185000000 IT Holding Finance SA

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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
Page 1 and 2: CONFIDENTIAL Rule 144A Global Note
Page 3 and 4: Definitions In this annual report:
Page 5 and 6: • risks related to our principal
Page 7 and 8: Our Strategic Refocusing Program Du
Page 9 and 10: manufacturing of our products to th
Page 11 and 12: income tax on a consolidated basis
Page 13 and 14: (3) Net working capital is defined
Page 15 and 16: We must anticipate trends and respo
Page 17 and 18: We are subject to significant restr
Page 19 and 20: event of a foreclosure on the secur
Page 21 and 22: • avoid or invalidate all or a po
Page 23 and 24: a maximum of two years); (ii) a pro
Page 25 and 26: • pursuant to article 445 of the
Page 27 and 28: Our Company DESCRIPTION OF BUSINESS
Page 29 and 30: Versus is a medium-priced fashion b
Page 31 and 32: in print (fashion magazines and new
Page 33 and 34: We maintain a close working relatio
Page 35: Licensor and Brands Gianni Versace
Page 39 and 40: OPERATING AND FINANCIAL REVIEW AND
Page 41 and 42: each year, when payments to our sup
Page 43 and 44: Income taxes In 2004, we incurred a
Page 45 and 46: Facilities and bank overdraft facil
Page 47 and 48: • €150.0 million principal amou
Page 49 and 50: Contractual obligations The followi
Page 51 and 52: An impairment loss in respect of go
Page 53 and 54: Salvatore Vicari has been a directo
Page 55 and 56: PRINCIPAL SHAREHOLDERS The table be
Page 57 and 58: invoiced to us by Pavia e Ansaldo -
Page 59 and 60: The Board of Directors IT Holding S
Page 61 and 62: REPORT OF THE AUDITORS The Board of
Page 63 and 64: IT HOLDING S.p.A. CONSOLIDATED BALA
Page 65 and 66: Acquisition of Subsidiary During 20
Page 67 and 68: IT HOLDING S.P.A. NOTES TO THE CONS
Page 69 and 70: IT HOLDING S.p.A. Notes to the cons
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IT HOLDING S.p.A. Notes to the cons
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