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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the Fiscal Year Ended: December 31, 2008
 Commission file number: 001-11854
 NATUZZI S.p.A.
  NATUZZI S.p.A.
  Italy
  Via Iazzitiello 47, 70029 Santeramo, Italy
  Mrs. Silvia Di Rosa
Tel. +39 02 356 79 810
Fax +39 02 365 79 809
investor_relations@natuzzi.com
Piazza Arcole 4, 20143 Milan, Italy
  Securities registered or to be registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredAmerican Depositary Shares, each representing one 
Ordinary Share
    
    New York Stock ExchangeOrdinary Shares, with a par value of 1.00 each
    
    New York Stock Exchange
(for listing purposes only)
 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
  Indicate the number of outstanding shares of each of the issuers classes of capital or
common stock as of the close of the period covered by the annual report:
 As of December 31, 2008: 54,853,045 Ordinary Shares
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
 o þ
 If this report is an annual or transition report, indicate by check mark if the registrant
is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
 o þ
 Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
 þ o
 Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit
and post such files).
 o o þ
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer. See definition of accelerated filer and large
accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
 Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
 Indicate by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:
 U.S. GAAP o
    
    IFRS o
    
    Other þ
 If Other has been checked in response to the previous question, indicate by check mark
which financial statement item the registrant has elected to follow.
 o þ
 If this is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act).
 o þ




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TABLE OF CONTENTS
 PagePART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    2Item 2. Offer Statistics and Expected Timetable
    
    
    2Item 3. Key Information
    
    
    2Selected Financial Data
    
    
    2Exchange Rates
    
    
    5Risk Factors
    
    
    6Forward Looking Information
    
    
    11Item 4. Information on the Company
    
    
    11Introduction
    
    
    11Organizational Structure
    
    
    13Strategy
    
    
    14Manufacturing
    
    
    17Products
    
    
    22Markets
    
    
    24Incentive Programs and Tax Benefits
    
    
    27Management of Exchange Rate Risk
    
    
    29Trademarks and Patents
    
    
    29Regulation
    
    
    29Environmental Regulatory Compliance
    
    
    30Insurance
    
    
    30Description of Properties
    
    
    30Capital Expenditures
    
    
    31Item 4A. Unresolved Staff Comments
    
    
    32Item 5. Operating and Financial Review and Prospects
    
    
    32Critical Accounting Policies
    
    
    32Results of Operations
    
    
    35Liquidity and Capital Resources
    
    
    43Contractual Obligations and Committments
    
    
    44
  i




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TABLE OF CONTENTS
 PageRelated Party Transactions
    
    
    46Product and Retail Development
    
    
    46New Accounting Standards under Italian and U.S. GAAP
    
    
    47Item 6. Directors, Senior Management and Employees
    
    
    50Compensation of Directors and Officers
    
    
    54Share Ownership
    
    
    55Statutory Auditors
    
    
    56External Auditors
    
    
    56Employees
    
    
    56Item 7. Major Shareholders and Related Party Transactions
    
    
    57Major Shareholders
    
    
    57Related Party Transactions
    
    
    59Item 8. Financial Information
    
    
    59Consolidated Financial Statements
    
    
    59Export Sales
    
    
    59Legal and Governmental Proceedings
    
    
    59Dividends
    
    
    61Item 9. The Offer and Listing
    
    
    61Trading Markets and Share Prices
    
    
    61Item 10. Additional Information
    
    
    62By-laws
    
    
    62Certain Contracts
    
    
    70Exchange Controls
    
    
    71Taxation
    
    
    72Documents on Display
    
    
    77Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    77Item 12. Description of Securities Other than Equity Securities
    
    
    79
  ii




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TABLE OF CONTENTS
 PagePART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    79Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    79Item 15. Controls and Procedures
    
    
    79Item 16. [Reserved]
    
    
    82Item
16A. Audit Committee Financial Expert
    
    
    82Item 16B. Code of Ethics
    
    
    82Item 16C. Principal Accountant Fees and Services
    
    
    82Item 16D. Exemptions from the Listing Standards for Audit Committees
    
    
    83Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    83Item 16F. Change in Registrants Certifying Accountant
    
    
    83Item 16G. Corporate Governance
    
    
    84PART IIIItem 17. Financial Statements
    
    
    88Item 18. Financial Statements
    
    
    88Item 19. Exhibits
    
    
    88Index to Financial StatementsExhibit 8.1Exhibit 12.1Exhibit 12.2Exhibit 13.1
   iii




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PRESENTATION OF FINANCIAL INFORMATION
  
      1




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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 31,2008
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004(millions ofdollars, except perOrdinary Share)(1)
    
    
    (millions of euro, except per Ordinary Share)Income Statement Data:Amounts in accordance with Italian GAAP:Net sales:Leather- and fabric-upholstered
furniture
    
    $
    864.5
    
    
    
    587.8
    
    
    
    563.5
    
    
    
    660.2
    
    
    
    594.8
    
    
    
    665.5Other(2)
    
    
    115.0
    
    
    
    78.2
    
    
    
    70.9
    
    
    
    75.2
    
    
    
    75.1
    
    
    
    87.9Total net sales
    
    
    979.5
    
    
    
    666.0
    
    
    
    634.4
    
    
    
    735.4
    
    
    
    669.9
    
    
    
    753.4Cost of sales
    
    
    (704.2
    )
    
    
    (478.8
    )
    
    
    (460.6
    )
    
    
    (490.5
    )
    
    
    (459.4
    )
    
    
    (484.5
    )Gross profit
    
    
    275.3
    
    
    
    187.2
    
    
    
    173.8
    
    
    
    244.9
    
    
    
    210.5
    
    
    
    268.9Selling expenses
    
    
    (253.4
    )
    
    
    (172.3
    )
    
    
    (173.9
    )
    
    
    (186.2
    )
    
    
    (182.2
    )
    
    
    (188.2
    )General and administrative expenses
    
    
    (73.4
    )
    
    
    (49.9
    )
    
    
    (49.0
    )
    
    
    (42.2
    )
    
    
    (43.0
    )
    
    
    (40.7
    )Operating income (loss)
    
    
    (51.5
    )
    
    
    (35.0
    )
    
    
    (49.1
    )
    
    
    16.5
    
    
    
    (14.7
    )
    
    
    40.0Other income (expense),
net(3) (4) (5) (6)
    
    
    (38.0
    )
    
    
    (25.8
    )
    
    
    (2.6
    )
    
    
    2.8
    
    
    
    3.0
    
    
    
    (3.9
    )Earnings (loss) before taxes and minority interests
    
    
    (89.5
    )
    
    
    (60.8
    )
    
    
    (51.7
    )
    
    
    19.3
    
    
    
    (11.7
    )
    
    
    36.1Income taxes
    
    
    (2.2
    )
    
    
    (1.5
    )
    
    
    (11.4
    )
    
    
    (7.1
    )
    
    
    (3.1
    )
    
    
    (17.6
    )Earnings (loss) before minority interests
    
    
    (91.7
    )
    
    
    (62.3
    )
    
    
    (63.1
    )
    
    
    12.2
    
    
    
    (14.8
    )
    
    
    18.5Minority interest
    
    
    0.6
    
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    0.2
    
    
    
    (0.1
    )Net earnings (loss)
    
    
    (91.1
    )
    
    
    (61.9
    )
    
    
    (62.6
    )
    
    
    12.3
    
    
    
    (14.6
    )
    
    
    18.4Net earnings (loss) per Ordinary Share
    
    $
    (1.66
    )
    
    
    (1.13
    )
    
    
    (1.14
    )
    
    
    0.23
    
    
    
    (0.27
    )
    
    
    0.34Dividends declared per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.07Amounts in accordance with U.S. GAAP:Net sales
    
    
    985.6
    
    
    
    670.1
    
    
    
    635.9
    
    
    
    736.8
    
    
    
    672.0
    
    
    
    759.8Operating income (loss)
    
    
    (58.8
    )
    
    
    (40.0
    )
    
    
    (46.4
    )
    
    
    22.7
    
    
    
    (4.5
    )
    
    
    34.9Net earnings (loss)
    
    
    (81.9
    )
    
    
    (55.7
    )
    
    
    (60.0
    )
    
    
    14.5
    
    
    
    (6.9
    )
    
    
    18.8Net earnings (loss) per Ordinary Share (basic and diluted)
    
    $
    (1.50
    )
    
    
    (1.02
    )
    
    
    (1.09
    )
    
    
    0.26
    
    
    
    (0.13
    )
    
    
    0.34Weighted average number of Ordinary Shares Outstanding
    
    
    54,850,643
    
    
    
    54,850,643
    
    
    
    54,817,086
    
    
    
    54,733,796
    
    
    
    54,681,628
    
    
    
    54,681,628Balance Sheet Data:Amounts in accordance with Italian GAAP:Current assets
    
    $
    443.2
    
    
    
    318.5
    
    
    
    364.1
    
    
    
    407.3
    
    
    
    384.5
    
    
    
    389.4Total assets
    
    
    756.8
    
    
    
    543.8
    
    
    
    617.5
    
    
    
    674.7
    
    
    
    664.9
    
    
    
    673.2Current liabilities
    
    
    189.7
    
    
    
    136.3
    
    
    
    146.0
    
    
    
    133.0
    
    
    
    136.2
    
    
    
    131.5Long-term debt
    
    
    4.6
    
    
    
    3.3
    
    
    
    2.1
    
    
    
    2.4
    
    
    
    3.6
    
    
    
    5.0Minority interest
    
    
    1.1
    
    
    
    0.8
    
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.7
    
    
    
    0.9Shareholders
equity (7)
    
    
    480.4
    
    
    
    345.2
    
    
    
    411.6
    
    
    
    478.9
    
    
    
    473.0
    
    
    
    487.9Amounts in accordance with U.S. GAAP:Shareholders equity
    
    $
    491.7
    
    
    
    353.3
    
    
    
    408.5
    
    
    
    468.4
    
    
    
    453.7
    
    
    
    464.5
 
 1)
    
    Income Statement amounts are converted from euros into U.S. dollars by using the average Federal
Reserve Bank of New York euro exchange rate for 2008 of U.S.$ 1.4708 per 1 euro. Balance Sheet
amounts are converted from euros into U.S. dollars using the Federal Reserve Bank of New York Noon
Buying Rate of U.S.$ 1.3917 per 1 euro as of December 31, 2008.  3




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2)
    
    Sales included under Other principally consist of sales of polyurethane foam and leather to
third parties and sales of living room accessories.3)
    
    Other income (expense), net is principally affected by gains and losses, as well as interest
income and expenses, resulting from measures adopted by the Group in an effort to reduce its
exposure to exchange rate risks. See Item 5. Operating and Financial Review and Prospects 
Results of Operations  2008 Compared to 2007, Item 11. Quantitative and Qualitative
Disclosures about Market Risk and Notes 3, 24 and 25 to the Consolidated Financial Statements
included in Item 18 of this annual report.4)
    
    Other income (expense), net in 2005 was affected by the change in accounting principles for the
translation of foreign subsidiaries financial statements under Italian GAAP. See Note 3(d) to the
Consolidated Financial Statements. In addition, other income (expense), net, in 2005 was positively
affected by revenues for capital grants. See Note 24 to the Consolidated Financial Statements
included in Item 18 of this annual report.5)
    
    Other income (expense), net in 2006 was negatively affected by the provisions for contingent
liabilities. See Note 24 to the Consolidated Financial Statements included in Item 18 of this
annual report.6)
    
    Other income (expense), net in 2008 was negatively affected by the impairment losses of
long-lived assets, the one-time termination benefit and the provision for contingent liabilities.
See Note 24 to the Consolidated Financial Statements included in Item 18 of this annual report.7)
    
    Share capital as of December 31, 2008, 2007, 2006, 2005 and 2004 amounted to  54.9 million,
 54.8 million,  54.7 million,  54.7 million and  54.7 million, respectively.  4




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Exchange Rates
    Year:
    
    Average(1)
    
    
    At Period End2004
    
    
    1.2478
    
    
    
    1.35382005
    
    
    1.2400
    
    
    
    1.18422006
    
    
    1.2661
    
    
    
    1.31972007
    
    
    1.3797
    
    
    
    1.46032008
    
    
    1.4695
    
    
    
    1.3919
 Month ending:
    
    High
    
    
    Low31-Dec-08
    
    
    1.4358
    
    
    
    1.263431-Jan-09
    
    
    1.3718
    
    
    
    1.280428-Feb-09
    
    
    1.3064
    
    
    
    1.254731-Mar-09
    
    
    1.3730
    
    
    
    1.254930-Apr-09
    
    
    1.3458
    
    
    
    1.297831-May-09
    
    
    1.4126
    
    
    
    1.3267
 
 (1)
    
    The average of the Noon Buying Rates for the relevant period, calculated using the
average of the Noon Buying Rates on the last business day of each month during the period.
Source: Federal Reserve Statistical Release on Foreign Exchange RatesHistorical Rates
for Euro Area.   5




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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 and implement its new
business plan          
  
    
    price competition from low-cost manufacturers;
 
    
    a significant downturn in the global economy;
 
    
    recurring unfavorable currency conditions; and
 
    
    higher raw material prices.
  
 
   6




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The current worldwide economic downturn has impacted the Groups business and could continue
to significantly impact our operations, sales, earnings and liquidity in the foreseeable future 
 A failure to achieve our projected mix of product sales could result in a decrease in our
future earnings  Italsofa
 Manufacturing realignments and cost savings programs could result in a decrease in our
short-term earnings and liquidity 
 Our growth strategy includes, in part, the development of new stores each year. If we and our
dealers are not able to open new stores or effectively manage the growth of these stores, our
ability to grow and our profitability could be adversely affected 
 Demand for furniture is cyclical and may fall in the future 
  7




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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 have adversely affected and may adversely affect the
Groups results 
  8




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The Group faces risks associated with its international operations 
 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; and
 
    
    optimization and global management of corporate processes.
 
   9




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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 
 Investors may face difficulties in protecting their rights as shareholders or holders of ADSs
 Statuto
 One
shareholder has a controlling stake of the company 
   10




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Forward Looking Information
    
 Item 4. Information on the Company
 
 Introduction
   11




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Italsofa
 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
   12




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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
    
    
    96.50
    
    
    Shanghai, China
    
    (1)Softaly Shanghai Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    (1)Natuzzi China Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    (1)Italsofa Romania
    
    
    100.00
    
    
    Baia Mare, Romania
    
    (1)Natco S.p.A.
    
    
    99.99
    
    
    Bari, Italy
    
    (2)I.M.P.E. S.p.A.
    
    
    90.83
    
    
    Qualiano, Italy
    
    (3)Nacon S.p.A.
    
    
    100.00
    
    
    Bari, Italy
    
    (4)Lagene S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    (4)Natuzzi Americas Inc.
    
    
    100.00
    
    
    High Point, NC, USA
    
    (4)Natuzzi Iberica S.A.
    
    
    100.00
    
    
    Madrid, Spain
    
    (4)Natuzzi Switzerland AG
    
    
    100.00
    
    
    Kaltbrunn, Switzerland
    
    (4)Natuzzi Nordic
    
    
    100.00
    
    
    Copenaghen, Denmark
    
    (4)Natuzzi Benelux S.A.
    
    
    100.00
    
    
    Geel, Belgium
    
    (4)Natuzzi Germany Gmbh
    
    
    100.00
    
    
    Dusseldorf, Germany
    
    (4)Natuzzi Sweden AB
    
    
    100.00
    
    
    Stockholm, Sweden
    
    (4)Natuzzi Japan KK
    
    
    100.00
    
    
    Tokyo, Japan
    
    (4)Natuzzi Services Limited
    
    
    100.00
    
    
    London, UK
    
    (4)Natuzzi Trading Shanghai Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    (4)Italholding S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    (5)Natuzzi Netherlands Holding
    
    
    100.00
    
    
    Amsterdam, Holland
    
    (5)Natuzzi Trade Service S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    (6)La Galleria Limited
    
    
    100.00
    
    
    London, UK
    
    (7)Natuzzi United Kingdom Limited
    
    
    100.00
    
    
    London, UK
    
    (7)Kingdom of Leather Limited
    
    
    100.00
    
    
    London, UK
    
    (7)
 (1)
    
    Manufacture and distribution(2)
    
    Intragroup leather dyeing and finishing(3)
    
    Production and distribution of polyurethane foam(4)
    
    Distribution(5)
    
    Investment holding(6)
    
    Transportation services(7)
    
    Dormant   13




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Strategy
   .
  
    
    repositioning the Group brandsincluding Natuzziand Italsofaworldwide,
Divani & Divanimainly in Italy and Natuzzi Editionsin Americaby increasing
awareness and penetration in current and new markets;
 
    
    expanding in new markets, such as Brazil, India, Russia and various markets in
Latin America;
 
    
    improving and further developing the Groups retail organization;
 
    
    diversifying product assortment and launching new models based on pricing
strategies in line with market inputs and expectations;
 
    
    streamlining operations on a regional basis, so that factories located in
certain regions will primarily serve such regions;
 
    
    creating more efficiency in the manufacturing and procurement process by
revising product cost structures and focusing more on the R&D and engineering
process; and
 
    
    eliminating waste and redundancies in Group processes, with a focus on
increasing integration within the Group by completing the SAP rollout.
  
    
    the growth of the annual net sales of the Natuzzi, Italsofa, Divani & Divani
and Natuzzi Editionsbrands;
 
    
    a reduction of our cost of goods sold to approximately 61% of net sales; and
 
    
    other reductions in logistical costs (materials, transportation and
transformation) and selling expenses and general administrative expenses (SG&A).
  14




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Repositioning the Brand Portfolio Strategy of the Group  Natuzzi Italsofa
 i) The Natuzzi brand
  Natuzzi Edition
 ii) The Italsofa brand
 Italsofa
    15




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Expansion into New Markets
 Improvement of the Groups Retail Program and Brand Development  Natuzzi s Natuzzi Natuzzi Divani & Divani by Natuzzi Natuzzi Natuzzi
  Product Diversification 
 Improving Efficiency and Reducing Operating Costs 
  16




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Manufacturing
      Natuzzi Natuzzi
  17




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Raw Materials 
 i.e
  18




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19




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Supply-Chain Management
 Procurement Policies and Operations Integration 
 Production Planning (Order Management, Production, Procurement) 
      20




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On demand
 Upon forecast
     Load Optimization 
    21




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Transportation 
  
 Products
       22




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Klaus Plaza Malcolm Nicolaus    
 Ginevra 
 Otranto 
   23




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Markets
 Divani & Divani by Natuzzi Natuzzi Natuzzi Divani & Divani by Natuzzi
  :
 Leather and Fabric Upholstered Furniture Net Sales (in millions of euro)
 2008
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2006Americas(1)
    
    
    208.6
    
    
    
    35.5
    %
    
    
    198.6
    
    
    
    35.2
    %
    
    
    245.4
    
    
    
    37.2
    %Natuzzi
    
    
    110.4
    
    
    
    18.8
    %
    
    
    114.4
    
    
    
    20.3
    %
    
    
    146.6
    
    
    
    22.2
    %Italsofa
    
    
    98.2
    
    
    
    16.7
    %
    
    
    84.2
    
    
    
    14.9
    %
    
    
    98.8
    
    
    
    15.0
    %Europe
    
    
    323.7
    
    
    
    55.1
    %
    
    
    319.4
    
    
    
    56.7
    %
    
    
    366.6
    
    
    
    55.5
    %Natuzzi
    
    
    189.3
    
    
    
    32.2
    %
    
    
    191.8
    
    
    
    34.0
    %
    
    
    235.3
    
    
    
    35.6
    %Italsofa
    
    
    134.4
    
    
    
    22.9
    %
    
    
    127.6
    
    
    
    22.7
    %
    
    
    131.3
    
    
    
    19.9
    %Rest of the world
    
    
    55.5
    
    
    
    9.4
    %
    
    
    45.5
    
    
    
    8.1
    %
    
    
    48.3
    
    
    
    7.3
    %Natuzzi
    
    
    32.8
    
    
    
    5.5
    %
    
    
    29.9
    
    
    
    5.3
    %
    
    
    34.3
    
    
    
    5.2
    %Italsofa
    
    
    22.7
    
    
    
    3.9
    %
    
    
    15.6
    
    
    
    2.8
    %
    
    
    14.0
    
    
    
    2.1
    %Total
    
    
    587.8
    
    
    
    100.0
    %
    
    
    563.5
    
    
    
    100.0
    %
    
    
    660.3
    
    
    
    100.0
    %
 (1)
    
    Outside the United States, the Group also sells its products to customers
in Canada and Central and South America (collectively, the Americas).  24




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##### Table of Contents



Leather and Fabric Upholstered Furniture Net Sales (in seats) (2)
 2008
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    2006Americas
    
    
    1,272,559
    
    
    
    46.8
    %
    
    
    1,176,585
    
    
    
    45.4
    %
    
    
    1,364,873
    
    
    
    45.2
    %Natuzzi
    
    
    554,492
    
    
    
    20.4
    %
    
    
    560,647
    
    
    
    21.6
    %
    
    
    684,009
    
    
    
    22.7
    %Italsofa
    
    
    718,067
    
    
    
    26.4
    %
    
    
    615,938
    
    
    
    23.8
    %
    
    
    680,864
    
    
    
    22.5
    %Europe
    
    
    1,211,939
    
    
    
    44.5
    %
    
    
    1,225,882
    
    
    
    47.3
    %
    
    
    1,449,696
    
    
    
    48.1
    %Natuzzi
    
    
    487,821
    
    
    
    17.9
    %
    
    
    523,054
    
    
    
    20.2
    %
    
    
    716,846
    
    
    
    23.8
    %Italsofa
    
    
    724,118
    
    
    
    26.6
    %
    
    
    702,828
    
    
    
    27.1
    %
    
    
    732,850
    
    
    
    24.3
    %Rest of the world
    
    
    237,809
    
    
    
    8.7
    %
    
    
    189,926
    
    
    
    7.3
    %
    
    
    202,133
    
    
    
    6.7
    %Natuzzi
    
    
    90,430
    
    
    
    3.3
    %
    
    
    87,950
    
    
    
    3.4
    %
    
    
    106,127
    
    
    
    3.5
    %Italsofa
    
    
    147,379
    
    
    
    5.4
    %
    
    
    101,976
    
    
    
    3.9
    %
    
    
    96,006
    
    
    
    3.2
    %Total
    
    
    2,722,307
    
    
    
    100.0
    %
    
    
    2,592,393
    
    
    
    100.0
    %
    
    
    3,016,702
    
    
    
    100.0
    %
 (2)
    
    Includes seats produced at Group-owned facilities and by subcontractors.
Seats are a unit measurement. A sofa consists of three seats; an armchair of one. 1. United States and the Americas.
  
     25




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##### Table of Contents



2. Europe.
  
 Italy Divani & Divani by Natuzzi Divani & Divani by Natuzzi Natuzzi
 Outside Italy. Divani & Divani by Natuzzi Natuzzi Natuzzi Natuzzi
 3. Rest of the World.
 Middle East.   Natuzzi
 Asia-Oceania-Africa.  Natuzzi
 Natuzzi
  26




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##### Table of Contents



Italsofa Italsofa
 Customer Credit Management 
 Advertising  Natuzzi
 Natuzzi
 
 Incentive Programs and Tax Benefits
         
  27




---



##### Table of Contents



  Gazzetta Ufficiale della Repubblica Italiana     
        
  
  28




---



##### Table of Contents



 
  
 Management of Exchange Rate Risk
  
 Trademarks and Patents
  
 Regulation
   29




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##### Table of Contents



Environmental Regulatory Compliance
 Pozzuolo del Friuli Qualiano
 
 Insurance
  
 Description of Properties
  Size(approximate
    
    
    
    Productionsquare
    
    
    
    Capacity
    
    
    Unit ofLocation
    
    
    meters)
    
    Function
    
    per day
    
    
    MeasureSanteramo in Colle
    
    29,000
    
    Headquarters, prototyping, manufacturing of wooden frames,
showroom (Owned)
    
    
    704
    
    
    Frames(BA)  ItalySanteramo in Colle,
    
    27,500
    
    Sewing and product assembly (Owned)
    
    
    1.400
    
    
    SeatsIesce (BA)  ItalyMatera La Martella
    
    38,000
    
    General warehouse of sofas and accessory furnishing (Owned)
    
    
    N.A.
    
   
    N.A. ItalyGinosa (TA)  Italy
    
    14,500
    
    Sewing and product assembly (Owned)
    
    
    900
    
    
    SeatsLaterza (TA)  Italy
    
    10,000
    
    Leather cutting (Owned)
    
    
    7,500
    
    
    Square MetersLaterza (TA)  Italy
    
    13,000
    
    Fabric and lining cutting, leather warehouse (Owned)
    
    
    6,000
    
    
    Linear MetersLaterza (TA)  Italy
    
    20,000
    
    Accessory Furnishing Packaging and Warehouse (Owned)
    
    
    N.A.
    
    
    N.A.Qualiano (NA) 
    
    12,000
    
    Polyurethane foam production (Owned)
    
    
    87
    
    
    TonsItalyPozzuolo del Friuli
    
    21,000
    
    Leather dyeing and finishing (Owned)
    
    
    14,000
    
    
    Square Meters(UD)  ItalyMontebello (VI) -
    
    5,500
    
    Leather warehouse (Leased)
    
    
    N.A.
    
    
    N.A.Italy
  30




---



##### Table of Contents



Size(approximate
    
    
    
    Productionsquare
    
    
    
    Capacity
    
    
    Unit ofLocation
    
    
    meters)
    
    Function
    
    per day
    
    
    MeasureHigh Point  North
    
    10,000
    
    Office and showroom for Natuzzi Americas (Owned)
    
    
    N.A.
    
   
    N.A.Carolina  U.S.A.Baia Mare  Romania
    
    75,600
    
    Leather cutting, sewing and product
    
    
    2,900
    
    
    Seatsassembly, manufacturing of wooden
frames, polyurethane foam shaping,
fiberfill production and wood and
wooden product manufacturing
(Owned)Shanghai  China
    
    44,000
    
    Leather cutting, sewing and product
    
    
    4,000
    
    
    Seatsassembly, manufacturing of wooden
frames, polyurethane foam shaping,
fiberfill production (Owned)Shanghai (Fengpu) 
    
    14,500
    
    Leather cutting, leather and fabric warehouse (Leased)
    
    
    10,800
    
    
    Square MetersChinaFabric cutting
    
    
    420
    
    
    Linear MetersSalvador de Bahia
    
    28,700
    
    Leather cutting, sewing and product
    
    
    700
    
    
    Seats(Bahia)  Brazil
    
    
    
    assembly, manufacturing of wooden
frames, polyurethane foam shaping,
fiberfill production (Owned)
   
 Capital Expenditures
  Year ending December 31,(millions of Euro)2008
    
    
    2007
    
    
    2006Land and plants
    
    
    1.1
    
    
    
    3.3
    
    
    
    2.4Equipment
    
    
    5.1
    
    
    
    10.1
    
    
    
    7.0Other assets
    
    
    9.8
    
    
    
    13.1
    
    
    
    9.7Total
    
    
    16.0
    
    
    
    26.5
    
    
    
    19.1
  31




---



##### Table of Contents



Natuzzi Natuzzi 
 
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
  
 Critical Accounting Policies
 Use of Estimates 
  32




---



##### Table of Contents



Recoverability of Long-lived Assets Including Goodwill and Other Intangible Assets 
     
  Recoverability
of Deferred Tax Assets 
  33




---



##### Table of Contents



Allowances for Returns and Discounts 
 Allowance for Doubtful Accounts 
 Revenue Recognition 
  34




---



##### Table of Contents



Results of Operations
 Summary      Natuzzi   Natuzzi Italsofa   Italsofa
 Natuzzi
     
 Natuzzi
  35




---



##### Table of Contents



Year Ended December 31,2008
    
    
    2007
    
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    71.9
    
    
    
    72.6
    
    
    
    66.7Gross profit
    
    
    28.1
    
    
    
    27.4
    
    
    
    33.3Selling expenses
    
    
    25.9
    
    
    
    27.4
    
    
    
    25.3General and administrative expenses
    
    
    7.4
    
    
    
    7.7
    
    
    
    5.7Operating income (loss)
    
    
    (5.2
    )
    
    
    (7.7
    )
    
    
    2.3Other income (expense), net
    
    
    (3.9
    )
    
    
    (0.4
    )
    
    
    0.4Income taxes
    
    
    0.2
    
    
    
    1.8
    
    
    
    1.0Net earnings (loss)
    
    
    (9.3
    )
    
    
    (9.9
    )
    
    
    1.7
  2008 Compared to 2007
 Net Sales  
   Natuzzi Italsofa
    
   Italsofa Natuzzi   Natuzzi Italsofa   Natuzzi Italsofa
  36




---



##### Table of Contents



Natuzzi   Natuzzi  
 Divani & Divani by Natuzzi Natuzzi Stores  
    Natuzzi Brand . Natuzzi
  Italsofa Brand Italsofa
 Other Net Sales  
 Cost of Sales  
 Gross Profit.  
 Selling Expenses  
  37




---



##### Table of Contents



General and Administrative Expenses.  
 Operating Loss.  
 Other Income (expenses), net.    
  
 
    
    a net realized loss of  1.3 million in 2008 (compared to a gain of 
5.9 million in 2007) on domestic currency swaps due to the difference between the
forward rates of the domestic currency swaps and the spot rates at which the
domestic currency swaps were closed (the Group uses the forward rate to hedge its
price risks against unfavourable exchange rate variations);
 
    
    a net realized loss of  6.3 million in 2008 (compared to a loss of 
3.9 million in 2007), from the difference between invoice exchange rates and
collection/payment exchange rates;
 
    
    a net unrealized gain of  1.0 million in 2008 (compared to an unrealized
loss of  10.1 million in 2007) on accounts receivable and payable; and
 
    
    a net unrealized loss of  4.4 million in 2008 (compared to an unrealized
gain of  0.9 million in 2007), from the mark-to-market of domestic currency
swaps.
  
 
    
    a  4.7 million expense due to the impairment of long-lived assets in 2008,
while no such expenses were registered in 2007;
 
    
    a  4.6 million expense for the one-time termination benefits incurred in
2008, while no such expenses were registered in 2007;
 
    
    a  3.2 million contingent-liabilities provision for estimated losses
related to some claims (including tax claims) and legal actions in 2008, while in
2007, the provisions for contingent liabilities amounted to  3.0 million;
 
    
    other expenses of  1.2 million deriving from the write-off of fixed assets
in 2008, while in 2007, the other expenses deriving from the write off of fixed
assets amounted to  2.3 million;
  38




---



##### Table of Contents




    
    the Group did not register any refunds from tax authorities in 2008, while in
2007 it registered a refund of  3.0 million obtained from the Italian tax
authorities for income and other taxes not due related to prior years (in
addition in 2007, the Italian tax authorities confirmed that a portion of the
income tax of  0.7 accrued in year 2006, was no longer due);
 
    
    the Group did not register any provisions or reversals for legal actions in
2008, while in 2007 it registered an income of  1.5 million due to the write
off of a provision for legal actions accrued in 2006, which resulted from a
settlement of the claim; and
 
    
     0.8 million as other expense, net in 2008, compared to other income, net
of  2.9 million in 2007.
  Income Taxes
    Net Loss.    
      
  39




---



##### Table of Contents



2007 Compared to 2006
 Net Sales  
   Natuzzi Natuzzi Italsofa
    
   Italsofa Natuzzi   Natuzzi Italsofa   Natuzzi Italsofa
 Natuzzi   Natuzzi  
 Divani & Divani by Natuzzi Natuzzi Stores  
   40




---



##### Table of Contents



 Natuzzi Brand . Natuzzi
  Italsofa Brand Italsofa
 Other Net Sales  
 Cost of Sales  
 Gross Profit.  
 Selling Expenses  
 General and Administrative Expenses.  
 Operating Loss.  
 Other Income (expenses), net.    
  41




---



##### Table of Contents



 
 
    
    a net realized gain of  5.9 million in 2007 (compared to a gain of 
0.7 million in 2006) on domestic currency swaps due to the difference between the
forward rates of the domestic currency swaps and the spot rates at which the
domestic currency swaps were closed (the Group uses the forward rate to hedge its
price risks against unfavourable exchange rate variations);
 
    
    a net realized loss of  3.8 million in 2007 (compared to a loss of 
8.2 million in 2006), from the difference between invoice exchange rates and
collection/payment exchange rates;
 
    
    a net unrealized loss of  10.1 million in 2007 (compared to an unrealized
gain of  2.8 million in 2006) on accounts receivable and payable; and
 
    
    a net unrealized gain of  0.9 million in 2007 (compared to an unrealized
gain of  5.5 million in 2006), from the mark-to-market of domestic currency
swaps.
  
 
    
    a  3.0 million contingent-liabilities provision for estimated losses
related to some claims (including tax claims) and legal actions. In 2006, the
provisions for contingent liabilities amounted to  5.8 million;
 
    
    other expenses of  2.3 million deriving from the write-off of fixed
assets. No such expenses were registered in 2006;
 
    
    in 2007 the Group did not register any revenue from export incentive benefits,
while in 2006 it registered revenue of  3.4 million. This incentive is
measured on the basis of the export sales realized by the subsidiaries Italsofa
Bahia Ltd and Minuano Nordeste S.A.;
 
    
    a refund of  3.0 million obtained from the Italian tax authorities for
income and other taxes not due related to prior years; in addition, the Italian
tax authorities confirmed that a portion of the income tax of  0.7 accrued in
year 2006, was no longer due. In 2006 the Company did not record revenues for tax
refund;
 
    
    an income of  1.5 million due to the write off of a provision for legal
action accrued in 2006, which resulted from a settlement of the claim; and
 
    
     2.9 million as other income, net, that is the same amount it had
registered in 2006.
 Income Taxes
   42




---



##### Table of Contents



Net Loss.    
      
 
 Liquidity and Capital Resources
  
   
    
  43




---



##### Table of Contents



 
   
    
 
 Contractual Obligations and Commitments
     
  44




---



##### Table of Contents



Payments Due by Period(thousands of euro)Less than
    
    
    
    
    
    
    
    
    
    
    After 5Contractual Obligations
    
    Total
    
    
    1 year
    
    
    2-3 years
    
    
    4-5 years
    
    
    yearsLong-Term Debt(1)
    
    
    3,780
    
    
    
    514
    
    
    
    1,353
    
    
    
    1,315
    
    
    
    598Interest due on Long Term Debt
(2)
    
    
    235
    
    
    
    57
    
    
    
    96
    
    
    
    59
    
    
    
    23Operating Leases (3)
    
    
    67,175
    
    
    
    12,794
    
    
    
    22,150
    
    
    
    16,267
    
    
    
    15,964Total Contractual Cash
Obligations
    
    
    71,190
    
    
    
    13,365
    
    
    
    23,599
    
    
    
    17,641
    
    
    
    16,585
 
 (1)
    
    Please see Note 16 to the Consolidated Financial Statements included in Item 18 of
this annual report for more information on the Groups long-term debt.(2)
    
    Interest due on long-term debt has been calculated using fixed rates contractually
agreed with lenders(3)
    
    The leases relate to the leasing of manufacturing facilities and stores by several
of the Groups companies.    
  45




---



##### Table of Contents



Amount of Commitment Expiration Per PeriodTotal
    
    
    (thousands of euro)Amounts
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    After 5Other Commitments
    
    Committed
    
    
    1 year
    
    
    2-3 years
    
    
    4-5 years
    
    
    yearsGuarantees(1)
    
    
    26,005
    
    
    
    26,005
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The guarantee is primarily comprised of a guarantee letter provided by a bank in
connection with the Natuzzi 2000 project. The guarantee letter will expire when the Italian
Ministry of Economic Development provides the Company with the final disbursement of the capital
grants already provided. See Item 4. Information on the Company  Incentive Programs and Tax
benefits. 
 
 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 a store concept consistent with the Natuzzi brands high-end
positioning;
 
    
    to define store formats (size, location, aesthetic and commercial features);
 
    
    to define development plans and network re-positioning; and
 
    
    to define the correct communication tools and training.
  46




---



##### 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 Non-controlling Interest in Consolidated
Financial Statements  an amendment to ARB No. 51
  47




---



##### Table of Contents



SFAS No. 157:
 Fair
Value Measurements Effective Date of FASB Statement No. 157
  Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active,
 SFAS No. 159:
 The
Fair Value Option for Financial Assets and Financial Liabilities  including an amendment
of FASB Statement No. 115
  48




---



##### Table of Contents



SFAS No. 161:
 Accounting for Derivative Instruments and Hedging Activities
 SFAS No. 165:
 Subsequent Events
 FSP FAS No. 142-3:
 Determination of the Useful
Life of Intangible Assets (FSP 142-3)
  49




---



##### Table of Contents



Item 6. Directors, Senior Management and Employees
  Name
    
    Age
    
    Position with the CompanyPasquale Natuzzi *
    
    
    69
    
    
    Chairman of the Board of Directors, Chief Executive
Officer and Chief Brand Officer (ad interim)Antonia Isabella
Perrone *
    
    
    39
    
    
    DirectorAnnamaria Natuzzi *
    
    
    43
    
    
    DirectorGiuseppe Antonio
DAngelo *
    
    
    43
    
    
    Outside DirectorMaurizia Iachino
Leto di Priolo *
    
    
    60
    
    
    Outside DirectorFrancesco Giannaccari *
    
    
    44
    
    
    Outside DirectorMario Lugli *
    
    
    62
    
    
    Outside DirectorGiacomo Santucci **
    
    
    53
    
    
    Outside DirectorMariano Domingo
    
    
    56
    
    
    Chief Financial OfficerAnnunziata Natuzzi
    
    
    45
    
    
    Chief Executive Officer of Natco S.p.A. and
Transformation Top 8 Vice PresidentCosimo Bardi
    
    
    34
    
    
    Product Development Vice PresidentFrancesco Basile
    
    
    40
    
    
    People Management & Organization Senior Vice
PresidentUmberto Bedini
    
    
    53
    
    
    Operations Senior Vice PresidentCary Benson
    
    
    49
    
    
    President and Chief Executive Officer of Natuzzi
Americas Inc.Massimiliano Caforio
    
    
    40
    
    
    Legal and Corporate Affairs Vice PresidentCosimo Cavallo
    
    
    49
    
    
    Region UK, S-A-E Europe & Middle East Senior Vice
PresidentSilvia Di Rosa
    
    
    45
    
    
    IR & Financial Marketing Vice PresidentOliver Heil
    
    
    42
    
    
    Region A-O-A Senior Vice PresidentJan Mentens
    
    
    41
    
    
    Region North & Central Europe Senior Vice PresidentFernanda Pelati
    
    
    51
    
    
    Italy & Retail Worldwide Senior Vice PresidentPaola Peretti
    
    
    34
    
    
    Corporate Comm. & Think Bold Team Vice PresidentChristian Schwab
    
    
    43
    
    
    Region B-R-I Senior Vice PresidentStefano Sette
    
    
    40
    
    
    Natuzzi Brand Group Senior Vice President and
Chairman of Nacon S.p.AGiuseppe Stano
    
    
    50
    
    
    Key Global Account Management Vice PresidentGiacomo Ventolone
    
    
    41
    
    
    Region Latin America Vice President
 *
    
    The above mentioned Members of the Board of Directors were elected at the Companys Annual
Ordinary Shareholders Meeting held on July 2, 2008. Their term will conclude at the next Ordinary
Shareholders Meeting.**
    
    Mr Santucci was appointed at the General Shareholders Meeting held on May 5, 2009.  50




---



##### Table of Contents



Pasquale Natuzzi (ad interim)
 Antonia Isabella Perrone
 Annamaria Natuzzi
 Giuseppe Antonio DAngelo
 Maurizia Iachino Leto di Priolo
 Francesco Giannaccari
  51




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##### Table of Contents



Mario Lugli
 Giacomo Santucci
 Mariano Domingo
 Annunziata Natuzzi
 Cosimo Bardi
 Francesco Basile
 Umberto Bedini
 Cary Benson
  52




---



##### Table of Contents



Massimiliano Caforio
 Cosimo Cavallo
 Silvia Di Rosa
 Oliver Heil
 Jan Mentens
 Fernanda Pelati
 Paola Peretti
 Christian Schwab
  53




---



##### Table of Contents



Stefano Sette
 Giuseppe Vito Stano
 Giacomo Ventolone
 Regional Managers 
 
 Compensation of Directors and Officers
 www.natuzzi.com
 
    54




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##### Table of Contents




    
    40% of the bonus is paid in cash; and
    
    60% of the bonus is automatically converted, based on the fair market value of the
Companys stock, in rights to receive a correspondent number of the Companys common
 shares.
  i.e.
 
 Share Ownership
   55




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##### Table of Contents



Statutory Auditors
  Name
    
    PositionFrancesco Venturelli
    
    ChairmanCataldo Sferra
    
    MemberCostante Leone
    
    MemberGiuseppe Pio Macario
    
    AlternateVittorio Boscia
    
    Alternate
 
   
 External Auditors
  
 Employees
  Cassa
Integrazione Guadagni
  56




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##### Table of Contents



Item 7. Major Shareholders and Related Party Transactions
 
 Major Shareholders
    57




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##### Table of Contents



Number ofShares
    
    
    PercentOwned
    
    
    OwnedPasquale Natuzzi (1)
    
    
    29,358,089
    
    
    
    53.5
    %Royce & Associates LLC (2)
    
    
    5,543,300
    
    
    
    10.1
    %Brandes Investment Partners LP (3)
    
    
    3,049,457
    
    
    
    5.6
    %Quaeroq CVBA(4)
    
    
    2,760,400
    
    
    
    5.0
    %
 (1)
    
    Includes ADSs purchased on April 18, 2008. If Mr. Natuzzis Ordinary Shares are
aggregated with those held by members of the Natuzzi Family, the amount owned would be 32,158,091
and the percentage ownership of Ordinary Shares would be 58.7%.(2)
    
    According to the Schedule 13G filed with the SEC by Royce & Associates LLC on
February 5, 2009.(3)
    
    According to the Schedule 13G filed with the SEC by Brandes Investment Partners LP
on February 12, 2009.(4)
    
    According to the Schedule 13G filed with the SEC by Quaeroq CVBA on November 18,
2008.     58




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##### Table of Contents



Related Party Transactions
  
    
    enterprises that directly or indirectly through one or more intermediaries,
control or are controlled by, or are under common control with, the Company, or
unconsolidated enterprises in which the Company has a significant influence or
which has significant influence over the Company (including enterprises owned by
directors or major shareholders of the Company and enterprises that have a member
of key management in common with the Company);
 
    
    individuals owning, directly or indirectly, an interest in the voting power of
the Company that gives them significant influence over the Company, and close
members of any such individuals family;
 
    
    persons having authority and responsibility for planning, directing and
controlling the activities of the Company, including directors and senior
management of the Company and close members of such individuals families; and
 
    
    enterprises in which a substantial interest in the voting power is owned,
directly or indirectly, by any person described the previous two bullet points or
over which such a person is able to exercise significant influence.
 
 Item 8. Financial Information
 
 Consolidated Financial Statements
  
 Export Sales
  
 Legal and Governmental Proceedings
 Istituto Nazionale di Previdenza Sociale Contratti di formazione e lavoro
  59




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##### Table of Contents



60




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##### Table of Contents



Dividends
    
 Item 9. The Offer and Listing
 
 Trading Markets and Share Prices
    61




---



##### Table of Contents



New York Stock ExchangePrice per ADSHigh
    
    
    Low(in US dollars)2004
    
    
    11.55
    
    
    
    9.232005
    
    
    11.65
    
    
    
    6.762006
    
    
    8.65
    
    
    
    6.322007
    
    
    9.60
    
    
    
    4.362008
    
    
    4.63
    
    
    
    1.632007First quarter
    
    
    9.60
    
    
    
    8.15Second quarter
    
    
    8.53
    
    
    
    7.18Third quarter
    
    
    8.31
    
    
    
    5.26Fourth quarter
    
    
    6.84
    
    
    
    4.362008First quarter
    
    
    4.63
    
    
    
    3.20Second quarter
    
    
    4.10
    
    
    
    3.16Third quarter
    
    
    4.04
    
    
    
    2.61Fourth quarter
    
    
    3.43
    
    
    
    1.63Monthly dataDecember 08
    
    
    2.40
    
    
    
    1.63January 09
    
    
    1.96
    
    
    
    1.46February 09
    
    
    1.76
    
    
    
    1.40March 09
    
    
    1.63
    
    
    
    1.00April 09
    
    
    1.55
    
    
    
    1.00May 09
    
    
    2.11
    
    
    
    1.54June (through June 19)
    
    
    2.30
    
    
    
    1.92
 
 Item 10. Additional Information
 
 By-laws
 Statuto
   General 
   62




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##### Table of Contents



Authorization of Shares 
 Form and Transfer of Shares 
 Dividend Rights 
  Voting Rights 
  63




---



##### Table of Contents



Board of Directors 
 presidente amministratori delegati
  direttore generale
   64




---



##### Table of Contents



Statutory Auditors  ollegio sindacale
  65




---



##### Table of Contents



External Auditor 
     66




---



##### Table of Contents



Meetings of Shareholders 
 Il Sole 24 Ore, Corriere della Sera La Repubblica
      67




---



##### Table of Contents



Preemptive Rights 
 Preference Shares; Other Securities 
  Segregation of Assets and Proceeds 
  Liquidation Rights  pari passu
  68




---



##### Table of Contents



Purchase of Shares by the Company 
     Notification of the Acquisition of Shares 
 Minority Shareholders Rights; Withdrawal Rights 
  69




---



##### Table of Contents



Liability for Mismanagement of Subsidiaries 
  
 Certain Contracts
   70




---



##### Table of Contents



Exchange Controls
      71




---



##### Table of Contents



Taxation
      Italian Tax Considerations 
  72




---



##### Table of Contents



73




---



##### Table of Contents



United States Tax Considerations 
       74




---



##### Table of Contents



Taxation of Capital Gains
 Italian Tax Considerations 
    United States Tax Considerations 
  75




---



##### 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.
    76




---



##### Table of Contents



Documents on Display
  
 Item 11. Quantitative and Qualitative Disclosures About Market Risk
   Exchange Rate Risks
     77




---



##### Table of Contents



Euro equivalent of contractual amounts
    
    December 31,of forward exchange contracts as of
    
    2008
    
    
    2007U.S. dollars
    
    
    62,561
    
    
    
    58,724Euro
    
    
    25,292
    
    
    
    46,326British pounds
    
    
    11,988
    
    
    
    8,751Canadian dollars
    
    
    11,463
    
    
    
    18,930Australian dollars
    
    
    9,771
    
    
    
    16,503Norwegian kroner
    
    
    2,492
    
    
    
    7,071Swiss francs
    
    
    1,973
    
    
    
    620Danish kroner
    
    
    1,675
    
    
    
    2,681Swedish kroner
    
    
    1,644
    
    
    
    2,616Japanese yen
    
    
    360
    
    
    
    292Total
    
    
    129,219
    
    
    
    162,514
   December 31, 2008
    
    
    December 31, 2007Contract
    
    
    Unrealized
    
    
    Contract
    
    
    UnrealizedAmount
    
    
    gains (losses)
    
    
    Amount
    
    
    gains (losses)Assets
    
    
    38,898
    
    
    
    6,799
    
    
    
    97,967
    
    
    
    4,995Liabilities
    
    
    90,321
    
    
    
    (11,270
    )
    
    
    65,547
    
    
    
    (4,049
    )Total
    
    
    129,219
    
    
    
    (4,471
    )
    
    
    162,514
    
    
    
    946
   78




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##### Table of Contents



Interest Rate Risks
   
 Item 12. Description of Securities Other than Equity Securities
  
 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
 (a) Disclosure Controls and Procedures 
   79




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##### Table of Contents



(b) Managements Annual Report on Internal Control Over Financial Reporting 
    (c) Attestation Report of the Registered Public Accounting Firm
 Report of Independent Registered Public Accounting Firm
  Internal Control 
Integrated Framework
  80




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##### Table of Contents



Internal
Control  Integrated Framework
   
 (d) Changes in Internal Control Over Financial Reporting 
  81




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##### Table of Contents



Item 16. [Reserved]
 
 Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  
 Item 16C. Principal Accountant Fees and Services
  2008
    
    
    2007(in euros)Audit fees
    
    
    1,090,681
    
    
    
    1,063,000Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    Other fees
    
    
    
    
    
    
    Total fees
    
    
    1,090,681
    
    
    
    1,063,000
    82




---



##### Table of Contents



Item 16D. 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 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
   
 Item 16F. Change in Registrants Certifying Accountant
   83




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##### Table of Contents



Item 16G. Corporate Governance
 società per azioni
 consiglio di amministrazione collegio sindacale revisore contabile
  Independent Directors
 NYSE Domestic Company Standards
  Our Practice
  84




---



##### Table of Contents



inscritto nel registro dei revisori contabili
 Executive Sessions
 NYSE Domestic Company Standards
 Our Practice
 Audit Committee and Internal Audit Function
 NYSE Domestic Company Standards
 Our Practice
  85




---



##### Table of Contents



Compensation Committee
 NYSE Domestic Company Standards
 Our Practice
 Nominating Committee
 NYSE Domestic Company Standards
 Our Practice
 Corporate Governance and Code of Ethics
 NYSE Domestic Company Standards
  86




---



##### Table of Contents



Our Practice
 Certifications as to Violations of NYSE Standards
 NYSE Domestic Company Standards
  Our Practice
  Shareholder Approval of Adoption and Modification of Equity Compensation Plans
 NYSE Domestic Company Standards
  87




---



##### Table of Contents



Our Practice
 
 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, 2008 and 2007
    
    
    F-2Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006
    
    
    F-3Consolidated Statements of Changes in Shareholders Equity for the Years Ended December 31, 2008, 2007 and 2006
    
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006
    
    
    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 (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the
Securities Exchange Commission on June 30, 2008, file number 1-11854).
 2.1
    
    Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 31, 2001,
among the Company, The Bank of New York, as Depositary, and owners and beneficial owners of
ADRs (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the Securities
and Exchange Commission on July 1, 2002, file number 1-11854).
 8.1
    
    List of Significant Subsidiaries.
 12.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
 12.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.13.1
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  88




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##### Table of Contents



Internal Control  Integrated Framework
 KPMG S.p.A.
 
  F - 1




---



##### Table of Contents



Natuzzi S.p.A. and Subsidiaries
 
 Consolidated Balance Sheets as of December 31, 2008 and 2007
  December 31,
    
    
    December 31,2008
    
    
    2007ASSETSCurrent assets:Cash and cash equivalents (note 4)
    
    
    47,307
    
    
    
    87,459Marketable debt securities (note 5)
    
    
    4
    
    
    
    4Trade receivables, net (note 6)
    
    
    122,783
    
    
    
    117,722Other receivables (note 7)
    
    
    46,185
    
    
    
    47,784Inventories (note 8)
    
    
    92,012
    
    
    
    107,290Unrealized foreign exchange gains (note 25)
    
    
    4,724
    
    
    
    946Prepaid expenses and accrued income
    
    
    1,259
    
    
    
    1,847Deferred income taxes (note 14)
    
    
    4,219
    
    
    
    1,079Total current assets
    
    
    318,493
    
    
    
    364,131Non current assets:Property
plant and equipment (notes 9 and 22)
    
    
    406,147
    
    
    
    413,730Less
accumulated depreciation (notes 9 and 22)
    
    
    (194,366
    )
    
    
    (177,880
    )Net property, plant and equipment
    
    
    211,781
    
    
    
    235,850Other assets (note 10)
    
    
    13,342
    
    
    
    17,276Deferred income taxes (note 14)
    
    
    179
    
    
    
    212Total assets
    
    
    543,795
    
    
    
    617,469LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term borrowings (note 11)
    
    
    9,701
    
    
    
    7,576Current portion of long-term debt (note 16)
    
    
    514
    
    
    
    317Accounts payable-trade (note 12)
    
    
    68,577
    
    
    
    89,247Accounts payable-other (note 13)
    
    
    29,743
    
    
    
    29,813Unrealized foreign exchange losses (note 25)
    
    
    9,195
    
    
    
    Income taxes (note 14)
    
    
    1,798
    
    
    
    1,585Salaries, wages and related liabilities (note 15)
    
    
    16,811
    
    
    
    17,531Total current liabilities
    
    
    136,339
    
    
    
    146,069Long-term liabilities:Employees leaving entitlement (note 3 (n) )
    
    
    31,677
    
    
    
    33,343Long-term debt (note 16)
    
    
    3,266
    
    
    
    2,116Deferred income for capital grants (note 3 (m) )
    
    
    12,058
    
    
    
    13,332Other liabilities (note 17)
    
    
    14,442
    
    
    
    10,866Minority interest (note 18)
    
    
    795
    
    
    
    146Shareholders equity (note 19) :Share capital
    
    
    54,853
    
    
    
    54,824Reserves
    
    
    42,780
    
    
    
    42,292Additional paid-in capital
    
    
    8,282
    
    
    
    8,282Retained earnings
    
    
    239,303
    
    
    
    306,199Total shareholders equity
    
    
    345,218
    
    
    
    411,597Committments and contingent liabilities (notes 21 and 25)
    
    
    
    
    
    
    Total liabilities and shareholders equity
    
    
    543,795
    
    
    
    617,469
 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, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006Net sales (note 22)
    
    
    666,026
    
    
    
    634,402
    
    
    
    735,439Cost of sales (note 23)
    
    
    (478,770
    )
    
    
    (460,589
    )
    
    
    (490,563
    )Gross profit
    
    
    187,256
    
    
    
    173,813
    
    
    
    244,876Selling expenses
    
    
    (172,338
    )
    
    
    (173,885
    )
    
    
    (186,238
    )General and administrative expenses
    
    
    (49,914
    )
    
    
    (49,038
    )
    
    
    (42,164
    )Operating income (loss)
    
    
    (34,996
    )
    
    
    (49,110
    )
    
    
    16,474Other income (expense), net (note 24)
    
    
    (25,818
    )
    
    
    (2,646
    )
    
    
    2,847Earnings (loss) before taxes
and minority interest
    
    
    (60,814
    )
    
    
    (51,756
    )
    
    
    19,321Income taxes (note 14)
    
    
    (1,556
    )
    
    
    (11,387
    )
    
    
    (7,085
    )Earnings (loss) before minority interest
    
    
    (62,370
    )
    
    
    (63,143
    )
    
    
    12,236Minority interest
    
    
    432
    
    
    
    496
    
    
    
    103Net earnings (loss)
    
    
    (61,938
    )
    
    
    (62,647
    )
    
    
    12,339Basic earnings (loss) per share (note 3 (z))
    
    
    (1.13
    )
    
    
    (1.14
    )
    
    
    0.23Diluted earnings (loss) per share (note 3 (z))
    
    
    (1.13
    )
    
    
    (1.14
    )
    
    
    0.23
 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, 2008, 2007 and 2006
  Share capital
    
    
    
    
    
    
    AdditionalNumber of
    
    
    
    
    
    
    
    
    
    
    paid-in
    
    
    Retainedordinary shares
    
    
    Amount
    
    
    Reserves
    
    
    capital
    
    
    earnings
    
    
    TotalBalances 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
    
    
    
    478,842Increase 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
    
    
    
    411,597Majority Shareholder contribution
    
    
    
    
    
    
    
    
    
    
    488
    
    
    
    
    
    
    
    
    
    
    
    488Increase share capital
    
    
    28,818
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    (29
    )
    
    
    Exchange difference on
translation of financial
statements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,929
    )
    
    
    (4,929
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61,938
    )
    
    
    (61,938
    )Balances at December 31, 2008
    
    
    54,853,045
    
    
    
    54,853
    
    
    
    42,780
    
    
    
    8,282
    
    
    
    239,303
    
    
    
    345,218
 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, 2008, 2007 and 2006
  2008
    
    
    2007
    
    
    2006Cash flows from operating activities:Net earnings (loss)
    
    
    (61,938
    )
    
    
    (62,647
    )
    
    
    12,339Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization
    
    
    31,086
    
    
    
    30,331
    
    
    
    30,281Write off of fixed assets
    
    
    1,189
    
    
    
    2,285
    
    
    
    Impairment of long lived assets
    
    
    4,703
    
    
    
    
    
    
    
    Employees leaving entitlement
    
    
    7,026
    
    
    
    7,389
    
    
    
    6,778Deferred income taxes
    
    
    (3,107
    )
    
    
    8,463
    
    
    
    (2,058
    )Minority interest
    
    
    (432
    )
    
    
    (496
    )
    
    
    (103
    )Loss on disposal of assets
    
    
    284
    
    
    
    116
    
    
    
    767Unrealized foreign exchange losses and (gains)
    
    
    5,417
    
    
    
    4,517
    
    
    
    (10,230
    )Deferred income for capital grants
    
    
    (1,274
    )
    
    
    (743
    )
    
    
    (1,309
    )Equity in affiliated company
    
    
    
    
    
    
    1,221
    
    
    
    Change in assets and liabilities:Receivables, net
    
    
    (3,462
    )
    
    
    599
    
    
    
    1,883Inventories
    
    
    14,916
    
    
    
    (6,932
    )
    
    
    15,444Prepaid expenses and accrued income
    
    
    588
    
    
    
    108
    
    
    
    596Accounts payable
    
    
    (21,372
    )
    
    
    16,474
    
    
    
    4,285Income taxes
    
    
    213
    
    
    
    (3,026
    )
    
    
    1,704Salaries, wages and related liabilities
    
    
    (720
    )
    
    
    (4,143
    )
    
    
    (445
    )Other liabilities
    
    
    3,576
    
    
    
    406
    
    
    
    6,102Employees leaving entitlement
    
    
    (8,692
    )
    
    
    (9,315
    )
    
    
    (3,854
    )Total adjustments
    
    
    29,939
    
    
    
    47,254
    
    
    
    49,841Net cash provided by (used in)
operating activities
    
    
    (31,999
    )
    
    
    (15,393
    )
    
    
    62,180
  F - 5




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##### Table of Contents



2008
    
    
    2007
    
    
    2006Cash flows from investing activities:Property, plant and equipment:Additions
    
    
    (11,884
    )
    
    
    (21,445
    )
    
    
    (15,563
    )Disposals
    
    
    174
    
    
    
    589
    
    
    
    1,057Other assets
    
    
    (4,097
    )
    
    
    (5,039
    )
    
    
    (3,560
    )Government grants received
    
    
    
    
    
    
    
    
    
    
    605Purchase of business, net of cash acquired
    
    
    
    
    
    
    (230
    )
    
    
    (250
    )Disposal of business and affiliated company
    
    
    2,262
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (13,545
    )
    
    
    (26,125
    )
    
    
    (17,711
    )Cash flows from financing activities:Long-term debt:Proceeds
    
    
    2,038
    
    
    
    
    
    
    
    363Repayments
    
    
    (691
    )
    
    
    (318
    )
    
    
    (1,620
    )Short-term borrowings
    
    
    2,125
    
    
    
    3,775
    
    
    
    (3,926
    )Majority Shareholder Capital contribution
    
    
    488
    
    
    
    
    
    
    
    Net cash provided by (used in)
financing activities
    
    
    3,960
    
    
    
    3,457
    
    
    
    (5,183
    )Effect of translation adjustments on cash
    
    
    1,432
    
    
    
    (2,589
    )
    
    
    (900
    )Increase (decrease) in cash and cash equivalents
    
    
    (40,152
    )
    
    
    (40,650
    )
    
    
    38,386Cash and cash equivalents, beginning of the year
    
    
    87,459
    
    
    
    128,109
    
    
    
    89,723Cash and cash equivalents, end of the year
    
    
    47,307
    
    
    
    87,459
    
    
    
    128,109Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    
    327
    
    
    
    665
    
    
    
    1,400Cash paid during the year for income taxes
    
    
    1,399
    
    
    
    5,409
    
    
    
    6,555Non cash investing activities
    
    
    
    
    
    
    
    
    
    
    3,093
 See accompanying notes to consolidated financial statements
  F - 6




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##### Table of Contents



Notes to consolidated financial statements
  1.
    
    Description of business and Group compositionThe consolidated financial statements include the accounts of Natuzzi S.p.A. (Natuzzi or
the Company) and of its subsidiaries (together with the Company, the Group). The
Groups primary activity is the design, manufacture and marketing of contemporary and
traditional leather and fabric upholstered furniture.The subsidiaries included in the consolidation at December 31, 2008, together with the
related percentages of ownership, are as follows:
 Percent of
    
    
    RegisteredName
    
    ownership
    
    
    office
    
    
    ActivityItalsofa Bahia Ltd
    
    
    97.99
    
    
    Salvador, Brazil
    
    
    (1
    )Minuano Nordeste S.A.
    
    
    100.00
    
    
    Pojuca, Brazil
    
    
    (1
    )Italsofa Shanghai Ltd
    
    
    96.50
    
    
    Shanghai, China
    
    
    (1
    )Softaly Shanghai Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    
    (1
    )Natuzzi China Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    
    (1
    )Italsofa Romania
    
    
    100.00
    
    
    Baia Mare, Romania
    
    
    (1
    )Natco S.p.A.
    
    
    99.99
    
    
    Bari, Italy
    
    
    (2
    )I.M.P.E. S.p.A.
    
    
    90.83
    
    
    Qualiano,Italy
    
    
    (3
    )Nacon S.p.A.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (4
    )Lagene S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (4
    )Natuzzi Americas Inc.
    
    
    100.00
    
    
    High Point, NC, USA
    
    
    (4
    )Natuzzi Iberica S.A.
    
    
    100.00
    
    
    Madrid, Spain
    
    
    (4
    )Natuzzi Switzerland AG
    
    
    100.00
    
    
    Kaltbrunn, Switzerland
    
    
    (4
    )Natuzzi Nordic
    
    
    100.00
    
    
    Copenaghen, Denmark
    
    
    (4
    )Natuzzi Benelux S.A.
    
    
    100.00
    
    
    Geel, Belgium
    
    
    (4
    )Natuzzi Germany Gmbh
    
    
    100.00
    
    
    Dusseldorf, Germany
    
    
    (4
    )Natuzzi Sweden AB
    
    
    100.00
    
    
    Stockholm, Sweden
    
    
    (4
    )Natuzzi Japan KK
    
    
    100.00
    
    
    Tokyo, Japan
    
    
    (4
    )Natuzzi Services Limited
    
    
    100.00
    
    
    London, UK
    
    
    (4
    )Italholding S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (5
    )Natuzzi Netherlands Holding
    
    
    100.00
    
    
    Amsterdam, Holland
    
    
    (5
    )Natuzzi Trade Service S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (6
    )Natuzzi United Kingdom Limited
    
    
    100.00
    
    
    London, UK
    
    
    (7
    )Kingdom of Leather Limited
    
    
    100.00
    
    
    London, UK
    
    
    (7
    )La Galleria Limited
    
    
    100.00
    
    
    London, UK
    
    
    (7
    )
 (1)
    
    Manufacture and distribution(2)
    
    Intragroup leather dyeing and finishing(3)
    
    Production and distribution of polyurethane foam(4)
    
    Distribution(5)
    
    Investment holding(6)
    
    Transportation services(7)
    
    Dormant  F - 7




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##### Table of Contents



Notes to consolidated financial statements
    Goodwill
    
    
    225Leasehold improvements
    
    
    5Cash paid
    
    
    230
     F - 8




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##### Table of Contents



Notes to consolidated financial statements
  Goodwill
    
    
    2,600Fixed assets
    
    
    132Leasehold improvements
    
    
    468Current liabilities
    
    
    (107
    )Purchase price
    
    
    3,093
   Goodwill
    
    
    100Fixed assets
    
    
    38Current assets
    
    
    112Purchase price
    
    
    250
      F - 9




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##### Table of Contents



Notes to consolidated financial statements
   2.
    
    Basis of preparation
    3.
    
    Summary of significant accounting policies
  a) Principles of consolidation
    F - 10




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##### Table of Contents



Notes to consolidated financial statements
  b) Foreign currency transactions
  c) Forward exchange contracts
  d) Financial statements of foreign operations
    (a)
    
    if the foreign subsidiary was considered an integral part of the parent
company due to various factors including intercompany transactions, financing, and
cash flow indicators, its financial statements expressed in the foreign currency were
translated directly into euro from the local currency as follows: (i) year-end
exchange rate for monetary assets and liabilities, (ii) historical exchange rates for
non monetary assets and liabilities, share capital and retained earnings, and (iii)
average exchange rates during the year for revenues and expenses except for those
revenues and expenses related to assets and liabilities translated at historical
exchange rates. The resulting exchange differences on translation were recognized in
other income (expense), net, in the consolidated statements of operations;
  F - 11




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##### Table of Contents



Notes to consolidated financial statements
  (b)
    
    if the foreign subsidiary was not considered an integral part of a parent
company, its financial statements expressed in the foreign currency were translated
directly into euro as follows: (i) year-end exchange rate for assets and liabilities,
(ii) historical exchange rates for share capital and retained earnings, and (iii)
average exchange rates during the year for revenues and expenses. The resulting
exchange differences on translation were recorded as a direct adjustment to
shareholders equity.
  e) Cash and cash equivalents
  f) Marketable debt securities
    g) Accounts receivable and payable
  h) Inventories
     F - 12




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##### Table of Contents



Notes to consolidated financial statements
  i) Property, plant and equipment
  j) Other assets
   k) Impairment of long-lived assets and long-lived assets to be disposed of
  l) Income taxes
   F - 13




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##### Table of Contents



Notes to consolidated financial statements
  m) Government grants
        n) Employees leaving entitlement
    F - 14




---



##### Table of Contents



Notes to consolidated financial statements
    o) Net sales
   p) Cost of sales, selling expenses, general and administrative expenses
     F - 15




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##### Table of Contents



Notes to consolidated financial statements
   q) Shipping and handling costs
  r) Advertising costs
  s) Commission expense
  t) Warranties
  u) Research and development costs
  v) Contingencies
  w) Use of estimates
   F - 16




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##### Table of Contents



Notes to consolidated financial statements
  z) Earnings per share
  2008
    
    
    2007
    
    
    2006Net earnings (loss) attributable to
ordinary shareholders
    
    
    (61,938
    )
    
    
    (62,647
    )
    
    
    12,339Weighted-average number of ordinary
shares outstanding during the year
    
    
    54,850,643
    
    
    
    54,817,086
    
    
    
    54,733,796Increase resulting from assumed conversion
of share grants and options
    
    
    
    
    
    
    
    
    
    
    Weighted-average number of ordinary
shares and potential shares outstanding
during the year
    
    
    54,850,643
    
    
    
    54,817,086
    
    
    
    54,733,796
 4.
    
    Cash and cash equivalentsCash and cash equivalents are analyzed as follows:
 2008
    
    
    2007Cash on hand
    
    
    261
    
    
    
    381Bank accounts in Euro
    
    
    13,234
    
    
    
    7,531Bank accounts in foreign currencies
    
    
    33,812
    
    
    
    79,547Total
    
    
    47,307
    
    
    
    87,459
   F - 17




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##### Table of Contents



Notes to consolidated financial statements
  5.
    
    Marketable debt securitiesDetails regarding marketable debt securities are as follows:
 2008
    
    
    2007Foreign corporate bonds
    
    
    4
    
    
    
    4Italian government bonds
    
    
    
    
    
    
    Total
    
    
    4
    
    
    
    4
  Gross unrealized
    
    
    Fair2008
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    valueForeign corporate bonds
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Italian government bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4
 Gross unrealized
    
    
    Fair2007
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    valueForeign corporate bonds
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4Italian government bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    4
   F - 18




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##### Table of Contents



Notes to consolidated financial statements
  6.
    
    Trade receivables, netTrade receivables are analyzed as follows:
 2008
    
    
    2007North American customers
    
    
    52,016
    
    
    
    43,214Other foreign customers
    
    
    45,962
    
    
    
    46,032Domestic customers
    
    
    27,474
    
    
    
    27,638Trade bills receivable
    
    
    5,946
    
    
    
    6,537Total
    
    
    131,398
    
    
    
    123,421Allowance for doubtful accounts
    
    
    (8,615
    )
    
    
    (5,699
    )Total trade receivables, net
    
    
    122,783
    
    
    
    117,722
   Trade receivables
    
    N° of customers
    
    
    % on trade receivables2008
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    16
    %2007
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    21
    %2006
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    16
    %
 Net sales
    
    N° of customers
    
    
    % net sales2008
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    22
    %2007
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    23
    %2006
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    18
    %
    2008
    
    
    2007
    
    
    2006Balance, beginning of year
    
    
    5,699
    
    
    
    6,057
    
    
    
    5,159Charges-bad debt expense
    
    
    3,550
    
    
    
    1,789
    
    
    
    1,695Reductions-write off of uncollectible accounts
    
    
    (634
    )
    
    
    (2,147
    )
    
    
    (797
    )Balance, end of year
    
    
    8,615
    
    
    
    5,699
    
    
    
    6,057
  F - 19




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##### Table of Contents



Notes to consolidated financial statements
   2008
    
    
    2007U.S. dollars
    
    
    48,639
    
    
    
    39,293Canadian dollars
    
    
    6,489
    
    
    
    6,012British pounds
    
    
    4,193
    
    
    
    6,495Australian dollars
    
    
    3,759
    
    
    
    4,778Other currencies
    
    
    3,159
    
    
    
    2,497Total
    
    
    66,239
    
    
    
    59,075
 7.
    
    Other receivablesOther receivables are analyzed as follows:
 2008
    
    
    2007Receivable from National
Institute for Social Security
    
    
    10,729
    
    
    
    6,870Government capital grants
    
    
    10,633
    
    
    
    11,798VAT
    
    
    8,084
    
    
    
    10,302Receivable from tax authorities
    
    
    6,526
    
    
    
    10,373Advances to suppliers
    
    
    3,625
    
    
    
    4,837Other
    
    
    6,588
    
    
    
    3,604Total
    
    
    46,185
    
    
    
    47,784
      F - 20




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##### Table of Contents



Notes to consolidated financial statements
  8.
    
    InventoriesInventories are analyzed as follows:
 2008
    
    
    2007Leather and other raw materials
    
    
    52,049
    
    
    
    63,698Goods in process
    
    
    13,868
    
    
    
    14,770Finished products
    
    
    26,095
    
    
    
    28,822Total
    
    
    92,012
    
    
    
    107,290
  9.
    
    Property, plant and equipment and accumulated depreciationFixed assets are listed below together with accumulated depreciation.
 Cost or
    
    
    Accumulated
    
    
    Annual rate of2008
    
    valuation
    
    
    depreciation
    
    
    depreciationLand and industrial buildings
    
    
    193,108
    
    
    
    (48,946
    )
    
    
    010
    %Machinery and equipment
    
    
    118,521
    
    
    
    (86,608
    )
    
    
    1025
    %Airplane
    
    
    24,075
    
    
    
    (7,946
    )
    
    
    6
    %Office furniture and equipment
    
    
    23,503
    
    
    
    (19,700
    )
    
    
    1020
    %Retail gallery and store furnishings
    
    
    31,753
    
    
    
    (22,111
    )
    
    
    2535
    %Transportation equipment
    
    
    6,038
    
    
    
    (5,159
    )
    
    
    2025
    %Leasehold improvements
    
    
    8,545
    
    
    
    (3,896
    )
    
    
    1020
    %Construction in progress
    
    
    604
    
    
    
    
    
    
    
    Total
    
    
    406,147
    
    
    
    (194,366
    )
 Cost or
    
    
    Accumulated
    
    
    Annual rate 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 consolidated financial statements
       F - 22




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##### Table of Contents



Notes to consolidated financial statements
  10.
    
    Other assetsOther assets consist of the following:
 2008
    
    
    2007Software and other
    
    
    25,384
    
    
    
    21,664Goodwill
    
    
    12,538
    
    
    
    14,202Equity in affiliated enterprises
    
    
    1,429
    
    
    
    2,646Total, gross
    
    
    39,351
    
    
    
    38,512Less accumulated amortization
    
    
    (26,009
    )
    
    
    (21,236
    )Total, net
    
    
    13,342
    
    
    
    17,276
  Gross carrying
    
    
    Accumulated
    
    
    Net book2008
    
    amount
    
    
    depreciation
    
    
    valueSoftware
    
    
    17,555
    
    
    
    (10,896
    )
    
    
    6,659Trademarks, patents and other
    
    
    7,829
    
    
    
    (5,978
    )
    
    
    1,851Total
    
    
    25,384
    
    
    
    (16,874
    )
    
    
    8,510
 Gross carrying
    
    
    Accumulated
    
    
    Net book2007
    
    amount
    
    
    depreciation
    
    
    valueSoftware
    
    
    15,510
    
    
    
    (9,017
    )
    
    
    6,493Trademarks, patents and other
    
    
    6,154
    
    
    
    (4,703
    )
    
    
    1,451Total
    
    
    21,664
    
    
    
    (13,720
    )
    
    
    7,944
   2008
    
    
    2007Gross carrying amount
    
    
    12,538
    
    
    
    14,202Less accumulated depreciation
    
    
    (9,135
    )
    
    
    (7,516
    )Net book value
    
    
    3,403
    
    
    
    6,686
  F - 23




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##### Table of Contents



Notes to consolidated financial statements
   Balance as of December 31, 2006
    
    
    9,301Acquisition of one retail store
    
    
    225Amortization
    
    
    (2,840
    )Balance as of December 31, 2007
    
    
    6,686Write-off for disposal
    
    
    (776
    )Amortization
    
    
    (2,507
    )Balance as of December 31, 2008
    
    
    3,403
   11.
    
    Short-term borrowingsShort-term borrowings consist of the following:
 2008
    
    
    2007Bank borrowings
    
    
    
    
    
    
    3,068Bank overdrafts
    
    
    9,701
    
    
    
    4,508Total
    
    
    9,701
    
    
    
    7,576
    2008
    
    
    2007
    
    
    2006Bank borrowings
    
    
    6.22
    %
    
    
    6.18
    %
    
    
    4.87
    %Bank overdrafts
    
    
    3.31
    %
    
    
    5.03
    %
    
    
    3.58
    %
   F - 24




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##### Table of Contents



Notes to consolidated financial statements
  12.
    
    Accounts payable-trade
  13.
    
    Accounts payable-otherAccounts payable-other are analyzed as follows:
 2008
    
    
    2007Provision for warranties
    
    
    10,717
    
    
    
    8,627Advances from customers
    
    
    5,953
    
    
    
    9,667Cooperative advertising and quantity discount
    
    
    4,123
    
    
    
    3,777Withholding taxes on payroll and on others
    
    
    2,301
    
    
    
    2,996Payable to minority interests for dividends
    
    
    593
    
    
    
    593Other
    
    
    6,056
    
    
    
    4,153Total
    
    
    29,743
    
    
    
    29,813
  2008
    
    
    2007
    
    
    2006Balance, beginning of year
    
    
    8,627
    
    
    
    6,561
    
    
    
    6,896Charges to profit and loss
    
    
    4,735
    
    
    
    4,962
    
    
    
    6,386Reductions for utilization
    
    
    (2,645
    )
    
    
    (2,896
    )
    
    
    (6,721
    )Balance, end of year
    
    
    10,717
    
    
    
    8,627
    
    
    
    6,561
 14.
    
    Taxes on incomeItalian companies are subject to two income taxes at the following rates:
 2008
    
    
    2007
    
    
    2006IRES (state tax)
    
    
    27.50
    %
    
    
    33.00
    %
    
    
    33.00
    %IRAP (regional tax)
    
    
    3.90
    %
    
    
    4.25
    %
    
    
    4.25
    %
   F - 25




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##### Table of Contents



Notes to consolidated financial statements
        2008
    
    
    2007
    
    
    2006Domestic
    
    
    (30,986
    )
    
    
    (47,137
    )
    
    
    (11,012
    )Foreign
    
    
    (29,828
    )
    
    
    (4,619
    )
    
    
    30,333Total
    
    
    (60,814
    )
    
    
    (51,756
    )
    
    
    19,321
  F - 26




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##### Table of Contents



Notes to consolidated financial statements
   2008
    
    
    2007
    
    
    2006Expected income tax (benefit) expense charge
at full tax rates
    
    
    (16,724
    )
    
    
    (17,079
    )
    
    
    6,376Effects of: Tax exempt income
    
    
    (2,489
    )
    
    
    (6,320
    )
    
    
    (5,779
    ) Aggregate effect of different tax
rates in foreign jurisdictions
    
    
    (3,258
    )
    
    
    (2,903
    )
    
    
    (4,434
    ) Italian regional tax
    
    
    2,057
    
    
    
    1,793
    
    
    
    4,646 Non-deductible expenses
    
    
    3,384
    
    
    
    3,286
    
    
    
    2,694 Provisions for contingent liabilities
    
    
    373
    
    
    
    566
    
    
    
    914 Depreciation and impairment of goodwill
    
    
    228
    
    
    
    273
    
    
    
    274 Effect of net change in valuation allowance
established against deferred tax assets
    
    
    18,799
    
    
    
    28,503
    
    
    
    1,989 Effect of change in tax rates
    
    
    
    
    
    
    3,809
    
    
    
     Tax effect of unremitted earnings
    
    
    (814
    )
    
    
    (541
    )
    
    
    405Actual tax charge
    
    
    1,556
    
    
    
    11,387
    
    
    
    7,085
   2008
    
    
    2007
    
    
    2006Current:Italian
    
    
    2,057
    
    
    
    1,331
    
    
    
    5,738Foreign
    
    
    2,606
    
    
    
    1,593
    
    
    
    3,405Total (a)
    
    
    4,663
    
    
    
    2,924
    
    
    
    9,143Deferred:Italian
    
    
    
    
    
    
    7,507
    
    
    
    (2,592
    )Foreign
    
    
    (3,107
    )
    
    
    956
    
    
    
    534Total (b)
    
    
    (3,107
    )
    
    
    8,463
    
    
    
    (2,058
    )Total (a + b)
    
    
    1,556
    
    
    
    11,387
    
    
    
    7,085
   F - 27




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##### Table of Contents



Notes to consolidated financial statements
   2008
    
    
    2007Deferred tax assets: Tax loss carryforwards
    
    
    51,847
    
    
    
    36,033 Provision for warranties
    
    
    3,641
    
    
    
    2,589 Allowance for doubtful accounts
    
    
    2,864
    
    
    
    1,506 Unrealized net losses on foreign exchange
    
    
    2,798
    
    
    
    2,796 Impairment loss of long-lived assets
    
    
    1,674
    
    
    
     One-time termination benefits
    
    
    1,266
    
    
    
     Inventory obsolescence
    
    
    1,187
    
    
    
    1,714 Goodwill
    
    
    1,019
    
    
    
    666 Intercompany profit on inventory
    
    
    803
    
    
    
    1,027 Provision for contingent liabilities
    
    
    777
    
    
    
    1,080 Provision for sales representatives
    
    
    398
    
    
    
    493 Other temporary differences
    
    
    756
    
    
    
    641Total gross deferred tax assets
    
    
    69,030
    
    
    
    48,545 Less valuation allowance
    
    
    (62,452
    )
    
    
    (43,654
    )Net deferred tax assets (a)
    
    
    6,578
    
    
    
    4,891Deferred tax liabilities: Unrealized net gains on foreign exchange
    
    
    (935
    )
    
    
    (998
    ) Unremitted earnings of subsidiaries
    
    
    (585
    )
    
    
    (1,399
    ) Government grants
    
    
    (570
    )
    
    
    (570
    ) Revenue recognition
    
    
    
    
    
    
    (633
    ) Other temporary differences
    
    
    (90
    )
    
    
    Total deferred tax liabilities (b)
    
    
    (2,180
    )
    
    
    (3,600
    )Net deferred tax assets (a + b)
    
    
    4,398
    
    
    
    1,291
     F - 28




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##### Table of Contents



Notes to consolidated financial statements
    2008
    
    Current
    
    
    Non current
    
    
    TotalGross deferred tax assets
    
    
    14,748
    
    
    
    54,282
    
    
    
    69,030Valuation allowance
    
    
    (9,504
    )
    
    
    (52,948
    )
    
    
    (62,452
    )Net deferred tax assets
    
    
    5,244
    
    
    
    1,334
    
    
    
    6,578Deferred tax liabilities
    
    
    (1,025
    )
    
    
    (1,155
    )
    
    
    (2,180
    )Net deferred tax assets
    
    
    4,219
    
    
    
    179
    
    
    
    4,398
 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
  2009
    
    
    5,3722010
    
    
    2,9052011
    
    
    5,4532012
    
    
    43,5262013
    
    
    20,269Thereafter
    
    
    97,950Total
    
    
    175,475
    F - 29




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##### Table of Contents



Notes to consolidated financial statements
  15.
    
    Salaries, wages and related liabilitiesSalaries, wages and related liabilities are analyzed as follows:
 2008
    
    
    2007Salaries and wages
    
    
    4,142
    
    
    
    7,991Social security contributions
    
    
    7,191
    
    
    
    6,826Vacation accrual
    
    
    3,385
    
    
    
    2,714One-time termination benefits
    
    
    2,093
    
    
    
    Total
    
    
    16,811
    
    
    
    17,531
  16.
    
    Long-term debtLong-term debt at December 31, 2008 and 2007 consists of the following:
 2008
    
    
    20072.25% long-term debt payable in annual equal instalments
with final payment due May 30, 2015
    
    
    1,961
    
    
    
    2,2140.25% long-term debt payable in semi-annual instalments with
final payment due July 2013
    
    
    1,672
    
    
    
    0.96% long-term debt payable in annual instalments with
final payment due September 2010
    
    
    147
    
    
    
    219Total long-term debt
    
    
    3,780
    
    
    
    2,433Less current instalments
    
    
    (514
    )
    
    
    (317
    )Long-term debt, excluding current instalments
    
    
    3,266
    
    
    
    2,116
  2010
    
    
    7082011
    
    
    6452012
    
    
    6532013
    
    
    662Thereafter
    
    
    598Total
    
    
    3,266
  F - 30




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##### Table of Contents



Notes to consolidated financial statements
    17.
    
    Other liabilitiesOther liabilities consist of:
 2008
    
    
    2007Provision for contingent liabilities
    
    
    10,545
    
    
    
    9,344One-time termination benefits
    
    
    2,512
    
    
    
    Termination indemnities for sales agents
    
    
    1,385
    
    
    
    1,522Total
    
    
    14,442
    
    
    
    10,866
   18.
    
    Minority interest
  19.
    
    Shareholders equityThe share capital is owned as follows:
 2008
    
    
    2007Mr. Pasquale Natuzzi
    
    
    53.5
    %
    
    
    47.5
    %Miss Anna Maria Natuzzi
    
    
    2.6
    %
    
    
    2.6
    %Mrs. Annunziata Natuzzi
    
    
    2.5
    %
    
    
    2.5
    %Public Investors
    
    
    41.4
    %
    
    
    47.4
    %100
    %
    
    
    100
    %
  F - 31




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##### Table of Contents



Notes to consolidated financial statements
   2008
    
    
    2007Legal reserve
    
    
    11,199
    
    
    
    11,199Monetary revaluation reserve
    
    
    1,344
    
    
    
    1,344Government capital grants reserve
    
    
    29,749
    
    
    
    29,749Majority shareholder capital contribution
    
    
    488
    
    
    
    Total
    
    
    42,780
    
    
    
    42,292
      20.
    
    Share grants and options
 
  F - 32




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##### Table of Contents



Notes to consolidated financial statements
       F - 33




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##### Table of Contents



Notes to consolidated financial statements
   AdditionalMBO 2004
    
    Shares
    
    
    Options
    
    
    options
    
    
    TotalBalance at December 31, 2007
    
    
    
    
    
    
    203,868
    
    
    
    
    
    
    
    203,868Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    (80,845
    )
    
    
    
    
    
    
    (80,845
    )Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    
    
    
    
    123,023
    
    
    
    
    
    
    
    123,023Weighted average remaining
contractual life
    
    
    
    
    
    0.04 years
    
    
    
 AdditionalMBO 2005
    
    Shares
    
    
    Options
    
    
    options
    
    
    TotalBalance at December 31, 2007
    
    
    28,818
    
    
    
    108,760
    
    
    
    
    
    
    
    137,578Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    (28,818
    )
    
    
    
    
    
    
    
    
    
    
    (28,818
    )Forfeited
    
    
    
    
    
    
    (26,039
    )
    
    
    
    
    
    
    (26,039
    )Expired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    
    
    
    
    82,721
    
    
    
    
    
    
    
    82,721Weighted average remaining
contractual life
    
    
    
    
    
    0.04 years
    
    
    
      F - 34




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##### Table of Contents



Notes to consolidated financial statements
  21. Commitments and contingent liabilities
  2009
    
    
    12,7942010
    
    
    11,2342011
    
    
    10,9162012
    
    
    8,9402013
    
    
    7,327Thereafter
    
    
    15,964Total
    
    
    67,175
     F - 35




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##### Table of Contents



Notes to consolidated financial statements
    22.
    
    Segmental and geographical information
   2008
    
    
    2007
    
    
    2006Leather upholstered furniture
    
    
    535,178
    
    
    
    502,913
    
    
    
    573,086Fabric upholstered furniture
    
    
    52,607
    
    
    
    60,597
    
    
    
    87,165Total
    
    
    587,785
    
    
    
    563,510
    
    
    
    660,251
   F - 36




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##### Table of Contents



Notes to consolidated financial statements
   2008
    
    
    2007
    
    
    2006Sales of upholstered furnitureUnited States of America
    
    
    165,445
    
    
    
    159,289
    
    
    
    204,303Italy
    
    
    65,739
    
    
    
    68,734
    
    
    
    81,911Spain
    
    
    37,383
    
    
    
    41,677
    
    
    
    45,955Canada
    
    
    37,345
    
    
    
    34,190
    
    
    
    36,244France
    
    
    36,311
    
    
    
    29,433
    
    
    
    33,551England
    
    
    31,458
    
    
    
    31,965
    
    
    
    39,874Belgium
    
    
    27,572
    
    
    
    24,138
    
    
    
    28,013Germany
    
    
    27,045
    
    
    
    26,714
    
    
    
    30,927Holland
    
    
    16,965
    
    
    
    15,594
    
    
    
    16,624Australia
    
    
    16,172
    
    
    
    15,354
    
    
    
    18,269Other countries (none greater than 2%)
    
    
    126,350
    
    
    
    116,422
    
    
    
    124,580Total
    
    
    587,785
    
    
    
    563,510
    
    
    
    660,251
 2008
    
    
    2007Long lived assetsItaly
    
    
    120,883
    
    
    
    132,789Romania
    
    
    27,366
    
    
    
    32,468China
    
    
    22,572
    
    
    
    20,769United States of America
    
    
    16,761
    
    
    
    16,147Brazil
    
    
    15,069
    
    
    
    24,355Other countries
    
    
    9,130
    
    
    
    9,322Total
    
    
    211,781
    
    
    
    235,850
  23.
    
    Cost of salesCost of sales is analyzed as follows:
 2008
    
    
    2007
    
    
    2006Opening inventories
    
    
    107,290
    
    
    
    100,358
    
    
    
    115,690Purchases
    
    
    301,811
    
    
    
    308,234
    
    
    
    313,207Labor
    
    
    97,720
    
    
    
    101,664
    
    
    
    109,360Third party manufacturers
    
    
    18,474
    
    
    
    16,499
    
    
    
    19,609Other manufacturing costs
    
    
    45,487
    
    
    
    41,124
    
    
    
    33,055Closing inventories
    
    
    (92,012
    )
    
    
    (107,290
    )
    
    
    (100,358
    )Total
    
    
    478,770
    
    
    
    460,589
    
    
    
    490,563
   F - 37




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##### Table of Contents



Notes to consolidated financial statements
  24.
    
    Other income (expense), netOther income (expense), net is analyzed as follows:
 2008
    
    
    2007
    
    
    2006Interest income
    
    
    1,614
    
    
    
    3,557
    
    
    
    3,609Interest expense and bank commissions
    
    
    (1,855
    )
    
    
    (1,884
    )
    
    
    (2,077
    )Interest income (expenses), net
    
    
    (241
    )
    
    
    1,673
    
    
    
    1,532Losses on foreign exchange, net
    
    
    (6,589
    )
    
    
    (8,096
    )
    
    
    (4,651
    )Unrealized exchange gains (losses)
on domestic currency swaps, net
    
    
    (4,471
    )
    
    
    946
    
    
    
    5,463Gains (losses) on foreign exchange,
net
    
    
    (11,060
    )
    
    
    (7,150
    )
    
    
    812Other, net
    
    
    (14,517
    )
    
    
    2,831
    
    
    
    503Total
    
    
    (25,818
    )
    
    
    (2,646
    )
    
    
    2,847
  2008
    
    
    2007
    
    
    2006Net realized gains (losses) on
domestic currency swaps
    
    
    (1,263
    )
    
    
    5,877
    
    
    
    664Net realized losses on accounts
receivable and payable
    
    
    (6,281
    )
    
    
    (3,865
    )
    
    
    (8,166
    )Net unrealized gains (losses) on
accounts receivable and payable
    
    
    955
    
    
    
    (10,108
    )
    
    
    2,851Total
    
    
    (6,589
    )
    
    
    (8,096
    )
    
    
    (4,651
    )
  2008
    
    
    2007
    
    
    2006Impairment losses of
long-lived assets
    
    
    (4,703
    )
    
    
    
    
    
    
    One-time termination benefits
    
    
    (4,605
    )
    
    
    
    
    
    
    Provisions for contingent
liabilities
    
    
    (3,200
    )
    
    
    (2,956
    )
    
    
    (5,828
    )Incentive from landlord
    
    
    
    
    
    
    
    
    
    
    1,100Export incentive benefits
    
    
    
    
    
    
    
    
    
    
    3,371Tax refund
    
    
    
    
    
    
    2,961
    
    
    
    Write off of a provision
    
    
    
    
    
    
    1,500
    
    
    
    Income tax not due
    
    
    
    
    
    
    668
    
    
    
    Write off of fixed assets
    
    
    (1,189
    )
    
    
    (2,285
    )
    
    
    Other, net
    
    
    (820
    )
    
    
    2,943
    
    
    
    1,860Total
    
    
    (14,517
    )
    
    
    2,831
    
    
    
    503
  F - 38




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##### Table of Contents



Notes to consolidated financial statements
  Impairment losses of long-lived assets
   One-time termination benefits
   F - 39




---



##### Table of Contents



Notes to consolidated financial statements
  Provisions for contingent liabilities
            F - 40




---



##### Table of Contents



Notes to consolidated financial statements
    Incentive from landlord
  Export incentive benefits
  Tax refund
  Write off a provision for contingent liability
  Income tax not due
   F - 41




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##### Table of Contents



Notes to consolidated financial statements
  Write off of fixed assets
  25.
    
    Financial instruments and risk management
   2008
    
    
    2007U.S. dollars
    
    
    62,561
    
    
    
    58,724Euro
    
    
    25,292
    
    
    
    46,326British pounds
    
    
    11,988
    
    
    
    8,751Canadian dollars
    
    
    11,463
    
    
    
    18,930Australian dollars
    
    
    9,771
    
    
    
    16,503Norwegian kroner
    
    
    2,492
    
    
    
    7,071Swiss francs
    
    
    1,973
    
    
    
    620Danish kroner
    
    
    1,675
    
    
    
    2,681Swedish kroner
    
    
    1,644
    
    
    
    2,616Japanese yen
    
    
    360
    
    
    
    292Total
    
    
    129,219
    
    
    
    162,514
  F - 42




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##### Table of Contents



Notes to consolidated financial statements
   2008
    
    
    2007Contract
    
    
    Unrealized
    
    
    Contract
    
    
    Unrealizedamount
    
    
    gains (losses)
    
    
    amount
    
    
    gains (losses)Assets
    
    
    38,898
    
    
    
    6,799
    
    
    
    97,967
    
    
    
    4,995Liabilities
    
    
    90,321
    
    
    
    (11,270
    )
    
    
    64,547
    
    
    
    (4,049
    )Total
    
    
    129,219
    
    
    
    (4,471
    )
    
    
    162,514
    
    
    
    946
    26.
    
    Fair value of financial instruments
  2008
    
    
    2007Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairvalue
    
    
    value
    
    
    value
    
    
    valueAssets:- Marketable debts securities
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    4Liabilities:- Long-term debt
    
    
    3,780
    
    
    
    2,906
    
    
    
    2,433
    
    
    
    2,151
    F - 43




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##### Table of Contents



Notes to consolidated financial statements
   27.
    
    Application of generally accepted accounting principles in the United States of America
   Reconciliation of net earnings (loss):
 2008
    
    
    2007
    
    
    2006Net earnings (loss) under Italian GAAP
    
    
    (61,938
    )
    
    
    (62,647
    )
    
    
    12,339Adjustments to reported income:(a) Revaluation of property,
plant and equipment
    
    
    27
    
    
    
    27
    
    
    
    27(b) Government grants
    
    
    811
    
    
    
    1,188
    
    
    
    1,453(c) Revenue recognition
    
    
    2,330
    
    
    
    1,887
    
    
    
    (615
    )(g) Goodwill and intangible assets
    
    
    (2,634
    )
    
    
    1,970
    
    
    
    1,828(h) Share grants and options
    
    
    (2
    )
    
    
    (56
    )
    
    
    (254
    )(i) Translation of foreign financial statements
    
    
    753
    
    
    
    191
    
    
    
    762(j) One-time termination benefits
    
    
    4,605
    
    
    
    
    
    
    
    (k) Impairment of long-lived assets
    
    
    400
    
    
    
    
    
    
    
    (l) Penalties to landlords
    
    
    
    
    
    
    
    
    
    
    (658
    )Tax effect of US GAAP adjustments
    
    
    (14
    )
    
    
    (2,567
    )
    
    
    (393
    )Net earnings (loss) in conformity with US GAAP
    
    
    (55,662
    )
    
    
    (60,007
    )
    
    
    14,489Basic earnings (loss) per share in conformity
with US GAAP
    
    
    (1.02
    )
    
    
    (1.09
    )
    
    
    0.26Diluted earnings (loss) per share in conformity
with US GAAP
    
    
    (1.02
    )
    
    
    (1.09
    )
    
    
    0.26
  F - 44




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##### Table of Contents



Notes to consolidated financial statements
  Reconciliation of shareholders equity:
 2008
    
    
    2007Shareholders equity under Italian GAAP
    
    
    345,218
    
    
    
    411,597(a) Revaluation of property, plant and equipment
    
    
    (534
    )
    
    
    (561
    )(b) Government grants
    
    
    (12,037
    )
    
    
    (12,848
    )(c) Revenue recognition
    
    
    (2,043
    )
    
    
    (4,373
    )(g) Goodwill and intangible assets
    
    
    4,721
    
    
    
    7,355(i) Translation of foreign financial statements
    
    
    15,895
    
    
    
    10,213(j) One-time termination benefits
    
    
    4,605
    
    
    
    (k) Impairment of long-lived assets
    
    
    400
    
    
    
    Tax effect of US GAAP adjustments
    
    
    (2,923
    )
    
    
    (2,909
    )Shareholders equity in conformity with US GAAP
    
    
    353,302
    
    
    
    408,474
  Condensed Consolidated Balance Sheets as at December 31, 2008 and 2007
 December 31, 2008
    
    
    December 31, 2007ASSETSCurrent assets
    
    
    314,695
    
    
    
    357,184Non current assets
    
    
    245,784
    
    
    
    270,345Total assets
    
    
    560,479
    
    
    
    627,529LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities
    
    
    135,707
    
    
    
    146,414Long-term liabilities
    
    
    70,675
    
    
    
    72,495Minority interest
    
    
    795
    
    
    
    146Shareholders equity
    
    
    353,302
    
    
    
    408,474Total Liabilities and Shareholders Equity
    
    
    560,479
    
    
    
    627,529
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Notes to consolidated financial statements
  Condensed Consolidated Statements of Operations Years Ended
December 31, 2008, 2007 and 2006
 2008
    
    
    2007
    
    
    2006Net sales
    
    
    670,130
    
    
    
    635,883
    
    
    
    736,848Cost of sales
    
    
    (496,905
    )
    
    
    (468,654
    )
    
    
    (495,153
    )Gross profit
    
    
    173,225
    
    
    
    167,229
    
    
    
    241,695Selling expenses
    
    
    (163,265
    )
    
    
    (164,514
    )
    
    
    (176,551
    )General and administrative expenses
    
    
    (49,916
    )
    
    
    (49,094
    )
    
    
    (42,418
    )Operating income (loss)
    
    
    (39,956
    )
    
    
    (46,379
    )
    
    
    22,726Other expenses, net
    
    
    (14,313
    )
    
    
    (2,207
    )
    
    
    (552
    )Earnings (loss) before taxes and minority
interest
    
    
    (54,269
    )
    
    
    (48,586
    )
    
    
    22,174Income taxes
    
    
    (1,825
    )
    
    
    (11,917
    )
    
    
    (7,788
    )Earnings (loss) before minority interest
    
    
    (56,094
    )
    
    
    (60,503
    )
    
    
    14,386Minority interest
    
    
    432
    
    
    
    496
    
    
    
    103Net earnings (loss)
    
    
    (55,662
    )
    
    
    (60,007
    )
    
    
    14,489
  Reconciliation of net sales from Italian GAAP to US GAAP
 2008
    
    
    2007
    
    
    2006Net sales Italian GAAP
    
    
    666,026
    
    
    
    634,402
    
    
    
    735,439(b) Government grants (reclassification)
    
    
    (990
    )
    
    
    (1,026
    )
    
    
    (1,111
    )(c) Revenue recognition (adjustment)
    
    
    9,430
    
    
    
    6,828
    
    
    
    3,385(n) Cost paid to resellers (reclassification)
    
    
    (4,336
    )
    
    
    (4,321
    )
    
    
    (4,236
    )(p) Export incentive (reclassification)
    
    
    
    
    
    
    
    
    
    
    3,371Net sales US GAAP
    
    
    670,130
    
    
    
    635,883
    
    
    
    736,848
  F - 46




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Notes to consolidated financial statements
  Reconciliation of operating income (loss) from Italian GAAP to US GAAP
 2008
    
    
    2007
    
    
    2006Operating income (loss) Italian GAAP
    
    
    (34,996
    )
    
    
    (49,110
    )
    
    
    16,474(a) Revaluation property, plant and
equipment (adjustment)
    
    
    27
    
    
    
    27
    
    
    
    27(b) Government grants (adjustment)
    
    
    811
    
    
    
    1,188
    
    
    
    1,453(c) Revenue recognition (adjustment)
    
    
    2,330
    
    
    
    1,887
    
    
    
    (615
    )(g) Goodwill and intangible assets (adjustment)
    
    
    (2,634
    )
    
    
    1,970
    
    
    
    1,828(h) Share grants and options (adjustment)
    
    
    (2
    )
    
    
    (56
    )
    
    
    (254
    )(k) Impairment of long-lived assets (reclassification)
    
    
    (4,703
    )
    
    
    
    
    
    
    (k) Impairment of long-lived assets (adjustment)
    
    
    400
    
    
    
    
    
    
    
    (l) Penalties to landlords (adjustment)
    
    
    
    
    
    
    
    
    
    
    (658
    )(m) Write-off of tangible assets (reclassification)
    
    
    (1,189
    )
    
    
    (2,285
    )
    
    
    (p) Export incentive (reclassification)
    
    
    
    
    
    
    
    
    
    
    3,371(q) Incentive for landlords (reclassification)
    
    
    
    
    
    
    
    
    
    
    1,100Operating income (loss) US GAAP
    
    
    (39,956
    )
    
    
    (46,379
    )
    
    
    22,726
  (a)
    
    Certain property, plant and equipment have been revalued in accordance with
Italian laws. The revalued amounts are depreciated for Italian GAAP purposes. US GAAP
does not allow for such revaluations, and depreciation is based on historical costs.
The revaluation primarily relates to industrial buildings. The adjustment to net
earnings (loss) and shareholders equity represents the reversal of excess
depreciation recorded under Italian GAAP on revalued assets.
 (b)
    
    Under Italian GAAP until December 31, 2000 government grants related to
capital expenditures were recorded, net of tax, within reserves in shareholders
equity. Subsequent to that date such grants have been recorded as deferred income and
recognized in the consolidated statement of operations as revenue or other income, as
appropriate under Italian GAAP (see note 3 (m)), on a systematic basis over the
useful life of the asset.
    F - 47




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##### Table of Contents



Notes to consolidated financial statements
   (c)
    
    Under Italian GAAP, the Group recognizes sales revenue, and accrued costs
associated with the sales revenue, at the time products are shipped from its
manufacturing facilities located in Italy and abroad. A significant part of the
products is shipped from factories directly to customers under terms that risks and
ownership are transferred to the customer when the customer takes possession of the
goods. These terms are delivered duty paid, delivered duty unpaid, delivered ex
quay and delivered at customer factory. Delivery to the customer generally occurs
within one to six weeks from the time of shipment.
  2008
    
    
    2007Effects
    
    
    EffectsIncrease
    
    
    IncreaseConsolidated balance sheets
    
    (Decrease)
    
    
    (Decrease)Trade receivables, net
    
    
    (13,463
    )
    
    
    (22,893
    )Inventories
    
    
    9,665
    
    
    
    15,946Total effect on current assets (a)
    
    
    (3,798
    )
    
    
    (6,947
    )Accounts payable-trade
    
    
    (1,755
    )
    
    
    (2,574
    )Income taxes
    
    
    (468
    )
    
    
    (89
    )Total effect on current liabilities (b)
    
    
    (2,223
    )
    
    
    (2,663
    )Total effect on shareholders equity (a-b)
    
    
    (1,575
    )
    
    
    (4,284
    )
  F - 48




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Notes to consolidated financial statements
  Consolidated statements of operations
    
    2008
    
    
    2007
    
    
    2006Net sales
    
    
    9,430
    
    
    
    6,828
    
    
    
    3,385Gross profit
    
    
    3,149
    
    
    
    2,950
    
    
    
    498Operating income (loss)
    
    
    2,330
    
    
    
    1,887
    
    
    
    (615
    )Total effect on net operations
    
    
    2,709
    
    
    
    235
    
    
    
    (342
    )
 (d)
    
    During June 2006 (see notes 1 and 27 (g)) the Company acquired a business
composed by four Divani & Divani by Natuzzi stores, located in Milan area, and the
purchase price was 3,093. At the date of the acquisition the franchisee agreement
between Natuzzi and the original business had expired under the original terms. This
acquisition was accounted for as business combination under Italian GAAP. This
acquisition qualifies as a business combination under US GAAP. However, under Italian
GAAP the difference between purchase price and the fair value of the net assets
acquired was allocated to goodwill, while under US GAAP the same difference was
allocated in part to goodwill and in part to intangibles operating lease agreements
for favorable leases acquired. The allocation of purchase price under US GAAP and
Italian GAAP is summarized as follows:
 US GAAP
    
    
    IT GAAP
    
    
    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 - 49




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Notes to consolidated financial statements
  (e)
    
    During September 2006 (see notes 1 and 27 (g)) the Company acquired a
business composed by two Divani & Divani by Natuzzi stores, located in Reggio
Emilia and Modena, respectively, and the purchase price was 250. This acquisition was
accounted for as business combination under Italian GAAP. This acquisition qualifies
as a business combination under US GAAP. However, under Italian GAAP the difference
between purchase price and the fair value of the net assets acquired was allocated to
goodwill, while under US GAAP the same difference was allocated in part to goodwill
and in part to the intangible franchisee agreements. The allocation of purchase
price under US GAAP and Italian GAAP is summarized as follows:
 US GAAP
    
    
    IT GAAP
    
    
    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
    
    
    
    
  (f)
    
    On June 14, 2007 (see notes 1 and 27 (g)) the Company acquired from a third
party 100% of a business which main asset was a store located in one of the several
shopping and commercial areas of Rome (Tiburtina area). The cash consideration paid
by the Company for this acquisition was 230. At the date of the acquisition there
were no employees, inventory or revenues associated with this asset. The net assets
acquired were composed mainly as follows: (a) operating lease agreement; (b)
leasehold improvements incorporated in the store; (c) commercial license
authorization obtained from the Rome Municipality for trading sofas and other
furniture to the public. Further during 2008, the Company started some construction
work in order to set up in this store the Natuzzi layout selling system.
 Determining Whether a Nonmonetary
Transaction Involves Receipt of Productive Assets or of a Business"
  US GAAP
    
    
    IT GAAP
    
    
    DifferenceGoodwill
    
    
    
    
    
    
    225
    
    
    
    (225
    )Intangible assets
    
    
    359
    
    
    
    
    
    
    
    359Leasehold improvements
    
    
    5
    
    
    
    5
    
    
    
    Deferred tax liabilities
    
    
    (134
    )
    
    
    
    
    
    
    (134
    )Cash paid
    
    
    230
    
    
    
    230
    
    
    
    
  F - 50




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Notes to consolidated financial statements
  (g)
    
    Under Italian GAAP, the Company amortizes the goodwill arising from
business acquisitions on a straight-line basis over a period of five years. US GAAP
states that goodwill acquired in a purchase business combination completed after July
1, 2001 is not amortized, but instead tested for impairment at least annually in
accordance with provisions of FASB Statement 142, Goodwill and Other Intangible
Assets(FASB Statement No. 142).
 Accounting for the Impairment or Disposal of Long-Lived
Assets
  Goodwill
    
    
    Intangibles
    
    
    Deferred taxesUS
    
    
    Italian
    
    
    US
    
    
    Italian
    
    
    US
    
    
    ItalianBalance at December 31, 2005
    
    
    5,945
    
    
    
    9,122
    
    
    
    6,075
    
    
    
    
    
    
    
    (2,097
    )
    
    
    (23
    )Acquisition of Milan stores
    
    
    1,778
    
    
    
    2,600
    
    
    
    1,310
    
    
    
    
    
    
    
    (488
    )
    
    
    Acquisition of other stores
    
    
    37
    
    
    
    100
    
    
    
    100
    
    
    
    
    
    
    
    (37
    )
    
    
    Amortization
    
    
    
    
    
    
    (2,521
    )
    
    
    (693
    )
    
    
    
    
    
    
    241
    
    
    
    (494
    )Balance at December 31, 2006
    
    
    7,760
    
    
    
    9,301
    
    
    
    6,792
    
    
    
    
    
    
    
    (2,381
    )
    
    
    (517
    )Acquisition of one store
    
    
    
    
    
    
    225
    
    
    
    359
    
    
    
    
    
    
    
    (134
    )
    
    
    Amortization
    
    
    
    
    
    
    (2,840
    )
    
    
    (870
    )
    
    
    
    
    
    
    438
    
    
    
    (404
    )Balance at December 31, 2007
    
    
    7,760
    
    
    
    6,686
    
    
    
    6,281
    
    
    
    
    
    
    
    (2,077
    )
    
    
    (921
    )Impairment of goodwill
    
    
    (1,500
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Write off of goodwill
    
    
    
    
    
    
    (776
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment of an intangible asset
    
    
    
    
    
    
    
    
    
    
    (3,583
    )
    
    
    
    
    
    
    1,218
    
    
    
    Amortization
    
    
    
    
    
    
    (2,507
    )
    
    
    (834
    )
    
    
    
    
    
    
    274
    
    
    
    (486
    )Balance at December 31, 2008
    
    
    6,260
    
    
    
    3,403
    
    
    
    1,864
    
    
    
    
    
    
    
    (585
    )
    
    
    (1,407
    )
    F - 51




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Notes to consolidated financial statements
    (h)
    
    Under Italian GAAP the Company does not record in the consolidated
statement of operations the compensation expense related to share based compensation
plans.
  F - 52




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Notes to consolidated financial statements
  Share-Based Payment Accounting for Stock-Based Compensation
   Accounting for Stock Issued to Employees
    F - 53




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Notes to 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
    %
 (i)
    
    Under Italian GAAP effective on December 31, 2005, the financial statements
of the foreign subsidiaries expressed in a foreign currency (which is deemed to be
the functional currency) are translated directly into euro as follows: (i) year-end
exchange
rate for assets and liabilities, (ii) historical exchange rates for share capital and
retained earnings, and (iii) average exchange rates during the year for revenues and
expenses. The resulting exchange differences on translation is recorded as a direct
adjustment to shareholders equity (see note 3 (d)).Under US GAAP as of December 31, 2008, 2007 and 2006 the Natuzzis
foreign subsidiaries financial statements have been translated on the basis of
the guidance included in FASB Statement 52, Foreign Currency Traslation(FASB
Statement No. 52). Under US GAAP, foreign subsidiaries are considered to be an
integral part of Natuzzi due to various factors including significant
intercompany transactions, financing, and cash flow indicators. Therefore, the
functional currency for these foreign subsidiaries is the functional currency of
the parent, namely the euro. As a result all monetary assets and liabilities are
remeasured, at the end of each reporting period, using euro and the resulting
gain or loss is recognized in the consolidated statements of operations. For all
non monetary assets and liabilities, share capital and retained earnings
historical exchange rates are used. The average exchange rates during the year
are used for revenues and expenses, except for those revenues and expenses
related to assets and liabilities translated at historical exchange rates. The
resulting exchange differences on translation are recognized in the statements
of operations.
   F - 54




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Notes to consolidated financial statements
  (j)
    
    Under Italian GAAP, the Company has recognized in the consolidated
statement of operations for the year ended December 31, 2008 the cost of one-time
termination benefits of 4,605 related to the employees to be terminated on a
involuntary basis as indicated in the plan of termination (see note 24). In
accordance with Italian GAAP this cost has been recognized in 2008 as in such year
the Company has formally decided to adopt the termination plan (approval by the Board
of Directors) and is able to reasonably estimate the related one-time termination
benefits. Before or on December 31, 2008 the Company did not make any official
announcement or notification to the terminated employees related to the work
termination plan and one-tine termination benefits. Under Italian GAAP for the
recognition of the cost for the termination benefits related to the terminated
workers is not relevant the communication or announcement to third parties of the
plan of termination of workers.
 Accounting for Costs Associated with Exit and Disposal Activities
    F - 55




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Notes to consolidated financial statements
  (k)
    
    The Company in October 2008, in order to improve its manufacturing
efficiency and in connection with the adoption of the three year business plan,
decided to close and sell a manufacturing facility located in Brazil in the State of
Bahia. As a result of this decision the Company, in accordance with its Italian
accounting policy (see note 3 (k)), performed an impairment analysis and determined
that the carrying value of such manufacturing facility as of December 31, 2008 was
more than the fair value less costs to sell. Therefore, as of December 31, 2008 the
carrying value of such manufacturing facility was reduced to fair value less costs to
sell. This resulted in an impairment loss of 2,911, recorded under the line other
income (expense), net of the consolidated statement of operations for the year ended
December 31, 2008, in accordance with its Italian accounting policy (see note 24).
Companys management estimated the fair value based on third-party independent
appraisals. In addition, as of December 31, 2008 the Company, in accordance with its
Italian accounting policy, has classified this manufacturing facility under the line
property, plant and equipment held and used of the consolidated balance sheet (see
note 9) as there is a current expectation that it is more-likely-than not that this
asset will be sold in the medium long-term period (more than one year from the
balance sheet date).
   F - 56




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Notes to consolidated financial statements
  Accounting for the Impairment or Disposal of
Long-Lived Assets
      F - 57




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Notes to consolidated financial statements
  (l)
    
    Under Italian GAAP in 2005 Natuzzi has charged to other income (expense),
net the one time penalties, amounting to 658, that it expected to negotiate, in 2006,
with the landlords of several stores for the termination in 2006 of the related
operating lease contracts before the term specified in the lease agreements (see note
24). Under US GAAP, considering the guidance of FASB Statement No. 146, these
penalties were reversed out of the consolidated statement of operations for the year
ended at December 31, 2005, and were recognized at the cease-use date, that
occurred during 2006.
 (m)
    
    During 2008, 2007 and 2006 the Company under Italian GAAP has recognized
the write-off of tangible assets of 1,189, 2,285 and of nil, respectively, as part of
non operating income. Under US GAAP such write-off charge would be included as part
of operating income.
 (n)
    
    Under Italian GAAP certain costs paid to resellers are reflected as part of
selling expenses. Under US GAAP, in accordance with EITF 01-09 Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendors
Products), these costs should be recorded as a reduction of net sales. Such expenses
include advertising contributions paid to resellers which amounted at December 31,
2008, 2007 and 2006 to 4,336, 4,321 and 4,236, respectively.
 (o)
    
    Under Italian GAAP, the Company includes its warranty cost as a component
of selling expenses in the consolidated statement of operations. Under US GAAP,
warranty costs would be included as a component of cost of sales. For the years ended
December 31, 2008, 2007 and 2006 warranty cost amounting to 4,607, 4,143 and 4,294,
respectively, would be reclassified from selling expenses to cost of sales under US
GAAP.
 (p)
    
    In 2008, 2007 and 2006 the Company under Italian GAAP has recognized
certain export incentives of nil, nil and 3,371, respectively, under the caption
other income (expense), net (see note 24). Under US GAAP such revenue would be
included as part of operating income.
 (q)
    
    In 2006 the Company under Italian GAAP has recognized in other income
(expense), net an incentive of 1,100 received from the landlord of a store for the
termination of
the related lease contract before the term specified in the lease agreement (see note
24). Under US GAAP such revenue would be included as part of operating income.
 (r)
    
    Under Italian GAAP, the Company includes the deferred tax assets related to
the elimination of the intercompany profits on inventory under the line deferred
income taxes of the current part of the balance sheet. As of December 31, 2008, 2007
and 2006 the above deferred taxes amount to nil, nil and 1,051, respectively. Under
US GAAP these deferred taxes would be classified in the line deferred charges of the
current part of the balance sheet.
 (s)
    
    Under Italian GAAP the Company includes the component income taxes included
in the provisions for contingent tax liabilities under the line other income
(expense), net in the consolidated statement of operations. For the years ended
December 31, 2008, 2007 and 2006 the above income taxes amount approximately to 255,
519 and 310. Under US GAAP these amounts would be classified in the line income taxes
of the consolidated statements of operations.
  F - 58




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Notes to consolidated financial statements
  (t)
    
    During 2007 the Company obtained from tax authorities a refund of income
taxes related to prior years for an amount of 1,888. In addition, during 2007 a
subsidiary of the Company obtained from tax authorities the confirmation that a
portion of income tax of 668 related to 2006 was not due. As these amounts were not
recorded previously due to uncertainty, the Company recorded in 2007 such amounts in
other income (expense), net (see note 24). Under US GAAP these amounts would be
classified in the line income taxes of the consolidated statement of operations for
the year ended December 31, 2007.
 (u)
    
    Under Italian GAAP the Company records a tax contingent liability (income
tax exposure) when it is probable that the liability has been incurred and the amount
of the loss can be reasonably estimated.
 Accounting for Uncertainty
in Income Taxes
 Accounting for
Uncertainty in Income Taxes
 2008
    
    
    2007Balance, beginning of the year
    
    
    1,460
    
    
    
    941Additions based on tax positions related to the current year
    
    
    2
    
    
    
    435Additions for tax positions of prior years
    
    
    483
    
    
    
    358Reductions due to statute of limitations expiration
    
    
    (230
    )
    
    
    (274
    )Settlements
    
    
    
    
    
    
    Balance, end of year
    
    
    1,715
    
    
    
    1,460
     F - 59




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Notes to consolidated financial statements
   US GAAP
    
    
    IT GAAP
    
    
    DifferenceBalance at January 1, 2008
    
    
    1,460
    
    
    
    1,460
    
    
    
    Additions based on tax positions related
to the current year
    
    
    2
    
    
    
    2
    
    
    
    Additions for tax positions of prior years
    
    
    483
    
    
    
    483
    
    
    
    Reductions due to statute of limitations expiration
    
    
    (230
    )
    
    
    (230
    )
    
    
    Settlements
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2008
    
    
    1,715
    
    
    
    1,715
    
    
    
    
 US GAAP
    
    
    IT GAAP
    
    
    DifferenceBalance at January 1, 2007
    
    
    941
    
    
    
    941
    
    
    
    Additions based on tax positions related
to the current year
    
    
    435
    
    
    
    435
    
    
    
    Additions for tax positions of prior years
    
    
    358
    
    
    
    358
    
    
    
    Reductions due to statute of limitations expiration
    
    
    (274
    )
    
    
    (274
    )
    
    
    Settlements
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2007
    
    
    1,460
    
    
    
    1,460
    
    
    
    
  (v)
    
    The consolidated statements of cash flows for the years ended December 31,
2008, 2007 and 2006 prepared by the Company under Italian GAAP is in conformity with
US GAAP (FASB Statement 95, Statement of Cash Flow).
  F - 60




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##### Table of Contents



Notes to consolidated financial statements
  Comprehensive Income
 Reporting Comprehensive Income
  SFAS No. 141R and SFAS No. 160:
 Business Combinations Non controlling Interest in Consolidated
Financial Statements  an amendment to ARB No. 51
 SFAS No. 157:
 Fair
Value Measurements Effective Date of FASB Statement No. 157
   F - 61




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##### Table of Contents



Notes to consolidated financial statements
  Determining the Fair
Value of a Financial Asset When the Market for That Asset is Not Active,
 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
 SFAS No. 165:
 Subsequent Events
  F - 62




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##### Table of Contents



Notes to consolidated financial statements
   FSP FAS No. 142-3:
 Determination of the Useful
Life of Intangible Assets (FSP 142-3)
  F - 63




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##### Table of Contents



SIGNATURE
  NATUZZI S.p.A.By
    /s/ Pasquale NatuzziName:
    Pasquale NatuzziTitle:
    Chief 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 (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the
Securities and Exchange Commission on June 30, 2008, file number 1-11854).2.1
    
    Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 31, 2001,
among the Company, The Bank of New York, as Depositary, and owners and beneficial owners of
ADRs (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the Securities
and Exchange Commission on July 1, 2002, file number 1-11854).8.1
    
    List of Significant Subsidiaries.12.1
    
    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.12.2
    
    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.13.1
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.