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:

      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

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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:

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

      Non-GAAP Measures

     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

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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:

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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.

     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

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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)

     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.

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     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.

     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.

     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

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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 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

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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.

      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

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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)

     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%.

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      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.

     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.

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      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.

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      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.