The Benetton Group Annual Report 1996

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20. RESERVES FOR RISKS AND CHARGES Taxation reserve This reserve comprises: 12-31-1995 12-31-1996 Reserve for fiscal risks 7,650 7,782 Deferred taxes: - Italian companies - 8,780 - Foreign companies - (8,636) Total deferred taxes - 144 Total 7,650 7,926 The reserve for fiscal risks prudently covers contingent liabilities which may arise on the final settlement of outstanding disputes with the tax authorities. Deferred taxes represent differences between financial statement values and tax bases of assets and liabilities. Deferred tax liabilities (assets) are as follows: Tax effect of eliminating intercompany profits Tax effect of provisions and costs that will become deductible in future accounting periods Deferred taxes arising on the reversal of accelerated depreciation and the application of finance lease accounting Deferred taxes on gains taxable over a number of accounting periods Deferred taxes on the partial distribution of the reserves of foreign subsidiaries to the parent company 12-31-1995 12-31-1996 (17,113) (11,588) (72,103) 43,673 19,331 4,400 (48,402) 43,824 18,061 Other 6,822 (6,151) Total (14,990) 144 Taxes that would be due upon the distribution of reserves have not been provided for, since the transactions which would determine such taxation are not expected to occur. The tax benefit of substantial loss carry-forwards accumulated by certain Italian and foreign consolidated companies will be recorded only when realized. Other reserves This caption is analyzed as follows: 4,400 12-31-1995 12-31-1996 Reserve for contingencies 32,532 44,346 Agents' leaving indemnity reserve 9,284 10,104 Exchange fluctuation reserve 40,335 1,079 Total 82,151 55,529 The reserve for contingencies has increased following the use of around Lire 7 billion and covers risks which may arise from current legal disputes. These include claims from German and French customers concerning, in particular, the effect of Benetton advertising campaigns. The judgements handed down so far have been favorable to the Group.
With regard to the dispute with Eco Swiss China Time Ltd. and Bulova Corp., ongoing legal procedures seek to quash or overturn the arbitration award of June 23, 1995, which ordered Benetton International N.V. to pay compensation of US$ 23.7 million to Eco Swiss China Time Ltd. and US$ 2.8 million to Bulova Corp., together with costs and the related interest. Stockholders will remember that in 1986, Benetton International N.V., a subsidiary of Benetton Group S.p.A., signed a license contract with Eco Swiss China Time Ltd. (the licensee) and Bulova Corp. (colicensee) for the use of the Benetton trademark in the timepiece sector. The duration of the contract was eight years and therefore expired in 1994. Significant problems in the relationship with Eco Swiss China Time Ltd. began to emerge at the end of 1989, such that, in 1991, Benetton International N.V. sent that company a letter notifying its intention to terminate the contract. The grounds indicated by Benetton were essentially that: – royalties were not being paid, or were inadequate; – the license was effectively being sublicensed to a subsidiary company of Eco Swiss China Time Ltd.; – the company refused to accept its share of the audit fees incurred by Arthur Andersen; – a number of group companies had gone bankrupt (including Eco Swiss S.p.A., the European subholding of the Eco Swiss Group). Eco Swiss China Time Ltd. and Bulova Corp. did not accept the termination of the contract and, on the basis of an arbitration clause, took the case to arbitration in the Netherlands. Benetton International N.V. presented two appeals against the award: the first, based on the merits of the case, requesting that the award be quashed, and the second, raising objections based on legal grounds, that the award be overturned. Benetton International N.V., having previously applied for a stay of execution, obtained through the courts a temporary stay in regard to Eco Swiss China Time Ltd., pending the decision of the competent tribunals on the questions indicated above. On March 21, 1997, the Supreme Court in The Hague accepted the petition by Benetton International N.V. and remitted the case for consideration by the European Court of Justice in Luxembourg. This decision has had favorable consequences for Benetton International N.V., since it also resulted in the adjournment of proceedings before the Supreme Court in The Hague concerning a request by Eco Swiss China Time Ltd. to lift the stay of execution on the payment of the arbitration award. This positive result encourages Benetton International N.V. in the defense of its case and interests. Any risks which could emerge from the final outcome of proceedings are adequately covered by existing provisions. The agents' leaving indemnity reserve was created in prior years and is prudently maintained to reflect contingencies associated with the interruption of agency contracts in certain circumstances covered by Italian law. The provision of an additional Lire 9,282 million during 1996 follows utilizations during the year. The exchange fluctuation reserve reflects the net effect of adjusting the unhedged foreign currency receivables and payables of Italian companies in the Group using year-end exchange rates. 21. RESERVE FOR EMPLOYEE TERMINATION INDEMNITIES Movements in this reserve during the year were as follows: Balance as of January 1, 1996 58,736 Provision for the year 13,752 Indemnities paid during the year (9,995) Other movements 28 Balance as of December 31, 1996 62,521 "Other movements" reflect the opening balances of companies acquired during 1996. Related provisions charged in expense in 1994 and 1995 were Lire 13,595 million and Lire 17,114 million respectively.
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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 42 and 43: Reserve for employee termination in
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 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
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The Benetton Group Annual Report 1996

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