Benetton Group -...

Benetton Group Half-year report 1999

Playlife headquarter

Villa Loredan

31040 Volpago · Treviso

Italy

Half-ye

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99

Benetto

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roup

e1253_Copertina Inglese 16-05-2002 11:55 Pagina 1

Benetton Group S.p.A.

Villa Minelli

Ponzano Veneto [Treviso] · Italy

Capital Stock: Lire 453,897,027,500 fully paid-in

Treviso Company Register 4424

Benetton Group Half-year report 1999

Benetton Group S.p.A., Ponzano Veneto

100%Benetton Sportsystem GmbHMünchen

100%Benetton Sportsystem SchweizAG., Stans

100%Bencom S.p.A.Ponzano Veneto

100%Benair S.p.A.Ponzano Veneto

100%Benfin S.p.A.Ponzano Veneto

100%Texcontrol S.p.A.Ponzano Veneto

50%Filatura di Vittorio VenetoS.p.A., Vittorio Veneto

100%Benlog S.p.A.Ponzano Veneto

100%Benetton Holdings N.V.Amsterdam

100%Benetton Argentina S.A.Buenos Aires

50%Egyptian European ClothingManufactures S.A.E., Alexandria

50%DCM Benetton India Ltd.New Delhi

100%Benetton [Far East] Ltd.Hong Kong

50%Benetton Shoes Japan K.K.Tokyo

100%Benetton Group Japan K.K.Tokyo

100%Benetton U.S.A. Corp.Wilmington

100%Benetton Retail Corp.Wilmington

100%Benetton International N.V.Amsterdam

100%Benetton Tunisia S.à r.l.Sahline

100%Benetton [UK] Ltd.London

100%Benetton France Trading S.à r.l.Troyes

100%Benetton Formula Ltd.London

100%Benetton France S.A.Troyes

100%Benetton Realty France S.A.Paris

100%Benetton S.A.Castellbisbal

100%Benetton Ltda.Maia [Portugal]

100%Benetton Ungheria Kft.Nagykallo

100%Benetton Retail [1988] Ltd.London

100%Benetton Società di Servizi S.A.Lugano

100%Benetton España S.L.Castellbisbal

100%Benetton Engineering Ltd.Enstone

100%United Colors CommunicationS.A., Lugano

100%Benetton Finance S.A.Luxembourg

100%United Colors of Benetton DoBrasil Ltda., S. José dos Pinhais

100%Bene Forte Co. Ltd. Tokyo

100%Novaben Comercio De RoupasLtda., Rio de Janeiro

100%Ben Store Roupas Ltda.São Paulo

100%Colors Brasil Roupas Ltda. Rio de Janeiro

100%Benetton Gesfin S.p.A.Ponzano Veneto

100%S.I.G.I. S.r.l.Ponzano Veneto

100%Buenos Aires 2000 S.r.l.Ponzano Veneto

100%Fabrica S.p.A.Ponzano Veneto

100%Colors Magazine S.r.l.Ponzano Veneto

100%Maglificio Fontane S.p.A.Fontane di Villorba

85%Olimpias S.p.A.Grumolo delle Abbadesse

100%Tessuti di Pordenone S.p.A.Pordenone

100%Finitex S.p.A.Grumolo delle Abbadesse

100%Manifattura Goriziana S.p.A.Gorizia

50%Color Service S.r.l.Dueville

100%Filtravesio S.r.l.Travesio

100%Tessitura Travesio S.p.A.Travesio

100%Tintoria Astico S.p.A.Grumolo delle Abbadesse

100%Lanificio di Follina S.p.A.Follina

50%Socks & Accessories Benetton[S.A.B.] S.r.l., Sesto Fiorentino

100%Benetton Sportsystem N.V.Amsterdam

100%Benetton Sportsystem AustriaGmbH, Hohenems

100%Benetton Sportsystem U.S.A.Inc., New York

99.87%Rollerblade Inc.Minneapolis

100%Prince Sports Group Inc.Bordentown

MAIN CONSOLIDATED COMPANIES

100%Benetton Sportsystem FranceS.à r.l., Paris

100%Benetton Sportsystem Iberica S.A., Barcelona

100%S.A.B. España Terrassa

100%Benetton Sportsystem JapanK.K., Tokyo

50%Benetton Korea Inc.Seoul

The Benetton GroupDirectors and other officers 5

Directors’ report on operations 6

1999 interim results 6

Manufacturing and distribution 8

Casual wear 8

Sportswear and sports equipment 8

Capital expenditures 9

Licensing 9

Quality and environment 9

Communication 10

Supplementary information 12

Year 2000 12

The Euro project 12

Financial management 12

Treasury shares 13

Performance of Benetton shares 13

Transactions with the parent company and fellow subsidiaries 13

Directors 14

Principal organizational and corporate changes in the Group 14

Outlook for the full year 15

Group results 16

Consolidated statement of income 16

Financial position 18

Consolidated financial statementsBalance sheets - assets 20

Balance sheets - liabilities and memorandum accounts 22

Statements of income 24

Statement of changes in stockholders’ equity 26

Statement of changes in minority interests 26

Statements of consolidated cash flows 28

Balance sheets in Euro - assets 30

Balance sheets in Euro - liabilities and memorandum accounts 32

Statements of income in Euro 34

Notes to the consolidated financial statementsActivities of the Group 47

Form and content of the consolidated financial statements 47

Principles of consolidation 48

Accounting policies 49

Comments on the principal asset items 53

Comments on the principal liability and equity items 64

Memorandum accounts 74

Comments on the principal statement of income items 76

Appendices

Independent Auditors' report

5

20

47

85

99

I N D E X

Board of Statutory auditors

Independent auditors

5

T H E B E N E T TO N G R O U P

D I R E C TO R S A N D OT H E R O F F I C E R S

Board of Directors

Directors and other officers

Chairman

Auditors

Alternate auditors

Angelo Casò

Dino Sesani

Filippo Duodo

Antonio Cortellazzo

Marco Leotta

Deloitte & Touche S.p.A.

Chairman

Deputy Chairman and Joint Managing Director

Joint Managing Director

Directors

Secretary to the Board

Luciano Benetton

Gilberto Benetton

Carlo Gilardi

Giuliana Benetton

Carlo Benetton

Alessandro Benetton

Gianni Mion

Angelo Tantazzi

Ulrich Weiss

Reginald Bartholomew

Pierluigi Bortolussi

Pierluigi Bortolussi

1999 interim results. The Benetton Group’s revenues for the first

half of 1999 totaled Lire 1,915 billion, compared with Lire 1,963 billion in the corresponding peri-

od of 1998. This year’s results exclude sales by Benetton Shoes Japan and Spiller S.p.A., which have

no longer been consolidated following disposal of their activities. These companies contributed

over Lire 50 billion to revenues in the first half of 1998.

Consolidated net income was in line with Group forecasts, rising to Lire 135.2 billion from Lire

120.3 billion in the first half of 1998. Gross operating income came to Lire 840 billion at the end of

the first six months of 1999, compared with Lire 809 billion in the corresponding period a year ear-

lier. Income from operations amounted to Lire 275 billion compared with Lire 226 billion last year.

The Group generated cash flow of Lire 225 billion in the first six months of 1999, compared with

Lire 212 billion in the corresponding period of 1998; stockholders’ equity came to Lire 2,263 billion

as of June 30, 1999, compared with Lire 2,219 billion at the end of 1998. Net indebtedness totaled

Lire 532 billion, versus Lire 378 billion at the end of 1998 [Lire 695 billion as of June 30, 1998].

6

Directors’ report on operations

D I R E C TO R S ’ R E P O R T O N O P E R AT I O N S

1 9 9 9 I N T E R I M R E S U LT S

Revenues by activity [billions of Lire]1st half 1998 · 1st half 1999

11.3%

66.4%

22.3%

8.7%

72.7%

18.6%

Other

Sport

Casual

1,963

1,91

5

19991998

0

200

400

600

800

1,000

Gross operating income and incomefrom operations [billions of Lire]1st half 1998 · 1st half 1999

Gross operating income

Income from operations

809

226

840

275

19991998

Income before taxes and net income [billions of Lire]1st half 1998 · 1st half 1999

Income before taxes

Net income

0

50

100

150

200

250

196

120

250

135

19991998

Casual wear. During the first six months of 1999, sales in the casual

wear sector rose by about 7%, representing an increase of some 5 million garments. This result

mainly reflected the Group’s ability to make the most of global opportunities, using its flexible man-

ufacturing and distribution system to respond quickly to market changes.

On the retail front, the Group continued to acquire prestige premises in prime locations, particu-

larly in historic city centers, in order to support and expand its world-wide network of megastores.

These new Benetton stores are not only bigger, but also offer-high quality services to their cus-

tomers. The future increase in the number of megastores throughout the world will go hand in hand

with a reduction in the number of smaller outlets. The megastores will start to have a noticeable

impact on the Group’s overall sales from 2000 onwards.

In June of this year, the first Benetton USA collection was officially presented. This is the new

teenagers’ and children’s wear label which will be available in some one thousand Sears stores. This

initiative is the latest move for strengthening Benetton’s presence in the United States.

Revenues from the new collection will not be consolidated in the Benetton Group’s financial state-

ments but the royalties under the license contract will contribute to income.

Sportswear and sports equipment. During the first half of the

year, sports-sector sales came to about Lire 360 billion. The Group completed the reorganization

of its sports sector. This involved not only introducing a manufacturing system to order, now also

applied to sports equipment using the established Benetton System, but also radically restructuring

the US subsidiaries. The activities of logistics, selling, administration and control were centralized

for the entire US operation at Bordentown [New Jersey]. The network of agents was replaced and

the customer service operation strengthened, with the aim of improving the efficiency and quality

of service as part of a more customer-oriented corporate culture.

After the reorganization of its US subsidiaries, Benetton’s sports division now has a commercial

structure focused on three areas: Europe, America and Asia. The strategic activities of research,

marketing and manufacturing for the Nordica, Rollerblade, Prince and Killer Loop brands are co-

ordinated from Italy by Benetton’s high-tech division.

The strong identities emanating from the individual brands of Nordica, Prince, Rollerblade and Killer

Loop, each one being well established and consistent in terms of their technical and functional char-

acteristics, are united under the brand-slogan of Playlife. They provide a unique response to the end

customer, who is differentiated by age, lifestyle and involvement in the world of sport.

The activities of research and innovation are crucial for giving the customer ever greater levels of

satisfaction. During the first six months of 1999, these activities involved the presentation of new

sports equipment, featuring cutting-edge technology, innovative materials and, more in general, a

new way of thinking about sport and leisure time.

In January 1999, for example, the first range of Nordica skis was presented, extending the range of

winter sports products, transforming it increasingly into a global brand for mountain sports. The

Nordica skis, designed and manufactured using the latest technology in the Trevignano plant, are

entirely “made in Italy”. This fact is also reflected in the new type of design, offering plain color skis

that can be co-ordinated with ski-boots, sticks and clothing.

8

Manufacturing and distribution


M A N U F A C T U R I N G A N D D I S T R I B U T I O N

1st half 1999 net revenues by brand [in %]

62.1% United Colors of Benetton

13.9% Sisley

0.8% Playlife

0.5% Nordica

4.9% Prince

11.7% Rollerblade

0.6% Killer Loop

5.5% Other sales

1st half 1999 revenues by activity [in %]

72.7% Casual

18.6% Sport

8.7% Other

Licensing

Quality and environment

Rollerblade, the inventor of in-line skating, launched a new product and a new street sport in 1999.

With its “Grind Shoes”, footwear for “grinding” [ie. sliding along sidewalks, handrails and other

urban obstacles], Rollerblade is addressing young urban athletes, following new fashions and any

other trends. The new Killer Loop skate-boards are also dedicated to people for whom sport is an

individual and dynamic lifestyle. These boards have been designed in Fabrica’s communications lab-

oratory using aggressive graphics and strong colors inspired by pop art.

Prince, the tennis racquet chosen by Patrick Rafter, the Australian champion, completed developing

its new “Triple Threat” line of racquets in the first half of 1999. Officially presented to the ISPO in

August 1999, the new racquets represent the biggest novelty in tennis of the next millennium. Using

a different weight distribution in three points along the racquet’s extremities, Triple Threat opti-

mizes power, control and stability, confirming Prince’s technological leadership.

The Group’s investments in tangible fixed assets totaled over Lire 110 billion in the first half of 1999.

The majority of these investments [around Lire 70 billion on top of some Lire 70 billion spent last

year] were for acquiring, modernizing and upgrading the Group’s real estate portfolio with the aim

of increasing the number of premises for commercial purposes.

The main projects belonging to this program, on which work is ongoing at period end, are located

in the cities of Milan, Rome, Bologna, Tokyo, Moscow, Santander and Seville.

Investments in the operational and manufacturing areas, totaling Lire 16 billion, were geared to

updating and enhancing manufacturing and logistics operations.

During the half year, licenses for the U.C.B. brand were renewed in various sectors, such as sta-

tionery, childhood products, contraceptives, household linen and articles in toweling. Following last

year’s license for using the Kästle brand in the bicycle sector, this year new contracts in this area

were signed for the United Colors, Playlife and Benetton Formula brands. Another new license

referred to childhood products. Contracts relating to the Group’s sports brands are in the process

of being signed, which will lead to interesting developments in the licensing sector.

In the first half of 1999, the Group obtained the ISO 9001 certification for the total quality of its

manufacturing cycle. It also obtained the ISO 14001 certification, which extends the quality con-

cept to environmental management. This was the final chapter in these two interrelated projects,

calling for considerable efforts throughout the Group in adapting procedures to international

standards and introducing an innovative ethics of quality to all areas of the business, including the

network of external suppliers. The ISO 14001 certification ensures that all operations impacting

9


C A P I TA L E X P E N D I T U R E S - L I C E N S I N G - Q U A L I T Y A N D E N V I R O N M E N T

Capital expenditures

the environment, from waste treatment to optimizing intermodal and combined transport sys-

tems [particularly railed-based ones], are conducted with the maximum respect for nature and

the health of the workforce.

Oliviero Toscani produced an anthropological survey of young Japanese in the Omote Sando area

of Tokyo for the 1999 United Colors of Benetton spring-summer catalog and global campaign. After

Corleone, Jerusalem and the handicapped children of Ruhpolding, Toscani’s images explored an

unusual context, where cultural and aesthetic codes are based on a system of free communication,

breaking with convention and for this reason in keeping with Benetton’s campaigns.

Under the joint marketing project started last year, the campaign and catalog were produced in

collaboration with TIM in Italy and Procter & Gamble in Japan and Portugal.

In April, bringing forward its usual autumn campaign, Benetton decided to support the humani-

tarian cause in respect of the people of Kosovo with an advertising campaign based on the sym-

bolic image of a blood stain on a white background. This campaign was produced in collabora-

tion with the UN High Commission for Refugees.

In the world of sport, Benetton has focused on creating global campaigns capable of exploiting

the complex network of synergies based on international events and traditional and innovative

media. These include the Playlife TV program and the Internet as well as the visibility ensured by

the Formula 1 Benetton Team, the Playlife world motorcycle team, and the basketball, volleyball

and rugby teams and athletes who compete under the colors of Nordica, Rollerblade, Prince and

Killer Loop.

10


C O M M U N I C AT I O N

Communication

Supplementary information

Year 2000. The Benetton Group attached great strategic importance

to adapting its information systems to the change of millennium. By the end of 1999, all the Group’s

systems, plants, equipment and other devices that use processors or microprocessors must be

modified and certified to ensure that they handle properly the transition from 1999 to 2000.

The plan for modifying the Group’s information systems have been drawn up in accordance with

the relevant standards published by the British Standards Institute [BSI - Year 2000 Definition

BSI DISC PD2000-1]. The program was at an advanced stage of implementation as of June 30,

1999 and the scheduled date for completion of all modification and testing operations is

October 31, 1999. The cost of adapting the systems for the year 2000 is estimated at just under

Lire 4 billion, of which Lire 800 million refer to 1999.

The Group’s parent company has extended the process of evaluating risks arising from mal-

function due to inadequate preparation for the millennium change to the whole Group and to

the external companies it deals with, as recommended by Consob and the US Securities

Exchange Commission.

The monitoring of third parties with whom the Group has dealings of a certain importance is

now complete. At the present date, this exercise has not indicated any potential risks.

The Euro project. The following guidelines were defined in 1998

for implementing the Benetton Group’s Euro project:_ to continue using the Lira as the unit of account until December 31, 2000, treating the Euro

as a foreign currency; until that date, the Group will be in a position to issue and receive Euro

invoices and pay and collect amounts in Euro; price lists will appear in the currencies of the var-

ious country markets;_ to adopt the Euro as the unit of account from January 1, 2001, treating the Lira as a foreign cur-

rency; accounting and reporting will then be conducted in Euro. Starting with the spring/summer

2002 collection, price lists will appear in Euro; orders, invoices and prices will be quoted in both

Euro and the relevant local currency.

This process will involve substantial changes to all the information systems, to enable handling of deci-

mal fractions, switch the unit of account, restate historical data and handle reconciliations and rounding.

The project will cost around Lire 5 billion and involve a substantial commitment of staff time.

Financial management. During the half year, Benetton Gesfin

S.p.A., which manages financial risks and treasury operations on behalf of the Group’s Italian com-

panies, gradually started to use the Euro in its everyday banking operations. At period end, Euro

current accounts were already open and all foreign exchange transactions were carried out using the

new currency. The Group continued to place funds on short-term deposit, which represented the

best opportunity in terms of cost.

12


S U P P L E M E N TA R Y I N F O R M AT I O N

Treasury shares. In January and March 1999, acting under the stock-

holders’ resolution of May 27, 1998, the Company purchased 2,100,000 treasury shares of par value

Lire 250 each, representing about 0.1% of capital stock, at an average price of Euro 1.519 [Lire

2,941], and involving a total outlay of Lire 6,176 million. All the shares were subsequently resold, at

prices averaging Euro 1.866 [Lire 3,613] per share, realizing gains totaling around Lire 1,411 million.

Under the stockholders’ resolution of May 6, 1999, the Board of Directors of Benetton Group S.p.A.

was authorized to acquire up to 30 million shares for the period running from the day after the stock

was quoted ex div in respect of 1998 dividends and the stockholders’ meeting to approve the 1999

financial statements, and in any case not beyond June 30, 2000. The purchase price was set at a min-

imum of Euro 1.00 and a maximum of Euro 2.60 per share.

The minimum selling price of these shares was set at Euro 1.20.

During the period in question, Benetton Group S.p.A. carried out no transactions in parent compa-

nies shares, either directly or through its subsidiares, via trust companies or any other intermediary.

Performance of Benetton shares. The Benetton share price

gained over 11% in the first half of 1999 on its level at the end of December 1998. This increase

compared with a rise of 4% in the general [Mibtel] index. Since January 1999, the Group’s capital-

ization has increased by about Euro 360 million [around Lire 700 billion]. On March 22, 1999, fol-

lowing revision of the basket, the stock left the Mib 30 and joined the Midex index. The stock was

quoted ex div with effect from May 24, 1999, reflecting the 1998 dividend of Lire 55 per share.

Transactions with the parent company and fellow subsidiaries.

The Benetton Group has trading and financial dealings with other subsidiaries of Edizione Holding

S.p.A. [Benetton Group’s parent company] and with other parties directly or indirectly related to it.

Trading relations with such parties are conducted on a transparent basis at market conditions and pri-

marily relate to purchases of raw materials and services.

The relevant totals appear below:

[millions of lire] 06.30.1999 12.31.1998

Accounts receivable 4,717 5,289

Accounts payable 2,878 5,381

Purchases of raw materials 1,843 9,520

Other costs and services 15,196 27,235

Sales of products 3,756 8,273

Income from services and other income 1,246 1,774

13



2.0

1.5

1.001.04.1999 06.30.1999

Benetton's share performance [in Euro]1st half 19981st half 1999

Directors. The group parent company’s directors as of June 30,

1999 are listed below:

Name and surname Date of birth Appointed Post

Luciano Benetton 05.13.1935 1978 Chairman

Gilberto Benetton 06.19.1941 1978 Deputy Chairman

and Joint Managing Director

Carlo Gilardi 11.17.1942 1995 Joint Managing Director

Giuliana Benetton 07.08.1937 1978 Director

Carlo Benetton 12.26.1943 1978 Director

Alessandro Benetton 03.02.1964 1998 Director

Gianni Mion 09.06.1943 1990 Director

Angelo Tantazzi 06.08.1939 1995 Director

Ulrich Weiss 06.03.1936 1997 Director

Reginald Bartholomew 02.17.1936 1999 Director

Pierluigi Bortolussi 08.29.1946 1999 Director

Luciano Benetton, Gilberto Benetton and Carlo Benetton are brothers; Giuliana Benetton is their

sister; Alessandro Benetton is Luciano Benetton’s son.

Principal organizational and corporate changes in the

Group. During the first six months of the year, the Group continued to rationalize its corpo-

rate structure, aiming at eliminating overlaps arising under prior acquisitions, whilst creating a

framework for the Group enabling it to operate more efficiently and effectively.

These corporate changes are summarized below:_ the US subsidiaries in the sports sector were involved in a program that will, through sev-

eral steps, group them in a single legal entity;_ in Europe, the Group’s Spanish companies started a series of operations that, this year, will

result in the merger of Benetton S.A., Benetton Sportsystem Iberica S.A., and Socks &

Accessories Benetton España S.L. into Benetton España S.L.;_ in France, Benetton Sportsystem France S.à r.l. is being merged into Benetton France Trading

S.à r.l.; _ in Japan, Benetton Group Japan K.K. was merged into Benetton Sportsystem Japan Co., Ltd.

in July. The latter then changed its name to Benetton Japan Co., Ltd. Benetton Shoes Japan K.K.

was placed in liquidation and its activities were licensed; _ in Italy, the Group continued its activity in order to centralize accessory-sector activities, involv-

ing research and development, manufacturing and distribution. This project aims to divisionalize this

sector, having been run until now by the subsidiary, Socks & Accessories Benetton [S.A.B.] S.r.l.

The Group started proceedings for merging Finitex S.p.A., Tessuti di Pordenone S.p.A.,

Filtravesio S.r.l. and Tintoria Astico S.p.A. into their parent company, Olimpias S.p.A. The inter-

est in Spiller S.p.A. was sold to third parties.

A resolution was also passed to merge Maglificio Fontane S.p.A. into its parent, Texcontrol S.p.A.

Lastly, the proposed merger between Texcontrol S.p.A. and Olimpias S.p.A. has been delayed

14



15

for organizational and operational reasons.

In the period since June 30, no other corporate operations involving the reorganizations

referred to above took place - except those in relation to the Japanese companies.

Outlook for the full year. On the basis of the Group’s results as of

June 30, 1999, full year results should be in line with expectations and goals.

The Group’s revenues should be broadly similar to those in 1998, reflecting, amongst others, the

effect of excluding Benetton Shoes Japan K.K. and Spiller S.p.A. from the consolidation area.

The visible improvement in efficiency has already helped boost gross operating income and income

from operations in the first half of the year and will contribute to raising full-year consolidated net

income by at least the same amount achieved in the first six months.

Net indebtedness should also continue to be stable, despite the heavy financial commitment

involved in developing the Group’s real estate portfolio.



Consolidated statement of income. The highlights of the Group’s

statement of income are presented below, together with those for the same period of last year. The

following summary is based on the reclassified statement of income included among the attach-

ments to the financial statements.

1st half 1st half[billions of Lire] 1999 % 1998 % Change %

Revenues 1,915.2 100.0 1,962.9 100.0 [47.7] [2.4]

Cost of sales [1,074.8] [56.1] [1,153.7] [58.8] 78.9 [6.8]

Gross operating income 840.4 43.9 809.2 41.2 31.2 3.8

Variable selling costs [132.3] [6.9] [120.1] [6.1] [12.2] 10.1

Contribution margin 708.1 37.0 689.1 35.1 19.0 2.8

General & Administrative costs [433.3] [22.6] [463.3] [23.6] 30.0 [6.5]

Income from operations 274.8 14.4 225.8 11.5 49.0 21.7

Losses on foreign exchange [1.8] [0.1] [5.3] [0.3] 3.5 [65.0]

Financial charges, net [11.6] [0.6] [20.6] [1.0] 9.0 [43.7]

Other and extraordinary charges [11.0] [0.6] [3.6] [0.2] [7.4] n.s.

Income before taxes 250.4 13.1 196.3 10.0 54.1 27.6

Income taxes [112.5] [5.9] [75.3] [3.8] [37.2] 49.4

Income attributable to minority interests [2.7] [0.1] [0.7] [0.1] [2.0] n.s.

Net income 135.2 7.1 120.3 6.1 14.9 12.4

� Performance by sector. Completion of the acquisition of the

Benetton Sportsystem Group in March 1998 and its subsequent integration into the Benetton

System has led to the development of separate but interrelated strategies for the two business

streams represented by the casual wear sector and the sportswear and sports equipment sec-

tor. This approach reflects the differences between these businesses in terms of type of prod-

uct, distribution network, and manufacturing/sales rationale. From the outset, one of the distin-

guishing features of Benetton’s products has been the use of an independent and exclusive dis-

tribution network. In contrast, the channel for the sports equipment/clothing sector is the tra-

ditional specialized store.

With the merger of Benetton Sportsystem S.p.A. into Benetton Group S.p.A. in the second half

of 1998, the previous grouping of activities into clothing and other sectors has been revised.

Casual wear now includes accessories, footwear and other complementary products sold via the

Benetton network [United Colors of Benetton, Undercolors, Sisley]; the new sportswear and

sports equipment sector includes the footwear and accessories bearing the Playlife, Nordica,

Prince, Rollerblade, Killer Loop and related brands.

The third sector is the Group’s ancillary activities, which include sales of raw materials and the

provision of industrial and advertising services.

The Group’s financial reporting system has been adapted to the new organization, providing the

basis for internal reports that effectively support decision-making, and external publication of an

16


G R O U P R E S U LT S

Group results

SG & A costs

Net income

Other elements [*]

[*] Other income/expenses + income taxes + income/loss attributable to minority interests.

Cost of sales

10

0

20

30

40

50

60

70

80

100

90

7.16.1

14.411.5

43.941.2

19991998

Revenues

Grossoperating

income

Income fromoperations

Net income

Reclassified income statement [in %]1st half 19981st half 1999

accurate and meaningful presentation of the Group’s strategic growth areas and its related busi-

ness and financial performance.

� Sector results - 1st half 1999

Casual Sportswear, Other[billions of Lire] wear % sports equipment % sectors % Eliminations Total %

Revenues 1,395 100.0 357 100.0 402 100.0 239 1,915 100.0

Cost of sales [766] [54.9] [226] [63.3] [319] [79.4] [236] [1,075] [56.1]

Gross operating income 629 45.1 131 36.7 83 20.6 3 840 43.9

Variable selling costs [95] [6.8] [29] [8.1] [9] [2.2] [1] [132] [6.9]

Contribution margin 534 38.3 102 28.6 74 18.4 2 708 37.0

Revenues by geographic area are analyzed as follows:

1st half 1st half[billions of Lire] 1999 % 1998 % Change %

Europe 1,396.6 72.9 1,377.0 70.1 19.6 1.4

The Americas 283.1 14.8 334.9 17.1 [51.8] [15.5]

Rest of the world 235.5 12.3 251.0 12.8 [15.5] [6.2]

Total 1,915.2 100.0 1,962.9 100.0 [47.7] [2.4]

Despite adverse economic conditions in certain regions, casual wear sales increased by 6.9% in the

first half of 1999. However, sales in the sports sector declined by 18.6%.

Gross operating income in both these sectors improved, helping boost the Group’s margin to a

creditable 44% of revenues.

The attention and commitment to reducing selling and general expenses caused these costs to fall

to 29.5% of revenues.

More specifically, selling expenses, totaling Lire 132 billion, increased by about Lire 12 billion, up 10%.

General expenses and overheads, excluding amortization, depreciation and provisions, amounted

to Lire 360 billion, representing 18.8% of revenues [19.6% in the first half of 1998].

Income from operations represented 14.4% of revenues, compared with 11.5% in the correspond-

ing period a year earlier.

The small amount of foreign exchange losses, totaling around Lire 2 billion, reflected greater stabil-

ity on currency markets.

The fall in net financial charges is related to the reduction in interest rates and the Group’s lower

average net indebtedness.

Other net charges have increased by over Lire 7 billion, mainly due to restructuring costs booked

in the first half of 1999 for the S.A.B. group [Benetton accessories] and the subsidiary Prince.

The large increase in taxes compared with the corresponding period of last year is due to the high-

er taxable income reported by the Italian companies.

The Group’s net income has increased by 12.4% on the first half of 1998 and represents 7.1% of

revenues.

17



1st half 1999 revenues by geographic area [in %]

72.9% Europe

14.8% Americas

12.3% Rest of the world

Financial position. The Group’s financial position is summarized

below on a comparative basis with the situation at the end of 1998:

[billions of Lire] 06.30.1999 12.31.1998 Change 06.30.1998

Working capital 1,597 1,365 232 1,526

Total capital employed 2,829 2,628 201 2,781

Net indebtedness 532 378 154 695

Stockholders’ equity 2,263 2,219 44 2,052

Minority interests 34 31 3 34

Working capital was Lire 232 billion higher than at December 31, 1998. This reflects not only an

increase in trade receivables, mainly due to the revenue cycle in the casual wear sector, but also

a decrease in trade payables due to the some 30-day improvement in payment terms for sup-

pliers of outside services.

Total capital employed reflected the increase in tangible fixed assets and the reduction in

reserves for taxation and other operational exposures.

The increase in net indebtedness is the direct result of the changes referred to above.

Cash flows during the half year are summarized below, on a comparative basis with the same peri-

od of last year:

1st half 1st half[billions of Lire] 1999 1998

Self-financing 369.3 301.3

Change in working capital [260.7] 107.4

Operating and other investments, net [133.4] [353.2]

Payment of dividends [100.7] [97.7]

Payment of taxes [24.4] [144.3]

Net financial requirements [149.9] [186.5]

Please refer to the financial statements and to the related notes for further details on the Group’s

business and financial results.

18



Capital expenditures [gross]and cash flow[billions of Lire]1st half 19981st half 1999

Capital expenditures, gross

Cash flow

0

50

100

150

200

250

300

350

400

363

212

131

225

19991998

20

06.30.1999 12.31.1998 06.30.1998B Fixed assets

I Intangible fixed assets

1 start-up expenses 5,548 6,641 5,149

2 research, development and advertising expenses 874 989 718

3 industrial patents

and intellectual property rights 7,476 7,356 9,894

4 concessions, licenses, trademarks and similar rights 482,790 497,736 549,772

5 goodwill and consolidation differences 62,169 66,935 73,762

6 assets under construction and advance payments 7,940 6,188 6,099

7 other intangible fixed assets 43,551 45,088 43,174

Total intangible fixed assets 610,348 630,933 688,568

II Tangible fixed assets

1 real estate 509,651 461,741 403,590

2 plant and machinery 167,816 181,874 165,098

3 industrial and commercial equipment 26,643 31,316 32,065

4 other assets 80,671 76,685 74,722

5 assets under construction and advances to suppliers 50,925 19,796 24,040

Total tangible fixed assets 835,706 771,412 699,515

III Financial fixed assets

1 equity investments in:

a] subsidiary companies 44,379 41,364 49,980

b] associated companies 39 676 1,003

d] other companies 6,985 6,756 2,518

Total equity investments 51,403 48,796 53,501

2 financial receivables due from:

b] associated companies

· within 12 months - - 2,500

Total financial receivables due from associated companies - - 2,500

d] third parties

· within 12 months 5,223 6,399 7,076

· beyond 12 months 47,239 33,237 34,047

Total financial receivables due from third parties 52,462 39,636 41,123

Total financial receivables 52,462 39,636 43,623

3 other securities 223,003 3,041 53,052

Total financial fixed assets 326,868 91,473 150,176

Total fixed assets 1,772,922 1,493,818 1,538,259

[�]

Consolidated balance sheets - assets[millions of Lire]

C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

B A L A N C E S H E E T S - A S S E T S

21

06.30.1999 12.31.1998 06.30.1998C Current assets

I Inventories

1 raw materials, other materials and consumables 152,835 202,350 201,117

2 work in progress and semi-manufactured products 185,622 163,582 166,209

4 finished goods and goods for resale 271,167 215,106 293,693

5 advance payments to suppliers 377 583 2,617

Total inventories 610,001 581,621 663,636

II Accounts receivable

1 trade receivables

· within 12 months 1,616,004 1,507,556 1,618,243

· beyond 12 months 4,553 9,005 5,460

Total trade receivables 1,620,557 1,516,561 1,623,703

2 subsidiary companies 5,008 7,699 8,380

3 associated companies 26 27 846

4 parent company 229 91 1

5 other receivables

· within 12 months 137,447 133,901 116,287

· beyond 12 months 9,429 10,404 11,894

Total other receivables 146,876 144,305 128,181

Total accounts receivable 1,772,696 1,668,683 1,761,111

III Financial assets not held as fixed assets


7 other financial receivables 18,701 23,187 42,044

8 differentials on forward transactions

· within 12 months 8,914 8,445 5,383

· beyond 12 months 600 - -

Total differentials on forward transactions 9,514 8,445 5,383

Total financial assets not held as fixed assets 229,248 253,218 540,716

IV Liquid funds

1 bank and post office deposits 623,164 1,023,150 650,996

2 checks 36,239 55,543 32,010

3 cash in hand 1,085 944 950

Total liquid funds 660,488 1,079,637 683,956

Total current assets 3,272,433 3,583,159 3,649,419

D Accrued income and prepaid expenses 91,399 87,034 95,439

TOTAL ASSETS 5,136,754 5,164,011 5,283,117


B A L A N C E S H E E T S - A S S E T S

22

06.30.1999 12.31.1998 06.30.1998A Stockholders’ Equity

I Capital stock 453,897 453,897 453,897

II Additional paid-in capital 109,543 109,543 109,543

III Revaluation reserves 42,711 42,711 42,711

IV Legal reserve 23,232 18,156 18,156

VII Other reserves 1,498,728 1,301,441 1,307,505

IX Net income for the period 135,208 293,230 120,333

Group interest in stockholders’ equity 2,263,319 2,218,978 2,052,145

Minority interests 33,629 30,888 34,207

Total stockholders’ equity 2,296,948 2,249,866 2,086,352

B Reserves for risks and charges

2 taxation 8,398 8,421 8,422

3 other reserves 95,860 86,607 79,201

Total reserves for risks and charges 104,258 95,028 87,623

C Reserve for employee termination indemnities 89,048 86,274 82,889

D Accounts payable

1 bonds

· within 12 months 35,999 35,999 200,000

· beyond 12 months 500,000 500,000 535,827

Total bonds 535,999 535,999 735,827

3 due to banks

· within 12 months 706,698 789,492 691,329

· beyond 12 months 412,111 394,094 453,175

Total due to banks 1,118,809 1,183,586 1,144,504

4 due to other finance providers

· within 12 months 4,125 14,279 14,914

· beyond 12 months 12,359 11,732 13,102

Total due to other finance providers 16,484 26,011 28,016

5 advances from customers 29,048 24,101 23,251

6 trade payables 660,750 754,367 729,187

7 securities issued

· within 12 months 2,230 2,335 101,560

Total securities issued 2,230 2,335 101,560

8 due to subsidiary companies - 1 4,795

9 due to associated companies - - 57

10 due to parent company - 175 -

11 due to tax authorities

· within 12 months 125,564 52,010 62,988

· beyond 12 months 45,287 46,410 9,742

Total due to tax authorities 170,851 98,420 72,730

[�]

Consolidated balance sheets - liabilities[millions of Lire]


B A L A N C E S H E E T S - L I A B I L I T I E S

06.30.1999 12.31.1998 06.30.1998

12 due to social security and welfare institutions 11,654 18,504 13,546

13 other payables

· within 12 months 47,954 55,695 77,757

· beyond 12 months 3,233 6,365 12,133

Total other payables 51,187 62,060 89,890

Total accounts payable 2,597,012 2,705,559 2,943,363

E Accrued expenses and deferred income

1 accrued expenses and deferred income 48,941 26,568 82,003

2 premiums on bond issues 547 716 887

Total accrued expenses and deferred income 49,488 27,284 82,890

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 5,136,754 5,164,011 5,283,117

06.30.1999 12.31.1998 06.30.1998Fiduciary guarantees granted

Guarantees - 58 -

Other 2,243 - -

Purchase commitments 35,707 30,662 19,058

Sale commitments 10,000 - -

Fiduciary guarantees received

Notes lodged by third parties 20 20 20

Other

Currency to be sold forward 1,224,764 1,661,372 2,508,661

Currency to be purchased forward 176,193 325,594 397,265

Restricted accounts receivable 91,960 74,860 53,430

Notes presented for discount 1,957 2,537 7,844

TOTAL MEMORANDUM ACCOUNTS 1,542,844 2,095,103 2,986,278

23


B A L A N C E S H E E T S - L I A B I L I T I E S A N D M E M O R A N D U M A C C O U N T S

Memorandum accounts

1st half 1st half Year1999 1998 1998

A Value of production

1 Revenues from sales and services 1,915,223 1,962,901 3,833,917

2 Change in work in progress, semi-manufactured

products and finished goods 62,974 [28,958] [90,751]

4 Own work capitalized 228 396 1,792

5 Other income and revenues 13,330 11,616 22,736

Total value of production 1,991,755 1,945,955 3,767,694

B Production costs

6 Raw materials, other materials,

consumables and goods for resale 543,466 596,249 1,172,889

7 External services 745,143 676,599 1,344,321

8 Leases and rentals 24,596 27,948 51,448

9 Payroll and related costs:

a wages and salaries 178,121 182,048 348,947

b social security contributions 48,000 51,140 94,857

c employee termination indemnities 8,447 8,099 17,100

e other costs 1,516 2,039 3,101

Total payroll and related costs 236,084 243,326 464,005

10 Amortization, depreciation and writedowns:

a amortization of intangible fixed assets 34,825 36,692 72,489

b depreciation of tangible fixed assets 52,238 53,618 101,287

c other writedowns of fixed assets 2,055 340 1,872

d writedowns of current receivables and of liquid funds 16,000 25,184 40,799

Total amortization, depreciation and writedowns 105,118 115,834 216,447

11 Change in stock of raw materials, other materials,

consumables and goods for resale 27,371 11,591 5,220

12 Provisions to risk reserves 21,872 1,975 21,047

14 Other operating costs 24,740 39,948 43,920

Total production costs 1,728,390 1,713,470 3,319,297

Difference between production value and costs 263,365 232,485 448,397

C Financial income and expenses

15 Income from equity investments 3,605 - 12,033

16 Other financial income:

a from receivables held as financial fixed assets

· associated companies - 24 -

· subsidiary companies - - 31

· other companies 304 905 1,750

Total from receivables held as financial fixed assets 304 929 1,781

b from securities held as financial fixed assets

not representing equity investments 1,357 2,675 3,040

c from securities included among current assets


[�]

24


S TAT E M E N T S O F I N C O M E

Consolidated statements of income[millions of Lire]


d financial income other than the above

· subsidiary companies 157 247 452

· other companies 82,528 127,147 273,150

Total financial income other than the above 82,685 127,394 273,602

Total other financial income 93,105 149,521 321,426

17 Interest and other financial expenses

· subsidiary companies 6 - 287

· associated companies - - 4,459

· parent company 2,607 - -

· other companies 109,744 180,976 347,586

Total interest and other financial expenses 112,357 180,976 352,332

Total financial income and expenses [15,647] [31,455] [18,873]

D Change in value of financial assets

18 Revaluations:

a of equity investments - 35 258

c of securities included among current assets

not representing equity investments 82 124 -

Total revaluations 82 159 258

19 Writedowns:

a of equity investments 291 290 2,559

b of financial fixed assets

not representing equity investments - - 2,686


not representing equity investments 407 3,805 3,218

Total writedowns 698 4,095 8,463

Total change in value of financial assets [616] [3,936] [8,205]

E Extraordinary income and expenses

20 Income:

· gains on disposals 5,339 - 8,487

· other 7,761 9,346 18,704

Total income 13,100 9,346 27,191

21 Expenses:

· losses on disposals 2,983 628 3,077

· taxes relating to prior years 569 710 4,229

· other 6,219 8,756 18,365

Total expenses 9,771 10,094 25,671

Total extraordinary income and expenses 3,329 [748] 1,520

Results before income taxes 250,431 196,346 422,839

22 Income taxes 112,539 75,292 131,052

Income before minority interests 137,892 121,054 291,787

[Income]/Loss attributable to minority interests [2,684] [721] 1,443

26 Net income for the period 135,208 120,333 293,230

25


S TAT E M E N T S O F I N C O M E

Surplus from Othermonetary reserves

Capital Additional revaluation and retained Translationstock paid-in capital of assets earnings differences Net income Total

Balance as ofDecember 31, 1998 453,897 109,543 42,711 1,315,619 3,978 293,230 2,218,978

Allocation of 1998

net income to reserves - - - 293,230 - [293,230] -

Dividends distributed, as

approved at the ordinary

stockholders’ meeting on

May 6, 1999 - - - [99,757] - - [99,757]

Translation differences arising

from foreign financial

statements - - - - 8,890 - 8,890

Net income for the period - - - - - 135,208 135,208

Balance as ofJune 30, 1999 453,897 109,543 42,711 1,509,092 12,868 135,208 2,263,319

Capital andreserves Net income Total

Balance as ofDecember 31, 1998 32,331 [1,443] 30,888

Allocation of 1998 net income [1,443] 1,443 -

Disposal of equity investments [1,422] - [1,422]

Change in consolidation area 794 - 794

Dividends distributed [908] - [908]

Translation differences 1,593 - 1,593

Net income for the period - 2,684 2,684

Balance as ofJune 30, 1999 30,945 2,684 33,629

26


C H A N G E S I N S T O C K H O L D E R S ’ E Q U I T Y A N D M I N O R I T I E S

Statement of changes in stockholders’ equity for 1st half 1999[millions of Lire]

Statement of changes in minority interests for 1st half 1999[millions of Lire]

1st half 1st half 1999 1998

Cash flows from operating activitiesIncome before minority interests 137,892 121,054

Depreciation and amortization 87,063 90,310

Amortization of deferred charges on long-term loans 455 796

Provision for collection losses and other non-monetary charges 43,752 33,938

Provision/[utilization] of exchange fluctuations reserve 856 [5,786]

Provision for income taxes 112,539 75,292

Losses [gains] on disposal of assets, investments, net 1,482 3,633

Payment of termination indemnities and use of other reserves [14,752] [17,957]

Self-financing 369,287 301,280

Payment of taxes [24,392] [144,265]

Change in accounts receivable [129,674] 57,213

Increase in other operating receivables [9,552] [7,480]

Change in inventories [35,352] 38,837

Decrease in accounts payable [86,557] [34,309]

Increase in other operating payables and accruals 423 53,126

Change in operating capital [260,712] 107,387

Net cash flows from operating activities 84,183 264,402

Cash flows from investing activitiesPurchase of new subsidiaries [8,638] [284,476]

Purchase of tangible fixed assets [112,828] [64,050]

Investment in intangible fixed assets [9,825] [14,039]

Sales of tangible fixed assets 7,878 12,089

Disposal of intangible fixed assets 633 217

Net change in investment-related receivables and payables [1,107] [2,852]

Net cash used in investing activities [123,887] [353,111]

Cash flows from other investing activities Purchase of equity investments [523] [500]

Sales of investments 5,613 407

Increase in guarantee deposits and treasury shares [14,617] [28]

Net cash used in other investing activities [9,527] [121]

Payment of dividends [100,665] [97,720]

Net financing requirement [149,896] [186,550]

[�]

28


S T A T E M E N T S O F C A S H F L O W S

Consolidated statements of cash flows[millions of Lire]

1st half 1st half 1999 1998

Cash flows from financing activitiesChange in Stockholders’ equity - -

Change in short-term borrowing [63,990] 396,282

Proceeds from issuance of long-term debt 33,220 4,279

Repayment of long-term debt [16,328] [59,658]

Change in securities held as fixed assets [220,140] -

Increase in other financial assets [103] [6,172]

Decrease in other financial assets 3,380 3,986

Decrease in lease financing [2,133] [188]

[266,094] 338,529

Decrease of liquidity 443,850 [159,267]

Effect of translation adjustments [27,860] 7,288

Net cash provided by financing activities 149,896 186,550

29


S T A T E M E N T S O F C A S H F L O W S

30


B A L A N C E S H E E T S I N E U R O - A S S E T S

06.30.1999 12.31.1998 06.30.1998B Fixed assets

I Intangible fixed assets

1 start-up expenses 2,865 3,430 2,659

2 research, development and advertising expenses 451 511 371

3 industrial patents and intellectual property rights 3,861 3,799 5,110

4 concessions, licenses, trademarks and similar rights 249,340 257,059 283,934

5 goodwill and consolidation differences 32,108 34,569 38,095

6 assets under construction and advance payments 4,101 3,196 3,150

7 other intangible fixed assets 22,492 23,286 22,297

Total intangible fixed assets 315,218 325,850 355,616

II Tangible fixed assets

1 real estate 263,213 238,469 208,437

2 plant and machinery 86,670 93,930 85,266

3 industrial and commercial equipment 13,760 16,173 16,560

4 other assets 41,663 39,605 38,591

5 assets under construction and advances to suppliers 26,300 10,224 12,415

Total tangible fixed assets 431,606 398,401 361,269

III Financial fixed assets

1 equity investments in:

a] subsidiary companies 22,920 21,363 25,813

b] associated companies 20 349 518

d] other companies 3,608 3,489 1,300

Total equity investments 26,548 25,201 27,631

2 financial receivables due from:

b] associated companies

· within 12 months - - 1,291

Total financial receivables due from associated companies - - 1,291

d] third parties

· within 12 months 2,698 3,305 3,654

· beyond 12 months 24,397 17,165 17,584

Total financial receivables due from third parties 27,095 20,470 21,238

Total financial receivables 27,095 20,470 22,529

3 Other securities 115,171 1,571 27,399

Total financial fixed assets 168,814 47,242 77,559

Total fixed assets 915,638 771,493 794,444

[�]

Consolidated balance sheets in Euro - assets[thousands of Euro]*

31


B A L A N C E S H E E T S I N E U R O - A S S E T S

06.30.1999 12.31.1998 06.30.1998C Current assets

I Inventories

1 raw materials, other materials and consumables 78,933 104,505 103,868

2 work in progress and semi-manufactured products 95,866 84,483 85,840

4 finished goods and goods for resale 140,046 111,093 151,680

5 advance payments to suppliers 194 301 1,351

Total inventories 315,039 300,382 342,739

II Accounts receivable

1 trade receivables

· within 12 months 834,596 778,588 835,753

· beyond 12 months 2,352 4,651 2,820

Total trade receivables 836,948 783,239 838,573

2 subsidiary companies 2,586 3,976 4,328

3 associated companies 13 14 437

4 parent company 118 47 1

5 other receivables

· within 12 months 70,985 69,154 60,057

· beyond 12 months 4,870 5,373 6,143

Total other receivables 75,855 74,527 66,200

Total accounts receivable 915,520 861,803 909,539

III Financial assets not held as fixed assets


7 other financial receivables 9,658 11,975 21,714

8 differentials on forward transactions

· within 12 months 4,604 4,361 2,780

· beyond 12 months 310 - -

Total differentials on forward transactions 4,914 4,361 2,780

Total financial assets not held as fixed assets 118,397 130,776 279,256

IV Liquid funds

1 bank and post office deposits 321,837 528,413 336,211

2 checks 18,716 28,686 16,532

3 cash in hand 561 487 491

Total liquid funds 341,114 557,586 353,234


D Accrued income and prepaid expenses 47,204 44,949 49,290

TOTAL ASSETS 2,652,912 2,666,989 2,728,502

[*] Exchange rate: 1 Euro = Lire 1,936.27

32


B A L A N C E S H E E T S I N E U R O - L I A B I L I T I E S

06.30.1999 12.31.1998 06.30.1998A stockholders’ Equity

I Capital stock 234,418 234,418 234,418

II Additional paid-in capital 56,574 56,574 56,574

III Revaluation reserves 22,058 22,058 22,058

IV Legal reserve 11,998 9,377 9,377

VII Other reserves 774,029 672,138 675,270

IX Net income for the period 69,829 151,441 62,147

Group interest in stockholders’ equity 1,168,906 1,146,006 1,059,844

Minority interests 17,368 15,952 17,666


B Reserves for risks and charges

2 taxation 4,337 4,349 4,350

3 other reserves 49,508 44,729 40,904

Total reserves for risks and charges 53,845 49,078 45,254

C Reserve for employee termination indemnities 45,989 44,557 42,809

D Accounts payable

1 bonds

· within 12 months 18,592 18,592 103,291

· beyond 12 months 258,228 258,228 276,732

Total bonds 276,820 276,820 380,023

3 due to banks

· within 12 months 364,979 407,739 357,042

· beyond 12 months 212,838 203,532 234,045

Total due to banks 577,817 611,271 591,087

4 due to other finance providers

· within 12 months 2,130 7,375 7,702

· beyond 12 months 6,383 6,059 6,767

Total due to other finance providers 8,513 13,434 14,469

5 advances from customers 15,002 12,447 12,008

6 trade payables 341,249 389,598 376,594

7 securities issued

· within 12 months 1,152 1,206 52,451

Total securities issued 1,152 1,206 52,451

8 due to subsidiary companies - 1 2,476

9 due to associated companies - - 30

10 due to parent company - 90 -

11 due to tax authorities

· within 12 months 64,848 26,861 32,531

· beyond 12 months 23,389 23,969 5,031

Total due to tax authorities 88,237 50,830 37,562

[�]

Consolidated balance sheets in Euro - liabilities[thousands of Euro]*

33


B A L A N C E S H E E T S I N E U R O - L I A B I L I T I E S A N D M E M O R A N D U M A C C O U N T S

06.30.1999 12.31.1998 06.30.1998

12 due to social security and welfare institutions 6,019 9,557 6,996

13 other payables

· within 12 months 24,766 28,764 40,158

· beyond 12 months 1,670 3,287 6,266

Total other payables 26,436 32,051 46,424

Total accounts payable 1,341,245 1,397,305 1,520,120

E Accrued expenses and deferred income

1 accrued expenses and deferred income 25,276 13,721 42,351

2 premiums on bond issues 283 370 458

Total accrued expenses and deferred income 25,559 14,091 42,809


06.30.1999 12.31.1998 06.30.1998Fiduciary guarantees granted

Guarantees - 30 -

Other 1,159 - -

Purchase commitments 18,441 15,836 9,843

Sale commitments 5,165 - -

Fiduciary guarantees received

Notes lodged by third parties 10 10 10

Other

Currency to be sold forward 632,538 858,027 1,295,615

Currency to be purchased forward 90,996 168,155 205,170

Restricted accounts receivable 47,493 38,662 27,594

Notes presented for discount 1,011 1,310 4,051

TOTAL MEMORANDUM ACCOUNTS 796,813 1,082,030 1,542,283


Memorandum accounts in Euro

34


S T A T E M E N T S O F I N C O M E I N E U R O


A Value of production

1 Revenues from sales and services 989,130 1,013,754 1,980,053

2 Change in work in progress, semi-manufactured

products and finished goods 32,523 [14,956] [46,869]

4 Own work capitalized 118 205 926

5 Other income and revenues 6,885 5,999 11,742

Total value of production 1,028,656 1,005,002 1,945,852

B Production costs

6 Raw materials, other materials,


7 External services 384,834 349,434 694,284

8 Leases and rentals 12,703 14,434 26,571

9 Payroll and related costs:

a wages and salaries 91,992 94,020 180,216

b social security contributions 24,790 26,412 48,990

c employee termination indemnities 4,362 4,182 8,831

e other costs 783 1,053 1,601

Total payroll and related costs 121,927 125,667 239,638

10 Amortization, depreciation and writedowns:

a amortization of intangible fixed assets 17,986 18,950 37,437

b depreciation of tangible fixed assets 26,978 27,692 52,310

c other writedowns of fixed assets 1,062 176 967

d writedowns of current receivables

and of liquid funds 8,263 13,006 21,071

Total amortization, depreciation and writedowns 54,289 59,824 111,785

11 Change in stock of raw materials, other materials,


12 Provisions to risk reserves 11,296 1,020 10,870

14 Other operating costs 12,777 20,632 22,683

Total production costs 892,639 884,934 1,714,274

Difference between value and cost 136,017 120,068 231,578

C Financial income and expenses

15 Income from equity investments 1,862 - 6,215

16 Other financial income:

a from receivables held as financial fixed assets

· associated companies - 12 -

· subsidiary companies - - 16

· other companies 157 467 904

Total from receivables held as financial fixed assets 157 479 920

b from securities held as financial fixed assets


c from securities included among current assets


[�]

Consolidated statements of income in Euro[thousands of Euro]*

35


S T A T E M E N T S O F I N C O M E I N E U R O


d financial income other than the above

· subsidiary companies 81 128 233

· other companies 42,622 65,666 141,070

Total financial income other than the above 42,703 65,794 141,303

Total other financial income 48,085 77,221 166,002

17 Interest and other financial expenses

· subsidiary companies 3 - 148

· associated companies - - 2,303

· parent company 1,347 - -

· other companies 56,678 93,466 179,513

Total interest and other financial expenses 58,028 93,466 181,964

Total financial income and expenses [8,081] [16,245] [9,747]

D Change in value of financial assets

18 Revaluations:

a of equity investments - 18 133


not representing equity investments 42 64 -

Total revaluations 42 82 133

19 Writedowns:

a of equity investments 150 150 1,321

b of financial fixed assets

not representing equity investments - - 1,387



Total writedowns 360 2,115 4,370

Total change in value of financial assets [318] [2,033] [4,237]

E Extraordinary income and expenses

20 Income:

· gains on disposals 2,757 - 4,383

· other 4,008 4,827 9,660

Total income 6,765 4,827 14,043

21 Expenses:

· losses on disposals 1,540 324 1,589

· taxes relating to prior years 294 367 2,184

· other 3,212 4,522 9,485

Total expenses 5,046 5,213 13,258

Total extraordinary income and expenses 1,719 [386] 785

Results before income taxes 129,337 101,404 218,379

22 Income taxes 58,122 38,885 67,683


[Income]/Loss attributable to minority interests [1,386] [372] 745

26 Net income for the period 69,829 62,147 151,441


47

The consolidated financial statements for the period have been prepared in conformity with chap-

ter III of Decree 127 of April 9, 1991, which implemented the EC VII Directive.

The notes to the consolidated financial statements explain, analyze and, in some cases, supplement

the data reported on the face of the financial statements and include information required by arti-

cle 38 and other provisions of Decree 127/1991. Additional information is also provided in order to

present a true and fair view of the financial and operating position of the Group, even where this is

not required by specific legislation.

Unless otherwise specified, amounts indicated in these notes are expressed in millions of Italian Lire.

Activities of the Group. Benetton Group S.p.A., the parent com-

pany, and its subsidiary companies [collectively the “Group”] primarily manufacture and market

fashion apparel in wool, cotton and woven fabrics, as well as sports equipment, sportswear and

casual wear.

The manufacture of finished articles from raw materials is primarily undertaken in Italy, partly with-

in the Group and partly using subcontractors, whereas marketing is carried out through an exten-

sive sales network both in Italy and abroad. This network consists of sales representatives and spe-

cialty stores that are almost all independently owned.

Form and content of the consolidated financial statements.

The consolidated financial statements and related notes have been translated into English from the

original version in Italian. They have been prepared in accordance with the accounting principles

established by the Italian Accounting Profession, which may differ in certain respects from the prin-

ciples generally accepted in other countries.

The consolidated financial statements of the Group as of June 30, 1999 include the financial state-

ments of Benetton Group S.p.A. and of all the Italian and foreign companies in which the parent

company holds, directly or indirectly, the majority of the voting rights. They also include the accounts

of some 50%-owned companies over which the Group exercises a dominant influence.

The companies included within the scope of consolidation are listed in Appendix.

The financial statements of foreign subsidiaries have been reclassified, where necessary, for consis-

tency with the format adopted by the parent company. Such financial statements have been adjust-

ed so that they are consistent with the accounting policies referred to above.

A reconciliation between stockholders’ equity and net income as reported in the statutory financial

statements of the parent company, Benetton Group S.p.A., and the consolidated stockholders’

equity and net income of the Group is presented in the note on consolidated stockholders’ equity.

N O T E S T O T H E C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S

A C T I V I T I E S O F T H E G R O U P - F O R M A N D C O N T E N T

Notes to the consolidated financial statements

Principles of consolidation. The most significant consolidation

principles adopted for the preparation of the consolidated financial statements are as follows:

a] The assets and liabilities of subsidiary companies are consolidated on a line-by-line basis and the

carrying value of investments held by the parent company and other consolidated subsidiaries is

eliminated against the related stockholders’ equity accounts.

b] When a company is consolidated for the first time, any positive difference emerging from the elim-

ination of its carrying value on the basis indicated in [a] above is allocated, where applicable, to the

assets of the subsidiary. Any excess arising upon consolidation is accounted for as a consolidation

adjustment and classified as “Goodwill and consolidation differences”.

Negative differences are classified within the “Reserve for risks and charges arising on consolidation”,

if they reflect estimated future losses; otherwise, they are classified as part of the “Consolidation

reserve” within stockholders’ equity. Goodwill is amortized over its estimated useful life.

c] Intercompany receivables and payables, costs and expenses, and all significant transactions

between consolidated companies, including the intragroup payment of dividends, are eliminated.

Unrealized intercompany profits and gains and losses arising from transactions between Group

companies are also eliminated.

d] The minority stockholders’ interests in the net assets and results for the year of consolidated sub-

sidiaries are classified separately as “Minority interests” in the consolidated balance sheet and as

“Income attributable to minority interests” in the consolidated statement of income.

e] The financial statements of foreign subsidiaries, including those operating in countries with hyper-

inflationary economies, are translated into Italian Lire using period-end exchange rates for balance

sheet items and average exchange rates for the period for statement of income items.

Differences arising from the translation to Lire of foreign currency financial statements are reflect-

ed directly in consolidated stockholders’ equity.

The value of the stockholders’ equity of foreign subsidiaries is hedged against exchange risks, main-

ly through the forward sale of currency. Any exchange differences arising from such capital hedging

operations are classified as “Translation differences” and therefore adjust consolidated equity.

The difference between the spot and forward exchange rates relating to these capital hedges is

recorded as part of “Financial income and expense” within the statement of income.

48


P R I N C I P L E S O F C O N S O L I D AT I O N

Accounting policies. These have been adopted in observance of

article 2426 of the Italian Civil Code, also taking account of accounting principles prepared by the

Italian Accounting Profession and, in the absence thereof, those issued by the International

Accounting Standards Committee [I.A.S.C.].

A forthcoming decree by the Ministry of Justice should, based on article 117/2 of the recent Finance

Bill, indicate the internationally accepted accounting principles to be used for consolidated accounts.

Pending the issue of this decree, it has been decided to use the accounting policies already adopt-

ed in prior years for the sake of continuity.

� Intangible fixed assets. These are recorded at purchase or pro-

duction cost, including related charges. The value of these assets may be subject to revaluation

in accordance with specific regulations.

One method for determining the value of intangible fixed assets is to allocate the excess price

deriving from investments acquired or other company transactions. This type of allocation is

used for excess prices paid for trademarks acquired under these types of operation, on the basis

of an independent appraisal.

Intangible fixed assets are written down in cases where, regardless of the amortization accumu-

lated, there is a permanent loss in value. The value of such assets is reinstated in future account-

ing periods should the reasons for such writedowns no longer apply.

Book value is systematically amortized on a straight-line basis in relation to the residual eco-

nomic useful lives of such assets. The duration of amortization is based on the estimated eco-

nomic use of these assets.

Normally amortization periods for trademarks fluctuate between ten and fifteen years, while

patents are amortized over three years. Goodwill and consolidation differences are amortized

over ten years. Start-up and expansion expenses and other deferred charges are mostly amor-

tized over five years.

� Tangible fixed assets. These are recorded at purchase or construc-

tion cost, revalued where required or permitted by specific regulations. Cost includes related

charges and those direct or indirect expenses reasonably attributable to the individual assets.

Tangible fixed assets are written down in cases where, regardless of the depreciation accumulated,

there is a permanent loss in value. The value of such assets is reinstated in future accounting peri-

ods should the reasons for such writedowns no longer apply. Ordinary maintenance costs are fully

expensed as incurred. Improvement expenditure is allocated to the related assets and depreciated

over their residual useful lives.

Depreciation is calculated systematically on a straight-line basis using rates considered to reflect the

estimated useful lives of the assets. In the first year such assets enter into service these rates are

halved in consideration of their shorter period of use.

49


A C C O U N T I N G P O L I C I E S

The depreciation rates applied by consolidated companies are as follows:

Buildings 3%

Plant and machinery 8% - 17.5%

Industrial and commercial equipment 20% - 25%

Molds and dies 25%

Other tangible fixed assets:

· furniture, furnishings and electronic machines 12% - 20%

· vehicles 20% - 25%

· aircraft 7%

Accelerated depreciation calculated in the financial statements of Group companies is reversed and

as a result, the related accumulated depreciation is adjusted.

Assets acquired under finance leases are stated at their fair value at the start of the lease and the

capital portion of the lease instalments is recorded as a liability.

Such assets are depreciated over their economic useful lives on the same basis as other tangible

fixed assets.

� Financial fixed assets. Investments in subsidiaries not consolidated on

a line-by-line basis, together with those in associated companies, are accounted for on an equity basis,

eliminating the Group’s share of any unrealized intercompany profits, where significant.

The difference between cost and the equity interest in investments at the time they were acquired is

allocated on the basis described in paragraph [b] of the consolidation principles.

Equity investments of less than 20% in other companies are stated at cost, as written down for any

permanent loss in value. The original value of these investments is reinstated in future accounting peri-

ods should the reasons for such writedowns no longer apply.

Assets leased to third parties are recorded using lease accounting methodology. This involves elimi-

nating the related fixed assets and accumulated depreciation and recording the outstanding capital ele-

ment of lease contracts as an asset. The excess of lease charges and end-of-lease payments over the

cost of the related asset is recognized as interest income on an accruals basis.

Receivables included among financial fixed assets are stated at their estimated realizable value.

Other securities held as financial fixed assets are stated at cost, taking into account any accrued issue

premiums and discounts. This cost is written down for any permanent loss in value.

� Inventories. Inventories are stated at the lower of purchase or man-

ufacturing cost, generally determined on a weighted average cost basis, and their market or net real-

izable value.

Manufacturing cost includes raw materials and all direct or indirect production-related expenses.

The calculation of estimated realizable value includes any manufacturing costs to be incurred and

direct selling expenses. Obsolete and slow-moving inventories are written down to their useful or

net realizable value.

50



� Accounts receivable. Receivables are recorded at their estimated

realizable value, net of appropriate allowances for doubtful accounts determined on a prudent basis.

Any long-term receivables that include an implicit interest component are discounted back using a

suitable market rate.

� Other securities not held as fixed assets. Such securities are stated

at the lower of purchase cost or market value. The original value of such securities is reinstated in

future accounting periods should the reasons for their writedown cease to apply.

Securities acquired subject to resale commitments are recorded at cost and classified among other

securities not held as fixed assets. The difference between the spot and forward prices of such secu-

rities is recognized on an accruals basis over the duration of the contract.

� Accruals and deferrals. These are recorded to match costs and rev-

enues in the accounting periods to which they relate.

� Reserves for risks and charges. These reserves cover known or like-

ly losses, the timing and amount of which cannot be determined at period-end. Provisions reflect

the best estimate of losses to be incurred based on the information available.

� Reserve for employee termination indemnities. This reserve rep-

resents the liability of Italian companies within the Group for indemnities payable upon termination

of employment, accrued in accordance with labor laws, national and in-house labor agreements in

force. This liability is subject to annual revaluation using the officially-established indices.

� Accounts payable. These are stated at face value. The interest includ-

ed in long-term debt is recorded separately using a suitable market rate.

� Transactions in foreign currencies and the introduction of the Euro.

Transactions in foreign currencies are recorded using the exchange rates in effect at the transaction

dates. Exchange gains or losses realized during the period are included in the consolidated state-

ment of income.

As of December 31, 1998, the Group companies within the European Union aligned monetary

amounts, expressed in currencies participating in economic and monetary union, to the Euro.

The exchange gains and losses realized were charged to the statement of income.

In the Italian Group companies, the net loss from adjusting balances denominated in currencies not

participating in the economic and monetary union to period-end exchange rates, is allocated to the

exchange fluctuation reserve, classified among “Other reserves”. Exception is made for hedged con-

tracts on receivables or payables, whose settlement will not involve any additional exchange gains

or losses.

The value of forward contracts, other than those hedging specific foreign currency assets or liabilities,

is restated at period-end with reference to the differential between the forward exchange rates

applicable to the various types of contract at the balance-sheet date and the contracted forward

exchange rates. Any net losses emerging are charged to the statement of income.

51



� Revenue recognition. Revenues from product sales are recognized

at the time ownership passes to the customer, which is normally on shipment.

� Expense recognition. Expenses are recorded in accordance with the

matching principle.

� Income taxes. Current income taxes are provided on the basis of a

reasonable estimate of the tax liability for the period, in accordance with applicable local regulations.

The net balance between deferred tax assets and liabilities is also recorded.

Deferred tax assets refer to costs and expenses not yet deductible at period-end, to consolidation

adjustments and to the benefit of accumulated tax losses. Deferred tax assets are provided when it

was almost certain that they can be recovered in the future.

Deferred tax liabilities refer to transactions where taxation is deferred to future years, such as gains

on the disposal of tangible and intangible fixed assets or consolidation adjustments arising from the

reversal of accelerated depreciation or lease transactions recorded as finance leases.

� Article 2423, paragraph 4 of the Italian Civil Code. Exceptions pur-

suant to the fourth paragraph of article 2423 of the Italian Civil Code: none.

� Cash flows. The statement of consolidated cash flows provides infor-

mation by type of flow and activity. Readily marketable securities are treated as cash equivalents.

52



Fixed assets

� Intangible fixed assets

06.30.1999 12.31.1998

[millions of Lire] Gross Net Gross Net

Start-up and expansion expenses 13,167 5,548 13,412 6,641

Research and development expenses 2,028 874 1,986 989

Industrial patents and intellectual

property rights 30,262 7,476 28,571 7,356

Licenses, trademarks and similar rights 692,147 482,790 683,125 497,736

Goodwill 3,938 2,915 3,399 2,563

Consolidation differences 81,641 59,254 83,427 64,372

Total goodwill and consolidation differences 85,579 62,169 86,826 66,935

Assets in course of formation

and advance payments 7,940 7,940 6,188 6,188

Expenses related to bond

issues and loans 4,336 2,022 4,351 2,486

Costs for the purchase

and development of software 29,420 9,902 27,299 11,336

Other 50,803 31,627 47,728 31,266

Total other intangible fixed assets 84,559 43,551 79,378 45,088

Total 915,682 610,348 899,486 630,933

Start-up and expansion expenses include capital stock increase costs of around Lire 4,852 million

[Lire 5,436 million as of December 31, 1998]. The residual balance principally relates to corporate

reorganization costs.

Research and development expenses reflect the capitalization of costs incurred for the develop-

ment of new products.

Assets in course of formation and advance payments principally concern costs to register trade-

marks and patents, whose registration had not yet been obtained at period-end.

In 1983, the original Benetton trademark was revalued in accordance with Law 72 of March 19,

1983. The monetary revaluation was Lire 4,430 million; the residual value at the balance sheet date

was Lire 775 million.

The difference emerging from the consolidation of the Benetton Sportsystem group, with respect

to stockholders’ equity at the acquisition date, was allocated to trademarks, Lire 277,130 million, and

to consolidation differences, Lire 59,976 million, on the basis of an independent appraisal.

53

Comments on the principal asset items


C O M M E N T S O N T H E P R I N C I P A L A S S E T I T E M S

Net values of trademarks are as follows:

[millions of Lire] 06.30.1999 12.31.1998

United Colors of Benetton 2,790 2,428

Sisley 332 252

Nordica 122,884 127,955

Rollerblade 197,372 205,817

Prince 97,798 99,163

Killer Loop 46,128 47,880

Other 5,493 5,437

Total 472,797 488,932

The consolidation difference of Lire 59,254 million reflects the residual goodwill emerging from con-

solidation of the companies acquired, with Lire 46,658 million attributable to Benetton Sportsystem

S.p.A. and the remainder to other companies. This consolidation difference is amortized over ten

years, which is considered appropriate since it is consistent with the accounting policies currently

applied in the sector where Group companies operate.

“Other” mainly comprises leasehold improvements.

Movements in the principal intangible fixed asset items during the first half of 1999 were as follows:

Start-up and Licenses, Goodwill and Otherexpansion trademarks and consolidation intangible

[millions of Lire] expenses similar rights differences fixed assets Total

Net opening balance 6,641 497,736 66,935 59,621 630,933

Change in consolidation area [9] - [965] [321] [1,295]

Increases 151 2,434 502 6,738 9,825

Decreases - [263] - [936] [1,199]

Amortization [1,235] [21,639] [4,402] [8,004] [35,280]

Translation differences and other movements - 4,522 99 2,743 7,364

Net closing balance 5,548 482,790 62,169 59,841 610,348

54



� Tangible fixed assets. Tangible fixed assets are stated net of accumu-

lated depreciation amounting to Lire 821,308 million.

Additions made during the period mainly concern the following items:_ plant, machinery and equipment purchased by Benetton Group S.p.A. and the Italian manufac-

turing companies to improve the efficiency of their production processes;_ investments in real estate for commercial use and the related modernization and upgrading of

premises.

The depreciation charge for the period was Lire 52,238 million.

Movements in the principal tangible fixed asset items during the first half of 1999 were as follows:

Assets underIndustrial and construction and

Real Plant and commercial Other advances to [millions of Lire] estate machinery equipment assets suppliers Total

Net opening balance 461,741 181,874 31,316 76,685 19,796 771,412

Change in

consolidation area 3,089 1,269 [25] [224] [211] 3,898

Additions 48,562 10,137 2,492 12,304 40,148 113,643

Disposals [3,856] [4,744] [66] [1,086] - [9,752]

Depreciation [9,198] [25,294] [7,833] [9,913] - [52,238]

Translation differences

and other movements 9,313 4,574 759 2,905 [8,808] 8,743

Total 509,651 167,816 26,643 80,671 50,925 835,706

Certain of the Group’s tangible fixed assets are pledged as security for long-term loans from

banks and other providers of finance. The outstanding balance of such loans is Lire 69,226 mil-

lion as of June 30, 1999.

Other assets include the following assets acquired under finance leases:

[millions of Lire] 06.30.1999 12.31.1998

Real estate 15,511 13,658

Plant and machinery 11,049 11,744

Other assets 1,763 1,555

less - Accumulated depreciation [4,275] [5,835]

Total 24,048 21,122

Outstanding capital payments due to lessors as of June 30, 1999, classified as amounts due to

leasing companies, are reported in the note on “Due to other providers of finance”.

55



� Financial fixed assets

� Equity investments. As of the balance sheet date, equity invest-

ments not consolidated on a line-by-line basis are as follows:

06.30.1999 12.31.1998

% Group Book % Group Book[millions of Lire] ownership value ownership value

Subsidiary companies

· T.W.R. Group Ltd. 50% 43,685 50% 40,914

· other minor investments - 694 - 450

Associated companies - 39 - 676

Other companies - 6,985 - 6,756

Total 51,403 48,796

Investments in subsidiary companies, amounting to Lire 44,379 million, include Lire 43,685 mil-

lion relating to T.W.R. Group Ltd., which is carried on an equity basis since it operates in a sec-

tor dissimilar to that of the rest of the Group. The inclusion of this company within the consoli-

dation area would have distorted the consolidated financial statements to the point where they

would not have provided a true and fair view of the financial and operating position of the Group.

Benetton International N.V. entered into an agreement to sell Benetton Engineering Ltd. in

December 1996; this subsidiary owns 50% T.W.R. Group Ltd. The agreed sale price [Gbp

16,000,000] will generate a gain of Gbp 858,000 with respect to the original cost incurred, plus

related interest at market rates. The sale is subject to receipt of the purchase price, by the com-

pany, from the buyer by the end of 2001. In accordance with the terms of the sale contract, Lire

28,028 million has already been paid. Given the buyer’s particular financial situation, the two par-

ties are currently evaluating possible alternatives for concluding this agreement within the agreed

terms, subject to the rights and guarantees held by Benetton International N.V.

The balance, Lire 694 million, relates to other minor subsidiary companies, mainly foreign trad-

ing companies, that are carried at cost or at equity, since they are either not yet operating or are

in liquidation at the balance sheet date.

Other investments primarily represent minority interests in a Swiss company and in Japanese

trading companies.

Equity investments are analyzed in detail in Appendix.

57



� Financial receivables

Maturities [in years] Balance Balance

[millions of Lire] Within 1 1 to 5 Beyond 5 06.30.1999 12.31.1998

Financial receivables:

· due within 12 months 5,223 - - 5,223 6,399

· due beyond 12 months - 16,582 111 16,693 18,146

Guarantee deposits - 15,977 14,569 30,546 15,091

Total 5,223 32,559 14,680 52,462 39,636

Financial receivables due beyond 12 months include some Lire 8,000 million in tax credits on

advance taxes paid by Italian companies in relation to employee termination indemnities, under

Law 140 of May 28, 1997; these credits are subject to revaluation.

Guarantee deposits mainly include lease contracts stipulated by Japanese subsidiaries and

deposits made by an Italian subsidiary for the purchase of real estate for commercial purposes.

� Other securities held as financial fixed assets

[millions of Lire] 06.30.1999 12.31.1998

Long-term Government bonds [B.T.P.]

maturing in 2003 and 2004, earning interest

at a rate floating between 3.25% and 4% 222,981 -

Other 22 3,041

Total 223,003 3,041

These investments were almost entirely made by the subsidiary Benetton Finance S.A. They are

stated at purchase cost, as adjusted by the accrued issue discount. Since these securities will be

held until maturity, they are classified among financial fixed assets.

The balance “Other” mainly includes foreign securities whose carrying value broadly approxi-

mates their market value.

58



Current assets

� Inventories. Inventories, Lire 610,001 million [Lire 581,621 million as

of December 31, 1998], are stated net of the related inventory writedown reserve, detailed below:

[millions of Lire] 06.30.1999 12.31.1998

Raw materials, other materials and consumables 5,720 6,788

Work in progress and semi-manufactured products 1,550 1,550

Finished goods 12,746 13,762

Total 20,016 22,100

The valuation of closing inventories at weighted average cost is not appreciably different from their

valuation at current purchase cost.

� Accounts receivable

� Trade receivables. As of June 30, 1999, trade receivables, net of the

allowance for doubtful accounts, amount to Lire 1,620,557 million [Lire 1,516,561 million as of

December 31, 1998].

The allowance for doubtful accounts as of June 30, 1999 amounts to Lire 182,913 million [Lire

183,824 million as of December 31, 1998]. Lire 20,073 million of this allowance was used during

the period. A prudent assessment of the specific and generic collection risks associated with

receivables outstanding at period-end has resulted in an additional provision of Lire 16,000 mil-

lion to take account of the aging of certain balances and the difficult economic conditions in a

number of markets.

� Due from subsidiaries, associated companies and the parent

company. Amounts receivable of Lire 5,008 million, Lire 26 million and Lire 229 million respec-

tively, mainly relate to trade and financial receivables.

� Other receivables. Other receivables include:_ VAT recoverable from the tax authorities, Lire 51,389 million [Lire 36,136 million as of December

31, 1998], of which Lire 3,670 million due beyond 12 months;_ tax credits, Lire 23,234 million [Lire 41,530 million as of December 31, 1998], of which Lire 704

million due beyond 12 months;_ other amounts due from tax authorities, Lire 39,771 million [Lire 28,602 million as of December

31, 1998], of which Lire 705 million due beyond 12 months.

This item includes Lire 31,952 million resulting from the net balance between deferred tax assets [con-

nected to charges where the tax deduction is deferred] and deferred tax liabilities [deriving primarily

from reversal of accelerated depreciation].

59



The following table shows deferred taxes, net:

[millions of Lire] 06.30.1999 12.31.1998

Tax effect of eliminating intercompany profit 9,326 8,421

Tax effect of provisions and costs that will become

deductible in future accounting periods 45,766 46,109

Deferred taxes arising on the reversal of accelerated

depreciation and the application of financial lease accounting [52,303] [48,270]

Deferred taxes on gains taxable over a number of accounting periods [5,016] [8,964]

Tax benefits on accumulated losses 37,328 22,334

Deferred taxes on the partial distribution of reserves

of foreign subsidiaries to the parent company [4,400] [4,400]

Other 1,251 2,002

Total 31,952 17,232

In relation to:

[millions of Lire] 06.30.1999 12.31.1998

· Italian companies [4,642] [8,283]

· Foreign companies 36,594 25,515

31,952 17,232

� Financial assets not held as fixed assets

� Treasury shares. In accordance with the resolution adopted at the

ordinary stockholders’ meeting, the parent company acquired 2,100,000 shares during the first quar-

ter of the year at an average price of Lire 2,941 per share, for an total outlay of Lire 6,176 million.

These shares were subsequently sold, realizing a capital gain of approximately Lire 1,411 million.

60



� Other securities

[millions of Lire] 06.30.1999 12.31.1998

Consorzio di Credito per le Opere Pubbliche bonds, maturing through 2001

and 2002, bearing interest at rates between 2.8% and 12.63% 131,968 134,797

European Investment Bank bonds in Italian Lire, maturing through

2000 and 2002, bearing interest at rates between 3% and 11.25% 39,764 40,007

IBRD bonds in Italian Lire, maturing through 2001 and 2002,

bearing interest at rates between 10.4% and 10.8% 5,496 5,499

Italian State Railways bonds, maturing through 2000 and 2002,

bearing interest at rates between 2.5% and 2.8% 11,969 13,019

Treasury Certificates [C.C.T.], maturing through 2003,

bearing interest at 3.4% 1,935 1,935

Long-term Treasury bonds [B.T.P.], maturing through 2002,

bearing interest at 3% 9,564 -

ENEL bonds, maturing through 2002, bearing interest at 10.63% - 25,992

Other 337 337

Total 201,033 221,586

Certain securities have been written down by an amount of Lire 325 million to reflect their market

value, determined on the basis of average stockmarket prices during June.

The ENEL bonds maturing through 2002 were redeemed in advance in February 1999.

� Other financial receivables

[millions of Lire] 06.30.1999 12.31.1998

Short-term financing 6,703 8,188

Amounts due on repurchase agreements 11,998 14,999

Total 18,701 23,187

These mainly consist of investments made by Benetton Gesfin S.p.A. for the temporary employ-

ment of liquidity via short-term financing granted to third parties.

61



� Differentials on forward transactions. During the first half of

1999, as in prior years, the proceeds of future sales were sold forward, in order to optimize

exchange risk management connected to commercial activities by certain Group companies,

mainly Benetton Group S.p.A. Forward contracts and other currency hedges have been put in

place with maturities in 1999 and 2000. The value of these commitments is reflected in the mem-

orandum accounts. Part of these contracts, totaling Lire 31,887 million, was subsequently rene-

gotiated, and the related positive differentials [recorded among other financial income] amount-

ing to Lire 534 million, will be collected in the second half of 1999. These differentials, being high-

ly liquid, are classified among current assets. The residual balance includes Lire 2,020 million

relating to differentials originating on similar operations carried out in 1998, Lire 306 million for

adjustments to hedging transactions relating to euro-participating currencies made as of

December 31, 1998, while Lire 6,654 million refers to other hedging operations.

� Liquid funds

[millions of Lire] 06.30.1999 12.31.1998

Current account deposits [Lire] 38,838 79,811

Current account deposits [foreign currencies] 145,721 176,503

Time deposits [Lire] 425,218 716,074

Time deposits [foreign currencies] 13,387 50,762

Checks 36,239 55,543

Cash 1,085 944

Total 660,488 1,079,637

Average interest rates reflect market returns for the various currencies concerned.

The balances as of June 30 reflect temporary high liquidity due to significant period-end

receipts from customers and substantial Lire time deposits by Group finance companies.

62



Accrued income and prepaid expenses

[millions of Lire] 06.30.1999 12.31.1998

Accrued income:

· financial income 13,495 12,810

· other income 116 3,604

Total accrued income 13,611 16,414

Prepaid expenses:

· financial charges 345 681

· rentals and leasing charges 9,890 4,498

· advertising and sponsorships 3,967 3,453

· other expenses 63,586 61,988

Total prepaid expenses 77,788 70,620

Total 91,399 87,034

Accrued financial income mainly relates to interest deriving from temporary investments.

In 1997 and 1998, the Group’s merger differences were released from further taxation via payment

of a substitute tax at 27%, as allowed by Decree 358 of October 8, 1997. This substitute tax totals

about Lire 49,300 million and is classified under “Current income taxes” with a matching balance in

“Due to tax authorities”. On the accruals basis some Lire 36,700 million of this tax has been record-

ed as a prepayment because the cost of freeing up merger differences from tax is related to the

benefit deriving from future savings generated by tax-deductible amortization charges. Given the

various periods of amortization of the assets involved and taking account of the prudence principle,

the amortization period for this prepayment was fixed at 10 years.

Prepayments of other expenses also include around Lire 14,800 million relating to costs incurred

by Benetton Formula Ltd., reflecting the residual balance relating to the 1999 world championship.

63



64

Stockholders’ equity

� Capital stock. The capital stock of Benetton Group S.p.A. is repre-

sented by 1,815,588,110 issued and fully-paid ordinary shares, with a par value of Lire 250 each, and

totals Lire 453,897,027,500. The 1980 spin-off reserve and part of the monetary revaluation reserves

were capitalized by Benetton Group S.p.A. in prior years by the issue of stock dividends.

� Additional paid-in capital. This balance is unchanged with respect to

the prior year.

� Revaluation reserves. The item reflects the residual amounts of

revaluation reserves established in accordance with the provisions of Law 72 of March 19, 1983, and

Law 413 of December 30, 1991, and the monetary revaluation of tangible fixed assets by a Spanish

subsidiary [Royal Decree 2607/96].

� Legal reserve. The increase in the legal reserve derives from the allo-

cation of a portion of net income for the year ended December 31, 1998, in conformity with the law

and the articles of association.

� Other reserves. As of June 30, 1999, this item amounts to Lire

1,498,728 million [Lire 1,301,441 million as of December 31, 1998], and includes:_ Lire 332,463 million relating to other reserves of the parent company [Lire 335,782 million

as of December 31, 1998];_ Lire 12,868 million relating to the cumulative translation adjustment generated by translating

the foreign-currency financial statements of companies consolidated on a line-by-line basis;_ Lire 1,153,397 million representing the additional equity of consolidated companies with respect

to their carrying value, together with other consolidation entries.

The first of the schedules which follow reconciles the stockholders’ equity and net income of

Benetton Group S.p.A. with the corresponding consolidated amounts; the second lists the equity in

consolidated subsidiaries attributable to minority stockholders.

Comments on the principal liability and equity items


C O M M E N T S O N T H E P R I N C I P A L L I A B I L I T Y A N D E Q U I T Y I T E M S

Reconciliation of the stockholders’ equity and net income of Benetton Group S.p.A. with the

corresponding consolidated amounts.

06.30.1999

Stockholders’ Net[millions of Lire] equity income

Per Benetton Group S.p.A. financial statements 1,091,174 136,864

Group share of net income and stockholders’ equity

of consolidated subsidiaries, net of their carrying value 993,827 27,905

Reversal of writedowns on equity investments - 3,078

Reversal of merger deficit and related amortization

for Benetton Group S.p.A. [164,316] 6,685

Allocation of fixed assets to the difference between the

purchase price and the equity of new subsidiaries at the time

they were acquired and related depreciation 304,736 [16,831]

Reversal of accelerated depreciation considering the useful lives

of fixed assets and of intercompany gains on the disposal of tangible

fixed assets, net of the related tax effect 29,715 2,903

Application of finance lease accounting, taking account

of the related tax effect 11,540 520

Recognition of prepaid taxes, net of deferred taxes 10,495 [24,035]

Elimination of intercompany profits included in the inventory

of consolidated subsidiaries, net of the related tax effect [21,906] [3,324]

Adjustment to reflect the equity value of associated companies 4,950 [234]

Net effect of other consolidation entries 3,104 1,677

Per the Group’s consolidated financial statements 2,263,319 135,208

For the interim financial statements, Benetton Group S.p.A. has adopted the new accounting stan-

dard relating to income taxes. The adoption of this standard has resulted in the net balance of pre-

paid taxes and accumulated deferred taxes being recorded in the statement of income; as of

December 31, 1998, this balance was classified as a consolidation adjustment.

Prepaid taxes refer to costs and expenses not yet deductible at period-end and are provided when

it is almost certain that they can be recovered in the future.

Deferred taxes refer to transactions where taxation is deferred to future years, such as gains on the

disposal of tangible and intangible fixed assets.

65



� Minority interests. As of June 30, 1999 and December 31, 1998,

minority interests in consolidated subsidiaries were as follows:

06.30.1999 12.31.1998

Italian subsidiaries:

· Socks & Accessories Benetton [S.A.B.] Group 50% 50%

· Olimpias Group 15% 15%

· Texcontrol Group - 16.231%

Foreign subsidiaries:

· Benetton Shoes Japan K.K. 50% 50%

· Benetton Egypt S.A.E. 50% 50%

· DCM Benetton India Ltd. 50% 50%

· Benetton Korea Inc. 50% 50%

Reserves for risks and charges. Taxation reserve: as of June 30,

1999, this reserve amounts to Lire 8,398 million [Lire 8,421 million as of December 31, 1998]. It

prudently covers contingent liabilities which may arise on the final settlement of outstanding dis-

putes with the revenue authorities.

Given that the tax tribunals have consistently found in favor of other taxpayers in similar circum-

stances and taking account of expert opinions on the matter, it is considered that no significant lia-

bilities will emerge from the settlement of outstanding fiscal disputes.

As of June 30, 1999, the net balance between deferred assets and liabilities is recorded in “Other

receivables”.

� Other reserves

[millions of Lire] 06.30.1999 12.31.1998

Reserve for contingencies 82,491 72,073

Agents’ leaving indemnity reserve 12,323 13,325

Exchange fluctuation reserve 1,046 1,209

Total 95,860 86,607

The reserve for contingencies covers risks which may arise from current legal disputes.

With regard to the dispute with Eco Swiss China Time Ltd. and Bulova Corp., ongoing legal proce-

dures are seeking to overturn or cancel the arbitration award of June 23, 1995, condemning

Benetton International N.V. to pay compensation of US$ 23.7 million to Eco Swiss China Time Ltd.

and US$ 2.8 million to Bulova Corp., together with costs and related interest.

Benetton International N.V., having previously applied to the courts for a stay of execution, obtained

a temporary stay in regard to Eco Swiss China Time Ltd., pending the decision of the relevant tri-

bunals on the questions indicated above.

On March 21, 1997, the High Court in The Hague accepted the appeal by Benetton International

66



N.V. and referred the case for consideration by the European Court of Justice in Luxembourg, on

the grounds that the matter fell within the jurisdiction of Community law.

On June 1, 1999, the European Court of Justice delivered its judgment, replying to the questions

raised by the Dutch High Court. The European Court ruled that the application of the procedural

rules of Dutch law were not in conflict with Community regulations. However, at the same time, as

upheld by Benetton International N.V., the Court affirmed the principle that the regulations on com-

petition under the Treaty of Rome must be presumed to be public policy norms for the purposes

anticipated by Dutch law. While this decision can be considered to be largely unfavorable for

Benetton International N.V., further legal activities are underway before the Dutch High Court.

These activities will continue over the next few months and are aimed at ascertaining the implica-

tions of the European Court’s decisions and maintaining the stay of execution.

Therefore Benetton International N.V. will continue in its efforts to defend its theories and safe-

guard its interest in the current dispute; provision has been made to the extent of 90% for any lia-

bilities which may arise from this dispute.

On September 16, 1999, the Court of Appeal in The Hague passed sentence in the proceedings for

the cancellation of the arbitration award. The Court of Appeal failed to uphold the claims of

Benetton International N.V. for the cancellation of the award, and so the company is now examin-

ing the possibility of appealing against this ruling to the Supreme Court. The company believes that

further legal proceedings will be required before the various objections against the award will be

settled completely.

In the meantime, separate arbitration proceedings, instigated by Benetton International N.V., are

currently taking place between the same parties before the Netherlands Arbitration Institute in

The Hague.

Benetton International N.V. aims to demonstrate in this second arbitration case that it fulfilled its

obligations correctly, seeking in good faith to negotiate the extension of the 1986 license contract,

and that it is due for compensation for the considerable damage suffered as a consequence of

breach of contract by the other party.

Benetton International N.V. has submitted its own Statement of Claim and Eco Swiss China Time

Ltd. and Bulova Corp., for their part, have presented a counterclaim demanding compensation for

damages which they attribute to supposed breach of contract by Benetton International N.V. Both

parties have presented further documentation.

The Board of Arbitration passed judgment on certain preliminary matters [establishing the applica-

bility of Dutch law and the irrelevance of article 85 of the Treaty of the European Union] with a

Partial Final Award of June 27, 1997. Benetton International N.V. proposed before the ordinary

courts in the Netherlands that the Partial Final Award on preliminary matters be canceled; the relat-

ed decision in this regard is still pending.

For other reasons, Benetton International N.V. expects to be able to rely on the decision of the

European Court of Justice of June 1, 1999, in its counter claim against this Partial Final Award.

The Board of Arbitration has therefore restarted arbitration proceedings and the parties have pre-

sented their cases. In the next few months there will be further hearings and documentation pro-

duced by the parties.

Additional provisions to risk reserves refer to ongoing restructuring costs, liabilities for other minor

disputes, and possible costs to hedge guarantees and returns.

67



The agents’ leaving indemnity reserve is prudently maintained to reflect contingencies associated

with the interruption of agency contracts in certain circumstances covered by Italian law. The provi-

sion of an additional Lire 2,117 million follows utilizations during the period.

The exchange fluctuation reserve mainly reflects the net effect of adjusting forward contracts hedg-

ing financial transactions, as well as the unhedged foreign currency receivables and payables of Italian

companies in the Group, using period-end exchange rates.

Reserve for employee termination indemnities. Movements in

this reserve during the period were as follows:

[millions of Lire]

Balance as of January 1, 1999 86,274

Provisions for the period 8,447

Indemnities paid during the period [5,229]

Other movements [444]

Balance as of June 30, 1999 89,048

68



Accounts payable. The composition of and significant changes in this

account group during the period are set out below:

� Bonds. These consist of the following:_ bond issued on July 16, 1997 by Benetton Group S.p.A. for Lire 500,000 million, repayable in

2002. The bond bears interest at floating rates which, at period-end, was 2.75%, and is listed on the

Luxembourg Bourse._ bond issued by Benetton International N.V. in 1994, totaling LuxF 750 million [Lire 35,999 mil-

lion at June 30, 1999 exchange rates], at a unit price of LuxF 102.25. This bond, repaid on August

4, 1999, following an operation linked to an interest-rate swap, bears interest at floating rates which,

at period-end was 3.276%. The bond is guaranteed by Benetton Group S.p.A. and is listed on the

Luxembourg Bourse.

� Due to banks

[millions of Lire] 06.30.1999 12.31.1998

Current account overdrafts 39,046 41,600

Import/export advances 107,742 108,997

Advances on receivables and other

short-term loans 527,053 605,777

Long-term loans:

· due within 12 months 32,857 33,118

· due beyond 12 months 412,111 394,094

Total 1,118,809 1,183,586

Amounts due to banks include Lire 69,226 million secured by mortgages on tangible fixed assets.

The item includes Lire 4,989 million due beyond five years.

69



Long-term loans from banks outstanding as of June 30, 1999 and December 31, 1998 are as follows:

[millions of Lire] 06.30.1999 12.31.1998

Multicurrency loan coordinated by Banca di Roma S.p.A. and

Deutsche Bank S.p.A., disbursed on February 6, 1997 for a total

of US$ 200 million, at floating rates of interest - 2.848%

at the balance sheet date - repayable through December 10, 2001 356,320 323,100

Loan from Efibanca [Ente Finanziario Interbancario S.p.A.] and the

European Investment Bank, disbursed in two tranches; Lire 20,000 million

at an annual interest rate of 8.375% and Lire 30,000 million at 3-monthly floating

rates - 2.845% at the balance sheet date - repayable in half-yearly instalments

in arrears through 2003, secured by mortgages on real estate 29,466 33,650

Loans from Efibanca [Ente Finanziario Interbancario S.p.A.] at an annual

interest rate of 3.17%, repayable through 2005, secured by mortgages on real estate 4,470 4,813

Loans from Fondo Rotazione Iniziative Economiche at an annual interest rate

of 8%, repayable through 1999, secured by mortgages on real estate 362 5,948

Loans from Istituto Mobiliare Italiano, at an annual interest rate of 3.311%,

repayable through 2004, secured by mortgages on real estate 23,900 26,000

Loan from Istituto Bancario San Paolo di Torino S.p.A.

at floating interest rates - 3.698% at the balance sheet date - repayable

quarterly through 2002, secured by mortgages on real estate 2,716 3,209

Loan in Yen from Bayerische Vereinsbank, at an annual interest rate of 1%,

repayable on October 4, 1999 15,512 14,375

Loan granted by Medio Venezie on December 18, 1998 at an annual

interest rate of 5%, repayable in half-yearly instalments through January 1, 2007,

secured by mortgages on real estate 6,000 6,000

Loan granted by Mediocredito Centrale S.p.A. under Law 394

of July 2, 1981, at a subsidized half-yearly interest rate of 4.118%,

repayable in half-yearly instalments in arrears through July 22, 2003 - 3,458

Other Lire loans, of which Lire 842 million secured by mortgages on real estate 1,458 1,846

Other foreign currency loans obtained by foreign consolidated companies,

Lire 1,470 million of which secured by mortgages on real estate 4,764 4,813

Total long-term loans 444,968 427,212

less - Current portion [32,857] [33,118]

Long-term loans, net of current portion 412,111 394,094

The loan granted by Mediocredito Centrale S.p.A. under Law 394 of July 2, 1981 has been reclas-

sified under the item “Due to other providers of finance”, since Simest S.p.A. took over the bank’s

loan agreements on January 1, 1999.

The non-current portions of these loans as of June 30, 1999 fall due as follows:

[millions of Lire]

from 1 to 5 years 407,122

beyond 5 years 4,989

Total 412,111

70



� Due to other providers of finance

[millions of Lire] 06.30.1999 12.31.1998

Other short-term loans - 7,161

Long-term loans:

· due within 12 months 713 2,802


Due to leasing companies:

· due within 12 months 3,412 4,316


Total 16,484 26,011

Long-term loans obtained from other providers of finance outstanding as of June 30, 1999 are

as follows:

[millions of Lire] 06.30.1999 12.31.1998

Loans from suppliers of machinery, repayable in instalments over 24 months - 2,531

Other Lire loans 3,793 1,743

Other foreign currency loans obtained by foreign consolidated companies 190 -

Total long-term loans 3,983 4,274

less - Current portion [713] [2,802]

Long-term loans, net of current portion 3,270 1,472

“Other Lire loans” include a loan originally granted by Mediocredito Centrale S.p.A. under Law

394/81 amounting to Lire 3,112 million, which as of December 31, 1998 was classified under “Due

to banks” as discussed above.

The non-current portion of these loans as of June 30, 1999 falls due as follows:

[millions of Lire]


beyond 5 years 660

Total 3,270

The non-current portion of amounts due to leasing companies as of June 30, 1999 falls due as follows:

[millions of Lire]


beyond 5 years 1,565

Total 9,089

71



� Due to tax authorities

[millions of Lire] 06.30.1999 12.31.1998

Income taxes payable:

· Italian companies 83,260 4,089

· Foreign companies 19,344 17,833

Total income taxes payable 102,604 21,922

VAT payable 12,108 9,798

Other amounts due to tax authorities 56,139 66,700

Total 170,851 98,420

Income taxes payable are stated net of taxes paid in advance and all tax credits and withholdings.

“Other amounts due to tax authorities” mainly comprise the substitute tax and amounts withheld

at source.

� Due to social security and welfare institutions. This balance totals

Lire 11,654 million [Lire 18,504 million as of December 31, 1998] and reflects both the Group and

employee contributions payable to these institutions at period-end.

� Other payables. Other payables, totaling Lire 51,187 million, include

Lire 28,178 million due to employees [Lire 33,220 million as of December 31, 1998] and other non-

trade payables of Lire 21,275 million [Lire 20,330 million as of December 31, 1998].

The item also includes Lire 1,734 million due to employees of an American company under an

incentives program linked to the increase in value of the company’s shares.

There are no “Other payables” due beyond five years.

72



Accrued expenses and deferred income

[millions of Lire] 06.30.1999 12.31.1998

Accrued expenses:

· financial charges 14,026 11,018

· other charges 21,659 2,615

Total accrued expenses 35,685 13,633

Deferred income:

· financial income 88 144

· sponsorships 11,645 12,164

· other income 1,523 627

Total deferred income 13,256 12,935

Premiums on bonds issued 547 716

Total 49,488 27,284

As of June 30, 1999, accrued expenses include “Other charges” amounting to Lire 19,437 mil-

lion that represent accumulated payroll costs which, as usual, will be classified among “Other

payables” at year-end.

73



These mainly include currency to be sold or purchased forward. This account group records the Lire

value at the balance sheet date of commitments deriving from hedging contracts opened during the

period. For the most part, the item reflects transactions opened to hedge foreign currency receiv-

ables, firm orders and future sales. Those covering future sales were subsequently renegotiated by

entering opposite transactions. Other transactions were entered into to hedge the exchange risk on

capital invested in Group companies.

As of June 30, 1999 outstanding contracts involving the purchase or sale of interest-rate swaps have

a notional value of Lire 9,466 million.

“Other unsecured guarantees” mainly comprise a commitment for Lire 2,000 million given by the

subsidiary Società Investimenti e Gestioni Immobiliari [S.I.G.I.] S.r.l. in relation to the payment of

restructuring work, chargeable to third parties, on property in Pescara acquired at the beginning of

1999.

The item “Purchase commitments” mainly relates to commitments taken on by the companies:_ Società Investimenti e Gestioni Immobiliari [S.I.G.I.] S.r.l., Lire 24,400 million, to purchase buildings

in Bologna, L’Aquila and Brussels;_ Benair S.p.A., Lire 8,005 million, net of the advance paid, to purchase a Cessna “Excel” aircraft.

The item “Sales commitments” refers to the commitment to sell land and a portion of an industrial

plant located in the Municipality of Trevignano for Lire 10,000 million, Lire 1,000 million of which has

already been paid by way of a non-returnable down-payment.

Restricted receivables relate to transactions involving advances against receivables.

74

Memorandum accounts


M E M O R A N D U M A C C O U N T S

Value of production

� Revenues from sales and services

1st half 1st half[millions of Lire] 1999 1998

Sales of core products 1,782,825 1,828,855

Miscellaneous sales 33,481 33,421

Royalty income 13,765 11,088

Miscellaneous revenues 85,152 89,537

Total 1,915,223 1,962,901

Sales of core products are stated net of unconditional discounts.

Miscellaneous revenues mainly reflect manufacturing, advertising and promotional services ren-

dered to third parties.

� Information by geographic area and business category

Other geographic

[millions of Lire] Europe % The Americas % areas % Total

Casual wear 1,129,405 80.8% 92,780 32.8% 170,802 72.5% 1,392,987

Sportswear

and sports equipment 142,178 10.2% 187,345 66.2% 26,628 11.3% 356,151

Other sectors 125,054 9.0% 2,983 1.0% 38,048 16.2% 166,085

Total revenues 1st half 1999 1,396,637 100.0% 283,108 100.0% 235,478 100.0% 1,915,223

Total revenues 1st half 1998 1,376,972 - 334,893 - 251,036 - 1,962,901

Changes in revenues in the Americas area mainly reflect the considerable contraction of US mar-

kets, particularly in the sports sector.

76

Comments on the principal statement of income items


C O M M E N T S O N T H E P R I N C I P A L S TAT E M E N T O F I N C O M E I T E M S

� Sales of core products, by product category


Clothing 1,295,488 1,177,861

Fabrics and yarns 83,873 132,002

Accessories 40,149 58,032

Casual footwear 18,378 34,847

In-line skates 194,237 247,024

Ski-boots 5,353 10,375

Sports footwear 23,307 31,720

Racquets 67,069 82,029

Sportswear 37,486 39,465

Skis and snowboards 1,808 4,826

Other 15,677 10,674

Total 1,782,825 1,828,855

� Net sales of core products, by brand


United Colors of Benetton 1,106,657 1,080,960

Sisley 247,536 188,568

Nordica 8,413 13,518

Rollerblade 208,327 254,361

Prince 87,380 101,430

Killer Loop 10,524 12,258

Playlife 14,807 10,142

Other sales 99,181 167,618

Total 1,782,825 1,828,855

The limited amount of revenues generated by Nordica is closely connected to the seasonal nature

of the company’s core product [ski-boots, ski equipment and ski wear] whose sales tend to be high-

er in the second half of the year.

77



Production costs

� Purchasing costs


Raw materials, semi-manufactured and finished goods 509,190 552,295

Other materials 7,099 17,649

Sundry purchases - advertising and promotion 9,975 8,212

Other purchases 18,213 18,861

[Discounts and rebates] [1,011] [768]

Total 543,466 596,249

� Services received


Subcontracted work 409,492 347,854

Transport and distribution 42,169 30,527

Commission expense 89,958 89,382

Advertising and promotion 81,219 85,731

Other services 113,709 115,125

Emoluments of Directors and Statutory auditors 8,596 7,980

Total 745,143 676,599

Other services mainly include power costs [Lire 15,177 million], maintenance costs [Lire 10,080 mil-

lion], consultancy and other fees [Lire 59,483 million], insurance premiums [Lire 4,365 million] and

personnel travel expenses [Lire 16,502 million].

78



� Leases and rentals. Leases and rentals [Lire 24,596 million] mainly

relate to rentals paid of Lire 16,899 million.

� Payroll and related costs. These costs are already analyzed in the

statement of income. Group personnel are analyzed below, by category:

Average for 06.30.1999 12.31.1998 the period

Managerial personnel 156 171 164

White-collar personnel 2,912 2,941 2,926

Factory personnel 3,550 3,774 3,662

Part-time personnel 337 349 343

Total 6,955 7,235 7,095

The decrease in the number of employees is principally due to the corporate reorganization of sev-

eral US and South American subsidiaries, as well as the Olimpias Group’s disposal of Spiller S.p.A.

79



Amortization, depreciation and writedowns

� Amortization of intangible fixed assets


Amortization of start-up and expansion expenses 1,235 2,312

Amortization of research and development expenses 148 155

Amortization of industrial patents and

intellectual property rights 1,205 872

Amortization of licenses, trademarks and similar rights 21,639 22,773

Amortization of goodwill and consolidation differences 4,402 4,630

Amortization of costs for the purchase

and development of software 2,716 2,727

Amortization of other charges 3,480 3,223

Total 34,825 36,692

The item includes about Lire 21,500 million of amortization charged on the higher value resulting

from the acquisition of Benetton Sportsystem S.p.A. This higher value, represented by the differ-

ence between the price paid and stockholders’ equity, as well as existing differences connected to

prior purchases by the Benetton Sportsystem group, were allocated to trademarks and consolida-

tion differences.

� Depreciation of tangible fixed assets


Depreciation of real estate 9,198 7,854

Depreciation of plant and machinery 25,294 25,669

Depreciation of equipment 7,833 8,948

Depreciation of other assets 9,238 10,061

Depreciation of assets acquired under finance leases 675 1,086

Total 52,238 53,618

80



� Writedowns. “Other amounts written off fixed assets” [Lire 2,055

million] mainly relates to the permanent loss on tangible fixed assets used for business activities and

otherwise.

“Writedowns of current receivables and of liquid funds” [Lire 16,000 million] reflects a prudent pro-

vision to the allowance for doubtful accounts. This is discussed in more detail in the note on cur-

rent receivables.

� Provisions to risk reserves. During the period under review, Lire

19,705 million was provided against future risks. For further details, refer to “Reserves for risks and

charges” in the comments on liability items.

� Other operating costs


Indirect taxation 4,639 3,650

Losses on disposals of fixed assets 1,650 1,126

Losses on receivables 577 177

General expenses and other charges 17,874 34,995

Total 24,740 39,948

General expenses and other charges include around Lire 10,000 million of charges incurred dur-

ing the first half of the year by the sports sector for returns and discounts relating to sales made

in the prior year.

81



Financial income and expense

� Income from equity investments. This item [Lire 3,605 million]

includes Lire 3,583 million in tax credits on dividends distributed by consolidated companies, not

offset against income taxes for the period.

� Other financial income


From receivables held as financial fixed assets 304 929

From securities held as financial fixed assets

not representing equity investments 1,357 2,675

From securities included among current assets

not representing equity investments 8,759 18,523

Financial income other than the above:

· interest income from subsidiary companies 157 247

· interest income on trade and other financial receivables 1,763 10,931

· interest income from banks 11,733 9,938

· miscellaneous financial income and income from derivatives 3,714 12,136

· exchange gains and income from currency management 65,318 94,142

Total financial income other than the above 82,685 127,394

Total 93,105 149,521

Interest income on other financial receivables accrued during the first half of 1998, relate to the sub-

stantial investments made by Benetton Gesfin S.p.A. for the temporary employment of liquidity via

short-term financing granted to third parties.

The item “Other financial income” includes:_ positive differentials on interest-rate swaps, approximately Lire 600 million [about Lire 1,500

million in the first half of 1998];_ income from cross-currency and currency swaps and forward rate agreements, approximately

Lire 2,200 million [about Lire 8,000 million in the first half of 1998].

83



� Interest and other financial expense


Interest expense on bonds 9,801 20,729

Interest expense on bank current accounts 1,966 2,400

Interest expense on import/export advances 947 2,471

Interest expense on advances against receivables 684 2,285

Interest expense on short-term loans 7,494 7,374

Interest expense on long-term bank loans 7,420 16,449

Interest expense charged by subsidiaries 6 -

Interest expense charged by parent company 2,607 -

Interest charged by other providers of finance 398 3,779

Miscellaneous financial expense 13,882 26,114

Exchange losses and charges from currency management 67,152 99,375

Total 112,357 180,976

Changes in loan interest reflect the drop in interest rates. Miscellaneous financial expense main-

ly includes:_ charges on currency and cross-currency swaps and forward rate agreements, approximately Lire

3,700 million [about Lire 4,800 million in the first half of 1998];_ discounts allowed on the early settlement of trade receivables, approximately Lire 6,500 million,

[about Lire 10,300 million in the first half of 1998];_ bank charges and commission of approximately Lire 1,900 million [about Lire 3,000 million in

the first half of 1998].

Extraordinary income and expense

� Income


Gains on the disposal of fixed assets 5,339 -

Other income:

· out-of-period income 2,644 4,280

· other extraordinary income 5,117 5,066

Total 13,100 9,346

Out-of-period income mainly reflects the reversal of commission provided in prior years but not

paid to agents since the related receivables are no longer collectible. This item also includes adjust-

ments for tax provided in prior years and other out-of-period income.

Other extraordinary income includes some Lire 2,600 million for the partial release of surplus risk

reserves and around Lire 2,100 million in damages from haulage contractors, insurance settlements

and indirect tax reimbursements.

84



� Expense


Losses on disposals of fixed assets 2,983 628

Taxes relating to prior years 569 710

Other expense:

· donations 405 285

· out-of-period expense 1,346 2,461

· other extraordinary expense 4,468 6,010

Total 9,771 10,094

Other extraordinary expense includes compensation payments made to customers against accident

and theft claims and charges in relation to settlements of various types. The same item includes

restructuring costs related to the reorganization of a US subsidiary.

� Income taxes. The tax liability for the period amounts to Lire 112,539

million, of which Lire 108,896 million relates to Italian companies. The increase of income taxes with

respect to the prior period is primarily due to the higher income tax liability of the Italian companies.

These appendices present information not contained in the notes to the consolidated financial

statements, of which they form an integral part.

Such information is contained in the following schedules:_ Consolidated balance sheets reclassified according to financial criteria;_ Consolidated statements of income reclassified to cost of sales;_ Companies and groups included within the consolidation area as of June 30, 1999;_ Consolidated balance sheets in Euro reclassified according to financial criteria;_ Consolidated statements of income in Euro reclassified to cost of sales;_ Consolidated balance sheets in US dollars reclassified according to financial criteria;_ Consolidated statements of income in US dollars reclassified to cost of sales.

85


A P P E N D I C E S

Appendices

86

Assets 06.30.1999 12.31.1998 06.30.1998Current assets

Cash 660,488 1,079,637 683,956

Marketable securities 201,033 222,173 543,302

Differentials on forward transactions 9,514 8,445 5,383

Financial receivables 28,898 37,050 59,811

899,933 1,347,305 1,292,452

Accounts receivableTrade receivables 1,799,206 1,691,733 1,817,227

Other receivables 137,447 133,901 116,287

less - Allowance for doubtful accounts [182,913] [183,824] [197,948]

1,753,740 1,641,810 1,735,566

Inventories 610,001 581,621 663,636

Prepayments and accrued income 91,399 87,034 95,439

701,400 668,655 759,075


Investments and other non-current assetsInvestments 51,403 48,796 53,501

Securities held as fixed assets 223,003 2,454 3,039

Guarantee deposits 30,546 15,091 13,802


Other non-current receivables 13,982 19,409 17,354

Total investments and other non-current assets 335,627 103,896 107,941

Fixed assetsLand and buildings 659,126 603,406 541,304

Plant, machinery and equipment 734,798 733,058 715,555

Office furniture, furnishings and electronic equipment 118,654 114,577 134,093

Vehicles and aircraft 65,187 61,031 55,812

Construction in progress and advances for fixed assets 50,925 19,796 24,040

Finance leases 28,324 26,957 28,852

less - Accumulated depreciation [821,308] [787,413] [800,141]


Intangible assetsLicenses and trademarks 490,266 505,092 559,666

Deferred charges 120,082 125,841 128,902

Total intangible assets 610,348 630,933 688,568

TOTAL ASSETS 5,136,754 5,164,011 5,283,117

[�]

Consolidated balance sheets reclassified according to financial criteria[millions of Lire]

A P P E N D I C E S

R E C L A S S I F I E D B A L A N C E S H E E T S - A S S E T S

87

Liabilities and stockholders’ equity 06.30.1999 12.31.1998 06.30.1998Current liabilities

Bank loans 673,841 756,374 674,618

Bonds 35,999 35,999 200,000

Short-term loans 101 7,458 109,700

Current portion of long-term loans 33,570 35,920 19,936

Current portion of lease financing 3,412 4,316 4,117

Accounts payable 664,001 760,080 734,480

Other payables and accruals 159,982 152,173 229,754

Reserve for income taxes 102,604 21,922 29,669

Total current liabilities 1,673,510 1,774,242 2,002,274

Long-term liabilitiesBonds 500,000 500,000 535,827

Long-term loans, net of current portion 415,381 395,566 454,731

Other long-term liabilities 48,520 52,775 21,875

Lease financing 9,089 10,260 11,546

Reserve for termination indemnities 89,048 86,274 82,889

Other reserves 104,258 95,028 87,623

Total long-term liabilities 1,166,296 1,139,903 1,194,491

Minority interests in consolidated subsidiaries 33,629 30,888 34,207

Stockholders’ equityCapital stock 453,897 453,897 453,897

Additional paid-in capital 109,543 109,543 109,543

Surplus from monetary revaluation of assets 42,711 42,711 42,711

Other reserves and retained earnings 1,509,092 1,315,619 1,315,619

Translation differences 12,868 3,978 10,042

Net income for the period 135,208 293,230 120,333



A P P E N D I C E S

R E C L A S S I F I E D B A L A N C E S H E E T S - L I A B I L I T I E S

88

1st half 1st half Year 1999 1998 1998

Revenues 1,915,223 1,962,901 3,833,917

Cost of salesMaterial and net change in inventories 537,563 616,899 1,205,370

Payroll and related cost 108,323 103,554 204,769

Subcontract work 357,936 352,585 703,780

Industrial depreciation 37,384 39,772 71,841

Other manufacturing costs 33,578 40,842 75,138

1,074,784 1,153,652 2,260,898

Gross operating income 840,439 809,249 1,573,019

Selling, general and administrative expensesPayroll and related cost 127,761 139,772 259,236

Distribution and transport 42,169 30,527 75,763

Sales commission 90,161 89,613 175,900

Advertising and promotion 91,054 93,500 169,944

Depreciation and amortization 49,679 50,538 101,935

Other expenses 164,760 179,508 339,182

565,584 583,458 1,121,960

Income from operations 274,855 225,791 451,059

Other income [expense]Foreign currency gain [loss], net [1,834] [5,233] 16,057

Interest income 27,503 54,099 103,824

Interest expense [39,138] [74,719] [139,251]

Other income [expense], net [10,955] [3,592] [8,850]

[24,424] [29,445] [28,220]

Income before taxes and minority interests 250,431 196,346 422,839

Income taxes 112,539 75,292 131,052


Minority interests loss [gain] [2,684] [721] 1,443


Consolidated statements of income reclassified to cost of sales[millions of Lire]

A P P E N D I C E S

R E C L A S S I F I E D S TAT E M E N T S O F I N C O M E

Capital GroupName of the company Location Currency stock interest

Companies and groups consolidated on a line-by-line basis:

Parent companyBenetton Group S.p.A. Ponzano Veneto [TV] Itl 453,897,027,500

Italian subsidiariesBenfin S.p.A. Ponzano Veneto [TV] Itl 90,000,000,000 100.000%

. Olimpias Group Grumolo delle Abbadesse [VI] Itl 10,000,000,000 85.000%

. Texcontrol Group Ponzano Veneto [TV] Itl 17,000,000,000 100.000%

Bencom S.p.A. Ponzano Veneto [TV] Itl 3,294,000,000 100.000%

. Benair S.p.A. Ponzano Veneto [TV] Itl 3,000,000,000 100.000%

. Socks & Accessories Benetton [S.A.B.] Group Sesto Fiorentino [FI] Itl 1,000,000,000 50.000%

Società Investimenti e Gestioni Immobiliari [S.I.G.I.] S.r.l. Ponzano Veneto [TV] Itl 70,000,000,000 100.000%

. Buenos Aires 2000 S.r.l. Ponzano Veneto [TV] Itl 1,000,000,000 100.000%

Fabrica S.p.A. Ponzano Veneto [TV] Itl 8,000,000,000 100.000%

. Colors Magazine S.r.l. Ponzano Veneto [TV] Itl 3,000,000,000 100.000%

Benlog S.p.A. Ponzano Veneto [TV] Itl 27,400,000,000 100.000%

Benetton Gesfin S.p.A. Ponzano Veneto [TV] Itl 80,000,000,000 100.000%

Foreign subsidiariesBenetton U.S.A. Corp. Wilmington Usd 34,654,000 100.000%

. Benetton Retail Corp. Wilmington Usd 20,201,000 100.000%

Benetton Holdings N.V. Amsterdam Itl 39,920,175,194 100.000%

. Benetton Group Japan K.K. Tokyo Jpy 400,000,000 100.000%

. Benetton Shoes Japan K.K. Tokyo Jpy 60,000,000 50.000%

. Bene Forte Co. Ltd. Tokyo Jpy 10,000,000 100.000%

. Benetton Sportsystem Japan Co. Ltd. Tokyo Jpy 490,000,000 100.000%

. Benetton Korea Inc. Seoul Krw 2,500,000,000 50.000%

. Benetton Argentina S.A. Buenos Aires Arp 500,000 100.000%

. Egyptian European Clothing Manufacturers S.A.E. Alexandria Egp 6,000,000 50.000%

. DCM Benetton India Ltd. New Delhi Inr 80,000,000 50.000%

. Benetton [Far East] Ltd. Hong Kong Hkd 51,000,000 100.000%

. United Colors of Benetton do Brasil Ltda. São Josè dos Pinhais Brc 25,729,428 100.000%

. Colors Brasil Roupas Ltda. Rio de Janeiro Brc 1,000 100.000%

. Novaben Comercio de Roupas Ltda. Rio de Janeiro Brc 50,000 100.000%

. Ben Store Roupas Ltda. São Paulo Brc 388,078 100.000%

Benetton Sportsystem N.V. Amsterdam Itl 126,912,164,254 100.000%

. Benetton Sportsystem Austria GmbH Hohenems Ats 45,000,000 100.000%

. Benetton Sportsystem U.S.A. Inc. New York Usd 82,961,000 100.000%

. Rollerblade Inc. Minneapolis Usd 133,425,148 99.870%

. Prince Group Bordentown Usd 65,644,000 100.000%

. Benetton Sportsystem Canada Inc. Montreal Cad 18,695,000 100.000%

[�]

90

Companies and groups included within the consolidation area as of June 30, 1999

A P P E N D I C E S

C O N S O L I D AT E D C O M P A N I E S A N D G R O U P S

Capital GroupName of the company Location Currency stock interest

Benetton Sportsystem [Schweiz] AG Stans Chf 500,000 100.000%

Benetton Sportsystem GmbH München Dem 5,500,000 100.000%

Benetton International N.V. Amsterdam Itl 215,495,491,000 100.000%

. Benetton Finance S.A. Luxembourg Itl 351,508,000,000 100.000%

. Lairb Property Ltda. Dublin Itl 500,246,900 100.000%

. Benetton Sportsystem France S.à r.l. Paris Frf 18,000,000 100.000%

. Benetton France Trading S.à r.l. Paris Frf 240,000,000 100.000%

. Benetton France S.A. Troyes Frf 40,000,000 100.000%

. Benetton Realty France S.A. Paris Frf 272,000,000 100.000%

. Benetton España S.L. Castellbisbal Esp 100,000,000 100.000%

. Benetton Sportsystem Iberica S.A. Castellbisbal Esp 160,000,000 100.000%

. Benetton S.A. Castellbisbal Esp 200,000,000 100.000%

. Benetton Lda. Maia Esc 20,000,000 100.000%

. S.A.B. España S.L. Terrassa Esp 9,000,000 100.000%

. Benetton [UK] Ltd. London Gbp 8,225,000 100.000%

. Benetton Formula Ltd. London Gbp 8,900,000 100.000%

. Benetton Retail [1988] Ltd. London Gbp 18,780,000 100.000%

. Benetton Società di Servizi S.A. Lugano Chf 100,000 100.000%

. United Colors Communication S.A. Lugano Chf 1,000,000 100.000%

. Benetton Engineering Ltd. Enstone Gbp 12,342,000 100.000%

. Benetton Tunisia S.à r.l. Sahline Itl 500,000,000 100.000%

. Benetton Ungheria Kft. Nagykallo Itl 172,696,658 100.000%

Investments carried at equity:

. Benetton Mexico S.A. de C.V. Mexico City N$ 27,740,000 100.000%

. Beijing Benetton Fashion Co. Ltd. Beijing Y 3,797,620 50.000%

. T.W.R. Group Ltd. Kidlington Gbp 20,000,000 50.000%

. Benetton Central Europe Ltd. Warsaw Zloty 4,224,000 100.000%

. Benest Ltd. Moscow Rublo 400,000 100.000%

Investments in associated companies carried at cost:

. Consorzio Generazione Forme - Co. Ge. F S. Mauro Torinese [TO] Itl 30,000,000 33.333%

. Benetton Australia Pty. Ltd. Sidney Aud 1,000 100.000%

. SNC L’Apollinaire Paris Frf 250,000 100.000%

91

A P P E N D I C E S

C O N S O L I D AT E D C O M P A N I E S A N D G R O U P S

92


Cash 341,114 557,586 353,234




464,777 695,825 667,496

Accounts receivableTrade receivables 929,212 873,707 938,520



905,730 847,924 896,345

Inventories 315,039 300,382 342,739


362,243 345,331 392,029













Finance leases 14,628 13,922 14,901






TOTAL ASSETS 2,652,912 2,666,989 2,728,502

[�]

Consolidated balance sheets in Euro reclassified according to financial criteria[thousands of Euro]*

A P P E N D I C E S

R E C L A S S I F I E D B A L A N C E S H E E T S I N E U R O - A S S E T S

93


Bank loans 348,010 390,635 348,411

Bonds 18,592 18,592 103,291







Total current liabilities 864,296 916,321 1,034,088






Other reserves 53,845 49,078 45,254

Total long-term liabilities 602,342 588,710 616,904





Other reserves and retained earnings 779,381 679,461 679,461






A P P E N D I C E S

R E C L A S S I F I E D B A L A N C E S H E E T S I N E U R O - L I A B I L I T I E S

94


Revenues 989,130 1,013,754 1,980,053

Cost of salesMaterial and net change in inventories 277,628 318,602 622,522

Payroll and related costs 55,944 53,481 105,754




555,080 595,812 1,167,656

Gross operating income 434,050 417,942 812,397

Selling, general and administrative expensesPayroll and related costs 65,983 72,186 133,884





Other expenses 85,091 92,708 175,173

292,099 301,331 579,444


Other income [expense]Foreign currency gain [loss], net [947] [2,703] 8,293

Interest income 14,204 27,940 53,621



[12,614] [15,207] [14,574]


Income taxes 58,122 38,885 67,683


Minority interests loss [gain] [1,386] [372] 745



Consolidated statements of income in Euro reclassified to cost of sales[thousands of Euro]*

A P P E N D I C E S

R E C L A S S I F I E D S TAT E M E N T S O F I N C O M E I N E U R O

96


Cash 352,302 575,875 364,820




480,021 718,647 689,390

Accounts receivableTrade receivables 959,691 902,365 969,303



935,440 875,736 925,745

Inventories 325,373 310,235 353,981


374,125 356,659 404,888













Finance leases 15,108 14,379 15,389






TOTAL ASSETS 2,739,928 2,754,466 2,817,997

[�]

Consolidated balance sheets in USD reclassified according to financial criteria[thousands of USD]*

A P P E N D I C E S

R E C L A S S I F I E D B A L A N C E S H E E T S I N U S D - A S S E T S

97


Bank loans 359,424 403,447 359,839

Bonds 19,202 19,202 106,679







Total current liabilities 892,645 946,375 1,068,006






Other reserves 55,611 50,688 46,738

Total long-term liabilities 622,098 608,020 637,138





Other reserves and retained earnings 804,944 701,747 701,747





[*] Exchange rate: 1 USD = Lire 1,874.7773

A P P E N D I C E S

R E C L A S S I F I E D B A L A N C E S H E E T S I N U S D - L I A B I L I T I E S

98


Revenues 1,021,574 1,047,005 2,044,999

Cost of salesMaterial and net change in inventories 286,734 329,052 642,941

Payroll and related costs 57,779 55,235 109,223




573,286 615,354 1,205,956

Gross operating income 448,288 431,651 839,043

Selling, general and administrative expensesPayroll and related costs 68,147 74,554 138,276





Other expenses 87,882 95,749 180,918

301,681 311,215 598,450


Other income [expense]Foreign currency gain [loss], net [978] [2,791] 8,565

Interest income 14,670 28,856 55,379



[13,027] [15,706] [15,052]


Income taxes 60,028 40,160 69,903


Minority interests loss [gain] [1,432] [385] 770


[*] Exchange rate: 1 USD = Lire 1,874.7773

Consolidated statements of income in USD reclassified to cost of sales[thousands of USD]*

A P P E N D I C E S

R E C L A S S I F I E D S TAT E M E N T S O F I N C O M E I N U S D

99

Auditors’ review report on the interim financial information for the six months ended June 30, 1999

I N D E P E N D E N T A U D I TO R S ' R E P O R T

To the Shareholders of Benetton Group S.p.A.

We have reviewed the accompanying interim financial information for the six months ended June 30,

1999, which consist of the accounting schedules [balance sheet and income statement], both statu-

tory and consolidated, and of the related footnotes of Benetton Group S.p.A. In addition, we have

verified the consistency of the footnotes with the related information contained in the above

accounting schedules.

Our review was carried out in accordance with the Italian auditing standards recommended by

Consob under Resolution n. 10867 of July 31, 1997. Our review consisted principally of applying ana-

lytical procedures to the underlying financial data, assessing whether accounting principles have been

consistently applied and making enquiries of management responsible for financial and accounting

matters. The review excluded some audit procedures and was therefore substantially less in scope

than an audit performed in accordance with Italian auditing standards. Accordingly, unlike our reports

on the financial statements, both statutory and consolidated, as of December 31, 1998, we do not

express an audit opinion on the interim financial information.

As far as comparable data for the financial statements and the consolidated financial statements for

the year ended December 31, 1998 is concerned, reference should be made to the auditors’ report

issued by us dated April 9, 1999. For the prior year interim financial information reference is made

to the review report issued by us dated October 1, 1998.

Based on our review, we are not aware of any material modifications that should be made to the

interim financial information mentioned in the first paragraph above in order for it to be in confor-

mity with the criteria provided by Consob regulations for the preparation of the interim financial

information for the six months, approved with Resolution n. 8195 of June 30, 1994 and subsequent

modifications.

In the interim financial information the Company has adopted a new accounting principle on income

taxes, which provides for the recognition of deferred tax assets and liabilities. The adoption of this

new accounting principle has led to the recognition of a deferred tax asset in the parent company’s

interim financial information for an amount of Lire 36,012 million. The prior year effect of this change

in accounting principle, which amounts to Lire 36,117 million, has been recorded as extraordinary

income. The adoption of the new accounting principle has no effect on the consolidated six month-

ly financial information.

DELOITTE & TOUCHE S.p.A.

Andrea Ruggeri

P A R T N E R

Fausto Zanon

P A R T N E R

Treviso, Italy

October 1, 1999

H E A D Q U A R T E R S

Benetton Group S.p.A.

Villa Minelli

31050 Ponzano Veneto [Treviso] - Italy

Tel. +39 - 0422 - 4491

L E G A L D ATA

Capital Stock: Lire 453,897,027,500 fully paid-in

Treviso Company Register: 4424

Treviso Register of Commerce: 84146

Tax ID: 00193320264

M E D I A & C O M M U N I C AT I O N D E P A R T M E N T

E-mail: [email protected]

Tel. +39 - 0422 - 449036

Fax +39 - 0422 - 449930

F I N A N C I A L D E P A R T M E N T

Investor relations

E-mail: [email protected]

Tel. +39 - 0422 - 449412

Fax +39 - 0422 - 449336

TV Conference +39 - 0422 - 440623/24/25

To obtain copy of the 1998 annual report

and 1999 interim report: www.benetton.it

graphic design Fabrica · ufficio grafico · Catena di Villorba [TV]

consultancy & co-ordinationD&C financial communication · Milano

color separations Sartori S.r.l. · Quinto [TV]

printing Grafiche V. Bernardi S.r.l. · Pieve di Soligo [TV] · Italy

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