Liabilities

Non-current liabilities

[28] Medium/long-term loans

Medium/long-term loans granted by banks and other lenders are as follows (net of deferred loan arrangement costs):

This balance mostly refers to three loans repayable by 2012 totaling Euro 400 million, of which Euro 150 million from Intesa Sanpaolo S.p.A., Euro 150 million from UniCredit Banca d’Impresa S.p.A. and Euro 100 million from BNL S.p.A. (BNP Paribas group). These loans carry interest of one, two, three or six-month Euribor plus a spread ranging between 20 and 50 basis points depending on the ratio between net financial position and EBITDA, and call for compliance with two financial covenants, observance of which is verified every six months on the basis of the consolidated financial statements, namely:

-a ratio of 4 or above between EBITDA and net financial expenses;

-a ratio of 3.5 or less between net financial position and EBITDA.

Non-current loans mature as follows (thousands of Euro):

[29] Other medium/long-term payables

"Other payables due to third parties" include the value attributed to the put options held by minority shareholders in subsidiary companies.

[30] Lease financing

Payables due to leasing companies for finance leases are shown in the following table. The short-term portion of lease financing is classified in the current liabilities section of the balance sheet.

Minimum lease payments due to the leasing company are reconciled to their present value (i.e. principal portion) as follows:

The Group has purchased mainly plant, machinery, furniture and fittings using lease financing. The average length of lease contracts is approximately seven years. The interest rates defined at the date of signing the contract are indexed to market rates. All lease contracts are denominated in Euro and repayable in equal installments, with no contractual provisions for any changes in the original repayment plan. The fair value of finance leases taken out by the Group approximates the carrying amount.

Amounts due to lessors are secured by rights over the leased assets.

[31] Retirement benefit obligations

These refer to provisions for post-employment benefit plans relating to Group employees, of which Euro 43,899 thousand relates to provisions for employee termination indemnities (TFR) reported by the Group's Italian companies. Movements in these obligations over the year and the related reconciliation between the net liability and the obligation's present value, as calculated under IAS 19, are as follows:

The expense charged to the statement of income under the "corridor method" for defined benefit plans is detailed as follows:

The total amount of expenses relating to defined benefit plans is reported under payroll and related costs; it should be noted that there are no assets servicing the defined benefit plans.

The principal assumptions adopted for the calculation are as follows:

[32] Other medium/long-term provisions and liabilities

This item relates to the liabilities and probable risks which the Group does not expect will be resolved by the end of 2010.

Since it operates in a number of sectors on a global scale, the Benetton Group has an inherent exposure to legal risks. The areas of greatest current exposure relate to claims filed by former commercial partners, former employees, subcontractors, and third parties with industrial property rights in potential conflict with products distributed by the Benetton Group or with similar rights to those of the Group. During 2009 the provision for legal and tax risks was utilized to the extent of Euro 1,889 thousand and increased by Euro 3,899 thousand for disputes, particularly tax ones, arising in the year. In detail, this refers to a dispute emerging in 2008 relating to an assessment raised by the Treviso Revenue Office involving the alleged disallowance for income tax purposes of certain sponsorship costs paid to amateur sports associations and of commissions paid to agents resident in low-tax jurisdictions. The total amount of extra tax being disputed is approximately Euro 3 million, plus penalties and interest. During 2009 the Treviso Provincial Tax Commission passed a ruling at the first stage of the appeals process. The judges partially accepted the appeal presented by Benetton Group S.p.A. and duly reduced the amount claimed by the Revenue Office to around Euro 1.5 million plus penalties and interest. The Company has already presented an appeal at the next stage up of the appeals process. In view of the outcome at the first stage of appeal, and the receipt of two demands for payment of the tax and penalties, the Company's management has decided to recognize a provision of Euro 3,070 thousand against tax risks, even though they are convinced that the Company behaved correctly and that the next stages of appeal will confirm the unsubstantiated nature of the claims both in substance and in law.

The sum of Euro 828 thousand, provided in prior periods, was released to income during 2009 after the related legal disputes were settled in the Group's favor.

The provision for sales agent indemnities, which reflects the risk associated with the possible termination of agency agreements as established by law, was utilized to the extent of Euro 299 thousand and increased by Euro 2,500 thousand during the year.

Other provisions relate to the costs the Group will probably have to incur for the closure of certain directly operated stores; these provisions were utilized to the extent of Euro 14 thousand over the year. In addition, the sum of Euro 58 thousand, provided in prior years against planned store closures, was released to income during 2009 after the related stores continued to stay open, meaning that the reason for the original provision no longer existed.

Current liabilities

[33] Trade payables

These represent the Group's liabilities for the purchase of goods and services amounting to Euro 403,911 thousand (Euro 415,594 thousand at December 31, 2008).

[34] Other payables, accrued expenses and deferred income

"Other payables due to holding and related companies" entirely refer to amounts owed to Edizione S.r.l. under the group tax election.

“Payables for the purchase of fixed assets” mostly refer to investments in the commercial network, the manufacturing division and Information Technology.

"Other payables due to third parties" include non-trade related payables, amongst which: remuneration owed to Directors, payables due to insurance companies, current guarantee deposits received, and the liability representing the valuation of put options held by minority shareholders in Group subsidiaries.

“Other payables due to employees” refer to amounts accruing and not paid at the end of December.

“Payables due to social security and welfare institutions” relate to amounts owed to these institutions by Group companies and their employees.

[35] Current income tax liabilities

These represent the amount payable by the Group for current income tax, stated net of taxes paid in advance, tax credits and withholding taxes.

[36] Other current provisions and liabilities

This line item relates to the Group's provisions against legal and tax disputes or liabilities that it expects to be resolved or settled within one year.

Provisions for other liabilities mostly refer to the costs for terminating manufacturing activities at the textile factory in Piobesi Torinese as well as the costs that the Group expects to incur for the corporate reorganization plan currently in progress.

[37] Current portion of lease financing

This reports the portion of lease financing which is due within one year to the lessor.

The reconciliation between the present value of this liability and the minimum lease payments due to finance lease companies has been provided in the note relating to its non-current portion.

[38] Current portion of medium/long-term loans

[39] Financial payables and bank loan

Financial payables due to banks mainly refer to drawdowns of Euro 202,400 thousand against committed credit facilities (of which Euro 200,000 thousand relating to the club deal) and of Euro 86,560 thousand against uncommitted credit facilities.

The negative differentials on forward exchange contracts include the exchange rate component accruing on derivatives that hedge economic, transaction and translation risks as detailed below:

The differentials arising from fair value hedges refer to exchange risk hedging instruments, the change in whose value is largely offset by the change in the underlying hedged item.

The differentials relating to cash flow hedges also refer to exchange rate risk management. The amounts recognized in the balance sheet represent the effect of hedging highly probable transactions such as future sales and purchases in currencies other than the Euro which will take place by the end of the following year. As a result, it is reasonable to believe that the related effect of hedging deferred in shareholders' equity in the "Fair value and hedging reserve" will be recognized in the statement of income in the next year.

Differentials from transactions hedging translation exchange risk include the balance sheet recognition of hedges outstanding at year end against net investments in foreign subsidiaries.

Details of the amounts reversed by the Group from reserves to the statement of income can be found in the "Consolidated statement of comprehensive income" included in the section containing the financial statements.

Other financial liabilities include the accruals and deferrals relating to financing operations as well as the time value component of derivatives.