TECHNICOLOR_REGISTRATION_DOCUMENT_2017

6 - FINANCIAL STATEMENTS

Notes to the consolidated financial statements

Impairment on non-current operating assets 4.4. Goodwill, intangible assets having an indefinite useful life and development projects not yet available for use are tested annually for impairment during the last quarter of the year and updated at the end of December and whenever circumstances indicate that they might be impaired. For impairment testing, assets are Grouped together into the smallest Group of assets that generate cash outflows that are largely independent of the cash flows of other assets or CGU. Goodwill arising from a business combination is allocated to CGUs or Group of CGUs (Goodwill reporting

units - GRUs) that are expected to benefit from the synergies. The Group identified 3 GRUs: the Entertainment Services segment includes 2 GRUs: DVD Services and Production Services; ■ the Connected Home segment is considered as a single GRU. ■

PPE and intangible assets having a definite useful life are tested for impairment at the consolidated statement of financial position date only if events or circumstances indicate that they might be impaired. The main evidence indicating that an asset may be impaired includes the existence of significant changes in the operational environment of the assets, a significant decline in the expected economic performance of the assets, or a significant decline in the revenues or margin versus prior year and budget or in the market share of the Group. The impairment test consists of comparing the carrying amount of the asset with its recoverable amount. The recoverable amount of the asset is the higher of its fair value (less costs to sell) and its value in use. The fair value (less costs to sell) corresponds to the amount that could be obtained from the sale of the asset (or the CGU/GRU), in an arm’s-length transaction between knowledgeable and willing parties, less the costs of disposal. It can be determined using an observable market price for the asset (or the CGU/GRU) or using discounted cash flow projections, that include estimated future cash inflows or outflows expected to arise from future restructuring or from improving or enhancing the asset’s performance but exclude any synergies with other CGU/GRU of the Group. Value in use is the present value of the future cash flow expected to be derived from an asset or CGU/GRU. For determining the recoverable value, the Group uses estimates of future pre-tax discounted cash flows generated by the asset including a terminal value when appropriate. These flows are consistent with the most recent budgets approved by the Board of Directors of the Group. Estimated cash flows are discounted using pre-tax long-term market rates, reflecting the time value of money and the specific risks of the assets. An impairment loss corresponds to the difference between the carrying amount of the asset (or Group of assets) and its recoverable amount and is recognized in “Net impairment losses on non-current operating assets” for continuing operations unless the impairment is part of restructuring plans, or related to discontinued operations in which case it is recognized in “Restructuring expenses”. In accordance with IAS 36, impairment of goodwill cannot be reversed. ACCOUNTING ESTIMATES AND JUDGMENTS The Group reviews annually goodwill and other indefinite-lived intangible assets for impairment in accordance with the accounting policy. Technicolor’s management believes its policies related to such annual impairment testing are critical accounting policies the recoverable involving critical accounting estimates because determining amount of GRU requires (i) determining the appropriate discount rate to be used to discount future expected cash flows of the cash-generating unit and (ii) estimating the value of the operating cash flows including their terminal value, the growth rate of the revenues generated by the assets tested for impairment, the operating margin rates of underlying assets for related future periods and the royalty rates for trademarks. In addition to the annual review for impairment, Technicolor evaluates at each reporting date certain indicators that would result, if applicable, in the calculation of an additional impairment test in accordance with the accounting policy. Management believes the updated assumptions used concerning sales growth, terminal values and royalty rates are reasonable and in line with updated market data available for each GRU.

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TECHNICOLOR REGISTRATION DOCUMENT 2017