TECHNICOLOR_REGISTRATION_DOCUMENT_2017

- 3 RISKS, LITIGATION AND CONTROLS Internal control

Budgetary process The budgetary process is mandatory for all of the Group’s segments and businesses. The principal stages in the budgetary process are the following: in September and October, preparation by each business of a ■ budget of the following year, based on market analysis and projections, analyses trends, costs base structure, customers & suppliers base analysis, and capex needs. It includes also key strategic initiatives and their financial impact in the budget (and going forward) and a risks and opportunities analysis; in November and December, review and approval by Senior ■ Executive management and corporate finance teams of proposed Action Plans and budgets prepared at the business level; approval of the budget by the Board of Directors; at the latest, at ■ the beginning of the following year; split of the budget into monthly periods and by legal entities to ■ serve as a reference for the Group’s monthly reporting. In the context of the budgetary procedure, Key Performance Indicators (KPIs) are presented by each business, and analyzed and monitored on a monthly basis. Periodic performance review The Controlling organization reviews the Group financial performance periodically: on a monthly basis: ■ the reporting on actual performance is managed by the _ Controlling organization and a detailed review, performed during the closing period of the financial accounts (analysis of variance vs. budget, previous forecast and last year), is presented to management, the forecasting of the current and next quarter is performed by _ each business and also presented to management; on a quarterly basis: ■ reporting of operational performance through a business review _ with management (review of major KPIs, risks and opportunities, market trend and competition, customer portfolio analysis, strategic programs and key initiatives) and closing of financial statements, the forecasting of the current and next three quarters is _ performed at the beginning of each quarter by each business (including main income statement indicators such as revenue and Adjusted EBITDA as well as Free Cash Flow items) and reviewed at Group level.

Accounting, management reporting and closing period work at the Group level The Group accounting and financial data are consolidated into one Group reporting system. At the end of each month, the Group’s entities report their financial data into this system. The Group reporting system uses a common chart of accounts, which is regularly updated. The main accounting and financial figures of the operational and functional departments consolidated at the Group level are analyzed by the Group’s financial controlling team and reviewed by the Group’s Executive Committee. The closing process for the half-year and annual consolidated financial statements occurs in two steps. The first step consists of a “hard close” completed for the May and October closings. This review is initiated by the circulation of instructions prepared by the Group’s Accounting Department. Procedures define the controls and actions which must be undertaken at the entity level (entries in accounting books, reconciliations, etc.) and the persons authorized to implement them. This step leads to a first review by the Statutory Auditors, completed initially at the subsidiary level within a majority of the Group’s legal entities, then at the Group level. This “hard close” aims at identifying the most complex issues, which may be reported to the Senior Management Team. The second step occurs in July and in January/February and involves the finalization of half-year and annual consolidated financial statements under International Financial Reporting Standards (“IFRS”). After each monthly closing, the Group’s financial results for month and the current quarter are presented to the Executive Committee. After each quarterly closing, the quarterly financial results (including half-year and annual results) are presented to the Audit Committee. These results are also presented to the Board of Directors. The Group’s accounting principles are defined in a set of documents entitled “Technicolor Accounting Principles and Methods”, which are available on the Company’s Intranet site and provided to all the Group’s Finance Departments. These documents outline the accounting treatment of such items as tangible and intangible assets, provisions, intercompany transactions, revenues and hedges. In addition, the Group publishes and distributes procedures that accountants and financial controllers must respect in terms of purchasing, management of inventories, sales, payments, cash flow, or taxes.

67

TECHNICOLOR

REGISTRATION DOCUMENT 2017