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The following is an excerpt from a 20-F SEC Filing, filed by DUCATI MOTOR HOLDING SPA on 6/30/2004.
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DUCATI MOTOR HOLDING SPA - 20-F - 20040630 - KEY_INFORMATION

          Market data used throughout this annual report was obtained from our internal dealer data, surveys commissioned by us or industry publications. Registration data is based on our analysis of the following published sources:

  ACEM (Association des Constructeurs Européens de Motocycles) and GIRAL (General Research International Associates Ltd.), an independent Swiss motorcycle consultancy, for the Western European markets;

  ANCMA (Associazione Nazionale Ciclo Motociclo Accessori), for Italy;

  MIC (Motorcycle Industry Council), for the United States;

  Nirinsha Shinbun, for Japan; and

  the Australian Bureau of Statistics, for Australia.

          Although we believe that these sources are reliable, we have not independently verified the information they have provided to us. We have also not sought the consent of any of these entities to refer to their data in this annual report.

          “Ducati” is our registered trademark. This annual report also includes the trademarks of other companies.

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

Selected Consolidated Financial Data

          The following table sets forth our selected historical consolidated financial data as of and for the years ended December 1999, 2000, 2001, 2002 and 2003, which have been derived from our audited financial statements included in this annual report or in our previous filings with the Securities and Exchange Commission. Our audited financial statements and the selected financial data set forth below have been prepared in conformity with Italian GAAP.

          In addition, the following table sets forth certain selected financial data prepared in conformity with U.S. GAAP. For information concerning differences between Italian GAAP and U.S. GAAP as applied to our audited financial statements, see Notes 29, 30 and 31 to the audited financial statements.

          The selected consolidated financial data set forth below (except for other financial data) should be read in conjunction with the audited financial statements and “Item 5. Operating and Financial Review and Prospects” included elsewhere in this annual report.

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Selected Consolidated Financial Data in Conformity with Italian GAAP

                                                 
    Year Ended December 31,
    1999
  2000
  2001
  2002
  2003
  2003
    (euro and dollars in thousands, except per share and ADS data) (1)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
                                               
Net sales
  294,527     379,534     407,815     412,971     388,241     $ 489,067  
Cost of goods sold(2)
    (176,540 )     (228,890 )     (241,266 )     (249,264 )     (253,406 )     (319,216 )
     
     
     
     
     
     
 
Gross profit
    117,987       150,644       166,549       163,707       134,835       169,851  
Selling, general and administrative expenses
    (70,704 )     (95,604 )     (107,968 )     (122,032 )     (112,806 )     (142,102 )
Depreciation of property, plant and equipment
    (6,628 )     (7,446 )     (9,998 )     (11,993 )     (15,013 )     (18,912 )
Amortization of intangible assets
    (17,623 )     (22,147 )     (24,582 )     (21,991 )     (23,876 )     (30,076 )
Other operating revenues
    3,336       4,952       7,547       10,795       23,178       29,197  
Operating income/(loss)
    26,368       30,399       31,548       18,486       6,318       7,958  
Interest expense, net
    (11,886 )     (8,814 )     (12,750 )     (11,472 )     (9,273 )     (11,681 )
Foreign exchange gain/(loss), net
    (2,427 )     (10,615 )     677       1,363       2,517       3,171  
Other non-operating income/(expense) net(3)
    172       6,702       (28 )     134       558       703  
Profit/(loss) before income taxes and minority interest
    12,227       17,672       19,447       8,511       120       151  
Income taxes
    (3,179 )     (7,189 )     (8,894 )     (1,986 )     (80 )     (101 )
Minority interest
    (127 )     0       0       0       0       0  
Net profit/(loss)
    8,921       10,483       10,553       6,525       40       50  
Net profit/(loss) per share(4)
  0.056     0.066     0.066     0.041         $  
Net profit/(loss) per ADS(4)
  0.56     0.66     0.66     0.41         $  
OTHER FINANCIAL DATA
                                               
Capital expenditures
    8,706       11,328       13,464       23,819       15,746       19,835  
Cash flows from operating activities
    15,349       41,606       13,752       44,911       28,970       36,494  
Cash flows from investing activities
    (27,336 )     (26,877 )     (29,302 )     (44,345 )     (33,790 )     (42,565 )
Cash flows from financing activities
    (15,371 )     (12,244 )     25,491       (310 )     4,833       6,088  

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    As of December 31,
    1999
  2000
  2001
  2002
  2003
  2003
CONSOLIDATED BALANCE SHEET DATA
                                               
Cash and cash equivalents
  11,279     13,764     23,705     23,960     23,973     $ 30,199  
Net working capital(5)
    56,709       56,133       105,488       97,546       93,954       118,354  
Property, plant and equipment, net
    47,228       51,110       54,576       66,402       67,167       84,610  
Total assets
    349,934       389,573       447,732       447,403       457,033       575,724  
Total indebtedness(6)
    123,595       111,129       132,140       133,523       151,209       190,478  
Total shareholders’ equity
    131,077       143,039       154,597       159,741       158,399       199,535  

Selected Consolidated Financial Data in Conformity with U.S. GAAP (in thousands)(7)

                                                 
    Year Ended December 31,
    1999
  2000
  2001
  2002
  2003
  2003
    (euro and dollars in thousands, except per share and ADS data) (1)
CONSOLIDATED STATEMENT OF OPERATIONS DATA
                                               
Operating income(8)
  15,391     33,560     33,691     16,148     6,321     $ 7,963  
Profit/(loss) before income taxes, minority interest and extraordinary items
    (418 )     14,631       20,308       9,973       852       1,073  
Net profit/(loss)
    (4,438 )     7,094       14,178       6,966       (610 )     (768 )
Net profit/(loss) per share (basic)(9)
    (29 )     45       77       44       (4 )     (5 )
Net profit/(loss) per ADSs (basic)
    (290 )     450       770       440       (44 )     (55 )
Net profit/(loss) per share (diluted)
          43       76       43       (4 )     (5 )
Net profit/(loss) per ADSs (diluted)
          430       760       430       (44 )     (55 )
OTHER FINANCIAL DATA
                                               
Stock-based compensation
  14,543     2,997     204     101     67     $ 84  
Depreciation and amortization(10)
    11,985       13,187       17,625       16,975       16,628       20,946  
Cash flows from operating activities
    11,074       27,364       (3,444 )     4,679       (2,231 )     (2,318 )
Cash flows from investing activities
    (9,840 )     (13,819 )     (9,759 )     (23,889 )     (14,019 )     (17,660 )
Cash flows from financing activities
    (2,439 )     (11,505 )     23,093       19,890       16,333       20,575  

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    As of December 31,
    1999
  2000
  2001
  2002
  2003
  2003
CONSOLIDATED BALANCE SHEET DATA
                                               
Total assets
  269,671     312,332     357,824     398,495     411,888     $ 518,855  
Total shareholders’ equity
    50,369       62,346       77,717       83,483       81,154       102,230  

(1)   Amounts are translated into U.S. dollars by converting the resulting euro amount into U.S. dollars at the Noon Buying Rate for euro on December 31, 2003 of US$ 1.2597 per euro.

(2)   These amounts exclude depreciation of property, plant and equipment and amortization of intangible assets.

(3)   For the year ended December 31, 2000, this item included a 6.7 million gain recorded in connection with a voluntary, tax-driven write-up of the book value of our trademark in the statutory accounts of DMH. For the year ended December 31, 2003, this item included 5.2 million of gains recorded in connection with a voluntary, tax driven write up of the book value of our trademark in the statutory accounts of DMH, and 4.0 million of restructuring costs related to a reorganization plan that provided for the termination by mutual agreement of a certain number of employees in exchange for severance incentives. See “Item 5. Operating and Financial Review and Prospects—2003 Compared to 2002”.

(4)   For Italian GAAP purposes, the number of shares and ADSs is assumed to be the shares and ADSs outstanding at the period-end; for U.S. GAAP purposes, the number of shares has been calculated as the weighted average number of shares and ADSs outstanding during the period. Italian per share numbers do not reflect the effect of incremental shares, if any, that would have been outstanding, assuming all options granted under our share option plans were exercised during the relevant period.

(5)   Net working capital is calculated as total current assets less total current liabilities. Cash and cash equivalents, non-commercial receivables and payables with Cagiva S.p.A. and the current portion of indebtedness (long-term debt and short-term bank borrowings) are excluded from such calculation.

(6)   Total indebtedness comprises long-term debt (including current portion) and short-term bank borrowings.

(7)   Financial data prepared in conformity with U.S. GAAP is presented as supplemental information for investors; our audited financial statements included in this annual report are prepared in conformity with Italian GAAP. For information concerning certain differences between Italian GAAP and U.S. GAAP as applied to our audited financial statements, see Notes 29, 30 and 31 to the audited financial statements.

(8)   Operating income, profit/(loss) before income taxes, minority interest and extraordinary items and net profit/(loss) are stated after deducting a non-cash expense for stock-based compensation of 3.0 million, 0.2 million, 0.1 million and 0.1 million for each of the years 2000 through 2003, respectively.

(9)   We have not paid any dividends for the periods presented.

(10)   Effective January 1, 2002, we adopted the provisions of SFAS 142, “ Goodwill and Other Intangible Assets”. Subsequent to the adoption of SFAS 142, we do not amortize goodwill for U.S. GAAP purposes, but do test for impairment. For Italian GAAP purposes, we continue to amortize goodwill. In addition, goodwill in our Italian GAAP financial statements relating to the 1996 acquisition of the Ducati brand name, trademark and related intellectual property rights (see Notes 1(b) and 29 to our audited consolidated financial statements) is not considered goodwill under U.S. GAAP, but is reflected as part of “Brand Name” and therefore continues to be amortized.

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Exchange Rates

          Fluctuations in the exchange rate between the euro and the U.S. dollar will affect the U.S. dollar equivalent of euro prices of the shares listed on the Mercato Telematico Azionario (“Telematico”), the automated screen-based trading system managed by Borsa Italiana S.p.A. (the “Italian Stock Exchange”) and, as a result, are likely to affect the market price of the ADSs in the United States. Exchange rate fluctuations will also affect the U.S. dollar amounts received by holders of ADSs on the conversion into U.S. dollars by the Depositary of any cash dividends declared and paid in euro on the shares represented by the ADSs.

          The following table sets forth the Noon Buying Rate for euro expressed in U.S. dollars per euro rounded to the nearest one hundredth of a U.S. cent for the periods indicated. Amounts for the year 1998 (before the adoption of the euro) have been calculated based on the Noon Buying Rates for the Italian Lira, converted into euro at the official fixed conversion rate of 1= Lit. 1,936.27 and expressed in dollars per 1.

                 
Year:
  Average(1)
  At Period End
1999
    1.0588       1.0070  
2000
    0.9207       0.9388  
2001
    0.8909       0.8901  
2002
    0.9495       1.0485  
2003
    1.1411       1.2597  
                 
Month ending:
  High
  Low
December 31, 2003
    1.2597       1.1956  
January 31, 2004
    1.2853       1.2389  
February 29, 2004
    1.2848       1.2426  
March 31, 2004
    1.2431       1.2088  
April 30, 2004
    1.2358       1.1802  
May 31, 2004
    1.2274       1.1801  

(1)   Average of the Noon Buying Rate for euro for the last business day of each month in the period.

          The effective Noon Buying Rate for euro on June 28, 2004 was US$ 1.2145 per 1 euro.

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Risk Factors

          Investing in our shares or ADSs involves certain risks. You should carefully consider each of the following risks and all of the information included in this annual report.

The world motorcycle market is highly competitive

          The world motorcycle market is highly competitive. Our principal competitors are four Japanese manufacturers (Honda, Suzuki, Yamaha and Kawasaki), two European manufacturers (Triumph and BMW) and, to a more limited extent, Harley-Davidson of the United States. Additional competitors, including MV Agusta and Aprilia of Italy, also produce motorcycles that compete with ours. Motorcycles produced by Harley-Davidson’s Buell subsidiary also compete with our Sport Naked motorcycles. Most of our competitors have substantially greater financial resources, are more diversified and have significantly higher sales volumes (allowing for greater economies of scale) and market share than us. Certain of our competitors may also have shorter product development cycles and may be able to bring new products to market more quickly than we can. Like other competitors in the motorcycle industry, our competitiveness is also influenced by our performance on international professional racing circuits. We cannot assure you that the racing success of Ducati motorcycles in the World Superbike Championship will continue or will be replicated in the Moto GP Championships, which we re-entered in 2003. Racing success may also be affected by events outside of our control, such as injuries or accidents occurring to our riders. We are also subject to potential price pressure from our competitors that may result from appreciation of the euro relative to other currencies, in particular the U.S. dollar, the U.K. pound sterling and the Japanese yen. In general, we cannot assure you that, in the future, we will be able to maintain our present competitive position. See “Item 4. Information on the Company—Products and Distribution—Market Share and Competition”.

Demand for motorcycles is cyclical

          In the past, the motorcycle industry has been subject to significant changes in demand due to changing social and economic conditions affecting discretionary consumer income, such as employment levels, business conditions, taxation rates, fuel costs, interest rates and other factors. We have experienced periods (notably –5.0% in 2002) of material decreases in demand in our target market (the Sport sub-segment of the market for road motorcycles with engine displacements of 500cc or greater (the “>500cc Road Market”)), which has had a material effect on our results of operations for such periods. The factors underlying such changes in demand are beyond our control, and demand for our products may again decline in the future, which could have a further negative impact on our business, prospects, results of operations or financial condition.

Our business is seasonal and we are required to predict levels of demand in advance and provide current motorcycle models to the market on a timely basis

          Like other competitors in the motorcycle industry, our operations are characterized by seasonal fluctuations in demand and a stable production level (although we shut down production each year during the month of August and the last two weeks of December). Annual retail demand for motorcycles is highest during April, May and June, resulting in peak factory sales during March, April and May and a build-up of inventory from September to February. As a result, we must plan overall annual production levels based on predicted levels of demand for our products, which we derive in part from our own market assessments and long-term, non-binding purchase commitments from our distributors. We must also provide current models to the market during the critical annual spring season as demand typically shifts in the second half of the year to models introduced for the ensuing year. Mismanagement of our production levels or delayed delivery of current models can result in excess inventories and resulting

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promotional expenses ( i.e. , rebates, discounts, complimentary accessories and other incentives) that we incur to reduce the same. See the discussion of our selling, general and administrative expenses in “Item 5. Operating and Financial Review and Prospects”. We cannot assure you that we will accurately predict annual and long-term demand in the future or in any event provide our current motorcycles to the market on a timely basis. Any failure to do so may have a material adverse effect on our business, prospects, results of operations or financial condition. In addition, a number of factors could cause dealers to delay or cancel orders already placed with us, including general economic conditions, competitive factors and changes in governmental regulation such as import/export rules and tariff rates.

We are dependent on our suppliers, and increases in component prices may negatively affect our operations

          We purchase virtually all of our motorcycle parts and components from third-party suppliers. With the exception of a limited number of long-term component supply contracts for periods ranging from one to three years, we only enter into short-term, rolling contracts with suppliers. In addition, we typically contract with our suppliers on a non-exclusive basis, which allows us to replace our suppliers at any time. Generally, individual motorcycle components are available from a variety of sources, and our policy is to identify at least two sources of supply for each component. However, we rely upon single-source suppliers for certain components, including “platform” components. See “Item 4. Information on the Company—Products and Distribution—Production—Assembly Operations”. Our assembly operations may be interrupted or otherwise adversely affected by delays in the supply of parts and components from third-party suppliers. They may also be interrupted if parts or components become unavailable on commercially reasonable terms in the future. Even if parts and components are available from alternative sources, we may face increased costs and production delays in connection with the replacement of an existing supplier with one or more alternative suppliers. These factors could have a material adverse effect on our business, prospects, results of operations or financial condition. See “Item 4. Information on the Company—Products and Distribution”.

          Like other competitors in the motorcycle industry, our operations are affected by the prices of motorcycle components. The prices of motorcycle components have been subject to fluctuations in the past and may be subject to fluctuations in the future. These fluctuations may result from fluctuations in the prices of raw materials (including commodities such as steel, aluminum, energy and oil-related products) from which these components are manufactured. In the first four months of 2004, the price of steel increased from 20% to 40% (depending on the type of steel), resulting in an average increased per-motorcycle production cost of approximately two percent. We believe that it is likely that there will be further increases in steel prices. Any increase in the prices of motorcycle components may have a material adverse effect on our business, prospects, results of operations or financial condition.

We have made significant investments and capital expenditures as to which we may not receive a return

          In 2002 and 2003, our capital expenditures in property, plant and equipment were approximately 23.8 million and 15.7 million. Such expenditures in 2002 principally related to our research and development initiatives ( i.e. , the launch of the Multistrada and the 999 ). In 2002, we also invested in research and development activities to develop the Ducati Desmosedici motorcycle in connection with our participation in the Moto GP Championship (which are included in our costs of goods sold for 2002). We had fewer expenditures in 2003 owing to the reduced capital requirements relating to the development of our new Sportclassic motorcycle model line. If any of the above initiatives is unsuccessful, our related past and anticipated future capital expenditures and several other research and development expenditures may not result in any return or material benefit to us, which could have a material adverse effect on our business, prospects, results of operations or financial condition.

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We may be subject to significant product liability claims

          Like our competitors, we are exposed to possible claims for personal injury from the use of our motorcycles, particularly in the United States, where product liability claims grounded on personal injuries are more common than in other countries. Although no claims of this kind have been made against us that are not covered by our existing product liability insurance coverage, such claims may arise in the future. A partially or completely uninsured claim, if successful and of significant magnitude, could have a material adverse effect on our business, prospects, results of operations or financial condition. See “Item 4. Information on the Company—Products and Distribution—Insurance; Product Liability”.

Our motorcycles may contain defects

          Like competing motorcycles, our products may have unanticipated defects. Product defects have given rise to recalls of our motorcycles in the past and may do so again in the future. Any unanticipated defects in our motorcycles or recalls could be costly to us and may have a material adverse effect on the Ducati brand and our business, prospects, results of operations and financial condition.

We rely on a single manufacturing facility

          Ducati motorcycles are manufactured at our sole production facility located in Borgo Panigale outside Bologna, Italy. A significant interruption of production at this facility would have a material adverse effect on our business, prospects, results of operations and financial condition.

Strikes and other labor disturbances may negatively impact our operations

          We operate in a heavily unionized industry and are subject to the risk of strikes and other work stoppages. Our employees in Italy are subject to national and company-specific bargaining agreements. Our national collective bargaining agreement was renewed in May 2003, and expires in December 2006 generally, and in December 2004 as to the economic aspects. Our company-specific collective bargaining agreement was signed in December 2003 and expires in December 2007.

          Our operations have not suffered material disruption as a result of strikes or work stoppages in the recent past. However, we have been, and in the future may be, subject to strikes and work stoppages in connection with the negotiation of company-specific or national labor contracts. Any strikes, work stoppages or other industrial actions may interrupt the production of motorcycles and could have a material adverse effect on our business, prospects, results of operations and financial condition.

Our motorcycle design and technology are not protected by intellectual property rights

          The design and technology of our motorcycles, including the Desmodromic valve control system, are not protected by any material patent, trademark or other intellectual property rights, other than the registered trademarks associated with the Ducati brand itself. In particular, the technical features that distinguish Ducati motorcycles are not protected by material patents or other intellectual property rights. The component parts of our motorcycles are manufactured according to well-known techniques and include components that are not unique to our products. As a result, the design and technology of our motorcycles are vulnerable to being copied or imitated by competitors, and certain of our competitors have copied our technology and design features in the past. Our competitors may have or develop equivalent or superior manufacturing and design skills, and may develop an enhancement that will be patentable or otherwise protected from duplication by others. These events could have a material adverse effect on our business, prospects, results of operations and financial condition.

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We are dependent on qualified personnel

          Like our competitors, our commercial success depends in part upon our ability to continue to attract and retain highly qualified design, technical and commercial management and other personnel. We cannot assure you that the members of our management team will continue working for us in the long term. In 2003 and 2004, many such personnel did not receive performance bonuses as part of their compensation owing to our failure to meet certain financial targets in 2002 and 2003, respectively. As a result, we may have increased difficulty in retaining such personnel, especially if the labor market in general improves. See “Item 6. Directors, Senior Management and Employees.” Competition in general for qualified personnel in the motorcycle industry is intense and we could be materially adversely affected by the loss of key employees. We cannot assure you that we will be able to attract, recruit and retain sufficient qualified personnel to remain competitive.

The international nature of our operations exposes us to risks

          Like our competitors, we distribute motorcycles and other products in many countries and face risks related to our international operations, including:

  changes in governmental regulations;

  licensing requirements;

  tariffs or taxes and other trade barriers;

  price, wage and exchange controls;

  political, social and economic instability;

  inflation; and

  interest rate fluctuations.

Any of these factors could materially adversely affect our business, prospects, results of operations and financial condition.

We are subject to foreign currency exchange rate fluctuations, particularly with respect to the U.S. dollar

          We are exposed to foreign exchange rate risks. Our sales and operating profits are affected by the impact of fluctuations in currency exchange rates between the euro and certain foreign currencies on product prices and operating expenses. In 2003, we had net sales denominated in U.S. dollars, Japanese yen and U.K. pounds sterling that together exceeded 32.3% of our total net sales for the year (with sales in U.S. dollars accounting for approximately 14.4% of our total net sales), while our costs are principally denominated in euro.

          Fluctuations in the exchange rates of certain foreign currencies, principally the U.S. dollar, the U.K. pound sterling and the Japanese yen, relative to the euro may adversely affect our sales and operating results and the international competitiveness of our Italian-based manufacturing operations. We are also subject to potential price pressure from our competitors that may result from appreciation of the euro relative to other currencies, in particular the U.S. dollar, the U.K. pound sterling and the Japanese yen. In 2003, the euro’s appreciation over other currencies (including the U.S. dollar, where the appreciation was approximately 19.4% on average, and 20.4% at year end), contributed to the decline in our sales and operating results. We engage in foreign exchange transactions to hedge portions of our transactional exposure to fluctuations in exchange rates between the euro and various foreign currencies, including the U.S. dollar, the U.K. pound sterling and the Japanese yen. Our hedging policy until the end of 2003 consisted in covering, during the last quarter of each year, the sales of the coming year. Beginning in January 2004, we have shifted to an 18-month rolling coverage. We cannot assure you that

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the foregoing will adequately protect us from the effects of future exchange rate fluctuations. See “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

We are subject to strict environmental, safety and other governmental regulations

          Motorcycles sold in the United States, the European Union and all other countries are subject to environmental emissions regulations and safety standards. For example, applicable regulations in the United States include the emissions and noise standards of the U.S. Environmental Protection Agency and the more stringent emissions standards of the State of California Air Resources Board. Ducati motorcycles sold in the United States are also subject to the National Traffic and Motor Vehicle Safety Act and the rules promulgated thereunder by the National Highway Traffic Safety Administration. All of our motorcycle models are required to comply with applicable homologation regulations in the countries in which they are distributed. As these laws and regulations become increasingly stringent, future compliance requirements may result in increased costs or the withdrawal of our motorcycles from certain markets. As a result, future environmental, safety and other regulations may have a material adverse effect on our business, prospects, results of operations and financial condition.

          We are also subject to a number of domestic Italian governmental regulations relating to the use and storage of materials, discharge and disposal of wastes from the factory and safety standards of facilities and processes. We have not been subject to material environmental or safety claims in the past and believe that our activities conform in all material respects to presently applicable environmental and safety regulations. However, the failure to comply with present or future regulations could result in damages or fines, suspension of production or cessation of certain activities. New regulations could require us to incur significant expenses that could have an adverse effect on our results of operations. Any failure to control the use of, or adequately restrict the discharge of, hazardous substances or to comply with safety requirements and legislation could subject us to significant liabilities. See “Item 4. Information on the Company—Products and Distribution—Governmental and Environmental Regulation”.

We have incurred indebtedness

          On May 31, 2000, we issued a series of Eurobond notes (the “Notes”) in the aggregate principal amount of 100.0 million, which mature on May 31, 2005. Since their issuance, to reduce interest costs, we have repurchased an aggregate principal amount of approximately 39.3 million of the Notes — 9.0 million in 2001 (funded through advances proceeds from the sale and lease-back transaction related to our Bologna facility), none in 2002, 15.3 million during 2003 and 15.0 million during the first six months of 2004 (in each case, funded from proceeds of corresponding committed bank loans). The terms and conditions of the Notes do not include any financial coverage ratios or performance covenants, but do limit our ability to create liens on assets to secure (i) indebtedness represented by bonds, notes, debentures or other negotiable instruments or (ii) any guarantee of such indebtedness. Events of default under the terms and conditions of the Notes, which would entitle the noteholders to declare the Notes to be immediately due and payable, include but are not limited to, failure to pay interest or principal under the Notes when due, failure to comply with any obligations under or in respect of the Notes, failure to pay other indebtedness when due, acceleration of other indebtedness and the occurrence of certain bankruptcy or other insolvency events. If the noteholders declare the Notes to be immediately due and payable, our business, prospects, results of operations and financial condition would be materially and adversely affected.

          As a result of seasonal working capital requirements, our borrowings fluctuate significantly during the year, generally peaking from February to April. We expect to finance our working capital requirements by drawing on credit lines that several Italian commercial banks have made available to us.

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During 2003, our cash flow from operating activities was 29.0 million and our interest payments on indebtedness during the period were 6.4 million, or 22.0% of our cash flow from operating activities.

          We cannot assure you that our operating results, cash flow and capital resources will be sufficient for payment of our indebtedness in the future. Further, we cannot assure you that we will be able to continue to draw on bank credit lines to meet our seasonal working capital requirements. Absent sufficient operating results, cash flow and capital resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. In addition, we may be required to reduce or delay planned expansion and capital expenditures, restructure or refinance our indebtedness or seek additional equity capital. We cannot assure you that any of these strategies could be effected on satisfactory terms, if at all. One or more of these strategies may have a material adverse effect on our business or the price of our shares and ADSs.

Our ability to pay dividends is subject to limitations

          DMH has not paid any cash dividends on its shares since its formation in 1996.

          Italian law imposes certain restrictions on the distribution of dividends by Italian companies. In particular, Italian law prohibits distributing dividends other than from net income or distributable reserves set forth in a company’s statutory accounts approved by a meeting of shareholders and after the establishment of certain compulsory reserves. In addition, if losses from previous fiscal years have reduced a company’s capital, dividends may not be paid until the capital is reconstituted or its stated amount is reduced by the amount of such losses. The application of these restrictions could limit our ability to make distributions to holders of the shares and ADSs.

You may face difficulties in protecting your rights as shareholders or holders of ADSs

          DMH is incorporated under the laws of the Republic of Italy. As a result, the rights and obligations of our shareholders and certain rights and obligations of holders of our ADSs are governed by Italian law and DMH’s Statuto (or By-Laws). These rights and obligations are different from those that apply to U.S. corporations. Under Italian law, an investor that has acquired more than 30.0% of the shares of a company (or that already holds more than 30.0%, and acquires more than an additional 3.0% of such shares during a 12-month period) whose shares are listed on the Telematico is required to launch a tender offer for all of the shares of such company, but an investor may acquire up to a 30.0% interest without being subject to such an obligation. Further, under Italian law, ADS holders of ADSs have no right to vote the shares underlying their ADSs, although under the deposit agreement governing our ADSs, ADS holders have the right to give instructions to The Bank of New York, the ADS depositary, as to how they wish such shares to be voted. For these reasons, our public share and ADS holders may find it more difficult to protect their interests against actions of our management, board of directors or shareholders than they would as shareholders of a corporation incorporated in the United States.

The price of our shares and ADSs may be volatile

          No predictions can be made as to the effect, if any, that sales of our shares or the availability of our shares for sale will have on the market price of our shares or ADSs prevailing from time to time. Future sales of our shares by shareholders, the issue and sale of new shares by us, or the perception that such sales could occur may adversely affect prevailing market prices for our shares and ADSs. You may not be able to resell your shares or ADSs at or above the price at which you purchase them due to a number of factors, including:

  a possible lack of liquidity in the market for our shares or ADSs;

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  differences between our actual financial or operating results and those expected by investors and analysts;

  changes in analysts’ recommendations or projections;

  pricing and competition in the motorcycle industry;

  new statutes or regulations or changes in interpretations of existing statutes and regulations affecting our business; and

  changes in general market conditions.

Control by certain shareholders

          As of June 28, 2004, TPG Motorcycle Acquisition L.P. (“TPG Acquisition”), a limited partnership which is part of a group of investment funds known as Texas Pacific Group (“TPG”), owned 33.15% of our outstanding shares and controls us. In addition, as of May 6, 2004, Harris Associates, L.P. and Giorgio Seragnoli owned 7.57% and 4.93%, respectively, of our outstanding shares. The remainder of our shares are widely held. As a result, TPG has the power to determine (or holds a veto right in respect of) matters requiring shareholder approval, including the appointment of our board of directors. The concentration of our beneficial ownership may also have the effect of delaying, deterring or preventing a change in our control, may discourage bids for our shares or ADSs at a premium over the market price of the shares or ADSs and may otherwise adversely affect the market price of our shares or ADSs.

Forward-Looking Statements

          We make forward-looking statements in this annual report. Examples of such forward-looking statements include, but are not limited to: (i) projections or expectations of revenues, income (or loss), earnings (or loss) per share, dividends, capital structure or other financial terms or ratios; (ii) our statements of plans, objectives or goals, including those related to products or services; (iii) statements of future economic performance; and (iv) statements of assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

          By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. We caution readers that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements. These factors include:

  the effects of our leverage on our operating results;

  the effects of external economic factors on the motorcycle industry;

  the effects of competition in the geographic and business areas in which we conduct operations;

  the effects of, and changes in, regulation and government policy;

  other changes in our operating environment; and

  our success in managing the risks associated with these and other factors.

          We caution that the foregoing list of important factors is not exhaustive. When relying on forward-looking statements to make decisions with respect to Ducati, investors and others should carefully consider the foregoing factors and other uncertainties and events. Such forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update or revise any of them, whether as result of new information, future events or otherwise.

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BROKERAGE PARTNERS