technicolor - 2019 Universal registration document

RISKS, LITIGATION, AND CONTROLS RISK FACTORS

IMPAIRMENT OF CERTAIN TANGIBLE AND INTANGIBLE ASSETS, INCLUDING GOODWILL

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Risk identification

Risk monitoring and management

If management’s estimates change or market conditions adversely evolve, the estimate of the recoverable value of the Group’s assets could decrease significantly. If the Group does not generate revenues from its businesses as anticipated, the businesses may not generate sufficient positive operating cash flows. This, or other factors, may lead to a decrease in the value of the Group’s intangibles assets, including goodwill, resulting in impairment charges, which could have a material adverse effect on the Group’s results of operations or financial position. At December 31, 2019, the Group’s accounted for €851 million of goodwill and €632 million of intangible assets. Of the €851 million of goodwill at December 31, 2019, €222 million relate to DVD Services, compared to €270 million in 2018. The difference mainly comes from a €53 million impairment resulting from a stronger than expected volume decline in 2019 affecting particularly the distribution activity, in the United States and to a lesser extent Australia and Europe (see note 4.4.1 to the Group’s consolidated financial statements). Indeed, worse than anticipated market conditions can result in additional impairment charges in the Group’s consolidated statement of operations. The discounted cash flows of DVD Services are computed over a finite life of circa twenty years and accordingly the goodwill will be impaired over this period depending on the evolution of the fair value as determined through the discounted cash flows. The Group may experience significant further impairment charges in future periods, particularly in the event the markets for the Group’s products and services experience further deterioration. For additional information on the impairment tests, see note 4.4 to the Group’s consolidated financial statements.

The Group’s management periodically assesses the carrying amount of the tangible and intangible assets using certain key assumptions, including budgeted data, cash flow projections and growth rates. The Group assesses the carrying amount of these assets more frequently if events or changes in circumstances indicate that their carrying amounts may not be recoverable.

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Litigations 3.1.4

Except for the litigations described below, there are no other governmental, judicial or arbitration proceedings of which the Group is aware, that are currently pending or threatened, which could have, or have had over the past 12 months, a material effect on the financial situation or profitability of the Group. The Company and its former Chief Executive Officer, Mr. Frédéric Rose, were indicted ( mis en examen ) by a French criminal judge in December 2019 in connection with an action lodged in 2012 by Quinta Communications targeting Technicolor. Quinta Communications was alleging inter alia that Technicolor would have led Quinta Communications’ subsidiary, Quinta Industries, into bankruptcy. Technicolor considers that this action has no substantial ground since it was only a minority indirect shareholder of Quinta Industries (while Quinta Communications was holding 82.5% of the share capital) and was not in any way involved in the management of Quinta Industries and therefore cannot be liable for the company’s bankruptcy.

GRI [102-15] [103-2 Socioeconomic compliance] [103-3 Socioeconomic compliance] [419-1]

In the ordinary course of business activities, the Group has been involved, and in the future, might become involved, in legal and regulatory proceedings and is subject to tax, customs and administrative audits. The fines, damages, settlement amounts or amounts otherwise due in connection with these legal proceedings, may be significant. There can be no assurance that any of the legal proceedings and audits in which the Group is involved or becomes involved in the future will not result in payments being made by the Group, including possibly in excess of amounts provisioned, or that any such payments will not have a material adverse effect on the Group’s results of operation and financial condition. The main legal proceedings and governmental investigations in progress or envisaged, are described in note 10.2 to the Group’s consolidated financial statements in this Universal Registration Document.

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TECHNICOLOR UNIVERSAL REGISTRATION DOCUMENT 2019