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THOMSON multimedia group
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Financial Statements of THOMSON multimedia and its Consolidated Subsidiaries
Statutory Auditors Report on Consolidated Financial Statements F–1
Consolidated Income Statements F–2
for the years ended December 31, 2000, 1999 and 1998
Consolidated Balance Sheets F–3
as of December 31, 2000, 1999 and 1998
Consolidated Statements of Cash Flows F-5
for the years ended December 31, 2000, 1999 and 1998
Consolidated Statements of Changes in Shareholder’s Equity and Minority Interests F-6
for the years ended December 31, 2000, 1999 and 1998
Notes to the Consolidated Financial Statements F-7
THOMSON multimedia group
STATUTORY AUDITORS REPORT
On consolidated financial statements
(For the year ended December 31, 2000)
To the Shareholders and the Board of Directors of
THOMSON multimedia S.A:
We have audited, jointly with Befec-Price Waterhouse* until December 31, 1999, the accompanying consolidated
balance sheets of THOMSON multimedia S.A. and its subsidiaries (the "THOMSON multimedia group") as of December
31, 2000, 1999,and 1998 and the related consolidated statements of income, cash flows and changes in shareholders' equity
and minority interests for each of the three years in the period ended December 31, 2000, all expressed in euro. These
consolidated financial statements are the responsibility of the THOMSON multimedia group's management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards in France and in the United States of
America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the THOMSON multimedia group as of December 31, 2000,1999, and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with
generally accepted accounting principles in France.
As discussed in Note 1 of the notes to consolidated financial statements, the THOMSON multimedia group prepared its
consolidated accounts in accordance with the New French Regulation 99-02 in 2000 and changed its income statement
presentation in 1999 and its method of valuation of pension and retirement indemnities in 1998.
Accounting practices used by the THOMSON multimedia group in preparing the accompanying financial statements
conform with generally accepted accounting principles in France ("French GAAP"), but do not conform in certain respects
with accounting principles generally accepted in the United States of America ("US GAAP"). A description of the
differences between French GAAP and US GAAP and reconciliation of the consolidated income (loss) and shareholders'
equity to US GAAP are set forth in Notes 27 and 28 of the notes to the consolidated financial statements.
Paris, France
February 13, 2001, except for the Note 27 (w) and except for the amounts translated into US dollars for convenience for
which the date is June 5, 2001.
______________________ _____________________________ _____________________________
Befec - Price Waterhouse* Barbier Frinault & Autres Mazars & Guérard
G. Hautefeuille Member of Andersen Worldwide T. de Bailliencourt
C. Chiarasini
* Statutory auditors until the shareholder’s meeting held on May 26, 2000.
The accompanying notes are an integral part of these consolidated financial statements.
F-1
THOMSON multimedia group
CONSOLIDATED INCOME STATEMENTS
For the Years Ended December 31, 2000, 1999 and 1998
Year ended December 31,
Note 1998 1999 2000 2000
Restated (1)
(in millions of
(in millions of Euros) U.S. dollars) (3)
Net sales (3) 5,629 6,690 9,094 7,734
Cost of sales (4,366) (5,065) (6,915) (5,881)
Gross margin 1,263 1,625 2,179 1,853
Selling, general and administrative
expense (835) (969) (1,282) (1,090)
Research and development expense (4) (284) (290) (351) (298)
Operating income 144 366 546 465
Interest expense, net with third parties (18) (21) (10) (8)
Interest expense, net with Thomson S.A.
group (36) (20) - -
Other financial expense, net (37) (39) (67) (57)
Financial expense (5) (91) (80) (77) (65)
Equity investments (10) 2 - (3) (3)
Amortization of goodwill (3) (4) (8) (7)
Other income (expense), net (6) (27) (6) (81) (69)
Employee profit sharing (2) (2) (2) (2)
Income tax (7) (8) (50) 1 1
Net income before minority interests 15 224 376 320
Minority interests 1 7 18 15
Net income 16 231 394 335
(1) Certain amounts have been reclassified to conform to the presentation adopted since 1999 (see Note 1)
Year ended December 31
1998 1999 2000 2000
(Euros except number of shares) (U.S. dollars except
number of shares) (3)
Weighted average number of shares
outstanding-basic 70,610,928 98,763,161 252,039,992 252,039,992
Basic net income per share 0.22 2.34 1.563 1.329
Basic weighted average number of shares
outstanding, after the two stock splits decided
by October 29, 1999 and June 16, 2000
shareholder’s meeting (Note 16) 282,443,712 197,526,322 252,039,992 252,039,992
Basic net income per share, restated: 0.05 1.17 1.563 1.329
Basic weighted average number of shares
outstanding, after the two stock splits decided
by October 29, 1999 and June 16, 2000
shareholder’s meeting (Note 16) 282,443,712 197,526,322 254,513,233 254,513,233
Diluted net income per share, restated: 0.05 1.17 1.560 1.327
(2) The net income is restated from convertible bonds interests charges, net of tax.
(3) Translation of amounts from Euros (" ") into U.S. dollars ("USD") has been made merely for the convenience of the reader at the
noon buying rate of 1=$0,8504 on June 5, 2001.
(4) The consolidated income statements have been prepared in French Francs and translated into Euros using the fixed exchange rate as
of January 1, 1999 of 1 = FF 6,55957
The accompanying notes are an integral part of these consolidated financial statements.
F-2
THOMSON multimedia group
CONSOLIDATED BALANCE SHEETS
As of December 31, 2000, 1999 and 1998
December 31,
Note 1998 1999 2000 2000
ASSETS: (in millions of
(in millions of Euros) U.S. dollars) (1)
Fixed assets: (9)
Intangible assets, net 67 168 196 166
Property, plant and equipment 2,661 3,026 3,280 2,789
Less: Accumulated depreciation (1,667) (1,936) (2,158) (1,835)
Property, plant and equipment, net 994 1,090 1,122 954
Equity investments (10) 9 17 16 14
Other investments (11) 60 181 282 240
Loans and other non-current assets 10 47 16 14
Total investments and other non-current assets 79 245 314 268
Total fixed assets 1,140 1,503 1,632 1,388
Current assets:
Inventories (12) 907 1,108 1,477 1,256
Trade accounts and notes receivable, net (13) 1,001 1,407 1,553 1,321
Current accounts with affiliated companies
(except Thomson S.A.) 37 51 21 18
Other receivables (14) 285 494 846 719
Cash and cash equivalents (15) 268 402 1,772 1,507
Total current assets 2,498 3,462 5,669 4,821
Total assets 3,638 4,965 7,301 6,209
(1) Translation of amounts from Euros (" ") into U.S. dollars ("USD") has been made merely for the convenience of the reader at the noon
buying rate of 1=$0,8504 on June 5, 2001.
(2) The consolidated balance sheets have been prepared in French Francs and translated into Euros using the fixed exchange rate as of
January 1, 1999 of 1 = FF 6,55957.
The accompanying notes are an integral part of these consolidated financial statements.
F-3
THOMSON multimedia group
CONSOLIDATED BALANCE SHEETS
As of December 31, 2000, 1999 and 1998
December 31,
Note 1998 1999 2000 2000
LIABILITIES, SHAREHOLDERS’ EQUITY (in millions of
AND MINORITY INTERESTS (in millions of Euros) U.S. dollars) (1)
Shareholders’ equity: (16)
Common stock (265,113,508 shares of € 3.75
(FF 24.60) each at December 31, 2000;
124,354,112 shares of € 7.5 (FF 49.19) each at
December 31, 1999 and 45,948,122 shares of €
15.24 (FF 100) each at December 31, 1998) 701 933 994 845
Additional paid in capital 63 452 1,235 1,050
Retained earnings 154 397 788 670
Cumulative translation adjustment (59) (68) (42) (35)
Less treasury shares (119) (101)
Revaluation reserve 5 5 4 3
Shareholders’ equity 864 1,719 2,860 2,432
Minority interests 3 73 54 46
Reserves:
Reserves for retirement benefits (17) 527 590 633 538
Restructuring reserves (18) 152 156 179 152
Other reserves (19) 235 225 277 236
Total reserves 914 971 1,089 926
Financial debt:
Financial debt with third parties 283 352 1,131 962
Financial debt with Thomson S.A. group
and subsidiaries 494 9 12 10
Total financial debt (20) 777 361 1,143 972
(of which short-term portion) 443 334 298 253
Current liabilities:
Trade accounts and notes payable 457 877 1,114 947
Accrued employee expenses 150 177 201 171
Other creditors and accrued liabilities 473 787 840 715
Total current liabilities 1,080 1,841 2,155 1,833
Total liabilities, shareholders’ equity and
minority interests 3,638 4,965 7,301 6,209
•= Off-balance sheet commitments (21)
•= Contingencies (24)
(1) Translation of amounts from Euros (" ") into U.S. dollars ("USD") has been made merely for the convenience of the reader at the noon
buying rate of 1=$0.8504 on June 5, 2001.
(2) The consolidated balance sheets have been prepared in French Francs and translated into Euros using the fixed exchange rate as of
January 1, 1999 of 1 = FF 6.55957.
The accompanying notes are an integral part of these consolidated financial statements.
F-4
THOMSON multimedia group
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
December 31,
1998 1999 2000 2000
(in millions of
(in millions of Euros) U.S. dollars) (3)
Cash flow from operating activities:
Net income 16 231 394 335
Minority interests (1) (7) (18) (15)
Adjustments to reconcile net income (loss) before minority
interests to net cash provided by (used in) operating activities:
Equity result of unconsolidated subsidiaries (net of
dividends received) (2) - 4 3
Depreciation of property, plant and equipment 262 259 292 248
Amortization of intangible assets 39 31 39 33
Allowances for losses on fixed assets, investments and
provision for retirement indemnities 18 26 60 51
Deferred taxes - - (104) (88)
Net gain on disposal of fixed assets (24) (77) (59) (50)
Changes in restructuring and other reserves items (89) (37) 79 67
Net change in net working capital:
Decrease (increase) in inventories (20) (63) (311) (264)
Decrease (increase) in trade and other receivables (1) (58) (312) (68) (58)
Increase (decrease) in trade accounts, notes payable and
accrued expenses 42 336 165 140
Change in other current assets and current liabilities 53 48 (63) (53)
Changes in net working capital 17 9 (277) (235)
Net cash provided by operating activities –I- (1) 236 435 410 349
Cash flow from investing activities:
Capital expenditures (237) (312) (442) (376)
Proceeds from sales of fixed assets 27 18 166 141
Decreases from acquisition of investments (49) (88) (158) (135)
Proceeds from disposals of investments 22 16 36 31
Net cash used by investing activities –II- (237) (366) (398) (339)
Net cash from operations –I+II- (1) 69 12 10
Cash flow from financing activities:
Capital increase and minority interests (2) 275 612 734 624
Increase in short-term debt 369 518 211 179
Repayment of short-term debt (345) (563) (337) (287)
Increase in long-term debt 3 - 802 682
Repayment of long-term debt (2) (1) (1) (1)
Increase in short-term debt to Thomson S.A. companies 60 - 1 1
Increase in long-term debt to Thomson S.A. companies - 8 3 3
Repayment of short-term debt to Thomson S.A. companies (163) (202) - -
Repayment of long-term debt to Thomson S.A.companies (283) (355) - -
Net cash provided by financing activities –III- (86) 17 1,413 1,201
Effect of exchange rates and changes in reporting entities –IV- 24 48 (55) (46)
Net increase (decrease) in cash and cash equivalents –
I+II+III+IV- (63) 134 1,370 1,165
Cash and cash equivalents at the beginning of the year 331 268 402 342
Cash and cash equivalents at the end of the year 268 402 1,772 1,507
Cash paid for interest 85 54 33 28
Cash paid for income taxes (without the effect of the
indemnification received from Thomson S.A.) 9 97 217 185
Indemnification received from Thomson S.A - 100 92 78
(1) Including variation of securitization (decrease of € (95) million, € (71) million, € (26) million respectively in 2000, 1999 and 1998).
(2) Net of treasury stock and of cost of capital increase.
(3) Translation of amounts from Euros (" ") into U.S. dollars ("USD") has been made merely for the convenience of the reader at the noon
buying rate of 1=$0.8504 on June 5, 2001.
(4) The consolidated statements of cash flows have been prepared in French Francs and translated into Euros using the fixed exchange rate as
of January 1, 1999 of 1=FF 6.55957.
The accompanying notes are an integral part of these consolidated financial statements.
F-5
THOMSON multimedia group
CONSOLIDATED STATEMENTS
OF CHANGES IN SHAREHOLDERS’ EQUITY AND MINORITY INTERESTS
For the Years Ended December 31, 2000, 1999 and 1998
Number Common Additional Treasury Accumulated Cumulative Revaluation Shareholders’ Minority
of shares stock paid in capital shares retained translation Reserves equity interests
net of costs earning adjustment
(in thousands) (in millions of Euros)
Balance at January 1, 1998 123,756 1,887 (1,217) (90) 6 586 2
Change in accounting principles (1) (21) (21) -
Decrease in common stock (91,592) (1,396) 1,396 - -
Increase in common stock 13,784 210 63 273 -
Translation adjustment 11 11 -
Reclassification (2) (20) 20 - -
Change in revaluation reserve (1) (1) -
Others - 2
Net income (loss) 16 16 (1)
Balance at December 31, 1998 45,948 701 63 154 (59) 5 864 3
Increase in common stock – February 1999 1,532 23 - 23 -
Effect of stock split from FF 100 to FF 50 (€ 47,480 - -
15.24 to € 7.62)
Change in par value from FF 50 (€ 7.62) to € (12) 12 - -
7,5 (FF 49,19) (Note 16)
Increase in common stock – November 1999 29,394 221 389 610
Translation adjustment (9) (9) 3
Change in perimeter - 74
Net income (loss) 231 231 (7)
Balance at December 31, 1999 124,354 933 452 397 (68) 5 1,719 73
Effect of stock split from € 7.5 to € 3.75 124,354 - -
Increase in common stock – October 2000 16,405 61 783 844 -
Treasury stock ( 2,573 220 shares) (119) (119) -
Translation adjustment 26 26 4
Others (3) (1) (4) (5)
Net income (loss) 394 394 (18)
Balance at December 31, 2000 265,113 994 1,235 (119) 788 (42) 4 2,860 54
Balance at December 31, 2000 (in millions of
265,113 845 1,050 (101) 670 (35) 3 2,432 46
U.S. dollars) (3)
(1) Refer to Note 1 and Note 17b
(2) Primarily corresponds to the cumulative translation adjustment recorded by Thomson S.A. prior to the sale of certain investments to Thomson(refer to Note 16).
(3) Translation of amounts from Euros (“ ”) into U.S. dollars (“USD”) has been made for the convenience of the reader at the noon buying rate of 1= $ 0.8504 on June 5, 2001.
(4) The consolidated statements of shareholders’ equity have been prepared in French Francs and translated into Euros using the fixed exchange rate as of January 1, 1999 of 1= FF 6.55957.
The accompanying notes are an integral part of these consolidated financial statements.
F-6
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
1. THE COMPANY
Thomson (designated for « THOMSON multimedia and subsidiaries ») is one of the major players in
the market for technologies, systems, finished products and services enabling audio and video content
distribution, for consumers and professionals of the media industry. Thomson benefits from a strong
position in the United States, where it markets most of its products under the RCA brand name and in
Europe, where it markets its products principally under the THOMSON brand name. The group also has
operations in Latin America, Eastern Europe and Asia, and it plans to continue to increase its presence in
selected emerging markets in these regions.
Thomson has various arrangements with Alcatel S.A., Microsoft Corporation, DIRECTV, Inc. and
NEC Corporation (the “Corporate Investors”), for the purpose of developing and selling new
multimedia technologies.
The agreement with Alcatel S.A., a global telecommunications company, was made in view of the
convergence of telecommunications with multimedia and televisions. In December 1999 both companies
contributed their communication business (excluding the net assets of Alcatel's GSM business) into a
separate entity "ATLINKS" which is consolidated by Thomson. In 2000 both companies agreed to
contribute their digital interactive business through the creation of "Nextream", a joint venture which
will be operational in first quarter 2001.
The cooperation with Microsoft Corporation, a global software producer, aims to develop and market
interactive television products and services. In 1999 a joint venture, “TAK”, was formed in Europe to
provide interactive broadcasting services. In July 2000 a contract was signed with Microsoft to provide
DVD-Rom drives and DVD and video compression technology for the new Microsoft game console, X-
Box, which is expected to be released in 2001.
The agreement with DIRECTV Inc., a U.S. digital satellite broadcast system operator is intended to
develop a new generation of interactive digital televisions and related services, as well as promoting
digital television in the United States.
NEC, a global electronics supplier, has agreed to build on its existing partnership with Thomson to
develop a new kind of flat television plasma screen which we believe represents a growing segment of
the market for very large high-definition screens. The agreement was extended to supply NEC with
optical discs for DVD-Rom and to supply Thomson with NEC integrated circuits.
As of December 31, 2000, Thomson was held 37.98% by Thomson S.A (a company fully owned by the
French State), 6.38% each by Alcatel, Microsoft and NEC, 4.87% by DIRECTV, 37.04% by private
investors and Thomson’s employees and 0.97% by the Company.
F-7
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Accounting policies and basis of presentation
The consolidated financial statements of Thomson have been prepared in accordance with the
French generally accepted accounting principles ("French GAAP") as set forth in the French law on
consolidation (the Act of January 3, 1985) and since January 1, 2000 comply with Regulation 99-02,
approved by the decree dated June 22, 1999 of the "Comité de la Réglementation Comptable". The
new rule had no material effect on the consolidated financial statements.
Financial statements of the consolidated subsidiaries, when prepared in accordance with the
accounting principles generally accepted in their country of origin, have been adjusted accordingly in
consolidation.
The “Comité de la Réglementation Comptable” approved the CNC (« Conseil National de la
Comptabilité ») n°00601 recommendation on liabilities issued on April 20, 2000. This new accounting
law will be effective as from January 1, 2002. However, its application is permitted as from January 1,
2000. This new accounting law has not been applied to issue the financial statements at December 31,
2000. The effect of the application of this new accounting principle is being evaluated by Thomson.
All figures are presented in millions of Euro. Consolidated financial statements have been
prepared in French Francs for 2000, 1999 and 1998 and translated into Euro using the official rate of
6.55957 Francs for one Euro at January 1, 1999. Translation of amounts from Euros (“ ”) into U.S.
dollars (“USD”) has been made for the convenience of the reader at the noon buying rate of 1
=0,8504 on June 5, 2001.
Although the 1998 consolidated financial statements depict the same trends as would have been
shown had they have been presented in French Francs, they may have not be directly comparable to
the financial statements of other companies that have also been restated in Euro. Prior to the adoption
of the Euro, the currencies of other countries fluctuated against the French Franc, but because the
Euro did not exist prior to January 1, 1999, historical exchange rates for Euro are not available. A
comparison of the Company’s financial statements and those of another company that had
historically used a reporting currency other than the French Franc that takes into account actual
fluctuations in exchange rates could give a much different impression than a comparison of the
consolidated financial statements and those of another company as translated in Euro.
Use of estimates
The preparation of the consolidated financial statements in conformity with generally accepted
accounting principles in France requires management to make estimates and assumptions that affect
the reported amounts of assets and the reported amounts of the revenues and expenses during the
reporting period in the consolidated statements. Actual results could differ from those estimates.
Estimates made by management include amongst other items accounts receivable, inventory and
investment valuation allowances, retirement and postretirement benefits, depreciation and
amortization, loss reserves contingencies and environmental obligations.
F-8
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Changes in Accounting Principles
In 1998, Thomson decided to standardize the actuarial methods used in determining its retirement
obligations. This change primarily impacts the Company’s German subsidiaries. The German
subsidiaries changed from a method based on entry age (“the entry age method”) to the “projected
unit credit method”. This change in method resulted in a charge to accumulated retained earnings for
€ 21 million as of January 1, 1998.
Reclassifications in the Income Statements presentation
A number of reclassifications have been made to the 1998 income statements, to better reflect the
economic substance of some income statement items as follows:
- “Cash discounts” granted to customers are deducted from sales since 1999 (€ 18 million in 1998).
The consequence of this reclassification was a decrease in “net sales” and in “financial expense”
(Note 5).
- Following the acquisition of the RCA TL business acquired from General Electric (GE), Thomson
includes most of the cost incurred for the patents activities in “cost of sales” (€ 3 million in 1998).
These costs were previously classified under “Selling, general and administrative expense” in 1998.
- Costs of the general management, finance and controlling of the Displays and Components activity,
were previously reflected as a component of “cost of sales”. These costs have been reclassified to
“Selling, general and administrative expense” (€ 19 million in 1998).
a) Consolidation
The financial statements of the subsidiaries in which THOMSON multimedia S.A. has a direct or
indirect controlling interest have been consolidated.
Investments in companies over which THOMSON multimedia S.A. exercises significant influence,
directly or indirectly, but does not control, are accounted for under the equity method.
Investments in companies over which THOMSON multimedia S.A. has a joint control with a
limited number of partners ("joint ventures") are accounted for under the pro rata consolidation
method.
b) Translation of foreign subsidiaries’ financial statements
The accounts of foreign subsidiaries are translated into Euros using the principles set forth below:
- balance sheets are translated at exchange rates prevailing at the balance sheet date;
- statements of income and cash flows are translated at the average exchange rates of the period;
- the resulting translation differences are reflected as a translation adjustment in the shareholders’
equity section of the balance sheet.
F-9
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The exchange rates are summarized in the following table:
1998 1999 2000
Closing Average Closing Average Closing Average
rate rate Rate rate rate rate
U.S. Dollar 0.857084 0.899487 0.995421 0.945524 1.074691 1.092692
Pound Sterling 1.417532 1.492544 1.608493 1.526138 1.602308 1.649100
Singapore Dollar 0.516391 0.537340 0.597443 0.557429 0.620117 0.632176
c) Transactions denominated in foreign currency
Monetary assets and liabilities denominated in foreign currencies are converted at the respective
exchange rates prevailing at the balance sheet date. The related unrealized exchange gains and losses
are included under "Other financial expense, net" in the consolidated income statement, except if the
assets and liabilities were hedged.
Transactions denominated in foreign currencies are converted at the exchange rate prevailing at
the date of the transaction or at the rate of the applicable forward contract if hedged.
d) Financial instruments
Thomson operates as a global company and consequently is subject to mismatches between the
currencies in which sales are made and the currencies in which expenses are incurred. Moreover,
Thomson operates in emerging markets which are subject to risks and uncertainties inherent in such
markets, including economic and governmental instability, controls on repatriation of earnings and
capital and restrictions on the means available to Thomson to hedge currency fluctuation risks.
Thomson’s policy is to hedge interest rate exposures in accordance with target ratios of
fixed/floating debt which are set periodically as a function of market conditions.
For foreign currency exposures, the Group's policy is to reduce the foreign currency fluctuations of
commercial transactions on a short-term basis, which corresponds to the group’s underlying business
cycle.
In order to achieve these objectives, the Group uses certain currency and interest rate derivative
instruments and enters into such transactions in the over-the-counter market with a limited number
of counterparts. The exposure is managed centrally by the Corporate Treasury department in Paris in
accordance with market conditions and in the framework of procedures established by management.
Likewise, foreign exchange transactions are carried out, depending on local foreign currency
regulations or practical access to the market, by the Corporate Treasury department in Paris or by the
Singapore regional treasury. Foreign exchange transactions in Mexican peso are carried out by the
Americas regional treasury. The group’s general policy with respect to fluctuations in exchange rates
is to hedge regularly on a short-term basis its net currency exposure based on its subsidiaries’ firm
and anticipated transactions.
F - 10
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Affiliates unable to enter into foreign currency hedging operations with the treasury department
because of local laws or regulations do so directly with local banks under the supervision of corporate
treasury and in accordance with corporate policies and procedures.
From time to time Thomson enters into financial instruments to hedge the market volatility of
certain marketable equity investments. The group’s accounting for these instruments which qualify
for hedge accounting is to defer any gains or losses until the related marketable equity securities are
sold.
Thomson only uses standard instruments (that can be summarized as follows), for no purposes other
than hedging:
• to hedge currency exposures, Thomson buys and sells currencies on a spot and forward basis
and buys currency options;
• to hedge interest rate exposures, Thomson enters into interest rate swaps and buys forward
rate agreements.
Accounting for foreign currency forward contracts
Foreign currency forward contracts and foreign currency options are considered as hedges for
accounting purposes if they are designated to hedge the following items:
• accounts receivable and accounts payable amounts at the balance sheet date;
• anticipated commercial transactions.
The nature of the commercial products sold and the consistency of the demand for these products
are such that it is reasonable to consider the anticipation of future cash flows generated by market
demand as similar to firm order commitments. Gains and losses on the foreign currency forward
contracts and foreign currency options designated as hedges of the following year's anticipated
commercial transactions, are recognized into income over the same period as the underlying
transaction. Therefore gains and losses on the contracts are deferred and not recorded in the financial
statements until the purchases or sales occur.
Gains and losses on foreign currency forward contracts and foreign currency options designated to
hedge accounts receivable and accounts payable balances are deferred on the balance sheet as either
“Other receivables” or “Other creditors and accrued liabilities”.
Other foreign currency forward contracts neither designated nor considered hedges are
immediately marked-to-market and the related gain or loss is recorded in the income statement as
"Other financial expense, net".
Foreign currency option contracts may be entered into to hedge uncertain commercial flows. In
this case the options do not qualify for hedge accounting because of the uncertainty of the commercial
flows. They are marked-to-market and the related gain or loss is recognized as “Other financial
expense, net ” in the consolidated income statements.
F - 11
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Thomson does not finance all of its foreign currency needs through direct borrowings in the
currency concerned, but instead in some cases uses currency swaps. Related premiums and discounts
are recorded over the life of the underlying transactions being hedged.
Interest rate swaps and forward rate agreements
Interest rate swaps and forward rate agreements are considered as hedges of Thomson's debt
instruments. Accordingly, gains and losses resulting from the use of such instruments are accounted
for over the life of the contract, on an accrual basis, as an increase or decrease to "Interest expense,
net" in the consolidated income statements. The deferred portion of these gains and losses is included
either as "Other receivables" or "Other creditors and accrued liabilities" on the consolidated balance
sheets.
e) Revenue
Sale of goods and services
Revenue consists of income from all activities of the consolidated subsidiaries after elimination of
inter-company transactions. Revenue is recognized when a product is shipped.
The Company’s U.S. subsidiary, THOMSON multimedia Inc., has entered into a specific
agreement with DIRECTV, related to the sale of digital decoders. Sales are recorded when digital
decoders are shipped to retailers. In addition, when consumers subscribe to the DIRECTV’s
programming, THOMSON multimedia, Inc. is entitled under the terms of the agreement to receive a
fixed fee payable in 60 monthly installments. As THOMSON multimedia, Inc. has no additional
services to render nor any continuing obligations to DIRECTV, this fee is recognized in income at the
present value of future payments to be received on the date the consumer subscribes to DIRECTV's
service.
Licensing revenue
The Company’s policy is to record licensing revenue as it is earned. The patent license agreements
generally provide that a specified royalty amount is earned on each product shipped to a third party
by a licensee. The gross royalty amount is determined on a quarterly basis and in accordance with the
license agreement. Generally, the royalty amount is required to be paid to the Company within 30-60
days after the end of the calendar quarter.
The company may enter into specific license agreements according to which its only obligation is to
maintain and defend the patents rights licensed to its customers. Under such contracts, the related up
front payments are recognized when the right to such payments is acquired.
Warranty and returns
Estimated product warranty costs are provided for at the time of sale. The warranty provision
covers all the products that are still under warranty. The amount of the provision is determined based
upon known non-recurring product issues as well as on historical experience.
Thomson accrues an estimate, at the time of sale, for all returns from its customers related either to
F - 12
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
product failures or consumer returns through its warranty reserve. Although Thomson’s general
policy is to not accept returns of undamaged products, on a discretionary basis in certain cases, the
group will accept returns for undamaged products. The impact of these returns have historically not
been material.
Price protection
Price protection may be granted to customers when Thomson’s retail price of a product decreases
for items held in stock by the customer. Price protection programs are discretionary. Accordingly, the
group accrues for price protection at the time allowances are probable of being granted to customers.
Price protection is reflected as a deduction to revenues.
f) Fixed assets
Property, plant and equipment are carried at historical cost.
Depreciation is computed using the straight-line or declining-balance method over the estimated
useful lives of the assets.
Depreciation is provided over the following estimated useful lives of the fixed assets:
- 20 to 40 years for buildings,
- 1 to 12 years for plant and equipment,
- 4 to 10 years for other fixed assets.
Goodwill is amortized on the straight-line basis over its estimated useful life, generally over a
period from 5 to 20 years.
Software costs are categorized and amortized over their economic useful lives for a maximum
period of 3 years or over a shorter period if the related technologies evolve rapidly.
Trademarks and similar rights are amortized over 20 years.
At the balance sheet date, whenever events or changes in market conditions indicate a potential
impairment of intangible assets and property, plant and equipment, the expected future
undiscounted cash flows of the related assets are compared with the carrying amounts of such assets.
Whenever such review indicates that there is an impairment, the carrying amount of such assets is
reduced to their fair market value.
g) Other investments
Other investments are recorded at the lower of historical cost or net realizable value, assessed on
an individual basis. Net realizable value is based upon the underlying equity of the investee
company, future profitability or market value.
h) Inventories
Inventories are carried at the lower of cost or net realizable value. Cost is determined using the
first-in, first-out (FIFO) or weighted average method.
F - 13
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The cost of finished goods and semi-finished goods inventories includes the cost of raw materials,
labor and subcontracted purchases used during production, plus an allocation of industrial overhead.
A valuation allowance is recorded when the carrying value is higher than the net realizable value.
i) Research and development
Research costs and development cost are expensed as incurred.
Subsidies for research and development are accounted for as income based on the stage of
completion of the projects and are directly deducted from research and development costs.
Certain projects are funded by means of repayable advances from governmental entities. Thomson
deducts such external funding directly from research costs as incurred, as the repayments are
generally contingent on future revenues generated by the project and are possible but not probable.
j) Cash and cash equivalents
Cash and cash equivalents consist of cash and liquid investments with an initial maturity of three
months or less.
k) Deferred tax
Thomson uses the liability method of tax allocation and records deferred taxes when there is a
difference between the tax and accounting basis of assets and liabilities. A valuation allowance is
recorded when there is an uncertainty regarding the future utilization of these temporary differences.
l) Pensions and retirement and termination benefits
Retirement indemnities and postretirement benefits are accrued over the years of service of the
employees; termination indemnities are accrued when rights to those benefits accumulate, vest and
payment of the benefits is probable.
Effective January 1, 1999, in order to standardize the procedure throughout the group, contractual
retirement indemnity accruals payable in France, are determined in accordance with Statement of
Financial Accounting Standards No 87 and 88 as follows:
- Actuarial gains and losses in excess of more than 10% of the present value of the defined benefit
obligation are recognized over the expected average remaining working lives.
- The effect of the change as of January 1st, 1999 between the reserves calculated in accordance with
U.S. accounting standards and the reserves calculated according to local accounting standards is
recorded under the caption “Other income (expense), net”, for € 3 million.
m) Restructuring
Restructuring costs are accrued when management determines the need to close facilities, or to
reduce or relocate the workforce. Such costs generally include estimates for facility closing costs,
reductions in the useful lives of assets and employees’ severance and termination indemnities.
F - 14
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
n) Statements of cash flows
Cash flows from operating activities have been determined using the indirect method.
o) Other income and expense
Other income and expense includes income and expenses which are for unusual or non-recurring
items.
p) Dividend restrictions
Pursuant to French law, THOMSON multimedia S.A. is legally required to contribute a minimum of
5% of its annual net income (after reduction for losses carried forward from previous year, if any) to a
legal reserve. This minimum contribution is no longer required when the legal reserve equals 10% of
the aggregate nominal value of its issued share capital. The legal reserve may be distributed only
upon liquidation.
2. REPORTING ENTITIES
As of and for the year ended December 31, 2000, Thomson’s consolidated balance sheets and
income statements include the accounts of companies listed in Note 26. The following is a summary
of the number of companies consolidated and accounted for under the equity method and the pro
rata consolidation method as of December 31, 2000, 1999 and 1998 :
December 31,
1998 1999 2000
France Foreign France Foreign France Foreign
Number of companies:
Parent company and consolidated subsidiaries 16 43 20 49 19 51
Companies consolidated by pro rata consolidation
- - 1 - 1 -
method
Companies accounted for under the equity method 2 4 1 6 1 4
Sub-total 18 47 22 55 21 55
Total 65 77 76
Subsidiaries excluded from consolidation in 2000
•= Since January 1, 2000, Thomson Audio Philippines, European Thai Consumer Electronic Co. Ltd,
and 77Centelec are no longer consolidated because their operations were stopped.
•= Since January 1, 2000, IVP, which was previously accounted for under the equity method, is now
stated at cost since all its assets and liabilities were liquidated during 1999.
•= In April 2000, MusicMatch issued additional shares to several third parties, which diluted
Thomson's ownership. Music Match investment is no longer accounted for using equity method
and is carried at cost.
•= In November 2000, Thomson Audio Singapore Pte Ld. has been liquidated. Its operations had
been stopped since the beginning of 2000.
F - 15
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
New subsidiaries consolidated in 2000
Since January 1, 2000, THOMSON multimedia Czech s.r.o and THOMSON multimedia Hungary,
previously stated at cost, have been consolidated since their operations have become significant. A
new company, "THOMSON multimedia Sales France" was incorporated to be the sales agent for the
French business and is fully consolidated. The ATLINKS manufacturing plant located in Spain,
"ATLINKS Espana S.A.", was contributed to the ATLINKS joint venture in January 2000 and
consolidated (the associated goodwill of € 4.4 million is included in the € 33 million total goodwill
concerning ATLINKS (Note 9)).
THOMSON multimedia Marketing France has been renamed THOMSON multimedia Sales
Europe.
In September 2000, Thomson acquired 100% of Singingfish.com, a company specialized in
identifying, categorizing and indexing streaming media and downloading media files on broadband
networks and the World Wide Web. This company is located in Seattle, Washington, in the United
States. The goodwill associated to the acquisition is € 23 million.
In November 2000, TCE Inc. has been renamed THOMSON multimedia, Inc. and TCE Canada, Inc.
has been renamed THOMSON multimedia Ltd.
Important subsidiaries consolidated since 1999
The following companies became subsidiaries and have been consolidated :
•= In January 1999, THOMSON multimedia Chile (a commercial company created in June 1998,
which is 100% owned by the group), Total Technology Co, Ltd. in Hong Kong (a joint venture with
TOP TECH to design hi-fi products, created in July 1998, which is 75% owned by the group),
THOMSON multimedia Brazil LTDA. (a company created in January 1999 to manufacture digital
decoders for the Brazilian market),
•= Thomson Licensing S.A., (a company organized in 1998, which started its operations when it
acquired on January 1st, 1999 the RCA TL intellectual property rights transferred by GE, THOMSON
multimedia Licensing, Inc. (United States), created in 1999 and 100% owned by the group:
Selected financial data from the Licensing activity of RCA TL :
Year ended December 31,
1998 1999 2000
(in millions of Euros) (1)
Revenues 254 205 240
Operating income 230 173 205
(1) Using the respective 2000, 1999 and 1998 average exchange rates.
This acquisition results from the following transactions:
F - 16
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
On September 30, 1987, Thomson S.A., THALES (former THOMSON-CSF, a subsidiary of
Thomson S.A.) and GE concluded a Purchase Agreement (the "1987 Agreement") providing for the
acquisition of GE consumer electronics business by Thomson S.A. in exchange for THALES medical
business and a cash payment. As part of the 1987 Agreement, it was agreed that Thomson S.A. would
acquire progressively from GE the ordinary and preferred shares of Newco (subsequently renamed
RCA TL), a GE subsidiary holding various patent licenses and other intellectual property rights in the
field of consumer electronics.
On December 20, 1991, the parties entered into an amendment (the "1991 Amendment") providing
for the deferral of Thomson S.A.’s right to acquire the stock of RCA TL and for GE to pay lump sum
amounts in consideration for such termination in two installments payable in 1991 (USD 210 million,
€ 166 million using the 1991 closing rate of € 0.79) and in 2002 (USD 63.7 million, € 68.5 million using
the December 31, 2000 closing rate of € 1.074691).
The 1991 Amendment also provided that, as of January 1, 1999, RCA TL would transfer its intellectual
property rights and substantially all of its assets and liabilities to a new company (“NTS”) to be
created by Thomson S.A. in exchange for preferred shares in the amount of USD 45.6 million (€ 49
million at December 2000 closing rate) carrying a 10% interest rate and repayable in 2002.
In September 1998, THOMSON S.A.’s board of directors decided that NTS would be a direct or
indirect subsidiary of Thomson and that all payments to and from GE will be made by or to
Thomson.
In December 1998, the terms of the 1991 Amendment were amended ("the 1998 Agreement”).
Whereby the transfer of RCA TL's assets and liabilities to NTS would be made in exchange for
payments determined as a percentage of NTS net sales, paid during the exercise, and subject to a
cumulative limitation (the "Maximum Amount") amounting to USD 63.1 million (€ 54 million at
hedged rate) and a payment of USD 0.2 million (€ 0.2 million) payable on January 1, 1999. The 1998
Agreement also provides that the payment of the second installment will be accelerated and
consequently reduced to USD 52.7 million (€ 44.4 million at hedged rate) (Note 7).
Thomson recorded the net assets acquired on the basis of the net payment, which approximated USD
11 million (€ 11 million).
In December 1999, RCA Trademark Management, a French company, was established by Thomson
to manage the RCA trademark following a lease arrangement granted by GE for an extended usage of
the trademark (THOMSON multimedia has an option to acquire the full ownership of the RCA
trademark in 2002 for USD 6 million (€ 6.4 million at 2000 closing rate)).
•= At the end of December 1999, Thomson and Alcatel merged their respective businesses in the areas
of consumer communication devices (except mobile phones using the GSM standard), Internet
terminals, digital modems and ADSL modems by a contribution of their business into a 50-50 joint
venture. The joint venture is consolidated because Thomson controls the company. The new company
is structured under a French holding company, ATLINKS, 50% owned by the Group, which operates
in France, Hong Kong, Australia, Mexico, United States and Canada. The goodwill associated with
the acquisition of a 50% interest in the Alcatel communication activities amounts to € 29 million and
is being amortized over a 15 year period. The control over the business being effective at the end of
December 1999, the new joint venture activity had no impact on the income statement for the year
ended December 1999.
F - 17
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Following is the unaudited pro-forma presentation of revenues and operating result of Thomson
including the Alcatel communications business transferred to ATLINKS:
Year ended December 31,
1998 restated 1999 restated
(in millions of Euros)
Revenues 5,866 6,938
Operating result (1) 126 352
(1) Including goodwill amortization for (€ 2) million in 1999 and 1998; it was not practicable to determine interest expense and
consequently pro-forma operating income only is presented above.; due to operating losses incurred in 1998 and 1999 no tax benefit
would have been recognized for the operating losses incurred by during these two periods and no other items of income or charge would
have been added or deducted from operating income to arrive at net income.
3. INFORMATION BY GEOGRAPHIC AREA AND BUSINESS SEGMENT
France Rest of U.S.A. Rest of Asia / Elimination Total
Europe Americas Pacific
(in millions of Euros)
2000
Net sales 1,477 1,063 5,285 497 772 - 9,094
Transfers between
1,068 744 149 326 920 (3,207) -
geographical areas
Operating income (loss) (1) 214 40 181 102 9 - 546
Long lived assets 115 282 485 109 131 - 1,122
1999
Net sales 1,287 721 4,143 276 263 - 6,690
Transfers between
848 773 72 252 620 (2,565) -
geographical areas
Operating income (loss) (1) 151 (5) 213 23 (16) - 366
Long lived assets 170 248 485 102 85 - 1,090
1998
Net sales 1,255 634 3,350 187 203 - 5,629
Transfers between
685 836 117 194 846 (2,678) -
geographical areas
Operating income (loss) (1) 23 9 77 16 19 - 144
Long lived assets 172 231 458 67 66 - 994
(1) The variations of the inter-company profit included in the inventories of the buying geographical area are deducted or added from or
to the operating profit of the selling zone.
Net sales and operating income (loss) are classified by the location of the business that invoices the
customer.
F - 18
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Year ended December 31,
1998 1999 2000
(in millions of Euros)
Export sales from French operations 683 707 749
Export sales from French operations invoiced by Thomson S.A. and
affiliates on behalf of Thomson (1) 53 52 80
(1) Note 8
Effective January 1, 1999, the segment assets by geographic area have been replaced by long lived
assets by geographic area. Consequently, the information for 1998 has been restated.
Analysis by Business Segment
Thomson has four reported segments: Displays and Components, Consumer Products, New
Media and Services and Patents and Licensing at December 31, 2000:
The segments are defined as follows:
- The Displays and Components segment produces and sells television tubes, other displays
devices, optical components and television and video components.
- The Consumer Products segment produces and sells television, video, audio, communication
devices, DVD players, decoders and professional equipment.
- The New Media and Services segment develops and commercializes new products and services
that are positioned to exploit the convergence of consumer electronics, telecommunications and
personal computers.
- The Patents and Licensing segment manages the licenses and patents of Thomson.
- In addition, ”Holdings” column includes amounts related to corporate functions and worldwide
programs unrelated to a specific business segment (central research etc.).
The Consumer Products segment is the result of the combination of the following activities:
Television, Video, DVD players, cable modems and professional equipment for the American, Asian
and European market’s, Audio and Communications worldwide and Digital Products worldwide.
These activities have been aggregated due to the fact that their economic characteristics, their
products, production processes, customers and their distribution channels are similar.
The variations of the inter-company profit included in the inventories of the buying segment are
deducted or added from or to the operating income (loss) of the selling segments.
F - 19
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Displays & Consumer New Media Patents & Consolidated
Components Products & Services Licensing Holdings Adjustments Total
(in millions of Euros)
December 31, 2000
Revenue from external
1,686 7,010 9 378 11 - 9,094
customers
Intersegment
Revenues 864 11 - - 216 (1,091) -
Depreciation &
(150) (148) (1) - (24) - (323)
Amortization
Operating Income (loss) 262 177 (83) 319 (129) - 546
Interest expense, net (a) (17) (122) - (2) 131 - (10)
Equity in income - (3) - - - - (3)
Other income (expense)
(54) (83) 13 - 43 - (81)
net (b)
Segment profit (loss)
before income tax and 235 2 (86) 331 (105) - 377
profit sharing
Segment assets 1,222 2,896 2 57 126 (10) 4,293
Capital expenditures (c) 193 212 2 - 18 - 425
Displays & Consumer New Media Patents & Consolidated
Components Products & Services Licensing Holdings Adjustments Total
(in millions of Euros)
December 31,1999
Revenue from external
1,279 5,124 - 278 9 - 6,690
customers
Intersegment revenues 816 5 - - 126 (947) -
Depreciation &
(135) (122) - (1) (28) - (286)
Amortization
Operating Income (loss) 216 93 (55) 218 (106) - 366
Interest expense, net (a) (20) (79) - - 58 - (41)
Equity in income - - - - - - -
Other income (expense)
(74) 8 1 - 59 - (6)
net (b)
Segment profit (loss)
before income tax and 191 23 (54) 220 (104) - 276
profit sharing
Segment assets 1,075 2,361 - 63 244 (12) 3,731
Capital expenditures (c) 141 125 - 2 58 - 326
F - 20
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Displays & Consumer New Media Patents & Consolidated
Components Products & Services Licensing Holdings Adjustments Total
(in millions of Euros)
December 31, 1998
Revenue from external
1,151 4,405 - 67 6 - 5,629
customers
Intersegment revenues 810 32 - - 226 (1,068) -
Depreciation &
(125) (133) (d) - (40) - (298)
Amortization
Operating Income (loss) 216 (15) (9) 47 (95) - 144
Interest expense, net (a) (25) (79) - - 50 - (54)
Equity in income - 1 - - 1 - 2
Other income (expense)
(2) (8) - - (17) - (27)
net
Segment profit (loss)
before income tax and 183 (103) (11) 47 (91) - 25
profit sharing
Segment assets 990 1,761 (d) - 227 (15) 2,963
Capital expenditures (c) 110 112 (d) - 26 - 248
(a) Interest expense is allocated to segment based upon average working capital requirements level to which market interest rate are
determined for each country in which the entities comprising the segments operate (“imputed interest”). The difference between
Thomson consolidated interest expenses and the imputed interest is allocated to “Holdings”.
(b) The capital gains on partial disposal of investments have been reclassified from “Holdings” in 1999 to “New Media and Services”
for the year ended 2000. The amounts are € 18 million and € 14 million in the year ended December 31, 2000 and 1999 respectively.
(c) The net change in debt to capital expenditures suppliers is € 17 million, € 14 million and € 11 million for the years ended December
2000, 1999 and 1998 respectively.
(d) Managed by Consumer products segment.
Reconciliation of segment information to consolidated figures:
December 31,
1998 1999 2000
(in millions of Euros)
Segment profit (loss) before income tax and profit
sharing 25 276 377
Profit sharing (2) (2) (2)
Income tax (8) (50) 1
Net profit (loss) before minority interests 15 224 376
December 31,
1998 1999 2000
(in millions of Euros)
Segment assets 2,963 3,731 4,293
Goodwill 6 42 55
Investments and other non-current assets 79 245 314
Current accounts with affiliates companies 37 51 21
Other receivables 285 494 846
Cash and cash equivalents 268 402 1,772
Total assets 3,638 4,965 7,301
F - 21
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
December 31,
1998 1999 2000
(in millions of Euros)
Segment depreciation and amortization (298) (286) (323)
Goodwill amortization (3) (4) (8)
Consolidated depreciation and amortization (301) (290) (331)
4. RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenses which amounted to € 351 million, € 290 million and € 284
million for the years ended December 31, 2000, 1999, and 1998, respectively are presented net of
government agency subsidies. Subsidies amounted to € 14 million, € 17 million and € 23 million net
of repayments for the years ended December 31, 2000, 1999, and 1998, respectively out of which
respectively € 5.3 million, € 3 million and € 2 million were received through contingently repayable
advances.
Total advances contingently repayable amount to € 10.8 million, € 5 million and € 2 million in 2000,
1999, and 1998 respectively.
5. FINANCIAL EXPENSE
December 31,
1998 1999 2000
(in millions of Euros)
Interest income (1) 26 9 25
Interest expense (2) (80) (50) (35)
Interest expense, net (54) (41) (10)
Cash payment discounts granted (4) (3) (3)
Cash payment discounts obtained - - 1
Pension plans interest cost (12) (13) (14)
Amortization of the premium/discount on forward contracts (5) - -
Other interest on non-financial payables (3) (16) (16) (12)
Dividends 1 1 1
Exchange loss - (12) (11)
Other (4) (1) 4 (29)
Other financial expense, net (37) (39) (67)
TOTAL (91) (80) (77)
(1) Of which € 1 million and € 16 million for the year ended December 31, 2000 and 1998 were received from Thomson S.A. and
its subsidiaries (none in 1999).
(2) Of which € 20 million and € 52 million for the years ended December 31, 1999 and 1998, respectively (none in 2000), were
paid to Thomson S.A. and its subsidiaries. The change in interest expense as compared to prior years was due to the various
share capital increases, which reduced interest expense.
(3) Other interest on non-financial payables includes costs related to sales of receivables (Note 13), € 12 million, € 16 million,
€ 15 million respectively in 2000, 1999 and 1998.
(4) As of December 31, 2000, this item mainly includes valuation allowances on investments carried at cost.
F - 22
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
6. OTHER INCOME (EXPENSE), NET
December 31,
1998 1999 2000
(in millions of Euros)
Restructuring costs, net (1) (17) (75) (105)
Gain on disposal of fixed assets/investments (2) 24 77 59
Other (3) (34) (8) (35)
Total other income (expense), net (27) (6) (81)
(1) The amount charged in 1999 and 2000 relates primarily to the restructuring and reorganization of Displays and Component (TIGER
plan for € 67 million and € 55 million respectively in 1999 and 2000) and the reorganization of Consumer Products in the United States
(Growl plan for € 21 million in 2000) and Safe plan for € 30 million in 2000.
The 1999 expense is reduced by € 2 million corresponding to a capital gain following IVP restructuring (Note 10(4)).
In 1998 restructuring costs mainly include costs incurred in plant closings and support service downsizing.
Restructuring plans are broken down into several projects; for each project, precise actions to be implemented are identified and their
related costs are detailed. Each project is coordinated and has a precise objective and timeline. Restructuring costs mainly include lay-off
costs, write-offs of fixed assets and inventories and the effect on the cumulative translation adjustment of the winding down of certain
Asian operations.
Restructuring costs also include costs incidental to facility closures such as costs to train or relocate employees to other sites, costs to
move inventories or tangible assets to other locations.
(2) In 2000, the gains relate mainly to the sale/lease back of the headquarters located in Boulogne (France) resulting in a gain of € 32
million, to the sale of the Indianapolis headquarters (United States) resulting in a gain of USD 6.5 million (approximately € 7 million)
and to the partial disposal of investments resulting in a gain of € 18 million.
The 1999 gains are composed of exchange of investments and partial disposal of investments (€ 14 million).
In 1998, capital gains were mainly due to the disposal of administrative premises in Singapore (€ 10 million) and Madrid (€ 2 million)
and gains realized on the partial disposal of investments (€ 12 million).
(3) In 2000,this item corresponds mainly to an accrual for litigation.
In 1999, this item principally included in process research and development related to Dassault decoders’ business acquisition (€ 5
million).
In 1998, this item principally represented the information system cost for Year 2000 Compliance and transition to the Euro currency (a
total of approximately € 16 million in 1998), and a write down of € 10 million in connection with a development project that was
capitalized in 1995 and 1996, and which no longer met expected profitability criteria. The additional amount of € 8 million recognized in
1998 in respect of year 2000 compliance is related to the cost of adapting production equipment. As a result of studies conducted in 1998,
additional software modifications related to the Euro were identified and the related costs were provided for in 1998.
7. INCOME TAX
Until 1997, Thomson S.A. and THOMSON multimedia S.A. accounting treatment of taxes on its
French subsidiaries were in accordance with terms of a 1989 agreement (the "Tax Sharing
Agreement"). This agreement allows Thomson S.A. to act as the tax authorities would have acted if
THOMSON multimedia S.A. had filed a consolidated tax return. However, due to tax losses by
THOMSON multimedia S.A. and its 95% owned French subsidiaries (the “Qualified Subsidiaries”),
THOMSON multimedia S.A. received a refund of its French income tax from Thomson S.A.
Since Thomson S.A.’s interest in THOMSON multimedia S.A. decreased to 70% in 1998,
THOMSON multimedia S.A. can no longer be consolidated for tax purposes by Thomson S.A.
Therefore, the 1989 Tax Sharing Agreement is no longer relevant.
In December 1998, Thomson S.A. and THOMSON multimedia S.A. entered into a new agreement
(the "Tax Indemnification Agreement”) whereby Thomson S.A. has agreed to indemnify Thomson for
F - 23
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
the tax effect of accumulated tax losses originating from THOMSON multimedia S.A. and its
Qualified Subsidiaries, which were transferred to Thomson S.A. from 1989 to 1997, and consequently
are not available to offset their future taxable income.
Under the terms of this new agreement, any income tax that THOMSON multimedia S.A. and its
Qualified Subsidiaries had to pay to the French tax authorities in respect of the period 1998 to 2000
will generate an indemnification from Thomson S.A. This indemnification amount is limited to € 116
million. As the indemnification will be taxable income for Thomson, the tax charge will be grossed up
to arrive at the indemnification amount to be received from Thomson S.A.
If the € 116 million limit is not reached at the end of fiscal year 2000, the Tax Indemnification
Agreement will be extended for one year.
As a result, tax expense was reduced as follows:
December 31,
1998 1999 2000
(in millions of Euros)
Indemnities from/to Thomson S.A. net of tax 30 35 51
Tax effect on indemnities from/to Thomson S.A. 21 23 31
TOTAL REDUCTION OF TAX EXPENSE 51 58 82
As of December 31, 2000, there is no remaining indemnity (€ 51 million and € 86 million at the end of
1999 and 1998).
In 1999, Thomson S.A. agreed to compensate Thomson Licensing S.A., a subsidiary of Thomson,
for the tax effect of the USD 52.7 million (€ 44 million at hedged rate) payment made by GE to
Thomson through Thomson S.A. (Note 2). As any amount received from Thomson S.A. is subject to
income tax at a rate of approximately 40%, a grossed up amount of € 74 million was due by Thomson
S.A. to Thomson Licensing S.A.
Starting on January 1, 1999, THOMSON multimedia S.A. has filed consolidated tax returns
including the taxable income of its 95% or more owned French subsidiaries.
In addition:
- The German subsidiaries of Thomson file a consolidated tax return in Germany. For that
purpose, the net result of each company is transferred to THOMSON multimedia Sales Germany
GmbH. & Co. O.H.G.
- THOMSON multimedia, Inc. and its subsidiaries file a consolidated tax return in the United
States of America.
F - 24
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Income tax expense is summarized below:
December 31,
1998 1999 2000
(in millions of Euros)
Current income tax:
France (48) (53) (88)
Indemnities from/to Thomson S.A. net of tax 30 35 51
Tax effect on indemnities from/to Thomson S.A. 21 23 31
Sub-total current income tax France 3 5 (6)
Foreign (12) (55) (99)
Total current income tax (9) (50) (105)
Deferred income tax
France - - 39
Foreign 1 - 67
Total deferred income tax 1 - 106
TOTAL INCOME TAX (8) (50) 1
A reconciliation between the provision for income tax and the pretax accounting income/(loss) is
as follows:
Year ended December 31,
1998 1999 2000
(in millions of Euros)
Net income/(loss) 16 231 394
Income tax (8) (50) 1
Minority interests (1) (7) (18)
Net income/(loss) before tax (before minority interests and
after equity) 23 274 375
Equity result of unconsolidated subsidiaries (2) - 3
Pretax accounting income/(loss) 21 274 378
Provision for income tax using the statutory rate of 36.67% (8) (101) (139)
Permanent differences (30) (42) 15
Refund of income tax related to the French tax consolidation - 11 24
Indemnities from/to Thomson S.A. net of tax 30 35 51
Tax effect on indemnities from/to Thomson S.A. 21 23 31
Unrecognized deferred tax loss carry forward (15) 32 (70)
Tax credits (1) 4 34 52
Effect of the 3.3%, 10% and 15%, additional tax rate for 2000, 1999 and
1998. (6) (8) (3)
Other, net (2) (4) (34) 40
Income tax (8) (50) 1
Effective tax rate 33.3% 18.4% -
(1) In 1999, this amount included a tax credit of € 30 million, received from Thomson S.A. related to the payment of €
44 million by GE to Thomson S.A. (taking into account a 40% tax rate).
(2) 2000 includes € 81 millions of net deferred tax asset recognition and € (19) million (1999 € (17) million) of
withholding tax on revenue generated by THOMSON multimedia Licensing, Inc. (affiliate created in 1999).
F - 25
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The components of income/(loss) before income taxes and minority interests are as
follows:
Year ended December 31,
1998 1999 2000
(in millions of Euros)
Domestic activities 73 166 235
Foreign activities (50) 108 140
Total income/(loss) before tax and minority interests (after equity
result) 23 274 375
The deferred tax liabilities and income taxes payable in the balance sheet were as follows:
December 31,
1998 1999 2000
(in millions of Euros)
Deferred tax liabilities 23 26 29
Income taxes payable 58 122 227
TOTAL TAX LIABILITIES 81 148 256
The deferred tax assets and liabilities in the balance sheet were as follows:
December 31,
1998 1999 2000
(in millions of Euros)
Deferred tax assets (net, by affiliates) 1,070 1,007 1,013
Valuation allowance (1,053) (987) (886)
Deferred tax assets, net (Note 14) 17 20 127
Deferred tax liabilities (23) (26) (29)
Net deferred tax assets (liabilities) (6) (6) 98
F - 26
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The major temporary differences that give rise to deferred tax assets and liabilities are as follows:
December 31,
1998 1999 2000
(in millions of Euros)
Tax effect of tax loss carry-forwards (1) 753 653 557
Tax effect of temporary differences related to:
Accrued vacation pay 11 12 13
Reserve for restructuring costs 47 51 61
Reserve for other risks and losses 174 132 191
Fixed asset valuation allowance 18 22 17
Reserve for pensions 68 92 110
Long-term capital loss 2 7 -
Other temporary differences 38 75 107
Total temporary differences 358 391 499
Deferred tax assets, gross 1,111 1,044 1,056
Tax effect of temporary differences related to:
Reserve for depreciation of fixed assets (34) (33) (47)
Unrealized exchange difference - - (8)
Other (30) (30) (17)
(72)
Deferred tax liabilities, gross (64) (63)
Total valuation allowance (1,053) (987) (886)
Net deferred tax assets (liabilities) (6) (6) 98
(1) The impact of the Tax indemnification Agreement with Thomson S.A. is included in December 31, 1999 and 1998.
Due to the change in the tax consolidation described above and in accordance with French tax laws, Thomson is subject to a capital gain
tax on the future reversal of valuation allowances on investments in consolidated subsidiaries recorded for tax purposes before the end of
the Tax Sharing Agreement (December 31, 1997) and of subsequent allowance related to consolidated subsidiaries not included in
consolidation for tax purposes(€ 2.1 billion as of December 31, 2000). Such reversal will be made when such subsidiaries, which have
previously reported operating losses, become profitable. Such tax will partially offset the tax benefit from tax loss carry-forwards set forth
in the above table. However, valuation allowances provided by THOMSON multimedia Holding in 1998 and in 1999, gave rise to a
long-term capital loss carry-forwards that might be applied against future long-term capital gains for a period of 10 years. Long-term
capital gains are subject in France to taxation at 21.53%. As of December 31, 2000, the long-term capital loss carry-forwards that may
be applied against future long-term capital gains amounted to (€ 208 million).
In 2000, the group has recorded a deferred tax asset of € 106 million. It is principally composed of
€ 25 million on timing differences of the year and of € 81 million on valuation allowance reversal
concerning mainly deferred tax assets of the United States and French affiliates. The valuation
allowance reversal was possible because of the profit recovery now confirmed for three continuing
years of the French and American tax consolidation perimeter, together with the fact that
management believes that sufficient income will be earned in future years to utilize such deferred
assets.
F - 27
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Tax on undistributed earnings of subsidiaries and equity companies is taken into account only
when there is a planned distribution of dividends.
As of December 31, 2000, the expiration of tax loss carry-forwards is as follows (basis before
applying tax rate):
(in millions of
Euros)
2001 81
2002 55
2003 42
2004 46
2005 46
2006 and Thereafter 1,256
Total 1,526
A valuation allowance is recognized for almost all the tax loss carry-forwards as it concerns mainly
European marketing subsidiaries (out of which THOMSON multimedia Sales Germany GmbH
represents 60% of the total tax loss carry-forwards), and some Asian affiliates for which loss history
and result perspective do not allow a valuation allowance reversal. THOMSON multimedia, Inc. has
utilized all its tax loss carry-forwards.
8. RELATED PARTY TRANSACTIONS
In addition to the Tax Indemnification Agreement (Note 7), the significant transactions between
Thomson and related companies are summarized as follows:
• Thomson S.A.
The positive net effect on operating profit of transactions with Thomson S.A. amounted to € 82
million, € 53 million and € 55 million in 2000, 1999 and 1998 and are mainly related to revenues
generated from royalties received from licenses owned by Thomson S.A. and affiliates on research
and development projects conducted by Thomson. Amounts received from Thomson S.A. are equal
to license fees charged to patent users by Thomson S.A.
Financial debt to Thomson S.A. and subsidiaries (Note 20) amounted to € 12 million, € 9 million and €
494 million as of December 31, 2000, 1999 and 1998, respectively. As of December 31, 2000 and 1999,
there was no longer any debt outstanding with Thomson S.A. (€ 78 million as of December 31, 1998).
Debt with Thomson Brandt International B.V. was € 12 million, € 9 million and € 416 million as of
December 31, 2000, 1999 and 1998 respectively.
Interest charged by Thomson S.A. and its subsidiaries to Thomson as of December 31, 2000, was not
significant, versus € 20 million in 1999 and € 52 million in 1998 (of which respectively € 17 million
and € 12 million charged by Thomson S.A.). Thomson is generally charged at substantially the same
interest rate as Thomson S.A. is charged by its lenders.
In 1999, an agreement signed between THOMSON multimedia S.A and Thomson S.A. designated
THOMSON Licensing S.A., a subsidiary of THOMSON multimedia S.A., as the recipient of the USD
52.7 million payment (€ 44 million at hedged rate) that GE was required to make to Thomson S.A. at
the end of 1999 according to the 1987 agreement, as amended in 1991 and 1998 (Notes 2 and 7).
F - 28
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The company has transactions in the normal course of business with the four industrial shareholders
and their affiliated companies. Management believes the transactions with these four industrial
shareholders are at arms length and are under terms no less favorable than with other suppliers.
•= Alcatel
Thomson purchased telephones (principally) totaling 49 million, 7 million and 8 million
respectively for the years 2000, 1999, 1998, and purchased services for 28 million in 2000.
In 2000, the group sold products to Alcatel for 74 millions and services for 5 million.
Thomson owed a 62 million and 39 million to Alcatel payable account (principally a current
account) as of December 31, 2000, and 1999 respectively.
•= NEC
For the twelve months ended December 31, 2000, 1999 and 1998, Thomson purchased Plasma TVs
totaling 11 million, 3 million and 3 million.
For the twelve months ended December 31, 2000 and 1999, the group invoiced patent licensing
totaling 2 million and 2 million.
The accounts payable and receivable with NEC are not significant.
•= DIRECTV
For the twelve months ended December 31, 2000, 1999 and 1998 Thomson invoiced patent licensing
and satellite receivers totaling 445 million, 183 million and 61 million respectively.
In December 2000, 1999, and 1998, the group had promotional expenses for 26 million, 5 million
and 1 million respectively.
At December 31, 2000, and 1999 the accounts receivable by DIRECTV amounted to 271 million and
131 million respectively.
In 1999, TCE Inc. paid to DIRECTV 25 million for marketing support and development of local
channels to DIRECTV customers. TCE Inc. expensed 3 million as of December 1999 and amortized
the remaining 22 million over the year 2000.
•= Microsoft
For the twelve months ended December 31, 2000 the group sold products and promotion services
totaling 10 million.
The account receivable with Microsoft is not significant.
F - 29
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
9. FIXED ASSETS
Fixed assets consist of the following:
(a) Intangible assets:
December 31,
1998 1999 2000
Accumulated
Net Net Gross Amortization Net
(in millions of Euros)
Goodwill 6 42 73 (18) 55
Patents and trademarks 42 81 207 (135) 72
Development costs 3 1 13 (13) -
Others intangibles 16 44 131 (62) 69
TOTAL 67 168 424 (228) 196
Of which:
Gross value 235 367
Accumulated amortization (168) (199)
- Goodwill
December 31,
Purchase Amortization 1998 1999 2000
Date Life Net Net Gross Amorti- Net
(years) zation
(in millions of Euros)
ATLINKS (France) 1999 15 - 29 33 (2) 31
Singingfish.com (United States) 2000 5 - - 23 (1) 22
THOMSON Polkolor sp.zo.o.(Poland) 1996 5 5 2 12 (12) -
THOMSON FCPTC Foshan (China) 1999 5 - 4 4 (2) 2
THOMSON multimedia Digital France (France) 1999 1 - 1 1 (1) -
MusicMatch (United States) 1999 7 - 5 - - -
S.A. Immobilière LE GALLO (France) 1995 20 1 1 - - -
TOTAL 6 42 73 (18) 55
The goodwill on the Alcatel communication acquisition has been amortized since January 2000, as
control over the business was effective at the end of December 1999.
The goodwill related to the acquisition of Singingfish.com has been amortized since October 2000.
- Patents and trademarks
Patents and trademarks consist mainly of:
- The license to use the RCA trademark, which is being amortized over 20 years since 1988 (€ 29
million net book value as of December 2000).
- The purchase from GE in 1999, by the RCA Trademark Management subsidiary of an extended
usage of the RCA trademark for € 30 million The transaction was made through an up-front
payment and an option to purchase the property of the trademark in the year 2002 for € 6.4 million.
This arrangement has been treated as a capital lease and is being amortized over 20 years.
F - 30
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
- the acquisition of intellectual property rights from GE (€ 11 million) following RCA TL’s assets
transfer (Note 2).
- Development costs
Development costs have not been capitalized since 1997.
- Other intangible assets
Other intangible assets include mainly software. The group initiated in 1999 a number of large
software developments in the accounting, logistic, service to customer, and Internet fields, which
significantly increased the software development costs.
(b) Property, plant and equipment:
December 31,
1998 1999 2000
Net Net Accumulated
Gross Net
Amortization
(in millions of Euros)
Land 45 60 44 (1) 43
Buildings 278 289 417 (203) 214
Plant and equipment 558 592 2,425 (1,776) 649
Other fixed assets 113 149 394 (178) 216
TOTAL 994 1,090 3,280 (2,158) 1,122
The decrease of land and buildings in 2000 is due to the sale and lease back of the French and U.S.
headquarters (Note 21).
F - 31
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
10. EQUITY INVESTMENTS
Equity investments in unconsolidated affiliates are summarized below :
December 31,
% Interest Equity Income/(loss)
2000 1998 1999 2000 1998 1999 2000
(in millions of Euros)
MusicMatch (United States) (1) 14.3% - 1 - - - (1)
THOMSON Audio Kulim Sdn Bhd
(Malaysia) (2) 100.0% - 8 10 - - 1
THOMSON Pacific CE Co. Ltd.
(Taiwan) 50.0% - - - - (1) (2)
CTE EL Athir (Tunisia) 30.0% 4 4 4 1 1 -
J2T Video Tonnerre (France) 50.0% 3 4 2 - - (1)
THOMSON LCD (France) (3) - 2 - - - - -
International Video Products
(Singapore) (4) 51.0% - - - 1 - -
TOTAL 9 17 16 2 - (3)
(1) For 1999, the Company accounted for its 20% investment in MusicMatch using the equity method. In April 2000, Thomson issued
USD 3.2 million (€ 3.4 million at December closing rate) of convertible debt to MusicMatch. Concurrently, MusicMatch issued
additional shares to several third parties, which diluted Thomson's ownership. After these transactions, this investment no longer
qualifies for the equity method and as such, Thomson has discontinued accounting for its share of MusicMatch's earnings or losses.
(2) THOMSON Audio Kulim’s manufacturing operations were written off, thus this entity was excluded from consolidation.The
investment in this company is accounted for under the equity method since 1999.
(3) Company disposed of in 1999.
(4) Thomson’s share in IVP’s net losses in excess of the investment in IVP of December 1998 has been accrued in the reserve for losses on
subsidiaries for € 16 million. The same treatment has been applied for losses related to the investment in THOMSON Pacific Consumer
Electronics’ negative equity (€ 2 million and € 1 million, respectively in 2000 and 1999).
As of December 1999, the share of IVP net income is related to a € 2 million capital gain on disposal of fixed assets following the IVP
restructuring and is consequently reflected as a deduction of restructuring expenses.
F - 32
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
11. OTHER INVESTMENTS
Other investments are as follows :
1998 1999 2000
Net Net At cost Valuation Net
allowance
(in millions of Euros)
Investments in (1):
- listed securities 41 121 131 (25) 106
- unlisted securities 19 60 247 (71) 176
TOTAL 60 181 378 (96) 282
Provision accrued for on listed companies is based on average December 2000 quoted price versus the acquisition cost.
(1) Main investments in listed companies made in the year 2000 are in Virage and in C-Cube Semiconductors.
Main investments in listed companies at December 31, 2000 are as follows:
Market Shareholders' Net
% Interest Net Value
value (1) equity (2) income (2)
(In percentage and millions of Euros)
M.I.H. (South Africa) 4.44% 40 36 889 333
GEMSTAR-TV Guide (United States) 2.91% 42 589 8,750 (95)
Other - 24 18 - -
TOTAL 106 643 - -
(1) Market value at December 31, 2000 listed value.
(2) Interim results for six months ended 30 September 2000, at December 31, 2000 closing rate for shareholders’ equity and 2000
average rate for net income.
12. INVENTORIES
December 31,
1998 1999 2000
(in millions of Euros)
Raw materials 171 219 299
Work in process 210 284 363
Finished goods and purchased goods for resale 608 705 927
Sub-total 989 1,208 1,589
Less: valuation allowance (82) (100) (112)
TOTAL 907 1,108 1,477
As of December 31, 2000, approximately 89% (87% in 1999 and 92% in 1998) of inventories were valued by the FIFO method with
the remainder valued by the weighted average cost method.
F - 33
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
13. TRADE ACCOUNTS AND NOTES RECEIVABLE, NET
December 31,
1998 1999 2000
(in millions of Euros)
Trade accounts and notes receivable (1) 1,052 1,458 1,614
Less: valuation allowance (51) (51) (61)
TOTAL 1,001 1,407 1,553
(1) including advances to suppliers.
a) Sale of receivables
The group has securitization programs in place for its North American and its French and German
receivables.
In 1999, THOMSON multimedia, Inc. entered into a three-year agreement, to sell, on a revolving
basis, a senior undivided ownership interest in a designated pool of receivables up to a maximum of
USD 225 million (€ 242 million at December 2000 closing rate).
In France and Germany the programs allow a maximum financing of € 152 million.
THOMSON multimedia, Inc. sold receivables at December 31, 1999 and 1998 for USD 14 million and
USD 145 million respectively (€ 14 million and € 124 million respectively, using the respective closing
rates), on a revolving basis, under this agreement. The sales were reflected as a reduction of accounts
receivable in the financial statements. The receivables sold are collateralized by THOMSON
multimedia, Inc.’s share in the designated pool of remaining receivables which totaled USD 390
million and USD 293 million as of December 31, 1999 and 1998 (approximately € 388 million and €
251 million using the respective closing rates). Under the terms of the agreement, the purchaser of
THOMSON multimedia, Inc.'s receivables has a first priority security interest in the designated pool
of remaining receivables until it has collected its share of the pool which totaled USD 14 million ( 14
million at 1999 closing rate) as of December 31, 1999.
In July 1999, THOMSON multimedia S.A., TCE Sales GmbH. and THOMSON multimedia Marketing
France entered into an agreement to sell to a financial institution (SGBN), on a revolving basis, an
undivided percentage ownership interest in certain eligible French and German domestic accounts
receivables, as defined up to a maximum of 152.45 million.
Under the terms of this agreement, new receivables were added to the pool as collections reduce
previously sold accounts receivables. The companies continued to service, administrate and collect
the receivables on behalf of the purchaser.
Under the terms of the agreement, a cash deposit of 34 million, recorded in “other non current
assets” might be used by the purchaser to offset losses and sold receivables.
The terms of reimbursement to the financial institution of the cash collected by Thomson as well as
the commissioning rate billed to Thomson adequately compensated the company for servicing the
accounts receivables and the lack of interest born by the cash deposit.
F - 34
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
In Europe the Group sold receivables for € 100 million as of December 31, 1999. An amount of € 34
million of the proceeds was deposited in a guarantee deposit. The transaction was recorded as a
reduction in accounts receivable of € 100 million in the consolidated balance sheets and an increase in
“Loans and other non current assets” of € 34 million at December 31, 1999.
In the 1999 cash-flow statement, a net change of € 66 million was shown under the “Decrease
(increase) in trade and other receivables” caption, corresponding to the European receivables sold less
the € 34 million deposit.
“Other financial expense net” included fees and discounts related to these receivable programs of 10
million and 9 million for the years ended December 31, 1999 and 1998.
Thomson had also entered into other agreements to sell receivables without recourse and had
reflected such sales as a reduction in receivable accounts in the consolidated balance sheets. The most
significant sales were located in the United States of America and amounted to USD 102 million and
USD 88 million in 1999 and 1998 respectively. Translated at respective closing rates, amounts were
approximately 102 million and 75 million respectively.
“Other financial expense, net” included, in 1999, 6 million of costs associated with these agreements
( 6 million in 1998).
In 2000, because of the funds provided by the share capital increase of November 2000, the group
discontinued the sale of receivables under its securitization programs and the € 34 million deposit
was returned.
b) Valuation allowance
Thomson’s accounting policy is to provide for doubtful accounts when losses are probable and can
be estimated. Under Thomson’s policy, reserves for doubtful accounts are generally reversed if and
when the related receivables are finally paid. Such reversals for the years ended December 31, 2000,
1999 and 1998 amounted respectively to € 8 million, € 3 million and € 5 million.
14. OTHER RECEIVABLES
December 31,
1998 1999 2000
(in millions of Euros)
Value Added Tax receivable (1) 62 77 136
Prepaid income tax and indemnification (2) 72 136 200
Subsidies 20 18 14
Deferred taxes (3) 17 20 127
Prepaid expenses 9 38 17
Other 105 205 352
TOTAL 285 494 846
(1) The Value Added Taxes receivable corresponds to the consolidated Value Added Taxes position generated in the normal course of
the Thomson's business.
(2) In 2000 corresponds mainly to :
- advances to French Tax authority on current year income tax (€ 82 million) that will be matched against income tax currently
payable (Note 7) when tax return is filed in April of the following year.
- Indemnification receivable from Thomson S.A for € 82 million.
(3) Note 7
F - 35
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
15. CASH AND CASH EQUIVALENTS
As of December 31, 2000 a cash deposit in the amount of € 35 million (€ 86 million in 1999 and € 89
million in 1998) is collateral to a loan in the same amount at a preferential rate of interest.
16. SHAREHOLDERS’ EQUITY
. Common stock and additional paid-in capital
As of December 31, 2000 THOMSON multimedia S.A.’s share capital is € 994,175,655 consisting of
265,113,508 shares of common stock outstanding with a par value of € 3.75 each (124,354,112 shares of
nominal value € 7.5 and 45,948,122 shares of nominal value € 15.24 at December 31, 1999 and
December 31, 1998 respectively).
The main evolutions since 1998 are as follows:
On May 29, 1998, the share capital was reduced from € 1,886,650,588 to € 490,332,232 by deduction
of the accumulated deficit of € 1,396,318,356.
On December 3, 1998, common stock outstanding was increased by the issuance of 13,784,436
shares of common stock at a par value of € 15.24 per share, issued at a price per share of € 19.91 to
Alcatel, DIRECTV, Microsoft and NEC (3,446,109 shares of common stock equivalent to a 7.5%
interest in THOMSON multimedia S.A. for each of the four Corporate Investors). As of December
1998, Thomson S.A. and the four Corporate Investors combined owned respectively 70% and 30% of
the THOMSON multimedia S.A. common stock.
On February 19, 1999, the number of shares increased by 1,531,604, as a result of a capital increase
fully subscribed by Thomson S.A. (a price per share of € 19.91, including a share premium of € 4.66).
These shares were immediately sold to THOMSON multimedia S.A. for € 30,491,658 in order to be
subsequently offered for sale to employees.
During the same month, the Corporate Investors sold a portion of their shares, representing 1.83%
of the shares, to Group Management (made up of 300 “entrepreneurial” executives, 59 members of
the Operating Committee and 13 members of the Executive Committee). The sale price amounted to €
21.14 corresponding to the original price paid for the shares (€ 19.91) plus carrying costs (€ 0.93)
commission and registration costs. The total amount purchased in February 1999 was € 18,147,037 for
870,852 shares (3,483,408 after the successive stock splits).
On October 29, 1999 the Extraordinary shareholder’s meeting decided to reduce the nominal value
from FRF 100 to FRF 50 per share. A stock split of the shares in a form of two for one share was thus
effected. Then it was decided to convert the par value into € 7.5, thus reducing the share capital value
by € 11,627,785, which was transferred to a special reserve not available for distribution. The share
capital was therefore € 712,195,890 (FRF 4,671,698,800) consisting of 94,959,452 shares at € 7.5 par
value.
In November 1999, the Company increased its capital stock through the issuance of 29,394,660 new
shares of stock for € 21.50 each.
F - 36
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Such shares were acquired by Thomson S.A. (21,399,500 shares) and by the public for 1,998,790 as part
of an Initial Public Offering (the “IPO”). NEC, Microsoft and Alcatel subscribed 1,998,790 shares each.
The Initial Public Offering and the employees offering was completed through Thomson S.A. that
first sold 21,399,500 existing shares of THOMSON multimedia S.A. (19,259,550 to the market and
2,139,950 to the employees) and then contributed to THOMSON multimedia S.A. share capital
increase, up to the amount sold.
On May 26, 2000 the THOMSON multimedia S.A. Shareholders meeting approved a two-for-one
stock split which reduced the nominal value from € 7.5 to € 3.75 per share.
In October 2000, an international offering was part of a global offering of 44,388,863 shares of
THOMSON multimedia S.A. Thomson S.A. sold 27,983,579 existing shares and THOMSON
multimedia S.A. issued 16,405,284 shares at € 55.90 each. The new shares were issued upon the
exercise of warrants at a price per share equal to the French public offering price, which is € 2 lower
than the international offering price. THOMSON multimedia S.A.'s capital stock was increased by €
61,519,815 and additional paid in capital increase by € 782,691,725 after deduction of warrants paid to
existing shareholders and of costs related to the share offering. Warrant holders making their
warrants available for sale have received a payment of € 0.13333 per warrant.
The costs related to the capital increases (€ 40 million in 2000 and € 30 millions in 1999) are
corresponding to the valuation, audit and consulting fees, road shows, commissions to banks and to
international underwriters and have been deducted from the additional paid in capital.
Concurrently with the global offering of shares, THOMSON multimedia S.A. issued at nominal
value € 812,115,228 convertible/exchangeable bonds due 2006 corresponding to 11,175,385 bonds,
named as “O.C.E.A.N.E” with € 72.67 nominal value each (Note 20).
Treasury shares
Effective November 10, 2000 the General Assembly of Shareholder authorized the Board of Directors
to repurchase common stock shares on the open market for multiple purposes (future exchange of
shares for strategic partnership, possible exchange with convertible bonds, stock option plan etc…).
The Company has repurchased 2,468,000 treasury shares at a cost of € 119 million as of December 31,
2000. The corresponding shares are deducted against equity at cost.
Stock option plan
On December 18, 2000, the Board of Directors approved a stock option plan of 3,458,500 options. Each
option gives the right to the holder to acquire one share at an exercise price of € 55.9 for a period of 10
years.
50% of the options will vest on December 18, 2003 and the remaining 50% on December 18, 2004, and
might be forfeited if the beneficiary leaves the company. Before such dates they may become fully
vested upon a change of control of THOMSON multimedia S.A. as defined in the contract.
Minority interests
As of December 31, 2000 minority interests mainly include the 50% equity investment in ATLINKS (€
70 million) held by the shareholders other than Thomson.
F - 37
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Cumulative translation adjustment
This item represents exchange differences arising from the translation of foreign subsidiaries’
financial statements.
Revaluation reserve
This item represents Thomson’s share in the revaluation of certain tangible fixed assets.
17. RESERVES FOR RETIREMENT BENEFITS
December 31,
1998 1999 2000
(in millions of Euros)
Pension 231 234 232
Postretirement benefit 241 297 333
Termination benefit 55 59 68
Total reserves 527 590 633
a) Pension plans
In some countries, Thomson pays contributions to governmental entities bearing the costs of
retirement benefits. Such contributions are charged to expense as incurred. In other countries, mainly
in Germany and in the United States, Thomson provides defined benefits to employees upon their
retirement.
- In Germany, employees have a pension plan granted by Thomson. This non-funded plan is fully
managed by Thomson.
The pension plan details are as follows:
December 31,
1998 1999 2000
(in millions of Euros)
Pension reserves recognized(1) 223 222 221
Unrecognized obligation (2) 16 17 21
Actuarial pension obligation 239 239 242
Pension charges (15) (15) (15)
Benefit paid (15) (16) (16)
Discount rate 6% 6% 6%
Long-term rate of compensation 2% 2% 2%
(1) in 1998 € 21 million is due to change in accounting principle effective as of January 1.
(2) The unrecognized obligation corresponds to changes in actuarial assumptions that may be deferred as long as it does not exceed
10% of the actuarial pension obligation.
- In the United States, the employees of THOMSON multimedia, Inc. are covered under a defined
benefit pension plan. The plan is funded by a trust fund maintained by THOMSON multimedia, Inc.
THOMSON multimedia, Inc.’s funding policy is to contribute on an annual basis in an amount that is
at least sufficient to meet the minimum requirements of the U.S. Employee Retirement Income
F - 38
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Security Act of 1974 (“ERISA”). Benefits are equal to a percentage of the plan member’s earnings each
year plus a guaranteed rate of return on earned benefits until retirement. The related accrued pension
cost is reflected under “Accrued employee expenses”.
The actuarial present value of the benefit obligation is as follows:
December 31,
1998 1999 2000
(in millions of Euros)
Projected benefit obligation 232 241 268
Fair value of plan assets 204 261 290
Funded status (28) 20 22
Unrecognized prior service costs (3) (3) (2)
Unrecognized (gain) loss 1 (53) (47)
Payment made 4 2 -
Accrued pension cost (26) (34) (27)
The net periodic costs are as follows:
Year ended December 31,
1998 1999 2000
(in millions of Euros)
Service cost 21 18 19
Interest cost 17 17 21
Actual return of plan assets: (3) (19) (26)
Deferred gain (loss) (17) -
Amortization of prior service costs and actuarial (gain)/loss (1) (1) (4)
Net periodic pension costs 17 15 10
Discount rate 6.75% 7.75% 8.25%
Long term rate of compensation 4% 4% 4%
Long-term rate of return on plan assets 9.25% 9.25% 9.25%
b) Postretirement employee benefits
THOMSON multimedia, Inc. and its subsidiaries provide health care coverage during retirement
to employees who meet seniority and age conditions.
The analysis of changes in the accrued postretirement employee benefit obligation is as follows,
excluding immaterial amounts related to THOMSON multimedia Ltd.:
1998 1999 2000
(in millions of Euros)
As of the beginning of the year 241 239 294
Allowances 23 24 26
Payments (10) (8) (12)
Other movements (1) (15) 39 23
As of the end of the year 239 294 331
(1) Other movements include translation adjustments.
F - 39
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The unrecognized postretirement benefit obligation is as follows:
December 31,
1998 1999 2000
(in millions of Euros)
Unrecognized prior service costs 16 17 4
Losses (gains) remaining to be amortized (44) (83) (66)
Total unrecognized postretirement benefit obligations (28) (66) (62)
Amortization of an unrecognized gain or loss is included as a component of net postretirement
benefit cost for a year if, as of the beginning of the year, that unrecognized net gain or loss exceeds
10% of the accumulated postretirement benefit obligation or the market related value of plan assets.
F - 40
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The net postretirement benefit expenses for the year is as follows:
December 31,
1998 1999 2000
(in millions of Euros)
Service cost 6 6 6
Interest cost 14 16 20
Amortization of unrecognized prior service costs 3 3 4
Amortization of unrecognized gain (1) (2) (5)
Net postretirement benefit expense 22 23 25
Discount rate 6.75% 7.75% 8.25%
Long term rate of compensation 4% 4% 4%
Assumed health care costs trend rate (1) 7% 6% 6%
(1) The rate declines by half a point each year from 2000 to a floor rate of 4% in 2003
The effect of a one point increase in the assumed health care trend rate would increase the
accumulated postretirement benefit obligation as of September 30, 2000 by approximately USD 27
million (€ 29 million translated at 2000 closing rate). It would also increase the aggregate of the
service and interest cost components of the 2000 postretirement benefit expense by approximately
USD 3.3 million (€ 3.5 million translated at 2000 closing rate).
c) Contractual retirement indemnities
In certain countries, contractual retirement indemnities are payable upon retirement of the
employees and are due only if the employee is on Thomson payroll when he or she retires. Such
indemnities are based and accrued on the employee’s estimated salary at retirement date and on
his/her years of service. Liabilities in France related to contractual indemnities are determined since
January 1, 1999 in accordance with Statements of Financial Accounting Standards No 87 and 88. The
effect of this change in 1999 was € 3 million and was reflected in the income statement caption “Other
income (expense), net”. (See Note 1, Changes in accounting principles)
In 2000, a reserve for “médaille du travail” (benefit related to seniority) has been recognized for € 4
million.
December 31,
1998 1999 2000
(in millions of Euros)
Reserves for contractual retirement indemnities for French 14 18 27
companies
Discount rate without inflation 5% 4% 3.5%
Rate of inflation 2% 1.5% 2%
F - 41
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
d) Termination indemnities
In Italy, according to local regulations, Thomson accrues indemnities for all employees until they
leave Thomson (retirement, lay-off or termination of contract). This indemnity is increased each year
based on each employee seniority and inflation factor.
The related accrued termination indemnity of Italian subsidiaries amounts to € 41 million, € 40
million and € 41 million as of December 31, 2000, 1999 and 1998, respectively.
18. RESTRUCTURING RESERVES
1998 1999 2000
(in millions of Euros)
Reserves at the beginning of the period 290 152 156
New plans and adjustments of prior year estimates (1) 17 77 105
Usage during the period (124) (72) (75)
Translation adjustment and other movements (2) (31) (1) (7)
Reserves at the end of the period 152 156 179
(1) Note 6.
(2) Includes change in the reporting entity, currency translation adjustments and reclassification of asset write-downs for € 27 million
in 1998 mainly for U.S. production lines, for € 3 million in 1999 and € 7 million in 2000.
19. OTHER RESERVES
Warranty Losses on Others TOTAL
subsidiaries
(1) (2)
(in millions of Euros)
As of January 1, 1998 121 21 70 212
Net variation 2 (1) 17 18
Other changes (6) (1) 12 5
As of December 31, 1998 117 19 99 235
Net variation (24) - (19) (43)
Other changes 21 2 10 33
As of December 31, 1999 114 21 90 225
Net variation 4 (1) 46 49
Other changes 9 (8) 2 3
As of December 31, 2000 127 12 138 277
(1) In 2000 mainly includes the losses in excess of Thomson investment in unconsolidated companies.
(2) As of December 31, 2000, other reserves include mainly accruals for expenses to be incurred in connection with Euro currency
transition (€ 8 million), accruals for litigation risks (€ 99 million) and contract risks (€ 8 million).
F - 42
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
20. FINANCIAL DEBT (SHORT-TERM AND LONG-TERM)
(a) Analysis by nature
December 31,
1998 1999 2000
(in millions of Euros)
Debt due to financial institutions 225 230 227
Convertible bonds - - 812
Bank overdrafts 46 64 19
Other financial debt 12 58 73
Sub-total 283 352 1,131
Accounts with Thomson S.A. and subsidiaries (Note 8) 494 9 12
TOTAL 777 361 1,143
. Convertible bonds
In October 2000, THOMSON multimedia S.A. issued 11,175,385 convertible/exchangeable bonds due
2006 for an aggregate amount of € 812,115,228. The bonds will bear interest at a rate of 1% per annum,
payable in arrears on January 1, of each year, with first payment to be made on January 1, 2001. The
bonds will mature and become repayable at a price of € 79.71 per bond on January 1, 2006, unless
previously converted, exchanged, redeemed or cancelled. This price is 109.69% of the original issue
price.
Each bondholder may elect to receive, in lieu of receiving payment of the principal, ordinary shares of
THOMSON multimedia S.A. of € 3.75 par value each, at a ratio of one share for each bond, subject to
adjustment upon occurrence of certain events.
The bonds are redeemable at THOMSON multimedia S.A. option at any time on or after January 1,
2004 in whole but not in part, at a price enabling the bondholder to receive a gross redemption yield
equal to the gross redemption yield that would have been received at final maturity, which is 2.75% if
the share price is greater than 120% of the bond redemption price for 20 consecutive days.
THOMSON multimedia S.A. may also repurchase any number of bonds at any time at any price on
the Paris Bourse. Bonds so repurchased will be cancelled.
The costs related to the convertible bonds offering (€ 18 million) are amortized over the bond
duration.
F - 43
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
(b) Annual maturity
December 31,
1998 1999 2000
(in millions of Euros)
N+1 443 334 298
N+2 77 18 19
N+3 35 2 3
N+4 1 3 1
N+5 1 1 1
Thereafter 220 3 821
Total long-term 334 27 845
TOTAL 777 361 1,143
(c) Analysis by currency
December 31,
Currency 1998 1999 2000
(in millions of Euros)
Euro 229 218 956
U.S. Dollar 497 95 68
Singapore Dollar 28 2 1
Others 23 46 118
TOTAL 777 361 1,143
(d) Analysis of long–term debt by interest rate
December 31,
1998 1999 2000
(in millions of Euros)
Variable rate (LIBOR 1 months) - - 7
Variable rate (EURIBOR 3 months) 3 3 3
Variable rate ( LIBOR 3 months) 241 - -
Variable rate ( LIBOR 6 months) 65 - -
Fixed rates 25 24 835
Total Long-term debt 334 27 845
Interest rates on substantially all short-term debt are based on LIBOR (London Interbank Offered
Rate) or EURIBOR (Euro Interbank Offered Rate).
F - 44
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
(e) Unused credit lines
December 31,
1998 1999 2000
(in millions of Euros)
Committed credit lines - 350 376
of which used - - -
Uncommitted credit lines 980 1,040 1,246
of which used 350 350 183
Sales receivable agreement in North America 257 223 242
of which used 124 14 -
Sales receivable agreement in France and Germany - 152 152
of which used - 100 -
(f) Analysis of debt owed to Thomson S.A. and subsidiaries
Analysis by maturity
Repayment schedule December 31,
1998 1999 2000
(in millions of Euros)
N+1 188 0 9
N+2 65 9 3
N+3 26 - -
N+4 - - -
N+5 and thereafter 215 - -
Total long-term 306 9 3
TOTAL 494 9 12
Analysis by currency and interest rate
December 31, 2000
(in millions of Type of interest rate Average rate
Euros)
Currency
U.S. Dollar 12 Fixed Rate 6.31%
TOTAL 12 6.31%
F - 45
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
December 31, 1999
(in millions of Type of interest rate Average rate
Euros)
Currency
U.S. Dollar 9 Fixed Rate 6.31%
TOTAL 9 6.31%
December 31, 1998
(in millions of Type of interest rate Average rate
Euros)
Currency
French Franc 78 3 months PIBOR 2.70%
U.S. Dollar 416 1, 3, 6 months LIBOR 5.83%
TOTAL 494 5.34%
The interest rates paid by Thomson to Thomson S.A. and its subsidiaries, are substantially the
same as those charged to Thomson S.A. and its subsidiaries by its lenders.
21. OFF-BALANCE SHEET COMMITMENTS
(a) Commitments (except operating leases) are as follows:
December 31,
1998 1999 2000
(in millions of Euros)
Retirement employee benefit (1) - 39 55
Guarantees given (2) 184 225 280
Currency swaps 580 459 672
Forward exchange contracts 459 754 704
Interest rate swaps 292 406 280
Foreign exchange options 43 170 45
Forward Rate Agreements - 149 -
Transfer of receivables with recourse 2 - -
Other commitments given 79 210 216
Total commitments given 1,639 2,412 2,252
Guarantees received 3 4 2
Currency swaps 577 453 682
Forward exchange contracts 460 748 713
Interest rate swaps 292 407 280
Foreign Exchange options 42 170 42
Forward Rate Agreements - 149 -
Warrant options 8 - -
Other commitments received - 35 53
Total commitments received 1,382 1,966 1,772
(1) Retirement benefits obligations are discussed in Note 17.
(2) Guarantees given include:
- € 223 million, € 165 million and € 130 million of letters of credit available primarily for issuance to insurance companies and foreign
vendors as of December 31, 2000, 1999 and 1998.
- € 38 million, € 38 million and € 38 million as of December 31, 2000, 1999 and 1998 of mortgaged assets of Videocolor S.p.A. to
guarantee local bank loans;
- € 19 million, € 22 million and € 16 million as of December 31, , 2000, 1999 and 1998, respectively, including guarantees given to
customs and state administrations in the regular course of business.
F - 46
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
(b) Operating leases
Commitments related to operating leases amount to € 232 million, € 181 million and € 138 million as
of December 2000, 1999 and 1998 respectively.
In 2000, the group entered into three significant new lease arrangements.
Two leases are related to the sales of the Boulogne and Indianapolis headquarters and are accounted
for as operating leases:
•= THOMSON multimedia S.A. sold its French headquarters located in Boulogne-Billancourt for € 91
million (€ 89 million net of costs) in February 29, 2000. The building was leased back from the
purchaser for a six-year period. The lease requires THOMSON multimedia S.A. to pay customary
operating and repair expenses and to observe certain operating restrictions and covenants. The
lease contains renewal options at the end of the initial lease period.
Future non-cancelable minimum lease payments are as follows in million of Euro:
2001 5.1
2002 5.1
2003 5.1
2004 5.1
Thereafter 6.0
Total 26.4
•= THOMSON multimedia, Inc. sold its U.S. corporate headquarters (Administration and Technical
Services buildings) in March 2000 for € 57 million net of costs. The buildings were leased back
from the purchaser for a twelve-year period. The lease requires THOMSON multimedia, Inc. to
pay customary operating and repair expenses and to observe certain operating restrictions and
covenants. The lease contains renewal options at the end of the initial lease period.
Future scheduled non-cancelable minimum lease payments are as follows in million of Euro:
2001 6.0
2002 6.0
2003 6.0
2004 6.0
Thereafter 42.8
Total 66.8
The third significant lease is a synthetic lease concerning a new tube manufacturing plant under
construction in Mexicali, Mexico.
In connection with the construction of this plant, the Company entered into a synthetic lease
agreement for the equipment and building in April 2000. The agreement provides that financial
investors will finance the building and related production equipment and lease it to the Company.
During the construction period, the Company will act as an agent. The lease is being accounted for as
an operating lease and runs for a period of seven years. The Company has options to renew the lease
or to purchase the leased property outright at a price not to be a "bargain purchase option". The
monthly lease payments will be determined based upon the cost of building the facility and
F - 47
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
purchasing the equipment. The plant will provide the Company with additional television tube
capacity in the very large size market with production tentatively scheduled to begin in the second
half of 2001.
The Company is not subject to penalties in the event that it cancels construction of the new facility.
(c) European Commission
The European Commission determined that the 1997 share capital increase of THOMSON
multimedia S.A. by Thomson S.A. constituted state aid from the French State. The Commission
authorized this aid, under certain conditions, the most significant of which are that Thomson (i)
enters into industrial partnerships with a view to strengthening Thomson’s viability and insuring its
long-term development; (ii) implements an industrial recovery plan; and (iii) limits its share of the
European television sets to a maximum of 10% until the end of the year 2000.
Since the European commission decision, the Company pursued reorganization and restructuring
programs. In addition, the Company entered into agreements with the four corporate investors in line
with the Commission decision. With respect to the Commission’s third requirement, the Company
share of the European Community television market has been below the 10% threshold since 1997.
22. INFORMATION ON EMPLOYEES
The breakdown of the number of employees in companies under the list of consolidated
subsidiaries is as follows:
December 31,
1998 1999 2000
Europe (1) 14,723 14,801 14,773
North America 7,208 6,928 6,745
Asia (2) 9,150 15,466 20,494
Other countries (3) 14,553 16,928 18,397
Number of employees of consolidated subsidiaries 45,634 54,123 60,409
Number of employees of equity companies 1,031 862 775
Total employees 46,665 54,985 61,184
(1) Including Poland 5,513 5,551 5,555
(2) Including China 3,942 11,433 17,090
(3) Including Mexico 13,826 16,199 17,454
Personal costs (4) 1,060 1,107 1,287
(4) The increase in 2000 is principally due to new or increasing activities in China and Mexico.
F - 48
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Compensation of Directors and Principal Executive Officers:
The company did not pay directors’ fees in 1999 and 1998. Fees were voted by the shareholder’s
meeting on November 10, 2000. The related amount for the fiscal year 2000 has been € 0.1 million.
The aggregate amount of compensation paid by Thomson to its principal executive and directors
which included 17 persons in all (19 persons in 1999 and 11 persons in 1998), during the 2000 fiscal
year was € 5.9 millions (€ 5.6 million and € 4 million in 1999 and 1998 respectively).
23. FINANCIAL INSTRUMENTS AND MARKET RELATED EXPOSURES
As indicated in Note 1. (d), Thomson uses financial instruments to manage its exposure to
currency and interest rate risks incurred in the normal course of business.
(a) Foreign currency exposure
Given the international nature of its business, Thomson generates significant cash flows in foreign
currencies.
Thomson primarily uses currency forward contracts or currency options.
The nominal value of Thomson’s forward operations and options outstanding as of December 31,
2000, 1999 and 1998 is shown in the table below:
December 31,
1998 1999 2000
(in millions of Euros)
Forward exchange contracts:
Euro 796 711 768
Pound sterling 12 - -
Hong Kong dollar - 5 -
Japanese yen 22 104 150
Mexican pesos 14 - -
Singapore dollar 8 45 44
U.S. dollar 127 327 426
Other currencies 58 9 7
Total forward purchases 1,037 1,201 1,395
Euro (97) (80) (370)
Canadian dollar (37) (86) (45)
Pound sterling (106) (115) (127)
Hong Kong dollar (43) (50) (21)
Japanese yen - (82) (100)
Thai bath - (3) (2)
U.S. dollar (700) (757) (633)
Other currencies (56) (39) (78)
Total forward sales (1,039) (1,212) (1,376)
Currency options contracts purchased:
Put Euro / Call Japanese yen - 7 5
F - 49
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Put Euro / Call US dollar - 109 104
Put U.S. dollar / Call Japanese yen 21 53 9
Put Canadian dollar / Call U.S. dollar 22 - 50
Total 43 169 168
Currency options contracts sold :
Call Euro / Put USD - - 104
Total - - 104
Deferred hedging gains (losses) related to 0.7 (0.8) (6.7)
anticipated transactions
(b) Financial policy and interest rate exposure
The main instruments used by Thomson to manage interest rate risks are interest rate swaps and
forward rate agreements.
Thomson’s interest rate exposure is presented as follows, by maturity:
December 31, 2000
2001 2002 2003 2004 2005 There- Total
after
(in millions of Euros)
Cash and cash equivalents – floating rate 1,772 - - - - - 1,772
Financial debt:
Floating rate 298 - 3 - - 7 308
Fixed rate - 19 - 1 1 814 835
Interest rate swaps, from floating to fixed (1) 54 - - - - - 54
Interest rate swaps, from fixed to floating (1) 8 3 - - - - 11
(1) U.S. dollar/Euro = 1.074691
December 31, 1999
2000 2001 2002 2003 2004 There- Total
after
(in millions of Euros)
Cash and cash equivalents – floating rate 402 - - - - - 402
Financial debt
Floating rate 333 - - 3 - - 336
Fixed rate 1 18 1 1 1 3 25
Interest rate swaps, from floating to fixed (2) 149 50 - - - - 199
Interest rate swaps, from fixed to floating (2) - 8 - - - - 8
FRA, from fixed to floating (2) 149 - - - - - 149
(2) U.S. dollar/Euro = 0.995421
The table below gives the amount of interest related to interest rate swaps contracted by Thomson:
F - 50
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
1998 1999 2000
(in millions of Euros)
Interest received:
- fixed rate 6 2 8
- floating rate 9 12 15
Interest paid:
- fixed rate (9) (14) (14)
- floating rate (4) (1) (8)
Net interest 2 (1) 1
As a result of these hedging instruments, the interest rates on Thomson’s consolidated debt are:
December 31,
1998 1999 2000
Effective average interest rate 6.83% 6.74% 5.38%
Interest rate before hedging operation 7.03% 6.66% 5.50%
The effective weighted average interest rate in 2000 on Thomson’s consolidated deposits was
4.41% (3.70% in 1999).
Percentage of Thomson’s average debt at floating rate taking into account the interest rate swap
operations and FRA’s:
1998 1999 2000
Average debt (in millions of Euros) 792 734 583
Percentage at floating rate 62% 70% 63%
A one-point variation in interest rates, applied to the floating rate debt and deposits would have
had an impact on Thomson annual financial expenses of approximately € 2.3 million.
Thomson’s average deposits in 2000 amounted to € 597 million, 100% at floating rate.
(c) Financial counterparty risk
The financial instruments used by Thomson to manage its interest rate and currency exposure are
all undertaken with counterparts having an investment grade rating.
The table below gives the percentage of outstanding foreign exchange operations by counterpart
credit rating:
F - 51
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Foreign Exchange Forwards: December 31, December 31,
Counterparty’s rating (according to Standard & Poors) 1999 2000
A-1+ 66.7% 61.9%
A-1 12.3% 23.6%
A-2 21.0% 14.5%
All significant cash deposits are maintained with rated financial institutions. An amount of € 1,072
million is invested in mutual funds.
The table below gives the percentage of outstanding cash deposits by counterparty credit rating:
Cash deposit: December 31, December 31,
Counterparty’s rating (according to Standard & Poors) 1999 2000
A-1+ 41.2% 28.5%
A-1 44.6% 64.9%
A-2 6.3% 1.5%
A-3 0.5% -%
B 1.7% 3.5%
Non rated financial institutions 5.7% 1.6%
Accordingly Thomson does not believe that there is a significant risk of nonperformance by a
major counterparty of the Group.
(d) Fair value of financial instruments
The fair value of interest rate swap contracts is calculated by discounting the future cash flows.
The fair value of forward exchange contracts is computed by discounting the difference between the
contract and the market forward rate and multiplying it by the nominal amount.
The fair value of currency options is calculated using standard option pricing software and
verified with the banks.
The fair value of all current assets and liabilities (trade accounts receivable and payable, short term
loans and debt, cash, bank overdrafts) is considered to be equivalent to net book value due to their
short-term maturities.
The fair value of long-term debt was determined by estimating future cash flows on a borrowing-
by-borrowing basis and discounting these future cash flows using the borrowing rates at year-end for
similar types of borrowing arrangement.
The fair value of listed investment securities is calculated using their last known market price at
year-end.
F - 52
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
December 31, 1999 December 31, 2000
Net book value Market value Net book value Market value
(in millions of Euros)
Balance sheet:
-Liability :Long-term debt 27 27 32 33
Convertible bonds - - 812 826
-Assets : GEMSTAR-TV Guide 44 873 42 589
M.I.H. 40 152 40 36
Other 37 48 24 18
Off-balance sheet:
Interest rate instruments
Forward rate agreements - - - -
Interest rate swaps –received fixed - 1 - 1
Foreign exchange instruments
Forward contracts (7) (11) - 9
Currency option contracts - 4 - (7)
Collar - - - 15
24. CONTINGENCIES
Legal Proceedings
In the normal course of business the group is involved in legal proceedings and is subject to tax,
customs and administrative controls. The group takes a reserve each time a risk is identified and
an estimation of the amount of the risk is possible.
Description of the main legal proceeding is set forth bellow:
- In January 1998, a grand jury investigation was initiated by the US Attorney’s Office in
Baltimore, Maryland. This investigation relates to the transfer pricing used in the importation of
picture tubes by THOMSON multimedia, Inc. from an Italian subsidiary of the group between
1993 and June 1998.
In parallel, a civil investigation has been conducted by the U.S. Customs Service which issued
pre-penalty notices on December 21, 1998. A pre-penalty notice means that a claim is being
contemplated to obtain compensation for damage and comments from the defendant. This pre-
penalty notice alleged that certain subsidiaries of the group and five of its employees
intentionally undervalued television tubes imported by the group from the Italian affiliate.
According to the preliminary pre-penalty notices, these tubes had an appraised domestic value
of approximately USD 419 million (€ 450 million at December 2000 closing rate). In an agreement
reached with the Customs Service in January 1999, all action in respect of the pre-penalty notices
was suspended for a period of one year in exchange for waivers of the statute of limitations
through January 2001. In July 2000, all of the parties who previously received pre-penalty notices
agreed to waive the statute of limitations defense for an additional period of time in order to
allow Customs to complete its investigation and to seek resolution of the matter through
administrative proceedings. On December 28, 2000, U.S. Customs Service issued new penalty
F - 53
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
notices that substitute to the previous ones because they accrue the value of the estimate loss on
the sale of tube from USD 11,680,354 to USD 12,584,949 (from € 13 million to € 14 million at 2000
closing rate), the resultant proposed penalty against the individuals range from USD 93,442,839
to USD 100,679,593 (from € 100 million to € 108 million at 2000 closing rate) and the estimates on
the tube value range from USD 419,085,556 to USD 425,055,781 (from € 450 million to € 457
million at 2000 closing rate). The waivers are effective through January 6, 2002.
Under applicable statutes, penalties could be levied in an amount equal to the appraised
domestic value of the merchandise and against each of the five employees concerned in an
amount up to eight times the loss of duties. In addition, the group has agreed to indemnify the
five employees for the monetary penalties. To date, no charges have been filed. Based on
information currently available, the group is not in a position to estimate the liability and has not
accrued for a reserve. The group will defend itself vigorously against any allegations of
wrongdoing.
In connection with the investigation being conducted by the U.S. Customs Service, the Italian
“Guardia di Finanza” tax police conducted a tax verification of the Italian subsidiary of the
group, Videocolor SpA, which had exported picture tubes to THOMSON Consumer Electronics,
Inc. (“THOMSON multimedia, Inc.”) during the years 1993 through 1998. In its report
transmitted to the Italian Direct Taxes Local Office in December 1999, the Guardia di Finanza
recommended increasing the prices of the tubes exported to THOMSON multimedia, Inc. and, as
a consequence, increasing the taxable income of Videocolor SpA. The taxable income increase, as
proposed for the years 1993 through 1998, with regard to picture tubes prices, amounts to ITL 60
billion (€ 31 million). On December 28, 1999, the Direct Taxes Local Office formally gave notice
that an assessment would be due with regard to 1993, amounting to ITL 10.84 billion (€ 5.6
million) taxable income, resulting in (i) reversal of tax losses carry-forwards and (ii) additional
tax penalties and interest amounting to approximately ITL 4 billion (€ 2.1 million). On February
25, 2000, Videocolor SpA. appealed against this assessment in front of the competent tax
jurisdiction of Frosinone in Italy.
On November 24th, 2000, the Direct Taxes Local Office gave notice of an assessment with regard
to 1994 amounting to ITL 18.87 billion taxable income (€ 9.7 million), resulting in (i) additional
taxes amounting to € 5.2 million and (ii) tax penalties amounting to € 5.2 million (before interest).
In January 2001, Videocolor SpA appealed this assessment before the competent tax juridiction of
Frosinone in Italy.
In its decision regarding 1993, issued at the end of January 2001, the Court of Frosinone
maintained part of the assessment based on 1993 elements, yet it invalidated the valuation
method of the imported tubes applied by the italian tax juridiction. Taking into account the tax
loss carry forwards and the tax exemption system at that date , no tax or penalty is due
concerning this year.
- In December 1998, a purported class action, Johnston v. THOMSON multimedia, Inc., was filed
against THOMSON multimedia, Inc. in the Marion Circuit Court of the State of Indiana, alleging
that certain RCA televisions are defective. The case was transferred to the Hamilton Circuit Court
in Indiana upon THOMSON multimedia, Inc.’s motion. The Johnston suit is brought on behalf of
all persons and entities in the United States who, since January 1, 1993, purchased an RCA
television which has experienced impaired audio or video performance. Additional purported
state class actions, brought on behalf of purchasers of RCA and GE televisions manufactured by
the Company, have been filed in state courts in New Jersey, New York, Florida, California,
Illinois and Texas. In addition, a purported national class action was filed in the Superior Court
F - 54
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
of New Jersey in 2000, and another purported national class action was filed in early 2001 in the
Circuit Court of Madison County, IIlinois.
The Company and outside counsel believe that the Company has several viable defenses to the
plaintiffs' claims. However, due to the inherent uncertainties of litigation and, in particular, the
significant business disruption and substantial defense costs that will be incurred in defending
multiple class actions, the Company has been engaged in extensive negotiations with the
plaintiffs' class action attorneys and entered into a written Settlement Agreement on January 19,
2001 to resolve such claims on a nationwide basis.
At the present time, it is not possible to make a precise determination of the total cost of the
settlement that was reached between the Company and the plaintiffs. During 2000 an estimate of
the cost of the resolution of this litigation was made and expense recorded based on information
available to the Company. The ultimate cost of the settlement will be dependent upon the
number of plaintiffs who elect to participate in the settlement. Based on information currently
available, the Company does not reasonably expect that additional cost associated with the
ultimate resolution of these actions, if any, will have a material adverse effect on future
consolidated financial statements for a particular year.
- In February 2000, Echostar Communications Corporation and two of its affiliates filed suit in
U.S. District Court for the District of Colorado against DIRECTV Enterprises, Inc. (and certain
affiliates) and THOMSON multimedia, Inc., a U.S. subsidiary of Thomson, alleging violations of
federal and state antitrust laws and tortious interference with contractual relations arising from
defendants’ ongoing attempts to monopolize the distribution of high power direct broadcast
satellite service. The Company intends to vigorously contest the allegations made by Echostar in
this litigation.
- In May 2000, IP Global, Ltd. filed suit in the U.S. District Court for the Eastern District of
Virginia against THOMSON multimedia, S.A. and THOMSON multimedia, Inc. alleging patent
infringement. The suit involves two patents pertaining to on-screen displays utilized by
television receivers and seeks to recover unspecified compensatory damages and treble damages.
The two patents in question expired in 1999. This case was settled in January 2001. The group
had previously accrued a provision which was sufficient to cover the settlement amount.
- In June 2000, Soundview Technologies filed suit in the U.S. District Court for the District of
Connecticut naming most of the manufacturers of televisions sold in the United States as
defendants, including THOMSON multimedia, Inc. The complaint contains allegations that
THOMSON multimedia, Inc. Sony, Philips, Mitsubishi, Samsung, Toshiba, Matsushita, and
Pioneer (among others) violated federal antitrust laws and engaged in unfair trade practices by
conspiring and utilizing monopsony power over the terms and conditions upon which
Soundview can license its V-chip patented technology. The complaint also alleges that the
manufacturing defendants, including THOMSON multimedia, Inc. infringed Soundview's
patented technology by manufacturing and selling televisions beginning in 1999 which include
the V-chip technology. Based on information currently available, the group believes it has
accrued the necessary provision to face any potential liability arising from these actions.
In addition to the foregoing, the group is subject to legal proceedings in the ordinary course of
business. Other than as noted above, no proceeding is known by THOMSON multimedia S.A.
F - 55
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
nor any if its subsidiaries to be contemplated by any third parties, which is likely to be adversely
determined and which could have a material adverse effect on the group’s business, financial
position, results of operations or liquidity.
Environmental matters
Thomson’s operations are subject to evolving and increasingly stringent laws and regulations
in a number of jurisdictions governing the release or discharge of various materials into the
environment or otherwise relating to environmental protection or human health and safety.
Compliance with current and future environmental laws and regulations may represent
significant costs or could restrict Thomson’s ability to modify or expand its facility or continue
production.
A number of Thomson’s manufacturing sites have a long history of industrial use. As is typical for
such businesses, soil and groundwater contamination has occurred at some sites and might occur
or be discovered at other sites in the future. Disposal of wastes from manufacturing sites, which
Thomson established or acquired, exposes Thomson to remedial costs. Thomson has identified
five sites where chemical contamination has required remedial or other significant restorative
measures. Nevertheless, the group considers that its potential liability concerning contamination
at these sites is not material and could not have significant impact on its financial situation.
Soil and groundwater contamination has been detected at and near the Taoyuan production
facility in Taiwan, owned by Thomson from 1987 to 1992, when Thomson ceased all production
activities at the site and sold all of its real estate interest therein. Pursuant to an agreement by
several of the principal affected parties, Thomson submitted a remediation plan to a task force
established by the Taiwan Environmental Protection Agency (EPA). The task force approved the
plan in August 1996, and all major elements of the plan were completed in 1998. The EPA and
other government agencies have announced plans to conduct health studies associated with
contamination at the site during 1999 and 2000. Studies commissioned by Thomson in 1995
concluded that it is extremely unlikely that the health of nearby residents is at risk as a result of
contamination at the site. In November 2000, the Taiwan Labor Safety and Health Institute
reported that as a result of their study, they determined contamination was not to be causally
linked to the incidence of cancer among ex-workers. Nevertheless, no assurance may be given
concerning Thomson’s potential liability resulting from contamination at the site.
One legal action has been brought against Thomson in connection with the site. The action was
originally brought in Taiwan and subsequently withdrawn. The same action was later filed in the
United States where it was also subsequently withdrawn. In 1997, the action was filed again, this
time in France. In April 1998, the action was suspended indefinitely at the plaintiff’s request. The
amount in controversy is less than USD 20 million (approximately € 20 million translated at
December 31, 2000 closing rate). There is a provision of € 5.7 million in December 2000 accounts to
cover the estimated probable loss in connection with the litigation with the new owner of the
facility. The amount corresponds to the settlement proposed by Thomson to the new owner.
Discussion with the new owner was discontinued on the basis of the proposed settlement. There
has been no specific development during year 2000.
F - 56
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
No other significant liability has been asserted against Thomson, and compliance with environmental
regulations has not had a significant effect on its financial condition, the results of its operations and
liquidity.
Year 2000 and the Euro
Thomson carried out a comprehensive program to identify, prioritize and address potential problems
that might arise because of the year 2000 computer problem. The program was completed on time,
and no problems were noted following the roll-over period (i.e. after January 3, 2000).
A transition plan relative to the Euro was prepared, and a reserve was taken to cover the cost of
making the necessary adjustments to the group software programs. As of year end 2000, the accrual
amounts to € 8 million. Furthermore, the group has already adapted certain of its related-party
transactions to the Euro.
25. SUBSEQUENT EVENTS
Thomson has reached a preliminary agreement with Royal Philips Electronics to purchase five
businesses of the Philips Professional Broadcast group. Under the preliminary agreement, Thomson
will immediately acquire 67% of a new holding company comprising the five businesses. This
acquisition will complement Thomson’s existing professional broadcast activities inside the Group’s
Digital Media Solutions segment. This acquisition should be finalized beginning year 2001.
On January 14, 2001, Thomson entered into a preliminary agreement with Carlton Communications
Plc (“Carlton”) to acquire (i) 100% of the shares of Carlton Communications Investments a U.S.
general partnership, Technicolor Holdings Limited, a U.K. private limited company, Technicolor
Australia Investments limited, a U.K. private limited company, Technicolor Holdings of Canada Inc.,
a Canadian corporation and Elap Music A.S. a Danish private limited company (these five companies
are collectively referred to hereafter as “Technicolor”), and (ii) the Technicolor debt to Carlton
Communications Plc and subsidiaries.
Technicolor is a world leader in services for the media industry and for content providers as well
as the world’s number one in processing and distribution of motion picture film. Technicolor is also
the largest independent manufacturer and distributor of pre-recorded DVDs, CDs and
Videocassettes.
Thomson will pay to Carlton USD 750 million at closing (€ 806 million at 2000 closing rate), and an
aggregate amount of USD 600 million (€ 645 million at 2000 closing rate), payable over the next four
years in four equal installments plus interest, on the first, second, third and fourth anniversaries of
the closing and will issue to Carlton 15.5 million non transferable, non interest bearing bonds
redeemable in shares converted, without any other possibility, in 15.5 million ordinary shares one
year after the closing, representing approximately 5.5% of the outstanding shares of THOMSON
multimedia S.A. (THOMSON multimedia S.A. may elect to pay up to half of the deferred
consideration in THOMSON multimedia S.A. shares).
Concerning this acquisition, Technicolor net cash at the closing date, as defined in the contract, will be
paid to Carlton if positive or will reduce the purchase price if negative.
F - 57
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Moreover, any difference between Technicolor actual net working capital at the closing date, as
defined in the contract, and USD 275 million (€ 296 million at December 2000 closing rate) will give
rise to a payment by Carlton if negative or by Thomson if positive, adjusted by interest rates.
In addition, in order to leverage Technicolor’s leadership in Digital Cinema, Carlton and Thomson
have agreed to form a 50/50 joint venture, under which Carlton and Technicolor will jointly develop
their in-theatre screen advertising business in the U.S.
Carlton will also invest up to USD 15 million (€ 16 million at 2000 closing rate) in TAK, Thomson’s
European interactive TV joint venture with Microsoft.
The transaction obtained shareholder and regulatory approvals. Final closing occurred on March 16,
2001.
F - 58
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
26. LIST OF CONSOLIDATED SUBSIDIARIES
% share held by THOMSON
multimedia S.A. (1)
December 31
COMPANY - (Country) 2000 1999 1998
1) Fully consolidated
ATLINKS (France) 50.0 50.0 -
ATLINKS Australia Pty Ltd. (Australia) 50.0 50.0 -
ATLINKS Communications Canada, Inc. (Canada) 50.0 50.0 -
ATLINKS Espana S.A. ( Spain) 50.0 - -
ATKINKS Hong Kong Ltd. (Hong Kong) 50.0 50.0 -
ATKINKS Mexico, S.A. de C.V. (Mexico) 50.0 50.0 -
ATLINKS USA, Inc. (United States) 50.0 50.0 -
Comercializadora THOMSON de Mexico (Mexico) 100.0 100.0 100.0
Deutsche THOMSON-Brandt GmbH (Germany) 99.9 99.9 99.9
European Audio Products Ltd. (Hong Kong) 100.0 100.0 100.0
European Thai Consumer Electronics Co. Ltd. (Thailand) - 100.0 49.0
Manufacturas Avanzadas S.A. de C.V. (Mexico) 100.0 100.0 100.0
Productos Electronicos de la Laguna S.A. de C.V. (Mexico) 100.0 100.0 100.0
RCA Componentes S.A. de C.V. (Mexico) 100.0 100.0 100.0
RCA Trademark Management (France) 100.0 100.0 -
S.A. Immobilière Cesson Sévigné (France) 100.0 100.0 100.0
S.A. Immobilière LE GALLO (France) 100.0 100.0 100.0
Singingfish.com (United States) 100.0 - -
Société Tonnerroise d'Electronique Industrielle - STELI (France) 100.0 100.0 100.0
Sofia (France) 100.0 100.0 100.0
Soixante-Dix-Sept-Centelec (France) - 100.0 100.0
TCE Marketing Australia Pty Ltd. (Australia) - - 100.0
TCE Poland sp.zo.o (Poland) 100.0 100.0 100.0
TCE Sales GmbH (Germany) 99.9 99.9 99.9
TCE Television Taiwan Ltd. (Taiwan) 100.0 99.3 99.3
TCE India Ltd. (India) 86.0 86.0 51.0
THOMSON Audio Dongguan (People’s Republic of China) 100.0 100.0 100.0
THOMSON Audio Hong Kong Ltd. (Hong Kong) 100.0 100.0 100.0
THOMSON Audio Kulim Sdn Bhd (Malaysia) - - 100.0
THOMSON Audio Muar Sdn Bhd (Malaysia) 100.0 100.0 100.0
THOMSON Audio Philippines, Inc. (Philippines) - 100.0 100.0
THOMSON Audio Singapore Pte Ltd. (Singapore) - 100.0 100.0
THOMSON Broadcast Systems (France) 100.0 100.0 100.0
THOMSON Consumer Electronics International S.A. (France) 100.0 99.9 99.9
THOMSON Consumer Electronics Marketing Asia Pte Ltd. (Singapore) 100.0 100.0 100.0
THOMSON Crown Wood Company (United States) 100.0 100.0 100.0
THOMSON Displays Mexicana S.A. de C.V. (Mexico) 100.0 100.0 -
THOMSON FCPTC Foshan (People’s Republic of China) 55.0 55.0 -
THOMSON Licensing S.A.. (France) 100.0 100.0 100.0
THOMSON multimedia Asia Pte Ltd (Singapore) 100.0 100.0 100.0
THOMSON multimedia Austria Ges.m.b.H. (Austria) - - 100.0
THOMSON multimedia Benelux B.V. (Netherlands) - - 100.0
THOMSON multimidia Brazil LTDA (Brazil) 100.0 100.0 -
THOMSON multimedia Chile (Chile) 100.0 70.0 -
THOMSON multimedia Czech s.r.o (Tchequy) 100.0 - -
THOMSON multimedia Digital France (France) 100.0 100.0 -
THOMSON multimedia Hungary K.f.t. (Hungary) 100.0 - -
THOMSON multimedia, Inc. (United States) (former THOMSON Consumer Electronics, Inc.) 100.0 100.0 100.0
THOMSON multimedia Licensing, Inc. (United States) 100.0 100.0 -
THOMSON multimedia Ltd (Canada) (former THOMSON Consumer Electronics Canada, 100.0 100.0 100.0
Inc).
THOMSON multimedia Pensionverwaltungs GmbH (Germany) 99.9 99.9 -
THOMSON multimedia R&D France S.N.C. (France) 100.0 100.0 100.0
THOMSON multimedia Sales Europe (ex THOMSON multimedia Marketing France) (France) 100.0 100.0 100.0
THOMSON multimedia Sales France (France) 100.0 - -
THOMSON multimedia Sales Germany GmbH & Co O.H.G. (Germany) 99.9 99.9 99.9
THOMSON multimedia Sales Italy S.p.A. (Italy) 100.0 100.0 100.0
F - 59
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
THOMSON multimedia Sales Spain S.A. (Spain) 100.0 100.0 100.0
THOMSON multimedia Sales UK (United Kingdom) 100.0 100.0 100.0
THOMSON multimedia Scandinavia A.B. (Sweden) 100.0 100.0 100.0
THOMSON multimedia Switzerland AG (Switzerland) 100.0 100.0 100.0
THOMSON Plasma S.A.S. (France) 100.0 100.0 100.0
THOMSON Polkolor sp.zo.o.(Poland) 100.0 100.0 100.0
THOMSON Receivable Corporation (United States) 100.0 100.0 100.0
THOMSON Television Angers (France) 100.0 100.0 100.0
THOMSON Television Components France (France) 100.0 100.0 100.0
THOMSON Television Components España S.A. (Spain) 100.0 100.0 100.0
THOMSON Television España S.A. (Spain) 100.0 100.0 100.0
THOMSON Television Germany GmbH (Germany) 99.9 99.9 99.9
THOMSON Television Singapore Pte Ltd. (Singapore) 100.0 100.0 100.0
THOMSON Television Thailand Co. Ltd, (Thailand) 100.0 100.0 100.0
THOMSON Televisiones de Mexico S.A. de C.V. (Mexico) 100.0 100.0 100.0
THOMSON Thai Consumer Electronics Marketing Co, Ltd. (Thailand) - - 49.0
THOMSON Tube Components Belo Horizonte Ltda. (Brazil) 100.0 99.9 99.9
THOMSON Tube Components de Mexico S.A. de C.V. (Mexico) 100.0 100.0 99.9
THOMSON Tubes & Displays S.A. (France) 100.0 100.0 100.0
THOMSON Videoglass S.A.(France) 100.0 100.0 100.0
Total Technology Company Ltd. (Hong Kong) 75.0 75.0 -
Videocolor S.p.A. (Italy) 100.0 100.0 100.0
2) Consolidated by pro rata method
TAK S.A.S. (France) 70.0 70.0 -
3) Consolidated by equity method
CTE El Athir (Tunisia) 30.0 30.0 30.0
International Video Products (Singapore) 51.0 51.0
J2T Holding GmbH (Germany) 50.0 50.0 50.0
J2T Video Tonnerre (France) 50.0 50.0 50.0
MusicMatch (United States) - 20.0 -
THOMSON Audio Kulim (Malaysia) 100.0 100.0 -
THOMSON LCD (France) - - 50.0
THOMSON Pacific CE Co. Ltd (Taiwan) 50.0 50.0 50.0
(1) percentage rounded at one digit after the point.
F - 60
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
27. SUMMARY OF DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY
THE COMPANY AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES
Thomson's accounting policies comply with French GAAP. Elements of Thomson’s accounting
policies which differ significantly from generally accepted accounting principles in the United States
("US GAAP") are described below:
Items affecting Net Income and Shareholders' Equity
(a) Investment securities
Thomson holds equity securities that have readily determinable fair values and are classified as
"Other investments" in the consolidated balance sheets. Other investments are carried at the lower of
cost or fair market value. French GAAP does not permit upward adjustments in the value of these
securities to reflect their fair market value. For US GAAP purposes, the Group has classified these
investments as available for sale, measured at fair value, with unrealized gains and losses excluded
from earnings and reported as a component of shareholders' equity.
In 1999, equity securities of two third parties, MCI Worldcom and MIHL, were obtained in
exchange transactions. For French GAAP purposes, the public market price used in computing the
exchange gain was reduced by 5% and 13%, respectively, because such shares were precluded from
being sold for a period of 30 days and 6 months respectively, and because MIHL shares liquidity is
limited. Under US GAAP, the exchange gain should be computed based on the public market price;
consequently the exchange gain recorded under French GAAP should be increased by 7 million
under U.S. GAAP.
As of December 31, 2000, the fair value and carrying value of marketable securities was 643
million. The fair value of the Company’s marketable securities has declined 71 million subsequent
to December 31, 2000 to 572 million at June 6, 2001 (translated at December 31, 2000, closing rate).
(b) Restructuring
Under French GAAP, as disclosed in Note 1(m), Thomson records restructuring liabilities during
the period when decisions have been approved by the appropriate level of management. Under U.S.
GAAP, Thomson has applied the provisions of Statement of Financial Accounting Standards No. 88
("SFAS 88") "Employers' Accounting for Settlement and Curtailment of Defined Benefit Pension Plans
and for Termination Benefits", No. 112 ("SFAS 112") "Employer's Accounting for Postemployment
Benefits" and "Emerging Issues Task Force" consensus on issue No. 94-3 ("EITF 94-3"), "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity" in
accounting for its employee redundancy and restructuring costs. Under EITF 94-3, a provision for
restructuring can only be recorded during the period when certain conditions are satisfied, including
the specific identification and approval by the appropriate level of management of the operations and
activities to be restructured, and notification to the employees who are to be terminated. In addition,
costs associated with an exit plan are recognized as restructuring provisions only if the related costs
are not associated with or do not benefit continuing activities of the Group. The foregoing creates a
timing difference between (i) the recording of provisions of new French GAAP charges to the extent
that such provisions are not accrued for U.S. GAAP purposes and (ii) restructuring charges accrued
F - 61
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
under US GAAP that were expensed for French GAAP purposes in a prior period.
The impact of US GAAP adjustments related to restructuring is as follows:
Currency
Translation
Current Release of Adjustments
December 31, Year Cash Provision Net and December 31,
1999 Expense Payments to income Change Others 2000
(in millions of Euros)
French GAAP reserve 156 138 (75) (33) 30 (7) 179
Voluntary termination offer not
accepted at balance sheet
date (3) (2) 1 — (1) — (4)
Unaccepted benefits in excess
of legal or contractual
obligations — (1) — — (1) — (1)
Plans not announced at balance
sheet date (73) (12) 1 24 13 1 (59)
Cost to move inventory or
tangible assets to another
location (12) (8) 1 1 (6) — (18)
Reengineering and consulting
costs (12) (8) 19 — 11 — (1)
Other costs where commitment
date is after balance sheet date (6) (6) 8 1 3 — (3)
Other and adjustment on non
eligible assets write-downs (1) (10) 2 — (8) — (9)
Total US GAAP adjustments (107) (47) 32 26 11 1 (95)
Reclassification of assets
write downs (18) (17) 7 4 (6) 5 (19)
Reclassification to other cost of
sales — (7) — — (7) 3 (4)
Reclassification to
environmental reserve (5) — — — — — (5)
Total US GAAP reclassifications (23) (24) 7 4 (13) 8 (28)
Total US GAAP adjustments
and reclassifications (130) (71) 39 30 (2) 9 (123)
US GAAP reserve 26 67 (36) (3) 28 2 56
The column entitled "Currency Translation Adjustments and Others" includes translation adjustments
generated by foreign subsidiaries on variations of the reserves and reclassifications of reserves.
F - 62
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Currency
Translation
Current Release of Adjustments
December 31, Year Cash Provision Net and December 31,
1998 Expense Payments to Income Change Others 1999
(in millions of Euros)
French GAAP reserve 152 123 (72) (48) 3 1 156
Voluntary termination offer
not accepted at balance sheet (2) (4) 2 1 (1) — (3)
date
Unaccepted benefits in excess
of legal or contractual (1) — 1 — 1 — —
obligations
Plans not announced at balance
sheet date (91) (7) 2 24 19 (1) (73)
Cost to train or relocate
employees to another site (1) (1) 1 1 1 — —
Cost to move inventory or
tangible assets to another (1) (13) 1 1 (11) — (12)
location
Reengineering and consulting
costs (1) (27) 16 — (11) — (12)
Other costs where commitment
date is after balance sheet 1 (12) 5 — (7) (6)
—
date
Other — (2) 1 — (1) — (1)
Total US GAAP adjustments (96) (66) 29 27 (10) (1) (107)
Reclassification to income from
equity investments — — — 2 2 (2) —
Reclassification of assets
write downs (14) (18) 3 8 (7) 3 (18)
Reclassification to other cost of
sales (1) (5) 4 — (1) 2 —
Reclassification to
environmental reserve (5) — 1 — 1 (1) (5)
Total US GAAP reclassifications (20) (23) 8 10 (5) 2 (23)
Total US GAAP adjustments
and reclassifications (116) (89) 37 37 (15) 1 (130)
US GAAP reserve 36 34 (35) (11) (12) 2 26
The column entitled "Currency Translation Adjustments and Others" includes translation adjustments
generated by foreign subsidiaries on variations of the reserves and reclassifications of reserves.
F - 63
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Currency
Translation
Current Release of Adjustments
December 31, Year Cash Provision Net and December 31,
1997 Expense Payments to Income Change Others 1998
(in millions of Euros)
French GAAP reserve 290 35 (125) (18) (108) (30) 152
Voluntary termination offer
not accepted at balance sheet
date (1) (2) 1 — (1) — (2)
Unaccepted benefits in excess
of legal or contractual (5) — 4 — 4 — (1)
obligations
Plans not announced at balance
sheet date (136) 43 3 (1) 45 — (91)
Cost to train or relocate
employees to another site (4) — 2 — 2 1 (1)
Cost to move inventory or
tangible assets to another (2) (3) 5 (1) 1 — (1)
location
Reengineering and consulting
costs — (2) 2 — — (1) (1)
Other costs where commitment
date is after balance sheet date (3) (4) 10 — 6 (2) 1
Other (1) (1) 1 — — 1 —
Total US GAAP adjustments (152) 31 28 (2) 57 (1) (96)
Reclassification to income from
equity investments 5 — — — — (5) —
Reclassification of assets write
down to equity investments (5) — — — — 5 —
Reclassification of assets
write downs (29) (11) 6 4 (1) 16 (14)
Reclassification to other cost of
sales (1) (8) 2 — (6) 6 (1)
Reclassification to
environmental reserve (5) (1) 1 — — — (5)
Total US GAAP reclassifications (35) (20) 9 4 (7) 22 (20)
Total US GAAP adjustments
and reclassifications (187) 11 37 2 50 21 (116)
US GAAP reserve 103 46 (88) (16) (58) (9) 36
The column entitled "Currency Translation Adjustments and Others" includes translation adjustments
generated by foreign subsidiaries on variations of the reserves and reclassifications of reserves.
F - 64
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The restructuring plans adopted in 2000 and recorded under US GAAP for 91 million include the
following major actions:
Restructuring
costs
(in millions of
Euros)
−= Cost of North American plans amounting to 49 million resulting mainly from the closure of the
American Tubes Operations Scranton facility and mainly including the cost of involuntary
severance programs in connection with the closing of Scranton affecting 1,044 employees and
voluntary severance programs related to a reduction of 101 employees on other North American
plants. It also includes the write-downs of fixed assets primarily related to DVD production and
the write-downs of inventories primarily related to ceasing manufacture of DVD products and
certain camcorder products…………………………………………………………………………………. 49
−= Cost of Tarancon closing plant. It includes an involuntary severance program of 55 employees ( 6
million) and exit costs amounting to 7 million. Write-downs of fixed assets ( 5 million) linked to
the disposal of the plant….…………………………………………………………………………………...... 18
−= Cost of German plans in connection with the voluntary termination of 69 employees ( 4 million)
related to the closing of two production departments at TTG Villingen and an involuntary severance
program ( 2 million) linked with the termination of 17 employees. Write-downs of fixed assets ( 1
million) related to the closing of the production departments……...…….……..………………………… 7
−= Cost of France plans in connection with voluntary severance programs related to the termination of
79 employees ( 4 million) and involuntary severance program ( 2 million) related to the
termination of employees belonging to central functions and employees in Marketing and Sales
departments…………………………………..……………………….……………………………………..….. 6
−= Cost of Thailand plans in connection with write-downs of fixed assets ( 5 million) related to the
downsizing of a manufacturing plant…………….………………………………………………………….. 5
−= Cost of Taiwan plans in connection with write-downs of fixed assets ( 2 million) and inventories
( 1 million) related to the exit of the selling
activity……………………………………………………….. 3
−= Cost of Singapore plans in connection with two voluntary programs related to the termination of 19
employees ( 1
million)…..……………………………………..………….……………………..….………… 1
−= Cost of Italian plans in connection with voluntary termination programs related to the reduction of
48 employees ( 1
million)…………………………………………………...…………..…………………….. 1
−= Cost of Latin American plans in connection with the involuntary programs related to the
termination of 50 employees ( 1
million)……………………………….……..……….…..…………..…..... 1
Total restructuring costs………………………………………………………………………………………..…... 91
Less fixed assets and inventories write-downs included in the above-mentioned plans…………...………. (24)
Current year accrued restructuring expenses…………………………………………………...……………..... 67
__________
Write-down of assets incidental to restructuring plans are recorded according to US GAAP as an offset to the related property,
plant and equipment.
F - 65
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The restructuring plans adopted in 1999 and recorded under US GAAP for 57 million includes the
following major actions:
Restructuring
costs
(in millions of
Euros)
— Costs of North American plans amounting to 13 million in connection with the closing of 3
plants and with the restructuring of the American Tubes Operations (ATO). Including mainly
voluntary severance programs ( 4 million) related to a reduction of 105 employees in
Indianapolis and involuntary programs ( 3 million) related to the continuing medical benefits
provided by the company for 373 employees in Crownwood and 22 employees linked with the
restructuring of ATO. Write-downs of fixed assets ( 8 million) and of inventories ( 1 million)
related to the closing of Crownwood and Indianapolis………………………………………………….. 22
— Costs of German plans in connection with a voluntary severance program relating to the
termination of 52 employees ( 7 million) and the involuntary termination of 16 employees
( 2 million). Write-downs of fixed assets related to the closing of the German LTCC plant
( 2 million) and of inventories located in TTC Villigen ( 1 million)……………………………… 12
— Costs of Spain plans in connection with the closing of the Vic and Tarancon plants. Involuntary
severance programs at the Vic plant for 4 million (107 employees terminated at closing date).
Write-downs of fixed assets ( 4 million) related to the closing of both plants…………………….. 8
— Costs of Latin American plans in connection with write-downs of fixed assets ( 2 million) related
to the restructuring of the "Communication Business" and write-downs of inventories ( 3
million) related to the CTV business-restructuring plan………………………………………… 5
— Costs of France plans in connection with an involuntary termination program relating to the
termination of 7 employees ( 2 million) belonging to central functions and a voluntary
termination program ( 1million) relating to the reduction of 19 employees in the Marketing and
Sales departments……………………………………………………………………………………………. 3
— Cost of the United Kingdom plans in connection with the involuntary termination programs for
1 million (43 employees terminated at closing date) and the lease termination payments of Crown
Road building ( 2 million)……………………………………………………………………… 3
— Costs of the Philippines plan in connection with write-downs of fixed assets ( 2 million) and
write-downs of inventories ( 0.3 million) related to the downsizing of the Subic Bay 2
facility………
— Costs of Singapore plans in connection with involuntary termination programs relating to the
reduction of 22 employees ( 0.6 million) belonging to the TV/video product development
division and other central functions. The remaining 1 million corresponding to currency
conversion losses related to the Audio Kulim liquidation. Write-downs of inventory amounting to
0.2 2
million……………………………………………………………………………………………………
Total restructuring costs………………………………………………………………………………………….. 57
Less fixed assets and inventories write-downs included in the above-mentioned plans …………………. (23)
Current year accrued restructuring expenses…………………………………………………………………. 34
__________
F - 66
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Write-down of assets incidental to restructuring plans are recorded according to US GAAP as an offset to the related property,
plant and equipment.
The restructuring plans adopted in 1998 and recorded under US GAAP for 57 million includes the
following major actions:
Restructuring
costs
(in millions of
Euros)
— TV Ops litigation provision: this provision relates to amounts reserved for the class action claim
brought by severed employees of the Bloomington facility. Certain employees over the age of 55
have alleged that they received less benefit than certain employees under the age of 55 did. The
company has reserved USD 8 million to cover this exposure…………………………………………… 7
— Involuntary severance program related to 239 employees in the product development activities in
THOMSON Audio Singapore………………………………………………………………………………. 9
— Cost incurred in connection with the closing of the Kulim facility in Malaysia including 4
million of involuntary severance program (1725 employees to be terminated), 2 million of write
down of assets and 1 million of idle facility costs……………………………………………… 7
— Costs incurred in Germany in connection with a voluntary severance program relating to the
reduction of 12 employees and incurred in connection with an involuntary severance arrangement
relating to the reduction of 119 employees………………………………………………………………... 12
— Costs incurred in connection with the downsizing of the Villingen facility including a voluntary
severance program related to the reduction of 55 employees for 5 million and write down of
fixed assets for 1 million…………………………………………………………………………………. 6
— Reversal of cumulated translation adjustment in connection with the liquidation of several
subsidiaries…………………………………………………………………………………………………… 4
— Other restructuring costs including employee termination benefits for 9 million, and other exit
costs for 3 million incurred in connection with smaller plans………………………………… 12
Total restructuring costs………………………………………………………………………………………….. 57
Less assets write down included in the above mentioned plans……………………………………………... (11)
Current year accrued restructuring expense………………………………………………………………… 46
__________
Write-down of assets incidental to restructuring plans are recorded according to US GAAP as an offset to the related property,
plant and equipment.
F - 67
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The changes in restructuring reserves under US GAAP are analyzed below:
Currency
Current Release of Translation
December 31, Year Cash Provision to Adjustments December 31,
1999 Expense Payments Income and Others 2000
(in millions of Euros)
Employee termination benefits 15 60 (28) (1) 2 48
Other costs 11 7 (8) (2) - 8
TOTAL 26 67 (36) (3) 2 56
Currency
Current Release of Translation
December 31, Year Cash Provision to Adjustments December 31,
1998 Expense Payments Income and Others 1999
(in millions of Euros)
Employee termination benefits 24 23 (25) (9) 2 15
Idle facility lease cost(*) 7 - (7) - - -
Other costs 5 11 (3) (2) - 11
TOTAL 36 34 (35) (11) 2 26
(*): The cash payment of 7 million on idle facility costs correspond to the lease cancellation indemnities of DEM 12
million related to the closing of Villingen TCC (Temperature Cofire Ceramic) plant and paid by Deutsche THOMSON
Brandt Gmbh at the beginning of the year.
Currency
Current Release of Translation
December 31, Year Cash Provision to Adjustments December 31,
1997 Expense Payments Income and Others 1998
(in millions of Euros)
Employee termination benefits 77 40 (75) (16) (2) 24
Idle facility lease cost 8 2 (3) - - 7
Other costs 18 4 (10) - (7) 5
TOTAL 103 46 (88) (16) (9) 36
The column currency translation adjustments and others include, (1) translation adjustments generated by foreign
subsidiaries on variations of the reserves and (2) reclassifications of reserves.
The remaining 48 million reserve for employee termination benefits at December 31, 2000
includes approximately 1,392 employees to be terminated including:
Number of
Employees
US plans 1,308
Personnel reduction in Germany 42
THOMSON Television Angers factory 23
Singapore plans 17
Other 2
TOTAL 1,392
F - 68
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
(c) Pensions and termination benefits
In accordance with the laws and practices of each country, Thomson participates in employee
benefits pension plans offering death and disability, retirement and special termination benefits.
Those plans provide benefits of various types from flat currency amounts per year of service to final
pay plans integrated with social security and multi-employer plans.
For defined contribution plans, expenses correspond to the contributions paid. For defined benefit
pension plans, accruals and prepaid expenses are determined using the projected unit credit method.
Accruals and prepaid expenses are recorded in accordance with the prevailing accounting practice in
each country. In some cases, adjustments to comply with the Group’s rules have been made.
Special termination benefits are recorded on an accrual basis at the time the offer is accepted by the
employees or their representatives.
Disclosures in accordance with SFAS 132 are as follows:
Actuarial assumptions have been determined by actuaries on a country by country basis and
company by company.
1998 1999 2000
Benefit obligation discount rate 7% 6.3% 6.7%
Estimated annual rate of increase in future compensation 3.5% 3.1% 3.1%
Expected rate of return on plan assets 9.2% 8.5% 9.1%
Funded status of defined benefit pension plans and other benefits under US GAAP:
Pension Benefits Other Benefits
1999 2000 1999 2000
(in millions of Euros)
Change in Benefit Obligation
Benefit Obligation at beginning of year (569) (650) (216) (234)
Service cost (27) (29) (6) (6)
Interest cost (38) (44) (16) (19)
Acquisition/disposal (1) 2 -- --
Incorporation of French jubilee benefits -- (3) -- --
Curtailment/settlement (2) 0 1 --
Actuarial gain (loss) (23) 33 28 --
Benefits paid 52 58 8 9
Others (foreign currency translation) (42) (23) (33) (18)
Benefit Obligation at end of year (650) (656) (234) (268)
Change in Plan Assets
Fair value of plan assets at beginning of year 272 320 -- --
Actuarial return on plan assets 22 29 -- --
THOMSON multimedia group contribution 12 14 -- --
Benefits paid (29) (32) -- --
Others (foreign currency translation) 43 23 -- --
Fair value of plan assets at end of year 320 354 -- --
Funded status of the plan (330) (302) (234) (268)
Unrecognized actuarial gain (loss) 14 (23) (80) (82)
Unrecognized actuarial prior service cost (1) 1 16 14
Unrecognized actuarial transition obligation 2 3 90 89
Accrued (prepaid) benefit cost (315) (321) (208) (247)
F - 69
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The projected benefit obligation, accumulated benefit obligation and fair value of plan assets for the
pension plan with accumulated benefit obligation, in excess of plan assets were 335 million, 325
million, and 0 million as of December 31, 2000 and 329 million, 320 million, and 0 million as of
December 31, 1999, respectively.
Annual cost under US GAAP:
Pension Benefits Other Benefits
1998 1999 2000 1998 1999 2000
(in millions of Euros)
Net periodic cost
Service cost (27) (27) (29) (7) (6) (6)
Expected interest cost (38) (38) (44) (14) (16) (19)
Expected return on plan assets 23 22 29 — — --
Amortization of unrecognized prior service cost — — 1 (3) (3) (4)
Amortization of actuarial net loss (gain) (1) — (2) 1 — 4
Amortization of net transition obligation — — -- (6) (6) (7)
Net periodic benefit cost (43) (43) (45) (29) (31) (32)
Health care costs are assumed to increase by 5 % in 2000, 4 % in 2001 and later.
Annual cost under French GAAP for pension benefits plans are 47 million, 42 million and
44 million for the years ended December 31, 2000, 1999 and 1998 respectively. The difference between
these amounts and the annual costs under US GAAP stems from differences in timing of
amortizations of the initial transition liability and of actuarial gains and losses and from the absence
of recognition of excess funding by certain companies.
For other benefits, annual cost under French GAAP are 22 million, 24 million, and 20
million for the years ended December 31, 2000, 1999 and 1998, respectively.
Amounts recognised in the statement of financial position:
Pension benefits Others benefits
1999 2000 1999 2000
(in millions of Euros)
Accrued benefit liability (including MLA) (358) (376) (208) (247)
Prepaid benefit cost 6 7 -- --
Net amount accrued for under US GAAP (352) (369) (208) (247)
Accumulated other comprehensive income (MLA) 37 47 -- --
Net amount recognized (315) (322) (208) (247)
F - 70
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The net accruals accounted for at December 31, 2000 and 1999 in the accompanying consolidated
balance sheets can be compared with balances determined under US GAAP as follows:
Pension benefits Others benefits
1999 2000 1999 2000
(in millions of Euros)
Net amount accrued for under US GAAP (352) (369) (208) (247)
Excess funding of plans recognized in income only
when paid back to the Company (6) (7) -- --
Impacts of transition obligation, of prior service cost
and of actuarial gains recognized with a different
timing under local regulations 28 29 (89) (86)
Minimum liability adjustments (MLA) 37 47 -- --
Net amount accrued for in consolidated financial
statements (293) (300) (297) (333)
Regarding the other benefits plans, a one-percentage-point change in assumed health care cost
trend rates would have the following effects:
1-Percentage-Point 1-Percentage-Point
Increase Decrease
(in millions of Euros)
Effect on total of service and interest cost components : 4 (3)
Effect on the postretirement benefit obligation : 31 (25)
The following table summarizes the aforementioned differences:
Effect on
Shareholder's
Nature of the difference - Increase/(decrease) Effect on net income Equity (including
CTA)
For the year ended December 31, As of December 31,
1998 1999 2000 1999 2000
( in millions of Euros)
Differences in implementation dates 1 (1) 2 10 10
Differences arising from restatements of goodwill — — — 1 1
Minimum liability adjustments not recorded — — — (37) (47)
Total effect 1 (1) 2 (26) (36)
(d) Postretirement transition obligation
As of January 1, 1993, Thomson began to accrue for postretirement benefits of TCE Inc. The
postretirement transition obligation at that date has been amortized over 20 years until January 1,
1997 when the Group decided to change this policy and fully recognized the entire unrecognized
transition obligation.
F - 71
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Under US GAAP, the election to delay recognition of the postretirement benefits transition
obligation may not be changed.
(e) Stock based compensation
Under French GAAP, common shares issued upon the exercise of options granted to
employees and directors are recorded as an increase to share capital at the exercise price on exercise
date. Thomson holds treasury stock to settle qualified employee deferred stock purchase plans. In
accordance with French GAAP, the Group did not record any compensation expense on stock based
plans.
Under U.S. GAAP, APB Opinion No. 25 defines conditions to classify plans that grant or sell
common shares to employees as compensatory plan or not. If a plan is deemed to be compensatory,
APB Opinion No. 25 requires that compensation arising from such plans to be measured based on the
intrinsic value of the shares granted or sold to employees. For fixed plans, the compensation expense
is calculated as the difference between the fair value at the grant date and the employee strike price.
Compensation expense for compensatory stock based plans is recognized over the vesting period.
(f) Forward exchange contracts
Under French GAAP, as disclosed in Note 1(d) to the consolidated financial statements, Thomson
defers premiums and discounts as well as gains and losses on forward exchange contracts that cover
the following year's anticipated commercial commitments, and amortizes them to income over the life
of the underlying transactions being hedged.
Under US GAAP (SFAS 52), unrealized gains and losses on forward exchange contracts which do
not hedge firm commitments may not be deferred and as a result, are immediately recognized in
operating income.
(g) Asset revaluation
As permitted under French GAAP, Thomson reevaluated certain fixed assets to market value in
conformity with certain countries' regulations or upon transfers within the group. Such reevaluations
are not permitted under US GAAP and the assets would continue to be recorded at historical value.
(h) Capitalized development costs
As permitted under French GAAP, from 1995 to 1997, Thomson capitalized certain project
development costs that under US GAAP are expensed as incurred.
(i) Capitalized interest
For US GAAP purposes, Thomson has capitalized interest on certain significant fixed asset projects
during the construction periods, which is not required under French GAAP.
F - 72
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
(j) Inventory reserve
In 1997 and in connection with the early termination of a contract to provide products, Thomson
wrote down the value of certain finished goods inventories that were not included in the next six
months sales plan to net realizable value. As permitted under French GAAP and based on several
new factors, this reserve was reversed to income in 1998.
For US GAAP purposes, such reserve created a new basis for inventory and could not be reversed in
1998. The US GAAP adjustment was reversed to income in 1999 when the inventory was sold.
(k) Provision for year 2000 compliance and Euro transition
As permitted under French GAAP, Thomson has provided for costs to be incurred in connection
with Year 2000 compliance and Euro currency transition.
Under US GAAP, such provisions may not be recorded and such costs would be expensed as
incurred.
(l) Subsidiaries controlled but not consolidated
Some subsidiaries, considered to be immaterial under French GAAP, are accounted for under
French GAAP using the equity method or at lower of cost and fair value although the Group's interest
in these subsidiaries varies from 51 % to 100 %. Under US GAAP, these subsidiaries are consolidated.
Videotel, THOMSON Japan, TV Batam, Ex Camera, and Purco have been consolidated for all
periods presented.
THOMSON Broadcast Ltd, THOMSON Broadcast Inc., TCE Marketing Australia, THOMSON
Broadcast Systems Sdn Bhd, THOMSON Thai CE Marketing Thailand, THOMSON multimedia
Engineering Laboratories Ltd., Laboratories THOMSON multimedia Ltd., MPH LLC (Multimedia
Portfolio Holdings), TMGF (THOMSON Management Growth Fund), Servicentro Electronico de
Mexico S.A. de C.V and THOMSON Audio Kulim have been consolidated in 2000 and 1999.
THOMSON multimedia Czech s.r.o and THOMSON Audio Kotta Tinggi have been consolidated
in 1998 and 1999.
77 Centelec and THOMSON Audio Philippines have been consolidated in 2000.
THOMSON multimedia Benelux B.V., THOMSON multimedia Hungary and THOMSON
multimedia Austria have been consolidated in 1999.
THOMSON multimedia Chile and Total Technology Hong Kong have been consolidated in 1998.
F - 73
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Some subsidiaries, considered to be immaterial under French GAAP, are accounted for under
French GAAP at lower of cost and fair value although the Group's interest in these subsidiaries varies
from 20% to 50%. Under US GAAP, these subsidiaries are accounted for using the equity method.
MTEP (Media Technology Equity Partnership) has been accounted for using the equity method for
all periods presented, Cache vision has been accounted for using the equity method for 2000, TDN
(United States) and TSI-Open TV have been accounted for using the equity method for 1998. Under
French GAAP, these investments are carried at cost.
(m) Employee offering/bonus shares
Employee shares first offer February 1999
Shares purchased by the employees in connection with the first Employee Offering are payable in
three installments: 30% at acquisition date (March 1999), 30% in February 2000, and 40% in February
2001. Under French GAAP the shares acquired from Thomson S.A for the employee offering have
been recorded as an asset until the first installment is paid.
Under US GAAP the applicable literature is EITF 95-16. Under EITF 95-16, until THOMSON
multimedia S.A. is listed on a stock exchange, the amounts receivable from the employees are
considered nonrecourse because, in the event of default, the sale of shares is cancelled and
THOMSON multimedia S.A. will reimburse the amounts already paid, after a 20% deduction of the
total subscribed amount to cover administrative expenses for non payment. EITF 95-16 requires that
this employee offering be accounted for as a variable stock option plan.
If and when THOMSON multimedia S.A. is listed on a stock exchange (the "listing date"), in the
event of default by the employees, THOMSON multimedia S.A. will be allowed to sell all or some of
the shares at the market price to cover the remaining outstanding amount due and a flat fee
corresponding to 20% of the total subscribed amount to cover administrative expenses for non-
payment; if the sale of the shares does not cover the amount due, the employees will be responsible
for the shortfall and THOMSON multimedia S.A. will be entitled to undertake legal proceedings. As a
consequence, the amount payable by the employees will be considered as recourse and the treasury
shares will be considered as sold and the amounts receivable from employees deducted from
shareholders equity (respectively 20 million in 1999 and 12 million in 2000, after the second
payment).
As a consequence, the shares acquired from Thomson S.A have been presented as treasury stock
for the full amount paid to Thomson S.A.
Until the listing date, appreciation in the value of the stock from March 1999 ( 9.95 million) to the
date of the IPO in November 1999 ( 21.5 million) had been treated as compensation expense. The
corresponding compensation expense amounted to ( 35 million).
Until the IPO was completed, these options were considered in computing diluted EPS using the
treasury stock method.
F - 74
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Employee shares second offer November 1999 and third offer 2000
As discussed in Note 16 and in connection with the IPO and the privatization, Thomson S.A.
offered shares to Thomson’s present and former employees at a discount of 20%. Under US GAAP,
such discount has been recorded as compensation expense ( 15 million and 7 million in 2000, and
in 1999 respectively).
Bonus shares
Under French GAAP, no charge has been recorded in connection with the rights to bonus shares
issued in connection with the February 1999, November 1999 and October 2000 Employee Offerings
(see Note 16).
Since the bonus shares will be awarded by Thomson S.A. without any additional consideration to
both present and former employees and without any obligation for active employees to stay with
Thomson during the holding periods required as a condition to be awarded such bonus shares, under
US GAAP, the fair value of the bonus shares at employee offering date and subsequent appreciation
of the value of such shares have been recorded, as an expense in 1999 and 2000 with a corresponding
increase to additional paid in capital of 65 million in 1999 and 63 million in 2000 .
In the event of forfeiture, the fair value of bonus shares at that time will be credited to income.
(n) Treasury stock
In 1999, THOMSON multimedia S.A. shares held by the Company ( 0.6 million) and classified as
"Available-for-Sale Investments" in the consolidated balance sheets under French GAAP, had been
presented as a deduction from "Shareholders’ equity" under US GAAP.
In 2000, no reclassification is required under US GAAP pursuant to the application of the new French
regulation 99-02.
(o) Sale-lease back accounting
TCE Inc. (TCE) sold its U.S. Corporate headquarters (Administration and Technical Services
buildings) for 60 million (USD 58 million) in March 2000. The buildings were leased back from the
purchaser over a period of twelve years. The resulting lease is accounted for as an operating lease.
Under French GAAP, the resulting gain of 7.1 million (USD 6.5 million) was recorded as of
December 31, 2000 (under US GAAP, 9 million (USD 8.3 million) after restatement under
capitalized interests).
Under US GAAP, the resulting gain is amortized over the life of the lease, leading to a recognized
gain of 0.6 million (USD 0.5 million) as of December 2000. Thus, for US GAAP reporting, the
remaining gain of 8.4 million (USD 7.8 million) recorded under French GAAP has been eliminated.
THOMSON multimedia S.A. sold its French headquarters located in Boulogne-Billancourt for 91
million in February 29th 2000. The building was leased back from the purchaser for a period of six
F - 75
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
years under an operating lease. Under French GAAP, the Company recorded a gain in the amount of
32 million corresponding to the difference between selling price and net book value.
Under US GAAP, the only excess of such gain over the present value of the minimum lease
payments is recognized at disposal date ( 9 million), while the remaining amount will be amortized
over the lease period in the amount of 3 million as of December 31, 2000.
(p) Gain on Music Match dilution
In April 2000, Thomson’s ownership in Music Match was diluted from approximately 20% on a
fully diluted basis to 14.3%. Since the offering price per share to the third parties exceeded Thomson's
carrying amount per share of Music Match stock, the difference of the Thomson’s carrying value was
reflected as a gain under French GAAP ( 1 million).
Under US GAAP according to SAB 51, the realization of such gain is not assured when a
subsidiary is newly formed, non operating entity or at a development stage leading to a charge to
equity. As Music Match is an Internet related start up company, such gain should be credited to
equity as opposed to the profit and loss.
(q) Recording of Singingfish acquisition
Under French GAAP, the acquisition of Singingfish, which occurred in September 2000 and is
described under Note 2, has been treated as a normal business combination, the excess of the
purchase price paid over the fair market value of assets acquired, mainly software, being recorded
under goodwill - amortized over a 5 year period.
Under US GAAP according to FASB 7 and EITF 98-3 this acquisition has been treated as a
purchase of assets which does not allow a portion of the purchase price to be allocated to goodwill,
resulting in the write off of goodwill with a correlative reclassification on intangible assets (taking
into account the deferred tax accounting according to the EITF 98-11) and an adjustment on the
associated amortization under profit and loss of ( 1 million).
(r ) Revenue Recognition
The Company entered into a five-year licensing agreement that allows a third party to use certain
Thomson’s patents (the “Licensed Patents”) and simultaneously entered into a five-year software
license agreement with the same third party that allows the Company to use software that will be
developed by the third party using the Licensed Patents. Under French GAAP, revenue from the
patent licensing agreement was recognized when the patent licensing agreement was executed and
non-refundable cash was received by the Company. Such accounting was appropriate under French
GAAP because two separate contracts were entered into by the parties, the cash received was non-
refundable, the only obligation of Thomson was to maintain and defend such patents, and the
software license agreement includes a “most favored nation provision” allowing the Company to
benefit from lower prices granted by the third party to other customers; thereby providing evidence
that the software license agreement pricing is not in excess of fair value. Under US GAAP, the
F - 76
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
revenue from the patent licensing agreement is considered to be one element of a multi-element
arrangement and therefore the patent licensing revenue is being recognized for US GAAP purposes
on a straight-line basis over the five-year term of the patent licensing agreement.
(s) Reversal of deferred tax assets valuation allowance and income tax
In 1999, under US GAAP, the valuation allowance related to credit carryforwards of the US
subsidiary, which have no expiration, was reversed.
Under French GAAP, the valuation allowance was retained due to a more conservative approach
because of the existence of a long history of operating losses.
As of December 31, 1999, under US GAAP, the deferred tax related to unrealized gain on securities
owned by THOMSON multimedia S.A. not recognized under French GAAP (see (a) above), was
partially offset by the utilization of long-term capital losses carryforward and the reversal of the
deferred tax valuation allowance related to tax loss carryforwards. As a consequence, the utilization
of such tax loss carryforward recorded in fiscal year 2000 under French GAAP is eliminated under US
GAAP in the amount of 51 million, as well as the utilization of such long-term capital losses
carryforward in the amount of 45 million.
Tax effects on US GAAP adjustments have been recorded in an amount of 23 million in 2000.
(t) Presentation of Consolidated Balance Sheets
Classification of the Balance Sheet
The classification of certain items and the format of Thomson’s Consolidated Balance Sheets vary
to some extent from US GAAP.
In accordance with French GAAP, Thomson separately recorded as goodwill the difference
between the underlying equity in net assets of Music Match and the cost of the investment accounted
for under the equity method. Under US GAAP, the above-mentioned difference, which amounted to
5 million at December 31, 1999 was included in the equity investment. In 2000, Music Match was
not consolidated any more.
In the consolidated balance sheets, the portion of "Trade accounts and notes receivable" expected
to be collected after one year is 166 million and 91 million at December 31, 2000 and 1999,
respectively. Similarly, the share of "Other receivables" expected to be collected after one year
amounts to 25 million and 29 million at December 31, 2000 and 1999 respectively. The short-term
portion of "Loans and other non-current assets" expected to be realized within one year is 7 million
and 41 million at December 31, 2000 and 1999, respectively and would be classified as a current
asset under US GAAP.
Under US GAAP, in the consolidated balance sheets, the current portion of "Other reserves" ( 190
million and 129 million at December 31, 2000 and 1999 respectively) and the "short-term portion of
debt" ( 298 million and 334 million at December 31, 2000 and 1999 respectively) would be
classified as current liabilities in the consolidated balance sheets. Additionally, US GAAP would
F - 77
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
require the long-term portion of "Other creditors and accrued liabilities" to be shown as a non-current
liability ( 48 million and 69 million at December 31, 2000 and 1999, respectively).
Thomson holds on a bank account a cash deposit of 35 million and 86 million at December 31,
2000 and 1999 respectively as a compensating balance to a loan in the same amounts at a preferential
interest rate. Under US GAAP this amount of 35 million and 86 million would be disclosed as
non-current assets in the consolidated balance sheet and would therefore reduce cash and cash
equivalents by the same amount.
(u) Presentation of the Consolidated Income Statements
u i) Operating income/(loss)
Certain expenses such as "Employee profit sharing expense", "Amortization of goodwill",
Restructuring costs", and "Pension plans interest costs" which Thomson has classified in French
GAAP below operating income would be classified as operating expenses under US GAAP.
The table below reconciles operating income under French GAAP to operating income (loss) under
US GAAP:
Year ended December 31,
1998 1999 2000 2000
(in millions of (in millions of
Euros) U.S. dollars)*
Operating income as reported in the Consolidated
Income Statements 144 366 546 464
Restructuring (74) (67) (116) (98)
Goodwill amortization reclassification (3) (3) (7) (6)
Pension and termination benefits 1 (1) 2 2
Postretirement transition obligation (9) (8) (10) (9)
Pension plans interest costs (13) (13) (14) (12)
Forward exchange contracts 15 5 (16) (14)
Capitalized development costs 15 3 1 1
Capitalized interest (1) — 1 1
Employee profit sharing reclassification (2) (2) (2) (2)
Inventory reserve (8) 9 — —
Provision for Year 2000 and Euro 2 (17) (4) (3)
Subsidiaries controlled but not consolidated 2 4 7 6
Recording of Singingfish acquisition — — (3) (3)
Revenue recognition — — (23) (20)
69 276 362 307
Compensation expense related to employee offerings — (107) (78) (66)
Operating income (loss) according to U.S. GAAP 69 169 284 241
* Translation of amounts from Euros (" ") into U.S. dollars ("USD") has been made merely for the convenience of the reader
at the June 5, 2001 closing rate of 1.00 to USD 0.8504.
F - 78
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
u ii) Research and development expenses
Under US GAAP, after the reclassification of research and development expenses to Cost of Sales
(see Note 27 t iii)) and the elimination of the development costs capitalized under French GAAP (see
Note 27(h)), research and development expenses would be 325 million, 265 million, 220
million for the years ended December 31, 2000, 1999 and 1998 respectively.
u iii) Costs of sales
Under French GAAP, Thomson has classified certain costs in the income statement as research and
development costs that under US GAAP would be considered as Cost of Sales. The presentation
under US GAAP would have the effect of increasing Cost of Sales, decreasing Gross Margin, and
decreasing Research and Development expense by 25 million, 21 million and 50 million, for the
years ended December 31, 2000, 1999, and 1998 respectively.
In addition, under French GAAP, warranty costs in the amount of 196 million, 128 million and
130 million for the years ended December 31, 2000, 1999, and 1998, respectively, have been
classified in Selling general, and administrative expenses. Under US GAAP, these amounts would be
classified as Cost of Sales thus decreasing the Gross Margin by these respective amounts.
(v) Additional US GAAP information
v i) Other comprehensive income
Statement of Financial Accounting Standards No. 130, "Other Comprehensive Income," effective
for financial periods beginning after December 15, 1997, requires retroactive reporting of
comprehensive income and its components, displayed as prominently as other financial statements.
Comprehensive income may be defined for US GAAP purposes as the change in equity of a business
enterprise from transactions and other events and circumstances from non-owner sources. French
GAAP does not require separate disclosure of all such changes in equity during a fiscal period.
F - 79
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Under US GAAP, the following information would be displayed within the Consolidated financial
statements as either a separate statement or as a component of the Consolidated Statement of
Changes in Shareholders' Equity and Minority Interests:
Year ended December 31,
1998 1999 2000 2000
(in millions of Euros) (in millions of
U.S. dollars)*
Net income (loss) according to US GAAP (29) 148 136 116
Other comprehensive income
Minimum liability adjustment (13) (14) (10) (9)
Foreign currency translation adjustments 7 15 47 40
Unrealized gain on securities:
Unrealized holding gains (loss) arising during the period 78 862 (434) (369)
Less: reclassification adjustments for gain included
in net income
(12) (14) (18) (15)
Net unrealized gains on securities 66 848 (452) (384)
Tax effect of the above adjustments** — (62) 88 75
Comprehensive income according to US GAAP 31 935 (191) (162)
* Translation of amounts from Euros (" ") into U.S. dollars ("USD") has been made merely for the convenience of the reader
at the June 5, 2001 closing rate of 1.00 to USD 0.8504.
** Under US GAAP the unrealized gain (loss) on securities is a temporary difference, the tax effect of which is partially offset
by the reversal of the deferred tax valuation allowance in the amount of 98 million in 1999 and utilization of long-term
capital losses carryforward with the tax effect of 65 million in 1999. In 2000, the decrease of the unrealized holding gains
during the period leads to the recognition of a deferred tax gain offsetting part of the deferred tax liability recorded in
1999.
F - 80
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
If Thomson were to present Consolidated Financial Statements in accordance with US GAAP, the
accumulated balances for minimum liability adjustment, foreign currency translation adjustments
and unrealized gains on available-for-sale securities, respectively, would be disclosed on the face of
the consolidated balance sheets, in the statements of changes in shareholders' equity and minority
interests, or in the notes to the financial statements. The following table presents the accumulated
balances, net of tax, of each classification noted above.
Foreign Accumulated
Minimum Currency Net unrealized Other
Liability Translation Gains on Comprehensive
Adjustment Adjustments Securities Income
1998
Balance beginning of the year (10) (79) 26 (63)
Current period change (13) 7 66 60
Balance end of the year (23) (72) 92 (3)
1999
Balance beginning of the year (23) (72) 92 (3)
Current period change (14) 15 848 849
Balance end of the year (37) (57) 940 846
2000
Balance beginning of the year (37) (57) 940 846
Current period change (10) 47 (452) (415)
Balance end of the year (47) (10) 488 431
v ii) Earnings (Losses) per share under US GAAP
Share cancellation
In May 1998, the THOMSON multimedia S.A. shareholders decided to cancel 91,592,480 shares
thereby reducing the number of shares down to 32,163,686. Under French GAAP, this modification
does not require the restatement of the earnings per share for previous periods.
Under US GAAP, earnings per share would be retroactively restated to give effect in all periods
presented to the reduction in shares resulting from the cancellation.
Employee offering
Under French GAAP, the Employee Offering (Note 16) is treated as a capital increase and the
average number of shares is computed after having considered the shares issued to the employees.
Under US GAAP, as explained in Note 27 (m), the Employee Offering was considered as a variable
stock option plan until the date of the IPO. In computing basic earnings per share, the shares issued to
employees were not considered until the IPO date, and in computing diluted earnings per share these
options are considered using the treasury stock method until such date.
F - 81
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
Earnings (losses) per share according to US GAAP, giving effect to the restatements would be as
follows:
Year ended December 31,
1998 1999 2000 2000
(in Euros ) (in US dollars)*
Net profit ( loss) (29) 148 136 116
Average number of shares basic US GAAP 132,884,488 193,111,688 252,039,992 252,039,992
Earnings ( losses) per share according to US GAAP
Basic (0.22) 0.77 0.54 0.46
Diluted (0.22) 0.76 0.54 0.46
Reconciliation of average number of shares from French to US:
Year ended December 31,
1998 1999 2000
Average number of shares used for French GAAP
calculations as restated for October 1999 and June
16, 2000 stock splits. 282,443,712 (b) 197,526,322 252,039,992
Impact of the cancellation of shares May 29,1998 (149,559,224) (a) —
Treasury stock (Note 27 (n)) and variable stock
option plan (Note 27 (m)). (4,414,634)
Average number of shares used for US GAAP
calculation ( basic) 132,884,488(a) 193,111,688 252,039,992
(a) Resulting from (1- x) * (b) where x is a ratio equaling to the total number of shares still in existence after
the reduction of capital (32,163,686) to the total number of shares existing prior to the capital reduction
(123,756,166). For the year ended December 31,1998, this ratio only applies to the number of shares existing
during the period January 1st, 1998 to May 29,1998.
In 2000 there is no difference between basic and diluted earnings per share under US GAAP as stock options and the
OCEANE have no dilutive effect.
* Translation of amounts from Euros (" ") into U.S. dollars ("USD") has been made merely for the convenience of the reader
at the June 5, 2001 closing rate of 1.00 to USD 0.8504.
v iii) Combined information concerning pro rata consolidated entities
In accordance with regulations of the U.S. Securities and Exchange Commission with respect to the
use of the pro rata consolidation method, summarized financial information of the Company’s shares
of assets, liabilities, revenues, expenses and cash flows included in the financial statements and
related to investments accounted for using the pro rata consolidation method has been prepared as of
December 31, 2000 and 1999.
F - 82
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
December 31, 1999 December 31, 2000
(in millions of Euros) (in millions of Euros)
Balance Sheet data
Non-current assets — 1
Current assets 7 14
Non-current liabilities 5 10
Current liabilities 2 5
Income statement data
Net sales — 0
Cost of sales — (3)
Income (loss) from operations (7) (17)
Net income (loss) (7) (15)
Cash flow data
Cash flow from operating activities (7) (14)
Cash flow from investing activities — (2)
Cash flow from financing activities 7 15
v iv) Stock based compensation plan
As of December 18, 2000, THOMSON multimedia S.A. adopted one fixed option plan. The
purchase price of the options granted to employees is 55.9, in excess of 15% from the market value
of the shares at the grant date.
The options vest ratably over a 5 years period (50% as of December 18, 2003 and 50% as of
December 18, 2004) and may be exercised up to 10 years from the date of grant.
As of the grant date (December 18, 2000) no compensation expense is required as the exercise price
exceeds the market price (Euros 55.9 vs. 47).
Number of shares Weighted average
exercise price
(in Euros)
December 31, 1999.................................................. - -
Granted ( December 18, 2000) ........................ 3 458 500 55.9
Exercised ........................................................... - -
Forfeited ............................................................ - -
December 31, 2000 3 458 500 55.9
The 3 458 500 options outstanding at December 31, 2000 expire as of December 18, 2010. None are
exercisable before December 18, 2003.
F - 83
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
The fair value of THOMSON multimedia S.A. options is 87.1 millions as of December 18, 2000,
using the Black & Scholes method with the following assumptions for the grants:
At December 31, 2000
Expected life (years) ................................................... 10
Interest rate.................................................................. 5.35%
Volatility ...................................................................... 40%
Dividend yield ............................................................ 0%
Had compensation cost for stock options awarded under this plan been determined based on the fair
value at the date of grant consistent with the methodology of SFAS 123, Thomson’s net income and
basic earnings per share, would have reflected the following pro forma amounts (in millions of Euros,
except per share amounts):
At December 31, 2000
US GAAP net income 136
Basic earning per share 0.54
Impact of fair value method of stock options (0.9)
Pro forma US GAAP income 135.1
Pro forma basic earnings per share 0.54
Pro forma diluted earnings per share 0.54
v v) Recently issued accounting pronouncements
The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards
No.133, “Accounting for Derivative Instruments and Hedging Activities”, as amended by FAS 137
and FAS 138 (collectively “FAS 133”). FAS 133 is effective for fiscal years beginning after June 15,2000;
accordingly, the Company adopted FAS 133 on January 1, 2001. FAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. Changes in the derivative’s fair value should be recognized each
period in current earnings unless specific hedge accounting criteria are met. Special accounting for
qualifying hedges allows derivative’s gains and losses to offset related results on the hedged item in
the income statement, and requires that a company must formally document, designate, and assess
the effectiveness of transactions that receive hedge accounting. For foreign exchange risk, Thomson
had a very limited amount of derivatives designated as hedges under U.S. GAAP, as of December 31,
2000, and therefore, the transition adjustment is immaterial for foreign exchange risk. Additionally,
the Group decided not to declare any hedging relation for future foreign exchange transaction and to
account for the derivative instruments mark to market. The Group is currently in the process of
identifying its embedded derivatives and agreements within the scope of this SFAS, the amount of
the related transition adjustment is not yet determined.
The Financial Accounting Standards Board has also issued in 2000, Statement of Financial Accounting
Standards No.140 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities”. This Statement replaces FASB Statement No.125, “Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities”. It revises the standards for accounting for
F - 84
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
securitizations and other transfers of financial assets and collateral and requires certain disclosures,
but it carries over most of the FAS 125 provisions. FAS 140 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of liabilities. Those
standards are based on consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when
control has been surrendered, and derecognizes liabilities when extinguished. FAS 140 provides
consistent standards for distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. FAS 140 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. The Company reviewed the provisions
of FAS 140 and does not expect it to have a material impact on its consolidated financial statements.
v vi) Concentration of credit risk on one major customer
Thomson has one significant US customer which represents approximately 11% of the net sales of the
group in the amount of 1 010 million for 2000 (10% in the amount of 696 million for 1999; 9% in
the amount of 486 million for 1998); such net sales are reported under the Consumer Product
Business Segment. Account receivables from this customer amounted to 116 million (7% of Group's
account receivables), and 192 million (14% of Group's account receivables) for the years ended
December 31, 2000, and 1999.
(w) Subsequent events
On February 27, 2001, Geocast announced it would wind up its business and liquidate its assets. The
remaining value of Thomson’s investment was therefore written off in the amount of 8.3 million
(USD 7.5 million) during March 2001.
F - 85
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
28. US GAAP RECONCILIATION
(a) Net income (loss)
Year ended December 31,
1998 1999 2000 2000
(in millions of (in millions of
Euros) U.S. dollars*)
Net income (loss) as reported in the Consolidated 16 231 394 335
Income Statements
(a) Investment securities — 7 25 21
(b) Restructuring (57) 10 (11) (9)
(c) Pensions and termination benefits 1 (1) 2 2
(d) Postretirement transition obligation (9) (8) (10) (9)
(f) Forward exchange contracts 15 5 (12) (10)
(h) Capitalized development costs 15 3 1 1
(i) Capitalized interest (1) — 1 1
(j) Inventory reserve (8) 9 — —
(k) Provision for year 2000 and Euro 2 (17) (4) (3)
(l) Subsidiaries controlled but not consolidated (3) 3 1 1
(m) Employee offering/bonus shares — (107) (78) (66)
(o) Sale-leaseback accounting — — (29) (25)
(p) Gain on Music Match dilution — — (1) (1)
(q) Recording of Singingfish acquisition — — (1) (1)
(r) Revenue recognition (23) (20)
(s) Reversal of deferred tax valuation allowance and — 13 (119) (101)
tax effects of the above adjustments
Net income ( loss) according to U.S. GAAP (29) 148 136 116
__________
*Translation of amounts from Euros (" ") into U.S. dollars ("USD") has been made merely for the convenience of
the reader at the June 5, 2001 closing rate of 1.00 to USD 0.8504.
F - 86
THOMSON multimedia group
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
All amounts indicated in the tables are expressed
in millions of Euros, unless otherwise stated
(b) Shareholders' equity
Year ended December 31,
1999 2000 2000
(in millions of (in millions of
Euros) U.S. dollars*)
Shareholders’ equity as reported in the Consolidated
Balance Sheets 1,719 2,860 2,432
(a) Investment securities 890 564 480
(b) Restructuring 105 94 80
(c) Pensions and termination benefits (26) (36) (31)
(d) Postretirement transition obligation 89 86 73
(f) Forward exchange contracts 13 1 1
(g) Asset reevaluations (5) (4) (3)
(h) Capitalized development costs (1) — —
(i) Capitalized interest 1 2 2
(j) Inventory reserve 1 — —
(k) Provision for year 2000 and Euro 11 8 7
(l) Subsidiaries controlled but not consolidated 5 5 4
(m) Receivables from sale of stock to employees (20) (12) (10)
(n) Treasury stock reclassification (1) — —
(o) Sale-leaseback accounting — (29) (25)
(q) Recording of Singingfish acquisition — (1) (1)
(r) Revenue recognition (23) (20)
(s) Reversal of deferred tax valuation allowance and tax 13 (104) (88)
effects of the above adjustments
Shareholders’ equity according to U.S. GAAP 2,794 3,411 2,901
*Translation of amounts from Euros (" ") into U.S. dollars ("USD") has been made merely for the convenience of
the reader at the June 5, 2001 closing rate of 1.00 to USD 0.8504.
F - 87
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
To the Shareholders and the Board of Directors of
THOMSON multimedia S.A.:
We have audited, jointly with Befec-Price Waterhouse* until December 31, 1999, in accordance with generally
accepted auditing standards in France and in the United States of America, the financial statements of
THOMSON multimedia group included in this annual report and have issued our report thereon dated
February 13, 2001, except for the Note 27 (v) and for the amounts translated into US dollars for convenience for which the
date is June 5, 2001. Our audit was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index above is the responsibility of the company's management and
is presented for purposes of complying with the Securities and Exchange Commission rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements taken as a whole.
Paris, France
February 13, 2001
______________________ _____________________________ _____________________________
Befec - Price Waterhouse* Barbier Frinault & Autres Mazars & Guérard
G. Hautefeuille Member of Andersen Worldwide T. de Bailliencourt
C. Chiarasini
* Statutory auditors until the shareholder’s meeting held on May 26, 2000.
SI
THOMSON multimedia group
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Opening Charged to Reversal of Closing
Other
balance costs and provisions Deductions balance
movements*
expenses
(in millions of Euros)
Valuation and qualifying accounts
deducted from the related accounts:
2000
Trade accounts and notes
receivable 51 17 (11) (2) 6 61
Other investments 45 42 (1) (5) 15 96
1999
Trade accounts and notes
receivable 51 16 (3) (17) 4 51
Other investments 30 1 (1) (7) 22 45
1998
Trade accounts and notes
receivable 54 11 (5) (8) (1) 51
Other investments 26 - - - 4 30
Liabilities - Other reserves:
2000
Losses on subsidiaries 21 1 (2) - (8) 12
Others 90 93 (21) (26) 2 138
1999
Losses on subsidiaries 19 1 (1) - 2 21
Others 99 36 (28) (27) 10 90
1998
Losses on subsidiaries 21 1 (2) - (1) 19
Others 70 54 (9) (28) 12 99
* Includes changes in scope of consolidation and currency translation adjustment.
S II
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