

Amortisation charge (780) (13,762) (6,809) (4,625) (25,976) 

Impairment loss - - - (248) (248) 

Closing net book amount 2,463 169,760 67,576 15,240 255,039 

No intangible assets are internally generated. 

Development 

costs 

Patents and 

trademarks 

Goodwill Other 

In the prior year financial statements, key money paid by the Group to enter leases for its stores was included under 

“goodwill” whereas in the current year financial statements such monies have been included in the caption “other” 

and opening balances have been adjusted accordingly. 

Trademarks include the Gianfranco Ferré brand whose carrying value at December 31, 2004 was Euro 149,857 

thousand (2003: Euro 158,379 thousand) and the Malo brand whose carrying value at December 31, 2004 was 

Euro 14,765 thousand (2003: Euro 15,820 thousand). The respective remaining amortization periods are 17 and 14 

years. 

Total 

Total


Goodwill includes goodwill generated upon the acquisition of the GIANFRANCO FERRÉ group. The carrying 

amount at December 31, 2004 was Euro 57,939 thousand (2003: Euro 61,346 thousand). The remaining 

amortization period is 17 years. 

In the year 2003, management deemed there was an indication of possible impairment due to the significant loss 

incurred and therefore tested all assets for impairment. The test was performed by an independent valuer and 

estimated the recoverable value on the basis of value in use. The test indicated that Group assets had not been 

impaired. 

In the year 2004, due to the discontinuance of certain operations and due to the financial restructuring, the 

impairment test was newly performed by the Group. Recoverable amount was estimated on the basis of value in 

use, determined on the following assumptions: 

• Forecast of free cash flows for the next five years; 

• Terminal value based on a perpetuity of 1.0%; 

• Weighted average cost of capital (WACC) of 7.9% (12.3% pre-tax). 

The test indicated that Group assets have not been impaired. 

(19) Deferred tax assets and liabilities 

Recognized deferred tax assets and liabilities 

Deferred tax assets and liabilities at December 31, 2004 and 2003 are attributable to the following: 

Deferred tax assets and liabilities 

Assets Liabilities Net 

(In thousands of Euros) 12/31/2004 12/31/2003 12/31/2004 12/31/2003 12/31/2004 12/31/2003 

Property, plant and equipment - - 985 1,456 985 1,456 

Intangible assets (13,296) (15,150) 55,525 58,790 42,229 43,640 

Investment property - - 936 1,119 936 1,119 

Investment in subsidiary (10,897) (14,315) - - (10,897) (14,315) 

Interest-bearing loans and borrowings (115) (42) 983 1,098 868 1,056 

Employee benefits - - 33 245 33 245 

Provisions (5,225) (6,398) 354 359 (4,871) (6,039) 

Other items (5,595) (1,855) 1,612 - (3,983) (1,855) 

Tax value of loss carry-forwards recognized (6,641) (7,006) - - (6,641) (7,006) 

Net tax (assets)/liabilities (41,769) (44,766) 60,428 63,067 18,659 18,301 

The caption “Investment in subsidiary” relates to write off of the value of the investment that is tax deductable. 

Unrecognized deferred tax assets 

Deferred tax assets have not been recognized in respect of the following items: 

12/31/2004 12/31/2003 Increase 


(Decrease) 

Intangible assets 372 2,814 (2,442) 

Provisions 1,140 131 1,009 

Other items 235 1,643 (1,408) 

Tax value of loss carry-forwards not recognized 31,335 44,095 (12,760) 

Total 33,082 48,683 (15,601) 

The tax losses expire in five years. Deferred tax assets have not been recognized in respect of these items because it 

is not probable that future taxable profit will be available against which the Group companies can utilize the 

benefits there from. 

F- 32


The movement in temporary differences during the year was as follows: 

Movement in temporary differences during the year 

Balance Recognized Change Balance 

(In thousands of Euros) 01/01/2004 in income in cons. area 12/31/2004 

Property, plant and equipment 1,456 (471) - 985 

Intangible assets 43,640 (4,670) 3,259 42,229 

Investment property 1,119 (183) - 936 

Investment in subsidiary (14,315) 3,418 - (10,897) 

Interest-bearing loans and borrowings 1,056 585 (773) 868 

Employee benefits 245 (150) (62) 33 

Provisions (6,039) 1,210 (42) (4,871) 

Other items (1,855) (1,827) (301) (3,983) 

Tax value of loss carry-forwards recognized (7,006) 365 - (6,641) 

Net tax (assets)/liabilities 18,301 (1,723) 2,081 18,659 

(20) Bank overdrafts and loans 

This note provides information about the contractual terms of the Group’s bank overdrafts and borrowings. For 

more information about the Group’s exposure to interest rate and foreign currency risk, see note 28 on Financial 

instruments. 


Bank overdrafts and short term loans 

Current portion of bank loans 14,722 3,441 

Bond issues 182,552 - 

Factoring 81,480 157,029 

Current portion of finance lease liabilities 82 694 

Bank facility 39,966 37,710 

318,802 198,874 

Long-term financial payables 

Bank loans 71,209 87,740 

Bond issues 135,902 207,874 

Finance lease liabilities - 483 

207,111 296,097 

Total 525,913 494,971 

In the prior year financial statements bank overdrafts and short-term loans at December 31, 2003 amounted to Euro 

212,520 thousand and long-term financial payables amounted to Euro 282,451 thousand. In the current year 

financial statements the 2003 amounts have been adjusted to reclassify Euro 13,646 thousand, relating to the 

“Ferré Finance 7% 05/05” notes, from short-term to long-term borrowings in order for the criteria used to divide 

the short-term portion and long-term portion of borrowings to be coherent with the year 2004. 

F- 33


The terms and maturities of borrowings are as follows: 

Less More Less More 

than 1-2 2-5 than than 1-2 2-5 than 

1 year years years 5 years 1 year years years 5 years 

(In thousands of Euros) Total 2004 2004 2004 2004 2004 Total 2003 2003 2003 2003 2003 

Bank loans: 

Euro - variable at 4.6% 83,530 12,808 38,818 31,904 - - - - - - 

Euro - variable at 4.7% - - - - - 84,900 - 84,900 - - 

Euro - variable at 3.3% (2003: 3,2%) 1,249 1,249 - - - 3,734 2,542 1,192 - - 

others 1,152 665 487 - - 2,547 899 738 910 - 

Bond issues: 

eurobond 2005 - fixed 7% 182,552 182,552 - - - 207,874 - 207,874 - - 

senior notes due 2012 - fixed 9 7/8 % 135,902 - - - 135,902 - - - - - 

Factoring: 

without recourse - variable at 2.2% (2003: 2,1%) 76,152 76,152 - - - 157,029 157,029 - - - 

with recourse - variable at 3.7% 5,328 5,328 - - - - - - - - 

Finance lease liabilities 82 82 - - - 1,177 694 483 - - 

Bank facility: 

Ordinary current account 28,159 28,159 - - - 17,606 17,606 - - - 

Advances on export 7,279 7,279 - - - 14,908 14,908 - - - 

Bills withdrown falling due 3,222 3,222 - - - 2,789 2,789 - - - 

Advances on orders 1,306 1,306 - - - 2,407 2,407 - - - 

Total 525,913 318,802 39,305 31,904 135,902 

F- 34 

494,971 198,874 295,187 910 - 

Bank Loan of Euro 85 million: 

Bank loans includes a bank loan of Euro 85 million, granted in October 2004, by a pool of banks headed by 

Sanpaolo IMI S.p.A.. The principal amount is to be repaid in 9 equal semiannual installments commencing in 

October 2005 and terminating in October 2009. Interest accrues at a rate per annum equal to EURIBOR +2.4%. 

Voluntary prepayments are permitted in minimum installments of Euro 1 million, whereas prepayments are 

mandatory if certain circumstances arise, including with: 

• the net proceeds from the disposal of assets other than in the ordinary course of business or specific exceptions 

as defined in the Loan Agreement; 

• 100% of the net proceeds from the issuance of any debt or equity securities issuance (other than any debt 

securities issued in connection with the Senior notes due 2012); and 

• the net proceeds from the disposal of directly operated stores, including the agreement or termination of the 

relevant lease agreements. 

The Loan Agreement includes a number of undertakings and restrictive covenants typical for credit facilities of this 

nature, including: 

• a negative pledge; 

• restrictions on disposals of assets and mergers, acquisitions or spin-offs, unless permitted under the Loan 

Agreement; 

• no material adverse changes; 

• an obligation to redeem or repurchase the 2005 Notes. 

The Loan Agreement provides for a number of financial covenants typical for credit facilities of this nature, pursuant 

to which the Company has to meet certain conditions regarding debt-to-equity ratios, leverage ratios, and permitted 

levels of net financial debt and annual capital expenditures at all times during the term of the Loan Agreement. 

In order to secure claims under the Loan Agreement, upon the satisfaction and discharge of the 2005 Notes, the 

Company will grant share pledges over the share capital of ITTIERRE S.p.A., GIANFRANCO FERRÉ S.p.A. and 

MALO S.p.A. for the benefit of the lenders and the other secured parties (including the holders of the 2012 Senior 

Notes). 

Furthermore, the Loan Agreement provides that the following subsidiaries of the Company give guarantees for the 

benefit of the lenders under the Loan Agreement: 

• Ittierre S.p.A.; 

• MALO S.p.A.; and 

• ITC S.p.A.


Ferré Finance S.A. 7% Guaranteed Notes due 2005 

At 31 December 2004, Euro 175 million in principal amount were outstanding (2003: Euro 200 million). The 

notes fall due on May 10, 2005 however, Euro 80,434 thousand nominal value were repurchased following the 

voluntary tender offer closed in January 2005 (see note 9). Interest accrues at a rate of 7% per annum and is 

payable in arrears on May 10 each year. The use of the proceeds of the issue of the 2012 senior notes deposited in 

the escrow account, (see note 11) is restricted to the repayment of these 2005 notes. 

The 2005 Note Trust Deed contains certain covenants pursuant to which: 

• the Issuer and the Company must ensure that the net borrowing ratio of the Company is no greater than certain 

thresholds, which vary over time; 

• the Issuer and the Company have agreed not to sell, lease or otherwise dispose of certain strategic and nonstrategic 

trademarks or other intellectual property rights of the Company or any asset related thereto, except for 

certain agreed exceptions; provided that the proceeds of such sale, lease or disposal are reinvested in the core 

business activities of the Company or used to pay amounts due and payable under the 2005 Notes or, if no such 

amounts are at that time due and payable, other debt within the Company; 

• the Issuer and the Company have agreed not to grant security or charge certain trademarks of the Company, 

unless such security or charge is granted in order to secure the permitted indebtedness only; and 

• the Issuer and the Company have agreed to deliver certain financial information and compliance certificates. 

IT Holding Finance S.A. Euro 150 million 9 7/8% Senior Notes due 2012 

The notes were issued in October 2004 and fall due in November 2012 for a principal amount of Euro 150 million. 

Interest accrues at a rate of 9 7/8% per annum and is payable in arrears on May 15 and November 15 of each year 

beginning on May 15, 2005. Up to 35% of the aggregate principal amount of the notes may be redeemed prior to 

November 15 2007, with the net proceeds from certain equity offerings. In addition, any time after May 15, 2006, 

the notes may be redeemed, all or in part, by paying a “make-whole” premium. 

The Notes are guaranteed on a senior basis by the Company and each of the subsidiaries ITTIERRE S.p.A., ITC 

S.p.A. and MALO S.p.A. and rank equally with any of the guarantors’ existing and future unsubordinated 

obligations and senior to any subordinated indebtedness. 

Upon the satisfaction and discharge of the 2005 Notes, the guarantees provided by the Company and ITTIERRE 

S.p.A. will be secured on an equal and ratable basis with all obligations of the Company under the Euro 85 million 

loan agreement, by a first priority pledge of the equity interests in GIANFRANCO FERRÉ S.p.A., MALO S.p.A. 

and ITTIERRE S.p.A.. 

If the Company experiences a "Change of Control", holders of the Notes will have the right to require the Issuer to 

repurchase the Notes at a purchase price equal to 101% of their aggregate principal amount, plus accrued and 

unpaid interest, if any, to the date of the purchase. 

The indenture governing the Notes, among other things, limits the ability of the Company and certain subsidiaries, 

subject to certain limitations, exceptions and qualifications, to: 

• make certain payments, including dividends or other distributions; 

• incur or guarantee additional debt and issue preferred stock; 

• make certain investments or acquisitions and participate in joint ventures; 

• prepay or redeem subordinated debt or equity; 

• engage in certain transactions with affiliates; 

• consolidate or merge with or into other companies; 

• sell all or substantially all of our assets or those of our subsidiaries; 

• issue or sell share capital of certain subsidiaries; 

• create or incur certain liens or enter into sale and leaseback transactions; and 

• enter into unrelated businesses. 

F- 35


Securitization 

Factoring includes the liability arising upon the transfer of trade receivables under the securitization programme 

described in the significant accounting policies section. These receivables have not been derecognized (see note 

12) and therefore a liability corresponding to the consideration received for the assignment of receivables has been 

recognized. 

(21) Trade payables and accrued expenses 

Trade payables and accrued expenses can be analyzed as follows: 


- Suppliers 68,381 

89,058 

- Subcontractors 70,450 

42,929 

- Agents 10,317 

14,247 

- Consultants 54,018 

47,952 

- Licensors 7,225 

1,273 

- Advance payments 6,941 

3,540 

- Due to factors 10,916 

25,184 

- Accrued royalties 12,295 

10,210 

Total 240,543 

F- 36 

234,393 

Amounts due to factors are amounts due to factoring companies to which Group suppliers have sold their 

receivables due from the Group. 

In the prior year financial statements trade payables at December 31, 2003 were stated as Euro 198,999 thousand. 

In the current year financial statements trade payables at December 31,2003 amount to Euro 234,393 thousand. 

The difference of Euro 35,394 thousand is due to accrued royalties (amounting to Euro 10,210 thousand) and 

payables due to factors (amounting to Euro 25,184 thousand) being classified as trade payables whereas they were 

previously classified as other current liabilities. 

(22) Tax liabilities and income tax payable 

Tax liabilities and income tax payable can be analyzed as follows: 


Direct Taxes 4,073 1,078 

Indirect Taxes 1,153 371 

Withholdings to be paid 1,736 1,708 

Other taxes - 690 

Total 6,962 3,847 

Direct taxes include payable for current taxes net of advance payments and tax receivables which can be used to 

offset amount due.


(23) Other current liabilities 

Other current liabilities can be analyzed as follows: 


Due to social security agencies 3,442 

3,153 

Remuneration to be paid 5,797 

6,583 

Remuneration to the Board of Directors 857 

1,231 

Remuneration to the Board of Statutory Auditors 437 

409 

Derivative financial liabilities see note 28 26,951 

34,452 

Provision for returns on sales 2,287 

3,002 

Others 21,277 

19,136 

Total 61,048 

Remuneration to be paid includes, inter alia, accruals by employees but not yet paid at year end. 

The provision for returns on sales estimates unrealised profits arising from the difference between the original sales 

value and net realisable value of returns estimated to be received after the balance sheet date but pertaining to sales 

already recorded. The provision is estimated on the basis of known reasons for returns on specific products and 

historical trends. 

The following table shows the movements in the provision for returns on sale: 


Provision for returns 

on sales 

At January 1, 2004 

Charged to consolidated income statement: 

3,002 

- Additional provisions 2,287 

Used during year (2,746) 

Disposal of subsidiaries (256) 

At December 31, 2004 2,287 

In the prior year financial statements other current liabilities at December 31, 2003 were stated as Euro 107,147 

thousand. In the current year financial statements, other current liabilities amount to Euro 67,966 thousand. The 

difference of Euro 39,181 thousand is due to the following reclassifications: 

• Euro 35,394 thousand reclassified in trade payables, being accrued royalties (Euro 10,210 thousand) and 

payables due to factors (Euro 25,184 thousand); 

• Euro 6,789 thousand reclassified in other long-term liabilities, being amounts due after 1 year; 

• Euro 3,002 thousand reclassified from other long-term liabilities being the provision for returns on sales which 

is of a short-term nature. 

(24) Employee benefits: pension liabilities and severance indemnities 

Pension liabilities and severance indemnities at December 31, 2004 and 2003 mainly relate to Italian staff leaving 

indemnity (so called TFR), which is paid to all employees on termination of their employment. 

Each year the Group accrues for each employee an amount partly based on the employee’s remuneration and partly 

based on the revaluation of the amounts previously accrued. The indemnity is an unfunded but fully provided 

liability. 

The liability is based on an actuarial valuation based on the assessment of the relevant parameters, which were as 

follows: 

F- 37 

67,966


Liability for defined benefit obligations 

Principal actuarial assumptions at the balance sheet date 2004 2003 

Projected future remuneration increases 2% 2% 

Projected future employee turnover 8.4-15.9% 8.8-16.6% 

The discount rate used is the swap rate curve. 

Movements in the net liability 


Net liability at January 1 14,741 13,603 

Acquisitions - 22 

Disposal of subsidiaries (2,776) - 

Total expense charged in the income statement 4,570 3,939 

Amounts paid during the year (2,934) (2,823) 

Other movements 80 - 

Net liability at December 31 13,681 14,741 

(25) Other long-term liabilities 

Other long-term liabilities can be analyzed as follows: 


Trade payables 500 

- 


3,301 

Provisions 11,863 

11,313 

Other 2,849 

3,488 

Total 17,985 

Other primarily consists of amounts due upon settlement of a dispute with a third-party concerning the right to 

produce Romeo Gigli fragrances, to be paid over the next 13 years. 

The following table shows movements in provisions for the year: 


Agents' 

termination 

benefits 

At January 1, 2004 

Charged to consolidated income statement: 

4,914 

- Additional provisions 1,445 

Used during year (8) 

Disposal of subsidiaries (654) 

At December 31, 2004 5,697 

F- 38 

Tax provision 

3,419 

208 

(381) 

3,246 

2,980 

1,860 

(1,860) 

(60) 

2,920 

18,102 

Total provisions 

11,313 

3,513 

(2,249) 

(714) 

Agents’ termination benefits are calculated on the basis of the charge to be paid on the termination of agency 

contracts in compliance with law and other relevant factors such as historical data, the average duration of agents’ 

contracts and their turnover. 

The amount of the Agents’ termination benefits has been determined based on the present value of the expenditures 

expected to be required to settle the obligation. 

The tax provision represents the Group’s estimate of the probable liability that will arise from disputes currently 

pending with the tax authorities. In particular, the provision includes an amount of Euro 2,961 thousand (2003: 

Euro 3,046 thousand) with reference to MALO S.p.A. In 1998, this company received a preliminary assessment 

report relating to 1995, 1996 and 1997, pursuant to which MALO S.p.A. allegedly realized a higher taxable base 

for direct tax purposes, principally due to transfer pricing to foreign Group companies. To date notices of 

Other 

11,863


assessment have been received for the years 1995 and 1996 against which an appeal has been filed with the 

relevant judicial authorities. 

In 2001, a further preliminary assessment report was served for the years 1998, 1999 and 2000 relating to 

irregularities of the same nature as in the previous years, with reference to which no notices of assessment have to 

date been issued. The provision represents the management’s estimate of the maximum potential liability expected 

to arise having taken into account the opinion of external consultants. 

Other provisions include Euro 2,024 thousand (2003: Euro 2,010 thousand) which represent the probable liabilities 

estimated to arise from litigation currently in progress and from early termination of certain contracts. 

In the prior year financial statements, other long-term liabilities at December 31, 2003 were stated at Euro 14,315 

thousand. In the current year financial statements other long-term liabilities at December 31, 2003 amount to Euro 

18,102 thousand. The difference of Euro 3,787 thousand is due to the following reclassifications: 

• Euro 6,789 thousand having previously been classified as other current liabilities, being Euro 3,301 

thousand due to social security agencies and Euro 3,488 being other liabilities, both of a long-term nature; 

• Euro 3,002 thousand reclassified in other current liabilities, being the provision for returns on sales which 

is of a short-term nature. 

(26) Shareholders’ Equity 

At December 31, 2004, the share capital is fully subscribed and paid up and comprises 245,874,000 ordinary shares 

with a nominal value of Euro 0.05 each. 

Own shares have been deducted from share capital and share premium as follows: 

Number Share Share Total 

(In thousands of Euros) capital premium 

December 1, 2003 41,900 2 100 102 

December 31, 2003 57,702 3 126 129 

December 31, 2004 6,462 - 14 14 

(27) Earnings per share 

Basic earnings per share 

The calculation of basic Earnings per share at December 31, 2004 was based on the net loss attributable to ordinary 

shareholders of Euro 12,581 thousand (2003: net loss of 62,708 thousand) and a weighted average number of 

ordinary shares outstanding during the year ended December 31, 2004 of 245,854,658 (2003: 245,817,716). Basic 

Earnings per share at December 31, 2004 amounts to a loss per share of Euro 0.05 (2003: loss per share Euro 

0.26). 

Diluted earnings per share 

There are no dilutive potential ordinary shares hence diluted earnings per share are equivalent to basic earnings per 

share. 

(28) Financial instruments 

Financial risk management 

The Group’s activities expose it to a variety of financial risks, being primarily credit risk, interest rate risk and 

foreign currency risk. The following describes Group policies for the management of financial risk. 

Credit risk 

The Group has a credit policy in place to ensure that wholesale sales are made to customers with an appropriate 

F- 39


credit history and to monitor credit risk exposure on an ongoing basis. Sales to retail customers are made in cash or 

via major credit cards. Receivables form a core component of monthly reporting and are analyzed with respect to 

ageing structure and seasonality on a regular basis to avoid unforeseen adjustments for impairment. 

Impairment testing is performed individually for receivables that are individually significant (“bad loans”) and 

collectively for financial assets that are not individually significant. 

The provision for impairment of trade receivables has been estimated on the basis of available data and in general 

on the basis of historical trends by writing down 0.5% of outstanding trade receivables. 

When using financial derivatives, IT HOLDING Group is exposed to the risk that the counterparty may default. 

The risk that the counterparties will not honour their commitments is limited, since such contracts were signed with 

leading financial operators. Therefore the company does not expect any risk of insolvency. 

In view of the securitization programme described in the significant accounting policies section, the Group holds 

junior notes issued by ABC Gestion S.A., issuer of the F.C.C. Première European Fund, commensurate to the level 

of trade receivables transferred. The securities have a monthly duration and returns linked to the performance of the 

trade receivables transferred. Potential impairment on the notes due to impairment of trade receivables has been 

taken into account in evaluating the provision for impairment of trade receivables. 

Interest rate risk 

The Group’s policy is to ensure that between 50 and 60 per cent of this exposure to interest rate is on a fixed rate 

basis. The appropriate mix of fixed and floating rate exposure is achieved by converting floating rate debt to a 

fixed rate by means of floating-to-fixed interest rate swaps. 

Foreign currency risk 

The Group operates internationally and is exposed to foreign exchange risk arising from various currency 

exposures, primarily with respect to Pounds Sterling, US Dollars and Swiss Francs. Foreign exchange risk arises 

primarily from future sale transactions and recognized trade receivables. 

The Group policy is to hedge at least 60 per cent of all trade receivables denominated in a foreign currency and to 

hedge 80 per cent of its estimated foreign currency exposure in respect of sales forecasted for the next 12 months. 

The Group uses forward exchange contracts and currency options to hedge its foreign currency risk. Most of the 

forward exchange contracts have maturities of less than one year after the balance sheet date. Where necessary, the 

forward exchange contracts are rolled over at maturity. 

Derivative financial instruments used to hedge foreign currency exposure, however, do not qualify for hedge 

accounting hence all changes in fair value of these instruments are immediately recognized in the income 

statement. 


The following table summarizes the notional amounts and carrying values of derivative financial instruments held 

at the balance sheet date. Derivative financial instruments are stated at fair value: 

2004 2003 

Nominal Assets Liabilities Nominal Assets Liabilities 

(In thousands of Euros) amount amount 

Interest hedging contracts - cash flow hedges 40,000 

- (261) 50,723 

- (337) 

Forward exchange contracts 33,150 2,424 (21) 52,556 3,702 (198) 

Currency options 9,544 232 

- 26,897 745 (278) 

FX Swaps (13,378) 14 (542) 2,052 73 

(6) 

Cross Currency Swaps - 26,127 (26,127) 

- 33,633 (33,633) 

Total 69,316 

F- 40 

28,797 

(26,951) 

The nominal amounts shown reflect the net balance of sales and purchases. 

132,228 

38,153 

(34,452)


Interest hedging contracts that qualify as cash flow hedges are composed of interest rate swaps for a nominal 

amount of Euro 30,000 thousand that mature within 2 years and have fixed swap rates ranging from 2.77% to 

3.16% and an interest rate swap for a nominal amount of Euro 10,000 thousand that matures in November 2007 at a 

variable interest rate that is floored and capped within the following ranges: 1 st year 2.15%-3.63%, 2 nd year 2.5%- 

3.63%, 3 rd year 2.75%-3.63%. These interest rate swaps have been designated to hedge the cash flow interest rate 

risk arising on the five year syndicated loan of Euro 85 million maturing interest at Euribor plus 240 basis points. 

Forward exchange contracts, currency options and FX swaps are entered into to off-set foreign exchange exposure. 

Hedge accounting is not applied as these derivative contracts do not qualify as fair value or cash flow hedges. 

Changes in fair value are therefore recognized in the income statement in the caption “financial income (charges)” 

as net foreign exchange gains or losses. 

On November 10, 2003 FERRÉ FINANCE S.A. entered in a loan for an original amount of YEN 22,103,200,000 

with the parent company IT HOLDING S.p.A.. The companies entered into two currency interest swaps (put and 

call) with external parties to hedge the foreign currency and interest rate risk on their exposure in Japanese Yen. 

The nominal value of the swaps in being at December 31, 2004 was Euro 165 million (2003: Euro 188.5 million). 

Effective interest rate and repricing analysis 

In respect of interest-earning financial assets and interest bearing financial liabilities, the following table indicates 

their effective interest rate at the balance sheet date and the periods in which they reprice or mature. 

Effective 6 More Effective 6 More 

interest months 6-12 1-2 2-5 than interest months 6-12 1-2 2-5 than 

rate Total or less months years years 5 years rate Total or less months years years 5 years 

(In thousands of Euros) 2004 2004 2004 2004 2004 2004 2004 2003 2003 2003 2003 2003 2003 2003 

Cash and cash equivalents 14,763 14,763 - - - - 36,770 36,770 - - - - 

Escrow account 2.04% 148,637 148,637 - - - - - - - - - - 

Junior notes 2.18% 38,128 38,128 - - - - 2.14% 30,699 30,699 - - - - 

Bank loans: 

Euro floating rate loan 5.76% (83,530) (83,530) - - - - - - - - - - 

effect of interest rate swap (2.77%) - 40,000 (40,000) - - - - - - - - 

Euro floating rate loan - - - - - - 4.68% (84,900) (84,900) - - - - 

effect of interest rate swap - - - - - - (3.07%) - 50,000 - (20,000) (30,000) - 

Euro floating rate loan 3.96% (1,249) (1,249) - - - - 4.68% (3,734) (3,734) - - - - 

Euro floating rate loan 3.45% (958) (958) - - - - 3.50% (1,413) (1,413) - - - - 

Euro fixed rate loan 2.58% (194) (194) - - - - 2.58% (579) (193) (193) (193) - - 

Euro floating rate loan - - - - - - 3.22% (555) (555) - - - - 

Bond issues: 

Eurobond 2005* 7.39% (182,552) (182,552) - - - - 7.39% (207,874) - - (207,874) - - 

senior notes due 2012* 12.46% (135,902) - - - - (135,902) - - - - - - 

Factoring: 

Euro floating rate liabilities 2.18% (76,152) (76,152) - - - - 2.14% (157,029) (157,029) - - - - 

Euro floating rate liabilities 3.71% (5,328) (5,328) - - - - - - - - - - 

Finance lease liabilities: 

Euro floating rate liabilities (82) (82) - - - - (1,177) (1,177) - - - - 


Ordinary current account (28,159) (28,159) - - - - (17,606) (17,606) - - - - 

Advances on export (7,279) (7,279) - - - - (14,908) (14,908) - - - - 

Bills withdrown falling due (3,222) (3,222) - - - - (2,789) (2,789) - - - - 

Advances on orders (1,306) (1,306) - - - - (2,407) (2,407) - - - - 

Total (324,385) (148,483) 0 (40,000) 0 (135,902) (427,502) (169,242) (193) (228,067) (30,000) 0 

* These liabilities bear interest at a fixed rate. 

F- 41


Fair values 

The following table shows the fair value of financial liabilities compared to their fair values: 

Carrying Fair Carrying Fair 

amount value amount value 

(In thousands of Euros) 2004 2004 2003 2003 

Factoring: 

without recourse floating rate loan (76,152) (76,152) (157,029) (157,029) 

with recourse floating rate loan (5,328) (5,328) - - 

Bank loans: 

Euro floating rate loan (83,530) (90,313) - - 

Euro floating rate loan - - (84,900) (91,894) 

Euro floating rate loan (1,249) (1,254) (3,734) (3,829) 

others floating rate loan (1,152) (1,152) (2,547) (2,547) 

Bond issues: 

senior notes due 2012 (135,902) (214,524) - - 

Eurobond 2005 (182,552) (185,817) (207,874) (220,600) 


Euro floating rate liabilities (82) (82) (1,177) (1,177) 

Total (485,947) (574,621) (457,261) (477,076) 

Fair value has been determined either by reference to market value at the balance sheet date or by discounting the 

relevant cash flows using current interest rates for similar instruments without any credit spread. Had the Group 

considered its credit spread, the difference between fair value and carrying amount would have been lower. 

(29) Transactions with Related Parties 

The Group is controlled by PA Investments S.A.. The ultimate parent company is GTP HOLDING S.p.A. 

Transactions and balances between consolidated Group companies have been eliminated from the consolidated 

financial statements and are not discussed herein. 

The Group’s relationships with parent companies and other related parties are summarized below: 

2004 

2003 


Parent companies: 

Receivables Payables Receivables Payables 

PA Investments S.A. 486 

64 1,447 

12 

GTP HOLDING S.p.A. 

Companies controlled by PA Investments S.A.: 

13 

9 

4 

- 

Diners Club Italia S.p.A. 

Unconsolidated subsidiaries: 

- 

- 

1 

485 

FINANCIÈRE MELPAR HOLDING S.A. - liquidated 

Associated companies: 

- 

- 

- 

- 

City Fashion S.r.l. 3,669 

- 

- 

- 

Metropolis S.r.l. 

Other related parties: 

3,846 

- 

- 

- 

I.C.R. - Industrie Cosmetiche Riunite S.p.A. - 

- 

4 8,657 

Pavia & Ansaldo Law Firm - 

758 

- 

90 

Other sundry - 

- 1,040 

666 

F- 42


2004 2003 



Income Expenses Income Expenses 

PA Investments S.A. 63 

- 

502 

71 



9 

7 

- 

- 



- 

- 

- 

- 


Associated companies: 

- 

- 

- 

37 

City Fashion S.r.l. 3,058 

- 

- 

37 

Metropolis S.r.l. 


3,205 

- 

- 

- 

I.C.R. - Industrie Cosmetiche Riunite S.p.A. - 

- 

128 11,815 


740 

- 

375 

Other sundry - 

- 1,407 2,210 

Parent companies 

• Receivables and revenues from the parent company PA Investments S.A. comprise charges for IT services, and 

recharges for expenses. Payables and costs relate to expenses incurred by the parent on behalf of the Group. 

• Receivables due from GTP HOLDING S.p.A. of Euro 13 thousand relate to charges for IT services. Payables 

and costs relate to expenses incurred by the parent on behalf of the Group 

Associated companies 

• CITY FASHION S.r.l. balances are due to the sale of finished goods by the Group to its associate. 

• METROPOLIS S.r.l. balances are due to the sale of finished goods by the Group to its associate. 

Other related parties 

• The December 31, 2004 balance of payables and the related costs due to a law firm, one of whose partners is 

on the Board of Directors of the parent company, relates to legal services provided to Group companies. 

Transactions were carried out on an arm’s length basis. 

Compensation to Directors and Statutory Auditors 

At the balance sheet date, no Directors or Statutory Auditors had received any loans from the company. 

Category 

Directors: 

12/31/2004 12/31/2003 

Short-term employment benefits 1,784 1,742 

Termination benefits 63 63 

Total compensation 1,847 1,805 

Statutory Auditors: 

355 247 

(30) Contingent liabilities 

Tax litigation 

ITTIERRE S.p.A. 

In 2001 the company received from the Regional Tax Office of Campobasso, preliminary assessment reports 

alleging VAT irregularities in form and substance for the years 1997, 1998 and 1999, and for the period from 1 

January to February 22, 2000. Only 1997 was assessed and was subsequently settled in 2003 as a "potential 

dispute" in application of article 15 of Law no. 289/2002. No other notices of assessment have been issued to date. 

In 2004 the company received from the Regional Tax Office of Campobasso, a preliminary assessment report 

alleging direct and indirect tax irregularities for the years 2001 and 2002. No notices of assessment have to date 

F- 43


been issued with reference to this last preliminary assessment. 

ITJ S.p.A. (merged into ITTIERRE S.p.A. in 2002) 

In 2000, this company received from the Regional Tax Office of Campobasso, a preliminary assessment report 

relating to the 1997 and 1998 tax periods. The irregularities assessed for 1997 were settled in 2003, as a "potential 

dispute" under article 15 of Law no. 289/2002. In the year 2004 a notice of assessment for the year 1998 was 

received, against which the company has lodged an appeal with the relevant judicial authorities. 

FD S.p.A. (merged into ITJ S.p.A. in 2001) 

With reference to the preliminary assessment report received from the Regional Tax Office of Campobasso 

alleging irregularities in terms of form and substance with regard to direct and indirect taxes for the years 1999 and 

2000, the company has received a notice of assessment for the year 1999 against which it has lodged an appeal with 

the relevant judicial authorities. 

The maximum potential tax liability that could arise is estimated to be Euro 2.4 million, however Management, 

having heard the opinion of its tax advisors, does not believe it probable that this liability will arise. 

Other pending litigation 

• On March 23, 1998, Trussardi S.p.A. ("Trussardi") summoned ITTIERRE S.p.A. ("ITTIERRE") before the 

Milan Court, claiming that ITTIERRE had breached a license agreement for the “Trussardi Jeans” brand which 

expired on June 30, 1996. Trussardi requested a reward for damages from ITTIERRE S.p.A. of approximately 

Euro 50 million. ITTIERRE S.p.A. appeared in court denying it had ever breached the agreement and asked 

that the claim be fully dismissed. In December 2004, the Tribunal of Milan decided in favour of Trussardi and 

ordered ITTIERRE S.p.A. to pay damages of Euro 8.3 million plus interest and court costs. ITTIERRE S.p.A. 

has appealed this decision and on February 22, 2005 obtained an injunction suspending payment of these 

amounts. Any amount awarded to Trussardi in final judgement would fall within the scope of an indemnity 

granted to the Group by PA Investments which agrees to hold the Group harmless against all liabilities and 

costs associated with all litigation, arbitration and regulatory proceedings instituted prior to April 28, 2002 and 

arising from events that took place prior to December 31, 1996. 

• On June 20, 2000, Casor S.p.A. (“Casor”) summoned MAC S.p.A. (MAC), the predecessor of MALO S.p.A. 

("MALO") before the Florence Court, claiming that MAC had breached the five-year license agreement signed 

between the two companies and that it pay damages amounting to approximately Euro 3.6 million. The 

management of MALO S.p.A., having heard their legal advisors, believe the complaint to be unsubstantiated as 

they claim never to have entered into a 5 year licence agreement with Casor and hence believe it unlikely that 

the dispute will result in adverse judgement. 

• A professional previously engaged by MALO S.p.A. for assistance in the creation of certain sales spaces, 

summoned MALO S.p.A., before the Rome Court, claiming it had reproduced his innovative design concept in 

other sales spaces without respecting the exclusive rights to it and asking the Court to award damages of Euro 

462 thousand. MALO S.p.A. appeared and disputed the requests on the grounds of inadmissibility and lack of 

grounds. It also included the architectural firm engaged to create the spaces under dispute as a party to the 

proceedings. Management believes it unlikely that the dispute will result in adverse judgement. 

• Tecnostile S.r.l., a company based in Florence, summoned GIANFRANCO FERRÉ S.p.A., claiming damages 

amounting to Euro 620 thousand, arising from pre-contractual obligations. Evidence has been gathered and the 

next hearing is scheduled in June 2005, for conclusions to be presented. Management believe it unlikely that 

the dispute will give rise to a liability for the company. 

• In December 2003 Damap S.r.l. brought two separate actions against ITTIERRE S.p.A. and two separate 

licensors of ITTIERRE S.p.A. for damages allegedly deriving from the breach of a patent on the decorative 

model of a specific denim processing used for apparel produced and marketed by ITTIERRE S.p.A. The 

amount of the claim is equal to Euro 3 million. Management believes the claim to be unfounded and that an 

unfavourable outcome appears unlikely. ITTIERRE S.p.A. has also brought a cross-claim against the 

manufacturer of the denim fabric in question. 

F- 44


• An attorney summoned IT HOLDING S.p.A. and ITTIERRE S.p.A., together with Diners Club Italia S.p.A., 

claiming he had been engaged to prepare a draft contract for certain financial agreements which would have 

involved these three companies and that, although the contracts had turned out to be impracticable, he was 

owed a fee of Euro 3.3 million. The claim is not supported by the opinion of the Council of Attorneys, 

normally obtained. However, IT HOLDING S.p.A. and ITTIERRE S.p.A. appeared in Court within the terms 

of law and argued that they had never engaged the claimant and that, in any case, had the claimant actually 

been engaged to draw up the contracts as alleged, the correctly quantified fees would not have exceeded Euro 

25,000.00. Accordingly, management do not expect the dispute will result in adverse judgement. 

• On August 5, 2002, Mr. Luigi Giribaldi served IT HOLDING S.p.A. a writ of summons before the Isernia 

Court. He requested that the Court judge the inaccuracy of the two third-party appraisals on the basis of which 

the acquisition of GIANFRANCO FERRÉ S.p.A. was finalized. However, the claims are considered 

unfounded and, on the basis of the examination carried out by experts engaged by the Company, there are 

significant doubts as to the admissibility of the claims, which could lead the Court to decide not to act on the 

above-mentioned summons. A decision by the Court is expected in the first semester 2005. 

• On August 9, 2004 certain companies, including IT HOLDING S.p.A. and SERVIZI MODA S.r.l., were served 

a petition for urgent relief put forth by Mr. Romeo Gigli and Romeo Gigli S.a.s.. Mr. Gigli claims he is owed at 

least Euro 41 million for future amounts receivable, compensation for damage for alleged breach of contract, 

and fees accrued and not received. Accordingly, he requested the Court to order provisional remedies to protect 

his current and future claim with respect to all companies involved, including IT HOLDING S.p.A. and 

SERVIZI MODA S.r.l.. On September 8, 2004, the Tribunal of Milan rejected all the requests made by the 

petitioners. The petitioners appealed this decision and on December 13, 2004 the Tribunal of Milan rejected 

this appeal. In January 2005 Mr. Gigli and Romeo Gigli S.a.s commenced proceedings against IT HOLDING 

S.p.A. before the Tribunal of Milan, asking for damages of approximately Euro 47 million, in connection with 

essentially the same claims described above. Management do not expect the dispute will result in adverse 

judgement. 

On the basis of certain contractual obligations assumed by the Company, management believes it appropriate to 

give information on the following litigation that does not involve it directly: 

• At the end of April 2004, IT HOLDING S.p.A. disposed of its entire share holding in GIGLI S.p.A.. At that 

date, an action was pending against GIGLI S.p.A. brought by a licensee, alleging that the licensing and agency 

agreements between the two were void or voidable, and requesting reimbursement for all royalties, advertising 

contributions, and commissions paid, amounting to Euro 5.2 million in addition to compensation for damages 

amounting to Euro 2 million. GIGLI S.p.A. had appeared in Court and disputed such Court’s jurisdiction, as 

well as the inadmissibility and lack of grounds of the claims, making a counterclaim for damages. The 

agreements with the purchaser of the shares in GIGLI S.p.A. provide that IT HOLDING S.p.A. indemnify the 

purchaser in the event that losses or liabilities arise in relation to this litigation. Management believe an 

unfavourable outcome to be unlikely. 

• On October 5, 2004, IT HOLDING S.p.A. disposed of its entire share holding in ALLISON S.p.A.. At that 

date Allison S.p.A. was involved in arbitration proceedings with a supplier with which it had signed a contract 

scheduled to expire in February 2006. The supplier disputed termination of the contract, claiming wilful 

misconduct on the part of ALLISON S.p.A., from which it requested damages of approximately Euro 7 

million. In connection with the sale and purchase agreement, IT HOLDING S.p.A. has agreed to indemnify the 

purchaser against any losses arising from litigation including this arbitral proceeding. In agreement with the 

opinion of lawyers engaged by ALLISON S.p.A., management believes it unlikely that the outcome of this 

litigation will be unfavourable. 

IT HOLDING S.p.A. and its subsidiaries still benefit from the effects of the hold harmless obligation taken on by 

its parent company, PA Investments S.A. on April 28, 1997. The agreement indemnifies IT HOLDING S.p.A. from 

damages, costs, liabilities, and contingent liabilities arising from civil, criminal, administrative, and tax court 

proceedings referring to events, acts or omissions occurring up to December 31, 1996 for which it was held liable 

and of which PA Investments S.A. was informed within five years from the date of the agreement ie within April 

F- 45


28, 2002. The agreement is still valid for tax and social security matters up to the relevant statute of limitations. 

Furthermore, IT HOLDING S.p.A. benefits from the guarantee which the parent company PA Investments S.A. 

took on when it signed the sales contract for FINANCIÈRE MELPAR HOLDING S.A. shares, with regard to prior 

year expenses not recorded in the FERRÉ group consolidated financial statements at December 31, 2001 which 

could arise also as a result of judicial, arbitration and/or administrative proceedings pending on the date in which 

the consolidated financial statements were approved. 

For the reasons described management has deemed it not necessary to provide for any of the contingent liabilities 

described above. 

F- 46

IT HOLDING S.p.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

FOR THE YEAR ENDED DECEMBER 31, 2003 

1. Activities of the Group 

IT HOLDING S.p.A., is one of the leading players in the luxury goods sector, and controls a group of companies that 

design, produce and distribute high-quality products (apparel and accessories, eyewear and perfumes) under owned 

brands—Gianfranco Ferré, GF Ferré, Malo, Extè, Try Ultralight—as well as under license agreements—D&G, 

Versus, Versace Jeans Couture, Versace Jeans Signature, Just Cavalli, C’N’C Costume National, Romeo Gigli, Desil 

Gold Filled, Anna Sui Vision, John Richmond, Vivienne Westwood, Les Copains, and ZeroRH+ (eyewear only). 

According to its strategic objectives, the Group rules and sustains the autonomous development of its brands through 

an integrated production and distribution system. Its production facilities are located in Italy, while the worldwide 

distribution network includes 31 directly operated stores, 66 other mono-brand stores and over 4,000 highly-selected 

department and specialty stores. IT HOLDING has over 2,000 employees and posted net revenues of 

Euro 669 million in 2003. It went public on November 1997 and its shares are traded on the Milan Stock Exchange. 

IT HOLDING is now a leading player in the luxury industry trough a multi-brand and a multi-product strategy. 

2. Significant accounting policies 

IT HOLDING S.p.A. is a company domiciled in Italy. The consolidated financial statements of the Company for the 

year ended December 31, 2003 comprise the Company and its subsidiaries (together referred to as the “Group”). 

The financial statements were authorized for issue by the directors on September 28, 2004. 



Standards (IFRS) adopted by the International Accounting Standards Boards (IASB). 

All standards revised or issued within December 31, 2003, if permitted, have been early adopted in the preparation of 

the Group’s consolidated financial statements. 

The following standards, revised in 2003, have been adopted before their effective date: 

IAS 2, Inventories 

IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors 

IAS 10, Events after the Balance Sheet Date 

IAS 16, Property, Plant and Equipment 

IAS 17, Leases 

IAS 21, The Effects of Changes in Foreign Exchange Rates 

IAS 24, Related Party Disclosures 

IAS 27, Consolidated and Separate Financial Statements 

IAS 28, Investment in Associates 

IAS 31, Investment in Joint Ventures 

IAS 32, Financial Instruments: Disclosure and Presentation 

IAS 33, Earnings per Share 

IAS 39, Financial Instruments: Measurement and Recognition 

IAS 40, Investment Property 

The company has approved its consolidated financial statements as December 31, 2003 under Italian accounting 

principles in May, 6, 2004. A reconciliation between the Company’s consolidated financial statements under Italian 

accounting principles and IFRS is provided in note 30.


The following is a summary of the significant accounting policies used by the Group to prepare the financial 

statements in accordance with IFRS. 


The financial statements are presented in euro, rounded to the nearest thousand. 

The consolidated financial statements have been prepared under the historical cost convention except as disclosed in 

the accounting principles below. 

The accounting policies set out below have been applied consistently to all periods presented in these consolidated 

financial statements. 

The accounting policies have been applied consistently by Group entities. 


Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly 

or indirectly, to govern the financial statements and operating policies of an entity so as obtain benefits from its 

activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into 

account. The financial statements of subsidiaries are included in the consolidated financial statements from the date 

that control commences until the date that control ceases. 

There are no "Associates" or "Jointly Controlled Entities" consolidated as at January 1, 2002, December 31, 2002 and 

December 31, 2003. 


measured at the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus 

costs directly attributable to the acquisition. The excess of cost of acquisition over the fair value of the net assets and 

liabilities of the subsidiary acquired is recorded as goodwill. 

The assets and liabilities and statement of income captions of consolidated companies are included on a line-by-line 

basis by eliminating the book value of the related investments against Group’s share of equity of the subsidiaries at 

the moment of their acquisition. 

The portion of net asset and net income attributable to third parties is stated separately as minority interests. 



Foreign currency transactions 

Foreign currency transactions are translated into Euro using the exchange rates prevailing at the dates of transactions. 

Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated into Euro at 

the exchange rate ruling at that date. 

Foreign exchange differences arising on the settlement of such transactions and on the translation are recognized in 

the income statement, except when deferred in equity as qualifying cash flow hedges. 

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated into 

Euro at exchange rates ruling at the dates the values were determined. 


The Group’s foreign operations are not considered an integral part of the Company’s operations. Accordingly, 

financial statements of foreign companies are translated into Euro as follows: 

F- 48


• assets and liabilities including goodwill and fair value adjustments arising on consolidation are translated at the 


• statement of income captions are translated into Euro at the average rates for the year; 

• foreign exchange differences arising on translation are recognized directly in equity. 

The exchange rates of the Euro to the principal foreign currencies used to prepare the consolidated financial 

statements are the following: 

2003 2002 

Year-end Average Year-end Average 

USD 1.2630 

1.1319 

1.0487 

0.9463 

CHF 1.5579 

1.5215 

1.4524 

1.4671 

GBP 0.7048 

0.6921 

0.6505 

0.6290 

HKD 9.8049 

8.8059 

8.1781 

7.3787 

JPY 135.0500 

131.0025 

124.3900 

118.1400 

CAD 1.6234 

1.5815 

1.6550 

1.4845 


Derivative financial instruments are used by the IT Holding Group solely for the purpose of hedging interest rate risk 

and currency exposure arising from operations. In accordance with its treasury policy, the Group does not hold or 

issue derivative financial instruments for trading or speculative purposes. However, derivatives that do not qualify for 

hedge accounting are accounted for as trading instruments. 

Derivatives financial instruments are recognized initially at cost. Subsequent to initial recognition, derivative financial 

instruments are stated at fair value. 

The market value of IRSs reflects the present value difference between the fixed rate to be paid/received and the 

interest rate assessed on the basis of the market trend having the same expiry date as the swap. The fair value of 

forward exchange contracts and currency options is estimated by reputable financial institutions on the basis of market 

conditions. The counterparties to derivative contracts are generally highly rated banks and financial institutions in 

order to minimize the risk of non-performance. 

Hedging 

Cash flow hedges of interest rate risk 

Changes in fair values of derivatives that are designated and qualified as Cash flow hedges and that are highly 

effective are deferred in the equity account, "Hedging reserve". Amounts deferred in the "Hedging reserve" and any 

subsequent changes in the value of the derivatives are recorded in the income statement in the same period and 

classified in the same income statement accounts as the related hedged transactions. 

Hedge of foreign exchange exposure 

Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a forecasted 

turnover or recognized monetary asset or liabilities, any gain or loss on the hedging instrument is recognized in the 

income statement because the Group until December 2003 did not yet apply hedge accounting rules as presented in 

IAS 39. 


Property, plant and equipment are carried at cost or deemed cost less accumulated depreciation and impairment loss, 

if any. Depreciation is calculated on a straight-line basis over the estimated useful lives of the fixed assets or the term 

of the lease. 

The applicable depreciation rates for 2003 and 2002 are as follows: 

F- 49


% 

industrial buildings 3.0 

general plant, light constructions, and operating machinery 10.0 

general plant and operating machinery purchased after January 1, 1989 12.5 

office furniture and equipment 12.0 

canteen equipment and fittings 12.5 

furnishings 15.0 

electronic machines 20.0 

miscellaneous and small equipment 25.0 

automobiles 25.0 

motor vehicles and internal means of transport 20.0 


Leasehold improvements and general store equipment are depreciated over the expected lease term. 

The cost of major renovations is included in the carrying amount of the assets when it is probable that future 


Group. Major renovations are depreciated over the remaining useful life of the related assets. All other expenditure is 

recognized in the income statement as an expense as incurred. 

Certain items of property and plant have been revalued to fair value at the date of transition to IFRS, January 1, 2001. 

In accordance to IFRS 1 the Group has elected to use that fair value as its deemed cost at that date. 




Leases 

Leases of property, plant and equipment, where the Group assumes substantially all the risk and rewards of 

ownership, are classified as finance leases. Plant and equipment acquired by way of financial lease is stated at an 

amount equal to the lower of the fair value of the leased property or the present value of the minimum lease payments 

at the inception of the lease, less accumulated depreciation and impairment losses, if any. Property, plant and 

equipment acquired under finance leases is depreciated over the lease term. 

The interest expense component of financial lease payment is recognized in the income statement using the effective 

interest rate method. 

Goodwill, trademarks, other intangible assets and deferred charges 

Goodwill 

Goodwill (positive or negative) represents amounts arising on acquisition of subsidiaries, associates and joint 

ventures. In respect of acquisitions that have occurred since January 1, 2001, the date of transition to IFRS, goodwill 

(positive and negative) represents the difference between the purchase price and the fair value of the identifiable net 

assets of acquired businesses at the date of acquisition. 

In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents the 

amount recorded under previous GAAP. The classification and accounting treatment of business combinations that 

occurred prior to January 1, 2001 has not been reconsidered in preparing the Group’s opening IFRS balance sheet at 

January 1, 2001. 

Goodwill is stated at cost less accumulated amortization and impairment losses. 

When the acquisition agreement provides for an adjustment to the purchase consideration contingent on future events, 

an estimate of the adjustment is included in the cost of acquisition. Any future adjustment of the estimate is recorded 

as an adjustment of the goodwill. 

F- 50


Negative goodwill arising on acquisition represents the excess of the fair value of the net identifiable assets acquired 

over the cost of acquisition. To the extent that negative goodwill relates to an expectation of future losses and 

expenses that are identified in the plan of acquisition and can be measured reliably, but which have not yet been 

recognized, it is recognized in the income statement when the future losses and expenses are recognized. Any 


the income statement over the weighted average useful life of those assets that are depreciable/amortizable. Negative 

goodwill in excess of the fair values of the non-monetary assets acquired is recognized immediately in the income 

statement. 

Commercial goodwill paid for the group’s sales premises is included into goodwill. It is amortized on the basis of the 

duration of the lease contracts; where necessary carrying amounts are written down by the amount not expected to be 

recovered through future revenues or sale. 

Licenses, trademarks and permits 

Acquired trademarks licenses and permits are stated at cost or at the attributed value at the date of the acquisition less 

accumulated amortization and impairment losses. 


Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and 

understanding is recognized in the income statement as an expense as incurred. 

Investment in collection development of all models and samples included into the catalogue of the new collection is 

capitalized if the amount will be recoverable on the basis of the future economic benefit generated by the new 

collection. The investment capitalized includes the cost of materials, and direct labour. Other development 

expenditure is recognized in the income statement as an expense as incurred. Investment in collection development is 

stated at cost less accumulated amortization and impairment losses. 

Investments in collection development are amortized on a systematic basis following the expected path of future 

economic benefits expected to flow to the company (i.e. on the basis of the rate of the revenues accounted for at year 

end over the total expected revenues from the sale of the collection, represented by the orders collected). The path of 

future economic benefits related to this investment is generally expected to be realised within twelve months. 


Other intangible assets and deferred charges expected to benefit future periods are recorded at cost less accumulated 





Amortization 


amortised from the date of initial recognition; other intangible assets are amortized from the date they are available for 

use. 

The applicable amortization periods are as follows: 

goodwill 20 years 

patents and trademarks 20 years 

development costs generally 1 year 

other intangible assets generally 5 years 

Inventories 

Inventories are stated at the lower of purchase or production cost and net realizable value. Net realizable value is the 

estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 

F- 51


Production costs of finished products include the cost of materials, consumables and external manufactures and the 

portion of all those direct and indirect production costs which may reasonably be attributed to them, excluding 


Purchase or production cost is determined under the average cost method. 



calculated on a straight-line basis over the estimated useful lives of the fixed assets estimated equal to 33 years. The 

fair value of the investment property is disclosed in note 16. 

Trade and other receivables 

Trade and other receivables are stated at their cost less impairment. 

Recognition of Securitization Transactions on Receivables 

In July 2003, the holding company, along with certain Group companies, finalized a new agreement for the factoring 

of trade receivables without recourse on a monthly revolving basis. 

Assets under Italian accounting principles can be derecognized if the legal requirements for the derecognition are 

satisfied. 

The factoring was carried out in accordance with Law no. 52/1991 on factoring and pursuant to article 58 of 

Legislative decree no. 385/1993, as part of five-year securitization plan. 

The above transaction, as the other factoring of trade receivables, does not meet the derecognition criteria of IAS 39 

and therefore the Group continues to recognize the factored trade receivables and recognize a financial liability for the 

consideration received. 


Cash and cash equivalents comprises cash balances and call deposits. Bank overdrafts that are repayable on demand 

and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents 

for the purpose of the statement of cash flows. 

The Group considers all highly liquid investments purchased with an original maturity of three months or less to be 

cash equivalents. The investments included in cash and cash equivalents are reported at their fair market value. 

Impairment 

The carrying amounts of the Group’s asset, other than investment property, inventories and deferred tax assets are 

reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication 

exists, the asset’s recoverable amount is estimated. For intangible assets that are not yet available for use, the 

recoverable amount is estimated at each balance sheet date. An impairment loss is recognized whenever the carrying 

amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the 




amount may not be recoverable. Assets whose carrying values exceed their recoverable amount are written down to 

the higher of the net selling price and the value in use. 


The recoverable amount of receivables is calculated as the present value of expected future cash flow, discounted at 

the original effective interest rate inherent in the asset. Receivables with a short maturity are not discounted. 

F- 52


The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in 

use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects 

current market assessments of the time value of money and the risk specific to the asset. For an asset that does not 

generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which 

the asset belongs. 


An impairment loss in respect of receivables is reversed if the subsequent increase in recoverable amount can be 

related objectively to an event occurring after the impairment loss was recognized. 

An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external event of an 

exceptional nature that is not excepted to recur, and the increase in recoverable amount relates clearly to the reversal 

of the effect of that specific event. 

In respect of other assets, an impairment loss is reversed if there has been a change in the estimate used to determine 

the recoverable amount. 

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying 

amount that would have been determined, net of depreciation or amortization, if no impairment loss had been 

recognized. 


Government grants are recognized in the balance sheet initially as deferred income when there is reasonable 

assurance that it will be received and the group will comply with the condition attaching to it. Grants that compensate 

the Group for expense incurred are recognized as revenues in the income statement on a systematic basis in the same 

periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognized 

in the income statement as revenues on a systematic basis over the useful life of the asset. 

Share capital 

Treasury Shares 


attributable costs, is recognized as a change in equity. Repurchased shares have been deducted from equity allocating 

the purchase price to capital stock for the nominal value of the shares and to share premium for the excess over the 

nominal value. 

Dividends 


Interest-bearing borrowings 

Interest-bearing borrowings are recognized initially at cost, less attributable transaction costs. Subsequent to initial 

recognition, interest-bearing borrowings are stated at amortized cost with any difference between cost and redemption 

value being recognized in the income statement over the period of the borrowings on an effective interest basis. 

Pension liabilities and termination leaving indemnities 

The Group’s contributions to defined contribution pension plans are charged to the income statement in the period to 

which the contributions relate. 

Termination leaving indemnities are calculated on an actuarial basis or in accordance with applicable local law to the 

extent that the amount of the liability does not differ materially from the amount which would have been calculated on 

an actuarial basis. 


F- 53



reference to the termination leaving indemnity for Italian employees (so called TFR) are not deferred and are charged 

to the income statement of the period in which they are calculated. 


The Group had a stock option program which has been abandoned in 2002 and no option rights have been given or 

exercised in 2002 or 2003. 

Financial instruments 

Financial instruments are presented according to IAS 39. Accordingly, financial assets, to the extent relevant to the IT 

Holding Group, are classified as follows: 

held for trading; 

loans and receivables. 

Financial assets held for trading are classified as current asset and are stated at fair value, with any resultant gain or 

loss recognized in the income statement. 

The fair value of the financial assets is determined through reference to quoted market prices at the balance sheet date. 

If there are no market values available for the financial assets, the value is determined by reputable financial 

institutions on the basis of market conditions. 

Subsequent measurement of loans and receivables is at amortized cost using the effective interest method or historical 

cost on whether the assets have a fixed or non-fixed maturity. 

Provisions 


past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. 

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that 

reflects current market assessments of the time value of money and, where appropriate, the risks specific to the 

liability. 



contracts in compliance with law and other relevant factors such as historical data, the average length of the relation 

with the agents and their turnover. 

Tax provision 

The tax provision reflects estimated contingent tax liabilities that some Group companies may have to pay following 

the tax disputes currently pending with the tax authorities. 


The provision for returns on sales, set up to cover the unrealized profit arising from the difference between the sales 

value of possible returns to be received after year end, but pertaining to the year, and their estimated recovery value. 


Revenues from the sale of products are recognized on the transfer of ownership to third parties. Royalties are 

recognized at the time of sale of the licensed products and, in accordance with industry practice, are included in 

revenues. Should any product return or is expected to return or any commercial discount be recognized, the relevant 

value reduces revenues arising from the sale of goods. Cash discounts are recognized as financial costs. 

Rental income from investment property is recognized in the income statement on a straight-line basis over the term 

of the lease. 

F- 54




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) 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 


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. 





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). 


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 

F- 55


exchange rates. Income and expenses in respect of interest, dividends received and taxation on profits are included in 

the cash flow from operating activities. 

Expenses for Opening or Modernizing Stores 

Expenses for opening or modernizing stores under lease contracts are capitalized under tangible assets when it is 

probable that future economic benefits in excess of the originally assessed standard of performance of the existing 

asset will flow to the Group. Expenses for opening or modernizing stores are depreciated over the remaining duration 

of the lease contract. All other expenditures are recognized in the income statement as expenses as incurred. 

Going concern 

The Group incurred a significant net loss for the year ended December 31, 2003 of approximately €62.7 million. This 

included the prudent write-down of intangible assets amounting to approximately €55million, gross of the tax effect, 

as commented in more detail in note 18. 

Furthermore, the Groups net financial debt is considerable and a portion thereof amounting to approximately 

€221million is due in 2005. 

These consolidated financial statements have been prepared on a going concern basis. 

The Directors expect an improvement in the forthcoming year in the Group’s results which will depend more on 

measure to recover profitability and efficiency than on assumption of growth in operating volumes. They plan to 

achieve this aim by focusing on the core apparel and accessories business, leveraging both own and licensed brands. 

The IT Holding Group plans to reduce its financial debt by taking the following measures: 

• strategic refocusing which should generate a recovery in profitability in the short term; 

• improvement in the management of working capital, despite the substantial stability of the volume of operations; 

• investment control. Most of the investments required to relaunch the Ferré brands were completed before the end 

of the year 2003; 

• the sale of non-strategic business activities, which led to the sale of the perfume business in March 2004, 

generating €31.5 million; 

• the sale of Romeo Gigli and Gentryportofino brands which had a negative impact on profitability. 

Furthermore, in order to repay the Ferré bond maturing in May 2005, with the assistance of banks, an extraordinary 

financing transaction is underway to refinance IT HOLDING Group debt. 

The structure of the transaction, which is still being defined, provides for the following: 

(a) the issue of a high-yield bond maturing in seven to ten years, to replace the "Ferré Finance 05/05" bond 

maturing in May 2005; 

(b) the subscription of a syndicated loan to refinance the "€ 85,000,000.00 Dual Tranche Syndicated Facility" 

(headed by Sanpaolo IMI S.p.A.) signed on April 10, 2003. 

F- 56


Additional information 

The companies listed below are consolidated using the line-by-line method: 

Consolidated companies Registered office 

Share capital (in Euros % of direct % of indirect 

unless otherwise 

indicated) 

ownership 

ownership 

IT HOLDING S.p.A. (Parent company) Pettoranello di Molise (IS) - I 12,293,700 

IBEX 2001 S.p.A. Milan - I 100,000 90.00% 

ITF S.p.A. Milan - I 5,200,000 80.00% 

ITF USA Inc. New York - NY - USA USD 500,000 100.00% 

FERRÉ FINANCE S.A. Luxembourg - L 125,000 100.00% 

IT FINANCE AND TRADING B.V. Amsterdam - NL 4,785,160 100.00% 

GF MONTAIGNE S.a.s. Paris - F 1,933,750 100.00% 

ITTIERRE FRANCE S.A. Paris - F 1,458,000 99.994% 

M.A.C. FRANCE E.u.r.l. Paris - F 1,060,000 100.00% 

GIANFRANCO FERRÉ FRANCE E.u.r.l. Paris - F 400,000 100.00% 

HOBBYMARKT WASSENAAR B.V. Amsterdam - NL 18,160 100.00% 

MAGIC STYLE S.r.l. Pettoranello di Molise (IS) - I 10,330 100.00% 

ITTIERRE MODEN GmbH Düsseldorf - D 64,000 100.00% 

M.A.C. DEUTSCHLAND GmbH Düsseldorf - D 255,750 100.00% 

M.A.C. MARBELLA S.L. Malaga - E 100,200 100.00% 

M.A.C. UK Ltd. London - GB GBP 1.530.660 100.00% 

GIANFRANCO FERRÉ UK Ltd. London - GB GBP 757,686 100.00% 

ITTIERRE SUISSE GmbH Mendrisio - CH CHF 250,000 100.00% 

IT ASIA PACIFIC Limited (formerly FAR IT Limited) Hong Kong - HK HK$ 500,000 100.00% 

QUARTERMAIN Ltd. Hong Kong - HK HK$ 1,000 99.90% 

IT HOLDING USA Inc. New York - NY - USA USD 200,000 100.00% 

IT USA Inc. New York - NY - USA USD 200,000 100.00% 

F- 57


Consolidated companies Registered office Share capital (in Euros 

unless otherwise 

MANIFATTURE ASSOCIATE CASHMERE USA Inc. New York - NY - USA 

indicated) 

USD 50,000 100.00% 

M.A.C. SOHO Llc. New York - NY - USA USD 584,062 100.00% 

M.A.C. MADISON Llc. New York - NY - USA USD 2,980,873 100.00% 

M.A.C. COLORADO Llc. Denver - CO - USA USD 608,389 100.00% 

M.A.C. BAL HARBOUR Llc. Tallahassee - FL - USA USD 489,470 100.00% 

M.A.C. PALM BEACH Llc. Tallahassee - FL - USA USD 437,168 100.00% 

M.A.C. CHICAGO Llc. Springfield - IL - USA USD 722,993 100.00% 

M.A.C. CLINTON Llc. Hartford - CT- USA USD 491,931 100.00% 

M.A.C. WOODBURY Llc. New York - NY - USA USD 380,191 100.00% 

GIANFRANCO FERRÉ HOLDINGS Inc. Wilmington - DE - USA USD 5,500,000 100.00% 

GIANFRANCO FERRÉ USA Inc. New York - NY - USA USD 1,000,000 100.00% 

FIRST N.Y. BOUTIQUE Inc. New York - NY - USA USD 1,500,000 100.00% 

FIRST P.B. BOUTIQUE Inc. Tallahassee - FL - USA USD 500,000 100.00% 

FIRST RODEO Corp. Beverly Hills - CA - USA USD 600,000 100.00% 

GIGLI S.p.A. Pettoranello di Molise (IS) - I 520,000 100.00% 

V2I HOLDING S.A. Luxembourg - L 3,235,090 100.00% 

EUROHOLDING FASHION S.A. Luxembourg - L CHF 150,000 80.00% 

INTERSTYLE HOLDING S.A. Luxembourg - L CHF 2,600,000 80.00% 

MODA BRAND HOLDING S.A. Luxembourg - L CHF 300,000 80.00% 

ALLISON S.p.A. Padua - I 1,702,800 100.00% 

ALLISON EYEWEAR Inc. Los Angeles - CA - USA USD 1,500,000 93.00% 

ALLISON CANADA Inc. North York - Ontario - CANADA CAD 95,000 80.00% 

DESIL S.p.A. Domegge di Cadore (BL) - I 490,400 100.00% 

ITTIERRE S.p.A. Pettoranello di Molise (IS) - I 38,740,000 100.00% 

ELITE S.r.l. Pettoranello di Molise (IS) - I 46,481 100.00% 

ITC S.p.A. Pettoranello di Molise (IS) - I 2,580,000 100.00% 

HYPSOS S.r.l. Pettoranello di Molise (IS) - I 104,000 0.05% 99.95% 

IT RESEARCH S.c.ar.l. Pettoranello di Molise (IS) - I 100,000 100.00% 

ITTIERRE ACCESSORIES S.p.A. Pettoranello di Molise (IS) - I 1,000,000 90.00% 

SERVIZI MODA S.r.l. Pettoranello di Molise (IS) - I 94,342 100.00% 

M.A.C. - Manifatture Associate Cashmere S.p.A. Pettoranello di Molise (IS) - I 2,580,000 100.00% 

GENTRYPORTOFINO S.p.A. Pettoranello di Molise (IS) - I 100,000 100.00% 

P.A.F. - Pelletterie Artigiane Fiorentine S.r.l. Campi Bisenzio (FI) - I 100,000 100.00% 

C.I.M. - Compagnia Italiana Maglierie S.r.l. Campi Bisenzio (FI) - I 30,988 100.00% 

M.A.C. JAPAN Inc. Tokyo - J JPY 10,000,000 100.00% 

GIANFRANCO FERRÉ S.p.A. Milan - I 6,750,000 100.00% 

NUOVA ANDREA FASHION S.p.A. Milan - I 1,800,000 100.00% 

GF MANUFACTURING S.r.l. Pettoranello di Molise (IS) - I 100,000 100.00% 

MADE FERRÉ S.r.l. Pettoranello di Molise (IS) - I 10,200 100.00% 

Changes which occurred in the consolidation area with respect to December 31, 2002 are the following: 

F- 58 

% of direct % of indirect 

ownership ownership 

Increases: 

• Acquisition of 100% of SERVIZI MODA S.r.l. with registered office in Pettoranello di Molise (IS) from third 

parties; 

• ITTIERRE ACCESSORIES S.p.A., set up in 2003, with registered office in Pettoranello di Molise (IS), active in 

the creation, production and marketing of clothing accessories in leather and fabrics; 

• IT RESEARCH S.c.a r.l.; set up in 2003, this is a consortium in which all Group companies have equal 

shareholdings. It organizes training courses directly or on behalf of consortium members and/or other public and 

private entities. 

Decreases: 

• FINANCIÈRE MELPAR HOLDING S.A., Luxembourg-based company in liquidation. 

• BIEMME S.r.l., sold to third parties in 2003. 

• MALO S.p.A., following its merger into ITTIERRE S.p.A.


The changes in the consolidation area did not have a significant impact on the Group structure with respect to the 

previous year. 

The consolidated financial statements as at and for the period ended December 31, 2003 was prepared on the basis of 

the financial statements of all consolidated companies at the same date for consolidation purposes, and duly adjusted 

or reclassified in order to make them consistent with Group accounting policies. 

The balance sheet dates of the subsidiaries are the same of the holding company; as a consequence, there was no need 

to prepare interim financial statements for such companies. 

3. Segment information 

The Group designs, manufactures, and distributes in three specific sectors of the luxury goods market: 

• apparel and accessories; 

• eyewear; 

• perfumes. 

The Group distributes via two main channels, wholesale and retail: the wholesale channel caters to independent 

retailers (4,000 at year end comprising department stores and boutique), while retail activities are carried out through 

31 directly-operated stores (DOS), 66 franchise boutiques and 8 factory outlets. 

The Group’s products have an international appeal with 42.1% of its income deriving in the year 2003 from sales in 

Italy, 34.4% in Europe (without Italy), 11.6% in the Americas and 10% in the rest of the world. 

The Group’s products comprise a full range of luxury products including apparel, eyewear, accessories and perfumes 

which the Group provides to customers through a worldwide distribution organization. 

The Group has positioned itself with the capability of becoming one of the leading players in the luxury goods market, 

providing an integrated and diverse range of goods. 

The following table presents information about the Group by segment of activity: 


2003 

% of net 

revenues 2002 

Apparel and accessories 579,209 86.5 576,932 

Eyewear 57,266 

8.5 60,088 

Perfumes 25,570 

3.8 13,835 

Royalty income 12,925 

1.9 13,843 

Interdivisional (5,132) (0.7) (4,884) 

Net revenues 669,838 100.0 659,814 

The following table presents information about the Company by geographic area: 

F- 59 

% of net 

revenues 

87.4 

9.1 

2.1 

2.1 

(0.7) 

100.0 

% Increase 

(Decrease) 

0.4 

(4.7) 

84.8 

(6.6) 

5.1 

1.5 

% of net 

% of net % Increase 

2003 revenues 2002 revenues 

(Decrease) 

Italy 281,865 42.1 265,614 40.3 6.1 

Europe * 230,749 34.4 223,508 33.9 3.2 

Americas 77,838 11.6 83,591 12.7 (6.9) 

Far East and Japan 45,831 6.8 51,852 7.9 (11.6) 

Rest of the world 20,630 3.2 21,406 3.1 (3.6) 

Royalty income 12,925 1.9 13,843 2.1 (6.6) 

Net revenues 

* without Italy 

669,838 100.0 659,814 100.0 1.5


Business segments 

Apparel and Eyewear 

2003 

Perfumes Eliminations Other Total 

accessories 

operations 


Net revenues 592,134 57,266 25,570 (5,132) 669,838 

of which royalty income 12,925 - 

- 

12,925 


Other operating income 8,247 1,131 3,162 (1,000) 11,540 





Depreciation/amortization (139,121) (7,053) (606) (146,780) 

Operating result (42,961) (6,843) (200) (50,004) 








2002 

Perfumes Eliminations 

Other Total 

accessories 

operations 


Net revenues 590,775 60,088 13,835 (4,884) 659,814 

of which royalty income 13,843 - 

- 

13,843 


Other operating income 8,991 912 870 10,773 





Depreciation/amortization (79,975) (3,122) (343) (83,440) 

Operating result 29,055 (3,524) (931) 24,600 




Net income (loss) before minority interest (688) 


Net income (loss) for the year 42 

F- 60



2003 

Perfumes Eliminations Total 


accessories 

Intangible assets 281,922 

219 2,352 284,493 


Long-term financial assets 2,029 

265 48 2,342 

Fixed assets 350,225 10,737 3,104 - 364,066 

Inventories 136,136 23,745 7,432 167,313 



Other net assets (liabilities) 30,452 6,189 834 37,475 

Net working capital 185,428 40,595 9,977 - 236,000 




523,676 48,745 12,904 - 585,325 

Intercompany financial recevaibles (payables) - 

Short-term financial payables (153,414) (47,467) (11,639) (212,520) 

Medium-term financial payables (281,507) (944) - 

(282,451) 

Cash and cash equivalents 64,330 1,988 1,177 67,495 

Net financial debt (370,591) (46,423) (10,462) - (427,476) 

Shareholders' equity and minority interests (153,085) (2,322) (2,442) (157,849) 

Sources of financing (523,676) (48,745) (12,904) (585,325) 

Capital expenditure and acquisitions 13,604 

F- 61 

2,364 2,988 - 


2002 

Perfumes Eliminations Total 


accessories 

Intangible assets 361,772 5,133 1,704 368,609 


Long-term financial assets 1,857 340 47 2,244 

Fixed assets 430,835 16,298 2,278 - 449,411 

Inventories 123,977 17,833 4,199 146,009 



Other net assets (liabilities) (8,730) (10,881) 345 (19,266) 

Net working capital 146,627 15,362 10,052 - 172,041 




566,813 28,849 12,187 - 607,849 

Intercompany financial recevaibles (payables) - 

Short-term financial payables (118,974) (26,904) (9,477) (155,355) 

Medium-term financial payables (284,244) (1,205) 0 (285,449) 


Net financial debt (349,347) (26,988) (8,060) (384,395) 

Shareholders' equity (including minority interests) (217,466) (1,861) (4,127) (223,454) 

Sources of financing (566,813) (28,849) (12,187) - (607,849) 

Capital expenditure and acquisitions 216,023 5,227 6,721 - 

18,956 

227,971


Geographical segments 

Italy Europe Americas 

2003 

Far East and Rest of the Other 


Net revenues 281,865 230,749 77,838 

Japan 

45,831 

world 

20,630 

operations 

12,925 

Segment assets 952,192 


109,932 

4,571 

F- 62 

56,430 

731 

12,589 

279 

1,681 

- 

(77,888) 

Italy Europe Americas 

2002 



Net revenues 265,613 223,508 83,591 

Japan 

51,852 

world 

21,407 

operations 

13,843 

Segment assets 944,113 


98,400 

6,061 

55,381 

7,279 

15,692 

477 

2,910 

- 

- 

(94,257) 

- 

Total 

669,838 

1,054,936 

18,956 

Total 

659,814 

1,022,239 

227,971 

Apparel and accessories division 

Net revenues rose by 0.4% to Euro 579,209 thousand, confirming this division as the Group’s main source of 

revenues. As a percentage of total revenues, this division showed substantial stability from 2002 to 2003. 

The cost of materials, slightly decreased in percentage of value of production (given by net revenues and change in 

inventory) from 26.9% in 2002 to 26% in 2003. 

The outside services increased by Euro 28,369 thousand to Euro 257,140 thousand mainly following the growth in 

advertising and commercial expenses to support the "Ferré" brands, the increase in royalty expense as per contracts 

with brand licensors, and the rise in outsourcing and a result of the internalization of the secondary Gianfranco Ferré 

apparel collections. 

The decrease in operating result of Euro 72,016 thousand is driven by the trend of costs described above and the 

increase in depreciation and amortization due to the extraordinary write-downs, mainly of goodwill and trademark, of 

Euro 54,367 thousand these extraordinary write-downs have been in line with Group accounting policies, these 

write-downs were necessary following the decision to discontinue development of Romeo Gigli brand business and 

the recognition that the current market prospects did not ensure the recovery of the book value of goodwill arising on 

consolidation. 

Eyewear division 

The performance of this division reflected the effects of the market slowdown in the sector and, specifically, the 

effects of the significant reduction of around Euro 7 million in sales to Nike on the previous year. However, the sharp 

turnaround in the fourth quarter of 2003 offset the slowdown that led to a reduction in the Allison Group’s 2003 

revenues. Net revenues dropped by 4.7% to Euro 57,266 thousand, versus Euro 60,087 thousand in 2002. 

2003 eyewear figures broken down by geographical area show this division’s strong performance in Europe, with 

growth of 22.3% and net revenues of Euro 15,990 thousand, versus Euro 13,073 thousand in 2002, following the 

consolidation of the sales network. The EARNINGS BEFORE INTEREST, TAX, DEPRECIATION AND 

AMORTIZATION was negative, mainly as a result of the costs relating to the new offices in Padova, the increase in 

the sales force, and the advertising costs incurred to launch the Gianfranco Ferré, GF Ferré, Vivienne Westwood, Les 

Copains, and John Richmond collections. 

Similarly to the write-down recorded at consolidated level, goodwill arising on consolidation was written down by 

Euro 2,074 thousand, and moulds were written down by Euro 85 thousand. 

Perfume division 

This division is headed by ITF S.p.A., the IT HOLDING Group’s vehicle for the development of the perfumes sector. 

ITF S.p.A. licenses many brands, including, but not limited to, Romeo Gigli and Gianfranco Ferré (Group owned) and


Roberto Cavalli, for their perfume and cosmetics collections. It also has a number of other distribution agreements. 

Net revenues of this division amounted to Euro 25,570 thousand in 2003, following the exceptional success of the 

fragrance launches during the year. 

In terms of profitability, margins decreased considerably given the costs for launching new fragrances of the Essence 

d’Eau—Gianfranco Ferré, Incanto—Salvatore Ferragamo, and Romeo Gigli women’s fragrances and the Roberto 

Cavalli Man cologne during the year. Which have dropped the EARNINGS BEFORE INTEREST, TAX, 

DEPRECIATION AND AMORTIZATION margin to negative Euro 2.028 thousand. 

The geographical breakdown of net revenues shows this division’s strong performance in Italy and the US, where a 

direct distribution company is located. It also shows the beginning of operations in other European countries and the 

rest of the world. 

On March 25, 2004, IT HOLDING S.p.A. sold its shareholding in ITF S.p.A. through IBEX 2001 S.p.A. to I.C.R.— 

Industrie Cosmetiche Riunite S.p.A., owned by Mr. Roberto Martone. This transaction is described in "Significant 

Events after the Year-end." 

4. Personnel 

Balances for 2003 and 2002 are made up as follows: 

2003 2002 Increase 


(decrease) 

Wages and salaries 67,532 66,185 1,347 

Social security contributions 14,435 14,775 (340) 

Severance pay fund 3,940 3,970 (30) 

Other costs 849 554 295 

Total personnel exepenses 86,756 

The main figures related to the number of employees for 2003 and 2002 are as follows: 

Workers 657 

Office staff 1,376 

Executives 54 

Total 2,087 

F- 63 

664.50 

1,385.97 

58.78 

85,484 

2003 Average 

number 2003 

2002 

2,109.25 

This caption is substantially stable, in line with the trend in the average number of employees. 

5. Financial income (charges) 

Financial income and charges for 2003 and 2002 are comprised as follows: 

734 

1,259 

61 

2,054 

1,272 

Average 

number 2002 

729.17 

1,296.88 

65.79 

2,091.84 

2003 2002 

Interest expense (28,997) (22,140) 

Interest income 1,271 1,913 

Financial income (expense) from hedging transaction 183 (39) 

Income (charges) from associated company (37) - 

Write-downs in shareholdings - (58) 

Net foreign exchange loss (1,189) (2,131) 

Other (5,999) (4,824) 

Total (34,768) (27,279)


Interest expense includes bond interest of Euro 14,710 thousand (2002: Euro 9,348 thousand), bank interest of 

Euro 7,827 thousand (2002: Euro 10,263 thousand) and other financial charges of Euro 6,460 thousand 

(2002: Euro 2,529 thousand) mainly referred to charges related to the trade receivable securitization agreement. 

6. Income taxes 

Recognised in the income statement 


Current tax expenses 

Current year 12,335 24,972 (12,637) 

Under/(over) provided in prior years - - - 

Total 12,335 24,972 (12,637) 

F- 64 

2003 2002 

Increase 

(Decrease) 

Deferred tax expense 



(Decrease) 

Origination and reversal of temporary differences (5,656) (25,740) 20,084 

Benefit of tax losses recognised (2,542) 2,959 (5,501) 

Subtotal (8,198) (22,781) 14,583 

Tax benefit on parent company's dividends (25,866) (4,182) (21,684) 

Total (34,064) (26,963) (7,101) 

Total income tax expense in income statement (21,729) (1,991) (19,738) 

Tax benefit on parent Company’s dividends represents the receivable that IT Holding, which is in a tax loss position, 

has earned versus tax authorities on the dividends received during the year from Ittierre S.p.A.. 

The details and the movements of deferred tax assets and liabilities are in note 19, Deferred tax assets and liabilities. 


2003 2002 


Loss before tax (84,772) (2,679) 

Income tax using the domestic corporation tax rate 37.25% (31,578) 38.25% (1,025) 

Temporary differences unrecognised 6.24% (5,287) - 

Benefit of tax losses unrecognised -17.09% 14,489 - 

Others -0.76% 647 36.06% (966) 

Total income tax expenses in income statement 25.63% (21,729) 74.31% (1,991) 

7. Discontinuing operation 

On March 25, 2004, IT HOLDING S.p.A. sold its 90% shareholding in IBEX 2001 S.p.A. to I.C.R.—Industrie 

Cosmetiche Riunite S.p.A., owned by Mr. Roberto Martone. Together with shareholder Mr. Roberto Martone, IBEX 

2001 S.p.A. controls ITF S.p.A., which was set up in September 2001 to develop and distribute perfumes and 

cosmetics under brands licensed by the IT Holding Group and third parties. At the time of the sale, ITF S.p.A. had 25year 

license agreements with certain IT Holding Group companies. For IT HOLDING S.p.A., the transaction is in line 

with its strategy of focusing on the core business, comprised of the apparel and accessories collections of owned and 

licensed brands. Furthermore, the proceeds from the sale have made the Group more financially flexible. 

The sale took place following negotiations between the parties. A merchant bank confirmed the sales price of Euro 

31.5 million in its appraisal. The consideration was paid upon signature of the sales contract. This sale will generate a 

capital gain of approximately Euro 30 million in the consolidated financial statements for the year ending 

December 31, 2004. Lastly, IT HOLDING S.p.A. has not provided for any changes in the fees of the directors of the 

company or of any of its subsidiaries following the above transaction.


8. Acquisition and disposal of subsidiaries 

In 2003 the acquisition and disposal of subsidiaries are the following: 

Acquisitions: 

• Acquisition of 100% of SERVIZI MODA S.r.l. with registered office in Pettoranello di Molise (IS) from third 

parties; 

• ITTIERRE ACCESSORIES S.p.A., set up in 2003, with registered office in Pettoranello di Molise (IS), active in 

the creation, production and marketing of clothing accessories in leather and fabrics; 

• IT RESEARCH S.c.a r.l.; set up in 2003, this is a consortium in which all Group companies have equal 

shareholdings. It organizes training courses directly or on behalf of consortium members and/or other public and 

private entities. 

Disposals: 

• FINANCIÈRE MELPAR HOLDING S.A., Luxembourg-based company in liquidation. 

• BIEMME S.r.l., sold to third parties in 2003. 

• MALO S.p.A., following its merger into ITTIERRE S.p.A. 

9. Significant Events after the Year-end 

March 

• March6, 2004 marked the official opening of the GF Ferré boutique in Rome, owned by a business partner of the 

Group. The space spans 150 square meters and will showcase the young men’s and women’s apparel and 

accessories collections, presented to the public and the press in June 2003. The ready-to-wear, accessories, 

eyewear, and perfume collections are gathered under the GF Ferré and Gianfranco Ferré brands. They target two 

distinct groups of customers: young people and adults in general. These two brands are the result of an image and 

product streamlining project as part of the brand relaunch plan. 

• On March 18, 2004, Professor Claudio Demattè unexpectedly passed away. He had served as director of the 

holding company, bringing his excellent qualifications, expertise and experience to the board. The company 

regrets the loss of Professor Demattè, whose personal and professional qualities were much admired. 

• Also on March18, 2004, the owned Gianfranco Ferré boutique officially opened in Munich. The space covers 350 

square meters and is furnished in line with the store concept previously applied to the directly operated stores in 

Milano, Paris, Cannes, Capri, and Porto Cervo. It will showcase the Gianfranco Ferré men’s and women’s 

collections from Spring/Summer 2004. This investment is part of the Ferré relaunch plan, whereby the most 

important showrooms are renovated and the product range coordinated and expanded. 

• On March 25, 2004, IT HOLDING S.p.A. sold its 90% shareholding in IBEX 2001 S.p.A. to I.C.R.—Industrie 

Cosmetiche Riunite S.p.A., owned by Mr. Roberto Martone. Together with shareholder Mr. Roberto Martone, 

IBEX 2001 S.p.A. controls ITF S.p.A., which was set up in September 2001 to develop and distribute perfumes 

and cosmetics under brands licensed by the IT Holding Group and third parties. At the time of the sale, ITF S.p.A. 

had 25-year license agreements with certain IT Holding Group companies. For IT HOLDING S.p.A., the 

transaction is in line with its strategy of focusing on the core business, comprised of the apparel and accessories 

collections of owned and licensed brands. Furthermore, the proceeds from the sale have made the Group more 

financially flexible. 

The sale took place following negotiations between the parties. A merchant bank confirmed the sales price of 

Euro 31.5 million in its appraisal. The consideration was paid upon signature of the sales contract. This sale will 

generate a capital gain of approximately Euro 30 million in the consolidated financial statements. Lastly, IT 

HOLDING S.p.A. has not provided for any changes in the fees of the directors of the company or of any of its 

subsidiaries following the above transaction. 

• In the first quarter 2004, FERRÉ FINANCE S.A. repurchased "Ferré Finance 7% 05/05" bonds it had issued and 

cancelled them, for a total of Euro 25 million. 

F- 65


April 

• On April 19, 2004 "Gianfranco Ferré" directly-owned store in New York City reopened after refurbishment 

according to a renovated store concept. It showcases womenswear and menswear collections in 400 square 

meters. 

• On April 27, 2004, IT HOLDING S.p.A. transferred its 100% investment in GIGLI S.p.A. to Immobiliare Esse 

S.r.l. This was also a way to transfer total control of V2I HOLDING S.A., and, consequently, 80% of the share 

capital in the Luxembourg subsidiaries. These companies own all rights to the Romeo Gigli brand (created by the 

designer of the same name) and all related elements, subject to domestic and international filing and applications. 

On the same date that IT HOLDING S.p.A. signed the sales contract, it also signed a licensing agreement with 

GIGLI S.p.A., taking effect January 1, 2004, making the latter licensee, with the power to sublicense, the 

exclusive use, production, and sale of Romeo Gigli brand products. The duration of the licensing agreement is ten 

years, and it is renewable for another ten with respect to eyewear (through the subsidiary ALLISON S.p.A.), 

perfumes and cosmetics (manufactured and distributed by ITF S.p.A.), and timewear. GIGLI S.p.A. is not 

required to pay royalties, but only meet specific commitments in terms of advertising investments. The sale of the 

Romeo Gigli is in line with the Group’s strategy of focusing on strategic businesses with high growth potential. 

The price was Euro 1,000.00 and the sale generated a capital loss of Euro 4,747 thousand, which, for the most 

part, reflects this company’s net loss for the period. 

• On April 30, 2004, GENTRYPORTOFINO S.p.A. sold the business activity in Genova, Via Pierluigi Bagnasco 

to Elizabeth Mambrini S.r.l. The business object of the activity sold was the design, production and sale of 

various products and ready-to wear and knitwear lines under the Gentryportofino label. The sale was made for 

Euro 470 thousand and did not have any significant effects on the consolidated statement of income. 

• At the end of April 2004, IT HOLDING S.p.A. sold the entire shareholding in GIGLI S.p.A. At that date, 

judgment was pending on legal action against GIGLI S.p.A. taken by a licensee, alleging that the licensing and 

agency agreements between the two were void or should be voided, and requesting reimbursement for all 

royalties, advertising contributions, and commissions paid, quantified as Euro 5,156,654.86, in addition to 

compensation for damage of Euro 2,000,000. GIGLI S.p.A. had appeared in Court and disputed such Court’s 

jurisdiction, as well as the inadmissibility and lack of grounds of the claims, making a counterclaim for damages. 

The agreements with the buyer of the investment in GIGLI S.p.A. provide that IT HOLDING S.p.A. hold such 

buyer harmless in the event that losses or liabilities arise in relation to the litigation. GIGLI S.p.A. is not expected 

to lose the case. Accordingly, it is unlikely that IT HOLDING S.p.A. will have to hold the buyer harmless. 

May 

• On May 6, 2004 the shareholders of IT HOLDING S.p.A. appointed Carlo Giovanni Mammola Director to 

replace Mr. Claudio Demattè, who had passed away. Mr. Mammola, who teaches at the Università Bocconi 

of Milano and is Managing Director of Bank of America Capital Partners Europe, qualifies as an independent 

director on the basis of the definition given in the Code of Conduct for Listed Companies. 

• On May 21, 2004, ALLISON S.p.A. acquired the entire share capital of ALLISON UK Ltd, based in London. 

The acquired company will handle the distribution of eyewear products on the UK market, to boost the 

Group’s commercial presence in that country. 

June 

• On June 1, 2004, ALLISON EYEWEAR Inc. (100% owned by ALLISON S.p.A.) was contributed to the 

newco ALLISON USA Inc., with share capital of USD 4 million. In proportion to the attributed contribution 

value of USD 1 million, ALLISON S.p.A. acquired 25% of the share capital of ALLISON USA Inc., and the 

other 75% is held by the local shareholder Paul Diaz. 

• In June 2004, three-year licensing agreements were signed with Global Watch Industries S.r.l.. They begin 

from the 2005 Spring/Summer season, with possible extension for an additional two years and relate to the 

production and marketing of a line of watches under the Romeo Gigli, Extè, GF Ferré brands. 

• In June 2004 ALLISON S.p.A. enters into 5-year license agreements for the production and distribution of 

"Missoni" and "Cerruti 1881" collections. 

F- 66


July 

• On July 15, 2004, in an extraordinary meeting, the shareholders of M.A.C.—Manifatture Associate Cashmere 

S.p.A resolved to change the company’s name to MALO S.p.A. 

• Also on July15, 2004, in an extraordinary meeting, the shareholders of GENTRYPORTOFINO S.p.A. 

resolved to change the company’s name to IT DISTRIBUZIONE S.p.A. 

10. Cash and Cash Equivalents 

12/31/2003 12/31/2002 





Total 36,770 47,237 


held with banks, including interest accrued at December 31, 2003. 


11. Short term financial assets 

At December 31, 2003 short term financial assets amounted to €30,725 thousand (2002: €9,172 thousand), which is 

mainly comprised of junior notes issued by ABC Gestion S.A. (€30.699 thousand), issuer of the F.C.C. Première 

European Fund, as part of the securitization plan described in note 28. At December 31, 2002 short term financial 

assets mainly comprised the joint venture with Crédit Lyonnais S.A. (€9,146 thousand), which had been set up as part 

of the above mentioned securitization transaction with full collection of the related amount. 

12. Trade receivables, net 

Trade receivables, net, at December 31, 2003 and 2002 were as follows: 


Due before 12 months 

Italian customers 59,575 

Foreign customers 81,703 

Italian agents 1,932 

Foreign agents 21,973 

Italian subcontractors 3,587 

Foreign subcontractors 218 

Others in Italy 6,434 

Others in abroad 1,022 

Trade bills receivable 61,910 

Invoice to be issued 1,808 

Bad debt provision (9,951) 

Total 230,211 

F- 67 

12/31/2003 12/31/2002 Increase 

(decrease) 

57,848 1,727 

80,942 761 

898 1,034 

19,443 2,530 

2,359 1,228 

135 83 

4,748 1,686 

624 398 

49,499 12,411 

1,527 281 

(9,677) (274) 

208,346 

The Euro 21,865 thousand increase in this caption was due to the increase in receivables, due to the overall growth in 

business. 

The bad debt provision has been estimated using analytical criteria on the basis of available data and in general on the 

basis of historical trends. 

21,865


13. Inventories 

Inventories at December 31, 2003 and 2002 can be analyzed as follows: 

12/31/2003 12/31/2002 Increase 


(decrease) 

raw, ancillary and consumable materials 32,605 

37,158 

(4,553) 

products in process and semi-finished products 24,960 

19,399 

5,561 

finished products and merchandise 109,742 

89,447 

20,295 

- with distributors 109,268 

85,029 

24,239 

- with factories 474 

4,418 

(3,944) 

advance payments 6 

5 

1 

Total 167,313 

F- 68 

146,009 

Inventories of raw materials and semi-finished products mainly refer to the preparation of the Spring/Summer 2004 

collection. 



The Euro 21,304 thousand increase is primarily due to the start-up of the activities of ITTIERRE ACCESSORIES 

S.p.A. (accessories in leather and fabrics) and to the internalization of the Ferré apparel and accessories collections, 

which were previously licensed to the Marzotto Group. 

The increase in inventories was also related to the strategic decision to reprocess fabric inventories within the Group 

using "end of the bolt" production methods, mainly for sale through direct factory outlets, thereby recovering a large 

part of the value of inventories, rather than writing them down significantly. 

14. Other current assets 

Other current assets at December 31, 2003 and 2002 can be analyzed as follows: 

12/31/2003 12/31/2002 Increase 


(decrease) 

Taxation authorities - VAT credit 20,855 

8,961 11,894 

Taxation authorities - VAT reimbursements 4,297 

5,065 (768) 

Taxation authorities - Tax credit 28,726 

9,645 19,081 

Advances to Italian suppliers and/or agents 11,275 

12,394 (1,119) 

Commissions on sales 13,944 

11,054 2,890 

Investments in Collection Development 34,753 

26,089 8,664 

Others current assets and deferred income 66,505 

49,738 16,767 

Total 180,355 

122,946 

Investments in Collection Development are related to the investment made in designing the new collection and in the 

production of samples (pre-production or pre-use prototypes and models). They are classified as current assets as the 

related future economic benefits are expected to flow to the group within the Group entities’ operating cycle. 

Movements of Investments in Collection Development in 2003 were as follows: 


Balance at 

January 1, 

2003 

COST AMORTIZATION 

Acquisitions Write-offs Balance at Balance at Amortization of Write-offs 

December 31, January 1, the year 

2003 2003 

Balance at 

December 31, 

2003 

Investments in Collection Development 70,259 56,178 (37,924) 88,513 44,170 47,514 (37,924) 53,760 26,089 34,753 

NET 

Net carrying 

amount at 

January 1, 

2003 

21,304 

57,409 

Net carrying 

amount at 

December 31, 

2003


Other current assets are comprised mainly of positive market values in financial derivatives totaling €38,153 thousand 

(2002: €23,037 thousand). The negative market values in financial derivatives is included in caption "Other current 

liabilities". 

15. Long term financial assets 

At December 31, 2003 long term financial assets amounted to Euro 2,342 thousand (2002: Euro 2,244 thousand), 

which is mainly comprised of guarantee deposit totaling Euro 2,313 thousand (2002: €2,015). 

16. Investment property 

The only movement in investment property, which is presented at cost less accumulated depreciation, is represented 

by the depreciation of the year amounting to €43 thousand. 

The fair value of the investment property is estimated equal approximately €1.420 thousand. The estimate is based on 

current prices in an active market for similar properties in the same location and condition. 

The amounts included in the income statement related to such investment property are as follows: 



Direct operating expenses (234) (231) 

Depreciation (43) (43) 

17. Property, plant and equipment, net 

The following table presents the breakdown of and changes during 2003 in tangible assets: 


Land and 

building 

Plant and Industrial and 

machinery commercial 

equipment 

F- 69 

Other assets Assets in 

formation and 

advances 

Cost 

Balance at 1 January 2003 58,390 21,461 6,339 32,694 745 119,629 

Other acquisition 7,840 1,613 1,948 3,585 24 15,010 

Other movements 669 (218) 16 (576) (492) (601) 

Write-downs (1,264) (598) - (97) - (1,959) 

Balance at 31 December 2003 65,635 22,258 8,303 35,606 277 132,079 

Depreciation and impairment loss 

Balance at 1 January 2003 (9,924) (10,478) (3,721) (18,113) - (42,236) 

Depreciation charge for the year (5,403) (2,715) (1,584) (4,032) - (13,734) 

Balance at 31 December 2003 (15,327) (13,193) (5,305) (22,145) - 

Total 

(55,970) 

Carrying amounts 

At 1 January 2003 48,466 10,983 2,618 14,581 745 77,393 

At 31 December 2003 50,308 9,065 2,998 13,461 277 76,109


18. Goodwill, trademarks, other intangible assets and deferred charges, net 

Movements of intangible assets in 2003 were as follows: 


Development 

cost 

Patents and 

trademarks 

F- 70 

Goodwill Assets in 

formation and 

advanced 

Other Total 

Costs 

Balance at January 1, 2003 979 264,495 159,344 9,745 6,551 441,114 

Acquisitions 2,998 948 - - - 3,946 

Other movements 1,458 230 (1,975) (9,745) 5,500 (4,532) 

Write-downs (1,200) (29,214) (23,182) - (971) (54,567) 

Balance at December 31, 2003 4,235 236,459 134,187 - 11,080 385,961 

Depreciation 

Balance at January 1, 2003 (175) (35,516) (35,592) - (1,222) (72,505) 

Depreciation of the year (827) (14,849) (11,636) - (1,651) (28,963) 

Balance at December 31, 2003 (1,002) (50,365) (47,228) - (2,873) (101,468) 

Carrying amount 

At January 1, 2003 804 228,979 123,752 9,745 5,329 368,609 

At December 31, 2003 3,233 186,094 86,959 - 8,207 284,493 

The balance of the item trademark is basically determined by the brand Ferré purchased in 2002 for Euro 175 million. 

The write-down in Patents and trademarks is related to the Gigli trademark by €29,214 thousand, as part of the 

strategic decision to discontinue the business development of that brand. 

Goodwill related to certain past acquisitions, for a total amount of €23,182 thousand, which, on the basis of the 

current market prospects and Group’s strategic refocusing do not ensure recoverability with sufficient certainty and 

within a reasonable timeframe was written down. 

Considering the losses of 2003, the carrying amount of the assets, including intangible assets, were tested for 

impairment. Due to the high level of integration within the group, the impairment test was carried out at segment level 

(the segments being the identified cash generating units in the circumstance) for the two divisions Apparel and 

accessories and Eyewear. The perfume division was not included as it was discontinued at the beginning of 2003 (see 

note 7). 

The estimate of the recoverable amounts was based on values in use, determined on the following assumptions: 

Wacc (grossed up pre tax) for the two divisions were as follows: 

2004 2005 2006 2007 2008 Perpetuity 

Apparel and accesories 11.89% 12.96% 12.67% 12.48% 12.20% 12.20% 

Eyewear 7.19% 7.19% 7.19% 7.19% 7.19% 10.00% 

• Forecast of free cash flows for the next five years for both divisions. 

• Terminal value based on a perpetuity of 1.92% on Apparel division and of 1.5% on the Eyewear division (both 

rates are lower than the long term inflation rate which corresponds to a nil actual growth). 

As a result of this impairment test no additional impairment proved to be necessary.


19. Deferred tax assets and liabilities 



Deferred tax assets and liabilities 


(In thousands of Euros) 2003 2002 2003 2002 2003 2002 

Property, plant and equipment - - 1,456 1,346 1,456 1,346 

Intangible assets (15,150) (10,270) 58,790 63,723 43,640 53,453 

Investment property - - 1,119 845 1,119 845 

Investment in subsidiary (14,315) (16,503) - - (14,315) (16,503) 

Interest-bearing loans and borrowings (42) (164) 1,098 91 1,056 (73) 

Employee benefits - - 245 234 245 234 

Provisions (6,398) (4,245) 359 307 (6,039) (3,938) 

Other items (1,855) (5,937) - - (1,855) (5,937) 

Tax value of loss carry-forwards not recognized (7,006) (1,350) - - (7,006) (1,350) 

Net tax (assets)/liabilities (44,766) (38,469) 63,067 66,546 18,301 28,077 

The caption "Investment in subsidiary" relates to write off of the value of the investment that is tax deductable. 





(Decrease) 

Intangible assets 2,814 4,235 (1,421) 

Provisions 131 4,268 (4,137) 

Other items 1,643 1,372 271 

Tax value of loss carry-forwards not recognized 34,886 20,397 14,489 

Total 39,474 30,272 9,202 

The tax losses expire in five years. The deductible temporary differences do not expire under current tax legislation. 

Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable 

profit will be available against which the Group companies can utilize the benefits there from. 

Movement in temporary differences during the year 

Balance Recognized Recognized Balance 

(In thousands of Euros) 01/01/2003 in income in equity 12/31/2003 

Property, plant and equipment 1,346 110 - 1,456 

Intangible assets 53,453 (8,235) (1,578) 43,640 

Investment property 845 274 - 1,119 

Investment in subsidiary (16,503) 2,188 - (14,315) 

Interest-bearing loans and borrowings (73) 1,129 - 1,056 

Employee benefits 234 11 - 245 

Provisions (3,938) (2,101) - (6,039) 

Other items (5,937) 4,082 - (1,855) 

Tax value of loss carry-forwards recognized (1,350) (5,656) - (7,006) 

Net tax (assets)/liabilities 28,077 (8,198) (1,578) 18,301 

The deferred tax liability on the portion of the cost for the acquisition of the Gianfranco Ferrè Group allocated to 

brand has been recognized against Goodwill. Therefore, the positive effect of the change in tax rate from 38.25% to 

37.25% of 2003 has not been recognized in the income statement. 

F- 71


20. Interest-bearing loans and borrowings 

This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For 

more information about the Group’s exposure to interest rate and foreign currency risk, see note on Financial 

instruments. 



Current portion of bank loans (3,441) (27,577) 

Current portion of bond issued (13,646) (13,649) 

Factoring without recourse (157,029) (85,679) 

Current portion of finance lease liabilities (694) (2,038) 

Bank facility (37,710) (26,412) 

(212,520) (155,355) 


Bank loans (87,740) (91,216) 

Bond issues (194,228) (193,561) 

Finance lease liabilities (483) (672) 

(282,451) (285,449) 

Total (494,971) (440,804) 

Terms and debt repayment schedule for balance at December 31, 2003 are as follows: 

Less More 

than 1-2 2-5 than 

(In thousands of Euros) Total 1 year years years 5 years 

Bank loans: 

euro - variable at 4.68% (2002:5.43%) 84,900 84,900 

euro - variable at 3.25% (2002:4.05%) 3,734 2,542 1,192 

others 2,547 899 738 910 

Bond issues: 

eurobond 2005 - fixed 7.0% 207,874 13,646 194,228 

Factoring without recourse: 157,029 157,029 

Finance lease liabilities: 1,177 694 483 


Ordinary current account 17,606 17,606 

Advances on export 14,908 14,908 

Bills withdrown falling due 2,789 2,789 

Advances on orders 2,407 2,407 

Total 494,971 212,520 281,541 910 - 

The bank loans include a revolving credit facility granted by a bank syndicate headed by SANPAOLO IMI S.p.A. for 

an original amount of Euro 85,000 thousand. The contractual terms and conditions provide an interest rate of 

Euribor + 2.50% and a maturity date on December 12, 2005. The spread could be decrease in a range between 1.75% 

and 2.25% depending upon the performance of the Group. 

The syndicated loan agreement is subject to financial covenants, calculated on the year end financial statements 

prepared in accordance to Italian principles, as follows: 

• at December 31, 2003 the ratio of Net Financial Indebtedness to Earnings Before Interest, Taxes, Depreciation 

and Amortization ("EBITDA") should not be greater than 4.0; 

• for the year ending December 31, 2004 the ratio of Net Financial Indebtedness to Earnings Before Interest, Taxes, 

Depreciation and Amortization ("EBITDA") should not be greater than 3.4; 

• at December 31, 2003 the ratio of Net Financial Indebtness to consolidated own funds should not be greater than 

1.8; 

F- 72


• for the year ending December 31, 2004 the ratio of Net Financial Indebtedness to consolidated own funds should 

not be greater than 1.7; 

On December 31, 2003 all the covenants were satisfied. 

The Group has decided to exercise the term-out option, provided for by contract, which entails repayment of 25% of 

the loan (Euro 21,250 thousand) by December 12, 2005 and the extension of the due date for another 25% of the loan 

(Euro 21,250 thousand) at June 12, 2006 and the residual 50% (Euro 42,500 thousand) at December 12, 2006. 

The balance of Euro 207.874 thousand represents the bond issued by FERRÉ FINANCE S.A. with a face value of 

Euro 200,000 thousand, guaranteed by IT HOLDING S.p.A., syndicated on the Euromercato, remunerated at a yearly 

rate of 7% maturing on May 10, 2005. 

The balance of Euro 157,029 thousand (2002: €85,679 thousand) represents the financial liability recognized for the 

consideration received in the trade receivable securitization transaction described in the note 28 and in the note 9 

"Significant events". 

21. Trade payables and accrued expenses 

Trade payables and accrued expenses at December 31, 2003 and 2002 can be analyzed as follows: 


Due to suppliers 

- Suppliers 89,046 

- Subcontractors 42,929 

- Agents 2,494 

- Commissions to be settled 11,753 

- Consultants 47,952 

- Licensees 1,273 

Advance payments 3,540 

Due to affiliates - 

Due to parent company 12 

Total 198,999 

F- 73 

12/31/2003 12/31/2002 Increase 

(decrease) 

78,318 

33,688 

1,556 

10,782 

35,140 

- 

2,032 

1,458 

74 

163,048 

10,728 

9,241 

938 

971 

12,812 

1,273 

1,508 

(1,458) 

(62) 

Payables due to suppliers totaled Euro 195,447 thousand (2002: € 159,484 thousand) and refer to the purchase of 

goods and services in Italy and abroad including the accrual for invoices to be received. The increase on year end 

2002 is mainly due to an improvement in the utilization of credit terms. 

Advance payments mainly comprises advance payments made by customers for future supplies. 

Due to affiliates and due to parent company is respectively comprised of trade payables due to NEOMETAL OPTIK 

S.p.A. and amounts due to PA Investments. 

22. Tax liabilities and income tax payable 

Tax liabilities and income tax payable at December 31, 2003 and 2002 can be analyzed as follows: 

12/31/2003 12/31/2002 Increase 


(decrease) 

Direct Taxes 1,078 16,769 (15,691) 

Indirect Taxes 371 418 (47) 

Withholdings to be paid 1,708 1,447 261 

Other taxes 690 418 272 

Total 3,847 19,052 (15,205) 

35,951


Direct taxes include payable for current taxes net of advance payments and tax receivables which can be used to offset 

amount due. 

23. Other current liabilities 

Other current liabilities at December 31, 2003 and 2002 can be analyzed as follows: 

12/31/2003 12/31/2002 Increase 


(decrease) 

Due to factors 25,184 

12,901 

12,283 


2,858 

3,596 

Remuneration to be paid 6,583 

5,962 

621 

Remuneration to the Board of Directors 1,231 

896 

335 

Remuneration to the Board of Statutory Auditors 409 

305 

104 

Other parties 9,544 

7,450 

2,094 

Other current liabilities and accrued expenses 57,742 

50,612 

7,130 

Total 107,147 

Payables to factors relate to the amount due to the factoring companies to which Group suppliers have sold their 



Other parties mainly comprises credit notes to be issued, payables for year-end achievement awards to customers, and 

amounts due for charges incurred to recover the full availability of the Romeo Gigli brand in the perfume division. 

Other current liabilities are comprised mainly of negative market values in financial derivatives totaling 

€34,452 thousand (2002: €21,856 thousand) and accrued royalties in the amount of €10,210 thousand (2002: 

€11,085 thousand). 

24. Employee benefits: pension liabilities and severance indemnities 




based on the revaluation of the amounts previously accrued. The indemnity is an unfunded but fully provided liability. 


follows: 

Liability for defined benefit obligations 

Principal actuarial assumptions at the balance sheet date 2003 2002 

Projected future remuneration increases 2% 2% 

Projected future employee turnover 8.8-16.6% 7.1-18.2% 


Movements in the net liability 


Net liability at 1 January 13,603 11,283 

Accruals 3,939 4,015 

Utilizations (2,823) (2,592) 

Other movements (changes in the consolidation area) 22 897 

Net liability at 31 December 14,741 13,603 

F- 74 

80,984 

26,163


25. Other long-term liabilities 

Other long-term liabilities at December 31, 2003 and 2002 are made up as follows: 

12/31/2003 12/31/2002 Increase 


(decrease) 

Agents' termination benefits 

Others 

4,914 

4,100 

814 

- Provision for return on sales 3,002 

3,190 

(188) 

-Provision for tax contingencies 3,419 

3,251 

168 

- Provision for other contingencies 2,980 

4,207 

(1,227) 

Total 14,315 

Agents’ termination benefits are calculated on the basis of the charge to be paid on the termination of agency contracts 

in compliance with law and other relevant factors such as historical data, the average duration of agents’ contracts and 

their turnover. 

The amount of the Agents’ termination benefits has been determined based on the present value of the expenditures 


Other mainly includes: 

• €3,002 thousand (2002: €3,190 thousand) in relation to the provision for returns on sales, set up to cover the 

unrealized profit arising from the difference between the sales value of possible returns to be received after year 

end, but pertaining to the year, and their estimated recovery value. 

• Estimated costs of €2,980 thousand arising from litigation mainly relating to the Ferré Group, as follows: — 

Lawsuit brought against GIANFRANCO FERRÉ S.p.A. by Tecnostile S.r.l. of Firenze, claiming damages of 

approximately Euro 620 thousand for pre-contractual liability. The judge is currently gathering evidence. — 

GIANFRANCO FERRÉ S.p.A. learned of a request put forth by the receivers of the Redaelli bankruptcy for 

reimbursement of payments made by Redaelli S.p.A. between March 1998 and March 1999. To date, a lawsuit 

has not yet been brought against the company and, on the basis of the legal advisors’ opinion, it is not probable 

that the company will lose the case. — At the end of 2003, GIANFRANCO FERRÉ S.p.A. reached an out-ofcourt 

settlement with the receivers of Gruppo Nadini S.p.A., settling the litigation pending at December 31, 2002. 

— A lawsuit brought against GIANFRANCO FERRÉ S.p.A. by Mr. Roland Bohler (former CEO of the 

company), claiming that he had been dismissed without just cause. On November 2, 2002, the company appeared 

in Court challenging all Mr. Bohler’s inferences and claims. The provision at December 31, 2003 reflects the 

maximum potential risk on the basis of updated estimates, considering the opinions of the company’s external 

advisors. — €3,419 thousands (2002: €3,251 thousand) refers to contingent tax liabilities of the following 

companies related to disputes currently pending with tax authorities. 

M.A.C.—Manifatture Associate Cashmere S.p.A. 

The tax dispute that arose with regard to 1989, for which the Firenze Tax Commission issued sentence no. 107/17/02 

of November 23, 2002, lodged on January 15, 2003, was definitively settled pursuant to article 16 of Law 

no. 289/2002. 

The preliminary assessment report served in 1998 relating to 1995, 1996, and 1997, alleging this company’s 

realization of a higher taxable base for direct tax purposes, and mainly focusing the tax recovery on the transfer 

pricing applied to foreign Group companies, was followed by notices of assessment for 1995 and 1996. The company 

has appealed with the relevant judicial authorities. 

In 2001, a preliminary assessment report was served for 1998, 1999, and 2000, relating to the same irregularities 

found in previous years. No notices of assessment have been issued to date. 

The acquisition contract for M.A.C.—Manifatture Associate Cashmere S.p.A. (formerly FINCASHMERE S.p.A.) 

and subsequent integrations provides that the sellers are liable for tax contingencies pertaining to years up to 1998 and 

for a maximum amount of Euro 4,390 thousand, with an excess clause of Euro 2,324 thousand. On October 30, 2003, 

an agreement was signed with the sellers on the basis of which they terminate the above guarantee and pay M.A.C.— 

F- 75 

14,748 

(433)


Manifatture Associate Cashmere S.p.A. Euro 300 thousand. The company adjusted the provision by this amount, and 

thus a total of Euro 3,046 thousand, which reflects the maximum potential tax risk on the basis of updated estimates 

made, including the opinions expressed by external consultants. 

GIANFRANCO FERRÉ S.p.A. 

In 2000, a preliminary assessment report was served, disputing certain irregularities in form and substance relating to 

1998, 1999, and the period up to May 31, 2000 for IRPEG and VAT tax purposes and relating to 1998 and 1999 for 

IRAP purposes. Two years later, the company received a notice of assessment relating to 1997 for VAT purposes. In 

2003, the company settled this potential litigation, pursuant to article 15, of Law no. 289/2002. 

In 2004, the company decided to settle the irregularities noted by reaching an agreement on the potential dispute 

pursuant to article 15, of Law no. 289/2002. The cost of settlement of Euro 240 thousand was fully covered by the tax 

provision. 


During the year, the company received an assessment from the Molise tax authorities. A loss of approximately Euro 

150,000 could arise from the assessment, which will be settled for approximately Euro 37,000 by filing a 

supplementary tax return in accordance with article 8 of Law no 289/2002. 

ITTIERRE S.p.A. 

The tax provision of ITTIERRE S.p.A., amounting to Euro 205 thousand, relates to the following tax disputes. 

In 2003, disputes relating to direct taxes and VAT for 1995 and 1996 were settled in accordance with 16 of Law 

no. 289/2002 ("settlement of pending disputes"). 

In 2001, the tax police performed an inspection leading to three preliminary assessment reports alleging VAT 

irregularities in form and substance in 1997, 1998, 1999, and 2000 up to February 22. Only 1997 was assessed and 

was subsequently settled in 2003 as a "potential dispute" in application of article 15 of Law no. 289/2002. No other 

notices of assessment have been issued to date. The estimated potential tax liability should not significantly impact the 

company’s financial position and results and is not expected to exceed the amount accrued at year end 2003. 

ITJ S.p.A. (merged into ITTIERRE S.p.A. in 2002) 

In 2000, this company received a preliminary assessment report from the Regional Tax Office of Campobasso 

relating to the 1997 and 1998 tax periods. The irregularities assessed for 1997 were settled in 2003, as a "potential 

dispute" under article 15 of Law no. 289/2002. No notice of assessment has been received for 1998. 

During 2002, following inspections performed by the Customs Authority of Campobasso, the company was served 

preliminary assessment reports in which certain irregularities were contested in relation to sales of assets in EU and 

non-EU countries. The company settled these as a "potential dispute" under article 15 of Law no. 289/2002. 

FD S.p.A. (merged into ITJ S.p.A. in 2001) 

In 2002, the company received a preliminary assessment report from the Regional Tax Office of Campobasso alleging 

certain irregularities in terms of form and substance with regard to direct and indirect taxes in 1999 and 2000. The 

company has not received any notices of assessment. 

The estimated potential tax liability should not significantly impact the company’s financial position and results and 

should not exceed the amount accrued at year end 2003. 

ITTIERRE FRANCE S.A. 

In 2003, the French tax authorities performed an assessment, mainly disputing transfer pricing from Italian 

companies. Taking into consideration the opinions of external advisors, the company does not believe that it will lose 

the dispute. 

F- 76



• On March 23, 1998, Trussardi S.p.A. ("Trussardi") summoned ITTIERRE S.p.A. ("ITTIERRE") before the 

Milano Court, claiming that ITTIERRE had breached a license agreement for the "Trussardi Jeans" brand which 

expired on June 30, 1996. Trussardi requested a reward damages from ITTIERRE of approximately Euro 

50 million. ITTIERRE appeared in court denying it had ever breached the agreement and asked that the claim be 

fully dismissed. On the basis of information received from ITTIERRE’s management and the opinion of the legal 

advisors, up to now the Board of Directors of IT HOLDING S.p.A. does not believe that the dispute represents a 

probable financial risk for the company and even less to the extent determined by Trussardi. Furthermore, if 

ITTIERRE were to lose the case it would be covered by the hold harmless letter of PA Investments described 

further on in this report. In the course of the preceding nothing has arisen which would lead the Directors to 

believe that it could give rise to a probable financial risk for ITTIERRE S.p.A., also taking into account PA 

Investments’ hold harmless obligation. 

• On June 20, 2000, Casor S.p.A. ("Casor") summoned M.A.C.—Manifatture Associate Cashmere S.p.A. ("MAC") 

before the Firenze Court, claiming that MAC had breached the five-year license agreement signed between the 

two companies and that it pay damages amounting to approximately Euro 3.6 thousand. According to MAC, the 

claim is totally groundless as it had never signed a five-year license agreement with Casor nor had it ever received 

any definite confirmation from its legal representatives that the proceedings were going ahead, whether written or 

verbal. On the basis of the legal advisor’s opinion, MAC does not believe it probable that it will lose the case. 

Evidence is currently being presented. 

• A professional previously engaged by M.A.C.—Manifatture Associate Cashmere S.p.A. for assistance in the 

creation of certain sales spaces, summoned M.A.C.—Manifatture Associate Cashmere S.p.A., before the Rome 

Court, claiming it had reproduced his innovative design concept in other sales spaces without respecting the 

exclusive rights to it and asking the Court to award damages of Euro 461,974. M.A.C.—Manifatture Associate 

Cashmere S.p.A. appeared and disputed the requests on the grounds of inadmissibility and lack of grounds. It also 

joined the architectural firm engaged to create the spaces under dispute as a party to the proceedings. At this time, 

the company does not believe it is probable that it will lose the case. 

• ITTIERRE S.p.A. was summoned by another company which claims it holds a patent on the decorative model of 

a specific denim processing used for apparel produced and marketed by ITTIERRE S.p.A. licensed from two of 

its licensors. The claim was formalized into two different summonses, one addressed to ITTIERRE S.p.A. and the 

other to its two licensors. The two claims for damages from ITTIERRE S.p.A. and the licensors amount to 

Euro 3,000,000.00. At this stage, the claims appear groundless and the quantification of damages is completely 

unjustified. Accordingly, ITTIERRE S.p.A. is not expected to lose the case. However, it has appeared in court and 

disputed the claims on the basis of their inadmissibility and lack of grounds. It has also joined the supplier of the 

denim as a party to the proceedings and claimed it should be held harmless in the event the claimant wins the 

case. 

• An attorney summoned IT HOLDING S.p.A. and ITTIERRE S.p.A., together with Diners Club Italia S.p.A., 

claiming he had been engaged to prepare a draft contract for certain financial agreements which would have 

involved these three companies and that, although the contracts had turned out to be impracticable, he was owed a 

fee of Euro 3,302,872.00. The claim is not supported by the expected opinion of the Council of Attorneys. 

However, IT HOLDING S.p.A. and ITTIERRE S.p.A. appeared in Court within the terms of law and argued that 

they had never engaged the claimant and that, in any case, had the claimant actually been engaged to draw up the 

contracts as alleged, the correctly quantified fees would not have exceeded Euro 25,000.00. Accordingly, there is 

no reason at this time to believe that the companies should lose the case. 

• On August 5, 2002, Mr. Luigi Giribaldi served IT HOLDING S.p.A. a writ of summons before the Isernia Court. 

He requested that the Court judge the inaccuracy of the two appraisals on the basis of which the acquisition of 

GIANFRANCO FERRÉ S.p.A. was finalized. However, the claims are considered unfounded and, on the basis of 

the examination carried out by experts engaged by the parent company, there are significant doubts as to the 

admissibility of the claims, which could lead the Court to decide not to act on the above-mentioned summons. 

• IT HOLDING S.p.A. and its subsidiaries still benefits from the effects of the hold harmless obligation taken on by 

its parent company, PA Investments on April 28, 1997. The hold harmless agreement expired on April 28, 2002. 

It indemnified IT HOLDING S.p.A. from damages, costs, liabilities, and contingent liabilities arising from civil, 

F- 77


criminal, administrative, and tax court proceedings referring to events, acts or omissions occurring up to 

December 31, 1996 for which it was held liable and of which PA Investments was informed within five years 

from the signing date. The agreement is still valid for tax and social security matters up to the relevant statute of 

limitations. 

• Furthermore, IT HOLDING S.p.A. benefits from the guarantee which the parent company PA Investments took 

on when it signed the sales contract for FINANCIÈRE MELPAR HOLDING S.A. shares, with regard to prior 

year expenses not recorded in the FERRÉ Group consolidated financial statements at December 31, 2001 which 

could arise and, accordingly, as a result of judicial, arbitration and/or administrative proceedings pending on the 

date in which the consolidated financial statements were approved. Therefore, the two companies’ Boards of 

Directors do not consider it necessary to set up a provision in relation to the dispute. 

• IT HOLDING S.p.A. has been informed of a pending dispute between the controlling shareholder, PA 

Investments, and the main minority shareholder, Mr. Luigi Giribaldi. The latter claims to have agreed to sell his 

entire shareholding to the former, a fact which PA Investments denies as such agreement was never made. The 

dispute does not involve IT HOLDING S.p.A. and should not represent any direct of immediate financial risk for 

the issuer or for the IT HOLDING Group. To date, this dispute does not jeopardize PA Investments’ ability to 

indemnify IT HOLDING S.p.A. under the hold harmless agreement. 

• ALLISON S.p.A. is currently involved in arbitration proceedings with a supplier with which it had signed a 

contract scheduled to expire in February 2006. The supplier disputed termination of the contract, claiming willful 

misconduct on the part of ALLISON S.p.A., from which it requested damages of approximately Euro 7 million. 

In agreement with the opinion of lawyers engaged by ALLISON S.p.A., the suppliers’ requests for damages are 

not presently considered a probable contingency, based on their lack of grounds and the inappropriate 

quantification of the damages. 

• On August 9, 2004 certain companies, including IT Holding and Servizi Moda, were served an appeal for urgent 

relief put forth by a designer who had previously collaborated with Group companies (sold to third parties in 

2004). The designer maintains he is owed no less than Euro 41 million for future amounts receivable, 

compensation for damage for alleged breach of contract, and fees accrued and not received. Accordingly, the 

designer has requested the Court order provisional remedies to protect his current and future claim with respect to 

all companies involved, including IT Holding and Servizi Moda S.r.l. IT Holding and Servizi Moda appeared in a 

timely manner and made their defense, highlighting the utter inadmissibility and lack of grounds of any claims 

against them. IT Holding, supported by the opinion of its lawyers, considers the claims completely unfounded 

and, accordingly, is not in a position to identify the risk of even remotely contingent liabilities. The Judge 

rendered his decision on September 8, 2004, rejecting all the requests made by the petitioners. Finally, we have 

been informed that Mr. Gigli and Romeo Gigli s.a.s. appealed the decision rendered on September 8, 2004. We 

therefore expect that a copy of the appeal could be served in a few days. We are not currently in a position to 

know on which grounds the appeal is based and when the relevant hearing to discuss the appeal will take place. 










26. Shareholders’ Equity 



Movement and components of shareholders’ equity for 2002 and 2003 are as follows: 

F- 78


(in thousands of euro) 

Share Share Translation Hedging Legal Retained Other Net income Total 

capital premium reserve reserve reserve earnings reserve (loss) 

Balance at 1 January 2002 9,972 26,264 2,303 6 2,467 37,672 35,949 (1,943) 112,690 

Allocation of net income 160 (2,423) 320 1,943 0 

Recognised gain and loss (167) (167) 

Movement in treasury shares 33 2,943 2,976 

Translation difference (2,527) (2,527) 

Capital increase 2,287 107,499 109,786 

Other changes 14 14 

Net income (loss) of the year 42 42 

Balance at December 2002 12,292 136,706 (224) (161) 2,627 35,249 36,283 42 222,814 

Balance at 1 January 2003 12,292 136,706 (224) (161) 2,627 35,249 36,283 42 222,814 

Allocation of net income 42 (42) 0 

Recognised gain and loss (119) (119) 

Movement in treasury shares (1) (32) (33) 

Translation difference (2,286) (2,286) 

Net income (loss) of the year (62,708) (62,708) 

Balance at December 2003 12,291 136,674 (2,510) (280) 2,627 35,291 36,283 (62,708) 157,668 

Treasury shares have been deducted from share capital and share premium as follows: 

(in thousands of euro) 

F- 79 

Number Share Share Total 

capital premium 

December 1, 2002 696,500 35 2,691 2,726 

December 31, 2002 41,900 2 100 102 

December 31, 2003 57,702 3 126 129 

The translation reserve comprises all foreign exchange differences arising from the translation of the financial 

statements of foreign operations that are not integral to the operation of the Company. 

27. Earnings per share 


The calculation of basic Earnings per share at December 31, 2003 was based on the net loss attributable to ordinary 

shareholders of €62,708 thousand (2002: net income of €42 thousand) and a weighted average number of ordinary 

shares outstanding during the year ended December 31, 2003 of 245,817,716 (2002: 221,016,059). Basic Earnings per 

share at December 31, 2003 is equal to negative amount of €0.26 (2002: positive amount €0.00). 

28. Financial instruments 

Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. Derivative 

financial instruments are used to hedge exposure to fluctuation in foreign exchange rates and interest rates. 

Credit risk 

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Receivables 

form a core component of monthly reporting and are analyzed with respect to aging structure and seasonality on a 

regular basis to avoid unforeseen adjustments for loan provisions. 

Credit evaluation is performed individually for loans that are individually significant ("bad loans") and collectively 

for financial assets that are not individually significant. 

The provision for doubtful receivables has been estimated on the basis of available data and in general on the basis of 

historical data by writing down 0.5% of outstanding trade receivables. 

When using financial derivatives, IT Holding is exposed to the risk that the counterparty may default. The risk that the 

counterparties will not honor their commitments is limited, since such contracts were signed with leading financial 

operators. Therefore the company does not expect any risk of insolvency.


In July 2003, the holding company, along with certain Group companies, finalized an agreement for the factoring of 

trade receivables without recourse on a monthly revolving basis. The factoring was carried out in accordance with 

Law no. 52/1991 on factoring and pursuant to article 58 of Legislative decree no. 385/1993, as part of five-year 

securitization plan. 

At December 31, 2003 the Group holds junior notes (Euro 30,699 thousand) issued by ABC Gestion S.A., issuer of 

the F.C.C. Première European Fund, as part of the securitization plan described above. These securities have a 

monthly duration and returns linked to the performance of receivables factored under the securitization plan. 


The Group adopts a policy of ensuring that between 50 and 60 per cent of its exposure to changes in interest rate on 

interest-bearing loans and borrowings is on fixed rate basis. Interest rate swaps, denominated in euro, have been 

entered into to achieve an appropriate mix of fixed and floating rate exposure within the Group’s policy. The swaps 

mature within the next three years and have fixed swaps rate ranging from 2.8 per cent to 3.3 per cent. At 

December 31, 2003 the Group had interest rate swaps with a notional contract amount of €50,723 thousand (2002: 


The interest rate swaps are stated at fair value and classified as cash flow hedges for €50,000 thousand notional 

amount (2002: €20,000 thousand) and as instruments for which no hedge accounting is applicable for €723 thousand 

notional amount (2002: €723 thousand). The fair value of swaps at December 31, 2003 was €337 thousand (2002: 

€218 thousand), recognized as other current liabilities. 


In respect of income-Earnings financial asset and interest bearing financial liabilities, the following table indicates 

their effective interest rate at the balance sheet date and the periods in which they reprice. 

Effective 6 More Effective 6 More 

interest months 6-12 1-2 2-5 than interest months 6-12 1-2 2-5 than 

rate Total or less months years years 5 years rate Total or less months years years 5 years 

(In thousands of Euros) 2003 2003 2003 2003 2003 2003 2003 2002 2002 2002 2002 2002 2002 2002 


Junior notes 30,699 30,699 - - 

Bank loans: 

euro floating rate loan (1) 4.68% (84,900) (84,900) 5.43% (99,987) (99,987) 

effect of interest rate swap 3.07% - 50,000 (20,000) (30,000) 3.26% - 20,000 (20,000) 

euro floating rate loan 3.25% (3,734) (3,734) 4.05% (4,962) (4,962) 

euro floating rate loan 3.95% (10,013) (10,013) 


Bond issues: 

eurobond 2005 7.00% (207,874) (13,646) (194,228) 7.00% (207,210) (13,649) (12,706) (180,855) 

Factoring without recourse: 

euro floating rate liabilities (157,029) (157,029) (85,679) (85,679) 




Ordinary current account (17,606) (17,606) (13,081) (13,081) 

Advances on export (14,908) (14,908) (9,663) (9,663) 

Bills withdrown falling due (2,789) (2,789) (1,800) (1,800) 

Advances on orders (2,407) (2,407) (1,868) (1,868) 

Total (427,502) (183,306) - (214,228) (30,000) - (393,568) (180,007) - (32,706) (180,855) - 


The Group incurs foreign currency risk on sales that are denominated in a currency other than euro. The currencies 

giving rise to risk are primarily Pounds Sterling, US Dollars and Swiss Francs. 

The Group hedges at least 60 per cent of all trade receivables denominated in a foreign currency. At any point in time 

the Group also hedges 80 per cent of its estimated foreign currency exposure in respect of forecasted sales over the 

following year. The Group uses forward exchange contracts and currency options to hedge its foreign currency risk. 

Most of the forward exchange contracts have maturities of less than one year after the balance sheet date. Where 

necessary, the forward exchange contracts are rolled over at maturity. 

F- 80


For forward exchange contracts that economically hedge forecasted transactions and monetary assets in foreign 

currency no hedge accounting rules is applied until December 31, 2003. Their changes in fair value are recognized in 

the income statement. Both the change in fair value of the forward contracts and the foreign exchange gains and losses 

relating to the monetary items are recognized as part of "net financing income (charges)". The net fair value of 

forward exchange contracts used as economic hedges of forecasted transactions and monetary assets in foreign 

currency at 31 December 2003 was €4,038 thousand (2002: €1.399 thousand), comprising derivative assets of 

€4,520 thousand and derivative liabilities of €482 thousand that were recognized in other current assets and liabilities, 

respectively. 

The following table summarizes the nominal amounts and fair values of financial derivatives used to economically 

hedge foreign currency and interest risk: 

Nominal Fair Nominal Fair 



Interest hedging contracts 50,723 (337) 20,723 (218) 

Currency hedging contracts 81,505 4,038 36,178 1,399 

Total 132,228 3,701 56,901 1,181 

The nominal amounts shown reflect the sum of the balances from sales and purchases. 

In addition to hedging interest financial derivatives, the table shows forward exchange contracts that economically 

hedge forecasted transactions and monetary assets in foreign currency for which no hedge accounting is applied. 

On November 10, 2003 FERRÉ FINANCE S.A. entered in a loan for an original amount of YEN 22,103,200,000 

with the parent company IT HOLDING S.p.A. The companies entered into two currency interest swaps (put and call) 

with external parties to hedge the foreign currency and interest rate risk on their exposure in Japanese Yen. 

Fair values 

The fair values of the following financial instruments differ from their carrying amounts shown in the balance sheet: 

Carrying Fair Carrying Fair 



Interest rate swap 

Liabilities (337) (337) (218) (218) 

Forward exchange contracts 

Assets 3,702 3,702 63 63 

Liabilities (198) (198) - - 

Currency options 

Assets 745 745 1,364 1,364 

Liabilities (278) (278) (28) (28) 

FX Swaps 

Assets 73 73 - - 

Liabilities (6) (6) - - 

Cross Currency Swaps 

Assets 33,633 33,633 21,611 21,611 

Liabilities (33,633) (33,633) (21,611) (21,611) 

Junior notes 30,669 30,669 - - 

Factoring without recourse (157,029) (157,029) (85,679) (85,679) 

Bank loans: 

euro floating rate loan (84,900) (91,894) (99,987) (100,800) 

euro floating rate loan (3,734) (3,829) (4,962) (5,123) 

euro floating rate loan - - (10,013) (10,091) 


Bond issues: 

eurobond 2005 (207,874) (220,600) (207,210) (226,600) 



Total (422,891) (442,706) (413,211) (433,653) 

F- 81



relevant cash flows using current interest rates for similar instruments without any credit spread. Had the Group 

considered its credit spread, the difference between fair value and carrying amount would have been lower. 

29. Transactions with Related Parties 






PA Investments S.A. 1,447 



4 



1 



- 

I.C.R. - Industrie Cosmetiche Riunite S.p.A. 4 


Other sundry 1,040 

Parent Companies 

F- 82 

RECEIVABLE 

S 

PAYABLES REVENUES 

AND INCOME 

12 

- 

485 

- 

8,657 

90 

666 

502 

- 

- 

- 

128 

- 

1,407 

COSTS AND 

CHARGES 

71 

- 

- 

37 

11,815 

375 

2,210 

• Receivables and revenues from the parent company PA Investments comprise interest income accrued by the 

Group following the settlement of a payable in advance, charges for IT services, and recharges for expenses. 

Payables and costs to the parent company relate to administrative and tax services provided thereby to Group 

companies based in Luxembourg. 

• Receivables due from GTP HOLDING S.p.A. of Euro 4 thousand relate to expenses incurred by IT HOLDING 

S.p.A. on its behalf during the year. 

Companies Controlled by PA Investments 

• Diners Club Italia S.p.A.. Payables refer to payments to Group company suppliers using the Diners credit card 

(Euro 440 thousand) and the use of company credit cards (Euro 44 thousand). Diners Club Italia S.p.A. has been 

considered a related party as it was owned by PA Investments until July 2003. 

Other Related Parties 

• I.C.R.—Industrie Cosmetiche Riunite S.p.A.. All transactions with this company were of a trading nature as the 

company produces perfumes sold by ITF S.p.A.. Payables related to the acquisition of the business activity 

described in the section on "Significant Events". 

• The December 31, 2003 balance of payables and the related costs due to a law firm, one of whose partners is on 

the Board of Directors of the parent company, relates to legal services provided to Group companies. 

• The remaining balances represent transactions with counterparties, some of whom are closely related to Group 

directors. 

There were no irregular or unusual transactions during 2003. 


Additional details on relationships with related parties are provided in the notes to the consolidated financial 

statements. 

Remuneration of Directors and Statutory Auditors 

Category 2003 remuneration 2002 remuneration 

Directors 1,742 

2,576 

Statutory Auditors 247 

414


Total remuneration due to directors and members of the board of statutory auditors amount to Euro 1,742 thousand 

and Euro 247 thousand respectively. 

Neither the Directors and the Statutory Auditors have any interest in extraordinary transactions performed by IT 

HOLDING S.p.A. during 2003 or in begun in previous years and not yet concluded. 


The remuneration of the directors, statutory auditors and managing directors of IT HOLDING S.p.A. and its 

subsidiaries is presented below: 

Name Office held Office term Fees 

* Term expires on approval of the financial statements as of and for the year ended December 31, 2004 

** Passed away on March 18, 2004 

F- 83 

Bonuses and 

other 

incentives 

Other 

remuneration 

Total 

remuneration 

Tonino Perna Chairman and Chief Executive Officer 05/06/2002-12/31/2004* 835,000 - 6,500 841,500 

Luca Giuseppe Solca Deputy Chairman 05/06/2002-12/31/2004* 727,514 - 6,500 734,014 

Antonio Di Pasquale Director 05/06/2002-12/31/2004* 25,000 - 5,000 30,000 

Bruno Assumma Director 05/06/2002-12/31/2004* 40,000 - 4,500 44,500 

Claudio Dematté ** Director 05/06/2002-12/31/2004* 40,000 - 6,000 46,000 

Salvatore Vicari Director 09/13/2002-12/31/2004* 40,000 - 5,500 45,500 

Mario Guerrisi Chairman of the Board of Statutory Auditors 05/06/2002-12/31/2004* 67,790 - 723 68,513 

Marco Giuseppe Maria Rigotti Statutory Auditor 05/06/2002-12/31/2004* 46,377 - 930 47,307 

Simone Feig Statutory Auditor 09/09/2002-12/31/2004* 129,714 - 1,963 131,677 

30. Reconciliation between the local accounting principles and IFRS 

In preparing its IFRS financial statements, the Group has adjusted amounts reported previously in financial statements 

prepared in accordance with Italian accounting principles or previous GAAP. 

The main differences identified between IFRS and the Group’s current accounting policies under Italian principles 

which had an impact on the Group’s Shareholders’ equity (as at January 1, 2002) and on the following income 

statements (2002 and 2003) and Shareholders’ equity (as at December 31, 2002 and 2003) are the following: 

Shareholders' Group net result Movements in 

equity 

Shareholders' 

equity 


equity 

Shareholders' 

equity 

Shareholders' 

equity 

(In thousands of Euros) 12/31/2001 2002 2002 12/31/2002 2003 2003 12/31/2003 

Italian principles 134,752 5,106 106,986 246,844 (72,964) (1,860) 172,020 

Different consolidation area (28) 287 259 (148) (425) (314) a 

Intangible assets (12,600) (1,912) (14,512) (442) (14,954) b 

Investments in Collection Development (18,083) (2,722) (20,805) (10,669) (31,474) c 

Government grants (1,595) 268 (1,327) 268 (1,059) d 

Property, plant and equipment 3,102 324 3,426 332 3,758 e 

Provisions 771 32 803 162 965 f 

Adoption of IAS 19 684 (73) 611 46 657 g 

Adoption of IAS 39 (652) (203) (167) (1,022) 3,280 (119) 2,139 h 

Deferred tax 9,000 (528) 8,472 17,016 25,488 i 

Minority interest adjustments 37 130 167 405 572 

Total adjustment to retained earnings (19,336) (4,712) 120 (23,928) 10,250 (544) (14,222) 

Repurchase of share capital (2,726) (352) 2,976 (102) 6 (33) (130) j 

IFRS 112,690 42 110,082 222,814 (62,708) (2,437) 157,668 

They mainly refer to the following. 

(a) Consolidation and Investment in Subsidiaries 

Under Italian Accounting Principles, a subsidiary with activities dissimilar to that of the parent or in liquidation can be 

excluded from consolidation if such exclusion is essential for the consolidated financial statements to present a true 

and fair view of the state of affairs of the parent. Subsidiaries excluded from the consolidation are accounted for using 

the equity method or at cost. 

Under IFRS, dissimilar activities between a parent and subsidiary are not grounds for excluding the subsidiary from 


(b) Intangible assets 

Differences in Intangible assets for the two years 2002 and 2003 are as follows: 

Sub-note



equity 

Shareholders' 

equity 

F- 84 


equity 

Shareholders' 

equity 

Shareholders' 

equity 


Start-up and expansion costs (1,739) (1,167) - (2,906) (133) - (3,039) 

Research and advertising costs (9,762) 207 - (9,555) 1,181 - (8,374) 

Goodwill (741) 177 - 

(564) 172 - 

(392) 

Assets in formation and advances (358) (1,129) - (1,487) 53 - (1,434) 

Costs of securitization - 

- 

- 

- (1,715) - (1,715) 

Total (12,600) (1,912) - (14,512) (442) - (14,954) 

Start Up and expansion Costs—Research costs 

Under Italian Accounting Principles, certain costs related to the formation, start up and marketing research of a 

company may be deferred and capitalized as intangible assets and amortized on a straight-line basis over a period not 

exceeding five years, if certain conditions are met. These costs are written down to their recoverable amount when an 

impairment exists. 

Under IFRS, formation, start-up and marketing research costs are expensed as incurred. 

Advertising Costs 

Under Italian Accounting Principles, advertising costs may be deferred and capitalized as intangible assets and 

amortized on a straight-line basis over a period not exceeding five years, if certain conditions are met. 

Under IFRS, advertising costs are expensed as incurred. 

(c) Investments in Collection Development 

Costs incurred to design, prepare samples and launch new collections (Collection development costs): under Italian 

Accounting Principles the costs related to incurred to design, prepare samples and launch new collections are 

deferred. Under IFRS, only the costs related to the development phase of the design of the collection should be 

capitalized as development costs. Costs incurred in the preliminary phase of the design of the new collection (i.e. 

search for materials, basic concept of the collection, preliminary evaluation and selection of possible alternatives for 

the new collection) and all costs incurred in presentation of the new collections to buyers and orders collection 

capitalized under Italian principles, have been expensed. Costs related to the design and production of the prototypes, 

samples and models have been capitalized as investments in collection development. 

Development Costs 

Under Italian Accounting Principles, development costs may be capitalized as intangible assets and amortized on a 

straight-line basis over a period not exceeding five years, if certain conditions are met. These costs are written down 

to their recoverable amount when an impairment exists. 

Under IFRS, development cost must be capitalised. However for the capitalization of development costs the company 

should be able to satisfy certain restrictive criteria which include how the intangible asset will generate future 

economic benefit and the ability to reliably measure the expenditure attributable to the intangible asset. 

(d) Government Grants 

Under Italian Accounting Principles, government grants (or contributions) received as compensation for expenses 

already incurred are recognized in the income statement once the conditions for their receipt have been met and there 

is reasonable assurance that the grant will be received. Revenue-based grants are deferred in the balance sheet and 

released to the income statement to match the related expenditure that they are intended to compensate. Capital-based 

grants must be deferred and matched with the depreciation on the asset for which the grant arises. Grants that relate to 

recognized assets must be presented in the balance sheet as either deferred income, or by deducting the grant in 

arriving at the carrying amount of the asset, in which case the grant is recognized as a reduction of depreciation. This 

treatment is similar to IFRS. 

However certain past transactions occurred before 1998, had been recorded under Italian standards crediting net 

equity instead of deferred income. These have been adjusted accordingly.


(e) Revaluation of Fixed Assets "deemed cost" 

The Group elected to revalue certain items of property, plan and equipment at the date of transition to IFRS at its fair 

value and use this fair value as deemed cost at that date. 

The detail is as follows: 

Shareholders' Group net result Effect of merger Shareholders' Group net result Movements in 

equity 

equity 

Shareholders' 

equity 

F- 85 

Shareholders' 

equity 


Building ALLISON S.p.A. 1,461 20 - 

1,481 23 - 

1,504 

Building ITTIERRE S.p.A. (165) 308 722 

865 313 - 

1,178 

Building M.A.C. S.p.A. 1,084 (4) - 

1,080 (4) - 

1,076 

Building FD S.p.A. - 

- 

- 

- 

- 

- 

- 

Building ITJ S.p.A. 722 - 

(722) 

- 

- 

- 

- 

Total 3,102 324 - 

3,426 332 - 

3,758 

The positive effect on Group net result in 2002 and 2003 is due to a change in the estimated residual useful life of 

these revaluated assets compared to the estimate under Italian principles. 

(f) Provision for Risks and Charges 

Under Italian Accounting Principles, unlike IFRS, the amount of expected future cash expenditure necessary to settle 

an obligation is not required to be discounted. 

Under IFRS the amount of the Agent’s termination benefits has been re-determined based on the present value of the 

expenditures expected to be required to settle the obligation. 

(g) Employees’ Severance Indemnities 

Under Italian Accounting Principles, employees’ severance indemnities ("TFR") are accrued, net of advances paid, on 

the basis of what would be paid to them if they left the company at period-end, without taking into account future 

leaving or discounting the liability. 

Under IFRS, employee benefit obligations, including TFR, must be accounted for using the "Projected unit credit 

method". The above adjustments reflect the use of the accounting methodology requested by IFRS. 

(h) Financial assets and liabilities 

Hedging Contracts and Derivatives 

Under Italian Accounting Principles, contracts related to the hedging of futures contracts or of existing assets and 

liabilities, including the purchase and sale of other currencies to settle existing foreign currency accounts receivables 

and payables, are not recognized until the hedged transaction affects the income statement. No accounting principle 

for other derivative instruments has been issued under Italian Accounting Principles. In general, for derivative 

contracts which do not meet the criteria of hedging, in case of loss resulting from the fair value valuation at balance 

sheet date, a recognition of this loss into the income statement is required. 

Under IFRS, all derivative instruments are required to be recorded in the balance sheet at fair value. If a contract, even 

if it designed as, does not meet the requirement of an effective hedge, gains and losses are recognized immediately to 

income statement. If a contract is designed as and is considered effective as a hedge, it must be designed as a "cash 

flow" or a "fair value" hedge. The portions of the gains or losses on the hedging instrument that is determined to be an 

effective hedge are deferred as a component of shareholders’ equity. The deferred gain and losses are then released to 

the profit and loss statement in the same period during which the hedged asset (or liabilities) affect profit or loss. 

Gains and losses of "fair value" hedges are recognized to the income statement during the year incurred. 

Recognition of Securitization Transactions 

Under Italian accounting principles the factored trade receivables can be derecognized if the legal requirements for the 

derecognition are satisfied. Under IFRS, if the entity retains substantially all the risk and rewards of ownership of the 

financial asset, the entity shall continue to recognized the financial asset.


Amortized cost 

IFRS define that for financial instruments that are carried at amortized cost, such as loans and receivables, transaction 

costs should be included in the calculation of amortized cost using the effective interest method. 

The effects of the adoption of IAS 39 are as follows: 


equity 

Shareholders' 

equity 

F- 86 

Shareholders' 

equity 

Group net 

result 

Movements in 

Shareholders' 

equity 

Shareholders' 

equity 


Interest rate derivatives (10) (41) (167) (218) 34 (184) 

Currency derivatives - (532) (532) (119) (651) 

Recognition of Securitization Transactions (413) (15) (428) 226 (202) 

Interest-bearing loans and borrowing (229) 385 156 3,020 3,176 

Total (652) (203) (167) (1,022) 3,280 (119) 2,139 

(i) Deferred taxes 

This difference represents the net of deferred tax on the differences between Italian principles and IFRS. In addition 

deferred tax assets related to certainly Group companies have been accounted for under IFRS as it is probably that 

future taxable profit will be available while under Italian principles such deferred tax assets have not been accounted 

for as permitted. 

(j) Treasury Stock (Own Shares) 

Under Italian Accounting Principles, treasury stock (issued shares repurchased by the issuer) is classified on the 

balance sheet as an asset and stated at cost, and is classified in the statement of cash flows as an investing activity. The 

cost of acquired treasury stock is treated as an appropriation of retained earnings. 

Under IFRS, the cost of acquired treasury stock is presented on the balance sheet as a reduction of shareholders’ 

equity and is classified as a financing activity in the statement of cash flows. 

Other 

Extraordinary Items 

Under Italian Accounting Principles, extraordinary items generally include items of a non-recurring-nature. Certain 

recurring items are also reported as extraordinary items under Italian Accounting Principles, such as gains and losses 

on disposal of certain fixed assets and investments, adjustments of prior year accruals to actual amounts realized and 

other matters. 

Under the revised version of IAS 1, Presentation of Financial Statements, effective for annual periods beginning on or 

after January 1, 2005 (earlier application is encouraged), extraordinary items cannot be disclosed into the financial 

statements or in the notes. Under the prior version of IFRS, extraordinary items were defined as income or expenses 

that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and 

therefore are not expected to recur frequently or regularly. Virtually all items of income and expense included in the 

determination of net profit an loss are considered to arise in the course of the ordinary activities of the enterprise and 

therefore, only on rare occasions does an event or transactions give rise to an extraordinary item under IFRS. 

Under the prior version of IFRS, restructuring costs generally were not considered as extraordinary items. Under 

Italian Accounting Principles such cost have to be classified as extraordinary.

IT HOLDING S.p.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 

1. Activities of the Group 

FOR THE YEAR ENDED DECEMBER 31, 2002 

IT HOLDING S.p.A., is one of the leading players in the luxury goods sector, and controls a group of companies that 

design, produce and distribute high-quality products (apparel and accessories, eyewear and perfumes) under owned 

brands—Gianfranco Ferré, GF Ferré, Malo, Extè, Try Ultralight—as well as under license agreements—D&G, 

Versus, Versace Jeans Couture, Versace Jeans Signature, Romeo Gigli, Desil Gold Filled, Anna Sui Vision and 

ZeroRH+ (eyewear only). According to its strategic objectives, the Group rules and sustains the autonomous 

development of its brands through an integrated production and distribution system. Its production facilities are 

located in Italy, while the worldwide distribution network includes 34 directly operated stores. IT HOLDING has over 

2,000 employees and posted net revenues of Euro 660 million in 2002. It went public on November 1997 and its 

shares are traded on the Milan Stock Exchange. IT HOLDING is now a leading player in the luxury industry trough a 

multi-brand and a multi-product strategy. 

2. Significant accounting policies 

IT HOLDING S.p.A. is a company domiciled in Italy. The consolidated financial statements of the Company for the 

year ended December 31, 2002 comprise the Company and its subsidiaries (together referred to as the "Group"). 

The financial statements were authorized for issue by the directors on September 28, 2004. 



Standards (IFRS) adopted by the International Accounting Standards Boards (IASB). 

These are the Group’s first consolidated financial statements prepared in accordance with IFRS. 

All standards revised or issued within December 31, 2003, if permitted, have been early adopted in the preparation of 

the Group’s consolidated financial statements. 

The following standards, revised in 2003, have been adopted before their effective date: 

IFRS 1, First time adoption of IFRSs 

IAS 2, Inventories 

IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors 

IAS 10, Events after the Balance Sheet Date 

IAS 16, Property, Plant and Equipment 

IAS 17, Leases 

IAS 21, The Effects of Changes in Foreign Exchange Rates 

IAS 24, Related Party Disclosures 

IAS 27, Consolidated and Separate Financial Statements 

IAS 28, Investment in Associates 

IAS 31, Investment in Joint Ventures 

IAS 32, Financial Instruments: Disclosure and Presentation 

IAS 33, Earnings per Share 

IAS 39, Financial Instruments: Measurement and Recognition 

IAS 40, Investment Property 

The company has approved its consolidated financial statements as December 31, 2002 under Italian accounting 

principles in May, 6, 2003. A reconciliation between the Company’s consolidated financial statements under Italian 

accounting principles and IFRS is provided in note 30.


The following is a summary of the significant accounting policies used by the Group to prepare the financial 

statements in accordance with IFRS. 


The financial statements are presented in euro, rounded to the nearest thousand. 

The consolidated financial statements have been prepared under the historical cost convention except as disclosed in 

the accounting principles below. 

The accounting policies set out below have been applied consistently to all periods presented in these consolidated 

financial statements and in preparing an opening IFRS balance sheet at January 1, 2001 for the purposes of the 

transition to IFRS. 

The accounting policies have been applied consistently by Group entities. 


Subsidiaries are those entities controlled by the Company. Control exists when the Company has the power, directly 

or indirectly, to govern the financial statements and operating policies of an entity so as obtain benefits from its 

activities. In assessing control, potential voting rights that presently are exercisable or sconvertible are taken into 

account. The financial statements of subsidiaries are included in the consolidated financial statements from the date 

that control commences until the date that control ceases. 

There are no “Associates” or “Jointly Controlled Entities” consolidated as at January 1, 2001, December 31, 2001 and 

December 31, 2002. 


measured at the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition plus 

costs directly attributable to the acquisition. The excess of cost of acquisition over the fair value of the net assets and 

liabilities of the subsidiary acquired is recorded as goodwill. 

The assets and liabilities and statement of income captions of consolidated companies are included on a line-by-line 

basis by eliminating the book value of the related investments against Group’s share of equity of the subsidiaries at 

the moment of their acquisition. 

The portion of net asset and net income attributable to third parties is stated separately as minority interests. 



Foreign currency transactions 

Foreign currency transactions are translated into euro using the exchange rates prevailing at the dates of transactions. 

Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to euro at the 

foreign exchange rate ruling at the date. 

Foreign exchange differences arising on the settlement of such transactions and on the translation are recognized in 

the income statement, except when deferred in equity as qualifying cash flow hedges. 

Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are translated to 

euro at foreign exchange rates ruling at the dates the values were determined. 


The Group’s foreign operations are not considered an integral part of the Company’s operations. Accordingly, 

financial statements of foreign companies are translated into Euros as follows: 

assets and liabilities including goodwill and fair value adjustments arising on consolidation are translated at the 


F- 88


statement of income captions are translated to euro at the average rates for the year; 

foreign exchange differences arising on translation are recognized directly in equity. 

The exchange rates of the Euro to the principal foreign currencies used to prepare the consolidated financial 

statements are the following: 

2002 2001 

Year-end Average Year-end Average 

USD.............................................................................................................. 1.0487 0.9463 0.8813 0.8955 

CHF.............................................................................................................. 1.4524 1.4671 1.4829 1.5105 

GBP.............................................................................................................. 0.6505 0.6290 0.6085 0.6217 

HKD............................................................................................................. 8.1781 7.3787 6.8723 6.9836 

JPY.............................................................................................................. 124.3900 118.1400 115.3300 107.6700 

CAD ........................................................................................................ 1.6550 1.4845 — — 


Derivative financial instrument are used by the IT Holding Group solely for the purpose of hedging interest rate risk 

and currency exposure arising from operations. In accordance with its treasury policy, the Group does not hold or 

issue derivative financial instruments for trading or speculative purposes. However, derivatives that do not qualify for 

hedge accounting are accounted for as trading instruments. 

Derivatives financial instruments are recognized initially at cost. Subsequent to initial recognition, derivative financial 

instruments are stated at fair value. 

The market value of IRSs reflects the present value difference between the fixed rate to be paid/received and the 

interest rate assessed on the basis of the market trend having the same expiry date as the swap. The fair value of 

forward exchange contracts and currency options is estimated by reputable financial institutions on the basis of market 

conditions. The counterparties to derivative contracts are generally highly rated banks and financial institutions in 

order to minimize the risk of non-performance. 

Hedging 

Cash flow hedges of interest rate risk 

Changes in fair values of derivatives that are designated and qualified as Cash flow hedges and that are highly 

effective are deferred in the equity account, “Hedging reserve”. Amounts deferred in the “Hedging reserve” and any 

subsequent changes in the value of the derivatives are recorded in the income statement in the same period and 

classified in the same income statement accounts as the related hedged transactions. 

Hedge of foreign exchange exposure 

Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a forecasted 

turnover or recognized monetary asset or liabilities, any gain or loss on the hedging instrument is recognized in the 

income statement because the Group until December 2002 did not yet apply hedge accounting rules as presented in 

IAS 39. 


Property, plant and equipment are carried at cost or deemed cost less accumulated depreciation and impairment loss, 

if any. Depreciation is calculated on a straight-line basis over the estimated useful lives of the fixed assets or the term 

of the lease. 

F- 89


The applicable depreciation rates for 2002 and 2001 are as follows: 

Industrial buildings ..................................................................................................................................................... 3.0 

General plant, light constructions, and operating machinery .................................................................................... 10.0 

General plant and operating machinery purchased after January 1, 1989................................................................. 12.5 

Office furniture and equipment .................................................................................................................................. 12.0 

Canteen equipment and fittings.................................................................................................................................. 12.5 

Furnishings.................................................................................................................................................................. 15.0 

Electronic machines 20.0 

Miscellaneous and small equipment .......................................................................................................................... 25.0 

Automobiles................................................................................................................................................................. 25.0 

Motor vehicles and internal means of transport....................................................................................................... 20.0 


Leasehold improvements and general store equipment are depreciated over the expected lease term. 

The cost of major renovations is included in the carrying amount of the assets when it is probable that future 


Group. Major renovations are depreciated over the remaining useful life of the related assets. All other expenditure is 

recognized in the income statement as an expense as incurred. 

Certain items of property and plant have been revalued to fair value at the date of transition to IFRS, January 1, 2001. 

In accordance to IFRS 1 the Group has elected to use that fair value as its deemed cost at that date. 




Leases 

Leases of property, plant and equipment, where the Group assumes substantially all the risk and rewards of 

ownership, are classified as finance leases. Plant and equipment acquired by way of financial lease is stated at an 

amount equal to the lower of the fair value of the leased property or the present value of the minimum lease payments 

at the inception of the lease, less accumulated depreciation and impairment losses, if any. Property, plant and 

equipment acquired under finance leases is depreciated over the lease term. 

The interest expense component of financial lease payment is recognized in the income statement using the effective 

interest rate method. 

Goodwill, trademarks, other intangible assets and deferred charges 

Goodwill 

Goodwill (positive or negative) represents amounts arising on acquisition of subsidiaries, associates and joint 

ventures. In respect of acquisitions that have occurred since January 1, 2001, the date of transition to IFRS, goodwill 

(positive and negative) represents the difference between the purchase price and the fair value of the identifiable net 

assets of acquired businesses at the date of acquisition. 

In respect of acquisitions prior to this date, goodwill is included on the basis of its deemed cost, which represents the 

amount recorded under previous GAAP. The classification and accounting treatment of business combinations that 

occurred prior to January 1, 2001 has not been reconsidered in preparing the Group’s opening IFRS balance sheet at 

January 1, 2001 (see note 18). 

Goodwill is stated at cost less accumulated amortization and impairment losses. 

F- 90


When the acquisition agreement provides for an adjustment to the purchase consideration contingent on future events, 

an estimate of the adjustment is included in the cost of acquisition. Any future adjustment of the estimate is recorded 

as an adjustment of the goodwill. 

Negative goodwill arising on acquisition represents the excess of the fair value of the net identifiable assets acquired 

over the cost of acquisition. To the extent that negative goodwill relates to an expectation of future losses and 

expenses that are identified in the plan of acquisition and can be measured reliably, but which have not yet been 

recognized, it is recognized in the income statement when the future losses and expenses are recognized. Any 


the income statement over the weighted average useful life of those assets that are depreciable/amortizable. Negative 

goodwill in excess of the fair values of the non-monetary assets acquired is recognized immediately in the income 

statement. 

Commercial goodwill paid for the group’s sales premises is included into goodwill. It is amortized on the basis of the 

duration of the lease contracts; where necessary carrying amounts are written down by the amount not expected to be 

recovered through future revenues or sale. 

Licenses, trademarks and permits 

Acquired trademarks licenses and permits are stated at cost or at the attributed value at the date of the acquisition less 

accumulated amortization and impairment losses. 


Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and 

understanding is recognized in the income statement as an expense as incurred. 

Investments in collection development of all models and samples included into the catalogue of the new collection is 

capitalized if the amount will be recoverable on the basis of the future economic benefit generated by the new 

collection. The investments capitalized includes the cost of materials and direct labor. Other development expenditure 

is recognized in the income statement as an expense as incurred. Investments collection development expenditure is 

stated at cost less accumulated amortization and impairment losses. 

Investments in collection development costs are amortized on a systematic basis following the expected path of future 

economic benefits expected to flow to the company (i.e. on the basis of the rate of the revenues accounted for at year 

end over the total expected revenues from the sale of the collection, represented by the orders collected). The path of 

future economic benefits related to this investments is generally expected to be realised within twelve months. 


Other intangible assets and deferred charges expected to benefit future periods are recorded at cost less accumulated 





Amortization 


amortized from the date of initial recognition; other intangible assets are amortized from the date they are available 

for use. 

F- 91


The applicable amortization rates are as follows: 

Goodwill .......................................................................................................................................... 20 years 

Patents and trademarks .................................................................................................................... 20 years 

Development costs........................................................................................................................... generally 1 year 

Other intangible assets..................................................................................................................... generally 5 years 

Inventories 

Inventories are stated at the lower of purchase or production cost and net realizable value. Net realizable value is the 

estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 

Production costs of finished products include the cost of materials, consumables and external manufactures and the 

portion of all those direct and indirect production costs which may reasonably be attributed to them, excluding 


Purchase or production cost is determined under the average cost method. 



calculated on a straight-line basis over the estimated useful lives of the fixed assets estimated equal to 33 years. The 

fair value if the investment property is disclosed in note 16. 

Trade and other receivables 

Trade and other receivable are stated at their cost less impairment. 

Recognition of Factoring Transactions on Receivables 

The Group finalize transactions for the factoring of trade receivables without recourse. 

Assets under Italian accounting principles can be derecognized if the legal requirements for the derecognition are 

satisfied. 

The transactions finalized by the Group do not meet the derecognition criteria of IAS 39 and therefore the Group 

continue to recognize the factored trade receivables and recognize a financial liability for the consideration received in 

the above mentioned factoring transactions. 


Cash and cash equivalents comprises cash balances and call deposits. Bank overdrafts that are repayable on demand 

and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents 

for the purpose of the statement of cash flows. 

The Group considers all highly liquid investments purchased with an original maturity of three months or less to be 

cash equivalents. The investments included in cash and cash equivalents are reported at their fair market value. 

Impairment 

The carrying amounts of the Group’s asset, other than investment property, inventories and deferred tax assets are 

reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication 

exists, the asset’s recoverable amount is estimated. For intangible assets that are not yet available for use, the 

recoverable amount is estimated at each balance sheet date. An impairment loss is recognized whenever the carrying 

amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognized in the 


F- 92


Goodwill was tested for impairment at January 1, 2001, the date of transition to IFRS, even though no indication of 

impairment existed. 



amount may not be recoverable. Assets whose carrying values exceed their recoverable amount are written down to 

the higher of the net selling price and the value in use. 


The recoverable amount of receivables is calculated as the present value of expected future cash flow, discounted at 

the original effective interest rate inherent in the asset. Receivables with a short duration are not discounted. 

The recoverable amount of other assets is the greater of their net selling price and value in use. In assessing value in 

use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects 

current market assessments of the time value of money and the risk specific to the asset. For an asset that does not 

generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which 

the asset belongs. 


An impairment loss in respect of receivables is reversed if the subsequent increase in recoverable amount can be 

related objectively to an event occurring after the impairment loss was recognized. 

An impairment loss in respect of goodwill is not reversed unless the loss was caused by a specific external event of an 

exceptional nature that is not excepted to recur, and the increase in recoverable amount relates clearly to the reversal 

of the effect of that specific event. 

In respect of other assets, an impairment loss is reversed if there has been a change in the estimate used to determine 

the recoverable amount. 

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying 

amount that would have been determined, net of depreciation or amortization, if no impairment loss had been 

recognized. 


Government grant is recognized in the balance sheet initially as deferred income when there is reasonable assurance 

that it will be received and the group will comply with the condition attaching to it. Grants that compensate the Group 

for expense incurred are recognized as revenues in the income statement on a systematic basis in the same periods in 

which the expenses are incurred. Grants that compensate the Group for the cost of an asset are recognized in the 

income statement as revenues on a systematic basis over the useful life of the asset. 

Share capital 

Treasury Shares 


attributable costs, is recognized as a change in equity. Repurchased shares have been deducted from equity allocating 

the purchase price to capital stock for the nominal value of the shares and to share premium for the excess over the 

nominal value. 

Dividends 


F- 93


Interest-bearing borrowings 

Interest-bearing borrowings are recognized initially at cost, less attributable transaction costs. Subsequent to initial 

recognition, interest-bearing borrowings are stated at amortized cost with any difference between cost and redemption 

value being recognized in the income statement over the period of the borrowings on an effective interest basis. 

Pension liabilities and termination leaving indemnities 

The Group’s contributions to defined contribution pension plans are charged to the income statement in the period to 

which the contributions relate. 

Termination leaving indemnities are calculated on an actuarial basis or in accordance with applicable local law to the 

extent that the amount of the liability does not differ materially from the amount which would have been calculated on 

an actuarial basis. 



reference to the termination leaving indemnity for Italian employees (so called TFR) are not deferred and are charged 

to the income statement of the period in which they are calculated. 


The Group had a stock option program which has been abandoned in 2002 and no option rights have been given or 

exercised in 2002 or 2001. 

Financial instruments 

Financial instruments are presented according to IAS 39. Accordingly, financial assets, to the extent relevant to the IT 

Holding Group, are classified as follows: 

held for trading; 

loans and receivables. 

Financial assets held for trading are classified as current asset and are stated at fair value, with any resultant gain or 

loss recognized in the income statement. 

The fair value of the financial assets is determined through reference to quoted market prices at the balance sheet date. 

If there are no market values available for the financial assets, the value is determined by reputable financial 

institutions on the basis of market conditions. 

Subsequent measurement of loans and receivables is at amortized cost using the effective interest method or historical 

cost on whether the assets have a fixed or non-fixed maturity. 

Provisions 


past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. 

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that 

reflects current market assessments of the time value of money and, where appropriate, the risks specific to the 

liability. 



contracts in compliance with law and other relevant factors such as historical data, the average length of the relation 

with the agents and their turnover. 

F- 94


Tax provision 

The tax provision reflects estimated contingent tax liabilities that some Group companies may have to pay following 

the tax disputes currently pending with the tax authorities. 


The provision for returns on sales, set up to cover the unrealized profit arising from the difference between the sales 

value of possible returns to be received after year end, but pertaining to the year, and their estimated recovery value. 


Revenues from the sale of products are recognized on the transfer of ownership to third parties. Royalties are 

recognized at the time of sale of the licensed products and, in accordance with industry practice, are included in 

revenues. Should any product return or is expected to return or any commercial discount be recognized, the relevant 

value reduces revenues arising from the sale of goods. Cash discounts are recognized as financial costs. 

Rental income from investment property is recognized in the income statement on a straight-line basis over the term 

of the lease. 



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) 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 comprises current and deferred tax. Income tax is recognized in the 

income statements except to the extent that is relates to items recognized directly to equity, in which case it is 


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 

F- 95


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. 





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). 


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 

exchange rates. Income and expenses in respect of interest, dividends received and taxation on profits are included in 

the cash flow from operating activities. 

Expenses for Opening or Modernizing Stores 

Expenses for opening or modernizing stores under lease contracts are capitalized under tangible assets when it is 

probable that future economic benefits in excess of the originally assessed standard of performance of the existing 

asset will flow to the Group. Expenses for opening or modernizing stores are depreciated over the remaining duration 

of the lease contract. All other expenditure is recognized in the income statement as an expense as incurred. 

Additional information 

The companies listed below are consolidated using the line-by-line method: 

Consolidated companies Registered office Share capital % of direct % of indirect 

Pettoranello di 

(In Euros unless 

otherwise 

indicated) 


IT HOLDING S.p.A. (Parent company). Molise (IS)—I 12,293,700 

IBEX 2001 S.p.A. ................................... Milan—I 100,000 90.00% 

ITF S.p.A................................................. Milan—I 

New York—NY— 

5,200,000 80.00% 

ITF USA Inc............................................ 

USA 


USD 500,000 100.00% 

ITTIERRE S.p.A..................................... Molise (IS)—I 


33,540,000 100.00% 

GENTRYPORTOFINO S.p.A. .............. Molise (IS)—I 


100,000 100.00% 

ELITE S.r.l. ............................................. Molise (IS)—I 46,481 100.00% 

F- 96





otherwise 

indicated) 


ITC S.p.A. ............................................... Molise (IS)—I 


2,580,000 100.00% 

HYPSOS S.r.l.......................................... Molise (IS)—I 104,000 0.05% 99.95% 

IT FINANCE AND TRADING B.V...... Amsterdam—NL 4,785,160 100.00% 

ITTIERRE FRANCE S.A....................... Paris—F 1,458,000 99.994% 

M.A.C. FRANCE E.u.r.l......................... Paris—F 1,060,000 100.00% 

GIANFRANCO FERRÉ FRANCE E.u.r.l. Paris—F 400,000 100.00% 

HOBBYMARKT WASSENAAR B.V.. Amsterdam—NL 


18,160 100.00% 

MAGIC STYLE S.r.l. ............................. Molise (IS)—I 10,330 100.00% 

ITTIERRE MODEN GmbH................... Düsseldorf—D 64,000 100.00% 

M.A.C. DEUTSCHLAND GmbH ......... Düsseldorf—D 255,750 100.00% 

M.A.C. MARBELLA S.L....................... Malaga—E 100,200 100.00% 

M.A.C. UK Ltd. ...................................... London—GB GBP 1,530,660 100.00% 

GIANFRANCO FERRÉ UK Ltd. .......... London—GB GBP 757,686 100.00% 

ITTIERRE SUISSE GmbH .................... Mendrisio—CH CHF 250,000 100.00% 

M.A.C. JAPAN Inc................................. Tokyo—J JPY 10,000,000 100.00% 

FAR IT Limited....................................... Hong Kong—HK HK$ 500,000 100.00% 

QUARTERMAIN Ltd. ........................... Hong Kong—HK 


HK$ 1,000 99.90% 

IT HOLDING USA Inc. ......................... 



USD 200,000 100.00% 

IT USA Inc.............................................. 

USA USD 200,000 100.00% 

MANIFATTURE ASSOCIATE 


CASHMERE USA Inc............................ 



USD 50,000 100.00% 

M.A.C. SOHO Llc. ................................. 



USD 584,062 100.00% 

M.A.C. MADISON Llc. ......................... 


Denver—CO— 

USD 2,980,873 100.00% 

M.A.C. COLORADO Llc....................... 


Tallahassee—FL— 

USD 608,389 100.00% 

M.A.C. BAL HARBOUR Llc. ............... 



USD 489,470 100.00% 

M.A.C. PALM BEACH Llc. .................. 


Springfield—IL— 

USD 437,168 100.00% 

M.A.C. CHICAGO Llc........................... 


Hartford—CT- 

USD 722,993 100.00% 

M.A.C. CLINTON Llc............................ 



USD 491,931 100.00% 

M.A.C. WOODBURY Llc. .................... 


Wilmington—DE— 

USD 380,191 100.00% 

GIANFRANCO FERRÉ HOLDINGS Inc. 



USD 5,500,000 100.00% 

GIANFRANCO FERRÉ USA Inc. ........ 



USD 1,000,000 100.00% 

FIRST N.Y. BOUTIQUE Inc. ................ 



USD 1,500,000 100.00% 

FIRST P.B. BOUTIQUE Inc.................. 


Beverly Hills— 

USD 500,000 100.00% 

FIRST RODEO Corp.............................. 

CA—USA 

Campi Bisenzio 

USD 600,000 100.00% 

MALO S.p.A........................................... 

(FI)—I 5,200,000 100.00% 

M.A.C.—Manifatture Associate Cashmere Campi Bisenzio 

S.p.A........................................................ 

(FI)—I 2,580,000 100.00% 

C.I.M.—Compagnia Italiana Maglierie Campi Bisenzio 

S.r.l........................................................... 

(FI)—I 30,988 100.00% 

P.A.F.—Pelletterie Artigiane Fiorentine Campi Bisenzio 

S.r.l........................................................... 

(FI)—I 100,000 100.00% 

F- 97





otherwise 

indicated) 


GIGLI S.p.A............................................ Molise (IS)—I 520,000 100.00% 

V2I HOLDING S.A. ............................... Luxembourg—L 3,235,090 100.00% 

EUROHOLDING FASHION S.A.......... Luxembourg—L CHF 150,000 80.00% 

INTERSTYLE HOLDING S.A.............. Luxembourg—L CHF 2,600,000 80.00% 

MODA BRAND HOLDING S.A........... Luxembourg—L CHF 300,000 80.00% 

GF MONTAIGNE S.a.s.......................... Paris—F 1,933,750 100.00% 

ALLISON S.p.A...................................... Padova—I 

Los Angeles— 

1,702,800 100.00% 

ALLISON EYEWEAR Inc..................... 

CA—USA USD 375,000 86.66% 

ALLISON CANADA Inc. ...................... 

DESIL S.p.A. .......................................... 

North York— 

Ontario— 

CANADA 

Domegge di Cadore 

CAD 95,000 80.00% 

(BL)—I 490,400 100.00% 

BIEMME S.r.l. ........................................ 

Valdobbiadene 

(TV)—I 115,200 66.66% 

FINANCIÈRE MELAPR HOLDING S.A. Luxembourg—L 13,720,000 99.99% 

GIANFRANCO FERRÉ S.p.A. ............. Milan—I 6,750,000 100.00% 

NUOVA ANDREA FASHION S.p.A. .. Milan—I 1,800,000 100.00% 

GF MANUFACTURING S.r.l. .............. Milan—I 100,000 100.00% 

MADEFERRÉ S.r.l................................. Milan—I 10,200 100.00% 

FERRÉ FINANCE S.A........................... Luxembourg—L 125,000 100.00% 

Changes which occurred in the consolidation area with respect to December 31, 2001 are the following: 

Increases: 

acquisition of 100% of Paris-based DJL ONE S.A.S. from third parties. The newly acquired company then changed 

its name to GF MONTAIGNE S.A.S. It is the tenant under a rental contract for a boutique in Avenue Montaigne, 

Paris, which was opened in January 2003 and will be used to sell “Ferré” collections. acquisition of 66.66% of 

BIEMME S.r.l., with registered office in Valdobbiadene (TV), from third parties. This company is specialized in 

galvanic production and dyeing. acquisition of 80% of EYEWEAR CONNECTION Inc., based in North York 

Ontario, from third parties. This company then changed its name to ALLISON CANADA Inc. consolidation of IT 

HOLDING USA Inc.. This company was set up by IT FINANCE AND TRADING B.V. through the transfer of IT 

USA Inc. shares. partial spin-off of M.A.C. USA Inc. to the following US-based companies: 

• MAC SOHO Llc., headquartered in New York—NY—USA; 

• MAC MADISON Llc., headquartered in New York—NY—USA; 

• MAC COLORADO Llc., headquartered in Denver—CO—USA; 

• MAC BAL HARBOUR Llc., headquartered in Tallahassee—FL—USA; 

• MAC PALM BEACH Llc., headquartered in Tallahassee—FL—USA; 

• MAC CHICAGO Llc., headquartered in Springfield—IL—USA; 

• MAC CLINTON Llc., headquartered in Hartford—CT—USA; 

MAC WOODBURY Llc., headquartered in New York—NY—USA. The consolidation of GENTRYPORTOFINO 

S.p.A., active in the design, production and marketing of apparel and knitwear collections as well as general 

“Gentryportofino” brand products. consolidation of FERRÉ FINANCE S.A., based in Luxembourg. This 

company was acquired from third parties to be used as a special purpose vehicle to tap the Euromarket with a 

F- 98


bond issue. consolidation of Luxembourg-based FINANCIÈRE MELPAR HOLDING S.A., which, when 

acquired, owned 100% of GIANFRANCO FERRÉ S.p.A., and, through the latter, eleven other entities, including 

eight based abroad. These companies are as follows: 

NUOVA ANDREA FASHION S.p.A., based in Milano; 

• GIANFRANCO FERRÉ FRANCE E.u.r.l., based in Paris—F; 

• GIANFRANCO FERRÉ UK Ltd., based in London—GB; 

• GIANFRANCO FERRÉ HOLDINGS Inc., based in Wilmington—NY—USA; 

• GIANFRANCO FERRÉ USA Inc., based in New York—NY—USA; 

FIRST N.Y. BOUTIQUE Inc., based in New York—NY—USA; 

FIRST RODEO Corp., based in Beverly Hills—CA—USA; 

FIRST P.B. BOUTIQUE Inc., based in Tallahassee—FL—USA; 

GF MANUFACTURING S.r.l., based in Milano (this company is in liquidation); 

GF MODE GmbH, based in Munich—Germany (this company is in liquidation); 

MADE FERRÉ S.r.l., based in Milano (this company is in liquidation). 

NUOVA ANDREA FASHION S.p.A., GIANFRANCO FERRÉ FRANCE E.u.r.l., and GIANFRANCO FERRÉ 

UK Ltd. manage owned boutiques in Italy, Cannes, and London, respectively. 

GIANFRANCO FERRÉ HOLDINGS Inc. is a holding company which distributes in the United States. It owns 

GIANFRANCO FERRÉ USA Inc., which manages the New York showroom, FIRST N.Y. BOUTIQUE Inc. which 

manages the New York boutique and, as a sub-holding company, controls FIRST RODEO Corp., which manages the 

Beverly Hills boutique and FIRST P.B. BOUTIQUE Inc., which manages the Bal Harbour boutique. 

As part of the larger Group shareholding reorganization, shareholdings in GIANFRANCO FERRÉ HOLDINGS Inc, 

GIANFRANCO FERRÉ FRANCE E.u.r.l., and GIANFRANCO FERRÉ UK Ltd were transferred from 

GIANFRANCO FERRÉ S.p.A. to IT FINANCE AND TRADING B.V. in 2002. incorporation of P.A.F.—Pelletterie 

Artigiane Fiorentine S.r.l. in Campi Bisenzio (FI), operating in the design, production and marketing of leather goods. 

ITF S.p.A.’s incorporation of ITF USA Inc., based in New York with share capital of $300,000. This company will 

distribute perfumes on the US market. acquisition of 80% of EYEWEAR CONNECTION Inc., based in North 

York—Ontario—Canada from third parties. The company then changed its name to ALLISON CANADA Inc. 

Decreases: 

exclusion of ITJ S.p.A. following its merger into ITTIERRE S.p.A.. 

The impact of the acquisition of Ferré Group have been highlighted in cash flow statement and in the following notes. 

The consolidated financial statements as at and for the year ended December 31, 2002 was prepared on the basis of 

the financial statements of all consolidated companies at the same date for consolidation purposes, and duly adjusted 

in order to make them consistent with Group accounting policies. 

The balance sheet dates of the subsidiaries are the same of the holding company; as a consequence, there was no need 

to prepare interim financial statements for such companies. 

3. Segment information 

The Group designs, manufactures, and distributes in three specific sectors of the luxury goods market: 

apparel and accessories; 

F- 99


• eyewear; 

• perfumes. 

The group distributes via two main channels, wholesale and retail: the wholesale channel caters to independent 

retailers (department stores and boutique), while retail activities are carried out through directly-operated stores 

(DOS), franchise boutiques and factory outlets. 

The Group’s products have an international appeal with 40.3% of its income deriving in the year 2002 from sales in 

Italy, 33.9% in Europe (without Italy), 12.7% in the Americas and 11% in the rest of the world. 

The Group’s products comprise a full range of luxury products including apparel, eyewear, accessories and perfumes 

which the Group provides to customers through a worldwide distribution organization. 

The Group has positioned itself with the capability of becoming one of the leading players in the luxury goods market, 

providing an integrated and diverse range of goods. 

The following table presents information about the Group by segment of activity: 

% of net 


2002 revenues 2001 revenues (Decrease) 


Apparel and accessories..................................................... 576,932 87.4 483,559 91.8 19.3 

Eyewear..................................................................................... 60,088 9.1 45,192 8.6 33.0 

Perfume ............................................................................. 13,835 2.1 — — n/m 

Royalty income.................................................................. 13,843 2.1 1,222 0.2 n/m 

Interdivisional .................................................................... (4,884) (0.7) (3,257) (0.6) 50.0 

Net revenues .................................................................... 659,814 100.0 526,716 100.0 25.3 

n/m: Not meaningful. 

The following table presents information about the Company by geographic area: 

% of net 


2002 revenues 2001 revenues (Decrease) 


Italy ................................................................................. 265,614 40.3 209,415 39.8 26.8 

Europe*........................................................................... 223,508 33.9 192,119 36.5 16.3 

Americas ......................................................................... 83,591 12.7 68,324 13.0 22.3 

Far East and Japan .......................................................... 51,852 7.9 43,560 8.3 19.0 

Rest of the world............................................................. 21,406 3.1 12,076 2.2 77.3 

Royalty income............................................................... 13,843 2.1 1,222 0.2 n/m 

Net revenues .................................................................. 659,814 100.0 526,716 100.0 25.3 

* Without Italy. 

n/m: Not meaningful. 

F- 100


Business segments 

Apparel 

and 

F- 101 

2002 

accessories Eyewear Perfume Eliminations 

Other 

operations Total 


Net revenues ........................ 590,775 60,088 13,835 (4,884) — 659,814 

of which royalty income....... 13,843 — — — — 13,843 

Change in inventory.............. 4,039 7,498 4,194 — — 15,731 

Other operating income ........ 8,991 912 870 — — 10,773 

Cost of materials ................... (160,296) (29,421) (10,094) 57 — (199,754) 

Outside services .................... (228,771) (26,877) (7,068) 4,827 — (257,889) 

Personnel expenses ............... (72,995) (10,950) (1,539) — — (85,484) 

Other operating expenses...... (32,713) (1,652) (786) — — (35,151) 

Depreciation/amortization .... (79,975) (3,122) (343) — — (83,440) 

Operating result.................. 29,055 (3,524) (931) — — 24,600 

Financial income (charges)... — — — — (27,279) (27,279) 

Income (loss) before taxes.. — — — — — (2,679) 

Income taxes ......................... — — — — 1,991 1,991 

Net income (loss) before minority 

interest.................................. — — — — — (688) 

Minority interest ................... — — — — (730) (730) 

Net income (loss) for the year — — — — — 42 

Apparel 

and 

2001 

accessories Eyewear Perfume Eliminations 

Other 

operations Total 


Net revenues ............................... 484,781 45,192 — (3,257) — 526,716 

of which royalty income............... 1,222 — — — — 1,222 

Change in inventory...................... 9,757 2,595 — (25) — 12,327 

Other operating income ................ 5,004 847 — — — 5,851 

Cost of materials .......................... (141,732) (17,564) — 54 — (159,242) 

Outside services ............................ (202,039) (18,510) (258) 3,228 — (217,579) 

Personnel expenses ....................... (60,083) (7,632) (73) — — (67,788) 

Other operating expenses.............. (22,230) (1,196) (3) — — (23,429) 

Depreciation/amortization ............ (59,722) (1,734) (2) — — (61,458) 

Operating result.......................... 13,736 1,998 (336) — — 15,398 

Financial income (charges)........... — — — — (17,595) (17,595) 

Income (loss) before taxes.......... — — — — — (2,197) 

Income taxes ................................. — — — — 184 184 

Net income (loss) before minority 

interest.......................................... — — — — — (2,013) 

Minority interest ........................... — — — — (70) (70) 

Net income (loss) for the year.... — — — — — (1,943)


2002 

Apparel and 

accessories Eyewear Perfumes Eliminations Total 


Intangible assets................................................ 361,772 5,133 1,704 — 368,609 

Tangible assets.................................................. 67,206 10,825 527 — 78,558 

Long-term financial assets................................ 1,857 340 47 — 2,244 

Fixed assets ...................................................... 430,835 16,298 2,278 — 449,411 

Inventories......................................................... 123,977 17,833 4,199 — 146,009 

Accounts receivable.......................................... 173,861 27,857 13,939 (7,311) 208,346 

Accounts payable.............................................. (142,481) (19,447) (8,431) 7,311 (163,048) 

Other net assets (liabilities) .............................. (8,730) (10,881) 345 — (19,266) 

Net working capital......................................... 146,627 15,362 10,052 — 172,041 

Severance pay fund......................................... (10,649) (2,811) (143) — (13,603) 

Net invested capital......................................... 


566,813 28,849 12,187 — 607,849 

Intercompany financial receivables (payables) — — — — — 

Short-term financial payables........................... (118,974) (26,904) (9,477) — (155,355) 

Medium-term financial payables...................... (284,244) (1,205) — — (285,449) 

Cash and cash equivalents ................................ 53,871 1,121 1,417 — 56,409 

Net financial debt............................................ 

Shareholders’ equity (including minority 

(349,347) (26,988) (8,060) — (384,395) 

interests)........................................................... (217,466) (1,861) (4,127) — (223,454) 

Sources of financing........................................ (566,813) (28,849) (12,187) — (607,849) 

Capital expenditure and acquisitions........... 216,023 5,227 6,721 — 227,971 

2001 

Apparel and 

accessories Eyewear Perfumes Eliminations Total 


Intangible assets................................................ 117,946 4,987 3 — 122,936 

Tangible assets.................................................. 64,599 7,731 12 — 72,342 

Long-term financial assets................................ 3,469 501 15 — 3,985 

Fixed assets ...................................................... 186,014 13,219 30 — 199,263 

Inventories......................................................... 115,467 12,784 — — 128,251 

Accounts receivable.......................................... 136,369 27,933 — (8,951) 155,351 

Accounts payable.............................................. (131,422) (19,723) (152) 5,178 (146,119) 

Other net assets (liabilities) .............................. 32,529 (2,713) (29) 3,773 33,560 

Net working capital........................................ 152,943 18,281 (181) — 171,043 

Severance pay fund........................................ (8,769) (2,514) — — (11,283) 

Net invested capital........................................ 


330,188 28,986 (151) — 359,023 

Intercompany financial receivables (payables) — — — — — 

Short-term financial payables........................... (237,914) (24,086) 3,640 — (258,360) 

Medium-term financial payables...................... (39,547) (725) — — (40,272) 

Cash and cash equivalents ................................ 52,059 266 1,444 — 53,769 

Net financial debt........................................... 

Shareholders’ equity (including minority 

(225,402) (24,545) 5,084 — (244,863) 

interests)........................................................... (104,786) (4,441) (4,933) — (114,160) 

Sources of financing........................................ (330,188) (28,986) 151 — (359,023) 

Capital expenditure and acquisitions........... 26,640 5,402 73 — 32,115 

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Geographical segments 

2002 


Italy Europe Americas Japan world operations Total 

Net revenues............. 265,613 223,508 83,591 


51,852 21,407 13,843 659,814 

Segment assets ......... 

Capital expenditure 

944,113 98,400 55,381 15,692 2,910 (94,257) 1,022,239 

and acquisitions........ 214,154 6,061 7,279 477 — — 227,971 

2001 


Italy Europe Americas Japan world operations Total 

Net revenues................ 209,415 192,119 68,324 


43,560 12,076 1,222 526,716 

Segment assets ............. 

Capital expenditure and 

562,823 81,485 41,201 8,604 1,103 (61,009) 634,207 

acquisitions .................. 25,706 5,672 737 — — — 32,115 

Apparel and accessories division 

Net revenues increased 19.3% to Euro 576,933 thousand, making the apparel and accessories division the Group’s 

main source of revenues. The impact of this division fell from 91.8% to 87.4% of total revenues, mostly due to 

growth in eyewear and perfume sales. 

In terms of profitability despite the increased costs linked to change in consolidation area and the increase in 

amortization and deprecation mainly due to the trademark Ferré, the operating result more than doubled due to the 

improved production efficiency and to the contribution of royalty following the consolidation of Ferré Group. 

Eyewear division 

This division headed by ALLISON S.p.A., consolidated its top-tier results in terms of sales, benefiting from the 

launch of new collections, such as “Ferré”, “Anna Sui Vision”, “ZeroRH+”, and "Desil Gold Filled”. 

Net revenues grew 33% to Euro 60,088 thousand, versus Euro 45,192 thousand in 2001. 

2002 eyewear figures broken down by geographical area show growth of 108.7% in countries considered part of the 

“rest of the world”, where net sales totaled Euro 9,478 thousand, versus Euro 4,541 thousand in 2001, given the 

outstanding results achieved in the Middle and Far East. Sales in America were up 115.9%, to Euro 13,158 thousand 

from the Euro 6,094 thousand of the previous year, following large-scale sales drives on the part of Allison 

Eyewear Inc. distribution companies in the US and Allison Canada Inc.. In Europe (excluding Italy), sales totaled 

Euro 13,073 thousand, up 39.9% on the Euro 9,347 thousand of the previous year. This increase was mostly 

concentrated on the Iberian Peninsula and in the Benelux nations. In Italy, total sales were slightly down (-3.2%) on 

2001. 

Depreciation and amortization increased to Euro 3,122 thousand from Euro 1,734 thousand in 2001 as a result of the 

restructuring of the production site in Volta Mantovana (MN). 

The operating result decreased to negative Euro 3,524 thousand from positive euro 1,998 thousand in 2001, mainly 

due to costs relating to Desil S.p.A.’s production integration process and to the cost to launch the new collections. 

Desil S.p.A. went from exclusively producing gold plated eyewear to manufacturing metallic eyewear as well at yearend. 

In addition to expanding its production range, it also increased the quantity of articles produced. 

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Perfume division 

The IT Holding Group set up ITF S.p.A. in September 2001 as a vehicle for the development of the perfume division. 

On January 23, 2002, ITF S.p.A. acquired a business activity for the worldwide distribution of “Gai Mattiolo” 

perfumes and the distribution in Italy of “Ferragamo” and “Ungaro” perfumes from I.C.R. -Industrie Cosmetiche 

Riunite S.p.A.. Furthermore, ITF S.p.A. licenses the “Romeo Gigli” (Group owned brand) and “Roberto Cavalli” 

perfume and cosmetics collections. Specifically, the “Roberto Cavalli” fragrance was a huge success on the market 

and received the Cosmoprof awards for best packaging and best communications in March 2003. 

This division recorded sales of Euro 13,835 thousand in its first year of activity mostly on the Italian market. 

Accordingly, the start-up of new distribution activities has weighed income down. However, the launches of the new 

“Romeo Gigli” fragrance scheduled for April 2003, which has already received accolades from the press, and the 

“Gianfranco Ferré” fragrance planned for the second half of the year, encourage forecasts of a strong improvement in 

results". 

4. Personnel 

Balances for 2002 and 2001 are made up as follows: 

2002 2001 

Increase 

(decrease) 


Wages and salaries....................................................................................................... 66,185 52,571 13,614 

Social security contributions ....................................................................................... 14,775 11,465 3,310 

Severance pay fund...................................................................................................... 3,970 3,479 491 

Other costs ................................................................................................................... 554 273 281 

Total personnel exepenses......................................................................................... 85,484 67,788 17,696 

The main figures related to the number of employees for 2002 and 2001 are as follows: 

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2002 

Average 

number 

2002 2001 

Average 

number 

2001 

Workers.............................................................................................................. 734 729.17 681 694.41 

Office staff ......................................................................................................... 1,259 1,296.88 1,115 1,143.44 

Executives.......................................................................................................... 61 65.79 48 47.08 

Total................................................................................................................... 2,054 2,091.84 1,844 1,884.93 

The increase is mainly due to the acquisition of Ferré Group and the start up of the perfume division. 

5. Financial income (charges) 

Financial income and charges for 2002 and 2001 are comprised as follows: 

2002 2001 

Interest expense.................................................................................................................................. (22,140) (11,804) 

Interest income ................................................................................................................................... 1,913 957 

Financial income (expense) from hedging transaction ....................................................................... (39) — 

Income (charges) from associated company ..................................................................................... — 361 

Write-downs in shareholdings ........................................................................................................... (58) — 

Net foreign exchange loss.................................................................................................................. (2,131) (717) 

Other................................................................................................................................................... (4,824) (6,392) 

Total.................................................................................................................................................... (27,279) (17,595)


Interest expense includes bond interest of Euro 9,348 thousand, bank interest of Euro 10,263 thousand and other 

financial charges of Euro 2,529 thousand. In the previous year, interest expense mainly included bank interest. 

The increase is due to the rise in average indebtness, mainly due to the effects of the Ferré Group acquisition which 

was partially financed through a bond issue of Euro 200 million in May 2002. 

6. Income taxes 

Recognised in the income statement 2002 2001 

Increase 

(Decrease) 


Current tax expense 

Current year ................................................................................................................. 24,972 (3,858) 28,830 

Under/(over) provided in prior years .......................................................................... — — — 

Total ............................................................................................................................ 24,972 (3,858) 28,830 

Deferred tax expense 2002 2001 

Increase 

(Decrease) 


Origination and reversal of temporary differences ...................................................... (25,740) 9,306 (35,046) 

Benefit of tax losses recognised ................................................................................... 2,959 (3,103) 6,062 

Subtotal ........................................................................................................................ (22,781) 6,203 (28,984) 

Tax benefit on parent company’s dividend.................................................................. (4,182) (2,529) (1,653) 

Total.............................................................................................................................. (26,963) 3,674 (30,637) 

Total income tax expense in income statement ...................................................... (1,991) (184) (1,807) 

Tax benefit on parent Company’s dividends represents the receivable that IT Holding, which is in a tax loss position, 

has earned versus tax authorities on the dividends received during the year from Ittierre S.p.A. 

The details and the movements of deferred tax assets and liabilities are in paragraph note 19, “Deferred tax assets and 

liabilities”. 


2001 

2002 


Loss before tax............................................................................................................. (2,679) (2,197) 

Income tax using the domestic corporation tax rate ............................................. 38.25% (1,025) 40.25% (884) 

Others........................................................................................................................... 36.06% (966) (31.86)% 700 

Total income tax expense in income statement ...................................................... 74.31% (1,991) 8.39% (184) 

7. Discontinuing operation 

No discontinuing operations took place in 2002 and 2001. 

8. Acquisition and disposal of subsidiaries 

In 2002 the acquisition and disposal of subsidiaries are the following: 

Acquisitions: 

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• acquisition of 100% of Paris-based DJL ONE S.A.S. from third parties. The newly acquired company then 

changed its name to GF MONTAIGNE S.A.S. It is the tenant under a rental contract for a boutique in Avenue 

Montaigne, Paris, which was opened in January 2003 and will be used to sell “Ferré” collections. 

• acquisition of 66.66% of BIEMME S.r.l., with registered office in Valdobbiadene (TV), from third parties. This 

company is specialized in galvanic production and dyeing. 

• acquisition of 80% of EYEWEAR CONNECTION Inc., based in North York Ontario, from third parties. This 

company then changed its name to ALLISON CANADA Inc 

• consolidation of IT HOLDING USA Inc.. This company was set up by IT FINANCE AND TRADING B.V. 

through the transfer of IT USA Inc. shares. 

• partial spin-off of M.A.C. USA Inc. to the following US-based companies: 

• MAC SOHO Llc., headquartered in New York—NY—USA; 

• MAC MADISON Llc., headquartered in New York—NY—USA; 

• MAC COLORADO Llc., headquartered in Denver—CO—USA; 

• MAC BAL HARBOUR Llc., headquartered in Tallahassee—FL—USA; 

• MAC PALM BEACH Llc., headquartered in Tallahassee—FL—USA; 

• MAC CHICAGO Llc., headquartered in Springfield—IL—USA; 

• MAC CLINTON Llc., headquartered in Hartford—CT—USA; 

• MAC WOODBURY Llc., headquartered in New York—NY—USA. 

• consolidation of GENTRYPORTOFINO S.p.A., active in the design, production and marketing of apparel and 

knitwear collections as well as general “Gentryportofino” brand products. 

• consolidation of FERRÉ FINANCE S.A., based in Luxembourg. This company was acquired from third parties to 

be used as a special purpose vehicle to tap the Euromarket with a bond issue. 

• consolidation of Luxembourg-based FINANCIÈRE MELPAR HOLDING S.A., which, when acquired, owned 

100% of GIANFRANCO FERRÉ S.p.A., and, through the latter, eleven other entities, including eight based 

abroad. These companies are as follows: 

• NUOVA ANDREA FASHION S.p.A., based in Milano; 

• GIANFRANCO FERRÉ FRANCE E.u.r.l., based in Paris—F; 

• GIANFRANCO FERRÉ UK Ltd., based in London—GB; 

• GIANFRANCO FERRÉ HOLDINGS Inc., based in Wilmington—NY—USA; 

• GIANFRANCO FERRÉ USA Inc., based in New York—NY—USA; 

• FIRST N.Y. BOUTIQUE Inc., based in New York—NY—USA; 

• FIRST RODEO Corp., based in Beverly Hills—CA—USA; 

• FIRST P.B. BOUTIQUE Inc., based in Tallahassee—FL—USA; 

• GF MANUFACTURING S.r.l., based in Milano (this company is in liquidation); 

• GF MODE GmbH, based in Munich—Germany (this company is in liquidation); 

• MADE FERRÉ S.r.l., based in Milano (this company is in liquidation). 

NUOVA ANDREA FASHION S.p.A., GIANFRANCO FERRÉ FRANCE E.u.r.l., and GIANFRANCO FERRÉ 

UK Ltd. manage owned boutiques in Italy, Cannes, and London, respectively. 

GIANFRANCO FERRÉ HOLDINGS Inc. is a holding company which distributes in the United States. It owns 

GIANFRANCO FERRÉ USA Inc., which manages the New York showroom, FIRST N.Y. BOUTIQUE Inc. which 

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manages the New York boutique and, as a sub-holding company, controls FIRST RODEO Corp., which manages the 

Beverly Hills boutique and FIRST P.B. BOUTIQUE Inc., which manages the Bal Harbour boutique. 

As part of the larger Group shareholding reorganization, shareholdings in GIANFRANCO FERRÉ HOLDINGS Inc, 

GIANFRANCO FERRÉ FRANCE E.u.r.l., and GIANFRANCO FERRÉ UK Ltd were transferred from 

GIANFRANCO FERRÉ S.p.A. to IT FINANCE AND TRADING B.V. in 2002. 

• incorporation of P.A.F.—Pelletterie Artigiane Fiorentine S.r.l. in Campi Bisenzio (FI), operating in the design, 

production and marketing of leather goods. 

• ITF S.p.A.’s incorporation of ITF USA Inc., based in New York with share capital of $ 300,000. This company 

will distribute perfumes on the US market. 

• acquisition of 80% of EYEWEAR CONNECTION Inc., based in North York—Ontario—Canada from third 

parties. The company then changed its name to ALLISON CANADA Inc. 

Disposals: 

exclusion of ITJ S.p.A. following its merger into ITTIERRE S.p.A. 

The changes in the consolidation area did not have a significant impact on the Group structure with respect to the 

previous year 

9. Significant Events after the Year-end 

January 2003 

• In January 2003, as part of the project to integrate the Ferré brand within the IT Holding Group, an owned DOS in 

Avenue Montaigne, Paris, was inaugurated. The sales area covers around 350 square meters and the store concept 

was designed by Gabellini and Associates (NYC), leader in boutique design for the most prestigious companies in 

the luxury goods industry. The same store concept was used for the renovation of the Ferré flagship store in via 

Sant’Andrea, Milano, which was opened in March 2003. The sales area covers 600 square meters, plus an 

additional 150 square meters for a spa managed in collaboration with Espa Ltd., spa market leader. The spa is an 

extra attraction for boutique customers and, along with VIP endorsement activities, it also boost “Ferré” fragrance 

sales, an activity managed by the subsidiary ITF S.p.A. 

February 2003 

• In February 2003, ALLISON S.p.A. increased its investment in BIEMME S.r.l. from 66.66% to 100%. 

March 2003 

• Open of the directly operated Ferré store in Via Sant’Andrea, Milano was reopened after its renovation, along 

with the adjacent spa managed in collaboration with Espa Ltd., a leader in the spa sector. 

• On March 6, 2003, ITTIERRE S.p.A., ITF S.p.A., M.A.C.—Manifatture Associate Cashmere S.p.A., ALLISON 

S.p.A., ITC S.p.A., and GIANFRANCO FERRÉ S.p.A. set up IT RESEARCH S.c. a r.l., a consortium which will 

manage professional training. 

• On March 20 and 21, 2003 the Boards of Directors of ITTIERRE S.p.A. and MALO S.p.A. resolved to propose 

the merger of MALO S.p.A. into ITTIERRE S.p.A. to the shareholders’ meetings, scheduled for April 28, 2003 

on first call and April 29, 2003 on second call, for approval. 

• March 30, 2003, ALLISON S.p.A. signed a five-year license agreement for the production and distribution of Les 

Copains brand eyewear. 

April 2003 

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• A loan agreement was signed on April 10, 2003 with Sanpaolo IMI S.p.A., Efibanca S.p.A., and Banca Popolare 

di Milano S.c.a.r.l.. The loan amounts to Euro 85,000 thousand, matures on December 12, 2005, and is guaranteed 

by PA Investments. 

• On April 17, 2003, ALLISON S.p.A. signed a five-year license agreement with third parties for the production 

and distribution of Vivienne Westwood brand eyewear. 

• The shareholders of ITTIERRE S.p.A. and MALO S.p.A. held an extraordinary meeting on April 28, 2003 and 

resolved on the merger of MALO S.p.A. into ITTIERRE S.p.A. The company performed fashion advisory 

activities. M.A.C.—Manifatture Associate Cashmere S.p.A. will retain ownership of the MALO brand, as well as 

the related production activities. 

• In April, a restructuring program began on the production departments of ALLISON S.p.A.’s site in Volta 

Mantovana (MN), as well as on those of DESIL S.p.A. and BIEMME S.r.l., with the use of 

government-sponsored lay-off schemes. 

• During the same month, the shareholders of C.I.M.—Compagnia Italiana Maglierie S.r.l. (fully owned by 

M.A.C.—Manifatture Associate Cashmere S.p.A.) held an extraordinary meeting to resolve on the early winding 

up of the company. This is a small company which only performed certain processing activities for M.A.C.— 

Manifatture Associate Cashmere S.p.A. 

May 2003 

• On May 6, 2003, the shareholders of IT HOLDING S.p.A. resolved, inter alia, to renew the Board of Director’s 

authorization for a further 18 months (i.e. up to November 5, 2004) to buy and sell IT HOLDING S.p.A.’s 

treasury shares, also on more than one occasion, up to a maximum of 24,587,400 treasury shares, or 10% of total 

outstanding shares and, in any case, within the limits of the available reserves and, therefore, up to a maximum 

amount of Euro 40,500,000. 

• ALLISON S.p.A. transferred total ownership of BIEMME S.r.l. to third parties in June. ALLISON S.p.A. had 

previously increased its investment in the company from 66.66% to 100%. 

June 2003 

• Also in June, ITTIERRE S.p.A. signed a new license agreement with E.C. S.p.A., owned by Ennio and Carlo 

Capasa, for the Costume National brand. The agreement provides for the production and worldwide distribution 

of a new youth apparel and accessories collection from Fall—Winter 2004. 

• During the same month, ITTIERRE S.p.A. set up ITTIERRE ACCESSORIES S.p.A., based in Pettoranello di 

Molise (IS), to produce and sell accessories in leather and fabrics. 

GIANFRANCO FERRÉ S.p.A. launched the new GF Ferré youth collection also in June. 

• On June 26, 2003, ALLISON S.p.A. signed a five-year license agreement with third parties for the production and 

distribution of John Richmond brand eyewear. 

July 2003 

• On July 8, 2003, pursuant to Law no. 52/91, the IT HOLDING Group and the Milano branch of Crédit Lyonnais 

S.A., as arranger, signed a trade receivable securitization agreement. The agreement provides for a maximum 

amount of Euro 200.000 thousand, a five-year duration, and the factoring of trade receivables without recourse. It 

involves seven Group companies: ITTIERRE S.p.A., ITC S.p.A., M.A.C.—Manifatture Associate Cashmere 

S.p.A., ALLISON S.p.A., ITF S.p.A., ITTIERRE FRANCE S.A., and ITTIERRE MODEN GmbH as originators. 

The preliminary conditions for the finalization of the transaction included due diligence reviews of the 

administrative, IT and management procedures for the trade receivables of the Group companies involved. Crédit 

Lyonnais S.A. and Eurofactor S.A. performed the reviews, the latter as securitization agent. The receivables were 

judged to be compatible with the issue of commercial paper by a foreign multi-seller vehicle (LMA S.A.) with an 

F- 108


A1/P-1 rating. The securities issued were acquired by specialized institutional investors. The seven originators 

have maintained their relationships with debtors as is, since they were appointed securitization servicers and are 

therefore responsible for collecting and recovering the factored receivables. The aim of the transaction is to make 

a source of financing available at a competitive cost, taking the middleman out of the financing and drawing on 

international financial markets to sustain the Group’s growth in turnover over the medium term. The 

securitization described above also has the following effects: 

• test the efficiency of internal administrative procedures; 

• provide an accurate and quantitative basis for managing current assets. 

At the same time, the following agreements in place between IT HOLDING S.p.A. and the Milan branch of Crédit 

Lyonnais S.A. were terminated in advance: 

• the servicing agreement signed on December 20, 2002, for the administration and management—including the 

collection of receivables and management of bad debts—of receivables factored without recourse to the bank by 

the subsidiaries ITTIERRE S.p.A. ALLISON S.p.A., M.A.C.—Manifatture Associate Cashmere S.p.A., and ITF 

S.p.A. 

• the joint venture agreement signed on December 20, 2002 with the Milano branch of Credit Lyonnais S.A. 

through which the active partner (Credit Lyonnais S.A.) offered the silent partner (IT HOLDING S.p.A.) a share 

in the profits on the purchase, management and collection of receivables, as described above in relation to the 

servicing project. Under this agreement, IT HOLDING S.p.A. made an initial contribution commensurate with 

the receivables factored by the subsidiaries ITTIERRE S.p.A., ALLISON S.p.A., M.A.C.—Manifatture Associate 

Cashmere S.p.A., and ITF S.p.A.. The termination of these agreements led to the collection of the amount of the 

contribution. 

• In July, the shareholders of M.A.C.—Manifatture Associate Cashmere S.p.A. held an extraordinary meeting 

during which they resolved to relocate the company’s registered office to Pettoranello di Molise (IS). 

• Also in July, ITTIERRE ACCESSORIES S.p.A. increased its share capital to Euro 1,000,000 and, at the same 

time, Mr. Sergio Lin, an expert player in the industry, entered the company’s shareholding structure with an 

investment of 10%. He was also appointed CEO of the company. 

September 2003 

• On September 30, 2003 Standard & Poor’s rated IT HOLDING S.p.A. “B+/Stable”. This is a way of measuring 

the company’s credit worthiness on the basis of its economic and financial performance in the last five years and 

its medium-term business plans and in terms of management’s ability to achieve them. IT HOLDING S.p.A. 

requested the rating from Standard & Poor’s and subsequently published it to demonstrate its transparency with 

financial markets in general and the corporate bond market in particular. The “Ferré Finance 7% 05/05” bond 

issued by a subsidiary of IT HOLDING S.p.A. in May 2002 to finance the acquisition of the Ferré Group was 

being traded at very low levels, which did not correspond to the credit worthiness of a company with a “B” rating. 

This was due to the attitude of financial operators, in a climate of uncertainty and wariness following the default 

of Cirio. The “Ferré Finance 7% 05/05” bond recovered considerably after the publication of the rating, as is 

shown below: 

F- 109


In February 2004, Standard and Poor’s confirmed the Group’s rating, but changed its forecasts from stable to 

negative. This change does not reflect the Group’s performance or financial position, but is due to the higher degree 

of selectivity of the credit market with regard to Italian companies following the default of the Parmalat Group. 

• During 2003 the Group completed a strategic refocusing on business areas in which it is capable of keeping on 

going leadership positions on international markets. 

This strategic refocusing has led to the decision to group together apparel and accessories division resources, using as 

leverage owned and licensed brands with satisfactory profitability and the capacity to develop high current or 

potential business volumes. In line with the new project, the Group made significant progress in this direction in 2003 

and during the first few months of 2004. 

In particular, with regard to strategic business, the project entailed the following: 

• the internalization of the Gianfranco Ferré Studio, Gianfranco Ferré Forma, and GFF collections, with their new 

labels, Gianfranco Ferré (white label), Gianfranco Ferré (red label), and GF Ferré; 

• the launch of the new GF Ferré collection, replacing Gianfranco Ferré Jeans and GFF; 

• the renovation of the Gianfranco Ferré boutiques in Milan, Capri, Porto Cervo, New York City, and Cannes, 

based on the new store concept; 

• the opening of new Gianfranco Ferré boutiques in Paris and, in early 2004, in Munich; 

• the opening of two franchised GF Ferré boutiques in Las Vegas and Rome; 

• obtaining the license to develop the young collections of the Costume National fashion house. 

With regard to non-strategic business, the following measures were taken: 

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• the sale of the perfume business in March 2004; 

• the sale of Romeo Gigli and Gentryportofino brands. 

As a consequence of the above described strategic refocusing and of the persistent crisis in the industry the amount of 

Euro 29,214 thousand related to the trademark “Gigli” and the amount of Euro 23,182 thousand related to goodwill 

arising a certain past acquisitions were written down in 2003. 

The Romeo Gigli trademark was written off in full to take into account the economic impact of the sale which took 

place on April, 27, 2004. 

Goodwill arising on consolidation was written down for reasons of prudence, since current market prospects do not 

ensure its recovery with sufficient certainty or within reasonable timeframes. 

Certain industrial groups that once issued corporate bonds as a means of financing have been recently declared in 

states of insolvency. This has turned the public against outstanding bonds and led it to view with unusual and 

understandable scrutiny the prospective ability of issuers to fulfill their commitments at maturity. 

The IT Holding Group plans to repay the Ferré bond maturing in May 2005 by taking the following measures: 

• strategic refocusing which should generate a recovery in profitability in the short term; 

• improvement in the management of working capital, despite the substantial stability of the volume of operations; 

• investment control. Most of the investments required to relaunch the Ferré brands were completed before the end 

of the year; 

• the sale of non-strategic business activities, which led to the sale of the perfume business in March 2004, 

generating Euro 31.5 million; 

• the sale of Romeo Gigli and Gentryportofino brands which had a negative impact on profitability. 

Furthermore, with the assistance of banks, the Group is currently planning transactions to refinance a portion of the 

Euro 200 million bond maturing in 2005. This should sustain business management and development, while 

preventing the timing of the above events from creating financial tension. 

March 2004 

• March 6, 2004 marked the official opening of the GF Ferré boutique in Rome, owned by a business partner of the 

Group. The space covers 150 square meters and will showcase the young men’s and women’s apparel and 

accessories collections, presented to the public and the press in June 2003. The apparel, accessories, eyewear, and 

perfume collections are gathered under the GF Ferré and Gianfranco Ferré brands. They target two distinct groups 

of customers: young people and adults in general. These two brands are the result of an image and product 

streamlining project as part of the brand relaunch plan. 

• On March 18, 2004, Professor Claudio Demattè unexpectedly passed away. He had served as director of the 

holding company, bringing his excellent qualifications, expertise and experience to the board. The company 

regrets the loss of Professor Demattè, whose personal and professional qualities were much admired. 

• Also on March 18, 2004, the owned Gianfranco Ferré boutique officially opened in Munich. The space covers 

350 square meters and is furnished in line with the store concept previously applied to the directly operated stores 

in Milano, Paris, Cannes, Capri, and Porto Cervo. It will showcase the Gianfranco Ferré men’s and women’s 

collections from Spring/Summer 2004. This investment is part of the Ferré relaunch plan, whereby the most 

important showrooms are renovated and the product range coordinated and expanded. 

• On March 25, 2004, IT HOLDING S.p.A. sold its 90% shareholding in IBEX 2001 S.p.A. to I.C.R.—Industrie 

Cosmetiche Riunite S.p.A., owned by Mr. Roberto Martone. Together with shareholder Mr. Roberto Martone, 

IBEX 2001 S.p.A. controls ITF S.p.A., which was set up in September 2001 to develop and distribute perfumes 

and cosmetics under brands licensed by the IT Holding Group and third parties. At the time of the sale, ITF S.p.A. 

had 25-year license agreements with certain IT Holding Group companies. For IT HOLDING S.p.A., the 

transaction is in line with its strategy of focusing on the core business, comprised of the apparel and accessories 

collections of owned and licensed brands. Furthermore, the proceeds from the sale have made the Group more 

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financially flexible. The sale took place following negotiations between the parties. A merchant bank confirmed 

the sales price of Euro 31,5 million in its appraisal. The consideration was paid upon signature of the sales 

contract. This sale generated a capital gain of approximately Euro 22,8 million in the 2004 consolidated financial 

statements. Lastly, IT HOLDING S.p.A. has not provided for any changes in its or its subsidiaries’ directors’ fees 

following the above transaction. 

• In first quarter 2004, FERRÉ FINANCE S.A. repurchased “Ferré Finance 7% 05/05” bonds it had issued and 

cancelled them, for a total of Euro 25 million. 

April 2004 

• On April 19, 2004, the Gianfranco Ferré boutique in New York was reopened. Owned by IT CLINTON Llc., it 

covers more than 400 square meters and will sell the men’s and women’s apparel collections, along with the 

complete range of accessories, underwear, beachwear, eyewear, and perfumes. The look of the space is elegant 

and unique, in line with the new GF Ferré store concept, which is the key element in the brand’s current 

development strategy. 

• On April 27, 2004, IT HOLDING S.p.A. transferred its 100% investment in GIGLI S.p.A. to Immobiliare Esse 

S.r.l. This was also a way to transfer total control of V2I HOLDING S.A., and, consequently, 80% of the share 

capital in the Luxembourg subsidiaries. These companies own all rights to the Romeo Gigli brand (created by the 

designer of the same name) and all related elements, subject to domestic and international filing and applications. 

On the same date that IT HOLDING S.p.A. signed the sales contract, it also signed a licensing agreement with 

GIGLI S.p.A., taking effect January 1, 2004, making the latter licensee, with the power to sublicense, the 

exclusive use, production, and sale of Romeo Gigli brand products. The duration of the licensing agreement is ten 

years, and it is renewable for another ten with respect to eyewear (through the subsidiary ALLISON S.p.A.), 

perfumes and cosmetics (manufactured and distributed by ITF S.p.A.), and timewear. GIGLI S.p.A. is not 

required to pay royalties, but only meet specific commitments in terms of advertising investments. The sale of the 

Romeo Gigli is in line with the Group’s strategy of focusing on strategic businesses with high growth potential. 

The price was Euro 1,000.00 and the sale generated a capital loss of Euro 4,747 thousand, which, for the most 

part, reflects this company’s net loss for the period. 

• On April 30, 2004, M.A.C.—Manifatture Associate Cashmere S.p.A.'s sale of the Gentryportofino brand to 

Elizabeth Mambrini S.r.l. was finalized. The sale was made for Euro 3,750 thousand and did not have any 

significant effects on the consolidated statement of income. 

• On April 30, 2004, GENTRYPORTOFINO S.p.A. sold the business activity in Genova, Via Pierluigi Bagnasco 

to Elizabeth Mambrini S.r.l. The business object of the activity sold was the design, production and sale of 

various products and ready-to wear and knitwear lines under the Gentryportofino label. The sale was made for 

Euro 470 thousand and did not have any significant effects on the consolidated statement of income. 

May 2004 

• On May 6, 2004 the shareholders of IT HOLDING S.p.A. appointed Carlo Giovanni Mammola Director to 

replace Mr. Claudio Demattè, who had passed away. Mr. Mammola, who teaches at the Università Bocconi of 

Milano and is Managing Director of Bank of America Capital Partners Europe, qualifies as an independent 

director on the basis of the definition given in the Code of Conduct for Listed Companies. 

• On May 21, 2004, ALLISON S.p.A. acquired the entire share capital of ALLISON UK Ltd, based in London. 

The acquired company will handle the distribution of eyewear products on the UK market, to boost the Group’s 

commercial presence in that country. 

June 2004 

• On June 1, 2004, ALLISON EYEWEAR Inc. (100% owned by ALLISON S.p.A.) was contributed to the newco 

ALLISON USA Inc., with share capital of USD 4 million. In proportion to the attributed contribution value of 

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USD 1 million, ALLISON S.p.A. acquired 25% of the share capital of ALLISON USA Inc., and the other 75% is 

held by the local shareholder Paul Diaz. 

• In June 2004, three-year licensing agreements were signed with Global Watch Industries S.r.l.. They begin from 

the 2005 Spring/Summer season, with possible extension for an additional two years and relate to the production 

and marketing of a line of watches under the Romeo Gigli, Extè, GF Ferré brands. 

• In June 2004, ALLISON S.p.A. acquired a five-year license to produce and market eyewear under the Missoni 

and Cerrutti 1881 collections. 

July 2004 

• On July 15, 2004, in an extraordinary meeting, the shareholders of M.A.C.—Manifatture Associate Cashmere 

S.p.A resolved to change the company’s name to MALO S.p.A.. 

• Also on July 15, 2004, in an extraordinary meeting, the shareholders of GENTRYPORTOFINO S.p.A. resolved 

to change the company’s name to IT DISTRIBUZIONE S.p.A.. 

10. Cash and Cash Equivalents 

December 31, 

2002 2001 





Total 47,237 46,589 


held with banks, including interest accrued at December 31, 2002. 


11. Short term financial assets 

At December 31, 2002 short terms financial assets amounted to Euro 9,172 thousand (2001: Euro 7,180 thousand), 

which is mainly comprised of the amount paid to Credit Lyonnais S.A. (Euro 9,146 thousand) as the consideration for 

the joint venture agreement related to the acquisition, management, and collection of receivables which ITTIERRE 

S.p.A., ALLISON S.p.A., and ITF S.p.A. factored to such bank without recourse. In the previous year, this caption 

comprised short-term cash investments in bonds, which were sold at the beginning of 2002. 

F- 113


12. Trade receivables, net 

Trade receivables, net, at December 31, 2002 and 2001 were as follows: 

December 31, 

2002 2001 

Increase 

(decrease) 


Due before 12 months 

Italian customers............................................................................................................ 57,848 57,268 580 

Foreign customers.......................................................................................................... 80,942 79,311 1,631 

Italian agents .................................................................................................................. 898 1,127 (229) 

Foreign agents................................................................................................................ 19,443 8,293 11,150 

Italian subcontractors..................................................................................................... 2,359 2,485 (126) 

Foreign subcontractors................................................................................................... 135 51 84 

Others in Italy ................................................................................................................ 4,748 1,935 2,813 

Others in abroad.............................................................................................................. 624 458 166 

Trade bills receivable..................................................................................................... 49,499 10,471 39,028 

Invoice to be issued........................................................................................................ 1,527 170 1,357 

Bad debt provision......................................................................................................... (9,677) (6,218) (3,459) 

Total............................................................................................................................... 208,346 155,351 52,995 

The Euro 52,995 thousand increase in this caption was due to the increase in receivables, due to the overall growth in 

business. 

The bad debt provision has been estimated using analytical criteria on the basis of available data and in general on the 

basis of historical trends. 

The increase was primarily due to the turnover, also in the eyewear and perfume divisions, and the change in the 

consolidation area. 

13. Inventories 

Inventories at December 31, 2002 and 2001 can be analyzed as follows: 

December 31, 

2002 2001 

Increase 

(decrease) 


raw, ancillary and consumable materials .................................................................. 37,158 36,641 517 

products in process and semi-finished products ....................................................... 19,399 22,694 (3,295) 

finished products and merchandise ........................................................................... 89,447 68,911 20,536 

—with distributors ..................................................................................................... 85,029 58,590 26,439 

—with factories.......................................................................................................... 4,418 10,321 (5,903) 

advance payments...................................................................................................... 5 5 — 

Total........................................................................................................................... 146,009 128,251 17,758 

Inventories of raw materials and semi-finished products mainly refer to the preparation of the Spring/Summer 2003 

collection. 



The Euro 17,758 thousand increase is manly due to the general increase in operating activity and the to the change in 

consolidation area. 

F- 114


14. Other current assets 

Other current assets at December 31, 2002 and 2001 can be analyzed as follows: 

December 31, 

2002 2001 

Increase 

(decrease) 


Taxation authorities—VAT credit ....................................................................................... 8,961 7,700 1,261 

Taxation authorities—VAT reimbursements....................................................................... 5,065 12,497 (7,432) 

Taxation authorities—Tax credit ......................................................................................... 9,645 11,927 (2,282) 

Advances to Italian suppliers and/or agents......................................................................... 12,394 3,116 9,278 

Commissions on sales........................................................................................................... 11,054 6,130 4,924 

Investments in Collection Development.............................................................................. 26,089 21,931 4,158 

Others current assets and deferred income........................................................................... 49,738 14,512 35,226 

Total...................................................................................................................................... 122,946 77,813 45,133 

The VAT receivable is mainly composed of the reimbursement for the year requested by ITTIERRE S.p.A. for Euro 

2,700 thousand. 

Investments in Collection Development are related to the investments made in designing the new collection and in the 

production of samples (pre-production or pre-use prototypes and models). They are classified as current assets as the 

related future economic benefits are expected to flow to the group within the Group entities’ operating cycle. 

Movements of Investments in Collection Development in 2002 were as follows: 

Balance at 

January 1, 

2002 

Acquisitio 

n 

Write- 

off 

Balance at 

December 

31, 

2002 

F- 115 

Cost Amortization 

Balance at 

January 1, 

2002 

Amortization 

of the year 

Write- 

off 

Balance at 

December 31, 

2002 

Investments in 

Collection 

Development 60,702 47,813 (38,256) 70,259 (38,771) (43,655) 38,256 (44,170) 

Net carrying 

amount at 

January 1, 

2002 

Net carrying 

amount at 

December 

31, 2002 

Investments in 

Collection 

Development 21,931 26,089 

Other current assets are comprised mainly of positive market values in financial derivatives totaling Euro 

23,037 thousand (2001: Euro 558 thousand). The negative market values in financial derivative are included in the 

caption “other current liabilities”. 

15. Long term financial assets 

At December 31, 2002 long terms financial assets amounted to Euro 2,244 thousand (2001: Euro 3,985 thousand), 

which is mainly comprised of guarantee deposit totaling Euro 2,015 thousand (2001: Euro 1,801 thousand). 

16. Investment property 

The only movement in investment property, which is presented at cost less accumulated depreciation, is represented 

by the depreciation of the year amounting to Euro 43 thousand. 

The fair value of the investment property is estimated equal approximately Euro 1,420 Thousand. The estimate is 

based on current prices in an active market for similar properties in the same location and condition.


The amounts included in the income statement related to such investment property are as follows: 

December 31, 

2002 2001 



Direct operating expenses............................................................................................................................... (231) (228) 

Depreciation.................................................................................................................................................... (43) (43) 

17. Property, plant and equipment, net 

The following table presents the breakdown of and changes during 2002 in tangible assets: 

Land and 

building 

Plant and 

machinery 

Industrial and 

commercial 

equipment Other assets 

F- 116 


Assets in 

formation and 

advances Total 

Cost 

Balance at January 1, 2002 . 50,592 18,154 5,233 27,265 81 101,325 

Other acquisition ................. 15,329 3,823 1,441 4,250 — 24,843 

Changes of consolidation area 3,789 95 163 2,319 553 6,919 

Other movements ................. 357 (403) (4) (317) 111 (256) 

Write-downs........................ — — — (57) — (57) 

Disposal............................... (11,677) (208) (494) (766) — (13,145) 

Balance at December 31, 

2002 ..................................... 58,390 21,461 6,339 32,694 745 119,629 

Depreciation and 

impairment loss 

Balance at January 1, 2002 . (5,651) (8,016) (2,263) (14,261) — (30,191) 

Depreciation charge for the 

year ...................................... (4,273) (2,462) (1,458) (3,852) — (12,045) 

Balance at December 31, 

2002 ..................................... (9,924) (10,478) (3,721) (18,113) — (42,236) 

Carrying amounts 

At January 1, 2002 .............. 44,941 10,138 2,970 13,004 81 71,134 

At December 31, 2002 ........ 48,466 10,983 2,618 14,581 745 77,393 

The changes in consolidation area mainly refers to the acquisition of Ferré Group. 

The increase in land and building mainly refers to leasehold improvements.


18. Goodwill, trademarks, other intangible assets and deferred charges, net 

Movements of intangible assets in 2002 were as follows: 

Development Patents and 

Assets in 

formation and 

cost trademarks Goodwill advanced Other Total 


Costs 

Balance at January 1, 2002 ............ — 85,068 74,580 7,411 1,058 168,117 

Acquisitions.................................... 979 3,477 1,696 2,926 3,627 12,705 

Changes of consolidation area ....... — 175,883 83,140 2,007 7,577 268,607 

Other movements ........................... — 67 (72) — (2,006) (2,011) 

Write-downs................................... — — — — (23) (23) 

Disposal.......................................... — — — (2,599) (3,389) (5,988) 

Balance at December 31, 2002 ..... 

Depreciation 

979 264,495 159,344 9,745 6,844 441,407 

Balance at January 1, 2002 ............ — (19,495) (24,720) (966) (45,181) 

Depreciation of the year................. (175) (16,021) (10,872) — (549) (27,617) 

Balance at December 31, 2002 .... 

Carrying amount 

(175) (35,516) (35,592) — (1,515) (72,798) 

At January 1, 2002 ......................... — 65,573 49,860 7,411 92 122,936 

At December 31, 2002 ................... 804 228,979 123,752 9,745 5,329 368,609 

The increase in balance of the item trademark is basically determined by the brand Ferrè purchased in 2002 for Euro 

175 million. 

The increase in goodwill is mainly due to the acquisition of the Ferrè Group. 

19. Deferred tax assets and liabilities 




Deferred tax assets and liabilities 2002 2001 2002 2001 2002 2001 


Property, plant and equipment ......................................... — (66) 1,346 1,315 1,346 1,249 

Intangible assets ............................................................... (10,270) (10,600) 63,723 — 53,453 (10,600) 

Investment property ......................................................... — — 845 1,469 845 1,469 

Investment in subsidiary .................................................. (16,503) — — — (16,503) — 

Interest-bearing loans and borrowings............................. (164) (234) 91 — (73) (234) 

Employee benefits............................................................ — — 234 271 234 271 

Provisions ......................................................................... (4,245) (3,353) 307 310 (3,938) (3,043) 

Other items ....................................................................... (5,937) (1,198) — — (5,937) (1,198) 

Tax value of loss carry-forwards not recognized ............ (1,350) (4,309) — — (1,350) (4,309) 

Net tax (assets)/liabilities ............................................... (38,469) (19,760) 66,546 3,365 28,077 (16,395) 

The caption “Investment in subsidiary” relates to write off of the value of the investment that is tax deductible. 



2002 2001 

Increase 

(Decrease) 


Intangible assets ............................................................................................................................... 4,235 1,482 2,753 

Provisions ......................................................................................................................................... 4,268 974 3,294 

Other items ....................................................................................................................................... 1,372 161 1,211 

Tax value of loss carry-forwards not recognized ............................................................................ 20,397 15,673 4,724 

Total................................................................................................................................................. 30,272 18,290 11,982 

F- 117


The tax losses expire in five years. The deductible temporary differences do not expire under current tax legislation. 

Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable 

profit will be available against which the Group companies can utilize the benefits there from. 

Balance 

January 1, 

2002 

F- 118 

Balance 

December 31, 

2002 

Movement in temporary differences during 

Changes in Recognized Recognized 

the year 

consolidation area in income in equity 


Property, plant and equipment .................. 1,249 — 97 — 1,346 

Intangible assets ......................................... (10,600) 70,584 (3,200) (3,331) 53,453 

Investment property ................................... 1,469 — (624) — 845 

Investment in subsidiary ............................ — — (16,503) — (16,503) 

Interest-bearing loans and borrowings....... (234) — 161 — (73) 

Employee benefits...................................... 271 — (37) — 234 

Provisions .................................................. (3,043) — (895) — (3,938) 

Other items ................................................. (1,198) — (4,739) — (5,937) 

Tax value of loss carry-forwards recognized (4,309) — 2,959 — (1,350) 

Net tax (assets)/liabilities ........................ (16,395) 70,584 (22,781) (3,331) 28,077 

The deferred tax liability on the portion of the cost for the acquisition of the Gianfranco Ferrè Group allocated to 

brand has been recognized against Goodwill. Therefore, the positive effect of the change in tax rate from 40,25% to 

38,25% of 2002 has not been recognized in the income statement. 

20. Interest-bearing loans and borrowings 

This note provides information about the contractual terms of the Group’s interest-bearing loans and borrowings. For 

more information about the Group’s exposure to interest rate and foreign currency risk, see note on Financial 

instruments. 

December 31, 

2002 2001 



Bank loans .............................................................................................................................................. (91,216) (39,503) 

Bond issues............................................................................................................................................. (193,561) — 

Finance lease liabilities .......................................................................................................................... (672) (769) 


(285,449) (40,272) 

Current portion of bank loans ................................................................................................................ (27,577) (147,759) 

Current portion of bond issued............................................................................................................... (13,649) — 

Factoring without recourse..................................................................................................................... (85,679) (82,616) 

Current portion of finance lease liabilities............................................................................................. (2,038) (669) 

Bank facility ........................................................................................................................................... (26,412) (27,316) 

(155,355) (258,360) 

Total....................................................................................................................................................... (440,804) (298,632)


Terms and debt repayment schedule for balances at December 31, 2002 are as follows: 

F- 119 

Less 

than 

1 year 

More 

than 

5 years 

1-2 2-5 

Total 

years 


years 

Bank loans: 

Euro—variable at 5.43%................................................................. 99,987 15,000 — 84,987 — 

Euro—variable at 4.05%................................................................. 4,962 1,395 2,428 1,139 — 

Euro—variable at 3.95%................................................................. 10,013 10,013 — — — 

Others .............................................................................................. 

Bond issues: 

3,831 1,169 1,648 1,014 — 

Eurobond 2005—fixed 7.0% .......................................................... 207,210 13,649 193,561 — — 

Factoring without recourse: ............................................................ 85,679 85,679 — — — 

Finance lease liabilities: .................................................................. 


2,710 2,038 189 483 — 

Ordinary current account ................................................................ 13,080 13,080 — — — 

Advances on export......................................................................... 9,664 9,664 — — — 

Bills withdrown falling due............................................................. 1,800 1,800 — — — 

Advances on orders......................................................................... 1,868 1,868 — — — 

Total................................................................................................ 440,804 155,355 197,826 87,623 — 

On December 12, 2002, IT HOLDING signed an agreement with a bank syndicate of Sanpaolo IMI S.p.A., Banca 

Popolare di Milano S.p.A. and Efibanca S.p.A. for a loan of Euro 100,000,000 over three-years, renewable for another 

year upon exercise of a term out option secured with a surety provided by the parent company, PA Investments. Apart 

from the commitments they have separately taken on, the banks will place the loan on the market so as to create a 

specific syndicate. Before the bank syndicate was set up, a pre-financing plan enabled disbursement of Euro 

100,000,000. The primary purpose behind the loan was to settle credit lines falling due. Specifically: 

• the syndicate transaction led by Sanpaolo IMI S.p.A. was disbursed on June 14, 2001 for a total of Euro 

77,469 thousand repayable on December 12, 2002; 

• stand-by credit line granted by Banca Popolare di Milano S.p.A., disbursed on July 4, 2001 for a total of Euro 

25,823 thousand, repayable on January 2, 2003. 

The company prepaid a portion of such loan amounting to Euro 15,000,000 on March 12, 2003. 

The balance of €207,210 thousand represents the bond issued by FERRÉ FINANCE S.A. with a face value of 

200,000 thousand, guaranteed by IT HOLDING S.p.A., syndicated on the Euromercato, remunerated at a yearly rate 

of 7% maturing on May 10, 2005. 

The balance of €85,679 thousand (2002: €82,616 thousand) represents the financial liability recognized for the 

consideration received in the factoring of trade receivables without recourse transactions finalized by the Group, 

transactions which do not meet the derecognition criteria of IAS 39.


21. Trade payables and accrued expenses 

Trade payables and accrued expenses at December 31, 2002 and 2001 can be analyzed as follows: 

December 31, 

2002 2001 

Increase 

(decrease) 


Due to suppliers 

—Suppliers......................................................................................................................... 78,318 76,570 1,748 

—Subcontractors................................................................................................................ 33,688 28,060 5,628 

—Agents............................................................................................................................. 1,556 1,165 391 

—Commissions to be settled ............................................................................................. 10,782 5,744 5,038 

—Consultants..................................................................................................................... 35,140 27,389 7,751 

—Licensees ........................................................................................................................ — — — 

Advance payments ............................................................................................................. 2,032 5,963 (3,931) 

Due to affiliates .................................................................................................................. 1,458 1,228 230 

Due to parent company ...................................................................................................... 74 — 74 

Total.................................................................................................................................... 163,048 146,119 16,929 

Payables due to suppliers totaled Euro 159,484 thousand (2001: € 138,928 thousand) and refer to the purchase of 

goods and services in Italy and abroad including the accrual for invoices to be received. 

Advance payments mainly comprises advance payments made by customers for future supplies. 

Due to affiliates is entirely comprised of amounts due to ALLISON S.p.A., DESIL S.p.A., and BIEMME S.r.l. by 

NEOMETAL OPTIK S.p.A. 

22. Tax liabilities and income tax payable 

Tax liabilities and income tax payable at December 31, 2002 and 2001 can be analyzed as follows 

December 31, 

2002 2001 

Increase 

(decrease) 


Direct Taxes......................................................................................................... 16,769 4,282 12,487 

Indirect Taxes........................................................................................................ 418 354 64 

Withholdings to be paid....................................................................................... 1,447 1,285 162 

Other taxes ............................................................................................................ 418 144 274 

Total...................................................................................................................... 19,052 6,065 12,987 

Direct taxes include payable for current taxes net of advance payments and tax receivables which can be used to offset 

amount due. 

F- 120


23. Other current liabilities 

Other current liabilities at December 31, 2002 and 2001 can be analyzed as follows: 

December 31, 

2002 2001 

Increase 

(decrease) 


Due to factors................................................................................................................ 12,901 8,569 4,332 

Due to social security agencies..................................................................................... 2,858 2,520 338 

Remuneration to be paid............................................................................................... 5,962 5,141 821 

Remuneration to the Board of Directors ...................................................................... 896 513 383 

Remuneration to the Board of Statutory Auditors ....................................................... 305 220 85 

Other parties.................................................................................................................. 7,450 7,066 384 

Other current liabilities and accrued expenses............................................................. 50,612 20,642 29,970 

Total.............................................................................................................................. 80,984 44,671 36,313 

Payables to factors relate to the amount due to the factoring companies to which Group suppliers have sold their 



Other parties mainly comprises credit notes to be issued, payables for year-end achievement awards to customers, and 

amounts due for charges incurred to recover the full availability of the Romeo Gigli brand in the perfume division. 

Other current liabilities are comprised mainly of negative market values in financial derivatives totaling 

€21,856 thousand (2001: €37 thousand) and accrued royalties in the amount of €11,085 thousand (2001: 


24. Employee benefits: pension liabilities and severance indemnities 




based on the revaluation of the amounts previously accrued. The indemnity is an unfunded but fully provided liability. 


follows: 

Liability for defined benefit obligations 2002 2001 

Principal actuarial assumptions at the balance sheet date 

Projected future remuneration increases ............................................................................... 2% 2% 

Projected future employee turnover ...................................................................................... 7.1-18.2% 7.7-17.2% 


Movements in the net liability 2002 2001 


Net liability at January 1............................................................................................................. 11,283 9,076 

Accruals .................................................................................................................................................. 4,015 3,884 

Utilizations.............................................................................................................................................. (2,592) (2,436) 

Other movements (changes in the consolidation area) .......................................................................... 897 759 

Net liability at December 31 ................................................................................................................ 13,603 11,283 

F- 121


25. Other long-term liabilities 

Other long-term liabilities at December 31 2002 and 2001 are made up as follows: 

December 31, 

2002 2001 

Increase 

(decrease) 


Agents’ termination benefits .......................................................................................... 

Others 

4,100 3,007 1,093 

—Provision for return on sales....................................................................................... 3,190 3,476 (286) 

—Provision for tax contingences ................................................................................... 3,251 2,953 298 

—Provision for other contingences................................................................................ 4,207 476 3,731 

Total................................................................................................................................ 14,748 9,912 4,836 


contracts in compliance with law and other relevant factors such as historical data, the average duration of agents’ 

contracts and their turnover. 

The amount of the Agent’s termination benefits has been determined based on the present value of the expenditures 


Other mainly includes: 

• €3,190 thousand in relation to the provision for returns on sales, set up to cover the unrealized profit arising from 

the difference between the sales value of possible returns to be received after year end, but pertaining to the year, 

and their estimated recovery value. 

• Estimated costs of €4,207 thousand principally arising from litigation mainly relating to the Ferré Group, as 

follows: — lawsuit brought against GIANFRANCO FERRÉ S.p.A. by Tecnostile S.r.l. of Firenze, claiming 

damages of approximately Euro 620 thousand for pre-contractual liability. The judge is currently gathering 

evidence. — GIANFRANCO FERRÉ S.p.A. learned of a request put forth by the receivers of the Redaelli 

bankruptcy for reimbursement of payments made by Redaelli S.p.A. between March 1998 and March 1999. To 

date, a lawsuit has not yet been brought against the company and, on the basis of the legal advisors’ opinion, it is 

not probable that the company would lose any such case. — At the end of 2003, GIANFRANCO FERRÉ S.p.A. 

reached an out-of-court settlement with the receivers of Gruppo Nadini S.p.A., settling the litigation pending at 

December 31, 2002. — A lawsuit brought against GIANFRANCO FERRÉ S.p.A. by Mr. Ronald Bohler (former 

CEO of the company), claiming that he had been dismissed without cause. On November 2, 2002, the company 

appeared in Court challenging all Mr. Bohler’s inferences and claims. The provision at December 31, 2002 

reflects the maximum potential risk on the basis of updated estimates, considering the opinions of the company’’s 

external advisors. 

• In 2002 the remaining amount of €3.251 thousands (2001: € 2.953) in liabilities relates to the tax provision that 

reflects estimated contingent tax liabilities which the following Group companies may have to pay following the 

tax disputes currently pending with the tax authorities. — M.A.C.—Manifatture Associate Cashmere S.p.A. 

The tax dispute that arose with regard to 1989, for which the Firenze Tax Commission issued sentence no. 107/17/02 

of November 23, 2002, lodged on January 15, 2003, was definitively settled pursuant to article 16 of Law 

no. 289/2002. 

The preliminary assessment report served in 1998 relating to 1995, 1996, and 1997, alleging this company’s 

realization of a higher taxable base for direct tax purposes, and mainly focusing the tax recovery on the transfer 

pricing applied to foreign Group companies, was followed by notices of assessment for 1995 and 1996. The company 

has appealed with the relevant judicial authorities. 

F- 122


In 2001, a preliminary assessment report was served for 1998, 1999, and 2000, relating to the same irregularities 

found in previous years. No notices of assessment have been issued to date. 

The acquisition contract for M.A.C.—Manifatture Associate Cashmere S.p.A. (formerly FINCASHMERE S.p.A.) 

and subsequent integrations provides that the sellers are liable for tax contingencies pertaining to years up to 1998 and 

for a maximum amount of Euro 4,390 thousand, with an excess clause of Euro 2,324 thousand. On October 30, 2003, 

an agreement was signed with the sellers on the basis of which they terminate the above guarantee and pay M.A.C.— 

Manifatture Associate Cashmere S.p.A. Euro 300 thousand. The company adjusted the provision by this amount, and 

thus a total of Euro 3,046 thousand, which reflects the maximum potential tax risk on the basis of updated estimates 

made, including the opinions expressed by external consultants. — GIANFRANCO FERRÉ S.p.A. 

In 2000, a preliminary assessment report was served, disputing certain irregularities in form and substance relating to 

1998, 1999, and the period up to May 31, 2000 for IRPEG and VAT tax purposes and relating to 1998 and 1999 for 

IRAP purposes. Two years later, the company received a notice of assessment relating to 1997 for VAT purposes. In 

2003, the company settled this potential litigation, pursuant to article 15, of Law no. 289/2002. 

In 2004, the company decided to settle the irregularities noted by reaching an agreement on the potential dispute 

pursuant to article 15, of Law no. 289/2002. The cost of settlement of Euro 240 thousand was fully covered by the tax 

provision. — IT HOLDING S.p.A. 

During the year, the company received an assessment from the Molise tax authorities. A loss of approximately Euro 

150,000 could arise from the assessment, which will be settled for approximately Euro 37,000, by filing a 

supplementary tax return in accordance with article 8 of Law no 289/2002. — ITTIERRE S.p.A. 

The tax provision of ITTIERRE S.p.A., amounting to Euro 205 thousand, relates to the following tax disputes. 

In 2003, disputes relating to direct taxes and VAT for 1995 and 1996 were settled in accordance with 16 of Law 

no. 289/2002 (“settlement of pending disputes”). 

In 2001, the tax police performed an inspection leading to three preliminary assessment reports alleging VAT 

irregularities in form and substance in 1997, 1998, 1999, and 2000 up to February 22. Only 1997 was assessed and 

was subsequently settled in 2003 as a “potential dispute” in application of article 15 of Law no. 289/2002. No other 

notices of assessment have been issued to date. The estimated potential tax liability should not significantly impact the 

company’s financial position and results is not expected to exceed the amount accrued at year end 2003. — ITJ S.p.A. 

(merged into ITTIERRE S.p.A. in 2002) 

In 2000, this company received a preliminary assessment report from the Regional Tax Office of Campobasso 

relating to the 1997 and 1998 tax periods. The irregularities assessed for 1997 were settled in 2003, as a “potential 

dispute” under article 15 of Law no. 289/2002. No notice of assessment has been received for 1998. 

During 2002, following inspections performed by the Customs Authority of Campobasso, the company was served 

preliminary assessment reports in which certain irregularities were contested in relation to sales of assets in EU and 

non-EU countries. The company settled these as a “potential dispute” under article 15 of Law no. 289/2002. — FD 

S.p.A. (merged into ITJ S.p.A. in 2001) 

In 2002, the company received a preliminary assessment report from the Regional Tax Office of Campobasso alleging 

certain irregularities in terms of form and substance with regard to direct and indirect taxes in 1999 and 2000. The 

company has not received any notices of assessment. 

The estimated potential tax liability should not significantly impact the company’s financial position and results and 

should not exceed the amount accrued at year end 2003. — ITTIERRE FRANCE S.A. 

F- 123


In 2003, the French tax authorities performed an assessment, mainly disputing transfer pricing from Italian 

companies. Taking into consideration the opinions of external advisors, the company does not believe that it will lose 

the dispute. 


• On March 23, 1998, Trussardi S.p.A. (“Trussardi”) summoned ITTIERRE S.p.A. (“ITTIERRE”) before the 

Milano Court, claiming that ITTIERRE had breached a license agreement for the “Trussardi Jeans” brand which 

expired on June 30, 1996. Trussardi requested a reward damages from ITTIERRE of approximately Euro 

50 million. ITTIERRE appeared in court denying it had ever breached the agreement and asked that the claim be 

fully dismissed. On the basis of information received from ITTIERRE’s management and the opinion of the legal 

advisors, up to now the Board of Directors of IT HOLDING S.p.A. does not believe that the dispute represents a 

probable financial risk for the company and even less to the extent determined by Trussardi. Furthermore, if 

ITTIERRE were to lose the case it would be covered by the hold harmless letter of PA Investments described 

further on in this report. In the course of the preceding nothing has arisen which would lead the Directors to 

believe that it could give rise to a probable financial risk for ITTIERRE S.p.A., also taking into account PA 

Investments’ hold harmless obligation. 

• On June 20, 2000, Casor S.p.A. (“Casor”) summoned M.A.C.—Manifatture Associate Cashmere S.p.A. 

(“MAC”) before the Firenze Court, claiming that MAC had breached the five-year license agreement signed 

between the two companies and that it pay damages amounting to approximately Euro 3.6 thousand. According to 

MAC, the claim is totally groundless as it had never signed a five-year license agreement with Casor nor had it 

ever received any definite confirmation from its legal representatives that the proceedings were going ahead, 

whether written or verbal. On the basis of the legal advisor’ opinion, MAC does not believe it probable that it will 

lose the case. Evidence is currently being presented. 

• ITTIERRE S.p.A. was summoned by another company which claims it holds a patent on the decorative model of 

a specific denim processing used for apparel produced and marketed by ITTIERRE S.p.A. licensed from two of 

its licensors. The claim was formalized into two different summons, one addressed to ITTIERRE S.p.A. and the 

other to its two licensors. The two claims for damages from ITTIERRE S.p.A. and the licensors amount to 

Euro 3,000,000.00. At this stage, the claims appear groundless and the quantification of damages is completely 

unjustified. Accordingly, ITTIERRE S.p.A. is not expected to lose the case. However, it has appeared in court and 

disputed the claims on the basis of their inadmissibility and lack of grounds. It has also joined the supplier of the 

denim as a party to the proceedings and claimed it should be held harmless in the event the claimant wins the 

case. 

• On April 28, 2002, the effective period of the hold harmless agreement with PA Investments S.A. dated April 28, 

1997 expired. This indemnified IT HOLDING S.p.A. from damages, costs, liabilities, and contingent liabilities 

arising from the breach of obligations, commitments, legal provisions, and civil, criminal, administrative, and tax 

court proceedings occurring up to December 31, 1996 for which it was held liable and of which PA Investments 

was informed within five years from the signing date. The agreement is still valid for tax and social security 

matters up to the relevant statute of limitations. 

• On August 5, 2002 Mr. Luigi Giribaldi summoned IT HOLDING S.p.A. before the Isernia Court, and made 

claims similar to those already reported as per article 2408 of the Civil Code. He requested that the Court judge 

the inaccuracy of the two appraisals on the basis of which the acquisition of GIANFRANCO FERRÉ S.p.A. was 

finalized. However, his claims were judged unfounded and, on the basis of the examination carried out by experts 

engaged by the company, there are significant doubts as to whether the Court can act on the above-mentioned 

summons. 

• IT HOLDING S.p.A. and its subsidiaries still benefits from the effects of the hold harmless obligation taken on by 

its parent company, PA Investments on April 28, 1997. The hold harmless agreement expired on April 28, 2002. 

It indemnified IT HOLDING S.p.A. from damages, costs, liabilities, and contingent liabilities arising from civil, 

criminal, administrative, and tax court proceedings referring to events, acts or omissions occurring up to 

December 31, 1996 for which it was held liable and of which PA Investments was informed within five years 

from the signing date. The agreement is still valid for tax and social security matters up to the relevant statute of 

limitations. Furthermore, IT HOLDING S.p.A. benefits from the guarantee which the parent company PA 

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Investments took on when it signed the sales contract for FINANCIÈRE MELPAR HOLDING S.A. shares, with 

regard to prior year expenses not recorded in the FERRÉ Group consolidated financial statements at 

December 31, 2001 which could arise and, accordingly, as a result of judicial, arbitration and/or administrative 

proceedings pending on the date in which the consolidated financial statements were approved. Therefore, the two 

companies’ Boards of Directors do not consider it necessary to set up a provision in relation to the dispute. 

• IT HOLDING S.p.A. was informed of a pending dispute between the controlling shareholder, PA Investments, 

and the main minority shareholder, Mr. Luigi Giribaldi. The latter claims to have agreed to sell his entire 

shareholding to the former, a fact which PA Investments denies as such an agreement was never made. The 

dispute does not involve IT HOLDING S.p.A. and should not represent any direct or immediate financial risk for 

the issuer or for the IT HOLDING Group. In the unlikely case that PA Investments loses the dispute, this could 

jeopardize its ability to indemnify IT HOLDING S.p.A. in terms of the hold harmless agreement and to fulfill the 

guarantees described above. 

• ALLISON S.p.A. is currently involved in arbitration proceedings with a supplier with which it had signed a 

contract scheduled to expire in February 2006. The supplier disputed termination of the contract, claiming willful 

misconduct on the part of ALLISON S.p.A., from which it requested damages of approximately Euro 7 million. 

In agreement with the opinion of lawyers engaged by ALLISON S.p.A., the suppliers’ requests for damages are 

not presently considered a probable contingency, based on their lack of grounds and the inappropriate 

quantification of the damages. 

• On August 9, 2004 certain companies, including IT Holding S.p.A. and Servizi Moda S.r.l., were served an 

appeal for urgent relief put forth by a designer who had previously collaborated with Group companies (sold to 

third parties in 2004). The designer maintains he is owed no less than Euro 41 million for future amounts 

receivable, compensation for damage for alleged breach of contract, and fees accrued and not received. 

Accordingly, the designer has requested the Court order provisional remedies to protect his current and future 

claim with respect to all companies involved, including IT Holding S.p.A. and Servizi Moda S.r.l. IT Holding and 

Servizi Moda S.r.l. appeared in a timely manner and made their defense, highlighting the utter inadmissibility and 

lack of grounds of any claims against them. IT Holding, supported by the opinion of its lawyers, considers the 

claims completely unfounded and, accordingly, is not in a position to identify the risk of even remotely contingent 

liabilities. 

The Judge rendered his decision on September 8, 2004, rejecting all the requests made by the petitioners. Finally, we 

have been informed that Mr. Gigli and Romeo Gigli s.a.s. appealed the decision rendered on September 8, 2004. We 

therefore expect that a copy of the appeal could be served in a few days. We are not currently in a position to know on 

which grounds the appeal is based and when the relevant hearing to discuss the appeal will take place. 










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26. Shareholders’ Equity 



Movement and components of shareholders’ equity for 2001 and 2002 are as follows: 

Share Share Translation Hedging Legal Retained Other 

Net 

income 

capital premium reserve reserve reserve earnings reserve (loss) Total 


Balance at January 1, 

2001............................ 10,323 27,830 1,379 — 1,478 39,551 34,408 5,268 120,237 

Allocation of net income — — — — 660 (1,879) 1,319 (100) 0 

Dividends ................... 


— — — — — — — (5,168) (5,168) 

loss.............................. 


— — — 6 — — — — 6 

shares.......................... (22) (1,566) — — — — — — (1,588) 

Translation difference — — 924 — — — — — 924 

Euro conversion ......... (329) — — — 329 — — — 0 

Other changes ............ 

Net income (loss) of the 

— — — — — — 222 — 222 

year............................. 


— — — — — — — (1,943) (1,943) 

2001............................ 

Balance at January 1, 

9,972 26,264 2,303 6 2,467 37,672 35,949 (1,943) 112,690 

2002............................ 9,972 26,264 2,303 6 2,467 37,672 35,949 (1,943) 112,690 

Allocation of net income 


— — — — 160 (2,423) 320 1,943 0 

loss.............................. 


— — — (167) — — — — (167) 

shares.......................... 33 2,943 — — — — — — 2,976 

Translation difference — — (2,527) — — — — — (2,527) 

Capital increase.......... 2,287 107,499 — — — — — — 109,786 

Other changes ............ 

Net income (loss) of the 

— — — — — — 14 — 14 

year............................. 


— — — — — — — 42 42 

2002............................ 12,292 136,706 (224) (161) 2,627 35,249 36,283 42 222,814 

Treasury shares have been deducted from share capital and share premium as follows: 

Share Share 

Number capital premium Total 


January 1, 2001.................................................................................................. 249,000 13 882 895 

December 31, 2001............................................................................................ 696,500 35 2,691 2,726 

December 31, 2002............................................................................................ 41,900 2 100 102 

The translation reserve comprises all foreign exchange differences arising from the translation of the financial 

statements of foreign operations that are not integral to the operation of the Company. 

F- 126


27. Earnings per share 


The calculation of basic earnings per share at December 31, 2002 was based on the net income attributable to 

ordinary shareholders of €42 thousand (2001: net loss of €1,943 thousand) and a weighted average number of 

ordinary shares outstanding during the year ended December 31, 2002 of 221,016,059 (2001: 199,730,245). Basic 

earnings per share at December 31, 2002 is equal to positive amount of €0.00 (2001: negative amount of €0.01). 

28. Financial instruments 

Exposure to credit, interest rate and currency risk arises in the normal course of the Group’s business. Derivative 

financial instruments are used to hedge exposure to fluctuation in foreign exchange rates and interest rates. 

Credit risk 

Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Receivables 

form a core component of monthly reporting and are analyzed with respect to aging structure and seasonality on a 

regular basis to avoid unforeseen adjustments for loan provisions. 

Credit evaluation is performed individually for loans that are individually significant (“bad loans”) and collectively 

for financial assets that are not individually significant. 

The provision for doubtful receivables has been estimated on the basis of available data and in general on the basis of 

historical data by writing down 0.5% of outstanding trade receivables. 

When using financial derivatives, IT Holding is exposed to the risk that the counterparty may default. The risk that 

the counterparties will not honor their commitments is limited, since such contracts were signed with leading financial 

operators. Therefore the company does not expect any risk of insolvency. 

In December 2002, IT HOLDING S.p.A. signed a servicing contract with the Milano branch of Credit Lyonnais S.A. 

for administration and management activities, including the collection of receivables and management of bad debts 

and receivables factored with recourse by subsidiaries of IT HOLDING S.p.A. to Credit Lyonnais S.A. under 

factoring, guarantee and hold harmless agreements, signed by Credit Lyonnais S.A. and ITTIERRE S.p.A., 

ALLISON S.p.A., M.A.C.—Manifatture Associate Cashmere S.p.A., and ITF S.p.A. on December 20, 2002. The 

servicing contract is valid until December 31, 2003. 

On December 20, 2002, IT HOLDING S.p.A. signed a joint venture agreement with the Milano branch of Credit 

Lyonnais S.A. through which the active partner (Credit Lyonnais S.A.) will offer the silent partner (IT HOLDING 

S.p.A.) a share in the profits on the purchase, management and collection of receivables, as described above in 

relation to the servicing project. Under this agreement, IT HOLDING S.p.A. made an initial contribution of Euro 

9,146 thousand 


In 2002 the Group was adopted a policy that, when adopted in full, will ensure that between 50 and 60 per cent of its 

exposure to changes in interest rate on interest-bearing loans and borrowings is on fixed rate basis. Interest rate swaps, 

denominated in euro, have been entered into to achieve an appropriate mix of fixed and floating rate exposure within 

the Group’s policy. The swaps mature within the next two years and have fixed swaps rate ranging from 3.18 per cent 

F- 127


to 3.29 per cent. At December 31, 2002 the Group had interest rate swaps with a notional contract amount of € 

20,723 thousand (2001: €723 thousand). 

The interest rate swaps are stated at fair value and classified as cash flow hedges for €20,000 thousand notional 

amount and as instruments for which no hedge accounting is applicable for €723 thousand notional amount (2001: 

€723 thousand). The fair value of swaps at December 31, 2003 was €218 thousand (2002: €10 thousand), recognized 

as other current liabilities). 


In respect of income-earnings financial asset and interest bearing financial liabilities, the following table indicates 

their effective interest rate at the balance sheet date and the periods in which they reprice. 

F- 128


Effectine 

interest 

rate 

2002 

Total 

2002 

6 

months 

or less 

2002 

6-12 

months 

2002 

1-2 

years 

2002 

F- 129 

2-5 

years 

2002 

More 

than 

5 

years 

2002 

Effectine 

interest 

rate 

2001 

Total 

2001 

6 

months 

or less 

2001 

6-12 

months 

2001 

(In 

thousands 

of Euros) 

Cash and cash equivalents — 47,237 47,237 — — — — — 46,589 46,589 — — — — 

Bank loans: 

Euro floating rate loan (1) 5.43% (99,987) (99,987) — — — — — — — — — — — 

Effect of interest rate 

swap................................ 3.26% — 20,000 — (20,000) — — — — — — — — — 

Euro floating rate loan ... 4.05% (4,962) (4,962) — — — — — — — — — — — 

Euro floating rate loan ... 3.95% (10,013) (10,013) — — — — — — — — — — — 

Euro floating rate loan ... — — — — — — — 4.04% (56,805) (56,805) — — — — 




Others floating rate loan — (3,831) (3,831) — — — — — (1,387) (1,387) — — — — 

Bond issues: 

Eurobond 2005............... 7.00% (207,210) (13,649) — (12,706) (180,855) — — — — — — — — 

Factoring without 

recourse: 

Euro floating rate 

liabilities......................... — (85,679) (85,679) — — — — — (82,616) (82,616) — — — — 


Euro floating rate 

liabilities......................... — (2,710) (2,710) — — — — — (1,438) (1,438) — — — — 


Ordinary current account — (13,081) (13,081) — — — — — (15,291) (15,291) — — — — 

Advances on export ....... — (9,663) (9,663) — — — — — (5,127) (5,127) — — — — 

Bills withdrown falling 

due .................................. — (1,800) (1,800) — — — — — (4,500) (4,500) — — — — 

Advances on orders........ — (1,868) (1,868) — — — — — (2,398) (2,398) — — — — 

Total............................... — (393,567) (180,006) — (32,706) (180,855) — — (252,043) (252,043) — — — — 

(1) Interest rate 5.43% includes 250 bp spread. 

1-2 

years 

2001 

2-5 

years 

2001 

More 

than 

5 

years 

2001



The Group incurs foreign currency risk on sales that are denominated in a currency other than euro. The currencies 

giving rise to risk are primarily Pounds Sterling, US Dollars and Swiss Francs. 

The Group hedges at least 60 per cent of all trade receivables denominated in a foreign currency. At any point in time 

the Group also hedges 80 per cent of its estimated foreign currency exposure in respect of forecasted sales over the 

following year. The Group uses forward exchange contracts and currency options to hedge its foreign currency risk. 

Most of the forward exchange contracts have maturities of less than one year after the balance sheet date. Where 

necessary, the forward exchange contracts are rolled over at maturity. 

For forward exchange contracts that economically hedge forecasted transactions and monetary assets in foreign 

currency no hedge accounting rules is applied until December 31, 2002. Their changes in fair value are recognised in 

the income statement. Both the change in fair value of the forward contracts and the foreign exchange gains and losses 

relating to the monetary items are recognised as part of “net financing income (charges)”. The net fair value of 

forward exchange contracts used as economic hedges of forecasted transactions and monetary assets in foreign 

currency at December 31, 2002 was €1,399 thousand (2001: €531 thousand), comprising derivative assets of 

€1,427 thousand and derivative liabilities of €28 thousand that were recognised in other current assets and liabilities, 

respectively. 

The following table summarizes the nominal amounts and fair values of financial derivatives used to economically 

hedge foreign currency and interest risk: 

F- 130 

Nominal 

amount 

2002 

Fair 

value 

2002 

Nominal 

amount 

2001 

Fair 

value 

2001 


Interest hedging contracts...................................................................................... 20,723 (218) 723 (10) 

Currency hedging contracts....................................................................................... 36,178 1,399 23,183 531 

Total........................................................................................................................... 56,901 1,181 23,906 521 

The nominal amounts shown reflect the sum of the balances from sales and purchases. 

In addition to hedging interest financial derivatives, the table shows forward exchange contracts that economically 

hedge forecasted transactions and monetary assets in foreign currency for which no hedge accounting is applied.


Fair values 

The fair values of the following financial instruments differ from their carrying amounts shown in the balance sheet: 

F- 131 

Carrying 

amount 

2002 

Fair 

value 

2002 

Carrying 

amount 

2001 


Fair 

value 

2001 

Interest rate swap 

Liabilities ............................................................................................... (218) (218) (10) (10) 

Forward exchange contracts 

Assets ..................................................................................................... 63 63 420 420 

Liabilities ............................................................................................... — — (13) (13) 

Currency options 

Assets ..................................................................................................... 1,364 1,364 138 138 

Liabilities ............................................................................................... (28) (28) (14) (14) 

FX Swaps 

Assets ..................................................................................................... — — — — 

Liabilities ............................................................................................... — — — — 

Cross Currency Swaps 

Assets ..................................................................................................... 21,611 21,611 — — 

Liabilities ............................................................................................... (21,611) (21,611) — — 

Junior notes ............................................................................................ — — — — 

Factoring without recourse .................................................................... (85,679) (85,679) (82,616) (82,616) 

Bank loans: 

Euro floating rate loan ........................................................................... (99,987) (100,800) — — 



Euro floating rate loan ........................................................................... — — (56,805) (57,421) 




Others floating rate loan ........................................................................ (3,831) (3,831) (1,387) (1,387) 

Bond issues: 

Eurobond 2005....................................................................................... (207,210) (226,600) — — 


Euro floating rate liabilities ................................................................... (2,710) (2,710) (1,438) (1,438) 

Total....................................................................................................... (413,211) (433,653) (270,795) (271,937) 


relevant cash flows using current interest rates for similar instruments without any credit spread. As the Group 

considered its credit spread, the difference between fair value and carrying amount would have been lower.


29. Transactions with Related Parties 




Revenues Costs and 

Receivables Payables and Income Charges 



PA Investments.................................................................................. 950 60 1,651 98 

GTP HOLDING S.p.A. ..................................................................... 

Companies controlled by PA Investments: 

12 14 12 40 

Diners Club Italia S.p.A. ................................................................... — 9,409 41 — 

Diners Club SIM S.p.A...................................................................... 18 — — — 

Ventura S.p.A. ................................................................................... 

Affiliates: 

— 412 — 19 

Neometal Optik S.p.A. ...................................................................... 


280 1,506 355 4,240 

I.C.R.—Industrie Cosmetiche Riunite S.p.A.................................... 140 3,666 426 7,689 

Pavia & Ansaldo Law Firm............................................................... — 130 — 758 

Other sundry....................................................................................... 415 139 523 489 

Parent Companies 

• Both receivables and revenues due from PA Investments relate mainly to interest accrued by GIGLI S.p.A. for the 

prepayment of the loan for the acquisition of the Luxembourg-based companies which own the “Gigli” 

trademarks, the recharging of costs incurred by ITTIERRE S.p.A. for enforcing the hold harmless letter for events 

which occurred before December 31, 1996, and interest income accrued by IT HOLDING S.p.A. for having paid 

the amounts due for the acquisition transactions a few days in advance. Such advance payment was made on an 

arm’s length basis. The payables and costs relate to administrative and tax services provided by PA Investments 

to companies based in Luxembourg. 

• Receivables due from GTP HOLDING S.p.A. of Euro 12 thousand relate to costs incurred on its behalf during the 

year, while the payables relate to the recharging of costs incurred on behalf of IT HOLDING S.p.A. 

Companies Controlled by PA Investments 

• Diners Club Italia S.p.A.. Revenues relate to the recharging of costs incurred on its behalf. Payables refer to the 

recharging of various costs (Euro 26 thousand), payments to suppliers using the Diners credit card (Euro 

9,242 thousand), and the use of company credit cards (Euro 141 thousand). 

• Diners Club SIM S.p.A. Payables refer to the recharging of various costs relating to the previous year. 

• VENTURA S.p.A. Payables relate to organizational services for Group employees’ business travel. 

Affiliates 

• Neometal Optik S.p.A. All transactions with this company were commercial since it produces eyewear frames 

and components for collections sold by ALLISON S.p.A. 

Other Related Parties 

• I.C.R.—Industrie Cosmetiche Riunite S.p.A.. Relations with this company are commercial, as the company 

produces perfumes for collections marketed by ITF S.p.A.. Payables include the residual amount due for the 

acquisition of a business activity, which is detailed in the section on “Market Trends and Significant Events”. 

F- 132


• Payables, as well as related costs, due to the Law Office of Pavia e Ansaldo, of which Mr. Antonio Di Pasquale, 

IT HOLDING S.p.A. Director, is partner, relate to legal services. The costs incurred include Euro 536 thousand 

for professional services and were capitalized under start-up and expansion costs as they are directly related to the 

extraordinary transactions detailed in the “Directors’ Discussion and Analysis”. 

• The remaining balances represent transactions with counterparties, some of whom are closely related to Group 

directors. 

There were no irregular or unusual transactions during 2002. 


Additional details on relationships with related parties are provided in the notes to the consolidated financial 

statements. 

Remuneration of Directors and Statutory Auditors 

Category 2002 remuneration 2001 remuneration 

Directors............................................................................................................... 2,576 1,373 

Statutory Auditors................................................................................................ 414 257 

Total remuneration due to directors and members of the board of statutory auditors amount to Euro 2,576 thousand 

and Euro 414 thousand respectively. 

Neither the Directors and the Statutory Auditors have any interest in extraordinary transactions performed by IT 

HOLDING S.p.A. during 2002 or in begun in previous years and not yet concluded. 


F- 133


The remuneration of the directors, statutory auditors and managing directors of IT HOLDING S.p.A. and its 

subsidiaries is presented below: 

Bonuses 

and 

other Other Total 

Name Office held Office term Fees incentives remuneration remuneration 

Chairman and Chief 05/06/2002- 

Tonino Perna................ Executive Officer 12/31/2004 * 05/06/2002- 

836,188 — 7,082 843,270 

Luca Giuseppe Solca ... Deputy Chairman 12/31/2004 * 05/06/2002- 

241,160 — 4,500 245,660 

Massimo S. Brunelli .... Executive Director 12/31/2004 ** 05/06/2002- 

29,867 — 5,082 34,949 

Antonio Di Pasquale.... Director 

12/31/2004 * 05/06/2002- 

22,731 — 137,849 160,580 

Bruno Assumma .......... Director 

12/31/2004 * 09/13/2002- 

29,757 — 8,066 37,823 

Claudio Dematté .......... Director 

12/31/2004 * 05/06/2002- 

26,192 — 5,500 31,692 

Salvatore Vicari ........... Director 

12/31/2004 * 05/06/2002- 

12,055 — 1,500 13,555 

Antonio Arcaro ............ Director 

12/31/2004 *** 05/06/2002- 

5,586 — 3,082 8,668 

Carlo Nicolai................ Director 

12/31/2004 *** Chairman of the 

5,415 — 2,582 7,997 

Board of Statutory 05/06/2002- 

Aldo Sanchini .............. Auditors 12/31/2004 **** 05/06/2002- 

34,039 — 413 34,452 

Mario Guerrisi.............. Statutory Auditor 12/31/2004 * 14,151 — 4,055 18,206 

Marco Giuseppe 

05/06/2002- 

Maria Rigotti................ Statutory Auditor 12/31/2004 * 09/13/2002- 

15,494 — 5,623 21,117 

Simone Feig ................. Statutory Auditor 12/31/2004 * 05/06/2002- 

87,315 — 4,687 92,002 

Maria Sarno.................. Statutory Auditor 12/31/2004 *** 05/06/2002- 

17,869 — — 17,869 

Vittorio Silvestri........... Statutory Auditor 12/31/2004 *** 69,592 — 1,236 70,828 

* Term expires on approval of the financial statements as of and for the year ended December 31, 2004. 

** Resigned as Executive Director on September 12, 2002. 

*** Term expired on the approval of the 2001 financial statements, i.e. May 6, 2002. 

**** Passed away on September 8, 2002. 

F- 134


30. Explanation of transit to IFRS 

As stated in note 2 these are the Group’s first consolidated financial statements prepared in accordance with IFRS. 

The accounting policies set out in note 2 have been applied in preparing the financial statements for the year ended 

December 31, 2002, the comparative information presented in these financial statements for the year ended 

December 31, 2001 and in the preparation of an opening IFRS balance sheet at January 1, 2001 (the Group’s date of 

transition). 

In preparing its opening IFRS balance sheet, the Group has adjusted amounts reported previously in financial 

statement prepared in accordance with Italian accounting principles or previous GAAP. 

The main differences identified between IFRS and the Group’s current accounting policies under Italian principles 

which had an impact on the Group’s opening Shareholders’ equity (as at January 1, 2001) and on the following 

income statements (2002 and 2001) and Shareholders’ equity (as at December 31, 2001 and 2002) are the following: 

Shareholders’ 

equity 

December 31, 

2000 

Group 

net 

result 

2001 

Movements in 


equity 2001 

F- 135 


equity 

December 31, 

2001 

Group 

net 

result 

2002 

Movements in 


equity 2002 


equity 

December 31, 

2002 Sub-note 


Italian principles....................................................... 137,743 1,031 (4,022) 134,752 5,106 106,986 246,844 

Different consolidation area....................................... — — — — (39) 287 248 a 

Intangible assets.......................................................... (11,327) (1,273) — (12,600) (1,912) — (14,512) b 

Investments in Collection Development (16,083) (2,000) — (18,083) (2,722) — (20,805) c 

Government grants ..................................................... (1,863) 268 — (1,595) 268 — (1,327) d 

Property, plant and equipment................................ 2,779 323 — 3,102 324 — 3,426 e 

Provisions................................................................ 422 349 — 771 32 — 803 f 

Adoption of IAS 19 ..................................................... 1,138 (454) — 684 (73) — 611 g 

Adoption of IAS 39 ..................................................... 401 (1,059) 6 (652) (203) (167) (1,022) h 

Deferred tax ................................................................ 7,922 1078 — 9,000 (528) — 8,472 i 

Minority interest adjustments ................................ — 37 — 37 141 — 178 

Total adjustment to retained earnings (16,611) (2,731) 6 (19,336) (4,712) 120 (23,928) 

Repurchase of share capital .................................... (895) (243) (1,588) (2,726) (352) 2,976 (102) j 

IFRS............................................................................. 120,237 (1,943) (5,604) 112,690 42 110,082 222,814


They mainly refer to the following. 

(a) Consolidation and Investment in Subsidiaries 

Under Italian Accounting Principles, a subsidiary with activities dissimilar to that of the parent or in liquidation can 

be excluded from consolidation if such exclusion is essential for the consolidated financial statements to present a true 

and fair view of the state of affairs of the parent. Subsidiaries excluded from the consolidation are accounted for using 

the equity method or at cost. 

Under IFRS, dissimilar activities between a parent and subsidiary are not grounds for excluding the subsidiary from 


(b) Intangible assets 

Differences in Intangible assets for the two years 2001 and 2002 are as follows: 


equity 

January 1, 

2001 

Group 

net 

result 

2001 

Movements in 


equity 

2001 

F- 136 


equity 

December 31, 

2001 


Group 

net 

result 

2002 

Movements 

in 

Shareholders 

’ 

equity 

2002 

Sharehold 

ers’ 

equity 

December 

31, 2002 

Start-up and expansion 

costs....................................... (1,543) (196) — (1,739) (1,167) — (2,906) 

Research and advertising 

costs....................................... (8,588) (1,174) — (9,762) 207 — (9,555) 

Goodwill ............................... (847) 106 — (741) 177 — (564) 

Assets in formation and 

advances................................ (349) (9) — (358) (1,129) — (1,487) 

Total...................................... (11,327) (1,273) — (12,600) (1,912) — (14,512) 

Start Up and expansion Costs—Research costs 

Under Italian Accounting Principles, certain costs related to the formation, start up and marketing research of a 

company may be deferred and capitalized as intangible assets and amortized on a straight-line basis over a period not 

exceeding five years, if certain conditions are met. These costs are written down to their recoverable amount when an 

impairment exists. 

Under IFRS, formation, start-up and marketing research costs are expensed as incurred. 

Advertising Costs 

Under Italian Accounting Principles, advertising costs may be deferred and capitalized as intangible assets and 

amortized on a straight-line basis over a period not exceeding five years, if certain conditions are met. 

Under IFRS, advertising costs are expensed as incurred. 

(c) Investments in Collection Development 

Costs incurred to design, prepare samples and launch new collections (collection development costs): 

Under Italian Accounting Principles the costs related to incurred to design, prepare samples and launch new 

collections are deferred. Under IFRS, only the costs related to the development phase of the design of the collection 

should be capitalized as development costs. Costs incurred in the preliminary phase of the design of the new 

collection (i.e. search for materials, basic concept of the collection, preliminary evaluation and selection of possible 

alternatives for the new collection) and all costs incurred in presentation of the new collections to buyers and orders


collection previously capitalized, have been expensed. Costs related to the design and production of the prototypes, 

samples and models have been capitalized as investments in collection development. 

Development Costs 

Under Italian Accounting Principles, development costs may be capitalized as intangible assets and amortized on a 

straight-line basis over a period not exceeding five years, if certain conditions are met. These costs are written down 

to their recoverable amount when an impairment exists. 

Under IFRS, development costs must be capitalized. However for the capitalization of development costs the 

company should be able to satisfy certain restrictive criteria which include how the intangible asset will generate 

future economic benefit and the ability to reliably measure the expenditure attributable to the intangible asset. 

(d) Government Grants 

Under Italian Accounting Principles, government grants (or contributions) received as compensation for expenses 

already incurred are recognized in the income statement once the conditions for their receipt have been met and there 

is reasonable assurance that the grant will be received. Revenue-based grants are deferred in the balance sheet and 

released to the income statement to match the related expenditure that they are intended to compensate. Capital-based 

grants must be deferred and matched with the depreciation on the asset for which the grant arises. Grants that relate to 

recognized assets must be presented in the balance sheet as either deferred income, or by deducting the grant in 

arriving at the carrying amount of the asset, in which case the grant is recognized as a reduction of depreciation. This 

treatment is similar to IFRS. 

However certain past transactions occurred before 1998, had been recorded under Italian standards crediting net 

equity instead of deferred income. These have been adjusted accordingly. 

(e) Revaluation of Fixed Assets “deemed cost” 

The Group elected to revalue certain items of property, plan and equipment at the date of transition to IFRS at its fair 

value and use this fair value as deemed cost at that date. 

The detail is as follows: 


equity 

January 1, 

2001 

Group 

net 

result 

2001 

Effect of 

merger 

2001 

F- 137 


equity 

January 1, 

2002 

Group 

net 

result 

2002 

Movements in 


equity 

2002 


equity 

December 31, 

2002 


Building ALLISON S.p.A. ........ 1,449 12 — 1,461 20 — 1,481 

Building ITTIERRE S.p.A......... (388) 223 — (165) 308 722 865 

Building M.A.C. S.p.A. ............. 1,078 6 — 1,084 (4) — 1,080 

Building FD S.p.A...................... 1,197 — (1,197) 0 — — — 

Building ITJ S.p.A. .................... (557) 82 1,197 722 — (722) 0 

Total........................................... 2,779 323 — 3,102 324 — 3,426 

The positive effect on Group net result in 2002 and 2001 is due to a change in the estimated residual useful life of 

these revaluated assets compared to the estimate under Italian principles. 

(f) Provision for Risks and Charges 

Under Italian Accounting Principles, unlike IFRS, the amount of expected future cash expenditure necessary to settle 

an obligation is not required to be discounted. 

Under IFRS the amount of the Agent’s termination benefits has been re-determined based on the present value of the 

expenditures expected to be required to settle the obligation.


(g) Employees’ Severance Indemnities 

Under Italian Accounting Principles, employees’ severance indemnities (“TFR”) are accrued, net of advances paid, on 

the basis of what would be paid to them if they left the company at period-end, without taking into account future 

leaving or discounting the liability. 

Under IFRS, employee benefit obligations, including TFR, must be accounted for using the “Projected unit credit 

method”. The above adjustments reflect the use of the accounting methodology requested by IFRS. 

(h) Financial assets and liabilities 

Hedging Contracts and Derivatives 

Under Italian Accounting Principles, contracts related to the hedging of futures contracts or of existing assets and 

liabilities, including the purchase and sale of other currencies to settle existing foreign currency accounts receivables 

and payables, are not recognized until the hedged transaction affects the income statement. No accounting principle 

for other derivative instruments has been issued under Italian Accounting Principles. In general, for derivative 

contracts which do not meet the criteria of hedging, in case of loss resulting from the fair value valuation at balance 

sheet date, a recognition of this loss into the income statement is required. 

Under IFRS, all derivative instruments are required to be recorded in the balance sheet at fair value. If a contract, even 

if it designed as, does not meet the requirement of an effective hedge, gains and losses are recognized immediately to 

income statement. If a contract is designed as and is considered effective as a hedge, it must be designed as a “cash 

flow” or a “fair value” hedge. The portions of the gains or losses on the hedging instrument that is determined to be an 

effective hedge are deferred as a component of shareholders’ equity. The deferred gain and losses are then released to 

the profit and loss statement in the same period during which the hedged asset (or liabilities) affect profit or loss. 

Gains and losses of “fair value” hedges are recognized to the income statement during the year incurred. 

Recognition of Factoring Transactions 

Under Italian accounting principles the factored trade receivables can be derecognized if the legal requirements for 

the derecognition are satisfied. Under IFRS, if the entity retains substantially all the risk and rewards of ownership of 

the financial asset, the entity shall continue to recognized the financial asset. 

Amortized cost 

IFRS define that for financial instruments that are carried at amortized cost, such as loans and receivables, transaction 

costs should be included in the calculation of amortized cost using the effective interest method. 

The effects of the adoption of IAS 39 are as follows: 


equity 

January 1, 

2001 

Group 

net 

result 

2001 

Movements in 


equity 

2001 

F- 138 


equity 

December 31, 

2001 

Group 

net 

result 

2002 

Movements in 


equity 

2002 


equity 

December 31, 

2002 


Interest rate derivatives .............. (6) (10) 6 (10) (41) (167) (218) 

Currency derivatives .................. — — — — (532) — (532) 

Recognition of factoring 

transactions................................ (270) (143) — (413) (15) — (428) 

Interest-bearing loans and 

borrowing ................................ 677 (906) — (229) 385 — 156 

Total........................................... 401 (1,059) 6 (652) (203) (167) (1,022)


(i) Deferred taxes 

This difference represents the net of deferred tax on the differences between Italian principles and IFRS. 

(j) Treasury Stock (Own Shares) 

Under Italian Accounting Principles, treasury stock (issued shares repurchased by the issuer) is classified on the 

balance sheet as an asset and stated at cost, and is classified in the statement of cash flows as an investing activity. The 

cost of acquired treasury stock is treated as an appropriation of retained earnings. 

Under IFRS, the cost of acquired treasury stock is presented on the balance sheet as a reduction of shareholders’ 

equity and is classified as a financing activity in the statement of cash flows. 

Other 

Extraordinary Items 

Under Italian Accounting Principles, extraordinary items generally include items of a non-recurring-nature. Certain 

recurring items are also reported as extraordinary items under Italian Accounting Principles, such as gains and losses 

on disposal of certain fixed assets and investments, adjustments of prior year accruals to actual amounts realized and 

other matters. 

Under the revised version of IAS 1, Presentation of Financial Statements, effective for annual periods beginning on or 

after January 1, 2005 (earlier application is encouraged), extraordinary items cannot be disclosed into the financial 

statements or in the notes. Under the prior version of IFRS, extraordinary items were defined as income or expenses 

that arise from events or transactions that are clearly distinct from the ordinary activities of the enterprise and 

therefore are not expected to recur frequently or regularly. Virtually all items of income and expense included in the 

determination of net profit an loss are considered to arise in the course of the ordinary activities of the enterprise and 

therefore, only on rare occasions does an event or transactions give rise to an extraordinary item under IFRS. 

Under the prior version of IFRS, restructuring costs generally were not considered as extraordinary items. Under 

Italian Accounting Principles such cost have to be classified as extraordinary. 

F- 139

185000000 IT Holding Finance SA

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