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SECURITIES AND EXCHANGE COMMISSION
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Tel. +39 02 356 79 810
Fax +39 02 365 79 809
investor_relations@natuzzi.com
Piazza Arcole 4, 20143 Milan, Italy
Title of each class | Name of each exchange on which registered | |
American Depositary Shares, each representing one Ordinary Share | New York Stock Exchange | |
Ordinary Shares, with a par value of€1.00 each | New York Stock Exchange (for listing purposes only) |
common stock as of the close of the period covered by the annual report:
Rule 405 of the Securities Act.
Large accelerated filero | Accelerated filerþ | Non-accelerated filero |
U.S. GAAPo | IFRSo | Otherþ |
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PART III | ||||||||
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Index to Financial Statements | ||||||||
Exhibit 8.1 | ||||||||
Exhibit 12.1 | ||||||||
Exhibit 12.2 | ||||||||
Exhibit 13.1 |
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Year Ended At December 31, | ||||||||||||||||||||||||
2008 | 2008 | 2007 | 2006 | 2005 | 2004 | |||||||||||||||||||
(millions of | ||||||||||||||||||||||||
dollars, except per | ||||||||||||||||||||||||
Ordinary Share)(1) | (millions of euro, except per Ordinary Share) | |||||||||||||||||||||||
Income Statement Data: | ||||||||||||||||||||||||
Amounts in accordance with Italian GAAP: | ||||||||||||||||||||||||
Net sales: | ||||||||||||||||||||||||
Leather- and fabric-upholstered furniture | $ | 864.5 | € | 587.8 | € | 563.5 | € | 660.2 | € | 594.8 | € | 665.5 | ||||||||||||
Other(2) | 115.0 | 78.2 | 70.9 | 75.2 | 75.1 | 87.9 | ||||||||||||||||||
Total net sales | 979.5 | 666.0 | 634.4 | 735.4 | 669.9 | 753.4 | ||||||||||||||||||
Cost of sales | (704.2 | ) | (478.8 | ) | (460.6 | ) | (490.5 | ) | (459.4 | ) | (484.5 | ) | ||||||||||||
Gross profit | 275.3 | 187.2 | 173.8 | 244.9 | 210.5 | 268.9 | ||||||||||||||||||
Selling expenses | (253.4 | ) | (172.3 | ) | (173.9 | ) | (186.2 | ) | (182.2 | ) | (188.2 | ) | ||||||||||||
General and administrative expenses | (73.4 | ) | (49.9 | ) | (49.0 | ) | (42.2 | ) | (43.0 | ) | (40.7 | ) | ||||||||||||
Operating income (loss) | (51.5 | ) | (35.0 | ) | (49.1 | ) | 16.5 | (14.7 | ) | 40.0 | ||||||||||||||
Other income (expense), net(3) (4) (5) (6) | (38.0 | ) | (25.8 | ) | (2.6 | ) | 2.8 | 3.0 | (3.9 | ) | ||||||||||||||
Earnings (loss) before taxes and minority interests | (89.5 | ) | (60.8 | ) | (51.7 | ) | 19.3 | (11.7 | ) | 36.1 | ||||||||||||||
Income taxes | (2.2 | ) | (1.5 | ) | (11.4 | ) | (7.1 | ) | (3.1 | ) | (17.6 | ) | ||||||||||||
Earnings (loss) before minority interests | (91.7 | ) | (62.3 | ) | (63.1 | ) | 12.2 | (14.8 | ) | 18.5 | ||||||||||||||
Minority interest | 0.6 | 0.4 | 0.5 | 0.1 | 0.2 | (0.1 | ) | |||||||||||||||||
Net earnings (loss) | (91.1 | ) | (61.9 | ) | (62.6 | ) | 12.3 | (14.6 | ) | 18.4 | ||||||||||||||
Net earnings (loss) per Ordinary Share | $ | (1.66 | ) | € | (1.13 | ) | € | (1.14 | ) | € | 0.23 | € | (0.27 | ) | € | 0.34 | ||||||||
Dividends declared per share | — | — | — | — | — | € | 0.07 | |||||||||||||||||
Amounts in accordance with U.S. GAAP: | ||||||||||||||||||||||||
Net sales | 985.6 | 670.1 | 635.9 | 736.8 | 672.0 | 759.8 | ||||||||||||||||||
Operating income (loss) | (58.8 | ) | (40.0 | ) | (46.4 | ) | 22.7 | (4.5 | ) | 34.9 | ||||||||||||||
Net earnings (loss) | (81.9 | ) | (55.7 | ) | (60.0 | ) | 14.5 | (6.9 | ) | 18.8 | ||||||||||||||
Net earnings (loss) per Ordinary Share (basic and diluted) | $ | (1.50 | ) | € | (1.02 | ) | € | (1.09 | ) | € | 0.26 | € | (0.13 | ) | € | 0.34 | ||||||||
Weighted average number of Ordinary Shares Outstanding | 54,850,643 | 54,850,643 | 54,817,086 | 54,733,796 | 54,681,628 | 54,681,628 | ||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||
Amounts in accordance with Italian GAAP: | ||||||||||||||||||||||||
Current assets | $ | 443.2 | € | 318.5 | € | 364.1 | € | 407.3 | € | 384.5 | € | 389.4 | ||||||||||||
Total assets | 756.8 | 543.8 | 617.5 | 674.7 | 664.9 | 673.2 | ||||||||||||||||||
Current liabilities | 189.7 | 136.3 | 146.0 | 133.0 | 136.2 | 131.5 | ||||||||||||||||||
Long-term debt | 4.6 | 3.3 | 2.1 | 2.4 | 3.6 | 5.0 | ||||||||||||||||||
Minority interest | 1.1 | 0.8 | 0.1 | 0.6 | 0.7 | 0.9 | ||||||||||||||||||
Shareholders’ equity(7) | 480.4 | 345.2 | 411.6 | 478.9 | 473.0 | 487.9 | ||||||||||||||||||
Amounts in accordance with U.S. GAAP: | ||||||||||||||||||||||||
Shareholders’ equity | $ | 491.7 | € | 353.3 | € | 408.5 | € | 468.4 | € | 453.7 | € | 464.5 |
1) | Income Statement amounts are converted from euros into U.S. dollars by using the average Federal Reserve Bank of New York euro exchange rate for 2008 of U.S.$ 1.4708 per 1 euro. Balance Sheet amounts are converted from euros into U.S. dollars using the Federal Reserve Bank of New York Noon Buying Rate of U.S.$ 1.3917 per 1 euro as of December 31, 2008. |
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2) | Sales included under “Other” principally consist of sales of polyurethane foam and leather to third parties and sales of living room accessories. | |
3) | Other income (expense), net is principally affected by gains and losses, as well as interest income and expenses, resulting from measures adopted by the Group in an effort to reduce its exposure to exchange rate risks. See “Item 5. Operating and Financial Review and Prospects — Results of Operations — 2008 Compared to 2007,” “Item 11. Quantitative and Qualitative Disclosures about Market Risk” and Notes 3, 24 and 25 to the Consolidated Financial Statements included in Item 18 of this annual report. | |
4) | Other income (expense), net in 2005 was affected by the change in accounting principles for the translation of foreign subsidiaries’ financial statements under Italian GAAP. See Note 3(d) to the Consolidated Financial Statements. In addition, other income (expense), net, in 2005 was positively affected by revenues for capital grants. See Note 24 to the Consolidated Financial Statements included in Item 18 of this annual report. | |
5) | Other income (expense), net in 2006 was negatively affected by the provisions for contingent liabilities. See Note 24 to the Consolidated Financial Statements included in Item 18 of this annual report. | |
6) | Other income (expense), net in 2008 was negatively affected by the impairment losses of long-lived assets, the one-time termination benefit and the provision for contingent liabilities. See Note 24 to the Consolidated Financial Statements included in Item 18 of this annual report. | |
7) | Share capital as of December 31, 2008, 2007, 2006, 2005 and 2004 amounted to€ 54.9 million,€ 54.8 million,€ 54.7 million,€ 54.7 million and€ 54.7 million, respectively. |
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Year: | Average(1) | At Period End | ||||||
2004 | 1.2478 | 1.3538 | ||||||
2005 | 1.2400 | 1.1842 | ||||||
2006 | 1.2661 | 1.3197 | ||||||
2007 | 1.3797 | 1.4603 | ||||||
2008 | 1.4695 | 1.3919 |
Month ending: | High | Low | ||||||
31-Dec-08 | 1.4358 | 1.2634 | ||||||
31-Jan-09 | 1.3718 | 1.2804 | ||||||
28-Feb-09 | 1.3064 | 1.2547 | ||||||
31-Mar-09 | 1.3730 | 1.2549 | ||||||
30-Apr-09 | 1.3458 | 1.2978 | ||||||
31-May-09 | 1.4126 | 1.3267 |
(1) | The average of the Noon Buying Rates for the relevant period, calculated using the average of the Noon Buying Rates on the last business day of each month during the period. Source: Federal Reserve Statistical Release on Foreign Exchange Rates—Historical Rates for Euro Area. |
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• | price competition from low-cost manufacturers; |
• | a significant downturn in the global economy; |
• | recurring unfavorable currency conditions; and |
• | higher raw material prices. |
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• | improved quality, reliability and timeliness of information; |
• | improved integration and visibility of information stemming from different management functions and countries; and |
• | optimization and global management of corporate processes. |
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Percentage of | ||||||||
Name | ownership | Registered office | Activity | |||||
Italsofa Bahia Ltd | 97.99 | Bahia, Brazil | (1) | |||||
Minuano Nordeste S.A. | 100.00 | Pojuca, Brazil | (1) | |||||
Italsofa Shanghai Ltd | 96.50 | Shanghai, China | (1) | |||||
Softaly Shanghai Ltd | 100.00 | Shanghai, China | (1) | |||||
Natuzzi China Ltd | 100.00 | Shanghai, China | (1) | |||||
Italsofa Romania | 100.00 | Baia Mare, Romania | (1) | |||||
Natco S.p.A. | 99.99 | Bari, Italy | (2) | |||||
I.M.P.E. S.p.A. | 90.83 | Qualiano, Italy | (3) | |||||
Nacon S.p.A. | 100.00 | Bari, Italy | (4) | |||||
Lagene S.r.l. | 100.00 | Bari, Italy | (4) | |||||
Natuzzi Americas Inc. | 100.00 | High Point, NC, USA | (4) | |||||
Natuzzi Iberica S.A. | 100.00 | Madrid, Spain | (4) | |||||
Natuzzi Switzerland AG | 100.00 | Kaltbrunn, Switzerland | (4) | |||||
Natuzzi Nordic | 100.00 | Copenaghen, Denmark | (4) | |||||
Natuzzi Benelux S.A. | 100.00 | Geel, Belgium | (4) | |||||
Natuzzi Germany Gmbh | 100.00 | Dusseldorf, Germany | (4) | |||||
Natuzzi Sweden AB | 100.00 | Stockholm, Sweden | (4) | |||||
Natuzzi Japan KK | 100.00 | Tokyo, Japan | (4) | |||||
Natuzzi Services Limited | 100.00 | London, UK | (4) | |||||
Natuzzi Trading Shanghai Ltd | 100.00 | Shanghai, China | (4) | |||||
Italholding S.r.l. | 100.00 | Bari, Italy | (5) | |||||
Natuzzi Netherlands Holding | 100.00 | Amsterdam, Holland | (5) | |||||
Natuzzi Trade Service S.r.l. | 100.00 | Bari, Italy | (6) | |||||
La Galleria Limited | 100.00 | London, UK | (7) | |||||
Natuzzi United Kingdom Limited | 100.00 | London, UK | (7) | |||||
Kingdom of Leather Limited | 100.00 | London, UK | (7) |
(1) | Manufacture and distribution | |
(2) | Intragroup leather dyeing and finishing | |
(3) | Production and distribution of polyurethane foam | |
(4) | Distribution | |
(5) | Investment holding | |
(6) | Transportation services | |
(7) | Dormant |
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• | repositioning the Group brands—includingNatuzziandItalsofaworldwide,Divani & Divanimainly in Italy andNatuzzi Editionsin America—by increasing awareness and penetration in current and new markets; |
• | expanding in new markets, such as Brazil, India, Russia and various markets in Latin America; |
• | improving and further developing the Group’s retail organization; |
• | diversifying product assortment and launching new models based on pricing strategies in line with market inputs and expectations; |
• | streamlining operations on a regional basis, so that factories located in certain regions will primarily serve such regions; |
• | creating more efficiency in the manufacturing and procurement process by revising product cost structures and focusing more on the R&D and engineering process; and |
• | eliminating waste and redundancies in Group processes, with a focus on increasing integration within the Group by completing the SAP rollout. |
• | the growth of the annual net sales of theNatuzzi,Italsofa,Divani & Divani andNatuzzi Editionsbrands; |
• | a reduction of our cost of goods sold to approximately 61% of net sales; and |
• | other reductions in logistical costs (materials, transportation and transformation) and selling expenses and general administrative expenses (SG&A). |
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2008 | 2007 | 2006 | ||||||||||||||||||||||
Americas (1) | 208.6 | 35.5 | % | 198.6 | 35.2 | % | 245.4 | 37.2 | % | |||||||||||||||
Natuzzi | 110.4 | 18.8 | % | 114.4 | 20.3 | % | 146.6 | 22.2 | % | |||||||||||||||
Italsofa | 98.2 | 16.7 | % | 84.2 | 14.9 | % | 98.8 | 15.0 | % | |||||||||||||||
Europe | 323.7 | 55.1 | % | 319.4 | 56.7 | % | 366.6 | 55.5 | % | |||||||||||||||
Natuzzi | 189.3 | 32.2 | % | 191.8 | 34.0 | % | 235.3 | 35.6 | % | |||||||||||||||
Italsofa | 134.4 | 22.9 | % | 127.6 | 22.7 | % | 131.3 | 19.9 | % | |||||||||||||||
Rest of the world | 55.5 | 9.4 | % | 45.5 | 8.1 | % | 48.3 | 7.3 | % | |||||||||||||||
Natuzzi | 32.8 | 5.5 | % | 29.9 | 5.3 | % | 34.3 | 5.2 | % | |||||||||||||||
Italsofa | 22.7 | 3.9 | % | 15.6 | 2.8 | % | 14.0 | 2.1 | % | |||||||||||||||
Total | 587.8 | 100.0 | % | 563.5 | 100.0 | % | 660.3 | 100.0 | % | |||||||||||||||
(1) | Outside the United States, the Group also sells its products to customers in Canada and Central and South America (collectively, the “Americas”). |
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2008 | 2007 | 2006 | ||||||||||||||||||||||
Americas | 1,272,559 | 46.8 | % | 1,176,585 | 45.4 | % | 1,364,873 | 45.2 | % | |||||||||||||||
Natuzzi | 554,492 | 20.4 | % | 560,647 | 21.6 | % | 684,009 | 22.7 | % | |||||||||||||||
Italsofa | 718,067 | 26.4 | % | 615,938 | 23.8 | % | 680,864 | 22.5 | % | |||||||||||||||
Europe | 1,211,939 | 44.5 | % | 1,225,882 | 47.3 | % | 1,449,696 | 48.1 | % | |||||||||||||||
Natuzzi | 487,821 | 17.9 | % | 523,054 | 20.2 | % | 716,846 | 23.8 | % | |||||||||||||||
Italsofa | 724,118 | 26.6 | % | 702,828 | 27.1 | % | 732,850 | 24.3 | % | |||||||||||||||
Rest of the world | 237,809 | 8.7 | % | 189,926 | 7.3 | % | 202,133 | 6.7 | % | |||||||||||||||
Natuzzi | 90,430 | 3.3 | % | 87,950 | 3.4 | % | 106,127 | 3.5 | % | |||||||||||||||
Italsofa | 147,379 | 5.4 | % | 101,976 | 3.9 | % | 96,006 | 3.2 | % | |||||||||||||||
Total | 2,722,307 | 100.0 | % | 2,592,393 | 100.0 | % | 3,016,702 | 100.0 | % | |||||||||||||||
(2) | Includes seats produced at Group-owned facilities and by subcontractors. Seats are a unit measurement. A sofa consists of three seats; an armchair of one. |
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Size | ||||||||||||||
(approximate | Production | |||||||||||||
square | Capacity | Unit of | ||||||||||||
Location | meters) | Function | per day | Measure | ||||||||||
Santeramo in Colle | 29,000 | Headquarters, prototyping, manufacturing of wooden frames, showroom (Owned) | 704 | Frames | ||||||||||
(BA) — Italy | ||||||||||||||
Santeramo in Colle, | 27,500 | Sewing and product assembly (Owned) | 1.400 | Seats | ||||||||||
Iesce (BA) — Italy | ||||||||||||||
Matera La Martella | 38,000 | General warehouse of sofas and accessory furnishing (Owned) | N.A. | N.A. | ||||||||||
— Italy | ||||||||||||||
Ginosa (TA) — Italy | 14,500 | Sewing and product assembly (Owned) | 900 | Seats | ||||||||||
Laterza (TA) — Italy | 10,000 | Leather cutting (Owned) | 7,500 | Square Meters | ||||||||||
Laterza (TA) — Italy | 13,000 | Fabric and lining cutting, leather warehouse (Owned) | 6,000 | Linear Meters | ||||||||||
Laterza (TA) — Italy | 20,000 | Accessory Furnishing Packaging and Warehouse (Owned) | N.A. | N.A. | ||||||||||
Qualiano (NA) — | 12,000 | Polyurethane foam production (Owned) | 87 | Tons | ||||||||||
Italy | ||||||||||||||
Pozzuolo del Friuli | 21,000 | Leather dyeing and finishing (Owned) | 14,000 | Square Meters | ||||||||||
(UD) — Italy | ||||||||||||||
Montebello (VI) - | 5,500 | Leather warehouse (Leased) | N.A. | N.A. | ||||||||||
Italy |
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Size | ||||||||||||||
(approximate | Production | |||||||||||||
square | Capacity | Unit of | ||||||||||||
Location | meters) | Function | per day | Measure | ||||||||||
High Point — North | 10,000 | Office and showroom for Natuzzi Americas (Owned) | N.A. | N.A. | ||||||||||
Carolina — U.S.A. | ||||||||||||||
Baia Mare — Romania | 75,600 | Leather cutting, sewing and product | 2,900 | Seats | ||||||||||
assembly, manufacturing of wooden frames, polyurethane foam shaping, fiberfill production and wood and wooden product manufacturing (Owned) | ||||||||||||||
Shanghai — China | 44,000 | Leather cutting, sewing and product | 4,000 | Seats | ||||||||||
assembly, manufacturing of wooden frames, polyurethane foam shaping, fiberfill production (Owned) | ||||||||||||||
Shanghai (Fengpu) — | 14,500 | Leather cutting, leather and fabric warehouse (Leased) | 10,800 | Square Meters | ||||||||||
China | ||||||||||||||
Fabric cutting | 420 | Linear Meters | ||||||||||||
Salvador de Bahia | 28,700 | Leather cutting, sewing and product | 700 | Seats | ||||||||||
(Bahia) — Brazil | assembly, manufacturing of wooden frames, polyurethane foam shaping, fiberfill production (Owned) |
Year ending December 31, | ||||||||||||
(millions of Euro) | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Land and plants | 1.1 | 3.3 | 2.4 | |||||||||
Equipment | 5.1 | 10.1 | 7.0 | |||||||||
Other assets | 9.8 | 13.1 | 9.7 | |||||||||
Total | 16.0 | 26.5 | 19.1 | |||||||||
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Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales | 71.9 | 72.6 | 66.7 | |||||||||
Gross profit | 28.1 | 27.4 | 33.3 | |||||||||
Selling expenses | 25.9 | 27.4 | 25.3 | |||||||||
General and administrative expenses | 7.4 | 7.7 | 5.7 | |||||||||
Operating income (loss) | (5.2 | ) | (7.7 | ) | 2.3 | |||||||
Other income (expense), net | (3.9 | ) | (0.4 | ) | 0.4 | |||||||
Income taxes | 0.2 | 1.8 | 1.0 | |||||||||
Net earnings (loss) | (9.3 | ) | (9.9 | ) | 1.7 |
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• | a net realized loss of€ 1.3 million in 2008 (compared to a gain of€ 5.9 million in 2007) on domestic currency swaps due to the difference between the forward rates of the domestic currency swaps and the spot rates at which the domestic currency swaps were closed (the Group uses the forward rate to hedge its price risks against unfavourable exchange rate variations); |
• | a net realized loss of€ 6.3 million in 2008 (compared to a loss of€ 3.9 million in 2007), from the difference between invoice exchange rates and collection/payment exchange rates; |
• | a net unrealized gain of€ 1.0 million in 2008 (compared to an unrealized loss of€ 10.1 million in 2007) on accounts receivable and payable; and |
• | a net unrealized loss of€ 4.4 million in 2008 (compared to an unrealized gain of€ 0.9 million in 2007), from the mark-to-market of domestic currency swaps. |
• | a€ 4.7 million expense due to the impairment of long-lived assets in 2008, while no such expenses were registered in 2007; |
• | a€ 4.6 million expense for the one-time termination benefits incurred in 2008, while no such expenses were registered in 2007; |
• | a€ 3.2 million contingent-liabilities provision for estimated losses related to some claims (including tax claims) and legal actions in 2008, while in 2007, the provisions for contingent liabilities amounted to€ 3.0 million; |
• | other expenses of€ 1.2 million deriving from the write-off of fixed assets in 2008, while in 2007, the other expenses deriving from the write off of fixed assets amounted to€ 2.3 million; |
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• | the Group did not register any refunds from tax authorities in 2008, while in 2007 it registered a refund of€ 3.0 million obtained from the Italian tax authorities for income and other taxes not due related to prior years (in addition in 2007, the Italian tax authorities confirmed that a portion of the income tax of€ 0.7 accrued in year 2006, was no longer due); |
• | the Group did not register any provisions or reversals for legal actions in 2008, while in 2007 it registered an income of€ 1.5 million due to the write off of a provision for legal actions accrued in 2006, which resulted from a settlement of the claim; and |
• | € 0.8 million as other expense, net in 2008, compared to other income, net of€ 2.9 million in 2007. |
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• | a net realized gain of€ 5.9 million in 2007 (compared to a gain of€ 0.7 million in 2006) on domestic currency swaps due to the difference between the forward rates of the domestic currency swaps and the spot rates at which the domestic currency swaps were closed (the Group uses the forward rate to hedge its price risks against unfavourable exchange rate variations); |
• | a net realized loss of€ 3.8 million in 2007 (compared to a loss of€ 8.2 million in 2006), from the difference between invoice exchange rates and collection/payment exchange rates; |
• | a net unrealized loss of€ 10.1 million in 2007 (compared to an unrealized gain of€ 2.8 million in 2006) on accounts receivable and payable; and |
• | a net unrealized gain of€ 0.9 million in 2007 (compared to an unrealized gain of€ 5.5 million in 2006), from the mark-to-market of domestic currency swaps. |
• | a€ 3.0 million contingent-liabilities provision for estimated losses related to some claims (including tax claims) and legal actions. In 2006, the provisions for contingent liabilities amounted to€ 5.8 million; |
• | other expenses of€ 2.3 million deriving from the write-off of fixed assets. No such expenses were registered in 2006; |
• | in 2007 the Group did not register any revenue from export incentive benefits, while in 2006 it registered revenue of€ 3.4 million. This incentive is measured on the basis of the export sales realized by the subsidiaries Italsofa Bahia Ltd and Minuano Nordeste S.A.; |
• | a refund of€ 3.0 million obtained from the Italian tax authorities for income and other taxes not due related to prior years; in addition, the Italian tax authorities confirmed that a portion of the income tax of€ 0.7 accrued in year 2006, was no longer due. In 2006 the Company did not record revenues for tax refund; |
• | an income of€ 1.5 million due to the write off of a provision for legal action accrued in 2006, which resulted from a settlement of the claim; and |
• | € 2.9 million as other income, net, that is the same amount it had registered in 2006. |
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Payments Due by Period | ||||||||||||||||||||
(thousands of euro) | ||||||||||||||||||||
Less than | After 5 | |||||||||||||||||||
Contractual Obligations | Total | 1 year | 2-3 years | 4-5 years | years | |||||||||||||||
Long-Term Debt(1) | 3,780 | 514 | 1,353 | 1,315 | 598 | |||||||||||||||
Interest due on Long Term Debt(2) | 235 | 57 | 96 | 59 | 23 | |||||||||||||||
Operating Leases(3) | 67,175 | 12,794 | 22,150 | 16,267 | 15,964 | |||||||||||||||
Total Contractual Cash Obligations | 71,190 | 13,365 | 23,599 | 17,641 | 16,585 |
(1) | Please see Note 16 to the Consolidated Financial Statements included in Item 18 of this annual report for more information on the Group’s long-term debt. | |
(2) | Interest due on long-term debt has been calculated using fixed rates contractually agreed with lenders | |
(3) | The leases relate to the leasing of manufacturing facilities and stores by several of the Group’s companies. |
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Amount of Commitment Expiration Per Period | ||||||||||||||||||||
Total | (thousands of euro) | |||||||||||||||||||
Amounts | Less than | After 5 | ||||||||||||||||||
Other Commitments | Committed | 1 year | 2-3 years | 4-5 years | years | |||||||||||||||
Guarantees(1) | 26,005 | 26,005 | — | — | — |
(1) | The guarantee is primarily comprised of a guarantee letter provided by a bank in connection with the Natuzzi 2000 project. The guarantee letter will expire when the Italian Ministry of Economic Development provides the Company with the final disbursement of the capital grants already provided. See “Item 4. Information on the Company — Incentive Programs and Tax benefits.” |
• | to draw the retail business model for the Group; |
• | to design an auditing and control system for the Group’s retail business model under the supervision of top management; |
• | to define the consumer segments to be targeted; |
• | to define a product mix more consistent with targeted consumers and market; |
• | to define a store concept consistent with the Natuzzi brand’s high-end positioning; |
• | to define store formats (size, location, aesthetic and commercial features); |
• | to define development plans and network re-positioning; and |
• | to define the correct communication tools and training. |
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Name | Age | Position with the Company | ||||
Pasquale Natuzzi * | 69 | Chairman of the Board of Directors, Chief Executive Officer and Chief Brand Officer(ad interim) | ||||
Antonia Isabella Perrone * | 39 | Director | ||||
Annamaria Natuzzi * | 43 | Director | ||||
Giuseppe Antonio D’Angelo * | 43 | Outside Director | ||||
Maurizia Iachino Leto di Priolo * | 60 | Outside Director | ||||
Francesco Giannaccari * | 44 | Outside Director | ||||
Mario Lugli * | 62 | Outside Director | ||||
Giacomo Santucci ** | 53 | Outside Director | ||||
Mariano Domingo | 56 | Chief Financial Officer | ||||
Annunziata Natuzzi | 45 | Chief Executive Officer of Natco S.p.A. and Transformation Top 8 Vice President | ||||
Cosimo Bardi | 34 | Product Development Vice President | ||||
Francesco Basile | 40 | People Management & Organization Senior Vice President | ||||
Umberto Bedini | 53 | Operations Senior Vice President | ||||
Cary Benson | 49 | President and Chief Executive Officer of Natuzzi Americas Inc. | ||||
Massimiliano Caforio | 40 | Legal and Corporate Affairs Vice President | ||||
Cosimo Cavallo | 49 | Region UK, S-A-E Europe & Middle East Senior Vice President | ||||
Silvia Di Rosa | 45 | IR & Financial Marketing Vice President | ||||
Oliver Heil | 42 | Region A-O-A Senior Vice President | ||||
Jan Mentens | 41 | Region North & Central Europe Senior Vice President | ||||
Fernanda Pelati | 51 | Italy & Retail Worldwide Senior Vice President | ||||
Paola Peretti | 34 | Corporate Comm. & Think Bold Team Vice President | ||||
Christian Schwab | 43 | Region B-R-I Senior Vice President | ||||
Stefano Sette | 40 | Natuzzi Brand Group Senior Vice President and Chairman of Nacon S.p.A | ||||
Giuseppe Stano | 50 | Key Global Account Management Vice President | ||||
Giacomo Ventolone | 41 | Region Latin America Vice President |
* | The above mentioned Members of the Board of Directors were elected at the Company’s Annual Ordinary Shareholders’ Meeting held on July 2, 2008. Their term will conclude at the next Ordinary Shareholders’ Meeting. | |
** | Mr Santucci was appointed at the General Shareholders Meeting held on May 5, 2009. |
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• | 40% of the bonus is paid in cash; and | ||
• | 60% of the bonus is automatically converted, based on the fair market value of the Company’s stock, in rights to receive a correspondent number of the Company’s common shares. |
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Name | Position | |||
Francesco Venturelli | Chairman | |||
Cataldo Sferra | Member | |||
Costante Leone | Member | |||
Giuseppe Pio Macario | Alternate | |||
Vittorio Boscia | Alternate |
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Number of | ||||||||
Shares | Percent | |||||||
Owned | Owned | |||||||
Pasquale Natuzzi(1) | 29,358,089 | 53.5 | % | |||||
Royce & Associates LLC(2) | 5,543,300 | 10.1 | % | |||||
Brandes Investment Partners LP(3) | 3,049,457 | 5.6 | % | |||||
Quaeroq CVBA (4) | 2,760,400 | 5.0 | % |
(1) | Includes ADSs purchased on April 18, 2008. If Mr. Natuzzi’s Ordinary Shares are aggregated with those held by members of the Natuzzi Family, the amount owned would be 32,158,091 and the percentage ownership of Ordinary Shares would be 58.7%. | |
(2) | According to the Schedule 13G filed with the SEC by Royce & Associates LLC on February 5, 2009. | |
(3) | According to the Schedule 13G filed with the SEC by Brandes Investment Partners LP on February 12, 2009. | |
(4) | According to the Schedule 13G filed with the SEC by Quaeroq CVBA on November 18, 2008. |
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• | enterprises that directly or indirectly through one or more intermediaries, control or are controlled by, or are under common control with, the Company, or unconsolidated enterprises in which the Company has a significant influence or which has significant influence over the Company (including enterprises owned by directors or major shareholders of the Company and enterprises that have a member of key management in common with the Company); |
• | individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the Company, and close members of any such individual’s family; |
• | persons having authority and responsibility for planning, directing and controlling the activities of the Company, including directors and senior management of the Company and close members of such individuals’ families; and |
• | enterprises in which a substantial interest in the voting power is owned, directly or indirectly, by any person described the previous two bullet points or over which such a person is able to exercise significant influence. |
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New York Stock Exchange | ||||||||
Price per ADS | ||||||||
High | Low | |||||||
(in US dollars) | ||||||||
2004 | 11.55 | 9.23 | ||||||
2005 | 11.65 | 6.76 | ||||||
2006 | 8.65 | 6.32 | ||||||
2007 | 9.60 | 4.36 | ||||||
2008 | 4.63 | 1.63 | ||||||
2007 | ||||||||
First quarter | 9.60 | 8.15 | ||||||
Second quarter | 8.53 | 7.18 | ||||||
Third quarter | 8.31 | 5.26 | ||||||
Fourth quarter | 6.84 | 4.36 | ||||||
2008 | ||||||||
First quarter | 4.63 | 3.20 | ||||||
Second quarter | 4.10 | 3.16 | ||||||
Third quarter | 4.04 | 2.61 | ||||||
Fourth quarter | 3.43 | 1.63 | ||||||
Monthly data | ||||||||
December 08 | 2.40 | 1.63 | ||||||
January 09 | 1.96 | 1.46 | ||||||
February 09 | 1.76 | 1.40 | ||||||
March 09 | 1.63 | 1.00 | ||||||
April 09 | 1.55 | 1.00 | ||||||
May 09 | 2.11 | 1.54 | ||||||
June (through June 19) | 2.30 | 1.92 |
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• | Transfers to a spouse or direct descendants or ancestors up to Euro 1,000,000 to each beneficiary are exempt from inheritance and gift tax. Transfers in excess of such threshold will be taxed at a 4% rate on the value of the Ordinary Shares or ADSs exceeding such threshold; |
• | Transfers between relatives up to the fourth degree other than siblings, and direct or indirect relatives by affinity up to the third degree are taxed at a rate of 6% on the value of the Ordinary Shares or ADSs (where transfers between siblings up to a maximum value of Euro 100,000 for each beneficiary are exempt from inheritance and gift tax); and |
• | Transfers by reason of gift or death of Ordinary Shares or ADSs to persons other than those described above will be taxed at a rate of 8% on the value of the Ordinary Shares or ADSs. |
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Euro equivalent of contractual amounts | December 31, | |||||||
of forward exchange contracts as of | 2008 | 2007 | ||||||
U.S. dollars | € | 62,561 | € | 58,724 | ||||
Euro | 25,292 | 46,326 | ||||||
British pounds | 11,988 | 8,751 | ||||||
Canadian dollars | 11,463 | 18,930 | ||||||
Australian dollars | 9,771 | 16,503 | ||||||
Norwegian kroner | 2,492 | 7,071 | ||||||
Swiss francs | 1,973 | 620 | ||||||
Danish kroner | 1,675 | 2,681 | ||||||
Swedish kroner | 1,644 | 2,616 | ||||||
Japanese yen | 360 | 292 | ||||||
Total | € | 129,219 | € | 162,514 | ||||
December 31, 2008 | December 31, 2007 | |||||||||||||||
Contract | Unrealized | Contract | Unrealized | |||||||||||||
Amount | gains (losses) | Amount | gains (losses) | |||||||||||||
Assets | 38,898 | 6,799 | 97,967 | 4,995 | ||||||||||||
Liabilities | 90,321 | (11,270 | ) | 65,547 | (4,049 | ) | ||||||||||
Total | 129,219 | (4,471 | ) | 162,514 | 946 | |||||||||||
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June 25, 2009
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2008 | 2007 | |||||||
(in euros) | ||||||||
Audit fees | 1,090,681 | 1,063,000 | ||||||
Audit-related fees | — | — | ||||||
Tax fees | — | — | ||||||
Other fees | — | — | ||||||
Total fees | 1,090,681 | 1,063,000 | ||||||
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• | the board of statutory auditors is established and selected pursuant to Italian law expressly permitting such a board; | |
• | the board of statutory auditors is required under Italian law to be separate from the Company’s Board of Directors; | |
• | the board of statutory auditors is not elected by management of the Company and no executive officer of the Company is a member of the board of statutory auditors; | |
• | Italian law provides for standards for the independence of the board of statutory auditors from the Company and its management; | |
• | the board of statutory auditors, in accordance with applicable Italian law and the Company’s governing documents, is responsible, to the extent permitted by Italian law, for the appointment, retention and oversight of the work (including, to the extent permitted by law, the resolution of disagreements between management and the auditor regarding financial reporting) of any registered public accounting firm engaged for the purpose of preparing or issuing an audit report or performing other audit, review or attest services for the Company, and | |
• | to the extent permitted by Italian law, the audit committee requirements of paragraphs (b)(3), (b)(4) and (b)(5) of Rule 10A-3 apply to the Board of Statutory Auditors. |
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Page | ||||
F-1 | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-7 | ||||
1.1 | English translation of the by-laws (Statuto) of the Company, as amended and restated as of January 24, 2008 (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the Securities Exchange Commission on June 30, 2008, file number 1-11854). |
2.1 | Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 31, 2001, among the Company, The Bank of New York, as Depositary, and owners and beneficial owners of ADRs (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on July 1, 2002, file number 1-11854). |
8.1 | List of Significant Subsidiaries. |
12.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
12.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
13.1 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
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Natuzzi S.p.A.
June 25, 2009
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December 31, | December 31, | |||||||
2008 | 2007 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents (note 4) | 47,307 | 87,459 | ||||||
Marketable debt securities (note 5) | 4 | 4 | ||||||
Trade receivables, net (note 6) | 122,783 | 117,722 | ||||||
Other receivables (note 7) | 46,185 | 47,784 | ||||||
Inventories (note 8) | 92,012 | 107,290 | ||||||
Unrealized foreign exchange gains (note 25) | 4,724 | 946 | ||||||
Prepaid expenses and accrued income | 1,259 | 1,847 | ||||||
Deferred income taxes (note 14) | 4,219 | 1,079 | ||||||
Total current assets | 318,493 | 364,131 | ||||||
Non current assets: | ||||||||
Property plant and equipment (notes 9 and 22) | 406,147 | 413,730 | ||||||
Less accumulated depreciation (notes 9 and 22) | (194,366 | ) | (177,880 | ) | ||||
Net property, plant and equipment | 211,781 | 235,850 | ||||||
Other assets (note 10) | 13,342 | 17,276 | ||||||
Deferred income taxes (note 14) | 179 | 212 | ||||||
Total assets | 543,795 | 617,469 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term borrowings (note 11) | 9,701 | 7,576 | ||||||
Current portion of long-term debt (note 16) | 514 | 317 | ||||||
Accounts payable-trade (note 12) | 68,577 | 89,247 | ||||||
Accounts payable-other (note 13) | 29,743 | 29,813 | ||||||
Unrealized foreign exchange losses (note 25) | 9,195 | — | ||||||
Income taxes (note 14) | 1,798 | 1,585 | ||||||
Salaries, wages and related liabilities (note 15) | 16,811 | 17,531 | ||||||
Total current liabilities | 136,339 | 146,069 | ||||||
Long-term liabilities: | ||||||||
Employees’ leaving entitlement (note 3 (n) ) | 31,677 | 33,343 | ||||||
Long-term debt (note 16) | 3,266 | 2,116 | ||||||
Deferred income for capital grants (note 3 (m) ) | 12,058 | 13,332 | ||||||
Other liabilities (note 17) | 14,442 | 10,866 | ||||||
Minority interest (note 18) | 795 | 146 | ||||||
Shareholders’ equity (note 19) : | ||||||||
Share capital | 54,853 | 54,824 | ||||||
Reserves | 42,780 | 42,292 | ||||||
Additional paid-in capital | 8,282 | 8,282 | ||||||
Retained earnings | 239,303 | 306,199 | ||||||
Total shareholders’ equity | 345,218 | 411,597 | ||||||
Committments and contingent liabilities (notes 21 and 25) | — | — | ||||||
Total liabilities and shareholders’ equity | 543,795 | 617,469 | ||||||
F - 2
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Years ended December 31, 2008, 2007 and 2006
(Expressed in thousands of euros except per share data)
2008 | 2007 | 2006 | ||||||||||
Net sales (note 22) | 666,026 | 634,402 | 735,439 | |||||||||
Cost of sales (note 23) | (478,770 | ) | (460,589 | ) | (490,563 | ) | ||||||
Gross profit | 187,256 | 173,813 | 244,876 | |||||||||
Selling expenses | (172,338 | ) | (173,885 | ) | (186,238 | ) | ||||||
General and administrative expenses | (49,914 | ) | (49,038 | ) | (42,164 | ) | ||||||
Operating income (loss) | (34,996 | ) | (49,110 | ) | 16,474 | |||||||
Other income (expense), net (note 24) | (25,818 | ) | (2,646 | ) | 2,847 | |||||||
Earnings (loss) before taxes and minority interest | (60,814 | ) | (51,756 | ) | 19,321 | |||||||
Income taxes (note 14) | (1,556 | ) | (11,387 | ) | (7,085 | ) | ||||||
Earnings (loss) before minority interest | (62,370 | ) | (63,143 | ) | 12,236 | |||||||
Minority interest | 432 | 496 | 103 | |||||||||
Net earnings (loss) | (61,938 | ) | (62,647 | ) | 12,339 | |||||||
Basic earnings (loss) per share (note 3(z)) | (1.13 | ) | (1.14 | ) | 0.23 | |||||||
Diluted earnings (loss) per share (note 3(z)) | (1.13 | ) | (1.14 | ) | 0.23 | |||||||
F - 3
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Years ended December 31, 2008, 2007 and 2006
Share capital | Additional | |||||||||||||||||||||||
Number of | paid-in | Retained | ||||||||||||||||||||||
ordinary shares | Amount | Reserves | capital | earnings | Total | |||||||||||||||||||
Balances at December 31, 2005 | 54,681,628 | 54,682 | 42,292 | 8,282 | 367,769 | 473,025 | ||||||||||||||||||
Increase share capital | 56,910 | 57 | — | — | (57 | ) | — | |||||||||||||||||
Exchange difference on translation of financial statements | — | — | — | — | (6,522 | ) | (6,522 | ) | ||||||||||||||||
Net earnings | — | — | — | — | 12,339 | 12,339 | ||||||||||||||||||
Balances at December 31, 2006 | 54,738,538 | 54,739 | 42,292 | 8,282 | 373,529 | 478,842 | ||||||||||||||||||
Increase share capital | 85,689 | 85 | — | — | (85 | ) | — | |||||||||||||||||
Exchange difference on translation of financial statements | — | — | — | — | (4,598 | ) | (4,598 | ) | ||||||||||||||||
Net loss | — | — | — | — | (62,647 | ) | (62,647 | ) | ||||||||||||||||
Balances at December 31, 2007 | 54,824,227 | 54,824 | 42,292 | 8,282 | 306,199 | 411,597 | ||||||||||||||||||
Majority Shareholder contribution | — | — | 488 | — | — | 488 | ||||||||||||||||||
Increase share capital | 28,818 | 29 | — | — | (29 | ) | — | |||||||||||||||||
Exchange difference on translation of financial statements | — | — | — | — | (4,929 | ) | (4,929 | ) | ||||||||||||||||
Net loss | — | — | — | — | (61,938 | ) | (61,938 | ) | ||||||||||||||||
Balances at December 31, 2008 | 54,853,045 | 54,853 | 42,780 | 8,282 | 239,303 | 345,218 | ||||||||||||||||||
F - 4
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Years ended December 31, 2008, 2007 and 2006
2008 | 2007 | 2006 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net earnings (loss) | (61,938 | ) | (62,647 | ) | 12,339 | |||||||
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 31,086 | 30,331 | 30,281 | |||||||||
Write off of fixed assets | 1,189 | 2,285 | — | |||||||||
Impairment of long lived assets | 4,703 | — | — | |||||||||
Employees’ leaving entitlement | 7,026 | 7,389 | 6,778 | |||||||||
Deferred income taxes | (3,107 | ) | 8,463 | (2,058 | ) | |||||||
Minority interest | (432 | ) | (496 | ) | (103 | ) | ||||||
Loss on disposal of assets | 284 | 116 | 767 | |||||||||
Unrealized foreign exchange losses and (gains) | 5,417 | 4,517 | (10,230 | ) | ||||||||
Deferred income for capital grants | (1,274 | ) | (743 | ) | (1,309 | ) | ||||||
Equity in affiliated company | — | 1,221 | — | |||||||||
Change in assets and liabilities: | ||||||||||||
Receivables, net | (3,462 | ) | 599 | 1,883 | ||||||||
Inventories | 14,916 | (6,932 | ) | 15,444 | ||||||||
Prepaid expenses and accrued income | 588 | 108 | 596 | |||||||||
Accounts payable | (21,372 | ) | 16,474 | 4,285 | ||||||||
Income taxes | 213 | (3,026 | ) | 1,704 | ||||||||
Salaries, wages and related liabilities | (720 | ) | (4,143 | ) | (445 | ) | ||||||
Other liabilities | 3,576 | 406 | 6,102 | |||||||||
Employees’ leaving entitlement | (8,692 | ) | (9,315 | ) | (3,854 | ) | ||||||
Total adjustments | 29,939 | 47,254 | 49,841 | |||||||||
Net cash provided by (used in) operating activities | (31,999 | ) | (15,393 | ) | 62,180 | |||||||
F - 5
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2008 | 2007 | 2006 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Property, plant and equipment: | ||||||||||||
Additions | (11,884 | ) | (21,445 | ) | (15,563 | ) | ||||||
Disposals | 174 | 589 | 1,057 | |||||||||
Other assets | (4,097 | ) | (5,039 | ) | (3,560 | ) | ||||||
Government grants received | — | — | 605 | |||||||||
Purchase of business, net of cash acquired | — | (230 | ) | (250 | ) | |||||||
Disposal of business and affiliated company | 2,262 | — | — | |||||||||
Net cash used in investing activities | (13,545 | ) | (26,125 | ) | (17,711 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Long-term debt: | ||||||||||||
Proceeds | 2,038 | — | 363 | |||||||||
Repayments | (691 | ) | (318 | ) | (1,620 | ) | ||||||
Short-term borrowings | 2,125 | 3,775 | (3,926 | ) | ||||||||
Majority Shareholder Capital contribution | 488 | — | — | |||||||||
Net cash provided by (used in) financing activities | 3,960 | 3,457 | (5,183 | ) | ||||||||
Effect of translation adjustments on cash | 1,432 | (2,589 | ) | (900 | ) | |||||||
Increase (decrease) in cash and cash equivalents | (40,152 | ) | (40,650 | ) | 38,386 | |||||||
Cash and cash equivalents, beginning of the year | 87,459 | 128,109 | 89,723 | |||||||||
Cash and cash equivalents, end of the year | 47,307 | 87,459 | 128,109 | |||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid during the year for interest | 327 | 665 | 1,400 | |||||||||
Cash paid during the year for income taxes | 1,399 | 5,409 | 6,555 | |||||||||
Non cash investing activities | — | — | 3,093 | |||||||||
F - 6
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1. | Description of business and Group composition | |
The consolidated financial statements include the accounts of Natuzzi S.p.A. (‘Natuzzi’ or the ‘Company’) and of its subsidiaries (together with the Company, the ‘Group’). The Group’s primary activity is the design, manufacture and marketing of contemporary and traditional leather and fabric upholstered furniture. | ||
The subsidiaries included in the consolidation at December 31, 2008, together with the related percentages of ownership, are as follows: |
Percent of | Registered | |||||||||||
Name | ownership | office | Activity | |||||||||
Italsofa Bahia Ltd | 97.99 | Salvador, Brazil | (1 | ) | ||||||||
Minuano Nordeste S.A. | 100.00 | Pojuca, Brazil | (1 | ) | ||||||||
Italsofa Shanghai Ltd | 96.50 | Shanghai, China | (1 | ) | ||||||||
Softaly Shanghai Ltd | 100.00 | Shanghai, China | (1 | ) | ||||||||
Natuzzi China Ltd | 100.00 | Shanghai, China | (1 | ) | ||||||||
Italsofa Romania | 100.00 | Baia Mare, Romania | (1 | ) | ||||||||
Natco S.p.A. | 99.99 | Bari, Italy | (2 | ) | ||||||||
I.M.P.E. S.p.A. | 90.83 | Qualiano,Italy | (3 | ) | ||||||||
Nacon S.p.A. | 100.00 | Bari, Italy | (4 | ) | ||||||||
Lagene S.r.l. | 100.00 | Bari, Italy | (4 | ) | ||||||||
Natuzzi Americas Inc. | 100.00 | High Point, NC, USA | (4 | ) | ||||||||
Natuzzi Iberica S.A. | 100.00 | Madrid, Spain | (4 | ) | ||||||||
Natuzzi Switzerland AG | 100.00 | Kaltbrunn, Switzerland | (4 | ) | ||||||||
Natuzzi Nordic | 100.00 | Copenaghen, Denmark | (4 | ) | ||||||||
Natuzzi Benelux S.A. | 100.00 | Geel, Belgium | (4 | ) | ||||||||
Natuzzi Germany Gmbh | 100.00 | Dusseldorf, Germany | (4 | ) | ||||||||
Natuzzi Sweden AB | 100.00 | Stockholm, Sweden | (4 | ) | ||||||||
Natuzzi Japan KK | 100.00 | Tokyo, Japan | (4 | ) | ||||||||
Natuzzi Services Limited | 100.00 | London, UK | (4 | ) | ||||||||
Italholding S.r.l. | 100.00 | Bari, Italy | (5 | ) | ||||||||
Natuzzi Netherlands Holding | 100.00 | Amsterdam, Holland | (5 | ) | ||||||||
Natuzzi Trade Service S.r.l. | 100.00 | Bari, Italy | (6 | ) | ||||||||
Natuzzi United Kingdom Limited | 100.00 | London, UK | (7 | ) | ||||||||
Kingdom of Leather Limited | 100.00 | London, UK | (7 | ) | ||||||||
La Galleria Limited | 100.00 | London, UK | (7 | ) |
(1) | Manufacture and distribution | |
(2) | Intragroup leather dyeing and finishing | |
(3) | Production and distribution of polyurethane foam | |
(4) | Distribution | |
(5) | Investment holding | |
(6) | Transportation services | |
(7) | Dormant |
F - 7
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Goodwill | 225 | |||
Leasehold improvements | 5 | |||
Cash paid | 230 | |||
F - 8
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Goodwill | 2,600 | |||
Fixed assets | 132 | |||
Leasehold improvements | 468 | |||
Current liabilities | (107 | ) | ||
Purchase price | 3,093 | |||
Goodwill | 100 | |||
Fixed assets | 38 | |||
Current assets | 112 | |||
Purchase price | 250 | |||
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2. | Basis of preparation |
3. | Summary of significant accounting policies |
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(a) | if the foreign subsidiary was considered an integral part of the parent company due to various factors including intercompany transactions, financing, and cash flow indicators, its financial statements expressed in the foreign currency were translated directly into euro from the local currency as follows: (i) year-end exchange rate for monetary assets and liabilities, (ii) historical exchange rates for non monetary assets and liabilities, share capital and retained earnings, and (iii) average exchange rates during the year for revenues and expenses except for those revenues and expenses related to assets and liabilities translated at historical exchange rates. The resulting exchange differences on translation were recognized in other income (expense), net, in the consolidated statements of operations; |
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(b) | if the foreign subsidiary was not considered an integral part of a parent company, its financial statements expressed in the foreign currency were translated directly into euro as follows: (i) year-end exchange rate for assets and liabilities, (ii) historical exchange rates for share capital and retained earnings, and (iii) average exchange rates during the year for revenues and expenses. The resulting exchange differences on translation were recorded as a direct adjustment to shareholders’ equity. |
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2008 | 2007 | 2006 | ||||||||||
Net earnings (loss) attributable to ordinary shareholders | (61,938 | ) | (62,647 | ) | 12,339 | |||||||
Weighted-average number of ordinary shares outstanding during the year | 54,850,643 | 54,817,086 | 54,733,796 | |||||||||
Increase resulting from assumed conversion of share grants and options | — | — | — | |||||||||
Weighted-average number of ordinary shares and potential shares outstanding during the year | 54,850,643 | 54,817,086 | 54,733,796 | |||||||||
4. | Cash and cash equivalents | |
Cash and cash equivalents are analyzed as follows: |
2008 | 2007 | |||||||
Cash on hand | 261 | 381 | ||||||
Bank accounts in Euro | 13,234 | 7,531 | ||||||
Bank accounts in foreign currencies | 33,812 | 79,547 | ||||||
Total | 47,307 | 87,459 | ||||||
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5. | Marketable debt securities | |
Details regarding marketable debt securities are as follows: |
2008 | 2007 | |||||||
Foreign corporate bonds | 4 | 4 | ||||||
Italian government bonds | — | — | ||||||
Total | 4 | 4 | ||||||
Gross unrealized | Fair | |||||||||||||||
2008 | Cost | Gains | Losses | value | ||||||||||||
Foreign corporate bonds | 4 | — | — | 4 | ||||||||||||
Italian government bonds | — | — | — | — | ||||||||||||
Total | 4 | — | — | 4 | ||||||||||||
Gross unrealized | Fair | |||||||||||||||
2007 | Cost | Gains | Losses | value | ||||||||||||
Foreign corporate bonds | 4 | — | — | 4 | ||||||||||||
Italian government bonds | — | — | — | — | ||||||||||||
Total | 4 | — | — | 4 | ||||||||||||
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6. | Trade receivables, net | |
Trade receivables are analyzed as follows: |
2008 | 2007 | |||||||
North American customers | 52,016 | 43,214 | ||||||
Other foreign customers | 45,962 | 46,032 | ||||||
Domestic customers | 27,474 | 27,638 | ||||||
Trade bills receivable | 5,946 | 6,537 | ||||||
Total | 131,398 | 123,421 | ||||||
Allowance for doubtful accounts | (8,615 | ) | (5,699 | ) | ||||
Total trade receivables, net | 122,783 | 117,722 | ||||||
Trade receivables | N° of customers | % on trade receivables | ||||||||||||||
2008 | 2 | 16 | % | |||||||||||||
2007 | 3 | 21 | % | |||||||||||||
2006 | 2 | 16 | % |
Net sales | N° of customers | % net sales | ||||||||||||||
2008 | 2 | 22 | % | |||||||||||||
2007 | 2 | 23 | % | |||||||||||||
2006 | 2 | 18 | % |
2008 | 2007 | 2006 | ||||||||||
Balance, beginning of year | 5,699 | 6,057 | 5,159 | |||||||||
Charges-bad debt expense | 3,550 | 1,789 | 1,695 | |||||||||
Reductions-write off of uncollectible accounts | (634 | ) | (2,147 | ) | (797 | ) | ||||||
Balance, end of year | 8,615 | 5,699 | 6,057 | |||||||||
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2008 | 2007 | |||||||
U.S. dollars | 48,639 | 39,293 | ||||||
Canadian dollars | 6,489 | 6,012 | ||||||
British pounds | 4,193 | 6,495 | ||||||
Australian dollars | 3,759 | 4,778 | ||||||
Other currencies | 3,159 | 2,497 | ||||||
Total | 66,239 | 59,075 | ||||||
7. | Other receivables | |
Other receivables are analyzed as follows: |
2008 | 2007 | |||||||
Receivable from National Institute for Social Security | 10,729 | 6,870 | ||||||
Government capital grants | 10,633 | 11,798 | ||||||
VAT | 8,084 | 10,302 | ||||||
Receivable from tax authorities | 6,526 | 10,373 | ||||||
Advances to suppliers | 3,625 | 4,837 | ||||||
Other | 6,588 | 3,604 | ||||||
Total | 46,185 | 47,784 | ||||||
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8. | Inventories | |
Inventories are analyzed as follows: |
2008 | 2007 | |||||||
Leather and other raw materials | 52,049 | 63,698 | ||||||
Goods in process | 13,868 | 14,770 | ||||||
Finished products | 26,095 | 28,822 | ||||||
Total | 92,012 | 107,290 | ||||||
9. | Property, plant and equipment and accumulated depreciation | |
Fixed assets are listed below together with accumulated depreciation. |
Cost or | Accumulated | Annual rate of | ||||||||||
2008 | valuation | depreciation | depreciation | |||||||||
Land and industrial buildings | 193,108 | (48,946 | ) | 0–10 | % | |||||||
Machinery and equipment | 118,521 | (86,608 | ) | 10–25 | % | |||||||
Airplane | 24,075 | (7,946 | ) | 6 | % | |||||||
Office furniture and equipment | 23,503 | (19,700 | ) | 10–20 | % | |||||||
Retail gallery and store furnishings | 31,753 | (22,111 | ) | 25–35 | % | |||||||
Transportation equipment | 6,038 | (5,159 | ) | 20–25 | % | |||||||
Leasehold improvements | 8,545 | (3,896 | ) | 10–20 | % | |||||||
Construction in progress | 604 | — | — | |||||||||
Total | 406,147 | (194,366 | ) | |||||||||
Cost or | Accumulated | Annual rate of | ||||||||||
2007 | valuation | depreciation | depreciation | |||||||||
Land and industrial buildings | 200,424 | (44,763 | ) | 0–10 | % | |||||||
Machinery and equipment | 119,371 | (80,163 | ) | 10–25 | % | |||||||
Airplane | 24,075 | (6,500 | ) | 6 | % | |||||||
Office furniture and equipment | 24,373 | (19,650 | ) | 10–20 | % | |||||||
Retail gallery and store furnishings | 29,932 | (18,232 | ) | 25–35 | % | |||||||
Transportation equipment | 6,044 | (4,962 | ) | 20–25 | % | |||||||
Leasehold improvements | 7,969 | (3,610 | ) | 10–20 | % | |||||||
Construction in progress | 1,542 | — | — | |||||||||
Total | 413,730 | (177,880 | ) | |||||||||
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10. | Other assets | |
Other assets consist of the following: |
2008 | 2007 | |||||||
Software and other | 25,384 | 21,664 | ||||||
Goodwill | 12,538 | 14,202 | ||||||
Equity in affiliated enterprises | 1,429 | 2,646 | ||||||
Total, gross | 39,351 | 38,512 | ||||||
Less accumulated amortization | (26,009 | ) | (21,236 | ) | ||||
Total, net | 13,342 | 17,276 | ||||||
Gross carrying | Accumulated | Net book | ||||||||||
2008 | amount | depreciation | value | |||||||||
Software | 17,555 | (10,896 | ) | 6,659 | ||||||||
Trademarks, patents and other | 7,829 | (5,978 | ) | 1,851 | ||||||||
Total | 25,384 | (16,874 | ) | 8,510 | ||||||||
Gross carrying | Accumulated | Net book | ||||||||||
2007 | amount | depreciation | value | |||||||||
Software | 15,510 | (9,017 | ) | 6,493 | ||||||||
Trademarks, patents and other | 6,154 | (4,703 | ) | 1,451 | ||||||||
Total | 21,664 | (13,720 | ) | 7,944 | ||||||||
2008 | 2007 | |||||||
Gross carrying amount | 12,538 | 14,202 | ||||||
Less accumulated depreciation | (9,135 | ) | (7,516 | ) | ||||
Net book value | 3,403 | 6,686 | ||||||
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Balance as of December 31, 2006 | 9,301 | |||
Acquisition of one retail store | 225 | |||
Amortization | (2,840 | ) | ||
Balance as of December 31, 2007 | 6,686 | |||
Write-off for disposal | (776 | ) | ||
Amortization | (2,507 | ) | ||
Balance as of December 31, 2008 | 3,403 | |||
11. | Short-term borrowings | |
Short-term borrowings consist of the following: |
2008 | 2007 | |||||||
Bank borrowings | — | 3,068 | ||||||
Bank overdrafts | 9,701 | 4,508 | ||||||
Total | 9,701 | 7,576 | ||||||
2008 | 2007 | 2006 | ||||||||||
Bank borrowings | 6.22 | % | 6.18 | % | 4.87 | % | ||||||
Bank overdrafts | 3.31 | % | 5.03 | % | 3.58 | % |
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12. | Accounts payable-trade |
13. | Accounts payable-other | |
Accounts payable-other are analyzed as follows: |
2008 | 2007 | |||||||
Provision for warranties | 10,717 | 8,627 | ||||||
Advances from customers | 5,953 | 9,667 | ||||||
Cooperative advertising and quantity discount | 4,123 | 3,777 | ||||||
Withholding taxes on payroll and on others | 2,301 | 2,996 | ||||||
Payable to minority interests for dividends | 593 | 593 | ||||||
Other | 6,056 | 4,153 | ||||||
Total | 29,743 | 29,813 | ||||||
2008 | 2007 | 2006 | ||||||||||
Balance, beginning of year | 8,627 | 6,561 | 6,896 | |||||||||
Charges to profit and loss | 4,735 | 4,962 | 6,386 | |||||||||
Reductions for utilization | (2,645 | ) | (2,896 | ) | (6,721 | ) | ||||||
Balance, end of year | 10,717 | 8,627 | 6,561 | |||||||||
14. | Taxes on income | |
Italian companies are subject to two income taxes at the following rates: |
2008 | 2007 | 2006 | ||||||||||
IRES (state tax) | 27.50 | % | 33.00 | % | 33.00 | % | ||||||
IRAP (regional tax) | 3.90 | % | 4.25 | % | 4.25 | % |
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2008 | 2007 | 2006 | ||||||||||
Domestic | (30,986 | ) | (47,137 | ) | (11,012 | ) | ||||||
Foreign | (29,828 | ) | (4,619 | ) | 30,333 | |||||||
Total | (60,814 | ) | (51,756 | ) | 19,321 | |||||||
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2008 | 2007 | 2006 | ||||||||||
Expected income tax (benefit) expense charge at full tax rates | (16,724 | ) | (17,079 | ) | 6,376 | |||||||
Effects of: | ||||||||||||
• Tax exempt income | (2,489 | ) | (6,320 | ) | (5,779 | ) | ||||||
• Aggregate effect of different tax rates in foreign jurisdictions | (3,258 | ) | (2,903 | ) | (4,434 | ) | ||||||
• Italian regional tax | 2,057 | 1,793 | 4,646 | |||||||||
• Non-deductible expenses | 3,384 | 3,286 | 2,694 | |||||||||
• Provisions for contingent liabilities | 373 | 566 | 914 | |||||||||
• Depreciation and impairment of goodwill | 228 | 273 | 274 | |||||||||
• Effect of net change in valuation allowance established against deferred tax assets | 18,799 | 28,503 | 1,989 | |||||||||
• Effect of change in tax rates | — | 3,809 | — | |||||||||
• Tax effect of unremitted earnings | (814 | ) | (541 | ) | 405 | |||||||
Actual tax charge | 1,556 | 11,387 | 7,085 | |||||||||
2008 | 2007 | 2006 | ||||||||||
Current: | ||||||||||||
Italian | 2,057 | 1,331 | 5,738 | |||||||||
Foreign | 2,606 | 1,593 | 3,405 | |||||||||
Total (a) | 4,663 | 2,924 | 9,143 | |||||||||
Deferred: | ||||||||||||
Italian | — | 7,507 | (2,592 | ) | ||||||||
Foreign | (3,107 | ) | 956 | 534 | ||||||||
Total (b) | (3,107 | ) | 8,463 | (2,058 | ) | |||||||
Total (a + b) | 1,556 | 11,387 | 7,085 | |||||||||
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2008 | 2007 | |||||||
Deferred tax assets: | ||||||||
• Tax loss carryforwards | 51,847 | 36,033 | ||||||
• Provision for warranties | 3,641 | 2,589 | ||||||
• Allowance for doubtful accounts | 2,864 | 1,506 | ||||||
• Unrealized net losses on foreign exchange | 2,798 | 2,796 | ||||||
• Impairment loss of long-lived assets | 1,674 | — | ||||||
• One-time termination benefits | 1,266 | — | ||||||
• Inventory obsolescence | 1,187 | 1,714 | ||||||
• Goodwill | 1,019 | 666 | ||||||
• Intercompany profit on inventory | 803 | 1,027 | ||||||
• Provision for contingent liabilities | 777 | 1,080 | ||||||
• Provision for sales representatives | 398 | 493 | ||||||
• Other temporary differences | 756 | 641 | ||||||
Total gross deferred tax assets | 69,030 | 48,545 | ||||||
• Less valuation allowance | (62,452 | ) | (43,654 | ) | ||||
Net deferred tax assets (a) | 6,578 | 4,891 | ||||||
Deferred tax liabilities: | ||||||||
• Unrealized net gains on foreign exchange | (935 | ) | (998 | ) | ||||
• Unremitted earnings of subsidiaries | (585 | ) | (1,399 | ) | ||||
• Government grants | (570 | ) | (570 | ) | ||||
• Revenue recognition | — | (633 | ) | |||||
• Other temporary differences | (90 | ) | — | |||||
Total deferred tax liabilities (b) | (2,180 | ) | (3,600 | ) | ||||
Net deferred tax assets (a + b) | 4,398 | 1,291 | ||||||
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2008 | Current | Non current | Total | |||||||||
Gross deferred tax assets | 14,748 | 54,282 | 69,030 | |||||||||
Valuation allowance | (9,504 | ) | (52,948 | ) | (62,452 | ) | ||||||
Net deferred tax assets | 5,244 | 1,334 | 6,578 | |||||||||
Deferred tax liabilities | (1,025 | ) | (1,155 | ) | (2,180 | ) | ||||||
Net deferred tax assets | 4,219 | 179 | 4,398 | |||||||||
2007 | Current | Non current | Total | |||||||||
Gross deferred tax assets | 8,888 | 39,657 | 48,545 | |||||||||
Valuation allowance | (6,178 | ) | (37,476 | ) | (43,654 | ) | ||||||
Net deferred tax assets | 2,710 | 2,181 | 4,891 | |||||||||
Deferred tax liabilities | (1,631 | ) | (1,969 | ) | (3,600 | ) | ||||||
Net deferred tax assets | 1,079 | 212 | 1,291 | |||||||||
2009 | 5,372 | |||
2010 | 2,905 | |||
2011 | 5,453 | |||
2012 | 43,526 | |||
2013 | 20,269 | |||
Thereafter | 97,950 | |||
Total | 175,475 | |||
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15. | Salaries, wages and related liabilities | |
Salaries, wages and related liabilities are analyzed as follows: |
2008 | 2007 | |||||||
Salaries and wages | 4,142 | 7,991 | ||||||
Social security contributions | 7,191 | 6,826 | ||||||
Vacation accrual | 3,385 | 2,714 | ||||||
One-time termination benefits | 2,093 | — | ||||||
Total | 16,811 | 17,531 | ||||||
16. | Long-term debt | |
Long-term debt at December 31, 2008 and 2007 consists of the following: |
2008 | 2007 | |||||||
2.25% long-term debt payable in annual equal instalments with final payment due May 30, 2015 | 1,961 | 2,214 | ||||||
0.25% long-term debt payable in semi-annual instalments with final payment due July 2013 | 1,672 | — | ||||||
0.96% long-term debt payable in annual instalments with final payment due September 2010 | 147 | 219 | ||||||
Total long-term debt | 3,780 | 2,433 | ||||||
Less current instalments | (514 | ) | (317 | ) | ||||
Long-term debt, excluding current instalments | 3,266 | 2,116 | ||||||
2010 | 708 | |||
2011 | 645 | |||
2012 | 653 | |||
2013 | 662 | |||
Thereafter | 598 | |||
Total | 3,266 | |||
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17. | Other liabilities | |
Other liabilities consist of: |
2008 | 2007 | |||||||
Provision for contingent liabilities | 10,545 | 9,344 | ||||||
One-time termination benefits | 2,512 | — | ||||||
Termination indemnities for sales agents | 1,385 | 1,522 | ||||||
Total | 14,442 | 10,866 | ||||||
18. | Minority interest |
19. | Shareholders’ equity | |
The share capital is owned as follows: |
2008 | 2007 | |||||||
Mr. Pasquale Natuzzi | 53.5 | % | 47.5 | % | ||||
Miss Anna Maria Natuzzi | 2.6 | % | 2.6 | % | ||||
Mrs. Annunziata Natuzzi | 2.5 | % | 2.5 | % | ||||
Public Investors | 41.4 | % | 47.4 | % | ||||
100 | % | 100 | % | |||||
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2008 | 2007 | |||||||
Legal reserve | 11,199 | 11,199 | ||||||
Monetary revaluation reserve | 1,344 | 1,344 | ||||||
Government capital grants reserve | 29,749 | 29,749 | ||||||
Majority shareholder capital contribution | 488 | — | ||||||
Total | 42,780 | 42,292 | ||||||
20. | Share grants and options |
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Additional | ||||||||||||||||
MBO 2004 | Shares | Options | options | Total | ||||||||||||
Balance at December 31, 2007 | — | 203,868 | — | 203,868 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited | — | (80,845 | ) | — | (80,845 | ) | ||||||||||
Expired | — | — | — | — | ||||||||||||
Balance at December 31, 2008 | — | 123,023 | — | 123,023 | ||||||||||||
Weighted average remaining contractual life | — | 0.04 years | — | |||||||||||||
Additional | ||||||||||||||||
MBO 2005 | Shares | Options | options | Total | ||||||||||||
Balance at December 31, 2007 | 28,818 | 108,760 | — | 137,578 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | (28,818 | ) | — | — | (28,818 | ) | ||||||||||
Forfeited | — | (26,039 | ) | — | (26,039 | ) | ||||||||||
Expired | — | — | — | — | ||||||||||||
Balance at December 31, 2008 | — | 82,721 | — | 82,721 | ||||||||||||
Weighted average remaining contractual life | — | 0.04 years | — | |||||||||||||
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2009 | 12,794 | |||
2010 | 11,234 | |||
2011 | 10,916 | |||
2012 | 8,940 | |||
2013 | 7,327 | |||
Thereafter | 15,964 | |||
Total | 67,175 | |||
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22. | Segmental and geographical information |
2008 | 2007 | 2006 | ||||||||||
Leather upholstered furniture | 535,178 | 502,913 | 573,086 | |||||||||
Fabric upholstered furniture | 52,607 | 60,597 | 87,165 | |||||||||
Total | 587,785 | 563,510 | 660,251 | |||||||||
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2008 | 2007 | 2006 | ||||||||||
Sales of upholstered furniture | ||||||||||||
United States of America | 165,445 | 159,289 | 204,303 | |||||||||
Italy | 65,739 | 68,734 | 81,911 | |||||||||
Spain | 37,383 | 41,677 | 45,955 | |||||||||
Canada | 37,345 | 34,190 | 36,244 | |||||||||
France | 36,311 | 29,433 | 33,551 | |||||||||
England | 31,458 | 31,965 | 39,874 | |||||||||
Belgium | 27,572 | 24,138 | 28,013 | |||||||||
Germany | 27,045 | 26,714 | 30,927 | |||||||||
Holland | 16,965 | 15,594 | 16,624 | |||||||||
Australia | 16,172 | 15,354 | 18,269 | |||||||||
Other countries (none greater than 2%) | 126,350 | 116,422 | 124,580 | |||||||||
Total | 587,785 | 563,510 | 660,251 | |||||||||
2008 | 2007 | |||||||
Long lived assets | ||||||||
Italy | 120,883 | 132,789 | ||||||
Romania | 27,366 | 32,468 | ||||||
China | 22,572 | 20,769 | ||||||
United States of America | 16,761 | 16,147 | ||||||
Brazil | 15,069 | 24,355 | ||||||
Other countries | 9,130 | 9,322 | ||||||
Total | 211,781 | 235,850 | ||||||
23. | Cost of sales | |
Cost of sales is analyzed as follows: |
2008 | 2007 | 2006 | ||||||||||
Opening inventories | 107,290 | 100,358 | 115,690 | |||||||||
Purchases | 301,811 | 308,234 | 313,207 | |||||||||
Labor | 97,720 | 101,664 | 109,360 | |||||||||
Third party manufacturers | 18,474 | 16,499 | 19,609 | |||||||||
Other manufacturing costs | 45,487 | 41,124 | 33,055 | |||||||||
Closing inventories | (92,012 | ) | (107,290 | ) | (100,358 | ) | ||||||
Total | 478,770 | 460,589 | 490,563 | |||||||||
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24. | Other income (expense), net | |
Other income (expense), net is analyzed as follows: |
2008 | 2007 | 2006 | ||||||||||
Interest income | 1,614 | 3,557 | 3,609 | |||||||||
Interest expense and bank commissions | (1,855 | ) | (1,884 | ) | (2,077 | ) | ||||||
Interest income (expenses), net | (241 | ) | 1,673 | 1,532 | ||||||||
Losses on foreign exchange, net | (6,589 | ) | (8,096 | ) | (4,651 | ) | ||||||
Unrealized exchange gains (losses) on domestic currency swaps, net | (4,471 | ) | 946 | 5,463 | ||||||||
Gains (losses) on foreign exchange, net | (11,060 | ) | (7,150 | ) | 812 | |||||||
Other, net | (14,517 | ) | 2,831 | 503 | ||||||||
Total | (25,818 | ) | (2,646 | ) | 2,847 | |||||||
2008 | 2007 | 2006 | ||||||||||
Net realized gains (losses) on domestic currency swaps | (1,263 | ) | 5,877 | 664 | ||||||||
Net realized losses on accounts receivable and payable | (6,281 | ) | (3,865 | ) | (8,166 | ) | ||||||
Net unrealized gains (losses) on accounts receivable and payable | 955 | (10,108 | ) | 2,851 | ||||||||
Total | (6,589 | ) | (8,096 | ) | (4,651 | ) | ||||||
2008 | 2007 | 2006 | ||||||||||
Impairment losses of long-lived assets | (4,703 | ) | — | — | ||||||||
One-time termination benefits | (4,605 | ) | — | — | ||||||||
Provisions for contingent liabilities | (3,200 | ) | (2,956 | ) | (5,828 | ) | ||||||
Incentive from landlord | — | — | 1,100 | |||||||||
Export incentive benefits | — | — | 3,371 | |||||||||
Tax refund | — | 2,961 | — | |||||||||
Write off of a provision | — | 1,500 | — | |||||||||
Income tax not due | — | 668 | — | |||||||||
Write off of fixed assets | (1,189 | ) | (2,285 | ) | — | |||||||
Other, net | (820 | ) | 2,943 | 1,860 | ||||||||
Total | (14,517 | ) | 2,831 | 503 | ||||||||
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25. | Financial instruments and risk management |
2008 | 2007 | |||||||
U.S. dollars | 62,561 | 58,724 | ||||||
Euro | 25,292 | 46,326 | ||||||
British pounds | 11,988 | 8,751 | ||||||
Canadian dollars | 11,463 | 18,930 | ||||||
Australian dollars | 9,771 | 16,503 | ||||||
Norwegian kroner | 2,492 | 7,071 | ||||||
Swiss francs | 1,973 | 620 | ||||||
Danish kroner | 1,675 | 2,681 | ||||||
Swedish kroner | 1,644 | 2,616 | ||||||
Japanese yen | 360 | 292 | ||||||
Total | 129,219 | 162,514 | ||||||
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2008 | 2007 | |||||||||||||||
Contract | Unrealized | Contract | Unrealized | |||||||||||||
amount | gains (losses) | amount | gains (losses) | |||||||||||||
Assets | 38,898 | 6,799 | 97,967 | 4,995 | ||||||||||||
Liabilities | 90,321 | (11,270 | ) | 64,547 | (4,049 | ) | ||||||||||
Total | 129,219 | (4,471 | ) | 162,514 | 946 | |||||||||||
26. | Fair value of financial instruments |
2008 | 2007 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
value | value | value | value | |||||||||||||
Assets: | ||||||||||||||||
- Marketable debts securities | 4 | 4 | 4 | 4 | ||||||||||||
Liabilities: | ||||||||||||||||
- Long-term debt | 3,780 | 2,906 | 2,433 | 2,151 |
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27. | Application of generally accepted accounting principles in the United States of America |
2008 | 2007 | 2006 | ||||||||||
Net earnings (loss) under Italian GAAP | (61,938 | ) | (62,647 | ) | 12,339 | |||||||
Adjustments to reported income: | ||||||||||||
(a) Revaluation of property, plant and equipment | 27 | 27 | 27 | |||||||||
(b) Government grants | 811 | 1,188 | 1,453 | |||||||||
(c) Revenue recognition | 2,330 | 1,887 | (615 | ) | ||||||||
(g) Goodwill and intangible assets | (2,634 | ) | 1,970 | 1,828 | ||||||||
(h) Share grants and options | (2 | ) | (56 | ) | (254 | ) | ||||||
(i) Translation of foreign financial statements | 753 | 191 | 762 | |||||||||
(j) One-time termination benefits | 4,605 | — | — | |||||||||
(k) Impairment of long-lived assets | 400 | — | — | |||||||||
(l) Penalties to landlords | — | — | (658 | ) | ||||||||
Tax effect of US GAAP adjustments | (14 | ) | (2,567 | ) | (393 | ) | ||||||
Net earnings (loss) in conformity with US GAAP | (55,662 | ) | (60,007 | ) | 14,489 | |||||||
Basic earnings (loss) per share in conformity with US GAAP | (1.02 | ) | (1.09 | ) | 0.26 | |||||||
Diluted earnings (loss) per share in conformity with US GAAP | (1.02 | ) | (1.09 | ) | 0.26 | |||||||
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2008 | 2007 | |||||||
Shareholders’ equity under Italian GAAP | 345,218 | 411,597 | ||||||
(a) Revaluation of property, plant and equipment | (534 | ) | (561 | ) | ||||
(b) Government grants | (12,037 | ) | (12,848 | ) | ||||
(c) Revenue recognition | (2,043 | ) | (4,373 | ) | ||||
(g) Goodwill and intangible assets | 4,721 | 7,355 | ||||||
(i) Translation of foreign financial statements | 15,895 | 10,213 | ||||||
(j) One-time termination benefits | 4,605 | — | ||||||
(k) Impairment of long-lived assets | 400 | — | ||||||
Tax effect of US GAAP adjustments | (2,923 | ) | (2,909 | ) | ||||
Shareholders’ equity in conformity with US GAAP | 353,302 | 408,474 | ||||||
December 31, 2008 | December 31, 2007 | |||||||
ASSETS | ||||||||
Current assets | 314,695 | 357,184 | ||||||
Non current assets | 245,784 | 270,345 | ||||||
Total assets | 560,479 | 627,529 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | 135,707 | 146,414 | ||||||
Long-term liabilities | 70,675 | 72,495 | ||||||
Minority interest | 795 | 146 | ||||||
Shareholders’ equity | 353,302 | 408,474 | ||||||
Total Liabilities and Shareholders’ Equity | 560,479 | 627,529 | ||||||
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2008 | 2007 | 2006 | ||||||||||
Net sales | 670,130 | 635,883 | 736,848 | |||||||||
Cost of sales | (496,905 | ) | (468,654 | ) | (495,153 | ) | ||||||
Gross profit | 173,225 | 167,229 | 241,695 | |||||||||
Selling expenses | (163,265 | ) | (164,514 | ) | (176,551 | ) | ||||||
General and administrative expenses | (49,916 | ) | (49,094 | ) | (42,418 | ) | ||||||
Operating income (loss) | (39,956 | ) | (46,379 | ) | 22,726 | |||||||
Other expenses, net | (14,313 | ) | (2,207 | ) | (552 | ) | ||||||
Earnings (loss) before taxes and minority interest | (54,269 | ) | (48,586 | ) | 22,174 | |||||||
Income taxes | (1,825 | ) | (11,917 | ) | (7,788 | ) | ||||||
Earnings (loss) before minority interest | (56,094 | ) | (60,503 | ) | 14,386 | |||||||
Minority interest | 432 | 496 | 103 | |||||||||
Net earnings (loss) | (55,662 | ) | (60,007 | ) | 14,489 | |||||||
2008 | 2007 | 2006 | ||||||||||
Net sales Italian GAAP | 666,026 | 634,402 | 735,439 | |||||||||
(b) Government grants (reclassification) | (990 | ) | (1,026 | ) | (1,111 | ) | ||||||
(c) Revenue recognition (adjustment) | 9,430 | 6,828 | 3,385 | |||||||||
(n) Cost paid to resellers (reclassification) | (4,336 | ) | (4,321 | ) | (4,236 | ) | ||||||
(p) Export incentive (reclassification) | — | — | 3,371 | |||||||||
Net sales US GAAP | 670,130 | 635,883 | 736,848 | |||||||||
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2008 | 2007 | 2006 | ||||||||||
Operating income (loss) Italian GAAP | (34,996 | ) | (49,110 | ) | 16,474 | |||||||
(a) Revaluation property, plant and equipment (adjustment) | 27 | 27 | 27 | |||||||||
(b) Government grants (adjustment) | 811 | 1,188 | 1,453 | |||||||||
(c) Revenue recognition (adjustment) | 2,330 | 1,887 | (615 | ) | ||||||||
(g) Goodwill and intangible assets (adjustment) | (2,634 | ) | 1,970 | 1,828 | ||||||||
(h) Share grants and options (adjustment) | (2 | ) | (56 | ) | (254 | ) | ||||||
(k) Impairment of long-lived assets (reclassification) | (4,703 | ) | — | — | ||||||||
(k) Impairment of long-lived assets (adjustment) | 400 | — | — | |||||||||
(l) Penalties to landlords (adjustment) | — | — | (658 | ) | ||||||||
(m) Write-off of tangible assets (reclassification) | (1,189 | ) | (2,285 | ) | — | |||||||
(p) Export incentive (reclassification) | — | — | 3,371 | |||||||||
(q) Incentive for landlords (reclassification) | — | — | 1,100 | |||||||||
Operating income (loss) US GAAP | (39,956 | ) | (46,379 | ) | 22,726 | |||||||
(a) | Certain property, plant and equipment have been revalued in accordance with Italian laws. The revalued amounts are depreciated for Italian GAAP purposes. US GAAP does not allow for such revaluations, and depreciation is based on historical costs. The revaluation primarily relates to industrial buildings. The adjustment to net earnings (loss) and shareholders’ equity represents the reversal of excess depreciation recorded under Italian GAAP on revalued assets. |
(b) | Under Italian GAAP until December 31, 2000 government grants related to capital expenditures were recorded, net of tax, within reserves in shareholders’ equity. Subsequent to that date such grants have been recorded as deferred income and recognized in the consolidated statement of operations as revenue or other income, as appropriate under Italian GAAP (see note 3 (m)), on a systematic basis over the useful life of the asset. |
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(c) | Under Italian GAAP, the Group recognizes sales revenue, and accrued costs associated with the sales revenue, at the time products are shipped from its manufacturing facilities located in Italy and abroad. A significant part of the products is shipped from factories directly to customers under terms that risks and ownership are transferred to the customer when the customer takes possession of the goods. These terms are “delivered duty paid”, “delivered duty unpaid”, “delivered ex quay” and “delivered at customer factory”. Delivery to the customer generally occurs within one to six weeks from the time of shipment. |
2008 | 2007 | |||||||
Effects | Effects | |||||||
Increase | Increase | |||||||
Consolidated balance sheets | (Decrease) | (Decrease) | ||||||
Trade receivables, net | (13,463 | ) | (22,893 | ) | ||||
Inventories | 9,665 | 15,946 | ||||||
Total effect on current assets (a) | (3,798 | ) | (6,947 | ) | ||||
Accounts payable-trade | (1,755 | ) | (2,574 | ) | ||||
Income taxes | (468 | ) | (89 | ) | ||||
Total effect on current liabilities (b) | (2,223 | ) | (2,663 | ) | ||||
Total effect on shareholders’ equity (a-b) | (1,575 | ) | (4,284 | ) | ||||
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Consolidated statements of operations | 2008 | 2007 | 2006 | |||||||||
Net sales | 9,430 | 6,828 | 3,385 | |||||||||
Gross profit | 3,149 | 2,950 | 498 | |||||||||
Operating income (loss) | 2,330 | 1,887 | (615 | ) | ||||||||
Total effect on net operations | 2,709 | 235 | (342 | ) | ||||||||
(d) | During June 2006 (see notes 1 and 27 (g)) the Company acquired a business composed by four “Divani & Divani by Natuzzi” stores, located in Milan area, and the purchase price was 3,093. At the date of the acquisition the franchisee agreement between Natuzzi and the original business had expired under the original terms. This acquisition was accounted for as business combination under Italian GAAP. This acquisition qualifies as a business combination under US GAAP. However, under Italian GAAP the difference between purchase price and the fair value of the net assets acquired was allocated to goodwill, while under US GAAP the same difference was allocated in part to goodwill and in part to intangibles “operating lease agreements” for favorable leases acquired. The allocation of purchase price under US GAAP and Italian GAAP is summarized as follows: |
US GAAP | IT GAAP | Difference | ||||||||||
Goodwill | 1,778 | 2,600 | (822 | ) | ||||||||
Fixed assets | 132 | 132 | — | |||||||||
Leasehold improvements | 468 | 468 | — | |||||||||
Operating lease agreements | 1,310 | — | 1,310 | |||||||||
Deferred tax liabilities | (488 | ) | — | (488 | ) | |||||||
Payable to employees | (107 | ) | (107 | ) | — | |||||||
Purchase price | 3,093 | 3,093 | — | |||||||||
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(e) | During September 2006 (see notes 1 and 27 (g)) the Company acquired a business composed by two “Divani & Divani by Natuzzi” stores, located in Reggio Emilia and Modena, respectively, and the purchase price was 250. This acquisition was accounted for as business combination under Italian GAAP. This acquisition qualifies as a business combination under US GAAP. However, under Italian GAAP the difference between purchase price and the fair value of the net assets acquired was allocated to goodwill, while under US GAAP the same difference was allocated in part to goodwill and in part to the intangible “franchisee agreements”. The allocation of purchase price under US GAAP and Italian GAAP is summarized as follows: |
US GAAP | IT GAAP | Difference | ||||||||||
Goodwill | 37 | 100 | (63 | ) | ||||||||
Fixed assets and leas. impr. | 38 | 38 | — | |||||||||
Inventory | 112 | 112 | — | |||||||||
Franchisee agreements | 100 | — | 100 | |||||||||
Deferred tax liabilities | (37 | ) | — | (37 | ) | |||||||
Purchase price | 250 | 250 | — | |||||||||
(f) | On June 14, 2007 (see notes 1 and 27 (g)) the Company acquired from a third party 100% of a business which main asset was a store located in one of the several shopping and commercial areas of Rome (Tiburtina area). The cash consideration paid by the Company for this acquisition was 230. At the date of the acquisition there were no employees, inventory or revenues associated with this asset. The net assets acquired were composed mainly as follows: (a) operating lease agreement; (b) leasehold improvements incorporated in the store; (c) commercial license authorization obtained from the Rome Municipality for trading sofas and other furniture to the public. Further during 2008, the Company started some construction work in order to set up in this store the Natuzzi layout selling system. |
US GAAP | IT GAAP | Difference | ||||||||||
Goodwill | — | 225 | (225 | ) | ||||||||
Intangible assets | 359 | — | 359 | |||||||||
Leasehold improvements | 5 | 5 | — | |||||||||
Deferred tax liabilities | (134 | ) | — | (134 | ) | |||||||
Cash paid | 230 | 230 | — | |||||||||
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(g) | Under Italian GAAP, the Company amortizes the goodwill arising from business acquisitions on a straight-line basis over a period of five years. US GAAP states that goodwill acquired in a purchase business combination completed after July 1, 2001 is not amortized, but instead tested for impairment at least annually in accordance with provisions of FASB Statement 142,“Goodwill and Other Intangible Assets”(FASB Statement No. 142). |
Goodwill | Intangibles | Deferred taxes | ||||||||||||||||||||||
US | Italian | US | Italian | US | Italian | |||||||||||||||||||
Balance at December 31, 2005 | 5,945 | 9,122 | 6,075 | — | (2,097 | ) | (23 | ) | ||||||||||||||||
Acquisition of Milan stores | 1,778 | 2,600 | 1,310 | — | (488 | ) | — | |||||||||||||||||
Acquisition of other stores | 37 | 100 | 100 | — | (37 | ) | — | |||||||||||||||||
Amortization | — | (2,521 | ) | (693 | ) | — | 241 | (494 | ) | |||||||||||||||
Balance at December 31, 2006 | 7,760 | 9,301 | 6,792 | — | (2,381 | ) | (517 | ) | ||||||||||||||||
Acquisition of one store | — | 225 | 359 | — | (134 | ) | — | |||||||||||||||||
Amortization | — | (2,840 | ) | (870 | ) | — | 438 | (404 | ) | |||||||||||||||
Balance at December 31, 2007 | 7,760 | 6,686 | 6,281 | — | (2,077 | ) | (921 | ) | ||||||||||||||||
Impairment of goodwill | (1,500 | ) | — | — | — | — | — | |||||||||||||||||
Write off of goodwill | — | (776 | ) | — | — | — | — | |||||||||||||||||
Impairment of an intangible asset | — | — | (3,583 | ) | — | 1,218 | — | |||||||||||||||||
Amortization | — | (2,507 | ) | (834 | ) | — | 274 | (486 | ) | |||||||||||||||
Balance at December 31, 2008 | 6,260 | 3,403 | 1,864 | — | (585 | ) | (1,407 | ) | ||||||||||||||||
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(h) | Under Italian GAAP the Company does not record in the consolidated statement of operations the compensation expense related to share based compensation plans. |
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Expected life and performance related conditions | 2 years – 5.3 years | |||
Expected volatility of the underlying share | 23 | % | ||
Expected dividend yield of the underlying share | 2 | % | ||
Risk-free interest rate | 2.43% – 3.79 | % |
(i) | Under Italian GAAP effective on December 31, 2005, the financial statements of the foreign subsidiaries expressed in a foreign currency (which is deemed to be the functional currency) are translated directly into euro as follows: (i) year-end exchange rate for assets and liabilities, (ii) historical exchange rates for share capital and retained earnings, and (iii) average exchange rates during the year for revenues and expenses. The resulting exchange differences on translation is recorded as a direct adjustment to shareholders’ equity (see note 3 (d)). | ||
Under US GAAP as of December 31, 2008, 2007 and 2006 the Natuzzi’s foreign subsidiaries financial statements have been translated on the basis of the guidance included in FASB Statement 52,“Foreign Currency Traslation”(FASB Statement No. 52). Under US GAAP, foreign subsidiaries are considered to be an integral part of Natuzzi due to various factors including significant intercompany transactions, financing, and cash flow indicators. Therefore, the functional currency for these foreign subsidiaries is the functional currency of the parent, namely the euro. As a result all monetary assets and liabilities are remeasured, at the end of each reporting period, using euro and the resulting gain or loss is recognized in the consolidated statements of operations. For all non monetary assets and liabilities, share capital and retained earnings historical exchange rates are used. The average exchange rates during the year are used for revenues and expenses, except for those revenues and expenses related to assets and liabilities translated at historical exchange rates. The resulting exchange differences on translation are recognized in the statements of operations. |
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(j) | Under Italian GAAP, the Company has recognized in the consolidated statement of operations for the year ended December 31, 2008 the cost of one-time termination benefits of 4,605 related to the employees to be terminated on a involuntary basis as indicated in the plan of termination (see note 24). In accordance with Italian GAAP this cost has been recognized in 2008 as in such year the Company has formally decided to adopt the termination plan (approval by the Board of Directors) and is able to reasonably estimate the related one-time termination benefits. Before or on December 31, 2008 the Company did not make any official announcement or notification to the terminated employees related to the work termination plan and one-tine termination benefits. Under Italian GAAP for the recognition of the cost for the termination benefits related to the terminated workers is not relevant the communication or announcement to third parties of the plan of termination of workers. |
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(k) | The Company in October 2008, in order to improve its manufacturing efficiency and in connection with the adoption of the three year business plan, decided to close and sell a manufacturing facility located in Brazil in the State of Bahia. As a result of this decision the Company, in accordance with its Italian accounting policy (see note 3 (k)), performed an impairment analysis and determined that the carrying value of such manufacturing facility as of December 31, 2008 was more than the fair value less costs to sell. Therefore, as of December 31, 2008 the carrying value of such manufacturing facility was reduced to fair value less costs to sell. This resulted in an impairment loss of 2,911, recorded under the line other income (expense), net of the consolidated statement of operations for the year ended December 31, 2008, in accordance with its Italian accounting policy (see note 24). Company’s management estimated the fair value based on third-party independent appraisals. In addition, as of December 31, 2008 the Company, in accordance with its Italian accounting policy, has classified this manufacturing facility under the line property, plant and equipment held and used of the consolidated balance sheet (see note 9) as there is a current expectation that it is more-likely-than not that this asset will be sold in the medium long-term period (more than one year from the balance sheet date). |
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(l) | Under Italian GAAP in 2005 Natuzzi has charged to other income (expense), net the one time penalties, amounting to 658, that it expected to negotiate, in 2006, with the landlords of several stores for the termination in 2006 of the related operating lease contracts before the term specified in the lease agreements (see note 24). Under US GAAP, considering the guidance of FASB Statement No. 146, these penalties were reversed out of the consolidated statement of operations for the year ended at December 31, 2005, and were recognized at the “cease-use date”, that occurred during 2006. |
(m) | During 2008, 2007 and 2006 the Company under Italian GAAP has recognized the write-off of tangible assets of 1,189, 2,285 and of nil, respectively, as part of non operating income. Under US GAAP such write-off charge would be included as part of operating income. |
(n) | Under Italian GAAP certain costs paid to resellers are reflected as part of selling expenses. Under US GAAP, in accordance with EITF 01-09“Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”, these costs should be recorded as a reduction of net sales. Such expenses include advertising contributions paid to resellers which amounted at December 31, 2008, 2007 and 2006 to 4,336, 4,321 and 4,236, respectively. |
(o) | Under Italian GAAP, the Company includes its warranty cost as a component of selling expenses in the consolidated statement of operations. Under US GAAP, warranty costs would be included as a component of cost of sales. For the years ended December 31, 2008, 2007 and 2006 warranty cost amounting to 4,607, 4,143 and 4,294, respectively, would be reclassified from selling expenses to cost of sales under US GAAP. |
(p) | In 2008, 2007 and 2006 the Company under Italian GAAP has recognized certain export incentives of nil, nil and 3,371, respectively, under the caption other income (expense), net (see note 24). Under US GAAP such revenue would be included as part of operating income. |
(q) | In 2006 the Company under Italian GAAP has recognized in other income (expense), net an incentive of 1,100 received from the landlord of a store for the termination of the related lease contract before the term specified in the lease agreement (see note 24). Under US GAAP such revenue would be included as part of operating income. |
(r) | Under Italian GAAP, the Company includes the deferred tax assets related to the elimination of the intercompany profits on inventory under the line deferred income taxes of the current part of the balance sheet. As of December 31, 2008, 2007 and 2006 the above deferred taxes amount to nil, nil and 1,051, respectively. Under US GAAP these deferred taxes would be classified in the line deferred charges of the current part of the balance sheet. |
(s) | Under Italian GAAP the Company includes the component income taxes included in the provisions for contingent tax liabilities under the line other income (expense), net in the consolidated statement of operations. For the years ended December 31, 2008, 2007 and 2006 the above income taxes amount approximately to 255, 519 and 310. Under US GAAP these amounts would be classified in the line income taxes of the consolidated statements of operations. |
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(t) | During 2007 the Company obtained from tax authorities a refund of income taxes related to prior years for an amount of 1,888. In addition, during 2007 a subsidiary of the Company obtained from tax authorities the confirmation that a portion of income tax of 668 related to 2006 was not due. As these amounts were not recorded previously due to uncertainty, the Company recorded in 2007 such amounts in other income (expense), net (see note 24). Under US GAAP these amounts would be classified in the line income taxes of the consolidated statement of operations for the year ended December 31, 2007. |
(u) | Under Italian GAAP the Company records a tax contingent liability (income tax exposure) when it is probable that the liability has been incurred and the amount of the loss can be reasonably estimated. |
2008 | 2007 | |||||||
Balance, beginning of the year | 1,460 | 941 | ||||||
Additions based on tax positions related to the current year | 2 | 435 | ||||||
Additions for tax positions of prior years | 483 | 358 | ||||||
Reductions due to statute of limitations expiration | (230 | ) | (274 | ) | ||||
Settlements | — | — | ||||||
Balance, end of year | 1,715 | 1,460 | ||||||
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US GAAP | IT GAAP | Difference | ||||||||||
Balance at January 1, 2008 | 1,460 | 1,460 | — | |||||||||
Additions based on tax positions related to the current year | 2 | 2 | — | |||||||||
Additions for tax positions of prior years | 483 | 483 | — | |||||||||
Reductions due to statute of limitations expiration | (230 | ) | (230 | ) | — | |||||||
Settlements | — | — | — | |||||||||
Balance at December 31, 2008 | 1,715 | 1,715 | — | |||||||||
US GAAP | IT GAAP | Difference | ||||||||||
Balance at January 1, 2007 | 941 | 941 | — | |||||||||
Additions based on tax positions related to the current year | 435 | 435 | — | |||||||||
Additions for tax positions of prior years | 358 | 358 | — | |||||||||
Reductions due to statute of limitations expiration | (274 | ) | (274 | ) | — | |||||||
Settlements | — | — | — | |||||||||
Balance at December 31, 2007 | 1,460 | 1,460 | — | |||||||||
(v) | The consolidated statements of cash flows for the years ended December 31, 2008, 2007 and 2006 prepared by the Company under Italian GAAP is in conformity with US GAAP (FASB Statement 95,Statement of Cash Flow). |
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NATUZZI S.p.A. | ||||
By | /s/ Pasquale Natuzzi | |||
Name: | Pasquale Natuzzi | |||
Title: | Chief Executive Officer |
Table of Contents
1.1 | English translation of the by-laws (Statuto) of the Company, as amended and restated as of January 24, 2008 (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on June 30, 2008, file number 1-11854). | |
2.1 | Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 31, 2001, among the Company, The Bank of New York, as Depositary, and owners and beneficial owners of ADRs (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the Securities and Exchange Commission on July 1, 2002, file number 1-11854). | |
8.1 | List of Significant Subsidiaries. | |
12.1 | Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
12.2 | Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
13.1 | Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |