##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) (g) OF THE
SECURITIES EXCHANGE ACT OF 1934or
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the Fiscal Year Ended: December 31, 2007
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from  to
 or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report 
For the Transition Period from  to
 Commission file number: 1-11854
 NATUZZI S.p.A.
  NATUZZI S.p.A.
  Italy
 Via Iazzitiello 47, 70029 Santeramo, Italy
 
 Mr. Nicola DellEdera, Tel. +39 080 8820.111,
investor_relations@natuzzi.com, Fax +39 080 8820.513,
Via Iazzitiello 47, 70029 Santeramo, Italy
  Name of each class
    

Name of each exchange on which registeredAmerican Depositary Shares
    
    New York Stock ExchangeOrdinary Shares with a par value of 1.0 each
    
    New York Stock Exchange*
 *
    
    Not for trading, but only in connection with the registration of the American
Depositary Shares 
    
    Securities registered or to be registered pursuant to Section 12(g) of the Act: None
    
    Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
    
    Outstanding shares of each of the issuers classes of capital or common stock as of December 31, 2007: 54,824,227 Ordinary
Shares
  o þ
  o þ
   þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
  o o þ
  o þ
  o þ




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##### Table of Contents



TABLE OF CONTENTS
 PagePART I
    
    
    2Item 1. Identity of Directors, Senior Management and Advisers
    
    
    2Item 2. Offer Statistics and Expected Timetable
    
    
    2Item 3. Key Information
    
    
    2Selected Financial Data
    
    
    2Exchange Rates
    
    
    4Risk Factors
    
    
    5Forward Looking Information
    
    
    8Item 4. Information on the Company
    
    
    9Introduction
    
    
     9Organizational Structure
    
    
    10Strategy
    
    
    11Manufacturing
    
    
    14Products
    
    
    19Markets
    
    
    21Incentive Programs and Tax Benefits
    
    
    24Management of Exchange Rate Risk
    
    
    25Trademarks and Patents
    
    
    25Regulation
    
    
    25Environmental Regulatory Compliance
    
    
    26Insurance
    
    
    26Description of Properties
    
    
    26Capital Expenditures
    
    
    28Item 4A. Unresolved Staff Comments
    
    
    28Item 5. Operating and Financial Review and Prospects
    
    
    28Critical Accounting Policies
    
    
    28Results of Operations
    
    
    29Liquidity and Capital Resources
    
    
    37Contractual Obligations and Commercial Commitments
    
    
    38
  i




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TABLE OF CONTENTS
 (continued)
 PageRelated Party Transactions
    
    
    39Product and Retail Development
    
    
    39Trend Information and Guidance
    
    
    40New Accounting Standards under Italian and U.S. GAAP
    
    
    41Item 6. Directors, Senior Management and Employees
    
    
    43Compensation of Directors and Officers
    
    
    49Share Ownership
    
    
    49Statutory Auditors
    
    
    49External Auditors
    
    
    50Employees
    
    
    50Item 7. Major Shareholders and Related Party Transactions
    
    
    51Major Shareholders
    
    
    51Related Party Transactions
    
    
    52Item 8. Financial Information
    
    
    52Consolidated Financial Statements
    
    
    52Export Sales
    
    
    52Legal and Governmental Proceedings
    
    
    53Dividends
    
    
    54Item 9. The Offer and Listing
    
    
    54Trading Markets and Share Prices
    
    
    54Item 10. Additional Information
    
    
    55By-laws
    
    
    55Certain Contracts
    
    
    64Exchange Controls
    
    
    64Taxation
    
    
    65Documents on Display
    
    
    70Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    70Item 12. Description of Securities Other than Equity Securities
    
    
    72
  ii




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TABLE OF CONTENTS
 (continued)
 PagePART II
    
    
    73Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    73Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    73Item 15. Controls and Procedures
    
    
    73Item 16. [Reserved]
    
    
    75Item 16.A Audit committee financial expert
    
    
    75Item 16.B Code of Ethics
    
    
    76Item 16.C Principal Accountant Fees and Services
    
    
    76Item 16.D Exemptions from the Listing Standards for Audit Committees
    
    
    77Item 16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    77PART III
    
    
    78Item 17. Financial Statements
    
    
    78Item 18. Financial Statements
    
    
    78Item 19. Exhibits
    
    
    78Exhibit 1.1Exhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1




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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
  
       1




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##### Table of Contents



PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 
 Selected Financial Data
    2




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Year Ended At December 31,2007
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004
    
    
    2003(millions of dollars,except perOrdinary Share)(1)
    
    
    (millions of euro, except for Ordinary Share)Income Statement Data:Amounts in accordance with Italian GAAP :Net sales:Leather- and fabric-upholstered
furniture
    
    $
    878.6
    
    
    
    563.5
    
    
    
    660.2
    
    
    
    594.8
    
    
    
    665.5
    
    
    
    674.0Other(2)
    
    
    110.5
    
    
    
    70.9
    
    
    
    75.2
    
    
    
    75.1
    
    
    
    87.9
    
    
    
    95.6Total net sales
    
    
    989.1
    
    
    
    634.4
    
    
    
    735.4
    
    
    
    669.9
    
    
    
    753.4
    
    
    
    769.6Cost of sales
    
    
    (718.1
    )
    
    
    (460.6
    )
    
    
    (490.5
    )
    
    
    (459.4
    )
    
    
    (484.5
    )
    
    
    (508.8
    )Gross profit
    
    
    271.0
    
    
    
    173.8
    
    
    
    244.9
    
    
    
    210.5
    
    
    
    268.9
    
    
    
    260.8Selling expenses
    
    
    (271.1
    )
    
    
    (173.9
    )
    
    
    (186.2
    )
    
    
    (182.2
    )
    
    
    (188.2
    )
    
    
    (179.3
    )General and administrative expenses
    
    
    (76.4
    )
    
    
    (49.0
    )
    
    
    (42.2
    )
    
    
    (43.0
    )
    
    
    (40.7
    )
    
    
    (39.2
    )Operating income (loss)
    
    
    (76.5
    )
    
    
    (49.1
    )
    
    
    16.5
    
    
    
    (14.7
    )
    
    
    40.0
    
    
    
    42.3Other income (expense), net(3) (4) (5)
    
    
    (4.1
    )
    
    
    (2.6
    )
    
    
    2.8
    
    
    
    3.0
    
    
    
    (3.9
    )
    
    
    3.7Earnings (loss) before taxes and minority
Interests
    
    
    (80.6
    )
    
    
    (51.7
    )
    
    
    19.3
    
    
    
    (11.7
    )
    
    
    36.1
    
    
    
    46.0Income taxes
    
    
    (17.8
    )
    
    
    (11.4
    )
    
    
    (7.1
    )
    
    
    (3.1
    )
    
    
    (17.6
    )
    
    
    (8.5
    )Earnings (loss) before minority interests
    
    
    (98.4
    )
    
    
    (63.1
    )
    
    
    12.2
    
    
    
    (14.8
    )
    
    
    18.5
    
    
    
    37.5Minority interest
    
    
    0.8
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    (0.2
    )Net earnings (loss)
    
    
    (97.6
    )
    
    
    (62.6
    )
    
    
    12.3
    
    
    
    (14.6
    )
    
    
    18.4
    
    
    
    37.3Net earnings (loss) per Ordinary Share
    
    
    (1.78
    )
    
    
    (1.14
    )
    
    
    0.23
    
    
    
    (0.27
    )
    
    
    0.34
    
    
    
    0.68Dividends declared per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.07
    
    
    
    0.14Amounts in accordance with U.S. GAAP :Net earnings (loss)
    
    
    (93.5
    )
    
    
    (60.0
    )
    
    
    14.5
    
    
    
    (6.9
    )
    
    
    18.8
    
    
    
    38.0Net earnings (loss) per Ordinary Share (basic and
diluted)
    
    $
    (1.70
    )
    
    
    (1.09
    )
    
    
    0.26
    
    
    
    (0.13
    )
    
    
    0.34
    
    
    
    0.70Weighted average number of Ordinary Shares
Outstanding
    
    
    54,817,086
    
    
    
    54,817,086
    
    
    
    54,733,796
    
    
    
    54,681,628
    
    
    
    54,681,628
    
    
    
    54,681,628Balance Sheet Data :Amounts in accordance with Italian GAAP :Current assets
    
    $
    567.7
    
    
    
    364.1
    
    
    
    407.3
    
    
    
    384.5
    
    
    
    389.4
    
    
    
    383.1Total assets
    
    
    962.7
    
    
    
    617.5
    
    
    
    674.7
    
    
    
    664.9
    
    
    
    673.2
    
    
    
    692.4Current liabilities
    
    
    227.6
    
    
    
    146.0
    
    
    
    133.0
    
    
    
    136.2
    
    
    
    131.5
    
    
    
    125.2Long-term debt
    
    
    3.3
    
    
    
    2.1
    
    
    
    2.4
    
    
    
    3.6
    
    
    
    5.0
    
    
    
    4.2Minority interest
    
    
    0.2
    
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.9
    
    
    
    0.9Shareholders equity (6)
    
    
    641.7
    
    
    
    411.6
    
    
    
    478.9
    
    
    
    473.0
    
    
    
    487.9
    
    
    
    515.1Amounts in accordance with U.S. GAAP :Shareholders equity
    
    $
    636.9
    
    
    
    408.5
    
    
    
    468.4
    
    
    
    453.7
    
    
    
    464.5
    
    
    
    452.3
 
 1)
    
    Amounts are translated into U.S. dollars by converting the euro amounts into U.S. dollars at the
Noon Buying Rate for euros on June 24, 2008 of U.S.$ 1.5591 per euro.2)
    
    Sales included under Other principally consist of sales of polyurethane foam and leather to
third parties and sales of living room accessories.3)
    
    Other income (expense), net is principally affected by gains and losses, as well as interest
income and expenses, resulting from measures adopted by the Group in an effort to reduce its
exposure to exchange rate risks. See Item 5, Operating and Financial Review and Prospects 
Results of Operations  2007 Compared to 2006, Item 11, Quantitative and Qualitative Disclosures
about Market Risk and Notes 3, 24 and 25 to the Consolidated Financial Statements included in Item
18 of this annual report.4)
    
    Other income (expense), net, in 2005 was affected by the change in accounting principles for the
translation of foreign subsidiaries financial statements under Italian GAAP. See Note 3 (d) to the
Consolidated Financial Statements. In addition, other income (expense), net, in 2005 was positively
affected by revenues for capital grants. See Note 24 to the Consolidated Financial Statements
included in Item 18 of this annual report.5)
    
    Other income (expense), net, in 2006 was negatively affected by the provisions for contingent
liabilities. See Note 24 to the Consolidated Financial Statements included in Item 18 of this
annual report.6)
    
    Share capital as of December 31, 2007, 2006, 2005, 2004 and 2003 amounted to 54.8 million,
54.7 million, 54.7 million, 54.7 million and 57.5 million, respectively.  3




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Exchange Rates
    Year:
    
    Average(1)
    
    
    At Period End2003
    
    
    1.1411
    
    
    
    1.25972004
    
    
    1.2478
    
    
    
    1.35382005
    
    
    1.2400
    
    
    
    1.18422006
    
    
    1.2661
    
    
    
    1.31972007
    
    
    1.3797
    
    
    
    1.4603
 Month ending:
    
    High
    
    
    Low31-Dec-07
    
    
    1.4759
    
    
    
    1.434431-Jan-08
    
    
    1.4877
    
    
    
    1.457429-Feb-08
    
    
    1.5187
    
    
    
    1.449531-Mar-08
    
    
    1.5805
    
    
    
    1.519530-Apr-08
    
    
    1.6010
    
    
    
    1.556831-May-08
    
    
    1.5784
    
    
    
    1.5370
 
 (1)
    
    The average of the Noon Buying Rates for the relevant period, calculated using the
average of the Noon Buying Rates on the last business day of each month during the period.
Source: Federal Reserve Statistical Release on Foreign Exchange Rates  Historical Rates
for Euro Area   4




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Risk Factors
  The Group has a recent history of losses; the Groups future profitability and financial
condition depend on its ability to successfully restructure its operations   12.3 million, 
 
    
    price competition from low-cost manufacturers,
    
    recurring unfavorable currency conditions (in particular the devaluation of the U.S.
dollar),
    
    higher raw material prices, and
    
    more recently, sluggish economic conditions in the Groups key markets (particularly the
United States, but others as well).
  
  Demand for furniture is cyclical and may fall in the future 
   5




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The Group operates principally in a niche area of the furniture market 
 The furniture market is highly competitive 
    Fluctuations in currency exchange rates may adversely affect the Groups results 
 The Group faces risks associated with its international operations 
  6




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The
price of the Groups principal raw material is difficult to predict 
 Introduction of a new integrated management system 
 
    
    improved quality, reliability and timeliness of information;
    
    improved integration and visibility of information stemming from different management
functions and countries;
    
    optimization and global management of corporate processes.
 
 The Groups past results and operations have significantly benefited from government incentive
programs, which may not be available in the future 
  The Group is dependent on qualified personnel 
  7




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Investors
may face difficulties in protecting their rights as shareholders or holders of ADSs  Statuto
 Control of the Company 
   
 Forward Looking Information
   8




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Item 4. Information on the Company
 
 Introduction
  . Divani & Divani by Natuzzi Divani &
Divani by Natuzzi Natuzzi Natuzz Divani & Divani by
Natuzzi
 Industrie Natuzzi S.p.A. Natuzzi S.p.A. Statuto società per azioni
   9




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Organizational Structure
  Percentage ofName
    
    ownership
    
    Registered office
    
    ActivityItalsofa Bahia Ltd
    
    97.99
    
    Bahia, Brazil
    
    (1)Minuano Nordeste S.A.
    
    100.00
    
    Pojuca, Brazil
    
    (1)Italsofa Shanghai Ltd
    
    100.00
    
    Shanghai, China
    
    (1)Softaly Shanghai Ltd
    
    100.00
    
    Shanghai, China
    
    (1)Natuzzi China Ltd
    
    100.00
    
    Shanghai, China
    
    (1)Italsofa Romania
    
    100.00
    
    Baia Mare, Romania
    
    (1)Natco S.p.A.
    
    99.99
    
    Bari, Italy
    
    (2)I.M.P.E. S.p.A.
    
    90.83
    
    Qualiano, Italy
    
    (3)Nacon S.p.A.
    
    100.00
    
    Bari, Italy
    
    (4)Lagene S.r.l.
    
    100.00
    
    Bari, Italy
    
    (4)Natuzzi Americas Inc.
    
    100.00
    
    High Point, NC, USA
    
    (4)Natuzzi Iberica S.A.
    
    100.00
    
    Madrid, Spain
    
    (4)Natuzzi Switzerland AG
    
    97.00
    
    Kaltbrunn, Switzerland
    
    (4)Natuzzi Nordic
    
    100.00
    
    Copenaghen, Denmark
    
    (4)Natuzzi Benelux S.A.
    
    100.00
    
    Geel, Belgium
    
    (4)Natuzzi Germany Gmbh
    
    100.00
    
    Dusseldorf, Germany
    
    (4)Natuzzi Sweden AB
    
    100.00
    
    Stockholm, Sweden
    
    (4)Natuzzi Japan KK
    
    100.00
    
    Tokyo, Japan
    
    (4)Natuzzi Services Limited
    
    100.00
    
    London, UK
    
    (4)Italholding S.r.l.
    
    100.00
    
    Bari, Italy
    
    (5)Natuzzi Netherlands Holding
    
    100.00
    
    Amsterdam, Holland
    
    (5)Natuzzi Trade Service S.r.l.
    
    100.00
    
    Bari, Italy
    
    (6)La Galleria Limited
    
    100.00
    
    London, UK
    
    (7)Natuzzi United Kingdom Limited
    
    100.00
    
    London, UK
    
    (7)Kingdom of Leather Limited
    
    100.00
    
    London, UK
    
    (7)
 (1)
    
    Manufacture and distribution(2)
    
    Intragroup leather dyeing and finishing(3)
    
    Production and distribution of polyurethane foam(4)
    
    Distribution(5)
    
    Investment holding(6)
    
    Transportation services(7)
    
    Dormant  10




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Strategy
  Improving efficiency and reducing operating costs 
 Cassa Integrazione
Guadagni
 Cassa Integrazione Guadagni
    11




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Brand Portfolio Strategy:
 i) The Natuzzi brand
   The Italsofa brand
    12




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Geographical expansion 
 Divani & Divani by Natuzzi Natuzzi Natuzzi Divani & Divani by Natuzzi
 Retail program and brand development  Natuzzi s Natuzzi Natuzzi Divani & Divani by Natuzzi Natuzzi Natuzzi Natuzzi Natuzzi Natuzzi
  Product diversification 
 ®
  13




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Manufacturing
         14




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Raw Materials 
 i.e
  15




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16




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Supply-chain Management
 Procurement Policies and Operations Integration.
 Production
planning (order management, production, procurement).
     17




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Load optimization.
   18




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Transportation.
   
 Products
     19




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pelle spessorata
    Klaus Plaza Tahira Domino    
 Aspen 
 Otranto 
   20




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Markets
 Divani & Divani by Natuzzi Natuzzi Natuzzi Divani & Divani by Natuzzi
  :
 Leather- and Fabric-Upholstered Furniture Net Sales (millions of euro)2007
    
    
    2006
    
    
    2005U.S. and the Americas(1)
    
    
    198.6
    
    
    
    35.2
    %
    
    
    245.4
    
    
    
    37.2
    %
    
    
    241.7
    
    
    
    40.6
    %Europe
    
    
    319.4
    
    
    
    56.7
    %
    
    
    366.6
    
    
    
    55.5
    %
    
    
    313.2
    
    
    
    52.7
    %Rest of the World
    
    
    45.5
    
    
    
    8.1
    %
    
    
    48.3
    
    
    
    7.3
    %
    
    
    39.9
    
    
    
    6.7
    %Total
    
    
    563.5
    
    
    
    100.0
    %
    
    
    660.3
    
    
    
    100.0
    %
    
    
    594.8
    
    
    
    100.0
    %
 (1)
    
    Outside the United States, the Group also sells its products to customers in
Canada and Central and South America (collectively, the Americas). Leather- and Fabric-Upholstered Furniture Net Sales (in seats) (2)2007
    
    
    2006
    
    
    2005U.S. and the Americas(1)
    
    
    1,176,585
    
    
    
    45.4
    %
    
    
    1,364,873
    
    
    
    45.2
    %
    
    
    1,386,329
    
    
    
    49.3
    %Europe
    
    
    1,225,882
    
    
    
    47.3
    %
    
    
    1,449,696
    
    
    
    48.1
    %
    
    
    1,262,887
    
    
    
    44.9
    %Rest of the World
    
    
    189,926
    
    
    
    7.3
    %
    
    
    202,133
    
    
    
    6.7
    %
    
    
    162,523
    
    
    
    5.8
    %Total
    
    
    2,592,393
    
    
    
    100.0
    %
    
    
    3,016,702
    
    
    
    100.0
    %
    
    
    2,811,739
    
    
    
    100.0
    %
 (1)
    
    Outside the United States, the Group also sells its products to customers
in Canada and Central and South America (collectively, the Americas).(2)
    
    Includes seats produced at Group-owned facilities and by subcontractors.
Seats are a unit measurement. A sofa consists of three seats; an armchair of one. 1 United States and the Americas.  
  21




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2 Europe
 2.1 Europe (excluding Italy).  
  Divani & Divani by Natuzzi Natuzzi Natuzzi Natuzzi
 Natuzzi
 2.2 Italy  
  22




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Divani & Divani by Natuzzi Divani & Divani by Natuzzi Natuzzi
 3 Rest of the World
 3.1 Asia-Pacific & Africa      
   Italsofa
 3.2 Middle East  
 Customer Credit Management 
 Advertising 
   23




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Incentive Programs and Tax Benefits
  Natuzzi 2000 project        
   Gazzetta Ufficiale della Repubblica Italiana   
  24




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   
  
 Management of Exchange Rate Risk
  
 Trademarks and Patents
 Divani & Divani by Natuzzi
 
 Regulation
   25




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Environmental Regulatory Compliance
 Pozzuolo del Friuli Qualiano
 
 Insurance
  
 Description of Properties
   26




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Size(approximatesquareLocation
    
    meters)
    
    
    FunctionSanteramo in Colle (BA)  Italy
    
    
    29,000
    
    
    Headquarters, prototyping,
manufacturing of wooden frames,
showroom (Owned)Santeramo in Colle, Iesce (BA)  Italy
    
    
    27,500
    
    
    Sewing and product assembly (Owned)Matera La Martella  Italy
    
    
    38,000
    
    
    General warehouse of sofas and
accessory furnishing (Owned)Matera Iesce  Italy
    
    
    12,500
    
    
    Leather cutting, sewing and product
assembly (Owned)Altamura (BA) via dellAvena  Italy
    
    
    5,800
    
    
    Warehouse (Owned)Altamura (BA) via Graviscella  Italy
    
    
    8,500
    
    
    Warehouse (Owned)Altamura (BA) c.da Fornello  Italy
    
    
    6,500
    
    
    Warehouse (Owned)Altamura (BA) NDS  Italy
    
    
    3,700
    
    
    Accessory Furnishings warehouse
(Owned)Ginosa (TA)  Italy
    
    
    14,500
    
    
    Sewing and product assembly (Owned)Laterza (TA)  Italy
    
    
    10,000
    
    
    Leather cutting (Owned)Laterza (TA)  Italy
    
    
    13,000
    
    
    Fabric and lining cutting, leather
warehouse (Owned)Laterza (TA)  Italy
    
    
    20,000
    
    
    Accessory Furnishing Packaging and
Warehouse (Owned)Qualiano (NA)  Italy
    
    
    12,000
    
    
    Polyurethane foam production (Owned)Pozzuolo del Friuli (UD)  Italy
    
    
    20,000
    
    
    Leather dyeing and finishing (Owned)Montebello (VI)  Italy
    
    
    5,500
    
    
    Leather warehouse (Leased)High Point  North Carolina  U.S.A.
    
    
    10,000
    
    
    Office and showroom for Natuzzi
Americas (Owned)Baia Mare  Romania
    
    
    75,600
    
    
    Leather cutting, sewing and product
assembly, manufacturing of wooden
frames, polyurethane foam shaping,
fiberfill production and wood and
wooden product manufacturing (Owned)Shanghai  China
    
    
    43,500
    
    
    Leather cutting, sewing and product
assembly, manufacturing of wooden
frames, polyurethane foam shaping,
fiberfill production (Owned)Shanghai (Fengpu)  China
    
    
    15,300
    
    
    Leather and fabric cutting, leather
and fabric warehouse (Leased)Salvador de Bahia (Bahia)  Brazil
    
    
    28,700
    
    
    Leather cutting, sewing and product
assembly, manufacturing of wooden
frames, polyurethane foam shaping,
fiberfill production (Owned)Pojuca (Bahia)  Brazil
    
    
    30,000
    
    
    Leather cutting, sewing and product
assembly, manufacturing of wooden
frames, wooden feet, polyurethane
foam shaping, fiberfill production
(Owned)
   27




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##### Table of Contents



Capital Expenditures
  Year ending December 31,(millions of Euro)2007
    
    
    2006
    
    
    2005Land and plants
    
    
    3.3
    
    
    
    2.4
    
    
    
    3.4Equipment
    
    
    10.1
    
    
    
    7.0
    
    
    
    10.1Other assets
    
    
    13.2
    
    
    
    10.5
    
    
    
    11.6Total
    
    
    26.6
    
    
    
    19.9
    
    
    
    25.1
 Natuzzi Natuzzi  Natuzzi Natuzzi
 
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
  
 Critical Accounting Policies
 Use of Estimates 
  28




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##### Table of Contents



Recoverability of Long-lived Assets 
 Allowances for Returns and Discounts 
 Allowance for Doubtful Accounts 
 Revenue Recognition 
 
 Results of Operations
 Summary         
  29




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##### Table of Contents



Year Ended December 31,2007
    
    
    2006
    
    
    2005Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    72.6
    
    
    
    66.7
    
    
    
    68.6Gross profit
    
    
    27.4
    
    
    
    33.3
    
    
    
    31.4Selling expenses
    
    
    27.4
    
    
    
    25.3
    
    
    
    27.2General and administrative expenses
    
    
    7.7
    
    
    
    5.7
    
    
    
    6.4Operating income (loss)
    
    
    (7.7
    )
    
    
    2.3
    
    
    
    (2.2
    )Other income (expense), net
    
    
    (0.4
    )
    
    
    0.4
    
    
    
    0.4Income taxes
    
    
    1.8
    
    
    
    1.0
    
    
    
    0.4Net earnings (loss)
    
    
    (9.9
    )
    
    
    1.7
    
    
    
    (2.2
    )
  2007 Compared to 2006
 Net Sales  
  30




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##### Table of Contents



 
    
      
    
 Divani & Divani by Natuzzi Natuzzi Stores  
    Natuzzi Brand .
  Italsofa Brand
  31




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##### Table of Contents



Other Net Sales  
 Cost of sales  
 Gross Profit.  
 Selling Expenses  
 General and Administrative Expenses.  
 Operating Loss.  
 Other Income (expenses), net.    
  
   
   
   
   
  32




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##### Table of Contents



 
   
  
  
   
  
  
  Income Taxes
    33




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##### Table of Contents



Net Loss.    
      
 2006 Compared to 2005   
 Net sales  
    
      
    
  34




---



##### Table of Contents



Divani & Divani by Natuzzi Natuzzi Stores  
     
 Cost of sales  
 Gross Profit.  
 Selling expenses   Natuzzi stores
 General and Administrative Expenses  
 Operating Income  
  35




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##### Table of Contents



Other income (expense), net    
  
 
    
    A net realized gain of 0.7 million in 2006 (compared to a loss of 4.3 million in
2005) on domestic currency swaps due to the difference between the forward rates of the
domestic currency swaps and the spot rates at which the domestic currency swaps were closed
(the Group uses the forward rate to hedge its price risks against unfavourable exchange rate
variations);
 
    
    A net realized loss of 8.2 million in 2006 (compared to a gain of 5.4 million in
2005), from the difference between invoice exchange rates and collection/payment exchange
rates;
 
    
    A net unrealized gain of 2.8 million in 2006 (compared to an unrealized gain of 2.1
million in 2005) on accounts receivable and payable;
 
    
    A net unrealized gain of 5.5 million in 2006 (compared to an unrealized loss of 4.8
million in 2005), from the mark-to-market of domestic currency swaps.
  
 
    
    Revenue from capital grants, which amounted to 4.4 million in 2005 and nil in 2006. In
2005, Natuzzi received under the aforementioned project Natuzzi 2000 additional capital
grants amounting to 7.9 million. A part of these capital grants, amounting to 4.4
million, was related to depreciation of property, plant and equipment recorded in the
consolidated statements of earnings in years prior to 2005. For this reason, the amount of
4.4 million was classified under the caption other income (expense), net.
 
    
    In 2006 the Group has charged to other income (expense), net the amount of 5.8
million for the estimated probable liabilities related to some claims (including tax
claims) and legal actions. In 2005 the provisions for contingent liabilities were 0.6
million.
 
    
    Other expenses deriving from the write-off of fixed assets, which decreased from 2.8
million in 2005 to nil in 2006.
 
    
    Revenue for export incentive benefits, which increased to 3.4 million from 2.1
million reported in 2005. This incentive is measured on the basis of the export sales
realized by the subsidiaries Italsofa Bahia Ltd and Minuano Nordeste S.A.
 
    
    A payment of 1.1 million received in 2006 from the landlord of a store for the
termination of the related lease contract before the term specified in the lease agreement.
In 2005 the Group recorded an expense of 0.6 million as a provision established for the
penalties that the Group expected to pay to landlords of several stores located in England
for the early termination of the related operating leases.
   36




---



##### Table of Contents



Income Taxes
   Net Earnings    
      
 
 Liquidity and Capital Resources
  
     
    
  37




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##### Table of Contents



 
  
  
 Contractual Obligations and Commitments
  Payments Due by Period (in thousands of euros)Less than
    
    
    13
    
    
    45
    
    
    After 5Contractual Obligations
    
    Total
    
    
    1 year
    
    
    years
    
    
    years
    
    
    yearsLong-Term Debt(1)
    
    
    2,433
    
    
    
    317
    
    
    
    672
    
    
    
    553
    
    
    
    891Interest due on Long Term Debt
(2)
    
    
    281
    
    
    
    75
    
    
    
    97
    
    
    
    61
    
    
    
    48Operating Leases (3)
    
    
    72,525
    
    
    
    13,114
    
    
    
    21,878
    
    
    
    17,172
    
    
    
    20,361Total Contractual Cash
Obligations
    
    
    75,239
    
    
    
    13,506
    
    
    
    22,647
    
    
    
    17,786
    
    
    
    21,300
 
 (1)
    
    Please see Note 16 to the Consolidated Financial Statements included in this annual
report for more information on the Groups long-term debt.(2)
    
    Interest due on long-term debt has been calculated using fixed rates contractually
agreed with lenders(3)
    
    The leases relate to the leasing of manufacturing facilities and stores by several
of the Groups companies.   
  38




---



##### Table of Contents



Amount of Commitment Expiration Per Period(in thousands of euros)TotalAmounts
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    After 5Other Commitments
    
    Committed
    
    
    1 year
    
    
    13 years
    
    
    45 years
    
    
    yearsGuarantees(1)
    
    
    26,005
    
    
    
    26,005
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The guarantees are primarily comprised of surety bonds provided by certain financial
institutions in connection with the Natuzzi 2000 project. The Company, in turn, directly provides
guarantees in an equivalent amount to such financial institutions. The surety bonds will expire
when the Italian Ministry of Economic Development provides the Company with the final disbursement
of the capital grants already provided. See Item 4  Information on the Company  Incentive
Programs and Tax benefits. 
 
 Related Party Transactions
  
 Product & Retail Development
  
    
    to draw the retail business model for the Group,
    
    to design an auditing and control system for the Groups retail business
model under the supervision of top management,
    
    to define the consumer segments to be targeted,
    
    to define a product mix more consistent with targeted consumers and market,
    
    to define store concept consistent with the Natuzzi brands high-end positioning,
    
    to define store formats (size, location, aesthetic and commercial features),
    
    to define development plans and network re-positioning, and
    
    to define the correct communication tools and training.
  39




---



##### Table of Contents



 
 
 Trend Information and Guidance
 
    40




---



##### Table of Contents



New Accounting Standards under Italian and U.S. GAAP
 Process of Transition to International Accounting Standards 
 Italian GAAP 
 U.S. GAAP 
 SFAS No. 141R and SFAS No. 160:
 Business Combinations Noncontrolling Interest in Consolidated Financial Statements  an
amendment to ARB No. 51
 SFAS No. 157:
 Fair Value Measurement
  41




---



##### Table of Contents



SFAS No. 159:
 The
Fair Value Option for Financial Assets and Financial Liabilities  including an amendment of FASB
Statement No. 115
 SFAS No. 161:
 Accounting
for Derivative Instruments and Hedging Activities
 EITF 06-4:
 Issue No.
06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements Employers Accounting for Postretirement Benefit Other Than Pensions
 EITF 04-13:
 Accounting for Purchases and Sales of Inventory with the Same Counterparty
  42




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##### Table of Contents



Item 6. Directors, Senior Management and Employees
  Name
    
    Age
    
    Position with the CompanyPasquale Natuzzi *
    
    
    68
    
    
    Chairman of the Board of Directors and Chief
Executive OfficerGiuseppe Desantis * (1)
    
    
    45
    
    
    Vice Chairman of the Board of Directors and
Worldwide Operations General ManagerGiuseppe Russo Corvace
*
    
    
    58
    
    
    Member of the Board of Directors and Managing
Director for Accounting and FinanceArmando Branchini *
    
    
    63
    
    
    Outside DirectorStelio Campanale *
    
    
    46
    
    
    Outside DirectorErnesto Greco *
    
    
    57
    
    
    Outside DirectorMaurizia Iachino Leto
di Priolo *
    
    
    59
    
    
    Outside DirectorSalvatore Gaipa
    
    
    55
    
    
    Chief Financial OfficerAnnunziata Natuzzi
    
    
    44
    
    
    Chief Executive Officer of Natco S.p.A. and
Product & Retail Development General Manager (ad
interim)Francesco Basile (1)
    
    
    39
    
    
    Human Resources & Organization Corporate DirectorCary Benson
    
    
    48
    
    
    President and Chief Executive Officer of Natuzzi
Americas Inc.Massimiliano Caforio
    
    
    39
    
    
    Natuzzi Legal DirectorAngelo Colacicco
    
    
    39
    
    
    Information Systems DirectorVito Tiziano Damiani
    
    
    44
    
    
    Internal Audit DirectorGaetano De Cataldo (1)
    
    
    44
    
    
    Executive Vice President of Finance and Operations
of Natuzzi Americas, Inc.Nicola DellEdera (1)
    
    
    46
    
    
    Finance DirectorJosé Manuel Gulias Roo
    
    
    50
    
    
    Spain and Portugal Country ManagerThomas Hagerup
    
    
    40
    
    
    Nordic Region Country ManagerOliver Heil
    
    
    41
    
    
    Commercial Director of the Asia & Pacific RegionCesare Laberinti
    
    
    75
    
    
    Chairman and Managing Director of IMPE S.p.AJan Mentens
    
    
    41
    
    
    Benelux Country ManagerGiovanni Mercadante
    
    
    51
    
    
    Accounting DirectorOttavio Milano (1)
    
    
    42
    
    
    Control DirectorMarcelo Miraglia
    
    
    54
    
    
    Chairman and Managing Director of Minuano Nordeste
S.A and Italsofa Bahia LtdNick Moore
    
    
    46
    
    
    Managing Director of Natuzzi United Kingdom LtdStefano Rezzin
    
    
    43
    
    
    Austria and Switzerland Country ManagerBodo Rupp
    
    
    49
    
    
    Germany Country ManagerStefano Sette (1)
    
    
    39
    
    
    Executive Vice President Sales Worldwide, Regional
Manager East Europe, Middle East and India (ad
interim) and Chairman of Nacon S.p.A.Francesco Stasolla (1)
    
    
    42
    
    
    Chairman and Managing Director of Italsofa Romania
S.r.l.Richard Tan
    
    
    48
    
    
    Chairman and Managing Director of Italsofa
(Shanghai) Ltd and Softaly (Shanghai) Ltd
 *
    
    The above mentioned Members of the Board of Directors were elected at the Companys Annual
Ordinary Shareholders Meeting held on May 3, 2007. Their term will conclude at the next Ordinary
Shareholders Meeting, which will be held on July 2, 2008 (on first call), and, if necessary, on
July 3, 2008 (on second call), in order to consider and vote upon the appointment of the new
members of the Board of Directors and determination of their compensation.(1)
    
    These directors and officers have received ordinary shares pursuant to the Companys
incentive plan. In the aggregate those shares amount to less than 1% of the Companys outstanding
share capital.  43




---



##### Table of Contents



Vitali, Romagnoli, Piccardi e Associati
 InterCorporate  Strategie e Impresa
  Centro Universitario di Organizzazione Aziendale
   44




---



##### Table of Contents



ad interim
        45




---



##### Table of Contents



ad interim
       .
   46




---



##### Table of Contents



Ordinary Shareholders Meeting 
   Antonisa Perrone
 Aldo Uva Nestlè Nestlè Nestlè Sara Lee Corporation Parmalat Indesit Company
  47




---



##### Table of Contents



Maurizia Iachino Leto di Priolo
 Annamaria
Natuzzi
 Giuseppe Antonio DAngelo General Mills General Mills The Pillsbury Co. International S.C. Johnson & Son, Inc. Procter & Gamble
 Francesco Giannaccari Tom Ford Europe and International Franchisees Pelletteria Artigiana Pelletteria Artigiana Abercrombie & Fitch Gruppo Rinascente GUCCI Group Gucci Europe Bottega Veneta GUCCI Group NV
 Mario Lugli Luxottica Albacom British Telecom Italia RCS Media
Group FIAT Montedison IRI-Italstat Banca Italease Network S.p.A. AMSA SpA Investimenti
Infrastrutture SpA ENI Trading and Shipping Spa ENI Servizi SpA Key2People Executive Search cum laude
   48




---



##### Table of Contents



Compensation of Directors and Officers
    
 Share Ownership
  
 Statutory Auditors
  Name
    
    PositionFrancesco Venturelli
    
    ChairmanCataldo Sferra
    
    MemberCostante Leone
    
    MemberGiuseppe Pio Macario
    
    AlternateVittorio Boscia
    
    Alternate
  49




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##### Table of Contents



External Auditors
  
 Employees
  33.3 million
   50




---



##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions
 
 Major Shareholders
    Number of
    
    
    PercentShares Owned
    
    
    OwnedPasquale Natuzzi(1)
    
    
    29,358,089
    
    
    
    53.5
    %Royce & Associates, LLC
    
    
    5,501,300
    
    
    
    10.0
    %Brandes Investment Partners, LP
(2)
    
    
    3,857,922
    
    
    
    7.0
    %Tweedy, Browne Co. LLC (3)
    
    
    3,282,708
    
    
    
    6.0
    %
 
 (1)
    
    Includes ADSs purchased on April 18, 2008. If Mr. Natuzzis Ordinary Shares are
aggregated with those held by members of the Natuzzi Family, the amount owned would be 32,158,091
and the percentage ownership of Ordinary Shares would be 58.6%.(2)
    
    During the course of 2005, Brandes Investment Partners, LP increased its position in
Natuzzis shareholders base by 2,519,750 Natuzzi ADSs, thus holding 8.4% of shareholders equity
with a total of 4,587,197 Natuzzi ADSs as of December 31, 2005. During 2006, the position was
increased by only 151,837 ADSs and during 2007 its position was reduced by 792,463 ADSs to
3,946,571 ADSs as of December 31, 2007.(3)
    
    During the course of 2008 Tweedy, Browne Co. LLC sold 3,293,183 ADSs to Mr. Pasquale
Natuzzi.   51




---



##### Table of Contents



Related Party Transactions
  
 
 
 
 
 Item 8. Financial Information
 
 Consolidated Financial Statements
  
 Export Sales
   52




---



##### Table of Contents



Legal and Governmental Proceedings
 Istituto Nazionale di Previdenza Sociale Contratti di formazione e lavoro
         53




---



##### Table of Contents



Dividends
   Dividends per
    
    
    Translated intoYear ended December 31,
    
    Ordinary Share
    
    
    dollars per ADS2007
    
    Not distributed
    
    Not distributed2006
    
    Not distributed
    
    Not distributed2005
    
    Not distributed
    
    Not distributed2004
    

    0.0673

    
    
    $
    0.092003
    

    0.1366

    
    
    $
    0.15
   Item 9. The Offer and Listing
 
 Trading Markets and Share Prices
   54




---



##### Table of Contents



(1)
 New York Stock ExchangePrice per ADSHigh
    
    
    Low(in U.S. dollars)2003
    
    
    11.000
    
    
    
    7.2402004
    
    
    11.550
    
    
    
    9.2302005
    
    
    11.650
    
    
    
    6.7602006
    
    
    8.650
    
    
    
    6.3202007
    
    
    9.600
    
    
    
    4.3602006First Quarter
    
    
    7.810
    
    
    
    7.100Second Quarter
    
    
    7.600
    
    
    
    6.860Third Quarter
    
    
    7.250
    
    
    
    6.320Fourth Quarter
    
    
    8.650
    
    
    
    6.8402007First Quarter
    
    
    9.600
    
    
    
    8.150Second Quarter
    
    
    8.533
    
    
    
    7.180Third Quarter
    
    
    8.310
    
    
    
    5.260Fourth Quarter
    
    
    6.840
    
    
    
    4.360Monthly Data:December-07
    
    
    5.190
    
    
    
    4.360January-08
    
    
    4.630
    
    
    
    3.200February-08
    
    
    4.190
    
    
    
    3.780March-08
    
    
    4.200
    
    
    
    3.229April-08
    
    
    4.100
    
    
    
    3.390May-08
    
    
    4.020
    
    
    
    3.470June 2008 (through June 24)
    
    
    3.532
    
    
    
    3.210
 
 Item 10. Additional Information
 
 By-laws
 Statuto
 
 (1)
    
    Starting on January 1, 2001, the NYSE changed its practice of reporting stock quotes from a fractional to a decimal system.
All stock quotes prior to this date, originally reported in fractions, were restated into decimals for ease of comparison.  55




---



##### Table of Contents



General 
   Authorization of shares 
 Form and Transfer of Shares 
 Dividend Rights 
  56




---



##### Table of Contents



Voting Rights 
  Board of Directors 
 Presidente amministratori delegati
   57




---



##### Table of Contents



direttore generale
       58




---



##### Table of Contents



Statutory Auditors  Collegio Sindacale
    External Auditor 
  59




---



##### Table of Contents



Meetings of Shareholders 
 Il Sole 24 Ore Corriere della Sera La Repubblica
     60




---



##### Table of Contents



Preemptive Rights 
 Preference Shares; Other Securities 
  Segregation of Assets and Proceeds 
  61




---



##### Table of Contents



Liquidation Rights  pari passu
 Purchase of Shares by the Company 
   Notification of the Acquisition of Shares 
  62




---



##### Table of Contents



Minority Shareholders Rights; Withdrawal Rights 
      Liability for Mismanagement of Subsidiaries 
   63




---



##### Table of Contents



Certain Contracts
  
 Exchange Controls
      64




---



##### Table of Contents



Taxation
      Italian Tax Considerations  
  65




---



##### Table of Contents



66




---



##### Table of Contents



United
States Tax Considerations 
      67




---



##### Table of Contents



Taxation of Capital Gains
 Italian Tax Considerations 
    United
States Tax Considerations 
  68




---



##### Table of Contents



Taxation of Distributions from Capital Reserves
 Italian
Tax Considerations 
 Other Italian Taxes
 Estate
and Inheritance Tax 
 
    
    Transfers to a spouse or direct descendants or ancestors up to Euro
1,000,000 to each beneficiary are exempt from inheritance and gift tax. Transfers
in excess of such threshold will be taxed at a 4% rate on the value of the
Ordinary Shares or ADSs exceeding such threshold;
    
    Transfers between relatives up to the fourth degree other than
siblings, and direct or indirect relatives by affinity up to the third degree are
taxed at a rate of 6% on the value of the Ordinary Shares or ADSs (where
transfers between siblings up to a maximum value of Euro 100,000 for each
beneficiary are exempt from inheritance and gift tax); and
    
    Transfers by reason of gift or death of Ordinary Shares or ADSs to
persons other than those described above will be taxed at a rate of 8% on the
value of the Ordinary Shares or ADSs.
   Transfer Tax 
  69




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##### Table of Contents



Documents on Display
 http://www.sec.gov
 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk
   Exchange Rate Risks
     70




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##### Table of Contents



Euro equivalent of contractual amounts
    
    December 31,of forward exchange contracts as of
    
    2007
    
    
    2006U.S. dollars
    
    
    58,724
    
    
    
    90,744Euro
    
    
    46,326
    
    
    
    19,154Canadian dollars
    
    
    18,930
    
    
    
    15,703Australian dollars
    
    
    16,503
    
    
    
    9,934British pounds
    
    
    8,751
    
    
    
    15,121Norwegian kroner
    
    
    7,071
    
    
    
    6,027Danish kroner
    
    
    2,681
    
    
    
    924Swedish kroner
    
    
    2,616
    
    
    
    3,887Swiss francs
    
    
    620
    
    
    
    2,584Japanese yen
    
    
    292
    
    
    
    864Total
    
    
    162,514
    
    
    
    164,942
   December 31, 2007
    
    
    December 31, 2006Unrealized
    
    
    
    
    
    
    UnrealizedContract
    
    
    gains
    
    
    Contract
    
    
    gainsAmount
    
    
    (losses)
    
    
    Amount
    
    
    (losses)Assets
    
    
    97,967
    
    
    
    4,995
    
    
    
    137,608
    
    
    
    6,141Liabilities
    
    
    65,547
    
    
    
    (4,049
    )
    
    
    27,334
    
    
    
    (678
    )Total
    
    
    162,514
    
    
    
    946
    
    
    
    164,942
    
    
    
    5,463
   71




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##### Table of Contents



Interest Rate Risks 
  
 Item 12. Description of Securities Other than Equity Securities
   72




---



##### Table of Contents



PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
 Disclosure Controls and Procedures 
  Managements annual report on internal control over financial reporting 
   73




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
        74




---



##### Table of Contents



Changes in Internal Control Over Financial Reporting 
      
 Item 16. [Reserved]
 
 Item 16.A Audit committee financial expert
   75




---



##### Table of Contents



Item 16.B Code of Ethics
 e-mail
 
 Item 16.C Principal Accountant Fees and Services
  2007
    
    
    2006(in euros)Audit fees
    
    
    1,063,000
    
    
    
    595,000Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    Other fees
    
    
    
    
    
    
    Total fees
    
    
    1,063,000
    
    
    
    595,000
    76




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##### Table of Contents



Item 16.D Exemptions from the Listing Standards for Audit Committees.
  
    
    the board of statutory auditors is established and selected pursuant
to Italian law expressly permitting such a board;
    
    the board of statutory auditors is required under Italian law to be
separate from the Companys board of directors;
    
    the board of statutory auditors is not elected by management of the
Company and no Executive Officer of the Company is a member of the
board of statutory auditors;
    
    Italian Law provides for standards for the independence of the board
of statutory auditors from the Company and its management;
    
    the board of statutory auditors, in accordance with applicable Italian
law and the Companys governing documents, is responsible, to the
extent permitted by Italian law, for the appointment, retention and
oversight of the work (including, to the extent permitted by law, the
resolution of disagreements between management and the auditor
regarding financial reporting) of any registered public accounting
firm engaged for the purpose of preparing or issuing an audit report
or performing other audit, review or attest services for the Company,
and
    
    to the extent permitted by Italian law, the audit committee
requirements of paragraphs (b)(3), (b)(4) and (b)(5) of Rule
10A-3
apply to the Board of Statutory Auditors.
  
 Item 16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    77




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##### Table of Contents



PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    
    F-1Consolidated Balance Sheets as of December 31, 2007 and 2006
    
    
    F-2Consolidated Statements of Operations for the Years Ended December
31, 2007, 2006 and 2005
    
    
    F-3Consolidated Statements of Changes in Shareholders Equity for the
Years Ended December 31, 2007, 2006 and 2005
    
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December
31, 2007, 2006 and 2005
    
    
    F-5Notes to the Consolidated Financial Statements
    
    
    F-7
 
 Item 19. Exhibits
 1.1
    
    English translation of the by-laws (Statuto) of the Company, as amended and restated as of
January 24, 2008.2.1
    
    Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 31, 2001,
among the Company, The Bank of New York, as Depositary, and owners and beneficial owners of
ADRs (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the Securities
and Exchange Commission on July 1, 2002, file number 1-11854).8.1
    
    List of Significant Subsidiaries.12.1
    
    Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.12.2
    
    Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.13.1
    
    Certifications pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
  78




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##### Table of Contents



KPMG S.p.A.
 
  F-1




---



##### Table of Contents



Natuzzi S.p.A. and Subsidiaries
 
 Consolidated Balance Sheets as at December 31, 2007 and 2006
  December 31,
    
    
    December 31,2007
    
    
    2006ASSETSCurrent assets:Cash and cash equivalents (note 4)
    
    
    87,459
    
    
    
    128,109Marketable debt securities (note 5)
    
    
    4
    
    
    
    5Trade receivables, net (note 6)
    
    
    117,722
    
    
    
    119,274Other receivables (note 7)
    
    
    47,784
    
    
    
    44,681Inventories (note 8)
    
    
    107,290
    
    
    
    100,358Unrealized foreign exchange gains (note 25)
    
    
    946
    
    
    
    5,463Prepaid expenses and accrued income
    
    
    1,847
    
    
    
    1,955Deferred income taxes (note 14)
    
    
    1,079
    
    
    
    7,463Total current assets
    
    
    364,131
    
    
    
    407,308Non current assets:Property plant and equipment (note 9 and 22)
    
    
    413,730
    
    
    
    405,870Less accumulated depreciation (note 9 and 22)
    
    
    (177,880
    )
    
    
    (159,547
    )Net property, plant and equipment
    
    
    235,850
    
    
    
    246,323Other assets (note 10)
    
    
    17,276
    
    
    
    18,752Deferred income taxes (note 14)
    
    
    212
    
    
    
    2,291Total assets
    
    
    617,469
    
    
    
    674,674LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term borrowings (note 11)
    
    
    7,576
    
    
    
    3,801Current portion of long-term debt (note 16)
    
    
    317
    
    
    
    318Accounts payable-trade (note 12)
    
    
    89,247
    
    
    
    79,519Accounts payable-other (note 13)
    
    
    29,813
    
    
    
    23,067Income taxes (note 14)
    
    
    1,585
    
    
    
    4,611Salaries, wages and related liabilities (note 15)
    
    
    17,531
    
    
    
    21,674Total current liabilities
    
    
    146,069
    
    
    
    132,990Long-term liabilities:Employees leaving entitlement (note 3 (n) )
    
    
    33,343
    
    
    
    35,269Long-term debt (note 16)
    
    
    2,116
    
    
    
    2,433Deferred income taxes (note 14)
    
    
    
    
    
    
    Deferred income for capital grants (note 3 (m) )
    
    
    13,332
    
    
    
    14,075Other liabilities (note 17)
    
    
    10,866
    
    
    
    10,460Minority interest (note 18)
    
    
    146
    
    
    
    605Shareholders equity (note 19):Share capital
    
    
    54,824
    
    
    
    54,739Reserves
    
    
    42,292
    
    
    
    42,292Additional paid-in capital
    
    
    8,282
    
    
    
    8,282Retained earnings
    
    
    306,199
    
    
    
    373,529Total shareholders equity
    
    
    411,597
    
    
    
    478,842Committments and contingent liabilities (notes 21 and 25)
    
    
    
    
    
    
    Total liabilities and shareholders equity
    
    
    617,469
    
    
    
    674,674
 See accompanying notes to the consolidated financial statements
  F-2




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##### Table of Contents



Natuzzi S.p.A. and Subsidiaries
 
 Consolidated Statements of Operations
 Years ended December 31, 2007, 2006 and 2005
  2007
    
    
    2006
    
    
    2005Net sales (note 22)
    
    
    634,402
    
    
    
    735,439
    
    
    
    669,926Cost of sales (note 23)
    
    
    (460,589
    )
    
    
    (490,563
    )
    
    
    (459,492
    )Gross profit
    
    
    173,813
    
    
    
    244,876
    
    
    
    210,434Selling expenses
    
    
    (173,885
    )
    
    
    (186,238
    )
    
    
    (182,169
    )General and administrative expenses
    
    
    (49,038
    )
    
    
    (42,164
    )
    
    
    (42,955
    )Operating income (loss)
    
    
    (49,110
    )
    
    
    16,474
    
    
    
    (14,690
    )Other income (expense), net (note 24)
    
    
    (2,646
    )
    
    
    2,847
    
    
    
    2,960Earnings (loss) before taxes
and minority interest
    
    
    (51,756
    )
    
    
    19,321
    
    
    
    (11,730
    )Income taxes (note 14)
    
    
    (11,387
    )
    
    
    (7,085
    )
    
    
    (3,110
    )Earnings (loss) before minority interest
    
    
    (63,143
    )
    
    
    12,236
    
    
    
    (14,840
    )Minority interest
    
    
    496
    
    
    
    103
    
    
    
    216Net earnings (loss)
    
    
    (62,647
    )
    
    
    12,339
    
    
    
    (14,624
    )Basic earnings (loss) per share (note 3 (w))
    
    
    (1.14
    )
    
    
    0.23
    
    
    
    (0.27
    )Diluted earnings (loss) per share (note 3 (w))
    
    
    (1.14
    )
    
    
    0.23
    
    
    
    (0.27
    )
 See accompanying notes to the consolidated financial statements
  F-3




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##### Table of Contents



Natuzzi S.p.A. and Subsidiaries
 
 Consolidated Statements of Changes in Shareholders Equity
 Years ended December 31, 2007, 2006 and 2005
  Share capital
    
    
    
    
    
    
    AdditionalNumber of
    
    
    
    
    
    
    
    
    
    
    paid-in
    
    
    Retainedordinary shares
    
    
    Amount
    
    
    Reserves
    
    
    capital
    
    
    earnings
    
    
    TotalBalances at December 31, 2004
    
    
    54,681,628
    
    
    
    54,682
    
    
    
    42,292
    
    
    
    8,282
    
    
    
    382,677
    
    
    
    487,933Dividends distributed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,828
    )
    
    
    (3,828
    )Exchange difference on
translation of financial
statements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,544
    
    
    
    3,544Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,624
    )
    
    
    (14,624
    )Balances at December 31, 2005
    
    
    54,681,628
    
    
    
    54,682
    
    
    
    42,292
    
    
    
    8,282
    
    
    
    367,769
    
    
    
    473,025Increase share capital
    
    
    56,910
    
    
    
    57
    
    
    
    
    
    
    
    
    
    
    
    (57
    )
    
    
    Exchange difference on
translation of financial
statements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,522
    )
    
    
    (6,522
    )Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,339
    
    
    
    12,339Balances at December 31, 2006
    
    
    54,738,538
    
    
    
    54,739
    
    
    
    42,292
    
    
    
    8,282
    
    
    
    373,529
    
    
    
    478,842Dividends distributed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Increase share capital
    
    
    85,689
    
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    (85
    )
    
    
    Exchange difference on
translation of financial
statements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,598
    )
    
    
    (4,598
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (62,647
    )
    
    
    (62,647
    )Balances at December 31, 2007
    
    
    54,824,227
    
    
    
    54,824
    
    
    
    42,292
    
    
    
    8,282
    
    
    
    306,199
    
    
    
    411,597
 See accompanying notes to the consolidated financial statements
  F-4




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##### Table of Contents



Natuzzi S.p.A. and Subsidiaries
 
 Consolidated Statements of Cash Flows
Years ended December 31, 2007, 2006 and 2005
 2007
    
    
    2006
    
    
    2005Cash flows from operating activities:Net earnings (loss)
    
    
    (62,647
    )
    
    
    12,339
    
    
    
    (14,624
    )Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    30,331
    
    
    
    30,281
    
    
    
    30,272Write off of fixed assets
    
    
    2,285
    
    
    
    
    
    
    
    2,770Employees leaving entitlement
    
    
    7,389
    
    
    
    6,778
    
    
    
    6,877Deferred income taxes
    
    
    8,463
    
    
    
    (2,058
    )
    
    
    (6,300
    )Minority interest
    
    
    (496
    )
    
    
    (103
    )
    
    
    (216
    )(Gain) loss on disposal of assets
    
    
    116
    
    
    
    767
    
    
    
    (149
    )Unrealized foreign exchange losses and (gains)
    
    
    4,517
    
    
    
    (10,230
    )
    
    
    11,868Deferred income for capital grants
    
    
    (743
    )
    
    
    (1,309
    )
    
    
    (5,616
    )Equity in affiliated company
    
    
    1,221
    
    
    
    
    
    
    
    Change in assets and liabilities:Receivables, net
    
    
    599
    
    
    
    1,883
    
    
    
    10,580Inventories
    
    
    (6,932
    )
    
    
    15,444
    
    
    
    (1,546
    )Prepaid expenses and accrued income
    
    
    108
    
    
    
    596
    
    
    
    (141
    )Accounts payable
    
    
    16,474
    
    
    
    4,285
    
    
    
    (7,443
    )Income taxes
    
    
    (3,026
    )
    
    
    1,704
    
    
    
    386Salaries, wages and related liabilities
    
    
    (4,143
    )
    
    
    (445
    )
    
    
    3,318Other liabilities
    
    
    406
    
    
    
    6,102
    
    
    
    (1,001
    )Employees leaving entitlement
    
    
    (9,315
    )
    
    
    (3,854
    )
    
    
    (4,526
    )Total adjustments
    
    
    47,254
    
    
    
    49,841
    
    
    
    39,133Net cash provided by (used in)
operating activities
    
    
    (15,393
    )
    
    
    62,180
    
    
    
    24,509Cash flows from investing activities:Property, plant and equipment:Additions
    
    
    (21,445
    )
    
    
    (15,563
    )
    
    
    (20,917
    )Disposals
    
    
    589
    
    
    
    1,057
    
    
    
    916Other assets
    
    
    (5,039
    )
    
    
    (3,560
    )
    
    
    (1,361
    )Government grants received
    
    
    
    
    
    
    605
    
    
    
    1,002Purchase of business, net of cash acquired
    
    
    (230
    )
    
    
    (250
    )
    
    
    (1,985
    )Net cash used in investing activities
    
    
    (26,125
    )
    
    
    (17,711
    )
    
    
    (22,345
    )
  F-5




---



##### Table of Contents



2007
    
    
    2006
    
    
    2005Cash flows from financing activities:Long-term debt:Proceeds
    
    
    
    
    
    
    363
    
    
    
    533Repayments
    
    
    (318
    )
    
    
    (1,620
    )
    
    
    (2,094
    )Short-term borrowings
    
    
    3,775
    
    
    
    (3,926
    )
    
    
    1,628Dividends paid to shareholders
    
    
    
    
    
    
    
    
    
    
    (3,828
    )Dividends paid to minority interests
    
    
    
    
    
    
    
    
    
    
    Net cash provided by (used in)
financing activities
    
    
    3,457
    
    
    
    (5,183
    )
    
    
    (3,761
    )Effect of translation adjustments on cash
    
    
    (2,589
    )
    
    
    (900
    )
    
    
    3,980Increase (decrease) in cash and cash equivalents
    
    
    (40,650
    )
    
    
    38,386
    
    
    
    2,383Cash and cash equivalents, beginning of the year
    
    
    128,109
    
    
    
    89,723
    
    
    
    87,340Cash and cash equivalents, end of the year
    
    
    87,459
    
    
    
    128,109
    
    
    
    89,723Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    
    665
    
    
    
    1,400
    
    
    
    951Cash paid during the year for income taxes
    
    
    5,409
    
    
    
    6,555
    
    
    
    6,659Non cash investing activities
    
    
    
    
    
    
    3,093
    
    
    
    5,844
 See accompanying notes to consolidated financial statements
  F-6




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##### Table of Contents



Notes to the consolidated financial statements
  1. Description of business and Group composition
   Percent ofName
    
    ownership
    
    
    Registered office
    
    ActivityItalsofa Bahia Ltd
    
    
    97.99
    
    
    Bahia, Brazil
    
    
    (1
    )Minuano Nordeste S.A.
    
    
    100.00
    
    
    Pojuca, Brazil
    
    
    (1
    )Italsofa Shanghai Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    
    (1
    )Softaly Shanghai Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    
    (1
    )Natuzzi China Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    
    (1
    )Italsofa Romania
    
    
    100.00
    
    
    Baia Mare, Romania
    
    
    (1
    )Natco S.p.A.
    
    
    99.99
    
    
    Bari, Italy
    
    
    (2
    )I.M.P.E. S.p.A.
    
    
    90.83
    
    
    Qualiano, Italy
    
    
    (3
    )Nacon S.p.A.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (4
    )Lagene S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (4
    )Natuzzi Americas Inc.
    
    
    100.00
    
    
    High Point, NC, USA
    
    
    (4
    )Natuzzi Iberica S.A.
    
    
    100.00
    
    
    Madrid, Spain
    
    
    (4
    )Natuzzi Switzerland AG
    
    
    97.00
    
    
    Kaltbrunn, Switzerland
    
    
    (4
    )Natuzzi Nordic
    
    
    100.00
    
    
    Copenaghen, Denmark
    
    
    (4
    )Natuzzi Benelux S.A.
    
    
    100.00
    
    
    Geel, Belgium
    
    
    (4
    )Natuzzi Germany Gmbh
    
    
    100.00
    
    
    Dusseldorf, Germany
    
    
    (4
    )Natuzzi Sweden AB
    
    
    100.00
    
    
    Stockholm, Sweden
    
    
    (4
    )Natuzzi Japan KK
    
    
    100.00
    
    
    Tokyo, Japan
    
    
    (4
    )Natuzzi Services Limited
    
    
    100.00
    
    
    London, UK
    
    
    (4
    )Italholding S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (5
    )Natuzzi Netherlands Holding
    
    
    100.00
    
    
    Amsterdam, Holland
    
    
    (5
    )Natuzzi Trade Service S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (6
    )Natuzzi United Kingdom Limited
    
    
    100.00
    
    
    London, UK
    
    
    (7
    )Kingdom of Leather Limited
    
    
    100.00
    
    
    London, UK
    
    
    (7
    )La Galleria Limited
    
    
    100.00
    
    
    London, UK
    
    
    (7
    )
 (1)
    
    Manufacture and distribution(2)
    
    Intragroup leather dyeing and finishing(3)
    
    Production and distribution of polyurethane foam(4)
    
    Distribution(5)
    
    Investment holding(6)
    
    Transportation services(7)
    
    Dormant  F-7




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##### Table of Contents



Notes
to the consolidated financial statements
   Goodwill
    
    
    225Leasehold improvements
    
    
    5Cash paid
    
    
    230
    Goodwill
    
    
    2,600Fixed assets
    
    
    132Leasehold improvements
    
    
    468Current liabilities
    
    
    (107
    )Purchase price
    
    
    3,093
   F-8




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##### Table of Contents



Notes
to the consolidated financial statements
  Goodwill
    
    
    100Fixed assets
    
    
    38Current assets
    
    
    112Purchase price
    
    
    250
        F-9




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##### Table of Contents



Notes
to the consolidated financial statements
 Current assets
    
    
    1,107Goodwill
    
    
    1,664Other non current assets
    
    
    1,634Current liabilities
    
    
    (2,080
    )Non current liabilities
    
    
    (306
    )Purchase price
    
    
    2,019
   Current assets
    
    
    710Goodwill
    
    
    3,709Fixed assets
    
    
    221Leasehold improvements
    
    
    313Non current liabilities
    
    
    (143
    )Purchase price
    
    
    4,810
   Goodwill
    
    
    600Leasehold improvements
    
    
    400Cash paid
    
    
    1,000
  F-10




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##### Table of Contents



Notes
to the consolidated financial statements
   2. Basis of preparation
     F-11




---



##### Table of Contents



Notes
to the consolidated financial statements
 3. Summary of significant accounting policies
  a) Principles of consolidation
  b) Foreign currency transactions
  c) Forward exchange contracts
  d) Financial statements of foreign operations
   F-12




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##### Table of Contents



Notes
to the consolidated financial statements
        e) Cash and cash equivalents
   F-13




---



##### Table of Contents



Notes
to the consolidated financial statements
 f) Marketable debt securities
    g) Accounts receivable and payable
  h) Inventories
    i) Property, plant and equipment
  j) Other assets
   F-14




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##### Table of Contents



Notes
to the consolidated financial statements
  k) Impairment of long-lived assets and long-lived assets to be disposed of
  l) Income taxes
  m) Government grants
      F-15




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##### Table of Contents



Notes
to the consolidated financial statements
    n) Employees leaving entitlement
     o) Net sales
    F-16




---



##### Table of Contents



Notes to the consolidated financial statements
 p) Shipping and handling costs
  q) Advertising costs
  r) Commission expense
  s) Warranties
  t) Research and development costs
  u) Contingencies
  v) Use of estimates
   F-17




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##### Table of Contents



Notes to the consolidated financial statements
 w) Earnings per share
  2007
    
    
    2006
    
    
    2005Net earnings (loss) attributable to
ordinary shareholders
    
    
    (62,647
    )
    
    
    12,339
    
    
    
    (14,624
    )Weighted-average number of ordinary
shares outstanding during the year
    
    
    54,817,086
    
    
    
    54,733,796
    
    
    
    54,681,628Increase resulting from assumed conversion
of share grants and options
    
    
    
    
    
    
    
    
    
    
    Weighted-average number of ordinary
shares and potential shares outstanding
during the year
    
    
    54,817,086
    
    
    
    54,733,796
    
    
    
    54,681,628
 4. Cash and cash equivalents
  2007
    
    
    2006Cash on hand
    
    
    381
    
    
    
    510Bank accounts in Euro
    
    
    7,531
    
    
    
    16,746Bank accounts in foreign currencies
    
    
    79,547
    
    
    
    110,798Money market instruments
    
    
    
    
    
    
    55Total
    
    
    87,459
    
    
    
    128,109
 5. Marketable debt securities
  2007
    
    
    2006Foreign corporate bonds
    
    
    4
    
    
    
    5Italian government bonds
    
    
    
    
    
    
    Total
    
    
    4
    
    
    
    5
  F-18




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##### Table of Contents



Notes to the consolidated financial statements
  Gross unrealized
    
    
    Fair2007
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    valueForeign corporate bonds
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Italian government bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4
 Gross unrealized
    
    
    Fair2006
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    valueForeign corporate bonds
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Italian government bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5
  6. Trade receivables, net
  2007
    
    
    2006North American customers
    
    
    43,214
    
    
    
    37,408Other foreign customers
    
    
    46,032
    
    
    
    54,217Domestic customers
    
    
    27,638
    
    
    
    32,163Trade bills receivable
    
    
    6,537
    
    
    
    1,543Total
    
    
    123,421
    
    
    
    125,331Allowance for doubtful accounts
    
    
    (5,699
    )
    
    
    (6,057
    )Total trade receivables, net
    
    
    117,722
    
    
    
    119,274
   Trade receivables
    
    N° of customers
    
    
    % on trade receivables2007
    
    
    3
    
    
    
    21
    %2006
    
    
    2
    
    
    
    16
    %2005
    
    
    2
    
    
    
    16
    %
  F-19




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##### Table of Contents



Notes to the consolidated financial statements
 Net sales
    
    N° of customers
    
    
    % net sales2007
    
    
    2
    
    
    
    23
    %2006
    
    
    2
    
    
    
    18
    %2005
    
    
    2
    
    
    
    13
    %
    2007
    
    
    2006
    
    
    2005Balance, beginning of year
    
    
    6,057
    
    
    
    5,159
    
    
    
    5,434Charges-bad debt expense
    
    
    1,789
    
    
    
    1,695
    
    
    
    1,326Reductions-write off of
uncollectible accounts
    
    
    (2,147
    )
    
    
    (797
    )
    
    
    (1,601
    )Balance, end of year
    
    
    5,699
    
    
    
    6,057
    
    
    
    5,159
  2007
    
    
    2006U.S. dollars
    
    
    39,293
    
    
    
    36,938British pounds
    
    
    6,495
    
    
    
    4,760Canadian dollars
    
    
    6,012
    
    
    
    4,023Australian dollars
    
    
    4,778
    
    
    
    5,440Other currencies
    
    
    2,497
    
    
    
    4,257Total
    
    
    59,075
    
    
    
    55,418
 7. Other receivables
  2007
    
    
    2006Government capital grants
    
    
    11,798
    
    
    
    11,798Receivable from tax authorities
    
    
    10,373
    
    
    
    11,642VAT
    
    
    10,302
    
    
    
    10,133Receivable from National Institute for Social Security
    
    
    6,870
    
    
    
    1,650Advances to suppliers
    
    
    4,837
    
    
    
    3,301Other
    
    
    3,604
    
    
    
    6,157Total
    
    
    47,784
    
    
    
    44,681
  F-20




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##### Table of Contents



Notes to the consolidated financial statements
     8. Inventories
  2007
    
    
    2006Leather and other raw materials
    
    
    63,698
    
    
    
    61,060Goods in process
    
    
    14,770
    
    
    
    10,696Finished products
    
    
    28,822
    
    
    
    28,602Total
    
    
    107,290
    
    
    
    100,358
 9. Property, plant and equipment and accumulated depreciation
  Cost or
    
    
    Accumulated
    
    
    Annual rate of2007
    
    valuation
    
    
    depreciation
    
    
    depreciationLand and industrial buildings
    
    
    200,424
    
    
    
    (44,763
    )
    
    
    0  10
    %Machinery and equipment
    
    
    119,371
    
    
    
    (80,163
    )
    
    
    10  25
    %Airplane
    
    
    24,075
    
    
    
    (6,500
    )
    
    
    6
    %Office furniture and equipment
    
    
    24,373
    
    
    
    (19,650
    )
    
    
    10  20
    %Retail gallery and store furnishings
    
    
    29,932
    
    
    
    (18,232
    )
    
    
    25  35
    %Transportation equipment
    
    
    6,044
    
    
    
    (4,962
    )
    
    
    20  25
    %Leasehold improvements
    
    
    7,969
    
    
    
    (3,610
    )
    
    
    10  20
    %Construction in progress
    
    
    1,542
    
    
    
    
    
    
    
    Total
    
    
    413,730
    
    
    
    (177,880
    )
  F-21




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##### Table of Contents



Notes to the consolidated financial statements
 Cost or
    
    
    Accumulated
    
    
    Annual rate of2006
    
    valuation
    
    
    depreciation
    
    
    depreciationLand and industrial buildings
    
    
    201,974
    
    
    
    (39,475
    )
    
    
    0  10
    %Machinery and equipment
    
    
    113,910
    
    
    
    (72,290
    )
    
    
    10  25
    %Airplane
    
    
    24,075
    
    
    
    (5,056
    )
    
    
    6
    %Office furniture and equipment
    
    
    27,159
    
    
    
    (19,754
    )
    
    
    10  20
    %Retail gallery and store furnishings
    
    
    26,237
    
    
    
    (15,515
    )
    
    
    25  35
    %Transportation equipment
    
    
    5,755
    
    
    
    (4,632
    )
    
    
    20  25
    %Leasehold improvements
    
    
    5,252
    
    
    
    (2,825
    )
    
    
    10  20
    %Construction in progress
    
    
    1,508
    
    
    
    
    
    
    
    Total
    
    
    405,870
    
    
    
    (159,547
    )
  10. Other assets
  2007
    
    
    2006Goodwill
    
    
    14,202
    
    
    
    13,977Equity in affiliated enterprises
    
    
    2,646
    
    
    
    3,867Others
    
    
    21,664
    
    
    
    16,786Total, gross
    
    
    38,512
    
    
    
    34,630Less accumulated amortization
    
    
    (21,236
    )
    
    
    (15,878
    )Total, net
    
    
    17,276
    
    
    
    18,752
  2007
    
    
    2006Gross carrying amount
    
    
    14,202
    
    
    
    13,977Less accumulated depreciation
    
    
    (7,516
    )
    
    
    (4,676
    )Net book value
    
    
    6,686
    
    
    
    9,301
   F-22




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##### Table of Contents



Notes to the consolidated financial statements
  2007
    
    
    2006Gross carrying amount
    
    
    21,664
    
    
    
    16,786Less accumulated depreciation
    
    
    (13,720
    )
    
    
    (11,202
    )Net book value
    
    
    7,944
    
    
    
    5,584
  11. Short-term borrowings
  2007
    
    
    2006Bank borrowings
    
    
    3,068
    
    
    
    3,351Bank overdrafts
    
    
    4,508
    
    
    
    450Total
    
    
    7,576
    
    
    
    3,801
    2007
    
    
    2006
    
    
    2005Bank borrowings
    
    
    6.18
    %
    
    
    4.87
    %
    
    
    4.92
    %Bank overdrafts
    
    
    5.03
    %
    
    
    3.58
    %
    
    
    5.10
    %
  12. Accounts payable-trade
   F-23




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##### Table of Contents



Notes to the consolidated financial statements
 13. Accounts payable-other
  2007
    
    
    2006Advances from customers
    
    
    9,667
    
    
    
    5,441Provision for warranties
    
    
    8,627
    
    
    
    6,561Cooperative advertising and quantity discount
    
    
    3,777
    
    
    
    3,835Withholding taxes on payroll and on others
    
    
    2,996
    
    
    
    3,059Payable to minority interest for dividends
    
    
    593
    
    
    
    593Others
    
    
    4,153
    
    
    
    3,578Total
    
    
    29,813
    
    
    
    23,067
  2007
    
    
    2006
    
    
    2005Balance, beginning of year
    
    
    6,561
    
    
    
    6,896
    
    
    
    3,477Charges to profit and loss
    
    
    4,962
    
    
    
    6,386
    
    
    
    4,764Reductions for utilization
    
    
    (2,896
    )
    
    
    (6,721
    )
    
    
    (1,345
    )Balance, end of year
    
    
    8,627
    
    
    
    6,561
    
    
    
    6,896
 14. Taxes on income
  2007
    
    
    2006
    
    
    2005IRES (state tax)
    
    
    33.00
    %
    
    
    33.00
    %
    
    
    33.00
    %IRAP (regional tax)
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.25
    %
     F-24




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##### Table of Contents



Notes to the consolidated financial statements
    2007
    
    
    2006
    
    
    2005Domestic
    
    
    (47,137
    )
    
    
    (11,012
    )
    
    
    (8,144
    )Foreign
    
    
    (4,619
    )
    
    
    30,333
    
    
    
    (3,586
    )Total
    
    
    (51,756
    )
    
    
    19,321
    
    
    
    (11,730
    )
  2007
    
    
    2006
    
    
    2005Expected income tax (benefit) expense charge
at full tax rates
    
    
    (17,079
    )
    
    
    6,376
    
    
    
    (3,871
    )Effects of:- Tax exempt income
    
    
    (6,320
    )
    
    
    (5,779
    )
    
    
    (4,954
    )- Aggregate effect of different tax
rates in foreign jurisdictions
    
    
    (2,903
    )
    
    
    (4,434
    )
    
    
    (1,442
    )- Italian regional tax
    
    
    1,793
    
    
    
    4,646
    
    
    
    4,727- Non-deductible expenses
    
    
    3,286
    
    
    
    2,694
    
    
    
    3,537- Provisions for contingent liabilities
    
    
    566
    
    
    
    914
    
    
    
    155- Depreciation and impairment of goodwill
    
    
    273
    
    
    
    274
    
    
    
    396- Effect of net change in valuation allowance
established against deferred tax assets
    
    
    28,503
    
    
    
    1,989
    
    
    
    4,157- Effect of change in tax rates
    
    
    3,809
    
    
    
    
    
    
    
    - Tax effect of unremitted earnings
    
    
    (541
    )
    
    
    405
    
    
    
    405Actual tax charge
    
    
    11,387
    
    
    
    7,085
    
    
    
    3,110
   F-25




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##### Table of Contents



Notes to the consolidated financial statements
  2007
    
    
    2006
    
    
    2005Current:Italian
    
    
    1,331
    
    
    
    5,738
    
    
    
    6,593Foreign
    
    
    1,593
    
    
    
    3,405
    
    
    
    2,817Total (a)
    
    
    2,924
    
    
    
    9,143
    
    
    
    9,410Deferred:Italian
    
    
    7,507
    
    
    
    (2,592
    )
    
    
    (3,260
    )Foreign
    
    
    956
    
    
    
    534
    
    
    
    (3,040
    )Total (b)
    
    
    8,463
    
    
    
    (2,058
    )
    
    
    (6,300
    )Total (a + b)
    
    
    11,387
    
    
    
    7,085
    
    
    
    3,110
   2007
    
    
    2006Deferred tax assets:- Tax loss carry forwards
    
    
    36,033
    
    
    
    17,562- Unrealized net losses on foreign exchange
    
    
    2,796
    
    
    
    590- Provision for warranties
    
    
    2,589
    
    
    
    2,047- Inventory obsolescence
    
    
    1,714
    
    
    
    1,849- Allowance for doubtful accounts
    
    
    1,506
    
    
    
    1,746- Provision for contingent liabilities
    
    
    1,080
    
    
    
    1,403- Intercompany profit on inventory
    
    
    1,027
    
    
    
    1,051- Goodwill
    
    
    666
    
    
    
    374- Provision for sales representatives
    
    
    493
    
    
    
    658- Other temporary differences
    
    
    641
    
    
    
    1,698Total gross deferred tax assets
    
    
    48,545
    
    
    
    28,978- Less valuation allowance
    
    
    (43,654
    )
    
    
    (15,146
    )Net deferred tax assets (a)
    
    
    4,891
    
    
    
    13,832Deferred tax liabilities:- Unremitted earnings of subsidiaries
    
    
    (1,399
    )
    
    
    (1,940
    )- Revenue recognition
    
    
    (633
    )
    
    
    (768
    )- Government grants
    
    
    (570
    )
    
    
    (655
    )- Other temporary differences
    
    
    (998
    )
    
    
    (715
    )Total deferred tax liabilities (b)
    
    
    (3,600
    )
    
    
    (4,078
    )Net deferred tax assets (a + b)
    
    
    1,291
    
    
    
    9,754
   F-26




---



##### Table of Contents



Notes to the consolidated financial statements
     2007
    
    Current
    
    
    Non current
    
    
    TotalGross deferred tax assets
    
    
    8,888
    
    
    
    39,657
    
    
    
    48,545Valuation allowance
    
    
    (6,178
    )
    
    
    (37,476
    )
    
    
    (43,654
    )Net deferred tax assets
    
    
    2,710
    
    
    
    2,181
    
    
    
    4,891Deferred tax liabilities
    
    
    (1,631
    )
    
    
    (1,969
    )
    
    
    (3,600
    )Net deferred tax assets
    
    
    1,079
    
    
    
    212
    
    
    
    1,291
 2006
    
    Current
    
    
    Non current
    
    
    TotalGross deferred tax assets
    
    
    10,886
    
    
    
    18,092
    
    
    
    28,978Valuation allowance
    
    
    
    
    
    
    (15,146
    )
    
    
    (15,146
    )Net deferred tax assets
    
    
    10,886
    
    
    
    2,946
    
    
    
    13,832Deferred tax liabilities
    
    
    (3,423
    )
    
    
    (655
    )
    
    
    (4,078
    )Net deferred tax assets
    
    
    7,463
    
    
    
    2,291
    
    
    
    9,754
  2008
    
    
    5272009
    
    
    5,3722010
    
    
    2,9052011
    
    
    5,4532012
    
    
    42,760Thereafter
    
    
    64,347Total
    
    
    121,364
  F-27




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##### Table of Contents



Notes to the consolidated financial statements
   15. Salaries, wages and related liabilities
  2007
    
    
    2006Salaries and wages
    
    
    7,991
    
    
    
    11,320Social security contributions
    
    
    6,826
    
    
    
    7,577Vacation accrual
    
    
    2,714
    
    
    
    2,777Total
    
    
    17,531
    
    
    
    21,674
 16. Long-term debt
  2007
    
    
    20062.25% long-term debt payable in annual equal instalments
with final payment due May 30, 2015
    
    
    2,214
    
    
    
    2,4600.96% long-term debt payable in annual instalments with
final payment due September 2010
    
    
    219
    
    
    
    291Total long-term debt
    
    
    2,433
    
    
    
    2,751Less current instalments
    
    
    (317
    )
    
    
    (318
    )Long-term debt, excluding current instalments
    
    
    2,116
    
    
    
    2,433
  2009
    
    
    3322010
    
    
    3402011
    
    
    2732012
    
    
    280Thereafter
    
    
    891Total
    
    
    2,116
   F-28




---



##### Table of Contents



Notes to the consolidated financial statements
  17. Other liabilities
  2007
    
    
    2006Provision for contingent liabilities
    
    
    9,344
    
    
    
    8,696Termination indemnities for sales agents
    
    
    1,522
    
    
    
    1,764Total
    
    
    10,866
    
    
    
    10,460
  18. Minority interest
  19. Shareholders equity
  2007
    
    
    2006Mr. Pasquale Natuzzi
    
    
    47.5
    %
    
    
    47.5
    %Miss Anna Maria Natuzzi
    
    
    2.6
    %
    
    
    2.6
    %Mrs. Annunziata Natuzzi
    
    
    2.5
    %
    
    
    2.5
    %Public investors
    
    
    47.4
    %
    
    
    47.4
    %100
    %
    
    
    100
    %
  2007
    
    
    2006Legal reserve
    
    
    11,199
    
    
    
    11,199Monetary revaluation reserve
    
    
    1,344
    
    
    
    1,344Government capital grants reserve
    
    
    29,749
    
    
    
    29,749Total
    
    
    42,292
    
    
    
    42,292
   F-29




---



##### Table of Contents



Notes to the consolidated financial statements
    20. Share grants and options
 
     F-30




---



##### Table of Contents



Notes to the consolidated financial statements
   AdditionalMBO 2004
    
    Shares
    
    
    Options
    
    
    options
    
    
    TotalBalance at December 31, 2006
    
    
    56,876
    
    
    
    281,006
    
    
    
    
    
    
    
    337,882Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (56,876
    )
    
    
    
    
    
    
    
    
    
    
    (56,876
    )Forfeited
    
    
    
    
    
    
    (77,138
    )
    
    
    
    
    
    
    (77,138
    )Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    
    
    
    
    203,868
    
    
    
    
    
    
    
    203,868Weighted average remaining
contractual life
    
    
    
    
    
    1.04 years
    
    
    
    
 AdditionalMBO 2005
    
    Shares
    
    
    Options
    
    
    options
    
    
    TotalBalance at December 31, 2006
    
    
    57,626
    
    
    
    141,926
    
    
    
    70,963
    
    
    
    270,515Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (28,813
    )
    
    
    
    
    
    
    
    
    
    
    (28,813
    )Forfeited
    
    
    
    
    
    
    (33,166
    )
    
    
    (70,963
    )
    
    
    (104,129
    )Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    28,813
    
    
    
    108,760
    
    
    
    
    
    
    
    137,573Weighted average remaining
contractual life
    
    0.04 years
    

    

    1.04 years
    
    
    
    
    F-31




---



##### Table of Contents



Notes to the consolidated financial statements
   21. Commitments and contingent liabilities
  2008
    
    
    13,1142009
    
    
    11,6852010
    
    
    10,1932011
    
    
    9,8882012
    
    
    7,284Thereafter
    
    
    20,361Total
    
    
    72,525
    F-32




---



##### Table of Contents



Notes to the consolidated financial statements
    22. Segmental and geographical information
   2007
    
    
    2006
    
    
    2005Leather upholstered furniture
    
    
    502,913
    
    
    
    573,086
    
    
    
    498,942Fabric upholstered furniture
    
    
    60,597
    
    
    
    87,165
    
    
    
    95,895Total
    
    
    563,510
    
    
    
    660,251
    
    
    
    594,837
   F-33




---



##### Table of Contents



Notes to the consolidated financial statements
  2007
    
    
    2006
    
    
    2005Sales of upholstered furnitureUnited States of America
    
    
    159,289
    
    
    
    204,303
    
    
    
    207,215Italy
    
    
    68,734
    
    
    
    81,911
    
    
    
    67,020Spain
    
    
    41,677
    
    
    
    45,955
    
    
    
    35,668England
    
    
    31,965
    
    
    
    39,874
    
    
    
    50,805Canada
    
    
    34,190
    
    
    
    36,244
    
    
    
    31,608France
    
    
    29,433
    
    
    
    33,551
    
    
    
    24,622Germany
    
    
    26,714
    
    
    
    30,927
    
    
    
    24,329Belgium
    
    
    24,138
    
    
    
    28,013
    
    
    
    20,761Australia
    
    
    15,354
    
    
    
    18,269
    
    
    
    16,543Holland
    
    
    15,594
    
    
    
    16,624
    
    
    
    13,654Other countries (none greater than 2%)
    
    
    116,422
    
    
    
    124,580
    
    
    
    102,612Total
    
    
    563,510
    
    
    
    660,251
    
    
    
    594,837
 2007
    
    
    2006Long lived assetsItaly
    
    
    132,789
    
    
    
    135,956Romania
    
    
    32,468
    
    
    
    36,088Brazil
    
    
    24,355
    
    
    
    23,791China
    
    
    20,769
    
    
    
    21,983United States of America
    
    
    16,147
    
    
    
    18,381Other countries
    
    
    9,322
    
    
    
    10,124Total
    
    
    235,850
    
    
    
    246,323
  23. Cost of sales
  2007
    
    
    2006
    
    
    2005Opening inventories
    
    
    100,358
    
    
    
    115,690
    
    
    
    112,601Purchases
    
    
    308,234
    
    
    
    313,207
    
    
    
    295,277Labor
    
    
    101,664
    
    
    
    109,360
    
    
    
    108,327Third party manufacturers
    
    
    16,499
    
    
    
    19,609
    
    
    
    25,340Other manufacturing costs
    
    
    41,124
    
    
    
    33,055
    
    
    
    33,637Closing inventories
    
    
    (107,290
    )
    
    
    (100,358
    )
    
    
    (115,690
    )Total
    
    
    460,589
    
    
    
    490,563
    
    
    
    459,492
  F-34




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##### Table of Contents



Notes to the consolidated financial statements
 24. Other income (expense), net
  2007
    
    
    2006
    
    
    2005Interest income
    
    
    3,557
    
    
    
    3,609
    
    
    
    1,857Interest expense and bank commissions
    
    
    (1,884
    )
    
    
    (2,077
    )
    
    
    (1,803
    )Interest income, net
    
    
    1,673
    
    
    
    1,532
    
    
    
    54Gains (losses) on foreign exchange, net
    
    
    (8,096
    )
    
    
    (4,651
    )
    
    
    3,211Unrealized exchange
gains (losses) on domestic currency swaps
    
    
    946
    
    
    
    5,463
    
    
    
    (4,767
    )Gains (losses) on foreign exchange
    
    
    (7,150
    )
    
    
    812
    
    
    
    (1,556
    )Other, net
    
    
    2,831
    
    
    
    503
    
    
    
    4,462Total
    
    
    (2,646
    )
    
    
    2,847
    
    
    
    2,960
  2007
    
    
    2006
    
    
    2005Net realized gains (losses) on
domestic currency swaps
    
    
    5,877
    
    
    
    664
    
    
    
    (4,269
    )Net realized gains (losses) on accounts
receivable and payable
    
    
    (3,865
    )
    
    
    (8,166
    )
    
    
    5,434Net unrealized gains (losses) on
accounts receivable and payable
    
    
    (10,108
    )
    
    
    2,851
    
    
    
    2,046Total
    
    
    (8,096
    )
    
    
    (4,651
    )
    
    
    3,211
  2007
    
    
    2006
    
    
    2005Provisions for contingent liabilities
    
    
    (2,956
    )
    
    
    (5,828
    )
    
    
    (560
    )Incentive from landlord
    
    
    
    
    
    
    1,100
    
    
    
    Revenue for capital grants
    
    
    
    
    
    
    
    
    
    
    4,380Export incentive benefits
    
    
    
    
    
    
    3,371
    
    
    
    2,100Penalties to landlords
    
    
    
    
    
    
    
    
    
    
    (658
    )Tax refund
    
    
    2,961
    
    
    
    
    
    
    
    Write off of a provision
    
    
    1,500
    
    
    
    
    
    
    
    Income tax not due
    
    
    668
    
    
    
    
    
    
    
    Write off of fixed assets
    
    
    (2,285
    )
    
    
    
    
    
    
    (2,770
    )Pre-acquisition loss
    
    
    
    
    
    
    
    
    
    
    495Other, net
    
    
    2,943
    
    
    
    1,860
    
    
    
    1,475Total
    
    
    2,831
    
    
    
    503
    
    
    
    4,462
  F-35




---



##### Table of Contents



Notes to the consolidated financial statements
 Provisions for contingent liabilities
           F-36




---



##### Table of Contents



Notes to the consolidated financial statements
 Incentive from landlord
  Revenue for capital grants
    Export incentive benefits
  Penalties to landlords
  Tax refund
  Write off a provision for contingent liability
   F-37




---



##### Table of Contents



Notes to the consolidated financial statements
 Income tax not due
  Write off of fixed assets
  25. Financial instruments and risk management
    F-38




---



##### Table of Contents



Notes to the consolidated financial statements
  2007
    
    
    2006U.S. dollars
    
    
    58,724
    
    
    
    90,744Euro
    
    
    46,326
    
    
    
    19,154Canadian dollars
    
    
    18,930
    
    
    
    15,703Australian dollars
    
    
    16,503
    
    
    
    9,934British pounds
    
    
    8,751
    
    
    
    15,121Norwegian kroner
    
    
    7,071
    
    
    
    6,027Danish kroner
    
    
    2,681
    
    
    
    924Swedish kroner
    
    
    2,616
    
    
    
    3,887Swiss francs
    
    
    620
    
    
    
    2,584Japanese yen
    
    
    292
    
    
    
    864Total
    
    
    162,514
    
    
    
    164,942
  2007
    
    
    2006Contract
    
    
    Unrealized
    
    
    Contract
    
    
    Unrealizedamount
    
    
    gains (losses)
    
    
    amount
    
    
    gains (losses)Assets
    
    
    97,967
    
    
    
    4,995
    
    
    
    137,608
    
    
    
    6,141Liabilities
    
    
    64,547
    
    
    
    (4,049
    )
    
    
    27,334
    
    
    
    (678
    )Total
    
    
    162,514
    
    
    
    946
    
    
    
    164,942
    
    
    
    5,463
     F-39




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##### Table of Contents



Notes to the consolidated financial statements
 26. Fair value of financial instruments
  2007
    
    
    2006Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairvalue
    
    
    value
    
    
    value
    
    
    valueAssets:- Marketable debts securities
    
    
    4
    
    
    
    4
    
    
    
    5
    
    
    
    5Liabilities:- Long-term debt
    
    
    2,433
    
    
    
    2,151
    
    
    
    2,751
    
    
    
    2,472
    27. Application of generally accepted accounting principles in the United States of America
   F-40




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##### Table of Contents



Notes to the consolidated financial statements
  Reconciliation of net earnings (loss):
 2007
    
    
    2006
    
    
    2005Net earnings (loss) under Italian GAAP
    
    
    (62,647
    )
    
    
    12,339
    
    
    
    (14,624
    )Adjustments to reported income:(a) Revaluation of property,
plant and equipment
    
    
    27
    
    
    
    27
    
    
    
    29(b) Government grants
    
    
    1,188
    
    
    
    1,453
    
    
    
    3,119(c) Revenue recognition
    
    
    1,887
    
    
    
    (615
    )
    
    
    2,804(j) Goodwill and intangible assets
    
    
    1,970
    
    
    
    1,828
    
    
    
    (249
    )(k) Share grants and options
    
    
    (56
    )
    
    
    (254
    )
    
    
    136(l) Translation of foreign financial statements
    
    
    191
    
    
    
    762
    
    
    
    1,684(m) Penalties to landlords
    
    
    
    
    
    
    (658
    )
    
    
    658Tax effect of US GAAP adjustments
    
    
    (2,567
    )
    
    
    (393
    )
    
    
    (446
    )Net earnings (loss) in conformity with US GAAP
    
    
    (60,007
    )
    
    
    14,489
    
    
    
    (6,889
    )Basic earnings (loss) per share in conformity
with US GAAP
    
    
    (1.09
    )
    
    
    0.26
    
    
    
    (0.13
    )Diluted earnings (loss) per share in conformity
with US GAAP
    
    
    (1.09
    )
    
    
    0.26
    
    
    
    (0.13
    )
 Reconciliation of shareholders equity:
 2007
    
    
    2006Shareholders equity under Italian GAAP
    
    
    411,597
    
    
    
    478,842(a) Revaluation of property, plant and equipment
    
    
    (561
    )
    
    
    (588
    )(b) Government grants
    
    
    (12,848
    )
    
    
    (14,036
    )(c) Revenue recognition
    
    
    (4,373
    )
    
    
    (6,260
    )(j) Goodwill and intangible assets
    
    
    7,355
    
    
    
    5,251(l) Translation of foreign financial statements
    
    
    10,213
    
    
    
    5,424(v) Unrecognized tax benefits
    
    
    
    
    
    
    Tax effect of US GAAP adjustments
    
    
    (2,909
    )
    
    
    (208
    )Shareholders equity in conformity with US GAAP
    
    
    408,474
    
    
    
    468,425
    F-41




---



##### Table of Contents



Notes to the consolidated financial statements
        F-42




---



##### Table of Contents



Notes to the consolidated financial statements
  2007
    
    
    2006Effects
    
    
    EffectsIncrease
    
    
    IncreaseConsolidated balance sheet
    
    (Decrease)
    
    
    (Decrease)Trade receivables, net
    
    
    (22,893
    )
    
    
    (29,721
    )Inventories
    
    
    15,946
    
    
    
    19,824Total effect on current assets (a)
    
    
    (6,947
    )
    
    
    (9,897
    )Accounts payable-trade
    
    
    (2,574
    )
    
    
    (3,637
    )Income taxes
    
    
    (89
    )
    
    
    (1,741
    )Total effect on current liabilities (b)
    
    
    (2,663
    )
    
    
    (5,378
    )Total effect on shareholders equity (a-b)
    
    
    (4,284
    )
    
    
    (4,519
    )
 Consolidated statement of operations
    
    2007
    
    
    2006
    
    
    2005Net sales
    
    
    6,828
    
    
    
    3,385
    
    
    
    3,517Gross profit
    
    
    2,950
    
    
    
    498
    
    
    
    2,679Operating income (loss)
    
    
    1,887
    
    
    
    (615
    )
    
    
    2,804Total effect on net operations
    
    
    235
    
    
    
    (342
    )
    
    
    1,737
  F-43




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##### Table of Contents



Notes to the consolidated financial statements
  Net sales
    
    
    943Cost of sale
    
    
    (483
    )Gross profit
    
    
    460Selling expense
    
    
    (417
    )General and administrative expense
    
    
    (175
    )Operating loss
    
    
    (132
    )Other income, net
    
    
    132Loss before taxes
    
    
    Income taxes
    
    
    Net loss
    
    
    
   US GAAP
    
    
    IT GAAP
    
    
    DifferenceCurrent assets
    
    
    1,107
    
    
    
    1,107
    
    
    
    Goodwill
    
    
    985
    
    
    
    1,664
    
    
    
    (679
    )Order backlog
    
    
    1,082
    
    
    
    
    
    
    
    1,082Other non current assets
    
    
    1,634
    
    
    
    1,634
    
    
    
    Deferred tax liabilities
    
    
    (403
    )
    
    
    
    
    
    
    (403
    )Current liabilities
    
    
    (2,080
    )
    
    
    (2,080
    )
    
    
    Non current liabilities
    
    
    (306
    )
    
    
    (306
    )
    
    
    Purchase price
    
    
    2,019
    
    
    
    2,019
    
    
    
    
    F-44




---



##### Table of Contents



Notes to the consolidated financial statements
   US GAAP
    
    
    IT GAAP
    
    
    DifferenceGoodwill
    
    
    
    
    
    
    600
    
    
    
    (600
    )Intangible assets
    
    
    957
    
    
    
    
    
    
    
    957Leasehold improvements
    
    
    400
    
    
    
    400
    
    
    
    Deferred tax liabilities
    
    
    (357
    )
    
    
    
    
    
    
    (357
    )Cash paid
    
    
    1,000
    
    
    
    1,000
    
    
    
    
  US GAAP
    
    
    IT GAAP
    
    
    DifferenceGoodwill
    
    
    1,778
    
    
    
    2,600
    
    
    
    (822
    )Fixed assets
    
    
    132
    
    
    
    132
    
    
    
    Leasehold improvements
    
    
    468
    
    
    
    468
    
    
    
    Operating lease agreements
    
    
    1,310
    
    
    
    
    
    
    
    1,310Deferred tax liabilities
    
    
    (488
    )
    
    
    
    
    
    
    (488
    )Payable to employees
    
    
    (107
    )
    
    
    (107
    )
    
    
    Purchase price
    
    
    3,093
    
    
    
    3,093
    
    
    
    
    F-45




---



##### Table of Contents



Notes to the consolidated financial statements
  US GAAP
    
    
    IT GAAP
    
    
    DifferenceGoodwill
    
    
    37
    
    
    
    100
    
    
    
    (63
    )Fixed assets and leas. impr.
    
    
    38
    
    
    
    38
    
    
    
    Inventory
    
    
    112
    
    
    
    112
    
    
    
    Franchisee agreements
    
    
    100
    
    
    
    
    
    
    
    100Deferred tax liabilities
    
    
    (37
    )
    
    
    
    
    
    
    (37
    )Purchase price
    
    
    250
    
    
    
    250
    
    
    
    
     US GAAP
    
    
    IT GAAP
    
    
    DifferenceGoodwill
    
    
    
    
    
    
    225
    
    
    
    (225
    )Intangible assets
    
    
    359
    
    
    
    
    
    
    
    359Leasehold improvements
    
    
    5
    
    
    
    5
    
    
    
    Deferred tax liabilities
    
    
    (134
    )
    
    
    
    
    
    
    (134
    )Cash paid
    
    
    230
    
    
    
    230
    
    
    
    
   F-46




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##### Table of Contents



Notes to the consolidated financial statements
   Goodwill
    
    
    Intangibles
    
    
    Deferred taxesUS
    
    
    Italian
    
    
    US
    
    
    Italian
    
    
    US
    
    
    ItalianBalance at December 31, 2004
    
    
    1,251
    
    
    
    4,493
    
    
    
    5,629
    
    
    
    
    
    
    
    (1,914
    )
    
    
    Acquisition of Koineè S.r.l.
    
    
    985
    
    
    
    1,664
    
    
    
    1,082
    
    
    
    
    
    
    
    (403
    )
    
    
    Acquisition of stores in Rome
    
    
    3,709
    
    
    
    3,709
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of a store in Milan
    
    
    
    
    
    
    600
    
    
    
    957
    
    
    
    
    
    
    
    (357
    )
    
    
    Fulfilment of order backlog
    
    
    
    
    
    
    
    
    
    
    (1,082
    )
    
    
    
    
    
    
    403
    
    
    
    Amortization
    
    
    
    
    
    
    (1,344
    )
    
    
    (511
    )
    
    
    
    
    
    
    174
    
    
    
    (23
    )Balance at December 31, 2005
    
    
    5,945
    
    
    
    9,122
    
    
    
    6,075
    
    
    
    
    
    
    
    (2,097
    )
    
    
    (23
    )Acquisition of Milan stores
    
    
    1,778
    
    
    
    2,600
    
    
    
    1,310
    
    
    
    
    
    
    
    (488
    )
    
    
    Acquisition of other stores
    
    
    37
    
    
    
    100
    
    
    
    100
    
    
    
    
    
    
    
    (37
    )
    
    
    Amortization
    
    
    
    
    
    
    (2,521
    )
    
    
    (693
    )
    
    
    
    
    
    
    241
    
    
    
    (494
    )Balance at December 31, 2006
    
    
    7,760
    
    
    
    9,301
    
    
    
    6,792
    
    
    
    
    
    
    
    (2,381
    )
    
    
    (517
    )Acquisition of one store
    
    
    
    
    
    
    225
    
    
    
    359
    
    
    
    
    
    
    
    (134
    )
    
    
    Amortization
    
    
    
    
    
    
    (2,840
    )
    
    
    (870
    )
    
    
    
    
    
    
    438
    
    
    
    (404
    )Balance at December 31, 2007
    
    
    7,760
    
    
    
    6,686
    
    
    
    6,281
    
    
    
    
    
    
    
    (2,077
    )
    
    
    (921
    )
    Share-Based Payment Accounting for Stock-Based
Compensation
  F-47




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##### Table of Contents



Notes to the consolidated financial statements
   Accounting for Stock Based Compensation
    Net loss in conformity with US GAAP, as reported
    
    
    (6,889
    )Stock-based employee compensation, as reported
    
    
    (136
    )Stock-based employee compensation expense under fair value
    
    
    (756
    )Pro forma net loss
    
    
    (7,781
    )
   F-48




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##### Table of Contents



Notes to the consolidated financial statements
  Expected life and performance related conditions
    
    2 years  5.3 yearsExpected volatility of the underlying share
    
    
    23
    %Expected dividend yield of the underlying share
    
    
    2
    %Risk-free interest rate
    
    
    2.43%  3.79
    %
  As reported
    
    
    Pro-formaBasic loss per share
    
    
    (0.13
    )
    
    
    (0.14
    )Diluted loss per share
    
    
    (0.13
    )
    
    
    (0.14
    )
     F-49




---



##### Table of Contents



Notes to the consolidated financial statements
           F-50




---



##### Table of Contents



Notes to the consolidated financial statements
  Accounting for Uncertainty in Income
Taxes
 Accounting for Uncertainty in
Income Taxes
 Balance at January 1, 2007
    
    
    2,054Additions based on tax positions related to the current year
    
    
    831Additions for tax positions of prior years
    
    
    602Reductions for tax positions of prior years
    
    
    (568
    )Settlements
    
    
    Balance at December 31, 2007
    
    
    2,919
     US GAAP
    
    
    IT GAAP
    
    
    DifferenceBalance at January 1, 2007
    
    
    2,054
    
    
    
    2,054
    
    
    
    Additions based on tax positions related
to the current year
    
    
    831
    
    
    
    831
    
    
    
    Additions for tax positions of prior years
    
    
    602
    
    
    
    602
    
    
    
    Reductions for tax positions of prior years
    
    
    (568
    )


    
    
    (568
    )
    
    
    Settlements
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    2,919
    
    
    
    2,919
    
    
    
    
  F-51




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##### Table of Contents



Notes to the consolidated financial statements
   Comprehensive Income
 Reporting Comprehensive Income
  SFAS No. 141R and SFAS No. 160:
 Business Combinations Noncontrolling Interest in Consolidated Financial Statements  an
amendment to ARB No. 51
 SFAS No. 157:
 Fair Value Measurement
  F-52




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##### Table of Contents



Notes to the consolidated financial statements
 SFAS No. 159:
 The
Fair Value Option for Financial Assets and Financial Liabilities  including an amendment of FASB
Statement No. 115
 SFAS No. 161:
 Accounting
for Derivative Instruments and Hedging Activities
 EITF 06-4:
 Issue No.
06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement
Split-Dollar Life Insurance Arrangements Employers Accounting for Postretirement Benefit Other Than Pensions
 EITF 04-13:
 Accounting for Purchases and Sales of Inventory with the Same Counterparty
  F-53




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##### Table of Contents



SIGNATURES
  NATUZZI S.p.A.
(REGISTRANT)By
    
    /s/ Pasquale NatuzziPasquale NatuzziChief Executive Officer




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##### Table of Contents



Exhibit Index
 1.1
    
    English translation of the by-laws (Statuto) of the Company, as amended and restated as of
January 24, 2008.2.1
    
    Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 31, 2001,
among the Company, The Bank of New York, as Depositary, and owners and beneficial owners of
ADRs (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the Securities
and Exchange Commission on July 1, 2002, file number 1-11854).8.1
    
    List of Significant Subsidiaries.12.1
    
    Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.12.2
    
    Chief Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.13.1
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.