e20vf

As filed with the Securities and Exchange Commission on June 28, 2005

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F


o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (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, 2004


		OR


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

1-14002
(Commission file number)

DE RIGO S.p.A.

(Exact name of registrant as specified in its charter)

DE RIGO S.p.A.

(Translation of registrant’s name into English)

Italy
(Jurisdiction of incorporation or organization)

Zona Industriale Villanova,
32013 Longarone (BL), Italy
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act.


	Name of each exchange
Title of each class	on which registered
American Depositary Shares		New York Stock Exchange
Ordinary shares with a par value of €0.26 each*		New York Stock Exchange*

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None
(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

42,486,776 ordinary shares

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.


Yes þ		No o

Indicate by check mark which financial statement item the registrant has elected to follow.


Item 17 o		Item 18 þ

•

Not for trading, but only in connection with the registration of the American Depositary Shares.

Accounting Principles and Reporting Currency

Beginning with the fiscal year ended December 31, 2001, De Rigo S.p.A. (the “Company” and, together with its consolidated subsidiaries, “DeRigo” or the “Group”) has published its Consolidated Financial Statements in Euros (“€” or “Euro”), the official common currency of twelve Member States of the European Union (the “EU”), including Italy. In this annual report, references to “dollars,” “U.S.$” or “$” are to United States dollars and references to “lire” or “Lit.” are to Italian lire. Amounts stated in dollars, unless otherwise indicated, have been translated from Euros at an assumed rate solely for convenience and should not be construed as representations that the Euro amounts actually represent such dollar amounts or could be converted into dollars at the rate indicated. Unless otherwise indicated, such dollar amounts have been translated from Euros at the noon buying rate in The City of New York for cable transfers in foreign currencies as announced by the Federal Reserve Bank of New York for customs purposes (the “Noon Buying Rate”) on December 31, 2004 of $1.3538 per €1.00. Such rate may differ from the actual rates used in the preparation of the Consolidated Financial Statements included in Item 18 and dollar amounts used in this annual report may differ from the actual dollar amounts that were translated into Euros in the preparation of such financial statements. For information regarding recent rates of exchange between Euros and dollars and between Italian lire (De Rigo’s historical reporting currency) and dollars, see “Key Information—Selected Financial Data — Exchange Rates” in Item 3.

The Consolidated Financial Statements included in Item 18 are prepared in conformity with the Italian Civil Code (as amended by Legislative Decree No. 6 dated January 17, 2003 and subsequent amendments and integrations) related to consolidated financial statements interpreted and integrated by the accounting principles established or adopted by the Italian Accounting Profession (collectively, “Italian GAAP”). These principles differ in certain respects from generally accepted accounting principles in the United States (“U.S. GAAP”). See Note 19 of Notes to the Consolidated Financial Statements included in Item 18.

In addition to focusing on the Group’s Italian GAAP results, De Rigo’s management uses certain non-GAAP measures in evaluating the financial performance of the Group and its wholesale and manufacturing and retail business segments. These non-GAAP measures include (a) sales results calculated on a “constant exchange rate” basis that seeks to exclude the impact of fluctuations in currency exchange rates by calculating operating results for both periods being compared on the basis of the exchange rates used for such purpose in the earlier period, (b) income from operations before depreciation and amortization, a commonly-used measure of financial performance which is calculated by adding amortization and depreciation expenses to income from operations, and (c) net financial position, a commonly-used measure of indebtedness which is calculated as being equal to cash and cash equivalents minus the sum of bank borrowings and long-term debt (including the current portion thereof). With respect to 2004, the Group has also calculated comparative results for 2003 excluding the contribution of EID, in order to illustrate the underlying trends in the businesses that continue to part of the Group following De Rigo’s sale of the controlling interest in EID in July 2003 and allowing a comparison of performance on a consistent consolidation basis. In each of these cases, management believes that these alternative, non-GAAP figures, when considered in conjunction with (but not in lieu of) other measures that are calculated in accordance with Italian GAAP, enhance an understanding of De Rigo’s results of operations and those of its business segments. These non-GAAP measures are also commonly used by securities analysts, credit rating agencies and investors to evaluate the financial performance of De Rigo and its business segments and to compare its performance to that of its competitors. The Group’s method of calculating these non-GAAP measures may differ from methods used by other companies in calculating similar measures. In each case in which such a non-GAAP measure is used in this annual report, the most directly

comparable GAAP measure is presented with equal or greater prominence and a reconciliation of the non-GAAP measure to such most directly comparable GAAP measure is provided.

Cautionary Statement Regarding Forward-Looking Information

Except for the historical statements and discussions contained herein, statements contained in this annual report constitute “forward looking statements” within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934. Forward looking statements may include words such as “expect”, “estimate”, “project”, “anticipate”, “should”, “intend” and similar expressions or variations on such expressions. Any filing of the Company with the U.S. Securities and Exchange Commission may include forward looking statements. In addition, other written or oral statements which constitute forward looking statements have been made and may in the future be made by or on behalf of the Company, including statements concerning its future operating and financial performance, the Company’s share of new and existing markets, general industry and economic trends and the Company’s performance relative thereto and the Company’s expectation as to requirements for capital expenditures and regulatory matters. The Company’s outlook is predominately based on its interpretation of what it considers to be the key economic factors affecting its businesses. Forward-looking statements with regard to the Company’s businesses rely on a number of assumptions concerning future events and are subject to a number of uncertainties and other factors, many of which are outside the Company’s control, that could cause actual results to differ materially from such statements, including: the many interrelated factors that affect consumers’ confidence, including worldwide demand for sunglasses and prescription eyewear; general economic conditions in each of the Company’s markets; legislation, particularly that relating to the reimbursement of eyewear-related expenses; actions of competitors in the various industries in which the Company competes; production difficulties, including capacity and supply constraints and excess inventory levels; labor relations; interest rates and currency exchange rates; political and civil unrest; and other risks and uncertainties. The Company disclaims any obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

PART I

Item 1. Identity of Directors, Senior Management and Advisors

Not applicable.

Item 2. Offer Statistics and Expected Timetable

Not applicable.

Item 3. Key Information

THE DE RIGO GROUP

Unless otherwise specified or required by the context, references to “we,” “us” and “our” in this annual report are to De Rigo S.p.A. and its consolidated subsidiaries.

SELECTED FINANCIAL DATA

The following selected consolidated financial data at December 31, 2004 and 2003, and for each of the years in the three-year period ended December 31, 2004, have been derived from the audited Consolidated Financial Statements included in Item 18. Financial data at December 31, 2002, 2001 and 2000, and for each of the years in the two-year period ended December 31, 2001, have been derived from audited Consolidated Financial Statements not included herein.

The financial data at December 31, 2004 and 2003, and for each of the years in the three-year period ended December 31, 2004, should be read in conjunction with “Operating and Financial Review and Prospects” in Item 5 of this annual report, and are qualified in their entirety by reference to the audited Consolidated Financial Statements and Notes thereto included in Item 18.

The Company’s audited consolidated financial statements, from which the selected consolidated financial data set forth below have been derived, were prepared in accordance with Italian GAAP, which differ in certain respects from U.S. GAAP. For a discussion of the principal differences between Italian GAAP and U.S. GAAP as they relate to the Company’s consolidated net income and stockholders’ equity, see Note 19 of Notes to the Consolidated Financial Statements included in Item 18.

Beginning with the fiscal year ended December 31, 2001, the Company has published its Consolidated Financial Statements in Euros. Prior to January 1, 2001, the reporting currency of De Rigo S.p.A. and its consolidated subsidiaries was Italian lire. To facilitate a comparison, all lire-denominated financial data for periods prior to January 1, 2001 included in this annual report have been restated from Italian lire to Euros at the fixed rate as of December 31, 1998 established by the European Central Bank of Lit. 1,936.27 = €1.00. The comparative balances for prior years now reported in Euros depict the same trends as would have been presented had the Group continued to report such amounts in Italian lire. The Consolidated Financial Statements and other financial data for periods prior to January 1, 2001 may not be comparable to that of other companies reporting in Euros if those companies had restated from a reporting currency other than Italian lire.


	Year Ended/At
	December 31,
											(thousands of
											dollars, except as
			(thousands of euros, except as indicated)								indicated) ⁽¹⁾
	2000 ⁽²⁾		2001⁽²⁾		2002⁽²⁾		2003⁽²⁾		2004		2004
INCOME STATEMENT DATA
Amounts in accordance with Italian GAAP:
Net sales	€	456,602	€	505,250	€	512,459	€	504,801	€	514,384	$	696,373
Cost of sales		167,613		184,293		203,208		202,040		198,900		269,271
Gross profit		288,989		320,957		309,251		302,761		315,484		427,102
Operating expenses		265,307		289,897		292,524		277,907		286,659		388,079
Income (loss) from operations		23,682		31,060		16,727		24,854		28,825		39,023
Income before income taxes		21,763		27,200		9,769		37,838		27,649		37,431
Income taxes		6,895		6,551		46		14,935		12,737		17,243
Net income (2)		14,136		21,217		10,645		18,478		14,478		19,600
Number of shares and ADS outstanding (3)		44,500,000		44,651,403		44,714,255		44,491,055		42,486,776		42,486,776
Weighted average number of shares and ADS (3)		44,500,000		44,590,060		44,688,415		44,618,230		43,503,858		43,503,858
Net income per Ordinary Share and ADS (2) (4)	€	0.32	€	0.48	€	0.24	€	0.42	€	0.34	$	0.46
Dividends per Ordinary Share and ADS (4)		—	€	0.12	€	0.13		—		—		—

Amounts in accordance with U.S. GAAP:
Net sales	€	456,602	€	505,250	€	512,459	€	504,801	€	514,384	$	696,373
Net sales from continuing operations		433,161		473,269		481,314		485,192		514,384		696,373
Net income (loss)		13,282		18,249		17,145		24,250		23,039		31,190
Net income (loss) from continuing operations		13,305		18,187		18,383		16,486		23,039		31,190
Diluted number of shares and ADS (3)		44,630,709		45,542,182		45,389,512		45,223,599		44,112,010		44,112,010
Net income per Ordinary Share	€	0.30	€	0.41	€	0.41	€	0.54	€	0.54	$	0.73
Basic earnings per Ordinary Share and per ADS from continuing operations	€	0.30	€	0.41	€	0.41	€	0.37	€	0.53	$	0.72
Diluted earnings per Ordinary Share and per ADS from continuing operations	€	0.30	€	0.40	€	0.41	€	0.37	€	0.52	$	0.71
Dividends per Ordinary Share and ADS		—	€	0.12	€	0.13		—		—		—

BALANCE SHEET DATA
Amounts in accordance with Italian GAAP:
Total current assets	€	166,211	€	202,373	€	195,483	€	156,349	€	159,483	$	215,908
Property, plant and equipment, net		123,194		128,102		120,905		109,083		108,176		146,449
Total assets		420,802		462,492		439,901		376,887		394,564		534,161
Total current liabilities		196,344		220,813		199,586		123,838		125,637		170,087
Long-term debt, less current portion		1,098		764		696		497		341		462
Total shareholders’ equity		189,374		210,419		212,117		226,884		241,409		326,820
Capital stock		11,491		11,609		11,626		11,626		11,683		15,816

Amounts in accordance with U.S. GAAP:
Total assets	€	420,891	€	459,479	€	450,147	€	392,076	€	403,569	$	546,352
Total current liabilities		196,344		220,813		200,342		123,838		125,637		170,087
Total shareholders’ equity		189,460		206,695		199,470		221,744		235,190		318,400

(1)		The translation of Euros into dollars has been made at the rate of $1.3538 = €1.00, the Noon Buying Rate on December 31, 2004. See “Accounting Principles and Reporting Currency” preceding Part I of this annual report.

(2)		Certain amounts in the Company’s Consolidated Financial Statements for fiscal years ended December 31, 2000, 2001, 2002 and 2003 have been reclassified to conform with the presentation of these amounts in the Company’s Consolidated Financial Statements for the fiscal year ended December 31, 2004. See Note 2 of Notes to the Consolidated Financial Statements included in Item 18.

(3)		Number of Ordinary Shares/ADSs.

(4)		Euros/Dollars per Ordinary Share/ADS.

EXCHANGE RATES

The following table sets forth the Noon Buying Rate for Euros expressed in U.S. dollars per Euro (rounded to the nearest one hundredth of a U.S. cent) for the periods indicated.


Year:	High		Low		Average⁽¹⁾		At Period End
2000		—		—		0.9207		0.9388
2001		—		—		0.8909		0.8901
2002		—		—		0.9495		1.0485
2003		—		—		1.1411		1.2597
2004		—		—		1.2438		1.3538


Month ending:
December 31, 2004	1.3625	1.3224	—	—
January 31, 2005	1.3476	1.2954	—	—
February 28, 2005	1.3274	1.2773	—	—
March 31, 2005	1.3465	1.2877	—	—
April 30, 2005	1.3093	1.2819	—	—
May 31, 2005	1.2936	1.2349	—	—

(1)

Average of the Noon Buying Rate for Euro for the last business day of each month in the period.

On June 22, 2005, the Noon Buying Rate for Euros was €1.00 = $ 1.2134 or $1.00 = 0.8241.

The above rates are given for information only, and may differ from the rates used in the preparation of the Company’s Consolidated Financial Statements included in Item 18.

RISK FACTORS

Holders and prospective purchasers of the American Depositary Shares (“ADSs”) should consider carefully the factors set forth below, as well as the other information contained in this filing, in evaluating an investment in the ADSs.

Risk Factors Relating to the Eyewear Industry

The eyewear industry is very sensitive to fluctuations in consumers’ disposable income, personal preferences and season.

Our wholesale and manufacturing and retail operations are each subject to trends affecting the eyewear industry as a whole, as well as factors affecting individual sectors of the industry in which we participate, including those for sunglasses, prescription eyewear and fashion eyewear. The eyewear industry is subject to changes in general economic conditions, which affect disposable consumer income, as well as to changes in fashion, which affect consumer tastes and general demand for fashion eyewear. While eyewear has achieved widespread acceptance as a fashion accessory, and the fashion eyewear industry has grown significantly in recent years, there can be no assurance that this growth will continue or that consumer preferences will not change in a manner that will adversely affect the fashion eyewear sector, the eyewear industry as a whole or our business in particular. In addition, purchases of sunglasses in any given market are subject to fluctuations due to seasonality. Any event or circumstance resulting in decreased demand for eyewear generally, or for our products in particular, could adversely affect our business, operating results and financial condition.

The eyewear industry is highly competitive and we may be unable to compete successfully.

The eyewear industry is highly competitive. Some of our competitors have significantly greater financial, distribution and marketing resources, and significantly greater brand awareness, than we do in certain important markets. In addition, there can be no assurance that business and regulatory developments will not encourage the entrance of other direct competitors into our markets, which may adversely affect our business, operating results and financial condition.

The development of vision correction alternatives could harm our business.

Our future success could depend to a significant extent on the availability and acceptance of vision correction alternatives to prescription eyeglasses, such as contact lenses and refractive, optical surgery. While we do not believe that contact lenses and refractive surgery or other vision correction alternatives will materially adversely impact our business at the present time, there can be no assurance that technological advances in, or reductions in the cost of, vision correction alternatives will not occur in the future, resulting in their more widespread use. Increased use of vision alternatives could result in decreased use of our prescription eyewear products, which could have a material adverse impact on our business, results of operations and financial condition.

Risk Factors Relating to De Rigo

We may not achieve the expected benefits of acquisitions, joint ventures, restructurings or other similar corporate transactions.

We have engaged in the past and are likely to engage in the future in significant corporate transactions, such as acquisitions, joint ventures and restructurings, the success of which is difficult to predict. In late 1998, we acquired D&A; in 2000, we acquired General Optica and began operations at a joint venture with the Prada Group, which was subsequently terminated in July 2003. There can be no assurance that we will be able to enter into such transactions in the future or integrate our existing acquisitions and joint ventures without encountering administrative, technical, political, financial or other difficulties. There can also be no assurance that we will be able to carry out any such transactions in accordance with our plans, or that we will succeed in realizing any potential synergies, cost savings or other expected benefits.

Our ability to continue to expand our operations through acquisitions will depend upon our ability to consummate acquisitions on terms acceptable to us. We face challenges in integrating any acquisition into our businesses and may need to invest significant capital and resources in the acquired businesses. Acquisitions of businesses in new markets will also require us to hire and retain qualified personnel and expose us to uncertainties that are new to us. In addition, because we may incur additional debt to finance new acquisitions, our financial expense would increase as we pay interest on that debt.

We may experience design and manufacturing difficulties, causing our business to suffer.

The mid- and premium-price categories of the prescription eyewear and sunglasses markets in which we compete are particularly vulnerable to changes in fashion trends and consumer preferences. Our historical success is attributable, in part, to our introduction of innovative eyewear designs which are perceived to represent an improvement over products otherwise available in the market. Our future success will depend on our continued ability to develop and introduce such innovative products.

In addition, our future success will also depend on our continued access to raw materials and manufacturing equipment and processes. Production difficulties, including capacity and supply constraints and excess inventory levels, could have a material adverse impact on our business, results of operations and financial condition. Further, any disruption in the operations in any of our facilities, whether due to technical or labor difficulties, destruction of or damage to any facility or other reasons, could have a material adverse effect on our business, results of operations and financial condition.

We may also experience production, distribution and marketing difficulties that could harm our business.

The mid- and premium-price categories of the prescription eyewear and sunglasses markets in which we operate are highly competitive. Management believes that, in addition to successfully introducing new products, responding to changes in the market environment and maintaining superior production capabilities, our ability to remain competitive is highly dependent on our success in maintaining an efficient distribution network. If we are unable to maintain an efficient distribution network, our business, results of operations and financial condition could suffer.

Further, we may be unsuccessful at channeling consumer preferences towards our products. Our business could be adversely affected by such a failure, in addition to the substantial advertising and marketing costs incurred by the failed marketing efforts.

Our future success depends, in part, on our ability to achieve and manage growth.

In order to achieve and manage our growth effectively, we will be required to increase and streamline production and implement manufacturing efficiencies where possible, while maintaining strict quality control and the ability to deliver products to our customers in a timely and efficient manner. We must also continuously develop new product designs and features, expand our information systems and operations, and train and manage an increasing number of management-level and other employees. If we are unable to manage these matters effectively, our business, results of operations and financial condition could suffer.

Our business is very dependent on our ability to negotiate and maintain favorable license arrangements.

We have entered into license agreements that enable us to manufacture and distribute prescription eyewear and sunglasses principally under the names Celine, Chopard, Escada, Etro, La Perla, Loewe, Givenchy, Fila Eyes, Furla, Mini and others. In late 2004, we entered into new license agreements under which we will be manufacturing and distributing Ermenegildo Zegna and Jean Paul Gaultier-branded eyewear by the end of 2005. A majority of the sales of our wholesale and manufacturing division in recent years have been attributable to licensed brands, which accounted for 51.7% of such sales in 2004 (55.1% in 2003). These license agreements typically have terms of between one and five years. In 2004, license agreements under which we manufactured and distributed eyewear under the Fendi and Onyx brands expired and were not renewed. We believe that our ability to maintain and negotiate favorable license agreements or alternative arrangements with leading designers in the fashion and luxury goods industries is essential to the branding of our products and, therefore, material to the success of our business. Accordingly, our inability to negotiate and maintain satisfactory license arrangements with leading designers could have a material adverse effect on our business, results of operations and financial condition.

In addition, each of these licensors has final approval over all eyeglass frames and other products bearing the licensor’s proprietary marks, and the frames must meet the licensor’s general design specifications and quality standards. Consequently, each licensor may, in the exercise of its approval rights, delay the distribution of eyeglass frames bearing its proprietary marks. Accordingly, there can be no assurance that we will not be subject to delays resulting from disagreements with, or

an inability to obtain approvals from, our licensors. These delays could materially and adversely affect our business, operating results and financial condition.

Some of our licenses limit our right to market and sell products with competing brand names and/or limit the markets in which we are able to use the licensed brands. We expect that some of the future licenses we obtain will contain some limitations on competition within market segments. Our growth, therefore, will be limited to capitalizing on our existing licenses in the markets for sunglasses and prescription eyewear and to introducing eyewear in other markets. In addition, there can be no assurance that disagreements will not arise between us and our licensors regarding whether certain brand-name lines would be prohibited by the license agreements. Disagreements with licensors may adversely affect sales of our existing products or prevent us from introducing new eyewear products in market segments we believe are not being served by our existing products.

If we are unable to protect our proprietary rights, our business and financial results may be harmed.

We rely on trade secret, unfair competition, trade dress, trademark and copyright law to protect our rights to certain aspects of our products, including product designs, proprietary manufacturing processes and technologies, product research and concepts and recognized trademarks, all of which we believe are important to the success of our products and our competitive position. However, pending trademark applications may not generate a registered trademark, and any trademark registration that is granted may be ineffective in thwarting competition and could be held invalid if subsequently challenged. The actions we take to protect our proprietary rights may be inadequate to prevent imitation of our products. Our proprietary information could become known to competitors, and we may not be able to meaningfully protect our rights to proprietary information. Furthermore, other companies may independently develop substantially equivalent or better products that do not infringe on our intellectual property rights, or they could assert rights in, and ownership of, our proprietary rights. Moreover, the laws of certain countries do not protect proprietary rights to the same extent as the laws of the United States.

We devote financial and other resources to defend our proprietary rights. If the level of potentially infringing activities by others were to increase substantially, we might have to significantly increase the resources we devote to protecting our rights. Additionally, an adverse determination in any dispute involving our proprietary rights could require us to grant licenses to, or obtain licenses from, third parties, or could prevent us from manufacturing or selling our products or could subject us to substantial liability. Any of these possibilities could have a material adverse effect on our business, results of operations, financial condition and prospects.

Our business is subject to risks relating to international sales and exposure to changing local conditions.

We currently operate in many countries and are therefore subject to various risks inherent in conducting business internationally. These risks include: exposure to local economic, political and civil conditions; export and import restrictions; currency exchange rate fluctuations and currency controls; changes in government regulations, including those relating to payments for prescription eyewear; withholding and other taxes on remittances and other payments by subsidiaries, investment restrictions or requirements; and local content laws requiring that certain products contain a specified minimum percentage of domestically-produced components. For example, the appreciation of the Euro against the Pound Sterling in 2002 and 2003 reduced the value in Euro terms of the results of D&A, our British retail chain, while the economic crisis in Argentina led us to divest our former distribution subsidiary in that country. The likelihood of such occurrences and their potential effect on us vary from country to country and are unpredictable, but may have a significant effect on our business, results of operations, financial condition and prospects.

Our future success depends, in part, on attracting and retaining qualified personnel.

Our ability to be competitive will depend, to some degree, on our ability to attract and maintain highly qualified managerial, manufacturing, sales and marketing personnel. There can be no assurance that we will be able to continue to recruit and retain such personnel. In particular, we have been dependent on certain key management personnel in the past, and the loss of any of such key personnel may have a material adverse effect on our business, results of operations and financial condition.

We are defendants in a number of legal proceedings.

We are defendants in a number of legal proceedings incidental to our business activities. Our pending legal proceedings include various civil and administrative claims and disputes relating to the termination of distributorship agreements, trademarks, tax issues, and other matters that arise in the normal course of our business. We have established a reserve for litigation and other contingent liabilities where we consider it probable that a claim will be resolved unfavorably and where we can reasonably estimate the potential loss involved. However, we are not able to predict the ultimate outcome of any of the claims against us, and any material damages or other costs imposed on us may be in excess of our existing reserves. Unfavorable outcomes could also require us to make changes in our operations and/or incur additional expenses, which could affect our future profitability.

Since a majority of our outstanding Ordinary Shares are owned by the De Rigo brothers, they exert significant control over the Company and its operations.

At June 1, 2005, Mr. Ennio De Rigo, the Chairman of the Board of Directors and the Chief Executive Officer of the Company, and Mr. Walter De Rigo, a Director of the Company, together owned approximately 77.2% of the Company’s outstanding ordinary shares (the “Ordinary Shares”). The De Rigo brothers will continue to control the election of the members of our Board of Directors and the outcomes of other matters submitted to a vote of the shareholders. As a result, they will be able to control the Company and its operations. Because a change of control would be difficult to achieve without the cooperation of the De Rigo brothers and our Board of Directors, the holders of the Ordinary Shares and the ADSs may be less likely to receive a premium for their shares upon a change of control of our company.

Risk Factors Relating to the American Depositary Shares

Our share price may be volatile.

Our share price is likely to fluctuate in the future due to the volatility of the stock market in general and a variety of factors, many of which are beyond our control, including: quarterly variations in actual or anticipated results of our operations; changes in financial estimates by securities analysts; actions or announcements by our competitors; regulatory or legislative actions; market outlook for the fashion sunglasses and prescription eyewear industry generally; departures of our key personnel; and future sales of our ADSs. These broad fluctuations may adversely affect the market price of the ADSs.

Since most of our assets are located outside of the United States, you may face difficulties in bringing and enforcing suits against us.

Our executive offices are located in Italy and substantially all of our assets are located in Italy, the United Kingdom and Spain. In addition, the De Rigo brothers and all of the members of our management and Board of Directors are citizens of European countries who reside in Europe. As a result, you may not be able to effect service of process outside of the relevant countries upon the Company, our directors or other key personnel.

We may not pay dividends on the ADSs.

Although dividends may be recommended by our Board of Directors for approval by shareholders at our annual general meeting, we did not pay any dividends in respect of the fiscal year ended December 31, 2004 and have paid dividends only two times in the past five years.

Future sales of Ordinary Shares or ADSs could depress our share price.

Sales of substantial numbers of Ordinary Shares or ADSs (including shares issued upon the exercise of stock options) in the public market, or the perception that such sales could occur, could adversely affect the prevailing market price of the Ordinary Shares or ADSs or our ability to raise capital through a public offering of our equity securities.

Item 4. Information on the Company

HISTORY AND CORPORATE STRUCTURE

De Rigo is a worldwide leader in the design, manufacture and marketing of high-quality eyewear in the mid- and premium-price categories and one of the largest optical retailers in Europe through its D&A and General Optica retail chains. Designed in Italy, the Group’s products are distributed in about 80 countries worldwide, primarily in Europe, Asia and the Americas. The Company distributes its products under its own brand names — Police, Sting, Lozza — as well as under the licensed brands Chopard, Escada, Etro, FilaEyes, La Perla, Celine, Givenchy, Loewe, Mini and Furla. In 2004, the Group recorded net sales of €514.4 million and generated net income of €14.5 million.

The Company was incorporated in 1978 as a società a responsabilità limitata, or limited liability company, in Limana, Italy. Initially, the Company operated as a third party contractor for the production of sunglasses, prescription eyeglass frames, and eyeglass components. By the beginning of the 1980’s, the Company began to produce its own lines of sunglasses, and, within a few years, established itself as one of the leading Italian producers of sunglasses in the mid- to premium-price categories, with its Police brand attaining particular popularity among the younger generation.

In 1992, the Company merged with Argosol S.r.l., another manufacturer of sunglasses and prescription eyeglass frames that was wholly owned by the De Rigo brothers. By the early 1990’s, and as a result of the acquisition of the Lozza brand in 1992, the Company began to produce sunglasses and eyeglass frames under brand names licensed by renowned fashion houses, such as Fendi, and soon became one of the world leaders in the mid- to premium price categories of sunglasses.

In early 1995, the Company was converted to its present form as a società per azioni, or corporation limited by shares, organized under the laws of the Republic of Italy. Under its current Statuto, or By-laws, De Rigo S.p.A. has a duration of 45 years, expiring on December 31, 2050.

Since the late 1990’s, the Group’s expansion has been focused on its entry into the retail optical business through its acquisition of D&A in 1998 and General Optica in 2000 and on the growth of its designer lines, particularly through its 2001 marketing and distribution agreement with the LVMH Fashion Group. The joint venture that De Rigo formed with the Prada Group in 2000 was terminated in July 2003 by mutual agreement of the parties; as a result the Group sold its 51% interest in E.I.D. Eyewear International Distribution S.A. (“EID”) to the Prada Group for total consideration of €12.3 million.

The Group’s former manufacturing subsidiaries, Dierre S.r.l. (“Dierre”) and Quattro Valli Italian Flair S.r.l. (“Quattro Valli”), were merged into De Rigo S.p.A. in January 2002 and October 2003.

In 2004, De Rigo signed distribution agreements with Viva International Inc (“Viva”). Viva, based in the U.S., distributes fashion-forward eyewear, including the Guess? and Tommy Hilfiger brands, in more than 50 countries,. As a result of those agreements, De Rigo has become the distributor of some of Viva’s brands (Tommy Hilfigher, Guess? and Gant) in Italy and Greece, while Viva has become the distributor in the United States and Canada of the Group’s licensed brands Escada, Givenchy, Etro, Fila and Furla (and will begin distributing Ermenegildo Zegna-branded eyewear in those markets beginning in late 2005).

The Company’s license agreement with Fendi expired in 2004 and was not renewed. During 2004 De Rigo signed four new license agreements for the production and worldwide distribution of eyewear under the brands Escada, Chopard, Ermenegildo Zegna and Jean Paul Gaultier. The Group’s initial collections under the Ermenegildo Zegna and Jean Paul Gaultier brands will be introduced in October 2005.

On October 30, 2004 De Rigo S.p.A. contributed its wholesale distribution and manufacturing operations to a new company, De Rigo Vision S.p.A. (“De Rigo Vision”), a wholly-owned subsidiary. De Rigo S.p.A. retained ownership of the Police, Sting and Lozza brands, which De Rigo Vision now uses under license agreements, as well as its headquarters and manufacturing plants (which De Rigo Vision now rents from De Rigo S.p.A). De Rigo S.p.A. has therefore become a holding company, pursuing its operating activities through its subsidiaries.

De Rigo’s wholesale and manufacturing segment (“wholesale & manufacturing”) consists of De Rigo Vision, with its foreign distribution subsidiaries Vogart Line España S.A. (“Vogart España”), De Rigo France S.a. (“De Rigo France”), De Rigo UK Ltd. (“De Rigo UK”), De Rigo Hellas A.E.E. (“De Rigo Hellas”), De Rigo Japan Ltd Co. (“De Rigo Japan”) and De Rigo Hong Kong Ltd. (“De Rigo HK”). De Rigo Vision distributes directly certain of the Group’s eyewear lines in the Italian, German and Dutch markets (the Group having sold its interests in its former Dutch and German subsidiaries in 2004), while the subsidiaries noted above distribute certain of the Group’s eyewear lines in Spain, France, the United Kingdom, Greece, Japan and Hong Kong, respectively. In certain other markets, independent distributors distribute the Group’s eyewear lines. The Group also operates as an optical retailer in the United Kingdom through the Company’s subsidiary D&A and in Spain and Portugal through its subsidiary General Optica, which together form the Group’s retail segment (the “retail segment”). See Item 5 “Operating and Financial Review and Prospects” and Notes 3 and 17 to the Consolidated Financial Statements included in Item 18.

The Company indirectly controls, through De Rigo Vision, 59.3% of Vogart España, 100% of De Rigo France, 100% of De Rigo UK, 81% of De Rigo Hellas, 90% of De Rigo Japan and 80% of De Rigo Hong Kong. The Company indirectly controls 100% of each of D&A and General Optica through European Vision Ltd. and General Optica Internacional Sa, respectively. Each of these companies is an intermediate holding company that is 100% owned by the Company. Each of these companies is incorporated under the laws of its principal place of business

Mr. Ennio De Rigo, the Chairman of the Board of Directors and Chief Executive Officer of the Company, and Mr. Walter De Rigo, a Director of the Company, own 77.2% of the Company’s outstanding Ordinary Shares (primarily through De Rigo Holding B.V. (“De Rigo Holding”)). The De Rigo brothers established De Rigo Holding to hold and manage their interests in the Company and to make investments in other industrial sectors in which they participate, and also hold a small percentage of the Company’s Ordinary Shares directly. See Item 7 “Major Shareholders and Related Party Transactions” and Note 2 of Notes to the Consolidated Financial Statements included in Item 18.

The Company’s registered office and the Group’s principal executive offices are located at Zona Industriale Villanova, No. 12, 32013 Longarone (BL), Italy, approximately 110 kilometers north of Venice and 15 kilometers north of Belluno in the Veneto region of northeast Italy. The telephone number of the Company’s principal executive office is (39)(0437) 77 77.

BUSINESS OVERVIEW

De Rigo is a worldwide leader in the design, manufacture and marketing of high-quality eyewear in the mid- and premium-price categories and one of the largest optical retailers in Europe through its D&A and General Optica retail chains. Currently, and for the year ended December 31, 2004, the Group has divided its activities into two distinct segments:

• Wholesale and Manufacturing consists of the design, manufacturing, marketing and distribution of high-quality eyewear to opticians in Italy, Germany and the Netherlands and to independent distributors and opticians through the Group’s distribution subsidiaries in other markets. This segment furnishes eyewear to the Group’s other business units, to which the wholesale and manufacturing segment makes sales at prices that include a markup designed to compensate the unit for its manufacturing activity.

• Retail consists of the sale of optical frames and lenses for prescription eyeglasses and fashion sunglasses (as well as contact lenses and other optical products), together with the provision of related professional consulting and aftercare services, through the network of stores operated by the Group’s two retail chains, D&A, a leading retailer in the British optical market, and General Optica, the leading optical chain in Spain, which also has a presence in Portugal.

In prior years, the Group included a third segment for financial reporting purposes.

• EID was the segment consisting of the Group’s former joint venture with the Prada Group, which conducted product development, marketing and distribution activities related to Prada-branded eyewear, including that sold under the Miu Miu, Helmut Lang and Jil Sander brand names. This joint venture was terminated in July 2003 by mutual agreement of the parties and as a result the Group sold its 51% interest in EID to the Prada Group. Accordingly, the data for the former EID segment presented in the tables below and elsewhere in this annual report includes the results of EID only for the period through the Group’s disposal of its interest as of July 23, 2003.

The following table sets forth De Rigo’s sales by business segment for each of the years indicated.

Sales by Business Segment
(in millions of Euros)


	2002			2003			2004
Wholesale and Manufacturing	€	141.1		€	136.2		€	134.5
Retail		359.6			361.5			389.8
EID		31.2			19.8			—
Intersegment Eliminations		(19.4	)		(12.7	)		(9.9	)

Total	€	512.5		€	504.8		€	514.4

The following table sets forth the percentage of the sales of the wholesale and manufacturing segment attributable to sales of De Rigo’s owned brands and licensed brands (including Prada products marketed by EID prior to De Rigo’s disposal of its interest in EID in July 2003) for each of the years indicated.

Sales of Owned Brands and Licensed Brands by Wholesale and Manufacturing Segment


	2002			2003			2004
Owned brands		42.1	%		42.0	%		46.1	%
Licensed brands		54.8	%		55.1	%		51.7	%
Other		3.1	%		2.9	%		2.2	%

Total		100.0	%		100.0	%		100.0	%

The following table sets forth sales of the prescription eyewear and sunglasses marketed by the Group (in units, and as a percentage of unit sales of eyewear) in each of the years indicated:

Unit Sales of Eyewear Marketed by De Rigo
(in thousands)


	2002				2003				2004
Sunglass Unit Sales		3,040	55.3	%		2,931	54.3	%		2,599	50.9	%
Prescription Eyewear Unit Sales		2,457	44.7	%		2,462	45.7	%		2,511	49.1	%

Total Unit Sales		5,497	100.0	%		5,393	100.0	%		5,110	100.0	%

In 2004, sales in Europe accounted for 90.8% of the Group’s total net sales, with 7.7% of the total being attributable to sales in the rest of the world and the remaining 1.5% to sales in the Americas. The following table sets forth the Group’s net sales by geographic region during each of the periods indicated. See also Note 17 of Notes to the Consolidated Financial Statements included in Item 18.

Net Sales by Geographic Region
(in millions of Euros)


	2002				2003				2004
Europe	€	463.9	90.5	%	€	453.9	89.9	%	€	466.8	90.8	%
Rest of the World		36.6	7.2	%		39.0	7.7	%		39.7	7.7	%
Americas		12.0	2.3	%		11.9	2.4	%		7.9	1.5	%

Total net sales	€	512.5	100.0	%	€	504.8	100.0	%	€	514.4	100.0	%

De Rigo maintains a presence in more than 80 countries and its products are sold in more than 40,000 stores.

The Group’s eyewear is sold by independent opticians, retail optical chains (including the Group’s own D&A and General Optica stores) and shops specializing in glasses and eyewear products, including in several markets, chain stores specializing in sunglasses such as Sunglass Hut and Solaris. The Group’s designer eyewear is sold in the relevant designer boutiques, and, in some cases, in well-known department stores such as Harrods, Selfridges and House of Fraser in the United Kingdom and Galleries Lafayette and Printemps in France.

COMPANY STRATEGY

Management believes that De Rigo’s position within the mid-to premium price categories of the eyewear market benefits from the following competitive strengths.

• Brand prestige. De Rigo distributes its products under brand names that management believes benefit from high customer recognition and significant prestige in its principal markets. The brand names employed by the Company include owned brand names, such as Police, Sting and Lozza - which rely on innovative design, product quality and an effective marketing policy in order to build brand awareness — and highly regarded designer brand names licensed to the Group by some of the world’s best known fashion houses.

• Design originality. De Rigo particularly targets customers attentive to design and fashion trends, and believes its products are characterized by particularly original and innovative designs that are carefully tuned to consumer preferences. Management believes that the Group’s stylistic innovations have established its collections as a point of reference for the entire industry, while maintaining the specific identity of each of its brands.

• Tailored distribution. De Rigo tailors its distribution strategy to reflect local market conditions. In Italy, the Group distributes its products directly through its network of sales representatives. In most of its other principal markets, De Rigo has developed a network of distribution subsidiaries which it controls. In the United Kingdom, Spain and Portugal, the Company has also developed a wide network of retail stores. Management believes that its direct control of the distribution network in its major markets allows the Group to improve margins while enhancing the image and the prestige of the Group’s products through careful selection of points of sale and a focus on post-sale customer assistance.

• Integrated production. De Rigo’s production process is generally highly automated, though selected processes also include handicraft techniques. We have developed a long term relationship with our principal suppliers, enabling us to quickly react to changes in market demand while keeping tight control over the quality of materials and individual production steps used by outside suppliers in their manufacturing processes.

De Rigo seeks to build on these competitive advantages in achieving management’s principal strategic objectives, which include:

• Expansion in the mid- to premium-price eyewear categories. De Rigo plans to expand its presence in the mid- and premium-price segments of the markets for sunglasses and prescription eyeglass frames — which management believes offer the most attractive profit margins — by capitalizing on the quality of the products it markets under both the Group’s

owned brand names and licensed designer brand names. To achieve this goal, the Company intends to:

• Strengthen its brand portfolio. De Rigo intends to strengthen its current brand portfolio by increasing the visibility of its owned brand names, especially Police and Sting, principally through the use of internationally-recognized spokespersons in advertising, while at the same time consolidating its relationship with the leading fashion houses that currently license designer brand names to the Group. De Rigo also intends to enlarge its brand portfolio by entering into new licensing arrangements with other prestigious fashion houses and launching new brands of its own.

• Expand distribution. De Rigo intends to expand its distribution channels in markets that the Company believes offer the greatest demand for designer mid- and premium-price eyewear, primarily in Europe, North America, and the Far East. To do so, the Company expects to form new distribution subsidiaries in certain markets while further developing its existing subsidiaries in others.

• Invest in production. In order to achieve management’s goals of increasing efficiency, reducing costs, and enhancing the technological features of its products while continuing to maintain its high standards of quality, the Company plans to continue to invest in the production process, with a particular focus on automation and the use of innovative new materials.

• Expansion in the retail market. De Rigo plans to continue to expand its presence in the retail eyewear sector, focusing on sales of prescription eyeglass frames and sunglasses produced by De Rigo or other manufacturers and of contact lenses. To achieve this goal, the Company intends to:

• Enhance its existing stores. De Rigo intends to enhance many of its existing retail stores in order to increase its penetration of local markets and better present to consumers the quality of its eyewear collections.

• Open new stores. De Rigo intends to continue to expand the D&A and General Optica store networks to achieve greater geographical coverage in key areas through directly managed stores or franchised stores.

• Pursue acquisitions. De Rigo will continue to pursue acquisitions and other strategic transactions that management believes would afford the Company attractive opportunities to continue its geographic expansion by enhancing or establishing its retail presence in those countries in which such a strategy is compatible with the Company’s current distribution network.

PRODUCTS

The Company’s product portfolio is divided into owned brands and designer lines of prescription eyeglass frames and sunglasses. The Company’s traditional lines are produced under well-established brand names owned by De Rigo and feature conventional and fashion-conscious styles. De Rigo’s designer lines are produced under brand names used by the Company under license agreements or other arrangements and incorporate more contemporary and fashion-forward styling. The Group’s D&A and General Optica retail subsidiaries also sell traditional and designer eyewear produced by third parties.

De Rigo manufactures over 2,500 models of sunglasses and prescription eyeglass frames. Historically, De Rigo concentrated primarily on the design, production and sale of high-quality,

fashionable sunglasses. Sales of sunglasses bearing brands owned by or licensed to the Group represented 46.8% of the Group’s unit sales of eyewear in 2004, as compared with 49.1% in 2003, with the Group’s branded prescription eyewear representing 30.6% and 29.9% of unit sales, respectively, in 2004 and 2003. Sales of eyewear bearing brands that do not belong (or are licensed) to the Group through the retail segment represented the remaining 22.7% of De Rigo’s unit sales of eyewear in both 2004 and 2003. Generally, the eyewear sold under each of the Group’s brands, both its owned brands and those licensed from third parties, include collections of both sunglasses and prescription eyewear. The Group’s two core brands, Police and Sting, together represented approximately 37.8% and 31.6% of its total eyewear unit sales in 2004 and 2003, respectively, whereas De Rigo’s designer lines as a group represented approximately 27.7% and 38.9% of total unit sales, respectively.

Owned Brands

Eyewear bearing the Group’s owned brands, and conceived and realized by De Rigo, are sold in all of its principal markets. A detailed description of the Group’s most noteworthy owned brands, Police, Sting, and Lozza, follows.

Police. The first of the Group’s core brands, was launched in 1983 and was created with the goal of selling an entire range of models associated with a single strong brand image, introducing in Europe a product based on a depiction of an “aggressive urban” American lifestyle. The strength of the brand has always been in using its solid experience and applying it to the very latest fashion trends. From 1999 to 2003, Bruce Willis and George Clooney served as spokespersons for the Police brand. Since 2004, the Real Madrid and England soccer star David Beckham has been the brand’s worldwide spokesperson, having previously represented the brand in the United Kingdom and Japan.

Sting. This brand, which also has an “aggressive” image, was conceived and designed for the youth market (ages 14 to 24). The line is characterized by a large number of models ranging from very minimalist frames and matte colors to brightly colored and elaborate shapes to suit various tastes. Together with the Police brand, Sting enabled De Rigo to develop the fashion-conscious teenage and young adult market, particularly in Italy. Formula One World Champion Michael Schumacher is currently featured in the latest Sting advertising campaign.

Lozza. The Lozza brand, the oldest eyewear brand in Italy, offers a wide range of traditional and classic eyeframes. The brand targets the stylistically more conservative adult market (age 40 and older).

Licensed Brands

The Group also manufactures and sells eyewear under each of the following “designer” brands pursuant to license agreements or other arrangements covering the relevant brands and trademarks. The Group’s license agreements have terms ranging from one to five years. The following is a brief description of each of the major designer brand names currently marketed by De Rigo.

Celine. A collection that is designed to be useful, yet glamorous, based on a modern aesthetic that is embodied in luxurious detailing that is identifiable, yet subtle.

Etro. The Etro collections embody an innovative vision of the tradition originating in the Etro philosophy: sophisticated details and exquisite workmanship reflected in high fashion shapes and materials. The line is aimed at demanding customers in a wide range of age groups.

FilaEyes. A brand comprised primarily of sports/fashion sunglasses and sports shields. FilaEyes aims to satisfy a broad range of different tastes and needs, from lightweight, curved-wrap, metal-framed models to resistant, high-performance models.

Furla. Furla products are characterised by an essential and distinctive style. The collections reveal a careful interpretation of trends and are created paying great attention to the needs of a modern international woman.

Givenchy. A modern, yet timeless, collection for women and men, tailored for the fashion conscious and cosmopolitan Givenchy customer.

La Perla. A collection designed for the sophisticated woman, the details of which have been conceived to reflect fascination and femininity.

Loewe. A luxurious modern collection for women and men inspired by Mediterranean culture.

Mini. The BMW Group’s Mini brand is both a trendsetter and an automotive legend. The design and materials of the new range of Mini sunglasses are innovative, almost futuristic. Made of light, high-quality metal and plastic, the models’ appeal lies in their shape and color.

Chopard. Recognized worldwide for its watch and jewelry collections as well as its Haute Joillerie creations, Chopard was founded in Switzerland in 1860. The sunglasses and eyewear included in the collection fully express Chopard‘s brand identity, standing out for their design and quality, with a powerfully distinctive look.

Escada. The collection is sensual and sophisticated. Color is the main hallmark of Escada. The luxury is interpreted with innovation esprit and freshness. Escada is “joie de vivre”, quality and attention to detail, for a unique and elegant feminine look.

In 2004, De Rigo signed distribution agreements with Viva, a U.S. company that distributes fashion-forward eyewear, including the Guess? and Tommy Hilfiger brands, in more than 50 countries,. As a result of those agreements, De Rigo has become the distributor of some of Viva’s brands (Tommy Hilfigher, Guess? and Gant) in Italy and Greece, while Viva has become the distributor in the United States and Canada of the Group’s licensed brands Escada, Givenchy, Etro, Fila and Furla (and will begin distributing Ermenegildo Zegna-branded eyewear in those markets beginning in late 2005).

DESIGN AND MANUFACTURING

Every year, the Group introduces two new collections for each of its owned and licensed brands: one for eyeglasses launched in May in conjunction with MIDO (the major world eyewear exposition in Milan), and one for sunglasses each summer. Both collections include new models, as well as the models that enjoyed the greatest success the previous year. In 2004, new models represented roughly 75% of each collection. It takes about 10 months to develop a new collection, a process that includes design, creation of prototypes, and production.

Design

The Group believes that its competitive strengths include the variety of its models’ designs and the breadth of its prescription eyewear and sunglasses product lines. The design team responsible for this broad array of styles includes approximately 27 members, consisting of designers and prototype engineers; De Rigo’s design team also collaborates with external designers. Working very closely with the Group’s marketing team, which monitors demand for the Group’s current models as well as general style trends in eyewear, the designers devise new styles utilizing novel forms,

materials, and colors. In developing new collections for the Group’s licensed brand names, the De Rigo design team works in close contact with the designer’s own creative staff, who make suggestions based on the current styles of the designer’s clothing and accessories, thus ensuring aesthetic coherence among the designer’s various collections.

The Group’s design capacity derives from the use by its design team of “computer-aided design/computer-aided manufacturing”, or “CAD/CAM”, technology in the design and prototype manufacturing phases. Although the design team, aided by the CAD/CAM system, designs and produces prototypes of many new models each month, only a selected number of new models are chosen to be added to the Group’s collections each year. Its sophisticated CAD/CAM system enables the Group to design and produce a fully working metal prototype in under 24 hours, and to produce four to five metal prototypes per day. The CAD/CAM system also streamlines the conversion from prototype to production. For example, for the production of metal sunglass or eyeglass frames, the Group makes its own detailed metal molds, which are inscribed by computer-controlled mills using the data stored in the CAD/CAM system. For the production of plastic frames, the automated plastic milling machines used by the Group are programmed by inputting the data stored on the CAD/CAM system.

Manufacturing

The primary materials utilized in the production of eyeglass frames are metal and plastic (or a combination thereof). Metal sheets and threads are the primary raw materials used to manufacture metal frames. The unpolished frames subsequently undergo galvanizing and coloring processes during which the frames assume the latest colors of the new collection. The final touches, including the mounting of the lenses, take place at the finishing center. Plastic frames can be manufactured through a pantographic or injection process. In the case of the former, an acetate sheet is cut, folded, and polished to form the front of the frame and the two temple pieces. In the case of the latter, granular plastic is injected into special moulds. The front of the frame and temple pieces are usually colored before being sent to the finishing center.

The Group uses high-quality raw materials in the manufacture of its products. In the manufacture of its fashion sunglasses, the Group uses high quality lenses produced by several major lens manufacturers. These lenses provide 100% protection from all ultraviolet rays, are impact resistant and are certified to be in compliance with the health and safety standards prescribed by the U.S. Food and Drug Administration (21 C.F.R. §801.410) and the European Union (Directive 89/686/CEE).

The Group’s manufacturing facilities are located primarily in the Belluno area in northeast Italy, the region in which most of Italy’s eyewear industry is based. In Limana, De Rigo operates two manufacturing facilities for the production of metal frames, while at Longarone, it owns one facility for the galvanization and coloring of metal frames and another for production of pantographic plastic frames. The facility for pantographic plastic frames at Longarone also serves as the finishing center for all of the Group’s optical products (including the products of subcontractors).

Many aspects of the manufacturing process have been automated, including the production of metal and plastic frame components and the galvanization of metal eyeglass frames. In a traditionally labor-intensive sector, De Rigo has invested in the design and creation of new proprietary robotics and machinery to automate manufacturing tasks, to increase efficiency and to maintain high quality. However, some manufacturing steps, such as coloring and finishing, are still done by hand.

De Rigo puts particular emphasis on the quality of its products, beginning with the inspection of the raw materials and components and continuing with quality control and process control procedures throughout all manufacturing stages, whether carried out internally or externally by subcontractors. At the end of the production process, all frames are individually inspected. Less than

2% of frames manufactured by the Group have even minor defects at the finishing stage. If any minor defects are detected, frames are repaired or replaced. Despite the high degree of automation of the Group’s production processes, its quality control is for the most part performed manually.

De Rigo maintains flexibility and capacity in manufacturing by using specialized subcontractors for various production functions (production of frame components and details, galvanizing and coloration, assembly, finishing and production of accessories). Typically, the Group supplies subcontractors with the primary material and components so as to optimize quality control. Moreover, Group technicians regularly visit the subcontractors’ facilities to monitor production quality and verify the promptness of deliveries. In 2004, the Group produced approximately 57 % of its production requirements internally, as compared with approximately 60% in 2003. In 2005, the Group expects again to subcontract approximately 35% to 45% of its production requirements to third parties.

MARKETING AND DISTRIBUTION

Marketing

As a result of the Group’s expansion and its increased focus on designer brands and retail operations, management has decided to increase De Rigo’s marketing expenditures, while at the same time integrating and redefining the Group’s various marketing activities so as to meet the challenges of an increasingly competitive global market. In doing so, management is working to transform De Rigo’s marketing operation from one traditionally focused on sales support activity such as point of sale material and consumer advertising into an increasingly strategic part of the Group that is focused on brand management. The necessary integration of marketing activities, including the selection of the frames to be included in each brand’s collection, is followed by the development and implementation of a strategy focused on the correct positioning of each of the Group’s brands in each of the Group’s markets around the world, with differentiated distribution and pricing.

Wholesale and Manufacturing. The Group’s marketing team monitors the development of the collections, a task that includes the selection of the frames to be included in each brand’s collection, the development and implementation of a strategy focused on the correct positioning of each of the Group’s brands in each of the Group’s markets around the world, and pricing based on the nature of specific markets, including the degree of awareness of a particular brand in that market.

In Italy, De Rigo advertises its products in the principal fashion publications and magazines of national interest and sometimes on billboards and television. De Rigo also provides opticians with promotional and marketing material, including posters, show cards and displays. Outside of Italy, the Group uses similar channels and exercises a similar degree of control over its marketing message in those countries in which it operates directly or through affiliated distribution subsidiaries. In contrast, in countries where the Group operates through independent distributors, De Rigo generally defers to the judgment of those distributors as to which of the Group’s products should be marketed in the areas they cover. In some cases, however, De Rigo takes part in planning the independent distributor’s marketing budget, and, after approving the budget, contributes towards the distributor’s marketing expenses.

Retail. D&A and General Optica’s marketing consists of national television, radio and print media in their respective home markets. The individual retail stores themselves are responsible for campaigns to attract customers to a particular retail store. In this manner, the stores generate direct contact with the client base and develop personal rapport with customers, with the ultimate goal of educating customers about new products and services and encouraging more frequent replacement of eyewear. D&A and General Optica also maintain and periodically update extensive customer databases, which currently contain information on approximately 4.5 million and 1.5 million clients who bought products or services from the respective companies’ chains in the last five years.

Distribution

The Group distributes its manufactured products through its network of sales representatives in Italy and the countries in which its distribution subsidiaries are based, through independent distributors and through the D&A and General Optica retail stores in the United Kingdom, Spain and Portugal (which also sell eyewear from other manufacturers). De Rigo is present in over 80 countries and its products are sold in over 40,000 retail stores. As part of its strategy, the Group maintains strict control over its distribution network. The Group’s eyewear lines are sold through independent opticians, optical retail chains and optical specialty stores, including, in certain markets, sunglass specialty chains such as Sunglass Hut and Solaris. In addition, the Group’s fashion sunglass lines are sold in certain markets through major department stores with large optical departments, such as Harrods, Selfridges and House of Fraser in England and Galleries Lafayette and Printemps in France. In order to preserve the integrity of its brand images, the Group encourages sales of its eyewear exclusively through quality retail stores at suggested manufacturer’s retail prices, makes every lawful effort to prevent discounting of its products, and discourages any manner of sale that would degrade its products’ brand images.

Wholesale and Manufacturing Segment

Italy. In the fragmented Italian retail eyewear market, the Group distributes its products through its network of sales representatives, who currently have an aggregate of approximately 6,000 customers selling through roughly 7,200 points of sale. As of December 31, 2004, the Group had approximately 66 sales representatives in Italy. Each sales representative is assigned to a particular territory within Italy for which he is the exclusive representative for certain of the Group’s eyewear lines. Customers either order eyewear from their sales representatives or directly from the Group. Each sales representative works exclusively for the Group and is paid on a commission basis for sales within their respective territories.

The Group believes that this method of distribution has been effective, particularly with respect to its Police and Sting brands, and has enabled the Group to achieve a high degree of penetration of the Italian market.

Export — International Distribution Network. The Group’s international distribution network, comprised of its distribution subsidiaries and its direct distribution activities in certain markets, is a key element of its distribution strategy. The Group believes that distributing through its own direct sales network enables it to manage better the image of its brands, sales efforts and customer service activities in the relevant markets. The Group generally seeks to establish direct distribution activities only in markets where it believes that direct control would be most effective in implementing its marketing strategy. As of December 31, 2004, there were distribution networks in Germany, Spain, France, the Netherlands, the United Kingdom, Greece, Japan Hong Kong and Taiwan.

The international distribution network has the exclusive right to distribute certain of the Group’s brands within a designated territory. As of December 31, 2004, the Group’s distribution network employed approximately 78 sales representatives.

Export — Independent Distributors. Outside of Italy, the United Kingdom, Spain, Portugal and countries covered by the international distribution network, the Group sells its sunglasses and prescription eyeglass frames through independent distributors in approximately 70 countries. Pursuant to distribution agreements with the Group, these distributors also have the exclusive right to sell certain of the Group’s lines in designated territories. A distributor may sell one or more of the Group’s lines within its territory, depending on the terms of the relevant distribution arrangement. The Group maintains close contact with the independent distributors in order to monitor sales in the relevant markets. Almost all orders for eyewear are given to the Group by the distributor, and the Group ships the ordered goods to the distributor, who then delivers them to the retailer. Prices of the

Group’s exported products generally are fixed in Euro and vary from market to market, subject to adjustment for shipping costs and customs duties.

The sales of the Group’s wholesale and manufacturing segment, including sales to the other segments, totalled €134.5 million in 2004, as compared with sales of €136.2 million in 2003.

Retail Segment

The Group’s retail business consists of the sale of optical frames and lenses for prescription eyeglasses and fashion sunglasses (as well as contact lenses and other optical products), together with the provision of related professional consulting and aftercare services, through the network of stores operated by the Group’s two retail chains, D&A, a leading retailer in the British optical market, and General Optica, the leading optical chain in Spain, which also has a presence in Portugal.

Dollond & Aitchison

In December 1998, the Group acquired 100% of the British optical chain Dollond & Aitchison. D&A is the longest established optician in the United Kingdom, having been founded in 1750. This long heritage has allowed D&A to develop a strong reputation for the quality of its professional eyecare services, and every year D&A recruits around 50 new graduate optometrists for its graduate training program. D&A operates a retail network across the United Kingdom with 235 company owned stores and 140 franchised stores as at June 1, 2005.

Retail sales through D&A totalled €248.9 million in 2004 and comprised 48.4% of the Group’s total sales compared with sales of €230.8 million (45.7% of total sales) in 2003. In 2004, De Rigo products — mostly eyeglass frames — accounted for approximately 28.9% of D&A’s total revenues from eyeglass sales, up from 22.9% in 2003. Management believes that De Rigo’s inhouse design expertise allows D&A to bring the latest innovations on product to market ahead of its competitors. D&A is one of the largest retail optical chains in the United Kingdom, with a market share of approximately 8.5%.^*

D&A is positioning itself to reinforce its service platform and is investing significantly in training to differentiate itself from its main competitors, who focus on price and speed. The level of customer service is measured through a “mystery shopper” program and during 2005 a new measure of customer service for individual employees is being introduced. Both of those measures provide feedback for stores to help D&A’s staff continuously improve the experience for customers. The focus on service is backed up by high quality product ranges, particularly in relation to eyeglass lenses and contact lenses, where the mix of higher added value products continues to increase. A key part of D&A’s service offering is the unique Styleyes consultation service, which helps customers find the right eyewear to suit their face shape. D&A’s Contact Lenses by Post service delivers contact lenses direct to the customer’s door.

D&A’s high quality products are competitively priced and backed up by regular promotions to encourage multiple purchases (including of contract lenses and sunglasses). D&A is in the process of implementing a new brand identity to reinforce its focus on service, having converted approximately 30% of its stores to the new look by the end of May 2005.

General Optica

General Optica is the leading optical chain in Spain. In February 2000, General Optica became part of the De Rigo Group. See Note 3 of Notes to the Consolidated Financial Statements included in Item 18.

All market share data in this annual report is as of 2002, the most recent year for which such data is available from public sources, and is taken from the 2003/2004 editions of the Jobson L.L.C. European Optical Industry Economic Review.

At June 1, 2005, General Optica’s network of stores consists of 143 directly owned stores in Spain, 10 in Portugal and 20 stores in Spain under franchising agreements. Although the name General Optica is well known throughout Spain thanks to its tradition in the sector since the company’s foundation in 1958, its retail stores are primarily located in northern and eastern Spain, particularly Catalonia, the Basque Country, Asturias and Galicia. General Optica’s recent expansion has increased its presence in new areas of Spain, as well as those in which it previously maintained only a minimal presence. General Optica retail stores share a common storefront and interior design, rendering them easily recognizable to consumers. Typically, General Optica stores are positioned in the principal shopping districts of major Spanish cities. As in the case of D&A, management believes that General Optica’s success is based on the professionalism of its staff, the quality and variety of its products and services and a comprehensive program of guarantees designed to ensure customer satisfaction. In contrast to D&A, General Optica offers service within an hour for certain styles of lenses in some of its stores.

General Optica posted sales of €140.9 million (or 27.4% of the Group’s total net sales) during 2004, as compared with sales of €130.7 million (or 25.9% of total sales) in 2003.

In recent years, General Optica has renewed and expanded its network of establishments considerably. In particular, General Optica has demonstrated its ability to adapt by introducing a new store concept that is notably more spacious and attractive than its predecessors, with a modern, bright, minimalist design that is intended to set the standard for opticians of the future. This new type of store has a more modern, open, interactive air, in which prominence is given to a large display of frames and sunglasses, providing customers with what General Optica believes they want: the opportunity to look at, try on and choose products in complete freedom. In an effort to expand its range of services and monitor the interest of its customers in laser eye correction surgery, General Optica has established a consultation service in certain of its stores in collaboration with local laser surgery clinics.

General Optica benefits from a highly qualified team of professionals who receive ongoing training, employing approximately 1,450 dedicated individuals who can offer customers excellent service.

The stores that form part of General Optica’s retail network employ management software designed to provide high levels of quality and speed in their delivery of services. This information system is capable of identifying trends in customer demand, so that the range of products on offer in the stores may be adapted to customer needs.

As a company that is expanding, General Optica plans to acquire or open additional new stores in Spain and Portugal within the next three years, seeking to further consolidate the leading position that it holds in Spain. General Optica estimates that it has a share of approximately 10.0% of the Spanish optical market.

General Optica also has established itself as a company that is sensitive to the needs of the communities it serves. Through campaigns conducted in its network of eyecare centers, it has succeeded in increasing awareness of eye-related problems in Spain, collecting used glasses for distribution to underprivileged groups and providing support for collaborative ophthalmology projects via non-governmental organizations in developing countries, which have received recognition from important national organizations.

COMPETITION

De Rigo believes that its quality of products, its control over all aspects of production, its range of designer brand names, and its carefully selected network of distributors position the Company to compete successfully in the mid- to premium-price categories of the eyewear product market.

The eyewear industry is highly competitive and fragmented. As the Group has historically marketed its products primarily in Italy and the rest of Europe and Asia, it competes with different companies in different markets. The Group believes that its principal competitors in its major geographic markets include Luxottica (Chanel, Prada, Donna Karan, Vogue, Persol, Versace, Ray Ban, Killer Loop and Revo brands), Oakley (Oakley brand), Safilo (Gucci, Diesel, Dior, Armani and Polo brands), Marchon (Calvin Klein and Fendi brands) and Marcolin (Dolce & Gabbana and Replay brands).

In the retail distribution markets of the United Kingdom, Spain, and Portugal, De Rigo competes against national and international chains as well as independent opticians. Among the chain stores, the Group believes that its principal competitors are Specsaver, Boots the Optician, Vision Express and Optical Express in the United Kingdom, Multiopticas, Visionlab and Optica 2000 in Spain, and Multiopticas in Portugal.

ITALIAN GOVERNMENT INCENTIVE PROGRAM

In November 1963, the Italian Government introduced the Vajont Relief Program for the Longarone area as part of a package of relief measures enacted shortly after the Vajont dam catastrophe that devastated the area. Two of the Group’s companies, Dierre (which was merged into De Rigo S.p.A. in January 2002) and Quattro Valli, have located their registered offices and facilities in Longarone and historically benefited from the Vajont Relief Program. See “Risk Factors — We lost all tax benefits in September 2001 and in April 2003; our effective income tax rate has therefore increased significantly towards the statutory rate.”

Tax Benefits

The Vajont Relief Program provided that new businesses located in the areas affected by the Vajont dam catastrophe would receive a ten-year exemption, beginning on the date of commencement of their operations, from the national corporate income tax (Imposta sui Redditi delle Persone Giuridiche, or “IRPEG”, then levied at a rate of 36%) and the local income tax (Imposta Locale sui Redditi, or “ILOR”, then levied at a 16.2% rate). The program’s tax benefits were repealed in December 1993. However, the Italian Government specified that those companies that had already accrued the right to the tax exemptions as of January 1, 1994, which included Dierre and Quattro Valli, could continue to enjoy the tax exemptions through the expiration of their respective ten-year periods. In 1998, the Italian Government eliminated the ILOR tax along with certain other minor taxes, replacing them with the new Regional Tax on Productive Activities (Imposta Regionale sulle Attività Produttive or “IRAP”), which is currently levied at a 4.25% rate. Companies that had benefited from an exemption from ILOR continue to enjoy equivalent tax benefits with respect to the new IRAP tax. See Note 11 of Notes to the Consolidated Financial Statements included in Item 18.

Dierre’s ten-year exemption was granted in 1992, covering income earned during the period beginning September 2, 1991 and ending September 1, 2001. Quattro Valli’s exemption was granted in 1994 and covered income earned from April 21, 1993 to April 20, 2003. The Group does not expect that new tax benefits will be introduced by the Italian Government with respect to operations in the Longarone area or the other areas where its facilities are currently located.

TRADEMARKS

The Group’s products are sold under the Police, Sting and Lozza brand names, which have been registered as trademarks of the Company in substantially all of the principal markets in which they are used by the Group. In Spain, however, the Police name is registered to another manufacturer of sunglasses and, as a result, the Group markets its Police models in Spain under the name Vogart. Management believes that its established brand identities and trademarks are an important part of its strategy. See “— Company Strategy”.

The Group also sells products pursuant to license agreements or other arrangements under the following trademarks: Celine, Chopard, Escada, Etro, Fila Eyes, Givenchy, La Perla, Loewe, Mini and Furla. The company, by the end of 2005, will start to sell products under the trademarks Ermenegildo Zegna and Jean Paul Gaultier . De Rigo’s license agreements have terms ranging from one to five years, and some of the licenses limit De Rigo’s right to market and sell products with competing brand names and/or limit the markets in which it is able to use the licensed brands. Early termination or non-renewal of some or all of its license agreements or arrangements could have a material adverse effect on the Group’s operations, since sales of eyewear under such brand names and trademarks represent a material percentage of the Group’s net sales. In 2004, license agreements under which the Group manufactured and distributed eyewear under the Fendi and Onyx brands expired and were not renewed. See “Risk Factors — Our business is very dependent on our ability to negotiate and maintain favorable license arrangements.” in Item 3 and “— Products”.

INSURANCE

The Group maintains insurance against a number of risks. The Group insures against loss or damage to its facilities, against theft, loss or damage to its products while they are in transit to customers when transportation is the Group’s responsibility and against general liability to third parties. Although the Group does not cover 100% of these risks, management believes that the Group’s present level of insurance is adequate in light of its past experience.

SEASONALITY AND AVAILABILITY OF RAW MATERIALS

In 2004, 50.9% of the Group’s unit sales consisted of sunglasses, for which the peak sales period at the wholesale level is during the first four months of the year. Historically, this factor has tended to cause the Group to record a higher proportion of its revenues during the first half of the year. However, the increase over time in the percentage of the Group’s sales represented by prescription frames, which are not subject to seasonal peaks, has mitigated and is expected to continue to mitigate the seasonality of the Group’s sales as a whole. The seasonality of sales of sunglasses and the timing of the launch of new fashion collections has generally had the effect of increasing the Group’s marketing expenses during the second and third quarters of the year.

Generally, the raw materials and components used in the Group’s products are available in sufficient supply from a number of suppliers. However, certain products with innovative fashion content, such as lenses with innovative coatings or coloring, or unusual materials, such as special types of plastics produced only for the Group, are not generally available from a number of alternative sources. Any interruption of supply from the Group’s current sources of such products could therefore produce delays in production.

DESCRIPTION OF PROPERTY

The general location, use and approximate size of the principal properties used by the Group as of December 31, 2004 are set forth below.


		Total Area
Location	Use	(in square meters)
Longarone (BL), Italy	Group headquarters, manufacturing facility and distribution center		16,345
Longarone (BL), Italy	Manufacturing facility		3,594
Longarone (BL), Italy	Manufacturing facility		1,213
Limana (BL), Italy	Manufacturing facility		5,750
Barcelona, Spain	Distribution center		650
Barcelona, Spain	General Optica head office		2,139
Barcelona, Spain	General Optica warehouse		523
Barcelona, Spain	General Optica warehouse		1,640
Barcelona, Spain	General Optica warehouse		2,612
Barcelona, Spain	General Optica training center		820
Martignat, France	Distribution center		1,144
Watford, United Kingdom	Distribution center		279
Athens, Greece	Distribution center		300
Birmingham, United Kingdom	D&A head office		1,593
Birmingham, United Kingdom	Training center		924
Birmingham, United Kingdom	Distribution center		2,435
Hong Kong, China	Distribution center		324
Hong Kong, China	Supply chain service center		64
Tokio, Japan	Distribution center		718
Osaka, Japan	Sales office		110

At June 1, 2005, the Group also owned and operated 235 retail stores with an average retail area of 95 square meters in the United Kingdom and 143 retail stores in Spain and 10 retail stores in Portugal, which have an average retail area of 181 square meters. As of the same date, D&A owned a freehold interest in 49 of its properties and General Optica owned a freehold interest in 38 of its properties. Almost all of the Group’s other retail properties (as well as the land on which its owned stores are located) are leased. All of the listed properties located in Italy are owned by the Group, except the smaller of the two manufacturing facilities in Limana, which is leased from third parties. All of the listed properties located outside Italy and the United Kingdom are leased by the Group pursuant to long-term leases.

The Group believes that its current facilities are suitable for its needs and are well-maintained. See “— Design and Manufacturing — Manufacturing”. De Rigo completed construction of a new plant in Longarone in January 2002.

Item 5. Operating and Financial Review and Prospects

CRITICAL ACCOUNTING POLICIES

Our discussion of the Group’s results of operations and liquidity and capital resources in respect of the fiscal years ended December 31, 2002, 2003 and 2004 is based on the Company’s audited Consolidated Financial Statements and the related Notes thereto included in Item 18. These financial statements have been prepared in accordance with Italian GAAP, which differ in certain respects from U.S. GAAP. For a discussion of the principal differences between Italian GAAP and U.S. GAAP as they relate to the Group’s consolidated net income and shareholders’ equity, see Note 19 of Notes to the Consolidated Financial Statements included in Item 18.

De Rigo’s reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of the financial statements. De Rigo bases its estimates on historical experience and on various other assumptions, the results of which

form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

The selection of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing De Rigo’s financial statements and the following discussion of its results of operations and liquidity and capital resources. De Rigo believes the following critical accounting policies involve the most significant judgments and estimates used in the preparation of the Consolidated Financial Statements included in Item 18.

Accounting for Long-lived Assets. Property, plant and equipment and purchased intangible assets other than goodwill are recorded at either historical cost or revalued amounts. If such assets are acquired in a business combination, the purchase price is allocated to the estimated fair value of the acquired property, plant and equipment and intangible assets. Property, plant and equipment and intangible assets are depreciated or amortized on a straight-line basis over their estimated useful lives.

Property, plant and equipment are valued at acquisition or construction cost, less accumulated depreciation. Construction costs include directly allocable costs, an appropriate allocation of material and production overhead and interest accruing during the construction related to debt specifically associated with the related construction project.

Accounting for long-lived assets and intangible assets involves the use of estimates for determining the fair value at the acquisition date for assets acquired in a business combination, and the useful lives of the assets over which the costs of acquiring these assets are charged to the statement of operations. The useful lives of long-lived assets are subject to such variables as technological feasibility, obsolescence, changes in consumer demand and strategic management decisions.

When an impairment in the value of assets occurs, nonscheduled write-downs are made. The Company assesses the impairment of identifiable intangibles and long-lived assets whenever there is reason to believe that the carrying value may exceed the fair value and where a permanent impairment in value is anticipated. The determination of impairments of long-lived and intangible assets involves the use of estimates, which include but are not limited to the cause, the expected timing and the amount of the impairment. Impairment is based on a broad measure of factors. In evaluating assets for impairment, the Company typically considers, among other things, technological obsolescence, discontinuance of services, changes in market prices, significant negative industry or economic trends, significant underperformance relative to expected historical or project future operating results and other changes in circumstances that may indicate impairment.

For Italian GAAP purposes, property, plant and equipment and intangible assets are tested for impairment by comparing the carrying value of the intangible asset to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition and, if required, the impairment loss is measured as the amount that the carrying value of the asset exceeds the asset’s fair value if the asset is not recoverable.

To assess impairment of property, plant and equipment and amortizing intangible assets for U.S. GAAP purposes, the Company uses the guidance outlined in SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets. If, based on the analysis described above, management has concluded that impairment indicators exist, the Company will initially review for possible impairment by assessing the undiscounted cash flows expected to be derived from the asset or group of assets, comparing the lowest level of total expected undiscounted cash flow to the carrying value. If the carrying value of the asset or the group of assets exceeds the sum of the undiscounted cash flows, an impairment is considered to exist. An impairment charge is assessed by comparing the asset’s fair value to the carrying value. Fair value can be calculated by a number of different

approaches, including discounted cash flow, comparables, market valuations or quoted market prices. The process and steps required to assess the possible impairment of assets, including the identification of possible impairment indicators, assessing undiscounted cash flows, selecting the appropriate discount rate, the calculation of the weighted average cost of capital and the discounts or premiums inherent in market prices requires a substantial amount of management discretion and judgment. If actual results differ from these estimates, or if the Company adjusts these estimates in future periods, operating results could be significantly affected.

Valuation of Goodwill. Goodwill resulting from business combinations is amortized on a straight-line basis over its estimated useful life.

The determination of goodwill is dependent on the allocation of the purchase price to the tangible and intangible assets acquired and liabilities assumed. Such allocation is often based on judgmental factors and estimates of fair values for assets that may not have a readily determinable market value. In addition, the useful life assigned to goodwill is an estimate based on the judgment of management at the time of acquisition. The estimated useful life is subject to adjustment if facts and circumstances indicate that the acquired assets’ economic life has been affected by other variables, including technological feasibility, competitive factors and contractual rights.

Nonscheduled write-downs are provided when an impairment in the value of goodwill occurs. De Rigo reviews on a regular basis the performance of its subsidiaries. When there is reason to believe that the goodwill arising from the acquisition of a business is impaired and that the impairment is of a permanent nature, the Company compares the carrying amount of that subsidiary or business to its fair value. The determination of the fair value of a subsidiary involves extensive use of estimates. Methods commonly used by the Company for valuations include discounted cash flow methods, comparable market multiples and quoted stock market prices, if available. Factors affecting estimated fair values typically include discount rates, future cash flows, growth rates, weighted average cost of capital, market prices and control premiums. These estimates, including the methodologies used, are important in determining fair value and ultimately the amount of any goodwill impairment.

As of January 1, 2002, the Company adopted the requirements of SFAS 142, Goodwill and Other Intangible Assets, and as a result the Company has ceased amortization of goodwill and indefinite-lived intangible assets for U.S. GAAP purposes. The requirements of SFAS 142 include that goodwill be tested for impairment at least annually (and between annual tests when certain triggering events occur) using a two-step methodology. The first step screens for potential impairment at the reporting unit level, while the second step measures the impairment, if any. Under U.S. GAAP, the quoted market price of an asset, if available, should be used. If not available, then other valuation techniques, including discounted cash flow, comparables, etc., are acceptable. The selection of the various assumptions that are necessary to arrive at the fair value of a reporting unit, including the assumptions used in the underlying business plans, require substantial management judgment and discretion. If actual results differ from these estimates, or if the Company adjusts these estimates in future periods, operating results could be significantly affected.

Allowance for Doubtful Accounts. The Company makes ongoing estimates relating to the collectibility of accounts receivable and maintains a reserve for estimated losses resulting from the inability of customers to make required payments. In determining the amount of the reserve, management considers the historical level of credit losses and makes judgments about the creditworthiness of significant customers based on ongoing credit evaluations. This ongoing evaluation considers such factors such as the overall economic climate, regional strengths and weaknesses, legal rights and historical relations, among others. Historically, losses from uncollectible accounts have not exceeded the reserves. Since management cannot predict future changes in the financial stability of customers, the actual amount of future uncollectible accounts may differ from management’s estimates. If the financial condition of the customers were to deteriorate, resulting in

their inability to make payments, a larger reserve might be required. In the event the Company determined that a smaller or larger reserve was appropriate, a credit or a charge to selling and administrative expense would be recorded in the period in which such determination is made.

Deferred Taxes. The Company is required to estimate its income taxes in each of the jurisdictions in which it operates. This process involves a jurisdiction-by-jurisdiction estimation of actual current tax exposure and the assessment of the temporary differences resulting from differing treatment of items such as accruals and amortization, among others, for tax and financial reporting purposes. These differences result in deferred tax assets and liabilities, which are included within the Company’s consolidated balance sheet. The Company must assess in the course of its tax planning process the ability of the Company and its subsidiaries to obtain the benefit of deferred tax assets based on expected future taxable income and available tax planning strategies. If in management’s judgment, the deferred tax assets recorded will not be recovered, a valuation allowance is recorded to reduce the deferred tax asset.

Significant management judgment is required in determining the Company’s provision for income taxes, deferred tax assets, deferred tax liabilities and valuation allowances to reflect De Rigo’s potential inability to fully recover deferred tax assets. The analysis is based on the estimates of taxable income in the jurisdictions in which the Company operates and the period over which the deferred tax assets and liabilities will be recoverable. If actual results differ from these estimates, or if the Company adjusts these estimates in future periods, the Company may need to establish an additional valuation allowance that could adversely affect the Company’s financial position and results of operations.

Under U.S. GAAP, the Company assesses the recoverability of tax assets based on the criteria of “more likely than not”, that is, a probability of recoverability just over 50%. The probability assessment requires significant judgment regarding the timing of future book and tax reversals, which could be materially different from the actual results.

Inventory obsolescence. The Company has adopted uniform policies across its business to assist management in the identification, valuation and treatment of inventory that is not current or could otherwise be considered obsolete. The identification of this inventory is subject to certain judgments, such as the aging profile of the inventory, the estimated selling prices of the inventory in an other than retail environment, the estimated costs to dispose of the inventory, the overall impact on the associated brand of disposing of the inventory at an off retail price and the requirement of our licensing and branding agreements to maintain replacement inventory. Our ability to manage our inventory levels, and thus our overall requirements for an obsolescence reserve, are also highly dependent on several factors, some of which are not in our control, such as the overall economic environment, changes in tastes and fashion trends and of the market pressure. Management responds to these factors and others on an ongoing basis, adjusting procurement, delivery and manufacturing schedules on a continual basis in order to maintain an optimal balance between inventory, sales and forecasts. Changes to these assumptions or responses could require an increase or decrease in the inventory reserves in the future, resulting in additional expense or income being recognized in the income statement.

Other Significant Estimates. The application of Italian GAAP requires management to make other estimates and assumptions. For example, as discussed in more detail in Note 12 of the Consolidated Financial Statements included in Item 18, accounting for pension and other post-retirement and post-employment benefits requires estimates of future returns on plan assets and expected increases in compensation levels.

RESULTS OF OPERATIONS

Overview

De Rigo posted consolidated net sales of €514.4 million for 2004, a 1.9% increase as compared with last year. Cost of sales decreased by 1.5% to €198.9 million or 38.7% of total net sales, in 2004, from €202.0 million, or 40.0% of net sales, in 2003. Operating expenses increased by 3.2% to €286.7 million, or 55.7% of total net sales in 2004, as compared to €277.9 million, or 55.1% of net sales, in 2003. Income from operations increased by 15.7% to €28.8 million, or 5.6% of total net sales, in 2004, from €24.9 million, or 4.9% of net sales, in 2003. The increase in the Group’s operating income was primarily attributable to the improvement in income from operations in the wholesale and manufacturing segment, both in absolute terms and as a percentage of sales, that was itself due to higher gross margins and the expense reductions discussed in more detail below. Financial and other items contributed net expenses of €1.2 million in 2004, as compared to net income of €13.0 million in 2003, when this item primarily reflected the capital gain of €11.8 million realized on the sale of Group’s interest in EID. Net income decreased by 21.6% to €14.5 million in 2004 from €18.5 million in 2003 and represented 2.8% of net sales, as compared with 3.7% last year. Earnings per share were €0.34, a decrease of 19.0% as compared with €0.42 per share in 2003. Each of these items is analyzed in more detail in the comparison of the Group’s 2003 and 2004 results appearing below.

The following table sets forth certain income statement data expressed as a percentage of the Group’s consolidated net sales for the periods indicated:


	Year Ended December 31,
	2002		2003		2004
Net sales		100.0		100.0		100.0
Cost of sales		39.6		40.0		38.7
Gross profit		60.4		60.0		61.3
Operating expenses		57.1		55.1		55.7
Income (loss) from operations		3.3		4.9		5.6
Income taxes		0.0		3.0		2.5
Net income		2.1		3.7		2.8

Distribution Channels

Net sales consist primarily of (i) retail sales by the Group to customers of its British optical retail chain D&A and its Iberian optical retail chain General Optica; (ii) sales by the Group to opticians in Italy, and through its international distribution network located in major European markets and the Americas to retailers in those markets; and (iii) export sales by the Group to independent distributors. For the period prior to the Group’s divestiture of its interest in July 2003, sales by EID of Prada-branded eyewear to opticians, independent distributors and the Prada retail network in major markets worldwide, were also included in net sales.

Retail sales made by D&A and General Optica, subsidiary sales and direct sales to opticians, due to the various markups included in such sales, generate a greater contribution to net sales than that of sales to independent distributors. Retail sales are made at prices that include the retailer markup. Subsidiary sales are made at prices that include the customary distributor markup, taking into account commissions paid to the distribution subsidiaries’ sales representatives. Sales to opticians are made at prices that include a markup that takes into account commissions paid to the Group’s sales representatives. Sales to independent distributors, however, are made at prices that exclude distributor and retailer markups. As a result, changes in the relative contributions of the various distribution channels to net sales will affect the average price per unit sold by the Group. For example, an increase in the proportion of sales to independent distributors will result in a decrease in

the average price per unit sold, while an increase in the proportion of subsidiary sales will result in an increase in the average price per unit sold. Conversely, the Group’s cost of sales per unit is unaffected by the distribution channels through which such units are sold. Consequently, changes in the relative contributions of the distribution channels to net sales will affect the Group’s gross margin. However, operating expenses are higher for retail sales, subsidiary sales and sales to opticians than for sales to independent distributors, since operating expenses include commissions, advertising and promotion expenses, other selling expenses and general and administrative expenses. Thus, while the gross margin on retail sales, subsidiary sales and sales to opticians may be significantly higher than the gross margin on sales to independent distributors, this difference in gross margin may not translate into a comparable difference in profitability. Accordingly, management believes that the Group’s operating margin, which is net of both cost of sales and operating expenses, is more indicative of the profitability of the Group’s sales.

Business Segments

Currently, and for the year ended December 31, 2004, the Group has divided its activities into two distinct segments:

• Wholesale and Manufacturing consists of the design, manufacturing, marketing and distribution of high-quality eyewear to opticians in Italy, Germany and the Netherlands and to independent distributors and opticians through the Group’s distribution subsidiaries in other markets. This segment furnishes eyewear to the Group’s other business units, to which the wholesale and manufacturing segment makes sales at prices that include a markup designed to compensate the unit for its manufacturing activity. This segment includes De Rigo Vision S.p.A. and all of the distribution subsidiaries in which it holds a controlling interest.

• Retail consists of the sale of optical frames and lenses for prescription eyeglasses and fashion sunglasses (as well as contact lenses and other optical products), together with the provision of related professional consulting and aftercare services, through the network of stores operated by the Group’s two retail chains, D&A, a leading retailer in the British optical market, and General Optica, the leading optical chain in Spain, which also has a presence in Portugal.

In prior years, the Group included a third segment for financial reporting purposes.

Non-GAAP Measures

of the exchange rates used for such purpose in the earlier period, (b) income from operations before depreciation and amortization, a commonly-used measure of financial performance which is calculated by adding amortization and depreciation expenses to income from operations, and (c) net financial position, a commonly-used measure of indebtedness which is calculated as being equal to cash and cash equivalents minus the sum of bank borrowings and long-term debt (including the current portion thereof). With respect to 2004, the Group has also calculated comparative results for 2003 excluding the contribution of EID, in order to illustrate the underlying trends in the businesses that continue to part of the Group following De Rigo’s sale of the controlling interest in EID in July 2003 and allowing a comparison of performance on a consistent consolidation basis. In each of these cases, management believes that these alternative, non-GAAP figures, when considered in conjunction with (but not in lieu of) other measures that are calculated in accordance with Italian GAAP, enhance an understanding of De Rigo’s results of operations and those of its business segments. These non-GAAP measures are also commonly used by securities analysts, credit rating agencies and investors to evaluate the financial performance of De Rigo and its business segments and to compare its performance to that of its competitors. The Group’s method of calculating these non-GAAP measures may differ from methods used by other companies in calculating similar measures. In each case in which such a non-GAAP measure is used in this annual report, the most directly comparable GAAP measure is presented with equal or greater prominence and a reconciliation of the non-GAAP measure to such most directly comparable GAAP measure is provided.

Unaudited First Quarter Sales Results

De Rigo posted net sales of €130.9 million for the first quarter of 2005, a decrease of 6.0% as compared with the same period last year. As illustrated in the table below, foreign currency translation differences had a negative effect of 1.1% on consolidated net sales, particularly with regard to the translation into Euro of sales made in Japanese Yen, Pounds Sterling and Hong Kong Dollars, as the average exchange rate for these currencies in the first quarter of 2005 was less favorable to the Group than that during the first quarter of 2004.

The Group’s consolidated net sales of €130.9 million in the first quarter of 2005 were broken down as follows: eyewear sales of €60.2 million, lens sales of €39.6 million, contact lens sales of €18.7 million and other sales and revenues of €12.4 million, as compared with sales of €65.6 million, €42.0 million, €18.6 million and €13.0 million, respectively, for the first quarter of 2004.

Analyzing consolidated net sales by geographic area, net sales in Europe amounted to €118.1 million, a decrease of 6.7%, primarily as a result of lower sales through the Group’s retail companies and a decline in wholesale sales in certain markets. Net sales in the Rest of the World increased by 7.9% to €10,9 million, reflecting the Group’s positive results in the Far East. Net sales in the Americas amounted to €1.9 million, a decrease of 24.0%, primarily as a result of lower sales in the US market.

De Rigo’s overall consolidated net sales results reflected the contribution of each of the Group’s business segments, as detailed in the table below:

SALES BY BUSINESS SEGMENT (Euro in millions)
(including reconciliations of non-GAAP measures)


								1Q 2005
								Effect of		1Q 2005
								application of		Sales at constant
	1Q 2004		1Q 2005					constant exchange		exchange rates		%
	Sales		Sales		% change			rates		(Non-GAAP)		change
Wholesale & Manufacturing		42.3		39.7		-6.1	%		0.2		39.9		-5.7	%
Retail		99.9		95.1		-4.8	%		1.2		96.3		-3.6	%
- D&A		63.5		59.1		-6.9	%		1.2		60.3		-5.0	%
- GO		36.4		36.0		-1.1	%		0.0		36.0		-1.1	%
Elimination of Intercompany Sales		-3.0		-3.9		+30.0	%		0.0		-3.9		+30.0	%

Consolidated net sales		139.2		130.9		-6.0	%		1.4		132.3		-5.0	%

Wholesale and manufacturing

Wholesale and manufacturing sales amounted to €39.7 million, a decrease of 6.1% from €42.3 million posted in the first quarter of 2004. As illustrated in the table above, foreign exchange rates had a negative impact of 0.5% on the segment’s sales before eliminations, reflecting the appreciation of the Euro against certain currencies in which De Rigo makes sales.

Wholesale and manufacturing sales in the first quarter were impacted by the expiry of the Group’s license agreement with Fendi as of the end of 2004. Management expects that the negative impact on the segment’s sales of the expiry of the Fendi license will eventually be more than offset by increased sales under the new license agreements De Rigo has signed with Chopard, Ermenegildo Zegna, Escada and Jean Paul Gaultier during the last quarter of 2004 and first quarter of 2005. However, deliveries of Chopard and Escada-branded eyewear have only started recently, while those of Ermenegildo Zegna and Jean Paul Gaultier-branded products have not yet started. As a result, sales of the new brands contributed less to the segment’s sales during the first quarter of 2005 than those of Fendi-branded eyewear during the first quarter of last year.

Retail

Sales through the retail companies amounted to €95.1 million, a decrease of 4.8% from €99.9 million posted in the first quarter of 2004.

The following table sets forth certain data on the sales and store network of De Rigo’s two retail chains, D&A and General Optica during the periods indicated.


	1Q 2004		1Q 2005
	Sales		Sales					31 Mar 04		31 Mar 05				31 Mar 04		31 Mar 05
	€in millions		€in millions		% Change			Owned stores		Owned stores		Unit change		Franchised stores		Franchised stores		Unit change
D&A		63.5		59.1		-6.9	%		232		234		+2		143		140		-3

GO		36.4		36.0		-1.1	%		143		150		+7		14		20		+6


Total Retail		99.9		95.1		-4.8	%		375		384		+9		157		160		+3

D&A’s total sales were €59.1 million, a decrease of 6.9% as compared with sales of €63.5 million posted in the first quarter of 2004. Sales declined by 5.0% in Pound Sterling terms, less than in Euro terms, reflecting the decrease of the Pound Sterling’s value against the Euro. Same store sales per working day decreased by 4.6% in Pound Sterling terms. Sales of franchised stores during the period amounted to €16.0 million, a decrease of 9.1%; in Pound Sterling terms, sales of franchised stores decreased by 7.3%.

D&A’s sales were negatively affected by a general slowdown in the British optical market, as management believes D&A has essentially maintained its market share in value terms; the sales decline also reflected a reduction in the number of working days during the period due to the Easter holiday falling in March. At March 31, 2005, D&A operated a network of 234 owned shops and 140 franchised shops.

A reduction in the number of working days due to the Easter holiday falling in March was reflected in a 1.1% decline in General Optica’s total sales, which decreased to €36.0 million from the €36.4 million posted in the first quarter of 2004. The chain’s sales were also negatively affected by bad weather conditions during the months of January and February. However, same store sales per

working day continued to grow, rising by 1.2%, on top of the 8.4% increase posted in the first quarter of 2004.

2004 compared to 2003

Net sales. De Rigo posted consolidated net sales of €514.4 million for 2004, an increase of 1.9% as compared with last year. The Group’s current businesses continued to perform positively, as comparisons with the prior year were affected by De Rigo’s sale during July 2003 of the controlling interest in EID. As detailed in the table below, on the basis of a comparison excluding sales through EID during the portion of 2003 prior to its sale, the Group’s consolidated net sales increased by 6.1%.

In calculating its consolidated net sales and revenues, De Rigo has eliminated the intercompany sales between the Group’s business segments, as detailed in the following table:

SALES BY BUSINESS SEGMENT (Euro in millions)
(including reconciliations of non-GAAP measures)


								Effect of		2004 Sales at
								application of		constant exchange
								constant exchange		rates
	2003 Sales		2004 Sales		% change			rates		(Non-GAAP)		% change
Wholesale & Manufacturing		136.2		134.5		-1.2	%		0.5		135.0		-0.9	%
Retail		361.5		389.8		+7.8	%		-4.8		385.0		+6.5	%
- D&A		230.8		248.9		+7.8	%		-4.8		244.1		+5.8	%
- GO		130.7		140.9		+7.8	%		0.0		140.9		+7.8	%
Elimination of Intercompany Sales		-12.5		-9.9		-22.0	%		0.0		-9.9		-22.0	%


Consolidated net sales excluding sales through EID (Non-GAAP)		485.2		514.4		+6.0	%		-4.3		510.1		+5.1	%


EID		19.8		—		—			—		—		—
Elimination of Intercompany Sales		-0.2		—		—			—		—		—


EID net sales		19.6		—		—			—		—		—


Consolidated net sales		504.8		514.4		+1.9	%		-4.3		510.1		+1.0	%

The Group’s consolidated net sales of €514.4 million were broken down as follows: eyewear sales of €224.3 million, lens sales of €160.1 million, contact lens sales of €80.0 million and other sales and revenues of €50.0 million, as compared with sales of €235.8 million, €143.7 million, €74.7 million and €50.6 million, respectively, for 2003.

Foreign currency translation differences had a positive effect on consolidated net sales, particularly with regard to the translation into Euro of sales made in Pounds Sterling, as the average exchange rate for this currency in 2004 was more favorable to the Group than that during 2003. This increase in the relative value of the British currency more than offset a decline in the average Euro exchange rates for Japanese Yen and Hong Kong Dollars. As shown in the table above, foreign exchange rate differences had an overall positive effect of 0.9% on consolidated net sales.

Analyzing consolidated net sales by geographic area, net sales in Europe increased by 2.8% to €466.8 million, primarily as a result of higher sales through the Group’s retail companies. Net sales in the Rest of the World increased by 1.8% to €39.7 million, as the impact of the deconsolidation of EID was more than offset by very positive results posted by the Group’s Far Eastern distribution subsidiaries. Net sales in the Americas decreased by 33.6% to €7.9 million primarily as a result of the deconsolidation of EID.

Total sales of the wholesale and manufacturing segment declined by 1.2% to €134.5 million from €136.2 million posted in 2003, primarily as effect of the lost sales to EID. Excluding sales made by the wholesale and manufacturing business segment to EID prior to its sale in 2003, the segment’s sales increased by 0.7% (or 1.0% at constant exchange rates), as detailed in the table below. The increase in wholesale and manufacturing sales excluding those made to EID reflected strong sales results in certain Far Eastern markets, particularly Japan and Hong Kong, as well as in certain European markets, including Greece and Spain.


								Effect of		2004 Sales at
								application of		constant exchange
								constant exchange		rates
	2003 Sales		2004 Sales		% change			rates		(Non-GAAP)		% change
Wholesale and manufacturing sales		136.2		134.5		-1.2	%		0.5		135.0		-0.9	%
- of which sales to EID		-2.6		0.0					0.0		0.0

Wholesale and manufacturing sales excluding net sales to EID (Non-GAAP)		133.6		134.5		+0.7	%		0.5		135.0		+1.0	%

Total sales of the retail segment increased by 7.8% to €389.8 million from €361.5 million posted in 2003.

The following table sets forth certain data on the sales and store network of De Rigo’s two retail chains: D&A, one of the leading retailers in the British optical market and General Optica, the leading retailer in the Spanish optical market.


	2003		2004					31 Dec 03		31 Dec 04				31 Dec 03		31 Dec 04
	€in millions		€in millions		% Change			Owned stores		Owned stores		Unit change		Franchised stores		Franchised stores		Unit change
D&A		230.8		248.9		+7.8	%		232		232		—		144		140		-4

GO		130.7		140.9		+7.8	%		142		148		+6		14		18		+4


Total Retail	361.5			389.8		+7.8	%		374		380		+6		158		158		—

D&A’s sales grew to €248.9 million, an increase of 7.8% as compared with sales of €230.8 million posted in 2003. Sales grew by 5.8% in Pound Sterling terms, reflecting the increase in its value against the Euro, while same store sales per working day increased by 6.2% in Pound Sterling terms. Sales of franchised stores during the period grew by 5.8% to €66.6 million; in Pound Sterling terms, sales of franchised stores increased by 3.8%. The increase in D&A’s sales was primarily attributable to the Company’s aggressive marketing campaigns, which drove increased sales of higher quality products. At December 31, 2004, D&A operated a network of 232 owned shops and 140 franchised shops, having closed four underperforming franchised shops during the course of 2004.

General Optica grew sales by 7.8% to €140.9 million from the €130.7 million posted in 2003. General Optica continued its record of notable sales gains through the expansion of its owned and franchised store network, as well as registering a 6.0% increase in same store sales per working day on top of the 4.3% increase recorded in 2003. At December 31, 2004, GO operated a network of 148 owned shops and 18 franchised shops, having opened a net total of 6 owned shops and 4 franchised shops during the last twelve months.

Cost of sales. Cost of sales decreased by 1.5% to €198.9 million or 38.7% of total net sales, in 2004, from €202.0 million, or 40.0% of net sales, in 2003. The decrease in cost of sales was primarily attributable to the decline in sales by the wholesale and manufacturing segment, particularly those of

higher cost luxury/designer eyewear (especially EID’s brands), as well as to the realization of manufacturing efficiencies and an improvement in the product mix sold by the retail chains.

Operating expenses. Operating expenses increased by 3.2% to €286.7 million, or 55.7% of total net sales in 2004, as compared to €277.9 million, or 55.1% of net sales, in 2003. Each of the components of the Group’s operating expenses is discussed below.

Commissions decreased by 11.2% to €11.9 million, or 2.3% of total net sales, in 2004, from €13.4 million, or 2.7% of net sales, in 2003, primarily due to a decline in commissions paid by the wholesale and manufacturing segment to agents (particularly those in Italy) as a result of the decline in its sales.

Advertising and promotion expenses increased by 5.5% to €34.4 million, or 6.7% of total net sales in 2004, from €32.6 million, or 6.5% of net sales, in 2003. The increase was primarily attributable to higher marketing expenses at D&A, reflecting its efforts to strengthen its competitive position through aggressive promotions.

Other selling expenses increased by 4.6% to €204.4 million, or 39.7% of total net sales, in 2004, from €195.5 million, or 38.7% of net sales in 2003. The overall increase reflected higher costs at both D&A (primarily relating to optometrists and the contact lenses by post program) and General Optica (primarily due to the opening of new stores).

General and administrative expenses decreased by 0.8% to €36.0 million, or 7.0% of total net sales, in 2004, from €36.3 million, or 7.2% of net sales, in 2003. The decrease in general and administrative expenses reflected a decline at the wholesale and manufacturing segment that was mainly due to lower losses on accounts receivable, the positive effect of which was partially offset by an increase in administrative expenses at the retail chains, reflecting increased labor and depreciation costs at both General Optica and D&A.

The following table summarizes the Group’s principal operating results, on both a consolidated and segment basis, for the periods indicated.


								Income from
								operations before
								depreciation and
								amortization							Income from
	Sales							(Non-GAAP)*							operations
	(€in millions)							(€in millions)							(€in millions)
	2003		2004		% Change			2003		2004		% Change			2003		2004		% Change
Wholesale & Manufacturing		136.2		134.5		-1.2	%		18.4		21.3		+15.8	%		13.6		16.2		+19.1	%
Retail		361.5		389.8		+7.8	%		31.2		34.4		+10.3	%		9.6		12.6		+31.3	%
- D&A		230.8		248.9		+7.8	%		10.1		10.9		+7.9	%		1.2		1.9		+58.3	%
- GO		130.7		140.9		+7.8	%		21.1		23.5		+11.4	%		8.4		10.7		+27.4	%
EID		19.8		—					2.2		—					1.7		—
Elimination of Intercompany Sales		-12.7		-9.9		-22.0	%		—		—					—		—


Consolidated net sales		504.8		514.4		+1.9	%		51.8		55.7		+7.5	%		24.9		28.8		+15.7	%

See reconciliation table below

Income from operations increased by 15.7% to €28.8 million, or 5.6% of total net sales, in 2004, from €24.9 million, or 4.9% of net sales, in 2003. The increase in the Group’s operating income, both in absolute terms and as a percentage of sales, reflected improved results at both of its segments, which more than offset the loss of operating income from EID. Income from operations at

the wholesale and manufacturing segment increased by 19.1% to €16.2 million from €13.6 million in 2003, as the segment enjoyed the benefits of higher gross margins deriving from efficiencies in the manufacturing and purchasing process and other cost factors discussed above. The retail segment also recorded a significant increase in income from operations, which grew by 31.3% to €12.6 million from €9.6 million in 2003, reflecting the increase in sales as well as an improved product mix.

Income from operations before depreciation and amortization, a non-GAAP measure calculated by adding amortization and depreciation expenses to income from operations that is frequently used as a measure of financial performance and commonly used by securities analysts to evaluate the results of De Rigo and its business segments and to compare the Company’s performance to that of its competitors, increased by 7.5% to €55.7 million, or 10.8% of total net sales, in 2004, from €51.8 million, or 10.3% of net sales, in 2003. Income from operations before depreciation and amortization generally reflected the factors described above with respect to income from operations, with its lower rate of increase as compared with income from operations being primarily attributable to the fact that amortization expenses for both goodwill and intangibles were higher in 2003 than in 2004, as illustrated in the table below. On a segment basis, income from operations before depreciation and amortization at the wholesale and manufacturing segment increased by 15.8% to €21.3 million from €18.4 million in 2003, while that at the retail segment increased by 10.3% to €34.4 million from €31.2 million in 2003.

The following table reconciles income from operations before depreciation and amortization to income from operations, the most directly comparable Italian GAAP measure, on both a consolidated and segment basis, for the periods indicated in millions of Euro.


De Rigo Group	2003		2004		% Change
Income from operations		24.9		28.8		15.7	%
Amortization of goodwill		6.8		6.3		-7.4	%
Amortization of other intangibles		2.4		2.2		-8.3	%
Depreciation		17.7		18.4		4.0	%

Income from operations before depreciation and amortization		51.8		55.7		7.5	%


Wholesale & Manufacturing	2003		2004		% Change
Income from operations		13.6		16.2		19.1	%
Amortization of goodwill		0.8		0.3		-62.5	%
Amortization of other intangibles		1.0		1.0		0.0	%
Depreciation		3.0		3.8		26.7	%

Income from operations before depreciation and amortization		18.4		21.3		15.8	%


Retail	2003		2004		% Change
Income from operations		9.6		12.6		31.3	%
Amortization of goodwill		6.0		6.0		0.0	%
Amortization of other intangibles		1.3		1.2		-7.7	%
Depreciation		14.3		14.6		2.1	%

Income from operations before depreciation and amortization		31.2		34.4		10.3	%

Other income (expenses). Financial and other items contributed net expenses of €1.2 million in 2004, as compared to net income of €13.0 million in 2003. Net financial expenses totalled €0.4 million in 2004, compared to net financial expenses of €1.5 million in 2003, reflecting the Group’s repayment of a significant amount of short-term debt during the year. Net other expenses of €0.7 million, as compared to net other income of €14.5 million in 2003, accounted for the remainder of the

total net result in 2004. In 2003, net financial income had primarily reflected the capital gain of €11.8 million realized on the sale of Group’s interest in EID.

Income taxes. Income taxes amounted to €12.7 million in 2004, as compared with €14.9 million in 2003. The 14.8% decrease in income taxes occurred notwithstanding an increase in the Group’s effective tax rate, which was 46.1% in 2004, as compared to 39.5% in 2003. The increase in the effective tax rate reflected the fact that the tax benefit to the Group of the application of a more favorable tax rate to the gain recorded on the sale of EID in 2003 was greater than that arising in 2004 from a one percentage point decrease in Italian statutory tax rates and a step up in the tax basis of certain assets. See Note 11 of Notes to the Consolidated Financial Statements included in Item 18.

Net income. As a result of these factors, the Group’s net income decreased by 21.6% to €14.5 million in 2004 from €18.5 million in 2003 and represented 2.8% of net sales, as compared with 3.7% last year.

Earnings per share. Earnings per share were €0.34 in 2004 on a total of 42.5 million outstanding shares, a decrease of 19.0% as compared with €0.42 per share on total of 44.5 million outstanding shares in 2003. The reduction in the number of shares outstanding reflected the Group’s repurchase of shares during the year.

2003 compared to 2002

Net sales. De Rigo posted net sales of €504.8 million for 2003, a 1.5% decrease as compared with the previous year. The overall sales results were negatively affected by the appreciation of the Euro against other currencies in which De Rigo makes sales. As detailed in the reconciliation table below, when calculated on a constant exchange rate basis, De Rigo’s consolidated net sales increased by 3.5%.

The following table provides details of De Rigo’s consolidated net sales and the sales of each of its business segments for the periods presented, as well as providing reconciliations of sales calculated on a constant exchange rate basis to sales calculated in accordance with Italian GAAP.

SALES BY BUSINESS SEGMENT (Euro in millions)
(including reconciliations of non-GAAP measures)


										2003
										Effect of		2003
										application of		Sales at constant
	2002			2003						constant		exchange rates
	Reported sales			Reported sales			% change			exchange rates		(Non-GAAP)			% change
Wholesale & Manufacturing	€	141.1		€	136.2			–3.5	%	€	2.2	€	138.4			–1.9	%
Retail		359.6			361.5			+0.5	%		23.2		384.7			+7.0	%
— D&A		236.2			230.8			–2.3	%		23.2		254.0			+7.5	%
— General Optica		123.4			130.7			+5.9	%		0.0		130.7			+5.9	%
EID		31.2			19.8			–36.5	%		0.0		19.8			–36.5	%
Elimination of Intercompany Sales		(19.4	)		(12.7	)		–34.5	%		0.0		(12.7	)		–34.5	%

Consolidated net sales	€	512.5		€	504.8			–1.5	%	€	25.4	€	530.2			+3.5	%

The Group’s consolidated net sales of €504.8 million were broken down as follows: eyewear sales of €235.8 million, lens sales of €143.7 million, contact lens sales of €74.7 million and other sales and revenues of €50.6 million, as compared with sales of €245.4 million, €138.7 million, €76.5 million and €51.9 million, respectively, for 2002.

Foreign currency translation differences had a negative effect on consolidated net sales, particularly with regard to the translation into Euro of sales made in Pounds Sterling, Japanese Yen and Hong Kong Dollars, as the average exchange rates for these currencies in 2003 were less favorable to the Group than those during 2002. As detailed in the reconciliation table above, when calculated on a constant exchange rate basis, De Rigo’s consolidated net sales increased by 3.5%.

Sales by business segment

Wholesale and manufacturing sales amounted to €136.2 million, a decrease of 3.5% as compared with €141.1 million posted in 2002. The decrease in wholesale and manufacturing sales was primarily due to lower unit sales in certain European markets, primarily in Italy, as well as to a decline in the segment’s sales to EID. As detailed in the reconciliation table above, when calculated on a constant exchange rate basis, the business segment’s sales decreased by 1.9%.

Softer sales in certain European markets and to EID were partially offset by strong growth in the Rest of the World area, where the segment posted a 18.8% increase in sales. The increase was driven by very good results in the Far East region that were primarily attributable to increased sales of both the Group’s owned brands and its licensed designer brands.

Retail. Sales through the retail companies amounted to €361.5 million, an increase of 0.5% as compared with sales of €359.6 million posted in 2002. As detailed in the reconciliation table above, when calculated on a constant exchange rate basis, net sales through the retail companies increased by 7.0%.

The following table sets forth certain data on the sales and store network of De Rigo’s two retail chains: D&A, the Group’s British retail chain, and General Optica, the Group’s Iberian retail chain, for each of 2003 and 2002 and as of December 31, 2002 and December 31, 2003.


								31 Dec 02		31 Dec 03
	2002		2003					Owned		Owned				31 Dec 02		31 Dec 03
	Euro in millions		Euro in millions		% Change			stores		stores		Unit change		Franchised stores		Franchised stores		Unit change
D&A	€	236.2	€	230.8		–2.3	%		233		232		–1		147		144		-3

General Optica	€	123.4	€	130.7		+5.9	%		140		142		+2		5		14		+9


Total Retail	€	359.6	€	361.5		+0.5	%		373		374		+1		152		158		+6

Sales at D&A grew by 7.5% in Pound Sterling terms, while same store sales per working day increased by 7.6%. In Euro terms, D&A’s sales totalled €230.8 million, a decrease of 2.3% as compared with sales of €236.2 million posted in 2002, reflecting the decline in the value of the Pound Sterling against the Euro. Sales of franchised stores during the period amounted to €62.9 million, unchanged as compared with 2002; in Pound Sterling terms, sales of franchised stores increased by 10.1%. The notable increase in D&A’s sales in Pound Sterling terms, which was achieved in a very difficult environment marked by a decline in overall demand, was primarily attributable to D&A’s aggressive marketing activity. At December 31, 2003, D&A operated a network of 232 owned shops and 144 franchised shops.

General Optica reported sales of €130.7 million, an increase of 5.9% as compared with sales of €123.4 million posted in 2002. This 5.9% increase was achieved on top of the 11.6% sales increase posted in 2002. Same store sales per working day increased by 4.3%, on top of a 8.5% increase recorded in 2002.

EID. De Rigo sold its 51% interest in EID, the former joint venture for the marketing and distribution of Prada eyewear, to the Prada Group. As a consequence of this transaction, EID is no longer one of De Rigo’s business segments and its results for the third quarter and fourth quarter of 2003 have not been consolidated in the De Rigo Group’s results for those periods. Accordingly, the €19.8 million in sales reported for the former segment in 2003 only reflects EID’s results for the first six months of 2003, prior to the Group’s sale of its interest.

Net sales by geographic region. Net sales in Europe decreased by 2.2% to €453.8 million, primarily as a result of the appreciation of the Euro against the Pound Sterling. Net sales in the Americas decreased by 0.8% to €11.9 million. Net sales in the Rest of the World increased by 6.6% to €39.0 million, primarily as a result of increased unit sales in the Far East, the positive effects of which were only partially offset by the unfavorable trend in Japanese Yen and Hong Kong Dollar exchange rates and by the negative effects on consumption during the first half of the year due to the impact of the SARS crisis and the war in Iraq.

Cost of sales. Cost of sales decreased by 0.6% to €202.0 million or 40.0% of total net sales, in 2003, from €203.2 million, or 39.6% of net sales, in 2002. The decrease in cost of sales was attributable to the decline in net sales, especially those of higher margin luxury/designer eyewear, as well as to the realization of manufacturing efficiencies.

Operating expenses. Operating expenses decreased by 5.0% to €277.9 million, or 55.1% of total net sales, in 2003, as compared to €292.5 million, or 57.1% of net sales, in 2002. The decline in operating expenses both in absolute terms and as a percentage of sales reflected the deconsolidation of EID following the Group’s sale of its majority interest, as well as lower operating expenses at D&A as a consequence of the weakness of the Pound Sterling against the Euro.

Commissions decreased by 18.3% to €13.4 million, or 2.7% of total net sales, in 2003, from €16.4 million, or 3.2% of net sales, in 2002, primarily due to a decline in commissions paid by EID to the Prada Group for sales of Prada eyewear through the Prada Group’s network of stores during the six months of the year prior to De Rigo’s sale of its interest, as well as lower commissions paid by the wholesale segment to agents as a results of decline in sales particularly in Italy and a reduction in the level of commissions paid by D&A in Euro terms.

Advertising and promotion expenses decreased by 6.6% to €32.6 million, or 6.5% of total net sales in 2003, from €34.9 million, or 6.8% of net sales, in 2002. The decrease was attributable to the deconsolidation of EID, as well as a decline in marketing expenses in the wholesale segment.

Other selling expenses decreased by 3.7% to €195.5 million, or 38.7% of total net sales, in 2003, from €203.0 million, or 39.6% of net sales in 2002. The decline was primarily attributable to a reduction in the Euro value of expenses incurred at D&A.

General and administrative expenses decreased by 5.2% to €36.3 million, or 7.2% of total net sales, in 2003, from €38.3 million, or 7.5% of net sales, in 2002. The decrease in general and administrative expenses both in absolute terms and as a percentage of sales was primarily attributable to the deconsolidation of EID, as well as a reduction in expenses at D&A as a consequence of the weakness of the Pound Sterling against the Euro.

Income from operations increased by 49.1% to €24.9 million, or 4.9% of total net sales, in 2003, from €16.7 million, or 3.3% of net sales, in 2002. The increase in the Group’s operating income was primarily attributable to the improvement in the wholesale and manufacturing segment, both in absolute terms and as a percentage of sales, primarily attributable to higher gross margins deriving from efficiencies in the manufacturing and purchasing process and reflecting the cost factors discussed above.

Other income (expenses). Financial and other items contributed net income of €13.0 million in 2003, as compared to net expenses of €7.0 million in 2002. Net financial expenses in 2003 totalled €1.5 million, compared to net financial expenses of €3.4 million in 2002, reflecting the Group’s repayment of a significant volume of short-term borrowing. Net other income of €14.5 million, as compared to net other expenses of €3.6 million in 2002, accounted for the remainder of the total net result in 2003, primarily reflecting the capital gain of €11.8 million realized on the sale of Group’s interest in EID.

Income taxes. Income taxes amounted to €14.9 million in 2003, as compared with €0 million in 2002. The Group’s income was taxed at an effective rate of 39.4% in 2003. The increase in the effective tax rate reflected the fact that De Rigo had recognized significant deferred tax assets relating to tax relief granted to the Group in connection with the expiration of certain tax incentives in 2002, as well as to the impact of the expiration of these incentives in 2003, when nearly all of the Group’s income was subject to tax.

Net income. Net income increased by 74.5% to €18.5 million in 2003 from €10.6 million in 2002 and represented 3.7% of net sales, as compared with 2.1% last year.

Earnings per share. Earnings per share were €0.42 on a weighted average total of 44.7 million outstanding shares, an increase of 75.0% as compared with €0.24 in 2002.

Effect of Inflation

Management believes that the impact of inflation was not material to the Group’s net sales or income from operations in any of the years ended December 31, 2002, 2003 and 2004.

U.S. GAAP Reconciliation

The Group’s consolidated net income determined in accordance with U.S. GAAP would have been €23.0 million, €24.3 million and €17.1 million for the years ended December 31, 2004, 2003 and 2002, respectively, as compared with net income of €14.5 million, €18.5 million and €10.6 million, respectively, for the same periods, as determined under Italian GAAP. Differences in goodwill depreciation principles under Italian GAAP and U.S. GAAP following the Group’s adoption of SFAS 142 impacted the results for each of the three years, while differences in the recognition as compensation expense of expenses related to the Company’s stock-based compensation plan under SFAS 148 had an impact on the results for 2004 and 2003. In addition, under U.S. GAAP, EID is presented as a discontinued operation for 2003 and 2002 in accordance with the guidance of SFAS 144. Based upon this guidance, the results for all relevant periods, including revenues and costs, of the sold businesses are removed from the consolidated statements of operations and reported after income from continuing operations.

The Group’s total assets determined in accordance with U.S. GAAP would have been €403.6 million and €392.1 million at December 31, 2004 and 2003, respectively, as compared with €394.6 million and €376.9 million, respectively, under Italian GAAP. Shareholders’ equity determined in accordance with U.S. GAAP would have been €235.2 million and €221.7 million at December 31, 2004 and 2003, respectively, as compared with €241.4 million and €226.9 million, respectively, under Italian GAAP.

For a discussion of the principal differences between Italian GAAP and U.S. GAAP as they relate to the Group’s consolidated net income and shareholders’ equity, including the effect of the adoption of new accounting principles, see Note 19 of Notes to the Consolidated Financial Statements included in Item 18.

Liquidity and Capital Resources

De Rigo’s cash flow from operating activities decreased from €50.8 million in 2003 to €41.4 million in 2004. The decrease in net cash provided by operating activities reflected the fact that in 2003 this item had included €11.8 million related to the sale of EID (including the portion attributable to minority interests), as well as the effect of the lower net income, higher payments of income taxes and value added taxes, and greater investments in working capital recorded in 2004.

The Company relies primarily on funds from operations to finance its working capital needs, including the financing of its inventories and receivables. It also maintains unsecured short-term lines

of credit with Italian banks, which have no set term and are payable upon demand. At December 31, 2003 and 2004, the Group had unsecured short-term bank lines of credit aggregating approximately €137.1 million and €85.5 million, respectively, having cancelled during 2004 a number of lines that it had not been using. At December 31, 2003 and 2004, approximately €114.5 million, and €65.1 million, respectively, were available for further borrowings under these lines. At December 31, 2003 and 2004, the weighted average interest rates for the short-term lines of credit were 3.48% and 3.56% respectively. Amounts outstanding under these lines of credit are payable upon demand. None of these facilities contain ratings triggers or financial covenants. For more information on De Rigo’s outstanding debt, see Notes 8 and 9 of the Notes to the Consolidated Financial Statements included in Item 18.

At December 31, 2004, the Company had positive net working capital (calculated as our total current assets less our current liabilities) of €33.8 million, as compared to €32.5 million at December 31, 2003. The 4.0% increase in net working capital was primarily attributable to a sharp improvement in the net financial position of the Group, which changed from net indebtedness of €3.6 million at December 31, 2003 to net cash of €6.2 million a year later, reflecting a significant increase in cash and cash equivalents and the impact of debt repayments during 2004.

Net financial position (which we calculate as being equal to cash and cash equivalents minus the sum of bank borrowings and long-term debt (including the current portion thereof) is a non-GAAP measure that is frequently used as a measure of indebtedness and is used by securities analysts to compare the Company’s position to that of its competitors. The following table details our net financial position as at the end of each of 2003 and 2004 and provides a reconciliation of this non-GAAP measure to “cash and cash equivalents” the most directly comparable GAAP measure appearing in our consolidated statements of cash flows.


Reconciliation of Net Financial Position with most directly comparable Italian GAAP measure
	December 31,		December 31,
(millions of Euro)	2003		2004
Cash and cash equivalents		19.6		27.1
Bank borrowings		–22.5		–20.4
Current portion of long term debt		–0.2		–0.2
Long term debt, less current portion		–0.5		–0.3

Net Financial Position		–3.6		6.2

Net cash used in investing activities totaled €20.5 million in 2004, as compared to cash provided by such activities of €3.6 million in 2003. The significant difference reflected the fact that the sale of EID had provided €12.3 million in cash in 2003. The result was also attributable to a significant increase in cash used for additions to property, plant and equipment, reflecting an increase in capital expenditures at both General Optica, which opened six new stores, and D&A, which increased its expenditures on refitting stores. Capital expenditures in 2004 were €17.6 million, as compared to €11.6 million in 2003, and were financed principally with funds from operations.

The Group expects to incur capital expenditures of approximately €20 million in 2005, essentially for the refitting of existing shops in Spain and the United Kingdom and the opening of new shops in Spain. The Group believes that the financial resources available to it from funds from operations, cash on hand and short-term investments held by the Group will be sufficient to meet the Group’s capital expenditure requirements in 2005.

Net cash used in financing activities deceased sharply, from €55.6 million in 2003 to €13.4 million in 2004, primarily as a result of a significant decrease in the Group’s net short-term borrowings as compared to the prior year, as well as the fact that dividends were no longer payable to

holders of former minority interests. The amount invested by the Group to purchase outstanding ADSs (including those repurchased from Prada) under De Rigo’s authorized share repurchase program increased to €11.3 million in 2004 from €0.7 million in 2003.

As of December 31, 2004 and 2003, the Group’s ratio of long-term debt to shareholders’ equity was 0.1% and 0.2%, respectively. The decrease in this ratio between 2004 and 2003 reflects the increase in the level of the Group’s retained earnings, as well as a reduction in the level of its outstanding debt.

The Group’s liquidity needs could increase in the event of an extended economic slowdown or recession that would reduce cash flow from operations and would impair the ability of the Group’s distributors and retail customers to meet their payment obligations.

In 2004, the Group again engaged in certain hedging transactions to manage risks relating to foreign currency exchange rates. See Note 19 of Notes to the Consolidated Financial Statements included in Item 18 and “Quantitative and Qualitative Disclosures About Market Risk” in Item 11.

Off-Balance Sheet Arrangements

De Rigo does not engage in the use of special purpose entities for off-balance sheet financing or any other purpose which results in assets or liabilities not being reflected in its consolidated financial statements, nor does it engage in any off-balance sheet financing through other means that has or is reasonably likely to have a current or future effect on the Group’s financial condition or operational results.

Contractual Obligations

The following table sets forth the contractual obligations and commercial commitments of the Group with definitive payment terms that will require significant cash outlays in the future, as of December 31, 2004:


	Payments due by period
					2006		2008		2010 and
	Total		2005		2007		2009		thereafter
	(in millions of Euro)
Long-Term Debt		0.5		0.2		0.1		0.1		0.1
Operating Leases		160.4		24.6		42.9		35.0		57.9
Other Commitments		31.4		6.7		9.7		11.4		3.6

Total Obligations		192.3		31.5		52.7		46.5		61.6

Long-term debt. For information on our long-term debt obligations, see “¾Capital Resources” above and Note 9 to the Consolidated Financial Statements included in Item 18.

Operating leases. D&A leases property, computer hardware and cars and General Optica leases property under non-cancellable operating leases. Other lease commitments relate to the rental of buildings by distribution subsidiaries. At December 31, 2004, the future lease payments under these operating leases totalled approximately €160.4 million. For additional information, see Note 16 of Notes to the Consolidated Financial Statements included in this Annual Report.

Other commitments. At December 31, 2004, these obligations comprised those arising out royalty agreements and sponsorship contracts.

Royalty agreements. These liabilities relate to royalties due and minimum advertising expenses required under De Rigo’s arrangements with certain designers for the use of their trademarks in the production of fashion eyewear eyeglasses. At December 31, 2004, the minimum future payments arising out of these agreements totalled approximately €30.1

million, of which approximately €21.0 million related to royalty arrangements and €9.1 million to advertising expenses.

Sponsorship agreements. These liabilities relate to the Group’s marketing contracts with actors and athletes serving as spokespersons for De Rigo’s products. At December 31, 2004, future payments due under these agreements totalled approximately €1.3 million.

Concentrations of Credit Risk

Financial instruments that potentially subject the Group to concentration of credit risks consist principally of cash investments and trade accounts receivable. The Group maintains cash and cash equivalents and short-term investments with financial institutions located in Italy. The Company selects only financial institutions with high credit standards for use in its investment strategies. Concentration of credit risks and the risk of accounting loss with respect to trade receivables is generally limited due to the large number of the Company’s end customers and the diversity of the geographic areas in which the customers are located. The Company generally does not require collateral with respect to sale orders, but it may require collateral and bank guarantees with respect to certain customers.

No individual customer represented 10% or more of sales in any of the years ended December 31, 2002, 2003 and 2004.

New Accounting Standards

For a discussion of the impact of the Group’s adoption of new accounting standards on its results of operations under U.S. GAAP, see Note 19(s) of Notes to the Consolidated Financial Statements included in Item 18.

Process of Transition to International Accounting Standards

Following the entry into force of European Regulation No. 1606 of July 2002, EU companies whose securities are traded on regulated markets in the EU are required to adopt international financial reporting standards (“IFRS”), formerly known as IAS, in the preparation of their 2005 consolidated financial statements. Given that our securities are only traded on the NYSE, we are not subject to this requirement and intend to continue to report our financial results in accordance with Italian GAAP and to provide the required reconciliation of certain items to U.S. GAAP in our annual reports on Form 20-F.

Trend Information

The Group competes in the eyewear market as a whole, and in several individual sectors of that market, including those for sunglasses, prescription eyewear and fashion eyewear. De Rigo believes that the most significant consumer-related trends in these markets that may affect its business include the following:

• Consumers are increasingly attracted by products with higher fashion content.

• Consumers are also increasingly attracted by eyewear incorporating more sophisticated technological features and high quality components, particularly those capable of increasing eye protection (sunglasses lenses) and great comfort (progressive lenses and multi-coated lenses).

• Products bearing brands with high customer appeal have become synonymous with technology, quality and style. Customers rely on recognized brands to simplify their

purchase decision.

• The average age of the population in De Rigo’s primary markets is increasing and, as a result, the number of people wearing spectacles in those markets is increasing.

• Sunglasses and spectacles are becoming more popular, even in countries with lower average per capita spending power.

• Expected increases in personal income levels could reduce the current length of the replacement cycle for eyewear in certain of the Company’s more developed markets.

• Increased use of, and exposure to, computers, televisions and similar instruments tends to have a negative effect on consumers’ vision.

• Although laser surgery vision correction procedures are becoming more common, particularly in the United Kingdom and United States, the high cost and sometimes limited effectiveness are limiting their use.

De Rigo believes that the impact of these factors can be seen in a number of current developments in the eyewear industry, including the following:

• Consumers are increasingly inclined toward purchasing sunglasses with higher fashion content, particularly if they bear a designer brand. Sunglasses have essentially become a fashion accessory.

• The increased attractiveness of designer-brand sunglasses incorporating high technology and high quality components, including progressive and multi-coated lenses, is resulting in an increase in the average retail price for sunglasses.

• Higher disposable income and a perceived need for security and protection are increasingly causing consumers to own more than one pair of spectacles or sunglasses.

• The desire for feeling better about one’s appearance is leading to an increased percentage of consumers owning both contact lenses and spectacles; this trend is particularly evident in the United Kingdom, Northern Europe and United States.

• The increasing importance of fashion content is reducing the length of the replacement cycle for sunglasses.

• Increased use of laser surgery techniques could reduce the need for prescription eyewear, while increasing the use of sunglasses among the same group of consumers.

Item 6. Directors, Senior Management and Employees

DIRECTORS AND SENIOR MANAGEMENT

The following table sets forth the names of the members of the Board of Directors and the senior management of the Company and each of its principal operating companies. The term of appointment of the current directors expires upon approval by the Company’s shareholders of its financial statements for the year ending December 31, 2005. The senior management of the Company and its subsidiaries are appointed by the Board of Directors of the respective company and serve at the discretion thereof.


Name	Age		Position within Group/Company
Ennio De Rigo		65	Chairman of the Board of Directors and Chief Executive Officer
Emiliana De Meio De Rigo		61	Vice Chairman of the Board of Directors
Walter De Rigo		73	Director
Michele Aracri		48	Director and Managing Director
Maurizio Dessolis		39	Vice-Chairman and Chief Financial Officer (1)
Massimo De Rigo		36	Vice-Chairman and Head of Design Department (1)
Enrico Valdani		56	Outside Director
Jordi Fontcuberta		49	Managing Director, General Optica
Bruno Palmegiani		55	Art & Creative Director
Mario Sommavilla		57	Chief Administrative Officer
Andy Ferguson		45	Managing Director, Dollond & Aitchison (2)

(1)		Mr. Dessolis and Mr. Massimo De Rigo were elected as members of the Board of Directors at the annual general meeting of shareholders in May 2004 and named Vice-Chairmen by the Board of Directors at the same meeting.

(2)		Mr Ferguson, previously Head of Operations of D&A, replaced Mr. Russel Hardy, who resigned in September 2004.

Mr. Ennio De Rigo has been Chief Executive Officer of the Company since 1980. Mr. De Rigo held the title of Sole Director of the Company from 1980 until March 1995, when he became Chairman of the Board of Directors.

Mrs. Emiliana De Meio De Rigo has been Sales Manager of the Company since 1980. She became Vice Chairman of the Board of Directors in 1995.

Mr. Walter De Rigo has been a Director of the Company since 1995. He is Chairman of the Board and Chief Executive Officer of Surfrigo S.r.l., a manufacturer of commercial refrigerators wholly owned by the De Rigo brothers, and is a Director of Impresa Edile F.lli De Rigo S.r.l., a construction company wholly owned by Mr. Walter De Rigo. From May 2000 through June 2001, he has served as President of the Associazione degli Industriali della Provincia di Belluno, the industrial association for the province of Belluno. In June 2001, Mr. De Rigo was elected to the Italian Senate.

Mr. Michele Aracri has been Managing Director of the Company since early 1995. Prior to 1995, Mr. Aracri held the position of Chief of Operations of the Company.

Mr. Maurizio Dessolis has been Chief Financial Officer of the Company since March 1993 and was elected as a member of the Board of Directors and one of its Vice-Chairmen in May 2004. He is also a Managing Director of De Rigo Holding.

Mr. Massimo De Rigo has been the Head of the Design Department of the Company since October 2000 and was elected as a member of the Board of Directors and one of its Vice-Chairmen in May 2004.

Professor Enrico Valdani has been an Outside Director of the Company since September 2001. He is a Full Professor of Business Administration and Strategic Marketing at L. Bocconi University in Milan and a Senior Professor at the SDA Bocconi Business School. In addition to his academic activities, Professor Valdani was a partner in a major consulting group and in 1992 founded a consulting company that is currently one of the leading firms in Italy. He is a member of the executive boards of a number of Italian companies and of the advisory boards of a number of management journals. He has attended the Graduate School of Business Administration at Harvard University and served as a Visiting Scholar at the University of Southern California, and is an appreciated author of many books and articles.

Mr. Jordi Fontcuberta has been the Managing Director of General Optica since 2000, having previously served as the Chief Administrative Officer of General Optica. Trained as an auditor with Andersen, before joining General Optica in 1997, Mr. Fontcuberta served as Financial Manager for

Bacardi-Martini Spain and Chief Financial Officer of D’Arcy Masius Benton Bowles’ Spanish operations.

Mr. Bruno Palmegiani has been Art & Creative Director of the Company since 1994. From 1980 to 1994, he was a Senior Designer at the Company.

Mr. Mario Sommavilla has been Chief Administrative Officer of the Company since December 1994. From 1980 through November 1994, he was Chief Administrative Officer at Industria Elettrica Indel S.p.A., a producer of metal alloys.

Mr. Andy Ferguson has been with D&A since 1997, first as Operations Director and then as Commercial Director before his appointment as Chief Executive in September 2004. Prior to joining D&A, he worked in the grocery industry for the Argyll Group PLC and Safeway PLC in a number of senior Operational and Commercial roles, including Specialist Business Director and Chilled Foods Director.

Mrs. Emiliana De Meio De Rigo is the wife of Mr. Ennio De Rigo, Chairman of the Board and Chief Executive Officer of the Company. Mr. Walter De Rigo and Mr. Ennio De Rigo are brothers. Mr. Massimo De Rigo is the son of Mr. Ennio De Rigo and Mrs. Emiliana De Meio De Rigo. Mr. Maurizio Dessolis is the son in law of Mr. Ennio De Rigo and Mrs. Emiliana De Meio De Rigo. There are no other family relationships among the directors and senior management of the Company.

Board of Statutory Auditors

Under Italian law, in addition to electing the Board of Directors, the Company’s ordinary shareholders meeting also elects a Board of Statutory Auditors (Collegio Sindacale). The Statutory Auditors are elected for a term of three years, may be re-elected for successive terms and may be removed only for cause and with the approval of a competent court. Each member of the Board of Statutory Auditors must provide certain evidence that he is in good standing and meets certain professional standards. The Board of Statutory Auditors is required to verify that the Company (i) complies with applicable law and its By-laws, (ii) respects the principles of correct administration, (iii) maintains adequate organizational structure, internal controls and administrative and accounting systems and (iv) adequately instructs its subsidiaries to transmit information relevant to its disclosure obligations.

The following table sets forth the names of the three members of the current Board of Statutory Auditors and its alternate members and their respective positions. The current Board of Statutory Auditors was elected for a three-year term at the annual meeting of shareholders on May 24, 2004 to serve until the date of the annual meeting of shareholders that will approve the accounts for the fiscal year ending December 31, 2006.


Name		Title
Dr. Mario Bampo		Chairman
Dr. Fanio Fanti		Statutory Auditor
Dr. Dino Sesani		Statutory Auditor
Rag. Galeazzo Osvaldo D’Ambrosi		Alternate Statutory Auditor
Rag. Sergio Bonacin		Alternate Statutory Auditor

COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT

Aggregate compensation paid by the Company and its subsidiaries to the directors and senior management named above as a group was approximately € 1.5 million in 2004, excluding the accrual for termination indemnities required by Italian law. In addition, such senior managers have been

granted options in respect of a total of 372,600 Ordinary Shares under the Company’s stock option plan, which expired on December 31, 2004. A total of 186,300 of these options have been exercised, of which 123,051 were exercised during 2004. The remaining unexercised options have expired. For additional information, see Item 10. Additional Information “Options to Purchase Securities from Registrant or Subsidiaries”. The directors of the Company were not eligible to receive options under such plan.

As of June 1, 2005, the directors and senior managers listed in Item 6 as a group (other than Messrs. Ennio De Rigo, Walter De Rigo and Michele Aracri) owned significantly less than 1% of the outstanding Ordinary Shares of De Rigo S.p.A. See Item 7. “Major Shareholders” for information on the shareholdings of Messrs. De Rigo, De Rigo and Aracri.

EMPLOYEES AND LABOR RELATIONS

As of December 31, 2004, the Group had approximately 4,760 employees worldwide, of which approximately 3,800 were sales employees (including about 2,200 at D&A and 1,090 at General Optica), approximately 870 were manufacturing employees and 50 were employed at central offices. The Group had approximately 4,800 employees at December 31, 2003. The majority of the Group’s sales employees are located in the United Kingdom and Spain, while the majority of its manufacturing employees are located in Italy. Substantially all of the Company’s Italian employees and certain of its manufacturing employees in the United Kingdom are covered by collective bargaining agreements. None of the Group’s facilities in Italy is operated on a “closed shop” basis. The Group believes that it has excellent relations with its employees and has not experienced any significant work stoppages.

Employment agreements in Italy are generally collectively negotiated between the national association of companies within a particular industry and the representative national union. Individual companies must enter into contracts with their employees based on the relevant collective agreement. The most recent national collective bargaining agreement covering all of the Group’s manufacturing employees in Italy was entered into as of January 1, 2004, and will expire on December 31, 2005. In addition to the national collective bargaining agreement, the Group usually enters into separate local contracts with the labor unions representing its employees.

Italian law provides that, upon termination of employment, employees are entitled to receive certain indemnity payments based on their length of employment. As of December 31, 2004, the Group had accrued €6.9 million in respect of such termination indemnity liabilities, such reserves being equal to the amounts required by Italian law.

D&A operates a defined benefit “Final Pensionable Salary Scheme” for certain of its eligible employees. The benefits are based on years of service and the employee’s compensation during a period up to the last seven years of employment. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Pension expense recognized for the contribution plan amounted to €5.5 million in 2004. This plan was under-funded by €38.7 million at December 31, 2004. See Note 12 of Notes to the Consolidated Financial Statements included in Item 18.

General Optica has defined benefit plans covering certain of its executives that are not currently funded. The benefits covered differ depending on the beneficiary. The present value of these benefit obligations was €2.4 million at December 31, 2004. The net decrease in the benefit obligation of €0.1 million during 2004 represents the net periodic benefit cost recognized of €0.2 million for the twelve months ended December 31, 2004 less the benefits paid during that period, which amounted to €0.3 million. See Note 12 of Notes to the Consolidated Financial Statements included in Item 18.


						As of June 1,
	2005					2004					2003
	No. of Shares		% of Class			No. of Shares		% of Class			No. of Shares		% of Class
Ennio De Rigo and Walter De Rigo⁽¹⁾.		32,787,000		77.2	%		32,922,000		74.0	%		32,922,000		73.6	%
Schroeder Investment Mgmt. Ltd ^(2).		3,731,530		8.8	%		3,211,111		7.2	%		n.a.
Prada		—		—	%		2,225,000		5.0	%		2,225,000		5.0	%
Michele Aracri		870,000		2.0	%		870,000		2.0	%		870,000		1.9	%

(1)		Includes shares held directly and those held through De Rigo Holding and another company controlled by Messrs. Ennio De Rigo and Walter De Rigo. At June 1, 2005, June 1, 2004 and June 1, 2003, De Rigo Holding held 31,869,500, 31,869,500 and 31,869,500 Ordinary Shares, respectively, and the other company held 135,000, 135,000 and 78,500 Ordinary Shares, respectively; with the remainder at each date held by the De Rigo brothers directly. None of these Ordinary Shares possess any special voting rights. The increase in the percentage of the class held by the De Rigo Brothers as of June 1, 2005 is attributable to the decrease in the number of shares outstanding as a result of purchases under the Company’s authorized share repurchase program, as described below.

(2)		Holdings of ADSs as of December 31, 2004 and 2003, as reported in the Schedules 13G filed with the SEC on February 11, 2005 and on February 13, 2004, respectively. No more current information on this shareholding is available to the Company.

In February 1999, De Rigo Holding (the Company’s controlling shareholder) entered into an agreement with Prada Luxembourg s.a.r.l. pursuant to which De Rigo Holding granted Prada Luxembourg s.a.r.l a series of three options with respect to a portion of De Rigo Holding’s interest in the Company’s share capital, with the maximum aggregate amount of Ordinary Shares being subject to such options being equal to approximately 15% of the Company’s share capital. See Note 19(j) of Notes to the Consolidated Financial Statements included in Item 18. On June 18, 2001, Prada Luxembourg s.a.r.l exercised one of the three options, and subsequently purchased 2,225,000 Ordinary Shares of De Rigo S.p.A. (equal to approximately 5% of the Company’s outstanding share capital) for total consideration of $13.4 million. The two remaining options have expired without being exercised. In July 2004, the Company repurchased these 2,225,000 Ordinary Shares from Prada for total consideration of €11.3 million as part of its authorized share repurchase program. See Item 10. Additional Information “By-laws — Purchase of Shares by the Company”. These shares are currently held in treasury and are not considered to be outstanding.

As of June 6, 2005, there were 15 record holders of the Company’s ADSs (including the Depositary Trust Company), of which 12 were located in the United States. Since certain of the ADSs are held by brokers or other nominees, the number of direct record holders in the United States may not be fully indicative of the number of direct beneficial owners in the United States or other jurisidictions where the direct beneficial owners of such ADSs are resident.

RELATED PARTY TRANSACTIONS

Certain of the Company’s facilities in Longarone and Limana were constructed in the years 1992 through 2001 by Impresa Edile F.lli De Rigo S.r.l., a construction company which is wholly owned by Mr. Walter De Rigo. The related construction costs through December 31, 2004, which have been capitalized as buildings, amounted to €2.4 million. For additional details on transactions by the Group with affiliated companies, including those between EID and the Prada Group prior to the Group’s sale of its interest in the EID joint venture to Prada, see Note 18 of Notes to the Consolidated Financial Statements included in Item 18.

Item 8. Financial Information

CONSOLIDATED FINANCIAL STATEMENTS

Please refer to “Item 18. Financial Statements”.

OTHER FINANCIAL INFORMATION

Export Sales

Export sales from Italy, which totalled approximately €89.9 million in 2004, as compared with €95.7 million in 2003, represented 17.5% of the Group’s net sales (19.0% in 2003).

Legal Proceedings

Dividend Policy

Dividends may be recommended by the Company’s Board of Directors for approval by shareholders at the Company’s annual general meeting, which is normally held in April or May and must be held by June 30 of each year. Under Italian law and the Company’s by-laws, no interim dividends may be approved or paid.

At the annual general meeting held on May 17, 2005, the Company’s shareholders approved the recommendation of the Board of Directors that no dividend be paid in respect of the fiscal year ended December 31, 2004. The Company did also not pay dividends in respect of the fiscal years ended December 31, 2002 and 2003

For the fiscal years ended December 31, 2000 and 2001, the Company paid dividends of €0.12 and €0.13 per Ordinary Share to holders of record as of June 4, 2001 and June 6, 2002, respectively.

Item 9. The Offer and Listing

TRADING MARKETS AND SHARE PRICES

De Rigo’s Ordinary Shares (in the form of ADSs) are listed on the New York Stock Exchange (the “NYSE”) under the symbol “DER”. Neither the Company’s Ordinary Shares nor its ADSs are listed on a securities exchange outside the United States. The Bank of New York is the Company’s Depositary for purposes of issuing the American Depositary Receipts (“ADRs”) evidencing ADSs. Each ADS represents one Ordinary Share.

Trading in the ADSs on the NYSE commenced on October 20, 1995. The following table sets forth, for the periods indicated, the high and low closing prices per ADS as reported by the NYSE.


	Price Range of ADSs
	High		Low
2001:
First Quarter	$	9 —	$	7 5/32
Second Quarter	$	8 13/16	$	7 49/64
Third Quarter	$	8 21/32	$	5 3/32
Fourth Quarter	$	6 19/32	$	5 35/64
2002:
First Quarter	$	7.77	$	4.55
Second Quarter	$	7.95	$	5.60
Third Quarter	$	5.71	$	3.45
Fourth Quarter	$	4.95	$	3.00
2003:
First Quarter	$	4.20	$	3.20
Second Quarter	$	3.93	$	3.15
Third Quarter	$	4.35	$	3.48
Fourth Quarter	$	5.50	$	4.10
2004:
First Quarter	$	4.65	$	5.99
Second Quarter	$	5.34	$	6.38
Third Quarter	$	6.00	$	7.50
Fourth Quarter	$	6.62	$	7.90

Month Ended
January 31, 2005	$	7.89	$	7.40
February 28, 2005	$	8.49	$	7.60
March 31, 2005	$	8.12	$	6.50
April 30, 2005	$	6.92	$	6.06
May 31, 2005	$	7.53	$	6.70

The closing price of the ADSs on the NYSE on June 22, 2005 was U.S.$ 6.90 per ADS.

As of June 1, 2005, 44,934,976 Ordinary Shares were issued and 42,486,776 were outstanding. As of the same date, a total of 9,734,916 ADSs (equivalent to the same number of Ordinary Shares) were issued and outstanding, representing 21.7% of the total number of outstanding Ordinary Shares. A total of 2,225,000 Ordinary Shares and a total of 223,200 ADSs were owned by the Company and not considered to be outstanding as of such date, having been repurchased as part of De Rigo’s authorized buy-back program. See Item 10. Additional Information “By-laws — Purchase of Shares by the Company” and Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers, below.

Item 10. Additional Information

OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR ITS SUBSIDIARIES

In May 1999, the Board of Directors of De Rigo S.p.A. adopted a new stock option plan (the “1999 Option Plan”) whereby the Board was authorized to grant options to purchase up to 2,325,000 Ordinary Shares to be issued by the Company in four annual tranches as part of a capital increase that had been approved by the shareholders in connection with the adoption of the 1999 Option Plan. The options, which could have been granted to eligible executives of De Rigo S.p.A. and its Italian and foreign subsidiaries, were exercisable at a purchase price of $6.00 per Ordinary Share during the 30-day period following the annual meeting of shareholders that approved the Company’s financial statements for the year in respect of which the grant of options has been made. Between June and July 1999, the Board had approved the grant of options in respect of 2,325,000 Ordinary Shares to approximately 20 executives of the Group; a total of 250,000 of these options lapsed during 1999 due to employee resignations.

At an extraordinary shareholders’ meeting held on November 17, 2000, the shareholders approved a new stock option plan (the “2000 Option Plan”) to replace the 1999 Option Plan. Holders of options under the 1999 Option Plan all agreed to convert their grants under the 1999 Option Plan into grants under the new plan. Between January 1, 2000 and November 17, 2000, 225,000 options granted under the 1999 Option Plan lapsed due to employee resignations, leaving options in respect of 1,850,000 ordinary shares outstanding as of November 17, 2000. Under the terms of the 2000 Option Plan, a total of 851,000 options (in respect of an equivalent number of Ordinary Shares) were granted (the 1,850,000 options outstanding under the old plan were converted into options under the 2000 Option Plan at a ratio of 0.46 new options for each option held) at an exercise price of U.S$ 1.00 per share, which was less than the fair value of the stock at the grant date, and the term of the existing grants was extended by one year. On November 17, 2000, the Company’s shareholders approved a capital increase of €338,000 to allow for the issuance of up to 1,300,000 Ordinary Shares upon the exercise of options granted under the 2000 Stock Option Plan. On the same date, an additional 348,400 options were granted to approximately nine executives at an exercise price of U.S.$ 1.00 per share. The number of options that may be exercised by a holder in any given period varied according to the performance of the Company’s ADSs during the relevant period (see Note 13 of Notes to the Consolidated Financial Statements included in Item 18). In accordance with the 2000 Option Plan, the Company had registered all Ordinary Shares as to which such options may be exercised with the U.S. Securities and Exchange Commission, so as to facilitate resales of such Ordinary Shares in the form of ADSs.

The 2000 Option Plan expired as of December 31, 2004 and has not been replaced. As a result, no stock options are currently outstanding or authorized. In 2004, no additional options were granted, 227,700 options were forfeited and the 352,200 options outstanding at December 31, 2004 expired. During the period that the plan was in force, a total of 434,976 options were exercised, with at total of 764,424 options having been forfeited or expiring. For additional information on these stock options, see Note 13 of Notes to the Consolidated Financial Statements included in Item 18.

BY-LAWS

The following is a summary of certain information concerning the Company’s shares and By-laws (Statuto) and of Italian law applicable to companies whose shares are not listed in a regulated market in the European Union, as in effect at the date of this annual report. The summary contains all the information that the Company considers to be material regarding the shares but does not purport to be complete and is qualified in its entirety by reference to the By-laws or Italian law, as the case may be.

In January 2003, the Italian government approved a wide-ranging reform of the corporate law provisions of the Italian Civil Code, which came into force on January 1, 2004. On May 24, 2004, our shareholders approved a number of amendments to our By-laws dictated or made possible by the 2003 corporate law reform. The following summary takes into account the 2003 corporate law reform and the consequent amendments to our By-laws.

General

As of June 1, 2005, the issued share capital of the Company consisted of 44,934,976 Ordinary Shares, par value Euro 0.26 per share, and the outstanding share capital of the Company consisted of 42,486,776 Ordinary Shares. The redenomination of the Ordinary Shares from lire into Euro was approved by the Company’s shareholders on May 24, 2001. All the issued and outstanding shares are fully paid, non-assessable and in registered form.

The Company is registered with the Companies’ Registry of Belluno at n. 2671, with its registered office at Longarone (BL), Italy.

As set forth in Article 4 of the By-laws, the Company’s corporate purpose is the design, production, marketing and sale of eyewear, eyewear production machinery and components and/or accessories, and other activities in the eyewear or related sectors. The Company is generally authorized to take any actions necessary or useful to achieve its corporate purpose, with the exclusion of investment services and other financial activities reserved by Italian law to authorized entities.

Authorization of Shares

Additional shares may be authorized in connection with capital increases approved by the Company’s shareholders in an extraordinary meeting, but this authorization would generally be given only after recommendation by the Company’s Board of Directors. On November 17, 2000, the Company’s shareholders approved a capital increase of €338,000 to allow for the issuance of up to 1,300,000 Ordinary Shares upon the exercise of options granted under the 2000 Stock Option Plan. As of June 1, 2005, 434,976 of such new Ordinary Shares had been issued and fully paid. The 2000 Stock Option Plan expired as of December 31, 2004 and has not been replaced. No authorization for the issuance of additional Ordinary Shares is currently in effect.

Form and Transfer of Shares

Ordinary Shares are in certificated form and are freely transferable by endorsement of the share certificate by or on behalf of the registered holder, with such endorsement either authenticated by a notary in Italy or elsewhere or by a broker-dealer or a bank in Italy. The transferee must request the Company to enter his name in the register in order to establish his rights as a stockholder as against the Company.

Dividend Rights

The payment by us of any annual dividend is proposed by the Board of Directors and is subject to the approval of the shareholders at the annual shareholders’ meeting. Before dividends may be paid out of our unconsolidated net income in any year, an amount equal to 5.0% of such net income must be allocated to our legal reserve until such reserve is at least equal to one-fifth of the par value of our issued share capital. If our capital is reduced as a result of accumulated losses, dividends may not be paid until the capital is reconstituted or reduced by the amount of such losses. The Company may pay dividends out of available retained earnings from prior years, provided that after such payment, the Company will have a legal reserve at least equal to the legally required minimum. No interim dividends may be approved or paid.

Dividends will be paid in the manner and on the date specified in the shareholders’ resolution approving their payment (usually within 30 days of the annual general meeting). Dividends which are not collected within five years of the date on which they become payable are forfeited to the benefit of the Company. Holders of ADSs will be entitled to receive payments in respect of dividends on the underlying shares through The Bank of New York, as ADR depositary, in accordance with the deposit agreement relating to the ADRs.

Voting Rights

Registered holders of the Ordinary Shares are entitled to one vote per Ordinary Share.

As a registered shareholder, the Depositary (or its nominee) will be entitled to vote the Ordinary Shares underlying the ADSs. The Deposit Agreement requires the Depositary (or its nominee) to accept voting instructions from holders of ADSs and to execute such instructions to the extent permitted by law. Neither Italian law nor the Company’s By-laws limit the right of non-resident or foreign owners to hold or vote the shares.

Board of Directors

Pursuant to the Company’s By-laws, the Company’s Board of Directors must consist of three to seven individuals. The Board of Directors is elected at a shareholders’ meeting for three fiscal years. In accordance with the By-laws, the directors, who may but are not required to be shareholders of the Company, may be re-appointed for no more than three terms. The Board of Directors has complete power of ordinary and extraordinary administration of the Company and in particular may perform all acts it deems advisable for the achievement of the Company’s corporate purposes, except for the actions reserved by applicable law or the By-laws to a vote of the shareholders at an ordinary or extraordinary shareholders’ meeting. See also “— Meetings of Shareholders”.

The Board of Directors must appoint a chairman (presidente) and may appoint a vice-chairman. The chairman of the Board of Directors and the vice-chairman and the managing directors, if any, are severally the legal representatives of the Company. The Board of Directors may delegate certain powers to one or more managing directors (amministratori delegati), determine the nature and scope of the delegated powers of each director and revoke such delegation at any time. Our executive directors must ensure, under the supervision of the Board of Directors, that our organizational and accounting structure is appropriate to our business and must report to the Board of Directors and to the board of statutory auditors at least every six months on the Company’s business and the main transactions carried out by us or by our subsidiaries.

In accordance with Italian law and the By-laws, the Board of Directors may not delegate certain responsibilities, including the preparation and approval of the draft financial statements, the approval of merger and de-merger plans to be presented to shareholders’ meetings, increases in the amount of the Company’s share capital or the issuance of convertible debentures (if any such power has been delegated to the Board of Directors by vote of the extraordinary shareholders’ meeting) and the fulfillment of the formalities required when the Company’s capital would have to be reduced as a result of accumulated losses that affect the Company’s stated capital by more than one third. See also “— Meetings of Shareholders”.

The Board of Directors may also appoint a general manager (direttore generale) and one or more senior managers (direttori) who report directly to the board and confer powers for single acts or categories of acts to employees of the Company or persons unaffiliated with the Company.

Meetings of the Board of Directors are called no less than five days in advance by registered letter, fax or telegram, or, in case of necessity, one day in advance, by fax or telegram. Meetings may be called by the chairman on his own initiative and must be called upon the request of the managing director, two directors or two statutory auditors.

Meetings may be held in person, or by audio-conference or tele-conference, in any member state of the European Union or in the United States. The quorum for meetings of the Board of Directors is a majority of the directors in office. Resolutions are adopted by the vote of a majority of the directors present at the meeting. In case of votes being equal, the vote of the chairman will prevail.

Directors having any interest in a proposed transaction must disclose their interest to the board, even if such interest is not in conflict with the interest of the Company in the same transaction. The interested director is not required to abstain from voting on the resolution approving the transaction, but the resolution must state explicitly the reasons for, and the benefit to the Company of, the approved transaction. In the event that these provisions are not complied with, or that the transaction would not have been approved without the vote of the interested director, the resolution may be challenged by a director or by the board of statutory auditors if the approved transaction may be prejudicial to the Company. A managing director having any such interest in a proposed transaction within the scope of his powers must solicit prior board approval of such transaction. The

interested director may be held liable for damages to us resulting from a resolution adopted in breach of the above rules. Finally, directors may be held liable for damages to the Company if they illicitly profit from insider information or corporate opportunities.

The Board of Directors may transfer the Company’s registered office within Italy or resolve upon other amendments to the By-laws when these amendments are required by law, set up and eliminate secondary offices, approve mergers by absorption into the Company of its subsidiaries in which the Company holds at least 90% of the issued share capital and reductions of the Company’s share capital in case of withdrawal of a shareholder. The Board of Directors may also resolve upon the issuance of shares or convertible debentures if such powers have been previously delegated to the Board of Directors by vote of the extraordinary shareholders’ meeting.

Under Italian law, directors may be removed from office at any time by the vote of shareholders at an ordinary shareholders’ meeting although, if removed in circumstances where there was no just cause, such directors may have a claim for indemnification against the Company. Directors may resign at any time by written notice to the Board of Directors and to the chairman of the board of statutory auditors. The Board of Directors must appoint substitute directors to fill vacancies arising from removals or resignations, subject to the approval of the board of statutory auditors, to serve until the next ordinary shareholders’ meeting. If at any time more than half of the members of the Board of Directors resign or otherwise cease to be directors, the remaining members of the Board of Directors (or the board of statutory auditors if all the members of the Board of Directors have resigned or ceased to be directors) must promptly call an ordinary shareholders’ meeting to appoint the new directors.

Shareholders determine the remuneration of directors at ordinary shareholders’ meeting appointing them. The Board of Directors, after consultation with the board of statutory auditors, may determine the remuneration of directors that perform management or other special services for the Company, such as the managing director, within a maximum amount established by the shareholders.

Statutory Auditors

In addition to electing the Board of Directors, the Company’s shareholders elect a board of statutory auditors (Collegio Sindacale) from individuals qualified to act in such capacity under Italian law. At ordinary shareholders’ meetings of the Company, the statutory auditors are elected for a term of three fiscal years, may be re-elected for successive terms and may be removed only for cause and with the approval of a competent court. In the event that a new board of statutory auditors has not been elected at the time the term of the previous board expires, the previous board continues to serve unit a new board is elected. Each member of the board of statutory auditors must provide certain evidence that he is in good standing and meets certain professional standards.

The Company’s By-laws currently provide that the board of statutory auditors shall consist of three statutory auditors and two alternate statutory auditors (who are automatically substituted for a statutory auditor who resigns or is otherwise unable to serve). If the shares of the Company are ever listed on a regulated market of a Member State of the European Union (no such listing currently exists), statutory auditors are to be elected through a list voting mechanism.

The Company’s board of statutory auditors is required, among other things, to verify that the Company (i) complies with applicable laws and its By-laws, (ii) respects principles of good governance, and (iii) maintains adequate organizational structure, internal controls and administrative and accounting systems.

The Company’s board of statutory auditors is required to meet at least once each ninety days. In addition, the statutory auditors of the Company must be present at meetings of the Company’s Board of Directors and shareholders’ meetings. The statutory auditors may decide to call a meeting of

the shareholders, the Board of Directors, ask information on the management of the Company to the directors, carry out inspections and verifications at the Company and exchange information with the Company’s external auditors. Any shareholder may submit a complaint to the board of statutory auditors regarding facts that such shareholder believes should be subject to scrutiny by the board of statutory auditors, which must take any complaint into account in its report to the shareholders’ meeting. If shareholders collectively representing 5% of the Company’s share capital submit such a complaint, the board of statutory auditors must promptly undertake an investigation and present its findings and any recommendations to a shareholders’ meeting (which must be convened immediately if the complaint appears to have a reasonable basis and there is an urgent need to take action). The board of statutory auditors may report to the competent court serious breaches of directors’ duties.

External Auditor

The 2003 corporate law reform requires companies to appoint an external auditor or a firm of external auditors, each of them qualified to act in such capacity under Italian law, that shall verify (i) during the fiscal year, that the company’s accounting records are correctly kept and accurately reflect the company’s activities, and (ii) that the financial statements correspond to the accounting records and the verifications conducted by the external auditors and comply with applicable rules. The external auditor or the firm of external auditors express their opinion on the financial statements in a report that may be consulted by the shareholders prior to the annual shareholders’ meeting.

The external auditor or the firm of external auditors are appointed for a three-year term by the ordinary shareholders’ meeting, having consulted the board of statutory auditors, and may be removed only for cause and with the approval of a competent court.

On May 24, 2004, our shareholders appointed Reconta Ernst & Young, with legal offices at Padua, Italy, as our external auditors for three-year term expiring at the time of the annual shareholders meeting to approve the consolidated financial statements for 2006.

Meetings of Shareholders

Shareholders are entitled to attend and vote at ordinary and extraordinary shareholder’s meetings. Votes may be cast personally or by proxy. Shareholders’ meeting may be called by the Company’s Board of Directors (or the board of statutory auditors) and must be called if requested by holders of at least 10% of the issued shares. Shareholders are not entitled to request that a meeting of shareholders be convened to resolve upon matters which as a matter of law shall be resolved upon the matters which as a matter of law shall be resolved upon on the basis of a proposal, plan or report by our Board of Directors. If the shareholders’ meeting is not called despite the request by shareholders and such refusal is unjustified, the competent court may call the meeting.

The Company may hold general meetings of shareholders at its registered office in Longarone (BL), or elsewhere within Italy following publication of notice of the meeting in the “Gazzetta Ufficiale della Repubblica Italiana” at least 15 days before the date fixed for the meeting. The Depositary will mail to all record holders of ADSs a notice containing a summary of all information contained in any notice of a shareholders’ meeting received by the Depositary.

Shareholders’ meetings must be convened at least once a year. Our annual stand-alone financial statements are prepared by our Board of Directors and submitted for approval to the ordinary shareholders’ meeting which must be convened within 120 days after the end of the fiscal year to which such financial statements relate. This term may be extended to up to 180 days after the end of the fiscal year, as long as we are bound by law to draw up consolidated financial statements or if particular circumstances concerning our structure or our purposes so require. At ordinary shareholders’ meetings, shareholders also appoint the external auditors, approve the distribution of

dividends, appoint the Board of Directors and statutory auditors, determine their remuneration and vote on any business matter the resolution or authorization of which is entrusted to them by law.

Extraordinary shareholders’ meetings may be called to pass upon split-ups, dissolutions, appointment of receivers and similar extraordinary actions. Extraordinary shareholders’ meetings may also be called to resolve upon proposed amendments to the By-laws, issuance of convertible debentures, mergers and de-mergers, capital increases and reductions, where such resolutions may not be taken by our Board of Directors. Liquidation of the Company must also be resolved upon at an extraordinary meeting.

The notice of a shareholders’ meeting may specify up to two meeting dates for an ordinary or extraordinary shareholders’ meeting; such meeting dates are generally referred to as “calls”. The extraordinary meeting may be convened on third call through a new notice if the quorum required for shareholder action on second call is not reached.

The quorum for an ordinary meeting of shareholders is 50% of the Ordinary Shares, and resolutions are carried by the majority of Ordinary Shares present or represented. At an adjourned ordinary meeting, no quorum is required, and the resolutions are carried by the majority of Ordinary Shares present or represented. Certain matters, such as amendments to the By-laws, the issuance of shares, the issuance of debentures and mergers and de-mergers may only be effected at an Extraordinary General Meeting, at which special voting rules apply. Resolutions at an extraordinary meeting of the Company are carried, on first call, by a majority of the Ordinary Shares. An adjourned extraordinary meeting is validly held with a quorum of one-third of the issued shares and its resolutions are carried by a majority of at least two-thirds of the holders of shares present or represented at such meeting. In addition, certain matters (such as a change in purpose or form of the company, the transfer of its registered office outside Italy, its liquidation prior to the date set forth in its By-laws and the issuance of preferred shares) must be carried by the holders of more than one-third of the Ordinary Shares, provided that there is no dissenting vote by holders of more than one-third of the shares present and represented at such meeting).

To attend any meeting, shareholders must, at least five days prior to the date fixed for the meeting, lodge their share certificates at the offices of the Company or with such banks as may be specified in the notice of meeting, in exchange for an admission ticket for the meetings. Owners of ADRs may make special arrangements with the Depositary for the beneficial owners of such ADRs to attend shareholders’ meetings, but not to vote at or formally address such meetings. The procedures for making such arrangements will be specified in the notice of such meeting to be mailed by the Depositary to the owners of ADRs.

Shareholders may appoint proxies by delivering in writing an appropriate instrument of appointment to the Company. Directors, auditors and employees of the Company or of any of its subsidiaries may not be proxies and any one proxy cannot represent more than 20 shareholders.

Preemptive Rights

Pursuant to Italian law, holders of Ordinary Shares or of debentures convertible into shares are entitled to subscribe for issuance of shares, debentures convertible into shares and rights to subscribe for shares in proportion to their holdings, unless such issues are for non cash considerations or preemptive rights are waived or limited by an extraordinary resolution adopted by the affirmative vote of holders of more than 50% of the Ordinary Shares (whether at an extraordinary or adjourned extraordinary meeting) and such waiver or limitation is required in the interest of the Company. There can be no assurance that the holders of ADSs may be able to exercise fully any preemptive rights.

Preference Shares; Other Securities

Italian companies are permitted in accordance with Italian law to issue preference shares with limited voting rights, to issue other classes of equity securities with different economic and voting rights, to issue so-called participation certificates with limited voting rights, as well as so-called tracking stock, if their by-laws permit such issuances. The Company’s By-laws currently do not provide for any of such issuances and would need to be amended at an extraordinary shareholders’ meeting to allow us to issue the abovementioned shares and/or securities.

The power to issue debt securities not convertible into shares in vested in our Board of Directors, while debt securities convertible into shares may be issued pursuant to a resolution of the extraordinary shareholders’ meeting.

Segregation of Assets and Proceeds

The Company, by means of an extraordinary shareholders’ meeting resolution, may resolve to segregate assets of the company into one or more separate pools. Such pools of assets may have an aggregate value not exceeding 10% of the shareholders’ equity of the company. Each pool of assets must be used exclusively for the carrying out of a specific business and may not be attached by the general creditors of the company. Similarly, creditors with respect to such specific business may only attach those assets of the company that are included in the corresponding pool. Tort creditors, on the other hand, may always attach any assets of the Company. The board of directors may issue securities carrying economic and administrative rights relating to a pool. In addition, financing agreements relating to the funding of a specific business may provide that the proceeds of such business be used exclusively to repay the financing. Such proceeds may be attached only by the financing party and such financing party would have no recourse against other assets of the company.

We have no present intention to enter into any such transaction and none is currently in effect.

Liquidation Rights

Pursuant to Italian law and subject to the satisfaction of the claims of all other creditors, shareholders are entitled to a distribution in liquidation that is equal to the nominal value of their shares (to the extent available out of the net assets of the Company). Holders of preferred shares, if any such shares are issued in the future by the Company, would be entitled to a priority right to any such distribution from liquidation up to their par value. Thereafter, all shareholders would rank equally in their claims to the distribution or surplus assets, if any. Shares rank pari passu among themselves in liquidation.

Purchase of Shares by the Company

We are permitted to purchase shares, subject to certain conditions and limitations provided for by Italian law. Shares may only be purchased out of profits available for dividends or out of distributable reserves, in each case as appearing on the latest shareholder-approved stand-alone financial statements. Further, we may only repurchase fully paid-in shares. Such purchases must be authorized by an ordinary shareholders’ meeting. The number of shares to be acquired, together with any shares previously acquired by us or any of our subsidiaries may not (except in limited circumstances) exceed in aggregate 10% of the total number of shares then issued and the aggregate purchase price of such shares may not exceed the earnings reserve specifically approved by shareholders. Shares held in excess of such 10% limit must be sold within one year of the date of purchase. Similar limitations apply with respect to purchases of our shares by our subsidiaries.

A corresponding reserve equal to the purchase price of such shares must be created in the balance sheet, and such reserve is not available for distribution, unless such shares are sold or

cancelled. Shares purchased and held by us may be resold only pursuant to a resolution of our shareholders adopted at an ordinary shareholders’ meeting. The voting rights attaching to the shares held by us or our subsidiaries cannot be exercised, but the shares can be counted for quorum purposes in shareholders’ meetings. Dividends and other rights, including pre-emptive rights, attaching to such shares will accrue to the benefit of other shareholders, unless the shareholders’ meeting authorizes the Company to exercise, in whole or in part, the pre-emptive rights thereof.

An authorization from the shareholders for the Company to purchase up to 10% of the outstanding shares in the form of Ordinary Shares or ADSs was passed as of November 2003 and renewed as of May 2004; the current authorization will expire in November 2005. As of the date of this annual report, the Company had repurchased a total of 223,200 ADSs and 2,225,000 Ordinary Shares pursuant to this authorization (the 2,225,000 Ordinary Shares having been repurchased from Prada).

Notification of the Acquisition of Shares

In accordance with Italian antitrust laws, the Italian Antitrust Authority is required to prohibit the acquisition of control in a company which would thereby create or strengthen a dominant position in the domestic market or a significant part thereof and which would result in the elimination or substantial reduction, on a lasting basis, of competition, provided that certain turnover thresholds are exceeded. However, if the turnover of the acquiring party and the company to be acquired exceed certain other monetary thresholds, the antitrust review of the acquisition falls within the exclusive jurisdiction of the European Commission.

Minority Shareholders’ Rights; Withdrawal Rights

Shareholders’ resolutions which are not adopted in conformity with applicable law or our By-laws may be challenged (with certain limitations and exceptions) within ninety days by absent, dissenting or abstaining shareholders representing individually or in the aggregate at least 5% of Company’s share capital (as well as by our Board of Directors or our board of statutory auditors). Shareholders not reaching this threshold or shareholders not entitled to vote at Company’s meetings may only claim damages deriving from the resolution.

Dissenting or absent shareholders may require the Company to buy back their shares as a result of shareholders’ resolutions approving, among others things, material modifications of the Company’s purpose or of the voting rights of our shares, the transformation of the Company from a stock corporation into a different legal entity, or the transfer of our registered seat outside Italy. According to the reform, the buy-back would occur at a price established by directors, upon consultation with the board of statutory auditors and the Company’s external auditor, having regard for the net asset value of the company, its prospective earnings and the market value of its shares, if any. The 2003 reform would permit the Company’s By-laws to set forth different criteria for the consideration to be paid to dissenting shareholders in such buy-backs.

Each shareholder may bring to the attention of the board of statutory auditors facts or acts which are deemed wrongful. If such shareholders represent more than 5% of the share capital of the Company, the board of statutory auditors must investigate without delay and report its findings and recommendations to the shareholders’ meeting. Shareholders representing more than 10% of our share capital have the right to report to the competent court serious breaches of the duties of the directors which may be prejudicial to us or to our subsidiaries. In addition, shareholders representing at least 20% of our share capital may commence derivative suits before the competent court against our directors, statutory auditors and general managers. We may waive or settle the suit unless shareholders holding at least 20% of the shares vote against such waiver or settlement. We will reimburse the legal costs of such action in the event that the claim of such shareholders is successful

and the court does not award such costs against the relevant directors, statutory auditors or general managers.

Liability for Mismanagement of Subsidiaries

Pursuant to the 2003 corporate law reform, companies and other entities that, acting in their own interest or the interest of third parties, mismanage a company subject to their direction and coordination powers are liable to such company’s shareholders and creditors for ensuing damages. Said liability is excluded if (i) the ensuing damage is fully eliminated, including through subsequent transactions, or (ii) the damage is effectively offset by the global benefits deriving in general to the company from the continuing exercise of such direction and coordination powers. Direction and coordination powers are presumed to exist, among other things, with respect to consolidated subsidiaries

SIGNIFICANT DIFFERENCES IN CORPORATE GOVERNANCE PRACTICES FOR
PURPOSES OF SECTION 303A.11 OF THE NEW YORK STOCK EXCHANGE LISTED
COMPANY MANUAL (THE “NYSE MANUAL”)

Overview

Corporate governance rules for Italian stock corporations (società per azioni) like us whose shares are not listed on a regulated market in the European Union are set forth in the Italian Civil Code (the “Civil Code”). As described in more detail below, the Italian corporate governance rules set forth in the Civil Code differ in a number of ways from those applicable to U.S. domestic companies under NYSE listing standards, as set forth in the NYSE Manual.

As a general rule, our main corporate bodies are governed by the Civil Code and are assigned specific powers and duties that are legally binding and cannot be derogated from.

We follow the traditional Italian corporate governance system, which provides for two main corporate bodies — the board of directors and the board of statutory auditors. This system contrasts with the unitary system envisaged for U.S. domestic companies by the NYSE listing standards, which contemplate the board of directors serving as the sole governing body. See “By-laws — Board of Directors” and “By-laws —Statutory Auditors” above for a description of the powers and duties of our Board of Directors and our board of statutory auditors, respectively. The members of our Board of Directors and board of statutory auditors, as well as our external auditors, are directly and separately appointed by resolutions approved by our shareholders at a general shareholders’ meeting.

We have set out in the following summary the significant differences between Italian corporate governance rules and practices, as we have implemented them, and those applicable to U.S. issuers under NYSE listing standards.

Independent Directors

NYSE domestic company standards. The NYSE listing standards applicable to U.S. companies provide that “independent” directors must comprise a majority of the board. In order for a director to be considered “independent”, the Board of Directors must affirmatively determine that the director has no “material” direct or indirect relationship with the company. These relationships “can include commercial, industrial, banking, consulting, legal, accounting, charitable and familial relationship (among others)”. More specifically, a director is not independent if such director or his/her immediate family members, has certain specified relationships with the company, its parent, its consolidated subsidiaries, their internal or external auditors, or companies that have significant business relationships with the company, its parent or its consolidated subsidiaries. Ownership of a significant amount of stock is not a per se bar to independence. In addition, a three-year “cooling off”

period following the termination of any relationship that compromised a director’s independence must lapse before that director can again be considered independent.

Our practice. The presence of a prescribed number of independent directors on our board is neither mandated by Italian law nor required by our By-laws. However, Italian law sets forth certain independence requirements applicable to our statutory auditors. Statutory auditors’ independence is assessed on the basis of a few general principles, rather than detailed rules. In particular, a person who (i) is a director, or the spouse or a close relative of a director, of our company or any of our affiliates, or (ii) has an employment or a regular consulting or similar relationship with our company or any of our affiliates, or (iii) has an economic relationship with us or any of our affiliates which might compromise his/her independence, cannot be appointed to our board of statutory auditors. Although there is no formal cooling-off requirement, statutory auditors who are registered chartered accountants and have had a regular or material consulting relationship with us or our affiliates within two years prior to the appointment, or have been employed by, or directors of, us or our affiliates, within three years prior to the appointment, may be suspended or cancelled from the register of chartered public accountants.

Executive Sessions

NYSE domestic company standards. Non-executive directors (i.e., not members of senior management) of U.S. companies listed on the NYSE must meet regularly in executive sessions, and independent directors should meet alone in an executive session at least once a year.

Our practice. In Italy, neither non-executive directors nor independent directors are required to meet in executive sessions. The members of our board of statutory auditors are required to meet at least every 90 days.

Audit Committee and Internal Audit Function

NYSE domestic company standards. U.S. companies listed on the NYSE are required to establish an audit committee that satisfies the requirements of Rule 10A-3 under the Exchange Act and certain additional requirements set by the NYSE. In particular, all members of this committee must be independent and the committee must adopt a written charter. The committee’s prescribed responsibilities include (i) the appointment, compensation, retention and oversight of the external auditors; (ii) establishing procedures for the handling of “whistle blower” complaints; (iii) discussion of financial reporting and internal control issues and critical accounting policies (including through executive sessions with the external auditors); (iv) the approval of audit and non-audit services performed by the external auditors; and (v) the adoption of an annual performance evaluation. A company must also have an internal audit function, which may be out-sourced, except to the independent auditor.

Our practice. Rule 10A-3 under the Exchange Act provides that foreign private issuers with a board of statutory auditors established in accordance with local law or listing requirements and meeting specified requirements with regard to independence and responsibilities (including the performance of most of the specific tasks assigned to audit committees by the rule, to the extent permitted by local law), (the “Statutory Auditor Requirements”) are exempt from the audit committee requirements established by the rule. As a foreign private issuer, we must comply with these requirements or qualify for a valid exemption by July 31, 2005. Our Board of Directors has determined that our board of statutory auditors meets the Statutory Auditor Requirements and therefore will qualify for the exemption noted above. We do not have a dedicated internal audit function at the current time, nor have we out-sourced any such activities.

Compensation Committee

NYSE domestic company standards. Under NYSE standards, the compensation of the CEO of U.S. domestic companies must be approved by a compensation committee (or equivalent) comprised solely of independent directors. The compensation committee must also make recommendations to the Board of Directors with regard to the compensation of other officers, incentive compensation plans and equity-based plans. Disclosure of individual management compensation information for these companies is mandated by the Exchange Act’s proxy rules, from which foreign private issuers are generally exempt.

Our practice. We have not established a compensation committee. Compensation of our directors vested with particular offices (including our CEO) is either determined by our Board of Directors, in consultation with our board of statutory auditors, or, according to our By-laws, by a resolution approved by our shareholders at a general shareholders’ meeting. Compensation of our executive officers is determined by our CEO. We do not produce a compensation report. However, we disclose aggregate compensation of all of our directors (including our CEO) in our annual financial statements prepared in accordance with Italian GAAP and in Item 6 of our annual reports on Form 20-F.

Nominating Committee

NYSE domestic company standards. Under NYSE standards, a domestic company must have a nominating committee (or equivalent) comprised solely of independent directors, which is responsible for nominating directors.

Our practice. We have not established a nominating committee. Directors may be nominated by any of our shareholders or our Board of Directors.

Corporate Governance/Code of Ethics

NYSE domestic company standards. Under NYSE standards, a company must adopt governance guidelines and a code of business conduct and ethics for directors, officers and employees. A company must also publish these items on its website and provide printed copies on request. Section 406 of the Sarbanes-Oxley Act requires a company to disclose whether it has adopted a code of ethics for its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, and if not, the reasons why it has not done so. The NYSE listing standards applicable to U.S. companies provide that codes of conduct and ethics should address, at a minimum, conflicts of interest; corporate opportunities; confidentiality; fair dealing; protection and use of company assets; legal compliance; and reporting of illegal and unethical behavior. Corporate governance guidelines must address, at a minimum, directors’ qualifications, responsibilities and compensation; access to management and independent advisers; management succession; director orientation and continuing education; and annual performance evaluation of the board.

Our practice .We are in the process of adopting certain corporate governance guidelines (including with respect to our internal control system, significant transactions, transactions with related parties, and internal dealing), a compliance program to prevent certain criminal offenses and a code of conduct for our directors, employees and others acting on our behalf. As noted in Item 16B, we have also adopted a code of ethics for our senior executive and financial officers meeting the requirements of Section 406 of the Sarbanes-Oxley Act.

We believe that our codes of conduct and ethics will address the relevant issues contemplated by the NYSE standards applicable to U.S. companies noted above. Our corporate governance guidelines, on the other hand, do not address all of the issues contemplated by the NYSE standards.

Certifications as to Violations of NYSE Standards

NYSE domestic company standards. Under NYSE listing standards, the CEO of a U.S. company listed on the NYSE must certify annually to the NYSE that he or she is unaware of any violation by the company of the NYSE corporate governance listing standards, and to disclose that such certification has been made in the company’s annual report to shareholders (or, if no annual report to shareholders is prepared, its annual report on Form 10-K). The CEO must also promptly notify the NYSE in writing if any executive officer of the company becomes aware of any material non-compliance with the NYSE corporate governance listing standards. A U.S. company listed on the NYSE must also submit an annual written affirmation to the NYSE, within 30 days of its annual shareholders’ meeting and in a form specified by the NYSE, regarding its compliance with applicable NYSE corporate governance standards. A U.S. company listed on the NYSE is further required submit an interim written affirmation to the NYSE upon the occurrence of specified events, including changes to the Board of Directors or its audit, nominating/corporate governance or compensation committees and changes in the status of independent directors.

Our practice. Under the NYSE rules, as of July 31, 2005, we are required to submit an annual written affirmation to the NYSE, in a form specified by the NYSE, regarding our compliance with applicable NYSE corporate governance standards. In 2005, we will be required to submit this written affirmation by August 30. In subsequent years, we will be required to submit an annual affirmation within 30 days of the filing of our annual report on Form 20-F with the SEC. Following submission of our initial annual written affirmation, we will also be required to submit to the NYSE an interim written affirmation, in a form specified by the NYSE, any time we are no longer eligible to rely on, or choose to no longer rely on, a previously applicable exemption provided by Exchange Act Rule 10A-3, or, to the extent we have an audit committee as defined in Rule 10A-3, if a member of such audit committee who was deemed independent is no longer independent or an audit committee member had been added. In addition, under NYSE rules, our chief executive officer must notify the NYSE in writing if any executive officer becomes aware of any material non-compliance by us with NYSE corporate governance standards.

Shareholder Approval of Adoption and Modification of Equity Compensation Plans

NYSE domestic company standards. Shareholders of a U.S. company listed on the NYSE must approve the adoption of and any material revision to the company’s equity compensation plans, with certain exceptions.

Our practice. Although our shareholders must authorize (i) the issuance of additional shares in connection with capital increases, and (ii) the buy-back of our own shares, the adoption of equity compensation plans does not per se require prior shareholders’ approval.

MATERIAL CONTRACTS

The Company has not entered into any material contract, other than contracts entered into in the ordinary course of business, during the two years immediately preceding the publication of this annual report.

EXCHANGE CONTROLS

Currently, there are no Italian exchange controls that would affect the payment of dividends or other remittances to holders of the ADSs or Ordinary Shares who reside outside Italy. The Company is not aware of any plans by the Italian government to institute any exchange controls that would affect the payment of dividends or other remittances to holders of ADSs or Ordinary Shares

who reside outside Italy. Neither Italian law nor the Company’s By-laws limit the right of nonresident or foreign owners to hold or vote the Ordinary Shares or the ADSs.

TAXATION

The following is a summary of certain U.S. federal income and Italian tax matters. The summary contains a description of the principal United States federal and Italian tax consequences of the purchase, ownership and disposition of Ordinary Shares or ADSs by a holder who is a citizen or resident of the United States or a U.S. corporation or who otherwise will be subject to United States federal income tax on a net income basis in respect of the Ordinary Shares or ADSs. The summary does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a decision to purchase or hold Ordinary Shares or ADSs. In particular, the summary deals only with beneficial owners who will hold Ordinary Shares or ADSs as capital assets and does not address the tax treatment of a beneficial owner who owns 10% or more of the voting shares of the Company or who may be subject to special tax rules, such as banks, tax-exempt entities, insurance companies or dealers in securities or currencies, or persons that will hold Ordinary Shares or ADSs as a position in a “straddle” for tax purposes or as part of a “constructive sale” or a “conversion” transaction or other integrated investment comprised of Ordinary Shares or ADSs and one or more other investments. The summary does not discuss the treatment of Ordinary Shares or ADSs that are held in connection with a permanent establishment through which a non-resident beneficial owner carries on business or performs personal services in Italy.

The summary is based upon tax laws and practice of the United States and Italy as in effect on the date of this annual report, which are subject to change. Investors and prospective investors in Ordinary Shares or ADSs should consult their own advisors as to the U.S., Italian or other tax consequences of the purchase, beneficial ownership and disposition of Ordinary Shares or ADSs, including, in particular, the effect of any state, local or other national tax laws.

For purposes of the summary, beneficial owners of ADSs who are considered residents of the United States for purposes of the current income tax convention between the United States and Italy (the “Income Tax Convention”), and are not subject to an anti-treaty shopping provision that applies in limited circumstances, are referred to as “U.S. owners”. Beneficial owners who are citizens or residents of the United States, corporations organized under U.S. law, and U.S. partnerships, estates or trusts (to the extent their income is subject to U.S. tax either directly or in the hands of partners or beneficiaries) generally will be considered to be residents of the United States under the Income Tax Convention. Special rules apply to U.S. owners that are also residents of Italy. A new tax treaty to replace the current Income Tax Convention was signed on August 25, 1999, but has not yet been ratified by Italy. The new treaty would not change significantly the provisions of the current Income Tax Convention that are discussed below (except that it would clarify the availability of benefits to certain tax-exempt organizations). These laws are subject to change, possibly on a retroactive basis.

For purposes of the Income Tax Convention and the United States Internal Revenue Code of 1986, beneficial owners of ADRs evidencing ADSs will be treated as the beneficial owners of the Ordinary Shares represented by those ADSs. Unless otherwise stated, this summary assumes that a U.S. holder is eligible for the benefits of the Income Tax Convention.

Taxation of Dividends

Italian Tax Considerations.

Italian law provides for the withholding of income tax at a 27% rate on dividends paid by Italian companies to shareholders who are not residents of Italy for tax purposes. Reduced rates (normally 15%) may apply to non-resident shareholders who are entitled to, and comply with procedures for claiming, benefits under an income tax convention.

Under the Income Tax Convention, dividends derived and beneficially owned by U.S. owners are subject to Italian tax at a reduced rate of 15%. However, the amount initially made available to the Depositary for payment to U.S. owners will reflect withholding at the 27% rate. U.S. owners who comply with the certification procedures described below may then claim an additional payment of 12% of the dividend (representing the difference between the 27% rate and the 15% rate, and referred to herein as a “treaty refund”). The certification procedure will require U.S. owners (i) to obtain from the U.S. Internal Revenue Service (“IRS”) a form of certification required by the Italian tax authorities with respect to each dividend payment (Form 6166), unless a previously filed certification will be effective on the dividend payment date (such certificates are effective until March 31 of the year following submission),); (ii) to produce a statement whereby the U.S. owner represents to be a U.S. resident individual or corporation and does not maintain a permanent establishment in Italy,; and (iii) to set forth other required information. IRS Form 6166 may be obtained by filing a request for certification on IRS Form 8802. (Additional information, including IRS Form 8802, can be obtained from the IRS website at www.irs.gov. Information appearing on the IRS website is not incorporated by reference into this annual report). The time for processing requests for certification by the IRS normally is six to eight weeks. Accordingly, in order to be eligible for the procedure described below, U.S. owners should begin the process of obtaining certificates as soon as possible after receiving instructions from the Depositary on how to claim a treaty refund.

The Depositary’s instructions will specify certain deadlines for delivering to the Depositary the documentation required to obtain a treaty refund, including the certification that the U.S. owners must obtain from the IRS. In the case of ADSs held by U.S. owners through a broker or other financial intermediary, the required documentation should be delivered to such financial intermediary for transmission to the Depositary. In all other cases, the U.S. owners should deliver the required documentation directly to the Depositary.

The Company and the Depositary have agreed that if the required documentation is received by the Company on or within 30 days after the dividend payment date (“the First Delivery Date”) and, in the reasonable judgment of the Company, such documentation satisfies the requirements for a refund by the Company of Italian withholding tax under the Income Tax Convention and applicable law, the Company will within 45 days thereafter pay the treaty refund to the Depositary for the benefit of the U.S. owners entitled thereto. If the Company does not receive a U.S. owner’s documentation within 30 days after the dividend payment date, such U.S. owner may for a period of 15 days continue to claim a treaty refund by delivering the required documentation to the Depositary. The Depositary will deliver such documentation within 15 days of the First Delivery Date (“the Final Delivery Date”), but the Company will not necessarily pay the treaty refund to the Depositary within 45 days of the First Delivery Date. If the Company does not receive the required documentation during this additional period, or if in the Company’s judgment the documentation fails to satisfy the requirements of Italian law for any reason, U.S. owners will not be entitled to receive any amounts from the Company and instead must claim the treaty refund directly from the Italian tax authorities. U.S. residents seeking refunds from the Italian tax authorities have encountered extensive delays and incurred related expenses. The procedures described in this paragraph may be modified or withdrawn if the Company determines that its participation in the refund practice is no longer lawful or practical.

Italian law provides an alternative mechanism under which non-resident shareholders can claim a refund of up to four-ninths of Italian withholding taxes on dividend income, by proving to the Italian tax authorities that the dividend income was subject to income tax in the jurisdiction of residence of such holder in an amount at least equal to the total refund claimed. U.S. owners should consult their own tax advisers with respect to the availability of these refunds, which traditionally have been paid only after extensive delays.

Distributions of profits in kind will be subject to withholding tax. In that case, prior to receiving the distribution, the owner will be required to provide the Company with the funds to pay the relevant withholding tax.

United States Tax Considerations.

The gross amount of any dividends (that is, the amount before reduction for Italian withholding tax) paid to a U.S. owner generally will be subject to U.S. federal income taxation as foreign source dividend income, regardless of whether the tax refund is obtained, and will not be eligible for the dividends received deduction allowed to domestic corporations. Dividends paid in Euros will be includible in the income of such U.S. owners in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the Depositary or the custodian. If the Depositary or the custodian converts the Euros into dollars on the day it receives them, U.S. owners generally should not realize foreign currency gain or loss in respect of the dividend income. U.S. owners who receive a treaty refund may be required to recognize foreign currency gain or loss, which will be treated as ordinary gain or loss, to the extent the amount of the treaty refund (in dollars) received by the U.S. owner differs from the U.S. dollar equivalent of the Euro amount of the treaty refund on the date the dividends were received by the Depositary or the custodian. Italian withholding tax at the 15% rate will be treated as a foreign income tax which U.S. owners may elect to deduct in computing their taxable income or, subject to the limitations on foreign tax credits generally, credit against their United States federal income tax liability. Dividends will generally constitute foreign-source “passive income” or “financial services income” for U.S. tax purposes. Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual in respect of the Ordinary Shares or ADSs after December 31, 2002 and before January 1, 2009 is subject to taxation at a maximum rate of 15% if the dividends are “qualified dividends.” Dividends paid on Ordinary Shares or ADSs will be treated as qualified dividends if (i) the issuer is eligible for the benefits of a comprehensive income tax treaty with the United States that the IRS has approved for the purposes of the qualified dividend rules and (ii) we were not, in the year prior to the year in which the dividend was paid, and are not, in the year in which the dividend is paid, (a) a passive foreign investment company (“PFIC”) or (b) for dividends paid prior to the 2005 tax year, a foreign personal holding company (“FPHC”) or foreign investment company (“FIC”). The Income Tax Convention has been approved for the purposes of the qualified dividend rules. Based on our audited financial statements and relevant market and shareholder data, we believe that we were not treated as a PFIC, FPHC or FIC for U.S. federal income tax purposes with respect to our 2003 or 2004 taxable year. In addition, based on our audited financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2005 taxable year.

The U.S. Treasury has announced its intention to promulgate rules pursuant to which holders of ADSs or Ordinary Shares and intermediaries though whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, it is not clear whether the Company will be able to comply with them. Holders of ADSs and Ordinary Shares should consult their own tax advisers regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.

Foreign tax credits may not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities or in respect of arrangements in which a U.S. owner’s expected economic profit is insubstantial. U.S. owners should consult their own advisers concerning the implications of these rules in light of their particular circumstances.

Distributions of additional shares to U.S. owners with respect to their ADSs that are made as part of a pro rata distribution to all shareholders of the Company generally will not be subject to U.S. federal income tax.

A beneficial owner of Ordinary Shares or ADSs that is, with respect to the United States, a foreign corporation or a nonresident alien individual generally will not be subject to U.S. federal

income tax on dividends received on Ordinary Shares or ADSs, unless such income is effectively connected with the conduct by the beneficial owner of a trade or business in the United States.

Taxation of Capital Gains

Italian Tax Considerations.

Capital gains realized by non-resident shareholders on the disposal of a “qualified” shareholding held as a capital asset and not in connection with a permanent establishment through which such shareholders carry on or perform business services in Italy are subject to Italian personal or corporate income tax, for an amount equal to 40% of the overall gain. Losses can be offset against taxable gains for a corresponding amount and, if in excess, can be carried forward for up to four years. A “qualified” shareholding is constituted by ordinary shares or ADSs and/or rights representing more than 5% of a listed company’s total share capital or more than 2% of its share capital voting at an ordinary shareholders meeting. A disposal of a “qualified” shareholding occurs if in any 12-month period immediately following the date when a shareholding meets one of the thresholds illustrated above, the shareholder engages in disposals of shares or ADSs that, individually or in aggregate, constitute a “qualified” shareholding. The taxable gain realized by a non-resident shareholder who is an individual would be subject to progressive personal income tax rates (currently, the marginal tax rate is equal to 43%, plus a surcharge generally of up to 1.9%, depending on the municipality in which such non-resident shareholder earns the highest Italian-source income). The taxable gain realized by a non-resident corporate shareholder would be subject to corporate income tax, currently levied at a rate of 33%.

Generally, a capital gains tax (“CGT”), levied at a rate of 12.5%, is imposed on gains realized upon the transfer or sale of “non-qualified” shareholdings whether held within or outside Italy. A “non-qualified” shareholding is constituted by an interest in De Rigo which does not reach the thresholds described above. However, under domestic law, an exemption applies to gains realized on the disposal of “non-qualified” shareholdings in an Italian company the shares of which are listed on a regulated market, such as De Rigo, even when such shareholdings are held in Italy.

Furthermore, pursuant to the Income Tax Convention, a U.S. owner will not be subject to Italian tax on any capital gains unless such U.S. owner has a permanent establishment in Italy to which Ordinary Shares or ADSs are effectively connected. To this end, U.S. owners that sell Ordinary Shares or ADSs and claim benefits under the Income Tax Convention may be required to produce appropriate documentation establishing that the above mentioned conditions of non-taxability of the capital gains pursuant to the Convention have been satisfied. Other countries have executed income tax conventions with Italy providing for similar treatment of Italian tax on capital gains. No tax on capital gains will be imposed by Italy on the deposit or withdrawal of Ordinary Shares in return for ADSs.

United States Tax Considerations.

Gain or loss realized by a U.S. owner on the sale or other disposition of Ordinary Shares or ADSs will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between the U.S. owner’s adjusted basis in the Ordinary Shares or the ADSs and the amount realized on the disposition (or its dollar equivalent, determined at the spot rate on the date of disposition, if the amount realized is denominated in a foreign currency). Such gain or loss will generally be long term capital gain or loss if the U.S. owner holds the Ordinary Shares or ADSs for more than one year. The net amount of long-term capital gain recognized by an individual holder after May 5, 2003 and before January 1, 2009 generally is subject to taxation at a maximum rate of 15%. The net long-term capital gain recognized by an individual holder before May 6, 2003 generally is subject to taxation at a maximum rate of 20%. Deposits and withdrawals of Ordinary Shares by

U.S. owners in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.

A beneficial owner of Ordinary Shares or ADSs that is, with respect to the United States, a foreign corporation or a nonresident alien individual will not be subject to U.S. federal income tax on gain realized on the sale of Ordinary Shares or ADSs, unless (i) such gain is effectively connected with the conduct by the beneficial owner of a trade or business in the United States or (ii) in the case of gain realized by an individual beneficial owner, the beneficial owner is present in the United States for 183 days or more in the taxable year of the sale and certain other conditions are met.

Taxation of Distributions from Capital Reserves

Italian Tax Considerations.

Special rules apply to the distribution of capital reserves. Under certain circumstances, such a distribution may be considered as taxable income in the hands of the recipient depending on the reserves of the distributing company outstanding at the time of distribution and the actual nature of the reserves distributed. The application of such rules may also have an impact on the tax basis in the Ordinary Shares or ADSs held and/or the characterization of any taxable income received and the tax regime applicable to it. Non-resident shareholders may be subject to withholding tax and CGT as a result of such rules. You should consult your tax advisor in connection with any distribution of capital reserves.

Other Italian Taxes

Estate and Gift Tax.

As of October 25, 2001, the Italian estate and gift tax has been abolished and consequently any transfer of shares or ADSs occurring by reason of death or gift as of that date is no longer subject to any Italian estate and gift tax.

However, should a gift of Ordinary Shares or ADSs for a value exceeding €180,759.91 (the “Threshold”) occur and the relationship between the donor and the beneficiary not qualify for the exemption regime applicable to gifts made in favor of certain family members (e.g., spouse, parents, children, grandchildren), a registration tax of €168.00 would be due insofar as the gift agreement is either executed or registered in Italy. The materiality threshold is increased to €516,456.91 in case the beneficiary is a person with a handicap recognized pursuant to applicable law.

Transfer Tax.

An Italian transfer tax is normally payable on the transfer of shares in an Italian company. The transfer tax will not be payable with respect to any transfer of Ordinary Shares or ADSs involving non-Italian residents, provided that such transfer is concluded either on a regulated market or with a bank or an investment services company.

DOCUMENTS ON DISPLAY

Copies of De Rigo S.p.A.’s Statuto are incorporated by reference as an exhibit to this annual report and may be examined at its registered office at Zona Industriale Villanova, No. 12, 32013 Longarone (BL), Italy.

The Company is subject to the information reporting requirements of the Exchange Act applicable to foreign private issuers. In accordance therewith, De Rigo is required to file reports and other information with the U.S. Securities and Exchange Commission (the “SEC”). In particular, the Company is required to file annual reports on Form 20-F and periodic reports on Form 6-K by

electronic means through the SEC’s EDGAR system. These materials, including this annual report, are available for inspection and copying at the SEC’s public reference facilities in Washington D.C., New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms.

Item 11. Quantitative and Qualitative Disclosures about Market Risk

The De Rigo Group is exposed to market risks from fluctuations in foreign currency exchange and interest rates. The exposure to foreign currency risk arises principally in connection with the geographical distribution of the Group’s sales and retail activities, which generally results in the Group generating revenues from its operations and sales outside of the Euro zone in currencies other than the Euro that are in excess of its costs denominated in such currencies, which are primarily incurred with respect to its operations located in such countries, and, to a lesser extent, with respect to non-Euro denominated inputs used by its operations in the Euro zone. As a result, the depreciation of the Euro relative to other currencies generally has a positive effect on net sales and operating income, while the appreciation of the Euro has adverse effects on net sales and operating income. Similarly, changes in interest rates affect the Group’s net income by increasing or decreasing borrowing costs and investment income. Prior to the acquisition of D&A in December 1998, substantially all of the Group’s costs and revenues were denominated in lire or other currencies of countries participating in the third stage of European Monetary Union, as almost all of its production facilities were in Italy or other participating Member States and its prices were generally denominated in lire (except for sales to its distribution subsidiaries), so the average price per unit and operating margins were not significantly affected by foreign currency exchange rate fluctuations. Since December 1998, the Group’s exposure to non-Euro currencies increased, due to the fact that D&A’s costs and revenues are almost exclusively denominated in Pounds Sterling. The Group’s acquisition of General Optica in February 2000 did not have a similar impact on its risk profile, as both Spain and Portugal are participating in the euro. The Group also makes significant purchases of raw materials and components denominated in U.S. dollars, and therefore is exposed to fluctuations in the exchange rate between the U.S. dollar and the euro.

The Group regularly assesses its exposure and generally seeks to manage these market risks, principally through the use of forward exchange contracts and foreign currency options to hedge certain firm sales/purchases commitments, anticipated but not yet committed sales/purchases and investments in debt securities denominated in currencies other than the euro. The Group has adopted a series of guidelines regarding the management of exchange rate and interest rate exposure. De Rigo’s policy allows derivative instruments to be used only for managing exchange and interest rates risks connected to monetary flows and assets and liabilities, and not for speculative purposes.

The Group’s consolidated statements of income recognized net foreign exchange gains of €0.3 million and €0.5 million in 2004 and 2003, respectively. For additional information on the Group’s financial instruments, see Note 19 to Notes to the Consolidated Financial Statements included in Item 18.

Risk Analysis

The De Rigo Group monitors foreign exchange risk, interest rate risk and related hedge positions using a variety of analytical techniques including market value and sensitivity analysis. The following analyses assume instantaneous parallel shifts in exchange rates and interest rate yield curves. For options that are instruments with non-linear returns, sensitivity analysis models considering the year-end market volatility are employed.

Exchange Rate Risk

At December 31, 2004, the potential loss in fair value of the financial instruments with exposure to exchange rate risk with regard to non-Euro currencies, principally those relating to the Pound Sterling and U.S. dollar, primarily financial assets and liabilities denominated in such currencies and derivative instruments such as foreign forward exchange contracts and currency options, resulting from a hypothetical 10% change in relevant foreign currency exchange rates would be approximately €0.3 million. This sensitivity analysis assumes an unfavorable and instantaneous 10% fluctuation in the relevant exchange rates and is generally based on rates at the end of the year for the relevant currencies against the euro, the Group’s reporting currency.

As consistently and simultaneously unfavorable movements in all relevant exchange rates are unlikely, these assumptions may overstate the impact of exchange rate fluctuations on such financial instruments. In addition, this calculation does not include trade receivables and trade payables and anticipated cash flows related to the underlying business transactions. Management believes that it is reasonable to expect that the above movement in foreign exchange rates would produce an opposite economic impact on the underlying business transactions for which such financial instruments are used.

Interest Rate Risk

Although the Group uses derivative instruments to manage its interest rate risk exposure, it does not attempt to hedge its interest rate risks completely. As a result, the Group’s results could be affected with regard to changes in interest rates, particularly as regards changes in the values of its floating rate assets and liabilities. The potential loss in fair value of such assets and liabilities held at December 31, 2004, resulting from a hypothetical, instantaneous and unfavorable change of 10% in interest rate levels applicable to such financial assets and liabilities would be approximately €0.1 million.

Despite the Group’s program to manage exchange rate and interest rate risk, there can be no assurance that exchange rate or interest rate fluctuations will not adversely affect the Group’s results of operations, cash flows, financial conditions or relative price competitiveness in the future. Moreover, as with all hedging instruments, there are risks associated with the use of derivative instruments and other risk management tools. Although the use of such hedging instruments provides a certain degree of protection from certain fluctuations in currency exchange and interest rates, the Group may potentially lose benefits resulting from other fluctuations in currency exchange and interest rates as a result of using such instruments.

Changes in Market Risk Exposure Compared to 2003

The Group’s policy on financial risk management has not changed from the preceding year. However, the characteristics and the mix of the Group’s financial instruments with exposure to interest rate and foreign exchange rate risk at December 31, 2004 have changed substantially from the preceding year. See Note 19 to Notes to the Consolidated Financial Statements included in Item 18.

Item 12. Description of Securities Other than Equity Securities

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies

None.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

None.

Item 15. Controls and Procedures

As of December 31, 2004, the Company carried out an evaluation under the supervision and with the participation of its management, including its chief executive officer and chief financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon and as of the date of the Company’s evaluation, the chief executive officer and chief financial officer concluded that the disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports the Company file and submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported as and when required. There has been no change in the Company’s internal control over financial reporting during 2004 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 16. [Reserved]

Item 16A. Audit Committee Financial Expert

The Company has determined that, because of the existence and nature of its board of statutory auditors, it will qualify for an exemption provided by Exchange Act Rule 10A-3(c)(3) from many of the Rule 10A-3 audit committee requirements, which become applicable to foreign private issuers on July 31, 2005. See “Significant Differences In Corporate Governance Practices For Purposes of Section 303a.11 of the New York Stock Exchange Listed Company Manual—Audit Committee and Internal Audit Function” in Item 10. The board of statutory auditors has determined that each of the members qualifies as an “audit committee financial expert” within the meaning of this Item 16A.

Item 16B. Code of Ethics

The Company has adopted a code of ethics, as defined in Item 16B of Form 20-F under the Securities Exchange Act of 1934, as amended, that is applicable to the Company’s chief executive officer, chief financial officer, chief accounting officer and controller, as well as to persons performing similar functions to any of the foregoing in each relevant group’s subsidiary. Copies of this code of ethics are available upon request by writing to us at the address on the cover page of this annual report; we also expect to post the code of ethics on our website at www.derigo.com. Material appearing on this website is not incorporated by reference into this annual report. If the Company amends the provisions of this code of ethics, or if the Company grants any waiver of such provisions, it will disclose such amendment or waiver on its website at the same address.

Item 16C. Principal Accountant Fees and Services

Audit and Non-Audit Fees

The following table sets forth the fees billed to the Company by its independent auditors, Reconta Ernst & Young “or other Ernst & Young audit entities,” during the fiscal years ended December 31, 2003 and 2004:


	Year ended December 31,
	2004		2003
	(in thousands of euro)
Audit fees	€	495	€	473
Audit-related fees		316		0
Tax fees		56		225
All other fees		5		4

Total fees	€	872	€	702

Audit fees in the above table are the aggregate fees billed by Reconta Ernst & Young or other Ernst & Young audit entities in connection with the audit of the Company’s annual financial statements and include the annual financial statement audit (including required semi-annual reviews), subsidiary audits, equity investment audits and other procedures required to be performed by the independent auditor to be able to form an opinion on the Company’s consolidated financial statements.

Audit-related fees in the above table are the aggregate fees billed by Reconta Ernst & Young or other Ernst & Young audit entities for accounting due diligence services pertaining to potential business acquisitions or dispositions, as well as internal control reviews and assistance with internal control reporting requirements.

Tax fees in the above table are fees billed by Studio Legale Tributario associato Ernst & Young, (an affiliate of Reconta Ernst & Young) for tax compliance services and advice on specific changes in tax regulations.

Audit Committee Pre-Approval Policies and Procedures

All audit and non-audit services provided by our independent auditors must be pre-approved by our board of statutory auditors, which serves as the Company’s “audit committee” for purposes of applicable rules and regulations under the U.S. securities laws and the NYSE listing standards. De Rigo’s pre-approval policies provide that such services can either be pre-approved on the basis of an annual approval of particular types of services within identified categories (“general pre-approval”); or require the specific pre-approval of the board of statutory auditors (“specific pre-approval”). Any such general pre-approval is based on a detailed description of the particular types of services to be provided and incorporates limits on the related fees that can be incurred without triggering a need for a specific pre-approval; the board of statutory auditors is also informed about each service performed pursuant to a general pre-approval.

Unless a service has received general pre-approval, it requires specific pre-approval by the board of statutory auditors if it is to be provided by the independent auditor. Any proposed services of a particular type having received general pre-approval, but exceeding the cost levels or budgeted amounts set forth in such general pre-approval also require specific pre-approval by the board of statutory auditors.

For both types of pre-approval, the board of statutory auditors considers whether such services are consistent with the SEC’s rules on auditor independence. The board of statutory auditors also considers whether the independent auditor is best positioned to provide the most effective and efficient service, for reasons such as its familiarity with the Company’s business, people, culture, accounting systems, risk profile and other factors, and whether the service might enhance the Company’s ability to manage or control risk or improve audit quality. All such factors are considered as a whole, and no one factor should necessarily be determinative.

The board of statutory auditors is also mindful of the relationship between fees for audit and non-audit services in deciding whether to pre-approve any such services and may determine, for each fiscal year, the appropriate ratio between the total amount of fees for audit, audit-related and tax

services and the total amount of fees for certain permissible non-audit services classified as all other services.

Item 16D. Exemptions From The Listing Standards For Audit Committees

Not applicable.

Item 16E. Purchases Of Equity Securities By The Issuer And Affiliated Purchasers

An authorization from the shareholders for the Company to purchase up to 10% of the outstanding shares in the form of Ordinary Shares or ADSs was passed as of November 2003 and renewed as of May 2004 and publicly announced at such time. The authorization of this share repurchase program will expire in November 2005. As of the date of this annual report, the Company had repurchased a total of 223,200 ADSs and 2,225,000 Ordinary Shares pursuant to this program (the 2,225,000 Ordinary Shares having been repurchased from Prada in July 2004 and the 223,200 ADSs having been purchased in market transactions in 2003). Purchases under this program in 2004 are summarized in the table below.


					Total Number of		Maximum Number of
					Shares Purchased as		Shares that may yet
					Part of Publicly		be Purchased under
	Total Number of		Average Price Paid		Announced Plans or		the Plans or
	Shares Purchased		per Share in €		Programs		Programs
2004	(a)		(b)		(c)		(d)
Jan. 1-31		—		—		223,200		4,176,800
Feb. 1-29		—		—		223,200		4,176,800
Mar. 1-31		—		—		223,200		4,176,800
Apr. 1-30		—		—		223,200		4,176,800
May 1-31		—		—		223,200		4,176,800
Jun. 1-30		—		—		223,200		4,176,800
Jul. 1-31		2,225,000		5.06		2,448,200		1,951,800
Aug. 1-31		—		—		2,448,200		1,951,800
Sep. 1-30		—		—		2,448,200		1,951,800
Oct. 1-31		—		—		2,448,200		1,951,800
Nov. 1-30		—		—		2,448,200		1,951,800
Dec. 1-31		—		—		2,448,200		1,951,800

Total		2,225,000		5.06		2,448,200		1,951,800

PART III

Item 17. Financial Statements

Not applicable.

Item 18. Financial Statements

Index to Financial Statements and Schedule filed with this Report


		Page
Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets as of December 31, 2003 and 2004		F-2
Consolidated Statements of Income for the Years Ended December 31, 2002, 2003 and 2004		F-4
Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2003 and 2004		F-5
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2002, 2003 and 2004		F-6
Notes to the Consolidated Financial Statements		F-7

Item 19. Exhibits

Index to Exhibits filed with this Report

1.1 Bylaws of De Rigo S.p.A. (incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission by De Rigo S.p.A. on June 30, 2004, file no. 1-14002).

1.2 The total amount of long-term debt securities of De Rigo S.p.A. authorized under any instrument does not exceed 10% of the total assets of the Group on a consolidated basis. De Rigo S.p.A. hereby agrees to furnish to the Securities and Exchange Commission upon request a copy of any instrument defining the rights of holders of long-term debt of the registrant or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.

8.1 List of subsidiaries of the registrant.

12.1 CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

12.2 CFO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

13.1 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders of
De Rigo S.p.A.

We have audited the accompanying consolidated balance sheets of De Rigo S.p.A. and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of De Rigo S.p.A. and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in Italy, which differ in certain respects from U.S. generally accepted accounting principles (see Note 19 of the Notes to Consolidated Financial Statements).

Padua, Italy
May 2, 2005
except for note 19, as to which the date is
June 1, 2005

F-1

DE RIGO S.p.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of Euro (€), unless otherwise noted)


	December 31,
	2003			2004
ASSETS
Current assets:
Cash and cash equivalents		19,634			27,146
Accounts receivable, trade, net of allowances for doubtful accounts of € 7,383 in 2003 and € 7,187 in 2004		61,938			61,271
Inventories (Note 4)		49,366			51,232
Deferred income taxes (Note 11)		13,018			5,443
Prepaid expenses and other current assets (Note 5)		12,393			14,391


Total current assets		156,349			159,483

Property, plant and equipment (Note 9):
Land		16,848			16,874
Buildings		54,587			54,658
Machinery and equipment		25,491			24,475
Office furniture and equipment		82,800			94,955
Construction in progress		—			19

		179,726			190,981
Less: Accumulated depreciation		(70,643	)		(82,805	)

Property, plant and equipment, net		109,083			108,176

Goodwill and intangible assets net (Note 6)		103,891			97,574

Deferred income taxes (Note 11)		1,407			11,927

Other non current assets (Note 7)		6,157			17,404


TOTAL ASSETS		376,887			394,564

See accompanying notes

F-2

DE RIGO S.p.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands of Euro (€), unless otherwise noted)


	December 31,
	2003			2004
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term bank borrowings (Note 8)		22,569			20,410
Current portion of long-term debt (Note 9)		166			184
Accounts payable, trade		66,141			70,875
Commissions payable		895			212
Income taxes payable		5,452			4,219
Deferred income taxes (Note 11)		1,392			767
Accrued expenses and other current liabilities (Note 10)		27,223			28,970


Total current liabilities		123,838			125,637

Termination indemnities and other employee benefits (Note 12)		9,755			10,142
Deferred income taxes (Note 11)		8,670			9,835

Long-term debt, less current portion (Note 9)		497			341

Other non-current liabilities (Note 14)		7,243			7,200
Shareholders’ equity (Note 15):
Capital stock, € 0.26 par value, 45,800,000 and 45,800,000 shares authorized; 44,714,255 and 44,934,976 issued; 44,491,055 and 42,486,776 outstanding at December 31, 2003 and 2004, respectively		11,626			11,683

Additional paid-in capital		54,490			54,599
Retained earnings		161,413			175,891
Foreign currency translation adjustments		(5,682	)		(5,801	)
Revaluation reserve		5,037			5,037

Total shareholders’ equity		226,884			241,409


TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		376,887			394,564

See accompanying notes

F-3

DE RIGO S.p.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands of Euro (€), unless otherwise noted)


	For the years ended December 31,
	2002			2003			2004
NET SALES (Note 17)		512,459			504,801			514,384

COST OF SALES		203,208			202,040			198,900


GROSS PROFIT		309,251			302,761			315,484

COSTS AND EXPENSES
Commissions		16,381			13,432			11,869
Advertising and promotion expenses		34,854			32,644			34,393
Other selling expenses		203,011			195,532			204,442
General and administrative expenses		38,278			36,299			35,955

		292,524			277,907			286,659


INCOME FROM OPERATIONS		16,727			24,854			28,825

OTHER (INCOME) EXPENSES
Interest expense		4,025			2,217			1,126
Interest income		(633	)		(718	)		(675	)
Other (income) expenses, net		3,566			(14,483	)		725

		6,958			(12,984	)		1,176


INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS		9,769			37,838			27,649

INCOME TAXES (Note 11)		46			14,935			12,737


INCOME BEFORE MINORITY INTERESTS		9,723			22,903			14,912

MINORITY INTERESTS (Note 18)		(922	)		4,425			434


NET INCOME		10,645			18,478			14,478

See accompanying notes

F-4

DE RIGO S.p.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of Euro (€), unless otherwise noted)


	2002			2003			2004
Cash flows from operating activities
Net income		10,645			18,478			14,478
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation		18,339			17,735			18,436
Amortization		9,213			9,216			8,463
Provision for doubtful accounts		2,821			2,545			1,380
Provision for inventory obsolescence		4,480			5,325			3,875
Gain on sale of investments in debt securities		(111	)		(86	)		—
Deferred income taxes		(8,479	)		(1,969	)		(2,454	)
Gain on disposal of EID in 2003 and De Rigo Nederland in 2004		—			(11,751	)		(62	)
Other, non-cash items		622			489			227
Provision for termination indemnities and pension costs		8,103			8,467			8,150
Minority interest in income (loss)		(922	)		4,425			434
Changes in operating assets and liabilities:
Accounts receivable		(14,945	)		(2,986	)		(2,132	)
Inventories		6,698			(3,582	)		(5,864	)
Accounts payable		(3,451	)		6,333			5,813
Income taxes payable		(6,666	)		2,829			(1,212	)
Value added tax		1,799			126			(1,775	)
Other — net		(150	)		201			(1,289	)
Payments of termination of indemnities and pension contributions		(5,656	)		(4,965	)		(5,038	)

Net cash provided by operating activities		22,340			50,830			41,430


Cash flows from investing activities
Net proceeds from sale of EID (Note 3)		—			12,341			—
Net proceeds from sale of De Rigo Nederland and Deutschland (Note 3)		—			—			(202	)
Acquisition of minority interests in Dierre, De Rigo France, De Rigo Deutschland and De Rigo UK		(304	)		—			(739	)
Net proceeds from sale of Ranieri Argentina and Vogart S.r.l.		386			—			—
Acquisition (proceeds) of interests in other companies		—			—			(53	)
Additions to property, plant and equipment		(16,075	)		(11,548	)		(17,624	)
Proceeds from disposal of equipment and other assets		1,354			1,870			246
Additions to intangible assets		(2,086	)		(1,009	)		(2,087	)
Proceeds from sale of investments		—			1,993			—

Net cash used in investing activities		(16,725	)		3,647			(20,459	)


Cash flows from financing activities
Net change in short-term borrowings from lines of credit		(3,241	)		(50,169	)		(2,107	)
Dividends paid by subsidiaries to minority interests		—			(4,429	)		(14	)
Proceeds from long-term debt		151			—			35
Repayment of long-term debt and non current liability		(494	)		(251	)		(173	)
Share capital increase		68			—			92
Purchase of treasury shares		—			(753	)		(11,266	)
Payment of dividends		(5,805	)		—			—
Net cash provided (used) by financing activities		(9,321	)		(55,602	)		(13,433	)

Effect of exchange rate changes on cash		(241	)		(269	)		(26	)

Increase (Decrease) in cash and cash equivalents		(3,947	)		(1,394	)		7,512
Cash and cash equivalents at beginning of the year		24,975			21,028			19,634

Cash and cash equivalents at end of the year		21,028			19,634			27,146

Supplemental disclosures:
Interest paid		3,871			2,430			925

Income taxes paid		18,147			9,701			18,060

See accompanying notes

F-5

DE RIGO S.p.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the years ended December 31, 2002, 2003 and 2004
(In thousands of Euro (€), unless otherwise noted)


								Foreign
			Additional					currency
	Share		paid-in		Retained			translation			Revaluation
	Capital		capital		earnings			adjustments			reserve		Total
Balance at January 1, 2002		11,609		54,439		138,095			1,239			5,037		210,419
Foreign currency translation adjustments									(3,210	)				(3,210	)
Share capital increase
— exercise of 62,852 stock options		17		51										68
Net income for 2002						10,645								10,645
Dividends paid						(5,805	)							(5,805	)

Balance at December 31, 2002		11,626		54,490		142,935			(1,971	)		5,037		212,117
Foreign currency translation adjustments									(3,711	)				(3,711	)
Net income for 2003						18,478								18,478

Balance at December 31, 2003		11,626		54,490		161,413			(5,682	)		5,037		226,884
Foreign currency translation adjustments									(119	)				(119	)
Share capital increase
— exercise of 220,721 stock options		57		109										166
Net income for 2004						14,478								14,478

Balance at December 31, 2004		11,683		54,599		175,891			(5,801	)		5,037		241,409

See accompanying notes

F-6

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

1. BACKGROUND AND ORGANIZATION

De Rigo S.p.A. (“De Rigo” or the “Company”) is incorporated in Italy, and on December 31, 2003 and 2004, respectively, was 74.0% and 77.2% directly and indirectly owned by the De Rigo brothers. On December 31, 2004, a portion of the De Rigo brothers’ interest equal to 75.0% of the Company was indirectly owned through De Rigo Holding B.V., with the remaining 2.2% being directly owned by the De Rigo brothers. The remaining 22.8% of the Company was owned as follows:


Managing Director	2.0	%
Publicly owned	20.8	%

	22.8	%

A total of 22.4% of the shares are listed on the New York Stock Exchange (“NYSE”) in the form of American Depositary Shares (each American Depositary Share represents one Ordinary Share) under the symbol “DER”. This is comprised of the 20.8% publicly owned shares with the other 1.6% being owned directly and indirectly by the Managing Director and the De Rigo brothers.

The principal activities of the De Rigo S.p.A. and its subsidiaries (the “Company” or the “Group”) include the design, manufacture, distribution, marketing and retailing of premium-priced fashion sunglasses and prescription eyeglass frames and the sale of eyeglass lenses. Information on the Group’s operations by business segment and the expiration dates of certain tax exemption grants are disclosed in Notes 17 and 11, respectively.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements of De Rigo and its subsidiaries (collectively the “Group”) are prepared on the basis of the accounts of De Rigo and the financial statements of the individual companies consolidated as of December 31, 2004 as approved by their respective Boards of Directors, adjusted, where necessary, to conform with the accounting policies adopted by De Rigo. The accounting policies are consistent with the Italian Civil Code (as amended by Legislative Decree No. 6 dated January 17, 2003 and subsequent amendments and integrations) related to consolidated financial statements interpreted and integrated by the accounting principles established or adopted by the Italian Accounting Profession (collectively, “Italian GAAP”).

Italian GAAP differs in certain material respects from U.S. generally accepted accounting principles (“U.S. GAAP”). The effects of these differences on stockholders’ equity as of December 31, 2003 and 2004 and on the consolidated net income for each of the three years in the period ended December 31, 2004 are set forth in Note 19.

The consolidated financial statements and related notes are presented in a reclassified format, which differs from De Rigo’s financial statements and disclosures which are prepared in accordance with Italian legal requirements. The format presented does not result in any modification of the portions attributable to De Rigo stockholders’ equity and net income (loss) as reported on an Italian GAAP basis.

Principles of consolidation

F-7

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

All majority-owned subsidiaries are consolidated.

The financial statements used for the consolidation are those prepared for approval by the shareholders of the respective companies forming part of the De Rigo Group. Such financial statements are adjusted, where necessary, to conform with the Company’s accounting policies that are in conformity with the Italian law governing consolidated financial statements interpreted and integrated by the accounting principles established or adopted by the Italian Accounting Profession (“Italian GAAP”).

All significant intercompany transactions and balances are eliminated. Unrealized intercompany profits and the gains and losses arising from transactions between Group companies are also eliminated.

Use of estimates

The preparation of the financial statements in conformity with Italian and U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Foreign currency translation

The financial statements of foreign subsidiaries expressed in foreign currencies are translated into Euro, the Company’s functional and reporting currency, using the year-end exchange rate for balance sheet items and the average exchange rate for the year for statement of income items. The translation differences resulting from the changes in exchange rates from year to year have been reported separately as a component of shareholders’ equity.

Foreign currency transactions

Monetary assets and liabilities denominated in foreign currencies have been recorded at the exchange rate in effect at the date of the transaction; such assets and liabilities denominated in foreign currencies are remeasured at the prevailing rate at the balance sheet date, taking into consideration relevant hedging contracts, and any resulting unrealized gain or losses are recognized in income.

Cash and Cash equivalents

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

Accounts receivable

Accounts receivable are carried at their net realizable value. The allowance for doubtful accounts is estimated based on the aging of accounts receivable balances and historical write-off experience. Accounts receivable are written-off when they are considered finally uncollectible and collection efforts have ceased.

Inventories

Inventories are carried at the lower of cost or market using the weighted average cost method.

Investments in debt securities

F-8

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

When the Company invests in debt securities, such investments are stated at the lower of cost or market.

Property, plant and equipment

Property, plant and equipment is recorded at either historical cost or revalued amounts. The Company revalued certain assets in years prior to 1992 to fair value, in accordance with Italian law. The applicable revaluation laws contained provisions limiting the amount of any such revaluation to the fair value of the respective assets. The adjustments resulting from these revaluations have been recorded as a component of shareholders’ equity.

Depreciation of property, plant and equipment is computed on the historical cost or revalued basis of the relevant asset, using the straight-line method over the estimated useful lives of the related assets, as follows:


Buildings		33-50 years
Machinery and equipment		4-10 years
Office, furniture and equipment		4-8 years
Leasehold improvements		lesser of useful life or lease term

Maintenance and repairs are expensed as incurred while replacement and improvements are capitalized. The cost and accumulated depreciation of assets sold or retired are removed from the accounts, and any resulting gain or loss is included in income from operations.

The Group periodically evaluates potential impairment loss relating to property plant and equipment, when a change in circumstances occurs by assessing whether permanent diminution in value has occurred. Impairment is recognized if the recoverable amount falls below its carrying value. In that event, an impairment loss is recognized based on the amount by which the net carrying value exceeds the recoverable amount, pursuant to Article 2426, Section 1, item 3 of the Italian Civil Code. Write-downs are reversed if the reason for the write-down no longer exists.

Goodwill

Goodwill represents the excess of the purchase price paid over the fair value assigned to tangible and identifiable intangible assets less the fair value assigned to liabilities assumed. Amortization is provided on a straight line basis over 5 to 20 years, the estimated future periods to be benefited. On an annual basis, management evaluates recorded goodwill for potential impairment. The Company measures impairment by comparing the fair value of a reporting unit with its carrying value, including goodwill. The fair value of a reporting unit is measured based on the present value of future cash flows and the result is compared to the fair value based on other valuation techniques (multiples of earnings before interest, taxes, depreciation and amortization, trading multiple and comparable transaction) to assess the overall reasonableness of the valuation range.

Intangible assets

Intangible assets are recorded at either historical cost or revalued amounts and are amortized, using the straight-line method, over 5 to 10 years. In 2001 the Company revalued certain trademarks to fair value, in accordance with Italian law. The applicable revaluation laws contain provisions limiting the amount of any such revaluation to the fair value of the respective assets. The adjustments resulting from these revaluations have been recorded as a revaluation reserve that is reported as a separate component of shareholders’ equity. The taxes payable on these

F-9

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

revaluations were charged to the revaluation reserve. Intangible assets are tested for impairment whenever events or changes in circumstances indicate that the net carrying amount may not be recoverable. When such events occur, the Company measures impairment by comparing the carrying value of the intangible asset to the estimated undiscounted future cash flows expected to result from the use of the assets and their eventual disposition and, if required, the impairment loss is measured as the amount that the carrying value of the asset exceeds the asset’s fair value if the asset is not recoverable.

Treasury Shares

Treasury shares are recorded at historical cost within long-term assets. Treasury shares are written down in cases where there is a permanent diminution in value. Write-downs are reversed if the reason for the write-down no longer exists.

Income taxes

Income taxes are provided for by each entity included in the consolidation in accordance with applicable local laws. Deferred income taxes are accounted for under the liability method and reflect the tax effects of all significant temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements and tax loss carry forwards (“NOLs”). Valuation allowances are provided against deferred tax assets for amounts that are not expected to be realized. The Company has considered future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for valuation allowances. However, if the Company were to determine that it would be able to realize its deferred tax assets in the future, in amounts in excess of their net recorded values, an adjustment to the deferred tax assets would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of the net recorded value of its deferred tax assets in the future, an adjustment to the deferred tax assets would be charged against income in the period such determination was made.

Investment tax credits and tax deductions

Investment tax credits and investment tax deductions are accounted for as a reduction in current income taxes in the year in which the credit arises or the deduction is taken.

Revenue recognition

Revenues from the sale of products are recorded net of discounts upon shipment, which is generally when title passes. It is not the Company’s policy to accept returns; however in specific cases returns are accepted. The Company records an accrual based on an estimate of anticipated returns of merchandise by customers in subsequent periods.

Retail sales consists of the sale of optical frames and lenses for prescription eyeglasses and fashion sunglasses (as well as contact lenses and other optical products), together with the provision of related professional consulting and aftercare services, through the network of stores operated by the Group’s two retail chains, D&A, a leading retailer in the British optical market, and General Optica, the leading optical chain in Spain, which also has a presence in Portugal. Revenue is recognized when the service is provided or the goods are delivered.

Shipping and handling costs

Shipping and handling costs are included in cost of sales.

F-10

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Derivative products

The Company uses derivative products to manage its exposure to fluctuations in interest rates and in foreign currency exchange rates relating to certain receivables and payables.

If a derivative is designated as a fair value hedge, changes in the fair value of the derivative and the related change in the hedged item are recognized in other income or expenses. If a derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in other income or expenses when the hedged item effects operations. Changes in fair value of derivatives that do not qualify as a hedge are recognized in other income or expenses. Unrealized gains related to the remeasurement at fair value of long-term derivative contracts are deferred until realized.

For financial instruments used to hedge interest rate risks, the interest differentials are recorded in the statement of income in “financial income” or “financial expense” based on the accrual principle; the fair values of the outstanding contracts at year-end are not reflected in the accompanying financial statements.

For financial instruments used to hedge exchange rate risks, the cost (or “financial component” calculated as the difference between the rate at the date of entering into the contract and the forward rate) is recorded in the statement of income in “financial income” or “financial expense” based on the accrual principle. Premiums collected (paid) on the sale or purchase of put and call options are classified under “other payables” or “receivables due from others”. If the option is exercised, the premium collected (paid) is treated as an accessory component of the strike price of the underlying instruments; if the option is not exercised, the premium collected (paid) is recorded under financial income (financial expense). Put and call options are valued consistently with the underlying asset and liability positions and any net expense connected with each single transaction is recognized in the statement of income. Put and call options outstanding at year-end are stated at the lower of cost or market value at the balance sheet date.

Advertising and promotion

Advertising costs are charged to earnings the first time the advertisement appears. Media (TV and print advertisement) placement costs are charged to earnings in the month the advertisement first appears. The Company has sponsorship agreements with certain movie stars and athletes that are generally cancelable only for cause. The Company’s accounting for these sponsorship contracts is based upon the specific contract provisions. Generally, sponsorship payments are expensed uniformly over the term of the agreement, provided that certain future performance obligations exist.

Share-based compensation

From time to time the Company grants stock options to qualified employees as incentive compensation. Awards of stock based compensation schemes are treated as equity movements at the time of acquisition by the recipient. Neither the fair value nor the intrinsic values of the stock based compensation schemes are included in the statement of income under Italian GAAP.

Statements of cash flows

Short-term borrowings arise primarily under the Group’s short-term lines of credit with its banks. These short-term obligations are payable on demand. The cash flows from these items are included under the caption “Net change in short-term borrowings” in the consolidated statements of cash flows.

F-11

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Reclassifications

Certain amounts in the financial statements in 2002 and 2003 have been reclassified to conform to the 2004 presentation.

Other information

The following table discloses the year-end exchange rates for the balance sheet items and the average exchange rates for the statement of income items used to change foreign currency of subsidiaries outside of the Euro area into Euros for years 2004 and 2003, respectively:


				Average				Average				Average
Exchange rate	31/12/04		2004		31/12/03		2003		31/12/02		2002
US $ ⁽¹⁾		1.3621		1.2439		1.2630		1.1312		1.0487		0.9456
GB Pound		0.7051		0.6787		0.7048		0.6920		0.6505		0.6288
Japanese Yen		139.6500		134.4400		135.0500		130.9710		124.3900		118.0625
Singapore $		—		—		2.1450		1.9703		1.8199		1.6912
Hong Kong $		10.5881		9.6881		9.8049		8.8079		8.1781		7.3750


Note 1:	In 2003, the financial statements of Eid L.L.C were expressed into Euro with the average exchange rate for the period 1 January 2003 — 23 July 2003 of 1.1049 US$ for 1 €.

3. BUSINESS ACQUISITIONS AND DISPOSALS

2004 Acquisitions and disposals

On June 30, 2004, the Group sold to De Rigo Holding BV its 100% interest in De Rigo Nederland and De Rigo Singapore for cash consideration of € 580 realizing a gain of € 62. Since May 1, 2004 the Group distributes its products in the Dutch market directly from Italy.

On October 22, 2004, the Group acquired the outstanding 20% minority interest in its subsidiary De Rigo UK for cash consideration of € 739. The acquisition has been accounted for under the purchase method. Prior to the acquisition of this outstanding minority interest, the Company held 80% of the outstanding shares and was fully consolidating De Rigo UK’s results. The amount paid over the book value was not significant.

On December 16, 2004, the Group sold its 100% interest in De Rigo GmbH for a nominal amount equivalent to book value. Since January 1, 2004 the Group distributes its products in the German market directly from Italy.

F-12

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

2003 Disposals

On July 23, 2003 the joint venture that the Group formed with the Prada Group in 2000 was terminated under a mutual agreement between the parties and as a result the Group sold its 51% interest in EID to the Prada Group for cash consideration of € 12,341 realizing a gain of € 11,751, which is included in other (income) expenses.

2002 Acquisitions and disposals

On June 25, 2002, the Group sold its 51% interest in Ranieri Argentina for cash consideration of € 367 realizing a gain of € 78. The recent economic crisis in Argentina led the Group to divest its former distribution subsidiary in that country.

On July 24, 2002, the Group acquired the outstanding 40% minority interest in its subsidiary De Rigo Deutschland for cash consideration of € 51. The acquisition has been accounted for under the purchase method. Prior to the acquisition of this outstanding minority interest, the Company held 60% of the outstanding shares and was fully consolidating De Rigo Deutschland’s results. The excess of the purchase price paid over the corresponding portion of the fair values assigned to tangible and identifiable intangible assets less the fair value assigned to liabilities assumed has been allocated to goodwill, which is being amortized over 5 years on a straight-line basis.

4. INVENTORIES

Inventories consisted of the following:


	December 31,
	2003		2004
Raw materials and supplies		5,068		6,021
Semi-finished goods		5,077		5,300
Finished goods		39,221		39,911

		49,366		51,232

Inventories are net of allowances for obsolete and slow moving items of € 24,355 and € 24,055 at December 31, 2003 and 2004, respectively.

F-13

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

5. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:


	December 31,
	2003		2004
Prepaid shop rentals		5,060		5,291
Prepaid pension benefit costs (Note 12)		1,883		—
Value added tax receivable		1,630		3,403
Income tax receivable		245		1,989
Advances to suppliers and agents		390		415
Franchise prepayments		868		719
Prepaid other taxes		606		814
Other		1,711		1,760

		12,393		14,391

6. GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consisted of the following:


	December 31,
	2003		2004
Goodwill, net of accumulated amortization of € 26,508 in 2003 and € 32,017 in 2004		94,532		88,327
Trademarks, net of accumulated amortization of € 2,420 in 2003 and € 3,051 in 2004		4,368		3,989
Other intangibles, net of accumulated amortization of € 12,373 in 2003 and € 14,617 in 2004		4,991		5,258

		103,891		97,574

In accordance with Italian tax law n. 448 dated December 28, 2001, at the end of 2001, the Company revalued certain of its trademarks from € 436 to € 5,479. This revaluation was subject to a tax in the amount of € 958, which was payable over three years. The carrying value of the trademark assets was adjusted to the revalued amount of €5,479; the amount of the revaluation was credited to a separate component of shareholders’ equity (revaluation reserve) net of the tax liability attributable to the revaluation reserve. No provision has been made for the tax to be paid upon distribution of the revaluation reserve because management does not intend to distribute the revaluation reserve arising from this revaluation.

F-14

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

7. OTHER NON CURRENT ASSETS

Other non-current assets consisted of the following:


	December 31,
	2003		2004
Advance payment of withholding tax on termination indemnities		71		12
Income tax receivable		4,154		3,834
Long-term deposits		1,154		1,372
Treasury shares		753		12,019
Other		25		167

		6,157		17,404

Included in income tax receivable is an amount of € 3,830 related to an Italian tax credit, originating from the distribution of dividends to a foreign subsidiary. Although, a tax refund request was rejected by the First Tax Court of Italy in late 2004, the Company has not removed the related receivable amount as, based on the opinion of its tax and legal advisors, the reasons for the court’s rejection of the refund are considered to be groundless; accordingly, the recoverability of this receivable is considered probable.

8. SHORT-TERM BANK BORROWINGS

Short-term bank borrowings consisted of:


	December 31,
	2003		2004
Borrowings under lines of credit payable on demand		22,569		20,410

Borrowings under lines of credit payable on demand

At December 31, 2003 and 2004, the Group had unsecured short-term bank lines of credit aggregating approximately € 137,103 and € 85,498, respectively. At December 31, 2003 and 2004, approximately € 114,534, and € 65,088, respectively, were available for further borrowings. At December 31, 2003 and 2004, the weighted average interest rates for the short-term lines of credit were 3.48% and 3.56% respectively. Amounts outstanding under these lines of credit are payable upon demand.

F-15

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

9. LONG-TERM DEBT

Long-term debt consists of the following:


	December 31,
	2003			2004
Subsidized by the Italian Government:
• Mortgage loan payable to bank, bearing interest at an effective annual rate of 1.0875% for first three years and 2.61% for remaining 10 years, payable yearly from 2003 through 2012		351			316
Subsidized by the European Investment Bank:
• Mortgage loan payable to bank, bearing variable interest at 3 month Euribor rate plus 1.00% margin payable yearly from 1998 through 2005 (3.11% and 3.17% at December 31, 2003 and 2004, respectively)		194			97
Mortgage loans payable to banks bearing interest at annual rate of 5.20% and 3.55%, due in installments to 2005 and 2006		118			112

Total long-term debt		663			525
Less: current portion		(166	)		(184	)

		497			341

The interest paid by the Italian Government and European Investment Bank amounted to € 26, € 5 and nil in 2002, 2003, and 2004 respectively. The subsidy on the European Investment Bank loan eliminated the 75 percentage points of the margin, reducing the effective interest rate to the 3 month Euribor rate plus 0.25%.

The mortgage loans are secured by liens on property, plant and equipment that have a carrying value of approximately € 3,670 at December 31, 2004. The maturities of long-term debt over the next five years as at December 31, 2004 are as follows:


2005				184
2006				81
2007				55
2008				39
2009				40
Thereafter				126

Total				525

F-16

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

10. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consist of the following:


	December 31,
	2003		2004
Salaries payable and related social security contributions		12,601		13,755
Employee taxes withheld		3,545		4,003
Customer advances		2,255		1,917
Property expense accruals		853		367
VAT taxes payable		3,083		3,407
Warranty provision		1,685		2,193
Other accrued expenses		3,201		3,328

		27,223		28,970

11. INCOME TAXES

Income before income taxes and the provision for income taxes consist of the following:


	2002			2003			2004
Income before income taxes:
Italy		1,299			21,227			11,981
United Kingdom		2,072			1,968			2,467
Spain		8,864			9,087			11,398
Other		(2,466	)		5,556			1,803

Total		9,769			37,838			27,649

Provision for income taxes:
Current:
Italy		1,749			9,314			6,352
United Kingdom		1,764			2,224			2,531
Spain		4,459			4,489			5,769
Other		553			877			539

Total		8,525			16,904			15,191

Deferred:
Italy		(8,014	)		(820	)		(1,343	)
United Kingdom		(153	)		(999	)		(948	)
Spain		(311	)		210			(389	)
Other		(1	)		(360	)		226

Total		(8,479	)		(1,969	)		(2,454	)

Total tax provision		46			14,935			12,737

F-17

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

The reconciliation between the Italian statutory tax rates and the consolidated effective tax rates is as follows:


	2002			2003			2004
Tax at Italian statutory rate of 40.25% in 2002, 38.25% in 2003 and 37.25% in 2004		3,932			14,473			10,300
Investment tax credit and deductions		(245	)		—			—
Non-taxed gains on business disposal		(123	)		(3,926	)		—
Effect of a change in tax rate:
· In Italy		(7,042	)		303			—
· Other countries		16			(9	)		28
Effect of different tax rates of foreign jurisdictions		(785	)		(808	)		(610	)
Change in valuation allowance		1,026			(168	)		(12	)
Amortization of non-deductible goodwill		2,384			2,435			2,178
Other permanent differences:
· Italy
IRPEG		(460	)		1,325			745
IRAP — (primarily payroll, interest and gain on business assignment in 2004)		1,413			981			(156	)
· Other countries		(70	)		329			264

Provision for income taxes		46			14,935			12,737

Effective consolidated tax rate		0.5	%		39.5	%		46.1	%

The Italian statutory tax rate for 2002 was 40.25%, comprised of a 36% national corporate income tax (“IRPEG”) and a 4.25% Regional Tax on Productive Activities (“IRAP”). A new tax law was enacted in December 2002 to be effective January 1, 2003 with the effect of reducing the IRPEG tax rate from 36% to 34% for the year 2003. A further tax law was enacted in December 2003 with the effect of reducing the IRPEG (now called IRES) tax rate from 34% to 33% effective January 1, 2004.

The Company decreased its Italian deferred tax assets and liabilities as of December 31, 2002 and 2003 to reflect changes in the tax law enacted in December 2002 and 2003. In 2002, the Company recognized, as a change in tax rate, deferred taxes on temporary differences of the tax exempt companies together with the effect of IRPEG reduced tax rate from 36% to 34%. The effect of applying the enacted tax rate in 2003 to existing temporary differences was to increase income tax expense by € 303.

F-18

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Components of deferred income tax assets and liabilities were:


	December 31,
	2003			2004
Total deferred tax assets		14,425			17,370
Total deferred tax liabilities		(10,062	)		(10,602	)


Net deferred tax assets		4,363			6,768


Of which:

Current deferred tax assets		13,018			5,443
Non-current deferred tax assets		1,407			11,927
Current deferred tax liabilities		(1,392	)		(767	)
Non-current deferred tax liabilities		(8,670	)		(9,835	)


Net deferred tax assets		4,363			6,768

Principal items comprising net deferred income tax assets were as follows:


	December 31,
	2003			2004
Assets (Liabilities)
Equalization tax on dividends		(475	)		(647	)
Tax revaluation on certain assets, net of accumulated depreciation		188			188
Allowance for doubtful accounts		1,939			1,035
Inventory obsolescence		8,041			544
Intercompany profits in inventory		1,531			1,572
Accumulated accelerated depreciation		(291	)		(86	)
Pension asset		(380	)		1,026
Book revaluation of certain assets		(8,431	)		(8,234	)
Surplus on business assignment		—			10,289
Net operating loss carry forwards (NOL)		3,977			2,348
Agents termination indemnity		421			118
Investments devaluation		340			238
Other		1,445			725

Net deferred tax assets		8,305			9,116
Less:
Valuation allowance on NOLs		(3,942	)		(2,348	)


Net deferred tax assets		4,363			6,768

F-19

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

In 2004, the Company underwent an internal reorganization of its wholesale and distribution business in order to prepare for certain anticipated business transactions. This reorganization allowed, under Italian tax law, a step up in the tax basis of the assets involved. This step up will allow for additional fixed asset depreciation in future years. The tax benefits associated with this step up are reflected above in the “surplus on business assignment” line in the table above.

Two subsidiaries of the Company that operate in the Longarone area were entitled to income tax exemptions from both national corporate income taxes and local income taxes under the Vajont Relief Program that the Italian Government implemented under an incentive program for the Longarone area as part of a package of relief measures after the Vajont dam catastrophe in 1963. These exemptions expired in September 2001 and in April 2003.

Tax years for the constituent companies in the Group are open from 1997 and are subject to review by the pertinent tax authorities. Management and its legal advisors do not believe that any significant liabilities will arise from future tax reviews.

12. EMPLOYEE BENEFITS

Italian companies in the Group recognized employee benefit costs in accordance with Italian severance pay statutes and certain foreign subsidiaries recognized pension costs related to their pension plans. The total expense for employee benefits recognized for each of the three years in the period ended December 31, 2004 are summarized as follows:


	2002		2003		2004
Italian termination indemnities		1,437		1,441		1,404
Defined benefit plan of D&A		5,407		5,686		5,470
Defined benefit plans of GO		257		151		185
Defined benefit plans in other countries		197		309		62
Defined contribution plans of D&A and GO		805		880		1,029

		8,103		8,467		8,150

The liabilities reported in the balance sheet at December 31, 2003 and 2004 pertaining to these employee benefits are summarized as follows:


	2003		2004
Italian termination indemnities		6,315		6,912
Defined benefit plans of GO		2,547		2,405
Defined benefit plan of D&A		—		658
Defined benefit plans in other countries		893		167

		9,755		10,142

Additional information with respect to Italian termination indemnities and the pension plans of companies within the Group is provided below:

F-20

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Liabilities for Italian Termination Indemnities

The liability for termination indemnities relates to the Company’s employees at its Italian operations. In accordance with the Italian severance pay statutes, an employee benefit is accrued for service to date and is payable immediately upon separation. The termination indemnity liability is calculated in accordance with local civil and labor laws based on each employee’s length of service, employment category and remuneration. The termination liability is adjusted annually by a cost of living index provided by the Italian Government. There is no funding requirement associated with the liability. The liability recorded in the balance sheet is the amount that the employee would be entitled to if the employee were to separate immediately. The provisions charged to earnings for 2002, 2003 and 2004 were € 1,437, € 1,441 and € 1,404, respectively.

Defined Benefit and Pension plans

D&A, an entity acquired on December 2, 1998, has a defined benefit pension plan covering some of its employees that is funded. The benefits are based on years of service and the employee’s compensation during a period up to the last seven years of employment. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. At the date of acquisition the projected benefit obligation for service rendered to date and the value of the plan assets were stated at fair value and the amount of plan assets in excess of the projected benefit obligation was recorded as a prepaid pension cost.

The following tables summarize the components of net benefit expense recognized in the consolidated statement of income for the years ended December 31, 2002, 2003 and 2004 and the funded status and amounts recognized in the consolidated balance sheets at December 31, 2003 and 2004.

Components of net periodic benefit cost for years ended December 31, are as follows:


	2002			2003			2004
Service benefit-cost: benefits earned during the year		5,089			2,890			2,210
Interest cost on projected benefit obligation		9,383			8,526			9,430
Expected return on plan assets		(9,860	)		(7,659	)		(8,251	)
Amortization of unrecognized gain/loss		795			1,929			2,081

Net periodic benefit cost		5,407			5,686			5,470

The cost of providing benefits under the plan is determined using the projected unit credit actuarial valuation method. Amortization of unrecognized net gain or loss is computed over the average remaining service period of active employees expected to receive benefits under the plan. The principal weighted average assumptions used in making the actuarial valuations are as follows:


	2002			2003			2004
Discount rate		5.75	%		5.50	%		5.25	%
Expected long-term return on plan assets		6.50	%		6.25	%		6.10	%
Rate of compensation increase		3.30	%		3.25	%		3.25	%

F-21

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Funded status of the pension plan is as presented in the tables below:


	December 31,
	2003			2004
Accumulated benefit obligation		145,148			155,450
Fair value of plan assets		127,412			140,274
Excess (deficit) of fair value of plan assets over accumulated benefit obligation		(17,736	)		(15,176	)


Changes in projected benefit obligation
at beginning of year		159,723			165,863
Service cost		2,890			2,210
Interest cost		8,526			9,430
Plan participants’ contributions		1,749			1,577
Actuarial (gain) loss		9,957			4,907
Benefits paid		(4,335	)		(4,420	)
Foreign currency translation adjustment		(12,647	)		(573	)


Benefits obligation at the end of year		165,863			178,994

Change in plan assets
(invested primarily in United Kingdom stocks and bonds)


	2003			2004

Fair value of plan assets at beginning of year		123,751			127,412
Actual returns on assets — gain (loss)		12,948			13,291
Company’s contributions		3,078			2,962
Plan participants’ contributions		1,749			1,577
Benefits paid		(4,335	)		(4,420	)
Foreign currency translation adjustments		(9,779	)		(548	)

Fair value of plan assets at end of year		127,412			140,274


Funded status of the plan over-funded (under-funded)		(38,451	)		(38,720	)

Unrecognized net (gain) loss		40,295			38,062
Foreign currency translation adjustments		39			—


Prepaid benefit/(accrued pension cost)		1,883			(658	)

The amount of the prepaid benefit/(accrued pension cost) has been classified in the consolidated balance sheets as a prepaid current asset or liability.

F-22

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

The following table summarizes, by asset category, the percentage of the fair value of total plan assets held:


	December 31,
	2003			2004
Equity securities		51.0	%		58,5	%
Debt securities		48.9	%		41,2	%
Other (Cash)		0.1	%		0.3	%

Total		100.0	%		100.0	%

The trustee board has set the investment policy with regard to the pension plan’s liabilities and funding level. At December 31, 2004 there was only one fund manager “Legal & General”, with benchmark asset allocations as follows:

Legal & General


Equity securities	58,0	%
Debt securities	42,0	%

The investment policy broadly matches pensions already in payment with debt securities (which include fixed interest and index-linked gilts and government bonds), and aims to meet the projected liabilities for non-pensioners by using an appropriate combination of debt and equity securities. The trustee board monitors closely the risk/return profile of the plan’s investments and has an arrangement in place that could lead to a request for additional contributions from the Company if the risk/return profile exceeds a pre-determined level.

The Legal and General mandate is to track relevant indices. There are control ranges in place to ensure that the fund manager does not depart significantly from the trustee’s overall benchmark, and therefore to reduce the risk of over-concentration in one area.

The trustee board reviews the fund manager’s performance and reviews its own investment policy regularly, using independent professional advice. The trustee’s investment powers are set out in the scheme’s Trust Deed and Rules.

The expected rate of return for the year has been calculated by assuming that equity securities will return 7% and debt securities will return 5%. These expected returns are based on the current yields on long-dated gilts and bonds, with an addition for expected returns from equity securities.

The Company expects to contribute GBP Sterling 2.1 million (€ 3.0 million) to its defined benefit pension plan in 2005.

F-23

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

According to the latest actuarial valuation, the following benefit payments from the pension fund are expected to be paid in the periods indicated on the basis of the membership profile at March 31, 2002. This projection allows for members to take tax-free cash sums on retirement, assuming all members retire at age 60, and also allows for future service of current active members:


2005			4,113
2006			4,822
2007			4,681
2008			5,390
2009			5,673
Years 2010-2014			30,495

GO has defined benefit plans covering certain executives that are not funded at December 31, 2003 and 2004. The present value of the benefit obligations at December 31, 2003 and 2004 was € 2,547 and € 2,405, respectively. The net benefit costs accrued in 2002, 2003 and 2004 were € 257, € 151 and € 185, respectively and the benefits paid in 2002, 2003 and 2004 were €1,079, € 257 and € 327, respectively. The principal weighted average assumptions used in making the actuarial valuations at December 31, 2003 and 2004 were a discount rate of 5.0% and a rate of compensation increase of 3.0% and 3.3%, respectively. The defined benefit plans in other countries are in Japan, France and Greece and each of these plans is unfunded.

Defined Contribution Plans

D&A and GO make contributions to defined contribution plans that are based on a percentage of employee compensation. The amounts of pension expense recognized for those plans in 2002, 2003, and 2004 were € 805, € 880 and € 1,029, respectively.

13. STOCK OPTIONS

At an extraordinary shareholders’ meeting held on May 4, 1999 the Board of Directors was authorized to grant stock options for 2,325,000 shares to certain key employees, and the Board was also authorized to increase the Company’s authorized and issued share capital by up to 2,600,000 shares in the event such options were exercised. During 1999 the Board granted options for 2,325,000 shares with an exercise price of U.S.$ 6.00 per share, which was slightly more than the fair market price of the shares on the date of the grant of the options. During 1999, options for 250,000 shares lapsed due to employee resignations. At December 31, 1999 the 2,075,000 options granted and outstanding were exercisable from 2000 through 2003.

At an extraordinary shareholder’s meeting held on November 17, 2000 a new stock option plan was approved to replace the plan implemented in 1999. The option holders in that plan all accepted conversion to the plan approved in the year 2000. Between January 1, 2000 and November 17, 2000, 225,000 options lapsed due to employee resignations, leaving options for 1,850,000 shares outstanding as of November 17, 2000. Under the terms of the new plan 851,000 options were granted (the 1,850,000 existing options were converted in the ratio of .46 new options for each option held) at an exercise price of U.S$ 1.00 per share, which was less than the fair value of the stock at the grant date, and the life of the awards was extended by one year. Also, on November 17, 2000, an additional 348,400 options were granted at an exercise price of U.S.$ 1.00 per share. At the same shareholders’

F-24

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

meeting the authorized share capital increase was reduced to 1,300,000 shares. In 2004, no additional options were granted, 227,700 options were forfeited and the 352,200 options outstanding at December 31, 2004 expired.

The maximum number of options set forth above were eligible for exercise if the price of the Company’s ADRs on the NYSE has reached more than U.S.$ 10.00. If the ADR price during the exercise period had fallen between $ 6.25 and $ 10.00 per share 20% to 90% could be exercised; none of the options could be exercised in the event the share price was below U.S.$ 6.25 throughout the period. The average price of the Company’s ADRs on the NYSE in 2004 was U.S.$ 6.30. Any outstanding options not exercised in any year could be carried forward and exercised in a subsequent year providing the ADR price reached the set targets.

14. OTHER NON-CURRENT LIABILITIES

Other non-current liabilities consisted of the following:


	December 31,
	2003		2004
Minority interests		1,619		1,355
Accrual for expected losses on contractual obligation for shops that are closed and non-operating		2,281		2,106
Agents termination indemnity		1,131		1,597
Other		2,212		2,142

		7,243		7,200

15. SHAREHOLDERS’ EQUITY

Italian law requires that 5% of a company’s net income be retained as a legal reserve, until such reserve equals 20% of share capital. Included in retained earnings are legal reserves of € 2,325 and € 2,349 at December 31, 2003 and 2004, respectively, pertaining to the Group’s Italian companies. This reserve is not available for distribution.

Retained earnings which could be available for distribution to shareholders are those recorded by the Group’s constituent companies in their individual financial statements. Such retained earnings amount in aggregate to € 310,624 and € 332,511 at December 31, 2003 and 2004, respectively.

No provision has been made in 2003 and 2004 for income taxes on the following components of shareholders’ equity:

a. Revaluation reserve not affected by the equalization tax amounting to € 5,995 that would be subject to taxes of € 1,020, since no provision is required under current Italian GAAP.

b. Undistributed earnings of Spanish subsidiaries, amounting to € 3,651 and € 3,651 in 2003 and 2004, respectively, would be subject to taxes of € 365 in 2003 and 2004, respectively, in case of distribution and undistributed earnings of British subsidiaries, amounting to € 49,298 and € 47,809 in 2003 and 2004, respectively, would be subject to taxes of € 813 and € 789 in 2003 and 2004, respectively, in case of distribution.

F-25

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

16. COMMITMENTS AND CONTINGENCIES

Lease commitments

D&A leases property, computer hardware and cars and GO leases property under non-cancelable operating leases. Other lease commitments relate to the rental of buildings by distribution subsidiaries. Rental expense for the years 2002, 2003 and 2004 amounted to approximately € 26,316, € 26,596 and € 28,440 respectively. At December 31, 2004 the future lease payments under such operating leases are as follows:


Year	D&A		GO		Other		Total
2005		20,216		3,684		755		24,655
2006		18,965		2,973		660		22,598
2007		17,407		2,316		543		20,266
2008		16,209		1,949		385		18,543
2009		14,990		1,106		384		16,480
Thereafter		57,104		760		—		57,864

Total		144,891		12,788		2,727		160,406

Royalty Agreements

The Group has agreements with certain designers for the use of their trademarks in the production of fashion eyewear. Such agreements require the Company to pay royalties at various percentages of net sales. Certain royalty agreements expire in 2005, 2006, 2007, 2008, 2009 and 2010. Others are renewable at the option of either party.

Royalty expenses were € 7,463, € 7,052 and € 5,213 in 2002, 2003 and 2004, respectively.

The future minimum payments for royalties and advertising expenses required under existing royalty contracts are the following:


Year	Royalties		Advertising
2005		3,932		1,991
2006		3,324		1,722
2007		3,116		1,055
2008		3,900		1,315
2009		4,657		1,508
Thereafter		2,102		1,517

Total		21,031		9,108

Sponsorship agreements

The Group has a sponsorship agreement with a soccer player, expiring in 2006, and a similar agreement with a racing driver expiring in 2005. The future minimum payments on these contracts are the following:


Year
2005			750
2006			500

Total			1,250

F-26

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Litigation

The Company is involved in legal and tax proceedings arising in the normal course of business. Management believes that, based on advice of legal counsel, the outcome of these proceedings will not have any material adverse effect on the Company’s financial statements.

17. SEGMENT INFORMATION

The Company’s business consists of designing, manufacturing, distributing and selling premium price sunglasses and prescription eyeglass frames and lenses.

Management utilizes more than one measurement and multiple types of data to measure segment performance and to allocate resources to business divisions. However, the most heavily relied upon measurements are consistent with the Company’s consolidated financial statements and, accordingly, are reported on the same basis herein. Management evaluates the performance of its segments and allocates resources to them based primarily on actual and expected operating profitability. Intersegment sales are generally accounted for at prices comparable to those for sales to unaffiliated customers, and are eliminated in consolidation. The accounting policies of the segments are the same as those described in the summary of significant accounting policies described in Note 2.

Certain items relate to the Company’s headquarters operations and are not allocated to the segments. These primarily include the net cost of the Company’s interest expense and other items. Management views interest income and expense as corporate financing costs and not as a cost of a particular business segment. In addition, income taxes are not viewed internally on a segment basis but rather as a cost of the taxing jurisdiction in which the relevant individual companies operate.

Wholesale and Manufacturing: the Company distributes its manufactured products through its network of sales representatives in Italy and the countries in which its distribution subsidiaries are based, and through independent distributors. This segment includes De Rigo Vision S.p.A. and all of its controlled distribution subsidiaries.

Retailing: the Company’s retailing segment consists of the sale of optical frames and lenses for prescription eyeglasses and fashion sunglasses (as well as contact lenses and other optical products), together with the provision of related professional consulting and aftercare services, through the network of stores operated by the Group’s two retail chains, D&A, a leading retailer in the British optical market, and General Optica, the leading optical chain in Spain, which also has a presence in Portugal.

EID: The Company’s EID segment distributed Prada-branded eyewear exclusively through a network of joint venture subsidiaries with Prada. EID was sold on July 23, 2003. The segment’s results through the date of disposal are shown in the tables below.

F-27

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)


	Wholesale and
2002	Manufacturing		Retailing		EID			Total
Sales to third parties		121,709		359,605		31,145			512,459

Intersegment sales		19,390		2		96			19,488

Income from operations before depreciation and amortization		11,472		32,237		570			44,279
Depreciation		2,992		14,135		1,212			18,339
Amortization of goodwill		273		6,134		—			6,407
Amortization of other intangibles		1,020		1,522		264			2,806

Income (loss) from operations		7,187		10,446		(906	)		16,727

Identifiable long-lived assets		26,758		215,746		1,914			244,418

Total assets		152,468		256,772		30,661			439,901

Capital expenditures and acquisitions		3,384		13,525		1,170			18,079


	Wholesale and
2003	Manufacturing		Retailing		EID		Total
Sales to third parties		123,693		361,499		19,609		504,801

Intersegment sales		12,533		2		212		12,747

Income from operations before depreciation and amortization		18,423		31,153		2,230		51,806
Depreciation		3,005		14,321		409		17,735
Amortization of goodwill		815		5,985		—		6,800
Amortization of other intangibles		1,022		1,265		130		2,417

Income (loss) from operations		13,581		9,582		1,691		24,854

Identifiable long-lived assets		25,245		195,293		—		220,538

Total assets		141,974		234,913		—		376,887

Capital expenditures and acquisitions		3,069		9,323		165		12,557


	Wholesale and
2004	Manufacturing		Retailing		EID		Total
Sales to third parties		124,593		389,791		—		514,384

Intersegment sales		9,890		1		—		9,891

Income from operations before depreciation and amortization		21,355		34,369		—		55,724
Depreciation		3,846		14,590		—		18,436
Amortization of goodwill		239		6,014		—		6,253
Amortization of other intangibles		1,038		1,172		—		2,210

Income (loss) from operations		16,232		12,593		—		28,825

Identifiable long-lived assets		43,801		191,280		—		235,081

Total assets		152,134		242,430		—		394,564

Capital expenditures and acquisitions		2,558		17,153		—		19,711

An analysis of sales and long-lived assets by both geographic area and segment is the following:

F-28

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)


	Wholesale and
2002	Manufacturing		Retailing		EID		Total
Sales to third parties by geographic area
Italy and other European countries		82,590		359,605		21,679		463,874
Americas		9,343		—		2,622		11,965
Rest of the world		29,776		—		6,844		36,620

Total		121,709		359,605		31,145		512,459

Long-lived assets based on a physical location
Italy and other European countries		26,369		215,746		1,914		244,029
Americas		—		—		—		—
Rest of the world		389		—		—		389

Total		26,758		215,746		1,914		244,418

Retailing includes sales to third parties amounting to € 123,366 and € 236,239 in Spain and the UK, respectively. Long-lived assets for retailing amount to € 141,743 and € 74,003 in Spain and the UK, respectively.


	Wholesale and
2003	Manufacturing		Retailing		EID		Total
Sales to third parties by geographic area
Italy and other European countries		80,255		361,499		12,129		453,883
Americas		8,204		—		3,747		11,951
Rest of the world		35,234		—		3,733		38,967

Total		123,693		361,499		19,609		504,801

Long-lived assets based on a physical location
Italy and other European countries		24,926		195,293		—		220,219
Americas		—		—		—		—
Rest of the world		319		—		—		319

Total		25,245		195,293		—		220,538

Retailing includes sales to third parties amounting to € 130,690 and € 230,809 in Spain and the UK, respectively. Long-lived assets for retailing amount to € 136,632 and € 58,661 in Spain and the UK, respectively.


	Wholesale and
2004	Manufacturing		Retailing		EID		Total
Sales to third parties by geographic area
Italy and other European countries		77,034		389,791		—		466,825
Americas		7,905		—		—		7,905
Rest of the world		39,654		—		—		39,654

Total		124,593		389,791		—		514,384

Long-lived assets based on a physical location
Italy and other European countries		43,537		191,280		—		234,817
Americas		—		—		—		—
Rest of the world		264		—		—		264

Total		43,801		191,280		—		235,081

F-29

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Retailing includes sales to third parties amounting to € 140,944 and € 248,847 in Spain and the UK, respectively. Long-lived assets for retailing amount to € 132,413 and € 58,867 in Spain and the UK, respectively.

18. RELATED PARTY TRANSACTIONS AND MINORITY INTERESTS

Related Party Transactions - Certain of the Company’s facilities in Longarone and Limana were constructed in the years 1992 through 2002 by Impresa Edile F.lli De Rigo S.r.l., a construction company which is wholly owned by Mr. Walter De Rigo. The related construction costs through December 31, 2004, which have been capitalized as buildings amounted to € 2,418.

In the year 2000, EID, a 51% owned subsidiary that distributed sunglasses and eyeglasses under the Prada name, started operations. The Prada Group owned the remaining 49% interest in EID. During the years 2002 and 2003, EID had commercial transactions with companies within the Prada Group. These transactions were represented by sales amounting to € 2,787 and € 1,210, and paid management fees, royalties and commissions amounting to € 4,089 and € 2,307 in 2002 and 2003, respectively. In addition, in 2002 and 2003, EID accounted for € 119 and € 60, respectively, in rental expenses relating to the rental of a building in Longarone from Surfrigo, a company owned by the De Rigo brothers. As described in Note 3, the Company sold its 51% interest in EID to the Prada Group on July 23, 2003 realizing a gain of € 11,751.

In December 2003, the Company sold a building to an entity controlled by the De Rigo brothers. The disposal was made at book value.

As mentioned in Note 3 above, on June 30, 2004, the Group sold to De Rigo Holding BV its 100% interest in De Rigo Nederland and De Rigo Singapore for cash consideration of € 580 realizing a gain of € 62. The two companies are no longer operative in the optical business.

During 2004, De Rigo Vision accounted for € 6 in rental expenses relating to the rental of a building in Longarone from De Rigo Refrigeration (previously named Surfrigo), a company which is owned by the De Rigo brothers.

Minority Interests - The charge to income in 2004 of € 434 primarily arises from profits of De Rigo Hellas, De Rigo UK, De Rigo HK and De Rigo Japan to holders of minority interests in those companies.

The charge to income in 2003 of € 4,425 primarily arises in relation to profits at EID (through the date of its disposal) and De Rigo Hellas attributable to holders of minority interests in those companies.

The minority interest credit to income in 2002 of € 922 primarily relates to losses of EID and De Rigo Deutschland.

19. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED STATES OF AMERICA

The Company’s accounting policies are in accordance with Italian GAAP, which differs in certain material respects from U.S. generally accepted accounting principles (“U.S. GAAP”). Differences that have a significant effect on consolidated net income and shareholders’ equity are as follows:

(a) Sale of the Company’s shares to the Managing Director - In October 1994, the De Rigo brothers granted an option offering 3% of the Ordinary Shares they held in the Company to its Managing Director. Under Italian GAAP, this transaction was considered a transaction between shareholders and therefore not

F-30

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

reported in the consolidated financial statements. Under U.S. GAAP, the benefit (measured by the difference between the fair value of the stock, to which the option refers, and the exercise price) received of € 9,554 by the Managing Director from the transaction was required to be reported as a charge to 1994 income. Consequently, in the reconciliations of shareholders’ equity as at December 31, 2002, 2003 and 2004 the amount of € 9,554 was recorded as a charge to retained earnings with an offsetting credit of € 9,554 to additional paid in capital.

(b) Revaluation of assets prior to 1992 - Certain assets were revalued by the Company and two of its Italian subsidiaries to amounts in excess of historical cost. These revaluations, which were either authorized or required by Italian law, are permissible under Italian GAAP.

Assets revalued under Italian GAAP are depreciated over their remaining useful lives based on their revalued basis. U.S. GAAP does not permit the revaluation of such assets. Accordingly, the increases in shareholders’ equity and the related increase in depreciation expense occurring as a result of such revaluations have been reversed in the accompanying reconciliation for all periods presented.

No deferred tax liabilities have been provided for on the revaluation reserve mentioned in Note 15 point (a), as such liabilities are not required to be provided for in accordance with U.S. GAAP, because these revaluations were all made prior to December 15, 1992, the effective date for applying existing U.S. accounting standards with respect to accounting for income taxes.

(c) Revaluation of trademarks in 2001 - Under Italian GAAP it is permitted to recognize the revaluation of assets for financial accounting purposes as well as for tax purposes and to recognize as a charge to revaluation reserve the amount of the tax liability recorded that is to be paid over 3 years. Under U.S. GAAP such revaluations are not recognized in the financial statements and the tax charge is not recorded as a charge to retained earnings, but the tax effects of the revaluation are recognized. Accordingly, in the U.S. GAAP reconciliation adjustments have been made to: (a) reverse the revaluation of trademarks made in 2001 against trademarks and the revaluation reserve; and (b) recognize the tax effects of the revaluation by (i) reclassifying the charge to revaluation reserve for tax payable on the revaluation to the current tax provision, (ii) recognizing a deferred tax asset and a credit to the deferred tax provision to record the tax effects of the temporary difference between the Italian tax basis and the U.S. book basis of the trademarks that was created by the revaluation; (iii) recognizing a deferred tax liability and a charge to the deferred tax provision to record the tax to be paid upon distribution of the revaluation reserve recorded in the Italian financial statements and (iv) reverse the amortization of trademarks revaluation. The net tax benefit resulting from the revaluation permitted by the applicable tax law was recognized in the statement of income for 2001, the year in which the revaluation was made.

(d) Goodwill amortization - Italian GAAP requires that goodwill related to assets be amortized over the asset’s estimated economic life. In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 142 “Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. SFAS No. 142 changed the accounting for goodwill from an amortization method to an impairment-only approach based on the supposition that goodwill is not a “wasting asset” that requires periodic cost allocation. Thus, amortization of goodwill, including goodwill recorded in past business combinations and amortization of intangibles with an indefinite life, ceased upon adoption of SFAS No. 142. The Company adopted the provisions of SFAS No. 142 effective January 1, 2002. All goodwill is assigned to the reporting unit that benefits from the synergies arising from each business combination.

F-31

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

The Company completed the SFAS No. 142 transitional impairment test during the second quarter of 2002 and concluded that there was no impairment of goodwill at that time, as the fair value of its reporting units exceeded their carrying amounts as of January 1, 2002. Therefore, the second step of the transitional impairment test required under SFAS No. 142 was not necessary.

As required under SFAS No. 142, the Company performed the required annual impairment test as of December 31, 2004. Based on that assessment, it was determined that no impairment existed in the reporting units identified.

The estimated aggregate amortization expense of Trademarks and Other intangible assets for each of the five succeeding fiscal years is indicated below:


Year
2005			1,452
2006			1,056
2007			838
2008			693
2009			549

The weighted-average amortization period of Trademarks and Other intangible assets is seven years.

(e) Public offering expenses - The expenses incurred in connection with the public offering of October 1995 were capitalized under Italian GAAP and are being amortized over a five year period. Under U.S. GAAP, such expenses are deducted from additional paid-in capital, net of the estimated tax benefits to be received.

(f) Stock Options – Under Italian GAAP, the Company’s stock option plan does not result in recognizing compensation expense in the Company’s statement of income at either at the date of the grant to employees or at the date when such options are exercised. Under U.S. GAAP, the Company has elected to continue to account for its compensation expense for its stock based compensation plan using the intrinsic value method in accordance with the provisions of Accounting Practice Bulletin (“APB”) No. 25, “Accounting for Stock Issued to Employees”. Under FASB Interpretation (“FIN”) 44, “Accounting for Certain Transactions Involving Stock Compensation”, the modifications made in the plan in the year 2000 to reduce the exercise price to an amount less than fair value at date of grant and to modify the terms for exercising the options require that the awards be accounted for as a variable plan under APB No. 25, which requires remeasurement of the intrinsic value of the award from the date of the modification to the date the award is exercised, is forfeited, or expires unexercised. Compensation expenses are recognized using the accelerated method allowed under FIN 44.

The Company has adopted the disclosure requirements of FASB No. 123, “Accounting for Stock-based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosures” (“SFAS 148”). When compensation expense has been recorded in accordance with APB No. 25, SFAS No. 148 requires pro-forma disclosure of what net income and earnings per share would have been had the Company also adopted SFAS 148 for recording compensation expense.

(g) Call and put arrangements for sale by De Rigo Holding B.V. to Prada of unregistered shares in the Company - In connection with establishing in July 1999 a subsidiary that used the Prada trademarks, the Company entered into an agreement with Prada whereby (i) Prada had an option to acquire, at any time between April 30, 2001 to June 30, 2001, 5% of the unregistered shares that De Rigo Holding B.V. owned

F-32

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

in the Company at an agreed upon price per share and (ii) De Rigo Holding B.V. had a put arrangement that gave it the right to require Prada to buy the same number of shares in the Company at the agreed upon price per share within the same time frame. Under Italian GAAP the fair value of the options granted to Prada is considered a transaction between shareholders and therefore is not reported in the financial statements. Under U. S. GAAP, the fair value of the options granted is required to be accounted for as an intangible asset by the Company. Consequently, in the reconciliation of shareholders’ equity as at December 31, 1999 and net income for the year then ended, the fair value of the options granted in the amount of € 465 was recorded as an intangible asset with an offsetting credit to additional paid in capital, and amortization of the intangible asset (which is being amortized over five years). Arrangements whereby Prada could have acquired an additional 10% of the Company’s unregistered capital stock were contingent upon Prada renewing the existing licensing agreements with the Company’s subsidiary, EID for an additional stipulated number of years, and expired due to the disposal of EID on July 23, 2003. Under U.S. GAAP, the fair value of the options granted should be recognized as an intangible asset to be amortized over the period of the licensing agreement when such license agreements are renewed.

(h) Deferred charges - In 2002 the Group deferred certain consulting expenses related to production activity and will amortize these amounts over three years under Italian GAAP. Under U.S. GAAP, these expenses would have been charged to income when incurred. The accompanying reconciliation reflects the adjustment to expense these amounts.

(i) Additional deferred taxes were provided on U.S. GAAP adjustments (b), (e), (g), (h), (j) and (m).

(j) Pensions - The Group maintains a defined benefit pension plan for some U.K. employees of D&A that is funded. Under Group accounting policies the recognition of a minimum pension liability is not required. Under SFAS 87 it is a requirement that companies must recognize as a minimum liability for any unfunded accumulated benefit obligation. The impact of this minimum pension liability is to increase long-term obligations and decrease shareholders’ equity.

(k) Earnings per Share – Italian GAAP does not require disclosure of earnings per share. Under U.S. GAAP, earnings per share are calculated and presented in accordance with FASB No. 128 “Earnings Per Share” (“FASB 128”). FASB No. 128 requires dual presentation of basic and diluted earnings per share for all periods presented. Basic earnings per share is computed by dividing the net income of the entity by the weighted average number of ordinary shares outstanding for the period. The basic earnings per share calculation takes into account the reacquired treasury shares, reducing the total weighted average shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares or resulted in the issuance of ordinary shares that then shared in the earnings of the entity. At December 31, 2002 and 2003, unexercised stock options to purchase 846,621 and 800,621 shares, respectively were outstanding. These securities could potentially dilute basic earnings per share in the future and the number of incremental shares computed by the treasury stock method were considered in the computation of diluted earnings per share and per ADS for the years 2002 and 2003. In 2004 no additional options were granted and the 352,200 options outstanding at December 31, 2004 expired.

(l) Comprehensive income – Italian GAAP does not require the presentation of comprehensive income. Under U.S. GAAP, FASB No. 130 “Comprehensive Income: Financial Statement Presentation”, which was adopted by the Company in December 1998, requires disclosure of comprehensive income, which is defined as the change in net assets of a business enterprise during a period from transactions and events and circumstances from non owner sources.

F-33

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

(m) Marketable securities – Under Italian GAAP, marketable securities are carried at the lower of cost or market value. If securities are written-down, the original value of these investments is reinstated in future accounting periods should the reasons for such writedowns no longer apply. For U.S. GAAP purposes, the Company has applied the provisions of SFAS No. 115, “Accounting for Certain Investment in Debt and Equity Securities” (“SFAS 115”). Under SFAS 115, the Company classifies its marketable securities as available for sale. Unrealized gains and losses for securities classified as available for sale are included in shareholders’ equity until the securities are sold or otherwise considered to be other than temporary impaired. The effects of SFAS 115 on net income and shareholders’ equity have been reflected in the reconciliation. The fair value of marketable securities as of December 31, 2002 is € 1,907. No marketable securities existed at December 31, 2003 and 2004.

(n) Treasury stock – In 2003 and 2004 De Rigo purchased 223,200 and 2,225,000 of its own ordinary shares. Under Italian GAAP, these ordinary shares have been recorded at historical cost within long-term assets, while under U.S. GAAP, the cost of the acquired shares is shown as a deduction from shareholders’ equity.

(o) Impairment of long-lived assets – In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Statement applies to certain long-lived assets, including those reported as discontinued operations, and develops one accounting model for long-lived assets to be disposed of by sale. SFAS 144 supersedes SFAS No. 121 “Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of”, and APB No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, for the disposal of a segment. The Company adopted the provisions of SFAS 144 effective January 1, 2002.

SFAS 144 requires that long-lived assets to be disposed of by sale be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The Statement also changes the measurement criteria for discontinued operations. SFAS 144 broadens the reporting of discontinued operations to include the disposal of a component of an entity, provided that the operations and cash flows of the component will be eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component. The Statement does not apply to investments in equity investees. No write-downs of long-lived assets were recorded under SFAS 144 in 2002, 2003 or 2004.

(p) Derivative financial instruments — Under Italian GAAP, if a derivative is designated as a fair value hedge, changes in the fair value of the derivative and the related change in the hedged item are recognized in the statement of income. If a derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in the statement of income when the hedged item effects operations. Changes in fair value of derivatives that do not qualify as a hedge are recognized in the statement of income. Unrealized gains related to the remeasurement at fair value of long-term derivative contracts are deferred until realized. Effective January 1, 2001, the Group adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), and the corresponding amendments and interpretations to this Statement. The Statement requires that all derivative financial instruments be recognized in the financial statements and are to be measured at fair value regardless of the purpose or intent of holding them. If the derivative is designated as a fair value hedge, changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in net earnings (loss). If the derivative is designated as a cash flow hedge, the effective portions of the change in the fair value of the derivative are recorded in other comprehensive income (“OCI”) and are recognized in net earnings (loss) when the

F-34

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

hedged item affects operations. Ineffective portions of changes in the fair value of cash flow hedges are recognized in net earnings (loss) prior to the contract’s expiration. If the derivative used in an economic hedging relationship is not designated in an accounting hedging relationship, changes in the fair value of the derivative are recognized in the statement of income through the life of the contract.

The Company did not formally designate exchange rate derivative contracts entered into during the year ended December 31, 2002, 2003 and 2004 as fair value or cash flow hedges. Accordingly, as required by SFAS 133, the fair value of such contracts have been recorded on the balance sheet until the contracts are settled, and all changes in fair value of the derivative instruments since the date of the derivative contracts have been recognized in the current income for the year. Since under Italian GAAP all derivatives outstanding at December 31, 2002, 2003 and 2004 were accounted for as ineffective hedges, no adjustment was required to comply with the requirements of FASB No. 133.

(q) Consolidation of Ranieri Argentina S.A. – The Company sold its 51% interest in Ranieri Argentina S.A. in June 2002. For Italian GAAP purposes, the sale was effective retroactive to January 1, 2002. Therefore, the results of operations through the date of sale were not consolidated in the consolidated statement of income of the Company. U.S. GAAP requires that the results of operations be consolidated through the date of sale. The Company has reviewed the impact on the U.S. GAAP figures that would result from consolidation and determined that the impact on sales, cost of sales, other operating costs, and other non-operating costs is not significant.

(r) Discontinued operations — As described in Note 3, the Company sold its 51% interest in EID to the Prada Group on July 23, 2003. Under U.S. GAAP, EID is presented as a discontinued operation in accordance with the guidance of SFAS 144. Based upon this guidance, the results for all periods, including revenues and costs, of the sold businesses are removed from the consolidated statements of operations and reported after income from continuing operations. The accompanying reconciliation includes, in the “discontinued operations” line, the effect of all line items associated with the disposed EID business.

At the time of its sale on July 23, 2003, EID’s net assets consisted of:


Current assets			27,168
Fixed assets, net			962
Other intangibles, net			583

Total assets disposed of			28,713
Total liabilities disposed of			28,123

Net assets disposed of			590

(s) New accounting standards – In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51” (“FIN 46”). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective for all new variable interest entities created or acquired after January 31, 2003.

F-35

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

In December 2003, the FASB issued Interpretation No. 46R (“FIN 46R”), a revision to FIN 46, “Consolidation of Variable Interest Entities”. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 as amended by FIN 46R have been applied as of January 1, 2004. The adoption of FIN 46 as amended by FIN 46R did not have a material effect on the consolidated financial statements.

In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for classification and measurement of mandatorily redeemable financial instruments, obligations to repurchase the issuer’s equity shares by transferring assets, and certain obligations to issue a variable number of shares. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of fiscal 2004. The adoption of SFAS 150 did not have an effect on the consolidated financial statements.

In May 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 01-8, “Determining Whether an Arrangement Contains a Lease” (“EITF 01-8”). EITF 01-8 provides guidance on how to determine whether an arrangement contains a lease that is within the scope of FASB Statement No. 13, “Accounting for Leases.” EITF 01-8 is effective for arrangements entered into or modified after the beginning of the reporting period that began after May 28, 2003. The adoption of EITF 01-8 did not have an effect on the consolidated financial statements.

In March 2004, the EITF reached a consensus on EITF Issue 03-6 (“EITF 03-6”). “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share.” The consensus addresses how to determine whether a security should be considered a “participating security” for purposes of computing earnings per share and how earnings should be allocated to a participating security when using the two-class method for computing basis earnings per share. The provisions of EITF 03-6 are effective for reporting periods beginning after March 31, 2004. The adoption of this consensus is not expected to have a material impact on the Company’s results of operations, financial position and cash flows.

In December 2004, the FASB issued Statement 153 (“SFAS 153”), “Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29.” The Guidance in Accounting Principles Board Opinion 29 (“APB 29”), “Accounting for Nonmonetary Transactions,” is based on the general principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB 29 included certain exceptions to that principle. SFAS 153 amends APB 29 to eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance (that is, transactions where future cash flows are not expected to significantly change as a result of the exchange). The Company will adopt the provisions of SFAS 153 for non-monetary asset exchange transactions after December 31, 2005. The adoption of SFAS 153 is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

In December 2004, the FASB issued Statement 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment”. SFAS 123(R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation”, which superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS 123(R) requires all share-based awards to employees, including grants of employee stock options, to be recognized in the financial statements based on their grant-date fair values. The related compensation costs are to be recognized over the period during which an employee is required to provide service in exchange for the award. Excess tax benefits are to be recognized as an addition to paid-in capital and reflected as financing

F-36

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

cash inflows in the statement of cash flows. The Company will adopt the prospective provisions of SFAS 123(R) to new and existing plans as of January 1, 2006. The grant-date fair values of unvested awards that are outstanding on the date of adoption will be charged to expense over their remaining vesting periods. The Company does not expect that the adoption of SFAS 123(R) will have a material impact on its consolidated financial position or results of operations.

The following tables summarize those adjustments to consolidated net income and shareholders’ equity that would be required if U.S. GAAP had been applied instead of Italian GAAP.

NET INCOME for the years ended December 31,


		2002			2003			2004
Net income as reported per the consolidated statements of income			10,645			18,478			14,478

Adjustments required for U.S. GAAP reporting purposes:
(b)	Elimination of depreciation relating to revaluation of certain assets prior to 1992		13			13			13
(c)	Recognize tax effects on reversal of trademark revaluation at end of 2001
	(i) charge substitute tax to current tax provision rather than revaluation reserve		—			—			—
	(ii) recognize deferred tax asset on trademark revaluation		(294	)		(233	)		(188	)
	(iii) recognize deferred tax liability on revaluation reserve on Italian basis		—			—			—
	(iv) reversal of amortization of trademarks revaluation		504			504			504
(d)	Reversal of goodwill amortization		6,407			6,419			6,253
(f)	Recognize stock compensation expense in accordance with APB No. 25, net of credit of € 351, € 47 and € 0 in 2002, 2003 and 2004 respectively for the reversal of stock option expense recorded in prior periods on options forfeited by the employees that left the Company in that year		—			(801	)		2,009
(h)	Deferred charges		(178	)		59			59
(m)	Marketable securities available for sale		(111	)		111			—
(o)	Gain for disposal of De Rigo Nederland								(62	)
(i)	Deferred income taxes on (b), (h) and (m) above after considering change in tax rate on deferred tax for (c) in 2003.		239			(236	)		(27	)

Net income in accordance with U.S. GAAP before reconciliation effects of discontinued operations			17,225			24,314			23,039

F - 37

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)


Total effect of the reconciling differences on discontinued operations — EID
		2002			2003			2004
(g)	Amortization of intangible asset in respect of Prada’s 5% options		(97	)		(77	)		—
(i)	Deferred income taxes on (g) above		17			13			—


Total effect discontinued operations — EID			(80	)		(64	)		—

Net income in accordance with U.S. GAAP			17,145			24,250			23,039

Earnings per share and per ADS:
Numerator for the basic and diluted per-share and per ADS computations for income from continuing operations:
Net income from continuing operations (in Euro thousands)			18,383			16,486			23,039

Denominator
Denominator for basic per-share and per ADS computations for net income from continuing operations — weighted average shares and ADS shares			44,688,415			44,618,230			43,503,858
Effects of dilutive employee stock options			701,097			605,369			608,152
Denominator for diluted per-share and per ADS computations for net income from continuing operations — adjusted weighted average shares and ADS			45,389,512			45,223,599			44,112,010

Basic earnings per share and per ADS before discontinued operations		0.41 Euro			0.37 Euro			0.53 Euro

Diluted earnings per share and per ADS before discontinued operations		0.41 Euro			0.37 Euro			0.52 Euro

Basic earnings per share and per ADS from discontinued operations		(0.03) Euro			0.17 Euro			— Euro

Diluted earnings per share and per ADS from discontinued operations		(0.03) Euro			0.17 Euro			— Euro

Basic earnings per share and per ADS		0.38 Euro			0.54 Euro			0.53 Euro

Diluted earnings per share and per ADS		0.38 Euro			0.54 Euro			0.52 Euro

Dividends per share and per ADS		0.13 Euro			Nil			Nil

F - 38

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

SHAREHOLDERS’ EQUITY at December 31,


		2002			2003			2004
Balance as reported in the consolidated financial statements			212,117			226,884			241,409

Adjustments required for U.S. GAAP reporting purposes:
(a)	Decrease in retained earnings as a result of the charge to income for additional compensation paid in 1994 by shareholders to Managing Director		(9,554	)		(9,554	)		(9,554	)
	And concurrent increase in additional paid-in capital		9,554			9,554			9,554
(b)	Elimination of revaluations of certain assets prior to 1992, net of accumulated depreciation of € 678, € 691 and € 704 in 2002, 2003, and 2004 respectively.		(274	)		(261	)		(248	)
(c)	Elimination of revaluation of trademarks in 2001, net of accumulated amortization of € 504, € 1,008 and € 1,512 in 2002, 2003 and 2004, respectively.		(4,539	)		(4,035	)		(3,531	)
(d)	Reversal of goodwill amortization		6,407			12,826			19,079
(e)	Elimination of amortization of offering expenses, deferred for Italian purposes		2,128			2,128			2,128
(e)	Offering expenses less estimated tax benefits of € 1,030 in 2002, 2003 and 2004 charged to paid in capital		(1,098	)		(1,098	)		(1,098	)
(f)	Reduce retained earnings for amount of stock compensation		(3,999	)		(4,800	)		(2,791	)
(f)	Increase additional paid in capital for accretion resulting from stock compensation expense		3,999			4,800			2,791
(g)	Increase in additional paid in capital as a result of recording the fair value of Prada’s 5% options on the total outstanding share capital		465			465			465
(g)	Decrease in retained earnings as a result of the charge to income for amortization of the intangible asset arising on the valuation of Prada’s 5% options		(388	)		(465	)		(465	)
(h)	Deferred charges		(178	)		(119	)		(60	)
(j)	Recognition of minimum pension liability		(22,137	)		(19,623	)		(14,518	)
(m)	(Reduce)/Increase retained earnings for marketable securities		(111	)		111			—
(m)	Increase/(Reduce) Other Comprehensive Income related to unrealized gains on marketable securities		111			(111	)		—
(n)	Treasury stock		—			(753	)		(12,019	)

F - 39

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)


		2002			2003			2004
(o)	Decrease in retained earnings as a result of the elimination of the gain for disposal of De Rigo Nederland to De Rigo Holding BV.								(62	)
	And concurrent increase in additional paid-in capital.								62
(i)	Recognition of deferred income taxes on (b), (e), (g), (h), (j) and (m) above		5,987			4,998			3,439
(c)	Tax effect on elimination of trademarks revaluation in 2001 (c) above, after considering change in tax rate in 2002 to
	(i) recognize deferred tax asset on revalued assets		1,736			1,503			1,315
	(ii) recognize deferred tax liability on revaluation reserve on Italian basis		(756	)		(706	)		(706	)

Balance at December 31, in accordance with U.S. GAAP			199,470			221,744			235,190

Condensed U.S. GAAP consolidated financial statements

The condensed consolidated financial statements as of December 31, 2003 and 2004 and for the three years in the period ended December 31, 2004 presented below have been prepared taking into effect the principal differences between the De Rigo Group’s accounting policies and U.S. GAAP discussed above.

BALANCE SHEET


	Year ended December 31,
	2002		2003		2004
ASSETS
Current Assets		195,483		156,393		159,505
Property Plant and equipment		120,631		108,822		107,928
Goodwill and intangible assets		116,474		112,563		113,062
Other Long-term Assets:
Deferred tax assets		10,135		8,894		17,689
Other		7,424		5,404		5,385

Total assets		450,147		392,076		403,569

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities		200,342		123,838		125,637
Termination indemnities and other employee benefits		31,063		29,378		24,660
Deferred income taxes		10,068		9,376		10,541
Long-term debt, less current portion		696		497		341
Other non-current liabilities		7,179		5,624		5,845
Minority Interests		1,329		1,619		1,355
Shareholders’ equity		199,470		221,744		235,190

Total Liabilities and shareholders’ equity		450,147		392,076		403,569

F - 40

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

STATEMENT OF INCOME


	Year ended December 31,
	2002			2003			2004
Net sales from continuing operations		481,314			485,192			514,384
Gross profit from continuing operations		294,002			293,409			315,556
Income from continuing operations		24,379			29,357			37,663
Other (income) expenses from continuing operations		5,765			(1,951	)		1,238

Income from continuing operations before income taxes and minority interests		18,614			31,308			36,425
Income taxes		247			14,422			12,952

Income from continuing operations before minority interests		18,367			16,886			23,473
Minority interests		(16	)		400			434

Net income from continuing operations		18,383			16,486			23,039


Discontinued operations
Net sales from discontinued operations		31,145			19,609			—
Gross profit from discontinued operations		15,084			9,424			—
Income (loss) from discontinued operations		(1,003	)		1,614			—
Other (income) expenses from discontinued operations (including gain on disposal of € 11,751 in 2003)		1,304			(11,144	)		—

Income (loss) from discontinued operations before income taxes and minority interests		(2,307	)		12,758			—
Income taxes		(163	)		969			—

Income (loss) from discontinued operations before minority interests		(2,144	)		11,789			—
Minority interests		(906	)		4,025			—
Net income (loss) from discontinued operations		(1,238	)		7,764			—



Net income in accordance with U.S. GAAP		17,145			24,250			23,039

Shareholders’ Equity

Due to operating losses incurred by a subsidiary through December 31, 1993, the Company, pursuant to Italian legal requirements, has eliminated losses reported for Italian GAAP purposes amounting to € 2,195 against additional paid in capital by the former shareholders of the subsidiary. For U.S. GAAP financial reporting purposes, such

F - 41

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

operating losses would be reflected as a reduction of consolidated retained earnings, and the amount of capital used to eliminate such losses would be reflected as additional paid-in capital.

The components of shareholders’ equity at December 31, 2003 and 2004 are as follows:


	Italian						U.S.
2003	GAAP			Adjustments			GAAP
Share capital		11,626			—			11,626
Treasury Shares		—			(753	)		(753	)
Additional paid-in-capital		54,490			13,721			68,211
Retained earnings		161,413			665			162,078
Other comprehensive income		(5,682	)		(13,736	)		(19,418	)
Revaluation reserves		5,037			(5,037	)		—

		226,884			(5,140	)		221,744


	Italian						U.S.
2004	GAAP			Adjustments			GAAP
Share capital		11,683			—			11,683
Treasury Shares		—			(12,019	)		(12,019	)
Additional paid-in-capital		54,599			11,650			66,249
Retained earnings		175,891			9,350			185,241
Other comprehensive income		(5,801	)		(10,163	)		(15,964	)
Revaluation reserves		5,037			(5,037	)		—

		241,409			(6,219	)		235,190

Pro-forma Information Regarding Net Income and Earnings Per Share and Per ADS required by FASB No. 123

FASB 123 requires that when APB 25 is applied in computing compensation cost for stock based compensation that pro forma information as to net income and earnings per share be presented as if the Company had accounted for its employee stock based compensation in accordance with FASB 123.

The fair value of each stock option granted is estimated on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions:


Employee stock options	2000 Plan
Expected life of option	4 years
Risk free interest rates		4.5	%
Volatility		20	%
Dividend yield		0	%

The weighted average estimated fair value of the options granted during fiscal 2000 amounted to € 8,971. As disclosed in Note 13 the options granted in 1999 were cancelled in connection with adoption of the stock option plan approved in 2000.

F - 42

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

For purposes of pro-forma disclosures, the estimated fair value of the options is amortized to expense over the option’s vesting period.

Had compensation costs related to the options granted in 2002, 2003 and 2004 been based on the fair value at the grant dates, consistent with the provision of FASB 123, the Company’s net earnings and earnings per share would have decreased to the pro-forma amounts indicated below for the years ended December 31, 2002, 2003 and 2004.


	2002			2003			2004
Net income from continuing operations applicable to ordinary shareholders:

As reported on a U.S. GAAP basis		18,383			16,486			23,039
Add: Stock based compensation expense recognized under intrinsic value method		—			801			(2,009	)
Deduct: Total stock-based employee compensation expense determined under fair value based for all awards		(1,719	)		(1,048	)		1,235

Pro-forma on a U.S. GAAP basis		16,664			16,239			22,265

Basic and diluted income per share and per ADS before discontinued operations:

2002

2003

2004

Basic earnings per share and per ADS before discontinued operations

As reported

0.41 Euro

0.37 Euro

0.53 Euro

Pro-forma

0.37 Euro

0.36 Euro

0.51 Euro

Diluted earnings per share and per ADS before discontinued operations

As reported

0.41 Euro

0.37 Euro

0.52 Euro

Pro-forma

0.37 Euro

0.36 Euro

0.50 Euro

F - 43

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)


	2002			2003			2004
Net income applicable to ordinary shareholders:

As reported on a U.S. GAAP basis		17,145			24,250			23,039
Add: Stock based compensation expense recognized under intrinsic value method		—			801			(2,009	)
Deduct: Total stock-based employee compensation expense determined under fair value based for all awards		(1,719	)		(1,048	)		1,235

Pro-forma on a U.S. GAAP basis		15,426			24,003			22,265

Basic and diluted income per share and per ADS:

2002

2003

2004

Basic earnings per share and per ADS

As reported

0.38 Euro

0.54 Euro

0.53 Euro

Pro-forma

0.35 Euro

0.54 Euro

0.51 Euro

Diluted earnings per share and per ADS

As reported

0.38 Euro

0.54 Euro

0.52 Euro

Pro-forma

0.34 Euro

0.53 Euro

0.50 Euro

The effects of applying SFAS No. 123 in this pro forma disclosure should not be interpreted as being indicative of future effects.

Transactions in stock options, including the modification of the plan in the year 2000, are presented in the following summary of the Company’s stock option activity during the years ended December 31, 2002, 2003 and 2004:


	Shares under			Weighted average
	Options			Exercise Price
Outstanding at January 1, 2002		983,137			U.S. $1.00
Options granted		—
Options exercised		(62,852	)		U.S. $1.00
Options forfeited		(73,664	)		U.S. $1.00

Outstanding at December 31, 2002		846,621			U.S. $1.00
Options exercised		—			U.S. $1.00
Options forfeited		(46,000	)		U.S. $1.00

Outstanding at December 31, 2003		800,621			U.S. $1.00
Options exercised		(220,721	)		U.S. $1.00
Options forfeited		(227,700	)		U.S. $1.00
Options expired		(352,200	)		U.S. $1.00

Outstanding at December 31, 2004		—			U.S. $1.00

Exercisable at December 31, 2004		—			U.S. $1.00

F - 44

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Investments in debt securities

All debt securities are classified as available-for-sale and U.S GAAP adjustments were made in 2002 to adjust the carrying basis to their fair values. No U.S GAAP adjustments were required at December 31, 2001 because the carrying basis on an Italian GAAP basis approximated the fair value of the assets. No marketable securities existed at December 31, 2003 and 2004.

Comprehensive Income

The components of accumulated other comprehensive income for a U.S. GAAP financial statements presentation as of December 31, 2002, 2003 and 2004 are as follows:


	Currency						Unrealized Gains
	Translation						on Available-for-
	Adjustments			Pension			Sale Securities per
	per financial			minimum			U.S. GAAP
	statements			liability			adjustments			Total
Balance at January 1, 2002		1,239			—			—			1,239

Currency translation adjustment		(3,210	)		—			—			(3,210	)
Unrealized gains on securities		—			—			111			111
Recognition of pension minimum liability					(22,137	)					(22,137	)
Deferred taxes on pension minimum liability and unrealized gains on securities		—			6,641			(38	)		6,603


Balance at December 31, 2002		(1,971	)		(15,496	)		73			(17,394	)

Currency translation adjustment		(3,711	)		—			—			(3,711	)
Unrealized gains on securities								(111	)		(111	)
Recognition of pension minimum liability		—			2,514			—			2,514
Deferred taxes on pension minimum liability and unrealized gains on securities		—			(754	)		38			(716	)


Balance at December 31, 2003		(5,682	)		(13,736	)		—			(19,418	)

Currency translation adjustment		(119	)		—			—			(119	)
Unrealized gains on securities Recognition of pension minimum liability		—			5,105			—			5,105
Deferred taxes on pension minimum liability and unrealized gains on securities		—			(1,531	)		—			(1,531	)


Balance at December 31, 2004		(5,801	)		(10.162	)		—			(15,963	)

F - 45

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Comprehensive income for each of the three years in the period ended December 31, 2004 is as follows:


	2002			2003			2004
Net income per U.S. GAAP reconciliation		17,145			24,250			23,039
Change in currency translation adjustment		(3,210	)		(3,711	)		(119	)
Unrealized gains on securities		111			(111	)		—
Minimum pension liability		(22,137	)		2,514			5,105
Deferred taxes on minimum pension liability and unrealized gains on securities		6,603			(716	)		(1,531	)


Comprehensive income		(1,488	)		22,226			26,494

Income Taxes

Components of deferred income tax assets and liabilities were:


	December 31,
	2003			2004
Total deferred tax assets		21,956			23,154
Total deferred tax liabilities		(10,768	)		(11,308	)


Net deferred tax assets		11,188			11,846


Of which:

Current deferred tax assets		13,063			5,465
Non-current deferred tax assets		8,893			17,689
Current deferred tax liabilities		(1,392	)		(767	)
Non-current deferred tax liabilities		(9,376	)		(10,541	)

Detailed as follows:
Italian GAAP financial statements		4,363			6,768
U.S. GAAP adjustments		6,825			5,078


Net deferred tax assets		11,188			11,846

F - 46

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Principal items comprising net deferred income tax assets were as follows:


	December 31,
	2003			2004
Assets (liabilities)
Equalization tax on dividends		(475	)		(647	)
Tax revaluation on certain assets, net of accumulated depreciation		285			280
Allowance for doubtful accounts		1,939			1,035
Inventory obsolescence		8,041			544
Intercompany profits in inventory		1,531			1,572
Accumulated accelerated depreciation		(291	)		(86	)
Pension asset		(380	)		1,026
Property cost accruals		46			43
Book revaluation of certain assets		(8,431	)		(8,234	)
Trademark revaluation of assets		1,503			1,315
Tax on revaluation reserve for trademark revaluation		(706	)		(706	)
Surplus on business assignment		—			10,289
Net operating loss carry forwards (NOL)		3,977			2,348
Pension minimum liability		5,887			4,355
Agents termination indemnity		421			118
Investments devaluation		340			238
Other		1,443			704

Net deferred tax assets (liabilities)		15,130			14,194
Less:
Valuation allowance on NOLs		(3,942	)		(2,348	)

Net deferred tax assets		11,188			11,846

At December 31, 2004, the Company’s subsidiary in the United States had a net operating loss carryforward (“NOL”) of € 6,710, which will expire from 2011 through 2017. Utilization of that NOL is limited to future earnings of the U.S. subsidiary. For financial reporting purposes, a valuation allowance of € 2,348 has been recognized for the full amount of this NOL.

During the years ended December 31, 2003 and 2004, deferred tax benefits of € 110 and € 12 respectively, were recognized as adjustments to the valuation allowance because of a change in circumstances that caused a change in expectations about the realizability of the NOL. In 2003 and 2004, the valuation allowance decreased by € 1,420 and € 1,594, respectively (of which € 1,310 and € 1,582 had no impact on the statements of income in 2003 and 2004, respectively). A significant portion of this change in the valuation allowance was due to the sale of De Rigo Deutschland and De Rigo Nederland, for which substantially all tax assets had previously been reserved for.

Tax savings resulting from income derived from operations in Italian tax exempt areas generated a per share benefit of less than 0.01 Euro in the year 2002.

F - 47

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

The provision for income taxes consists of the following


	2002			2003			2004
Provision for income taxes:
Current:
Italy		1,749			9,314			6,352
United Kingdom		1,764			2,224			2,531
Spain		4,459			4,489			5,769
Other		553			877			539

Total		8,525			16,904			15,191

Deferred:
Italy		(7,976	)		(364	)		(1,128	)
United Kingdom		(153	)		(999	)		(948	)
Spain		(311	)		210			(389	)
Other		(1	)		(360	)		226

Total		(8,441	)		(1,513	)		(2,239	)


Total tax provision		84			15,391			12,952

A reconciliation between the Italian statutory tax rates and the consolidated effective tax rates for income from continuing operations is as follows:


	2002			2003			2004
Tax at Italian statutory rate of 40.25% in 2002, 38.25% in 2003 and 37.25% in 2004		6,564			16,855			13,568
Investment tax credit and deductions		(245	)		—			—
Gains on business disposal		(123	)		(3,926	)		—
Effect of a change in tax rate:
· In Italy		(7,207	)		509			—
· Other countries		16			(9	)		28
Effect of different tax rates of foreign jurisdictions		(763	)		(792	)		(720	)
Change in valuation allowance		1,026			(168	)		(12	)
Other permanent differences:
· Italy
IRPEG		(496	)		1,289			730
IRAP — (primarily payroll and interest)		1,408			977			(158	)
· Other countries		(96	)		656			(484	)

Provision for income taxes		84			15,391			12,952

Effective consolidated tax rate		0.5	%		35.0	%		35.6	%

F - 48

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Financial instruments

Derivative products

The Group derivative financial instruments at December 31, 2004 consisted of foreign currency option contracts and an interest rate swap agreement. The Company sold foreign currency “put” options to buy US$ 4,600,000 for € 3,603 and purchased “call” options to sell US$ 2,800,000 for € 2,193. None of the foreign currency option contracts had maturities that exceed one year.

At December 31, 2004, the Company had an interest rate swap agreement to convert the variable interest rate on bank borrowings totaling € 10,000 to a fixed interest rate of 3.3%. This interest rate swap agreement expired in January 2005.

The Group’s derivative financial instruments at December 31, 2003 consisted of forward contracts, foreign currency option contracts and an interest rate swap agreement. The Company had outstanding forward exchange contracts to buy € 2,689 (US$ 1,150,000 for GBP Sterling 693,000, US$ 1,500,000 for € 1,264 and € 450 for GBP Sterling 311,231); in addition, the Company sold foreign currency “call” options to sell Japanese Yen 1,260,000 and GBP Sterling 1,650,000 for a total of € 11,671 and purchased “put” options to buy Japanese Yen 900,000,000 and GBP Sterling 1,100,000 for a total of € 8,225. None of the foreign exchange contracts or foreign currency option contracts had maturities that exceed one year.

At December 31, 2003 the Company had an interest rate swap agreement to convert the variable interest rate on bank borrowings totaling € 10,000 to a fixed interest rate of 3.3%. This interest rate swap agreement expired in January 2005.

In the consolidated statements of income, under the line item other (income) expenses net, the Group recognized pre-tax losses related to changes in the fair value of its derivative financial instruments of € 327 and € 635 in 2002 and 2004, respectively and gain of € 475 in 2003. As of December 31, 2003 and 2004 the Group has recorded in the balance sheets net derivative assets, under the line item current assets, of € 132 and net derivative liabilities, under the line item current liabilities, of € 271, respectively.

Foreign exchange gains and losses

The net foreign exchange gains and (losses) recognized in the consolidated statement of income for 2002, 2003 and 2004 amounted to € (656), € 448 and € 721, respectively.

Concentration of Credit Risks

No individual customer represented 10% or more of sales in any of the years ended December 31, 2002, 2003 and 2004.

F - 49

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Fair Value of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosure for financial instruments.

Cash and cash equivalents — The carrying amount of cash and cash equivalents reported in the balance sheet approximates their fair value due to the short duration of these investments.

Investment in debt securities — The carrying amount of investments in debt securities is based on the lower of cost or market and approximates their fair value as these were valued based on quoted prices.

Accounts receivable and payable — The carrying amount of receivables and payables approximates their fair value because of the short maturity of these instruments.

Short-term debt — The carrying amount of the Company’s borrowings under its short-term credit arrangements approximates their fair value because of the short maturity of these instruments.

Long-term debt — Certain of the Group’s long-term loans are subsidized by government entities in Italy and the European Investment Bank. The government entities pay a portion of these entities’ interest charges thereby reducing the Company’s interest rate to a below market level. The fair value of these loans have been determined as being equal to the carrying amount of the loans, as all companies with investments in the same region where the Company has its investments are entitled to such benefits.

Foreign currency exchange contracts and options — The carrying value approximates fair value based on exchange rates at December 31, 2003 and 2004.

Interest rate swap agreements — The carrying value approximates fair value based on interest rates at December 31, 2003 and 2004.

F - 50

DE RIGO S.p.A. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(expressed in thousands of Euro (€), except as otherwise indicated)

Valuation and Qualifying Accounts

The following table summarizes the changes in accounts receivable, inventory allowances and deferred tax assets for each of the three years in the period ended December 31, 2004:


			Charged to
	Balance at		costs and		Acquisitions						Balance at end of
Description	beginning of period		expenses		(disposals)			Deduction			period
Year ended December 31, 2002
Deducted from asset accounts:
Allowance for doubtful accounts		5,501		2,821		(151	)		(1,195	)		6,976
Allowance for returns		565		455		—			—			1,020
Reserve for inventory obsolescence		18,909		4,480		(164	)		(1,298	)		21,927
Valuation allowance on NOLs		5,231		131		—			—			5,362

Total		30,206		7,887		(315	)		(2,493	)		35,285

Year ended December 31, 2003
Deducted from asset accounts:
Allowance for doubtful accounts		6,976		2,545		(285	)		(1,853	)		7,383
Allowance for returns		1,020		584		(120	)		(83	)		1,401
Reserve for inventory obsolescence		21,927		5,325		(1,967	)		(930	)		24,355
Valuation allowance on NOLs		5,362		—		—			(1,420	)		3,942

Total		35,285		8,454		(2,372	)		(4,286	)		37,081

Year ended December 31, 2004
Deducted from asset accounts:
Allowance for doubtful accounts		7,383		1,380		(69	)		(1,544	)		7,150
Allowance for returns		1,401		305		—			(324	)		1,382
Reserve for inventory obsolescence		24,355		3,875		(115	)		(4,060	)		24,055
Valuation allowance on NOLs		3,942		—		(1,152	)		(442	)		2,348

Total		37,081		5,560		(1,336	)		(6,370	)		34,935

F - 51


	Page
Item 17. Financial Statements		71

Item 18. Financial Statements		71

Item 19. Exhibits		72
EXHIBIT 8.1
EXHIBIT 12.1
EXHIBIT 12.2
EXHIBIT 13.1


	Page
Accounting Principles and Reporting Currency		iv

Cautionary Statement Regarding Forward-Looking Information		v

PART I		1

Item 1. Identity of Directors, Senior Management and Advisors		1

Item 2. Offer Statistics and Expected Timetable		1

Item 3. Key Information		1
THE DE RIGO GROUP		1
SELECTED FINANCIAL DATA		1
EXCHANGE RATES		3
RISK FACTORS		3

Item 4. Information on the Company		8
HISTORY AND CORPORATE STRUCTURE		8
BUSINESS OVERVIEW		10
COMPANY STRATEGY		12
PRODUCTS		13
DESIGN AND MANUFACTURING		15
MARKETING AND DISTRIBUTION		17
COMPETITION		21
ITALIAN GOVERNMENT INCENTIVE PROGRAM		21
TRADEMARKS		22
INSURANCE		22
SEASONALITY AND AVAILABILITY OF RAW MATERIALS		22
PROPERTY, PLANTS AND EQUIPMENT		23

Item 5. Operating and Financial Review and Prospects		23
CRITICAL ACCOUNTING POLICIES		23
RESULTS OF OPERATIONS		27
EFFECT OF INFLATION		38
U.S. GAAP RECONCILIATION		38
LIQUIDITY AND CAPITAL RESOURCES		38
OFF-BALANCE SHEET ARRANGEMENTS		40
CONTRACTUAL OBLIGATIONS		40
CONCENTRATIONS OF CREDIT RISK		41
NEW ACCOUNTING STANDARDS		41
PROCESS OF TRANSITION TO INTERNATIONAL ACCOUNTING STANDARDS		41
TREND INFORMATION		41

Item 6. Directors, Senior Management and Employees		42
DIRECTORS AND SENIOR MANAGEMENT		42
COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT		44
EMPLOYEES AND LABOR RELATIONS		45

Item 7. Major Shareholders and Related Party Transactions		46


	Page
MAJOR SHAREHOLDERS		46
RELATED PARTY TRANSACTIONS		47

Item 8. Financial Information		48
CONSOLIDATED FINANCIAL STATEMENTS		48
OTHER FINANCIAL INFORMATION		48

Item 9. The Offer and Listing		48
TRADING MARKETS AND SHARE PRICES		48

Item 10. Additional Information		49
OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR ITS SUBSIDIARIES		49
BY-LAWS		50
SIGNIFICANT DIFFERENCES IN CORPORATE GOVERNANCE PRACTICES FOR PURPOSES OF SECTION 303A.11 OF THE NEW YORK STOCK EXCHANGE LISTED COMPANY MANUAL		58
MATERIAL CONTRACTS		61
EXCHANGE CONTROLS		61
TAXATION		62
DOCUMENTS ON DISPLAY		66

Item 11. Quantitative and Qualitative Disclosures About Market Risk		67
RISK ANALYSIS		67
EXCHANGE RATE RISK		68
INTEREST RATE RISK		68
CHANGES IN MARKET RISK EXPOSURE COMPARED TO 2003		68

Item 12. Description of Securities Other than Equity Securities		68

PART II		68

Item 13. Defaults, Dividend Arrearages and Delinquencies		68

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds		69

Item 15. Controls and Procedures		69

Item 16. [Reserved]		69

Item 16A. Audit Committee Financial Expert		69

Item 16B. Code of Ethics		69

Item 16C. Principal Accountant Fees and Services		69

Item 16D. Exemptions from the Listing Standards for Audit Committees		71

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers		71

PART III		71

•		Wholesale and Manufacturing consists of the design, manufacturing, marketing and distribution of high-quality eyewear to opticians in Italy, Germany and the Netherlands and to independent distributors and opticians through the Group’s distribution subsidiaries in other markets. This segment furnishes eyewear to the Group’s other business units, to which the wholesale and manufacturing segment makes sales at prices that include a markup designed to compensate the unit for its manufacturing activity.

•		Retail consists of the sale of optical frames and lenses for prescription eyeglasses and fashion sunglasses (as well as contact lenses and other optical products), together with the provision of related professional consulting and aftercare services, through the network of stores operated by the Group’s two retail chains, D&A, a leading retailer in the British optical market, and General Optica, the leading optical chain in Spain, which also has a presence in Portugal.

•		*Brand prestige.* De Rigo distributes its products under brand names that management believes benefit from high customer recognition and significant prestige in its principal markets. The brand names employed by the Company include owned brand names, such as Police, Sting and Lozza - which rely on innovative design, product quality and an effective marketing policy in order to build brand awareness — and highly regarded designer brand names licensed to the Group by some of the world’s best known fashion houses.

•		*Design originality*. De Rigo particularly targets customers attentive to design and fashion trends, and believes its products are characterized by particularly original and innovative designs that are carefully tuned to consumer preferences. Management believes that the Group’s stylistic innovations have established its collections as a point of reference for the entire industry, while maintaining the specific identity of each of its brands.

•		*Tailored distribution*. De Rigo tailors its distribution strategy to reflect local market conditions. In Italy, the Group distributes its products directly through its network of sales representatives. In most of its other principal markets, De Rigo has developed a network of distribution subsidiaries which it controls. In the United Kingdom, Spain and Portugal, the Company has also developed a wide network of retail stores. Management believes that its direct control of the distribution network in its major markets allows the Group to improve margins while enhancing the image and the prestige of the Group’s products through careful selection of points of sale and a focus on post-sale customer assistance.

•		*Integrated production*. De Rigo’s production process is generally highly automated, though selected processes also include handicraft techniques. We have developed a long term relationship with our principal suppliers, enabling us to quickly react to changes in market demand while keeping tight control over the quality of materials and individual production steps used by outside suppliers in their manufacturing processes.

	•		Strengthen its brand portfolio. De Rigo intends to strengthen its current brand portfolio by increasing the visibility of its owned brand names, especially Police and Sting, principally through the use of internationally-recognized spokespersons in advertising, while at the same time consolidating its relationship with the leading fashion houses that currently license designer brand names to the Group. De Rigo also intends to enlarge its brand portfolio by entering into new licensing arrangements with other prestigious fashion houses and launching new brands of its own.

	•		Expand distribution. De Rigo intends to expand its distribution channels in markets that the Company believes offer the greatest demand for designer mid- and premium-price eyewear, primarily in Europe, North America, and the Far East. To do so, the Company expects to form new distribution subsidiaries in certain markets while further developing its existing subsidiaries in others.

	•		Invest in production. In order to achieve management’s goals of increasing efficiency, reducing costs, and enhancing the technological features of its products while continuing to maintain its high standards of quality, the Company plans to continue to invest in the production process, with a particular focus on automation and the use of innovative new materials.

	•		Enhance its existing stores. De Rigo intends to enhance many of its existing retail stores in order to increase its penetration of local markets and better present to consumers the quality of its eyewear collections.

	•		Open new stores. De Rigo intends to continue to expand the D&A and General Optica store networks to achieve greater geographical coverage in key areas through directly managed stores or franchised stores.

	•		Pursue acquisitions. De Rigo will continue to pursue acquisitions and other strategic transactions that management believes would afford the Company attractive opportunities to continue its geographic expansion by enhancing or establishing its retail presence in those countries in which such a strategy is compatible with the Company’s current distribution network.

	•		Consumers are increasingly attracted by products with higher fashion content.

	•		Consumers are also increasingly attracted by eyewear incorporating more sophisticated technological features and high quality components, particularly those capable of increasing eye protection (sunglasses lenses) and great comfort (progressive lenses and multi-coated lenses).

	•		Products bearing brands with high customer appeal have become synonymous with technology, quality and style. Customers rely on recognized brands to simplify their

			purchase decision.

	•		The average age of the population in De Rigo’s primary markets is increasing and, as a result, the number of people wearing spectacles in those markets is increasing.

	•		Sunglasses and spectacles are becoming more popular, even in countries with lower average per capita spending power.

	•		Expected increases in personal income levels could reduce the current length of the replacement cycle for eyewear in certain of the Company’s more developed markets.

	•		Increased use of, and exposure to, computers, televisions and similar instruments tends to have a negative effect on consumers’ vision.

	•		Although laser surgery vision correction procedures are becoming more common, particularly in the United Kingdom and United States, the high cost and sometimes limited effectiveness are limiting their use.

	•		Consumers are increasingly inclined toward purchasing sunglasses with higher fashion content, particularly if they bear a designer brand. Sunglasses have essentially become a fashion accessory.

	•		The increased attractiveness of designer-brand sunglasses incorporating high technology and high quality components, including progressive and multi-coated lenses, is resulting in an increase in the average retail price for sunglasses.

	•		Higher disposable income and a perceived need for security and protection are increasingly causing consumers to own more than one pair of spectacles or sunglasses.

	•		The desire for feeling better about one’s appearance is leading to an increased percentage of consumers owning both contact lenses and spectacles; this trend is particularly evident in the United Kingdom, Northern Europe and United States.

	•		The increasing importance of fashion content is reducing the length of the replacement cycle for sunglasses.

	•		Increased use of laser surgery techniques could reduce the need for prescription eyewear, while increasing the use of sunglasses among the same group of consumers.

1.1		Bylaws of De Rigo S.p.A. (incorporated by reference to the Annual Report on Form 20-F for the fiscal year ended December 31, 2003, filed with the Securities and Exchange Commission by De Rigo S.p.A. on June 30, 2004, file no. 1-14002).

1.2		The total amount of long-term debt securities of De Rigo S.p.A. authorized under any instrument does not exceed 10% of the total assets of the Group on a consolidated basis. De Rigo S.p.A. hereby agrees to furnish to the Securities and Exchange Commission upon request a copy of any instrument defining the rights of holders of long-term debt of the registrant or of its subsidiaries for which consolidated or unconsolidated financial statements are required to be filed.

8.1		List of subsidiaries of the registrant.

12.1		CEO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

12.2		CFO certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

13.1		Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

a.		Revaluation reserve not affected by the equalization tax amounting to € 5,995 that would be subject to taxes of € 1,020, since no provision is required under current Italian GAAP.

b.		Undistributed earnings of Spanish subsidiaries, amounting to € 3,651 and € 3,651 in 2003 and 2004, respectively, would be subject to taxes of € 365 in 2003 and 2004, respectively, in case of distribution and undistributed earnings of British subsidiaries, amounting to € 49,298 and € 47,809 in 2003 and 2004, respectively, would be subject to taxes of € 813 and € 789 in 2003 and 2004, respectively, in case of distribution.

		reported in the consolidated financial statements. Under U.S. GAAP, the benefit (measured by the difference between the fair value of the stock, to which the option refers, and the exercise price) received of € 9,554 by the Managing Director from the transaction was required to be reported as a charge to 1994 income. Consequently, in the reconciliations of shareholders’ equity as at December 31, 2002, 2003 and 2004 the amount of € 9,554 was recorded as a charge to retained earnings with an offsetting credit of € 9,554 to additional paid in capital.

(b)		Revaluation of assets prior to 1992 - Certain assets were revalued by the Company and two of its Italian subsidiaries to amounts in excess of historical cost. These revaluations, which were either authorized or required by Italian law, are permissible under Italian GAAP.

		Assets revalued under Italian GAAP are depreciated over their remaining useful lives based on their revalued basis. U.S. GAAP does not permit the revaluation of such assets. Accordingly, the increases in shareholders’ equity and the related increase in depreciation expense occurring as a result of such revaluations have been reversed in the accompanying reconciliation for all periods presented.

		No deferred tax liabilities have been provided for on the revaluation reserve mentioned in Note 15 point (a), as such liabilities are not required to be provided for in accordance with U.S. GAAP, because these revaluations were all made prior to December 15, 1992, the effective date for applying existing U.S. accounting standards with respect to accounting for income taxes.

(c)		Revaluation of trademarks in 2001 - Under Italian GAAP it is permitted to recognize the revaluation of assets for financial accounting purposes as well as for tax purposes and to recognize as a charge to revaluation reserve the amount of the tax liability recorded that is to be paid over 3 years. Under U.S. GAAP such revaluations are not recognized in the financial statements and the tax charge is not recorded as a charge to retained earnings, but the tax effects of the revaluation are recognized. Accordingly, in the U.S. GAAP reconciliation adjustments have been made to: (a) reverse the revaluation of trademarks made in 2001 against trademarks and the revaluation reserve; and (b) recognize the tax effects of the revaluation by (i) reclassifying the charge to revaluation reserve for tax payable on the revaluation to the current tax provision, (ii) recognizing a deferred tax asset and a credit to the deferred tax provision to record the tax effects of the temporary difference between the Italian tax basis and the U.S. book basis of the trademarks that was created by the revaluation; (iii) recognizing a deferred tax liability and a charge to the deferred tax provision to record the tax to be paid upon distribution of the revaluation reserve recorded in the Italian financial statements and (iv) reverse the amortization of trademarks revaluation. The net tax benefit resulting from the revaluation permitted by the applicable tax law was recognized in the statement of income for 2001, the year in which the revaluation was made.

(d)		Goodwill amortization - Italian GAAP requires that goodwill related to assets be amortized over the asset’s estimated economic life. In June 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 142 “Goodwill and Other Intangible Assets", effective for fiscal years beginning after December 15, 2001. SFAS No. 142 changed the accounting for goodwill from an amortization method to an impairment-only approach based on the supposition that goodwill is not a “wasting asset” that requires periodic cost allocation. Thus, amortization of goodwill, including goodwill recorded in past business combinations and amortization of intangibles with an indefinite life, ceased upon adoption of SFAS No. 142. The Company adopted the provisions of SFAS No. 142 effective January 1, 2002. All goodwill is assigned to the reporting unit that benefits from the synergies arising from each business combination.

		The Company completed the SFAS No. 142 transitional impairment test during the second quarter of 2002 and concluded that there was no impairment of goodwill at that time, as the fair value of its reporting units exceeded their carrying amounts as of January 1, 2002. Therefore, the second step of the transitional impairment test required under SFAS No. 142 was not necessary.

		As required under SFAS No. 142, the Company performed the required annual impairment test as of December 31, 2004. Based on that assessment, it was determined that no impairment existed in the reporting units identified.

		The estimated aggregate amortization expense of Trademarks and Other intangible assets for each of the five succeeding fiscal years is indicated below:

		The weighted-average amortization period of Trademarks and Other intangible assets is seven years.

(e)		Public offering expenses - The expenses incurred in connection with the public offering of October 1995 were capitalized under Italian GAAP and are being amortized over a five year period. Under U.S. GAAP, such expenses are deducted from additional paid-in capital, net of the estimated tax benefits to be received.

(f)		Stock Options – Under Italian GAAP, the Company’s stock option plan does not result in recognizing compensation expense in the Company’s statement of income at either at the date of the grant to employees or at the date when such options are exercised. Under U.S. GAAP, the Company has elected to continue to account for its compensation expense for its stock based compensation plan using the intrinsic value method in accordance with the provisions of Accounting Practice Bulletin (“APB”) No. 25, “Accounting for Stock Issued to Employees”. Under FASB Interpretation (“FIN”) 44, “Accounting for Certain Transactions Involving Stock Compensation”, the modifications made in the plan in the year 2000 to reduce the exercise price to an amount less than fair value at date of grant and to modify the terms for exercising the options require that the awards be accounted for as a variable plan under APB No. 25, which requires remeasurement of the intrinsic value of the award from the date of the modification to the date the award is exercised, is forfeited, or expires unexercised. Compensation expenses are recognized using the accelerated method allowed under FIN 44.

		The Company has adopted the disclosure requirements of FASB No. 123, “Accounting for Stock-based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosures” (“SFAS 148”). When compensation expense has been recorded in accordance with APB No. 25, SFAS No. 148 requires pro-forma disclosure of what net income and earnings per share would have been had the Company also adopted SFAS 148 for recording compensation expense.

(g)		Call and put arrangements for sale by De Rigo Holding B.V. to Prada of unregistered shares in the Company - In connection with establishing in July 1999 a subsidiary that used the Prada trademarks, the Company entered into an agreement with Prada whereby (i) Prada had an option to acquire, at any time between April 30, 2001 to June 30, 2001, 5% of the unregistered shares that De Rigo Holding B.V. owned

		in the Company at an agreed upon price per share and (ii) De Rigo Holding B.V. had a put arrangement that gave it the right to require Prada to buy the same number of shares in the Company at the agreed upon price per share within the same time frame. Under Italian GAAP the fair value of the options granted to Prada is considered a transaction between shareholders and therefore is not reported in the financial statements. Under U. S. GAAP, the fair value of the options granted is required to be accounted for as an intangible asset by the Company. Consequently, in the reconciliation of shareholders’ equity as at December 31, 1999 and net income for the year then ended, the fair value of the options granted in the amount of € 465 was recorded as an intangible asset with an offsetting credit to additional paid in capital, and amortization of the intangible asset (which is being amortized over five years). Arrangements whereby Prada could have acquired an additional 10% of the Company’s unregistered capital stock were contingent upon Prada renewing the existing licensing agreements with the Company’s subsidiary, EID for an additional stipulated number of years, and expired due to the disposal of EID on July 23, 2003. Under U.S. GAAP, the fair value of the options granted should be recognized as an intangible asset to be amortized over the period of the licensing agreement when such license agreements are renewed.

(h)		Deferred charges - In 2002 the Group deferred certain consulting expenses related to production activity and will amortize these amounts over three years under Italian GAAP. Under U.S. GAAP, these expenses would have been charged to income when incurred. The accompanying reconciliation reflects the adjustment to expense these amounts.

(i)		Additional deferred taxes were provided on U.S. GAAP adjustments (b), (e), (g), (h), (j) and (m).

(j)		Pensions - The Group maintains a defined benefit pension plan for some U.K. employees of D&A that is funded. Under Group accounting policies the recognition of a minimum pension liability is not required. Under SFAS 87 it is a requirement that companies must recognize as a minimum liability for any unfunded accumulated benefit obligation. The impact of this minimum pension liability is to increase long-term obligations and decrease shareholders’ equity.

(k)		Earnings per Share – Italian GAAP does not require disclosure of earnings per share. Under U.S. GAAP, earnings per share are calculated and presented in accordance with FASB No. 128 “Earnings Per Share” (“FASB 128”). FASB No. 128 requires dual presentation of basic and diluted earnings per share for all periods presented. Basic earnings per share is computed by dividing the net income of the entity by the weighted average number of ordinary shares outstanding for the period. The basic earnings per share calculation takes into account the reacquired treasury shares, reducing the total weighted average shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue ordinary shares were exercised or converted into ordinary shares or resulted in the issuance of ordinary shares that then shared in the earnings of the entity. At December 31, 2002 and 2003, unexercised stock options to purchase 846,621 and 800,621 shares, respectively were outstanding. These securities could potentially dilute basic earnings per share in the future and the number of incremental shares computed by the treasury stock method were considered in the computation of diluted earnings per share and per ADS for the years 2002 and 2003. In 2004 no additional options were granted and the 352,200 options outstanding at December 31, 2004 expired.

(l)		Comprehensive income – Italian GAAP does not require the presentation of comprehensive income. Under U.S. GAAP, FASB No. 130 “Comprehensive Income: Financial Statement Presentation”, which was adopted by the Company in December 1998, requires disclosure of comprehensive income, which is defined as the change in net assets of a business enterprise during a period from transactions and events and circumstances from non owner sources.

(m)		Marketable securities – Under Italian GAAP, marketable securities are carried at the lower of cost or market value. If securities are written-down, the original value of these investments is reinstated in future accounting periods should the reasons for such writedowns no longer apply. For U.S. GAAP purposes, the Company has applied the provisions of SFAS No. 115, “Accounting for Certain Investment in Debt and Equity Securities” (“SFAS 115”). Under SFAS 115, the Company classifies its marketable securities as available for sale. Unrealized gains and losses for securities classified as available for sale are included in shareholders’ equity until the securities are sold or otherwise considered to be other than temporary impaired. The effects of SFAS 115 on net income and shareholders’ equity have been reflected in the reconciliation. The fair value of marketable securities as of December 31, 2002 is € 1,907. No marketable securities existed at December 31, 2003 and 2004.

(n)		Treasury stock – In 2003 and 2004 De Rigo purchased 223,200 and 2,225,000 of its own ordinary shares. Under Italian GAAP, these ordinary shares have been recorded at historical cost within long-term assets, while under U.S. GAAP, the cost of the acquired shares is shown as a deduction from shareholders’ equity.

(o)		Impairment of long-lived assets – In August 2001, the FASB issued SFAS No. 144 “Accounting for the Impairment of Long-Lived Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Statement applies to certain long-lived assets, including those reported as discontinued operations, and develops one accounting model for long-lived assets to be disposed of by sale. SFAS 144 supersedes SFAS No. 121 “Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of”, and APB No. 30, “Reporting the Results of Operations – Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions”, for the disposal of a segment. The Company adopted the provisions of SFAS 144 effective January 1, 2002.

		SFAS 144 requires that long-lived assets to be disposed of by sale be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. The Statement also changes the measurement criteria for discontinued operations. SFAS 144 broadens the reporting of discontinued operations to include the disposal of a component of an entity, provided that the operations and cash flows of the component will be eliminated from the ongoing operations of the entity and the entity will not have any significant continuing involvement in the operations of the component. The Statement does not apply to investments in equity investees. No write-downs of long-lived assets were recorded under SFAS 144 in 2002, 2003 or 2004.

(p)		Derivative financial instruments — Under Italian GAAP, if a derivative is designated as a fair value hedge, changes in the fair value of the derivative and the related change in the hedged item are recognized in the statement of income. If a derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recognized in the statement of income when the hedged item effects operations. Changes in fair value of derivatives that do not qualify as a hedge are recognized in the statement of income. Unrealized gains related to the remeasurement at fair value of long-term derivative contracts are deferred until realized. Effective January 1, 2001, the Group adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), and the corresponding amendments and interpretations to this Statement. The Statement requires that all derivative financial instruments be recognized in the financial statements and are to be measured at fair value regardless of the purpose or intent of holding them. If the derivative is designated as a fair value hedge, changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in net earnings (loss). If the derivative is designated as a cash flow hedge, the effective portions of the change in the fair value of the derivative are recorded in other comprehensive income (“OCI”) and are recognized in net earnings (loss) when the

		hedged item affects operations. Ineffective portions of changes in the fair value of cash flow hedges are recognized in net earnings (loss) prior to the contract’s expiration. If the derivative used in an economic hedging relationship is not designated in an accounting hedging relationship, changes in the fair value of the derivative are recognized in the statement of income through the life of the contract.
		The Company did not formally designate exchange rate derivative contracts entered into during the year ended December 31, 2002, 2003 and 2004 as fair value or cash flow hedges. Accordingly, as required by SFAS 133, the fair value of such contracts have been recorded on the balance sheet until the contracts are settled, and all changes in fair value of the derivative instruments since the date of the derivative contracts have been recognized in the current income for the year. Since under Italian GAAP all derivatives outstanding at December 31, 2002, 2003 and 2004 were accounted for as ineffective hedges, no adjustment was required to comply with the requirements of FASB No. 133.

(q)		Consolidation of Ranieri Argentina S.A. – The Company sold its 51% interest in Ranieri Argentina S.A. in June 2002. For Italian GAAP purposes, the sale was effective retroactive to January 1, 2002. Therefore, the results of operations through the date of sale were not consolidated in the consolidated statement of income of the Company. U.S. GAAP requires that the results of operations be consolidated through the date of sale. The Company has reviewed the impact on the U.S. GAAP figures that would result from consolidation and determined that the impact on sales, cost of sales, other operating costs, and other non-operating costs is not significant.

(r)		Discontinued operations — As described in Note 3, the Company sold its 51% interest in EID to the Prada Group on July 23, 2003. Under U.S. GAAP, EID is presented as a discontinued operation in accordance with the guidance of SFAS 144. Based upon this guidance, the results for all periods, including revenues and costs, of the sold businesses are removed from the consolidated statements of operations and reported after income from continuing operations. The accompanying reconciliation includes, in the “discontinued operations” line, the effect of all line items associated with the disposed EID business.

		At the time of its sale on July 23, 2003, EID’s net assets consisted of:

		In December 2003, the FASB issued Interpretation No. 46R (“FIN 46R”), a revision to FIN 46, “Consolidation of Variable Interest Entities”. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. For variable interest entities created or acquired prior to February 1, 2003, the provisions of FIN 46 as amended by FIN 46R have been applied as of January 1, 2004. The adoption of FIN 46 as amended by FIN 46R did not have a material effect on the consolidated financial statements.

		In May 2003, the FASB issued Statement No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS 150”). SFAS 150 establishes standards for classification and measurement of mandatorily redeemable financial instruments, obligations to repurchase the issuer’s equity shares by transferring assets, and certain obligations to issue a variable number of shares. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of fiscal 2004. The adoption of SFAS 150 did not have an effect on the consolidated financial statements.

		In May 2003, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue No. 01-8, “Determining Whether an Arrangement Contains a Lease” (“EITF 01-8”). EITF 01-8 provides guidance on how to determine whether an arrangement contains a lease that is within the scope of FASB Statement No. 13, “Accounting for Leases.” EITF 01-8 is effective for arrangements entered into or modified after the beginning of the reporting period that began after May 28, 2003. The adoption of EITF 01-8 did not have an effect on the consolidated financial statements.

		In March 2004, the EITF reached a consensus on EITF Issue 03-6 (“EITF 03-6”). “Participating Securities and the Two-Class Method under FASB Statement No. 128, Earnings per Share.” The consensus addresses how to determine whether a security should be considered a “participating security” for purposes of computing earnings per share and how earnings should be allocated to a participating security when using the two-class method for computing basis earnings per share. The provisions of EITF 03-6 are effective for reporting periods beginning after March 31, 2004. The adoption of this consensus is not expected to have a material impact on the Company’s results of operations, financial position and cash flows.

		In December 2004, the FASB issued Statement 153 (“SFAS 153”), “Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29.” The Guidance in Accounting Principles Board Opinion 29 (“APB 29”), “Accounting for Nonmonetary Transactions,” is based on the general principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. The guidance in APB 29 included certain exceptions to that principle. SFAS 153 amends APB 29 to eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replaces it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance (that is, transactions where future cash flows are not expected to significantly change as a result of the exchange). The Company will adopt the provisions of SFAS 153 for non-monetary asset exchange transactions after December 31, 2005. The adoption of SFAS 153 is not expected to have a material impact on the Company’s consolidated financial position or results of operations.

		In December 2004, the FASB issued Statement 123 (revised 2004) (“SFAS 123(R)”), “Share-Based Payment”. SFAS 123(R) replaces FASB Statement No. 123, “Accounting for Stock-Based Compensation”, which superseded APB Opinion No. 25, “Accounting for Stock Issued to Employees”. SFAS 123(R) requires all share-based awards to employees, including grants of employee stock options, to be recognized in the financial statements based on their grant-date fair values. The related compensation costs are to be recognized over the period during which an employee is required to provide service in exchange for the award. Excess tax benefits are to be recognized as an addition to paid-in capital and reflected as financing



	De Rigo S.p.A
	(Registrant)



	/s/ Ennio De Rigo
	Ennio De Rigo
	Chairman of the Board and Chief Executive Officer


Name		Country of Incorporation
De Rigo Vision S.p.A.		Italy
Vogart Line España S.a.		Spain
De Rigo (UK) Ltd.		United Kingdom
De Rigo Hellas A.E.E.		Greece
De Rigo France S.a.		France
De Rigo Asia Ltd.		Hong Kong
De Rigo Hong Kong Ltd.		Hong Kong
De Rigo Japan Co., Ltd.		Japan
De Rigo U.S.A., INC.		United States
European Vision Ltd.		United Kingdom
Vantios Group Ltd.		United Kingdom
Dollond & Aitchison Ltd.		United Kingdom
D&A Contact Lenses Ltd.		Jersey
D&A Eyewear Ltd.		United Kingdom
D&A Professional Services Ltd.		United Kingdom
Vantios Ltd.		United Kingdom
Bindi Investment Ltd.		Jersey
General Optica Internacional S.a.		Spain
General Optica Ltd.		United Kingdom
General Optica S.a.		Spain
DR2 S.r.l.		Italy
Base 1 S.r.l.		Italy

1.		I have reviewed this Annual Report on Form 20-F of De Rigo S.p.A.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report;

4.		The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have:

	a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)		Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and

	a)		All significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and

	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal controls over financial reporting.



	/s/ Ennio De Rigo
Dated: June ..., 2005	Name:	Ennio De Rigo
	Title:	Chief Executive Officer


	/s/ Maurizio Dessolis
Dated: June ..., 2005	Name:	Maurizio Dessolis
	Title:	Chief Financial Officer