185000000 IT Holding Finance SA

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
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