185000000 IT Holding Finance SA

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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 Year Ended December 31, 2002 2003 2004 (€ in millions) 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
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 and 36: Licensor and Brands Gianni Versace
Page 37 and 38: Legal proceedings Ordinary Course L
Page 39 and 40: OPERATING AND FINANCIAL REVIEW AND
Page 41 and 42: each year, when payments to our sup
Page 43: Income taxes In 2004, we incurred a
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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185000000 IT Holding Finance SA

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