The Benetton Group Annual Report 1996

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Reserve for employee termination indemnities This reserve represents the liability of Italian companies within the Group for indemnities payable upon termination of employment, accrued in accordance with labor laws and labor agreements in force. This liability is subject to annual revaluation using officially-established indices. Transactions in foreign currencies Transactions in foreign currencies are recorded using the exchange rates in effect at the transaction dates. Exchange gains or losses realized during the year are included in the consolidated statement of income. Foreign currency receivables and payables not hedged are reviewed using year-end exchange rates. A resulting net loss is credited to the exchange fluctuation reserve, which is classified among reserves for risks and charges-other, and debited to other financial expense in the consolidated statement of income. No adjustment is recorded for resulting net gains. Hedged receivables are not restated if no further exchange gains or losses would arise on collection. Income and expense relating to forward exchange contracts that hedge identifiable foreign currency assets, liabilities or contractual obligations are reflected in the consolidated statement of income upon expiration. Income relating to forward exchange contracts that were subsequently renegotiated are recorded in the consolidated statement of income in the year in which the renegotiation occured (Note 11). The value of forward contracts not hedging identifiable foreign currency assets, liabilities or contractual obligations are reviewed at year-end with reference to the difference between the forward exchange rates applicable to the contract at the balance sheet date and the contracted forward rates. Any net losses identified are charged to the consolidated statement of income. Refer to Note 27 for income and expense amounts recorded in the consolidated statement of income related to the above transactions. Fair value of financial instruments Financial instruments consist primarily of investments in cash, marketable securities, accounts receivable, accounts payable, debt obligations, forward exchange contracts, interest rate swap agreements and forward rate agreements. The fair value of debt obligations was estimated by discounting cash flows using interest rates currently available. The carrying amounts and estimated fair value of these obligations at December 31, 1996 were Lire 370,357 million and Lire 375,267 million, respectively. Fair value of forward exchange contracts are discussed in Note 24. The interest rate swap agreements and forward rate agreements expire within three months and therefore their carrying value approximates fair value. The carrying value of remaining financial instruments approximates fair value due to the short-term and/or variable rate nature of these instruments. Revenue recognition Revenues from product sales are recognized at the time of shipment to the customer, which represents the moment when ownership passes. Expense recognition Expenses are recorded in accordance with the matching principle. Advertising costs are charged to income in the year in which they are incurred.
Income taxes Current income taxes are provided by each consolidated company on the basis of a reasonable estimate of their tax liability for the year, in accordance with applicable local regulations. The consolidated financial statements also include a provision for deferred taxes principally arising from the reversal of excess depreciation, from lease accounting adjustments and from gains on the disposal of tangible fixed assets. Deferred taxes are provided net of tax assets deriving from tax payments that will be recoverable when timing differences reverse and from consolidation adjustments. Deferred taxes are also provided on certain equity reserves in consideration of possible future dividend distributions within the Group, given the liquidity available. Provision is not made for possible income taxes on monetary revalutation reserves which are permanently reinvested or for the potential deferred tax asset related to tax loss carry forwards. Cash flows The statement of consolidated cash flows provides information by type of flow and activity. Readily marketable securities are treated as cash equivalents. This statement has been prepared in accordance with the accounting principles discussed in Note 2. The Group does not believe any material differences exist between this format and a format in accordance with United States Generally Accepted Accounting Principles. Financial statements and information expressed in US dollars The financial statements are presented in Italian Lire and, for 1996, are also presented in US dollars solely for the convenience of the reader, at the year end exchange rate of US $ 1 = Lire 1,519, which was the noon buying rate of the US Federal Reserve Bank as of December 31, 1996, the last business day of the year. No representation is made that Lire amounts have been, could have been, or could be converted into US dollars at that or any other rate.
Page 1: The Benetton Group Annual Report 19
Page 5: Dear Shareholders, in 1996 the Bene
Page 8 and 9: Manufacturing companies invested su
Page 11: Signori Azionisti, nell’esercizio
Page 14 and 15: Gli investimenti I programmi di inn
Page 17 and 18: Consolidated financial statements a
Page 19: The Benetton Group The Benetton Gro
Page 23 and 24: Management’s discussion and analy
Page 25: Net capital employed Net working ca
Page 28 and 29: Consolidated balance sheet as of De
Page 30 and 31: Consolidated balance sheet as of De
Page 32 and 33: Consolidated statements of income f
Page 34 and 35: Statement of changes in consolidate
Page 36 and 37: Statements of consolidated cash flo
Page 38 and 39: NOTES TO THE CONSOLIDATED FINANCIAL
Page 40 and 41: 4. Accounting policies The accounti
Page 44 and 45: OTHER INFORMATION 5. Purchase of su
Page 46 and 47: COMMENTS ON THE PRINCIPAL ASSET CAP
Page 48 and 49: 8. Financial fixed assets Equity in
Page 50 and 51: CURRENT ASSETS 9. Inventories Inven
Page 52 and 53: Differentials on forward transactio
Page 54 and 55: Reconciliation of the stockholders'
Page 56 and 57: 20. RESERVES FOR RISKS AND CHARGES
Page 58 and 59: 22. ACCOUNTS PAYABLE The compositio
Page 60 and 61: Due to other providers of finance A
Page 62 and 63: 23. ACCRUED EXPENSES AND DEFERRED I
Page 64 and 65: Sales of core products, by business
Page 66 and 67: Writedowns The "Writedown of curren
Page 68 and 69: Expense This caption includes: 1995
Page 70 and 71: As those proceedings continue, a se
Page 72 and 73: Generally accepted US accounting pr
Page 74 and 75: The following tables summarize the
Page 76 and 77: Differences which do not have an ef
Page 78 and 79: Companies and Groups included withi
Page 80 and 81: Consolidated balance sheets as of A
Page 82 and 83: Consolidated statements of income f
Page 84 and 85: REPORT OF THE BOARD OF STATUTORY AU
Page 87: Information for Stockholders Inform

The Benetton Group Annual Report 1996

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