As filed with the Securities and Exchange Commission on June 30, 2004

SECURITIES AND EXCHANGE COMMISSION

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, 2003

001-14908
(Commission file number)

Ducati Motor Holding S.p.A.

Ducati Motor Holding S.p.A.
(Translation of registrant’s name into English)

Italy
(Jurisdiction of incorporation or organization)

Via A. Cavalieri Ducati 3, 40132 Bologna, Italy
(Address of principal executive offices)

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

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.

158,500,963 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

TABLE OF CONTENTS

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          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

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

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(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.

(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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Item 4. Information on the Company

History and Development of the Company

          We are one of the world’s leading manufacturers of high-performance sport motorcycles. Founded in 1926, we are widely recognized among motorcycle enthusiasts for producing racing-inspired motorcycles characterized by unique engine features, innovative design, advanced engineering and overall technical excellence. With an extensive racing pedigree dating to the 1950s, our motorcycles have dominated the World Superbike Championship, where we have won twelve of fourteen manufacturers’ titles since 1990 and more single race victories than all other manufacturers combined. In 2003, after an absence of over 30 years, we resumed participation in the Moto GP Championship, achieving a second place finish in the manufacturer’s ranking of the Championship. We believe that our globally recognized brand, unique product characteristics and proven racing success provide us with a loyal and enthusiastic customer base and enable us to position our motorcycles as premium price products within the “Sport” sub-segment of the large-displacement motorcycle market.

          DMH, which operates under the trademark “Ducati”, was incorporated in Italy on May 29, 1996 as a società per azioni, i.e., a joint stock company whose capital is represented by shares. Our registered and administrative office is located at Via A. Cavalieri Ducati 3, 40132 Bologna, Italy. Our telephone number at this office is +39-051-641-3111. Our agent in the United States is Ducati North America, Inc. Ducati North America, Inc.’s address is 10443 Bandley Drive, Cupertino, CA 95014-1912 and its telephone number is (408) 253-0499.

History

          Our predecessor was founded on July 4, 1926, when Antonio Cavalieri Ducati and his three sons established one of the first companies in Italy to manufacture radios and electrical components. In 1935, Ducati moved his company to a modern, purpose-built factory at Borgo Panigale, outside Bologna, where we manufacture motorcycles today. In 1947, our predecessor began production and distribution of motorcycles, which rapidly developed a reputation for high-performance, technical excellence and racing success. During the 1950s, Ducati manufactured a series of increasingly powerful motorcycles, including a number of models developed by the famous Ducati engineer, Fabio Taglioni. Taglioni adapted for use on motorcycles the Desmodromic valve control system, a signature (although unpatented) Ducati technical feature that can be found on every motorcycle we produce today.

          As a result of their superior performance characteristics, Ducati motorcycles rapidly achieved success in international racing competitions. A 125cc Grand Prix was runner-up in the 1958 World Championship and the 250cc Mach 1 motorcycle, introduced in 1964, was among the fastest 250cc roadsters available at the time. In 1972, a Ducati 750 GT prototype won a dramatic victory in the Imola 200 race, establishing the reputation of a new Ducati engine for high-performance and racing success. This engine, called the L-twin, was comprised of two cylinders mounted at a 90-degree angle to form a unique L-shaped design, a configuration that, combined with a Formula One-inspired tubular trestle frame, proved successful in racing and in road use. Following the Imola victory, Ducati commenced production of a series of larger displacement motorcycles using the L-twin engine. These motorcycles formed the foundation of the modern Ducati motorcycle lines and enjoyed a high degree of success on world racing circuits, culminating in Mike Hailwood’s historic 1978 victory on a Ducati 900 Super Sport in the Isle of Man race. Despite its technical excellence and racing success, Ducati’s fortunes declined sharply in the early 1980’s, primarily as a result of the decision by the major shareholder at the time, a state-owned industrial concern, to shift Ducati’s focus to products other than motorcycles, principally small diesel engines.

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          In 1985, Cagiva S.p.A., an Italian manufacturing conglomerate (together with its subsidiaries, “Cagiva”) acquired the Ducati brand and related business. Cagiva reinvigorated the Ducati brand by refocusing on Ducati’s tradition of building high-performance racing motorcycles. Under Cagiva’s ownership, Ducati motorcycles reinforced their reputation for excellence on and off the racetrack. In March 1987, Marco Lucchinelli triumphed on a Ducati Ottovalvole 851 prototype in the Daytona “Battle of the Twins” competition. In 1990, Raymond Roche rode a Ducati 888 to victory in the World Superbike Championship, the first time a Ducati two-cylinder engine motorcycle successfully challenged a four-cylinder engine produced by our Japanese competitors. Beginning in 1995, however, liquidity problems at Cagiva unrelated to the Ducati motorcycle business resulted in significant production delays and reduced sales.

          In 1996, DMH was formed by affiliates of TPG and Deutsche Morgan Grenfell (“DMG”) to acquire the Ducati brand name, trademark and related intellectual property rights from Cagiva. Cagiva contributed the other assets and liabilities associated with the Ducati business to DMH in exchange for shares issued to Cagiva representing 49.0% of DMH’s total issued and outstanding shares. Following these transactions, TPG and DMG indirectly owned, in the aggregate, 51.0% of the shares of DMH. On July 30, 1998, TPG and DMG through their affiliates, together with a third investor, acquired the remaining 49.0% of the shares of DMH owned by Cagiva.

          Beginning in late 1996, we successfully implemented a focused turnaround program, which included: restarting the supply process; substantially increasing our investment in working capital to increase production and relaunch our research and development efforts; installing a new management team; rebuilding our sales, marketing and public relations departments and revamping our corporate image; initiating plans to streamline our assembly process; establishing a quality control process; taking control of distribution in key markets; and successfully introducing new models and new versions of our motorcycles.

          In March 1999, DMH completed an initial public offering of 90,200,000 shares, of which 17,000,000 shares were issued by DMH and 73,200,000 shares were sold by the selling shareholders in the initial public offering. As a result of the initial public offering, TPG reduced its holdings in DMH from 72.0% to 34.8%. In connection with the initial public offering, our shares were listed on Telematico and our ADSs were listed on the New York Stock Exchange.

          In April 2001, our shares began trading on the Segmento Titoli con Alti Requisiti (the Segment for Equity with High Standards, or “STAR”) of Telematico. This segment was created by Borsa Italiana S.p.A. for small- and medium-sized companies that operate in traditional sectors of the economy and meet stricter requirements relating to transparency, liquidity and corporate governance than those usually required for listing on the Telematico so that such companies can achieve greater market visibility. As part of the STAR admission requirements, we appointed Mediobanca to act as specialist for our shares. The specialist is required to take a number of actions intended to support the market for our shares and to facilitate the communication of information about us to investors.

Business Overview

          We produce motorcycles in five model lines, which vary in their technical and design features and intended customers: Superbike, Super Sport, Sport Naked, Sport Touring and Multistrada. For model year 2006, we plan on selling a sixth model line, the Sportclassic, which we expect to go into production at the end of 2005. We sell our motorcycles and related products in 66 countries worldwide, with a primary focus on the Western European and North American markets, which together accounted for approximately 85.0% of our net sales in each of the last three years. In 2003, no single country accounted for more than 15.0% of our net sales of motorcycles and related products, with the exception of

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Italy at 30%. We have a global distribution network directly controlling our Italian sales and operating wholly owned distribution subsidiaries in North America, France, Germany, the Benelux countries (which is also responsible for Sweden), Japan and the United Kingdom. Our manufacturing operations, based in Bologna, Italy, consist primarily of engine and motorcycle assembly and are not vertically integrated, resulting in a relatively low fixed cost structure.

Competitive Strengths

          We believe our position as one of the world’s leading manufacturers of high-performance motorcycles is primarily attributable to the following competitive strengths:

          Focused Market Niche Strategy. Founded in the Ducati racing heritage, our product development effort is primarily focused on racing-derived motorcycles. This focus gives us a strong competitive position in our targeted market niche of high-performance sport motorcycles. We estimate that our worldwide market share in our target market grew from 4.0% in 1996 to 5.4% in 2003. We remain loyal to our original market for uncompromised, high-performance sport motorcycles, a position recognized by our customers, motorcycle enthusiasts, the press and the industry at large.

          Global Brand Strength. Our well-defined market positioning and unique brand character, combined with the international success of our motorcycles in the World Superbike Championships, the Moto GP Championship and other international racing events promote awareness of the Ducati brand around the world. The Ducati brand is recognized globally for large-displacement, high-performance sport motorcycles and is associated with innovative design, advanced engineering and racing success. We also reach Ducati fans all over the world through our website.

          Technical Excellence. We believe that our motorcycles have a reputation for advanced engineering and overall technical excellence. This reputation has developed as a result of decades of consistent design and technical innovation at Ducati, including such signature features as the “Desmodromic” valve control system, the “L-twin” engine and the tubular trestle frame. We believe that continued investment in research and development and closer integration of our racing and product development efforts will enable us to maintain our technical excellence, a key driver of demand across our global customer base.

          Performance Superiority. Ducati motorcycles excel on the racetrack because of their superior handling characteristics and usable power. Our motorcycles have dominated the World Superbike Championship, where we have won twelve of fourteen manufacturers’ titles since 1990 and more single race victories than all other manufacturers combined. In 2003, after an absence of over 30 years, we renewed participation in the Moto GP Championship. We believe that the superior performance of our motorcycles is the result of the Ducati tradition of technical excellence.

          Strong Manufacturing Fundamentals. Our manufacturing operations are not vertically integrated and have a relatively low fixed cost structure. We assemble our motorcycles and engines and manufacture only two strategically important components, crank cases and cylinder heads. We also use a relatively large number of key common components, particularly high-cost engine components and employ flexible production processes that we believe are well suited to our current and anticipated production volumes.

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Business Strategy

          Following our acquisition of the Ducati business in September 1996, we implemented a series of strategic initiatives to increase our sales, profitability and market share. Major components of our strategy include:

          Expand Our Customer Base. We aim to open new entry doors to Ducati world and to expand premium niches of the most appealing and untapped market segments compatible with the Ducati brand, principally by continuing to introduce new families of Ducati motorcycles specifically designed to attract customers interested in more comfortable multipurpose motorcycles or the look and feel of classic Ducati sport motorcycles of the past.

          Strengthen Our Position in Our Core Market. We intend to maintain and strengthen our niche position in our target market of high-performance sport motorcycles. To this end, all of our motorcycles will continue to incorporate signature Ducati features such as the Desmodromic valve control system, the L-twin engine, the tubular trestle frame and the distinctive Ducati sound. We continuously seek to strengthen our position in our core market by upgrading our motorcycle lines with technical and design innovations as they become available from racing experience or the product development process. In particular, we have made the following important innovations in the recent past:

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Superbike. Since the introduction of the 916 Superbike in 1994, we have continuously upgraded the technology and power of this motorcycle with the 996 in 1998, the 996R in 2000 (with a more powerful Testastretta engine) and the 998 in 2001. In July 2002, we introduced the 999, a radically redesigned Superbike, which is lighter and more aerodynamic than its predecessors and is powered by an improved Testastretta engine.

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Super Sport. In 2002, we introduced a 620cc version of the Super Sport, and upgraded the 750cc and 900cc engines of our Super Sport motorcycles to 800cc and 1000cc Dual Spark. Dual spark engines have two spark plugs per cylinder, offering extra reliability and power.

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Sport Naked (or “Monster”). In 2001, we upgraded the Monster 600 with the introduction of the fuel-injected Monster 620ie, and in 2002, we upgraded the 750cc and 900cc engines of the Monster to 800cc and 1000cc Dual Spark. In 2003, we also introduced the Monster S4R, our most powerful Monster, featuring a four-valve, 996 engine and new single-sided aluminum rear swing arm, an upgrade of the Monster S4.

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Sport Touring. In 2001, in addition to the ST4 and ST2, we introduced the ST4S Sport Touring motorcycle. This model features a 996cc engine, to which we added an Anti-Block Brake System (ABS) for model year 2003. In 2003, we launched the ST3, which features a new three-valve engine.

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Multistrada. We presented a prototype of the Multistrada, our fifth family of motorcycles, to the press and public in September 2001. The first model, the Multistrada 1000 Dual Spark, featuring a dual valve, air-cooled 1000cc engine, went into production in April 2003. This motorcycle is a multipurpose sportsbike offering Superbike performance in a more comfortable design with a more upright position.

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Sportclassic. We presented the prototypes of the Sportclassic, our sixth family of motorcycles, to the press and public in October 2003. The first Sportclassic will be the Paul Smart 1000 Limited Edition, which we expect will go into production at the end of 2005. This motorcycle, featuring front and rear Ohlins suspension and painted in the silver and green color scheme similar to the original Ducati 750 Super Sport, is inspired by the bike that Paul Smart rode to victory in the Imola 200 race in 1974. It shares the same technology as our other motorcycles, distinguishing itself by its 1970’s look.

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We also continue to participate in worldwide racing events, and, in particular, the World Superbike Championship, through our racing subsidiary, Ducati Corse S.r.l. We believe that racing is a critical aspect of our marketing and research and development efforts and an important component of the Ducati image. Following a change in the eligibility requirements for the Moto GP Championship, we began participating in the newly established Moto GP Championship in 2003, for which we developed a racing motorcycle called the “Ducati Desmosedici”, which is powered by a four stroke “double twin” cylinder engine, continuing our tradition of racing inspired product development.

          Expand Our Product Offering. We will continue to develop and introduce new products to appeal to the changing needs of our customers and to bring new customers to the Ducati brand. We have successfully expanded the boundaries of our traditional market niche by combining the allure of our high-performance racing heritage with distinctive style or functional features. In 1993, we introduced the Sport Naked line (represented by the Monster), appealing to the lifestyle of the urban customer and, in 1997, we introduced the Sport Touring line (represented by the ST2, the ST4, the ST4S and the ST4S ABS), appealing to customers looking for a greater degree of riding comfort. These new product lines significantly broadened the Ducati customer base. Since their launch, we have continued to expand our product offering with marketing-driven initiatives designed to meet specific consumer needs, such as the Monster Dark in 1997 (targeted at younger customers) and Monster City in 1998 (targeted at urban commuters). Our introduction in 1999 of the Monster 900 and the Monster Metallic, the Monster 620 in 2002 and the Monster S4R in 2003 were targeted at appealing to the diverse tastes of Monster consumers, with the S4R offering customers a more powerful engine and an experience more akin to riding a Superbike. With the launch of our website in September 2000, we introduced and sold the limited production 996R Suberbike motorcycle exclusively over the internet, and for model year 2002, we launched the 998. In July 2002, we launched the 999, a radically redesigned Superbike aimed at broadening the appeal of the Superbike family by enhancing the functionality and accessibility of the bike, while maintaining the intensity of the Superbike experience. In 2002, we launched a new motorcycle family for model year 2003, the Multistrada, designed to attract new customers to the Ducati brand. This motorcycle offers Superbike performance in a more comfortable design and is characterized by a more upright position and a new dual spark, air-cooled 1000cc engine. In October 2003, we presented the prototypes for the Sportclassic line, our sixth motorcycle family, which we plan on selling beginning in model year 2006. We launched this motorcycle family, which is reminiscent of classic Ducati motorcycles of the past yet features top technology, based on on-line research of the interests of Ducati’s fans.

          Strengthen Our Distribution Network. Our distribution strategy is aimed at maximizing sales and increasing our contacts with retail customers. Among other things, in carrying out our strategy, we:

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continue to consolidate our position in the six strategic markets in which we have established wholly owned sales and marketing subsidiaries;

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selectively replace on an ongoing basis under-performing distributors in certain markets in which we do not carry out distribution directly through wholly owned subsidiaries;

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evaluate each year whether to appoint new distributors in markets in which we have previously been inactive and whether to introduce “Ducati stores” in selected markets throughout the world (so that 139 Ducati stores were opened by December 31, 2003, as compared with 111 Ducati stores opened at December 31, 2002); and

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continue to increase and develop the information and activities on our website, through our subsidiary Ducati.Com, which was created in July 2000 to build further our brand and broaden our reach to Ducati fans and friends.

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     We believe that a strong overall distribution network will be a key factor in driving future increases in our market share.

          Strengthen Our Global Brand. We have undertaken a coordinated marketing effort to reinforce the traditional strengths of the Ducati brand and to increase the visibility of the Ducati name. We have launched an international advertising campaign presenting Ducati motorcycles and our people, established the Ducati Museum at our Bologna headquarters and created an official Internet site. We also hosted the first World Ducati Weekend in Bologna in June 1998, which attracted more than 10,000 Ducati enthusiasts, a second World Ducati Weekend in Misano in June 2000, which attracted over 20,000 enthusiasts, a third such event, the World Ducati Week in Misano in June 2002, which attracted over 25,000 enthusiasts. A fourth such event, the World Ducati Weekend in Misano in May 2004, attracted over 45,000 enthusiasts. We are actively exploiting the marketing opportunities provided by our racing activities through several sponsorship agreements and created a special purpose company, Ducati Corse Srl, dedicated to our racing-related activities in the Moto GP Championship and the Superbike Championship. We have also introduced VIP hospitality tents at Superbike and Moto GP Championship racetracks to provide a focal point for Ducati riders, dealers and enthusiasts. In addition, we organize a number of events to encourage fans to join the World of Ducati, such as women’s riding schools, classic rallies around Italy, the Ducati tour club and rental programs. We have sought to extend media coverage of the Ducati brand beyond the traditional motorcycle sector press and have developed a new corporate identity by standardizing our corporate logo, lettering and marketing material on a worldwide basis. In 2000, we established a separate company (Ducati.Com) with the mission of leveraging the Ducati brand and racing heritage into a vertical internet portal dedicated to the Ducati life-style, the world of motor racing and the world of motorcycle enthusiasts. We believe that our marketing and community approach will further strengthen the brand recognition and customer and fan loyalty that we currently enjoy.

          Expand Our Motorcycle-Related Product Offerings. We are leveraging the strength of the Ducati brand name and our strong customer loyalty through a targeted expansion of our product offering to include motorcycle-related products. In 1997, we acquired a controlling stake in Gio.Ca.Moto, an Italian company formed to take over the business of a well-established marketer of performance and custom accessories dedicated to Ducati. Gio.Ca.Moto products are currently marketed under the “Ducati Performance” brand name. In January 2000, we acquired substantially all of the shares that we did not already own in Gio.Ca.Moto, which was subsequently merged into DMH as of December 31, 2001. We have also entered the technical riding gear market with an exclusive line of leather suits, jackets, boots and helmets created and produced by Dainese and other leading manufacturers and sold under the Ducati Performance brand name. All of these products are sold primarily through the Ducati distribution network. We are also distributing a range of apparel (such as T-shirts, caps and sweatshirts) for Ducati enthusiasts and have selectively licensed the Ducati brand for use with appropriate products, such as model replicas, toys and video games.

          Increase Our Production Efficiency. We are continuing to rationalize our manufacturing processes to reduce complexity and increase production efficiency. In particular, we implemented a “platform” approach to production through which we are moving away from assembling numerous individual components. Under the platform approach, a motorcycle is divided into a discrete number of key components (or “platforms”) that are, in turn, made up of a number of sub-components. One supplier is responsible for providing a platform and managing the suppliers of the sub-components that comprise that platform. By this approach, we intend to reduce costs through purchasing leverage and component co-design with key suppliers, reduce inventories and improve overall quality. In addition, we outsource all motorcycle warehousing, delivery logistics and spare parts.

          Develop Our Internet Business. We established a dedicated Internet homepage at www.ducati.com that includes a comprehensive catalogue of the current motorcycle lines and related

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spare parts, the latest racing news, a virtual Ducati museum and contacts for local dealerships. We intend to continue developing our Internet and e-commerce operations. On July 24, 2000, we incorporated our Internet business into a separate subsidiary (Ducati.Com) focusing on our Internet initiatives. Our on-line strategy aims to leverage the Ducati brand and racing heritage with the goals of increasing sales opportunities, improving operating efficiencies and providing information and community space for Ducati enthusiasts. We believe our on-line operations also help build overall greater brand awareness. More specifically, our website is designed to address the following opportunities:

          Commerce. We have developed two main channels of e-commerce: Business-to-Consumers (for accessories, apparel and services like Ducati ticket events) and Business-to-Business-to-Consumer (for motorcycles, accessories and special products like limited edition products).

          Content. Our website offers:

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complete information regarding our current motorcycle catalogue (including technical details and a downloadable brochure, with pictures, sound, videos, available colors and versions);

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tips, information and FAQ for motorcycle use and maintenance;

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apparel, accessory and spare part catalogues, downloadable in PDF format;

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coverage of the World Superbike Championship, the Moto GP Championship and other motor racing or special events;

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a calendar of Ducati-related events; and

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downloadable multimedia materials (e.g., screensavers, e-cards and wallpaper).

          Community. We also offer Ducati enthusiasts a combination of club activities, e-mail capabilities, message boards and the possibility to set up personal web pages.

          On December 31, 2003, the headcount of Ducati.Com was reduced from 20 as of December 31, 2002 to 13 professionals, principally due to our having concluded our development activities and our effort to reduce costs generally. To further increase efficiency, we plan to merge Ducati.Com into DMH in the fall of 2004. The information displayed on our website is not incorporated by reference into this annual report.

Organizational Structure

          DMH designs, manufactures and distributes Ducati-branded motorcycles, spare parts and engines. DMH has six direct, wholly owned subsidiaries engaged in the regional distribution of Ducati motorcycles and other products: Ducati North America Inc., Ducati France S.A.S., Ducati Motor Deutschland GmbH, Ducati North Europe B.V., Ducati Japan KK and Ducati U.K. Limited. In addition, DMH owns Ducati Corse S.r.l., the Ducati racing subsdiary, Ducati.Com S.r.l., the Ducati company that focuses on our Internet and e-commerce initiatives which is in the procss of being merged into DMH, Ducati Retail S.r.l., the Ducati subsidiary that will make retail sales of Ducati products at Ducati-owned stores in areas not covered by our current dealerships, and Ducati Consulting S.r.l., the Ducati subsidiary that will provide consulting and logistics services to all of the Ducati Group companies as well as to our suppliers and other manufacturers.

          The following chart illustrates our organizational structure as of the date of this annual report, including the country of incorporation of each subsidiary.

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          In December 2001, Gio.Ca.Moto International s.r.l. was merged into DMH. The merger became effective generally as of December 31, 2001, and had retroactive effect to January 1, 2001 for accounting and tax purposes. Prior to the merger, we owned 100% of the quotas of Gio.Ca.Moto after acquiring the 0.1% we did not already own in March 2001.

          On December 20, 2001, we sold our 40.0% equity interest in HPE High-Performance Engineering S.r.l., a joint venture we entered into in 1998 with former director Piero Ferrari and others relating to advanced engine technology. We sold our interest at a sale price equal to its book value of € 82,633.

          On February 14, 2002, as a result of losses for the year ended 2001 and in accordance with Italian law, the shareholders of Ducati.Com S.p.A. resolved to decrease its share capital from € 2.6 million to zero. On such date, the shareholders of Ducati.Com S.p.A. also approved the conversion of Ducati.Com from a joint stock company (società per azioni) whose share capital is represented by shares to a limited liability company (società a responsabilità limitata), and to set its paid-in capital at € 10,000. We intend to merge Ducati.Com into DMH to make the organization and management of this entity more efficient (in particular, in respect of treasury management, legal and administrative functions). The merger will be completed in the fourth quarter of 2004.

          On August 20, 2003, Ducati France S.A. changed its name to Ducati France S.A.S. (Societé par Actions Simplifiée), and at such time DMH acquired the 0.1% interest in such entity that it did not already own.

          On January 27, 2004, Ducati Corse S.r.l. transferred 1.0% of the quota capital of Ducati.Com S.r.l. to Ducati Motor Holding S.p.A.

          On February 11, 2004, Ducati Benelux B.V. changed its name to Ducati North Europe B.V.

          On April 14, 2004, we formed Ducati Retail S.r.l., a subsidiary held 99.0% by DMH and 1.0% by Enrico D’Onofrio, our manager of finance. Ducati Retail S.r.l. will make retail sales of Ducati products at Ducati-owned stores in areas not covered by our current dealerships (e.g., the sale of motorcycles used by journalists or shown at fairs and exhibitions, or the sale of merchandising at airports).

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          On May 6, 2004, we formed Ducati Consulting S.r.l., a majority owned subsidiary (85% held by DMH and the remaining interests held by two DMH executives and a member of DMH’s board) which will provide consulting and logistics services to all of the Ducati Group companies as well as to our suppliers and other manufacturers.

Products and Distribution

The World Motorcycle Market

          In 2003, total world motorcycle registrations were estimated at over two million units, which include all motorcycles and scooters with engine displacements greater than 50cc registered in the United States, Western Europe, Japan and Australia. We view the world motorcycle market as divided into four main segments: motor scooters, off-road motorcycles, road motorcycles with engine displacements of less than 500cc and road motorcycles with engine displacements of 500cc or greater. Other subdivisions of the world motorcycle market exist and there is no universally recognized system for classifying this market.

          We believe that the >500cc Road Market accounted for over one million registrations in the United States, Western Europe, Japan and Australia in 2003 and may be further segmented into “Cruiser”, “Touring”, “Dual”, “Naked” and “Sport” sub-segments. The Touring sub-segment is comprised of motorcycles designed for comfortable, long-distance travel, while the Dual sub-segment is comprised of motorcycles designed for on and off-road riding. The Cruiser sub-segment is comprised of heavy motorcycles with a classic design typically featuring heavy use of chrome components. The Naked sub-segment is comprised of motorcycles totally or partially without body panels. The Sport sub-segment is principally comprised of motorcycles built for, or inspired by, a racing environment.

          We currently compete in the Naked, Sport, and Dual sub-segments of the >500cc Road Market. In 2003, we estimate that total motorcycle registrations, including those in the United States, Western Europe, Japan and Australia, were approximately 570,000 units in the above-mentioned sub-segments, with approximately 20,000 additional motorcycles sold during 2003 in countries in which we compete but for which registration data is not available.

          Naked motorcycles are characterized by the absence of body panels, a design feature that leaves the engine exposed and reduces weight. Naked motorcycles are targeted at customers who are particularly interested in urban street riding. The Sport sub-segment is comprised of three main groupings: Superbike motorcycles are racing-derived motorcycles equipped with the most powerful engines and the latest technical advances and are targeted at riders who desire a bike that is similar to those used on international professional racing circuits. Super Sport motorcycles feature classic design and are targeted at riders interested in balancing horsepower with greater rideability. Sport Touring motorcycles combine the powerful engine of sport motorcycles with the long-range driveability and features of Touring motorcycles, and are targeted at customers who are interested in comfortable, one- or two-rider traveling over relatively longer distances. For model year 2003, we introduced a new line of motorcycles, the Multistrada, in the Dual sub-segment of the >500cc Road Market. The Multistrada aims to combine the performance of sport motorcycles with the comfort of tourism bikes.

          We estimate that in 2003 the market defined as the Sport, Naked, and Dual sub-segments of >500cc Road Market, as measured by registrations, was approximately 420,000 in Western Europe, 150,000 in the United States, 50,000 in Japan and 20,000 in Australia. Within Western Europe, Germany was the largest market for sport motorcycles in 2003 (105,000 registrations), followed by Italy (102,000), France (79,000) and the United Kingdom (60,000).

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          We estimate that the Sport sub-segment of the >500cc Road Market experienced a compound annual growth rate of 3% in Western Europe and 15% in the U.S. during the 1997 to 2003 period. In the Naked sub-segment, we estimate a compound annual growth rate of 9% in Western Europe and 14% in the U.S. over the same period. In the Dual sub-segment, we estimate a compound annual growth rate of 1.0% in Western Europe and 22.0% in the U.S. over the same period.

Motorcycle Lines

          Consistent with the current segmentation of the Sport sub-segment of the >500cc Road Market, we manufacture and distribute five high-performance lines of motorcycles: Superbike, Super Sport, Sport Naked, Sport Touring and Multistrada. Motorcycle sales accounted for 81% of our net sales in 2003, as compared to 83% in 2002 and 85% in 2001. We manufacture multiple models within our five product lines, which are differentiated primarily by their engine capacity, fairing and color schemes.

          All of our motorcycles share several design features that are closely associated with the Ducati brand and serve to distinguish Ducati motorcycles from those of our competitors. All Ducati motorcycles are equipped with the Desmodromic valve control system, a dual camshaft mechanism that we believe allows more precise control of engine valves than traditional spring-based systems, improving power output and overall engine efficiency. The Desmodromic system, which is not patented, eliminates “valve float” that can occur at very high engine speeds, thereby improving engine “breathing” and increasing engine performance. The Desmodromic system also delivers power more smoothly over a broader revolutions per minute (“rpm”) range than traditional engines, which endows Ducati’s two-cylinder engines with a key benefit of four-cylinder units—namely consistent, usable power. Ducati motorcycle engines are also built to the unique L-twin design, comprised of two cylinders mounted at a 90-degree angle, a configuration that we believe allows for lighter weight and improved aerodynamics over the four-cylinder configurations of our competitors. As a result of the engine design and the Desmodromic system, all Ducati motorcycles produce a deep, resonant engine sound that is a noted Ducati characteristic.

          In addition, all Ducati motorcycles employ a tubular trestle frame, a design feature traditionally associated with Ducati motorcycles. We believe that the tubular trestle frame, which is inspired by Formula One automotive racing technology, increases the rigidity and strength of our motorcycles and allows for a more compact design architecture that facilitates greater speed and more precise handling. We believe that these features, among others, contribute to the superior and distinctive performance of our motorcycles. As part of our business strategy, all motorcycle models introduced in the future will likely maintain these signature technical characteristics.

          Although they share the common characteristics described above, our individual product lines are distinguished by the following features:

          Superbike. The Superbike, our flagship motorcycle, is closely derived from the Ducati motorcycles currently competing in the World Superbike Championship. Since the introduction of the first Ducati Superbike, the 851, in 1987, we have continuously upgraded the technology and power of this motorcycle. The 851 was based on custom-built championship racing bikes modified to meet government safety and noise standards. With the success of the 851, we extended the Superbike range to include the 916 and the 748, introduced in 1993 and 1994. The 916 won several worldwide awards, including four “motorcycle of the year” awards from Motor Cycle News (“MCN”) magazine. For model year 1999, we launched the 996 to replace the 916. The 996 features a 996cc liquid-cooled, four-valve twin engine. For model year 2000, we introduced two new versions of the 748 Superbike, one with a more powerful engine and another in a special racing version. For model year 2001, we introduced the 996R Testastretta (meaning “compact head”), which features a 998cc engine. For sale in model year 2002, we launched the

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998R Testastretta, a radically redesigned Superbike that offers a more powerful engine and is more aerodynamic that its predecessors. The 998R Testastretta was nominated “Sports Motorcycle of the Year” by German magazine Motorrad, Europe’s leading motorcycle publication. For model year 2003, we launched the new 999, a radically redesigned Superbike, which is lighter and more aerodynamic than its predecessors. For model year 2004, we launched the 749R, with a Testastretta series engine and chassis specifically developed to ensure top competitiveness on the racetrack. The 749R completes the Superbike range and marks Ducati’s return to the World Supersport Championship. All Superbike motorcycles can reach speeds in excess of 250-270 kilometers (155-170 miles) per hour and have a compact design and slim silhouette designed to provide superior handling at such speeds. We sold 9,308 Superbike motorcycles in 2003, representing 24.2% of total units sold and 36.1% of net motorcycle sales, compared to 12,641 Superbike motorcycles in 2002, representing 32.0% of total units sold and 47.2% of net motorcycle sales.

          Super Sport. Our Super Sport motorcycles are characterized by their light weight, superior handling and tight cornering ability, as well as by their classic design and engineering features. Ducati Super Sport motorcycles are fitted with our traditional two-valve twin engine, nick-named the “Pompone” (which means “strong pump”) by Ducati enthusiasts, and are aimed at riders that prefer improved handling and smooth power delivery to maximum horsepower. Ducati launched its first Super Sport motorcycle in 1973. Super Sport motorcycles have been among our most popular and best selling for over two decades, during which time the Super Sport line has undergone a series of design and technical updates while retaining its essential characteristics. In April 1998, we launched a new model in the Super Sport line, the 900Ssie for sale the following year. In January 2000, we sold 2000 limited edition MH900evoluzione motorcycles exclusively over the internet (all of which were delivered by the spring of 2003). In addition, we launched a 750cc version of the 900SS for model year 1999 and, for 2001 and 2002, respectively, we launched new, matte black versions called the 750 and 900 Sport. For Model Year 2003, we also launched 1000cc and 800cc models to replace the 750cc and 900cc versions. We sold 2,818 Super Sport motorcycles in 2003, representing 7.3% of total units sold and 5.9% of net motorcycle sales, compared to 3,812 Super Sport motorcycles in 2002, representing 9.6% of total units sold and 7.9% of net motorcycle sales.

          Sport Naked (or “Monster”). Our Sport Naked motorcycle line is aimed at bringing the allure of sport bike performance to the urban rider. Utilizing the engine and various other components of a Super Sport motorcycle, the Monster’s principal design characteristic is the absence of any fairing, which leaves the engine exposed and reduces overall body weight. The Sport Naked motorcycle line was launched in 1993 and became an immediate success, selling a total of almost 11,500 units in its first two years of production. More recently, we expanded the Sport Naked motorcycle line to include models designed to meet particular market needs: the Monster City, which is primarily a commuter motorcycle; the Monster Dark, a lower priced, stripped down version which has reduced the median age of Ducati customers; and the limited edition, premium priced Monster Chromo and Monster S. In September 1999, we further expanded the Monster range by introducing the Monster 900 with fuel injection and the Monster Metallic, a new version of the Monster bike with a colored metallic gas tank, both for sale in 2000. For sale in model year 2002, we introduced the fuel-injected Monster 620 to replace the Monster 600. For 2003, we also launched 1000cc Dual Spark and 800cc models to replace the 750cc and 900cc versions. In 2003, for sale in 2004, we introduced the Monster S4R, our most powerful Monster, featuring a four-valve, 996 engine and a new, single-sided aluminum rear swing arm. In 2002, we produced the 100,000th Monster and, in 2003, we celebrated the tenth anniversary of the Monster. We sold 17,991 Sport Naked motorcycles in 2003, representing 46.8% of total units sold and 36.9% of net motorcycle sales, compared to 19,600 Sport Naked motorcycles sold in 2002, representing 49.6% of total units sold and 35.8% of net motorcycle sales.

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          Sport Touring. Our Sport Touring line serves a group of consumers who desire the speed, handling and styling of a Ducati, but prefer a more comfortable ergonomic configuration for longer rides. In addition, the ST2 has a more comfortable second seat to accommodate a passenger and is equipped with two side bags. We introduced the Sport Touring line in April 1997 with the ST2, which won the 1997 MCN magazine “Sport Tourer of the Year” award. For model year 1999, we launched the ST4, a more powerful and technically advanced four-valve per cylinder version of the ST2. For model year 2001, we introduced the ST4S with a 996cc engine, and for model year 2002, we introduced a version with an Anti-block Brake System (ABS). For model year 2004, we launched the ST3, which features a new three-valve engine. We sold 2,275 Sport Touring motorcycles in 2003, representing 5.9% of total units sold and 6.0% of net motorcycle sales, compared to 3,481 Sport Touring motorcycles in 2002, representing 8.8% of total units sold and 9.1% of net motorcycle sales.

          Multistrada. In September 2001, we first showed a prototype of our fifth family of motorcycles called the Multistrada. The first model, the Multistrada 1000 Dual Spark, went into production in April 2003. The motorcycle is a multipurpose sportsbike offering Superbike performance in a more comfortable design with a more upright position and a new dual spark, air-cooled 1000cc engine. We sold 6,025 Multistrada in 2003, representing 15.7% of total units sold and 15.1% of net motorcycle sales.

          The gross profit for the years 2001, 2002 and 2003 for our motorcycle product lines is listed below (in thousands of euro):

          The gross profit margin is calculated by dividing gross profit by related net sales. Gross profit is equal to net sales for each product line less costs of specific components of that product line and a portion of direct and indirect costs of production. These direct and indirect costs of production have been charged to each product line in proportion to total revenue (10.5% in 2001, 10.8% in 2002 and 11.4% in 2003).

          The current suggested retail prices in Italy for our motorcycles range from € 6,995 for the Monster Dark 620cc motorcycle to € 30,000 for the limited edition 999R.

          In addition to these five motorcycle lines, we manufacture custom racing motorcycles for our official teams, as well as for private race teams, professional riders and racing enthusiasts who compete without direct factory support. We sold 22 custom racing motorcycles in 2003 and 43 in 2002. This reduction was mainly due to the introduction of the new 999 Superbike in 2002 for the Superbike Championship, which was only slightly modified in 2003, and our decision to participate directly, beginning in 2003, in the Supersport Championship rather than to continue to support private teams in that event. We believe that selling racing motorcycles serves to reinforce Ducati’s reputation as a leader in high-performance motorcycle technology. The design and manufacturing of racing motorcycles allow our experienced research and development team to test new technical innovations and design features.

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          Each Ducati motorcycle sold is covered by a two-year warranty. Warranty costs are accrued when a motorcycle is sold based on our previous claims experience.

Motorcycle Related Products, Services and Licensing

          We leverage the strength of the Ducati name and the strong brand loyalty of our customers through the targeted expansion of our product offering in spare parts, Ducati Performance accessories, technical riding gear and enthusiast apparel and licensing. In addition, we organize a number of events to encourage fans to join the World of Ducati, such as riding schools, classic rallies around Italy, online competitions, and Ducati tour and rental programs.

          Spare Parts and Engines. Sales of spare parts stabilized in 2003, after continued growth during the previous years, reflecting principally the stabilization of the number of Ducati motorcycles in circulation. We have outsourced the physical movement and storage of our spare parts in Europe to Saima Avandero S.p.A., an Italian logistics company, and in the United States to Excel Inc., a parts logistics company in Columbus, Ohio. We manage our spare parts catalogue and order processing electronically. As unit sales of motorcycles increase, we expect to leverage the growing base of motorcycles in use so as to expand our spare parts business beyond the growth related to future increases in net sales of our motorcycles.

          In addition to manufacturing engines for Ducati motorcycles, until the first quarter of 2000 we produced a relatively small number of 900cc engines for Italian manufacturers Bi.mo.ta and Cagiva for use in their own motorcycles. We have discontinued engine sales to Cagiva and Bi.mo.ta.

          “Ducati Performance” Accessories. A popular trend among many Ducati owners is to replace motorcycle components with custom-made accessories to increase the individuality of their motorcycles. In 1997, to meet the demand for customized accessories, we acquired a controlling stake in Gio.Ca.Moto, an Italian company formed to take over the business of a well-established marketer of performance and custom accessories dedicated to Ducati. In January 2000, we acquired substantially all of the remaining shares that we did not previously own in Gio.Ca.Moto, which was subsequently merged into DMH as of December 31, 2001. Gio.Ca.Moto’s predecessor began distributing parts and accessories for Ducati motorcycles in 1983. Through this acquired business, we design and distribute a wide range of Ducati parts and accessories (some of which are approved only for racing use) under the “Ducati Performance” trade name, including custom-painted gasoline tanks, specialized exhaust systems, fenders, fairings and carbon fiber parts and accessories.

          Technical Riding Gear and Enthusiast Apparel. We collaborate with a number of leading manufacturers, including Dainese, Oakley, Fila and Suomy, in the development of motorcycle suits, jackets, gloves, boots, helmets, protective garments and other sports wear bearing the Ducati brand name. In addition, we distribute an enthusiast line of apparel for sale to consumers, including t-shirts, caps and memorabilia. Ducati branded apparel is primarily sold through the Ducati distribution network, Ducati stores and at the Ducati Museum retail outlet.

          Licensing. We also license the Ducati name, logo and other trademarks for use by third parties, leaders in their markets (such as, among others, Oakley Fila, Breil, Aquila, Nikko, Minichamps, Mattel, May Cheong, New Ray, Protar-Italeri, Sonic-Ixo and Accademia) on a limited basis in connection with the production of apparel and accessories, video games, toys, model replicas and publishing. We recognize that third-party licensing has the potential to increase awareness of the Ducati brand among the general public and to provide an expanded source of revenue.

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Market Share and Competition

          We compete in the Sport sub-segment of the >500cc Road Market. Our principal competitors are four Japanese manufacturers (Honda, Suzuki, Yamaha and Kawasaki), two European manufacturers (BMW and Triumph) and, to a more limited extent, Harley-Davidson of the United States. Harley-Davidson’s Buell subsidiary produces motorcycles that compete with our Sport Naked motorcycles. Additional competitors include MV Agusta and Aprilia of Italy.

          Our Japanese competitors are generalist manufacturers competing in all segments of the motorcycle market, from scooters to large-displacement off-road and on-road motorcycles. BMW and Triumph manufacture motorcycles for various sub-segments of the >500cc Road Market. Like Ducati, Harley-Davidson focuses on a niche market, in particular the Cruiser sub-segment of the >500cc Road Market, although it also has a limited offering of Sport Naked motorcycles through its Buell subsidiary.

          Worldwide registrations of Ducati motorcycles were 38,969 in 2001, 39,607 in 2002 and 38,130 in 2003. The historical worldwide trend of Ducati registrations masks significant regional variations. For example, from 2002 to 2003 Ducati registrations increased in Spain and Portugal (up 35%), Switzerland (up 28%) and the Benelux countries (up 6%), and decreased in the United States (down 17%), the United Kingdom (down 16%), France (down 8%) and Japan (down 7%). Growth in Spain was due to enthusiasm in that country for our participation in the Moto GP Championship. The decrease in the United States was due to our continued significant dealer network restructuring in that country. The decrease in the United Kingdom reflected a market characterized by significant discounting by manufacturers of motorcycles that would not meet certain emissions regulations which took effect in June 2003. For a discussion of the relationship between registrations and retail sales, see “Item 5. Operating and Financial Review and Prospects—Introduction”.

          We estimate that our worldwide market share in the Sport segment of the >500cc Road Market was approximately 6.3% in 2001, 6.6% in 2002 and 5.7% in 2003 (and 6.1%, 6.2% and 6.2%, respectively, without considering North America). Honda, Suzuki, Yamaha and Kawasaki all have substantially greater worldwide market shares than we do. Based on available registration data, we estimate that these companies had approximately the following market shares of the Sport segment of the >500cc Road Market worldwide in 2003:

          We estimate that Triumph and BMW have a market share of approximately 3.0% and 9.0%, respectively.

          Our market share varies among our motorcycle lines, comprising the Sport segment of the >500cc Road Market. In 2003, we estimate that we had approximately a 4.5% global share of our historical core market for Superbike and Super Sport motorcycles and approximately a 7.3% global share of the market for Naked motorcycles, reflecting the continued popularity of our Monster bikes. We estimate that we had approximately a 4.1% global share of the market for Sport Touring motorcycles in 2003, reflecting our entry into that market in April 1997 with the launch of the ST2, followed by the launch of the ST4 in

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1998, the successful ST4S in 2000 and the ST4S with ABS in 2002. We estimate that we had approximately a 3.6% global share of the market for dual motorcycles in 2003 (with the Multistrada having been launched in the late spring of 2003).

          Our market share also varies significantly across geographical areas. We estimate that we had approximately a 12.0% share of the Sport segment of the >500cc Road Market in Italy in 2003, third after Honda and Yamaha. For the same period, we estimate that we held approximately a 7.0% share of the Sport sub-segment in the larger Western European market, reflecting our strong domestic Italian market share and approximately a 5.0% share in France, Germany and the United Kingdom. In other countries, we estimate that during 2003 we held approximately an 11.0% share of the Sport sub-segment in Australia, approximately a 3.0% share in the United States and approximately a 5.0% share in Japan.

          Market estimates in this annual report are based on our analysis of registration data obtained from published sources, as well as of our internal dealer data and surveys commissioned by us. See “Presentation of Financial and Other Information”.

          The following table gives a breakdown of the total revenues in our principal markets in the last three financial years:

          We believe that by strengthening our overall distribution network through, among other things, our wholly owned sales and marketing subsidiaries in the United States, France, Germany, the Benelux countries (which is also responsible for Sweden), the United Kingdom and Japan, we will be able to increase our market share in these key markets. See “—Business Overview—Business Strategy”.

Seasonality of Our Business

          Worldwide motorcycle sales and registrations are seasonal, peaking during March through May and April through June, respectively. During 2003, we recorded 56.0% of our sales during the first six months of the year. Our motorcycle production levels are relatively stable throughout the year (excluding annual shutdown periods for the month of August and the last two weeks of December). Consequently, we experience periods of inventory build up from September through February in anticipation of the spring selling season. Depending on market conditions and our commercial strategy, the level of inventory we hold or sell to importers and dealers at any time may change, as a result of which unit sales may be less seasonal than registrations.

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Product Research and Development

          The fundamentals of our product development include technical excellence, consistent use of Ducati’s “signature features”, styling and continual innovation. We believe that we can continue successful product development by leveraging an experienced engineering team, which spans three generations of engineering talent dating back to the Taglioni era, with recently acquired state-of-the-art technology.

          Ducati models have traditionally enjoyed relatively long product lifecycles and have been continually improved and upgraded throughout their production lifetimes. For example, the Super Sport motorcycle line was introduced in 1973 and has evolved considerably since that time. At the same time, we believe that reducing the “time-to-market” for our new model launches can be a significant competitive advantage. Following our September 1996 acquisition of the Ducati business, we increased investment in research and development and initiated a substantial restructuring of our design processes to respond to this challenge. Using new techniques, we have reduced our development and launch time to three years for the Multistrada, compared with an average of seven years for the development of previous models. In 2003, our research and development expenditures (capitalized and expensed) were € 21.4 million (as compared to € 23.9 million in 2002). To support the more rapid introduction of future motorcycle models, our research and development activities are evolving from a self-sufficient operation to a networked unit in which Ducati research and development will be responsible for the strategic coordination of multiple external sources of technical and engineering skills. As an example, we have entered into a strategic partnership with IDEA Institute, a leading design engineering company that has extensive experience in the automotive sector. Our partnership with IDEA allows us to take advantage of their design technology to better integrate our supplier network in the manufacturing process and reduces development time and the cost of new models.

          In addition, we continue to restructure our design processes to reduce the time and cost required to design a new motorcycle. In the past, our motorcycle design process involved employing an external design house, which worked from a technical and marketing brief prepared by Ducati. To assume greater control over the design process and to exploit new technologies in the design and tooling process, we developed an independent, internal capacity for motorcycle design known as the Ducati Design Center (“DDC”). The DDC operates within the Ducati organization and has creative authority in the design and development of future models and coordinates with the technical department and marketing functions to bring new products to market. The DDC is intended to maintain and strengthen Ducati’s reputation for innovative design in the motorcycle industry, primarily by integrating traditional motorcycle craftsmanship, advanced “computer-aided design” (“CAD”), computer driven milling machines (“CAM”) and rapid prototyping technology. For example, our design team can scan a preliminary design of a motorcycle under development onto a computer attached to an automated milling machine, which in turn can produce a physical prototype in clay or fiberglass. To make design changes, our designers need only resculpt the prototype, the coordinates of which can then be rescanned into the computer. Because the computer maintains a fully updated engineering drawing of the motorcycle as design changes are processed, CAD/CAM technology saves significant time and resources in connection with new model development and improves the quality of new models. We are already using systems technology such as Computer Numerically Controlled (“CNC”) milling machines and have hired initial staff dedicated to DDC functions.

          Our first practical example of a product developed using CAD/CAM technology, the MH900evoluzione, was unveiled at the September 1998 INTERMOT motorcycle trade show in Munich. The MH900evoluzione was featured on the cover of various motorcycle magazines and was exhibited at the Pitti Immagine design exhibit in Florence, Italy in January 1999. At the beginning of 2000, we sold 2000 limited edition MH900evoluzione motorcycles exclusively over the Internet. Since then, many

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engines and vehicles have been designed with CAD/CAM technology including the double twin engine for the Desmosedici racing motorcycle used in the Moto GP Championship, the new 999 Superbike and the Multistrada.

Distribution

          Distribution is a key strategic element of our plans to grow market share and profitability. Historically, Ducati distributed its motorcycles directly through retail dealers (typically multi-franchise dealers) in Italy, through a wholly owned subsidiary in North America and through a series of independent distributors covering specific geographic territories internationally. Each distributor was responsible for building its own network of retail dealers, most of whom sold competing motorcycle brands. Individual dealers in countries outside Italy and the United States entered into commercial relationships with a relevant distributor rather than with Ducati.

          During 1997, we put in place a distribution strategy aimed at maximizing retail sales and increasing our contact with, and understanding of, our retail customers. To achieve these objectives, we have acquired control of distribution networks in strategic markets through the establishment of five wholly owned sales and marketing subsidiaries, selectively replaced under-performing distributors in certain markets, appointed new distributors in markets in which we were previously inactive, launched a restructuring of our dealer network in Italy and commenced the introduction of independent Ducati stores in selected markets throughout the world. At December 31, 2003, there were 139 independent Ducati stores worldwide.

          Wholesale Distribution. Currently, we sell motorcycles and related products directly to our retail dealers in Italy, and through wholly owned subsidiaries in North America, Germany, France, the Benelux countries (which is also responsible for Sweden), the United Kingdom and Japan. In all other countries, we sell our products through independent distributors. In Germany in particular, we distributed our motorcycles through our German subsidiary and a third-party importer until the end of 2002. Beginning January 1, 2003, we acquired the business of our third-party importer, and have since sold our motorcycles directly through our subsidiary in such country. As a result of this acquisition, we began an effort to rationalize the twin dealer networks, an effort that is still ongoing. We are also continuing the restructuring of our operations in the United States, including the moving in January 2003 of our U.S. headquarters from New Jersey to California and the replacement of certain executive officers including the CEO of our U.S. subsidiary. For further information regarding our U.S. restructuring, see #Item 5. Operating and Financial Review and Prospects—Introduction”.

          We have completed expansion of our distribution network worldwide, which currently covers 66 countries. To maintain global quality standards in our distribution, we follow a policy of replacing certain distributors with low sales performance with established motorcycle distributors with significant prior experience in building unit sales for Harley-Davidson and other manufacturers. We are currently focusing on replacing certain such distributors in Eastern Europe and the Far East.

          We believe that our wholesale distribution strategy and, in particular, the establishment of wholly owned subsidiaries to control sales and marketing in key markets, has a number of important benefits. First, it moves Ducati further along the distribution value chain, allowing us flexibility in controlling the profits previously earned by our independent distributors. Second, it moves us closer to consumers, improving our understanding of the marketplace and the needs of motorcycle riders. Third, it removes an intermediary between Ducati and our dealers, increasing our control over the sales process to consumers and allowing marketing initiatives to be better coordinated. Fourth, as motorcycles are stocked and shipped directly from the factory to the dealers (except in the United States and Japan), it enhances our

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ability to redirect stock to meet peaks in demand for particular models in different markets and reduces overall logistics costs.

          Retail Distribution. We sell motorcycles, parts and accessories to consumers around the world through approximately 800 independent dealerships. Prospective dealers are required to sign an agreement, usually on an annual basis, with Ducati, the relevant subsidiary, or the local Ducati distributor to become an authorized dealer. This agreement requires the dealer to provide suitable space and staff devoted to the sale of Ducati motorcycles as well as workshop facilities with adequate equipment, spare parts and qualified staff to provide after-sales service.

          In Italy, we have restructured our distribution network, reducing the overall number of Ducati dealers from 165 in 1996 to 57 in December 2003, and offering enhanced support to the remaining dealers. The enhanced marketing and merchandising support is designed to encourage dealers to invest in and upgrade their dealerships according to the model of the Ducati stores discussed below. As of December 31, 2003, there were 49 Ducati stores operating in Italy.

          We believe that the restructuring of our Italian dealer network has a number of benefits for Ducati and our dealers. Dealers can be expected to realize greater net sales and improved profitability. We expect to gain a superior and uniform retail environment for our motorcycles and other products. Our registrations in Italy were 11,701 units in 2001 (down 3%) 11,967 in 2002 (up 2%) and 12.041 in 2003 (up 1%). Moreover, the average number of motorcycles sold per Italian dealer increased to approximately 211 in 2003 from 203 in 2002 and 194 in 2001. We are implementing a similar strategy regarding our dealer network in other major markets outside Italy, initially France, Germany and the U.K. A different strategy is being pursued in the United States where, for geographic reasons, we intend to improve the quality of our dealer network by closing small underperforming dealerships and selling through high-standard multi-brand dealerships.

          Finally, we developed a design concept for Ducati stores to be implemented by certain Ducati dealers in selected markets around the world. The Ducati stores are positioned around the Ducati brand and offer a customized retail environment and increased levels of service and technical support. Ducati stores present Ducati motorcycles as their primary focus, supported by merchandise areas dedicated to “Ducati Performance” parts and accessories and lines of Ducati technical and enthusiast apparel. Within each store, a “History Wall” provides images of Ducati’s racing heritage and an “Engineering Wall” shows a large scale engineering drawing of the 996, Ducati’s flagship Superbike motorcycle. We provide dealers operating the stores with a specialized design consultancy service, but do not own an interest in the stores. Outside Italy, we have launched Ducati stores in, among other locations, New York, London, Vienna, Cape Town, Sydney, Seattle, Atlanta, Tokyo and Frankfurt. As of December 31, 2003, there were 139 Ducati stores in operation worldwide.

Marketing Activities

          While Ducati is fundamentally a motorcycle manufacturer, we are also the custodian of a valuable global brand.

          Brand Development. In early 1997, we developed a new corporate identity, standardizing our corporate logo, lettering and promotional and marketing material on a worldwide basis. The new hallmark “D” is a modern interpretation of the logo that adorned many of the classic Ducati motorcycles of the past. In 1998, we launched our first global corporate advertising campaign, which we update annually. Entitled “Ducati/People,” the campaign features Ducati workers and their motorcycles in and around Bologna, communicating the authenticity and uniqueness of the Ducati brand. We have updated the campaign for 2003 with images of our customers, chosen through an on-line global contest set up by

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our website. We have lent active support to design museums around the world to feature the design qualities of Ducati motorcycles. In particular, the Ducati Monster and 916 were included in the “The Art of the Motorcycle” exhibit at the Guggenheim Museum in New York and the Field Museum in Chicago in 1998 and 1999. In 2002, the Guggenheim opened the same exhibition at its new museum in Las Vegas. We were also recognized for our lasting contribution to motorcycle design through a sport motorcycle auction conducted by Sotheby’s in Chicago in September 1999, the largest such auction to occur in North America. The MH900evoluzione prototype appeared on the front cover of the auction catalogue. We have worked with Sotheby’s on other Ducati oriented auctions including those at Ducati Revs America in October 2001 and World Ducati Week in June 2002 and May 2004. We intend to continue to support activities that extend the Ducati brand into the worlds of art, design and fashion. For example, in 2001 Roberto Cavalli designed a specialty Monster motorcycle that was displayed at his flagship stores in New York and Milan. In addition, we have established a dedicated Internet homepage that includes a comprehensive catalogue of the current motorcycle lines and related spare parts, the latest racing news, a virtual Ducati museum and contacts for local dealerships (See “ Internet”). The information on our websites is not incorporated by reference into this annual report

          In May 2002, we launched the Ducati Desmo Finance Program, a program through which certain third party financial institutions offer financing, insurance and a personalized credit card in connection with the purchase of our new or used motorcycles and related products in Italy. The aim of the program is to increase motorcycle sales by improving the ease and convenience of purchasing. We have implemented this program in Italy and plan to roll out this program in the U.K. in 2004, and thereafter in the rest of Europe, the U.S. and Japan. This program is at no cost or financial risk to us.

          We believe that there are in excess of 400 local Ducati “clubs” in existence around the world. In 1999, recognizing the potential of these enthusiast organizations to increase our access to consumers and to build the global Ducati brand, we created the Desmo Owners Club (or D.O.C.), a global Ducati owners club that serves as an umbrella organization for all individual Ducati clubs. We have implemented a program to establish contact with local clubs and to sponsor some of their activities. For example, we have introduced a program that encourages Ducati dealers and store owners to sponsor and coordinate enthusiast activities through their retail outlets, in cooperation with Ducati. As a result of this program, Ducati enthusiasts are able to, among other things, schedule motorcycle riding courses and other Ducati-related activities through Ducati stores and local dealers.

          In June 1998, we sponsored the first World Ducati Weekend in Bologna, which was attended by an estimated 10,000 Ducati enthusiasts. The first World Ducati Weekend marked the opening of the Ducati Museum at our Bologna headquarters. Visitors to the museum are able to follow the history of the Ducati brand to the present day, with examples of historic motorcycles displayed in a custom-made venue, and then tour Ducati’s production facilities. The second World Ducati Weekend at the Misano, Italy racetrack in June 2000, was attended by over 20,000 Ducati enthusiasts. The third such event, the World Ducati Week in June 2002, attracted more than 25,000 participants. The fourth such event, the World Ducati Week in May 2004, saw the participation of over 45,000 fans, and was accompanied by the opening of a new, larger shop near the Ducati museum. In 2001, we revived the Motogiro d’Italia, a promotional tour in Italy of vintage Ducati motorcycles, which had been suspended in 1957. Since 2001, the Motogiro d’Italia has become an annual event, attracting more than 50 international journalists and 350 participants each year from all over the world.

          Other marketing initiatives include Centopassi, a five-day competitive motorcycling tour through Alpine passes in northern Italy, in which participants can challenge Ducati testers on the Multistrada. The winner of this event is awarded a Multistrada. In 2003, we also launched the first-ever online Ducati design competition, in which participants submit their vision of Ducati motorcycles of the future and artwork or designs that recall Ducati and its tradition of high-performance sport motorcycling.

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          Media. As we enjoy widespread media attention through our international racing program and product innovations, we do not invest substantially in paid advertising. We believe that our motorcycles are aspirational products that create a significant demand “pull”. The primary source of publicity comes from articles written about Ducati in a broad range of motorcycle publications and, with the exception of the United States (where there is substantially less following of professional racing than in other markets), the performance of Ducati motorcycles on international racing circuits. We have also sought to extend media coverage of Ducati beyond the traditional motorcycle press. Articles and broadcast segments featuring Ducati have appeared in Forbes, The New York Times, The Wall Street Journal and Financial Times and on CNN and Bloomberg News (although the contents of the articles and broadcasts mentioned above are not part of this annual report). In addition, Ducati enthusiasts, including Hollywood celebrities, Formula One drivers, music stars and international athletes, add to the overall brand equity and exposure.

          Racing. The performance of Ducati motorcycles on international professional racing circuits helps to sustain and increase demand for Ducati’s products. Racing increases the visibility of Ducati motorcycles through media coverage of the races and serves as a practical demonstration of the high-performance characteristics of Ducati motorcycles. Our racing program also supports our research and development function, as many features designed specifically for improving performance on the racetrack are later introduced onto production Ducati motorcycles.

          Ducati competes in the World Superbike Championship, through its official teams and other private teams. Since 1990, Ducati motorcycles have won twelve of fourteen manufacturers’ titles (including in 2003) and more single race victories than all other manufacturers combined. In the 2002 season, the Ducati Infostrada team was comprised of 2001 champion Troy Bayliss as well as Ruben Xaus. Both factory racers rode the Ducati 998R, featuring the 998R Testastretta engine. In 2003, Neil Hodgson and Ruben Xaus raced on the new 999 Testastretta Superbike for a Ducati team primarily sponsored by Fila. In 2004, Regis Laconi and James Toseland race the new 999F04, with Fila as primary sponsor.

          In 2003, we entered a Ducati team, made up of Loris Capirossi and Troy Bayliss as our official riders, in the Moto GP Championship for the first time in three decades. Our decision was prompted by a change in the Moto GP Championship rules allowing 1000cc four-stroke motorcycles to compete. To compete in this event, we developed the Demosedici motorcycle, powered by an innovative new four-stroke, “double-twin” cylinder engine. In 2003, Ducati achieved a second place finish in the manufacturer’s ranking of the Moto GP Championship, and Loris Capirossi and Troy Bayliss finished in fourth and sixth place, respectively, in the riders ranking of the Moto GP Championship. In 2004, we have kept the same riders for our team and made agreements with Team D’Antin to be a satellite private team, with Neil Hodgson and Ruben Xaus riding last year’s motorcycle. We believe that competing in the Moto GP Championship will strengthen awareness of the Ducati name as well as allow us to carry out innovative research and development, which we hope to apply to our racing motorcycles as well as the motorcycles that we sell commercially.

          With our entry in the Moto GP Championship, we withdrew in 2001 our official teams from the Super Sport World Series, a championship featuring 750cc two-cylinder and 600cc four-cylinder production motorcycles. In 2004, we resumed our participation in the Super Sport World Series, highlighting in such event our new 749R model. For 2004, Lorenzo Lanzi is riding the 749R for Ducati, whereas beginning in 2005 we plan to have a two-rider team.

          Ducati Corse S.r.l., our subsidiary dedicated to racing activities, was founded in 1999. Ducati Corse manages the activities of the Ducati racing teams, manufactures and distributes specialized motorcycles and engines exclusively for racing use and engages in promotional and other activities designed to increase Ducati’s presence on international racing circuits, improve awareness of the Ducati brand and increase customer satisfaction with our racing activities. In addition, we have signed a

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sponsorship and supply agreement with Shell to expire in 2005 under which Shell acts as official lubricant supplier to Ducati (and exclusive supplier of lubricants for the Ducati racing program) and as sponsor of the Ducati Moto GP Championship and World Superbike Championship teams. We have also entered into agreements with Philip Morris, sponsor of the Moto GP Championship team, Fila, sponsor of the World Superbike Championship team and Breil, sponsor of the Super Sport team.

          Internet. We have established a dedicated Internet homepage at www.ducati.com that includes a comprehensive catalogue of our current motorcycle lines and related spare parts, the latest racing news, a virtual Ducati museum and contacts for local dealerships. We estimate that the site attracts over 1.2 million unique visitors per month. We have also entered the online auction business with the establishment of DucatiMemorabilia.com or “Desmobid”, our first online auction site. Desmobid sells historic Ducati memorabilia and used parts from racing bikes used in Ducati’s racing activities. The information on our websites is not incorporated by reference into this annual report.

          The Ducati.Com portal serves Ducati enthusiasts, suppliers and dealers and is active in three main areas: commerce, content and community.

          Commerce. We have developed two main channels of e-commerce: Business-to-Consumers (for accessories, apparel and services like Ducati ticket events) and Business-to-Business-to-Consumer (for motorcycles, accessories and special products like limited edition products).

          Content. Our website offers:

•

complete information regarding our current motorcycle catalogue (including technical details and a downloadable brochure, with pictures, sound, videos, available colors and versions);

•

tips, information and FAQ for motorcycle use and maintenance;

•

apparel, accessory and spare part catalogues, downloadable in PDF format;

•

coverage of the World Superbike Championship, the Moto GP Championship and other motor racing or special events;

•

a calendar of all Ducati events; and

•

downloadable multimedia materials available (e.g., screensavers, e-cards and wallpaper).

          Community. We also offer Ducati enthusiasts a combination of club activities, e-mail capabilities, message boards and the possibility to set up personal web pages.

          Marketing Unit. In 2003, we created a dedicated marketing unit within DMH to carry out customer service as well as online and traditional marketing activities (advertising, direct marketing and events). The creation of this unit is intended to increase our “community marketing” activities to meet the needs of the growing number of Ducati fans around the world.

Production

          Our manufacturing operations are not vertically integrated and are characterized by a relatively low fixed cost structure. Our production is primarily focused on engine and motorcycle assembly and the machining of two strategic components, crank cases and cylinder heads. Our strategic goal is to integrate a limited manufacturing operation with a network of sophisticated, high value-added suppliers in order to reduce complexity and increase production efficiency.

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          Assembly Operations. Our production facilities are located in Borgo Panigale, outside Bologna, Italy. The facilities consist of 125,000 square meters of land, including approximately 36,000 square meters (approximately 387,360 square feet) of covered manufacturing and office space as well as parking areas and unused space and buildings. All of our manufacturing, assembly and warehousing functions are currently performed on-site at Borgo Panigale. In 2003, facing a slowing market and to reduce inventory units at Ducati and at Ducati dealerships, we reduced motorcycle production at our facility to 36,661 units from 41,411 units produced in 2002 (and 40,692 units in 2001). We outsource the production of the majority of our parts and components to third-party suppliers. In 2003, approximately 92.0% of our total costs of goods sold (excluding depreciation) were for parts and components and approximately 8.0% were for direct and indirect labor costs and research and development costs. As a result, our motorcycle production is fundamentally an assembly and testing process. As part of the production process each engine and each finished motorcycle is subjected to rigorous quality checks, including static and dynamic tests.

          We have implemented a number of initiatives to improve our production processes and reduce costs. In 1999, we introduced a production software system that allows us to monitor the flow of all production-related information from initial order to final motorcycle delivery. The key advantage of this system is a customized material requirement planning system that automatically generates production schedules from sales forecasts, helps to optimize warehouse volume levels, generates orders for purchasing materials and organizes materials flow for production. In 2003, we began implementing a new inventory management software system in the United States, which, if successful, will be rolled out worldwide. The implementation of this software system is still under way in 2004.

          To simplify production further and reduce costs, we use a “platform” approach to production, and we are moving away from assembling numerous individual components. Under the platform approach, a motorcycle is divided into a discrete number of key components (or “platforms”) that are in turn made up of a number of sub-components. One key supplier is made responsible for provision of a platform and managing suppliers of the sub-components that go into the platform. The platform assembly approach has reduced the number of our suppliers and increased the volume of components supplied by each supplier, thereby improving our ability to negotiate competitive prices. It has also provided an opportunity to develop jointly new components with key suppliers at the research and development stage. We implemented platform production processes for 83 assembly groups (including cylinder heads, clutch covers and fuel pumps), thereby significantly reducing the number of parts required to be assembled directly on the motorcycle. In 1999, we also initiated an on-going Lean Production Project with Porsche Consulting, and then with SOA Consulting in 2003, to improve the quality and to reduce the costs of the production process. As a result of these initiatives, we have made a significant reduction in our direct labor needs. In 2000, we commenced a new project, known as Desmo (Ducati evolution and supply management optimization), aimed at reducing inefficiencies in the supply process.

          As part of our initiative to outsource non-strategic activities, we have retained Saima Avandero S.p.A. to assume our shipping and warehousing functions. Saima Avandero is responsible for the shipping and logistics of finished goods at our Borgo Panigale facility. As a result, we are able to fill orders for less than a complete container or truckload of motorcycles, increasing our responsiveness to dealers. Saima Avandero manages all our spare parts management functions at a dedicated center in Modena. Saima Avandero’s state-of-the-art technology allows us to increase the speed and flexibility of the management, packaging and distribution of Ducati spare parts.

Supplies and Suppliers

          We require a wide variety of parts, components and tools to manufacture our motorcycles. While we currently source our parts and components from a broad range of suppliers, our top ten parts and

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components suppliers accounted for approximately 45% of our parts and components procurement spending in 2003. The parts and components required from non-Italian suppliers accounted for approximately 20% of the total value of parts and components acquired from suppliers in 2003. Our largest suppliers include Brembo (brakes and wheels), Eaton (cylinder heads), Magneti Marelli (body throttle and ignition system), P.M. (machining of engine crankcases), Showa (suspensions), Remus (exhaust systems), Verlicchi (body steel frame), CIAP (gears), ILAS (steel fuel tanks), Nuova GM (painted plastic parts), Ohlins (suspensions), Mahle Mondial (cylinders & pistons), Denso Europe (starters & generators), Zeuna Starker (exhaust systems), Michelin (tires) and Pirelli (tires).

          With the exception of a limited number of long term component supply contracts for periods ranging from one to three years for strategic supplies, we enter only into short-term, rolling contracts with our suppliers. We typically contract with our suppliers on a non-exclusive basis, allowing us to replace suppliers at any time. In November 1998, we signed a sponsorship and supply agreement with Shell, to expire in 2005, under which, among other things, Shell acts as an official lubricant supplier to Ducati (and as an exclusive supplier of lubricants to the Ducati racing program).

          Generally, motorcycle raw materials and components are available from a variety of sources. Our policy has been to identify at least two sources of supply for each component and to be able to switch promptly to the alternative supplier should the need arise. However, we rely upon single-source suppliers for certain high-tech components.

          Nonetheless, 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 and aluminum) from which these components are manufactured.

Intellectual Property

          We own the “Ducati” trademark and other trademarks associated with Ducati motorcycles. The “Ducati” trademark is registered in all countries that are signatory to the Madrid Agreement concerning the International Registration of Marks. “Ducati” is also registered as a Community Trademark in all countries that are part of the European Union and in 44 additional countries on an ad hoc basis for motor vehicles. In addition, we have registered “Ducati” for toys, apparel, glasses, watches and other sundries in the majority of the countries in which the trademark for motors and vehicles is registered.

Governmental and Environmental Regulation

          Like other motorcycle manufacturers, we incur substantial costs in designing and testing products to comply with domestic and foreign safety and emissions requirements.

          Motorcycles sold in the United States, the European Union and all other countries are subject to environmental emissions regulations and safety standards with which we must comply in order to sell products in such countries. 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. Regulations applicable to us in Italy include E.U. directives relating to emissions, pollution, and noise, as well as national rules on emissions, pollution, noise, and safety issued by the Ministry of Transport (Ministro delle Infrastruture e dei Transporti). All of our motorcycle models are required to comply with applicable homologation regulations in the countries in which they are distributed. We are also subject to a number of Italian governmental regulations relating

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to the use and storage of materials, discharge and disposal of factory waste and safety standards of facilities and processes.

Insurance; Product Liability

          We maintain insurance against a number of risks. We insure against loss or damage to our facilities, against loss or damage to our products while they are in transit to customers, against certain potential environmental liabilities and against product liability claims. While we do not cover 100% of these risks with insurance, we believe that our present level of insurance is adequate in the light of past experience. We expect that our present insurance levels will be maintained on substantially the same terms and conditions in the future.

          We are engaged in a business that exposes us to possible claims for personal injury from the use of our products. We maintain liability insurance with a per-occurrence limit of € 10.0 million and an aggregate liability cap of € 10.0 million per year. See “Item 3. Key Information—Risk Factors—We may be subject to significant product liability claims”.

Description of Property

          The following table sets forth our principal properties as of the date of this annual report.

(1)

On June 29, 2001, we entered into a sale and leaseback transaction with Locafit S.p.A. with respect to a portion of our production facility. Please read “Item 5. Operating and Financial Review and Prospects—Other Financial Transactions” for a description of the transaction.

(2)

In January 2003, we relocated our North American headquarters from Pompton Plains, New Jersey to Cupertino, California.

          In addition to the above properties, we lease space in various other locations in the United States and Western Europe on a regular basis for warehouse storage of motorcycles and parts.

          We believe that our operating facilities are in good condition and are adequate, considered in light of our capital expenditure plans, for the development, manufacture and marketing of our current and anticipated products.

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Capital Expenditures

          The following table sets forth our capital expenditures, before retirements, for each year in the three-year period ended December 31, 2003.

          Our capital expenditures in property, plant and equipment were € 13.5 million, € 23.8 million and € 15.7 million in 2001, 2002 and 2003, respectively. Capital expenditures in each of the years were made principally to acquire equipment and tooling at our Bologna facility, as well as to develop new motorcycle models (in particular, the Multistrada 1000DS, which we began developing in 2000, and the Desmosedici, which we began developing in 2001). Investments in intangible assets, which include our capitalized research and development expenditures for these new models, amounted to € 15.9 million, € 20.5 million and € 18.1 million in 2001, 2002 and 2003, respectively. The decrease in capital expenditures and investments in intangible assets between 2002 and 2003 was mainly due to our investment in research and development, which peaked in 2002 with the complete renewal of our product range. See “—Products and Distribution—Product Research and Development.

          Our capital expenditures currently in progress relate principally to the implementation of a new inventory management software system, the acquisition of equipment and tooling at our Bologna facility, and our continuing research and development initiatives related to the Multistrada and the Desmosedici, which we have developed and began using in 2003 to compete in the Moto GP Championship. We believe that competing in the Moto GP Championship will further enhance recognition of the Ducati brand for innovative design, advanced engineering and racing success and spur further innovation in the design and engineering of our motorcycles that will ultimately improve the quality and performance of our road models. We spent € 4.4 million during 2003 in connection with this project and we estimate that we will spend up to approximately € 8.0 million in each year through 2006. We plan to finance these expenditures from our operating cash flow.

Item 5. Operating and Financial Review and Prospects

          You should read the following discussion in connection with the audited consolidated financial statements included elsewhere in this annual report.

          Our audited consolidated financial statements have been prepared in conformity with Italian GAAP, which differs in certain significant respects from U.S. GAAP. For a discussion of significant differences between Italian GAAP and U.S. GAAP and the related reconciliation of net profit/(loss) and shareholders’ equity in our audited consolidated financial statements, refer to Notes 29, 30 and 31 to the audited consolidated financial statements.

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Introduction

          We are one of the world’s leading manufacturers of high-performance sport motorcycles. Founded in 1926, we are widely recognized among motorcycle enthusiasts for producing racing-inspired motorcycles characterized by unique engine features, innovative design, advanced engineering and overall technical excellence. With an extensive racing pedigree dating to the 1950s, our motorcycles have dominated the World Superbike Championship, where we have won twelve of fourteen manufacturers’ titles since 1990 and more single race victories than all other manufacturers combined. In 2003, we resumed participating in the Moto GP Championship after an absence of over 30 years, with a second place finish in the manufacturer’s ranking of the Moto GP Championship. We believe that our globally recognized brand, unique product characteristics and proven racing success provide us with a loyal and enthusiastic customer base and enable us to position our motorcycles as premium price products within the “Sport” sub-segment of the large-displacement motorcycle market.

          Our net sales are derived principally from sales of motorcycles and, to a lesser extent, spare parts and engines, performance accessories and technical riding gear and enthusiast apparel. Other revenues are from sponsorship income, licensing revenues, rental and the sale of scrap, sundry components and materials. Revenues and other income, costs and charges are accounted for net of returns and discounts and are recognized (as to motorcycle sales) on the date of shipment to the dealer or importer (which normally coincides with passage of title, or the transfer of substantially all risk and reward, but before sale to the end user). Revenues from services are recognized when services are rendered to the independent dealer or other third party. Costs are recognized on the accruals basis, and the costs of racing pilots and teams are recognized over the terms of their contracts. As a result of our strategy to develop our motorcycle-related product offering, we expect that net sales attributable to our “Ducati Performance” line of accessories, technical riding gear and enthusiast apparel may continue to increase at a faster rate than motorcycle sales. We cannot assure you that such increases in sales can be achieved.

          We produce motorcycles in five model lines, which vary in their technical and design features and intended customers: Superbike, Super Sport, Sport Naked, Sport Touring and the Multistrada. We are introducing a sixth model line, the Sportclassic, in 2003 for sale beginning the end of 2005. We sell our motorcycles and related products in 66 countries worldwide, with a primary focus on the Western European and North American markets, which together accounted for approximately 85.0% of our net sales in each of the last three years. In 2003, no single country accounted for more than 15.0% of our net sales of motorcycles and related products, with the exception of Italy at approximately 30%. This provides us with significant geographical diversity of sales. We have a global distribution network, directly controlling our Italian sales and operating wholly owned distribution subsidiaries in North America, France, Germany, the Benelux countries (which is also responsible for Sweden), Japan and the United Kingdom. Our manufacturing operations, based in Bologna, Italy, consist primarily of engine and motorcycle assembly and are not vertically integrated, resulting in a relatively low fixed cost structure.

          We use motorcycle registrations as an indicator of retail sales. Motorcycle registrations reflect registrations with governmental authorities upon sales to end users. Because we generally sell our motorcycles to importers and dealers, net sales are normally recognized upon sale to our importers and dealers before such motorcycles are bought and registered by end users. The differences between our unit sales to our importers and dealers and registrations for corresponding periods reflect the increases and decreases in the inventories of our importers and dealers. Registration data is unavailable or unreliable in certain of our less important markets, and even where reliable information is available, there is typically some delay in its publication by governmental authorities. Accordingly, we estimate registrations based on information obtained from importers and dealers in the relevant markets where applicable and adjust such estimates as official data is published.

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          Worldwide motorcycle sales and registrations are seasonal, peaking during the months of March through May (sales) and April through June (registrations). Our motorcycle production levels are relatively stable throughout the year (excluding annual shutdown periods for the month of August and the last two weeks of December). Consequently, we experience periods of inventory buildup from September through February in anticipation of the Spring selling season. Depending on market conditions and our commercial strategy, the level of inventory we hold or sell to importers and dealers at any time may change, as a result of which unit sales may be less seasonal than registrations. See “Item 3. Key Information—Risk Factors—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”.

          Motorcycle manufacturers typically present new models once a year at international trade shows held in September of each year. Following these trade shows, we work closely with our distributors and dealers to anticipate demand for our motorcycles in the following year. We endeavor to adjust the start of our new model year production to avoid a buildup in inventory of the previous year’s models. Any such buildup can result in additional promotional expenses (e.g., rebates, discounts, complimentary accessories and other incentives) that we incur to reduce excess inventories (and which we account for in selling, general and administrative expenses (excluding depreciation)). See “—2002 Compared to 2001”.

          Certain additional factors that adversely affected our results of operations over the last three years include:

•

the continued strengthening of the euro against most other currencies, in particular the U.S. dollar (appreciation of approximately 19.4% on average in 2003, and 20.4% at year end, with our sales in U.S. dollars accounting for approximately 14.4% of our total net sales in 2003), the U.K. pound sterling and the Japanese yen. See “Item 3. Key Information—Exchange Rates”. Such strengthening of the euro has principally impacted product prices. To preserve our market share, we have generally kept unchanged our sale prices in the relevant local currency, with a consequent reduction in our gross margin. We have engaged in foreign exchange transactions to hedge portions of our transactional exposure to such fluctuations in exchange rates, although such transactions protect us only from short-term fluctuations and not long-term variances. For further information on our foreign exchange transactions, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk” and Note 1 to our audited financial statements. We estimate that our sales decreased by approximately € 4.7 million in 2002 (compared with 2001) and € 10.6 million in 2003 (compared with 2002) owing to exchange rate fluctuations. We expect that the effect of the strong euro will continue to impact our results of operations in 2004.

•

our continued restructuring of our U.S. distribution subsidiary, which began in 2002 and is ongoing. This restructuring has involved:

	•		moving of our headquarters in January 2003 from Pompton Plains, New Jersey to Cupertino, California;
	•		replacement of certain executive officers (including the CEO of our U.S. subsidiary) and employees;
	•		outsourcing of our spare parts warehousing; and
	•		a reorganization of our dealer network.

The restructuring has had a material impact on our results of operations for our U.S. subsidiary. We estimate that the impact of this restructuring on selling, general and administrative expenses in our consolidated financial statements in 2003 and 2002 was € 8.0 million and € 7.0 million, respectively. We expect that our ongoing U.S. restructuring will continue to impact our results of operations in 2004.

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	•		our renewed participation in the Moto GP Championship, in connection with which we incurred approximately € 8.0 million and € 5.4 million in research and development expenses and capital expenditures for fiscal years 2002 and 2003, respectively.
	•		the launch in 2002 of our fifth motorcycle line, the Multistrada, in connection with which we incurred € 2.2 million, € 5.2 million and € 7.6 million in research and development expenses and capital expenditures for fiscal years 2001, 2002 and 2003, respectively. In 2003, we sold 6,025 Multistrada motorcycles, or 15.7% of our total unit sales.

          Cost of goods sold (excluding depreciation) is comprised primarily of variable costs, such as the cost of parts, components and labor, as well as costs relating to research and development that are not capitalized or included under selling, general and administrative expenses (excluding depreciation). In each of the last three years, approximately 85% of the total cost of goods sold (excluding depreciation) incurred by Ducati was for parts and components, and only approximately 15% was for direct and indirect labor costs and research and development costs. Cost of goods sold is allocated to each sector (motorcycles, spare parts, accessories and apparel, and other):

	•		purchased materials and the cost of external processing are allocated to a sector (and to each motorcycle family within the motorcycle sector) based on the specific bills of materials of the products concerned;
	•		direct production costs for the motorcycle sector, made up of the cost of the workshops dedicated to the specific motorcycle family (including labor) are allocated 100% to the relevant motorcycle family to which such costs relate;
	•		indirect production costs, (such as the warehousing of raw materials and finished motorcycles, logistics and general factory services) are allocated 100% to the motorcycle sector (and, in turn, to each motorcycle family within the motorcycle sector based on direct production costs); and
	•		expensed R&D costs, making up 30% of our R&D and the associated costs, are allocated 100% to the motorcycle sector (and, in turn, to each motorcycle family within the motorcycle sector based on direct production costs).

          Selling, general and administrative expenses (excluding depreciation) primarily include personnel costs, advertising and promotion costs, expenses relating to the Ducati racing program, charges for accrued warranty expenses and charges for doubtful accounts. Promotion costs include rebates, discounts, complimentary accessories and other incentives. This item also includes expenses relating to marketing and distribution, including certain expenses associated with our wholly owned distribution subsidiaries. Costs for services are recognized on the date on which the service is received. Costs relating to remuneration for motorcycle racing drivers and racing teams are recognized according to the length of their respective contracts. Beginning in 2001, research and development expenses associated with development of a four-stroke “double twin” cylinder engine used for the Desmosedici motorcycle to compete in the Moto GP Championship are included in selling, general and administrative expenses (excluding depreciation).

          Depreciation of property, plant and equipment is comprised primarily of charges over the estimated useful life for each class of assets against the capitalized amount of these items.

          Amortization of intangible assets primarily reflects amortization of the Ducati brand name, as well as amortization of goodwill and Cagiva’s non-compete agreement given in connection with our September 1996 acquisition of the Ducati business (which expired in September 2003), as well as a non-competition agreement entered into with the former U.K. importer (which expired in January 2003), following the creation of Ducati U.K. Amortization of intangible assets includes amortization of certain

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capitalized debt issuance costs, certain incidental costs of the initial public offering of our shares in March 1999 and certain capitalized research and development expenditures.

          Other operating revenues are principally comprised of sales of scrap, sundry components and materials, licensing revenues and rental and sponsorship income.

          Interest expense, net, principally reflects interest payments on our financing arrangements, including the Notes and the Credit Agreement for the relevant periods. See “—Liquidity and Capital Resources” and “—Other Financial Transactions”.

          Foreign exchange gain/(loss), net, is comprised primarily of the translation differences from conversion into euro of monetary assets and liabilities denominated in a currency other than the euro, and does not include unrealized foreign exchange gains on long-term assets and liabilities, which are deferred at the balance sheet date under Italian GAAP. Foreign exchange losses include unrealized foreign exchange losses on long-term assets and liabilities. See “Item 3. Key Information—Risk Factors—We are subject to foreign currency exchange rate fluctuations, particularly with respect to the U.S. dollar”. Also included in foreign exchange gain/(loss), net, are the results of our forward contract hedging activities (forward currency contracts we enter into against future commitments to hedge the risk of currency fluctuations between the date of such a contract and the performance of the related commitment). For further information on our hedging activities, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

          Other non-operating income/(expense), net, which consists of gains and losses of a non-operating nature, such as the release following the restatement of our brand name in 2003 of our deferred taxation provision provided for in prior years and restructuring costs related to our corporate reorganization plan described in “Item 6. Directors, Senior Management and Employees—Employees”, is considered to be incurred one-time only due to its nature and magnitude.

          Income taxes comprise the current and deferred taxes that arise from our activities in the relevant period based on tax regimes applicable to us at the end of each accounting period. Following our March 1999 initial public offering, we qualified for certain income tax rate reductions in Italy until 2002. Certain Italian tax regimes available to Ducati entail reduction of the corporate income tax (IRPEG) rate applicable in each of the three years discussed in this section, depending on various factors. DMH and its Italian subsidiaries are subject to two income taxes: (i) corporate income tax (IRPEG until 2003 and IRES as of 2004) and (ii) local income tax (IRAP). The ordinary IRPEG tax rate was reduced from 37%, applicable in fiscal years 1999 and 2000, to 36% for fiscal year 2001 and to 34% for fiscal year 2003, and will decrease to 33.0% thereafter. The IRAP rate is equal to 4.25%. See Note 27 to the audited consolidated financial statements for further information.

          For a more detailed description of the line items in the consolidated statement of operations prepared in conformity with Italian GAAP that form part of our audited consolidated financial statements, see Note 1 to the audited consolidated financial statements.

          Intangible assets include capitalized research and development costs, comprised principally of the cost of personnel employed in research and development functions and the cost of materials and external consultants, where the expenditure is incurred for specific product development. Otherwise, research and development costs are expensed under cost of goods sold (excluding depreciation) or, in the case of costs related to the development of the “double twin” engine for the Desmosedici motorcycle developed to compete in the Moto GP Championship, selling, general and administrative expenses (excluding depreciation).

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          Investments in tooling for new products are capitalized as property, plant and equipment. Finally, a portion of the costs related to our racing program (which are included in cost of goods sold (excluding depreciation)) are associated with research and development, as many of Ducati’s technical innovations are derived from and tested in its racing program.

Critical Accounting Policies

          Our reported financial condition and results of operations are affected by accounting methods, assumptions and estimates that we are required to make in preparing our consolidated financial statements. We base our estimates on historical experience and various other assumptions. 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 should be considered in reviewing the discussion and analysis of our financial condition and results of operations below, as well as our audited consolidated financial statements. Our significant accounting policies are disclosed in Note 1 to our audited consolidated financial statements. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our audited consolidated financial statements.

          Inventories

          Inventories are stated at the lower of purchase or production cost and the estimated realizable value, based on market conditions, taking account of related selling expenses. Purchase costs include the amounts paid to suppliers and any directly attributable related charges. Manufacturing costs include the expenses incurred to bring the goods to their state at the balance sheet date. These include both costs specific to individual goods and the costs incurred by the entire production process allocable to the goods. In particular, all types of inventory are valued on the first in/first out (FIFO) method. Inventories are stated net of an allowance that reflects losses on obsolete and slow-moving items. The determination of estimated realizable value and the allowance for losses on obsolete or slow-moving items are based upon our historical experience and assumptions about future demand and market conditions. This allowance does not reflect obsolete or slow-moving items held by independent dealers or importers.

          Accounting for Long-Lived Assets

          Property, plant and equipment are booked at purchase cost or valuation of assets contributed in kind (for instance, upon the creation of a new Group company such as Ducati Corse), including any directly related charges. Ordinary maintenance and repair expenditure that does not increase the value of the assets concerned is expensed as incurred. Extraordinary maintenance and repair expenses that increase the useful life of property, plant and equipment are capitalized and depreciated over the residual life of the assets concerned. Property, plant and equipment are depreciated on a straight-line basis, using the ordinary rates indicated by current tax legislation, which are considered to reflect the estimated useful lives of the related assets. The annual rates used are set out below in the note on depreciation.

          As required by International Financial Reporting Standard No. 17 (applicable to our consolidated financial statements under Italian GAAP), significant fixed assets acquired under finance leasing contracts are booked according to the finance lease accounting method. Acquired assets are treated as capital expenditures based on the original value of the asset, and depreciated over the estimated useful life of the asset. Lease installments, including principal and interest, are included in other borrowings. As of December 31, 2003, we had outstanding leasing contracts with regard to our Bologna facility, as well as with regard to machinery and workstations, totaling approximately € 30.5 million.

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          Intangible fixed assets are booked at purchase cost or valuation of assets contributed in kind (for instance, upon the creation of a new Group company such as Ducati Corse), including any directly related charges. Intangible fixed assets of Italian group companies may also be restated, when so allowed by the laws governing restatement of assets. Intangible fixed assets are directly amortized on a straight-line basis over their estimated economic useful life. Costs incurred in obtaining long-term finance (“debt capacity”) are amortized over the life of the related loan, according to the residual balance method. Intangible fixed assets are fully written down if they no longer have any future economic benefit.

          Research and development costs are capitalized if applicable to specific projects, where these are reasonably identifiable and quantifiable, and if there is a reasonable certainty that they will be recoverable by means of the revenues generated by such projects.

          Accounting for long-lived and intangible assets involves the use of estimates for determining the fair value at the acquisition date, and the useful lives of the assets over which the costs of acquiring these assets are charged to the income statement. The allocation of research and development expenses to be capitalized involves assumptions as to the recoverability of such costs from revenues generated by the relevant projects.

          When an impairment in the value of assets occurs, nonscheduled write-downs are made. In the year in which the reasons for the write down no longer exist, the value of the asset is reinstated and the related adjustment is recorded in the income statement. We assess 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 timing and the amount of the impairment.

          Commitments and contingencies

          We are involved in various claims and legal actions arising in the ordinary course of business. Litigation is subject to many uncertainties, and the outcome of individual matters is not predictable with assurance. Reserves established for contingent liabilities in such matters are monitored on an on-going basis. It is possible that the final resolution of some of these matters may require us to make expenditures in excess of established reserves.

          Product warranty

          Product warranty obligations are estimated on the basis of a time-series analysis of labor and material costs incurred in connection with each individual model. These estimates are established using historical information on the nature, frequency, and average cost of warranty claims, taking into account the registrations over the last 24 months and estimated costs for future recall campaigns. We actively study trends of warranty claims and take action to improve vehicle quality and minimize warranty claims. Actual cash payments against warranties totaled € 10.8 million in 2003, or 2.8% of net sales, € 11.1 million in 2002, or 2.7 % of net sales and € 9.1 million in 2001, or 2.2% of net sales. At December 31, 2003, we had a provision in our financial statements of € 6.3 million to cover estimated future product warranty costs. Such amount covers the full cost to Ducati of warranty repairs, whereas cash reimbursements include the margin realized by us on the sale of spare parts.

          Our provision for product warranty expenses decreased in 2003 compared to 2002 mainly due to:

•

an overall decrease in the number of motorcycles covered by warranty (as a result of decreased sales);

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	•		lower warranty costs for 2002 and 2003 models (the models currently under warranty) relative to models sold in prior years;
	•		improved management of warranty costs as part of our wider cost reduction program; and
	•		a more accurate analysis of the historical trends in warranty costs and spare part depreciation (as used to determine the amount of the provision).

          We believe that the warranty reserve is appropriate; however, actual claims incurred could differ from the original estimates. See Note 13 to the audited consolidated financial statements.

          Deferred Taxation

          Deferred taxes have been accounted for in accordance with Accounting Principle No. 25, issued in March 1999 by the Italian Accounting Profession. Deferred tax assets and liabilities are calculated using current tax rates applying at the respective accounting reference dates in the countries where Group companies are based. The statutory financial statements of Group companies recognize deferred tax assets and liabilities arising from timing differences between statutory and taxable income and on carried forward tax losses, whose recovery is considered to be reasonably certain, based on predictions of the particular company’s current and expected results. Deferred tax assets and liabilities have also been provided as a result of eliminating tax-driven items from the individual financial statements of our consolidated subsidiaries and making other consolidation adjustments (principally unrealized intercompany profits), which represent timing differences between the individual financial statements of our consolidated subsidiaries and our consolidated financial statements. These taxes are reviewed every year to reflect changes in tax rates and in the financial and economic situation of the companies concerned.

          Significant management judgment is required in determining our provision for deferred tax assets and liabilities. The analysis is based on the estimates of taxable income in the jurisdictions in which the group operates and the period over which the deferred tax assets and liabilities will be recoverable. If actual results differ from these estimates, or we adjust these estimates in future periods, our financial position and results of operations may be affected.

          Allowance for Doubtful Accounts

          We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. We base our estimates on the aging of our accounts receivable balances and our historical write-off experience, customer credit-worthiness and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our customers were to deteriorate, actual write-offs may be higher than expected.

Results of Operations

     The following table sets forth certain statement of operations data expressed as a percentage of our net sales for the periods indicated:

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2003 Compared to 2002

          Net sales

          Net sales were € 388.2 million in 2003 compared to € 413.0 million in 2002, a decrease of € 24.8 million, or 6.0%. This decrease in net sales was attributable principally to the following (4.0% and 2.0%, respectively): (1) the strengthening of the euro against the U.S. dollar and other relevant currencies (principally the Japanese yen and the U.K. pound) and (2) a decrease in motorcycle unit sales of 2.8% and a negative mix of motorcycle models sold, or a lower proportion of sales of models in respect of which the average margin is higher (in 2003, we sold 4,327 fewer Superbike and Super Sport motorcycles (which have higher margins) and 6,025 more Multistrada motorcycles (which have a lower margin)), which more than off-set a “positive country mix”, or a lower proportion of sales in countries in which average prices are lower (426 of the total 1,017 fewer units sold in 2003 versus 2002 were in North America, where we currently have a lower margin per motorcycle because of the weaker dollar). In 2003, motorcycle net sales accounted for 81.4% of net sales (82.7% in 2002). Sales of spare parts accounted for 10.6% of net sales (10.3% in 2002) and sales of performance accessories, technical riding gear and enthusiast apparel accounted for 7.3% of net sales (6.6% in 2002). Revenues from non-core activities (mainly tickets for various events arranged by Ducati) represented 0.7% of net sales (0.4% in 2002).

          In 2003, we produced motorcycles in five model lines, which vary in their technical and design features and intended customers: Superbike, Super Sport, Sport Naked, Sport Touring, and the Multistrada, introduced for sale in 2003. The 2.8% decline in unit sales of Ducati motorcycles, from 39,534 in 2002 to 38,417 in 2003, resulted principally from a 34.6% decrease in unit sales of our Sport Touring motorcycles, a 26.4% decrease in unit sales of Superbike motorcycles, a 26.1% decrease in unit sales of our Super Sport motorcycles and an 8.2% decrease in unit sales of Sport Naked motorcycles, partially offset by sales of the new Multistrada line. Unit sales showed varying trends in our principal geographic markets, with increases in the UK (+10.9%) and Italy (+1.7%) and decreases in Germany (-25.3%), the United States (-8.4%), France (-7.6%), Japan (-4.9%), and the Benelux countries (-1.5%). The decline in unit sales resulted mainly from our December 2003 purchase of the business of our third party importer in Germany (as a result of which motorcycles sold to such importer that were still in its inventory at December 31, 2003 were counted as part of our German subsidiary’s inventory at such date); continuing disruptions relating to the ongoing restructuring of our U.S. operations; a decline in market demand in France; and a reduction in Japan, where we had sold 300 units of the MH900E special series in 2002, but no such units in 2003.

          Ducati motorcycle registrations were 38,130 in 2003 compared to 39,607 in 2002, a decrease of approximately 3.7%. In particular, registrations increased by 35% in Spain and Portugal, 28% in Switzerland and 6% in the Benelux countries, while registrations declined 17% in the United States, 16% in the UK, 8% in France and 7% in Japan. We believe that we generally kept our market share throughout the world, with the exception of the U.S.

          The decrease in net sales of spare parts of 3.6% between 2003 and 2002 was entirely due to the strengthening of the euro against foreign currencies.

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          Cost of goods sold (excluding depreciation)

          Cost of goods sold (excluding depreciation) was € 253.4 million in 2003 compared to € 249.3 million in 2002, an increase of € 4.1 million, or 1.6%, principally as a result of the 2.0% growth in the apparel business. As a percentage of net sales, cost of goods sold (excluding depreciation) increased to 65.3% in 2003 compared to 60.4% in 2002, as a result of the deterioration of the exchange rate and the higher costs associated with the product mix (principally the higher production costs of the Multistrada) of motorcycles sold in 2003.

          Gross profit (excluding depreciation)

          Gross profit (excluding depreciation) was € 134.8 million in 2003 compared to € 163.7 million in 2002, a decrease of € 28.9 million, or 17.6%, principally as a result of the factors mentioned above. As a percentage of net sales, gross profit (excluding depreciation) was 34.7% in 2003 compared to 39.6% in 2002.

          Selling, general and administrative expenses (excluding depreciation)

          Selling, general and administrative expenses (excluding depreciation) were € 112.8 million in 2003 compared to € 122.0 million in 2002, a decrease of € 9.2 million, or 7.5%, principally as a result of reduced warranty and personnel costs and the insourcing of certain sub-assembly activities, which together more than offset costs related to our participation in the Moto GP Championship. As a percentage of net sales, selling, general and administrative expenses (excluding depreciation) decreased to 29.1% in 2003 from 29.6% in 2002. Research and development expenses relating to our racing program are included under cost of goods sold (excluding depreciation).

          Depreciation of property, plant and equipment

          Depreciation of property, plant and equipment was € 15.0 million in 2003 compared to € 12.0 million in 2002, an increase of € 3.0 million, or 25.0%, principally reflecting increased capital investments for the production of the Multistrada and of the three-valve engine.

          Amortization of intangible assets

          Amortization of intangible assets was € 23.9 million in 2003 compared to € 22.0 million in 2002, an increase of € 1.9 million, or 8.6%, related to investment in new products including the Multistrada, the ST3 and the Monster S4R. As a percentage of net sales, amortization of intangible assets increased to 6.1% in 2003 compared to 5.3% in 2002.

          Other operating revenues

          Other operating revenues were € 23.2 million in 2003 compared to € 10.8 million in 2002, an increase of € 12.4 million, or 115.0%, principally due to sponsorship income related to the Moto GP Championship. As a percentage of net sales, other operating revenues increased to 6.0% in 2003 compared to 2.6% in 2002.

          Operating income

          Operating income was € 6.3 million in 2003 compared to € 18.5 million in 2002, a decrease of € 12.2 million, or 66.0%, principally for the reasons stated above. As a percentage of net sales, operating income decreased to 1.6% in 2003 compared to 4.4% in 2002.

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          Interest expense, net

          Interest expense, net, was € 9.3 million in 2003 compared to €11.5 million in 2002, a decrease of € 2.2 million, or 19.2%, principally reflecting reduced dealer inventory financing incentives.

          Foreign exchange gain/(loss), net

          We had a foreign exchange gain, net, of € 2.5 million in 2003 compared to a gain of € 1.3 million in 2002, principally reflecting the strengthening of the euro against the U.S. dollar, which resulted in foreign exchange gains in connection with currency hedging transactions entered into to protect our operating results from currency variations

          Other non-operating income/(expense), net

          Our non-operating gain of € 0.6 million in 2003, compared to a gain of € 0.1 million in 2002, is the net result of the following extraordinary items:

•

an extraordinary gain of € 5.2 million resulting from the restatement of the Ducati brand name in DMH’s statutory financial statements at December 31, 2003 from € 71.2 million to € 98.4 million (corresponding to the brand name’s market value reported in our consolidated financial statements at the same date). Under Italian tax rules, we are entitled to accelerate the amortization of certain assets for tax purposes insofar as we create two special reserves, one for accelerated amortization and another for deferred taxes (calculated by applying the standard corporate tax rate of 38.25%) due, upon completion of the tax acceleration, on the portion of amortization as reported in our financial statements and already deducted for tax purposes because of the accelerated amortization. In 2003, pursuant to a special tax regime, DMH stepped up the value of the Ducati brand name by paying a substitute tax of 19% on the surplus deriving from the restatement, thereby aligning the value of this asset amortized on a tax acceleration basis with the value carried in the consolidated accounts. As a result of this alignment, the accelerated amortization reserve was cancelled and the portion of the reserve for deferred taxes created with respect to the accelerated amortization of the brand name was subject to current taxes in order to fund the 19% substitute tax payment on the restatement surplus of € 27.2 million (which did not have an impact on our consolidated financial statements), whereas the remainder, amounting to € 5.2 million, was released thereby generating the extraordinary gain.

•

out-of-period taxation costs of € 0.587 million, of which € 0.150 million were incurred in May 2003 by DMH and Ducati Corse S.r.l. as payment under an available tax amnesty. The remaining € 0.437 million resulted from the difference between taxes effectively paid and our tax provision at December 31, 2002; and

•

restructuring costs of € 4.0 million related to our corporate reorganization plan, pursuant to which a certain number of employees were terminated in 2003 by mutual consent in exchange for severance incentives, including costs of € 2.2 million associated with the termination of Carlo Di Biagio’s employment contract. The cost of our corporate reorganization plan was recorded as a non-operating expense for 2003.

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     Profit before income taxes and minority interest

     Profit before income taxes and minority interest was € 0.1 million in 2003 compared to € 8.5 million in 2002, principally due to the reasons stated above.

     Income taxes

     Our income tax charge was € 0.1 million in 2003 compared to € 2.0 million in 2002, a decrease of € 1.9 million, as a result of decreased profit.

     Net profit

     We had a net profit of € 40,000 in 2003 compared to € 6.5 million in 2002, principally due to the reasons stated above.

2002 Compared to 2001

     Net sales

     Net sales were € 413.0 million in 2002 compared to € 407.8 million in 2001, an increase of € 5.2 million, or 1.3%. The increase in net sales was attributable principally to improvements in the mix of motorcycle models sold of 2.9% and an increase in net sales of motorcycle-related products of 2.5%, more than off-setting the adverse impact of foreign exchange losses of 2.1%, a decrease in motorcycle unit sales of 1.0% and a “negative country mix”, or a greater proportion of sales in countries in which average prices are lower of 1.0%. In 2002, motorcycle net sales accounted for 82.7% of net sales (84.7% in 2001), principally reflecting a decline in unit sales of 1.2% and negative country mix, partially offset by the improvement in product mix. Sales of spare parts accounted for 10.3% of net sales (9.5% in 2001) and sales of performance accessories, technical riding gear and enthusiast apparel accounted for 6.6% of net sales (5.5% in 2001). Revenues from other non-core activities represented 0.4% of net sales in 2002.

     As mentioned above, the increase in 2002 net sales compared to 2001 net sales was partially offset by the net effect of the strengthening of the euro against the U.S. dollar, the Japanese yen and the U.K. pound sterling during 2002 relative to 2001. We sell a significant number of units in those currencies and fluctuations between the euro and those currencies may impact our net sales during a given period. See Note 19 to our audited consolidated financial statements.

     In 2002, we produced motorcycles in four model lines, which vary in their technical and design features and intended customers: Superbike, Super Sport, Sport Naked, Sport Touring. A fifth product line, the Multistrada, was introduced for sale in 2003. The 1.1% decline in motorcycle net sales between 2001 and 2002 resulted mainly from a 1.2% decline in unit sales of Ducati motorcycles, to 39,534 in 2002 from 40,016 in 2001. The decrease in unit sales resulted principally from a 32.8% decrease in unit sales of our Super Sport motorcycles (or, excluding the effect of the sale of the limited edition MH900evoluzione in 2001 and 2002, a 14.6% decrease), a 2.6% decrease in unit sales of Sport Naked motorcycles, and a 4.3% decrease in unit sales of our Sport Touring motorcycles, partially offset by a 19.5% increase in unit sales of Superbike motorcycles (as customers warmly received the new 999 Superbike). Unit sales showed varying trends in our principal geographic markets, with increases in Japan (+10.6%); Italy (+6.5%); flat sales in the Benelux countries; and decreases in the United States (-25.8%), the UK (-17.6%), France (-9.1%), and Germany (-1.0%). The decline in unit sales resulted mainly from declines in market demand in certain of our key markets (in particular, the United States and Germany), disruptions relating to the restructuring of our U.S. operations, a global policy of reducing sales into the dealer network to reduce their inventory (in particular, the United States, the United

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Kingdom and Germany) and vacancies in key management positions in France (which have since been filled).

     Ducati motorcycle registrations were 39,607 in 2002 compared to 38,969 in 2001, an increase of approximately 2.0%. In particular, registrations in Japan and the UK grew 9.0%, the Benelux countries were up 6.0%, and Italy increased 2.0%, more than off-setting a decline in Germany of 9.0%, in France of 7.0% and in the United States of 1.0%. We also estimate that we gained market share in all of these countries, with the exception of France, where our results were negatively affected by a vacancy in a key management position (which has since been filled).

     The increase in net sales of spare parts of 9.2% between 2002 and 2001 reflects principally the significant increase in motorcycle unit sales experienced from 1996 to 2002.

     Cost of goods sold (excluding depreciation)

     Cost of goods sold (excluding depreciation) was € 249.3 million in 2002 compared to € 241.3 million in 2001, an increase of € 8.0 million, or 3.3%, principally as a result of increased materials and research and development expenses associated with the new Superbike and Multistrada models. As a percentage of net sales, cost of goods sold (excluding depreciation) increased to 60.4% in 2002 compared to 59.2% in 2001.

     Gross profit (excluding depreciation)

     Gross profit (excluding depreciation) was € 163.7 million in 2002 compared to € 166.5 million in 2001, a decrease of € 2.8 million, or -1.7%, principally as a result of factors mentioned above. As a percentage of net sales, gross profit (excluding depreciation) was 39.6% in 2002 compared to 40.8% in 2001.

     Selling, general and administrative expenses (excluding depreciation)

     Selling, general and administrative expenses (excluding depreciation) were € 122.0 million in 2002 compared to € 108.0 million in 2001, an increase of € 14.0 million, or 13.0%, principally as a result of the restructuring of our U.S. operations, general promotional activities (e.g., the World Ducati Week), higher warranty costs (due to the growing number of units under warranty), increased sales personnel costs and expenses that we incurred in our effort to reduce excess inventories (in particular in the United States). As a percentage of net sales, selling, general and administrative expenses (excluding depreciation) increased to 29.6% in 2002 compared to 26.5% in 2001. Expenses incurred in connection with our racing program (excluding as regards development of the Desmosedici to compete in the Moto GP Championship) were € 6.5 million and € 6.1 million in 2002 and 2001, respectively. Research and development expenses relating to our racing program are included under cost of goods sold (excluding depreciation). See Notes 20 and 21 to our audited consolidated financial statements.

     Depreciation of property, plant and equipment

     Depreciation of property, plant and equipment was € 12.0 million in 2002 compared to € 10.0 million in 2001, an increase of € 2.0 million, or 20.0%, principally reflecting increased capital investments.

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     Amortization of intangible assets

     Amortization of intangible assets was € 22.0 million in 2002 compared to € 24.6 million in 2001, a decrease of € 2.6 million (or 10.6%), principally due to the devaluation of software for Ducati.Com. As a percentage of net sales, amortization of intangible assets decreased to 5.3% in 2002 compared to 6.0% in 2001.

     Other operating revenues

     Other operating revenues were € 10.8 million in 2002 compared to € 7.5 million in 2001, an increase of € 3.3 million, or 44.0%, principally due to higher sponsorship income. As a percentage of net sales, other operating revenues increased to 2.6% in 2002 compared to 1.8% in 2001.

     Operating income

     Operating income was € 18.5 million in 2002 compared to € 31.5 million in 2001, a decrease of € 13.0 million, or 41.3%, principally for the reasons stated above. As a percentage of net sales, operating income decreased to 4.4% in 2002 compared to 7.7% in 2001.

     Interest expense, net

     Interest expense, net, was € 11.5 million in 2002 compared to € 12.8 million in 2001, a decrease of € 1.3 million, or 10.2%, principally reflecting reduced dealer inventory financing incentives.

     Foreign exchange gain/(loss), net

     We had a foreign exchange gain, net, of € 1.3 million in 2002 compared to a gain of € 0.7 million in 2001, principally reflecting the strengthening of the euro against the U.S. dollar and the U.K. pound sterling, which resulted in foreign exchange gains in connection with currency hedging transactions entered into to protect our operating results from currency variations.

     Profit before income taxes and minority interest

     Profit before income taxes and minority interest was € 8.5 million in 2002 compared to € 19.4 million in 2001, principally due to the reasons stated above.

     Income taxes

     Our income tax charge was € 2.0 million in 2002 compared to € 8.9 million in 2001, a decrease of € 6.9 million, principally thanks to one-time tax benefits resulting from the so-called Tremonti Law, which reduces taxation on certain capital expenditures.

     Net profit

     We had a net profit of € 6.5 million in 2002 compared to € 10.6 million in 2001, principally due to the reasons stated above.

U.S. GAAP Reconciliation

     The principal differences between Italian GAAP and U.S. GAAP as they affect the audited consolidated financial statements for the years ended December 31, 2001, 2002 and 2003 were the accounting treatment of: (i) acquisition of the Ducati motorcycle business, (ii) deferred costs, (iii) debt

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issuance costs related to our Notes, (iv) foreign currency translation, (v) derivative financial instruments, (vi) financing of dealer incentives (in particular, cash discounts and flooring incentives are classified under U.S. GAAP as a reduction of revenue), (vii) costs related to software projects, (viii) deferred taxes, (ix) stock-based compensation, (x) securitization and consolidation of special purpose entities and (xi) earnings per shares.

     In respect of securitization and consolidation of special purpose entities, we have consolidated DDF1 under U.S. GAAP for 2003. The effect of such consolidation on our consolidated assets under U.S. GAAP was: (i) an increase in cash and cash equivalents of €10 million and a decrease in investments of €10 million (relating to the Class B bonds issued to us by DDF1), and (ii) an increase in accounts receivable of €33 million (relating to the Class A bonds issued by DDF1). The effect of such consolidation on our consolidated liabilities was an increase in long term liabilities of €33 million (also relating to the Class A bonds issued by DDF1). The consolidation did not impact our statement of operations under U.S. GAAP, as we reimbursed all of DDF1’s operating costs (which reimbursements were already reflected in our statement of operations under Italian GAAP). In addition, start up costs of €680,000 at December 31, 2003, capitalized and not yet amortized under Italian GAAP, have been expensed for U.S. GAAP purposes. We expect to continue to consolidate DDF1 under U.S. GAAP in the future as a result of FIN 46R. See —Implementation of New Accounting Pronouncements” and “——Other Financial Transactions—Securitization”.

     Under U.S. GAAP, volume bonuses are accrued at the time of revenue recognition and are classified as a reduction of revenue in accordance with EITF 01-09 (issue 6), and the amount of such reduction in 2001, 2002 and 2003 was approximately € 16.4 million, € 16.5 million and € 14.4 million, respectively. Notes 29, 30 and 31 to the audited consolidated financial statements contain a detailed description of the differences between Italian GAAP and U.S. GAAP, as well as a reconciliation of net profit and shareholders’ equity between Italian GAAP and U.S. GAAP.

     Under Italian GAAP, net profit was approximately € 10.5 million in 2001, € 6.5 million in 2002 and € 40,000 in 2003. Under U.S. GAAP, net profit approximated € 14.2 million in 2001, € 7.0 million in 2002 and € 0.1 in 2003.

     Under Italian GAAP, shareholders’ equity was approximately € 159.7 million at December 31, 2002 and € 158.4 million at December 31, 2003. Under U.S. GAAP, shareholders’ equity approximated € 83.5 million at December 31, 2002 and € 81.2 million at December 31, 2003.

     Under Italian GAAP, research and development expenditure is capitalized and is reflected as part of investing activities. Under U.S. GAAP, research and development expenditure is expensed and reflected as part of operating activities.

International Financial Reporting Standards (IFRS)

     Like all listed EU companies, we will be required to apply International Financial Reporting Standards (IFRS) in the preparation of our consolidated financial statements for fiscal years from January 1, 2005 on. We will also present our 2004 results based on Italian GAAP and IFRS for comparative purposes. We are currently in the process of establishing an IFRS implementation program, which will include a central team at the parent company level and working groups at the level of our principal operating companies. As part of this program, we will review the IFRS principles in force, as well as the significant changes contained in current proposals for the revision of those standards, which to date have not been finalized.

     By the end of 2004, we will:

•

identify the significant differences between the Italian GAAP accounting principles that we currently follow, and the applicable provisions of IFRS; and

•

formulate an action plan aimed at identifying the steps required to adapt our corporate processes and information systems to render them capable of supplying the information necessary for the preparation of our 2005 consolidated financial statements in accordance with IFRS, and to permit us to process the information related to 2004 to be presented for comparative purposes.

Liquidity and Capital Resources

     Our principal ongoing sources of liquidity are primarily derived from cash flow from operations. We generated approximately € 29.0 million of cash flows from operating activities for the year ended December 31, 2003 compared to € 44.9 million in 2002 and € 13.8 million in 2001. The decrease of € 15.9 million from 2003 to 2002 was due principally to our lower net profit for the year, € 6.5 million less than in 2002, by an increase of working capital of € 7.9 million, higher depreciation and amortization

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of 4.9 million and changes in other liabilities and net current assets that absorbed cash totaling € 6.4 million, and the increase of € 31.1 million from 2002 to 2001 was principally due to our trade receivables securitization (see “Other Financial Transactions”). Our working capital is broken down as follows (in millions):

     Our decreased trade receivables at December 31, 2003 of € 80.4 million was primarily due to an overall decrease in net sales compared to 2002

     Our decreased inventories at December 31, 2003 of € 104.8 were driven by a buildup of finished products (i.e., finished motorcycles) generated in 2002 to satisfy production requirements during the spring of 2003 and to provide for potential union-related work stoppages which did not materialize, as well as weak market demand in 2002 (particularly in the fourth quarter).

     Our decreased trade payables at December 31, 2003 of € 89.5 was due mainly to new plant and equipment for the introduction of the new 999R and Multistrada models in 2002.

     Of our € 29.0 million of cash flows that we generated in 2003, we used approximately € 15.7 million in property, plant and equipment (compared to € 23.8 million in 2002) and € 18.1 million in investments in intangible assets (compared to € 20.5 million in 2002). Our expenditures in property, plant and equipment in 2002 and 2003 were principally to acquire equipment and tooling at our Bologna facility. The decrease between the two years reflects our greater investment in 2002 in equipment and tooling for the manufacture of new products, such as the Multistrada and the 999. For this same reason, our investment in intangible assets (relating to research and development) decreased relative to 2002.

     We currently have levels of long-term debt and available lines of credit of € 282.5 million, of which approximately € 116.4 million remained available at December 31, 2003. During 2003, we assigned € 168.4 million of trade receivables in securitization and factoring transactions. See “—Other Financial Transactions”.

     We believe that the financial resources available to us from our operations will be sufficient to meet our working capital needs and capital expenditure requirements in the foreseeable future. Any reduction in our financial resources from our operations could impair our ability to fund our future liquidity needs.

Other Financial Transactions

Notes

     On May 31, 2000, DMH issued the Notes in the aggregate principal amount of € 100.0 million. The Notes, which mature on May 31, 2005, bear interest at a fixed rate of 6.50% per annum, with the total principal amount being repayable at maturity. The net proceeds to DMH from the sale of the Notes was approximately € 99.2 million, after deduction of the issue price discount and the combined management and underwriting commission and the selling concession. We used these net proceeds to prepay in full all amounts owed under the related credit agreement governing the Notes (the “Credit Agreement”), which

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was terminated. 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.

     On May 18, 2001, we repurchased € 9.0 million in aggregate principal amount of the Notes in two tranches (€4.0 million in aggregate principal amount at an aggregate purchase price equal to 101.23% of the original par value of the Notes, and €5.0 million in aggregate principal amount at an aggregate purchase price equal to 101.25% of the original par value of the Notes). We partially funded these repurchases through advance proceeds from the sale and lease-back transaction completed on June 29, 2001, through which we sold, and leased back, part of our Bologna property. Proceeds from this sale and leaseback transaction were also used to finance our operations. In 2003, we bought back on the market approximately € 15.3 million in aggregate principal amount of our Notes (at an average purchase price equal to 102.8% of their original par value). In 2004 through the date of this Annual Report, we bought back on the market approximately € 15.0 million in aggregate principal amount of our Notes (at an average purchase price of 101.0% of their original par value). We funded these repurchases through proceeds of corresponding committed bank loans.

     The costs related to the above repurchases have been reclassified as financial charges. At December 31, 2003, an aggregate principal amount of approximately € 75.7 million of the Notes remained outstanding, and as at June 28, 2004 the outstanding principal amount was approximately € 60.7 million. All repurchased Notes have been cancelled. In view of our obligation to repay the Notes in 2005, we are considering different options, including the issuance of new debt or equity securities, or obtaining additional committed bank loans or a syndicated debt.

     On July 2, 2001, we entered into a “Credit-Linked” transaction, in which we acquired a € 15.0 million note (the “Credit-Linked Note”) issued by the London branch of Banca Nazionale del Lavoro (“BNL”). The Credit-Linked Note yields an annual coupon of 5.89% and matures on May 31, 2005. BNL may prepay the Credit-Linked Note, among other things, if we default on the Notes. We purchased the Credit-Linked Note to maximize liquidity over its term. The transaction is shown in the net financial position under long-term investments for € 15.0 million. In the balance sheet, this item is reclassified to other non-current assets.

Securitization

     In 2003, we assigned to Ducati Desmo Finance 1 S.r.l. (“DDF1”) — a special purpose entity owned by two Dutch foundations in which we have no economic or voting interest or ability to control management or board decisions — approximately € 116.0 million of our trade receivables, as compared with approximately € 26.7 million in 2002. Of the receivables assigned in 2003, we have collected € 110.1 million from DDF1 (and € 26.7 million for 2002). Of the remaining € 5.9 million for 2003, € 0.8 million is related to interest and expenses and € 5.1 million is a so-called “deferred reserve” payable by DDF1 to us to the extent that DDF1 has available funds based on the performance of the assigned receivables. The securitization essentially exposes us to the risk of not collecting this deferred amount which is subordinated to the collection by DDF1 of the assigned receivables. In addition, we are obligated to compensate DDF1 for any amounts (which typically are approximately € 1 to 2 million per year) for rebates claimed by dealer debtors on receivables assigned. We continue to assign receivables to DDF1 on an ongoing basis.

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     The receivables we assigned to DDF1 are part of our non-recourse roll-over securitization program, and we intend to assign additional receivables in similar transactions in 2004 and in subsequent years. Our securitization program reflects a change in our credit management practices in Italy and Europe to benefit from savings relative to the cost of non-recourse factoring and interest income on planned financing activities previously carried out by third party factoring companies. Historically, we entered into non-recourse factoring agreements to manage the risk of non-payment of these receivables. We eliminated our non-recourse factoring program in 2001 (in Italy) and 2002 (in northern Europe). The significant increase in 2003 as compared to 2002 of receivables assigned to DDF1 reflects the completion of our switch from factoring to securitization. Pursuant to the factoring agreements, we received approximately € 18.3 million and € 43.0 million in 2002 and 2001, respectively. We did not enter into any such agreements in 2003. The total costs of this roll-over securitization transaction, approximately € 1.1 million, have been capitalized and will be amortized over five years, which is the anticipated duration of our securitization program, as the quality of the receivables portfolio transferred is considered high, and thus we consider it unlikely that we will terminate the securitization beforehand.

     DDF1 through June 30, 2003 financed the purchase of our receivables through a bridge loan from Banca Intesa, and thereafter through the issuance of € 43 million in aggregate principal amount of bonds (€ 33 million of Class A bonds and € 10 million of Class B bonds). The bond issuance also served to replace the bridge loan granted by Banca Intesa. The Class A bonds were taken up entirely by Banca Intesa, which then sold 99.5% of them to Romulus Funding Inc., a U.S. finance company that is wholly owned by Global Securitization Services LLC. We have no economic or voting interest in, or ability to control management or board decisions of, these companies. Our North American subsidiary, Ducati North America Inc., on June 30, 2003 purchased all of the Class B bonds as the principal manner in which we retain a certain degree of risk in our securitization financing as required by rating agencies and market practice. The bonds mature on July 28, 2009, earn interest at 3-month Euribor (paid quarterly in arrears), and are subordinated to the Class A bonds. We classify the Class B bonds as financial fixed assets as they cannot be sold for a two year period subsequent to their purchase. To finance this purchase, DMH made a non-returnable payment of € 10 million to Ducati North America Inc.

     Our receivables are recorded at face value, after providing for an allowance for doubtful accounts to reflect their estimated realizable value. For receivables that we sold in factoring arrangements, the amount due from the principal debtor is paid by the factoring company, less a reduction for their fees. For receivables that we have assigned in our securitization transactions, an amount equal to the amount collected for the receivables assigned was deducted from trade receivables and credited to banks, while the deferred amount from DDF1 remained as trade receivables (the risk of non-payment of this deferred portion, which is based on the performance of the underlying trade receivables, was taken into account in calculating the allowance for doubtful accounts). Payables are recorded at face value, which is considered to represent their settlement value.

Leasing Agreements

     As required by International Financial Reporting Standards (applicable under Italian GAAP), fixed assets acquired under finance leasing contracts, if significant, are booked according to the finance lease accounting method. Beginning in 2001, the acquired assets are treated as capital expenditures based on the original value of the asset, and depreciated over the estimated useful life of the asset. Lease installments, including principal and interest, are included in other borrowings. Given that lease contracts were not significant to the Ducati Group through December 31, 2000, accrued lease installments were included in selling, general and administrative expense (excluding depreciation), while liabilities for future installments were recorded in the notes to the audited consolidated financial statements, together with the effect that there would have been if the current method of accounting for leases had been adopted.

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     Until December 31, 2000, minor leases for machinery and work stations were accounted for in the same way as in the statutory financial statements (as they were immaterial). In our audited consolidated financial statements for the period ended December 31, 2001, we have chosen to use the financial method, booking the leased assets and charging depreciation over their useful life in the same way as property, plant and equipment, while booking the liability to the leasing company and charging the financial expenses in the statement of operations on an accruals basis, considering the importance of the sale and lease-back operation. Following the adoption of this method, minor lease contracts have also been accounted for in this way.

Repurchases of Shares

     Under a share repurchase plan enabling us to repurchase on the Telematico up to € 6.0 million of our shares in one or more transactions by November 6, 2003, in June and July 2003 we purchased a total of 293,235 Ducati shares for an aggregate purchase price of € 391,225 (or an average per share purchase price of € 1.3334) in order to support trading in our shares on the Italian stock market. On May 6, 2004, our shareholders’ approved the buy back plan to repurchase up to a maximum of 15,556,800 shares, equivalent to about 9.8% of our outstanding Ducati shares. As of June 28, 2004, we held 1,521,378 Ducati shares. For more information on this buy back plan, see “Item 10. Additional Information—Buy Back Plan”.

Derivative Financial Instruments for Hedging Purposes

     Our primary market risk exposure is foreign currency risk. To manage this risk, we enter into derivative financial instruments (i.e., forward exchange contracts). At December 31, 2003, we had € 72.3 million in forward exchange contracts, compared to € 81.6 million at December 31, 2002. We are also exposed to interest rate risk associated with short and long-term bank financings on which we pay a variable interest rate. To manage this risk, we enter into interest rate swap agreements and interest rate cap agreements. For more information on our derivative financial instruments, see “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

Off-Balance Sheet Arrangements with Unconsolidated Entities

     On February 14, 2002, our board of directors approved the extension through 2004 of the retention bonus plan payable to Federico Minoli and up to four additional senior officers of Ducati designated by the managing director. We estimate that such bonuses could amount to as much as € 250,000 in the aggregate. On March 5, 2003, our board also confirmed the allocation to Mr. Minoli of an indemnity on termination as our managing director of US$ 1.2 million. For more information on these events, see “Item 6. Directors, Senior Management and Employees—Compensation of Directors and Senior Management”.

     In connection with our trade receivables securitization program described in "—Other Financial Transactions”, we have undertaken to pay, and have guaranteed vis-à-vis investors purchasing securities issued by DDF1 in the securitization of the receivables, certain specified operating costs of DDF1. We have not guaranteed the collection of any nonperforming receivables assigned by us to DDF1. Moneys payable by us in connection with this undertaking are deducted by DDF1 from the deferred portion of the purchase price outstanding from time to time from DDF1 to us for our receivables. Approximately € 770,000 were deducted from the deferred purchase price in respect of such costs in 2003 and we expect that approximately € 900,000 will be deducted in respect of such costs in 2004.

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Contractual Obligations and Commercial Commitments

     We have various contractual obligations and commercial commitments arising from our continuing operations. The following represents our contractual obligations and other commercial commitments as of December 31, 2003:

Contractual Obligations:

Other Commercial Commitments:

Implementation of New Accounting Pronouncements

     In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), Consolidation of Variable Interest Entities, which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, Consolidation of Variable Interest Entities, which was issued in January 2003. We will be required to apply FIN 46R to variable interest in VIEs created after December 31, 2003. For variable interest in VIEs created before January 1, 2004, the Interpretation will be applied beginning on January 1, 2005. For any VIEs that must be consolidated under FIN 46R that were created before January 1, 2004, the assets, liabilities and non-controlling interests of the VIE initially would be measured at their carrying amounts with any difference between the net amount added to the balance sheet and any previously recognized interest being

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recognized as the cumulative effect of an accounting change. If determining the carrying amounts is not practicable, fair value at the date FIN 46R first applies may be used to measure the assets, liabilities and non-controlling interest of the VIE. We expect that we will have to consolidate DDF1 (a non-qualified special purpose entity) under FIN 46R for U.S. GAAP purposes. As we have already consolidated this entity in 2003 under U.S. GAAP, we believe that any such consolidation under FIN 46R would not have a material impact on our U.S. GAAP audited financial statements

     FASB Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, was issued in May 2003. This Statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. The Statement also includes required disclosures for financial instruments within its scope. For us, the Statement was effective for instruments entered into or modified after May 31, 2003 and otherwise will be effective as of January 1, 2004, except for mandatorily redeemable financial instruments. For certain mandatorily redeemable financial instruments, the Statement will be effective for us on January 1, 2005. The effective date has been deferred indefinitely for certain other types of mandatorily redeemable financial instruments. We currently do not have any financial instruments that are within the scope of this Statement.

     In June 2001, FASB Statement No. 143, Accounting for Asset Retirement Obligations, was issued. Statement 143 requires us to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the assets. We also would record a corresponding asset that is depreciated over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation would be adjusted at the end of each period to reflect the passage of time and changes in the estimated future cash flows underlying the obligation. We were required to adopt Statement 143 on January 1, 2003. The adoption of Statement 143 had no effect on our financial statements.

     In April 2002, the FASB Statement No. 145, Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction, was issued. Statement 145 amends existing guidance on reporting gains and losses on the extinguishment of debt to prohibit the classification of the gain or loss as extraordinary, as the use of such extinguishments have become part of the risk management strategy of many companies. Statement No. 145 also amends FASB Statement No. 13, Accounting for Leases, to require sale-leaseback accounting for certain lease modifications that have economic effects similar to sale-leaseback transactions. The provisions of Statement 145 related to the rescission of FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, were applied in fiscal years beginning after May 15, 2002. The provisions of Statement 145 related to Statement 13 were effective for transactions occurring after May 15, 2002. The adoption of Statement 145 had no effect on our audited financial statements.

     In June 2002, the FASB Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities, was issued. Statement 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity”. The provisions of Statement 146 were effective for exit or disposal activities initiated after December 31, 2002, with early application encouraged. During 2003, we notified and terminated certain employees, including the managing director, and incurred certain employee termination benefits. All of the employees were notified and terminated in 2003, with all related termination severance paid in 2003; under Italian GAAP, the residual amount of € 11,000, accrued in 2003 but not paid at December 31, 2003 has been recorded as “Provision for corporate reorganization”. As this amount does not meet the recognition criteria prescribed by Statement 146, the adoption of Statement 146 resulted in the reversal to the statement of income of the residual amount accrued in the Italian GAAP financial statements, for € 11,000. In addition, under Italian GAAP these amounts are shown as non-operating expense and under U.S. GAAP they are part of operating expenses.

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     In November 2002, FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness to Others, an interpretation of FASB Statements No. 5, 57 and 107 and a rescission of FASB Interpretation No. 34, was issued. This Interpretation enhances the disclosures to be made by a guarantor in its interim and annual audited financial statements about its obligations under guarantees issued. The Interpretation also clarifies that a guarantor is required to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken. The initial recognition and measurement provisions of the Interpretation were applicable to guarantees issued or modified after December 31, 2002 and the disclosure requirements were effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of FIN 45 had no effect on our audited financial statements.

     In December 2002, FASB Statement No. 148, Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123, was issued. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, Statement 148 amends the disclosure requirements of Statement 123 to require prominent disclosures in both annual and interim financial statements. Disclosures required by this standard are included in the notes to these audited financial statements.

     In December 2003, FASB Statement No. 132 (revised), Employers’ Disclosures about Pensions and Other Postretirement Benefits, was issued. Statement 132 (revised) prescribes employers’ disclosures about pension plans and other postretirement benefit plans; it does not change the measurement or recognition of those plans. The Statement retains and revises the disclosure requirements contained in the original Statement 132. It also requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pensions plans and other postretirement benefit plans. The Statement generally is effective for fiscal years ending after December 15, 2003.

Research and Development

     Intangible assets include capitalized research and development costs, comprised principally of the cost of personnel employed in research and development functions and the cost of materials and external consultants, where the expenditure is incurred for specific product development. Otherwise, research and development costs are expensed under cost of goods sold (excluding depreciation) or, in the case of costs related to the development of a four-stroke “double twin” cylinder engine to compete in the Moto GP Championship, under selling, general and administrative expenses (excluding depreciation). Our capitalized research and development costs were € 13.0 million, € 16.5 million and € 13.3 million in 2003, 2002 and 2001, respectively. Our expensed research and development costs were € 5.0 million, € 4.9 million and € 3.8 for the same years. These expensed costs included research and development expenses for specific projects on our racing program, which amounted to € 1.4 million for 2003, € 1.4 million for 2002 and € 1.5 million for 2001. Amortization charges relating to our capitalized research and development costs were € 11.0 million, € 8.9 million and € 7.6 million in 2003, 2002 and 2001, respectively. These amortization charges relate only to research and development costs capitalized since our September 1996 acquisition of the Ducati business, and may increase in future periods as a result of new capitalizations. In relation to our R&D activity, we have benefited from financial assistance from the Italian Government, amounting to € 1.7 million in 2003. Such assistance is expected to continue in 2004.

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Item 6. Directors, Senior Management and Employees

Directors

     The following table sets forth the names of the members of the current board of directors, their positions, year of initial appointment and date of birth. All members of the board other than Messrs. Foti, Lipparini and Thorley were appointed at the shareholders’ meeting held on May 7, 2002 for a three-year term to expire upon the approval by the shareholders (in the spring of 2005) of our financial statements for fiscal year 2004. Messrs. Foti and Lipparini were appointed as directors at the shareholders’ meeting held on May 6, 2003 to replace Messrs. Piero Ferrari and Carlo Di Biagio (our former managing director), for a term to expire concurrently with the term of our other directors. Mr. Thorley was temporarily appointed by the board of directors in May 2003 to replace Mr. Choi and then appointed as director at the shareholders’ meeting held on May 6, 2004, also for a term to expire concurrently with the term of our other directors.

     We have briefly summarized below the principal business activities, experience and other principal directorships, if any, of our current directors.

     Federico Minoli has been a director of DMH since September 1996 and chairman of DMH since July 1998. Mr. Minoli has been our managing director since March 2003, a position that he had previously held from April 1997 to July 2000. He holds several other board level positions within the Ducati group, including the position of chairman of Ducati North America. Prior to joining DMH, Mr. Minoli was a partner and vice president of Bain & Co., the international management consulting firm. From 1987 to 1989, Mr. Minoli held a number of senior positions at Benetton S.p.A., the international clothing retailer, including general manager of Benetton for Canada, the United States and Central America. Prior to 1987, Mr. Minoli was a consultant with McKinsey & Co. and served with Playtex International and Procter & Gamble S.p.A. Mr. Minoli is a founding partner of HMD Partners (founded in 2003) and serves on the board of directors of Bally International AG, Mantero Finanziaria S.p.A., Escada AG, Almaweb, Uno A Erre Italia S.p.A. and Gori & Zucchi S.p.A. He was also temporary CEO of Bally International AG from May 2001 to April 2002 and has been Chairman of Unoaerre S.p.A. since November 2000. He is a trustee of the Riders for Health Association and the sole director of Dream Engine S.r.l. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions”.

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     Giorgio Seragnoli is Vice Chairman of the Board of Directors of Ducati Motor Holding. Mr. Seragnoli is Chairman of Fortitudo Pallacanestro S.r.l., a basketball team based in Bologna, and of Ber Banca S.p.A. He also serves on the board of numerous companies, including Compagnia Sviluppi Industriali ed Immobiliari S.p.A., a real estate holding company, Fonderie Sabiem S.p.A., Cotton Club S.p.A. and BOPA S.r.l. Mr. Seragnoli is a past director of G.D., Castelgarden, Mediaset, Olcese, Banca Fideuram and CAER Gruppo Bancario. He was also a member of the Presidential Committee of the Associazione degli Industriali of Bologna.

     David Bonderman is principal, general partner and founder of Texas Pacific Group (TPG), a family of investment funds that invests primarily in restructurings, recapitalizations and buyouts in the United States, Canada and Western Europe. TPG’s affiliates make similar investments in Latin America, East Asia and Eastern Europe. The past and present portfolio of TPG and its principals include: Continental Airlines, America West Airlines, Beringer Wine Estates, J. Crew, Del Monte, Ducati Motor Holding, Globespan Technologies, ON Semiconductor and Seagate Technology. Prior to forming TPG, Mr. Bonderman was Chief Operating Officer of the Robert M. Bass Group, Inc. (now doing business as Keystone, Inc.) in Fort Worth, Texas. RMBG is the personal investment vehicle of Fort Worth, Texas-based investor, Robert M. Bass. Prior to joining RMBG in 1983, Mr. Bonderman was a partner in the law firm of Arnold & Porter in Washington, DC, where he specialized in corporate, securities, bankruptcy, and antitrust litigation. From 1969 to 1970, Mr. Bonderman was a Fellow in Foreign and Comparative Law in conjunction with Harvard University and from 1968 to 1969, he was Special Assistant to the U. S. Attorney General in the Civil Rights Division. From 1967 to 1968, Mr. Bonderman was Assistant Professor at Tulane University School of Law in New Orleans. Mr. Bonderman graduated Magna Cum Laude from Harvard Law School in 1966. He was a member of the Harvard Law Review and a Sheldon Fellow. He is a 1963 Phi Beta Kappa graduate of the University of Washington in Seattle. Mr. Bonderman also serves on the Boards of the following public companies: ProQuest Company; Co-Star Group, Inc.; Ryanair Holdings, plc; Gemplus International S.A.

     Mauro Benetton has been the Marketing Director of Benetton Group S.p.A. since December 1992. Born in 1962, the eldest son of Luciano Benetton, Mr. Benetton began working for the Benetton Group as a student, first in London and then in Paris. In 1985, he moved to Ponzano, Italy, to begin working at Benetton’s headquarters, where he was in charge of marketing for one of the Benetton’s main lines, Sisley. Mr. Benetton planned and oversaw this brand’s successful re-launch. He left Benetton in June 2003 and in September 2003 he joined Lab Id s.r.l. as retail project manager for the robe di kappa brand.

     Abel G. Halpern is a founding partner of HMD Partners (founded in 2003). Prior to 2003, Mr. Halpern was Co-Head of TPG’s European private equity and investment activities, based in London since 1996. Previously, Mr. Halpern was based in Mexico City, focusing on Latin American investments. Before joining TPG, Mr. Halpern was a management and strategy consultant with Bain & Company, an international strategic consultancy firm. Mr. Halpern received a Masters of Business Administration from Harvard University and a Bachelor of Arts degree, magna cum laude and with distinction, from Yale University. Mr. Halpern also serves on the Board of Directors of Escada AG and Bally International AG.

     Paolo Pietrogrande has been a director of DMH since January 1999. Mr. Pietrogrande is chief executive officer of Nuovi Cantieri Apuania, an Italian shipbuilder specialized in speciality chemical vessels and cruise ferries. He currently is co-director of the executive MBA Almaweb at Bologna University. Prior to his current position at Nuovi Cantieri Apuania, Mr. Pietrogrande was a consultant to Ducati as to the restructuring of our group and was chief executive officer of Enel GreenPower S.p.A. (a subsidiary of Enel S.p.A.) from 1999 to 2003. Prior to joining Enel, Mr. Pietrogrande was the director of business development of GE Power Systems’ European business in Florence, Italy. Before joining General Electric in 1996, Mr. Pietrogrande was a management and strategy consultant with Bain & Co.,

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and prior to that served as deputy director of KTI S.p.A., as vice president of marketing for KTI Group B.V. Eastern Division and as business development manager of KTI Corporation. Mr. Paolo Pietrogrande also serves on the board of Ryanair Holdings, plc and has authored two books on advanced power generation.

     Dante Razzano is principal and senior partner of Invest Industrial S.p.A., a southern European private equity firm managing over € 500 million. Mr. Razzano was head of Italian private equity at Deutsche Morgan Grenfell (1992 to 2003). He was managing director of Citibank NA and CEO of Citicorp’s Italian merchant bank from 1988 to 1992 (Citinvest S.p.A.), and was responsible for southern European M&A for Citicorp, based in New York, in 1987. From 1970 to 1986, he was vice president and group executive of Manufacturers Hanover Trust Co., New York. Mr. Razzano also serves on the board of Permasteelisa S.p.A., an Italian public company.

     Ulrich Weiss has been a director of DMH since October 1998. Until May 1998, Dr. Weiss served in various capacities as a member of the board of directors of Deutsche Bank AG for 19 years. While at Deutsche Bank, Dr. Weiss was responsible for Deutsche Bank’s business in Italy and was president of Deutsche Bank S.p.A., Milan. Dr. Weiss is a member of the Advisory Board of Deutsche Bank, and of several supervisory Boards and Boards of Directors in Germany and Italy, including Continental A.G., Benetton Group S.p.A. and Piaggio Holding S.p.A.

     Giles Thorley is chief executive officer of Punch Taverns Plc. Previously, Mr. Thorley was chief executive officer of the Unique Pub Company Plc, and was an executive officer of Nomura International Plc. Mr. Thorley is a trained barrister, a member of the Bar of England and Wales, of the British Institute of Innkeeping and a Supervisory Board member of the British Beer and Pub Association. He is a trustee of the Rona Trust charitable organization and holds a law degree from the University of London.

     Andrea Lipparini, Ph.D., is a Full Professor of Strategy at the Università Cattolica in Milan. He is the founder and director of Knowledge Lab S.r.l. and also serves on the board of Air Dolomiti S.p.A. Professor Lipparini has published approximately 100 articles and six books in the area of competitive business management and business strategy. Professor Lipparini is also a training and management development consultant to various industrial companies, including Ferrari, Maserati, Volkswagen and Eni.

     Alessandro Foti is the CEO of Fin-Eco Bank S.p.A., and general manager of Fineco S.p.A., two companies of the Capitalia Group. He is a member of the Board of Investment of Fin-Eco Investimenti SGR S.p.A., a member of the supervisory board of directors of Entrium Direct Bankers, and serves on the board of Assosim (the Association of Italian securities investment firms) and Netscalibur S.p.A. Previously, Mr. Foti held various financial positions at Montedison S.p.A. and IBM S.p.A. in Milan. He holds a Business Administration degree from Bocconi University in Milan.

Board Committees

     Our board of directors established an executive committee in 1999 that is authorized to resolve on all matters that may be decided by our board other than on those that may not be delegated by the board pursuant to Italian law, such as the preparation of the financial statements and increases of the share capital pursuant to delegations from shareholders. Meetings of the executive committee may be called by any member in accordance with the rules applicable to the board of directors. Resolutions of the committee must be adopted by the vote of a majority of its members. The current members of the executive committee — Messrs. Minoli, Halpern, Razzano and Seragnoli — were appointed on May 9, 2002 for a term to expire concurrently with the term of their membership on the board, in the spring of 2005.

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     Our board of directors also established a compensation committee in 1999. The compensation committee proposes to the board the remuneration of our directors with special delegated powers, including the chairman and managing director, and has the authority to determine the remuneration of our managers. Meetings of the compensation committee may be called by any member in accordance with the rules applicable to the board of directors. Resolutions of the committee must be adopted by the vote of a majority of its members. On May 9, 2002, Messrs. Bonderman, Halpern, Pietrogrande, Razzano and Weiss were re-appointed as members of the compensation committee for a term to expire concurrently with the term of their membership on the board.

     To comply with the code of corporate governance issued by Borsa Italiana S.p.A., our board of directors also established an internal control committee, which is mainly responsible for assessing the adequacy of the internal control system through an evaluation of work programs and reports prepared by those responsible for internal control, and for relations with external auditors. The internal control committee reports to the board of directors about the work performed and the adequacy of the internal control system at least every six months, at the time of approving the annual financial statement and the semi-annual report. Of the three current members of the internal control committee, Messrs. Weiss and Pietrogrande were appointed on May 9, 2002, and Mr. Foti was appointed on March 5, 2003 in substitution of Mr. Ferrari. Their term expires concurrently with the term of their membership on the board.

     See “Item 10. Additional Information—By-laws—Board of Directors”.

Senior Management

     The following table sets forth the names of our senior officers who are not also directors, their respective positions, the year they were appointed to such positions and their date of birth.

     We have briefly summarized below the principal functions and experience of our senior officers.

     Claudio Domenicali has been managing director of Ducati Corse S.r.l. since April 1999. Mr. Domenicali is responsible for all Ducati Corse operations, including overseeing the hiring policies for riders, research and development, logistics, commercial and marketing activities, administration and information technology. Mr. Domenicali joined our predecessor company in 1991. From 1994 to 1996, Mr. Domenicali was responsible for the technical office. From 1996 to 1999, he was deputy of technical

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director of research and development while managing all the racing technical matters. Mr. Domenicali holds a degree in Mechanical Engineering from the University of Bologna.

     David Gross was appointed as creative director in 2003, responsible for overseeing Ducati’s activities related to branding, image, alliances, licensing, communications and marketing, after having been our manager of strategic planning from April 1997. From 2001 to 2003, Mr. Gross was has also responsible for the development of new motorcycle projects, including the Multistrada 1000DS and MH900e. Prior to joining us, Mr. Gross was a corporate finance lawyer with Simpson Thacher & Bartlett in New York from 1993 to 1997. Mr. Gross also has over a decade’s experience as a financial journalist with Time Magazine and other publications. See “Item 7. Major Shareholders and Related Party Transactions—Related Party Transactions”.

     Gianluigi Mengoli has been the manager of research and development since 1994. Mr. Mengoli joined our predecessor company in 1973 as a project designer and, in 1980, became responsible for our research and development functions. Prior to joining us, Mr. Mengoli was a technical designer for Simoncini, a Bologna-based company.

     Danilo Bernardini has been the manager of personnel and human resources since 1995. Prior to joining Ducati, Mr. Bernardini was responsible for personnel at various units of Cagiva (including CRC) from 1987 and at our predecessor company from 1983 to 1987. From 1977 to 1983, Mr. Bernardini held a number of positions at the Zanussi Group, an Italian appliance manufacturer. In addition, Mr. Bernardini has had previous experience as a sports journalist for the Italian motorcycling magazine, Motociclismo.

     Gianfranco Giorgini has been the manager of operations since May 1999. Among other things, Mr. Giorgini is responsible for purchasing, warehousing, production planning and distribution. Prior to joining us, Mr. Giorgini held a variety of positions in a 25 year career with Lombardini Motori S.p.A., including serving as logistics manager from 1992 to 1997.

     Enrico D’Onofrio has been our manager of finance since October 2000. Prior to that, Mr. D’Onofrio worked for 17 years at Procter & Gamble where he held a number of finance positions, including Finance Manager in Portugal and Director of Finance & Accounting at P&G headquarters in Belgium. He began his career at Olivetti as a research and development analyst. Mr. D’Onofrio holds a degree in Mechanical Engineering and a M.B.A. from Bocconi University in Milan.

     Cristiano Silei joined DMH as commercial director in April 1997. Since joining DMH, Mr. Silei has been responsible for the development of our strategic plan, the reorganization of our commercial department, general management of our North American subsidiary, evaluation of acquisition opportunities and the start up of Ducati.com. Prior to joining Ducati, Mr. Silei was at the Paris and Milan offices of the Bain & Co. management consulting firm, where he specialized in business restructuring. Mr. Silei also worked at the Rome office of Andersen Consulting in the area of business process reengineering. Born in Siena on September 24, 1968, Mr. Silei holds a degree in business administration from the Bocconi University in Milan.

     Mirko Bordiga has been the manager in charge of sales since March 2003. He has been general manager of our subsidiary Ducati Japan since 1999, prior to which he was the area manager for Ducati for the Asia-Pacific area.

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Statutory Auditors

     The following table sets forth the names of the three members of our current board of statutory auditors and the two alternate statutory auditors, their respective positions, the year of their appointment and date of birth. The current board of statutory auditors was elected for a three-year term on May 6, 2004. All of our statutory auditors and Mr. Gianluca Nanni Costa were first appointed in 1998. Mr. Salvatore Lantino was first appointed in 2004.

     During 2003, our statutory auditors received in the aggregate € 124,000 in compensation for their services as statutory auditors to DMH and its Italian subsidiaries.

Compensation of Directors and Senior Management

     Starting from the year 2002, each of our directors is entitled to an annual compensation in return for his services as director equal to € 15,000. Mr. Minoli waived his rights to this compensation for his current term as director. Directors are also entitled to reimbursement of expenses incurred in connection with the performance of their functions.

     Mr. Minoli received cash compensation of approximately € 1.2 million in 2003 as chairman and managing director of DMH and chairman of Ducati North America. The amount includes bonuses paid to Mr. Minoli under the Retention Plan described below. For the year 2004, Mr. Minoli is entitled to receive $ 400,000 in annual base compensation for his services as chairman of Ducati North America and € 250,000 in annual base compensation as managing director of DMH.

     Mr. Di Biagio, who held several board level positions at DMH and with certain of our subsidiaries, resigned from all board positions and as our managing director effective March 5, 2003, and as manager in charge of investor relations of DMH effective March 31, 2003. Pursuant to the termination agreement that we have entered into with Mr. Di Biagio in connection with his resignation as managing director, Mr. Di Biagio retains all of the share option rights (whether or not yet vested) attributed to him through the date of his resignation; these option rights will continue to be subject to applicable provisions of the 1997 Stock Option Plan and the 1999 Stock Option Plan. See “Item 10. Additional Information—Share Option Plans”. Mr. Di Biagio did not receive any severance payments in connection with his termination as managing director. See “—Employees” for further information on the cost of Mr. Di Biagio’s resignation as manager in charge of investor relations of DMH, including reference to his severance package.

     Mr. Pietrogrande received an overall amount of € 289,725 in 2003 and € 135,150 in 2004 for consulting services rendered to DMH (relating to the management of human resources, suppliers and group organizational issues as part of our cost reduction program).

     On February 11, 2002, the compensation committee extended for the years 2002, 2003 and 2004 a retention plan (with certain amendments) already in effect for the years 1999, 2000 and 2001 (the

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“Retention Plan”). The beneficiaries of the Retention Plan are Mr. Minoli and up to four additional senior officers of Ducati designated by the managing director. Mr. Di Biagio was also a beneficiary of the Retention Plan until his resignation as managing director of DMH. Under the Retention Plan, the beneficiaries are entitled to an extraordinary bonus ranging from 0% to 300% of their base salary, determined based on the annual percentage increase in certain measures of our financial performance. Bonuses under the Retention Plan vest on the date of approval of the consolidated financial statements for the year of reference and are payable in one lump sum within twelve months of such vesting, provided that the beneficiaries are our employees on the payment date. In case of termination by us of a beneficiary’s employment for reasons other than just cause (giusta causa or giustificato motivo soggettivo), unvested bonuses are terminated but we are obligated to pay each such senior officer three times the amount of the vested bonus.

     Extraordinary bonuses under the Retention Plan for earnings recorded in 2001 were paid in 2003 as follows: $ 400,000 and € 511,000 to Messrs. Minoli and Di Biagio in their capacities as Chairman and managing director, respectively, and $ 200,000 and € 115,300 to two other senior officers of Ducati. On the basis of Ducati’s 2002 and 2003 results, no extraordinary bonuses have vested for those years under the Retention Plan.

     In addition, Mr. Minoli was granted 500,000 share option rights during 2004 in connection with our 1999 Stock Option Plan. None of our other directors are beneficiaries under our 1999 Stock Option Plan.

     Our board of directors has approved an end-of-term payment obligation of US$ 1.2 million for Federico Minoli, which will be payable if he is removed or is not re-appointed as our managing director for reasons other than just cause before his sixtieth birthday in 2009. Subsequent to Mr. Di Biagio’s resignation as managing director, Mr. Di Biagio was not entitled to any special termination payment.

     During the year ended December 31, 2003, the aggregate compensation paid to the senior officers listed above, exclusive of compensation to Messrs. Minoli and Di Biagio and our other directors, was approximately € 1.4 million. This aggregate compensation includes discretionary performance-based bonuses granted to our senior officers in 2003 and does not include an additional € 42,998 of compensation in the form of mandatory leaving entitlements which our employees are entitled under Italian law (under Italian law, an employee is entitled to an end-of-employment payment which is accrued each year based on such employee’s annual salary).

     At December 31, 2003, we had a reserve for pensions and similar obligations for our directors and members of senior management, amounting to € 171,900.

     Pursuant to our management bonus plan, each of our managers, including the senior officers listed above, is entitled to an annual bonus if certain conditions are satisfied relating to our financial performance and such beneficiary’s individual performance. On the basis of Ducati’s 2003 results, our managers are not entitled to any bonuses under the management bonus plan for that year.

     In addition, Ducati senior officers, including those listed above received in the aggregate 920,000 share option rights during 2004 under our 1999 Stock Option Plan. See “Item 10. Additional Information—Share Option Plans”.

     At May 6, 2004, Messrs. Minoli and Seragnoli owned 225,000 and 7,815,692, of our outstanding shares, respectively. None of our other directors or senior officers listed above own more than 1% of our share capital. See “Item 10. Additional Information—Share Option Plans” for a description of our share option plans.

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     Beneficial ownership of our shares held by TPG Acquisition may be attributed to David Bonderman, who disclaims beneficial ownership of such shares. See “Item 7. Major Shareholders and Related Party Transactions”.

Employees

     As of December 31, 2003, we employed 1,162 persons worldwide (of which 1,038 were employed in Italy, 31 in the United States, 18 in the United Kingdom, 18 in France, 21 Germany, 19 in Japan and 7 in the Netherlands), as compared to 1,212 at December 31, 2002 and 1,144 at December 31, 2001. In 2003, we employed no temporary employees. Of our employees, 939 were employed by DMH, of whom 568 were employed in operations and the remainder in research and development, sales, marketing and central functions. Our employees outside Bologna are engaged primarily in sales and marketing. At December 31, 2003, our employees included 60 managers worldwide, as compared to 58 and 49 at December 31, 2002 and 2001, respectively. We believe that our relations with our employees are good.

     Under Italian law, employees are entitled to amounts based on salary and years of service upon leaving their employment. We had a liability for such termination indemnities of € 8.3 million at December 31, 2003. See Note 15 to the audited consolidated financial statements. Under Italian law, we make social security and national healthcare contributions for our employees to the Italian government, which provides pension and healthcare insurance benefits.

     Employees in Italy are subject to national and company-specific collective bargaining agreements. National agreements are negotiated collectively between the national associations of companies within a given industry and the respective national unions. National agreements provide a basic framework on working conditions, including, among other things, pay, security and other provisions. Our employees in Italy are principally subject to the National Metalworkers and Installers collective bargaining agreement, which was renewed in May 2003 and expires in December 2006 (except for its economic aspects, which expire in December 2004 and need to be re-negotiated thereafter to be coterminous with the overall agreement).

     Company-specific agreements are negotiated between individual companies and union representatives. These agreements address issues of special importance to the relevant company and may supplement the basic provisions of the national framework contract. Our company-specific agreement was signed in December 2003 and will expire in December 2007. The terms of this agreement provide for, among other things, covered employees to be paid an annual performance bonus based on collective productivity, profitability and quality targets.

     We have not experienced any significant work stoppages due to strikes since 1996.

     To improve our efficiency, at board meetings held on March 5, 2003 and on April 8, 2003, we approved a reorganization plan that provided, among other things, for the termination by mutual agreement of a number of our employees in exchange for severance payments. These terminations took place during 2003 and included the termination by mutual agreement of Mr. Di Biagio’s employment contract with DMH as manager in charge of investor relations, effective March 31, 2003.

     The total cost to us in 2003 of the severance incentives contemplated under the above plan amounted to approximately € 4.0 million, of which € 3.6 million related to DMH and € 2.2 million related to costs associated with the termination of Mr. Di Biagio’s employment contract (including compensation for consultancy and non-competition agreements). The total cost was recorded as a non-operating

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expense for 2003 in accordance with Italian Accounting Standard No. 19 (which provides for recognition in the year in which the decision to implement a reorganization plan is taken).

     We have approved an employee stock ownership plan (ESOP). For more information about this plan, see “Item 10. Additional Information—Employee Stock Ownership Plan”.

Item 7. Major Shareholders and Related Party Transactions

Major Shareholders

     The following table sets forth information regarding the beneficial ownership of our shares as of the shareholders’ meeting held on May 6, 2004 (the last date on which accurate shareholder data is available to us) by each shareholder known by us to be the beneficial owner of more than 2.0% of our shares. These shareholders do not hold any different voting rights from those held by other ordinary shareholders.

     Prior to our March 1999 initial public offering, TPG Acquisition and an affiliate held in the aggregate approximately 72.0% of our share capital.

     TPG Acquisition is part of a group of investment funds known as Texas Pacific Group or TPG. Texas Pacific Group was founded by David Bonderman, James G. Coulter and William S. Price III to pursue public and private investment opportunities through a variety of methods, including leveraged buyouts, recapitalizations, joint ventures, restructurings and strategic public securities investments. Messrs. Bonderman, Coulter and Price are the shareholders of the general partner of the TPG funds of TPG. Each of Messrs. Bonderman, Coulter and Price disclaims beneficial ownership of our shares held by TPG Acquisition. Mr. Bonderman is a member of our board of directors.

     As of May 6, 2004, Harris Associates, L.P. owned 7.57% of our share capital, a 2.6% increase as compared with its holdings as of May 6, 2003.

     As of May 6, 2004, 158,500,963 shares were outstanding. As of May 6, 2004, there were 142,377 ADS (equivalent to 1,423,770 shares) held by 463 record holders in the United States. Since May 6, 2004, an additional 325,444 shares were issued pursuant to the exercise of options under our 1997 Stock Option Plan. See “Item 10. Additional Information — Share Option Plans”.

     Because brokers or other nominees held certain shares and ADSs, 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 wherever the direct beneficial owners of such shares are resident.

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Related Party Transactions

     No member of the board of directors or board of statutory auditors and no senior officer (including close members of any such person’s families) nor any enterprise over which any such person is able to exercise a significant influence has had any interest in any transactions that are or were unusual in their nature or conditions or are or were material to us, and that were either effected since December 31, 2002 or that were effected during an earlier period and remain outstanding or unperformed in any respect. We have not provided any loans or guarantees to or for the benefit of any such person since December 31, 2002 and none remain outstanding or unperformed.

     Following is a brief description of various contractual relationships with associates and members of our board of directors (see also “Item 6. Directors, Senior Management and Employees—Compensation of Directors and Senior Management”):

     In 2003, we paid an aggregate of € 392,000 to Dream Engine S.r.l. to organize the following Ducati-sponsored events (as well as € 50,000 for direct expenses related to the same two events): the Motogiro d’Italia, a promotional tour of vintage motorbikes that took place in July 2003 (for consideration of € 207,000), the Centopassi, a five-day amateur motorcycle competition that was held in August 2003 in northern Italy (for consideration of € 135,000). Mr. Minoli, our chairman and managing director, is the sole director of Dream Engine. Messrs. Minoli and Gross together indirectly beneficially own 99.9% of the quotas of Dream Engine. In 2004, we agreed to pay an aggregate of € 465,865 to Dream Engine S.r.l. to organize the 2004 Motogiro d’Italia (for consideration of € 150,000), the 2004 Centopassi (for consideration of € 135,000), and the 2004 World Ducati Weekend (for consideration of € 180,865).

     In 2003 and 2004, we paid Mr. Pietrogrande € 289,725 and € 135,150, respectively, in compensation for consulting services. In 2003, we also entered into a commercial services agreement with Contemporanea Progetti S.r.l., pursuant to which Contemporanea Progetti S.r.l. developed architectural projects relating to the Ducati Museum and other parts of our factory for a total consideration of € 17,000. A relative of Paolo Pietrogrande’s holds a 30% interest in Contemporanea Progretti S.r.l.

     On November 5, 2003, our Board of Directors approved our entering into a consulting relationship with Knowledge Lab S.r.l. (in which Andrea Lipparini holds a 22.5% interest) for the training of personnel. We paid to Knowledge Lab S.r.l. consideration equal to Euro 1,800 for the services rendered in 2003.

     On April 14, 2004, we formed Ducati Retail S.r.l. a majority owned subsidiary (99.0% held by DMH and 1.0% held by Enrico D’Onofrio, our manager of finance). Ducati Retail S.r.l. will make retail sales of Ducati products at Ducati-owned stores in areas not covered by our current dealerships (e.g., the sale of motorcycles used by journalists or shown at fairs and exhibitions, or the sale of merchandising at airports).

     On May 6, 2004, we formed Ducati Consulting S.r.l. to provide consulting and logistics services to all of the Ducati Group companies as well as to our suppliers and other manufacturers. Ducati Consulting S.r.l. is 85% held by DMH, with the remaining interests held by Messrs. Contino (5.0%), Pellerey (5.0%) and Lipparini (5.0%). Until June 30, 2004, Mr. Contino was responsible for procurement in DMH, and Mr. Pellerey was responsible for a program to improve the efficiency of our plant. Beginning July 2004, Messrs. Contino and Pellerey will be managers of Ducati Consulting S.r.l.. Mr. Lipparini is a director on the board of DMH.

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     DMH has commercial relationships with other companies of the Ducati Group that handle product sales in specific countries (i.e., the U.S., Germany, France, Japan, Netherlands and the UK). These relationships include sales by DMH of motorcycles and related products that it produces to these companies (at prices reflecting the local market and competitive environment in the countries in which the purchasing companies operate) as well as after sales services (mainly warranties) carried out by those companies on DMH’s behalf. Trade receivable and payable balances for those sales and other services in the amount of approximately € 97,800 and € 19,000, respectively, existed as of March 31, 2004 between our subsidiaries and DMH.

     Financially, these companies operate independently, although some benefit from particular forms of centralized financing or loans granted by DMH, mostly in certain stages of growth (i.e., start-up) or during difficult market conditions. The other subsidiaries involved in distribution self-finance their operations out of profits, and, if they need additional financing, by factoring their trade receivables without recourse.

     At December 31, 2003, the only significant debt payable that DMH owed to any of its subsidiaries was to Ducati Corse S.r.l. in the amount of approximately € 7.4 million for Ducati Corse’s yet-to-be-paid-in share capital.

     Ducati Corse was set up so that all aspects related to the racing division, including R&D, could be handled separately from the production and sales side of the business, which is handled by DMH. In particular, DMH and Ducati Corse entered into the following agreements:

•

Right to use and manage DMH’s racing business as a going concern (affitto di ramo di azienda);

•

Sponsorship agreement pursuant to which DMH sponsors Ducati Corse’s racing activities; and

•

R&D agreement pursuant to which Ducati Corse agreed to carry out R&D for DMH for sporting activities related to the Moto GP and Superbike Championships, management of a number of private teams in the Superbike Championship, and motorcycle production.

     DMH and its subsidiary Ducati.Com S.r.l. are tied by a service agreement for advertising and commercial and data collection services to be carried out by Ducati.Com on behalf of DMH on the www.ducati.com website.

Item 8. Financial Information

Consolidated Financial Statements

     Please refer to “Item 18. Financial Statements” of this annual report.

Other Financial Information

Export Sales

     Export sales from Italy were approximately € 275.3 million in 2003, as compared with € 306.4 million in 2002, and represented 70.9% of our net sales in 2003 (and 74.2% in 2002).

Legal Proceedings

     We are party to various claims and legal actions arising in the ordinary course of business. We do not believe that any litigation to which we are a party is likely, individually or in the aggregate, to have a materially adverse effect on our business, financial condition or results of operations.

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     We are engaged in litigation with our former distributor in Belgium in connection with our decision not to renew our distributorship agreement and an alleged failure by our predecessor to deliver motorcycles in 1996. On September 14, 1998, the Commercial Court of Liege found in favor of the distributor and awarded provisional damages of approximately BEF 54 million (including interest) (approximately € 1.3 million). On September 21, 1998, we appealed this decision. Notwithstanding our appeal, on February 24, 1999, the former distributor enforced the prior judgment by selling an inventory of Ducati motorcycles which it had previously attached in Belgium. The proceeds of the sale were BEF 27,835,078 (approximately € 690,013). On May 27, 1999, the Court of Appeal of Liege found that Belgian courts lacked jurisdiction over the case and set aside the prior judgment. The former distributor was adjudicated bankrupt on October 14, 1999. Bankruptcy trustees of the former distributor appealed the May 27, 1999 judgment before the Supreme Court of Belgium, which rejected the appeal on June 21, 2001. We have taken various steps to recover the proceeds of the sale. However, given the existence of secured creditors of the former distributor’s bankruptcy estate, we are unlikely to be successful in our efforts to recover these proceeds. On August 4, 2000, the trustee also sought payment for the alleged value (BEF 13.7 million, or approximately € 340,000) of spare parts that were part of the distributor’s inventory at the time of termination on the assumption that we had an obligation to buy back these spare parts. We have denied responsibility for this payment. Our provision for this litigation at December 31, 2003 was € 23,000.

     We are also involved in litigation with a former chief executive officer, Mr. Ernesto Vettore, of the predecessor company of Ducati North America Inc. in connection with the termination of his employment. Mr. Vettore’s claim is for an amount of approximately € 400,000 and remains pending before the Federal District Court of New Jersey. Until May 21, 2003, a parallel litigation with Mr. Vettore, based essentially on the same facts as the New Jersey proceedings, was pending in Italy before the Court of Varese. On that date, the Italian proceedings were settled among the parties at no charge to us. Our provision for this litigation at December 31, 2003 was € 143,000.

     We are also engaged in litigation with Virginio Ferrari, the manager of one of the two racing teams sponsored by Ducati in the 1998 World Superbike Championship. In December 1998, Mr. Ferrari filed a claim against us in the Italian courts in the amount of approximately € 6.7 million, alleging that he had a three year agreement with Ducati for the sponsorship of a racing team and that we breached this agreement in electing not to sponsor Mr. Ferrari’s team for the 1999 World Superbike Championship. We are contesting Mr. Ferrari’s claim and have not taken a provision in connection with this litigation.

     In 2001, Michael Hailwood’s widow, individually and in her capacity as beneficiary of his estate, filed a claim before the Federal District Court of New Jersey against us and Ducati North America Inc. alleging trademark infringement, violation of a purported right of publicity and other claims with regard to the sale of MH900e motorcycle. These claims were all settled on April 2003 for a value equal approximately to €375,000 in favor of Michael Hailwood’s widow. Such amount was taken from our total provision for that litigation, which was approximately € 507,000 as of December 31, 2002.

Dividend Policy

     DMH has not paid any cash dividends on its shares since its formation in 1996. The payment by us of any annual dividend must be 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 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 its stated amount is reduced by the amount of such losses. The board of directors may authorize the distribution of interim dividends, subject to certain statutory limitations.

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     Dividends are payable to those persons who hold the shares through an Intermediary on the dividend payment date declared by the shareholders’ meeting. Payments with respect to dividends are distributed through Monte Titoli on behalf of each shareholder with whom the shareholder has deposited his or her shares. 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.

Significant Changes

     At our May 6, 2004 meeting, our shareholders approved (i) the merger of our subsidiary Ducati.Com into DMH, which will be completed in the fourth quarter of 2004 (see “Item 4. Information on the Company—Organizational Structure”); (ii) amendments to our By-laws in response to the 2004 Italian corporate law reform (see “Item 10. Additional Information—By-laws”); (iii) a buy back plan regarding the repurchase on the Telematico of up to 15,556,800 of our shares and the conversion of our restatement reserve of approximately € 22.03 million created in connection with the restatement to market value of our trademark from non-distributable to freely distributable (see “Item 10. Additional Information—Buy Back Plan); and (iv) a capital increase of up to 1,585,000 shares in connection with the share option rights that we have granted in 2004 to beneficiaries who are employees of the Ducati group under the 1999 Stock Option Plan (see “Item 10. Additional Information—Share Option Plans”).

Item 9. The Offer and Listing

Trading Markets and Share Prices

     The principal trading markets for our shares is Telematico and for our ADSs (each representing ten shares) is the New York Stock Exchange. Our ADSs have been listed on the New York Stock Exchange and our shares have been listed on the Telematico since our initial public offering in March 1999. The Bank of New York is our depositary for purposes of issuing the American Depositary Receipts (“ADRs”) evidencing the ADSs. The following table sets forth the high and low closing prices of our ADSs as recorded on the New York Stock Exchange Composite Tape and the high and low closing prices of our shares as recorded on the Telematico, for the quarters and months indicated (source: Bloomberg).

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     In April 2001, our shares began trading on the Segmento Titoli con Alti Requisiti (or “STAR”) of Telematico. This segment was created recently by Borsa Italiana S.p.A. for small- and medium-sized companies operating in traditional sectors of the economy and meeting stricter requirements relating to transparency, liquidity and corporate governance than those usually required for listing on the Telematico. As part of the STAR admission requirements, we appointed Mediobanca to act as specialist for our shares. The specialist is required to take a number of actions intended to support the market for our shares and to facilitate the communication of information about us to investors.

Item 10. Additional Information

Share Option Plans

     In 1997, we established a share option plan for our then managing director and certain senior officers and independent consultants (the “1997 Stock Option Plan”), pursuant to which options to purchase 8,148,148 shares at an exercise price of euro 0.723 per share were granted during the year ended December 31, 1997. All of these options vested as of December 31, 2001 and expire on August 4, 2007. As of June 28, 2004, 109,592 options had been cancelled. Twenty percent of the remaining vested options became exercisable upon TPG Acquisition’s disposition of a portion of its shares in our March 1999 initial public offering, of which options to purchase 962,963, 309,000 and 229,000 shares were exercised by participants in 1999, 2000 and 2001, respectively. The other 80% of such vested options, equal to options to purchase 6,537,593 shares, became exercisable on May 6, 2004. Of these, 325,444 were exercised in June 2004. Once vested and exercisable, options may only be exercised during a 30-day period following the date of the shareholder approval of our Italian GAAP financial statements.

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Options are forfeited if the beneficiary is terminated for cause. As of June 28, 2004, options to purchase 6,212,149 shares remained exercisable.

     In September 1999, our board of directors also approved a stock option/stock appreciation rights plan (the “1999 Stock Option Plan”) for certain of our executive directors, officers and independent consultants that are designated to participate in the plan by the compensation committee of the board of directors. On March 11, 2004, our board amended the 1999 Stock Option Plan to include expressly high-level employees of companies of the Ducati Group as covered by the plan. Under this plan, the board of directors may grant options or stock appreciation rights (each such option or right, a “Right”) in any year in respect of not more than 2.0% of our outstanding share capital. Beginning in 2002, Rights may be granted under the plan upon approval by the board of directors of our Italian GAAP preliminary consolidated income statement and balance sheet for the prior fiscal year (which approval typically occurs by February 15 of each year) and expire seven years after the date of grant. Until 2001, Rights under the plan were granted following approval by the board of directors of our Italian GAAP consolidated financial statements for the prior fiscal year (which approval typically occurs in March of each year). Rights vest in three equal annual installments (or as otherwise determined by the board of directors) starting on December 31 of the year following the year of grant, but are forfeited, whether or not vested, if the employee is terminated for cause. Upon exercise, our obligation in respect of the Rights may be satisfied in shares or, if the Shares are no longer listed on the Telematico or the issuance of new shares or the buy back of existing shares have not been approved, in cash (calculated with reference to the market value of the shares at the time of exercise). To exercise their Rights, the participants must pay us a strike price that is the greater of (i) our consolidated per share net worth at the time of exercise and (ii) the value of the shares on the grant date as determined in accordance with the tax provisions in force on such grant date (currently the average official price for the shares in the month preceding the grant date). Based on the criterion described under (ii) above, the strike price would be € 2.88 per share, € 2.81 per share, € 1.99 per share, € 1.80 per share and € 1.317 per share for Rights granted in 1999, 2000, 2001, 2002 and 2004, respectively. Other than in the event of death or disability of a beneficiary, once vested, rights granted prior to 2002 may only be exercised during a 30-day period following the approval by the board of directors of our Italian GAAP consolidated financial statements for the prior fiscal year, and rights granted beginning in 2002 may only be exercised during a 30-day period following the approval by the board of directors of our Italian GAAP preliminary consolidated income statement and balance sheet for the prior fiscal year.

     In 1999, we granted 500,000 Rights to Mr. Minoli, 500,000 to Mr. Di Biagio and an aggregate of 2,159,259 Rights to 51 additional beneficiaries. In March of 2000, our board of directors approved the grant of 3,159,259 Rights for the year 2000 (of which 500,000 were granted to Mr. Minoli, 500,000 were granted to Mr. Di Biagio and 2,159,259 were granted to 70 additional beneficiaries selected by the compensation committee). In March 2001, the board approved the grant of 3,165,000 Rights under the plan for the year 2001 (of which 500,000 were granted to Mr. Minoli, 500,000 to Mr. Di Biagio and 2,165,000 to 73 additional beneficiaries selected by the compensation committee). On February 14, 2002, the board approved the grant of 3,960,000 Rights for the year 2002 (of which 500,000 were granted to each of Messrs. Minoli and Di Biagio and 2,960,000 were granted to 90 additional beneficiaries selected by the compensation committee). In granting these Rights in 2002, which together represent approximately 2.5% of our outstanding share capital, the board decided to waive for 2002 the above-mentioned 2.0% limit on Rights to be granted in any year under the plan, due to the prior expiration of 1,190,638 unexercised rights granted under the plan before 2002.

     Our board did not authorize any grant of options in relation to 2003. On March 11, 2004, our board approved the grant of 3,170,000 Rights for the year 2004 (of which 500,000 were granted to Mr. Minoli and 2,670,000 to 65 additional beneficiaries selected by our compensation committee).

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     Rights granted in 1999 through 2004 vest in three annual installments beginning on December 31 of the year following the year of grant, as follows: 50% in the first year and 25% in each of the two subsequent years. As of June 28, 2004, a total of 2,099,388 Rights granted under the 1999 Stock Option plan had been cancelled, and a total of 14,514,130 Rights, whether or not vested, remained exercisable subject to the conditions set forth above.

     On May 2, 2000, our shareholders’ meeting approved a capital increase of up to 12 million shares in connection with the Rights that we have granted from 1999 to 2002 under the 1999 Stock Option Plan.

     On May 6, 2004, our shareholders’ meeting approved a capital increase of up to 1,585,000 shares in connection with the Rights that we have granted in 2004 to beneficiaries who are employees of the Ducati Group.

Buy Back Plan

     At a May 6, 2004 meeting, our shareholders approved a plan (the “Buy Back Plan”) pursuant to which, at the direction of our managing director, duly empowered by our board of directors, we may:

•

repurchase on the Telematico up to 15,556,800 of our shares (representing approximately 9.8% of our then issued and paid-in share capital);

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retain such shares as treasury shares;

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transfer such shares either to beneficiaries of the Employee Stock Ownership Plan (See “—Employee Stock Ownership Plan”) and the 1999 Stock Option Plan as required thereunder; or

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dispose, subject to applicable law, of such shares on the Telematico to maintain liquidity of our shares on such stock exchange.

     At an extraordinary meeting held on May 6, 2004, our shareholders approved the conversion of our revaluation reserve of € 22.027 million (net of the applicable 19% substitute tax) created in connection with the restatement to market value of our trademark pursuant to Article 10, paragraph 1, of Law No. 342 of 2000 as amended by Article 2, paragraph 25, of Law No. 350 of 2003 (the “Revaluation Reserve”) from non-distributable to freely distributable. Our shareholders approved the conversion of the Revaluation Reserve into a freely distributable reserve to enable us to use such reserve to implement the Buy Back Plan (under applicable Italian law, buy back plans can only be funded from profits available for dividends or out of distributable reserves as appearing on our latest duly approved unconsolidated financial statements). Use of this reserve to implement the Buy Back Plan, however, is conditional upon the expiration of the 90 day period following the filing of the May 6, 2004 shareholders’ resolution with the Companies’ Registry, during which time our creditors may file an opposition to the conversion as permitted by Italian law.

     Under the Buy Back Plan, we may repurchase these shares in one or more transactions over an 18-month period from May 6, 2004 at a per share purchase price of not more than 10% above or below the market price for the shares on the Telematico on the day prior to any purchase. There is no time-limit under the Buy Back Plan in respect of the disposal of any shares repurchased before the end of this 18-month period. Repurchases and disposals of our shares under the Buy Back Plan shall be carried out in accordance with applicable Italian law relating to buy back plans in Italy, as more fully described in "—By-laws—Purchase by Us of Our Own Shares”, as well as certain conditions relating to the ESOP and the 1999 Stock Option Plan as more fully described in "—Share Option Plans”.

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     As of June 28, 2004, we owned 1,521,378 of our shares, of which 293,235 shares were repurchased pursuant to our buy back plan expiring November 2003, and 1,228,143 shares were repurchased pursuant to our buy back plan expiring November 2005.

Employee Stock Ownership Plan

     On February 14, 2002, the board approved an Employee Stock Ownership Plan (“ESOP”) to facilitate the purchase of our ordinary shares by non-director Ducati employees (including part-time employees) under indefinite contracts who are resident in Italy. In each year, our managing director must decide to implement the ESOP for it to be effective. Under the ESOP, each employee in any year through 2006 in which the ESOP is implemented can request to purchase, at a discount, a number of our ordinary shares not to exceed an amount equal to € 3,000. The request must be submitted within 20 days after the approval of our annual unconsolidated financials statements.

     To satisfy purchases of shares made under the ESOP, we will instruct a broker appointed by us to purchase on the Telematico on our behalf the number of shares equal to the total euro amount so requested for purchase by employees under the ESOP. On the same day of such purchase, we assign the shares to employees upon payment of the purchase price minus a discount (funded by us) of one-third of such purchase price. To be able to purchase our shares for delivery to the employees under the ESOP, we must obtain authorization by our shareholders of a buy back plan pursuant to which we may repurchase shares for purposes of the ESOP. On May 6, 2004, the shareholders authorized us to purchase up to 15,556,800 shares on the Telematico within the subsequent 18 months, including to deliver shares to employees under the ESOP. See “—Buy Back Plan”. Shares are purchased at current market prices within 20 days of receiving an employee’s request, provided that such prices are not more than 10.0% above or below the market price of the shares on the Telematico on the day prior to such purchase. Only shares purchased as described above are used to satisfy purchases of shares under the ESOP. The shares purchased by the employees under the ESOP may not be transferred for a period of three years; as a result, under Italian tax law, the discount we offer under the ESOP is not considered taxable income for the employees.

     Pursuant to the provisions applicable to share buy back plans, we may not purchase our shares, including for delivery under the ESOP, unless, among other things, the amount of distributable or available reserves in our unconsolidated financial statements as approved for the prior year (after any distribution of dividends or repurchase of our shares for purposes other than as related to the ESOP that we may decide to make) is equal to or greater than the aggregate euro amount that represents all shares that ESOP beneficiaries would be entitled to purchase. If the amount of distributable and available reserves is less than such aggregate euro amount, we may, at our discretion, implement the ESOP at a per-beneficiary subscription limit that is less than € 3,000.

     The ESOP was not implemented in 2003 and, as of the date of this annual report, has not been implemented for 2004. As of June 28, 2004, 1,024 employees would be eligible to participate in the ESOP had it been implemented as of such date.

By-Laws

     The following is a summary of certain information concerning our shares and By-laws (Statuto) and of Italian law applicable to Italian companies whose shares are listed in a regulated market in the European Union. The summary contains all the information that we consider 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.

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     Italian companies whose shares are listed on a regulated market of the European Union are principally governed by two sets of rules — the Italian Civil Code (applicable to all Italian companies), and the Unified Financial Act (Testo Unico dell’Intermediazione Finanziaria, or TUF) of February 24, 1998 and implementing regulations thereof (applicable to listed companies). 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. In February 2004, the Italian government amended the TUF to coordinate it with the new corporate law provisions of the Italian Civil Code. The amendments to the Italian Civil Code and to the TUF constitute the so-called 2004 corporate law reform. On May 6, 2004 our shareholders approved a number of amendments to our By-laws dictated or made possible by the 2004 corporate law reform. The following summary takes into account the 2004 corporate law reform and the consequent amendments to our By-laws.

General

     Our issued share capital consists of 158,826,407 shares with no par value. All of the issued shares are fully paid, non-assessable and in registered form.

     We are registered with the Companies’ Registry of the Court of Bologna at n. 59309/98, with registered office at 3, Via A. Cavalieri Ducati, Bologna, Italy.

     As set forth in Article 4 of the By-laws, our corporate purpose is the production, marketing and sale of motorcycles, engines and other parts and components, as well as of any other products or accessories that may benefit the production, marketing and sale of motorcycles, engines and other parts and components. DMH is generally authorized to take any actions necessary or useful to achieve its corporate purpose. On May 7, 2002, our shareholders amended Article 4 of our by-laws by expressly including motorcycle rentals and motorcycle riding schools amongst the secondary activities that we may conduct to accomplish our corporate purpose.

Authorization of Shares

     Additional shares may be authorized in connection with capital increases approved by our shareholders in an extraordinary meeting, but this authorization would generally be given only after recommendation by our board of directors.

     At a meeting on September 7, 1998, our shareholders authorized the issuance of up to 8,148,148 shares which are reserved for distribution to beneficiaries of the 1997 Stock Option Plan. As of June 28, 2004, 1,826,407 shares had been issued upon exercise of options by beneficiaries under the 1997 Stock Option Plan and options to purchase 6,212,149 shares remained exercisable. See also “—Share Option Plans”.

     At a meeting on May 2, 2000, our shareholders authorized the issuance of up to 12 million shares, not subject to pre-emptive rights, in connection with the granting of Rights in the years 1999 through 2002 to beneficiaries of the 1999 Stock Option Plan. At a meeting on May 6, 2004, our shareholders authorized the issuance of up to 1,585,000 shares, not subject to preemptive rights, in connection with the Rights that we have granted in 2004 to beneficiaries of the 1999 Stock Option Plan who are employees of the Ducati Group. As of June 28, 2004, no shares had been issued for implementation of the 1999 Stock Option Plan. See also “—Share Option Plans”.

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Form and Transfer of Shares

     Pursuant to the TUF, Legislative Decree No. 213 of June 24, 1998 (“Decree No. 213”) and implementing Regulation No. 11768 of December 23, 1998 (“Regulation No. 11768”) of the Commissione Nazionale per le Società e la Borsa (the National Commission for Companies and the Stock Exchange or “CONSOB”), since January 1, 1999 it is no longer possible for a shareholder to obtain the physical delivery of share certificates representing shares of Italian listed companies. Shares of Italian listed companies are no longer represented by paper certificates and the transfer and exchange of shares takes place exclusively through an electronic book-entry system. All shares must, accordingly, be deposited by their owners with an intermediary (each an “Intermediary”), which is defined by Regulation No. 11768 as:

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an Italian or EU bank;

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a non-EU bank authorized by the Bank of Italy to operate in the Italian market;

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a Società di Intermediazione Mobiliare, or SIM;

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an EU investment company;

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a non-EU investment company authorized by CONSOB to provide investment services in Italy;

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an Italian asset management company;

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a stock broker;

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the company which has issued the shares;

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the controlling shareholder of the company which has issued the shares;

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the Bank of Italy;

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an EU or non-EU entity operating a centralized clearing system;

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a financial intermediary operating a clearing system governed by art. 69 (2) and 70 of the TUF;

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a financial intermediary registered on the list kept by the Bank of Italy under art. 107 of Legislative Decree No. 385 of September 1, 1993;

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the Italian Post Office (Poste Italiane S.p.A.);

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Cassa Depositi e Prestiti società per azioni (a state-owned company mainly responsible for extending loans to public administration bodies);

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The Italian Ministry of Economics and Finance; and

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the managers of foreign clearing, settlement and guarantee systems for financial instruments, provided that they are subject to supervision equivalent to that provided by Italian law.

     The Intermediary in turn deposits the shares with Monte Titoli or with another company authorized by CONSOB to operate a centralized clearing system.

     To transfer shares under the system introduced by Decree No. 213, the owners of shares are required to give instructions to their Intermediaries. If the transferee is a client of the transferor’s Intermediary, the Intermediary simply transfers the shares from the transferor’s account to the account of the transferee. If, however, the transferee is a client of another Intermediary, the transferor’s Intermediary instructs the company operating a centralized clearing system to transfer the shares to the account of the transferee’s Intermediary, which then registers the shares on the transferee’s account.

     Each Intermediary maintains a custody account for each of its clients setting out the financial instruments of such client and keeps a record of all transfers, payment of dividends, exercise of rights attributable to such instruments, charges or other encumbrances on the instruments. The account holder or any other eligible party (for example, in the case of a charge over the financial instrument, the chargee) may submit a request to the Intermediary for the issue of a certified statement of account. The request must indicate the quantity of the financial instruments in respect of which the statement is requested, the rights which the applicant intends to exercise and the duration in respect of which the certificate’s validity

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is required. Within three business days from the receipt of such request, the Intermediary shall issue a certified statement of account which constitutes evidence of the account holder’s ownership of the financial instruments indicated. Once a certificate has been issued, the Intermediary may not effect any transfer of the corresponding securities until the certificate loses its validity or is returned.

     The new book-entry system commenced operations on October 5, 1998, when Monte Titoli cancelled all certificates representing listed financial instruments in its possession and returned them to the issuing companies. At the same time, Monte Titoli registered the shares in accounts held under the name of the depositing Intermediaries and gave them and the issuing companies notice of the registration. The Intermediaries, in turn, registered the shares in the shareholders’ accounts. Since January 1, 1999, shareholders of listed companies have been allowed to exercise their rights only after they have deposited their share certificates with an Intermediary and authorized it to deposit the shares with a company operating a centralized clearing system.

     As a result of the foregoing, it is not possible for a shareholder to obtain physical delivery of share certificates representing shares. Instead, transfers of shares are possible only using the procedures described above.

     The shares have been accepted for clearance through Euroclear and Clearstream. Purchasers of shares may elect to hold such shares through Euroclear and Clearstream. Persons owning a beneficial interest in shares held through Monte Titoli, Euroclear and Clearstream must rely on the procedures of Monte Titoli, Euroclear and Clearstream, respectively, and of the Intermediaries that have accounts with Monte Titoli, Euroclear and Clearstream, to exercise their rights as holders of shares.

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 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 board of directors may authorize the distribution of interim dividends, subject to certain statutory limitations.

     Dividends are payable to those persons who hold the shares through an Intermediary on the dividend payment date declared by the shareholders’ meeting. Dividends not collected within five years from the dividend payment date are forfeited to our benefit. Payments in respect of dividends are distributed through Monte Titoli on behalf of each shareholder by the Intermediary with which the shareholder has deposited its shares. Holders of ADSs are 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. See “Item 8. Financial Information—Dividend Policy”.

Voting Rights

     Shareholders are entitled to one vote per share, although a slate voting system applies in case of appointment of members of the board of statutory auditors. See “—Statutory Auditors”.

     Proxy solicitation is possible. Solicitation can be engaged in by certain professional investment and financial intermediaries, as well as certain companies whose sole purpose is to carry out proxy solicitation, on behalf of a qualified soliciting shareholder (generally, one or more shareholders who own

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and have owned at least 1.0% of our shares for more than six months and who have been registered with us as having been shareholders of at least 1.0%, for the same period of time).

     Proxies may be collected by a shareholders’ association provided that such association has been formed by notarized private agreement, does not carry out business activities and is made up of at least 50 individuals, each of whom owns not more than 0.1% of our voting capital. Members of the shareholders’ association may, but are not obliged to, grant proxies to the legal representative of the association, and proxies may also be granted in respect of only certain of the matters to be discussed at the relevant shareholders’ meeting. The association may vote in different manners in compliance with the instructions expressed by each member who has granted a proxy to the association.

     As a registered shareholder, The Bank of New York, as ADR depositary, or its nominee is entitled to vote the shares underlying the ADSs. The Deposit Agreement requires The Bank of New York (or its nominee) to accept voting instructions from owners of ADSs and to execute such instructions to the extent permitted by law. Neither Italian law nor our By-laws limit the right of non-resident or foreign owners to hold or vote the shares.

Board of Directors

     Pursuant to our By-laws, our board of directors must consist of five to fifteen individuals. The board of directors is elected at a shareholders’ meeting for up to three fiscal years, as determined by the shareholders from time to time. The directors, who may but are not required to be our shareholders, may be re-appointed for successive terms. In accordance with the By-laws, the board of directors has complete power of ordinary and extraordinary administration of our business and in particular may perform all acts it deems advisable for the achievement of our 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 to replace the chairman when he is absent or unavailable. The chairman of the board of directors and, in his absence, the vice-chairman and the managing directors, if any, are severally our legal representatives. The board of directors may delegate powers to one or more managing directors (amministratori delegati), and/or to an executive committee composed of directors, and/or to one or more ad hoc committees of directors, determine the nature and scope of the delegated powers of each director and committee and revoke such delegation at any time. Our By-laws provide that the chairman of the board of directors and, if any, the managing directors are members of the executive committee. 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 quarterly 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 of its responsibilities, including those relating to the 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 our 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 calling of an ordinary or an extraordinary shareholders’ meeting to resolve upon the actions to be taken by us in case of decrease of our shareholders’ equity to less than two thirds of our paid-in capital as a result of accumulated losses. See also “—Meetings of Shareholders”.

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     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 our employees or persons unaffiliated with us.

     Meetings of the board of directors are called by written notice by the chairman on his own initiative and must be called upon the request of the vice-chairman, any managing director or at least two other directors or upon the request of our board of statutory auditors. Meetings may be held in person, or by video-conference or tele-conference, in any member state of the European Union, the United States and Switzerland. 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.

     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 their company if they illicitly profit from insider information or corporate opportunities.

     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 us. 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 appointed at a shareholders’ meeting resign or otherwise cease to be directors, the entire board of directors will be considered to have lapsed and 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 a new board of directors.

     The remuneration of directors is determined by shareholders at ordinary shareholders’ meetings. The board of directors or a committee of such board, in each case after consultation with the board of statutory auditors, may determine the remuneration of directors that perform management or other special services for us, such as the managing director. Directors are entitled to reimbursement for expenses reasonably incurred in connection with their functions.

     Effective January 1, 2004, an Italian stock corporation may adopt one of two different models of corporate governance structure, as an alternative to the current model based on a board of directors and a board of statutory auditors. Stock corporations may opt for (i) a one-tier model with a single board of directors, including an audit committee composed of independent non-executive directors, or (ii) a two-tier model, including a management board, which is entrusted with management responsibilities, and a supervisory board which is entrusted mainly with control and supervisory responsibilities and, among other functions, appoints and removes the members of the management board and approves the company’s annual financial statements. The adoption of one of the new corporate governance models

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requires an extraordinary shareholders meeting resolution. The amended By-laws approved by our shareholders on May 6, 2004, do not provide for a change in our governance structure.

Statutory Auditors

     In addition to electing the board of directors, our shareholders elect a board of statutory auditors (Collegio Sindacale). At ordinary shareholders’ meetings, 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.

     Pursuant to certain provisions of the TUF, the by-laws of listed companies must:

•

specify the number of statutory auditors (not fewer than three) and alternate members (not fewer than two);

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regulate the appointment of the chairman of the board of statutory auditors;

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limit the number of mandates that the statutory auditors may have in other companies; and

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include clauses ensuring that minority shareholders may elect one statutory auditor (or two if the board is composed of more than three members).

     Each member of the board of statutory auditors must provide evidence that he is in good standing and meets certain professional standards.

     Our 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). The By-laws also provide that the statutory auditors may not hold the position of statutory auditor in more than three other listed companies (not counting our subsidiaries). Moreover, pursuant to our By-laws, at least one auditor and one alternate auditor must be enrolled in the Italian registry of chartered accountants and have practised the accounting profession for at least three years. As to the other auditors, our shareholders may select them also among candidates who, for at least three consecutive years, have held managerial positions within the financial, administration and control departments of listed companies or within governmental entities active in sectors which are closely connected to our business sector, or have had professional or academic experience in legal, economic, financial or technical matters closely connected to our business sector.

     According to our By-laws, the statutory auditors are elected according to a cumulative voting system, whereby each shareholder or group of shareholders holding at least 1.0% of our shares may present a slate listing in progressive order three candidates to the position of statutory auditor and two candidates to the position of alternate; each shareholder (or shareholders under common control) may present and vote for a single slate and each candidate may appear on a single slate. If more than one slate is presented, two statutory auditors and one alternate are elected from the slate which obtains the largest number of votes in the shareholders meeting (the candidate listed first on such slate shall become the chairman of the board of statutory auditors) and one statutory auditor and one alternate are elected from the slate that obtains the second largest number of votes.

     The TUF provides further that the board of statutory auditors is required to verify that we (i) comply with applicable law and its By-laws, (ii) respect the principles of correct administration, (iii) maintain adequate organizational structure, internal controls and administrative and accounting systems and (iv) adequately instruct our subsidiaries to transmit to us information relevant to our disclosure obligations.

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     Our board of statutory auditors is required to meet at least once every ninety days. Meetings of the board of statutory auditors are called by written notice by the chairman of the board of statutory auditors on his own initiative and must be called upon the request of the two regular auditors. Meetings may be held in person, or by video-conference or tele-conference. The quorum for meetings of the board of statutory auditors is a majority of the regular auditors. Resolutions are adopted by the vote of a majority of the auditors present at the meeting.

     In addition, our statutory auditors shall attend the meetings of our board of directors and shareholders’ meetings and of our executive committee. The statutory auditors may decide to call a meeting of the shareholders, the board of directors or the executive committee, ask information to the directors about our business or that of our subsidiaries, carry out inspections and verifications at our premises and exchange information with the supervisory bodies of our subsidiaries or with our external auditors. Our board of statutory auditors must report to the shareholders’ meeting convened to approve our annual stand-alone financial statements on its review activities and on any irregularities detected during its review activities. The board of directors must report to the statutory auditors at least quarterly on its activities and on the main transactions carried out by us.

     Our board of statutory auditors may convene our shareholders’ meeting if it detects serious irregularities during its review activities and there is an urgent need to take action. 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 2.0% of our 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 it shall convene if the complaint concerns serious irregularities and there is an urgent need to take action).

     The board of statutory auditors may report to the competent court serious breaches of the duties of the directors which may be prejudicial to us or to our subsidiaries. Our board of statutory auditors is also required to notify the CONSOB without delay of any irregularities found during its review activities. CONSOB may report to the competent court serious breaches of the duties of the statutory auditors of a listed company.

     As mentioned in the preceding section, effective January 1, 2004, Italian stock corporations may depart from the traditional Italian model of corporate governance structure and opt for two alternative models neither of which includes a board of statutory auditors.

External Auditors

     The TUF requires companies whose shares are listed on regulated markets of EU Member States to appoint a firm of external auditors 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 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 auditors are appointed by the ordinary shareholders’ meeting for a three-year term (which may not be renewed more than twice). Such appointment must be notified to CONSOB.

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     On May 6, 2004, our shareholders appointed KPMG S.p.A., with legal offices at Via Vittor Pisani 25, Milan, Italy, as our external auditors for a third consecutive three-year term. Pursuant to Italian law their term may not be extended further.

Meetings of Shareholders

     Shareholders are entitled to attend and vote at ordinary and extraordinary shareholders’ meetings. Votes may be cast personally or by proxy. Shareholders’ meetings may be called by our 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 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.

     Shareholders are informed of all shareholders’ meetings to be held by publication of a notice in the MF – Milano Finanza or Finanza & Mercati daily newspapers or in the Official Journal of the Italian Republic (Gazzetta Ufficiale) at least 30 days before the date fixed for the meeting (20 days if the meeting is called at the request of holders of at least 10% of the issued shares). The above formalities and terms regarding the call notice may be reduced in other very limited circumstances. As a matter of practice, we publish the notice in at least two national daily newspapers, as recommended by CONSOB.

     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. In particular, our board of directors may transfer our registered office within Italy or resolve upon other amendments to our By-laws when these amendments are required by law, resolve upon mergers by absorption into us of our subsidiaries in which we hold at least 90% of the issued share capital and reductions of our share capital in case of withdrawal of a shareholder. Moreover, if, as a result of accumulated losses, our shareholders’ equity decreases to less than two-thirds of our paid-in capital but not below € 120,000, and this decrease is not reduced within one-third in the fiscal year following that of the original decrease, the corresponding reduction of our share capital is resolved upon by our board of directors and not by our shareholders’ meeting. Our 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.

     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.

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     The quorum required for shareholder action at an ordinary shareholders’ meeting on first call is at least 50% of the total number of issued shares, while on second call there is no quorum requirement. In either case, resolutions may be approved by holders of the majority of the shares present or represented at the meeting. The quorum required at an extraordinary shareholders’ meeting on first, second and third call is at least 50%, more than one-third and at least one-fifth, respectively, of our issued shares. Resolutions of any extraordinary shareholders’ meeting require the approval of at least two-thirds of the holders of shares present or represented at such meeting.

     A shareholders’ meeting may be attended only by shareholders with voting rights, whose financial intermediary shall have delivered to us, at least two days prior to the date of the meeting on first call, a notice entitling the shareholder to attend the meeting. Once the above notice is communicated to us by the relevant intermediary the shares cannot be disposed of until the meeting has taken place.

     Shareholders may attend the shareholders’ meeting by proxy. A proxy may be given only for a single shareholders’ meeting (including, however, the first, second and third calls of such meeting), except as part of a general power of attorney or a power of attorney granted by a corporation, association, foundation or any other legal entity to one of its employees. A proxy may be exercised only by the person expressly named in the applicable form.

     The person exercising the proxy cannot be our subsidiary, a director, statutory auditor or employee of ours or of any of our subsidiaries.

     Proxies may be solicited by an Intermediary (banks or investment companies, asset management companies and companies having proxy solicitation as their sole purpose) on behalf of a qualified soliciting shareholder (a shareholder who owns and has owned at least 1.0% — or such lesser percentage determined by CONSOB — of our voting capital for at least six months and who has been registered with us as holder of such shares for the same period of time). Proxies may also be collected by a shareholders’ association from among its members provided that such association has been formed by notarized private agreement, does not carry out business activities other than those relevant to the purpose of the association and is made up of at least 50 individuals each of whom owns not more than 0.1% of our voting capital. Members of the shareholders’ association may, but are not obliged to, grant proxies to the legal representative of the association and proxies may also be granted in respect of only certain of the matters to be discussed at the relevant shareholders’ meeting. The association may vote in different manners in compliance with the instructions given by each member who has granted a proxy to the association. CONSOB has established provisions which govern the transparency and proper performance of the solicitation and collection of proxies.

Pre-emptive Rights

     Pursuant to Italian law, holders of shares are entitled to subscribe for new issuances of shares, debentures convertible into shares and any other warrants, rights or options entitling the holders to subscribe for shares in proportion to their holdings, unless such issues are for non-cash consideration or pre-emptive rights are waived or limited by a resolution adopted at an extraordinary shareholders’ meeting by holders of a majority of the issued shares. There can be no assurance that the owners of ADSs will be able to exercise fully any pre-emptive rights to which the holders of shares are entitled.

Reports to Shareholders

     We are required to publish, in the Italian language, audited annual stand-alone financial statements of DMH and our audited annual consolidated financial statements, all prepared in conformity with Italian GAAP. We also produce an annual report to shareholders in the Italian language which

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contains a directors’ report together with audited financial statements (consolidated and unconsolidated) of DMH.

     We are required to produce semi-annual and quarterly reports to shareholders in the Italian language which contain a directors’ report as well as our unaudited semi-annual and quarterly condensed financial statements (consolidated and, in the case of semi-annual statements only, unconsolidated). We are also required to prepare annual reports on Form 20-F to be filed with the U.S. Securities and Exchange Commission containing, among other matters, our audited consolidated financial statements.

Preference Shares or Savings Shares; other Securities

     We are permitted in accordance with Italian law to issue preference shares or savings shares. Preference shares would typically not be entitled to vote in an ordinary shareholders’ meeting, but would be entitled to vote together with the shares in extraordinary shareholders’ meetings and could be entitled to vote in ordinary shareholders’ meetings as well if their terms so provided. Savings shares are entitled to vote in neither ordinary nor extraordinary shareholders’ meetings. However, Italian law provides for special meetings of holders of each class of shares for the approval of resolutions adopted by the shareholders which affect their rights vis-à-vis the other classes of shares. Preference shares would have preferential rights to the payment of dividends and to the repayment of capital in the event of liquidation. Savings shares typically have preferential rights to the payment of dividends, but the by-laws may provide for different or additional preferential rights.

     We have no present intention of issuing preference shares or savings shares and none are currently authorized or outstanding. The authorization of preference shares and of savings shares requires an amendment to the By-laws, thus being subject to the approval by an extraordinary shareholders’ meeting. See “—Meetings of Shareholders”.

     Pursuant to the 2004 corporate law reform, effective January 1, 2004, Italian companies are permitted to issue other classes of equity securities with different economic and voting rights, so-called participation certificates with limited voting rights, as well as so-called tracking stock, if their by-laws permit such issuance. Our By-laws do not currently permit such issuance.

     The power to issue debt securities not convertible into our shares is vested in our board of directors.

Segregation of Assets and Proceeds

     Pursuant to the 2004 corporate law reform, effective January 1, 2004, the board of directors of an Italian company 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.

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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 value of their shares (to the extent available out of our net assets). Holders of preferred shares, if any such shares are issued in the future by us, would be entitled to a priority right to any such distribution from liquidation up to their par value. Holders of saving shares, if any such shares are issued in the future by us and if our By-laws so provide, would be entitled to a priority right to any distribution from liquidation. Thereafter, all shareholders would rank equally in their claims to the distribution or surplus assets, if any. Ordinary shares rank pari passu among themselves in liquidation.

Purchase by Us of Our Own Shares

     We are permitted to purchase shares, subject to certain conditions and limitations provided 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 attached 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, attached to such shares will accrue to the benefit of other shareholders.

     The TUF provides that the purchase by a listed company of its own shares and the purchase of shares of a listed company by its subsidiaries must take place by way of a public offer or on the market, in a manner agreed with Borsa Italiana S.p.A., ensuring the equality of treatment among shareholders. Subject to certain limitations, the foregoing does not apply to shares being purchased by a company from its employees or from the employees of its controlling company or subsidiaries.

     At a May 6, 2004 meeting, our shareholders approved a buy back plan for the repurchase of our shares. See “—Buy Back Plan”.

     As of June 28, 2004, we owned 1,521,378 of our shares, of which 293,235 shares were repurchased pursuant to our buy back plan expiring November 2003, and 1,228,143 shares were repurchased pursuant to our buy back plan expiring November 2005.

Notification of the Acquisition of Shares and Voting Rights

     Pursuant to Italian securities laws, including the TUF and CONSOB Regulation No. 11971 of May 14, 1999 as subsequently amended (“Regulation No. 11971”), any acquisition of any interest in excess of 2.0% in the voting shares of a listed company must be notified to CONSOB and the company whose shares are acquired. The voting rights attributable to the shares in respect of which such

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notification has not been made may not be exercised. Any resolution taken in violation of the foregoing may be annulled if the resolution would not have been adopted in the absence of such votes.

     In addition, any person whose aggregate interest in the voting shares of a listed company exceeds or falls below 2%, 5%, 7.5%, 10% and successive percentages being multiples of 5, respectively, of the listed company’s voting share capital, is obliged to notify CONSOB and the issuer. For the purpose of calculating these ownership thresholds, shares owned by any person, irrespective of whether the voting rights attributable thereto are exercisable by such person or by a third party, are taken into consideration and, except in certain circumstances, account should also be taken of shares held through, or shares the voting rights of which are exercisable by, subsidiaries, fiduciaries or intermediaries. For the purpose of calculating the ownership thresholds of 5%, 10%, 25%, 50% and 75%, shares should also be taken into account that: (i) a person has an option to, directly or indirectly, acquire or sell; and (ii) a person may acquire further to the exercise of a warrant or conversion right which is exercisable within 60 days. The notification must be repeated when such person, upon the exercise of the right referred to in (i) or (ii) above, acquires or sells shares which cause his aggregate ownership in the listed company to exceed or fall below the relevant thresholds. Notification should be made (except in certain circumstances) within five trading days of the event which gives rise to the notification obligation.

     Cross-ownership of listed companies may not exceed 2.0% of their respective voting shares and cross-ownership between a listed company and an unlisted company may not exceed 2.0% of the voting shares of the listed company and 10.0% of the voting shares of the unlisted company. If the relative threshold is exceeded, the company which is the latter to exceed such threshold may not exercise the voting rights attributable to the shares in excess of the threshold and must sell the excess shares within a period of 12 months. If the company does not sell the excess shares, it may not exercise the voting rights in respect of its entire shareholding. If it is not possible to ascertain which is the latter company to exceed the threshold, subject to a different agreement between the two companies, the limitation on voting rights and the obligation to sell the excess shares applies to both of the companies concerned. The 2.0% limit for cross-ownership is increased to 5.0% on the condition that such limit is only exceeded by the two companies concerned following an agreement authorized in advance by an ordinary shareholders’ meeting of each of the two companies. Furthermore, if a party holds an interest in excess of 2.0% of a listed company’s share capital, such listed company or the party which controls the listed company may not purchase an interest above 2.0% in a listed company controlled by the first party. In case of non-compliance, voting rights attributable to the shares held in excess may not be exercised. If it is not possible to ascertain which is the latter party to exceed the limit, the limitation on voting rights applies to both, subject to any different agreement between the two parties. Any shareholders’ resolution taken in violation of the limitation on voting rights may be annulled if the resolution would not have been adopted in the absence of such votes. The foregoing provisions in relation to cross-ownership do not apply when the thresholds are exceeded following a public tender offer aimed at acquiring at least 60% of a company’s ordinary shares or when a controlled company purchases shares of a controlling company within the limits set forth in Article 2359 bis of the Italian Civil Code and following the procedures described under “—Purchase by Us of Our Own Shares”; however, certain restrictions on the manner of purchase apply.

     Pursuant to the TUF, agreements among shareholders of a listed company or of its parent company, must be notified to CONSOB (within 5 days), published in summary form in the press (within 10 days) and filed with the Chamber of Commerce (within 15 days). Failure to comply with the above rules renders the agreements null and void and the shares cannot be voted. These rules apply to shareholders’ agreements which:

(i) concern (including prior consultation for) the exercise of voting rights in a listed company or its controlling company;

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(ii) contain limitations on the transfer of shares of the companies under point (i), above, or of securities which grant the right to purchase or subscribe said shares;

(iii) provide for the purchase of shares or securities mentioned in point (ii), above; or

(iv) have as their object or effect the exercise (including joint exercise) of a dominant influence over the companies under point (i), above.

     Any shareholders’ agreement of the nature described above may have a maximum term of three years or, if executed for an unlimited term, can be terminated by a party upon six months’ prior notice. In case of a public tender offer, shareholders who intend to participate in the tender offer may withdraw from the agreement without notice, such withdrawal being effective only in the event that the relevant shares are actually sold.