The Benetton Group Annual Report 1996

Generally accepted US accounting principles also require the use of a method of accounting,
consistent with "pooling of interests" accounting, for acquisitions and dispositions between members of
a "controlled group" if the amounts involved are material.
The accompanying reconciliation has not been restated to reflect these transactions as a "pooling of
interests" as the net aggregate effect of the transactions is not material.
(c) Accounting for Goodwill
Up to 1992, goodwill on investments acquired was charged or credited to stockholders' equity at the
date of purchase. This policy differs from US generally accepted accounting principles which require
that such differences be reflected as an asset in the balance sheet of the acquiring company and then
amortized over a period not in excess of 40 years.
The adjustment in the accompanying reconciliation has been made to recognize the goodwill on
acquisitions from third parties made in 1990 and prior years originally amounting to Lire 7,330 million.
Goodwill is being amortized over a 10 year period, corresponding to the estimated useful lives of the
underlying assets acquired.
(d) Deferred Charges
The Group has deferred certain taxes paid on capital stock increases and stock exchange listing costs
and is amortizing these amounts over 5 years. Under US generally accepted accounting principles,
these taxes and listing costs would have been considered to be a reduction of the proceeds received
and charged to capital stock or additional paid-in capital. The accompanying reconciliation reflects
the adjustment to follow US generally accepted accounting principles.
(e) Foreign Currency Translation
Since 1989, the Group's policies and procedures with respect to the translation of financial statements
of foreign subsidiaries operating in hyper-inflationary economies, have been in conformity with the
requirements of Statement of Financial Accounting Standards No. 52.
Group accounting policies state that long term debts denominated in a foreign currency are translated
using the exchange rate at the balance sheet date, with losses included in the determination of net
income and unrealized net gains deferred.
In addition the accompanying reconciliation in 1994 provides the cumulative effect on net income for
US GAAP of change in accounting for premiums on forward contracts entered into in order to hedge
investments in foreign subsidiaries (note 3).
The Company has forward contracts maturing in 1997 and 1998 in order to hedge future sales in foreign
currencies for a total amount of Lire 657 billion. Since such contracts do not hedge firm commitments,
they are to be considered as anticipatory hedging and, under US GAAP, accounted for as speculative
transactions, using the mark to market valuation (“m.t.m.”).
Such valuation results in a net unrealized gain of Lire 3.0 billion before taxes at December 31, 1996, (Lire
13.6 billion as of December 31,1995). At December 31,1994 the “m.t.m.” of anticipatory hedging resulted
in a net loss (Lire 2.3 billion) and in accordance with Italian GAAP was reflected in the consolidated
financial statements. Therefore at December 31, 1994 the “m.t.m.” was consistent with US GAAP .