Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Tel. +39 335 78 64 209
sdirosa@natuzzi.com
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
Title of each class | Name of each exchange on which registered | |
American Depositary Shares, each representing one Ordinary Share Ordinary Shares, with a par value of€1.00 each | New York Stock Exchange New York Stock Exchange (for listing purposes only) |
Large accelerated filero | Accelerated filerþ | Non-accelerated filero |
U.S. GAAPo | IFRSo | Otherþ |
Table of Contents
Page | ||||
PART I | ||||
2 | ||||
2 | ||||
2 | ||||
2 | ||||
5 | ||||
6 | ||||
11 | ||||
11 | ||||
11 | ||||
13 | ||||
14 | ||||
16 | ||||
22 | ||||
24 | ||||
24 | ||||
24 | ||||
29 | ||||
31 | ||||
31 | ||||
31 | ||||
31 | ||||
31 | ||||
32 | ||||
33 | ||||
33 | ||||
34 | ||||
34 | ||||
36 | ||||
44 |
i
Table of Contents
Page | ||||
45 | ||||
47 | ||||
47 | ||||
48 | ||||
52 | ||||
53 | ||||
53 | ||||
54 | ||||
54 | ||||
56 | ||||
56 | ||||
57 | ||||
57 | ||||
57 | ||||
57 | ||||
57 | ||||
59 | ||||
59 | ||||
59 | ||||
60 | ||||
60 | ||||
68 | ||||
68 | ||||
69 | ||||
74 | ||||
75 | ||||
77 | ||||
PART II | ||||
77 | ||||
ii
Table of Contents
Page | ||||||||
77 | ||||||||
77 | ||||||||
80 | ||||||||
80 | ||||||||
80 | ||||||||
80 | ||||||||
81 | ||||||||
81 | ||||||||
81 | ||||||||
82 | ||||||||
PART III | ||||||||
86 | ||||||||
86 | ||||||||
87 | ||||||||
Exhibit 8.1 | ||||||||
Exhibit 12.1 | ||||||||
Exhibit 12.2 | ||||||||
Exhibit 13.1 | ||||||||
Exhibit 15.1 |
iii
Table of Contents
1
Table of Contents
2
Table of Contents
Year Ended At December 31, | ||||||||||||||||||||||||
2009 | 2009 | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
(millions of | ||||||||||||||||||||||||
dollars, except | ||||||||||||||||||||||||
per Ordinary Share)(1) | (millions of euro, except per Ordinary Share) | |||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||
Amounts in accordance with Italian GAAP: | ||||||||||||||||||||||||
Net sales: | ||||||||||||||||||||||||
Leather- and fabric-upholstered furniture | $ | 628.8 | € | 450.6 | € | 587.8 | € | 563.5 | € | 660.2 | € | 594.8 | ||||||||||||
Other(2) | 90.4 | 64.8 | 78.2 | 70.9 | 75.2 | 75.1 | ||||||||||||||||||
Total net sales | 719.2 | 515.4 | 666.0 | 634.4 | 735.4 | 669.9 | ||||||||||||||||||
Cost of sales | (460.2 | ) | (329.8 | ) | (478.8 | ) | (460.6 | ) | (490.5 | ) | (459.4 | ) | ||||||||||||
Gross profit | 259.0 | 185.6 | 187.2 | 173.8 | 244.9 | 210.5 | ||||||||||||||||||
Selling expenses | (208.8 | ) | (149.6 | ) | (172.3 | ) | (173.9 | ) | (186.2 | ) | (182.2 | ) | ||||||||||||
General and administrative expenses | (65.0 | ) | (46.6 | ) | (49.9 | ) | (49.0 | ) | (42.2 | ) | (43.0 | ) | ||||||||||||
Operating income (loss) | (14.8 | ) | (10.6 | ) | (35.0 | ) | (49.1 | ) | 16.5 | (14.7 | ) | |||||||||||||
Other income (expense), net(3) (4) (5) (6) | 4.3 | 3.1 | (25.8 | ) | (2.6 | ) | 2.8 | 3.0 | ||||||||||||||||
Earnings (loss) before taxes and minority interests | (10.5 | ) | (7.5 | ) | (60.8 | ) | (51.7 | ) | 19.3 | (11.7 | ) | |||||||||||||
Income taxes | (13.7 | ) | (9.8 | ) | (1.5 | ) | (11.4 | ) | (7.1 | ) | (3.1 | ) | ||||||||||||
Earnings (loss) before minority interests | (24.2 | ) | (17.3 | ) | (62.3 | ) | (63.1 | ) | 12.2 | (14.8 | ) | |||||||||||||
Minority interest | 0.6 | 0.4 | 0.4 | 0.5 | 0.1 | 0.2 | ||||||||||||||||||
Net earnings (loss) | (24.8 | ) | (17.7 | ) | (61.9 | ) | (62.6 | ) | 12.3 | (14.6 | ) | |||||||||||||
Net earnings (loss) per Ordinary Share | $ | (0.45 | ) | € | (0.32 | ) | € | (1.13 | ) | € | (1.14 | ) | € | 0.23 | € | (0.27 | ) | |||||||
Dividends declared per share | — | — | — | — | — | — | ||||||||||||||||||
Amounts in accordance with U.S. GAAP: | ||||||||||||||||||||||||
Net sales | 706.0 | 506.0 | 670.1 | 635.9 | 736.8 | 672.0 | ||||||||||||||||||
Operating income (loss) | (19.8 | ) | (14.2 | ) | (40.0 | ) | (46.4 | ) | 22.7 | (4.5 | ) | |||||||||||||
Net earnings (loss) | (35.9 | ) | (25.7 | ) | (55.7 | ) | (60.0 | ) | 14.5 | (6.9 | ) | |||||||||||||
Net earnings (loss) per Ordinary Share (basic and diluted) | $ | (0.65 | ) | € | (0.47 | ) | € | (1.02 | ) | € | (1.09 | ) | € | 0.26 | € | (0.13 | ) | |||||||
Weighted average number of Ordinary Shares Outstanding | 54,853,045 | 54,853,045 | 54,850,643 | 54,817,086 | 54,733,796 | 54,681,628 | ||||||||||||||||||
Balance Sheet Data: | ||||||||||||||||||||||||
Amounts in accordance with Italian GAAP: | ||||||||||||||||||||||||
Current assets | $ | 432.7 | € | 301.9 | € | 318.5 | € | 364.1 | € | 407.3 | € | 384.5 | ||||||||||||
Total assets | 728.9 | 508.6 | 543.8 | 617.5 | 674.7 | 664.9 | ||||||||||||||||||
Current liabilities | 167.4 | 116.8 | 136.3 | 146.0 | 133.0 | 136.2 | ||||||||||||||||||
Long-term debt | 8.4 | 5.9 | 3.3 | 2.1 | 2.4 | 3.6 | ||||||||||||||||||
Non controlling interest | 2.7 | 1.9 | 0.8 | 0.1 | 0.6 | 0.7 | ||||||||||||||||||
Shareholders’ equity (7) | 465.8 | 325.0 | 345.2 | 411.6 | 478.9 | 473.0 | ||||||||||||||||||
Amounts in accordance with U.S. GAAP: | ||||||||||||||||||||||||
Shareholders’ equity | $ | 469.5 | € | 327.6 | € | 353.3 | € | 408.5 | € | 468.4 | € | 453.7 |
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 2009 of U.S.$ 1.3955 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.$ 1.4332 per 1 euro as of December 31, 2009. |
3
Table of Contents
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 — 2009 Compared to 2008,” “Item 11. Quantitative and Qualitative Disclosures about Market Risk” and Notes 3, 23 and 24 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 23 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 23 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, a one-time employee termination benefit and the provision for contingent liabilities. See Note 23 to the Consolidated Financial Statements included in Item 18 of this annual report. | |
7) | Share capital as of December 31, 2009, 2008, 2007, 2006 and 2005 amounted to€ 54.9 million,€ 54.9 million, € 54.8 million,€ 54.7 million and€ 54.7 million, respectively. Shareholder’s Equity represents the Total Equity attributable to Natuzzi S.p.A and its subsidiaries. |
4
Table of Contents
Year: | Average(1) | At Period End | ||||||
2005 | 1.2400 | 1.1842 | ||||||
2006 | 1.2661 | 1.3197 | ||||||
2007 | 1.3797 | 1.4603 | ||||||
2008 | 1.4695 | 1.3919 | ||||||
2009 | 1.3955 | 1.4332 |
Month ending: | High | Low | ||||||
31-Dec-09 | 1.5100 | 1.4243 | ||||||
29-Jan-10 | 1.4536 | 1.3870 | ||||||
26-Feb-10 | 1.3955 | 1.3476 | ||||||
31-Mar-10 | 1.3758 | 1.3344 | ||||||
30-Apr-10 | 1.3664 | 1.3130 | ||||||
31-May-10 | 1.2563 | 1.2224 |
(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. |
5
Table of Contents
• | price competition from low-cost manufacturers; | ||
• | continuing sluggishness of the global economy; and | ||
• | recurring unfavorable currency conditions. |
6
Table of Contents
7
Table of Contents
8
Table of Contents
• | 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. |
9
Table of Contents
10
Table of Contents
11
Table of Contents
12
Table of Contents
Percentage of | ||||||||||||
Name | ownership | Registered office | Activity | |||||||||
Italsofa Nordeste S/A | 100.00 | Bahia, 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) | |||||||||
Natuzzi Oceania PTI Ltd. | 100,00 | Sidney, Australia | (4) | |||||||||
OOO Natuzzi Russia | 100,00 | Moscow, Russia | (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) | Services and Distribution | |
(5) | Investment holding | |
(6) | Transportation services | |
(7) | Dormant |
13
Table of Contents
1. | increasing competitiveness; | ||
2. | improving service to clients; | ||
3. | improving product quality; | ||
4. | striving for innovation; | ||
5. | the worldwide launch of the new B2B trademark Edition; | ||
6. | 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 | ||
7. | eliminating waste and redundancies in Group processes, with a focus on increasing integration within the Group by completing the SAP rollout. |
14
Table of Contents
15
Table of Contents
16
Table of Contents
17
Table of Contents
18
Table of Contents
19
Table of Contents
20
Table of Contents
21
Table of Contents
22
Table of Contents
(a) | Natuzzi Collection: an inspirational, high-end brand, vigorously promoted worldwide as “Made in Italy”; | ||
(b) | Editions/Natuzzi Editions Collection: a trademark that aims to generate volumes necessary to regain market share; and | ||
(c) | Italsofa Collection: a brand that aspires to provide customers with tastefuldesigns at affordable prices. |
23
Table of Contents
1. | to determine and define the retail business model for the Group; | ||
2. | to design an auditing and control system for the Group’s retail business model under the supervision of top management; | ||
3. | to define the consumer segments to be targeted; | ||
4. | to define a product mix more consistent with the needs of targeted consumers and the market; | ||
5. | to define a store concept consistent with the Natuzzi brand’s high-end positioning; | ||
6. | to define store formats (e.g., size, location, aesthetic and commercial features); | ||
7. | to define development plans and network re-positioning; and | ||
8. | to define the correct communication tools and training. |
24
Table of Contents
2009 | �� | 2008 | 2007 | |||||||||||||||||||||
Americas(1) | 139.9 | 31.0 | % | 208.6 | 36.0 | % | 198.6 | 35.2 | % | |||||||||||||||
Natuzzi | 71.7 | 15.9 | % | 110.4 | 18.8 | % | 114.4 | 20.3 | % | |||||||||||||||
Italsofa | 68.2 | 15.1 | % | 98.2 | 16.7 | % | 84.2 | 14.9 | % | |||||||||||||||
Europe | 263.7 | 58.5 | % | 323.7 | 55.1 | % | 319.4 | 56.7 | % | |||||||||||||||
Natuzzi | 160.1 | 35.5 | % | 189.3 | 32.2 | % | 191.8 | 34.0 | % | |||||||||||||||
Italsofa | 103.6 | 23.0 | % | 134.4 | 22.9 | % | 127.6 | 22.6 | % | |||||||||||||||
Rest of the world | 47.0 | 10.4 | % | 55.5 | 9.4 | % | 45.5 | 8.1 | % | |||||||||||||||
Natuzzi | 27.8 | 6.2 | % | 32.8 | 5.6 | % | 29.9 | 5.3 | % | |||||||||||||||
Italsofa | 19.2 | 4.3 | % | 22.7 | 3.9 | % | 15.6 | 2.8 | % | |||||||||||||||
Total | 450.6 | 100.0 | % | 587.8 | 100 | % | 563.5 | 100 | % | |||||||||||||||
25
Table of Contents
2009 | 2008 | 2007 | ||||||||||||||||||||||
Americas (1) | 785,156 | 40.8 | % | 1,272,559 | 46.7 | % | 1,176,585 | 45.4 | % | |||||||||||||||
Natuzzi | 332,910 | 17.3 | % | 554,492 | 20.4 | % | 560,647 | 21.6 | % | |||||||||||||||
Italsofa | 452,246 | 23.5 | % | 718,067 | 26.4 | % | 615,938 | 23.8 | % | |||||||||||||||
Europe | 943,103 | 49.0 | % | 1,211,939 | 44.5 | % | 1,225,882 | 47.3 | % | |||||||||||||||
Natuzzi | 415,582 | 21.6 | % | 487,821 | 17.9 | % | 523,054 | 20.2 | % | |||||||||||||||
Italsofa | 527,521 | 27.4 | % | 724,118 | 26.6 | % | 702,828 | 27.1 | % | |||||||||||||||
Rest of the world | 194,961 | 10.1 | % | 237,809 | 8.7 | % | 189,926 | 7.3 | % | |||||||||||||||
Natuzzi | 70,855 | 3.7 | % | 90,430 | 3.3 | % | 87,950 | 3.4 | % | |||||||||||||||
Italsofa | 124,106 | 6.5 | % | 147,379 | 5.4 | % | 101,976 | 3.9 | % | |||||||||||||||
Total | 1,923,220 | 100.0 | % | 2,722,307 | 100.0 | % | 2,592,393 | 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”). | |
(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. |
26
Table of Contents
27
Table of Contents
28
Table of Contents
29
Table of Contents
30
Table of Contents
31
Table of Contents
Size | ||||||||||||
(approximate | Production | |||||||||||
square | Capacity | Unit of | ||||||||||
Location | meters) | Function | per day | Measure | ||||||||
Santeramo in Colle (BA) — Italy | 29,000 | Headquarters, prototyping, manufacturing of wooden frames, showroom (Owned) | 704 | Frames | ||||||||
Santeramo in Colle, Iesce (BA) — Italy | 28,000 | Sewing and product assembly (Owned) | 1,400 | Seats | ||||||||
Matera La Martella — Italy | 38,000 | General warehouse of sofas and accessory furnishing (Owned) | N.A. | N.A. | ||||||||
Ginosa (TA) — Italy | 16,000 | Sewing and product assembly (Owned) | 900 | Seats | ||||||||
Laterza (TA) — Italy | 11,000 | 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) — Italy | 12,000 | Polyurethane foam production (Owned) | 87 | Tons | ||||||||
Pozzuolo del Friuli (UD) — Italy | 21,000 | Leather dyeing and finishing (Owned) | 14,000 | Square Meters | ||||||||
High Point — North Carolina — U.S.A. | 10,000 | Office and showroom for Natuzzi Americas (Owned) | N.A. | N.A. | ||||||||
Baia Mare — Romania | 75,600 | Leather cutting, sewing and product assembly, manufacturing of wooden frames, polyurethane foam shaping, fiberfill production and wood and wooden product manufacturing (Owned) | 2,900 | Seats | ||||||||
Shanghai — China | 44,000 | Leather cutting, sewing and product assembly, manufacturing of wooden frames, polyurethane foam shaping, fiberfill production (Owned) | 4,000 | Seats | ||||||||
Shanghai (Fengpu) — China | 14,500 | Leather cutting, leather and fabric warehouse (Leased) | 10,800 | Square Meters | ||||||||
Fabric cutting | 420 | Linear Meters | ||||||||||
Salvador de Bahia (Bahia) — Brazil | 28,700 | Leather cutting, sewing and product assembly, manufacturing of wooden frames, polyurethane foam shaping, fiberfill production (Owned) | 700 | Seats |
32
Table of Contents
Year ending December 31, | ||||||||||||
(millions of Euro) | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Land and plants | 0.3 | 1.1 | 3.3 | |||||||||
Equipment | 1.6 | 5.1 | 10.1 | |||||||||
Other assets | 6.7 | 9.8 | 13.1 | |||||||||
Total | 8.6 | 16.0 | 26.5 | |||||||||
33
Table of Contents
34
Table of Contents
35
Table of Contents
36
Table of Contents
Year Ended December 31, | ||||||||||||
2009 | 2008 | 2007 | ||||||||||
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Cost of sales | 64.0 | 71.9 | 72.6 | |||||||||
Gross profit | 36.0 | 28.1 | 27.4 | |||||||||
Selling expenses | 29.0 | 25.9 | 27.4 | |||||||||
General and administrative expenses | 9.0 | 7.4 | 7.7 | |||||||||
Operating loss | (2.0 | ) | (5.2 | ) | (7.7 | ) | ||||||
Other income (expense), net | 0.6 | (3.9 | ) | (0.4 | ) | |||||||
Income taxes | 1.9 | 0.2 | 1.8 | |||||||||
Net loss | (3.3 | ) | (9.3 | ) | (9.9 | ) |
37
Table of Contents
38
Table of Contents
• | a net realized loss of€ 3.1 million in 2009 (compared to a loss of€ 1.3 million in 2008) 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 gain of€ 2.1 million in 2009 (compared to a loss of€ 6.3 million in 2008), from the difference between invoice exchange rates and collection/payment exchange rates; |
• | a net unrealized gain of€ 7.9 million in 2009 (compared to an unrealized gain of€ 1.1 million in 2008) on accounts receivable and payable; and |
• | a net unrealized loss of€ 0.06 million in 2009 (compared to an unrealized loss of€ 4.4 million in 2008), from the mark-to-market of domestic currency swaps. |
• | a€ 3.8 million contingent-liabilities provision for estimated losses related to some claims (including tax claims) and legal actions in 2009, while in 2008, the provisions for contingent liabilities amounted to€ 3.2 million; |
• | other expenses of€0.6 million deriving from the write-off of fixed assets in 2009, while in 2008, the other expenses deriving from the write off of fixed assets amounted to€ 1.2 million; |
• | the Group did not record any expenses due to the impairment of long-lived assets, while in 2008 it recorded€ 4.7 million for such expense; |
• | the Group did not record any expenses for one-time termination benefits, while in 2008 it recorded € 4.6 million for such expenses; and |
• | € 2.9 million as other income, net in 2009, compared to other expenses, net of€ 0.8 million in 2008. |
39
Table of Contents
40
Table of Contents
41
Table of Contents
• | 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; |
42
Table of Contents
• | 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; |
• | 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. |
43
Table of Contents
44
Table of Contents
45
Table of Contents
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) | 6,980 | 1,123 | 2,149 | 1,634 | 2,074 | |||||||||||||||
Interest due on Long Term Debt(2) | 324 | 81 | 126 | 76 | 41 | |||||||||||||||
Operating Leases(3) | 87,438 | 16,245 | 28,631 | 21,855 | 20,707 | |||||||||||||||
Total Contractual Cash Obligations | 94,742 | 17,449 | 30,906 | 23,565 | 22,822 | |||||||||||||||
(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. |
Amount of Commitment Expiration Per | ||||||||||||||||||||
Period (thousands of euro) | ||||||||||||||||||||
Total | ||||||||||||||||||||
Amounts | Less than | After 5 | ||||||||||||||||||
Other Commitments | Committed | 1 year | 2-3 years | 4-5 years | years | |||||||||||||||
Guarantees(1) | 11,595 | 11,595 | — | — | — |
(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.” |
46
Table of Contents
47
Table of Contents
Name | Age | Position with the Company | ||||
Pasquale Natuzzi * | 70 | Chairman of the Board of Directors, Chief Executive Officer | ||||
Antonia Isabella Perrone * | 40 | Director | ||||
Annamaria Natuzzi * | 44 | Director | ||||
Giuseppe Antonio D’Angelo * | 45 | Independent Director | ||||
Maurizia Iachino Leto di Priolo * | 61 | Independent Director | ||||
Francesco Giannaccari * | 45 | Independent Director |
48
Table of Contents
Name | Age | Position with the Company | ||||
Mario Lugli * | 63 | Independent Director | ||||
Giacomo Santucci ** | 54 | Independent Director | ||||
Vittorio Notarpietro | 47 | Chief Financial Officer, IR & IT | ||||
Annunziata Natuzzi | 46 | Program Reshaping Committee Director | ||||
Francesco Basile | 42 | Chief Human Resources and Organization Officer | ||||
Umberto Bedini | 54 | Chief Operation Officer | ||||
Giuseppe Cacciapaglia | 42 | Chief Internal Control Systems Officer | ||||
Cosimo Cavallo | 51 | Chief Commercial Officer | ||||
Giambattista Massaro | 48 | Chief Procurement Officer | ||||
Stefano Sette | 41 | Chief Marketing & Product Development Officer | ||||
Giacomo Ventolone | 42 | Chief Institutional Relations & Corporate Communication Officer |
* | 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 expire at the next Ordinary Shareholders’ Meeting that will approve the annual accounts for the year ended December 31, 2010. | |
** | Mr Santucci was appointed at the General Shareholders Meeting held on May 5, 2009. |
49
Table of Contents
50
Table of Contents
51
Table of Contents
Name | Base Compensation | |||
Pasquale Natuzzi | € | 280,000 | ||
Antonia Isabella Perrone | € | 30,000 | ||
Annamaria Natuzzi | € | 30,000 | ||
Giuseppe Antonio D’Angelo | € | 30,000 | ||
Maurizia Iachino Leto di Priolo | € | 30,000 | ||
Francesco Giannaccari | € | 30,000 | ||
Mario Lugli | € | 30,000 | ||
Giacomo Santucci | € | 19,667 | ||
Aldo Uva (*) | € | 16,400 |
(*) | Due to his resignation on March 23, 2009. |
52
Table of Contents
Name | Position | |
Carlo Gatto | Chairman | |
Gianvito Giannelli | Member | |
Cataldo Sferra | Member | |
Costante Leone | Alternate | |
Giuseppe Pio Macario | Alternate |
53
Table of Contents
Change | ||||||||||||
between | ||||||||||||
2009 and | ||||||||||||
Qualification | 2008 | 2009 | 2008 | |||||||||
Top managers | 56 | 61 | +5 | |||||||||
Middle managers | 127 | 141 | +14 | |||||||||
Employees | 1.306 | 1.125 | -181 | |||||||||
Blue collars | 6.080 | 5.608 | -472 | |||||||||
Total | 7,569 | 6,935 | -634 | |||||||||
54
Table of Contents
• | has launched a new organization, mainly directed at the customer, which is able to act efficiently and effectively to guarantee further management simplification and cost rationalization. For the Group, this new organization became necessary to ensure the creation of value for the consumer and all the stakeholders going forward; |
• | has launched a revised management plan, entitled “My Way,” whose objective is to specify, by the end of 2010, the tools necessary to define the HR management model founded on the uniqueness of the Company and on the entrepreneur approach. To this end, the Group’s partnership with IULM University of Milan, which has launched a real program of research in order to define both the Company values (My Vision) and the managing guidelines (My Making), has been crucial in developing this plan. The results of the plan will be reflected in the new Values Charter and Natuzzi Management Style; |
• | has joined the Business International Training Network, which offers different services, such as institutional and management events about economics, finance, and development; and |
• | has confirmed the initiatives of retraining and re-qualification for workers participating in CIG, in order to facilitate a more effective reintegration of such workers in the workplace through structured paths in the fields of IT, and workplace safety. |
55
Table of Contents
Number of | ||||||||
Shares | Percent | |||||||
Owned | Owned | |||||||
Pasquale Natuzzi(1) | 29,358,089 | 53.5 | % | |||||
Schroder Investment Management North America Ltd(2) | 4.085.100 | 7.448 | % | |||||
Quaeroq CVBA (3) | 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 Schroder Investment Management North America on February 16,2010 | |
(3) | According to the Schedule 13G filed with the SEC by Quaeroq CVBA on November 18, 2008. |
56
Table of Contents
57
Table of Contents
58
Table of Contents
New York Stock Exchange | ||||||||
Price per ADS | ||||||||
High | Low | |||||||
(in US dollars) | ||||||||
2005 | 11.65 | 6.76 | ||||||
2006 | 8.65 | 6.32 | ||||||
2007 | 9.60 | 4.36 | ||||||
2008 | 4.63 | 1.63 | ||||||
2009 | 3.51 | 1.00 | ||||||
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 |
59
Table of Contents
High | Low | |||||||
2009 | ||||||||
First quarter | 1.96 | 1.00 | ||||||
Second quarter | 2.30 | 1.00 | ||||||
Third quarter | 2.79 | 1.75 | ||||||
Fourth quarter | 3.51 | 2.60 | ||||||
Monthly data | ||||||||
December 2009 | 3.39 | 3.03 | ||||||
January 2010 | 3.80 | 3.26 | ||||||
February 2010 | 4.65 | 3.40 | ||||||
March 2010 | 5.76 | 4.50 | ||||||
April 2010 | 4.99 | 4.51 | ||||||
May 2010 | 4.98 | 3.44 | ||||||
June 2010 (through June 18) | 3.73 | 3.19 |
60
Table of Contents
61
Table of Contents
62
Table of Contents
63
Table of Contents
64
Table of Contents
65
Table of Contents
66
Table of Contents
67
Table of Contents
68
Table of Contents
69
Table of Contents
70
Table of Contents
71
Table of Contents
72
Table of Contents
73
Table of Contents
• | 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 within the fourth degree other than siblings, and direct or indirect relatives-in-law within 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. |
74
Table of Contents
75
Table of Contents
Euro equivalent of contractual amounts | December 31, | |||||||
of forward exchange contracts as of | 2009 | 2008 | ||||||
U.S. dollars | € | 15,323 | € | 62,561 | ||||
Euro | 10,714 | 25,292 | ||||||
British pounds | 6,652 | 11,988 | ||||||
Australian dollars | 5,164 | 9,771 | ||||||
Canadian dollars | 1,915 | 11,463 | ||||||
Swiss francs | 795 | 1,973 | ||||||
Norwegian kroner | 718 | 2,492 | ||||||
Swedish kroner | 587 | 1,644 | ||||||
Danish kroner | 470 | 1,675 | ||||||
Japanese yen | 311 | 360 | ||||||
Total | € | 42,649 | € | 129,219 | ||||
Euro equivalent* of contractual amounts | December 31, | |||||||
of zero-costs collar options as of | 2009 | 2008 | ||||||
U.S. dollars | € | 8,095 | € | 0 | ||||
Total | € | 8,095 | € | 0 | ||||
* | The euro equivalent is prudentially evaluated at the upper strike-price of each “zero-cost collar.” Depending on the market price of the EUR-USD exchange rate at every single maturity, the euro equivalent (in thousands) coming from the exercise of the options would range from€ 8,095 to€ 8,372. |
December 31, 2009 | December 31, 2008 | |||||||||||||||
Contract | Unrealized | Contract | Unrealized | |||||||||||||
Amount | gains (losses) | Amount | gains (losses) | |||||||||||||
Assets | 13,281 | 318 | 38,898 | 6,799 | ||||||||||||
Liabilities | 37,463 | (380 | ) | 90,321 | (11,270 | ) | ||||||||||
Total | € | 50,744 | € | (62 | ) | € | 129,219 | € | (4,471 | ) | ||||||
76
Table of Contents
77
Table of Contents
78
Table of Contents
June 24, 2010
79
Table of Contents
2009 | 2008 | |||||||
(in euros) | ||||||||
Audit fees | 1,055,697 | 1,090,681 | ||||||
Audit-related fees | — | — | ||||||
Tax fees | — | — | ||||||
Other fees | — | — | ||||||
Total fees | 1,055,697 | 1,090,681 | ||||||
80
Table of Contents
1) | the board of statutory auditors is established and selected pursuant to Italian law expressly permitting such a board; |
2) | the board of statutory auditors is required under Italian law to be separate from the Company’s Board of Directors; |
3) | 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; |
4) | Italian law provides for standards for the independence of the board of statutory auditors from the Company and its management; |
5) | 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 |
6) | 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. |
81
Table of Contents
82
Table of Contents
83
Table of Contents
84
Table of Contents
85
Table of Contents
Page | ||||
F-1 | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-6 | ||||
F-8 |
86
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 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. | |||
15.1 | Letter of Agreement from KPMG, dated June 29, 2010. |
87
Table of Contents
Natuzzi S.p.A.
June 24, 2010
F-1
Table of Contents
December 31, | December 31, | |||||||
2009 | 2008 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents (note 4) | 66,330 | 47,307 | ||||||
Marketable debt securities (note 5) | 4 | 4 | ||||||
Trade receivables, net (note 6) | 97,045 | 122,783 | ||||||
Other receivables (note 7) | 54,538 | 46,185 | ||||||
Inventories (note 8) | 81,565 | 92,012 | ||||||
Unrealized foreign exchange gains (note 24) | 318 | 4,724 | ||||||
Prepaid expenses and accrued income | 1,415 | 1,259 | ||||||
Deferred income taxes (note 14) | 702 | 4,219 | ||||||
301,917 | 318,493 | |||||||
Non current assets: | ||||||||
Property plant and equipment (notes 9 and 21) | 405,276 | 406,147 | ||||||
Less accumulated depreciation (notes 9 and 21) | (211,442 | ) | (194,366 | ) | ||||
Net property, plant and equipment | 193,834 | 211,781 | ||||||
Other assets (note 10) | 12,813 | 13,342 | ||||||
Deferred income taxes (note 14) | — | 179 | ||||||
Total assets | 508,564 | 543,795 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Bank Overdrafts (note 11) | 760 | 9,701 | ||||||
Current portion of long-term debt (note 16) | 1,124 | 514 | ||||||
Accounts payable-trade (note 12) | 66,499 | 68,577 | ||||||
Accounts payable-other (note 13) | 29,266 | 29,743 | ||||||
Unrealized foreign exchange losses (note 24) | 380 | 9,195 | ||||||
Income taxes (note 14) | 3,708 | 1,798 | ||||||
Salaries, wages and related liabilities (note 15) | 15,054 | 16,811 | ||||||
Total current liabilities | 116,791 | 136,339 | ||||||
Long-term liabilities: | ||||||||
Employees’ leaving entitlement (note 3 (n) ) | 29,565 | 31,677 | ||||||
Long-term debt (note 16) | 5,857 | 3,266 | ||||||
Deferred income taxes (note 14) | 47 | — | ||||||
Deferred income for capital grants (note 3 (m) ) | 11,208 | 12,058 | ||||||
Other liabilities (note 17) | 18,209 | 14,442 | ||||||
Shareholders’ equity (note 18) : | ||||||||
Share capital | 54,853 | 54,853 | ||||||
Reserves | 42,780 | 42,780 | ||||||
Additional paid-in capital | 8,282 | 8,282 | ||||||
Retained earnings | 219,112 | 239,303 | ||||||
Total equity attributable to Natuzzi S.p.A. and subsidiares | 325,027 | 345,218 | ||||||
Non controlling interest (note 18) | 1,860 | 795 | ||||||
Total Shareholders’ equity | 326,887 | 346,013 | ||||||
Commitments and contingent liabilities (notes 20 and 23) | — | — | ||||||
Total liabilities and shareholders’ equity | 508,564 | 543,795 | ||||||
F-2
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Net sales (note 21) | 515,352 | 666,026 | 634,402 | |||||||||
Cost of sales (note 22) | (329,742 | ) | (478,770 | ) | (460,589 | ) | ||||||
Gross profit | 185,610 | 187,256 | 173,813 | |||||||||
Selling expenses | (149,596 | ) | (172,338 | ) | (173,885 | ) | ||||||
General and administrative expenses | (46,585 | ) | (49,914 | ) | (49,038 | ) | ||||||
Operating loss | (10,571 | ) | (34,996 | ) | (49,110 | ) | ||||||
Other income (expense), net (note 23) | 3,121 | (25,818 | ) | (2,646 | ) | |||||||
Loss before taxes and noncontrolling interest | (7,450 | ) | (60,814 | ) | (51,756 | ) | ||||||
Income taxes (note 14) | (9,802 | ) | (1,556 | ) | (11,387 | ) | ||||||
Net loss | (17,252 | ) | (62,370 | ) | (63,143 | ) | ||||||
Net (income) loss attributable to noncontrolling interest | (434 | ) | 432 | 496 | ||||||||
Net loss attributable to Natuzzi S.p.A. and Subsidiares | (17,686 | ) | (61,938 | ) | (62,647 | ) | ||||||
Basic loss per share (note 3(z)) | (0.32 | ) | (1.13 | ) | (1.14 | ) | ||||||
�� | ||||||||||||
Diluted loss per share (note 3(z)) | (0.32 | ) | (1.13 | ) | (1.14 | ) | ||||||
F-3
Table of Contents
Share Capital | Equity | |||||||||||||||||||||||||||||||
Number of | Additional | attributable to | Total | |||||||||||||||||||||||||||||
Ordinary | paid in | Retained | Natuzzi | Noncontrolling | Shareholders’ | |||||||||||||||||||||||||||
shares | Amount | Reserves | capital | earnings | S.p.A. | interest | equity | |||||||||||||||||||||||||
Balances at December 31, 2006 | 54,738,538 | 54,739 | 42,292 | 8,282 | 373,529 | 478,842 | 605 | 479,447 | ||||||||||||||||||||||||
Increase share capital | 85,689 | 85 | — | — | (85 | ) | — | — | — | |||||||||||||||||||||||
Exchange difference on translation of financial statement | — | — | — | — | (4,598 | ) | (4,598 | ) | 37 | (4,561 | ) | |||||||||||||||||||||
Net loss | (62,647 | ) | (62,647 | ) | (496 | ) | (63,143 | ) | ||||||||||||||||||||||||
Balances at December 31, 2007 | 54,824,227 | 54,824 | 42,292 | 8,282 | 306,199 | 411,597 | 146 | 411,743 | ||||||||||||||||||||||||
Majority Shareholder contribution | — | — | 488 | — | — | 488 | — | 488 | ||||||||||||||||||||||||
Increase share capital | 28,818 | 29 | — | — | (29 | ) | — | — | — | |||||||||||||||||||||||
Exchange difference on translation of financial statement | — | — | — | — | (4,929 | ) | (4,929 | ) | (1,081 | ) | (3,848 | ) | ||||||||||||||||||||
Net loss | — | — | — | — | (61,938 | ) | (61,938 | ) | (432 | ) | (62,370 | ) | ||||||||||||||||||||
Balances at December 31, 2008 | 54,853,045 | 54,853 | 42,780 | 8,282 | 239,303 | 345,218 | 795 | 346,013 | ||||||||||||||||||||||||
F-4
Table of Contents
Share Capital | Equity | |||||||||||||||||||||||||||||||
Number of | Additional | attributable to | Total | |||||||||||||||||||||||||||||
ordinary | paid in | Retained | Natuzzi | Noncontrolling | Shareholders’ | |||||||||||||||||||||||||||
shares | Amount | Reserves | capital | earnings | S.p.A. | interest | equity | |||||||||||||||||||||||||
Balances at December 31, 2008 | 54,853,045 | 54,853 | 42,780 | 8,282 | 239,303 | 345,218 | 795 | 346,013 | ||||||||||||||||||||||||
Exchange difference on translation of financial statement | — | — | — | — | (2,505 | ) | (2,505 | ) | (45 | ) | (2,550 | ) | ||||||||||||||||||||
Purchase noncontrolling interest | — | — | — | — | — | — | (23 | ) | (23 | ) | ||||||||||||||||||||||
Increase for share capital of noncontrolling interest | — | — | — | — | — | — | 699 | 699 | ||||||||||||||||||||||||
Net loss | — | — | — | — | (17,686 | ) | (17,686 | ) | 434 | (17,252 | ) | |||||||||||||||||||||
Balances at December 31, 2009 | 54,853,045 | 54,853 | 42,780 | 8,282 | 219,112 | 325,027 | 1,860 | 326,887 | ||||||||||||||||||||||||
F-5
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | (17,686 | ) | (61,938 | ) | (62,647 | ) | ||||||
Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities: | ||||||||||||
Depreciation and amortization | 26,565 | 31,086 | 30,331 | |||||||||
Write off of fixed assets | 595 | 1,189 | 2,285 | |||||||||
Impairment of long lived assets | — | 4,703 | — | |||||||||
Employees’ leaving entitlement | 6,525 | 7,026 | 7,389 | |||||||||
Deferred income taxes | 3,743 | (3,107 | ) | 8,463 | ||||||||
Non controlling interest | 434 | (432 | ) | (496 | ) | |||||||
Loss on disposal of assets | 492 | 284 | 116 | |||||||||
Unrealized foreign exchange (gain) and losses | (4,409 | ) | 5,417 | 4,517 | ||||||||
Deferred income for capital grants | (850 | ) | (1,274 | ) | (743 | ) | ||||||
Equity in affiliated company | — | — | 1,221 | |||||||||
Change in assets and liabilities: | ||||||||||||
Receivables, net | 16,903 | (3,462 | ) | 599 | ||||||||
Inventories | 10,842 | 14,916 | (6,932 | ) | ||||||||
Prepaid expenses and accrued income | (157 | ) | 588 | 108 | ||||||||
Accounts payable | (4,766 | ) | (21,372 | ) | 16,474 | |||||||
Income taxes | 1,910 | 213 | (3,026 | ) | ||||||||
Salaries, wages and related liabilities | (1,832 | ) | (720 | ) | (4,143 | ) | ||||||
Other liabilities | 3,795 | 3,576 | 406 | |||||||||
Employees’ leaving entitlement | (8,637 | ) | (8,692 | ) | (9,315 | ) | ||||||
Total adjustments | 51,153 | 29,939 | 47,254 | |||||||||
�� | ||||||||||||
Net cash provided by (used in) operating activities | (33,467 | ) | (31,999 | ) | (15,393 | ) | ||||||
F-6
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Property, plant and equipment: | ||||||||||||
Additions | (4,191 | ) | (11,884 | ) | (21,445 | ) | ||||||
Disposals | 1,137 | 174 | 589 | |||||||||
Other assets | (4,382 | ) | (4,097 | ) | (5,039 | ) | ||||||
Purchase of business, net of cash acquired | (1,040 | ) | — | (230 | ) | |||||||
Disposal of business and affiliated company | — | 2,262 | — | |||||||||
Net cash used in investing activities | (8,476 | ) | (13,545 | ) | (26,125 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Long-term debt: | ||||||||||||
Proceeds | 3,900 | 2,038 | — | |||||||||
Repayments | (699 | ) | (691 | ) | (318 | ) | ||||||
Short-term borrowings | (8,941 | ) | 2,125 | 3,775 | ||||||||
Majority Shareholder Capital contribution | — | 488 | — | |||||||||
Net cash provided by (used in) financing activities | (5,740 | ) | 3,960 | 3,457 | ||||||||
Effect of translation adjustments on cash | (228 | ) | 1,432 | (2,589 | ) | |||||||
Increase (decrease) in cash and cash equivalents | 19,023 | (40,152 | ) | (40,650 | ) | |||||||
Cash and cash equivalents, beginning of the year | 47,307 | 87,459 | 128,109 | |||||||||
Cash and cash equivalents, end of the year | 66,330 | 47,307 | 87,459 | |||||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid during the year for interest | 130 | 327 | 665 | |||||||||
Cash paid during the year for income taxes | 5,258 | 1,399 | 5,409 | |||||||||
F-7
Table of Contents
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, 2009, together with the related percentages of ownership, are as follows: |
Percent of | Registered | |||||||||||
Name | ownership | office | Activity | |||||||||
Italsofa Nordeste S.A. | 100.00 | Salvador, 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) | |||||||||
Natuzzi Oceania Ltd. | 100.00 | Sidney, Australia | (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 |
F-8
Table of Contents
(4) | Distribution | |
(5) | Investment holding | |
(6) | Transportation services | |
(7) | Dormant |
During October 2009, in an effort to maximize the efficiency of the Group’s organizational structure, Italsofa Bahia Ltd (97.99% owned by the Company) has been merged into the other brazilian subsidiary Minuano Nordeste S.A. (wholly owned by the Company) whose name, further, was changed in Italsofa Nordeste S.A.. Subsequent to the merger, the Company acquired the remaining noncontrolling interest for a consideration of 23. The acquisition did not result in any goodwill. |
In 2009 the Company incorporated two new subsidiaries, Natuzzi Trading Shanghai Ltd and Natuzzi Oceania Ltd, which provide sales support for the Group in the respective country. |
In July 2009 the Company acquired 100% of a business composed by a store located in Florence. The cash consideration paid by the Company for this acquisition was 125. This business was operating as a Natuzzi franchisee. At the date of the acquisition the franchisee agreement between Natuzzi and the original business had not expired. The primary reason for this acquisition was the opportunity to maintain the market presence in Florence. The main factor that contributed to the determination of the purchase price was the presence of the stores in a key location. The acquisition was accounted for using the acquisition method and it resulted in a goodwill of 85, which represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at date of acquisition. |
Goodwill | 85 | |||
Current assets | 40 | |||
Purchase price | 125 |
The results of this business acquisition have been included in the consolidated statement of operations from the date of acquisition. |
F-9
Table of Contents
In November 2009 the Company acquired 100% of a business composed by three “Divani & Divani by Natuzzi” stores, located in Bologna, Cesena and Rimini, for a consideration of 892. This business was operating as a Natuzzi franchisee. At the date of the acquisition the franchisee agreement between Natuzzi and the original business had not expired. The primary reason for this acquisition was the opportunity to maintain the market presence in Emilia Romagna region. The main factor that contributed to the determination of the purchase price was the presence of the stores in key locations. The acquisition was accounted for using the acquisition method and it resulted in a goodwill of 566, which represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at date of acquisition. |
Goodwill | 566 | |||
Fixed assets | 42 | |||
Current assets | 358 | |||
Current liabilities | (74 | ) | ||
Purchase price | 892 |
The results of this business acquisition have been included in the consolidated statement of operations from the date of the acquisition. |
During July 2008 the Company sold six retail stores to a third party for a consideration of 912. The stores disposed of are located in the central part of Italy. Leather and fabric upholstered furniture sold by these stores to final consumers were bought from Natuzzi. |
On June 14, 2007, 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. During 2008, the Company set up in this store the Natuzzi’s layout selling system. The acquisition resulted in a goodwill of 225, which represents the excess of purchase price over fair value of the acquired net assets. The fair value of assets acquired was as follows: |
Goodwill | 225 | |||
Leasehold improvements | 5 | |||
Cash paid | 230 |
The main factor that has contributed to the determination of the consideration paid is the presence of the store in a key geographic location of Rome. The results of this business acquisition have been included in the consolidated statement of operations from the date of acquisition. |
In March 2007 the Company incorporated a new subsidiary, Natuzzi China Ltd, which is engaged in the cutting of leather hides to be used as upholstery. |
F-10
Table of Contents
2. | Basis of preparation |
The financial statements utilized for the consolidation are the financial statements of each Group company at December 31, 2009, 2008 and 2007. The 2009, 2008 and 2007 financial statements have been approved by the respective shareholders of the relevant companies. The 2009 consolidated financial statements have been approved by the Board of Directors of the Company. |
The financial statements of subsidiaries are adjusted, where necessary, to conform to Natuzzi’s accounting principles and policies, which are consistent with Italian legal requirements governing financial statements considered in conjunction with established accounting principles promulgated by the Italian Accounting Profession. |
Established accounting principles in the Republic of Italy vary in certain significant respects from generally accepted accounting principles in the United States of America. Information relating to the nature and effect of such differences is presented in note 26 to the consolidated financial statements. |
3. | Summary of significant accounting policies |
The significant accounting policies followed in the preparation of the consolidated financial statements are outlined below. |
a) | Principles of consolidation |
The consolidated financial statements include all affiliates and companies that Natuzzi directly or indirectly controls, either through majority ownership or otherwise. Control is presumed to exist where more than one-half of a subsidiary’s voting power is controlled by the Company or the Company is able to govern the financial and operating policies of a subsidiary or control the removal or appointment of a majority of a subsidiary’s board of directors. Where an entity either began or ceased to be controlled during the year, the results of operations are included only from the date control commenced or up to date control ceased. However, the pre-acquisition results of an acquired entity could be reflected in the operating results of the acquiring entity provided that the acquisition is completed within 6 months of the beginning of the acquiring entity’s fiscal year. |
The assets and liabilities of subsidiaries are consolidated on a line-by-line basis and the carrying value of intercompany investments held is eliminated against the related shareholder’s equity accounts. The noncontrolling interests of consolidated subsidiaries are separately reported in the consolidated balance sheets and consolidated statements of operations. All intercompany balances and transactions are eliminated in consolidation. |
F-11
Table of Contents
(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; |
F-12
Table of Contents
(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. |
F-13
Table of Contents
F-14
Table of Contents
F-15
Table of Contents
F-16
Table of Contents
F-17
Table of Contents
F-18
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Net earnings (loss) attributable to ordinary shareholders | (17,686 | ) | (61,938 | ) | (62,647 | ) | ||||||
Weighted-average number of ordinary shares outstanding during the year | 54,853,045 | 54,850,643 | 54,817,086 | |||||||||
Increase resulting from assumed conversion of share grants and options | — | — | — | |||||||||
Weighted-average number of ordinary shares and potential shares outstanding during the year | 54,853,045 | 54,850,643 | 54,817,086 | |||||||||
4. | Cash and cash equivalents |
2009 | 2008 | |||||||
Cash on hand | 176 | 261 | ||||||
Bank accounts in Euro | 22,974 | 13,234 | ||||||
Bank accounts in foreign currencies | 43,180 | 33,812 | ||||||
Total | 66,330 | 47,307 | ||||||
5. | Marketable debt securities |
2009 | 2008 | |||||||
Foreign corporate bonds | 4 | 4 | ||||||
Total | 4 | 4 | ||||||
F-19
Table of Contents
Gross unrealized | Fair | |||||||||||||||
2009 | Cost | Gains | Losses | value | ||||||||||||
Foreign corporate bonds | 4 | — | — | 4 | ||||||||||||
Total | 4 | — | — | 4 | ||||||||||||
Gross unrealized | Fair | |||||||||||||||
2008 | Cost | Gains | Losses | value | ||||||||||||
Foreign corporate bonds | 4 | — | — | 4 | ||||||||||||
Total | 4 | — | — | 4 | ||||||||||||
6. | Trade receivables, net |
2009 | 2008 | |||||||
North American customers | 33,778 | 52,016 | ||||||
Other foreign customers | 46,951 | 45,962 | ||||||
Domestic customers | 21,731 | 27,474 | ||||||
Trade bills receivable | 3,915 | 5,946 | ||||||
Total | 106,375 | 131,398 | ||||||
Allowance for doubtful accounts | (9,330 | ) | (8,615 | ) | ||||
Total trade receivables, net | 97,045 | 122,783 | ||||||
F-20
Table of Contents
Trade receivables | N° of customers | % on trade receivables | ||||||
2009 | 2 | 14 | % | |||||
2008 | 2 | 16 | % | |||||
2007 | 3 | 21 | % | |||||
Net sales | N° of customers | % net sales | ||||||
2009 | 2 | 17 | % | |||||
2008 | 2 | 22 | % | |||||
2007 | 2 | 23 | % |
2009 | 2008 | 2007 | ||||||||||
Balance, beginning of year | 8,615 | 5,699 | 6,057 | |||||||||
Charges-bad debt expense | 1,859 | 3,550 | 1,789 | |||||||||
Reductions-write off of uncollectible accounts | (1,144 | ) | (634 | ) | (2,147 | ) | ||||||
Balance, end of year | 9,330 | 8,615 | 5,699 | |||||||||
2009 | 2008 | |||||||
U.S. dollars | 27,354 | 48,639 | ||||||
Canadian dollars | 9,517 | 6,489 | ||||||
British pounds | 5,417 | 4,193 | ||||||
Australian dollars | 4,883 | 3,759 | ||||||
Other currencies | 3,704 | 3,159 | ||||||
Total | 50,875 | 66,239 | ||||||
F-21
Table of Contents
7. | Other receivables |
2009 | 2008 | |||||||
Receivable from National Institute for Social Security | 19,626 | 10,729 | ||||||
Government capital grants | 10,213 | 10,633 | ||||||
VAT | 7,246 | 8,084 | ||||||
Receivable from tax authorities | 7,024 | 6,526 | ||||||
Advances to suppliers | 2,608 | 3,625 | ||||||
Other | 7,821 | 6,588 | ||||||
Total | 54,538 | 46,185 | ||||||
8. | Inventories |
2009 | 2008 | |||||||
Leather and other raw materials | 42,802 | 52,049 | ||||||
Goods in process | 12,254 | 13,868 | ||||||
Finished products | 26,509 | 26,095 | ||||||
Total | 81,565 | 92,012 | ||||||
F-22
Table of Contents
9. | Property, plant and equipment and accumulated depreciation |
Cost or | Accumulated | Annual rate of | ||||||||||
2009 | valuation | depreciation | depreciation | |||||||||
Land and industrial buildings | 193,700 | (54,590 | ) | 0 – 10 | % | |||||||
Machinery and equipment | 118,122 | (93,245 | ) | 10 – 25 | % | |||||||
Airplane | 24,075 | (8,667 | ) | 3 | % | |||||||
Office furniture and equipment | 23,420 | (21,120 | ) | 10 – 20 | % | |||||||
Retail gallery and store furnishings | 31,058 | (24,217 | ) | 25 – 35 | % | |||||||
Transportation equipment | 5,821 | (4,941 | ) | 20 – 25 | % | |||||||
Leasehold improvements | 8,508 | (4,662 | ) | 10 – 20 | % | |||||||
Construction in progress | 572 | — | — | |||||||||
Total | 405,276 | (211,442 | ) | |||||||||
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 | ) | |||||||||
F-23
Table of Contents
F-24
Table of Contents
10. | Other assets |
2009 | 2008 | |||||||
Software and other | 28,952 | 25,384 | ||||||
Goodwill | 9,136 | 12,538 | ||||||
Equity in affiliated enterprise | 1,429 | 1,429 | ||||||
Total, gross | 39,517 | 39,351 | ||||||
Less accumulated amortization | (26,704 | ) | (26,009 | ) | ||||
Total, net | 12,813 | 13,342 | ||||||
Gross carrying | Accumulated | Net book | ||||||||||
2009 | amount | depreciation | value | |||||||||
Software | 21,276 | (13,746 | ) | 7,530 | ||||||||
Trademarks, patents and other | 7,676 | (6,048 | ) | 1,628 | ||||||||
Total | 28,952 | (19,794 | ) | 9,158 | ||||||||
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 | ||||||||
2009 | 2008 | |||||||
Gross carrying amount | 9,136 | 12,538 | ||||||
Less accumulated depreciation | (6,910 | ) | (9,135 | ) | ||||
Net book value | 2,226 | 3,403 | ||||||
F-25
Table of Contents
Balance as of December 31, 2007 | 6,686 | |||
Write-off for disposal | (776 | ) | ||
Amortization | (2,507 | ) | ||
Balance as of December 31, 2008 | 3,403 | |||
Acquisition of four retail stores | 651 | |||
Amortization | (1,828 | ) | ||
Balance as of December 31, 2009 | 2,226 | |||
11. | Bank overdrafts |
2009 | 2008 | |||||||
Bank overdrafts | 760 | 9,701 |
2009 | 2008 | 2007 | ||||||||||
Bank borrowings | — | 6.22 | % | 6.18 | % | |||||||
Bank overdrafts | 1.18 | % | 3.31 | % | 5.03 | % |
F-26
Table of Contents
12. | Accounts payable-trade |
13. | Accounts payable-other |
2009 | 2008 | |||||||
Provision for warranties | 8,706 | 10,717 | ||||||
Advances from customers | 6,820 | 5,953 | ||||||
Cooperative advertising and quantity discount | 4,376 | 4,123 | ||||||
Withholding taxes on payroll and on others | 2,571 | 2,301 | ||||||
Payable to noncontrolling interests for dividends | — | 593 | ||||||
Other | 6,793 | 6,056 | ||||||
Total | 29,266 | 29,743 | ||||||
2009 | 2008 | 2007 | ||||||||||
Balance, beginning of year | 10,717 | 8,627 | 6,561 | |||||||||
Charges to profit and loss | 227 | 4,735 | 4,962 | |||||||||
Reductions for utilization | (2,238 | ) | (2,645 | ) | (2,896 | ) | ||||||
Balance, end of year | 8,706 | 10,717 | 8,627 | |||||||||
14. | Taxes on income |
2009 | 2008 | 2007 | ||||||||||
IRES (state tax) | 27.50 | % | 27.50 | % | 33.00 | % | ||||||
IRAP (regional tax) | 3.90 | % | 3.90 | % | 4.25 | % |
F-27
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Domestic | (36,319 | ) | (30,986 | ) | (47,137 | ) | ||||||
Foreign | 28,869 | (29,828 | ) | (4,619 | ) | |||||||
Total | (7,450 | ) | (60,814 | ) | (51,756 | ) | ||||||
F-28
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Expected income tax (benefit) expense charge at full tax rates | (2,049 | ) | (16,724 | ) | (17,079 | ) | ||||||
Effects of: | ||||||||||||
Tax exempt income | (2,570 | ) | (2,489 | ) | (6,320 | ) | ||||||
Aggregate effect of different tax rates in foreign jurisdictions | (2,855 | ) | (3,258 | ) | (2,903 | ) | ||||||
Italian regional tax | 1,304 | 2,057 | 1,793 | |||||||||
Non-deductible expenses | 2,194 | 3,384 | 3,286 | |||||||||
Provisions for contingent liabilities | 380 | 373 | 566 | |||||||||
Depreciation and impairment of goodwill | 5 | 228 | 273 | |||||||||
Effect of net change in valuation allowance established against deferred tax assets | 13,121 | 18,799 | 28,503 | |||||||||
Effect of change in tax rates | — | — | 3,809 | |||||||||
Tax effect of unremitted earnings | 271 | (814 | ) | (541 | ) | |||||||
Actual tax charge | 9,802 | 1,556 | 11,387 | |||||||||
2009 | 2008 | 2007 | ||||||||||
Current: | ||||||||||||
Italian | 1,684 | 2,057 | 1,331 | |||||||||
Foreign | 4,375 | 2,606 | 1,593 | |||||||||
Total (a) | 6,059 | 4,663 | 2,924 | |||||||||
Deferred: | ||||||||||||
Italian | — | — | 7,507 | |||||||||
Foreign | 3,743 | (3,107 | ) | 956 | ||||||||
Total (b) | 3,743 | (3,107 | ) | 8,463 | ||||||||
Total (a + b) | 9,802 | 1,556 | 11,387 | |||||||||
F-29
Table of Contents
2009 | 2008 | |||||||
Deferred tax assets: | ||||||||
Tax loss carryforwards | 62,240 | 51,847 | ||||||
Provision for warranties | 2,501 | 3,641 | ||||||
Allowance for doubtful accounts | 2,663 | 2,864 | ||||||
Unrealized net losses on foreign exchange | 833 | 2,798 | ||||||
Impairment loss of long-lived assets | 1,959 | 1,674 | ||||||
One-time termination benefits | 562 | 1,266 | ||||||
Inventory obsolescence | 1,439 | 1,187 | ||||||
Goodwill | 1,384 | 1,019 | ||||||
Intercompany profit on inventory | 1,041 | 803 | ||||||
Provision for contingent liabilities | 1,163 | 777 | ||||||
Provision for sales representatives | 392 | 398 | ||||||
Other temporary differences | 1,092 | 756 | ||||||
Total gross deferred tax assets | 77,269 | 69,030 | ||||||
Less valuation allowance | (74,626 | ) | (62,452 | ) | ||||
Net deferred tax assets (a) | 2,643 | 6,578 | ||||||
Deferred tax liabilities: | ||||||||
Unrealized net gains on foreign exchange | (562 | ) | (935 | ) | ||||
Unremitted earnings of subsidiaries | (856 | ) | (585 | ) | ||||
Government grants | (570 | ) | (570 | ) | ||||
Other temporary differences | — | (90 | ) | |||||
Total deferred tax liabilities (b) | (1,988 | ) | (2,180 | ) | ||||
Net deferred tax assets (a + b) | 655 | 4,398 | ||||||
F-30
Table of Contents
2009 | Current | Non current | Total | |||||||||
Gross deferred tax assets | 11,860 | 65,409 | 77,269 | |||||||||
Valuation allowance | (10,643 | ) | (63,983 | ) | (74,626 | ) | ||||||
Net deferred tax assets | 1,217 | 1,426 | 2,643 | |||||||||
Deferred tax liabilities | (515 | ) | (1,473 | ) | (1,988 | ) | ||||||
Net deferred tax assets | 702 | (47 | ) | 655 | ||||||||
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 | |||||||||
2010 | 2,905 | |||
2011 | 5,453 | |||
2012 | 43,394 | |||
2013 | 20,843 | |||
2014 | 35,539 | |||
Thereafter | 104,621 | |||
Total | 212,755 | |||
F-31
Table of Contents
15. | Salaries, wages and related liabilities |
2009 | 2008 | |||||||
Salaries and wages | 4,939 | 4,142 | ||||||
Social security contributions | 6,987 | 7,191 | ||||||
Vacation accrual | 3,128 | 3,385 | ||||||
One-time termination benefits | — | 2,093 | ||||||
Total | 15,054 | 16,811 | ||||||
16. | Long-term debt |
2009 | 2008 | |||||||
2.25% long-term debt payable in annual equal installments with final payment due May 30, 2015 | 1,702 | 1,961 | ||||||
0.25% long-term debt payable in semi-annual installments with final payment due July 2013 | 1,305 | 1,672 | ||||||
0.96% long-term debt payable in annual installments with final payment due September 2010 | 74 | 147 | ||||||
0.74% long-term debt payable in annual installments with final payment due April 2018 | 3,900 | — | ||||||
Total long-term debt | 6,981 | 3,780 | ||||||
Less current installments | (1,124 | ) | (514 | ) | ||||
Long-term debt, excluding current installments | 5,857 | 3,266 | ||||||
F-32
Table of Contents
2011 | 1,069 | |||
2012 | 1,080 | |||
2013 | 912 | |||
2014 | 722 | |||
Thereafter | 2,074 | |||
Total | 5,857 | |||
17. | Other liabilities |
2009 | 2008 | |||||||
Provision for contingent liabilities | 14,952 | 10,545 | ||||||
One-time termination benefits | 2,046 | 2,512 | ||||||
Termination indemnities for sales agents | 1,211 | 1,385 | ||||||
Total | 18,209 | 14,442 | ||||||
F-33
Table of Contents
18. | Shareholders’ equity |
2009 | 2008 | |||||||
Mr. Pasquale Natuzzi | 53.5 | % | 53.5 | % | ||||
Miss Anna Maria Natuzzi | 2.6 | % | 2.6 | % | ||||
Mrs. Annunziata Natuzzi | 2.5 | % | 2.5 | % | ||||
Public investors | 41.4 | % | 41.4 | % | ||||
100 | % | 100 | % | |||||
2009 | 2008 | |||||||
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 | 488 | ||||||
Total | 42,780 | 42,780 | ||||||
F-34
Table of Contents
19. | Share grants and options |
F-35
Table of Contents
Additional | ||||||||||||||||
MBO 2004 | Shares | Options | options | Total | ||||||||||||
Balance at December 31, 2008 | — | 123,023 | — | 123,023 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited | — | — | — | — | ||||||||||||
Expired | — | (123,023 | ) | — | (123,023 | ) | ||||||||||
Balance at December 31, 2009 | — | — | — | — | ||||||||||||
Weighted average remaining contractual life | — | — | — | |||||||||||||
Additional | ||||||||||||||||
MBO 2005 | Shares | Options | options | Total | ||||||||||||
Balance at December 31, 2008 | — | 82,721 | — | 82,721 | ||||||||||||
Granted | — | — | — | — | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Forfeited | — | — | — | — | ||||||||||||
Expired | — | (82,721 | ) | — | (82,721 | ) | ||||||||||
Balance at December 31, 2009 | — | — | — | — | ||||||||||||
Weighted average remaining contractual life | — | — | — | |||||||||||||
F-36
Table of Contents
F-37
Table of Contents
20. | Commitments and contingent liabilities |
2010 | 16,245 | |||
2011 | 14,980 | |||
2012 | 13,651 | |||
2013 | 12,002 | |||
2014 | 9,853 | |||
Thereafter | 20,707 | |||
Total | 87,438 | |||
F-38
Table of Contents
21. | Segmental and geographical information |
2009 | 2008 | 2007 | ||||||||||
Leather upholstered furniture | 413,751 | 535,178 | 502,913 | |||||||||
Fabric upholstered furniture | 36,805 | 52,607 | 60,597 | |||||||||
Total | 450,556 | 587,785 | 563,510 | |||||||||
F-39
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Sales of upholstered furniture | ||||||||||||
United States of America | 103,174 | 165,445 | 159,289 | |||||||||
Italy | 53,454 | 65,739 | 68,734 | |||||||||
England | 29,701 | 31,458 | 31,965 | |||||||||
Canada | 28,076 | 37,345 | 34,190 | |||||||||
France | 27,500 | 36,311 | 29,433 | |||||||||
Spain | 27,304 | 37,383 | 41,677 | |||||||||
Belgium | 26,665 | 27,572 | 24,138 | |||||||||
Germany | 24,491 | 27,045 | 26,714 | |||||||||
Holland | 14,371 | 16,965 | 15,594 | |||||||||
Australia | 12,118 | 16,172 | 15,354 | |||||||||
Other countries (none greater than 2%) | 103,702 | 126,350 | 116,422 | |||||||||
Total | 450,556 | 587,785 | 563,510 | |||||||||
2009 | 2008 | |||||||
Long lived assets | ||||||||
Italy | 108,621 | 120,883 | ||||||
Romania | 24,577 | 27,366 | ||||||
China | 20,579 | 22,572 | ||||||
United States of America | 14,982 | 16,761 | ||||||
Brazil | 17,572 | 15,069 | ||||||
Other countries | 7,503 | 9,130 | ||||||
Total | 193,834 | 211,781 | ||||||
22. | Cost of sales |
2009 | 2008 | 2007 | ||||||||||
Opening inventories | 92,012 | 107,290 | 100,358 | |||||||||
Purchases | 195,783 | 301,811 | 308,234 | |||||||||
Labor | 78,505 | 97,720 | 101,664 | |||||||||
Third party manufacturers | 10,627 | 18,474 | 16,499 | |||||||||
Other manufacturing costs | 34,380 | 45,487 | 41,124 | |||||||||
Closing inventories | (81,565 | ) | (92,012 | ) | (107,290 | ) | ||||||
Total | 329,742 | 478,770 | 460,589 | |||||||||
F-40
Table of Contents
23. | Other income (expense), net |
2009 | 2008 | 2007 | ||||||||||
Interest income | 482 | 1,614 | 3,557 | |||||||||
Interest expense and bank commissions | (1,624 | ) | (1,855 | ) | (1,884 | ) | ||||||
Interest (expense) income, net | (1,142 | ) | (241 | ) | 1,673 | |||||||
Gains (losses) on foreign exchange, net | 6,931 | (6,589 | ) | (8,096 | ) | |||||||
Unrealized exchange gains (losses) on exchange derivative instruments, net | (62 | ) | (4,471 | ) | 946 | |||||||
Gains (losses) on foreign exchange, net | 6,869 | (11,060 | ) | (7,150 | ) | |||||||
Other, net | (2,606 | ) | (14,517 | ) | 2,831 | |||||||
Total | 3,121 | (25,818 | ) | (2,646 | ) | |||||||
2009 | 2008 | 2007 | ||||||||||
Net realized (losses) gains on exchange derivative instruments | (3,101 | ) | (1,263 | ) | 5,877 | |||||||
Net realized gains (losses) on accounts receivable and payable | 2,083 | (6,281 | ) | (3,865 | ) | |||||||
Net unrealized gains (losses) on accounts receivable and payable | 7,949 | 955 | (10,108 | ) | ||||||||
Total | 6,931 | (6,589 | ) | (8,096 | ) | |||||||
F-41
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Provisions for contingent liabilities | (3,846 | ) | (3,200 | ) | (2,956 | ) | ||||||
Settlement of INPS contingent liability | (1,080 | ) | — | — | ||||||||
Impairment losses of long-lived assets | — | (4,703 | ) | — | ||||||||
One-time termination benefits | — | (4,605 | ) | — | ||||||||
Tax refund | — | — | 2,961 | |||||||||
Write off of a provision | — | — | 1,500 | |||||||||
Income tax not due | — | — | 668 | |||||||||
Write off of fixed assets | (595 | ) | (1,189 | ) | (2,285 | ) | ||||||
Other, net | 2,915 | (820 | ) | 2,943 | ||||||||
Total | (2,606 | ) | (14,517 | ) | 2,831 | |||||||
F-42
Table of Contents
F-43
Table of Contents
F-44
Table of Contents
24. | Financial instruments and risk management |
F-45
Table of Contents
2009 | 2008 | |||||||
U.S. dollars | 23,418 | 62,561 | ||||||
Euro | 10,714 | 25,292 | ||||||
Canadian dollars | 1,915 | 11,463 | ||||||
British pounds | 6,652 | 11,988 | ||||||
Australian dollars | 5,164 | 9,771 | ||||||
Swiss francs | 795 | 1,973 | ||||||
Norwegian kroner | 718 | 2,492 | ||||||
Swedish kroner | 587 | 1,644 | ||||||
Danish kroner | 470 | 1,675 | ||||||
Japanese yen | 311 | 360 | ||||||
Total | 50,744 | 129,219 | ||||||
2009 | 2008 | |||||||||||||||
Contract | Unrealized | Contract | Unrealized | |||||||||||||
amount | gains (losses) | amount | gains (losses) | |||||||||||||
Assets | 13,281 | 318 | 38,898 | 6,799 | ||||||||||||
Liabilities | 37,463 | (380 | ) | 90,321 | (11,270 | ) | ||||||||||
Total | 50,744 | (62 | ) | 129,219 | (4,471 | ) | ||||||||||
F-46
Table of Contents
25. | Fair value of financial instruments |
2009 | 2008 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
value | value | value | value | |||||||||||||
Assets: | ||||||||||||||||
- Marketable debts securities | 4 | 4 | 4 | 4 | ||||||||||||
Liabilities: | ||||||||||||||||
- Long-term debt | 6,981 | 6,214 | 3,780 | 2,906 |
26. | Application of generally accepted accounting principles in the United States of America |
F-47
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Net loss under Italian GAAP | (17,686 | ) | (61,938 | ) | (62,647 | ) | ||||||
Adjustments to reported income: | ||||||||||||
(a) Revaluation of property, plant and equipment | 27 | 27 | 27 | |||||||||
(b) Government grants | 610 | 811 | 1,188 | |||||||||
(c) Revenue recognition | (2,652 | ) | 2,330 | 1,887 | ||||||||
(e) Goodwill and intangible assets | 1,505 | (2,634 | ) | 1,970 | ||||||||
(f) Share grants and options | — | (2 | ) | (56 | ) | |||||||
(g) Translation of foreign financial statements | (5,193 | ) | 753 | 191 | ||||||||
(h) One-time termination benefits | (2,559 | ) | 4,605 | — | ||||||||
(i) Impairment of long-lived assets | (12 | ) | 400 | — | ||||||||
Tax effect of US GAAP adjustments | 223 | (14 | ) | (2,567 | ) | |||||||
Net loss in conformity with US GAAP | (25,737 | ) | (55,662 | ) | (60,007 | ) | ||||||
Basic loss per share in conformity with US GAAP | (0.47 | ) | (1.02 | ) | (1.09 | ) | ||||||
Diluted loss per share in conformity with US GAAP | (0.47 | ) | (1.02 | ) | (1.09 | ) | ||||||
2009 | 2008 | |||||||
Total equity attributable to Natuzzi S.p.A. and subsidiaries under Italian GAAP | 325,027 | 345,218 | ||||||
(a) Revaluation of property, plant and equipment | (507 | ) | (534 | ) | ||||
(b) Government grants | (11,427 | ) | (12,037 | ) | ||||
(c) Revenue recognition | (4,695 | ) | (2,043 | ) | ||||
(e) Goodwill and intangible assets | 6,226 | 4,721 | ||||||
(g) Translation of foreign financial statements | 13,208 | 15,895 | ||||||
(h) One-time termination benefits | 2,046 | 4,605 | ||||||
(i) Impairment of long-lived assets | 388 | 400 | ||||||
Tax effect of US GAAP adjustments | (2,700 | ) | (2,923 | ) | ||||
Equity attributable to Natuzzi S.p.A. and subsidiaries in conformity with US GAAP | 327,566 | 353,302 | ||||||
F-48
Table of Contents
December 31, 2009 | December 31, 2008 | |||||||
ASSETS | ||||||||
Current assets | 295,125 | 314,695 | ||||||
Non current assets | 225,962 | 245,784 | ||||||
Total assets | 521,087 | 560,479 | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities | 118,354 | 135,707 | ||||||
Long-term liabilities | 73,307 | 70,675 | ||||||
Equity attributable to Natuzzi S.p.A. | 327,566 | 353,302 | ||||||
Non controlling interest | 1,860 | 795 | ||||||
Total Liabilities and Shareholders’ Equity | 521,087 | 560,479 | ||||||
2009 | 2008 | 2007 | ||||||||||
Net sales | 506,026 | 670,130 | 635,883 | |||||||||
Cost of sales | (333,667 | ) | (496,905 | ) | (468,654 | ) | ||||||
Gross profit | 172,359 | 173,225 | 167,229 | |||||||||
Selling expenses | (140,021 | ) | (163,265 | ) | (164,514 | ) | ||||||
General and administrative expenses | (46,585 | ) | (49,916 | ) | (49,094 | ) | ||||||
Operating loss | (14,247 | ) | (39,956 | ) | (46,379 | ) | ||||||
Other expenses, net | (1,248 | ) | (14,313 | ) | (2,207 | ) | ||||||
Loss before taxes and noncontrolling interest | (15,495 | ) | (54,269 | ) | (48,586 | ) | ||||||
Income taxes | (9,808 | ) | (1,825 | ) | (11,917 | ) | ||||||
Net loss | (25,303 | ) | (56,094 | ) | (60,503 | ) | ||||||
Net loss attributable to the noncontrolling interest | (434 | ) | 432 | 496 | ||||||||
Net income (loss) attributable to Natuzzi S.p.A. and subsidiaries | (25,737 | ) | (55,662 | ) | (60,007 | ) | ||||||
F-49
Table of Contents
2009 | 2008 | 2007 | ||||||||||
Net sales Italian GAAP | 515,352 | 666,026 | 634,402 | |||||||||
(b) Government grants (reclassification) | (953 | ) | (990 | ) | (1,026 | ) | ||||||
(c) Revenue recognition (adjustment) | (5,144 | ) | 9,430 | 6,828 | ||||||||
(k) Cost paid to resellers (reclassification) | (3,229 | ) | (4,336 | ) | (4,321 | ) | ||||||
Net sales US GAAP | 506,026 | 670,130 | 635,883 | |||||||||
2009 | 2008 | 2007 | ||||||||||
Operating loss Italian GAAP | (10,571 | ) | (34,996 | ) | (49,110 | ) | ||||||
(a) Revaluation property, plant and equipment (adjustment) | 27 | 27 | 27 | |||||||||
(b) Government grants (adjustment) | 610 | 811 | 1,188 | |||||||||
(c) Revenue recognition (adjustment) | (2,652 | ) | 2,330 | 1,887 | ||||||||
(e) Goodwill and intangible assets (adjustment) | 1,505 | (2,634 | ) | 1,970 | ||||||||
(f) Share grants and options (adjustment) | — | (2 | ) | (56 | ) | |||||||
(h) One-time termination benefits | (2,559 | ) | — | — | ||||||||
(i) Impairment of long-lived assets (reclassification) | — | (4,703 | ) | — | ||||||||
(i) Impairment of long-lived assets (adjustment) | (12 | ) | 400 | — | ||||||||
(j) Write-off of tangible assets (reclassification) | (595 | ) | (1,189 | ) | (2,285 | ) | ||||||
Operating loss US GAAP | (14,247 | ) | (39,956 | ) | (46,379 | ) | ||||||
(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 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. |
F-50
Table of Contents
(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. |
F-51
Table of Contents
2009 | 2008 | |||||||
Effects | Effects | |||||||
Increase | Increase | |||||||
Consolidated balance sheets | (Decrease) | (Decrease) | ||||||
Trade receivables, net | (18,607 | ) | (13,463 | ) | ||||
Inventories | 11,818 | 9,665 | ||||||
Total effect on current assets (a) | (6,789 | ) | (3,798 | ) | ||||
Accounts payable-trade | (2,094 | ) | (1,755 | ) | ||||
Income taxes | (413 | ) | (468 | ) | ||||
Total effect on current liabilities (b) | (2,507 | ) | (2,223 | ) | ||||
Total effect on shareholders’ equity (a-b) | (4,282 | ) | (1,575 | ) | ||||
Consolidated statements of operations | 2009 | 2008 | 2007 | |||||||||
Net sales | (5,144 | ) | 9,430 | 6,828 | ||||||||
Gross profit | (2,991 | ) | 3,149 | 2,950 | ||||||||
Operating income (loss) | (2,652 | ) | 2,330 | 1,887 | ||||||||
Total effect on net operations | (2,707 | ) | 2,709 | 235 | ||||||||
(d) | On June 14, 2007 (see notes 1 and 26 (e)) 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. |
F-52
Table of Contents
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 | — | |||||||||
(e) | 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 Accounting Standards Codification (“ASC”) No. 350,Intangibles Goodwill and Other(Formerly FASB Statement No. 142). |
Goodwill | Intangibles | Deferred taxes | ||||||||||||||||||||||
US | Italian | US | Italian | US | Italian | |||||||||||||||||||
Balance at December 31, 2006 | 7,760 | 9,301 | 6,792 | — | (2,381 | ) | (517 | ) | ||||||||||||||||
Acquisition of other stores | — | 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 | ) | ||||||||||||||||
Acquisition of stores | 651 | 651 | — | — | — | — | ||||||||||||||||||
Amortization | — | (1,827 | ) | (322 | ) | — | 100 | (526 | ) | |||||||||||||||
Balance at December 31, 2009 | 6,911 | 2,227 | 1,542 | — | (485 | ) | (1,933 | ) | ||||||||||||||||
F-53
Table of Contents
F-54
Table of Contents
(f) | Under Italian GAAP the Company does not record in the consolidated statement of operations the compensation expense related to share based compensation plans. |
F-55
Table of Contents
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% |
(g) | 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)). |
F-56
Table of Contents
(h) | 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 23). 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-time termination benefits. Under Italian GAAP for the recognition of the cost for the termination benefits related to the terminated workers the communication or announcement to third parties of the plan of termination of workers is not relevant. |
F-57
Table of Contents
(i) | 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 23). Company’s management estimated the fair value based on third-party independent appraisals. In addition, as of December 31, 2008 and 2009 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). |
F-58
Table of Contents
F-59
Table of Contents
(j) | During 2009, 2008 and 2007 the Company under Italian GAAP has recognized the write-off of tangible assets of 595, 1,189 and of 2,285, respectively, as part of non operating loss. Under US GAAP such write-off charge would be included as part of operating loss. |
F-60
Table of Contents
(k) | Under Italian GAAP certain costs paid to resellers are reflected as part of selling expenses. Under US GAAP, in accordance with Accounting Standard Codification (“ASC”) No. 605-50 Revenue Recognition — Customer Payments and Incentive (Formerly EITF 01-09), these costs should be recorded as a reduction of net sales. Such expenses include advertising contributions paid to resellers which amounted at December 31, 2009, 2008 and 2007 to 3,229, 4,336 and 4,321, respectively. |
(l) | 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, 2009, 2008 and 2007 warranty cost amounting to 4,503, 4,607 and 4,143, respectively, would be reclassified from selling expenses to cost of sales under US GAAP. |
(m) | 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, 2009, 2008 and 2007 the above income taxes amount approximately to 229, 255 and 519. Under US GAAP these amounts would be classified in the line income taxes of the consolidated statements of operations. |
(n) | 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 23). 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. |
(o) | 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. |
F-61
Table of Contents
2009 | 2008 | |||||||
Balance, beginning of the year | 1,715 | 1,460 | ||||||
Additions based on tax positions related to the current year | — | 2 | ||||||
Additions for tax positions of prior years | 351 | 483 | ||||||
Reductions due to statute of limitations expiration | (122 | ) | (230 | ) | ||||
Settlements | — | — | ||||||
Balance, end of year | 1,944 | 1,715 | ||||||
US GAAP | IT GAAP | Difference | ||||||||||
Balance at January 1, 2009 | 1,715 | 1,715 | — | |||||||||
Additions based on tax positions related to the current year | — | — | — | |||||||||
Additions for tax positions of prior years | 351 | 351 | — | |||||||||
Reductions due to statute of limitations expiration | (122 | ) | (122 | ) | — | |||||||
Settlements | — | — | — | |||||||||
Balance at December 31, 2009 | 1,944 | 1,944 | — | |||||||||
F-62
Table of Contents
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 | — | |||||||||
Cumulative translation adjustment | 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 | — | |||||||||
(p) | The consolidated statements of cash flows for the years ended December 31, 2009, 2008 and 2007 prepared by the Company under Italian GAAP is in conformity with US GAAP (Accounting Standards Codification (“ASC”) No. 230,Statement of Cash Flow (Formerly FASB Statement No. 95)). |
F-63
Table of Contents
F-64
Table of Contents
F-65
Table of Contents
F-66
Table of Contents
F-67
Table of Contents
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. | |||
15.1 | Letter of Agreement from KPMG, dated June 29, 2010. |