##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) (g) OF THE
SECURITIES EXCHANGE ACT OF 1934 or
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Fiscal Year Ended: December 31, 2005
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period from            to
 or
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report 
For the Transition Period from            to
 Commission file number: 1-11854
 NATUZZI S.p.A.
  NATUZZI S.p.A.
 Italy
 Via Iazzitiello 47, 70029 Santeramo, Italy
 
  Name of each class
    
    Name of each exchange on which registeredAmerican Depositary Shares
    
    New York Stock ExchangeOrdinary Shares with a par value of €1.0 each
    
    New York Stock Exchange*
 * Not for trading, but only in connection with the registration of the American
Depositary Shares
 -
    
    Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 -
    
    Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 -
    
    Outstanding shares of each of the issuers classes of capital or common stock as of December 31, 2005: 54,681,628 Ordinary
Shares
  o þ
  o þ
   þ o
  o þ o
  o þ
  o þ




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##### Table of Contents



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
    
    
    4Risk Factors
    
    
    4Forward Looking Information
    
    
    8Item 4. Information on the Company
    
    
    8Introduction
    
    
    8Organizational Structure
    
    
    9Strategy
    
    
    11Manufacturing
    
    
    12Products
    
    
    17Markets
    
    
    19Incentive Programs and Tax Benefits
    
    
    22Management of Exchange Rate Risk
    
    
    24Trademarks and Patents
    
    
    24Regulation
    
    
    24Environmental Regulatory Compliance
    
    
    25Insurance
    
    
    25Description of Properties
    
    
    25Capital Expenditures
    
    
    27Item 4. A Unresolved Staff Comments
    
    
    27Item 5. Operating and Financial Review and Prospects
    
    
    27Critical Accounting Policies
    
    
    28Results of Operations
    
    
    29Liquidity and Capital Resources
    
    
    37
 i




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TABLE OF CONTENTS
(continued)
 PageContractual Obligations and Commitments
    
    
    38Related Party Transactions
    
    
    39Research and Development
    
    
    39Trend Information and Guidance
    
    
    40New
Accounting Standards under Italian and U.S. GAAP
    
    
    40Item 6. Directors, Senior Management and Employees
    
    
    43Compensation of Directors and Officers
    
    
    47Share Ownership
    
    
    47Statutory Auditors
    
    
    47External Auditors
    
    
    48Employees
    
    
    48Item 7. Major Shareholders and Related Party Transactions
    
    
    49Major Shareholders
    
    
    49Related Party Transactions
    
    
    50Item 8. Financial Information
    
    
    50Consolidated Financial Statements
    
    
    50Export Sales
    
    
    51Legal and Governmental Proceedings
    
    
    51Dividends
    
    
    51Item 9. The Offer and Listing
    
    
    52Trading Markets and Share Prices
    
    
    52Item 10. Additional Information
    
    
    54By-laws
    
    
    54Certain Contracts
    
    
    62Exchange Controls
    
    
    62Taxation
    
    
    63Documents on Display
    
    
    68Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    68
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TABLE OF CONTENTS
(continued)
 PageItem 12. Description of Securities Other than Equity Securities
    
    
    70PART II
    
    
    71Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    71Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    71Item 15. Controls and Procedures
    
    
    71Item 16. [Reserved]
    
    
    71Item 16. A Audit committee financial expert
    
    
    71Item 16. B Code of Ethics
    
    
    72Item 16. C Principal Accountant Fees and Services
    
    
    72Item 16. D Exemptions from the Listing Standards for Audit Committees
    
    
    73Item 16. E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    73PART III
    
    
    74Item 17. Financial Statements
    
    
    74Item 18. Financial Statements
    
    
    74Item 19. Exhibits
    
    
    75EX-1.1: BY-LAWSEX-8.1: LIST OF SIGNIFICANT SUBSIDIARIESEX-12.1: CERTIFICATIONEX-12.2: CERTIFICATIONEX-13.1: CERTIFICATIONS
  iii




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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
  lira lire
      1




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##### Table of Contents



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




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Year Ended At December 31,2005
    
    
    2005
    
    
    2004
    
    
    2003
    
    
    2002
    
    
    2001(millions ofdollars, exceptper OrdinaryShare)(2)
    
    
    (millions of euro, except for Ordinary Share)(1)Income Statement Data:Amounts in accordance with Italian GAAP :Net sales:Leather- and fabric-upholstered furniture
    
    $
    704.4
    
    
    €
    594.8
    
    
    €
    665.5
    
    
    €
    674.0
    
    
    €
    734.7
    
    
    €
    714.0Other(3)
    
    
    88.9
    
    
    
    75.1
    
    
    
    87.9
    
    
    
    95.6
    
    
    
    70.4
    
    
    
    72.1Total net sales
    
    
    793.3
    
    
    
    669.9
    
    
    
    753.4
    
    
    
    769.6
    
    
    
    805.1
    
    
    
    786.1Cost of sales
    
    
    (544.0
    )
    
    
    (459.4
    )
    
    
    (484.5
    )
    
    
    (508.8
    )
    
    
    (517.4
    )
    
    
    (520.1
    )Gross profit
    
    
    249.3
    
    
    
    210.5
    
    
    
    268.9
    
    
    
    260.8
    
    
    
    287.7
    
    
    
    266.0Selling expenses
    
    
    (215.8
    )
    
    
    (182.2
    )
    
    
    (188.2
    )
    
    
    (179.3
    )
    
    
    (145.4
    )
    
    
    (134.8
    )General and administrative expenses
    
    
    (50.9
    )
    
    
    (43.0
    )
    
    
    (40.7
    )
    
    
    (39.2
    )
    
    
    (40.5
    )
    
    
    (33.5
    )Operating income (loss)
    
    
    (17.4
    )
    
    
    (14.7
    )
    
    
    40.0
    
    
    
    42.3
    
    
    
    101.8
    
    
    
    97.7Other income (expense), net(4) (5) (6)
    
    
    3.5
    
    
    
    3.0
    
    
    
    (3.9
    )
    
    
    3.7
    
    
    
    14.5
    
    
    
    (0.2
    )Earnings (loss) before taxes and minority interests
    
    
    (13.9
    )
    
    
    (11.7
    )
    
    
    36.1
    
    
    
    46.0
    
    
    
    116.3
    
    
    
    97.5Income taxes
    
    
    (3.7
    )
    
    
    (3.1
    )
    
    
    (17.6
    )
    
    
    (8.5
    )
    
    
    (25.0
    )
    
    
    (21.9
    )Earnings (loss) before minority interests
    
    
    (17.6
    )
    
    
    (14.8
    )
    
    
    18.5
    
    
    
    37.5
    
    
    
    91.3
    
    
    
    75.6Minority interest
    
    
    0.3
    
    
    
    0.2
    
    
    
    (0.1
    )
    
    
    (0.2
    )
    
    
    0.1
    
    
    
    Net earnings (loss)
    
    
    (17.3
    )
    
    
    (14.6
    )
    
    
    18.4
    
    
    
    37.3
    
    
    
    91.4
    
    
    
    75.6Net earnings (loss) per Ordinary Share
    
    
    (0.32
    )
    
    
    (0.27
    )
    
    
    0.34
    
    
    
    0.68
    
    
    
    1.67
    
    
    
    1.37Amounts in accordance with U.S. GAAP :Net earnings (loss)
    
    
    (8.17
    )
    
    
    (6.9
    )
    
    
    18.8
    
    
    
    38.0
    
    
    
    92.0
    
    
    
    71.1Net earnings (loss) per Ordinary Share (basic and
diluted)
    
    $
    (0.15
    )
    
    €
    (0.13
    )
    
    €
    0.34
    
    
    €
    0.70
    
    
    €
    1.68
    
    
    €
    1.29Cash dividend per Ordinary Share
    
    $
    0.00
    
    
    €
    0.00
    
    
    €
    0.07
    
    
    €
    0.14
    
    
    €
    0.33
    
    
    €
    0.29Weighted average number of Ordinary Shares
Outstanding
    
    
    54,681,628
    
    
    
    54,681,628
    
    
    
    54,681,628
    
    
    
    54,681,628
    
    
    
    54,681,628
    
    
    
    55,027,496Balance Sheet Data :Amounts in accordance with Italian GAAP :Current assets
    
    $
    455.3
    
    
    €
    384.5
    
    
    €
    389.4
    
    
    €
    383.1
    
    
    €
    402.6
    
    
    €
    491.9Total assets
    
    
    787.3
    
    
    
    664.9
    
    
    
    673.2
    
    
    
    692.4
    
    
    
    674.5
    
    
    
    716.8Current liabilities
    
    
    161.3
    
    
    
    136.2
    
    
    
    131.5
    
    
    
    125.2
    
    
    
    128.7
    
    
    
    252.5Long-term debt
    
    
    4.3
    
    
    
    3.6
    
    
    
    5.0
    
    
    
    4.2
    
    
    
    3.6
    
    
    
    3.3Minority interest
    
    
    0.8
    
    
    
    0.7
    
    
    
    0.9
    
    
    
    0.9
    
    
    
    0.5
    
    
    
    1.5Shareholders equity
    
    
    560.1
    
    
    
    473.0
    
    
    
    487.9
    
    
    
    515.1
    
    
    
    495.8
    
    
    
    428.5Amounts in accordance with U.S. GAAP :Shareholders equity
    
    $
    537.3
    
    
    €
    453.7
    
    
    €
    464.5
    
    
    €
    452.3
    
    
    €
    432.3
    
    
    €
    364.4
 
 1)
    
    All amounts in this annual report for the fiscal years ending before December 31, 2002 have
been restated from lire to euro using the exchange rate of Lit. 1,936.27 per euro established in
connection with the commencement of the third stage of the EMU. The Consolidated Financial
Statements reported in euro depict the same trends as would have been presented if the Group had
continued to present its financial statements in lire.2)
    
    Amounts are translated into U.S. dollars by converting the euro amounts into U.S. dollars at the
Noon Buying Rate for euros on December 30, 2005 of U.S.$ 1.1842 per euro.3)
    
    Sales included under Other principally consist of sales of polyurethane foam, living room
accessories and leather to third parties.4)
    
    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  2005 Compared to 2004, 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.5)
    
    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 (c) to the
Consolidated Financial Statements.6)
    
    Other income (expense), net, in 2005 was positively affected by revenues for capital grants. See
Note 24 to the Consolidated Financial Statements. 3




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Exchange Rates
    Year:
    
    Average(1)
    
    At Period End2001
    
    
    0.8909
    
    
    
    0.89012002
    
    
    0.9495
    
    
    
    1.04852003
    
    
    1.1411
    
    
    
    1.25972004
    
    
    1.2478
    
    
    
    1.35382005
    
    
    1.2400
    
    
    
    1.1842
 Month ending:
    
    High
    
    LowDecember 31, 2005
    
    
    1.2041
    
    
    
    1.1699January 31, 2006
    
    
    1.2287
    
    
    
    1.1980February 28, 2006
    
    
    1.2100
    
    
    
    1.1860March 31, 2006
    
    
    1.2197
    
    
    
    1.1886April 30, 2006
    
    
    1.2624
    
    
    
    1.2091May 31, 2006
    
    
    1.2888
    
    
    
    1.2607
 
 (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.  
 Risk Factors
  The Group has a recent history of losses; the Groups future profitability and financial
condition depend on the successful implementation of its restructuring plan 
 4




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Demand for furniture is cyclical and may fall in the future 
  The Group operates principally in a niche area of the furniture market
 The furniture market is highly competitive 
  5




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Fluctuations in currency exchange rates may adversely affect the Groups results 
 The Group faces risks associated with its international operations 
 The price of the Groups principal raw material is difficult to predict
 The Groups past results and operations have significantly benefited from government incentive
programs which may not be available in the future
 6




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The Group is dependent on qualified personnel
 Investors may face difficulties in protecting their rights as shareholders or holders of ADSs Statuto
 Control of the Company 
  7




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Forward Looking Information
   
 Item 4. Information on the Company
 
 Introduction
   8




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Divani & Divani by Natuzzi Divani &
Divani by Natuzzi Natuzzi Store Natuzzi Divani & Divani by Natuzzi
 Industrie Natuzzi S.p.A. Natuzzi S.p.A. Statuto società per azioni
   
 Organizational Structure
  9




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Percentage ofName
    
    ownership
    
    Registered office
    
    ActivityItalsofa Bahia Ltd
    
    
    97.99
    
    
    Bahia, Brazil
    
    
    (1
    )Minuano Nordeste S.A.
    
    
    100.00
    
    
    Pojuca, Brazil
    
    
    (1
    )Italsofa Shanghai Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    
    (1
    )Softaly Shanghai Ltd
    
    
    100.00
    
    
    Shanghai, China
    
    
    (1
    )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
    )Divani Due S.r.l.
    
    
    100.00
    
    
    Verona, Italy
    
    
    (4
    )Koineé S.r.l.
    
    
    100.00
    
    
    Montesilvano, Italy
    
    
    (4
    )Nacon S.p.A.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (4
    )Natuzzi Americas Inc.
    
    
    100.00
    
    
    High Point, NC, USA
    
    
    (4
    )Natuzzi Iberica S.A.
    
    
    100.00
    
    
    Madrid, Spain
    
    
    (4
    )Natuzzi Switzerland AG
    
    
    97.00
    
    
    Kaltbrunn, Switzerland
    
    
    (4
    )Natuzzi Nordic
    
    
    100.00
    
    
    Copenaghen, Denmark
    
    
    (4
    )Natuzzi Benelux S.A.
    
    
    100.00
    
    
    Geel, Belgium
    
    
    (4
    )Natuzzi Germany Gmbh
    
    
    100.00
    
    
    Dusseldorf, Germany
    
    
    (4
    )Natuzzi Sweden AB
    
    
    100.00
    
    
    Stockholm, Sweden
    
    
    (4
    )Natuzzi Japan KK
    
    
    100.00
    
    
    Tokyo, Japan
    
    
    (4
    )Natuzzi Services Limited
    
    
    100.00
    
    
    London, UK
    
    
    (4
    )La Galleria Limited
    
    
    100.00
    
    
    London, UK
    
    
    (4
    )Kingdom of Leather Trustees Limited
    
    
    100.00
    
    
    London, UK
    
    
    (5
    )Natuzzi Netherlands Holding
    
    
    100.00
    
    
    Amsterdam, Holland
    
    
    (5
    )Natuzzi United Kingdom Limited
    
    
    100.00
    
    
    London, UK
    
    
    (5
    )Natuzzi Trade Service S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (6
    )Kingdom of Leather Limited
    
    
    100.00
    
    
    London, UK
    
    
    (7
    )Italholding S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (7
    )Lagene S.r.l.
    
    
    100.00
    
    
    Bari, Italy
    
    
    (7
    )Natuzzi Asia Ltd
    
    
    100.00
    
    
    Hong-Kong, China
    
    
    (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)
    
    Not operational  10




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Strategy
  Improving efficiency and reducing operating costs
 Cassa Integrazione Guadagni
 Geographical expansion
 Retail program and brand development
 11




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Natuzzi Divani and
Divani by Natuzzi
 Product diversification  Decorator
 Expansion in all price segments
 
 Manufacturing
   12




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TM TM
  13




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Raw Materials
 i.e
   14




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15




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Supply-chain Management
 Organization.
 Planning (order management, production, procurement).
    16




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Transportation.
   
 Products
    17




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18




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Markets
  %
 :
 Leather- and Fabric-Upholstered Furniture Net Sales (millions of euro)2005
    
    2004
    
    2003
    
    2002
    
    2001U.S. and the Americas(1)
    
    
    241.7
    
    
    
    40.6
    %
    
    
    279.4
    
    
    
    42.0
    %
    
    
    320.1
    
    
    
    47.5
    %
    
    
    366.4
    
    
    
    49.9
    %
    
    
    356.4
    
    
    
    49.9
    %Europe
    
    
    313.2
    
    
    
    52.7
    %
    
    
    340.1
    
    
    
    51.1
    %
    
    
    313.5
    
    
    
    46.5
    %
    
    
    326.5
    
    
    
    44.4
    %
    
    
    317.9
    
    
    
    44.5
    %Rest of the World
    
    
    39.9
    
    
    
    6.7
    %
    
    
    46.0
    
    
    
    6.9
    %
    
    
    40.4
    
    
    
    6.0
    %
    
    
    41.8
    
    
    
    5.7
    %
    
    
    39.7
    
    
    
    5.6
    %Total
    
    
    594.8
    
    
    
    100.0
    %
    
    
    665.5
    
    
    
    100.0
    %
    
    
    674.0
    
    
    
    100.0
    %
    
    
    734.7
    
    
    
    100.0
    %
    
    
    714.0
    
    
    
    100.0
    %
 Leather- and Fabric-Upholstered Furniture Net Sales (in seats)(2)2005
    
    2004
    
    2003
    
    2002
    
    2001U.S. and the Americas(1)
    
    
    1,386,329
    
    
    
    49.3
    %
    
    
    1,564,901
    
    
    
    51.0
    %
    
    
    1,699,160
    
    
    
    55.6
    %
    
    
    1,572,879
    
    
    
    52.0
    %
    
    
    1,376,818
    
    
    
    47.9
    %Europe
    
    
    1,262,887
    
    
    
    44.9
    %
    
    
    1,319,740
    
    
    
    43.0
    %
    
    
    1,181,566
    
    
    
    38.6
    %
    
    
    1,278,296
    
    
    
    42.2
    %
    
    
    1,323,736
    
    
    
    46.0
    %Rest of the World
    
    
    162,523
    
    
    
    5.8
    %
    
    
    186,330
    
    
    
    6.0
    %
    
    
    178,109
    
    
    
    5.8
    %
    
    
    176,483
    
    
    
    5.8
    %
    
    
    175,704
    
    
    
    6.1
    %Total
    
    
    2,811,739
    
    
    
    100.0
    %
    
    
    3,070,971
    
    
    
    100.0
    %
    
    
    3,058,835
    
    
    
    100.0
    %
    
    
    3,027,658
    
    
    
    100.0
    %
    
    
    2,876,258
    
    
    
    100.0
    %
 
 (1)
    
    Outside the United States, the Group also sells its products to customers in Canada and
Central and South America (collectively, the Americas).(2)
    
    Includes seats produced at Group-owned facilities and by subcontractors. Seats are a unit
measurement. A sofa consists of three seats; an armchair of one. 1 United States and the Americas. 
 19




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
    2 Europe
 2.1 Europe (excluding Italy).
  
   20




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2.2 Italy  
 Divani & Divani by Natuzzi Divani & Divani by Natuzzi
  3 Rest of the World
 3.1 Asia-Pacific     
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3.2 Middle East
 Customer Credit Management
 Advertising 
   
 Incentive Programs and Tax Benefits
   22




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##### Table of Contents



Equivalente Sovvenzione Netto Equivalente Sovvenzione Lordo
         
   Gazzetta Ufficiale della Repubblica Italiana
  23




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##### Table of Contents



 
  
  
 Management of Exchange Rate Risk
  
 Trademarks and Patents
  
 Regulation
  24




---



##### Table of Contents



Environmental Regulatory Compliance
   
 Insurance
  
 Description of Properties
  25




---



##### Table of Contents



Size(approximatesquareLocation
    
    meters)
    
    FunctionSanteramo in Colle (BA)  Italy
    
    
    29,000
    
    
    Headquarters, prototyping, manufacturing of wooden
frames, leather cutting, sewing and product
assembly, showroom (Owned)Santeramo in Colle, Iesce (BA)  Italy
    
    
    27,500
    
    
    Leather cutting, sewing and product assembly (Owned)Matera la martella  Italy
    
    
    38,000
    
    
    Fabric cutting, sewing and product assembly (Owned)Matera Iesce  Italy
    
    
    12,500
    
    
    Leather cutting, sewing and product assembly (Owned)Altamura (BA) via dellAvena  Italy
    
    
    5,800
    
    
    Leather cutting, sewing (Owned)Altamura (BA) via Graviscella  Italy
    
    
    8,500
    
    
    Product assembly (Owned)Altamura (BA) c.da Fornello Italy
    
    
    7,000
    
    
    Warehouse (Owned)Altamura (BA) via della Paglia  Italy
    
    
    3,300
    
    
    Training school, warehouse (Owned)Altamura (BA) NDS  Italy
    
    
    3,700
    
    
    Accessory Furnishings warehouse (Owned)Ginosa (TA)  Italy
    
    
    14,500
    
    
    Leather cutting, sewing and product assembly (Owned)Laterza (TA)  Italy
    
    
    10,000
    
    
    Leather cutting, sewing and product assembly (Owned)Laterza (TA)  Italy
    
    
    13,000
    
    
    Leather cutting, leather warehouse (Owned)Laterza (TA)  Italy
    
    
    20,000
    
    
    Leather cutting, leather warehouse (Owned)Qualiano (NA)  Italy
    
    
    12,000
    
    
    Polyurethane foam production (Owned)Pozzuolo del Friuli (UD)  Italy
    
    
    20,000
    
    
    Leather dyeing and finishing (Owned)Montebello (VI)  Italy
    
    
    5,500
    
    
    Leather warehouse (Leased)High Point  North Carolina  U.S.A.
    
    
    10,000
    
    
    Office and showroom for Natuzzi Americas (Owned)Baia Mare  Romania
    
    
    70,200
    
    
    Leather cutting, sewing and product assembly,
manufacturing of wooden frames, polyurethane foam
shaping, fiberfill production and wood and wooden
product manufacturing (Owned)Shanghai  China
    
    
    43,500
    
    
    Leather cutting, sewing and product assembly,
manufacturing of wooden frames, polyurethane foam
shaping, fiberfill production (Owned)Shanghai  China
    
    
    15,000
    
    
    Leather cutting, sewing and product assembly,
manufacturing of wooden frames, polyurethane foam
shaping, fiberfill production (Leased)Salvador de Bahia (Bahia)  Brazil
    
    
    28,000
    
    
    Leather cutting, sewing and product assembly,
manufacturing of wooden frames, polyurethane foam
shaping, fiberfill production (Owned)Pojuca (Bahia)  Brazil
        .
    
    
    30,000
    
    
    Leather cutting, sewing and product assembly,
manufacturing of wooden frames, polyurethane foam
shaping, fiberfill production (Owned)
 26




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##### Table of Contents



Capital Expenditures
  Year ending December 31,(millions of Euro)2005
    
    2004
    
    2003Land and plants
    
    
    3.4
    
    
    
    9.5
    
    
    
    11.3Equipment
    
    
    10.1
    
    
    
    17.7
    
    
    
    12.8Other
    
    
    11.6
    
    
    
    27.2
    
    
    
    23.2Total
    
    
    25.1
    
    
    
    54.4
    
    
    
    47.3
 
 
 Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
  27




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##### Table of Contents



Critical Accounting Policies
 Use of Estimates
 Recoverability of Long-lived Assets 
 
 Allowances for Returns and Discounts
 Allowance for Doubtful Accounts
 28




---



##### Table of Contents



Revenue Recognition
 
 Results of Operations
 Summary 
      
  Year Ended December 31,2005
    
    2004
    
    2003Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    68.6
    
    
    
    64.3
    
    
    
    66.1Gross profit
    
    
    31.4
    
    
    
    35.7
    
    
    
    33.9Selling expenses
    
    
    27.2
    
    
    
    25.0
    
    
    
    23.3
 29




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##### Table of Contents



Year Ended December 31,2005
    
    2004
    
    2003General and administrative expenses
    
    
    6.4
    
    
    
    5.4
    
    
    
    5.1Operating income (loss)
    
    
    (2.2
    )
    
    
    5.3
    
    
    
    5.5Other income (expense), net
    
    
    0.4
    
    
    
    (0.5
    )
    
    
    0.5Income taxes
    
    
    0.4
    
    
    
    2.4
    
    
    
    1.1Net earnings (loss)
    
    
    (2.2
    )
    
    
    2.4
    
    
    
    4.9
  2005 Compared to 2004  
 
  
   
  
 30




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##### Table of Contents




     
   
 
 
 31




---



##### Table of Contents




  
    
  
 
    
    A net realized loss of 4.3 million in 2005 (compared to a gain of 5.0 million in
2004) on the domestic currency swaps due to the difference between the forward rate of the
domestic currency swaps and the spot rate at which the domestic currency swaps were closed
(the Company uses the forward rate to hedge its price risks against unfavorable exchange
variations);
    
    A net realized gain of 5.4 million in 2005 (compared to a loss of 1.0 million in
2004), from the difference between the invoice exchange rate and the collection/payment
exchange rate;
    
    During 2005 the Italian Accounting Profession changed the Italian accounting
standard regarding the translation of the financial statements of a foreign
subsidiary (see Note 3(c) to the Consolidated Financial Statements in Item 18 of this
annual report). According to the new accounting principle, the exchange difference
resulting from the translation of the financial statements of a foreign subsidiary
expressed in a foreign currency has to be recorded as a direct adjustment to shareholders
equity. Therefore in 2005 the Group did not record in the statement of earnings exchange
differences from the conversion of the non euro financial statements of the Companys
subsidiaries, while in 2004 recorded a gain of 1.4 million. Had the new Italian standard
not been adopted in 2005, the Company would have recognized, in 2005, a foreign exchange
gain of 1.7 million in the consolidated statement of earnings. The comparative financial
statements of prior years have not been adjusted to apply the new Italian GAAP foreign
currency translation standard retrospectively.
    
    A net unrealized gain of 2.1 million in 2005 (compared to an unrealized loss of
10.2 million in 2004) on accounts receivable and payable;
 32




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##### Table of Contents




    
    An unrealized loss of 4.8 million in 2005 (compared to an unrealized gain of 7.1
million in 2004), from mark-to-market of domestic currency swaps.
  
 
    
    Revenue from capital grants of 4.4 million. In 2005, Natuzzi received under the
aforementioned project Natuzzi 2000 additional capital grants amounting to 7.9 million.
A part of these capital grants, amounting to 4.4 million, is related to depreciation of
property, plant and equipment recorded in the consolidated statements of earnings in the
years prior to 2005. Therefore, for this reason the amount of 4.4 million has been
classified under the caption other income (expense), net. Another portion of these
capital grants, amounting to 0.3 million has been classified in the net sales as they
relate to depreciation of 2005. The remaining portion of 3.2 million has been classified
in the consolidated balance sheet at December 31, 2005 as deferred income, and it will be
charged to statements of earnings as revenue on a systematic basis over the useful life of
the related asset. See Note 24 to the Consolidated Financial Statements included in Item 18
of this Annual Report.
    
    Other expenses of 2.8 million deriving from the write-off of fixed assets, most of
them related to leasehold improvements related to the closure of some stores managed
directly by Natuzzi.
    
    Revenue for incentive benefit of 2.1 million. This incentive is measured on the
basis of the export sales realized by the subsidiary Italsofa Bahia Ltd.
    
    Expense of 0.6 million represents the provision established for the penalties that
the Company expects to pay to landlords of several stores located in England for the early
termination of the related operating leases. Actual amounts payable may be higher.
    
    Other income, net of
1.4 million.
    33




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##### Table of Contents



   
      
 2004 Compared to 2003  
   
   
  
 34




---



##### Table of Contents




       
  
 35




---



##### Table of Contents




 
 
  
    
  
 
    
    A net realized gain of 5.0 million in 2004 (compared to a gain of 25.4 million in
2003) on the domestic currency swaps due to the difference between the forward rate of the
domestic currency swaps and the spot rate at which the domestic currency swaps were closed
(the Company uses the forward rate to protect its price risks against unfavorable exchange
variations);
    
    A net realized loss of 1.0 million in 2004 (compared to a loss of 7.6 million in
2003), from the difference between the invoice exchange rate and the collection/payment
exchange rate;
    
    A gain of 1.4 million (compared to a loss of 1.2 million in 2003) recorded in the
consolidated statement of earnings from the conversion of non-euro financial statements of
the Companys subsidiaries;
    
    A net unrealized loss of 10.2 million in 2004 (compared to an unrealized loss of
16.6 million in 2003) on accounts receivable and payable; and
    
    An unrealized gain of 7.1 million in 2004 (compared to an unrealized gain of 6.3
million in 2003), from the mark-to-market of domestic currency swaps.
  
 36




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##### Table of Contents




    
    A loss of 6.1 million in 2004 due to the impairment of goodwill related to the
Groups operations and expectations in the United Kingdom;
    
    A gain of 3.4 million in 2004 realized from the by disposal of the subsidiary
Spagnesi S.p.A.;
    
    An expense net of 1.3 million deriving from the write-off of fixed assets;
    
    Other expense, net of 1.5 million in 2004.
      
      
 Effect of Inflation 
 
 Liquidity and Capital Resources
  
     
 37




---



##### Table of Contents



   
        Divani & Divani by
Natuzzi Divani &
Divani by Natuzzi
        
  
  
 Contractual Obligations and Commitments
  38




---



##### Table of Contents



Payments Due by Period(in euro thousands)Less than
    
    1-3
    
    
    
    
    
    After 5Contractual Obligations
    
    Total
    
    1 year
    
    years
    
    4-5 years
    
    yearsLong-Term Debt(1)
    
    
    4,008
    
    
    
    426
    
    
    
    1,620
    
    
    
    525
    
    
    
    1,437Interest on long term debt
    
    
    469
    
    
    
    83
    
    
    
    172
    
    
    
    97
    
    
    
    117Operating Leases(2)
    
    
    61,643
    
    
    
    12,443
    
    
    
    21,969
    
    
    
    17,860
    
    
    
    9,371Total Contractual Cash
Obligations
    
    
    66,120
    
    
    
    12,952
    
    
    
    23,761
    
    
    
    18,482
    
    
    
    10,925
 
 (1)
    
    Please see Note 16 to the Consolidated Financial Statements included in this annual report
for more information on the Groups long-term debt.(2)
    
    The leases relate to the leasing of manufacturing facilities and stores by several of the
Groups companies. Amount of Commitment Expiration PerTotal
    
    Period(in euro thousands)Amounts
    
    Less than
    
    1-3
    
    
    
    
    
    After 5Other Commitments
    
    Committed
    
    1 year
    
    years
    
    4-5 years
    
    yearsGuarantees(1)
    
    
    26,005
    
    
    
    26,005
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    The guarantees are primarily comprised of surety bonds provided by certain financial
institutions in connection with the Natuzzi 2000 project. The Company, in turn, directly
provides guarantees in an equivalent amount to such financial institutions. The surety bonds
will expire when the Italian Ministry of Budget releases the final approvals of all
investments already made in connection with the Natuzzi 2000 project. 
 Related Party Transactions
  
 Research and Development
 
  39




---



##### Table of Contents



Trend Information and Guidance
   
  
 
  
 New Accounting Standards under Italian and U.S. GAAP
 Process of Transition to International Accounting Standards 
 Italian GAAP 
 Consolidated Financial Statements
 40




---



##### Table of Contents



U.S. GAAP 
 - SFAS No. 151: Inventory Costs will
 - SFAS No. 153: Exchanges of
Nonmonetary Assets
 41




---



##### Table of Contents



- SFAS No. 123 R: Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash Flows
  - FASB interpretation No. 47: Accounting for Conditional Asset Retirement Obligations
 - EITF 04-1: Accounting for
Preexisting relationships between the Parties to a Business Combination
 - SFAS No. 154: Accounting Changes and Error
Corrections  a Replacement of APB Opinion No. 20 and FASB Statement No. 3
 - EITF 05-06: Determining the
amortization period for leasehold improvements
 42




---



##### Table of Contents



Item 6. Directors, Senior Management and Employees
  Name
    
    Age
    
    Position with the CompanyPasquale Natuzzi
    
    
    66
    
    
    Chairman of the Board of DirectorsErnesto Greco
    
    
    55
    
    
    Chief Executive Officer, Member of the Board of DirectorsGiuseppe Desantis
    
    
    43
    
    
    General Manager, Vice Chairman of the Board of DirectorsDaniele Tranchini
    
    
    47
    
    
    Chief Sales & Marketing Officer, Member of the Board of DirectorsGiambattista Massaro
    
    
    44
    
    
    General Manager of Purchasing and Overseas Operations, Member
of the Board of DirectorsGianluca Monteleone
    
    
    39
    
    
    Marketing and Communication Director, Member of the Board
of DirectorsGiuseppe Russo Corvace
    
    
    56
    
    
    Managing Director for Accounting
and Finance, Member of the Board of DirectorsArmando Branchini
    
    
    61
    
    
    Outside DirectorStelio Campanale
    
    
    44
    
    
    Outside DirectorPietro Gennaro
    
    
    84
    
    
    Outside DirectorEnrico Vitali
    
    
    45
    
    
    Outside DirectorEnrico Carta
    
    
    58
    
    
    Human Resources and Organization DirectorNicola V.M. DellEdera
    
    
    44
    
    
    Chief Financial Officer a.i. and Finance DirectorGiovanni Costantino
    
    
    42
    
    
    Research and Development DirectorAnnunziata Natuzzi
    
    
    42
    
    
    Chief Executive Officer of Natco S.p.A.Gaetano De Cataldo
    
    
    42
    
    
    Executive Vice President of Finance and Operations of Natuzzi
Americas, Inc.José Manuel Gulias Roo
    
    
    48
    
    
    Spain and Portugal Country ManagerCesare Laberinti
    
    
    73
    
    
    Chairman and Managing Director of IMPE S.p.ABo Lippert-Larsen
    
    
    44
    
    
    Nordic Region Country ManagerJan Mentens
    
    
    39
    
    
    Benelux Country ManagerGiovanni Mercadante
    
    
    49
    
    
    Accounting DirectorOttavio Milano
    
    
    40
    
    
    Control and Internal Auditing DirectorNick Moore
    
    
    44
    
    
    Managing Director of Natuzzi United Kingdom LtdAchille Poretta
    
    
    48
    
    
    Information Systems DirectorDave Riches
    
    
    46
    
    
    Finance Director of Natuzzi United Kingdom LtdBodo Rupp
    
    
    47
    
    
    Germany, Switzerland and Austria Country ManagerFredrick Starr
    
    
    74
    
    
    President and Chief Executive Officer of Natuzzi
Americas Inc.
 43




---



##### Table of Contents



Name
    
    Age
    
    Position with the CompanyFrancesco Stasolla
    
    
    40
    
    
    Chairman and Managing Director of Italsofa Romania S.r.l.Richard Tan
    
    
    46
    
    
    Chairman and Managing Director of Italsofa (Shanghai) Ltd
and Softaly (Shanghai) LtdVito Testini
    
    
    52
    
    
    Managing Director of Minuano Nordeste S.A and Italsofa Bahia
LtdFernando R. Vitale
    
    
    40
    
    
    General Manager and Director of Italsofa Bahia Ltda.
    .
   Vitali, Romagnoli, Piccardi e Associati
  44




---



##### Table of Contents



InterCorporate  Strategie e Impresa
  PGA  Strategia e Organizzazione
 Vitali, Romagnoli, Piccardi e Associati
       45




---



##### Table of Contents



.
       46




---



##### Table of Contents



Compensation of Directors and Officers
 
  
 Share Ownership
  
 Statutory Auditors
  47




---



##### Table of Contents



Name
    
    PositionFrancesco Venturelli
    
    ChairmanCataldo Sferra
    
    MemberCostante Leone
    
    MemberGiuseppe Pio Macario
    
    AlternateVittorio Boscia
    
    Alternate
 
   
 External Auditors
  
 Employees
  
  48




---



##### Table of Contents



Biagi project work contract
   
 Item 7. Major Shareholders and Related Party Transactions
 
 Major Shareholders
  49




---



##### Table of Contents



Number of
    
    PercentShares Owned
    
    OwnedPasquale Natuzzi(1)
    
    
    26,064,906
    
    
    
    47.6
    %Royce & Associates, LLC
    
    
    5,209,100
    
    
    
    9.5
    %Brandes Investment Partners, LP
    
    
    4,540,281
    
    
    
    8.3
    %Tweedy, Browne Company, L.L.C
    
    
    4,050,759
    
    
    
    7.4
    %
 
 (1)
    
    If Mr. Natuzzis Ordinary Shares are aggregated with those held by members of the
Natuzzi Family, the amount owned would have been 28,864,906 and the percentage ownership
of Ordinary Shares would have been 52.8%.    
 Related Party Transactions
  
 Item 8. Financial Information
 
 Consolidated Financial Statements
  50




---



##### Table of Contents



Export Sales
 
 
 Legal and Governmental Proceedings
 Istituto Nazionale di
Previdenza Sociale  Contratti di
formazione e lavoro 
  
 Dividends
   Dividends per
    
    Translated intoYear ended December 31,
    
    Ordinary Share
    
    dollars per ADS2005
    
    Not distributed
    
    Not distributed2004
    
    
    0.0673
    
    
    $
    0.092003
    
    
    0.1366
    
    
    $
    0.152002
    
    
    0.3300
    
    
    $
    0.352001
    
    
    0.2872
    
    
    $
    0.26
 51




---



##### Table of Contents



Item 9. The Offer and Listing
 
 Trading Markets and Share Prices
  (1)
 
 (1)
    
    Starting on January 1, 2001, the NYSE
changed its practice of reporting stock quotes from a fractional to a decimal
system. All stock quotes prior to this date, originally reported in fractions,
were restated into decimals for ease of comparison. 52




---



##### Table of Contents



New York Stock ExchangePrice per ADSHigh
    
    Low(in U.S. dollars)2001First Quarter
    
    
    14.050
    
    
    
    12.125Second Quarter
    
    
    14.150
    
    
    
    11.500Third Quarter
    
    
    14.000
    
    
    
    10.150Fourth Quarter
    
    
    14.640
    
    
    
    10.8602002First Quarter
    
    
    15.700
    
    
    
    13.910Second Quarter
    
    
    16.100
    
    
    
    13.350Third Quarter
    
    
    15.040
    
    
    
    10.920Fourth Quarter
    
    
    10.970
    
    
    
    9.1202003First Quarter
    
    
    10.050
    
    
    
    7.240Second Quarter
    
    
    9.600
    
    
    
    7.990Third Quarter
    
    
    10.390
    
    
    
    7.820Fourth Quarter
    
    
    11.000
    
    
    
    9.4602004First Quarter
    
    
    11.550
    
    
    
    10.150Second Quarter
    
    
    11.550
    
    
    
    10.150Third Quarter
    
    
    10.800
    
    
    
    9.230Fourth Quarter
    
    
    11.170
    
    
    
    10.0102005First Quarter
    
    
    11.650
    
    
    
    10.290Second Quarter
    
    
    10.270
    
    
    
    8.100Third Quarter
    
    
    9.000
    
    
    
    8.050Fourth Quarter
    
    
    8.400
    
    
    
    6.7602006First Quarter
    
    
    7.810
    
    
    
    7.100Monthly Data:December 2005
    
    
    7.660
    
    
    
    6.980January 2006
    
    
    7.790
    
    
    
    7.100February 2006
    
    
    7.530
    
    
    
    7.100March 2006
    
    
    7.810
    
    
    
    7.300April 2006
    
    
    7.570
    
    
    
    6.860May 2006
    
    
    7.600
    
    
    
    7.100June 2006 (through June 19)
    
    
    7.350
    
    
    
    7.110
 53




---



##### Table of Contents



Item 10. Additional Information
 
 By-laws
 Statuto
   General  
   Authorization of Shares   
 Form and Transfer of Shares 
 Dividend Rights 
 54




---



##### Table of Contents



Voting Rights 
  Board of Directors 
 Presidente amministratori delegati
  55




---



##### Table of Contents



direttore generale
     56




---



##### Table of Contents



Statutory Auditors  Collegio Sindacale
    57




---



##### Table of Contents



External Auditor 
    Meetings of Shareholders 
 Il Sole 24 ore Corriere della Sera a Repubblica
   58




---



##### Table of Contents



Preemptive Rights 
 Preference Shares; Other Securities 
 59




---



##### Table of Contents



Segregation of Assets and Proceeds 
  Liquidation Rights  pari passu
 Purchase of Shares by the Company 
  60




---



##### Table of Contents



  
 Notification of the Acquisition of Shares 
 Minority Shareholders Rights; Withdrawal Rights 
    61




---



##### Table of Contents



Liability for Mismanagement of Subsidiaries 
  
 Certain Contracts
  
 Exchange Controls
   Ufficio
Italiano Cambi
 62




---



##### Table of Contents




  
 Taxation
    63




---



##### Table of Contents



Taxation of Dividends
 Italian Tax Considerations  
  64




---



##### Table of Contents



United States Tax Considerations -
  65




---



##### Table of Contents



Taxation of Capital Gains
 Italian Tax Considerations
  66




---



##### Table of Contents



United States Tax Considerations -
  Taxation of Distributions from Capital Reserves
 Italian Tax Considerations -
 Other Italian Taxes
 67




---



##### Table of Contents



Estate and Gift Tax 
 Transfer Tax 
 
 Documents on Display
 http://www.sec.gov
 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk
   Exchange Rate Risks
   
 68




---



##### Table of Contents



 
  
  December 31,Sales
    
    2005
    
    
    2004U.S. dollars
    
    
    72,496
    
    
    
    66,108British pounds
    
    
    26,783
    
    
    
    51,451Canadian dollars
    
    
    17,698
    
    
    
    18,629Australian dollars
    
    
    10,744
    
    
    
    16,173Norwegian kroner
    
    
    5,928
    
    
    
    8,774Swedish kroner
    
    
    3,441
    
    
    
    5,932Japanese yen
    
    
    1,504
    
    
    
    2,740Swiss francs
    
    
    656
    
    
    
    2,240Danish kroner
    
    
    845
    
    
    
    940Total
    
    
    140,095
    
    
    
    172,987
  
  69




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##### Table of Contents



December 31, 2005
    
    December 31, 2004Contract
    
    Fair
    
    Contract
    
    FairAmount
    
    Value
    
    Amount
    
    ValueAssets
    
    
    46,075
    
    
    
    392
    
    
    
    159,584
    
    
    
    7,191Liabilities
    
    
    94,020
    
    
    
    (5,159
    )
    
    
    13,403
    
    
    
    (90
    )Total
    
    
    140,095
    
    
    
    (4,767
    )
    
    
    172,987
    
    
    
    7,101
 
  Interest Rate Risks 
  
 Item 12. Description of Securities Other than Equity Securities
  70




---



##### Table of Contents



PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
  
 Item 15. Controls and Procedures
      
 Item 16. [Reserved]
 
 Item 16.A Audit committee financial expert
  71




---



##### Table of Contents



Item 16.B Code of Ethics
 www.natuzzi.com/codeofethics/
 
 Item 16.C Principal Accountant Fees and Services
  2005
    
    2004(in euros)Audit fees
    
    
    558,412
    
    
    
    463,317Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    Other fees
    
    
    
    
    
    
    Total fees
    
    
    558,412
    
    
    
    463,317
   72




---



##### Table of Contents



Item 16.D Exemptions from the Listing Standards for Audit Committees.
 Rule 10A-3(c)(3):
 
    
    the board of statutory auditors is established and selected
pursuant to Italian law expressly permitting such a board;
    
    the board of statutory auditors is required under Italian law
to be separate from the Companys board of directors;
    
    the board of statutory auditors is not elected by management
of the Company and no Executive Officer of the Company is a member
of the board of statutory auditors;
    
    Italian Law provides for standards for the independence of the
board of statutory auditors from the Company and its management;
    
    the board of statutory auditors, in accordance with applicable
Italian law and the Companys governing documents, is responsible,
to the extent permitted by Italian law, for the appointment,
retention and oversight of the work (including, to the extent
permitted by law, the resolution of disagreements between
management and the auditor regarding financial reporting) of any
registered public accounting firm engaged for the purpose of
preparing or issuing an audit report or performing other audit,
review or attest services for the Company, and
    
    to the extent permitted by Italian law, the audit committee
requirements of paragraphs (b)(3), (b)(4) and (b)(5) of Rule 10A-3
apply to the Board of Statutory Auditors.
  
 Item 16.E Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  73




---



##### Table of Contents



PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
 PageReport of Independent Registered Public Accounting Firm
    
    F-1Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    F-2Consolidated Statements of Earnings for the Years Ended December 31,
2005, 2004 and 2003
    
    F-3Consolidated Statements of Changes in Shareholders Equity for the
Years Ended December 31, 2005, 2004 and 2003
    
    F-4Consolidated Statements of Cash Flows for the Years Ended December
31, 2005, 2004 and 2003
    
    F-5Notes to the Consolidated Financial Statements
    
    F-7
 74




---



##### Table of Contents



Item 19. Exhibits
 Statuto
      75




---



##### Table of Contents



KPMG S.p.A.
 
 F - 1




---



##### Table of Contents



Natuzzi S.p.A. and Subsidiaries
 
 Consolidated Balance Sheets as at December 31, 2005 and 2004
  December 31,
    
    December 31,2005
    
    2004ASSETSCurrent assets:Cash and cash equivalents (note 4)
    
    
    89,723
    
    
    
    87,340Marketable debt securities (note 5)
    
    
    5
    
    
    
    5Trade receivables, net (note 6)
    
    
    123,608
    
    
    
    137,559Other receivables (note 7)
    
    
    46,256
    
    
    
    41,169Inventories (note 8)
    
    
    115,690
    
    
    
    112,601Unrealized foreign exchange gains (note 25)
    
    
    
    
    
    
    7,101Prepaid expenses and accrued income
    
    
    2,551
    
    
    
    2,390Deferred income taxes (note 14)
    
    
    6,632
    
    
    
    1,227Total current assets
    
    
    384,465
    
    
    
    389,392Non current assets:Property plant and equipment (note 9 and 22)
    
    
    407,847
    
    
    
    389,262Less accumulated depreciation (note 9 and 22)
    
    
    (145,054
    )
    
    
    (117,257
    )Net property, plant and equipment
    
    
    262,793
    
    
    
    272,005Other assets (note 10)
    
    
    16,616
    
    
    
    11,228Deferred income taxes (note 14)
    
    
    1,064
    
    
    
    602Total assets
    
    
    664,938
    
    
    
    673,227LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Short-term borrowings (note 11)
    
    
    7,727
    
    
    
    5,572Current portion of long-term debt (note 16)
    
    
    426
    
    
    
    571Accounts payable-trade (note 12)
    
    
    73,533
    
    
    
    83,737Accounts payable-other (note 13)
    
    
    24,768
    
    
    
    20,353Unrealized foreign exchange losses (note 25)
    
    
    4,767
    
    
    
    Income taxes (note 14)
    
    
    2,907
    
    
    
    2,521Salaries, wages and related liabilities (note 15)
    
    
    22,083
    
    
    
    18,732Total current liabilities
    
    
    136,211
    
    
    
    131,486Long-term liabilities:Employees leaving entitlement (note 3 (n) )
    
    
    32,274
    
    
    
    29,617Long-term debt (note 16)
    
    
    3,582
    
    
    
    4,998Deferred income taxes (note 14)
    
    
    
    
    
    
    433Deferred income for capital grants (note 3 (m) )
    
    
    14,779
    
    
    
    12,485Other liabilities (note 17)
    
    
    4,358
    
    
    
    5,359Minority interest (note 18)
    
    
    709
    
    
    
    916Shareholders equity (note 19) :Share capital
    
    
    54,682
    
    
    
    54,682Reserves
    
    
    42,292
    
    
    
    42,292Additional paid-in capital
    
    
    8,282
    
    
    
    8,282Retained earnings
    
    
    367,769
    
    
    
    382,677Total shareholders equity
    
    
    473,025
    
    
    
    487,933Committments and contingent liabilities (notes 21 and 25)
    
    
    
    
    
    
    Total liabilities and shareholders equity
    
    
    664,938
    
    
    
    673,227
 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 Earnings
 Years ended December 31, 2005, 2004 and 2003
  2005
    
    
    2004
    
    
    2003Net sales (note 22)
    
    
    669,926
    
    
    
    753,434
    
    
    
    769,579Cost of sales (note 23)
    
    
    (459,492
    )
    
    
    (484,601
    )
    
    
    (508,764
    )Gross profit
    
    
    210,434
    
    
    
    268,833
    
    
    
    260,815Selling expenses
    
    
    (182,169
    )
    
    
    (188,182
    )
    
    
    (179,282
    )General and administrative expenses
    
    
    (42,955
    )
    
    
    (40,673
    )
    
    
    (39,205
    )Operating income (loss)
    
    
    (14,690
    )
    
    
    39,978
    
    
    
    42,328Other income (expense), net (note 24)
    
    
    2,960
    
    
    
    (3,892
    )
    
    
    3,631Earnings (loss) before taxes and minority interest
    
    
    (11,730
    )
    
    
    36,086
    
    
    
    45,959Income taxes (note 14)
    
    
    (3,110
    )
    
    
    (17,650
    )
    
    
    (8,501
    )Earnings (loss) before minority interest
    
    
    (14,840
    )
    
    
    18,436
    
    
    
    37,458Minority interest
    
    
    216
    
    
    
    (83
    )
    
    
    (158
    )Net earnings (loss)
    
    
    (14,624
    )
    
    
    18,353
    
    
    
    37,300Basic earnings (loss) per share (note 3(u))
    
    
    (0.27
    )
    
    
    0.34
    
    
    
    0.68Diluted earnings (loss) per share (note 3 (u))
    
    
    (0.27
    )
    
    
    0.34
    
    
    
    0.68
 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, 2005, 2004 and 2003
  Share capitalNumber of
    
    
    
    
    
    
    
    
    
    AdditionalOrdinary
    
    
    
    
    
    
    
    
    
    paid-in
    
    Retainedshares
    
    Amount
    
    Reserves
    
    capital
    
    Earnings
    
    TotalBalances at December 31, 2002
    
    
    54,681,628
    
    
    
    57,526
    
    
    
    73,071
    
    
    
    8,282
    
    
    
    356,929
    
    
    
    495,808Dividends distributed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (18,045
    )
    
    
    (18,045
    )Transfer to legal reserve
    
    
    
    
    
    
    
    
    
    
    7,375
    
    
    
    
    
    
    
    (7,375
    )
    
    
    Transfer for liquidation of subsidiary
    
    
    
    
    
    
    
    
    
    
    (210
    )
    
    
    
    
    
    
    210
    
    
    
    Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37,300
    
    
    
    37,300Balances at December 31, 2003
    
    
    54,681,628
    
    
    
    57,526
    
    
    
    80,236
    
    
    
    8,282
    
    
    
    369,019
    
    
    
    515,063Dividends distributed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,655
    )
    
    
    (7,655
    )Treasury shares cancelled
    
    
    
    
    
    
    (2,844
    )
    
    
    (37,828
    )
    
    
    
    
    
    
    2,844
    
    
    
    (37,828
    )Transfer for liquidation of subsidiary
    
    
    
    
    
    
    
    
    
    
    (116
    )
    
    
    
    
    
    
    116
    
    
    
    Net earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    18,353
    
    
    
    18,353Balances at December 31, 2004
    
    
    54,681,628
    
    
    
    54,682
    
    
    
    42,292
    
    
    
    8,282
    
    
    
    382,677
    
    
    
    487,933Dividends distributed
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,828
    )
    
    
    (3,828
    )Exchange difference on translation of
financial statements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,544
    
    
    
    3,544Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,624
    )
    
    
    (14,624
    )Balances at December 31, 2005
    
    
    54,681,628
    
    
    
    54,682
    
    
    
    42,292
    
    
    
    8,282
    
    
    
    367,769
    
    
    
    473,025
 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, 2005, 2004 and 2003
  Cash flows from operating activities:Net earnings (loss)
    
    
    (14,624
    )
    
    
    18,353
    
    
    
    37,300Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    33,042
    
    
    
    34,068
    
    
    
    27,221Employees leaving entitlement
    
    
    6,877
    
    
    
    7,435
    
    
    
    6,776Deferred income taxes
    
    
    (6,300
    )
    
    
    (651
    )
    
    
    799Minority interest
    
    
    (216
    )
    
    
    83
    
    
    
    158(Gain) loss on disposal of assets
    
    
    (149
    )
    
    
    (3,468
    )
    
    
    814Unrealized foreign exchange losses and gains
    
    
    11,868
    
    
    
    621
    
    
    
    (264
    )Deferred income for capital grants
    
    
    (5,616
    )
    
    
    (874
    )
    
    
    (870
    )Change in assets and liabilities:Receivables, net
    
    
    10,580
    
    
    
    28,052
    
    
    
    5,096Inventories
    
    
    (1,546
    )
    
    
    (16,637
    )
    
    
    (7,251
    )Prepaid expenses and accrued income
    
    
    (141
    )
    
    
    (240
    )
    
    
    (903
    )Other assets
    
    
    (1,361
    )
    
    
    (893
    )
    
    
    (2,122
    )Accounts payable
    
    
    (7,443
    )
    
    
    6,659
    
    
    
    (18,370
    )Income taxes
    
    
    386
    
    
    
    (1,737
    )
    
    
    (5,041
    )Salaries, wages and related liabilities
    
    
    3,318
    
    
    
    2,641
    
    
    
    1,383Other liabilities
    
    
    (1,001
    )
    
    
    (357
    )
    
    
    (1,719
    )Employees leaving entitlement
    
    
    (4,526
    )
    
    
    (4,795
    )
    
    
    (4,766
    )Total adjustments
    
    
    37,772
    
    
    
    49,907
    
    
    
    941Net cash provided by operating activities
    
    
    23,148
    
    
    
    68,260
    
    
    
    38,241Cash flows from investing activities:Property, plant and equipment:Additions
    
    
    (20,917
    )
    
    
    (51,860
    )
    
    
    (47,259
    )Disposals
    
    
    916
    
    
    
    9,407
    
    
    
    762Government grants received
    
    
    1,002
    
    
    
    
    
    
    
    3,119Marketable debt securities:Proceeds from sales
    
    
    
    
    
    
    
    
    
    
    21Purchase of business, net of cash acquired
    
    
    (1,985
    )
    
    
    (100
    )
    
    
    (6,482
    )Disposal of business
    
    
    
    
    
    
    5,475
    
    
    
    Net cash used in investing activities
    
    
    (20,984
    )
    
    
    (37,078
    )
    
    
    (49,839
    )
 F - 5




---



##### Table of Contents



Cash flows from financing activities:Long-term debt:Proceeds
    
    
    533
    
    
    
    1,284
    
    
    
    1,970Repayments
    
    
    (2,094
    )
    
    
    (1,349
    )
    
    
    (1,739
    )Short-term borrowings
    
    
    1,628
    
    
    
    1,820
    
    
    
    299Dividends paid to shareholders
    
    
    (3,828
    )
    
    
    (7,655
    )
    
    
    (18,045
    )Dividends paid to minority interests
    
    
    
    
    
    
    (61
    )
    
    
    (26
    )Net cash used in financing activities
    
    
    (3,761
    )
    
    
    (5,961
    )
    
    
    (17,541
    )Effect of translation adjustments on cash
    
    
    3,980
    
    
    
    (1,446
    )
    
    
    (3,991
    )Increase (decrease) in cash and cash equivalents
    
    
    2,383
    
    
    
    23,775
    
    
    
    (33,130
    )Cash and cash equivalents, beginning of the year
    
    
    87,340
    
    
    
    63,565
    
    
    
    96,695Cash and cash equivalents, end of the year
    
    
    89,723
    
    
    
    87,340
    
    
    
    63,565Supplemental disclosure of cash flow information:Cash paid during the year for interest
    
    
    951
    
    
    
    1,003
    
    
    
    606Cash paid during the year for income taxes
    
    
    6,659
    
    
    
    9,293
    
    
    
    24,955
 See accompanying notes to the consolidated financial statements
 F - 6




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##### Table of Contents



Notes to the consolidated financial statements
  1. Description of business and Group composition
   Percent ofName
    
    ownership
    
    Registered office
    
    ActivityItalsofa Bahia Ltd
    
    97.99
    
    Bahia, Brazil
    
    (1)Minuano Nordeste S.A.
    
    100.00
    
    Pojuca, Brazil
    
    (1)Italsofa Shanghai Ltd
    
    100.00
    
    Shanghai, China
    
    (1)Softaly Shanghai Ltd
    
    100.00
    
    Shanghai, China
    
    (1)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)Divani Due S.r.l.
    
    100.00
    
    Verona, Italy
    
    (4)Koineé S.r.l.
    
    100.00
    
    Montesilvano, Italy
    
    (4)Nacon S.p.A.
    
    100.00
    
    Bari, Italy
    
    (4)Natuzzi Americas Inc.
    
    100.00
    
    High Point, NC, USA
    
    (4)Natuzzi Iberica S.A.
    
    100.00
    
    Madrid, Spain
    
    (4)Natuzzi Switzerland AG
    
    97.00
    
    Kaltbrunn, Switzerland
    
    (4)Natuzzi Nordic
    
    100.00
    
    Copenaghen, Denmark
    
    (4)Natuzzi Benelux S.A.
    
    100.00
    
    Geel, Belgium
    
    (4)Natuzzi Germany Gmbh
    
    100.00
    
    Dusseldorf, Germany
    
    (4)Natuzzi Sweden AB
    
    100.00
    
    Stockholm, Sweden
    
    (4)Natuzzi Japan KK
    
    100.00
    
    Tokyo, Japan
    
    (4)Kingdom of Leather Limited
    
    100.00
    
    London, UK
    
    (4)La Galleria Limited
    
    100.00
    
    London, UK
    
    (4)Italholding S.r.l.
    
    100.00
    
    Bari, Italy
    
    (5)Kingdom of Leather Trustees Limited
    
    100.00
    
    London, UK
    
    (5)Natuzzi Netherlands Holding
    
    100.00
    
    Amsterdam, Holland
    
    (5)Natuzzi United Kingdom Limited
    
    100.00
    
    London, UK
    
    (5)Natuzzi Trade Service S.r.l.
    
    100.00
    
    Bari, Italy
    
    (6)Lagene S.r.l.
    
    100.00
    
    Bari, Italy
    
    (7)Natuzzi Asia Ltd
    
    100.00
    
    Hong-Kong, China
    
    (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)
    
    Non operative F - 7




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##### Table of Contents



Notes to the consolidated financial statements
  Current assets
    
    
    1,107Goodwill
    
    
    1,664Other non current assets
    
    
    1,634Current liabilities
    
    
    (2,080
    )Non current liabilities
    
    
    (306
    )Purchase price
    
    
    2,019
   Current assets
    
    
    710Goodwill
    
    
    3,709Fixed assets
    
    
    221Leasehold improvements
    
    
    313Non current liabilities
    
    
    (143
    )Purchase price
    
    
    4,810
 F - 8




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##### Table of Contents



Notes to the consolidated financial statements
   Goodwill
    
    
    600Leasehold improvements
    
    
    400Cash paid
    
    
    1,000
        F - 9




---



##### Table of Contents



Notes to the consolidated financial statements
  Current assets
    
    
    353Goodwill
    
    
    1,251Other non current assets
    
    
    377Current liabilities
    
    
    (369
    )Non current liabilities
    
    
    (142
    )Purchase price
    
    
    1,470
    Current assets
    
    
    10,324Goodwill
    
    
    9,179Other non current assets
    
    
    3,008Current liabilities
    
    
    (17,911
    )Non current liabilities
    
    
    (267
    )Purchase price
    
    
    4,333
   F - 10




---



##### Table of Contents



Notes to the consolidated financial statements
  Current and non current assets
    
    
    253Goodwill
    
    
    4,053Current and non current liabilities
    
    
    (8
    )Purchase price
    
    
    4,298
   2. Basis of preparation and principles of consolidation
    F - 11




---



##### Table of Contents



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




---



##### Table of Contents



Notes to the consolidated financial statements
  Consolidated Financial Statements
       F - 13




---



##### Table of Contents



Notes to the consolidated financial statements
  d) Cash and cash equivalents
  e) Marketable debt securities
    f) Accounts receivable and payable
  g) Inventories
   h) Property, plant and equipment
  F - 14




---



##### Table of Contents



Notes to the consolidated financial statements
  i) Treasury shares
  j) Other assets
   k) Impairment of long-lived assets and long-lived assets to be disposed of
  l) Income taxes
  F - 15




---



##### Table of Contents



Notes to the consolidated financial statements
 m) Government grants
        n) Employees leaving entitlement
   F - 16




---



##### Table of Contents



Notes to the consolidated financial statements
   o) Net sales
   p) Shipping and handling costs
  q) Advertising costs
  r) Commission expense
  s) Contingencies
  t) Use of estimates
  F - 17




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##### Table of Contents



Notes to the consolidated financial statements
  u) Earnings per share
  2005
    
    
    2004
    
    
    2003Net earnings (loss) attributable to
ordinary shareholders
    
    
    (14,624
    )
    
    
    18,353
    
    
    
    37,300Weighted-average number of ordinary
shares outstanding during the year
    
    
    54,681,628
    
    
    
    54,681,628
    
    
    
    54,681,628Increase resulting from assumed conversion
of share grants and options
    
    
    
    
    
    
    27,576
    
    
    
    Weighted-average number of ordinary
shares and potential shares outstanding
during the year
    
    
    54,681,628
    
    
    
    54,709,204
    
    
    
    54,681,628
 4. Cash and cash equivalents
  2005
    
    
    2004Cash on hand
    
    
    510
    
    
    
    272Bank accounts in Euro
    
    
    18,491
    
    
    
    28,033Bank accounts in foreign currency
    
    
    70,699
    
    
    
    58,948Money market instruments
    
    
    23
    
    
    
    87Total
    
    
    89,723
    
    
    
    87,340
 F - 18




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##### Table of Contents



Notes to the consolidated financial statements
 5. Marketable debt securities
  2005
    
    
    2004Foreign corporate bonds
    
    
    5
    
    
    
    5Italian government bonds
    
    
    
    
    
    
    Total
    
    
    5
    
    
    
    5
  Gross unrealized
    
    
    Fair2005
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    valueForeign corporate bonds
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Italian government bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5
 Gross unrealized
    
    
    Fair2004
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    valueForeign corporate bonds
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5Italian government bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    5
 2005
    
    
    2004
    
    
    2003Proceeds from sales
    
    
    
    
    
    
    
    
    
    
    21Realized gains
    
    
    
    
    
    
    
    
    
    
    Realized losses
    
    
    
    
    
    
    
    
    
    
    
  6. Trade receivables, net
  2005
    
    
    2004North American customers
    
    
    48,257
    
    
    
    42,841Other foreign customers
    
    
    47,127
    
    
    
    54,546Domestic customers
    
    
    31,781
    
    
    
    41,743Trade bills receivable
    
    
    1,602
    
    
    
    3,863Total
    
    
    128,767
    
    
    
    142,993Allowance for doubtful accounts
    
    
    (5,159
    )
    
    
    (5,434
    )Total trade receivables, net
    
    
    123,608
    
    
    
    137,559
 F - 19




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##### Table of Contents



Notes to the consolidated financial statements
    2005
    
    
    2004
    
    
    2003Balance, beginning of year
    
    
    5,434
    
    
    
    5,662
    
    
    
    4,727Charges-bad debt expense
    
    
    1,326
    
    
    
    1,297
    
    
    
    1,441Reductions-write off of uncollectible accounts
    
    
    (1,601
    )
    
    
    (1,525
    )
    
    
    (506
    )Balance, end of year
    
    
    5,159
    
    
    
    5,434
    
    
    
    5,662
  2005
    
    
    2004U.S. dollars
    
    
    41,549
    
    
    
    36,257Canadian dollars
    
    
    7,405
    
    
    
    7,729Australian dollars
    
    
    5,853
    
    
    
    6,431British pounds
    
    
    5,470
    
    
    
    8,744Other currencies
    
    
    6,467
    
    
    
    7,175Total
    
    
    66,744
    
    
    
    66,336
 7. Other receivables
  2005
    
    
    2004VAT
    
    
    13,867
    
    
    
    14,289Government capital grants
    
    
    11,798
    
    
    
    4,890Receivable from tax authorities
    
    
    10,343
    
    
    
    10,269Advances to suppliers
    
    
    2,264
    
    
    
    4,506Others
    
    
    7,984
    
    
    
    7,215Total
    
    
    46,256
    
    
    
    41,169
 F - 20




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##### Table of Contents



Notes to the consolidated financial statements
    8. Inventories
  2005
    
    
    2004Leather and other raw materials
    
    
    68,481
    
    
    
    70,763Goods in process
    
    
    13,294
    
    
    
    12,916Finished products
    
    
    33,915
    
    
    
    28,922Total
    
    
    115,690
    
    
    
    112,601
 9. Property, plant and equipment and accumulated depreciation
  Cost or
    
    
    Accumulated
    
    
    Annual rate of2005
    
    valuation
    
    
    depreciation
    
    
    depreciationLand
    
    
    10,235
    
    
    
    
    
    
    
    Industrial buildings
    
    
    189,978
    
    
    
    (35,543
    )
    
    
    310
    %Machinery and equipment
    
    
    118,097
    
    
    
    (69,968
    )
    
    
    11.525
    %Airplane
    
    
    24,075
    
    
    
    (3,611
    )
    
    
    6
    %Office furniture and equipment
    
    
    25,472
    
    
    
    (18,033
    )
    
    
    1220
    %Retail gallery and stores furnishings
    
    
    24,070
    
    
    
    (11,339
    )
    
    
    2535
    %Transportation equipment
    
    
    5,762
    
    
    
    (4,354
    )
    
    
    2025
    %Leasehold improvements
    
    
    4,133
    
    
    
    (2,206
    )
    
    
    1020
    %Construction in progress
    
    
    5,442
    
    
    
    
    
    
    
    Advances to suppliers
    
    
    583
    
    
    
    
    
    
    
    Total
    
    
    407,847
    
    
    
    (145,054
    )
 Cost or
    
    
    Accumulated
    
    
    Annual rate of2004
    
    valuation
    
    
    depreciation
    
    
    depreciationLand
    
    
    10,149
    
    
    
    
    
    
    
    Industrial buildings
    
    
    164,283
    
    
    
    (30,084
    )
    
    
    310
    %Machinery and equipment
    
    
    112,300
    
    
    
    (57,861
    )
    
    
    11.525
    %Airplane
    
    
    24,075
    
    
    
    (2,167
    )
    
    
    6
    %Office furniture and equipment
    
    
    22,025
    
    
    
    (15,619
    )
    
    
    1220
    %
 F - 21




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##### Table of Contents



Notes to the consolidated financial statements
 Cost or
    
    
    Accumulated
    
    
    Annual rate ofvaluation
    
    
    depreciation
    
    
    depreciationRetail gallery and stores furnishings
    
    
    16,965
    
    
    
    (6,126
    )
    
    
    2535
    %Transportation equipment
    
    
    5,725
    
    
    
    (3,920
    )
    
    
    2025
    %Leasehold improvements
    
    
    2,676
    
    
    
    (1,480
    )
    
    
    1020
    %Construction in progress
    
    
    29,867
    
    
    
    
    
    
    
    Advances to suppliers
    
    
    1,197
    
    
    
    
    
    
    
    Total
    
    
    389,262
    
    
    
    (117,257
    )
  10. Other assets
  2005
    
    
    2004Goodwill
    
    
    11,277
    
    
    
    15,061Equity in affiliated enterprises
    
    
    3,867
    
    
    
    2,650Others
    
    
    13,274
    
    
    
    11,884Total, gross
    
    
    28,418
    
    
    
    29,595Less impairment losses
    
    
    
    
    
    
    (6,119
    )Less accumulated amortization
    
    
    (11,802
    )
    
    
    (12,248
    )Total, net
    
    
    16,616
    
    
    
    11,228
  2005
    
    
    2004Gross carrying amount
    
    
    11,277
    
    
    
    15,061Less impairment losses
    
    
    
    
    
    
    (6,119
    )Less accumulated depreciation
    
    
    (2,155
    )
    
    
    (4,449
    )Net book value
    
    
    9,122
    
    
    
    4,493
    11. Short-term borrowings
  2005
    
    
    2004Bank borrowings
    
    
    4,174
    
    
    
    4,255Bank overdrafts
    
    
    3,553
    
    
    
    1,3177,727
    
    
    
    5,572
 F - 22




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##### Table of Contents



Notes to the consolidated financial statements
    2005
    
    
    2004Bank borrowings
    
    
    4.92
    %
    
    
    3.45
    %Bank overdrafts
    
    
    5.10
    %
    
    
    4.75
    %
  12. Accounts payable-trade
  13. Accounts payable-other
  2005
    
    
    2004Provision for returns and warranties
    
    
    6,896
    
    
    
    3,477Advances from customers
    
    
    6,785
    
    
    
    5,422Cooperative advertising and quantity discount
    
    
    3,018
    
    
    
    3,663Withholding taxes on payroll and on others
    
    
    2,375
    
    
    
    3,367Payable to third parties for business acquisition
    
    
    860
    
    
    
    859Payable to minority interest for dividends
    
    
    593
    
    
    
    648Others
    
    
    4,241
    
    
    
    2,917Total
    
    
    24,768
    
    
    
    20,353
 14. Taxes on income
  F - 23




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##### Table of Contents



Notes to the consolidated financial statements
 2005
    
    
    2004
    
    
    2003IRES (state tax)
    
    
    33.00
    %
    
    
    33.00
    %
    
    
    34.00
    %IRAP (regional tax)
    
    
    4.25
    %
    
    
    4.25
    %
    
    
    4.25
    %
      2005
    
    
    2004
    
    
    2003Domestic
    
    
    (8,144
    )
    
    
    19,878
    
    
    
    26,319Foreign
    
    
    (3,586
    )
    
    
    16,208
    
    
    
    19,640Total
    
    
    (11,730
    )
    
    
    36,086
    
    
    
    45,959
 F - 24




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##### Table of Contents



Notes to the consolidated financial statements
  2005
    
    
    2004
    
    
    2003Expected income (loss) tax charge at full tax rates
    
    
    (3,871
    )
    
    
    11,908
    
    
    
    15,626Effects of:Tax exempt income
    
    
    (4,954
    )
    
    
    (5,664
    )
    
    
    (19,080
    )Aggregate effect of different tax
rates in foreign jurisdictions
    
    
    (1,442
    )
    
    
    (1,796
    )
    
    
    (863
    )Italian regional tax
    
    
    4,727
    
    
    
    5,954
    
    
    
    5,819Non-deductible expenses
    
    
    3,692
    
    
    
    2,187
    
    
    
    3,075Depreciation and impairment of goodwill
    
    
    396
    
    
    
    2,931
    
    
    
    570Effect of net change in valuation allowance
established against deferred tax assets
    
    
    4,157
    
    
    
    1,119
    
    
    
    3,180Tax effect of unremitted earnings
    
    
    405
    
    
    
    1,011
    
    
    
    119Tax effect of change in tax rates
    
    
    
    
    
    
    
    
    
    
    55Actual tax charge
    
    
    3,110
    
    
    
    17,650
    
    
    
    8,501
   2005
    
    
    2004
    
    
    2003Current:Italian
    
    
    6,593
    
    
    
    14,769
    
    
    
    2,812Foreign
    
    
    2,817
    
    
    
    3,532
    
    
    
    4,890Total (a)
    
    
    9,410
    
    
    
    18,301
    
    
    
    7,702Deferred:Italian
    
    
    (3,260
    )
    
    
    (760
    )
    
    
    393Foreign
    
    
    (3,040
    )
    
    
    109
    
    
    
    406Total (b)
    
    
    (6,300
    )
    
    
    (651
    )
    
    
    799Total (a + b)
    
    
    3,110
    
    
    
    17,650
    
    
    
    8,501
   F - 25




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##### Table of Contents



Notes to the consolidated financial statements
 2005
    
    
    2004Deferred tax assets:Tax loss carryforwards
    
    
    14,937
    
    
    
    9,490Inventory obsolescence
    
    
    2,490
    
    
    
    Provision for returns and discounts
    
    
    1,873
    
    
    
    796Allowance for doubtful accounts
    
    
    1,594
    
    
    
    1,515Provision for sales representatives
    
    
    555
    
    
    
    816Provision for contingent liabilities
    
    
    368
    
    
    
    368Other temporary differences
    
    
    1,710
    
    
    
    1,456Total gross deferred tax assets
    
    
    23,527
    
    
    
    14,441Less valuation allowance
    
    
    (13,153
    )
    
    
    (8,990
    )Net deferred tax assets
    
    
    10,374
    
    
    
    5,451Deferred tax liabilities:Unremitted earnings of subsidiaries
    
    
    (1,535
    )
    
    
    (1,130
    )Government grants
    
    
    (658
    )
    
    
    (809
    )Revenue recognition
    
    
    (303
    )
    
    
    (712
    )Other temporary differences
    
    
    (182
    )
    
    
    (1,404
    )Total deferred tax liabilities
    
    
    (2,678
    )
    
    
    (4,055
    )Net deferred tax assets
    
    
    7,696
    
    
    
    1,396
    F - 26




---



##### Table of Contents



Notes to the consolidated financial statements
 2005
    
    Current
    
    
    Non current
    
    
    TotalGross deferred tax assets
    
    
    8,655
    
    
    
    14,872
    
    
    
    23,527Valuation allowance
    
    
    
    
    
    
    (13,153
    )
    
    
    (13,153
    )Net deferred tax assets
    
    
    8,655
    
    
    
    1,719
    
    
    
    10,374Deferred tax liabilities
    
    
    (2,023
    )
    
    
    (655
    )
    
    
    (2,678
    )Net deferred tax assets
    
    
    6,632
    
    
    
    1,064
    
    
    
    7,696
 2004
    
    Current
    
    
    Non current
    
    
    TotalGross deferred tax assets
    
    
    2,585
    
    
    
    11,856
    
    
    
    14,441Valuation allowance
    
    
    
    
    
    
    (8,990
    )
    
    
    (8,990
    )Net deferred tax assets
    
    
    2,585
    
    
    
    2,866
    
    
    
    5,451Deferred tax liabilities
    
    
    (1,358
    )
    
    
    (2,697
    )
    
    
    (4,055
    )Net deferred tax assets
    
    
    1,227
    
    
    
    169
    
    
    
    1,396
  2008
    
    
    5472009
    
    
    5,9792010
    
    
    4,372Thereafter
    
    
    38,458Total
    
    
    49,356
   15. Salaries, wages and related liabilities
  2005
    
    
    2004Salaries and wages
    
    
    11,954
    
    
    
    9,643Social security contributions
    
    
    7,298
    
    
    
    7,066Vacation accrual
    
    
    2,831
    
    
    
    2,023Total
    
    
    22,083
    
    
    
    18,732
 16. Long-term debt
  F - 27




---



##### Table of Contents



Notes to the consolidated financial statements
 2005
    
    
    20042.25% long-term debt payable in annual equal instalments
with final payment due May 30, 2015
    
    
    2,699
    
    
    
    2,1663.0% long-term debt payable in semi-annual equal
instalments with final payment due October 2007
    
    
    1,309
    
    
    
    2,8844.0% long-term debt payable in quarterly equal instalments
with final payment due in September 2005
    
    
    
    
    
    
    24Others with various maturity dates
    
    
    
    
    
    
    495Total long-term debt
    
    
    4,008
    
    
    
    5,569Less current instalments
    
    
    (426
    )
    
    
    (571
    )Long-term debt, excluding current instalments
    
    
    3,582
    
    
    
    4,998
  2007
    
    
    1,3682008
    
    
    2522009
    
    
    2592010
    
    
    266Thereafter
    
    
    1,437Total
    
    
    3,582
   17. Other liabilities
  2005
    
    
    2004Provision for contingent liabilities
    
    
    2,868
    
    
    
    2,308Termination indemnities for sales agents
    
    
    1,490
    
    
    
    2,191Payable to third parties for business acquisition
    
    
    
    
    
    
    860Total
    
    
    4,358
    
    
    
    5,359
 F - 28




---



##### Table of Contents



Notes to the consolidated financial statements
 18. Minority interest
  19. Shareholders equity
  2005
    
    
    2004Mr. Pasquale Natuzzi
    
    
    47.7
    %
    
    
    47.7
    %Miss Anna Maria Natuzzi
    
    
    2.6
    %
    
    
    2.6
    %Mrs. Annunziata Natuzzi
    
    
    2.5
    %
    
    
    2.5
    %Public investors
    
    
    47.2
    %
    
    
    47.2
    %100
    %
    
    
    100
    %
  2005
    
    
    2004Legal reserve
    
    
    11,199
    
    
    
    11,199Monetary revaluation reserve
    
    
    1,344
    
    
    
    1,344Government capital grants reserve
    
    
    29,749
    
    
    
    29,749Total
    
    
    42,292
    
    
    
    42,292
     F - 29




---



##### Table of Contents



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




---



##### Table of Contents



Notes to the consolidated financial statements  (
   MBO 2005
    
    MBO 2004Number of share grants
    
    
    55,577
    
    
    
    113,820Number of options
    
    
    165,946
    
    
    
    369,752Number of additional options
    
    
    82,973
    
    
    
    Total
    
    
    304,496
    
    
    
    483,572
   21. Commitments and contingent liabilities
  2006
    
    
    12,4432007
    
    
    11,5132008
    
    
    10,4562009
    
    
    9,4362010
    
    
    8,424Thereafter
    
    
    9,371Total
    
    
    61,643
 F-31




---



##### Table of Contents



Notes to the consolidated financial statements  (
    Istituto
Nazionale per la Previdenza Sociale
  F-32




---



##### Table of Contents



Notes to the consolidated financial statements  (
  22. Segmental and geographical information
   2005
    
    
    2004
    
    
    2003Leather upholstered furniture
    
    
    498,942
    
    
    
    547,923
    
    
    
    550,029Fabric upholstered furniture
    
    
    95,895
    
    
    
    117,598
    
    
    
    123,921Total
    
    
    594,837
    
    
    
    665,521
    
    
    
    673,950
   F-33




---



##### Table of Contents



Notes to the consolidated financial statements  (
 2005
    
    
    2004
    
    
    2003Sales of upholstered furnitureUnited States of America
    
    
    207,215
    
    
    
    238,807
    
    
    
    280,770Italy
    
    
    67,020
    
    
    
    73,017
    
    
    
    71,277England
    
    
    50,805
    
    
    
    83,391
    
    
    
    80,409Spain
    
    
    35,668
    
    
    
    27,557
    
    
    
    14,045Canada
    
    
    31,608
    
    
    
    38,175
    
    
    
    37,910France
    
    
    24,622
    
    
    
    26,026
    
    
    
    23,393Germany
    
    
    24,329
    
    
    
    19,743
    
    
    
    25,392Belgium
    
    
    20,761
    
    
    
    19,956
    
    
    
    15,959Australia
    
    
    16,543
    
    
    
    19,414
    
    
    
    15,356Holland
    
    
    13,654
    
    
    
    13,075
    
    
    
    14,004Norway
    
    
    11,271
    
    
    
    12,151
    
    
    
    10,084Ireland
    
    
    5,188
    
    
    
    6,419
    
    
    
    7,760Other countries (none greater than 2%)
    
    
    86,153
    
    
    
    87,790
    
    
    
    77,591594,837
    
    
    
    665,521
    
    
    
    673,950
 2005
    
    
    2004Long lived assetsItaly
    
    
    144,398
    
    
    
    149,449Romania
    
    
    36,046
    
    
    
    35,026Brazil
    
    
    25,677
    
    
    
    24,819China
    
    
    24,490
    
    
    
    25,377United States of America
    
    
    21,789
    
    
    
    25,105Other countries
    
    
    10,393
    
    
    
    12,229Total
    
    
    262,793
    
    
    
    272,005
   23. Cost of sales
  2005
    
    
    2004
    
    
    2003Opening inventories
    
    
    112,601
    
    
    
    97,518
    
    
    
    84,081Purchases
    
    
    295,277
    
    
    
    335,432
    
    
    
    355,867Labor
    
    
    108,327
    
    
    
    107,173
    
    
    
    104,495Third party manufacturers
    
    
    25,340
    
    
    
    26,943
    
    
    
    32,859Other manufacturing costs
    
    
    33,637
    
    
    
    30,136
    
    
    
    28,980Closing inventories
    
    
    (115,690
    )
    
    
    (112,601
    )
    
    
    (97,518
    )Total
    
    
    459,492
    
    
    
    484,601
    
    
    
    508,764
 F-34




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##### Table of Contents



Notes to the consolidated financial statements  (
 24. Other income (expense), net
  2005
    
    
    2004
    
    
    2003Interest income
    
    
    1,857
    
    
    
    1,375
    
    
    
    1,701Interest expense and bank commissions
    
    
    (1,803
    )
    
    
    (1,961
    )
    
    
    (1,317
    )Interest (expense) income, net
    
    
    54
    
    
    
    (586
    )
    
    
    384Gains (losses) on foreign exchange, net
    
    
    3,211
    
    
    
    (4,809
    )
    
    
    64Unrealized exchange
gains (losses) on domestic currency swaps
    
    
    (4,767
    )
    
    
    7,101
    
    
    
    6,276Gains (losses) on foreign exchange
    
    
    (1,556
    )
    
    
    2,292
    
    
    
    6,340Losses on securities, net
    
    
    
    
    
    
    (50
    )
    
    
    (754
    )Other, net
    
    
    4,462
    
    
    
    (5,548
    )
    
    
    (2,339
    )Total
    
    
    2,960
    
    
    
    (3,892
    )
    
    
    3,631
  2005
    
    
    2004
    
    
    2003Net realized gains (losses) on
domestic currency swaps
    
    
    (4,269
    )
    
    
    4,973
    
    
    
    25,369Net realized gains (losses) on accounts
receivable and payables
    
    
    5,434
    
    
    
    (1,052
    )
    
    
    (7,585
    )Net unrealized gains (losses) on
accounts receivable and payable
    
    
    2,046
    
    
    
    (8,730
    )
    
    
    (17,720
    )Total
    
    
    3,211
    
    
    
    (4,809
    )
    
    
    64
  2005
    
    
    2004
    
    
    2003Revenue for capital grants
    
    
    4,380
    
    
    
    
    
    
    
    Export incentive
    
    
    2,100
    
    
    
    
    
    
    
    Penalties to landlords
    
    
    (658
    )
    
    
    
    
    
    
    Impairment loss of goodwill
    
    
    
    
    
    
    (6,119
    )
    
    
    Write off of fixed assets
    
    
    (2,770
    )
    
    
    (1,311
    )
    
    
    Gain on disposal of subsidiary
    
    
    
    
    
    
    3,419
    
    
    
    Impairment loss on fixed assets
    
    
    
    
    
    
    
    
    
    
    (4,292
    )Pre-acquisition loss
    
    
    495
    
    
    
    
    
    
    
    1,694Other, net
    
    
    915
    
    
    
    (1,537
    )
    
    
    259Total
    
    
    4,462
    
    
    
    (5,548
    )
    
    
    (2,339
    )
 F-35




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##### Table of Contents



Notes to the consolidated financial statements  (
 Revenue for capital grants
    Export incentive benefit
  Penalties to landlords
  Pre-acquisition loss for Koineè S.r.l.
  Impairment loss of goodwill
  F-36




---



##### Table of Contents



Notes to the consolidated financial statements  (
 Gain on disposal of subsidiary
  Impairment loss of long lived assets
  Pre-acquisition loss for Natuzzi UK Group
  25. Financial instruments and risk management
   F-37




---



##### Table of Contents



Notes to the consolidated financial statements  (
 2005
    
    
    2004U.S. dollars
    
    
    72,496
    
    
    
    66,108British pounds
    
    
    26,783
    
    
    
    51,451Canadian dollars
    
    
    17,698
    
    
    
    18,629Australian dollars
    
    
    10,744
    
    
    
    16,173Norwegian kroner
    
    
    5,928
    
    
    
    8,774Swedish kroner
    
    
    3,441
    
    
    
    5,932Japanese yen
    
    
    1,504
    
    
    
    2,740Swiss francs
    
    
    656
    
    
    
    2,240Danish kroner
    
    
    845
    
    
    
    940Total
    
    
    140,095
    
    
    
    172,987
  2005
    
    
    2004Contract
    
    
    Unrealized
    
    
    Contract
    
    
    Unrealizedamount
    
    
    gains (losses)
    
    
    amount
    
    
    gains (losses)Assets
    
    
    46,075
    
    
    
    392
    
    
    
    159,584
    
    
    
    7,191Liabilities
    
    
    94,020
    
    
    
    (5,159
    )
    
    
    13,403
    
    
    
    (90
    )Total
    
    
    140,095
    
    
    
    (4,767
    )
    
    
    172,987
    
    
    
    7,101
    26. Fair value of financial instruments
  F-38




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##### Table of Contents



Notes to the consolidated financial statements  (
 2005
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairvalue
    
    
    value
    
    
    value
    
    
    valueAssets:- Marketable debts securities
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Liabilities:- Long-term debt
    
    
    4,008
    
    
    
    3,614
    
    
    
    5,569
    
    
    
    4,829
    27.
    
    Application of generally accepted accounting principles in the United States of
America
   Reconciliation of net earnings (loss):
 2005
    
    
    2004
    
    
    2003Net earnings (loss) under Italian GAAP
    
    
    (14,624
    )
    
    
    18,353
    
    
    
    37,300Adjustments to reported income:(a) Revaluation of property,
plant and equipment
    
    
    29
    
    
    
    27
    
    
    
    27(b) Derivative and hedging activities
    
    
    
    
    
    
    
    
    
    
    (2,713
    )(c) Government grants
    
    
    3,119
    
    
    
    612
    
    
    
    673(d) Revenue recognition
    
    
    2,804
    
    
    
    966
    
    
    
    1,482(l) Goodwill and intangible assets
    
    
    (249
    )
    
    
    (925
    )
    
    
    1,033(m) Share grants and options
    
    
    136
    
    
    
    (1,140
    )
    
    
    (n) Translation of foreign financial statements
    
    
    1,684
    
    
    
    
    
    
    
    (o) Penalties to landlords
    
    
    658
    
    
    
    
    
    
    
    Tax effect of US GAAP adjustments
    
    
    (446
    )
    
    
    860
    
    
    
    225Net earnings (loss) in conformity with US GAAP
    
    
    (6,889
    )
    
    
    18,753
    
    
    
    38,027Basic earnings (loss) per share in conformity
with US GAAP
    
    
    (0.13
    )
    
    
    0.34
    
    
    
    0.70Diluted earnings (loss) per share in conformity
with US GAAP
    
    
    (0.13
    )
    
    
    0.34
    
    
    
    0.70
 F-39




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##### Table of Contents



Notes to the consolidated financial statements  (
 Reconciliation of Shareholders equity :
 2005
    
    
2004Shareholders equity under Italian GAAP
    
    
    473,025
    
    
    
    487,933(a) Revaluation of property, plant and equipment
    
    
    (615
    )
    
    
    (644
    )(c) Government grants
    
    
    (15,489
    )
    
    
    (18,608
    )(d) Revenue recognition
    
    
    (5,645
    )
    
    
    (8,449
    )(l) Goodwill and intangible assets
    
    
    2,898
    
    
    
    2,387(n) Translation of foreign financial statements
    
    
    (1,860
    )
    
    
    (o) Penalties to landlords
    
    
    658
    
    
    
    Tax effect of US GAAP adjustments
    
    
    710
    
    
    
    1,916Shareholders equity in conformity with US GAAP
    
    
    453,682
    
    
    
    464,535
     F-40




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##### Table of Contents



Notes to the consolidated financial statements  (
         F-41




---



##### Table of Contents



Notes to the consolidated financial statements  (
   2005
    
    
    2004Effects
    
    
    Effects
    
    
    VariationIncrease
    
    
    Increase
    
    
    forConsolidated balance sheet
    
    (Decrease)
    
    
    (Decrease)
    
    
    2005Trade receivables, net
    
    
    (33,106
    )
    
    
    (36,623
    )
    
    
    3,517Inventories
    
    
    22,711
    
    
    
    23,549
    
    
    
    (838
    )Total effect on current assets (a)
    
    
    (10,395
    )
    
    
    (13,074
    )
    
    
    2,679Accounts payable-trade
    
    
    (4,750
    )
    
    
    (4,625
    )
    
    
    (125
    )Income taxes
    
    
    (1,468
    )
    
    
    (2,535
    )
    
    
    1,067Total effect on current liabilities (b)
    
    
    (6,218
    )
    
    
    (7,160
    )
    
    
    942Total effect on shareholders equity (a-b)
    
    
    (4,177
    )
    
    
    (5,914
    )
    
    
    1,737
 Consolidated statement of earnings
    
    2005
    
    
    2004
    
    
    2003Net sales
    
    
    3,517
    
    
    
    10,640
    
    
    
    741Gross profit
    
    
    2,679
    
    
    
    2,995
    
    
    
    1,068Operating income
    
    
    2,804
    
    
    
    966
    
    
    
    1,482Total effect on net earnings
    
    
    1,737
    
    
    
    1,778
    
    
    
    917
  F-42




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##### Table of Contents



Notes to the consolidated financial statements  (
  F-43




---



##### Table of Contents



Notes to the consolidated financial statements  (
 US GAAP
    
    
    IT GAAP
    
    
    DifferenceCurrent and non current assets
    
    
    253
    
    
    
    253
    
    
    
    Intangible assets
    
    
    6,141
    
    
    
    
    
    
    
    6,141Goodwill
    
    
    
    
    
    
    4,053
    
    
    
    (4,053
    )Current and non current liabilities
    
    
    (8
    )
    
    
    (8
    )
    
    
    Deferred tax liabilities
    
    
    (2,088
    )
    
    
    
    
    
    
    (2,088
    )Purchase price
    
    
    4,298
    
    
    
    4,298
    
    
    
    
  Koineè S.r.l.
    
    
    Natuzzi UK Group2005
    
    
    2003Net sales
    
    
    943
    
    
    
    11,945Cost of sale
    
    
    (483
    )
    
    
    (5,798
    )Gross profit
    
    
    460
    
    
    
    6,147Selling expense
    
    
    (417
    )
    
    
    (7,066
    )General and administrative expense
    
    
    (175
    )
    
    
    (1,113
    )Operating loss
    
    
    (132
    )
    
    
    (2,032
    )Other income, net
    
    
    (132
    )
    
    
    1,481Loss before taxes
    
    
    
    
    
    
    (551
    )Income taxes
    
    
    
    
    
    
    551Net loss
    
    
    
    
    
    
    
   F-44




---



##### Table of Contents



Notes to the consolidated financial statements  (
  F-45




---



##### Table of Contents



Notes to the consolidated financial statements  (
 US GAAP
    
    
    IT GAAP
    
    
    DifferenceCurrent assets
    
    
    1,107
    
    
    
    1,107
    
    
    
    Goodwill
    
    
    985
    
    
    
    1,664
    
    
    
    (679
    )Order backlog
    
    
    1,082
    
    
    
    
    
    
    
    1,082Other non current assets
    
    
    1,634
    
    
    
    1,634
    
    
    
    Deferred tax liabilities
    
    
    (403
    )
    
    
    
    
    
    
    (403
    )Current liabilities
    
    
    (2,080
    )
    
    
    (2,080
    )
    
    
    Non current liabilities
    
    
    (306
    )
    
    
    (306
    )
    
    
    Purchase price
    
    
    2,019
    
    
    
    2,019
    
    
    
    
   US
    
    
    ITGAAP
    
    
    GAAP
    
    
    DifferenceCurrent assets
    
    
    710
    
    
    
    710
    
    
    
    Goodwill
    
    
    3,709
    
    
    
    3,709
    
    
    
    Fixed Assets
    
    
    221
    
    
    
    221
    
    
    
    Leasehold improvements
    
    
    313
    
    
    
    313
    
    
    
    Non current liabilities
    
    
    (143
    )
    
    
    (143
    )
    
    
    Purchase price
    
    
    4,810
    
    
    
    4,810
    
    
    
    
   F-46




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##### Table of Contents



Notes to the consolidated financial statements  (
   US GAAP
    
    
    IT GAAP
    
    
    DifferenceGoodwill
    
    
    
    
    
    
    600
    
    
    
    (600
    )Intangible assets
    
    
    957
    
    
    
    
    
    
    
    957Leasehold improvements
    
    
    400
    
    
    
    400
    
    
    
    Deferred tax liabilities
    
    
    (357
    )
    
    
    
    
    
    
    (357
    )Cash paid
    
    
    1,000
    
    
    
    1,000
    
    
    
    
    Goodwill
    
    Intangibles
    
    Deferred taxesUS
    
    Italian
    
    US
    
    Italian
    
    US
    
    ItalianBalance at December 31, 2002
    
    
    528
    
    
    
    337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of Natuzzi UK Group
    
    
    9,179
    
    
    
    9,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of Minuano
    
    
    
    
    
    
    4,053
    
    
    
    6,141
    
    
    
    
    
    
    
    (2,088
    )
    
    
    Amortization
    
    
    
    
    
    
    (1,329
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Impairment losses
    
    
    (528
    )
    
    
    (232
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2003
    
    
    9,179
    
    
    
    12,008
    
    
    
    6,141
    
    
    
    
    
    
    
    (2,088
    )
    
    
    Acquisition of Divani Due S.r.l.
    
    
    1,251
    
    
    
    1,251
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization
    
    
    
    
    
    
    (2,647
    )
    
    
    (512
    )
    
    
    
    
    
    
    174
    
    
    
    Impairment losses
    
    
    (9,179
    )
    
    
    (6,119
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at December 31, 2004
    
    
    1,251
    
    
    
    4,493
    
    
    
    5,629
    
    
    
    
    
    
    
    (1,914
    )
    
    
    Acquisition of Koineè S.r.l.
    
    
    985
    
    
    
    1,664
    
    
    
    1,082
    
    
    
    
    
    
    
    (403
    )
    
    
    Acquisition of stores in Rome
    
    
    3,709
    
    
    
    3,709
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Acquisition of a store in Milan
    
    
    
    
    
    
    600
    
    
    
    957
    
    
    
    
    
    
    
    (357
    )
    
    
    Fulfilment of order backlog
    
    
    
    
    
    
    
    
    
    
    (1,082
    )
    
    
    
    
    
    
    403
    
    
    
    Amortization
    
    
    
    
    
    
    (1,344
    )
    
    
    (511
    )
    
    
    
    
    
    
    174
    
    
    
    (23
    )Balance at December 31, 2005
    
    
    5,945
    
    
    
    9,122
    
    
    
    6,075
    
    
    
    
    
    
    
    (2,097
    )
    
    
    (23
    )
 F-47




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##### Table of Contents



Notes to the consolidated financial statements  (
    Accounting for Stock Based Compensation
  F-48




---



##### Table of Contents



Notes to the consolidated financial statements  (
   2005
    
    
    2004Net earnings (loss) in conformity with US GAAP, as reported
    
    
    (6,889
    )
    
    
    18,753Stock-based employee compensation, as reported
    
    
    (136
    )
    
    
    1,140Stock-based employee compensation expense under fair value
    
    
    (756
    )
    
    
    (1,284
    )Pro forma net earnings
    
    
    (7,781
    )
    
    
    18,609
  Expected life and performance related conditions
    
    
    2 years  5.3 yearsExpected volatility of the underlying share
    
    
    23
    %Expected dividend yield of the underlying share
    
    
    2
    %Risk-free interest rate
    
    
    2.43% - 3.79
    %
  As reported
    
    
    Pro-forma2005Basic loss per share
    
    
    (0.13
    )
    
    
    (0.14
    )Diluted loss per share
    
    
    (0.13
    )
    
    
    (0.14
    )
 As reported
    
    
    Pro-forma2004Basic earnings per share
    
    
    0.34
    
    
    
    0.34Diluted earnings per share
    
    
    0.34
    
    
    
    0.34
  F-49




---



##### Table of Contents



Notes to the consolidated financial statements  (
       F-50




---



##### Table of Contents



Notes to the consolidated financial statements  (
    Comprehensive Income
 Reporting Comprehensive Income
 Recent US Accounting pronouncements relevant for the Company are as follows:
 SFAS No. 151:
 Inventory Costs
 SFAS No. 153:
 Exchanges of Nonmonetary Assets
 F-51




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##### Table of Contents



Notes to the consolidated financial statements  (
 SFAS No. 123 R:
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash
Flows
  FASB interpretation No. 47:
 Accounting for Conditional
Asset Retirement Obligations
 EITF 04-1:
 Accounting for Preexisting
relationships between the Parties to a Business Combination
 SFAS No. 154:
 Accounting Changes and Error Corrections  a
Replacement of APB Opinion No. 20 and FASB Statement No. 3
 F-52




---



##### Table of Contents



Notes to the consolidated financial statements  (
  EITF 05-06:
 Determining the amortization period
for leasehold improvements
 F-53




---



##### Table of Contents



SIGNATURES
  NATUZZI S.p.A.(REGISTRANT)By
    
    /s/ Ernesto GrecoErnesto Greco
Chief Executive Officer




---



##### 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, 2006.2.1
    
    Deposit Agreement dated as of May 15, 1993, as amended and restated as of December 31, 2001,
among the Company, The Bank of New York, as Depositary, and owners and beneficial owners of
ADRs (incorporated by reference to the Form 20-F filed by Natuzzi S.p.A. with the Securities
and Exchange Commission on July 1, 2002, file number 1-11854).8.1
    
    List of Significant Subsidiaries.12.1
    
    Chief Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.12.2
    
    Chief Financial Officer Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.13.1
    
    Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.