FORM 20-F THOMSON multimedia - Technicolor

As filed with the Securities and Exchange Commission on March 29, 2002 

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549 

FORM 20-F 

(Mark One) 

n REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) 

OF THE SECURITIES EXCHANGE ACT OF 1934 

≤ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 

SECURITIES EXCHANGE ACT OF 1934 

For the fiscal year ended: December 31, 2001 

n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE 

SECURITIES EXCHANGE ACT OF 1934 

For the transition period from to 

Commission file number 0-3003 

THOMSON multimedia 

(Exact name of Registrant as specified in its charter) 

Not applicable Republic of France 

(Translation of Registrant’s (Jurisdiction of incorporation 

name into English) or organization) 

46, quai Alphonse Le Gallo 

92100 Boulogne Billancourt 

(Address of principal executive offices) 

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

Name of each exchange on 

Title of each class to be so registered which each class is to be registered 

Common Stock, nominal value 0 3.75 per share, and American 

Depositary Shares, each representing one share 

of Common Stock ............................................................................. New York Stock Exchange 

Securities registered or to be registered pursuant to Section 12(g) of the Act: 

None 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: 

None 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or 

common stock as of the close of the period covered by the annual report: 

Common Stock, nominal value 0 3.75 per share: 265,113,508 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by 

Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 

such shorter period that the Registrant was required to file such reports), and (2) has been subject 

to such filing requirements for the past 90 days: Yes ≤ No n 

Indicate by check mark which financial statement item the Registrant has elected to follow: 

Item 17 n Item 18 ≤

2001 20-F 

Table of Contents 

INTRODUCTION............................................................................................................................ 3 

FORWARD-LOOKING STATEMENTS.......................................................................................... 3 

STATEMENTS REGARDING COMPETITIVE POSITION ............................................................ 4 

REPORTING CURRENCY ............................................................................................................ 

PART I 

4 

ITEM 1 — IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.................. 5 

ITEM 2 — OFFER STATISTICS AND EXPECTED TIMETABLE ................................................. 5 

ITEM 3 — KEY INFORMATION .................................................................................................... 6 

ITEM 4 — INFORMATION ON THE COMPANY .......................................................................... 14 

ITEM 5 — OPERATING AND FINANCIAL REVIEW AND PROSPECTS .................................... 35 

ITEM 6 — DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES ..................................... 57 

ITEM 7 — MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS ..................... 66 

ITEM 8 — FINANCIAL INFORMATION......................................................................................... 70 

ITEM 9 — THE OFFER AND LISTING ......................................................................................... 74 

ITEM 10 — ADDITIONAL INFORMATION .................................................................................... 79 

ITEM 11 — QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS...... 97 

ITEM 12 — DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES ................ 

PART II 

101 

ITEM 13 — DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES ............................ 

ITEM 14 — MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITIES HOLDERS 

102 

AND USE OF PROCEEDS ........................................................................................ 102 

ITEM 15 — RESERVED ................................................................................................................ — 

ITEM 16 — RESERVED ................................................................................................................ 

PART III 

— 

ITEM 17 — FINANCIAL STATEMENTS........................................................................................ 103 

ITEM 18 — FINANCIAL STATEMENTS........................................................................................ 103 

ITEM 19 — EXHIBITS.................................................................................................................... 103 

2

INTRODUCTION 

In this Annual Report on Form 20-F, the terms the ‘‘Company’’, the ‘‘Group’’, ‘‘Thomson’’, 

‘‘THOMSON multimedia’’, ‘‘we’’ and ‘‘our’’ mean THOMSON multimedia S.A. together with its 

consolidated subsidiaries. 

FORWARD-LOOKING STATEMENTS 

In order to utilize the ‘‘safe harbor’’ provisions of the U.S. Private Securities Litigation Reform 

Act of 1995, we are providing the following cautionary statement. This Annual Report contains 

certain forward-looking statements with respect to our financial condition, results of operations and 

business and certain of our plans and objectives. These statements are based on management’s 

current expectations and beliefs and are subject to a number of factors and uncertainties that could 

cause actual results to differ materially from those described in the forward-looking statements. In 

addition to statements that are forward-looking by reason or context, the words ‘‘may’’, ‘‘will’’, 

‘‘should’’, ‘‘expects’’, ‘‘plans’’, ‘‘intends’’, ‘‘anticipates’’, ‘‘believes’’, ‘‘estimates’’, ‘‘projects’’, ‘‘predicts’’ 

and ‘‘continue’’ and similar expressions identify forward-looking statements. By their nature, forwardlooking 

statements involve risk and uncertainty because they relate to events and depend on 

circumstances that will occur in the future. Such statements are also subject to uncertain 

assumptions concerning, among other things: our anticipated growth strategies; our intention to 

introduce new products; anticipated trends in our business; and our ability to continue to control 

costs and maintain quality. We caution that these statements may, and often do, vary from actual 

results and the differences between these statements and actual results can be material. 

Accordingly, we cannot assure you that actual results will not differ materially from those expressed 

or implied by the forward-looking statements. Some of the factors that could cause actual results and 

events to differ materially from those expressed or implied in any forward-looking statements are: 

) economic conditions in countries in which our hardware devices and services are sold or 

patents licensed, particularly in the United States and Europe; 

) general economic trends, currency fluctuations, changes in raw materials and employee costs 

and political uncertainty in markets where we manufacture goods, purchase components and 

license patents, particularly in Latin America and Asia; 

) increased competition in video technologies, components, systems and services and hardware 

devices sold in the consumer electronics industry; 

) challenges inherent in our repositioning strategy; 

) future business combinations, acquisitions or dispositions; 

) technological advancements in the consumer electronics industry; 

) change in future exchange rates, notably between the euro and the U.S. dollar, Japanese 

yen, Canadian dollar, Mexican peso and Polish zloty; 

) our failure to maintain over the long term contractual arrangements with our customers, 

particularly in our Digital Media Solutions and Patents and Licensing divisions; 

) capital and financial market conditions, prevailing interest rates and availability of 

financing; and 

) warranty claims, product recalls or litigation that exceed our available insurance coverage. 

Furthermore, a review of the reasons why actual results and developments may differ materially 

from the expectations disclosed or implied within forward-looking statements can be found under 

‘‘Risk Factors’’ below. Forward-looking statements speak only as of the date they are made, and we 

undertake no obligation to publicly update any of them in light of new information or future events. 

3

We advise you to consult any documents we may file or furnish with the U.S. Securities and 

Exchange Commission (‘‘SEC’’), as described under ‘‘Documents on Display’’. 

STATEMENTS REGARDING COMPETITIVE POSITION 

This Annual Report contains statements regarding our market share, market position and 

products and businesses. Unless otherwise noted herein, these market estimates are based on the 

following outside sources, in some cases in combination with internal estimates: 

) Understanding & Solutions for information on CD and DVD (Digital Media Solutions); 

) World Color Picture Tube Sales (‘‘W.C.P.T.S.’’) for information on tubes worldwide (Displays 

and Components); 

) Gesellschaft für Konsumer Markt- und Absatzforschung (‘‘GfK’’) for information on TV, VCR, 

DVD and audio in the ‘‘Europe 5’’ market which comprises France, Germany, the United 

Kingdom, Italy and Spain (Consumer Products); and 

) Institute for Market Research (‘‘IMR’’) for information on TV, VCR, DVD, audio and telephony 

in the Americas (Consumer Products). 

Statements contained in this Annual Report that make reference to ‘‘value market share’’ or 

market share ‘‘based on value’’ mean that the related market estimate is based on sales, and 

statements referring to ‘‘volume market share’’ or market share ‘‘based on volume’’ mean that the 

related market estimate is based on the number of units sold. 

Market share and market position statements are generally based on sources published in the 

third quarter of 2001 unless otherwise indicated. Statements concerning our Technicolor businesses 

are based on a combination of internal estimates and external sources published at mid-year 2001. 

REPORTING CURRENCY 

Our consolidated financial statements that form part of this Annual Report on Form 20-F are 

presented in euro. Effective January 1, 2001, our consolidated financial statements are presented 

using the euro as our reporting currency. Our consolidated financial statements for 2000 and 1999, 

which were prepared in French francs, have been translated into euro using the legal rate of 

conversion between French francs and the euro which was fixed on December 31, 1998 at 

0 1.00 = FF 6.55957. 

The selected financial data for 1997 and 1998 were derived from our consolidated financial 

statements for those years and have been restated from French francs into euro using the official 

fixed exchange rate established at December 31, 1998. These selected financial data may not be 

comparable to those of other companies that are also reporting in euro if those companies restated 

their financial statements from a currency other than the French franc. 

For your convenience, this Annual Report contains translations of certain euro amounts into 

U.S. dollars. Unless otherwise indicated, dollar amounts have been translated from euro at the rate 

of 0 1.00 = U.S.$0.8713, the noon buying rate in New York City for cable transfers in euro as 

announced by the Federal Reserve Bank of New York for customs purposes (the ‘‘Noon Buying 

Rate’’) on February 25, 2002. 

4

PART I 

ITEM 1 — IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS 

Not applicable. 

ITEM 2 — OFFER STATISTICS AND EXPECTED TIMETABLE 


5

ITEM 3 — KEY INFORMATION 

A — Selected Financial Data 

We have derived the following selected consolidated financial data from our consolidated 

financial statements for the five-year period ended December 31, 2001. You should read the 

following selected consolidated financial data together with the section entitled Item 5: ‘‘Operating 

and Financial Review and Prospects’’ and our consolidated financial statements. 

Figures for 1997 and 1998 have been restated to take into account changes in our accounting 

methods adopted in 1999 with respect to ‘‘net cash discounts’’ and general and administrative 

expenses. 

Our consolidated financial statements have been prepared in accordance with French GAAP, 

which differs in certain significant respects from U.S. GAAP. Notes 29 and 30 to our consolidated 

financial statements describe the principal differences between French GAAP and U.S. GAAP as 

they relate to us and reconcile our net income and shareholders’ equity. We also summarize these 

differences in Item 5: ‘‘Operating and Financial Review and Prospects’’. We have provided below 

certain financial data prepared in accordance with U.S. GAAP. 

1997 1998 1999 2000 2001 (1) 

2001 

1 1 1 1 1 (U.S.$) 

(in millions except share and per-share data) 

Income Statement Data: 

Net sales................................................. 5,783 5,629 6,690 9,094 10,494 9,143 

Digital Media Solutions ........................ — — 184 148 1,821 1,586 

Displays and Components................... 1,232 1,151 1,279 1,686 1,642 1,431 

Consumer Products ............................. 4,470 4,405 4,940 6,862 6,582 5,735 

Patents and Licensing ......................... 67 67 278 378 395 344 

New Media Services ............................ — — — 9 44 38 

Corporate (2) ........................................... 14 6 9 11 10 9 

Cost of sales............................................ (4,677) (4,366) (5,065) (6,915) (8,116) (7,071) 

Gross margin ........................................... 

Selling, general and 

1,106 1,263 1,625 2,179 2,378 2,072 

administrative expense ........................ (823) (835) (969) (1,282) (1,374) (1,197) 

Research and development expense...... (283) (284) (290) (351) (368) (321) 

Operating income (loss) ....................... 0 144 366 546 636 554 

Digital Media Solutions ........................ — — 8 3 239 208 

Displays and Components................... 177 216 216 262 105 91 

Consumer Products ............................. (96) (15) 85 172 134 117 

Patents and Licensing ......................... 53 47 218 319 350 305 

New Media Services ............................ — (9) (55) (83) (82) (71) 

Corporate (2) ........................................... (134) (95) (106) (127) (110) (96) 

Interest expense, net (3) ............................ (117) (54) (41) (10) (29) (25) 

Other financial expense, net (4) ................. (86) (37) (39) (67) (160) (139) 

Other income (expense), net (5) ................ (214) (27) (6) (81) 8 7 

Income tax (6) ............................................ 

Net income (loss) before 

(2) (8) (50) 1 (139) (121) 

minority interests.................................. (424) 15 224 376 264 230 

Minority interests...................................... — 1 7 18 22 19 

Net income (loss) .................................. (424) 16 231 394 286 249 

Basic net income (loss) per share (7) ....... (5.96) 0.05 1.17 1.56 1.04 0.91 

Diluted net income (loss) per share (7)(8) .. 

Weighted average number of 

(5.96) 0.05 1.17 1.56 1.04 0.91 

shares outstanding............................... 71,101,816 282,443,712 197,526,322 252,039,992 274,181,607 274,181,607 

6

1997 1998 1999 2000 2001 (1) 


1 1 1 1 1 (U.S.$) 

(in millions except share and per-share data) 

Approximate amounts in accordance 

with U.S. GAAP (9) 

Operating income (loss) .......................... (107) 69 169 284 204 178 

Net income (loss) .................................... (330) (29) 148 136 191 167 

Basic income (loss) per share (7) .............. (17.86) (0.22) 0.77 0.54 0.72 0.63 

Diluted income (loss) per share (7)(8) ........ (17.86) (0.22) 0.76 0.54 0.69 0.60 

(1) The acquisition of Technicolor and the other companies purchased in 2001 impacted our results of operations. Restated 

to eliminate the effect of these acquisitions, 2001 net sales would have accounted for 3 8,777 million and operating 

income would have been 3 379 million. See Note 2 to our consolidated financial statements. 

(2) ‘‘Corporate’’ amounts consist principally of research carried out centrally by us and other corporate costs not allocated to 

our operating segments. 

(3) At the end of 1997, we used the proceeds from Thomson S.A.’s 3 1,657 million capital contribution to reduce our net debt 

by 3 1,514 million, which significantly reduced our net interest expense in 1998 compared with 1997. We used the 

3 610 million and part of the 3 844 million net proceeds from our public equity offerings realized in November 1999 and 

October 2000 and concurrent capital increases to further reduce our net debt. Includes in 2001 3 25 million of interest on 

the promissory notes due to Carlton and relating to the acquisition of Technicolor. See Note 5 to our consolidated 

financial statements. 

(4) Other financial expense, net, includes principally valuation allowances on investments carried at cost, interest on pension 

plans and other non-financial payables. For further details, please refer to Note 5 to our consolidated financial statements. 

(5) Other income (expense), net, is discussed further under Item 5: ‘‘Operating and Financial Review and Prospects’’. For 

further details, please refer to Note 6 of our consolidated financial statements. 

(6) Our income tax expense through the end of 2000 was affected by the ‘‘tax indemnification agreement’’ with 

Thomson S.A., as described in Item 5: ‘‘Operating and Financial Review and Prospects’’. Pursuant to this agreement, 

Thomson S.A. paid to us 3 51 million in respect of the 1998 fiscal year, 3 58 million in respect of the 1999 fiscal year, and 

3 82 million in respect of the 2000 fiscal year. This agreement expired at year-end 2000. 

(7) Net income (loss) per share for each year shown equals net income (loss) for that year divided by average number of 

shares outstanding for such year. As the number of shares outstanding has varied from year to year since 1996, the net 

income (loss) per share figure is not comparable on a year-to-year basis. Includes in 2001 redeemable bonds subscribed 

by Carlton, redeemed for 15.5 million of our shares on March 16, 2002. 

(8) See Note 17 to our consolidated financial statements. 

(9) Please refer to Item 5: ‘‘Operating and Financial Review and Prospects — Overview — Principal Differences between 

French GAAP and U.S. GAAP’’ and Notes 29 and 30 to our consolidated financial statements for further details. 

7

1997 1998 1999 2000 2001 2001 

1 1 1 1 1 (U.S.$) 

(in millions) 

Balance Sheet Data: 

Intangible assets, net (1) ......................................... 78 67 168 196 1,696 1,478 

Property, plant and equipment, net....................... 1,107 994 1,090 1,122 1,536 1,338 

Total investments and other non-current assets.... 57 79 245 314 417 364 

Total fixed assets .................................................. 1,242 1,140 1,503 1,632 3,649 3,180 

Inventories ............................................................. 920 907 1,108 1,477 1,120 975 

Other current assets.............................................. 1,265 1,323 1,952 2,420 3,489 3,040 

Cash and cash equivalents (2) ................................ 331 268 402 1,772 1,532 1,335 

Total assets.......................................................... 3,758 3,638 4,965 7,301 9,790 8,530 

Reserves for retirement benefits........................... 502 527 590 633 709 618 

Restructuring reserves .......................................... 290 152 156 179 183 159 

Other reserves....................................................... 212 235 225 277 246 214 

Financial debt (short-term and long-term) (3) .......... 1,183 777 361 1,143 1,131 986 

Total current liabilities (4) ......................................... 983 1,080 1,841 2,155 3,492 3,043 

Minority interests ................................................... 2 3 73 54 71 62 

Shareholders’ equity (5) ........................................... 

Total liabilities, shareholders’ equity and 

586 864 1,719 2,860 3,958 3,448 

minority interests............................................. 

Approximate amounts in accordance with 

U.S. GAAP 

3,758 3,638 4,965 7,301 9,790 8,530 

Shareholders’ equity.............................................. 834 1,144 2,794 3,411 3,399 2,962 

(1) Our intangible assets consist principally of goodwill, patents and trademarks, development costs that we capitalized until 

the end of 1997, and software. In 2000, the goodwill related mainly to the ATLINKS acquisition (1999) and the 

Singingfish.com acquisition (2000). Our intangible assets at December 31, 2001 included goodwill relating to our 

acquisition of Technicolor (3 712 million), the Technicolor trademark (3 261 million) and Technicolor customer relationships 

(3 340 million). 

(2) In October 2000, we realized 3 844 million in net proceeds from our global equity offering. In addition, we issued 

11,175,385 convertible/exchangeable bonds (2000 OCEANEs) due 2006 for an aggregate amount of 3 812 million. 

(3) In late 1999, we raised 3 610 million of new capital, which we also used to repay debt that the we owed to Thomson S.A. 

and Thomson Brandt International B.V., reducing our debt to these companies to 3 9 million. In October 2000, we issued 

11,175,385 convertible/exchangeable bonds (2000 OCEANEs) due 2006 for an aggregate amount of 3 812 million. 

(4) Includes in 2001 U.S.$600 million of promissory notes due to Carlton for the acquisition of Technicolor (3 681 million at 

the December 31, 2001 closing rate). 

(5) In 2001 includes 3 761 million non-transferable, non-interest bearing bonds owed to Carlton, which were redeemed for 

15.5 million of our shares on March 16, 2002. 

1997 1998 1999 2000 2001 2001 

1 1 1 1 1 (U.S.$) 

(in millions) 

Cash Flow Data: 

Net cash provided by (used in) 

operating activities ................................................ 252 236 435 410 1,005 876 

Net cash used by investing activities....................... 

Net cash provided by (used in) 

(280) (237) (366) (398) (1,173) (1,022) 

financing activities................................................. 

Net increase (decrease) in cash and 

151 (86) 17 1,413 (34) (30) 

cash equivalents ................................................... 144 (63) 134 1,370 (240) (209) 

8

B — Exchange Rate Information 

Our shares are denominated in euro. Fluctuations in the exchange rate between the euro and 

the U.S. dollar will affect the U.S. dollar price of our American Depositary Shares (‘‘ADSs’’) on the 

New York Stock Exchange. In addition, as we intend to pay any cash dividends in euro, exchange 

rate fluctuations will affect the U.S. dollar amounts that owners of ADSs will receive on conversion of 

dividends. In addition, fluctuations in the exchange rate between the euro and the U.S. dollar will 

affect the U.S. dollar equivalent of the price of our shares on Euronext Paris S.A. 

The following table shows the U.S. dollar/euro exchange rate for the periods presented based 

on the Noon Buying Rate. Because the euro did not exist prior to January 1, 1999, it is not possible 

to present exchange rates between euro and U.S. dollars for earlier periods, and euro/U.S. dollar 

exchange rates for these periods converted from currencies other than the French franc will differ. 

Exchange rates for 1997 and 1998 have been taken from exchange rates between the U.S. dollar 

and the French franc for those periods and translated to euro using the legal exchange rate of 

0 1.00 = FF 6.55957. We do not make any representations that French francs or euro could have 

been converted into dollars at the rates shown or at any other rate. 

Month Period End 

Average 

Rate (1) 

High Low 

(U.S. dollar/euro) 

February 2002 .......................................................................... 0.87 0.87 0.88 0.86 

January 2002............................................................................ 0.86 0.88 0.90 0.86 

December 2001........................................................................ 0.89 0.89 0.90 0.88 

November 2001........................................................................ 0.90 0.89 0.90 0.88 

October 2001............................................................................ 0.90 0.91 0.92 0.89 

September 2001....................................................................... 0.91 0.91 0.93 0.89 

(1) The average of the Noon Buying Rates for euro on the business days of each month during the relevant period. 

Source: Federal Reserve Bank of New York 

Year Period End 

Average 

Rate (1) 

High Low 

(U.S. dollar/euro) 

2001.......................................................................................... 0.89 0.89 0.95 0.84 

2000.......................................................................................... 0.94 0.92 1.03 0.83 

1999.......................................................................................... 1.00 1.07 1.18 1.00 

1998.......................................................................................... 0.86 0.90 0.95 0.82 

1997.......................................................................................... 0.92 0.89 0.97 0.79 

(1) The average of the Noon Buying Rates for euro (or French francs translated into euro for 1997 and 1998) on the last 

business day of each month during the relevant period. 

Source: Federal Reserve Bank of New York 

The euro/U.S. dollar exchange rate for March 27, 2002 was 0 1.00 = U.S. 0.8726 and is based 

on the Noon Buying Rate for such date. 

C — Risk factors 

This section describes some of the risks that could affect our businesses. The factors below 

should be considered in connection with any forward-looking statements in this document and with 

the cautionary statements contained in ‘‘Forward-Looking Statements’’ at the beginning of this 

document. 

The risks below are not the only ones that we face — some risks may not yet be known to us 

and some that we do not currently believe to be material could later turn out to be material. Any of 

9

these risks could materially affect our business, our revenues, operating income, net income, net 

assets, liquidity and our capital resources. 

Economic conditions may adversely affect our results and financial condition. 

General economic trends in the countries in which our products and services are sold, primarily 

in North America and Europe, can have a significant impact on prices and demand for such products 

and services. 

Decreases in prices and demand in the markets in which we sell our products and services 

could result in further pressure on our profit margins, particularly in our Displays and Components 

and Consumer Products divisions, which could in turn adversely affect our financial results. 

Prices for hardware devices and components for the consumer electronics industry are affected 

also by economic trends in the countries or regions in which these products are manufactured. An 

economic crisis in a producing region can lead to a decrease in local demand and, if the value of 

the local currency decreases, a decrease in the production costs of local producers. These factors 

could lead to intensified export competition and aggressive price-cutting by these producers. This 

could result in pressure on profit margins. 

In addition, we produce and purchase a large number of goods in emerging markets and are 

subject to risks inherent in such markets, including currency fluctuations, political uncertainty, 

exchange controls and expropriation of assets. These risks could disrupt our production in such 

countries and our ability to produce and procure goods for sale in our principal North American and 

European markets. For more detailed discussions on our sales in our principal markets, see Item 5: 

‘‘Operating and Financial Review and Prospects’’, and for more information on our main production 

sites, see Item 4: ‘‘Information on the Company — Property, Plants and Equipment’’. 

We face strong competition in our consumer electronics activity. Competition may push 

prices to unprofitable levels, which could adversely affect our financial results. 

Hardware devices and components for consumer electronics markets are subject to intense 

price competition. Furthermore, due to technological innovation and ease of imitation, new products 

tend to become standardized rapidly, leading to intense competition and price declines. As a result 

of these factors, the hardware devices and components sold in the consumer electronics industry 

have experienced and continue to experience long-term price declines. In addition, the production of 

some of the components for televisions and other audiovisual products, such as tubes, may carry 

high fixed costs that do not vary with output levels. As a result, producers of such components must 

maintain a minimum sales volume to cover their fixed costs. When many producers resort to 

maintaining minimum sales volumes during periods of falling demand for these components, market 

prices tend to fall. Price-driven competition may result in reduction of profit margins and, in some 

cases, losses, in our Displays and Components and Consumer Products divisions. In order to 

protect our margins and improve our operating efficiency in the face of continuing price pressure, we 

have implemented a number of restructuring plans and expect that restructuring will remain an 

integral part of our business. 

We are implementing a repositioning strategy. This strategy may fail. 

Since the second half of 2000, we have been implementing a strategy to occupy leading 

positions in the video chain, particularly within our Digital Media Solutions division, and to take 

advantage of the ongoing transition within the entertainment and media industries to digital 

technologies. For a more detailed discussion of our repositioning strategy, see Item 4: ‘‘Information 

on the Company — History and Development of the Company — Our Strategy’’. The success of this 

strategy depends on a number of factors outside of our control, including the continued growth in 

demand for our video and digital products and services, our ability to develop or acquire new 

products and services to complement our existing offering, our ability to compete in markets in which 

10

we have limited operating history, the acceptance of our new products and services and expanded 

market presence by existing and new customers, the development of working relationships with new 

partners and the development of synergies among new and existing businesses. This strategy may 

encounter problems as we move into new business areas, and as new risks, some not yet known, 

related to dependence on new technologies or customers may develop and harm our future 

business prospects. 

Our acquisition strategy poses risks and uncertainties typical of such transactions. 

Our strategy and future growth depends in part on our ability to identify suitable acquisition 

targets, to finance and to achieve such acquisitions and to achieve and to obtain regulatory approval 

for these acquisitions. In addition, we will face risks associated with these acquisitions, including the 

integration of numerous entities and organizations, large numbers of persons and facilities and new 

relationships with different customers. We may also face an increase in our debt and interest 

expense. Potential difficulties inherent in mergers and acquisitions, such as delays in implementation 

or unexpected costs or liabilities, as well as the risk of not realizing operating benefits or synergies 

from completed transactions, may adversely affect our results. 

Technological innovations can make older products less competitive. We could be at a 

competitive disadvantage if we are unable to develop or have access, either independently or 

through alliances, to new products and technologies in advance of our competitors. 

The markets in which we operate are undergoing a rapid technological evolution resulting from 

the increasing use of digital technology and an increasing overlap among television, telecommunications 

and personal computers. Technological advances and new product introductions may render 

obsolete or significantly reduce the value of previously existing technologies, products and 

inventories. This could have a significant adverse effect on our ability to sell these products and to 

make a profit from these sales. For example, the emergence of digital technology has had this effect 

on many products using older analog technology. The emergence of new technologies could also 

have an adverse effect on the value of our existing patents. 

We expect that the development of digitalization and the convergence of television, telecommunications 

and personal computers will increase the pace and importance of technological 

advancement in our industry. As a result, we are investing large sums in the development and 

marketing of new products and services. These investments might be made in unproven 

technologies or for products with no proven markets and may therefore yield limited returns. 

Currency exchange rate fluctuations may lead to decreases in our financial results. 

To the extent that we incur costs in one currency and make our sales in another, our profit 

margins may be affected by changes in the exchange rates between the two currencies. Most of our 

sales are in U.S. dollars and in euro; however, a large portion of our expenses are denominated in 

Japanese yen, Mexican peso and Polish zloty, in particular those of our significant production 

facilities in Asia, Mexico and Poland. Ongoing plant relocation initiatives are likely to continue to 

increase the proportion of expenses incurred in emerging market currencies. While most emerging 

market currencies have been in decline in the recent past and have thus allowed us to reduce our 

manufacturing and procurement costs, an unhedged increase in the value of these currencies would 

increase these costs. Although our general policy is to hedge against these currency transaction 

risks on an annual or six month basis, given the volatility of currency exchange rates, we cannot 

assure you that we will be able to manage effectively these risks. Volatility in currency exchange 

rates may generate losses, which could have a material adverse effect on our financial condition or 

results of operations. For more detailed information on our hedging policies, see Item 11: 

‘‘Quantitative and Qualitative Disclosures about Market Risks’’. 

11

Product defects resulting in a large-scale product recall or successful product liability claims 

against us could result in significant costs or negatively impact our reputation and could 

adversely affect our business results and financial condition. 

We are sometimes exposed to warranty and product liability claims in cases of product failure. 

There can be no assurance that we will not experience material product liability losses arising from 

such claims in the future and that these will not have a negative impact on our reputation and, 

consequently, our sales. We maintain insurance against such product liability claims and record 

warranty provisions in our accounts based on its historical defect rates, but there can be no 

assurance that these coverage and warranty provisions will be adequate for liabilities ultimately 

incurred. In addition, there is no assurance that insurance will continue to be available on terms 

acceptable to us. A successful claim that exceeds our available insurance coverage or a product 

recall could have a material adverse impact on our financial condition and results of operations. 

The performance of several of our businesses is dependant in large part on the long-term 

maintenance of contractual arrangements with our customers. Our financial results may 

suffer if we are unable to renew these contracts when they expire or if we are only able to 

renew them under significantly less favorable terms. 

The net sales of certain of our business activities, particularly those in our Digital Media 

Solutions and Patents and Licensing divisions, depend on contracts that may have a duration of 

several years or are expected to be renewed at their expiration. In addition, in certain cases these 

contractual relationships may be with a relatively limited number of customers. Although most of our 

major client relationships are typically the result of multiple contractual arrangements of varying 

terms, in any given year certain of these contracts come up for renewal. For example, the 

performance of Technicolor, the largest contributor to the net sales of our Digital Media Solutions 

division, currently depends on a concentrated customer base that accounts for a substantial portion 

of the division’s net sales, including several contracts with major U.S. film studios, software and 

games manufacturers and television studios, with whom we generally negotiate exclusive, long-term 

contracts. The licensing agreements that generate our Patents and Licensing division’s net sales 

typically have a duration of five years, and our top-ten licensees account for approximately 60% of 

the division’s total licensing revenues. If several major contracts were to come up for renewal at the 

same time, and we were unable to renew them under similar or more favorable terms, our financial 

results could suffer. 

Our success depends upon recruiting and retaining key personnel. 

Our products, services and technologies are complex, and our future growth and success 

depend to a significant extent on the skills of capable engineers and other key personnel. Continued 

re-training of currently competent personnel is also necessary to maintain a superior level of 

innovation and technological advance. The ability to recruit, retain and develop quality staff is a 

critical success factor for us. 

Our major shareholders retain significant voting rights and representation on our Board of 

Directors, giving them the ability to influence our affairs. 

Thomson S.A., Alcatel, DIRECTV, Microsoft and NEC have significant shareholdings in 

Thomson. Carlton became a significant shareholder as of March 16, 2002, upon the mandatory 

conversion of outstanding redeemable bonds (ORAs). Furthermore, as part of the industrial 

partnerships developed with leaders in related industries in order to strengthen our position in 

different markets, we have worked on several business initiatives with Alcatel, DIRECTV, Microsoft 

and NEC since 1997 and with Carlton since 2001. Each of these entities is represented on our 

Board of Directors, and while none of these shareholders individually has the ability to control the 

our affairs, each may have some ability to influence our decision making and to directly impact the 

12

projects that such shareholder may be implementing jointly with us. For more detailed information on 

our shareholders, see Item 7: ‘‘Major Shareholders and Related Party Transactions’’. 

Our share price has been volatile in recent years. 

The stock market in recent years has experienced extreme price and volume fluctuations which 

have particularly affected the market prices of technology companies. Volatility in our share price has 

also been significant during this period. This volatility can result in losses for investors in a relatively 

short period of time. 

13

ITEM 4 — INFORMATION ON THE COMPANY 

A — History and Development of the Company 

Company Profile 

Legal and Commercial name: THOMSON multimedia S.A. 

Registered office address: THOMSON multimedia 

46, quai Alphonse Le Gallo 

92100 Boulogne-Billancourt France 

Tel.: 33 (0) 1 41 86 50 00 

Fax: 33 (0) 1 41 86 58 59 

E-mail: webmasterhq@thmulti.com 

Name and address of agent for service of process in the U.S.: 

THOMSON multimedia, Inc. 

10330 North Meridian Street 

Indianapolis, IN 46290 

Domicile, legal form and applicable legislation: Thomson is a French corporation (société 

anonyme) with a Board of Directors, governed by the French Commercial Code (Livre II du Code de 

Commerce) pertaining to corporations and by all laws and regulations pertaining to corporations. 

Date of incorporation and length of life of the Company: Thomson was formed on August 24, 

1985. It was registered on November 7, 1985 for a term of 99 years, expiring on November 6, 2084. 

Fiscal year: January 1 to December 31. 

We provide a wide range of technologies, systems, finished products and services, with a 

particular focus on video, to consumers and professionals in the entertainment and media industries. 

In recent years we have expanded beyond our traditional consumer electronics activities to 

reposition ourselves as a solutions provider present on each link of the video chain. In fiscal year 

2001, we generated net sales of 0 10.5 billion. At December 31, 2001, we had approximately 64,000 

employees in more than thirty countries. 

The Video Chain 

The video chain covers the space over which video images are developed, distributed and 

accessed and across which the players in the entertainment and media industries interact. We rely 

upon our technological expertise, the breadth of our hardware and service offerings, the reputation 

and position of our brands and our network of leading partners to serve the needs of customers at 

each of the three key links in the video chain: 

) content development, the first link and entry point in the video chain, comprises products and 

services that enable the capture, creation, post-production, preparation and management of 

multimedia content consisting of video images and associated sound and data. Customers are 

primarily film studios and other content creators as well as broadcasters. Their needs range 

from film colorization and digital post-production services, to digital broadcast equipment and 

systems integration. 

) content distribution, the middle link in the chain, involves products and services that together 

enable content to be transmitted from the creator to the end-consumer for use typically in the 

movie theater or in the home. Key customers include film studios, software and game 

14

publishers, network operators and exhibitors. These customers have needs that encompass 

the processing, packaging, and distribution of analog and digital content in both physical and 

electronic media formats via physical distribution channels or electronic distribution networks. 

) content access, the final link of the video chain, consists of products and services that allow 

consumers to access, view and interact with content and that provide a means for content 

creators and advertisers to reach these consumers using a variety of media formats and 

devices. The content access link includes consumer electronics and other devices that directly 

receive, store and display media content along with critical components that enable specific 

video-related functionality within these devices. Key customers are electronics manufacturers, 

advertisers, retailers of consumer electronics and end consumers. 

Underlying the video chain is a group of coherent technologies which allow players in the 

entertainment and media industries to interact within and among the various links in the video chain. 

The entertainment and media industries are experiencing transformations due to the transition 

from analog to digital technologies, and in addition, the development of broadband penetration. 

Since the mid-1990s, far-reaching technological changes, driven in large part by the emergence of 

digital technologies along with the increased convergence of consumer electronics, telecommunications 

and information technologies, have led to new products and forms of content delivery. The 

transition to digital technology is proceeding at different speeds and has reached various stages of 

progress for participants within each video industry segment. We believe that this trend will continue 

over the medium and long term and that analog and digital content delivery, storage and access 

technologies will co-exist for several years. The length of the transition will depend, among other 

factors, upon the pace of technological development, deployment of infrastructure, introduction of 

finished products and acceptance by players in the entertainment and media industries and of 

course consumers. 

Our Strategy 

Our overall strategy is to occupy leading positions within each of the links in the video chain. 

We implement this strategy by supplying products, equipment and services that enable video content 

to flow from one end of the chain to the other. We strive to provide our clients with the range of 

products and services that enable them to transition to digital technology at their own pace and in 

line with the needs of their particular markets. We believe that our presence throughout the video 

chain allows us to improve our understanding of the varying needs of our diverse customer base 

and enables us to develop and share technologies both within and among our business divisions. It 

also provides us close contact with consumers on the one hand, which helps us to assess their 

needs and preferences, and with content producers and distributors on the other hand, improving 

our ability to anticipate future developments. As a result, we are able to develop new solutions for 

participants in the video chain, and propose a more integrated product and services offering. 

We believe that as a result of our strategy we will expand and diversify our scope of business 

within the professional and higher growth markets of the entertainment and media industries while 

reducing our emphasis on lower growth retail consumer electronics activities. We also believe our 

presence throughout the video chain and our focus on higher value-added segments will allow us to 

increase the stability of our revenues and to improve operating income by diversifying our customer 

base within the video chain as well as allowing us to play a greater role in the development of 

products and technology standards that are driving the digital transition. 

In addition to relying upon organic growth, our strategy contemplates selective acquisitions to 

acquire key technology and strengthen our position along the video chain. 

15

Our Group 

In order effectively to pursue our strategy and to serve our wide customer base, we are 

organized into divisions that cover the entire video chain and address our principal customer 

categories: media/entertainment groups, manufacturers and technology groups and retailers and 

consumers. 

) Digital Media Solutions, a new division in 2001 which recorded consolidated net sales of 

0 1.8 billion, positions us along the content development and content distribution links of the 

video chain through the delivery of products and solutions for professionals in the 

entertainment and media industry (mainly film studios and broadcasters). Through this 

division’s activities, we are the world leader in content preparation and distribution services to 

the film and media industry. We also believe that we are the second-largest supplier of 

broadcast equipment. 

) Displays and Components, which generated 0 2.4 billion in total net sales in 2001 (including 

internal sales), covers the content access link of the video chain and provides key 

components, which are sold both internally and to original equipment manufacturers 

(‘‘OEMs’’), for products in the electronics industry. In 2001, these components included 

displays for television sets, digital optical components for DVD players and game consoles 

and the development of integrated circuits. Through this division, we are the second-largest 

producer of large and very large size TV picture tubes in the world based on volume and are 

also a leader in optical components. 

) Consumer Products, which in 2001 recorded consolidated net sales of 0 6.6 billion, also 

covers the content access link of the video chain and provides traditional consumer 

electronics products such as television sets, DVD and VCR players, audio systems and 

residential telephones to retailers and eventually, the end-customer. This division also 

develops and markets broadband access products such as digital set-top boxes, cable 

modems and DSL modems for network operators. 

Thomson markets these products primarily under its two key brands: RCA˛ in the United 

States and THOMSON˛ in Europe. Through this division, we are the leader in the United 

States and third in Europe in TV, the second in consumer audio markets in the United States, 

the third-largest DVD player supplier in the United States and hold strong positions in TV 

accessories. We believe that we are the world-wide leader in digital set-top boxes, and with 

ATLINKS, a joint venture with Alcatel, are a world leader in home telephony. 

) Patents and Licensing, which in 2001 recorded consolidated net sales of 0 395 million, 

underlies and supports all three key links in the video chain. Through this division, we 

manage a major portfolio of patents relating principally to video technologies which we license 

to other manufacturers and technology groups. 

) New Media Services, which in 2001 recorded consolidated net sales of 0 44 million, is 

positioned along both the content distribution and content access links of the video chain. This 

division develops technologies and solutions that enable interactivity for a wide range of 

customers including media groups, advertisers and consumers. 

Our offering to network operators for the transmission of video content to consumers is made 

through Nextream’s infrastructure business and our Broadband Access Products activity. These two 

businesses work together to address the needs of network operators and are managed together. 

Our repositioning along the entire video chain has diversified our customer base. In the past, we 

developed strong relationships with retailers through our emphasis on the consumer electronics 

business. Since 1997, we have expanded our customer base through our Displays and Components 

business to include manufacturers and technology companies. We are also developing and 

strengthening our relationships with media industry professionals through our Digital Media Solutions 

16

division. Our relative decrease in consumer electronics activity is a result of our repositioning 

strategy. 

The activities of our divisions are described in detail below in ‘‘— Business Overview’’. For 

information on geographic breakdown of revenues by division, see Item 5: ‘‘Operating and Financial 

Review and Prospects — Overview’’. 

Historical Background 

Our current business situation results from the restructuring and repositioning strategy in place 

since 1997. Following the appointment of Thierry Breton as Chairman and Chief Executive Officer of 

Thomson in 1997 and the arrival of a new management team in the context of a significant 

deterioration in our results of operation and financial condition in the early and mid-1990s, we 

benefited from a recapitalization by the French State, through Thomson S.A., and launched several 

restructuring and reengineering initiatives which enabled the restoration of profitable business 

operations. In the second half of 2000, we developed our repositioning strategy by expanding our 

business and customer base beyond the traditional consumer electronics market to include new 

segments of the video industry. Starting in the latter part of 2000 and continuing into 2002, we have 

made several acquisitions, including Technicolor and Philips’ professional broadcast business, to 

accelerate this strategic repositioning and to take advantage of the industry’s transition to digital 

technologies. 

Our restructuring and repositioning strategy has been accompanied and facilitated by a 

significant shift in our equity structure. Four years ago, THOMSON multimedia was wholly owned by 

Thomson S.A., which in turn is wholly owned by the French State. Following a series of offerings 

and placements of our shares in the period 1998-2002, as of March 16, 2002 (and giving effect to 

the payment of Carlton’s obligations remboursables en actions (‘‘ORAs’’) in newly issued shares on 

this date), to the best of our knowledge our share capital was held as follows: (i) Thomson S.A. 

owned 22.42%, (ii) our strategic partners (Alcatel, DIRECTV, Microsoft and NEC) together owned 

15.79%, (iii) the public owned 50.83%, (iv) our employees owned 4.24%, (v) 1.20% were held by us 

as treasury shares and (vi) the remaining 5.52% of our shares are held by Carlton. On 

November 29, 2001, Carlton issued bonds to a number of institutional investors exchangeable for 

15.5 million of our shares. For more details on our share capital, please see Item 7: ‘‘Major 

Shareholders and Related Party Transactions — Distribution of Share Capital’’. 

Strategic Relationships 

Within the context of the digital transition and the convergence of technologies, devices and 

media within the video industry, we believe it is essential to develop strategic relationships with 

leaders in related industries in order to strengthen our position in various markets and to capitalize 

on emerging trends that are influencing the video industry. Thus, we established strategic alliances 

in 1998 with Alcatel, DIRECTV, Microsoft, NEC, and in 2001 with Carlton. Within the framework of 

these alliances, we have developed significant business initiatives, which are discussed below in 

‘‘— Business Overview’’. 

In addition to the five companies mentioned above, which each have a seat on our Board of 

Directors, we have developed other alliances which we believe enable us more effectively to 

implement our strategy. 

17

B — Business Overview 

The table below sets forth the consolidated net sales of each division in 1999, 2000 and 2001. 

These consolidated figures exclude internal sales, notably those sales by our Displays and 

Components division to our Consumer Products division. 

1999 % 2000 % 2001 % 

(1 in millions) 

Digital Media Solutions (1) .................................. 184 2.8% 148 1.6% 1,821 17.4% 

Displays and Components ............................... 1,279 19.1% 1,686 18.6% 1,642 15.6% 

Consumer Products.......................................... 4,940 73.8% 6,862 75.5% 6,582 62.7% 

Patents and Licensing ...................................... 278 4.2% 378 4.2% 395 3.8% 

New Media Services......................................... — — 9 N/A 44 0.4% 

Other ................................................................. 9 0.1% 11 0.1% 10 0.1% 

Total .................................................................. 6,690 100% 9,094 100% 10,494 100% 

(1) The Digital Media Solutions division was established in 2001 and includes, among other businesses acquired or formed 

by us in the first half of 2001, the professional equipment and infrastructure businesses previously managed by the 

Consumer Products division. These professional equipment and infrastructure businesses have been consequently 

reclassified from the Consumer Products division to the Digital Media Solutions division for 1999 and 2000, and the 

percentages in this table reflect the restatement of these figures. 

Digital Media Solutions 

Digital Media Solutions (DMS) generated consolidated net sales of 0 1,821 million in 2001, 

representing 17.4% of our 2001 net sales. Operating income for the division in 2001 was 

0 239 million. These figures reflect the consolidation of Technicolor from March 17, 2001. At 

December 31, 2001, DMS had 11,832 employees. 

DMS forms our entry point into the video chain, anchoring our positions on the content 

development and content distribution links of the chain. Through DMS, we offer products and 

services that directly address the needs of entertainment and media professionals, from content 

owners, such as movie studios and broadcasting companies, to network and service operators. 

DMS’s business-to-business driven strategy focuses on providing integrated solutions designed to 

assist its professional customers to manage their transition to digital technology and to deliver more 

entertainment content to more end-users. 

Digital penetration and broadband penetration are fundamental technology shifts redefining all 

business models within the video chain. The transition to new forms of content delivery, especially 

through broadband networks, has created new needs for content providers and network operators, in 

particular for encoding, security, transmission, research, indexation and digital rights management. In 

addition, consumers are progressively adopting new forms of digital entertainment, in particular DVD, 

video on demand (‘‘VOD’’) and streaming media. DMS was formed in 2001 to answer these new 

demands and provides products and services to film studios, broadcasters, network operators and 

other integrated media groups. DMS focuses on a number of critical technologies along the video 

chain, including digital content acquisition, content preparation and enhancement, content management 

and distribution, and content monetization. DMS strives to guide its customers through 

technology-induced business changes while allowing them to maintain control over their content and 

the distribution process. 

We intend for DMS to grow by continuing to develop its product and service range for its 

professional customers, in particular by leveraging technologies already managed by us such as 

Moving Picture Experts Group (‘‘MPEG’’) video compression. We also expect DMS to grow through 

opportunities presented by industry consolidation and through the acquisition of complementary 

digital media technologies, the formation of new strategic partnerships and alliances, and the 

reinforcement of business relationships with leading content providers and media groups. In addition, 

18

we initiated at the end of 2001 our TWICE program to expand our business offerings and our client 

base, including an emphasis on geographic expansion. 

) Technicolor businesses 

In March 2001, we completed our acquisition of the Technicolor businesses and assets from 

Carlton. Technicolor, the largest contributor to DMS consolidated net sales, is the world leader in 

content preparation and distribution services to the media industry based on leadership positions 

within each of the services provided. It is a key supplier of digital post-production services and 

processes and distributes motion picture film. Based on volume, Technicolor is also the largest 

independent manufacturer and distributor of pre-recorded DVDs and, we believe, of videocassettes. 

Based in Camarillo, California, Technicolor’s operations are global in scale, spanning nine countries 

with twenty-two operating locations across North America and Europe. 

Technicolor’s competitive advantages are based upon technical superiority, economies of scale 

and an integrated and secure service offering to its customers. Key customers include major film 

studios such as Disney, Warner Brothers and DreamWorks, software and games manufacturers 

such as Microsoft and Electronic Arts and television stations such as ABC. Most major contracts are 

negotiated on the basis of exclusive, long-term arrangements. In any given year certain contracts 

come up for renewal. Major client relationships are typically the result of multiple contractual 

arrangements which include a fixed duration, a type of service and rights to a particular geographical 

zone. 

Through Technicolor, we offer a differentiated set of services to both theatrical and broadcast 

content creators. For theatrical content creators, Technicolor provides post-production, film 

developing, assembly and colorization services prior to the release of films to theaters. For 

broadcast customers, services start with its post-production offering through which Technicolor offers 

colorization, editing, digitization (where required) and mastering of original content for broadcast 

producers. Technicolor recently introduced Technique, a new digital imaging facility, to expand its 

digital service offerings and to enable its customers to transition to digital media. With digitalization, 

the Technicolor offering evolves progressively towards the management of digital media assets. We 

are in the process of evaluating the market for media asset management solutions, which entails the 

storage and retrieval of archived content for distribution through several distribution channels. 

Technicolor is also a leader in film processing and theatrical distribution services. We believe 

that Technicolor holds a 36% market share, based on footage of film sold, of the U.S. and European 

film processing market. Our main competitor in this activity is Deluxe. 

Because the distribution of content to theaters will progressively employ digital technology, 

Technicolor formed a joint venture with Qualcomm in 2000 for digital cinema, of which Technicolor is 

the 80% owner. The goal of the joint venture is to provide turnkey digital cinema systems to 

exhibitors worldwide based on best-in-class theater management system technologies and to provide 

content management and delivery services. The venture delivered its first commercial film release 

‘‘Ocean’s Eleven’’ in December 2001. 

Technicolor manufactures and distributes videocassettes, DVD and CD packaged media via 

sixteen facilities located in North America and Europe. The company also distributes Microsoft Xbox 

game consoles. Technicolor provides a turnkey integrated service for audio and video content 

creators that spans mastering, manufacturing, packaging, distribution, including direct-to-retail and 

direct-to-consumer (e-commerce), as well as procurement, information services and retail inventory 

management systems. The packaged media industry continues to grow steadily, most recently 

fueled by consumer demand for DVD video as well as game consoles and software. Technicolor’s 

main competitors in videocassettes are Deluxe and Cinram, with Technicolor holding, based on our 

internal estimates, a 35% U.S. and 30% European market share in 2001. In CD and DVD, 

competitors include WAMO, Sony DADC, PDSC, Sonopress, Ritek, Infodisc and Cinram, with 

Technicolor holding a 25% U.S. and 15% European market share for DVD in 2001. Technicolor 

19

competes on its ability to provide, on a cost-effective basis, fully integrated services, technological 

leadership, industry-leading replication capacity and quality, broad geographic coverage and a high 

degree of content security. 

Technicolor supports and guides its clients through the digital evolution occurring within its 

industry by increasing its digital offerings. Its role as a content and information manager, as well as 

an intermediary between content creators and exhibitors, is comparable in the digital and analog 

media worlds. We believe that Technicolor’s current and targeted client base offers substantial 

growth opportunities, in particular in the areas of DVD, digital cinema, digital post-production, digital 

media management services and future services for broadband networks. Additionally, we believe 

opportunities exist to expand retail inventory management systems (‘‘RIMS’’), e-commerce and to 

explore pan-European distribution. Natural synergies exist between Technicolor and our other units 

for the next generation of technologies for VOD, including copy protection and digital rights 

management, media asset management and networking technologies. 

) Broadcast Solutions 

Broadcast Solutions provides digital broadcasting products, equipment and services to the 

professional broadcast industry. Its products include cameras for outside broadcast and studio use, 

equipment for TV studios and mobile broadcast vehicles, film imaging and signal processing, and 

management and delivery systems. Customers include major broadcasters and networks, multichannel 

operators, transmission and distribution operators along with production and post-production 

facilities. Professional Broadcast Solutions seeks to exploit growth opportunities, in particular the 

rapid migration by the broadcast industry to server-based network architectures, and the creation of 

integrated digital solutions. Opportunities also exist for us to utilize our compression and network 

technologies from our Broadband Access Products and Network Equipment and Systems businesses 

within the Broadcast Solutions customer base. 

Through Broadcast Solutions, we operate in more than twenty-two countries and have a leading 

market position in Europe. Based on internal estimates, we hold the second position worldwide for 

digital broadcast systems (cameras, video switchers and servers) based on value, giving us an 

overall worldwide market share of 12% at year-end 2001. Our main competitors are Sony and 

Panasonic. 

In March 2001, we completed the acquisition of Philips’ professional broadcast businesses 

which complemented our existing professional broadcast business. At the end of 2001, we held a 

66.7% ownership stake, with Philips holding the remaining 33.3%. In January 2002, Philips exercised 

its right to sell us 50% of its stake in accordance with the terms of the acquisition agreement, giving 

us an 83.3% ownership stake. Under the acquisition agreement, Philips has the right to sell to us its 

remaining stake in January 2003. 

In December 2001, we announced the acquisition of Grass Valley Group, Inc. (‘‘Grass Valley’’), 

a leading supplier of professional broadcast equipment and solutions with a strong presence in 

the digital broadcast and Internet streaming markets, particularly in the area of video server 

technologies. The acquisition, which closed on March 1, 2002, further extends Thomson’s Broadcast 

Solutions’ digital portfolio and strengthens its position as a key supplier of integrated and networked 

broadcast solutions for content providers. The acquisition will expand our geographic reach, product 

portfolio and broadband offering. Grass Valley’s 2001 estimated net sales were approximately 

0 200 million. 

) Network Equipment and Systems 

In February 2001, Thomson and Alcatel formed Nextream (75% and 25%, respectively), 

combining their interactive video network businesses. Under the terms of the agreement, Alcatel may 

require us to purchase all of its interest in the venture at any time between February 2002 and 

February 2007, or in the event there is a deadlock concerning any of the decisions requiring joint 

20

approval. Nextream combines businesses in MPEG network products and multimedia head-ends for 

cable TV networks, and is a leader in the European market for professional equipment for digital 

interactive video networks. Nextream’s primary purpose is to enable the delivery of entertainment to 

subscribers over multi-platform transmission end-to-end solutions that include digital head-ends, 

video sources, video servers, encoders, IP encapsulation and network management software for 

interactive digital TV (‘‘IDTV managers’’). Its customers include satellite (Pay TV), cable, and telecom 

operators, ISPs and broadcasters. Nextream holds a leading position in Europe in video network 

equipment and, according to internal estimates, the fourth position worldwide based on value at 

year-end 2001. Its principal competitors are Motorola, Scientific Atlanta, Harmonic Divicom and 

Tandberg Television. 

Nextream’s business is driven by digital convergence (voice, data and video), new content 

sharing, bandwidth optimization and infrastructure upgrades to support value added services, such 

as VOD, web browsing and voice over Internet Protocol (VoIP). Improved operational efficiency via 

integrated network management systems also plays an important role. Nextream facilitates the 

migration and expansion of content delivery to digital interactive formats. As the Nextream business 

is focused on broadband solutions for network operators, it works very closely with the Broadband 

Access Products activity that is part of the Consumer Products division and is under common 

management with that division. 

) Singingfish.com 

In September 2000, we acquired Singingfish.com, Inc. (‘‘Singingfish’’), a leader in indexing and 

searching tools, to provide access to digital audio and video content on broadband networks across 

the World Wide Web. Indexing identifies certain characteristic elements or keys to find a particular 

document in a file. At the end of 2001, Singingfish had indexed more than seven million audio and 

video streams. In September 2001 RealNetworks˛, Inc. selected Singingfish’s streaming content 

search technology for integration into its new RealOne TM Player. We believe that Singingfish 

technologies will contribute to our development of new digital products and video services. 

Displays and Components 

Displays and Components generated total net sales of 0 2,398 million in 2001 of which 

0 1,642 million were sales to outside manufacturers (consolidated net sales) and the remaining 

0 756 million were internal sales to our Consumer Products Division. Consolidated net sales 

represented 15.6% of our 2001 net sales. Operating income for the division was 0 105 million. At 

December 31, 2001, the division had 26,180 employees and operated 15 industrial facilities. 

Our Displays and Components division produces television tubes and advanced television 

display equipment, such as plasma displays, optical and other components used in the manufacture 

of various consumer electronics, and also develops integrated circuits. 

Our strategy in Displays and Components is to focus our core skills on a limited number of key 

hardware and software components for consumer electronics devices to strengthen our leadership in 

digital video technologies and capture a larger value market share of the consumer electronics 

finished product market. In addition, we intend to continue to optimize our cost profile by locating 

production in low cost countries. In 2001 we were second worldwide in large and very large size 

TV picture tubes based on volume. We also held a leading position in optical components and a 

strong position in the emerging plasma display market. 

) Television Tubes 

We are one of the world’s top three suppliers of television cathode tubes, producing 14.8 million 

color picture television tubes in 2001. Our television tubes business is highly vertically integrated, as 

we produce most of the important components that go into a finished picture tube. We produce over 

70% of our requirements for glass panels and funnel and all of our requirements for electron guns 

21

and deflection yokes. Glass can account for up to half of the cost of a tube and is an important 

quality factor, particularly for larger displays. This vertical integration in glass allows us to control the 

production of the higher value-added parts of the tubes and the overall quality of our finished 

products. 

Since 1999, we have focused on producing higher-end large and very large tube sizes (greater 

than approximately 22 inches) and expect to benefit from the expanding market for digital and large 

format television sets. Internal estimates show that large and very large tubes, which are the highest 

margin and fastest growing part of the tube market, accounted for approximately two-thirds in value 

of the total tube market and 70% of our overall tube unit production in 2001. We estimate that at the 

end of 2001 we held approximately 19% of the large and very large size tube market, with 

LG/Philips holding approximately 26%, Sony approximately 14% and Matsushita approximately 11%. 

In 2001, the global market for television tubes experienced a marked slowdown in demand, 

particularly for smaller tube sizes, which led to overcapacity. This resulted in industry consolidation, 

which reduced the number of major producers to four: LG/Philips, Samsung, Thomson and 

Matsushita. In order to improve our asset base and to reorganize our production facilities towards 

very-large size tubes, we undertook a number of initiatives in 2001. These initiatives are part of our 

TIGER program (Tubes Initiative for Growth, Efficiency and Repositioning), which aims to improve 

the profitability of our tubes business. In July, we closed our large tube manufacturing facility in 

Scranton, Pennsylvania and in October 2001, we discontinued mid-size tube production at our 

Marion, Indiana facility. Also, in December 2001, we closed our Mexico City production facility in 

order to discontinue our remaining mid-size tube production as well as optimize electron gun 

production at our other sites. At the same time, we completed the construction of our very large size 

tube production plant in Mexicali, Mexico, which started production in January 2002. 

In September 2001, we announced a three-year partnership with Matsushita to supply it with 

glass, large and very large tubes and components. This Memorandum of Understanding (‘‘MOU’’) 

will allow us to optimize our capacity while providing Matsushita with a competitive source of tubes 

for their TV operations. We expect to participate in further such arrangements with others in the 

future as opportunities arise. 

In 2001 we introduced six new ‘‘True Flat’’ tubes in order to participate in the rapidly growing 

demand for flat panel televisions. We intend to introduce a second-generation product line in 2002 

and expand our current focus on European markets to North America and China. 

) Other Displays 

The market for television sets, particularly very large color sets, presents opportunities for new 

screen technologies such as the plasma display panel. Plasma is a screen technology based on a 

mixture of rare gases which can be transformed into bright color images. We estimate that the 

worldwide market for plasma display panels in 2001 was approximately 360,000 units, most of which 

were used in applications other than television. We believe that plasma display technology will 

become important in the high-end television market in the mid-term due to continued improved 

design combined with incremental capacity, which has begun to drive down prices and increase 

consumer demand. In March 2001, we announced with NEC our intention to expand our strategic 

relationship in plasma technology, which began in 1998, and established a program for joint 

research, development and co-ownership of existing plasma display related patents and know-how. 

We had also agreed with NEC to form a 50/50 joint venture for manufacturing, research and 

development and sales of plasma display panels, modules and monitors; however, in January 2002, 

NEC informed us that it was not in a position to proceed with that joint venture, and we are in the 

process of discussing with NEC our relationship in the plasma display field, including the related 

patents and know-how. We continue to carry out research into alternative display technologies. 

22

) Digital Optical Components 

We produce optical modules that interpret and transmit data encoded in DVDs, DVD-ROM and 

CDs. In 2001, we held a significant market share in such optical modules. We also expanded our 

optical components offering by successfully commencing our preferred supplier agreement with 

Microsoft to provide DVD-ROM drives and DVD and video compression technology for Microsoft’s 

Xbox game console, which was launched in November 2001. 

The market for optical components is highly competitive, with annual price reductions averaging 

more than 15% in recent years, and some segments of this market were impacted by excess 

capacity in 2001. Nevertheless, we believe that because of our cost-effective production capabilities 

(with production located in China), our extensive portfolio of optical module patents and our strategic 

partnerships (particularly with Microsoft), we are well positioned to compete effectively in this market, 

which we believe holds significant growth opportunities. 

) Other Components 

We also produce television and VCR components both for our Consumer Products needs and 

for sale to OEMs. These components include tuners and remote control systems. In 2001, we 

elected to discontinue our printed circuits business located in Villingen (Germany), and we expect 

production to wind down in the first quarter of 2002. 

We continue to pursue the development of digital storage components which enable advanced 

features such as recording, search and interactivity within consumer video electronics products, 

including set-top boxes, personal video recorders, DVD players and television sets. In December 

2001, we agreed with Seagate to discontinue our digital storage joint venture, CacheVision, and 

continue cooperation with Seagate directly. 

) Integrated Circuits 

We have an in-house integrated circuit design team, which designs many of the essential 

integrated circuit components used in our products, from professional to consumer equipment, 

generally in partnership with selected semi-conductor vendors and foundries. Integrated circuits are 

a key component of digital products. Our integrated circuit design team employs approximately 

100 engineers with specialized skills in digital, analog, mixed digital-analog, and radio frequency 

signal processing. We operate out of three facilities located in Indianapolis (U.S.), Rennes (France) 

and Villingen (Germany). This team co-develops, with companies like STMicroelectronics and NEC, 

the new specific integrated circuits required in many of our products. 

In January 2001 we extended our co-development agreement with STMicroelectronics for an 

additional five years, with an emphasis on chip designs for digital consumer electronics, including 

digital televisions, digital set-top boxes and DVD players. We derive value from this agreement by 

sharing in the revenues resulting from the sale of integrated circuits containing patented technologies 

jointly developed by us and STMicroelectronics. In addition, we continue to develop our in-house 

competencies in virtual components areas and have reinforced our support for the integrated circuit 

components production through a fabless business model which will combine our offering to network 

operators. 

Consumer Products 

In 2001, the Consumer Products division generated 0 6,582 million in consolidated net sales, or 

62.7% of our net sales, and 0 134 million in operating income. At December 31, 2001, this division 

employed approximately 24,660 employees. 

Through our Consumer Products division, we market two categories of products: retail consumer 

electronics (including television sets, DVD players, VCRs, camcorders, accessories, audio and 

23

communications equipment) and broadband access products (including digital decoders, cable 

modems and DSL modems). 

We believe that our presence in retail consumer electronics products is important to the 

efficiency of our business model as it brings us closer to the consumer at the end of the video chain. 

This position allows us to benefit from the strength of our brands. It also enables us to develop in 

our other divisions technologies, products and services that serve the needs of our professional 

customers while also fitting consumers’ needs and behaviors. 

In this division, we intend to continue the high-end repositioning of our product portfolio in order 

to offset the traditional price pressure and product standardization of consumer electronics markets. 

In July 2001, we reorganized our Consumer Products division with the creation of a worldwide 

marketing and sales structure which implements a common brand strategy in both the United States 

and Europe that focuses on high-end positioning and targeting value market shares. Consumer 

Products has also continued to improve its operations through ongoing restructuring, monitoring of 

fixed costs and sourcing and supply chain improvements as well as reduction of working capital. 

These evolutions should contribute to the improvement of profitability and return on capital employed 

in this division. 

Retail consumer electronics products 

In global, relatively mature, and highly competitive retail consumer electronics markets, we 

intend to continue to focus on our two leading brands, RCA˛ and THOMSON˛, and to reshape our 

product portfolio toward high-end, innovative digital products, in order to seize growth opportunities 

arising with the digital transition. As a result of this strategy, our THOMSON˛ brand accounted for 

approximately 80% of our TV and video sales in Europe in 2001, compared to approximately 60% in 

1999. Also a result of this worldwide brand strategy, Thomson launched in July 2001 the RCA 

Scenium˛ product line in the United States, with a market positioning similar to the successful 

Thomson Scenium˛ product line in Europe. In addition to its two main brands, we have various 

support brands which are primarily used for short-term targeted marketing operations: the GE˛ brand 

in the United States, and the Saba˛, Telefunken˛, Ferguson˛ and Brandt˛ brands in Europe. 

In each of our principal retail product lines, we face intense competition. However, we believe 

that, due to our positioning, well-established brands, strong relations with retailers and competitive 

cost structure, we can compete effectively in the retail consumer electronics industry and expects to 

benefit from synergies of product design and development. Our principal competitors are: 

) for television and video products: Matsushita, Philips, Samsung, and Sony; 

) for audio products: Aiwa, Matsushita, Philips and Sony; and 

) for communication products: Southwest Bell and V-Tech, which sells communications 

products under the AT&T brand name. 

) Television and Video 

Since July 2001, we have managed our television and video activity, including television sets 

and DVD players, on a worldwide basis. Global product development, design, manufacturing and 

marketing resources manage common product lines for two key markets, the Americas and Europe. 

In 2001, we were the market leader in the United States for television sets, with an 18% volume 

market share and held the number three position in the DVD market based on volume and the 

number two position in the VCR market based on volume. In North America, we benefited from 

close relations with key retail networks and a very strong distribution infrastructure. In 2001, 61% of 

our television, camcorder/VCR/DVD player and accessory sales in the United States were made 

through national account retailers such as WalMart, Best Buy, Circuit City and Radio Shack. We also 

market products in Latin America and South America, especially in Argentina and Mexico, increasing 

24

our presence with global retailers such as WalMart, Sam’s, Carrefour, Radio Shack and 

Home Depot. 

In 2001, we ranked third in value for television sets in our core European market, which 

comprises the five largest European national markets: France, Germany, the United Kingdom, Italy 

and Spain. THOMSON˛ brand value market share in these five countries reached 7% in 2001 as 

compared to 3% in 1997, benefiting from the focus on the THOMSON˛ brand name and the 

success of our Scenium˛ product lines, in particular in high-end products such as projection TV. We 

also believe that we held significant market positions in Eastern European television markets, 

particularly in Russia, Poland and in the Czech Republic. In addition, we have further strengthened 

our links with our distribution network. In 2001, sales in Europe through our top ten retailers 

increased by 15%. 

Our sales volume is minor in Asia, where we focus our efforts on the Indian and Chinese 

markets, which represent a large part of the regional market (excluding Japan) and present 

significant growth opportunities. In China, we created in 2001 a 55/45 joint venture with Beijing 

Cable & Wireless Electronics, a local partner, to market high-end television sets and digital products. 

) Audio 

In audio markets, we implement a high-end strategy, concentrating our resources on products 

for which the digital transition spurs market growth opportunities, such as audio systems, home 

cinema and advanced audio products. We intend to maximize the benefits derived from our 

technological expertise and strong portfolio of patents in these domains to continue to introduce 

innovative mass market products and be a leader in digital audio markets. For example, the Lyra˛ 

mp3 player, a portable personal stereo that can play digitalized audio content using the mp3 audio 

standard, was first introduced late in 1999, and new versions were introduced in 2001. 

Thomson ranked second based on volume in the U.S. audio market in 2001 with an overall 

volume market share of more than 11% in 2001. We enhanced our product position in Europe in 

2001, with a continued shift towards CD products and audio equipment for home cinema. 

) Communications — ATLINKS 

We sell residential communications products (cord-linked and cordless telephones, answering 

machines, combination telephones) through our joint venture with Alcatel, called ATLINKS, under the 

GE˛ and Alcatel brand names. ATLINKS provides the relevant global design and technology to fulfill 

the customers’ needs worldwide in the retail, mass and professional markets. ATLINKS is a world 

leader in this sector, holding the number one position based on volume in the United States in 2001 

with approximately 18% market share, a gain of two percentage points compared with 2000. 

ATLINKS became operational on January 1, 2000, following an agreement between Thomson 

and Alcatel to combine our communications business with Alcatel’s home telephone activities. We 

and Alcatel each hold equal shares in the joint venture. We manage ATLINKS and control decisions 

of the management board, and Alcatel has a veto right relating to specified changes in the structure 

of the new company. Alcatel has the right, to require us to purchase its interest in the joint venture 

between October 2002 and October 2007 or otherwise if there is a deadlock concerning any of the 

decisions requiring joint approval. If Alcatel exercises this right, the price for its interest will be 

agreed between the parties or, failing an agreement, determined based on a formula involving the 

opinion of an independent expert. 

Broadband Access Products 

Through Broadband Access Products, we provide products that enable network operators to 

deliver entertainment content, including video, interactive services and data, to end consumers 

through broadband networks. We intend to expand our capacity to facilitate network operators’ 

25

oadband offering to mass markets to complement our Digital Media Solutions service offering to 

the media and broadcast industry. 

In 2001, Broadband Access Products mainly included digital decoders and cable modems 

marketed under the RCA˛ brand in the Americas and under the THOMSON˛ brand in Europe. In 

addition, in December 2001 we completed the acquisition of Alcatel’s DSL modem activity. 

Our strategy is to deliver broadband access devices for every type of network (including 

satellite, cable, telecommunications, and terrestrial networks), allowing the transmission of video 

content. Our strategy is to propose to network operators comprehensive and integrated solutions for 

home broadband entertainment through the combination of our expertise in network equipment 

(Nextream) and our leading positions in Broadband Access Products. In line with this strategy, we 

manage these businesses together. 

In order to expand our Broadband Access Products activity and to optimize its profitability, we 

intend to continue to enhance our technological, integration and distribution expertise. During the 

1990s, we pioneered the development of digital multimedia technology, and we possess key patents 

and know-how linked to MPEG-2 digital compression technology and related integrated circuit 

designs. We also rely on our ability to integrate various middleware, operating systems and 

conditional access software required by network operators and on our close relationships with 

integrated circuits suppliers. Finally, we capitalize on the strength of our relationships with retailers 

and our ability to efficiently manage different distribution channels, whether retail or through 

operators. 

) Digital Decoders 

We believe that we are the world leader in digital decoders based on shipments of 

approximately twenty million digital decoders worldwide since the launch of these decoders in 1994. 

We have a strong presence in the United States, Europe and Latin America. Our strong expertise in 

digital decoders is reflected in the development of the first high-power digital satellite television 

system in the United States in conjunction with DIRECTV. 

In 2001, we continued to be the primary provider of digital decoders for DIRECTV and held, 

based on internal estimates, more than 57% market share with this leading U.S. operator at yearend 

2001. In Latin America, we renewed our agreement with DIRECTV Latin America, under which 

we will serve as the exclusive digital decoder supplier in DIRECTV’s South American and Caribbean 

markets (excluding Mexico) through February 2003. We also hold significant market positions in 

Europe, in particular with Canal+ and with other operators, including Polsat in Eastern Europe and 

ViaDigital in Spain. 

We also began producing and marketing the next generation of digital decoders in 2001. In the 

first quarter, we launched an advanced RCA DIRECTV system with Microsoft UltimateTV Service, 

incorporating hard-disc drive digital capability and providing interactive broadcast, Internet and e-mail 

access through the television. 

More recently in January 2002, we signed an MOU with EchoStar, a U.S. satellite operator, for 

the supply of digital decoders. We anticipate commencing production by mid-year 2002. This MOU is 

not contingent on the proposed merger of EchoStar and Hughes Electronics (DIRECTV’s parent 

company), which is currently awaiting U.S. government approval. 

In addition, originally based on satellite broadcasting technology, our digital decoders business 

is expanding to cable, terrestrial and DSL markets. 

In January 2002, we announced an alliance with Intertainer, a VOD service, to provide an endto-end 

entertainment delivery system incorporating Intertainer and Microsoft Network content along 

with advanced video, audio and data services, utilizing Microsoft Windows Media audio, video and 

digital rights management technologies. We will serve initially as exclusive supplier of a set-top 

26

product. Through Nextream, we will serve as a preferred supplier of multimedia video head-ends, 

encoders and integration services, and the alliance will also utilize the capabilities of our Technicolor 

businesses as well as our MPEG-2 digital compression technology. 

) Digital Cable Modems 

We hold a strong position in the digital cable modem market and have shipped more than 

1.8 million cable modems to cable operators since 1999. In the United States, we hold the third 

position in the DOCSIS cable modem market with 13% volume market share (Source: Kinetic 

Strategies). This position enables us to develop relations with major U.S. cable operators such as 

AT&T and Comcast. In March 2002 we finalized a preferred supplier agreement with Time Warner 

Cable. In 2000 and 2001, we expanded our distribution to include Europe and South America. 

We were one of the first companies to obtain CableLabs certification (DOCSIS compliant) for 

our digital cable modems. DOCSIS is a performance standard for non-proprietary products 

developed by the cable industry. 

) DSL modems 

We completed in December 2001 the acquisition of Alcatel’s DSL modem activity and began to 

operate and consolidate this business as of January 2002. This acquisition strengthens our position 

in technologies and products for broadband networks, allowing us to achieve worldwide DSL modem 

market leadership based on volume (Source: Strategy Analytics), DSL technological expertise, 

particularly in the field of application specific integrated circuit (ASIC) design, and a strong customer 

base of telecommunications operators in Europe, the United States and Asia. 

We intend to pursue the growth of our DSL modem activity in order to develop, in cooperation 

with our Digital Media Solutions resources and combined with Alcatel’s expertise, an end-to-end 

solution for transmitting rich media content (including data, video and services) over telecommunications 

networks, using open (e.g., MPEG) or proprietary (e.g., Microsoft Windows Media) software 

architectures. 

Patents and Licensing 

In 2001, this division generated 0 395 million in consolidated net sales, or 3.8% of the our 

consolidated net sales, and 0 350 million in operating income, reaching an operating margin of 

88.6%. At December 31, 2001, this division employed 161 individuals based in France, Germany, 

Switzerland, Japan, China and the United States. 

We have made a strategic priority of the protection and valuation of our intellectual property. 

Our strong world-wide patent portfolio on video technologies combined with our licensing expertise 

constitute significant competitive advantages enabling us to benefit from extensive license 

agreements resulting in sustainable revenues and profits. The Patents and Licensing division was 

created early in 1999, integrating the RCA.TL’s patent and license business transferred from General 

Electric Co. to us on January 1, 1999. 

The Patents and Licensing team works closely with Thomson’s research and development 

centers to identify ideas that may be potential patent candidates, draft patent applications and detect 

uses of our patents. As of December 31, 2001, we held almost 34,000 patents worldwide derived 

from more than 6,100 inventions. In 2001, we filed 482 priority applications, which are applications 

for new inventions that are filed for the first time, an increase of 12% compared to 2000. For 

example, in January 2001, Thomson and Fraunhofer announced a new version of the mp3 standard, 

called mp3PRO˛, which doubles compression rates and improves sound quality. 

We believe that our patent portfolio is well balanced between major new technologies and 

mature technologies. New technologies include digital decoders, high-definition television sets, digital 

televisions, optical module patents such as CD and DVD player technology, MPEG video 

27

compression, the mp3 audio compression format, interactive TV technologies, storage technologies 

and new screen technologies such as plasma. Mature technologies include color television sets, 

glass television tubes, VCRs, camcorders, and color display monitors. 

We currently have approximately 620 licensing agreements relating to a diversified mix of video 

products and services covering almost all consumer electronics companies in the Americas, Europe 

and Asia. Our top ten licensees account for approximately 60% of our total licensing revenues. The 

licensing agreements are typically renewable and have a duration of five years, and royalties are 

primarily based on sales volumes. 

The Patents and Licensing division relies on a relatively small infrastructure and cost base to 

generate a relatively high volume of revenues, making it inherently profitable. When considering the 

relative profitability of the Patents and Licensing division, however, it is important to note that our 

other four divisions support research and development costs but do not benefit from income from 

patents licensed which is attributed to the Patents and Licensing division. 

Our strategy for Patents and Licensing is to develop further our intellectual property portfolio, 

through widespread, but highly targeted patent registrations and through the acquisition of additional 

patents that have strong commercial and technical complementarities with our existing portfolio. For 

example, in 2001, we purchased or gained access to co-ownership of approximately 900 new 

patents. Furthermore, we intend to increase the number of licensees through a more systematic 

enforcement of existing patents, especially in emerging markets where production facilities have 

been relocated as well as in Europe and the United States, and to develop new licensing programs 

around digital and interactive television patents. Finally, we are leveraging our expertise in licensing 

through portfolio licensing services for third parties. For example, we are the licensing agent for the 

mp3 patent portfolio jointly owned with Fraunhofer. 

New Media Services 

In 2001, this division generated 0 44 million in consolidated net sales and an 0 82 million 

operating loss. At December 31, 2001, this division had 169 employees. 

We created our New Media Services (‘‘NMS’’) division in 1998 in order to seize opportunities 

associated with the development of interactivity enabled by digitalization and broadband networks. 

NMS’s first initiatives focused on services directed to the end-consumer and supported by consumer 

platforms. Today, in addition to interactivity projects for end-consumers, NMS focuses also on 

services and technologies enabling interactivity applications for content owners, advertisers, network 

operators and ISPs. 

At the end of 2001, we organized NMS into the following three areas to better serve our 

widening customer base: media transaction services, new media technologies and personal media 

services. 

) Businesses within media transaction services provide solutions, including advertising sales, 

metrics/tracking and billing, for targeting and personalizing programming content advertising. 

Our co-operation with Gemstar-TVguide for the rollout of television sets with on-screen 

electronic program guide (‘‘EPG’’) services creates new opportunities for marketing and 

generating of value for the advertising and promotional space contained within the guides. 

Another example is the Technicolor Cinema Advertising initiative for in-theater advertising 

business developed by Technicolor. Technicolor Cinema Advertising (conducting business as 

‘‘ScreenVision’’), a joint venture formed in 2001 between Thomson and Carlton, offers its 

clients in-cinema marketing products such as on-screen slides, pre-movie advertising, 

in-theater and promotional opportunities. 

) Within new media technologies, we intend to propose infrastructure tools for maximizing 

network and service operations. In particular, we intend to focus on certain key domains of 

expertise: security, personalization, interactivity, content navigation and user interface. 

28

) Within personal media services, we intend to offer solutions for the deployment of interactive 

home entertainment services. For example, the TAK˛ interactive television service launched in 

France in 2001 enables broadcasters, service operators and advertisers to develop enhanced 

television programming content and interactive advertising. We also intend to continue to 

foster the deployment of digital home network solutions. 

Research, Innovation and Product Development 

We maintain a longstanding commitment to investing in a broad range of research and 

development initiatives to support and expand our product and service offerings and licensing 

programs in order to create competitive advantages and to establish new markets. 

We centrally manage most of our long-term research through our Research and Innovation 

department, which employed 362 people in six research centers on three continents as of 

December 31, 2001. The largest center, located in Rennes, France, had a staff of 141 as of the 

same date. The other centers are located in Hanover and Villingen (Germany), Indianapolis and 

Princeton (United States) and Tokyo (Japan). 

Product development is carried out within each of our divisions and employs approximately 

3,000 people in the United States, France, Germany, the Netherlands, Belgium, Italy, Singapore, 

Korea and China. 

Traditionally, our research and development efforts have covered a wide spectrum of 

technologies associated with a consumer electronics company. Our research and development is 

now focusing on the video chain, utilizing core competencies and knowledge gained through close 

relationships with our client base. Since 2001, projects have been streamlined to achieve critical 

mass and leadership positions. Our goal is to develop intellectual property, enhance product 

integration in cooperation with our business units and reduce the time required to bring products and 

solutions from conception to production and eventually to the market. 

To respond to customer needs, we focus on key technologies throughout the video chain: 

) In the area of digital content acquisition, we focus on image capture, processing, and 

manipulation technologies that address the wide range of display formats, image qualities, 

and applications found in the media industry. Examples include 4/3 and 16/9 TV displays, 

cinema formats such as pan-and-scan and standard and high-definition TV. Applications 

encompass conventional and digital cinema, home cinema, TV, and Internet. Our research 

and development programs focus on delivering highly flexible image capture and processing 

equipment, and on developing next-generation display technologies such as plasma, rearprojection 

and digital cinema. 

) In the area of digital content production, we develop storage, networking, search, access, and 

asset management solutions such as Storage Area Network (SAN) and multi-SAN architecture. 

We also develop MPEG-2 compression solutions and platform architectures that allow 

the exchange of content between professional sites across multiple network formats and 

sizes. Leveraging our expertise in compression and IC design, we are preparing the next 

generation of coders and decoders that utilize MPEG-4 technology. 

) To address our customers’ need to deliver content from multiple sources through a diverse 

range of networks, we develop programs for streaming technologies, adaptive network 

technologies, and network systems integration. Recently, we demonstrated with Alcatel 

MPEG-4 technology that improves the quality of the video image transmitted over mobile 

networks. 

) Our research and development leverages our core competence in consumer electronics and 

our knowledge of the needs of consumers, content providers, and distributors to develop 

innovative digital home networking and content protection solutions. We are designing the 

29

forthcoming digital home network architecture and transmission technologies that will allow the 

exchange of digital content via different platforms and formats (powerline, high bandwidth 

wireless, IEEE 1394 video bus). 

) Currently, our major product development initiatives include enhanced television displays, 

electronic program guides, interactive service interfaces, digital and high definition television, 

pickup heads and modules for CD and DVD drives, DVD players, tape-less audio/video 

recorders, digital set-top boxes and cable modems. 

We complement our internal research and development activity by subcontracting certain 

research activities to outside providers or by entering into research programs with corporate 

investors and other strategic partners. For example, we developed the mp3 digital compression 

standard in cooperation with the Fraunhofer Institute and Coding Technologies, and in 2001 

launched with these two partners mp3PRO˛, a new version of mp3 that doubles the amount of 

music that can be stored in memory and improves the audio quality of compressed music files. To 

access key technologies and accelerate the transition of our activities toward digital technologies, 

products and services, we also make selective minority investments in companies with leading 

technologies we consider beneficial to our product line. In addition, our internal research and 

development is supplemented by appropriate intellectual property acquisitions. 

Licenses and Trademarks 

We believe that we own or have licenses in the technology standards necessary to compete in 

the markets for our products and systems. Since the practice in these markets has historically been 

to provide licenses on reasonable and equitable terms, we expect to continue to have access to the 

licenses necessary to manufacture and sell our products. 

We also believe we have licenses in and are able to use freely the trademarks that are 

necessary to our business. 

Since 1987, we have used the RCA˛ brand name for consumer electronics products under a 

royalty-free exclusive license with an indefinite term. In 1999, the license was extended to cover 

additional products, and we purchased an option from General Electric Co. to acquire ownership of 

the RCA˛ brand. We exercised the option in December 2001 for which we will pay U.S.$6 million. In 

March 2001, we acquired the Technicolor assets and businesses, including the Technicolor˛ 

trademark. During 2001, we purchased the THOMSON˛ names and all attached rights from 

Thomson S.A. and Thalès S.A. For more details on these contracts, see Item 7: ‘‘Major 

Shareholders and Related Party Transactions — Related Party Transactions’’. 

Sourcing 

In 1997, we implemented a centralized sourcing organization. Our sourcing organization is 

composed of 240 centrally managed experts who are employed throughout each business unit and 

are present in eighteen countries within Asia, Europe and the Americas. These individuals select and 

manage our network of suppliers of raw materials, components, finished goods, services and 

equipment. Their objective is to benefit from global volume and common vendor bases, 

standardization and deployment of best practices throughout the different operational divisions. 

In addition, we have built key relationships with strategic suppliers such as STMicroelectronics 

and NEC, strengthening our position for the purchase of integrated circuits. 

For several years, we have been implementing specific projects to reduce global sourcing costs. 

We have reorganized our component sourcing network by localizing the sourcing of components 

near our production facilities, reducing our supplier base, increasing the frequency with which supply 

agreements are renegotiated and establishing ‘‘Just In Time’’ flexible and consignment-based 

logistics relationships. 

30

We have obtained significant price reductions linked to the sourcing department’s performance 

and to the increased competition among our component suppliers. In 2001, we experienced a 

significant decrease in materials costs throughout our organization. By focusing proactively on 

driving down ownership costs at a faster pace than the evolution of finished product prices, we have 

enhanced our capacity to offset market price declines. 

In addition, we have increased our use of electronic exchanges with our suppliers, achieving 

increased automation and improving the reliability of ordering and forecasting processes, and have 

implemented innovative collaborative planning projects. Since 2000, these initiatives have been 

extended towards indirect purchasing, for example, with the development of an e-procurement 

platform called Easysource, in order to optimize non-production purchasing via the Internet. In 

addition, in 2001 we created a joint venture named KeyMRO, with Rhodia, Usinor and Schneider, 

which aims to group together non-production purchases via e-business technologies serving notably 

as the interface with e-business operators. In support of our sourcing strategy, KeyMRO’s purpose is 

to utilize our sourcing and procurement processes to reduce the total cost of non-production goods 

and services purchased by leveraging combined volumes and accelerating the deployment of 

e-business platforms. 

Our sourcing organization participates in the integration of newly acquired businesses through 

the implementation of our global and uniform processes. For example, identifying all components 

required for the manufacture of our products has allowed us to combine volume purchases. 

We believe that the termination of any one of our supply contracts would not materially 

endanger our operations or financial condition. 

C — Organizational Structure 

Please refer to Note 28 to our consolidated financial statements for a list of THOMSON 

multimedia’s subsidiaries. 

D — Property, Plants and Equipment 

Manufacturing Facilities and Locations 

In order to deliver its product and service offering to our customers, we have developed an 

industrial organization with important manufacturing operations. In addition, we rely on outsourcing 

for the manufacturing of some of our finished products. 

Our objective is to continually improve the location and the organization of our manufacturing 

operations to reduce our production costs, minimize our stock levels and improve our lead-times. As 

discussed above in ‘‘— Displays and Components — Television Tubes’’, we continued in 2001 to 

reorganize our production facilities towards very-large size tubes, closing several product lines and 

manufacturing facilities. During 2001, we completed the construction of our very-large size tube 

production plant in Mexicali (Mexico), which started production in January 2002. In our optical 

components business, we increased our production capacity in 2001 in Nantao (China) to satisfy our 

preferred supplier agreement with Microsoft to provide DVD-ROM drives for the new Xbox game 

console. 

We have also implemented an outsourcing policy for the manufacturing of some of our finished 

products such as audio and communication products, accessories, camcorders, VCRs, and smaller 

size televisions. We rely on third-party competencies for the manufacturing of standardized products 

in order to focus our resources on the conception and manufacturing of high-end components and 

products. Through this approach we aim to increase our flexibility to better cope with demand 

fluctuations and to maximize the use of cash to finance future investments. 

At the end of 2001, we operated eighteen significant manufacturing facilities for the production 

of television sets, large and very large cathode ray tubes (‘‘CRTs’’), optical components, high-end 

31

audio products, VHS tapes and DVDs. Most of these manufacturing facilities are located in low-cost 

countries such as China, Mexico, Poland and Thailand, which gives us a competitive cost base. We 

intend to continue this strategy of manufacturing in low-cost countries for all of our divisions. We 

also operate plants in the United States and Western European countries such as France, Italy and 

the United Kingdom. At the end of 2001, more than 90% of our production facilities in North 

America, Europe and Asia were certified as ISO 9000, an international mark of service quality. 

Consistent with our manufacturing strategy, the majority of goods produced at our North 

American plants are sold in North America, while our European plants produce goods destined 

primarily for the European market. However, our manufacturing operations are subject to regional 

currency fluctuations to the extent that products are manufactured in one country but sold in a 

country using a different currency. Our Asian plants produce goods for use in all markets. The 

depreciation of many Asian currencies since 1997 has reduced our manufacturing costs in these 

plants relative to selling prices. 

The table below shows our significant manufacturing facilities by division. We own all of these 

facilities, except the Chinese facilities, which are on a long-term lease due to local legal 

requirements, and the Mexicali plant (construction and equipment) is financed through a synthetic 

lease. In addition, we entered into a sale-lease back transaction in 2001 through our Polish 

subsidiary which transfers ownership of tube manufacturing equipment. We also lease our Boulogne 

and Indianapolis office buildings. For more information on these leases, please see Note 23 to our 

consolidated financial statements. 

Principal Manufacturing Units 

Location 

Americas: 

Division Products 

Marion (Indiana) (1) 

Displays and Components Tubes 

Circleville (Ohio) Displays and Components Glass funnels, panels 

Juarez (Mexico) Consumer Products Televisions 

Camarillo (California) Digital Media Solutions DVD, CD & VHS 

videocassettes 

Livonia (Michigan) Digital Media Solutions VHS videocassettes 

North Hollywood 

(California) 

Digital Media Solutions Film 

Belo Horizonte 

(Brazil) 

Displays and Components Guns 

Mexicali (Mexico) 

Europe: 

Displays and Components Tubes 

Angers (France) Consumer Products Televisions 

Bagneaux (France) Displays and Components Glass panels, funnels 

Anagni (Italy) Displays and Components Tubes 

Piaseczno (Poland) Displays and Components Tubes 

Zyrardow (Poland) Consumer Products Televisions 

West Drayton (UK) Digital Media Solutions Film 

32

Location Division Products 

Asia: 

Bangkok (Thailand) Consumer Products Televisions 

Dongguan (China) Consumer Products Audio 

Nantao (China) Displays and Components Components 

Foshan (China) Displays and Components Tubes 

(1) Mid-size TV picture tube production discontinued in October 2001. This facility continues other operations. 

Environment, Health and Safety 

We have taken aggressive steps to reduce the environmental impact of our worldwide 

manufacturing operations. In 1993, we defined a set of environmental policies, established 

implementation and measurement guidelines, and assigned responsibilities for ongoing compliance. 

These include anticipating and enforcing environmental regulations in the countries in which we 

operate. An Environmental, Health and Safety Charter, signed by the Chairman and Chief Executive 

Officer, is available to employees via the corporate intranet and to the public via our corporate 

website. 

Our Environmental, Health and Safety organization reports (EH&S) to a member of our 

Executive Committee. Within EH&S there is a Corporate General Manager and three regional 

managers who direct the efforts of several EH&S coordinators responsible for local implementation 

of the corporate policy and guidelines. Legal support and counsel are provided by our attorneys. 

EH&S oversight has also been extended to our recent acquisitions, including Technicolor. 

A comprehensive EH&S audit program was established in 1996 to assess the efforts of each of 

our manufacturing locations towards compliance with company policies and guidelines, industry 

standards, and applicable laws and regulations. The audit, conducted at each location at least once 

every three years, also assesses the ability of our management systems to identify and address 

EH&S issues and to ensure that all storage practices and hazardous waste handling are in 

compliance with our guidelines. In 2001, the audit program was extended to companies acquired by 

us, including audits conducted at eleven Technicolor facilities. 

In addition, our goal is to have each of our manufacturing facilities certified to ISO 14001 by the 

end of 2004. Certification has been achieved at six locations and has proved to be an opportunity for 

challenging established practices and encouraging new ideas. 

Our health and safety programs are designed to identify potential risks and take appropriate 

prevention and severity-reduction measures. Accident and injury prevention programs include local 

safety committees and specialized task forces, audits, incident investigations with appropriate 

corrective actions, employee training, and monitoring for chemical, physical, biological, and 

ergonomic risks. Key metrics are monitored and reported monthly. 

Additionally, we implemented a worldwide Significant Business Incident (SBI) procedure for 

responding to such emergencies as industrial accidents, fires, chemical spills, and severe weather. 

This global program is managed at the highest levels of the company and is supported by local SBI 

teams at each Thomson site. 

We have established a far-reaching product life cycle management strategy that provides a 

systematic approach to identifying and minimizing the adverse impact that may occur during the 

various life stages of our products. The EH&S group is a key participant in this activity and works to 

recognize industry and legislative trends and communicate with and support our operations in 

effective strategy development. Activities have included examination of eco-design principles to 

promote end-of-life product recycling, development of a software tool to measure the environmental 

impact of our products from design through disposal, and the establishment of global task forces to 

33

phase out the use of leaded solder and other hazardous substances in our manufacturing 

processes. 

Finally, we support numerous professional associations and government agencies in the 

development and implementation of economically sound solutions involving end-of-life issues for 

electronic and electrical equipment. 

A number of our current and previously-owned manufacturing sites have an extended history of 

industrial use. Soil and groundwater contamination has already occurred at some sites and might 

occur or be discovered at other sites in the future. Disposal of wastes at third-party sites from 

manufacturing sites that we established or acquired also exposes us to remediation costs. We have 

identified certain sites at which chemical contamination has required remediation or other restorative 

measures. Principal among these are soil and groundwater contamination arising from 

pre-acquisition environmental events or conditions which have been detected at and near a former 

production facility in Taoyuan, Taiwan which we owned from 1987 to 1992. We ceased all production 

activities and sold the site in 1992. 

We believe that the amounts we have budgeted and reserved will enable us to satisfy our 

known and anticipated environmental, health and safety obligations and liabilities to the extent they 

can be reasonably estimated and anticipated. These matters cannot be predicted with certainty, and 

we cannot provide any assurance that the provisioned amounts will be adequate. 

Insurance 

To date, we have been able to obtain insurance coverage for our operations worldwide at levels 

that we consider to be prudent and in conformity with industry standards. We participate in a 

comprehensive insurance plan that provides global coverage for a variety of significant risks and 

activities. This insurance coverage includes damages to goods and resulting operating losses, 

general, environmental, executive (directors and officers), and public and products liability. The 

insurance plan also covers transportation, material damage, business interruption and contractor’s 

all-risks insurance, as well as employer’s liability insurance where required. Additional policies are 

maintained where necessary to comply with applicable laws or to provide additional coverage for 

particular circumstances and activities. For example, we maintain independent automobile and 

personal liability policies in the jurisdictions in which they are required. 

We intend to continue our practice of obtaining global insurance coverage where practicable, 

increasing coverage where necessary and reducing costs through self-insurance where appropriate. 

We do not anticipate any difficulty in obtaining adequate levels of insurance in the future. 

34

ITEM 5 — OPERATING AND FINANCIAL REVIEW AND PROSPECTS 

You should read these comments on our operating and financial results in conjunction with our 

audited consolidated financial statements and the related notes and other financial information 

included elsewhere herein. Our audited consolidated financial statements have been prepared in 

accordance with French GAAP, which differs in certain material respects from U.S. GAAP. Notes 29 

and 30 to our consolidated financial statements describe the principal differences between French 

GAAP and U.S. GAAP as they relate to us and reconcile our net income and shareholders’ equity. 

We also summarize these differences below in ‘‘— Principal Differences between French GAAP and 

U.S. GAAP.’’ 

A — Overview 

Significant recent trends and developments 

In 2001, we actively pursued the implementation of our strategy of repositioning our business 

portfolio by continuing to expand our business-to-business products, systems and services offerings, 

principally through acquisitions made at the beginning of the year, while reducing in relative terms 

our retail consumer electronics activities. Combined with a focus on controlling costs and managing 

cash generation, this repositioning strategy has improved our financial profile. Consequently, despite 

a deterioration in the general economic environment which led to difficult market conditions for 

several of our businesses, this strategy enabled us to achieve in fiscal year 2001 operating income 

of 0 636 million on net sales of 0 10,494 million, while cash flow from operating activities reached 

0 1,005 million. 

In the context of our repositioning strategy, we significantly enlarged and diversified our 

business and customer base in 2001 through a number of acquisitions focused on equipment and 

service offerings for the media, broadcast and network industries. With the acquisitions in the first 

quarter of 2001 of the Technicolor businesses and Philips’ professional broadcast businesses 

(Philips Professional Broadcast) and their successful integration, we strengthened our newly-created 

Digital Media Solutions division and our positions along the video chain. We expect our acquisition of 

Grass Valley Group, Inc., which closed on March 1, 2002, to further reinforce our presence in 

broadcast and network equipment. With the formation of Nextream in February 2001 and the 

acquisition of Alcatel’s DSL modem business in December 2001, we were able to increase our 

offering to network operators. 

In 2001, several markets in which we operate were negatively impacted by difficult conditions. 

In North America, many product categories suffered from significant volume declines and increased 

price pressure, particularly television tubes, VCRs and analog televisions. To these adverse market 

conditions was added the negative effect of the events of September 11, which temporarily disrupted 

the operations of the principal distribution channels in North America. Sales of professional 

equipment were also affected, and Technicolor’s film activity suffered as a result of delays in the 

release of several titles. However, although also suffering from price reductions, certain other 

product categories continued to experience significant volume growth in the United States, 

particularly digital products such as DVD players and digital televisions. Most European markets in 

which we operate enjoyed a relatively stable environment. 

Throughout 2001, we continued to focus primarily on the improvement of our operating income. 

Since the first quarter of 2001, we have followed a policy whereby we carefully privilege price over 

sales volumes, particularly in our Consumer Products division, to protect our operating income. In 

addition, we have continued to implement restructuring and re-engineering programs in each of our 

divisions, particularly Consumer Products and Displays and Components. Finally, we have actively 

managed our cash flows, focusing on the reduction of our working capital and the close monitoring 

of our capital expenditures, enabling us to generate during 2001 more than 0 669 million in free cash 

flows (defined as net cash provided by operating activities less net capital expenditures) used 

principally in acquisitions we made during the year. 

35

On March 12, 2002, we issued convertible, exchangeable bonds due 2008 with an aggregate 

principle amount of approximately 0 600 million. We describe our intended use of the proceeds of 

this offering in more detail below in ‘‘— Liquidity and Capital Resources.’’ 

Outlook for 2002 

In line with the yearly performances achieved over the past three years and consistent with our 

development strategy, our target is to achieve in 2002 double-digit growth in our net sales and 

operating income. 

We intend to continue in 2002 the cost control measures we implemented in the second half of 

2001. In this way we intend to maintain our focus on profitability while positioning ourselves to react 

to a market upturn. 

We believe that we should benefit in 2002 from new internal and external growth initiatives, 

notably the development of our digital decoder activities and the development of our entertainment 

and media professionals client base through our Digital Media Solutions division. In order to continue 

the implementation of our repositioning strategy across the entire video chain, we intend to continue 

to make selective acquisitions in 2002. The acquisition of Grass Valley Group, Inc., announced in 

December 2001, closed on March 1, 2002. In February 2002 we announced the acquisition of 

Vidfilm International Digital, a California-based international supplier of digital post-production 

services with revenues under U.S. GAAP of approximately U.S. $50 million in 2001. In addition, we 

announced in February 2002 the proposed acquisition of Panasonic Disc Services, a subsidiary of 

Matsushita Electric, with DVD replication and distribution operations in the United States and 

Europe. In February 2002 we entered into a non-binding MOU for the acquisition of UGC’s screen 

advertising business in France (Circuit A) and certain other screen advertising businesses in Europe 

from UGC and other third parties. Finally, we announced on March 12, 2002 the acquisition of 

Los Angeles, California-based Still in Motion, a privately held DVD compression and authoring 

service bureau for content creators. Still in Motion specializes in DVD compression, authorizing, 

regionalization, menu designs and graphics. See also Note 27 to our consolidated financial 

statements for more information about recent events. 

Please note, however, that we can give no assurance that we will be able to achieve these 

objectives, expectations and goals. Many factors, including market conditions, competitive factors 

such as pricing, uncertainties relating to future acquisitions, the factors described under ‘‘Risk 

Factors’’ and other factors could cause our actual results to differ materially from our goals. Please 

see ‘‘Forward-Looking Statements’’. 

Seasonality 

Our net sales tend to be higher in the second half of the year than in the first half. This is due 

to increases in consumer purchases at the time of the year-end holidays. Our consolidated net sales 

in the second half of 2001 totaled 0 5,799 million, representing 55% of our 2001 consolidated net 

sales, the same proportion as in 2000. 

The impact of seasonality has tended to be higher at the operating income level, driven by the 

fact that fixed costs are spread relatively evenly over the year. Our consolidated operating income 

totaled 0 412 million in the second half of 2001, or 65% of our 2001 consolidated operating income, 

compared with 69% in the last six months of 2000. 

Geographic breakdown of net sales 

Based on net sales by destination (classified by the location of the customer), our most 

important markets are the United States and Europe, accounting for 53% and 29%, respectively, of 

net sales in 2001, for 53% and 26%, respectively, in 2000 and for 55% and 25%, respectively, in 

1999. Asia accounted for 9% of our net sales by destination in 2001 compared with 11% in 2000 

36

and 10% in 1999. The acquisition of Technicolor did not have a significant impact on our geographic 

breakdown of net sales. 

Effect of exchange rate fluctuations 

We estimate that the impact of translating revenues of operating entities that are denominated in 

currencies other than euro into euro had a positive impact of 0 204 million in 1999, 0 136 million in 

2000 and 0 182 million in 2001 on our net sales as expressed in euro. We believe that the impact of 

exchange rate fluctuations on our net income is limited due to certain natural hedges discussed in 

Item 11: ‘‘Quantitative and Qualitative Disclosures about Market Risk — Impact of Exchange Rate 

and Interest Rate Fluctuations’’. Please see this section for more information on the impact of 

exchange rate fluctuations on our net sales and net income and details on our hedging policies. 

Use of estimates 

The preparation of our 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 relate among other items, to accounts receivable, inventory 

and investment valuation allowances, retirement and post-retirement benefits, depreciation and 

amortization, loss reserves contingencies and environmental obligations. 

Principal Differences between French GAAP and U.S. GAAP 

Our consolidated financial statements have been prepared in accordance with French GAAP, 

which differs from U.S. GAAP. The principal differences between French and U.S. GAAP affecting 

our consolidated financial statements relate to reclassification of provisions, the timing of recording of 

provisions, principally for restructuring activities, the accounting treatment of certain advantages in 

connection with employee share offerings, the accounting treatment of investment securities and 

financial instruments, revenue recognition, purchase price allocation and amortization of intangibles 

resulting from our acquisition of the Technicolor businesses and post-retirement transition 

obligations. 

Under French GAAP, accruals for a number of provisions are charged to other income and 

expenses and therefore do not affect operating income. Under U.S. GAAP, these accruals are 

reclassified to operating income or loss, leading to differences in our operating results under French 

and U.S. GAAP. In 2001 the substantial reassessment of our product portfolio consisting of finished 

goods and raw material write-offs, purchase order and other contracts cancellations is included 

under ‘‘Other income (expense), net’’ under French GAAP. Under U.S. GAAP these costs are 

recorded as operating expenses. 

Timing differences with respect to the recording of provisions occur because under French 

GAAP we record restructuring liabilities during the period when decisions have been approved by 

the appropriate level of management while under U.S. GAAP we have applied the requirements of 

EITF 94-3, which state that a provision for restructuring can only be recorded during the period when 

specific conditions are satisfied. One of these U.S. GAAP conditions requires that the appropriate 

level of management has specifically identified and approved the operations and activities to be 

restructured and the employees who are to be made redundant have been notified. In addition, 

U.S. GAAP permits costs associated with a restructuring plan to be recognized as restructuring 

provisions only if the restructuring actions are not associated with or do not benefit our continuing 

37

activities. These rules create a timing difference between the treatment of restructuring charges 

under French GAAP and U.S. GAAP: 

) Restructuring provisions may be accrued under French GAAP in one period but not accrued 

under U.S. GAAP until a later period; and 

) Restructuring provisions may be accrued under U.S. GAAP during the same period in which 

the corresponding items are expensed. 

Our financial statements under U.S. GAAP are also affected by the classification as 

compensation gain or expense of certain advantages granted by Thomson S.A. to our employees in 

connection with employee share offerings made in 1999 and 2000. These advantages consist 

principally of discounts on the offering price and bonus shares. Since Thomson S.A. supported the 

cost of these advantages they do not represent actual cash expenses for us. 

Under French GAAP, we recognize certain revenue related to the duplication of VHS cassettes 

and DVDs at the time duplication has been completed and title has contractually been transferred. 

Title transfers upon completion of the duplication process, which is generally prior to shipment to the 

customer, which is made upon customer request. Under U.S. GAAP, we apply the provisions of Staff 

Accounting Bulletin No. 101 (SAB 101) when recognizing revenue. Therefore sales of VHS cassettes 

and DVDs are treated as ‘‘bill and hold’’ arrangements requiring revenue recognition upon shipment 

of videocassettes and DVDs due to the absence of fixed delivery dates. 

Purchase price allocation for our acquisition of the Technicolor businesses differs from French to 

U.S. GAAP mainly due to the inability to accrue for restructuring actions if specific conditions are not 

satisfied under U.S. GAAP as well as the recording of deferred tax assets related to customer 

relationships and trademarks. Such intangibles are also amortized under U.S. GAAP as of 

year-ended 2001, whereas under French GAAP they are not amortized. 

The accounting treatment for derivative instruments may differ between French and U.S. GAAP. 

Under French GAAP, we defer premiums and discounts as well as gains and losses on forward 

exchange contracts that hedge the following years anticipated commercial commitments and 

amortize them to income over the life of the underlying transactions being hedged. Under 

U.S. GAAP, we may not defer unrealized gains and losses on forward exchange contracts, which do 

not hedge firm commitments and as a result, we recognize them immediately in operating income. In 

addition, criteria to determine hedge transactions differ from French to U.S. GAAP and may require 

us to record certain derivative instruments at fair value. 

Finally, under U.S. GAAP we measure at fair value our available for sale investments and report 

unrealized gains or losses as a separate component of shareholder’s equity and declines in value 

that are not temporary or realized losses. Under French GAAP such investments are carried at the 

lower of cost or fair market value. 

New Accounting Pronouncements 

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 141, 

Business Combinations (‘‘SFAS 141’’) and Statement No. 142, Goodwill and Other Intangible Assets 

(‘‘SFAS 142’’). SFAS 141 requires that all business combinations initiated after June 30, 2001 be 

accounted for under the purchase method of accounting. Under SFAS 142, goodwill will no longer 

be amortized, but will be tested for impairment on an annual basis and whenever indicators of 

impairment arise. Additionally, intangible assets with indefinite lives will not be amortized. Instead 

they will be carried at the lower cost or market value and tested for impairment at least annually. We 

are required to adopt SFAS 142 effective January 1, 2002 for goodwill and intangible assets 

acquired prior to July 1, 2001. Upon adoption, all goodwill and indefinite lived intangible assets must 

be tested for impairment and a cumulative effect adjustment to net income recognized at that time. 

Goodwill and indefinite-lived intangible assets acquired after June 30, 2001 will be subject 

immediately to the non-amortization and impairment provisions of SFAS 142. 

38

Accordingly, under U.S. GAAP, the goodwill amortization of 0 1 million related to the acquisitions 

of Technicolor Cinema Advertising LLC and Miles O’Fun of July 1, 2001 has been eliminated in the 

U.S. GAAP net income reconciliation. Had we applied SFAS 142 on January 1, 2001, we would not 

have recorded amortization of 0 53 million related to goodwill and indefinite-lived intangible assets. 

We have not yet determined the impact that the provisions of SFAS 142 will have on intangible 

assets or whether a cumulative effect adjustment will be required upon adoption. 

In August 2001, the FASB issued Statement No. 144, Accounting for the Impairment or Disposal 

of Long-Lived Assets (‘‘SFAS 144’’), which is effective for our fiscal year beginning January 1, 2002. 

SFAS 144 establishes a single model to account for the impairment of assets to be held or 

disposed, incorporating guidelines for accounting and disclosure of discontinued operations. The 

provisions of SFAS 144 are generally to be applied prospectively. We are currently determining the 

overall impact of SFAS 144 on our financial statements. 

In August 2001, the Emerging Issues Task Force (‘‘EITF’’), issued EITF 01-09, Accounting for 

Consideration Given by a Vendor to a Customer or a Reseller of the Vendor’s Products, which 

codified and reconciled EITF Issue 00-14, Accounting for Certain Sales Incentives, EITF 00-22, 

Accounting for ‘Points’ and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and 

Offers for Free Products or Services to Be Delivered in the Future, and EITF 00-25, Vendor Income 

Statement Characterization of Consideration Paid to a Reseller of the Vendor’s Products. These 

EITFs prescribe guidance regarding the timing of recognition and income statement classification of 

costs incurred for certain sales incentive programs to resellers and end consumers. Companies are 

required to adopt EITF 01-09 for fiscal years beginning after December 15, 2001, and are required 

to reclassify all prior period amounts to conform to the current period presentation. We have not yet 

determined the overall impact that EITF 01-09 will have on our financial statements. 

In May 2000, the EITF issued EITF 00-14, Accounting for Certain Sales Incentives, which 

addresses the recognition, measurement and income statement classification for certain sales 

incentives offered by companies in the form of discounts, coupons or rebates. EITF 00-14 is 

effective for the fiscal year beginning January 1, 2002. The implementation of EITF 00-14 may 

require us to make certain reclassifications between Revenues and Costs and Operating Expenses 

in our consolidated income statement; however, we have not yet determined the overall impact that 

EITF 00-14 will have on our financial statements. 

Evolution of division structure 

The Digital Media Solutions division was established in 2001 and includes, among other 

businesses we acquired or formed in the first half of 2001, the professional equipment and 

infrastructure businesses previously managed by the Consumer Products division. See Item 4: 

‘‘Information on the Company — Digital Media Solutions’’. These professional equipment and 

infrastructure businesses have been consequently reclassified for 1999 and 2000 from the 

Consumer Products division to the Digital Media Solutions division. 

Results of Operations for 2001 and 2000 

These comments on our 2001 and 2000 results present an analysis of net sales and operating 

income by division, followed by comments on our consolidated results. 

Changes in scope of consolidation 

Effective January 1, 2001, we acquired 66.67% of the outstanding common stock of BTS 

holding, under which Philips’ professional broadcast activities are grouped, and have consolidated 

this business since that date. 

On February 15, 2001, we and Alcatel joined our interactive video network equipment activities 

by contributing our respective assets into Nextream, a business of which we hold 75% and Alcatel 

39

25%. We have the control of the business and began consolidating this activity on February 15, 

2001. 

On March 16, 2001, we acquired the Technicolor businesses, which comprised 70 legal entities 

and involved the direct acquisition of all the shares of five holding companies. We started 

consolidating these activities on March 17, 2001. 

In July 2001, we and Carlton joined our screen advertising business into a 50-50 joint venture 

called ‘‘Technicolor Cinema Advertising’’ (doing business as ‘‘ScreenVision’’). We have joint control 

over the venture with Carlton. We began consolidating this company using the pro rata consolidation 

method in July 2001. This joint venture was included in the New Media Services division in 2001. 

On July 31, 2001, we acquired 100% of a company called ‘‘Miles O’ Fun’’, an audio 

post-production company which complements our post-production businesses acquired with 

Technicolor. We started consolidating this company at that date. 

The above mentioned changes in scope of consolidation affected our Digital Media Solutions 

division and had a material impact on our results of operations in 2001. Changes in scope of 

consolidation are analyzed in further detail in Note 2 to our consolidated financial statements. 

On December 17, 2001, we acquired from Alcatel its DSL modem activity and started 

consolidating this activity at January 1, 2002. 

Changes in accounting principles 

Until January 1, 2001, we amortized our RCA˛ trademark over 20 years. Beginning 2001 we 

adopted the policy of not amortizing intangible assets with indefinite economic life (excluding 

goodwill) in order to conform with the accounting method widely used in France. The RCA˛ 

trademark is the only previously amortized intangible asset that is no longer being amortized. Such 

intangibles are subject to an impairment test when there is indication of decline in value. The change 

in amortization has been accounted for prospectively, and previously recorded as accumulated 

amortization charges have not been reversed. If the same amortization policy had been used in 

1999 and 2000, cost of sales would have been reduced by 0 5.8 and 0 4.1 million, respectively. 

Analysis by division 


Consolidated net sales for the Digital Media Solutions division totaled 0 1,821 million in 2001 

compared with 0 148 million in 2000. This division, for which we reported results for the first time in 

2001, combined our existing professional equipment and infrastructure activities (formerly included in 

the Consumer Products division) and the businesses that we acquired or formed during the first half 

of 2001, which include the Technicolor and Philips Broadcast businesses and Nextream. Due to the 

acquisition dates of the Technicolor businesses and creation of Nextream, the division’s results for 

2001 reflect the results of these businesses for only part of the year. For the acquisition dates of 

these businesses, please see ‘‘— Changes in scope of consolidation’’ above. 

The businesses in the Digital Media Solutions division posted positive net sales performance 

with the exception of Broadcast Solutions and Nextream. More particularly, compared to 2000, 

Technicolor posted a 6% year-on-year unit growth in pre-recorded DVD and videocassette 

shipments. This increase in DVD and videocassette sales volumes primarily resulted from an 

increase in DVD unit sales compared to the previous year driven by major releases of new movies 

such as Shrek and Pearl Harbor and the increase in DVD catalog titles, which more than offset a 

gradual decline in videocassette sales volumes. The increase in DVD sales volumes also more than 

offset the reductions in average selling prices of DVDs. In addition, Technicolor content services net 

sales were stable despite the negative impact of the Hollywood Screen Actors Guild dispute and the 

40

effect of the events of September 11, which resulted in the postponement of certain box-office 

releases. 

In 2001, Broadcast Solutions net sales were negatively impacted by a difficult advertising 

environment for broadcasters, to which was added the negative effect of the events of September 11 

which led to a significant reduction in their equipment investments. Nextream also was negatively 

impacted by very difficult market conditions in 2001. However, both Broadcast Solutions and 

Nextream maintained their global value market share positions in 2001. 

Operating income for the Digital Media Solutions division amounted to 0 239 million in 2001 

compared with 0 3 million in 2000, with all businesses contributing to operating results except 

Singingfish, which suffered an operating loss. This performance mainly reflects the consolidation of 

the Technicolor and Philips Broadcast businesses but also increases in DVD shipment volume, 

economies of scale and operational synergies during the period, which more than offset the 

significant average unit price reductions in DVDs. 


Total net sales for the Displays and Components division amounted to 0 2,398 million in 2001, 

including internal sales of 0 756 million to the Consumer Products division. This represents a 

decrease in total net sales of 6.0% compared with 0 2,550 million in 2000. Consolidated net sales for 

Displays and Components totaled 0 1,642 million in 2001, a decrease of 2.6% compared with 

0 1,686 million in 2000. At constant 2000 exchange rates, consolidated net sales in 2001 would have 

totaled 0 1,615 million, representing a decrease of 4.2% compared with 2000. This foreign exchange 

impact is mainly linked to the rise of the U.S. dollar compared to the euro in this period. 

The 4.2% decrease in consolidated net sales reflected a decrease of 5.8% in sales volumes, 

primarily attributable to the difficult tube market in the United States. This negative factor was 

partially offset by an increase of 1.7% in average selling prices for the division in 2001 resulting 

mainly from a product mix improvement in our tube and optical component businesses. 

Following strong demand in 2000, net sales in the tube business in North America were 

severely impacted by overcapacity in all segments, compounded by a weak general economic 

environment, which led to significant price decreases. In the context of these very difficult market 

conditions, we pursued our repositioning towards high-end tubes, increasing our value market share 

in the higher margin, very-large tube size segment in the United States by approximately three 

percentage points. Tube net sales continued to grow in Europe, reflecting an 11% increase in 

large and very large-size tube unit sales and resulting in a one percentage point gain in value 

market share. 

The optical components business posted net sales growth driven by sales of Xbox modules to 

Microsoft at the end of the year. 

Operating income for the Displays and Components division amounted to 0 105 million in 2001, 

compared with 0 262 million in 2000. This decrease reflected primarily reduced net sales of the 

division resulting from a decline in tube net sales in the United States. This negative factor was 

partly offset by improved tube net sales in Europe and a reduced fixed and direct labor cost base. 

In addition, our tube activity operations in the United States were impacted by a significant 

temporary interruption in a glass production line in our Circleville, Ohio plant related to defects in 

components, for which we have filed an insurance claim. 

In response to these operating conditions and in order to improve further its cost structure, we 

accelerated the implementation of the TIGER reengineering program in North America in 2001, 

which aims to improve product mix, improve the division’s fixed cost structure and reduce overhead. 

In July 2001, we closed our large tube manufacturing facility in Scranton (Pennsylvania). 

Additionally, in October 2001, we discontinued mid-size tube production at our Marion, Indiana 

41

facility. Finally, in December 2001, we closed our Mexico City production facility in order to 

discontinue our remaining mid-size tube production as well as concentrate gun production at our 

other sites. At the same time, we completed the construction of our very-large size tube production 

plant in Mexicali, Mexico, which started production in January 2002 and at which production should 

ramp up during the first half of 2002. 


Consolidated net sales for the Consumer Products division totaled 0 6,582 million in 2001, a 

decrease of 4.1% compared with 0 6,862 million in 2000. At constant 2000 exchange rates, 

consolidated net sales would have totaled 0 6,478 million, a decrease of 5.6% compared with 2000. 

This decrease reflects a 3.9% decline in sales volumes, primarily attributable to lower television 

and VCR sales in the United States. In 2001, average selling prices for the division decreased by 

1.7%, resulting from significant price reductions on certain product categories offset in part by an 

improvement in product mix. In particular, residential communication products, DVD players and 

cable modems experienced significant price reductions, while the positive development in the 

product mix was driven by unit sales growth in high-end products, notably in televisions in Europe 

and in audio products in the Americas. 

Retail consumer electronics products 

Following a very dynamic year in 2000, net sales in the television and video activity in the 

United States were affected by difficult market conditions for mainstream product categories, 

including VCRs and analog televisions, despite significant growth in digital product markets, such as 

for DVD players, and in certain high-end television markets, such as for projection televisions. In 

particular, the digital television and the DVD player markets in the United States increased in 

volume. Net sales in the United States were also negatively impacted by our decision in 2001 to 

carefully privilege price over sales volumes to protect our operating income. The weak performance 

in the United States was partly offset by increases in television and video net sales in Europe, 

resulting in continued value market share gains of the THOMSON˛ brand, with particularly strong 

improvement in projection televisions (increase of four percentage points in value market share). 

Audio product net sales continued to grow in the United States and in Europe, gaining 

approximately one percentage point in value market share in the United States, while ATLINKS net 

sales were slightly down despite an approximate one percentage point gain in value market share in 

the United States. 

Broadband Access Products 

Broadband Access Products net sales were impacted by a decline in sales to DIRECTV 

subscribers in the United States. However, net sales for our decoder operations in Europe and for 

cable modems in the United States continued to grow significantly. Unit sales of decoders and cable 

modems combined were 6.8 million in 2001, unchanged in comparison with 2000. Following an 

exceptional year in 2000, the decline in DIRECTV system unit sales in the United States in 2001 

was partly offset as we gained approximately 4 percentage points in volume market share with 

DIRECTV, resulting in a 57% volume market share with this operator for 2001. This decline in the 

United States was partially offset by the strong performance in decoder sales in Europe, primarily to 

Canal+, and continued growth in cable modem unit sales in the United States. 

Consolidated operating income for the Consumer Products division totaled 0 134 million in 2001, 

compared with 0 172 million in 2000. The decrease in the Consumer Products division’s operating 

income in 2001 compared with 2000 reflected primarily reduced net sales for the division, in 

particular of the decoder business in the Americas, partly offset by the positive effects in Europe of 

our repositioning strategy towards higher margin consumer electronics products. The impact of 

reduced net sales on 2001 operating income was only partly offset by a reduction in fixed and direct 

42

labor costs resulting from the implementation of the division’s restructuring and reengineering 

programs in the Americas and in Europe. Within the division, Broadband Access Products recorded 

significantly higher profitability levels than other Consumer Products categories. 


Net sales from the Patents and Licensing division reached 0 395 million in 2001 compared with 

0 378 million in 2000, an increase of 4.5%. At constant 2000 exchange rates, consolidated net sales 

would have totaled 0 370 million in 2001, a decrease of 2.1% compared to 2000. This performance 

reflects the impact of foreign exchange variations largely attributable to the conversion of 

U.S. dollars into euro as well as the negative impact of the softening of worldwide industry sales 

volumes, particularly in the second and third quarters of the year. In 2001, Thomson filed 482 priority 

applications, an increase of 12% compared with 2000. 

Consolidated operating income for the division totaled 0 350 million in 2001, an increase of 

0 31 million compared with 0 319 million in 2000. 


We have enlarged the scope of our New Media Services division to take into account our 

repositioning towards media customers. Previously, the division was focused solely on the field of 

interactive television revenues from a consumer-orientated customer base. Although customer 

acceptance has been slower than expected, we expect this activity to remain a key part of New 

Media Services. In addition, we are actively pursuing a number of initiatives with business customers 

that complement and broaden our existing activities in this field. 

The New Media Services division posted net sales of 0 44 million in 2001, compared with 

0 9 million in 2000. This amount includes 0 24 million generated by ScreenVision, the in-theater 

advertising business developed by Technicolor and integrated into the division in 2001. In addition, 

we pursued two initiatives, namely the deployment of televisions equipped with on-screen electronic 

program guides (EPGs) in the United States and through TAK˛, the interactive television service we 

launched in France in early 2001. At the end of 2001, we had an installed base of 6.5 million RCA˛ 

televisions equipped with electronic program guides in the United States, which enabled sales of 

advertising space to broadcasters and corporate advertisers. 

The division recorded an operating loss of 0 82 million in 2001, a level comparable with 2000. 

This level was maintained by tightly controlling the costs incurred in connection with the deployment 

of the two above-mentioned initiatives. We intend to continue investing in this division’s activities 

while continuing our efforts to control operating expenses. 

Consolidated Results 

Net sales 

Consolidated net sales in 2001 totaled 0 10,494 million, an increase of 15.4% compared with 

0 9,094 million in 2000. At constant 2000 exchange rates, consolidated net sales increased by 

13.4%. This revenue growth reflects the development of the Digital Media Solutions division driven 

by newly integrated entities (Technicolor, Philips Broadcast and Nextream). On a constant scope of 

consolidation, consolidated net sales decreased by 3.5% in 2001. 

Operating income 

Cost of sales amounted to 0 8,116 million in 2001, or 77.3% of net sales, an increase of 17.4% 

compared with cost of net sales of 0 6,915 million in 2000, or 76.0% of net sales. This negative 

performance in terms of cost of sales as a percentage of net sales was primarily attributable to our 

inability to adjust our cost of net sales in our Displays and Components and Consumer Products 

divisions to the decrease in net sales in those divisions. 

43

As a result, gross margin was 0 2,378 million in 2001, or 22.7% of net sales, compared with 

0 2,179 million in 2000, or 24.0% of net sales. 

Selling and marketing expenses amounted to 0 991 million or 9.4% of net sales in 2001, 

compared with 0 998 million or 11.0% of net sales in 2000. This improvement reflected a 

7% decrease in selling and marketing expenses on a constant scope of consolidation and the 

integration of the entities acquired in 2001 that recorded lower ratios of selling and marketing 

expenses on net sales. 

Administrative expenses amounted to 0 383 million or 3.7% of net sales in 2001, compared with 

0 284 million or 3.1% of net sales in 2000. This increase was principally driven by the integration of 

the entities acquired in 2001, which presented higher ratios of administrative expenses on net sales. 

On a constant scope of consolidation, administrative expenses declined by 3.2% to 0 275 million. 

Research and development expenses net of external funding were 0 368 million in 2001, an 

increase of 5% compared with 0 351 million in 2000. External funding is comprised principally of 

grants from national or EU government agencies and is accounted for as income based on the stage 

of completion of the project and is directly deducted from research and development costs. 

Excluding government agency subsidies of 0 15 million in 2001 and 0 14 million in 2000, gross 

research and development expenses were 0 383 million in 2001 compared with 0 365 million in 

2000. For more information on the accounting treatment of research and development expenses, 

see Note 4 to our consolidated financial statements. 

As a result of the above factors, consolidated operating income reached 0 636 million in 2001, 

or 6.1% of net sales, an increase of 16.5% compared with 0 546 million in 2000, or 6.0% of net 

sales. This increase primarily reflects the integration of the entities acquired in 2001, which recorded 

higher operating income as a percentage of net sales. On a constant scope of consolidation, 

operating income amounted to 0 379 million in 2001, a decrease of 31% compared with 0 546 million 

in 2000. 

U.S. GAAP 

Under French GAAP, operating income was 0 636 million in 2001 or 6.1% of net sales, an 

increase of 0 90 million, as compared to an operating income of 0 546 million in 2000. Under 

U.S. GAAP, we recorded an operating income of 0 204 million compared to an operating income of 

0 284 million in 2000. 

The lower operating income under U.S. GAAP versus French GAAP in 2001 resulted mainly 

from restatements related to restructuring provisions and to accruals for a number of provisions 

which have different classifications under French and U.S. GAAP. 

) Reclassification from ‘‘Other income (expense), net’’ under French GAAP to ‘‘Operating 

income (loss)’’ under U.S. GAAP amounts to 0 107 million in 2001 and 0 105 million in 2000. 

) Restatements generated mostly by timing differences between restructuring cost recognition 

under U.S. GAAP and under French GAAP. The timing differences generated increases of 

restructuring costs for an amount of 0 104 million in 2001 and 0 11 million in 2000 under 

U.S. GAAP as compared to French GAAP. 

In 2001, the substantial reassessment of our product portfolio, resulting in finished goods and 

raw material inventory and fixed asset write-offs and cancellation of purchase orders and other 

contracts, is included under ‘‘Other income (expense), net’’ under French GAAP. Under U.S. GAAP 

these costs (0 64 million) are recorded under ‘‘Operating expenses’’. 

Under French GAAP, goodwill amortization is excluded from results of operations. Under 

U.S. GAAP, goodwill amortization is classified as part of operating income. The amounts represent 

0 49 million in 2001 and 0 7 million in 2000. 

44

Our operating income under U.S. GAAP was also affected by the accounting treatment of 

certain advantages granted by Thomson S.A. to our employees in connection with the employee 

share offerings of 1999 and 2000 (an expense of 0 78 million in 2000 and a gain of 0 48 million in 

2001). Since Thomson S.A. bore the cost of these advantages, they do not represent actual cash 

expenses for the Group. 

Please refer to Notes 29 and 30 of our consolidated financial statements for a further discussion 

of the principal differences between French and U.S. GAAP. 

Financial result 

Net interest expense 

Net interest expense amounted to 0 29 million in 2001, compared with 0 10 million in 2000. Net 

interest expense included primarily the interest on promissory notes issued to Carlton in connection 

with the acquisition of the Technicolor businesses and interest expense relating to the 1% convertible/exchangeable 

bonds issued in 2000 and due in 2006 (obligations à option de conversion ou 

d’échange en actions nouvelles, or ‘‘2000 OCEANEs’’). 

Other financial expense 

Other financial expense totaled 0 160 million in 2001, compared with 0 67 million in 2000. Other 

financial expense in 2001 included primarily depreciation accruals on other investments (unconsolidated 

investments), generally in technology companies. Other financial expense also included other 

changes, such as pension plans interest cost in Germany. Please see Note 5 to our consolidated 

financial statements for additional information on other financial expense. 

Other income and expense 

Other income and expense represented a net gain of 0 8 million in 2001, compared with a net 

expense of 0 81 million in 2000. In 2001 this amount included gains on the disposal of investments, 

realized mainly from the disposal of shares of unconsolidated investments and the liquidation of 

related hedges. 

Other income and expense also includes restructuring costs, which were 0 107 million in 2001 

compared with 0 105 million in 2000. Restructuring costs in 2001 reflect mainly: 

) the acceleration of the TIGER program within the Displays and Components division for 

0 63 million for measures aimed at optimizing industrial capacity and reduction of structural 

costs; 

) the continuation in the United States, within the Consumer Products Division, of the GROWL 

Program for productivity improvements for 0 27 million; and 

) the continuation of the SAFE program for 0 25 million, principally related to the exit of certain 

ATLINKS specific businesses and the closure of a manufacturing plant in Germany. 

These accruals have been offset by reversals in provisions. For more information on 

restructuring costs as they relate to our reengineering and restructuring programs see Note 6 to our 

consolidated financial statements. 

In 2001, the line item ‘‘Other income (expense), net’’ also included expenses related to a 

reassessment of our product portfolio. We made the decision to carry out this substantial and 

extensive reassessment of our product portfolio during the year, which related principally to products 

not within the core of our activities or for which the outlook for profitability was limited. Ordinary 

adjustments to our product portfolio would have been reflected in operating income. The costs of this 

reassessment (0 48.5 million) and the depreciation of related assets (0 16.4 million) were recorded 

under ‘‘Other income (expense), net’’. ‘‘Other income (expense), net’’ also included other items, 

45

notably a gain (0 35 million) related to the sale of a derivative instrument acquired in 2000 and for 

which the underlying contract was terminated during 2001. 

For additional information on other income and expense see Notes 3 and 6 to our consolidated 


Amortization of goodwill 

Goodwill amortization was 0 49 million in 2001 compared with 0 8 million in 2000. This increase 

reflects mainly the acquisition of Technicolor, which resulted in amortization of goodwill in the 

amount of 0 30 million beginning March 17, 2001. 

Income tax 

Income tax expense of 0 139 million was recorded in 2001, compared with a gain of 0 1 million 


The consolidation of the Technicolor businesses and the expiration of a tax indemnification 

agreement with Thomson S.A. contributed to an increase of 0 37 million in current income tax, which 

was 0 142 million in 2001. As a result of the termination of this agreement, no tax indemnification 

amount was received in 2001. Under the terms of this tax indemnification agreement, which is 

described in detail below in ‘‘— Results of Operations for 2000 and 1999 — Income Tax’’, 

Thomson S.A. paid us 0 82 million in respect of the 2000 fiscal year (including 0 31 million in respect 

of a tax gross-up payment provided for in this agreement). 

In addition, the amount of deferred income tax amounted to a gain of 0 3 million in 2001 

compared to a gain of 0 106 million in 2000, which included 0 25 million due to timing differences 

and 0 81 million on valuation allowance reversals concerning deferred tax assets. In 2001, we 

incurred income tax expenses mainly in France, the United States, the United Kingdom, Brazil, 

Poland, Mexico, Netherlands and Singapore. 

Our effective tax rate, defined as the ratio of income tax expense to consolidated income before 

taxes, amortization of goodwill and equity investments, was 30.5% in 2001. For additional 

information see Note 7 to our consolidated financial statements. 

Net income 

Minority interests represented a net loss of 0 22 million in 2001 compared with a net loss of 

0 18 million in 2000. 

As a result of the factors discussed above, particularly income taxation, we recorded net income 

of 0 286 million in 2001 compared with 0 394 million in 2000. Net income as a percentage of net 

sales reached 2.7%, compared with 4.3% in 2000. 

Before amortization of goodwill, earnings per share reached 0 1.22 in 2001, compared with 

0 1.59 in 2000, or a decrease of 23%. Earnings per share takes into account an increase in the 

average number of shares, which increased to 274.2 million shares in 2001 from 252.0 million in 

2000 (after taking into account the two-for-one stock split realized on June 16, 2000) as a result of 

the October 2000 capital increase and the issuance in March 2001 of redeemable bonds to Carlton 

reimbursable into newly issued shares reserved for Carlton which have been recorded under ‘‘other 

equity’’ in shareholder’s equity. Please see Notes 2 and 17 to our consolidated financial statements 

for more detailed information on these redeemable bonds. 

U.S. GAAP 

Under U.S. GAAP we recorded net income of 0 191 million compared to 0 136 million in 2000. 

The difference in net income under U.S. GAAP versus French GAAP in 2001 resulted mainly from 

restatements related to restructuring, certain advantages in connection with employee share 

46

offerings, the accounting treatment of investment securities and financial instruments, revenue 

recognition, purchase price allocation and amortization of intangibles resulting from our acquisition of 

the Technicolor businesses, post-retirement transition obligations and minority interests. 


on the principal differences between French and U.S. GAAP. 

Results of Operations for 2000 and 1999 

These comments on 2000 and 1999 results present an analysis of net sales and operating 

income by divisions, followed by comments on our consolidated results. 

Changes in scope of consolidation 

THOMSON multimedia Czech s.r.o and THOMSON multimedia Hungary, previously stated at 

cost, have been consolidated since January 1, 2000 as their operations have become significant. A 

new company, THOMSON multimedia Sales France, was incorporated in order to become the sales 

agent for the French business and has been consolidated since January 1, 2000. Also, in 

September 2000, we acquired 100% of Singingfish.com. The consolidation of these new entities did 

not significantly impact our results of operations in 2000. 

ATLINKS has been consolidated since December 31, 1999. Thomson’s income statement was 

not impacted in 1999, but ATLINKS did have an impact on the income statement in 2000. In 

addition, Atlinks España S.A., the ATLINKS manufacturing plant located in Spain, was added to the 

ATLINKS joint venture in January 2000 and consolidated. 

Changes in scope of consolidation are analyzed in more detail in Note 2 to our consolidated 


Analysis by division 

The professional equipment and infrastructure businesses, previously managed by the 

Consumer Products division, have been reclassified for 2000 and 1999 to the Digital Media Solutions 

division, for which we reported results for the first time in 2001. 


Consolidated net sales for the professional equipment and infrastructure businesses, previously 

managed by the Consumer Products division and reclassified into the Digital Media Solutions 

division in 2001, totaled 0 148 million in 2000, compared with 0 184 million in 1999. The decrease in 

consolidated net sales between 1999 and 2000 was principally the result of the positive 

non-recurring impact on consolidated net sales in 1999 from a contract in Nigeria. 

The operating income of these businesses totaled 0 3 million in 2000, compared with 0 8 million 

in 1999. 


Total net sales for the Displays and Components division, including internal sales, amounted to 

0 2,550 million in 2000, an increase of 21.7% compared with 0 2,095 million in 1999. Consolidated 

net sales for Displays and Components totaled 0 1,686 million in 2000, an increase of 31.8% 

compared with 0 1,279 million in 1999. At constant 1999 exchange rates, consolidated net sales in 

2000 totaled 0 1,546 million, representing an increase of 20.8% compared with 1999. The foreign 

exchange impact is mainly linked to the rise of the U.S. dollar compared to the euro. 

The 20.8% increase of consolidated net sales at constant exchange rates reflected a 13% 

increase in sales volumes attributable to the strong growth of the optical component business and to 

the steady growth in the tube business, driven by strong demand for large and very large tubes, 

47

particularly in Europe. As a result, in 2000, large and very large tube external net sales accounted 

for 88% of total external net sales of the tube segments. In particular, we benefited from our 

production increase from our manufacturing plant in Foshan, launched in July 1999. 

Displays and Components consolidated revenue growth in 2000 also reflects the continuing 

strong growth of the optical component business, where unit sales almost doubled, benefiting from a 

strong demand in all product categories, value market share gains and DVD-ROM sales to NEC. 

Price pressure in the Displays and Components division in 2000 was less significant than in 

1999 and was largely offset by product mix improvement. This was especially true in the optical 

component business, where product mix improvement resulted in an increase in net sales of 6.9%. 

The operating income of the Displays and Components division experienced significant growth, 

reaching 0 262 million in 2000, compared with 0 216 million in 1999. This increase in operating 

income reflects the strong volume growth and product mix improvement in each of the tubes and 

optical components businesses, as well as the positive impact of overhead and production cost 

reduction and productivity improvement from the TIGER program implemented since the first 

semester 1999 in the tube business. 


Consolidated net sales for the Consumer Products division totaled 0 6,862 million in 2000, an 

increase of 38.9% compared with 0 4,940 million in 1999. At constant 1999 exchange rates, 

consolidated net sales would have totaled 0 6,147 million, an increase of 24.4% compared with 

1999. At constant exchange rates and scope of consolidation, consolidated revenue growth would 

have reached 18.5%. 

This progression of consolidated net sales reflects a 26.6% increase in sales volume, which 

more than offset a 6.3% decline in average selling prices. Growth in sales volume was driven 

principally by a strong momentum in digital products, such as decoders, cable modems and DVDs. 

In 2000, we sold 6.8 million decoders and cable modems, which represented more than twice the 

unit sales in 1999. This performance was driven by the increase of decoder sales to DIRECTV in the 

United States and to European satellite broadcasters such as Canal+, and also to the very strong 

growth of cable modems, primarily in the United States. The digital product growth also stemmed 

from the strong demand for DVD players in the United States and Europe. 

The traditional television market also contributed positively to the revenue growth in 2000, 

especially in Europe where unit sales under the THOMSON˛ brand grew by 26%. Growth of the 

innovative and high-end products benefited especially from the success of the Scenium and Life 

product ranges. We continued to pursue our brand repositioning strategy focusing on the 

THOMSON˛ brand. 

Consumer Products net sales growth in 2000 also reflected the strong growth of audio products, 

for which unit sales increased by 26%, as well as residential communication products sold through 

ATLINKS. 

In 2000, like in 1999, price pressure impacted most product categories in the Consumer 

Products division, especially DVD players and VCRs, which experienced significant average selling 

price decreases. DVD price pressure is primarily linked to the entry of new competitors on the 

market. However, we benefited from an improvement in product mix, driven by the rise of high-end 

products in the television and video product categories, which limited the impact of price pressure. 

Consolidated operating income totaled 0 172 million in 2000, compared with 0 85 million in 

1999, an increase of 0 87 million. This increase is mainly due to increased net sales and product 

mix improvement. In 2000, like in 1999, this progression also reflects cost reductions and operational 

performance improvement linked to reengineering programs, such as SESAM in Europe and 

48

GROWL in the United States. These positive factors more than offset increased costs for certain key 

components due to increased demand in the components market. 


The New Media Services division posted net sales of 0 9 million in 2000. At the end of 2000, 

We had deployed in the United States an installed base of 4 million televisions equipped with 

electronic program guides, which enabled advertising sales to broadcasters and corporate 

advertisers. 

The New Media Services division recorded an operating loss of 0 83 million in 2000 compared 

with a loss of 0 55 million in 1999, reflecting principally the costs associated with the deployment of 

an installed base of televisions equipped with electronic program guides in the United States. We 

also increased our research and development expenses in cooperation with Gemstar-TVGuide and 

Microsoft (development of TAK technology) and the marketing associated with the introduction of 

new services (the launching of TAK in France was announced in the fourth quarter 2000). 


Net sales from the Patents and Licensing division reached 0 378 million in 2000 compared with 

0 278 million in 1999, representing an increase of 36%. This 36% growth was principally attributable 

to increases in the values, compared to the euro, of the U.S. dollar and the Asian currencies in 

which Patents and Licensing receives a large portion of its net sales, principally the Japanese Yen. 

Contract renewals and conclusions of new contracts more than offset royalty rate decreases in some 

contracts. We also strongly developed our licensing programs on digital technologies (such as DVD, 

mp3, user interface and storage) as well as third-party licensing programs (such as GSM on behalf 

of Alcatel). 

Consolidated operating income for the division totaled 0 319 million in 2000, an increase of 

46.3% compared with 0 218 million in 1999. 

Consolidated results 

Net sales 

Consolidated net sales in 2000 totaled 0 9,094 million, an increase of 35.9% compared with 

0 6,690 million in 1999. At a constant scope of consolidation, consolidated net sales would have 

increased by 31.0% in 2000. At a constant scope of consolidation and constant 1999 exchange 

rates, consolidated net sales increased by 18.2%. 

This growth reflects sales increases in the Displays and Components, Consumer Products and 

Patents and Licensing divisions, mainly driven by growth in large and very-large tubes, optical 

components, digital and audio products. 

Operating income 

Cost of net sales amounted to 0 6,915 million in 2000, an increase of 0 1,850 million, or 36.5%, 

compared with cost of net sales of 5,065 million in 1999. The increase in cost of net sales in 

absolute terms reflected the higher level of net sales in 2000 compared with 1999. Our restructuring 

and cost control efforts enabled us to offset partially the impact of a difficult situation in components 

supply and increased expenses in New Media Services. Globally, cost of net sales as a percentage 

of net sales slightly increased to 76.0% in 2000 compared with 75.7% in 1999. 

As a result, our gross margin was 0 2,179 million in 2000, equal to 24.0% of net sales in 2000, 

compared with 0 1,625 million in 1999, equal to 24.3% of net sales in 1999. 

Selling and marketing expenses were stable at 11.0% of net sales, or 0 998 million in 2000 

compared with 0 737 million in 1999. The 0 261 million or 35.4% increase in absolute terms reflected 

49

mainly expenses in support of the THOMSON˛ brand development and repositioning. Administrative 

expenses expressed as a percentage of net sales decreased from 3.5% in 1999 to 3.1% in 2000, at 

0 284 million in 2000 compared with 0 233 million in 1999. 

Net research and development expenses reached 0 351 million in 2000, an increase of 21% 

compared with 0 290 million in 1999. Excluding external funding of 0 14 million in 2000 and 

0 17 million in 1999, gross research and development expenses amounted to 0 365 million in 2000 

compared with 0 307 million in 1999. 

As a result of the factors discussed above, our operating income reached 0 546 million in 2000 

or 6.0% of net sales, up by 49%, compared with 0 366 million in 1999 or 5.5% of net sales. 

U.S. GAAP 

Under French GAAP, operating income was 0 546 million in 2000 or 6% of net sales, an 

increase of 0 180 million, as compared to operating income of 0 366 million in 1999. 

Under U.S. GAAP, we recorded operating income of 0 284 million in 2000 compared to 

operating income of 0 169 million in 1999. 

The lower operating income under U.S. GAAP versus French GAAP in 2000 resulted mainly 

from restatements related to restructuring provisions. These restatements include; 

) Reclassification from other income and expenses under French GAAP to operating income 

(loss) under U.S. GAAP amounts to 0 105 million in 2000 and 0 75 million in 1999. 

) Restatements generated mostly by timing differences between restructuring cost recognition in 

U.S. GAAP and in French GAAP. The timing differences generated an increase in 

restructuring costs in U.S. GAAP of 0 11 million compared to French GAAP in 2000 and a 

decrease of restructuring costs in U.S. GAAP of 0 10 million compared to French GAAP in 

1999. 

Our operating income under U.S. GAAP was also affected by the accounting treatment of 

certain advantages granted by Thomson S.A. to our employees in connection with the employee 

share offerings made in 1999 and 2000 (an expense of 0 107 million and 0 78 million, respectively). 

Since Thomson S.A. bore the cost of these advantages, they do not represent actual cash expenses 

for the Group. 

Please refer to notes 29 and 30 of our consolidated financial statements for a further discussion 

of the principal differences between French GAAP and U.S. GAAP. 

Financial result 

Net interest expense 

Net interest expense was 0 10 million in 2000 compared with 0 41 million in 1999, a decrease of 

0 31 million. This decrease was driven by the decrease of our average net debt (defined as financial 

debt minus cash and cash equivalents), principally due to the capital increases realized in November 

1999 (net proceeds of 0 610 million) and October 2000 (net proceeds of 0 844 million). Increases in 

cash flows from operating activities and real estate disposals during 2000 (including the saleleaseback 

transactions on our buildings in Boulogne (France) and in Indianapolis (U.S.A.)) also 

contributed to the decline in net debt and interest expenses. 

Other Financial Expense 

Other financial expense totaled 0 67 million in 2000 compared with 0 39 million in 1999, an 

increase of 0 28 million. This increase was principally due to marking down the carrying value of 

equity participations in certain non-consolidated affiliates. 

50

Other income and expense 

Other income and expense represented a net expense of 0 81 million in 2000 compared with a 

net expense of 0 6 million in 1999. 

In 2000, we recorded 0 105 million in restructuring costs, compared with 0 75 million in 1999. 

These costs reflected mainly the acceleration of the implementation of reengineering programs: 

TIGER program for 0 55 million, GROWL plan in the Americas for 0 21 million and SAFE program 

for 0 30 million. 

We accelerated in 2000 the implementation of its TIGER program, including the reinforcement of 

manufacturing redeployment actions and execution of headcount downsizing. The GROWL projects 

were linked to logistic rationalization, the closing of manufacturing and sales operations as well as 

manufacturing rationalization programs. Efforts related to the SAFE program were linked to a 

program of industrial reorganization, the closing of distribution activities in Asia and reorganization of 

the communication business. 

We recognized net gains on disposals of real estate (in particular, sale-leaseback transactions 

involving our buildings in Boulogne and Indianapolis) and financial assets for a total amount of 

0 59 million. In 1999, net gains on disposals of real estate and financial assets amounted to 

0 77 million, principally from gains on disposals of financial assets realized at the time of the 

exchange of our shares in Open TV Inc. for shares in MIH Ltd. and the exchange of our shares in 

El Prime One for shares in MCI WorldCom, in each case in a public exchange offer. 

Other expenses of 0 35 million were mainly linked to provisions for litigation. 

Amortization of goodwill 

Goodwill amortization was 0 8 million in 2000 compared with 0 4 million in 1999. 

Income Tax 

Our income tax amounted to a gain of 0 1 million in 2000 and a charge of 0 50 million in 1999. 

This was due in part to reimbursements by Thomson S.A. under its tax indemnification 

agreement with Thomson described below and the recognition in 2000 of deferred income tax in 

certain countries where the Group’s operations returned to profitability. 

From 1989 through 1997, Thomson was part of Thomson S.A.’s tax group and, in accordance 

with French law, any tax loss carry-forwards generated by Thomson and its greater than 95%-held 

French subsidiaries therefore benefited Thomson S.A. During this period, however, we also had a 

tax sharing agreement with Thomson S.A. under which Thomson S.A. assumed all of our tax 

liabilities for as long as the tax loss carry-forwards transferred to Thomson S.A. remained available 

to it. 

The 1989 tax sharing agreement ceased to apply in 1998, when Thomson S.A.’s shareholding 

in Thomson was reduced to below 95%. As a result of this dilution in ownership, Thomson S.A. was 

not able to consolidate Thomson for tax purposes after December 31, 1997. Consequently, in 

December 1998, Thomson and Thomson S.A. entered into a new tax agreement (the ‘‘Tax 

Indemnification Agreement’’) in which Thomson S.A. agreed to indemnify Thomson for the 

consequences of terminating the tax sharing agreement with Thomson S.A.’s tax group and for the 

loss of the tax loss carry-forwards previously transferred to Thomson S.A. Under the terms of the 

Tax Indemnification Agreement, Thomson S.A. agreed to indemnify Thomson for any corporate 

income tax that Thomson was required to pay to the French tax authorities in respect of the period 

from 1998 through 2000, up to a maximum of 0 116 million in the aggregate. Thomson S.A. also 

agreed to gross up its payments by paying any additional tax due on the indemnity payments. 

51

As a result of the Tax Indemnification Agreement, Thomson S.A. paid us 0 30 million for 1998 

(plus 0 21 million for the gross-up), 0 35 million for 1999 (plus 0 23 million in respect of the gross-up) 

and 0 51 million for 2000 (plus 0 31 million in respect of the gross-up). 

In addition, in 2000, we recorded a deferred income tax gain of 0 106 million, principally due to 

0 25 million of timing differences and to 0 81 million on valuation allowance reversals concerning 

mainly deferred tax assets of U.S. and France affiliates. This reversal was possible because of 

confirmed profitability of these companies for three continuing years. 

Net Income 

Minority interests represented a net loss of 0 18 million in 2000 compared with a net loss of 

0 7 million in 1999. 

As a result of the factors discussed above, we posted net income of 0 394 million in 2000, 

which represented an increase of 70% compared with net income of 0 231 million in 1999. Net 

income as a percentage of net sales reached 4.3%, an increase of 0.8 percentage point compared 

with 1999. 

Earnings per share reached 0 1.56 in 2000, compared with 0 1.17 in 1999, or an increase 

of 33.5%. This progression takes into account an increase in the average number of shares to 

252.0 million shares in 2000 from 197.5 million in 1999 (restated to take into account the two-for-one 

stock split realized on June 16, 2000) as a result of the November 1999 and October 2000 capital 

increases. 

U.S. GAAP 

Under U.S. GAAP, we recorded a net income of 0 136 million for 2000 compared to 

0 148 million in 1999. The lower net income under U.S. GAAP versus French GAAP in 2000 resulted 

mainly from restatements related to the employee offerings of February 1999, November 1999 and 

October 2000, to sale/ leaseback accounting and to tax effects of restatements. 


on the principal differences between French GAAP and U.S. GAAP. 

Liquidity and Capital Resources 

Cash Flows 

2001 2000 1999 


Operational cash flow (1) ................................................................................. 1,418 679 588 

Cash flow from operating activities ............................................................... 1,005 410 435 

Cash flow used in investing activities ........................................................... (1,173) (398) (366) 

Cash flow from financing activities................................................................ (34) 1,413 17 

Net increase (decrease) in cash and cash equivalents................................ (240) 1,370 134 

(1) We calculate our operational cash flow by adding operating income, depreciation and amortization of business segment 

assets (see Note 3 to our consolidated financial statements), net variation in warranty reserves (see Note 20 to our 

consolidated financial statements), amortization of customer contracts (see the consolidated statement of cash flows), 

utilization of restructuring reserves (see Note 19 to our consolidated financial statements) and changes in net operating 

working capital (as defined below). 

Cash flow from operating activities 

Cash flow from operating activities reached 0 1,005 million at the end of 2001, more than double 

the 0 410 million reached at the end of 2000. 

52

In evaluating our cash flow performance, we pay particular attention to items directly linked to 

operations. Operational cash flow amounted to 0 1,418 million in 2001 compared with 0 679 million 

in 2000. This significant increase was due principally to cash generated through the improvement in 

working capital. 

In 2001, the cash flow generated by improved management of ‘‘operating working capital’’, 

defined as inventories (excluding exceptional depreciation on inventories as set forth in Note 3 to our 

consolidated financial statements) plus customer receivables minus payables to suppliers and 

excluding the impact of securitization and receipt of cash related to DIRECTV payments, reached 

0 524 million compared to the use of 0 119 million in 2000. This improvement reflects the successful 

actions we implemented in our Consumer Products and Digital Media Solutions divisions. Our ratio 

of operating working capital to net sales decreased significantly compared to 2000, mainly as a 

result of a decrease in our ratio of net inventories to net sales. This trend reflects reductions in 

component inventories (through the vendor management/inventory/consignment process implemented 

with suppliers) and finished good inventories (through daily replenishment of customer 

orders). We intend to continue our efforts to reduce inventories and customer receivables across all 

of our divisions and to implement a common policy for every company we acquire. 

Cash flow used in investing activities 

Cash flow used in investing activities totaled 0 1,173 million in 2001, compared with 

0 398 million in 2000. This increase reflects the acquisitions made in 2001, primarily Technicolor. 

Net capital expenditures amounted to 0 336 million in 2001, compared with 0 276 million 


Capital expenditures amounted to 0 499 million in 2001, compared with 0 442 million in 2000. 

Our principal investments related mainly to our Digital Media Solutions division (primarily with the 

aim of increasing DVD production capacity) and to a lesser extent to our Displays and Components 

Division. 

Proceeds from fixed asset disposals totaled 0 163 million in 2001, compared with 0 166 million 

in 2000. In 2001, disposals of fixed assets included the 0 138 million positive cash impact from the 

lease-back arranged for the tube manufacturing equipment at its Polkolor plant located at Piaseczno, 

Poland. Further details on this lease-back transaction are provided in ‘‘— Financial resources’’ below 

and in Note 23 to our consolidated financial statements. 

Financial investments reached 0 1,022 million in 2001, compared with 0 158 million in 2000. The 

increase in financial investments was primarily attributable to the cash payments in connection with 

the acquisition of Technicolor. 

Cash flow from financing activities 

Cash flow used by financing activities was 0 34 million in 2001, compared with 0 1,413 million 

provided by financing activities in 2000. In 2001, the amount primarily reflects repayment of our 

short-term debt of 0 446 million and new short term borrowings of 0 449 million. The amount in 2000 

mainly represents the proceeds from our share and convertible/exchangeable bond (2000 

OCEANEs) offering. 

Financial resources 

We expect to fund the continued active development of our strategic repositioning through 

capital expenditures and additional acquisitions using our available cash, cash flow from operating 

activities and, if and to the extent appropriate, through borrowings from our available credit facilities 

and by accessing the capital markets with the sale of equity or debt securities in amounts that 

cannot now be determined. We intend to use the proceeds (approximately 0 600 million) of the 1% 

convertible/exchangeable bonds that we issued on March 12, 2002 and due in 2008 (obligations à 

53

option de conversion ou d’échange en actions nouvelles, or ‘‘2002 OCEANEs’’) for the development 

of our activities, including through acquisitions, particularly in our Digital Media Solutions and New 

Media Services divisions, and to expand our broadband products and services offering in the context 

of an evolving technological environment, increasing digitalization and opportunities for interactivity, 

as well as for general corporate purposes. We provide certain information on our liquidity 

requirements as of December 31, 2001 below in ‘‘— Contractual obligations and commercial 

commitments.’’ 

At the end of 2001, we maintained a positive net cash position (cash and cash equivalents 

minus financial debt), of 0 402 million, compared with 0 629 million at the end of 2000. Our financial 

debt totaled 0 1,131 million at the end of 2001, compared with 0 1,143 million at the end of 2000. 

Financial debt does not include promissory notes of U.S.$600 million due to Carlton for our 

acquisition of Technicolor, which are included in ‘‘Other creditors and accrued liabilities’’. We have 

the option of paying half of this amount in Thomson shares. On March 16, 2002, U.S.$150 million of 

this amount was paid in cash. Note 23 to our consolidated financial statements and ‘‘— Contractual 

obligations and commercial commitments’’ below contains information about our off-balance sheet 

commitments. Cash and cash equivalents were 0 1,532 million at the end of 2001, compared with 

0 1,772 million at the end of 2000. 

At the end of 2001, we had committed undrawn credit facilities of 0 1.3 billion with a consortium 

of banks, principally consisting of three 0 400 million tranches of 364-day, three-year and five-year 

maturities and uncommitted credit lines from unaffiliated third-party lenders amounting to approximately 

0 1.2 billion of which 0 116 million had been used as of December 31, 2001. 

We have put in place securitization programs to increase further our financial flexibility. A 

U.S. securitization program allows for the sale of U.S. commercial receivables up to a maximum of 

U.S.$225 million (0 255 million at the December 31, 2001 closing rate), and a European 

securitization program allows for the sale of French and German commercial receivables up to a 

maximum amount of 0 152 million. As of December 31, 2001, we had no outstanding receivable 

sales under these securitization programs. 

In 2000 we entered into a synthetic lease for the construction and equipment of our new 

television tube manufacturing facility in Mexicall, Mexico for an amount of U.S.$257.5 million 

(0 291.8 million at the December 31, 2001 closing rate). This amount includes U.S.$251.5 million 

(0 285 million at the December 31, 2001 closing rate) relating to buildings and equipment, recorded 

as an off-balance sheet commitment, and U.S.$6 million (0 6.8 million at the December 31, 2001 

closing rate) relating to land, considered as a capital lease and recorded as long-term debt. In 

addition, we have entered into a sale-leaseback arrangement for tube-manufacturing equipment in 

our Polkolor plant, which generated 0 138 million in cash flow in 2001. The cash flow generated from 

this transaction was used by our subsidiary in Poland to reimburse debt. For more information on 

these leases see Note 23 to our consolidated financial statements. 

Contractual obligations and commercial commitments 

The two tables presented below provide information regarding contractual obligations and 

commercial commitments as of December 31, 2001 for which we are obligated to make future cash 

payments. These tables include firm commitments that would result in unconditional or contingent 

future payments but exclude all options we hold since the latter are not considered as firm 

commitments or obligations. When an obligation leading to future payments can be cancelled 

through a penalty payment, the future payments included in the tables are those that management 

has determined most likely to occur given the two alternatives. 

54

Guarantees given by subsidiaries of the Group securing debt, capital leases, operating leases or 

any other obligations or commitments of other subsidiaries of the Group are not disclosed as the 

related obligations are already included in the tables. 

Payments due by period 

Contractual Obligations Total 

Less than 

1 year 2-3 years 4-5 years After 5 years 

Financial debt 


(1) ............................................. 1,131 293 16 814 8 

Unconditional Future Payments 

Capital leases (2) ............................................. 11 6 4 1 — 

Operating leases (3) ........................................ 549 111 191 138 109 

Unconditional purchase obligations to buy (4) 

financial investments ................................. 62 31 28 1 2 

property, plant & equipment...................... 4 4 — — — 

Total ....................................................... 66 35 28 1 2 

Other long-term obligations (5) ........................ 130 43 41 29 17 

Contingent Future Payments 

Guarantees given (6) ....................................... 108 108 — — — 

Other conditional obligations (7) ...................... 198 198 — — — 

(1) Financial debt is reported only for its principal amounts as set forth in Note 21 to our consolidated financial statements. 

Future interest expense and the impact of interest rate swaps are not reported in this table (the latter was immaterial as of 

December 31, 2001). Since currency swaps entered into by the Group as of December 31, 2001 had a net positive future 

cash flow of 0 9 million, this amount has not been included in the table. As indicated above, foreign exchange options are 

not included, and the net future cash flows due to currency hedging operations were immaterial as of December 31, 2001. 

For further details please refer to Note 25 to our consolidated financial statements. 

(2) Capital leases relate mainly to building leases. 

(3) Operating leases are described in Note 23 to our consolidated financial statements. 

(4) Unconditional purchase obligations are mainly composed of a 0 50 million commitment to purchase the remaining shares 

of BTS Holding BV still held by Philips. 

(5) Other long-term obligations relate mainly to Information Technology service agreement commitments and general 

sponsoring agreements entered into in the United States. 

(6) Guarantees given are mainly composed of a 0 105 million guarantee securing a financial investment, as described in 

Note 23 to our consolidated financial statements. 

(7) Other conditional obligations are mainly composed of 0 195 million related to the acquisition of Grass Valley Group, Inc. 

55

Amount of Commitment Expiration per Period 

Less than 

Commercial Commitments Total 1 year 2-3 years 4-5 years After 5 years 


Unconditional Future Payments 

Royalties (1) ..................................................... 100 15 24 24 37 

Contingent Future Payments 

Guarantees given to (2) 

suppliers..................................................... 24 21 3 — — 

legal court proceedings and custom duties 30 20 9 — 1 

others......................................................... 15 2 2 3 8 

Total........................................................... 68 43 14 3 9 

Standby letters of credit (3) ............................. 101 100 1 — — 

(1) Royalties to be paid for which future amounts are fixed. Royalties to be paid for which the amount is based on a per unit 

basis are not included except if a fixed minimum amount has been agreed. 

(2) Guarantees given for legal court proceedings secure the future payment we would be obligated to make in case of 

unfavorable determination of the proceeding. For information regarding contingencies related to legal proceedings and 

environmental matters please refer to Note 26 to our consolidated financial statements. Other guarantees given relate 

mainly to 0 10 million of guarantees to an external leasing company financing some of our customers. 

(3) Standby letters of credit relate mainly to guarantees in favor of suppliers. 

56

ITEM 6 — DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 

A — Directors and Senior Management 

Board of Directors 

Our management is entrusted to a Board of Directors, which has fifteen members, including 

thirteen Directors and two Censeurs (non-voting Board members). Members of the Board of 

Directors are appointed for five years, except Directors representing the employees and Censeurs, 

who are appointed for eighteen months. Members of the Board of Directors must hold at least one 

hundred shares and must resign at the age of seventy, except Directors representing the employees 

and Censeurs. 

Among the thirteen Directors currently on our Board, one has been appointed by the French 

State, two have been elected as independent directors, three have been proposed by Thomson S.A., 

each of Alcatel, Carlton, DIRECTV, Microsoft and NEC has appointed one Director, pursuant to their 

original investment agreements in our company, and two have been elected by the employees. The 

appointment of the two Censeurs will be proposed to the shareholders at the next ordinary general 

shareholders’ meeting scheduled to be held on May 3, 2002. The Board of Directors met nine times 

during 2001. 

Board Committees 

In March 1999, the Board of Directors formed three advisory committees: 

) The Strategy Committee advises the Board of Directors on projects linked to our development 

(investments and competitiveness), the development of industrial partnerships and the review 

of draft strategic memoranda of understanding. The Strategy Committee met three times 


) The People and Organization Committee examines questions relating to the operation of the 

Board of Directors, management compensation, employee shareholding projects and 

profit-sharing incentive plans. The People and Organization Committee met three times 


) The Audit Committee supervises the quality of our accounting and financial statements as well 

as all control procedures. The Audit Committee met twice in 2001. 

The following table shows the names of the members of the Board of Directors, their main 

occupations, the dates of their initial appointment and the expiration dates of their current term. 

Initially Other business 

Principal Occupation Appointed Term activities outside 

Name or Employment to Board Expires Thomson 

Directors 

Thierry Breton (1)(3) .................... Chairman and CEO, March 1997 2004 Chairman, Thomson 

Thomson S.A.; Director, AXA, 

Bouygues Telecom, 

Rhodia, Schneider 

Electric S.A., Dexia 

and la Poste (the 

French Postal Office) 

Pierre Cabanes (3) ..................... Chairman, Antée June 1988 2004 N/A 

S.A.S. 

Frank Dangeard (2) .................... Vice Chairman of the March 1999 2004 N/A 

Board and Senior 

Executive Vice 

President, Thomson 

57




Jacques Dunogué* (1)(2) ............. President Europe, March 1999 2004 Director, Alcatel C.I.T., 

Middle East, Asia and Thalès S.A., 

India, ALCATEL Thirdspace and 

Nextream 

Philippe de Fontaine-Vive (2) ..... Nominated by the June 2000 2005 Director, Aéroports de 

French Government. Paris, Gaz de France, 

Deputy Director, Réseaux Ferrés de 

French Department of France, AREVA, 

Treasury Euroméditerranée and 

RATP 

Eddy W. Hartenstein (1)(3) .......... Senior Executive Vice March 1999 2004 Director and 

President, Hughes Chairman, DIRECTV 

Electronics Corp. Enterprises Inc., 

DIRECTV International 

Inc., DIRECTV 

Merchandising Inc. 

and DIRECTV 

Operations, Inc.; 

Director, Pan Amsat 

and DIRECTV Latin 

America 

Michael Green ......................... Chairman, Carlton March 2001 2006 Director, ITV Digital 

Plc., Independent 

Television News Ltd. 

and GMTV Ltd. 

Christian Blanc** (1) ................... Chairman Merrill June 2001 2005 Director, CAPGEMINI 

Lynch France S.A. Ernst & Young, 

Coface and 

JC Decaux 

Gérard Meymarian................... Vice-President October 1994 2002 N/A 

TV High-End, 

Thomson 

Jean de Rotalier ...................... Sales Planning October 1994 2002 N/A 

Manager, Thomson 

Marcel Roulet (2)(3) ..................... Former Chairman- February 1999 2005 Director, Thalès S.A. 

CEO of Thomson (Thomson S.A. 

S.A., of France representative), 

Télécom and of Eurazéo, On-X et 

Thalès S.A. CVOIR; Chairman of 

the Supervisory 

Board, Pages Jaunes 

and Ginar Finances 

Iwao Shinohara (1)(2) .................. Executive Vice September 1999 2004 N/A 

President, NEC 

Bernard Vergnes (1)(3) ................ Emeritus Chairman, March 1999 2004 Director, SA France 

Microsoft Europe Finance and 

Technology 

58




Censeurs: 

Emmanuel Caquot (1) ................ Director, French November 2000 2002 Director, INRIA, La 

Ministry of Industry (former Director, Française des Jeux, 

March 1999) SFP and Groupe des 

Écoles des 

Télécommunications 

Didier Lombard (1) ..................... French Ambassador- November 2000 2002 Chairman of 

at-large, International (former Director, International 

Investment March 1999) Investments, Agence 

Française; Director, la 

Poste (the French 

Postal Office), 

censeur, France 

Télécom 

* Mr. Dunogué resigned in February 2002 and has been replaced by Mr. Olivier Houssin. His appointment is to be approved 

at our next ordinary general shareholders’ meeting. 

** Mr. Blanc’s appointment in June 2001 is to be approved at our next ordinary general shareholders’ meeting. 

(1) Member of the Strategy Committee. 

(2) Member of the Audit Committee. 

(3) Member of the People and Organization Committee. 

Executive Committee 

In accordance with French law and our by-laws, the Chairman of the Board of Directors and 

Chief Executive Officer (Chairman and CEO) has full authority to manage the Company’s affairs and 

to represent the Company before third parties. 

Subject to the powers expressly reserved by law to shareholders’ meetings, as well as to those 

specifically reserved by law to the Board of Directors, the Chairman and CEO is vested with the 

broadest powers to act on our behalf in respect of our corporate purpose in any and all 

circumstances. 

The Executive Committee is composed of fifteen members and includes heads of key 

operational units. The Executive Committee meets every month. 

The tables below indicate the names of the members of the Executive Committee, their current 

responsibilities within the Group and the dates of their initial appointment. 

Initially 

Name Responsibility appointed 

Principal members of the Executive 

Committee 

Thierry Breton ............................................. Chairman and CEO 1997 

Al Arras ....................................................... Senior Executive Vice President, Audio 1997 

and ATLINKS 

Frank Dangeard .......................................... Senior Executive Vice President, 1997 

Vice Chairman 

Charles Dehelly .......................................... Senior Executive Vice President, Chief 1998 

Operating Officer 

John Neville ................................................ Senior Executive Vice President, Patents 1993 

and Licensing, New Media 

Services (acting) 

Lanny Raimondo ......................................... Senior Executive Vice President, Digital 2001 

Media Solutions 

59

Initially 

Name Responsibility appointed 

Other members of the Executive 

Committee 

Olivier Barberot ........................................... Senior Vice President, Human Resources 1997 

Jean-Charles Hourcade .............................. Senior Vice President, Research 2000 

and Innovation 

Patrice Maynial ........................................... Senior Vice President, Corporate 1997 

Secretary and Legal Counsel 

Eric Meurice ................................................ Executive Vice President, TV/Video 2001 

Marc Meyer ................................................. Senior Vice President, Communication and 2000 

Entrepreneurship 

Mike O’Hara Executive Vice President, Consumer 1999 

Products Marketing and Sales 

Enrique Rodriguez ...................................... Executive Vice President Broadband 1999 

Access Products 

Gilles Taldu ................................................. Executive Vice President, Displays 1997 

and Components 

Julian Waldron ............................................ Senior Vice President, Chief Financial 2001 

Officer 

Management Biographies 

Principal Members of the Executive Committee 

Thierry Breton was appointed Chairman and Chief Executive Officer of THOMSON multimedia 

and Thomson S.A. in March 1997. From November 1993 to March 1997, Mr. Breton was a member 

of the Executive Committee of the Bull Group, a French computer and information technology 

company. He was appointed Vice-Chairman of the Bull Group in November 1995. From 1990 to 

March 1993, he was Chief Executive Officer of CGI, a French services development company. From 

1986 to 1990, he was Chief Executive Officer of Futuroscope, a French theme park. From 1981 to 

1986, he was Chief Executive Officer of Forma Systems, a systems analysis and software 

engineering firm. Mr. Breton is a graduate of Supelec Paris, and of the 46th session of IHEDN 

(French Institute for Higher National Defense Studies). 

Al Arras was appointed Senior Executive Vice President, Audio and ATLINKS in March 2001. 

Since July 1997, he was Chief Operating Officer and Executive Vice President for Audio and 

ATLINKS. He has also been responsible for the Worldwide Internet Device and e-business, or WIDe, 

program, since June 1999. From October 1995 to July 1997, Mr. Arras served as Vice President for 

Manufacturing Operations in Asia. From January 1993 to October 1995, he was Vice President for 

Audio and Communications. Between 1980 and 1993, he held various management positions in the 

Audio Division as Vice President of the Audio Division, Vice President for Home Audio Systems, 

Hi-Fi General Manager, Business Development Manager for Audio and Communications, Audio 

Market Manager, Tape Manager, Market Development Manager and Product Manager. Mr. Arras is 

a graduate of Cornell University. 

Frank Dangeard was appointed Vice Chairman of the Board Thomson in July 2001. He has 

been Senior Executive Vice President in charge of Corporate Coordination since 1997. 

Mr. Dangeard was also appointed Senior Executive Vice President of Thomson S.A. in April 1997. 

From September 1989 to April 1997, Mr. Dangeard was a Managing Director of SBC Warburg, an 

investment bank, and from June 1995 to April 1997 he was also Chairman of the Board of SBC 

Warburg (France). From September 1986 to June 1989, he practiced law as an associate at 

Sullivan & Cromwell in New York and London. Mr. Dangeard is a graduate of the École des Hautes 

Études Commerciales and the Institut d’Études Politiques de Paris. He also graduated from the 

Harvard Law School. 

60

Charles Dehelly was appointed Chief Operating Officer Thomson in July 2001. He is also 

Senior Executive Vice President for Operations Coordination and Business Performance. From 

March 1992 to February 1998, Mr. Dehelly held a series of senior management positions at the Bull 

Group, including President of Bull Europe, President of the PC Division, President of Bull Electronics 

and President of Material and Logistics Operations. From 1987 to 1992, he was President of the 

Television Division of Thomson in Europe. He also held various management positions for Thomson 

Grand Public beginning in 1974. Mr. Dehelly is a graduate of the École Nationale Supérieure des 

Arts et Métiers. 

John Neville was appointed Senior Executive Vice President, Patents and Licensing and acting 

responsible for New Media Services in February 2001. Since June 1999, he has been responsible 

for Patents and Licensing. Mr. Neville was responsible from July 1997 to June 1999 for Operations 

Coordination, and has been in charge of the LIVE program since February 1998. From July 1993 to 

July 1997, he was Executive Vice President of Operations. He became Vice President for the North 

America Tube Division in 1988 and was appointed Senior Vice President in 1992. Since 1967, he 

has held various management positions within the RCA Group (which was acquired by Thomson), 

including Director of Financial Analysis, Director of Financial Planning, Vice President for Finance 

and Vice President for Technical Contacts. Mr. Neville holds a B.S. from Ohio State University and 

graduated from the Stanford University Executive M.B.A. Program. 

Lanny Raimondo was appointed Senior Executive Vice President for Digital Media Solutions in 

July 2001. Since March of that year, he has been Executive Vice President for Technicolor. 

Mr. Raimondo has worked at Technicolor since 1994 and was appointed President and Chief 

Executive Officer of the Technicolor Group in 1998, after having served as President of that 

company’s Packaged Media Group from 1996. Prior to working at Technicolor, Mr. Raimondo spent 

sixteen years with Pirelli Cable Corp. where he managed large subsidiary companies in Great 

Britain, Canada and the United States, holding the position of President and Chief Executive Officer 

from 1985 to 1994. Mr. Raimondo is a graduate of Purdue University with a degree in electrical 

engineering. 

Other Members of the Executive Committee 

Olivier Barberot was appointed Senior Vice President of Human Resources in July 1997. From 

June 1993 to July 1997, Mr. Barberot was the General Secretary of the Léonard de Vinci University 

and SEM 92, a French regional development company. From 1991 to 1993, he was General 

Secretary of CGI, a French services development company. From 1985 to 1991, he was the 

Company Secretary of Futuroscope. Before 1985, he held several positions as an engineer. 

Mr. Barberot is a graduate of the École des Mines de Paris. 

Jean-Charles Hourcade was named Senior Vice President, Research and Innovation in 

February 2000. Prior to his current position, Mr. Hourcade served from 1995 to 2000 as Vice 

President Strategic Planning, Thomson-CSF, where he was in charge of Corporate Strategy, 

Strategic Alliances and Mergers and Acquisitions activities. He joined the Group in February 1986, 

coming from the Institut National de l’Audiovisuel where he worked as a research and development 

engineer in computer graphics and special effects. During the years prior to becoming Vice 

President of Strategic Planning, Thomson-CSF, he served as Chairman and CEO of Thomson 

Digital Image (TDI), a company specialized in 3D Computer Graphics software and systems. 

Mr. Hourcade is a graduate of the École Polytechnique and the École Nationale Supérieure des 

Télécommunications in Paris. 

Patrice Maynial was appointed Senior Vice President, Corporate Secretary and Legal Counsel 

in July 1997. Since that date, Mr. Maynial has also served as Corporate Secretary of Thomson S.A. 

From August 1996 to April 1997, he was a judge at the French Cour de Cassation. From 1994 to 

1996 he was General Manager of the Gendarmerie Nationale, the French national police force. From 

1991 to 1994 he was President of the Cour d’Appel de Paris. From 1988 to 1991 he was Vice 

President of the Tribunal de Grande Instance de Paris. From 1986 to 1988 he was Technical 

Counsel for the French Defense Ministry. From 1982 to 1986 he was the Examining Magistrate of 

61

Paris courts. From 1976 to 1982 he held various positions in the French Justice Department. 

Mr. Maynial is a graduate of the École Nationale de la Magistrature. 

Eric Meurice was appointed Executive Vice President, Television/Video Worldwide in February 

2001. From 1995 to February 2001, he was Vice President and General Manager for the European 

Division of Dell Computer Corp. Before 1995, Mr. Meurice held various Marketing Manager positions 

at ITT Semiconductors, Intel Corp. and MLCD Tech. Mr. Meurice earned an M.B.A. from the 

Stanford Graduate School of Business and is a graduate of the École Centrale de Paris and the 

Université de Paris — Sorbonne. 

Marc Meyer was named Senior Vice President, Corporate Communications and Entrepreneurship 

in February 2000. Prior to his current position, Mr. Meyer served as Vice President Corporate 

Communications and Chief of Staff of Thomson’s Chairman and Chief Executive Officer. He joined 

Thomson in March 1997 from the computer group Bull where from 1986 he had occupied numerous 

Marketing and Corporate Communications responsibilities. From 1984 to 1986, Mr. Meyer was 

deputy assistant to the Chairman of the French Parliament’s Technology and Telecommunications 

Committee. Mr. Meyer has a degree in History and Political Sciences from the Université de Paris — 

Sorbonne. 

Michael D. O’Hara was appointed Executive Vice President, Marketing and Sales Worldwide in 

July 2001. From July 1999 to July 2001, he was Executive Vice President America. From November 

1997 to July 1999, he was Vice President, Worldwide Digital Multimedia Products. From December 

1996 to November 1997, he was Vice President, Core Business Product Management and from 

September 1996 to December 1996, he was Vice President, DBS and DVD Product Management. 

From 1987 to 1996, Mr. O’Hara held various marketing and sales positions within Thomson. 

Mr. O’Hara holds a Bachelor degree in Management and Marketing from Montclair (NJ) State 

University and received his Master’s degree in Finance from Fairleigh Dickinson University in 

Rutherford, New Jersey. 

Enrique Rodriguez was appointed Executive Vice President, Broadband Access Products in 

July 1999, with worldwide responsibility for Thomson’s digital multimedia business. From January 

1998 to July 1999, Mr. Rodriguez was Vice President of our worldwide Research and Development 

Group for Multimedia and Services. From March 1997 to January 1998, he was General Manager of 

the Indianapolis and Rennes Research Centers. Prior to 1997, he held various technology-related 

positions since joining Thomson in 1982. Mr. Rodriguez received his Bachelor’s degree in 

Electronics and Communications from Instituto Technologico de Monterrey, Mexico. 

Gilles Taldu was appointed Executive Vice President for Displays and Components in July 

1997. From February 1997 to July 1997, he was Executive Vice President for Marketing and Sales 

in Europe. From September 1994 to February 1997, Mr. Taldu was Senior Vice President of 

Thomson Broadcast Systems. From 1993 to September 1994, he was Head of Strategy of Thomson 

S.A. Mr. Taldu is a graduate of the École Polytechnique and the École des Mines de Paris. 

Julian Waldron was appointed Senior Vice President, Chief Financial Officer in June 2001. 

Prior to joining Thomson at his current position, he was Managing Director of UBS Warburg in 

London where he was Co-Head of the European Equity Markets Group, coordinating this business 

for all of Europe. Mr. Waldron spent over fourteen years with UBS Warburg where he occupied 

several positions of increasing responsibility. He is a graduate of Cambridge University. 

B — Compensation of Directors and Principal Executive Officers 

In 2001, the compensation paid to the Directors and principal members of the Executive 

Committee, which included 19 persons (17 persons in 2000), was 0 6.4 million (0 5.9 million in 

2000). This amount includes the compensation paid to these persons by Thomson and its 

subsidiaries for services in all capacities to the Group and any benefits in-kind, contingent or 

deferred compensation (but excluding stock options which are described below) and any amounts 

paid pursuant to our employee project-sharing plans described below in ‘‘— Employees’’. 

62

The following table, sets forth the compensation (including any benefits in-kind, contingent or 

deferred compensation but excluding stock options) paid in 2001 by Thomson and its subsidiaries to 

its Directors for services in all capacities to the Group: 

Thomson 

Compensation Employer Charges 

(1) 

Thierry Breton ................................................................................ 1,255,735 314,402 

Frank E. Dangeard......................................................................... 1,054,918 315,983 

Gérard Meymarian ......................................................................... 253,334 105,951 

Jean de Rotalier............................................................................. 111,185 49,366 

Pierre Cabanes*............................................................................. 10,424 — 

Jacques Dunogué*......................................................................... 8,424 — 

Philippe de Fontaine-Vive .............................................................. — — 

Eddy W. Hartenstein*..................................................................... 2,424 — 

Michael Green................................................................................ — — 

Christian Blanc ............................................................................... — — 

Marcel Roulet*................................................................................ 11,424 — 

Iwao Shinohara*............................................................................. 1,424 — 

Bernard Vergnes ............................................................................ — — 

* Attendance fees only. 

In 2001, the total amount which was set aside or accrued to provide pension, retirement or 

similar benefits for the Directors and principal members of the Executive Committee, which included 

19 persons (17 persons in 2000) was 0 1.2 million (0 1.1 million in 2000). 

Mr. Thierry Breton is entitled to receive compensation equal to twenty-one months of his then 

compensation if we terminate his employment. Mr. Frank Dangeard’s service contract provides that 

he is entitled to receive compensation equal to fifteen months of his then compensation if we 

terminate his employment other than for cause. He is also entitled to six months notice. 

In 2001, the total number of stock options granted to the Directors and principal members of the 

Executive Committee, which included 19 persons (17 persons in 2000), was 815,000 options. These 

options were granted pursuant to our 2001 stock option plan which is described in detail below in 

‘‘— Employees’’. 

In 2001, stock options were granted to four Directors. Mr. Thierry Breton received 200,000 

options, Mr. Frank Dangeard received 150,000 options, Mr. Gerard Meymarian received 12,000 

options and Mr. Jean de Rotalier received 2,400 options. In 2001, none of these Directors exercised 

their options. 

In 2001, the total number of stock options granted to our ten employees (not including our 

Directors indicated above) who received the largest number of options was 900,000 options. None of 

these options was exercised in 2001. 

No member of the Board of Directors or Executive Committee holds more than 1% of our 

outstanding shares. 

C — Employees 

At December 31, 2001, we employed approximately 64,000 persons. The table below shows the 

total number of employees at the end of each of the years indicated and provides a breakdown by 

region. 

63

Breakdown of workforce by region 

1999 

At December 31, 

2000 2001 

Americas............................................................................................. 24,445 25,158 25,884 

United States only ............................................................................... 6,774 6,618 11,330 

Europe................................................................................................. 14,914 15,083 17,419 

France only.......................................................................................... 5,898 6,014 5,790 

Asia ..................................................................................................... 16,274 21,351 21,025 

Total .................................................................................................... 55,633 61,592 64,328 

The table includes all of our exempt, non-exempt and hourly employees. Temporary employees 

and trainees are excluded. The table includes some entities that we do not consolidate in our 

financial results. 

Headcount evolution between 2000 and 2001 reflects the rise in headcount of growth 

businesses, including through acquisitions, which more than offset headcount reductions linked to 

the implementation of restructuring programs. The increase in the Americas is related to the 

integration of Technicolor and Philips Broadcast employees in the first half of 2001, which more than 

offset decreases related to restructuring programs in Displays and Components and Consumer 

Products. In Europe, the headcount evolution reflects primarily the integration of Technicolor, Philips 

Broadcast and Alcatel (Nextream) employees in the first half of 2001. 

In January 2002, we integrated the Alcatel DSL modem business. This business employed 220 

employees at December 31, 2001. 

Membership in trade unions by our employees varies from country to country. In Europe, unions 

are represented in almost all our facilities. The European Works Council agreement, signed in 2000 

and in force until 2004, has been reviewed in order to integrate union representatives from Holland 

and the U.K. and has been renewed with all unions. The committee meets several times a year and 

is composed of members of French, Italian, German, English, Dutch, Luxembourg and Polish unions 

or works councils. As generally required by law in European Union countries, our management holds 

annual negotiations with unions on wages, early retirement plans and general labor conditions. 

In the Americas, many production sites are also unionized. Agreements in the United States 

generally run for three years and cover wages, benefits and work practices. In the United States, we 

renegotiated our agreements with the IBEW for our Marion, Circleville, Lancaster and Indianapolis 

locations and negotiated closure agreements for our Scranton and Deptford facilities. In Mexico, 

labor agreements are renegotiated annually. In 2001, we negotiated the closure of operations for our 

Mexico City plant. 

In Asia, unions are present only in the Singapore facility, where labor agreements are reviewed 

annually. 

Although we have experienced strikes and work stoppages in the past, we believe relations with 

our employees are generally satisfactory. 

) Employee profit-sharing 

We offer our Executive Committee, our Operational Committee (a group of 60 members) and 

our ‘‘Entrepreneurs’’ (a group of more than 400 members) an incentive plan based on Group and 

business unit results and the achievement of performance goals in individual contracts. In addition, 

several of our subsidiaries in France and the United States offer their employees profit-sharing 

based on company results and/or achievement of individual objectives. In addition, nine of our 

64

French subsidiaries will pay bonuses (primes d’intéressement) in 2002 to their employees in respect 

of fiscal year 2001 under incentive plans based on such subsidiary’s results (accords 

d’intéressement). 

) Company stock options granted to personnel 

At the shareholders’ meeting held on November 10, 2000, shareholders authorized the Board of 

Directors to allot share subscription or share purchase options to some of our salaried employees 

and to Company agents. 

According to this decision, our Board of Directors decided, at its meetings held on 

December 18, 2000, March 16, 2001 and July 23, 2001 to confer a total of 4,018,500 share 

purchase options to 463 beneficiaries. Shares offered under this plan (‘‘Stock Option Plan 

Number 1’’) will be shares that we repurchase from the market. The exercise price has been set at 

0 55.90. 

Plan number 1 

Shareholders’ meeting resolution date November 10, 2000 

Date of the Board of Directors meeting December 18, 2000, March 16, 2001 and 

authorizing the implementation July 23, 2001 

Total number of shares allocated 4,018,500 

Of which shares dedicated to principal members 

of the Executive Committee and Directors 1,350,000 

Number of beneficiaries 463 

Exercise period December 18, 2003 - July 23, 2011 

Exercise price 0 55.90 

Our Board of Directors decided at its meeting held on October 12, 2001 to confer a total of 

3,540,300 share subscription options to 556 beneficiaries under the November 10, 2000 

authorization. Shares under this plan (‘‘Stock Option Plan Number 2’’) will be newly issued by us. 

The exercise price has been set at 0 31.50. 

Plan number 2 

Shareholders’ meeting resolution date November 10, 2000 

Date of the Board of Directors meeting 

authorizing the implementation October 12, 2001 

Total number of shares allocated 3,540,300 

Of which shares dedicated to principal members 

of the Executive Committee and Directors 815,000 

Number of beneficiaries 556 

Exercise period October 12, 2004 - October 12, 2011 

Exercise price 0 31.50 

65

Item 7 — Major Shareholders and Related Party Transactions 

A — Distribution of share capital 

Current Shareholding 

The table below shows our shareholding at March 16, 2002, to the best of our knowledge. The 

table takes into account the 15.5 million shares issued to Carlton on this date, upon redemption of 

outstanding redeemable bonds payable exclusively in shares (ORAs). 

At March 16, 2002 

Number % of 

Shareholders of shares held shares held 

Thomson S.A. ............................................................................................. 62,900,848 22.42% 

Alcatel Participations................................................................................... 9,654,217 3.44% 

Carlton Communications plc*...................................................................... 15,500,000 5.52% 

DIRECTV..................................................................................................... 8,818,388 3.14% 

Microsoft...................................................................................................... 11,935,330 4.25% 

NEC............................................................................................................. 13,915,966 4.96% 

Public........................................................................................................... 142,614,382 50.83% 

Employees................................................................................................... 11,900,447 4.24% 

Thomson...................................................................................................... 3,373,930 1.20% 

Total............................................................................................................ 280,613,508 100.00% 

* On November 29, 2001, Carlton issued bonds to a number of institutional investors exchangeable for 15.5 million of our 

shares subject to certain adjustments. 

On March 7, 2002 Thomson S.A. sold 36,160,000 of our shares through a placement to 

institutional investors. Thomson S.A. currently holds 22.42% of our shares and will hold 

approximately 20.99% of our shares following our upcoming employee offering described below in 

‘‘— Anticipated Shareholding’’. As long as Thomson S.A. holds more than 20% of our shares, we 

will be subject to the French privatization laws described in ‘‘Description of Share Capital — 

Memorandum and Articles of Association — Authorized but Unissued Capital’’. 

The shares held by Thomson S.A. include up to 706,621 shares reserved for bonus shares to 

be allocated to employees under the terms of the employee offerings of October 1999 and 

September/October 2000. The shares held by Thomson S.A. also include up to 1,696,509 shares 

reserved for individuals who purchased shares in our French retail offering in September/October 

2000 which will be delivered on or about April 11, 2002. 

The number of shares held by employees and management at March 12, 2002 is an estimate 

based on actual levels of employee participation in the February/March 1999, October 1999 and 

September/October 2000 employee offerings and assuming continued ownership by current and 

former employees. The total number of shares beneficially held by our directors and principal 

executive officers was less than 1% of our outstanding share capital. 

As of March 21, 2002, there were 3,213,434 ADSs outstanding and 4,171 registered ADSs. 

Anticipated shareholding 

We will conduct an offering of 4,017,777 shares provided by Thomson S.A. to our qualifying 

current and former employees in certain jurisdictions which we expect to commence on March 28, 

2002. Thomson S.A. will also be required to reserve shares for delivery as bonus shares to 

employees in the employee offering. 

Our share capital may be further diluted upon the conversion into new shares of our outstanding 

convertible/exchangeable bonds and the exercise of stock options under our Stock Option Plan 

Number 2. Our 2000 OCEANEs due 2006 are convertible into, or exchangeable for, 11,175,385 of 

66

our shares and have a nominal value of 0 72.67 each. Our 2002 OCEANEs due 2008 are 

convertible into, or exchangeable for, 14,814,815 of our shares and have a nominal value of 0 40.50 

each. The stock options we issued in 2001 are exercisable into 3,540,300 of our shares between 

2004 and 2011. 

Assuming (i) the shares offered to our qualifying current and former employees in our upcoming 

employee offering are fully subscribed, (ii) all of the 2000 OCEANEs and 2002 OCEANEs are 

converted into newly issued shares and are held by the public and (iii) all stock options issued under 

our Stock Option Plan Number 2 are exercised, our share capital would increase to 310,144,008 

shares and Thomson S.A.’s stake in our share capital would be diluted to 18.99%. 

In addition, pursuant to the agreements with Carlton in connection with the acquisition of 

Technicolor, and as approved by the shareholders on March 12, 2001, we will pay U.S.$600 million 

(plus interest) in the aggregate over four years in four equal installments on the first, second, third 

and fourth anniversaries of the closing starting on March 16, 2002. However, we may pay up to half 

of the amount of these annual installments in the form of our shares. The first of these installments 

was fully paid in cash. 

Recent changes in share capital 

During 2001 and early 2002, the shareholder stakes of several strategic partners and Thomson 

S.A. were reduced as a result of open market sales and placements, as described below: 

) On March 15, 2001, NEC sold 3 million of our shares on the market. The shares were placed 

with institutional investors. Following this transaction, NEC held 5.25% of our outstanding 

share capital, based on the number of the outstanding shares at this date. 

) On March 16, 2001, we issued notes to Carlton that were reimbursed on March 16, 2002 in 

15.5 million shares, or 5.5% of our outstanding share capital at this date. On November 29, 

2001, Carlton issued bonds to a number of institutional investors exchangeable for 

15.5 million of our shares, subject to certain adjustments. 

) On July 31, 2001, DIRECTV sold 4.1 million of our shares. The shares have been placed with 

institutional investors. Following this transaction, DIRECTV held 3.3% of our outstanding share 

capital, based on the number of outstanding shares on this date. 

) On December 6, 2001, Alcatel sold 3.7 million of our shares through a placement to 

institutional investors. Following this transaction, Alcatel held 3.64% of our outstanding share 

capital, based on the number of outstanding shares on this date. 

) During 2001, Microsoft sold 4 million of our shares and almost 1 million shares in early 2002. 

) On March 7, 2002, Thomson S.A. sold 36,160,000 of our shares through a placement to 

institutional investors. Following this transaction (and taking into account the 15.5 million 

shares issued to Carlton on March 16, 2002), Thomson S.A. held 22.42% of our outstanding 

share capital, based on the number of outstanding shares on this date. 

Historical distribution of share capital 

From the time of our formation until December 1998, we had been fully held by Thomson S.A., 

which is wholly owned by the French State. Thomson S.A.’s interest in Thomson as a percentage of 

outstanding share capital declined significantly in 1999, 2000 and 2001 as a result of dilution and 

sales on the market. On December 31, 2001, Thomson S.A. held 37.98% of our outstanding share 

capital, based on the number of then outstanding shares. 

67

The following table provides certain information concerning our major shareholders as of the 

dates indicated. 

At December 31, At December 31, At December 31, 

1999 (1)(2) 

2000 2001 (4) 

Number % of Number % of Number % of 

of shares shares of shares shares of shares shares 

Shareholders held held held held held held 

Thomson S.A. ....................................... 128,654,744 51.73% 100,686,857 37.98% 100,677,233 37.98% 

Alcatel Participations............................. 16,911,164 6.80% 16,916,064 6.38% 9,654,217 3.64% 

DIRECTV............................................... 12,913,584 5.19% 12,918,484 4.87% 8,818,388 3.33% 

Microsoft................................................ 16,911,164 6.80% 16,916,064 6.38% 12,916,064 4.87% 

NEC....................................................... 16,911,164 6.80% 16,916,064 6.38% 13,915,966 5.25% 

Public..................................................... 42,516,680 17.10% 84,879,847 32.02% 105,473,648 39.78% 

Employees............................................. 

Thomson 

13,772,360 5.54% 13,306,908 5.02% 10,284,062 3.88% 

(3) ........................................... 117,364 0.04% 2,573,220 0.97% 3,373,930 1.27% 

Total...................................................... 248,708,224 100.00% 265,113,508 100.00% 265,113,508 100.00% 

(1) Reflecting retroactively the two for one stock split voted by the extraordinary shareholders’ meeting of May effective 

June 16, 2000. 

(2) Reflecting retroactively the 1,741,704 shares subscribed for by our management in 1999 and acquired from Alcatel 

Participations, DIRECTV, Microsoft and NEC in August 2000. 

(3) As of December 31, 1999 following the offerings in 1999, we held 117,364 shares coming from employees who defaulted 

on their payments. Effective November 10, 2000, the shareholders’ meeting authorized the Board of Directors to 

repurchase our shares on the open market. 3,373,000 of these treasury shares have since been lent to a financial 

institution under customary share lending arrangements in France, pursuant to which they will be returned during the first 

half of 2002. 

(4) Does not take into account the 15.5 million shares issued to Carlton on March 16, 2002, upon redemption of outstanding 

redeemable bonds payable exclusively in shares (ORAs). 

There is no shareholders’ agreement among any of our major shareholders. Our major 

shareholders do not have different voting rights than other shareholders. Each shareholder is entitled 

to one vote per ordinary share, except that a double voting right is granted to holders of registered 

shares when such shares have been registered in the name of the same shareholder continuously 

for more than two years beginning at any time after October 11, 2000. Each of them has one 

Director on the Board. You should read Item 6: ‘‘Directors, Senior Management and Employees’’, 

Item 7: ‘‘Major Shareholders and Related Party Transactions’’ and Item 10: ‘‘Additional Information 

— Memorandum and Articles of Association’’ for additional information regarding major 

shareholders, shareholders’ voting rights and related matters. 

B — Related Party Transactions 

Mr. Breton, Chairman and Chief Executive Officer of Thomson, is also the Chairman and Chief 

Executive Officer of Thomson S.A., our largest shareholder and wholly owned by the French State. 

Agreements between Thomson S.A. and Thomson 

) Cross-Licensing Agreement 

An agreement dated July 1997, which the parties have agreed to further amend in 2002, defines 

the relations between Thomson S.A., Thomson and Thalès S.A. (formerly Thomson-CSF), with 

respect to patents. 

The agreement grants to Thalès S.A. a non-exclusive and non-transferable license on the 

patents of Thomson S.A. and on our patents portfolio relating to Thalès S.A.’s scope of activity. The 

agreement also granted to us a non-exclusive and non-transferable license to use the patents of 

Thalès S.A. and Thomson S.A. relating to our scope of activity. 

By an amendment effective in December 2000 and expiring July 31, 2006, Thalès S.A. and 

Thomson S.A. have given Thomson Licensing S.A. (a wholly-owned subsidiary of Thomson) an 

68

exclusive right to grant licenses to third parties on their patents covering optical disks and have also 

authorized Thomson Licensing S.A. to negotiate and sign such licensing agreements. 

) Trademark Agreement 

Pursuant to the terms of an agreement dated March 20, 2001 between Thomson S.A. and 

Thomson, Thomson S.A. sold to us the THOMSON˛ name and all attached rights for a total amount 

of 0 2.4 million. This agreement terminated a contractual relationship dated August 1998 through 

which we were assigned a non-exclusive free license, transferable only to our subsidiaries, on the 

patents and trademarks of Thomson S.A. for the worldwide manufacture and sale of products within 

the business areas of Thomson. 

Pursuant to an agreement dated July 16, 2001, we also purchased from Thalès S.A., all rights 

relating to the Thomson name, for a total amount of 0 1.5 million. 

) Service Agreement 

The service agreement, dated August 1998, between Thomson S.A. and Thomson governs the 

financial, fiscal, administrative and legal services provided by us to Thomson S.A. This agreement 

was established under regular market conditions and may be renewed each year by tacit agreement. 

) Tax Agreement 

In 1998, Thomson S.A. and Thomson entered into an agreement pursuant to which 

Thomson S.A. agreed to indemnify and to compensate us and our French subsidiaries for our tax 

liability resulting from our withdrawal from fiscal consolidation. Under the terms of this agreement, 

Thomson S.A. was required to pay us an annual indemnity equal to the tax actually paid by us and 

our French subsidiaries owned at or greater than 95% for fiscal years 1998, 1999 and 2000. The 

maximum amount of the indemnity that was required to be paid to us was capped at an amount 

equal to a net tax of 0 116 million for us. As the total amount of the indemnity was paid at the end of 

the 2000 fiscal year, the tax agreement expired as of 2001. 

) Agreements with strategic partners 

We have entered into various agreements with our strategic partners: Alcatel, DIRECTV, 

Microsoft, NEC and, most recently, Carlton in connection with our acquisition of Technicolor 

described below. Each is represented on the Board by one Director. We intend to continue regular 

commercial relations with each of these partners. For more information on the nature and extent of 

our relationships with these shareholders, please see Item 4: ‘‘Information on the Company’’, Item 7: 

‘‘Major Shareholders and Related Party Transactions — Distribution of Share Capital’’, Item 10: 

‘‘Additional Information — Material Contracts’’ and Note 29 to our consolidated financial statements. 

) Loans made by Thomson 

We have an outstanding loan with Mr. Brian Kelly, the CFO of our Digital Media Solutions 

division, for the purchase of real estate in the amount of U.S.$276,000. This loan, which was 

granted on April 14, 2000, will begin bearing interest on December 31, 2002 at a rate equal to the 

interest rate on the date of the underlying mortgage loan taken out by Mr. Kelly on the property. The 

interest rate on this mortgage was 6.2% on March 25, 2002. As of this date, the full amount of the 

loan was outstanding. 

69

ITEM 8 — FINANCIAL INFORMATION 

A — Consolidated Financial Statements and Other Financial Information 

Please refer to the consolidated financial statements and the notes and exhibits thereto in 

Part III hereof and incorporated herein by reference. 

Barbier Frinault & Autres, Member of Andersen Worldwide and one of our two independent 

auditors, has informed us that on March 14, 2002, an indictment was unsealed charging Arthur 

Andersen LLP, the U.S. Member of Andersen Worldwide, with federal obstruction of justice arising 

from the U.S. government’s investigation of Enron Corp. Arthur Andersen LLP has indicated that it 

intends to contest vigorously the indictment. 

As a U.S.-listed company, we are required to file with the SEC annual financial statements 

audited by our independent statutory auditors. Our access to the U.S. capital markets and our ability 

to make timely SEC filings could be impaired if the SEC ceases accepting financial statements 

audited by Members of Andersen Worldwide or if for any reason any Member of Andersen 

Worldwide performing auditing services for us is unable to perform such services for us. 

B — Legal Proceedings 

In the normal course of business, we are involved in legal proceedings and are subject to tax, 

customs and administrative regulation. Our general policy is to set up reserve in cases where a risk 

is identified, the prospects for success are doubtful, and the amount of the potential liability is 

reasonably ascertainable. 

In January 1998, a grand jury investigation was initiated by the U.S. Attorney’s Office in 

Baltimore, Maryland. This investigation, currently being conducted by the U.S. Department of Justice, 

relates to the transfer pricing used in the importation of picture tubes by THOMSON multimedia, Inc. 

(a wholly-owned subsidiary of Thomson) from an Italian subsidiary of Thomson between 1993 and 

June 1998. 

In parallel, a civil investigation was initiated by the U.S. Customs Service, which issued prepenalty 

notices on December 21, 1998. A pre-penalty notice means that a claim is being 

contemplated. The pre-penalty notices allege that certain of our subsidiaries and five of their 

employees intentionally undervalued television tubes imported by us from the Italian affiliate. 

According to the preliminary pre-penalty notices, these tubes had an appraised domestic value of 

approximately U.S.$419 million (0 475 million at the December 31, 2001 closing rate). On 

December 28, 2000, the Customs Service amended the pre-penalty notices and alleged an 

appraised domestic value of approximately U.S.$425 million (0 482 million at the December 31, 2001 

closing rate). In an agreement 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 the U.S. government to complete its investigation and to seek resolution of the matter through 

administrative proceedings. The waivers were extended further in November 2001 and are effective 

through January 6, 2003. 

The amended pre-penalty notices estimate the loss of custom revenues at approximately 

U.S.$12.5 million (0 14 million at the December 31, 2001 closing rate). 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 

revenue. In addition, we have agreed to indemnify the five employees for the monetary penalties. To 

date, no charges have been filed. Based on information currently available, we are not in a position 

to estimate the liability and have not accrued for a reserve. We will defend vigorously against any 

allegations of wrongdoing. 

70

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 Thomson, 

Videocolor S.p.A, which had exported picture tubes to 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 

S.p.A. The taxable income increase, as proposed for the years 1993 through 1998, with 

regard to picture tube prices, amounts to ITL 60 billion (0 31 million). On December 28, 1999, the 

Direct Taxes Local Office formally advised that an assessment would be due with regard to 1993 

amounting to ITL 10.84 billion (0 5.6 million) taxable income, resulting in (i) reversal of tax-loss carryforwards 

and (ii) additional tax penalties and interest amounting to approximately ITL 4 billion 

(0 2.1 million). On March 21, 2000, Videocolor S.p.A. challenged this assessment before the 

competent tax jurisdiction of Frosinone in Italy. 

On November 23, 2000, the Direct Taxes Local Office gave notice of an assessment with regard 

to 1994 amounting to ITL 18.87 billion (0 9.7 million) taxable income, resulting in (i) additional taxes 

amounting to 0 5.2 million and (ii) tax penalties amounting to 0 5.2 million (before interest). In 

February 2001, Videocolor S.p.A challenged this assessment before the Local Tax County 

Commission. Based on our valuation method, the Commission nevertheless decided that the tax 

assessment should amount to 0 3.4 million and that we should pay an additional 0 2.7 million for the 

year and 0 2.5 million for late penalties. With respect to 1993, we have challenged this assessment 

before the competent tax jurisdiction of Frosinone. 

On February 13, 2001, the Court of Frosinone rendered its decision regarding the 1993 tax 

assessment. It maintained part of the assessment based on 1993 elements, yet it invalidated the 

valuation method of the exported tubes applied by the Italian Direct Taxes Local Office. Taking into 

account the tax-loss carry-forwards and the tax exemption system at that date, no tax or penalty is 

due concerning that year. Videocolor S.p.A. has decided to appeal the decisions before the 

competent tax jurisdiction. 

In 2001, the Direct Taxes Local Office gave notice of an assessment with regard to 1995 

resulting in (i) additional taxes amounting to ITL 8.2 billion (0 4.2 million) and (ii) tax penalties 

amounting to ITL 8.2 billion (0 4.2 million) before interest. The taxable income increase, as proposed 

for the year 1995, also mainly relates to picture tube prices. Videocolor S.p.A appealed this 

assessment on October 25, 2001, before the competent tax jurisdiction of Frosinone in Italy. 

In December 1998, a purported class action, Johnston v. THOMSON Multimedia, Inc., was filed 

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 on THOMSON Multimedia, Inc.’s 

motion. The Johnston suit was 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˛, GE˛ and ProScan televisions manufactured by us have been filed in state courts in New 

Jersey, New York, Florida, California, Illinois and Texas. In addition, a purported national class 

action, Fiocco v. THOMSON Multimedia, Inc., was filed in the Superior Court of New Jersey in 2000, 

and another purported national class action, Baird v. THOMSON Multimedia, Inc., was filed in early 

2001 in the Circuit Court of Madison County, Illinois. 

We entered into a settlement agreement on January 19, 2001 to resolve the claims on a 

nationwide basis. The settlement agreement was submitted to the Third Judicial Circuit Court in 

Madison County, Illinois, where the Baird case was pending, for preliminary approval. On 

January 23, 2001 the Illinois Court signed an order preliminarily approving the settlement agreement. 

In addition, the Court’s order required the lead counsel for the plaintiffs to dismiss without 

prejudice all of the pending class action cases referenced herein other than the Johnston and Baird 

actions. On June 15, 2001, the Court conducted a settlement fairness hearing resulting in an order 

71

from the Court giving final approval of the settlement agreement and a judgment of dismissal with 

respect to THOMSON Multimedia, Inc. In July 2001, four objectors to the settlement filed notices of 

appeal with the Appellate Court of Illinois, Fifth District, Madison County, Illinois. The appeals were 

dismissed in November 2001 and the settlement is now final. 

At the present time, it is not possible to make a precise determination of the total cost of the 

settlement that was reached between Thomson and the plaintiffs. During 2000, an estimate was 

made and expense recorded based on information available to us. Based on information currently 

available, we believe that we have adequately reserved for the class action settlement. 

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., 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. In 2001, Echostar filed an 

amended complaint which included additional antitrust claims and named Radio Shack Corporation, 

Circuit City Stores, Inc. and Best Buy Company, Inc. as additional defendants. On November 2, 

2001, the U.S. District Court dismissed with prejudice the litigation. 

In June 1998, Tanashin Denki Co. Ltd. filed suit in the U.S. District Court for the Eastern District 

of Virginia alleging infringement of four utility patents and one design patent that relate to various 

sub-components of audio cassette drive mechanisms. The case was subsequently transferred to the 

U.S. District Court for the Southern District of Indiana. We purchase the cassette drive mechanisms 

from third party vendors. In October 2001, a jury trial was held and a verdict was returned in favor of 

Tanashin Denki in the amount of U.S.$10.65 million (0 12.1 million). Tanashin Denki is seeking 

treble damages, recovery of attorneys’ fees and pre-judgment interest based upon the jury’s finding 

of willful infringement. Several motions by each party are pending before the Court and judgment 

has not been entered. We believe that the accrual settled in connection with this litigation is 

adequate. 

In June 2000, Superguide Corporation filed suit in the U.S. District Court for the Western District 

of North Carolina against DIRECTV Enterprises, Inc. et Al., THOMSON Multimedia, Inc. and 

Echostar Communications Corporation et Al. alleging infringement with respect to three patents 

relating to program guide data retrieval, display and program recordation. Gemstar Development 

Corporation was added as a defendant in March 2001. We believe that we have meritorious 

defenses and patent indemnity rights and are vigorously defending against the allegations raised. 

In December 2000, Pegasus Development Corporation and Personalized Media Communications, 

L.L.C. filed suit in the U.S. District Court for the District of Delaware against Thomson 

Consumer Electronics, Inc. (now THOMSON Multimedia, Inc.), DIRECTV, Inc., Hughes Electronics 

Corporation, and Philips Electronics North America Corporation alleging infringement with respect to 

seven patents relating to digital satellite signal processing. In November 2001, StarSight Telecast, 

Inc., TVG-PMC, Inc., and Gemstar-TV Guide International, Inc. were added as counter-defendants 

as a result of the Company’s claim of license. We believe that we have meritorious defenses and 

are vigorously defending against the allegations raised. 

In November 2001, THOMSON Multimedia, Inc., filed a demand for arbitration and a Statement 

of Claims with the American Arbitration Association seeking to dissolve and/or terminate the @TV 

Media Joint Venture with Gemstar TV Guide International, Inc. and recover damages for breach of 

contract. Gemstar TV Guide International, Inc. has counterclaimed that Thomson S.A. terminated, 

without good cause, a Memorandum of Terms outlining a proposed joint venture relating to the 

development of an electronic program guide business in Europe. Thomson S.A. believes that 

Gemstar’s counterclaims are without merit. 

On February 15, 2002, James Stalcup and Mary Gick filed an individual and purported class 

action pursuant to Section 5/2-801 of the Illinois Code of Civil Procedure on behalf of U.S. 

72

consumers who acquired certain television sets manufactured by THOMSON Multimedia, Inc. during 

the period between 1998 and 2001. The complaint alleges a defect in certain televisions, which have 

a ‘‘software-like integrated chip’’ which can cause temporary audio failure. We do not believe that the 

alleged televisions or the ‘‘ICs’’ which we procure from third parties are defective, and we intend to 

defend vigorously against any such allegations. 

In addition to the foregoing, we are subject to legal proceedings in the ordinary course of 

business. Other than as noted above, no proceeding is known by us nor any of our subsidiaries to 

be pending or contemplated by any third parties which, if adversely determined, could have a 

material adverse effect on our business, financial position, results of operations or liquidity. 

C — Dividends 

We may declare dividends upon the recommendation of our Board of Directors and the approval 

of our shareholders at their annual general meeting. Under French company law, our right to pay 

dividends is limited in specific circumstances. For a description of these restrictions, see Item 10: 

‘‘Additional Information — Memorandum and Articles of Association’’. 

We have not paid dividends during the last five years and do not currently intend to pay 

dividends in respect of 2001. Any future payments of dividends will depend on our net income and 

our investment policy at that time. 

73

ITEM 9 — THE OFFER AND LISTING 

Trading Market for Shares and ADSs 

Since November 3, 1999, our shares have been listed: 

) on the Premier Marché of Euronext Paris S.A. and are eligible for the Service de Règlement 

Différé (deferred settlement service) under the Euroclear France code 18453, each described 

below; and 

) on the New York Stock Exchange in the form of ADSs under the ticker symbol TMS. 

A — Trading on the Euronext Paris S.A. 

On September 22, 2000, the entity managing the Paris stock exchange (Société des Bourses 

Françaises, known as ParisBourse SBF S.A.) and the entities managing the Amsterdam and 

Brussels stock exchanges, respectively, merged to create Euronext NV, a Dutch holding company 

and the first pan-European stock exchange (‘‘Euronext’’). Subsequently, ParisBourse SBF S.A., now 

a wholly-owned French subsidiary of Euronext NV, changed its name to Euronext Paris S.A. 

(‘‘Euronext Paris’’). Securities quoted on any of the stock exchanges participating in Euronext are 

traded through a common platform, with central clearinghouse, settlement and custody structures. 

However, securities remain listed on their respective local exchanges. Euronext Paris retains 

responsibility for the admission of securities to its trading markets, as well as the regulation of these 

markets. 

Securities approved for listing by Euronext Paris are traded in one of the three regulated 

markets, the Paris Bourse, which in turn comprises the Premier Marché, the Second Marché, and 

the Nouveau Marché. In addition, Euronext Paris operates a European depositary receipt (‘‘EDR’’) 

market. Aside from these regulated markets, securities of certain other companies are traded on a 

non-regulated market, the Marché Libre. These markets are all operated and managed by Euronext 

Paris, a market operator responsible for the admission of securities and the supervision of trading in 

listed securities. 

Official trading of listed securities on Euronext Paris, including our shares, is transacted through 

authorized financial institutions that are members of Euronext Paris and takes place continuously on 

each business day in Paris from 9:00 a.m. to 5:25 p.m., with a pre-opening session from 7:15 a.m. 

to 9:00 a.m. and a post-closing session with a final fixing at 5:30 p.m. (during which time trades are 

recorded but not executed). Euronext Paris publishes a daily Official Price List that includes price 

information on each listed security. Euronext Paris has introduced continuous trading by computer 

for most listed securities, including our shares. Euronext Paris may reserve or suspend trading in a 

security listed on the Premier Marché if the quoted price of the security exceeds certain price limits 

defined by the regulations of Euronext Paris. In particular, if the quoted price of a security varies by 

more than 10% from the reference price, Euronext Paris may restrict trading in that security for up to 

four minutes (réservation à la hausse ou à la baisse). The reference price is the opening price or, 

with respect to the first quoted price of a given trading day, the last traded price of the previous 

trading day, as adjusted if necessary by Euronext Paris. Euronext Paris may also reserve trading for 

a four minute period if the quoted price of a security varies by more that 2% from the last traded 

price. However, subject to trading conditions and appropriate and timely information, Euronext Paris 

may modify the reservation period and may accept broader fluctuation ranges than above 

mentioned. Euronext Paris also may suspend trading of a security listed on the Premier Marché in 

certain other limited circumstances, including, for example, where there is unusual trading activity in 

the security (suspension de la cotation). In addition, in certain exceptional cases, the Conseil des 

Marchés Financiers, or ‘‘CMF’’, the Commission des Opérations de Bourse, or ‘‘COB’’, and the 

issuer also may request a suspension in trading. 

Trades of securities listed on the Premier Marché are settled on a cash basis on the third 

trading day following the trade (immediate settlement or Réglement Immédiat ). Market intermediaries 

74

are also permitted to offer investors a deferred settlement service (Service de Réglement Différé or 

‘‘SRD’’) for a fee. The deferred settlement service is only available for trades in securities which 

either (i) are a component of the Index SBF 120 or (ii) have both a total market capitalization of at 

least 0 1 billion and a daily average volume of trades of at least 0 1 million. 

Our shares are eligible for the deferred settlement service. In the deferred settlement service, 

the purchaser may decide on the determination date (date de liquidation), which is the fifth trading 

day prior to the end of the month, either (i) to settle the trade no later than the last trading day of 

such month, or (ii) upon payment of an additional fee, to extend to the determination date of the 

following month the option either to settle no later than the last trading day of such month or to 

postpone again the selection of a settlement date until the next determination date. Such option may 

be maintained on each subsequent determination date upon payment of an additional fee. 

Equity securities traded on a deferred settlement basis are considered to have been transferred 

only after they have been registered in the purchaser’s account. Under French securities regulations, 

any sale of a security traded on a deferred settlement basis during the month of a dividend payment 

date is deemed to occur after the dividend has been paid. If the sale takes place before, but during 

the month of a dividend payment date, the purchaser’s account will be credited with an amount 

equal to the dividend paid and the seller’s account will be debited by the same amount. 

Trading by our company in our own shares 

Under French law, our company may not issue shares to itself, but we may purchase our 

shares in the limited cases described in the section entitled ‘‘Description of Share Capital — 

Memorandum and Articles of Association — Purchase of our own shares’’ and ‘‘— Trading in our 

own shares’’. 

In France, our shares have been included in the SBF 120 and SBF 250 Indexes since March 7, 

2000 and in the CAC 40 Index since August 23, 2000. We are also part of the IT CAC Index, a 

Euronext Paris technology index. 

The tables below set forth, for the periods indicated, the high and low quoted prices in euro for 

our outstanding shares on the Premier Marché of Euronext Paris. 

Years ending December 31, 

Euronext Paris 

Volume of transactions (1) 

Share price in euro (1) 

euro Average Average 

in millions Shares volume closing price High Low 

1999 (from Nov. 3) ................. 645.3 40,365,298 974,414 20.16 27.25 12.43 

2000........................................ 8,620.5 156,303,492 636,024 56.11 81.33 21.75 

2001........................................ 9,321.0 257,851,594 801,793 40.26 58.90 17.25 

(1) Data take into account the two for one split voted by the Extraordinary Shareholders’ meeting of May 26, 2000, effective 


Source: Euronext Paris 

75

Quarters for years ending December 31, 



Share price in euro (1) 



1999 

Fourth Quarter 

(from November 3) ............ 


645.3 40,365,298 974,414 20.16 27.25 12.43 

First Quarter .......................... 2,041.5 40,758,960 738,937 49.56 74.35 21.75 

Second Quarter ..................... 1,269.1 23,136,596 379,288 55.85 69.60 39.98 

Third Quarter ......................... 2,301.7 32,466,448 507,288 69.11 81.33 56.55 

Fourth Quarter....................... 


3,008.2 59,941,488 925,544 49.90 62.00 42.00 

First Quarter .......................... 2,351.1 50,618,418 790,913 47.52 58.90 33.50 

Second Quarter ..................... 2,372.9 55,000,581 901,649 43.58 53.30 31.25 

Third Quarter ......................... 2,055.7 66,965,198 1,030,234 31.43 39.80 17.25 

Fourth Quarter....................... 2,541.3 85,267,397 1,353,451 29.38 34.90 19.80 




Last six months 


Volume of transactions Share price in euro 




March (through March 15) ...... 1,551.3 47,061,758 4,278,342 32.96 35.00 28.80 

February .................................. 829.25 26,067,967 1,303,398 31.28 34.99 28.50 

January.................................... 


828.2 23,575,529 1,071,615 34.95 37.15 33.02 

December ................................ 768.17 23,032,514 1,279,584 33.27 34.90 29.95 

November ................................ 1,126.4 36,837,723 1,674,442 30.62 34.27 26.31 

October.................................... 646.63 25,331,182 1,101,356 25.14 30.00 19.80 

September ............................... 576.18 25,117,144 1,255,857 23.11 31.21 17.25 


B — Trading on the New York Stock Exchange 

JPMorgan Chase Bank serves as the depositary with respect to the ADSs traded on the 

New York Stock Exchange. Each ADS represents one ordinary share. 

76

The tables below set forth, for the periods indicated, the high and low quoted prices in 

U.S. dollars for our outstanding ADSs on the New York Stock Exchange. 

Years ending December 31, 

New York Stock Exchange 


ADS price in U.S.$ (1) 

U.S.$ Average Average 


1999 (from November 3).............. 110.6 6,774,600 168,893 20.41 27.31 13.44 

2000.............................................. 286.3 6,107,500 24,371 51.45 73.00 23.06 

2001.............................................. 114.8 3,367,900 13,580 33.99 54.25 16.25 



Source: NYSE 

Quarters for years ending December 31, 



ADS price in U.S.$ (1) 

Average 

U.S.$ in Average closing 

millions Shares volume price High Low 

1999 

Fourth Quarter (from 

November 3) ........................ 110.6 6,774,600 168,893 20.41 27.31 13.44 


First Quarter ............................ 82.5 1,682,600 26,708 48.76 71.00 23.06 

Second Quarter ....................... 30.9 604,600 9,670 52.01 65.00 37.50 

Third Quarter ........................... 23.3 364,600 5,787 62.53 73.00 51.25 

Fourth Quarter......................... 149.6 3,455,700 54,852 42.50 52.75 36.50 


First Quarter ............................ 47.2 1,057,200 17,052 43.45 54.25 29.10 

Second Quarter ....................... 22.3 625,500 9,929 37.72 45.71 28.00 

Third Quarter ........................... 19.1 695,800 11,793 28.42 33.73 16.25 

Fourth Quarter......................... 26.3 989,400 15,459 26.30 31.00 18.45 



Source: NYSE 

77

Last six months 


Volume of transactions ADS price in U.S.$ 

U.S.$ in Average 

Average 

closing 

thousands Shares volume price High Low 


March (through March 15).... 8,139 284,200 25,836 28.62 30.86 25.20 

February................................ 7,001 254,300 13,384 27.25 30.00 24.90 

January ................................. 


6,151 198,700 9,642 30.86 32.98 29.10 

December ............................. 7,756 261,600 13,080 29.62 31.00 26.77 

November ............................. 11,979 443,800 21,133 27.05 29.89 24.49 

October ................................. 6,523 284,000 12,348 22.72 25.95 18.45 

September ............................ 5,284 250,900 16,727 21.06 26.25 16.25 

Source: NYSE 

78

ITEM 10 — ADDITIONAL INFORMATION 

A — Memorandum and Articles of Association 

Our company is a société anonyme, a form of limited liability company, incorporated under the 

laws of France. We are registered in the Register of Commerce and Companies (Registre du 

Commerce et des Sociétés) of Nanterre under No. 333 773 174 and our APE code, which identifies 

a company’s type of business and activities, is 741J, corresponding to the business of corporate 

administration. Our by-laws (statuts) specify that our corporate affairs are governed by the French 

Company Law No. 66-537 of July 24, 1966 (now Title II of the French Commercial Code) and the 

statuts themselves. Our corporate purpose, as defined in Article 2 of our statuts, is: 

) to acquire holdings or interests in all companies of any kind and any form, which have been 

or will be formed; 

) to acquire, manage, and sell all property rights and assets and all financial instruments, to 

perform all financing operations; 

) to acquire, sell, operate all intellectual property rights, licenses or processes; and 

) to manufacture, purchase, import, sell, export in all locations any and all equipment, products 

and provide all services. 

We may act directly or indirectly on our own behalf or on behalf of third parties, either alone or 

in a partnership, association or company, with all other individuals and legal entities, and conduct in 

France or abroad, in any form whatsoever, all financial, commercial, industrial personal property or 

real estate operations that fall within our corporate purpose or involve similar or related matters. 

We summarize below material provisions of applicable French law and our statuts. An unofficial 

English translation of our statuts is included as an exhibit to our Annual Report on Form 20-F for the 

year ended December 31, 2000. You may obtain copies of our statuts in French from the Greffe of 

the Registry of Commerce and Companies of Nanterre, France. 

Authorized but Unissued Capital 

Under authorizations that our Board of Directors has received from our shareholders, the Board 

of Directors may issue share purchase or subscription options to our employees and agents and 

may additionally increase our capital for certain other purposes. More specifically, our shareholders 

have authorized our Board of Directors: 

) To increase our capital by an amount which, by law, may not exceed 33% of our share 

capital, in order to grant share subscription options relating to newly issued shares as to 

which shareholders’ preemptive rights have been waived to our employees and agents. This 

authorization expires on November 10, 2005. 

) To increase our capital by up to 0 15,000,000, or 4,000,000 shares as to which shareholders’ 

preemptive rights have been waived, on or prior to March 12, 2003 for the purpose of paying 

to Carlton some of the acquisition price for Technicolor that we owe to them. The number of 

shares to be issued for this payment will depend on the trading price of the shares at that 

time. 

) At any time on or before November 15, 2002, to increase our capital by 0 91,016,934, or 

24,271,182 shares, all or any portion of which may be used in connection with the issuance of 

shares into which debt securities are convertible. Those shares that are issued in connection 

with the issuance of convertible debt securities may be issued without provision for the 

preemptive rights of our shareholders, at the option of our Board of Directors. Our Board of 

Directors has proposed a shareholder resolution for adoption at our next shareholders’ 

meeting scheduled to be held on May 3, 2002 which, if adopted, would replace the 

79

authorization mentioned above, revising the amount by which we can increase our share 

capital to 0 250,000,000. 

In addition, on or prior to November 15, 2002, our Board of Directors may increase our capital 

through the capitalization of up to 0 1 billion in reserves, profits and premiums. Any such capital 

increase would be used to increase nominal value of our shares or to issue additional shares to 

current shareholders. 

Under the French privatization laws, so long as the French State holds between 50% and 20% 

of our outstanding shares, we may not effect any of the foregoing capital increases unless we have 

obtained the approval of the French Minister of the Economy. Other than with respect to a capital 

increase involving a stock option plan, the French Minister of the Economy must base this approval 

on a binding recommendation, as to price, given by the French Commission of Participations and 

Transfers (Commission des Participations et des Transferts), a commission of experts charged with 

valuing state-owned businesses to be transferred to the private sector, or, in the case of a capital 

increase involving a stock option plan, in the absence of an objection by such Commission within a 

10-day period. 

For information about our share capital history for the last three fiscal years, see Note 17 to our 


Shareholders’ Meetings and Voting Rights 

General 

In accordance with the French Commercial Code, there are two types of shareholders’ general 

meetings, ordinary and extraordinary. 

Ordinary general meetings of shareholders are required for matters such as: 

) electing, replacing and removing directors, 

) appointing independent auditors, 

) approving the annual accounts, 

) declaring dividends or authorizing dividends to be paid in shares provided the statuts contain 

a provision to that effect, as ours do, and 

) issuing non-convertible bonds. 

Extraordinary general meetings of shareholders are required for approval of matters such as 

amendments to our statuts, including any amendment required in connection with extraordinary 

corporate actions. Extraordinary corporate actions include: 

) changing our company’s name or corporate purpose, 

) increasing or decreasing our share capital, 

) creating a new class of equity securities, 

) authorizing the issuance of investment certificates, convertible or exchangeable securities, 

) establishing any other rights of equity securities, 

) selling or transferring substantially all of our assets, and 

) the voluntary liquidation of our company. 

Special meetings of shareholders of a certain category of shares (such as, among others, 

shares with double voting rights or preferred shares without voting rights) are required for any 

modification of the rights derived from such category of shares. The resolutions of the shareholders’ 

80

general meeting affecting these rights are effective only after approval by the relevant special 

meeting. 

The Chairman of our Board of Directors or a Vice President of the Board of Directors presides 

over shareholders’ meetings. If none are available, the Board of Directors may delegate a member 

to preside over the meeting. Otherwise, those present at the meeting may elect a meeting 

chairperson. 

Annual Ordinary Meetings 

The French Commercial Code requires our Board of Directors to convene an annual ordinary 

general meeting of shareholders for approval of the annual accounts. This meeting must be held 

within six months of the end of each fiscal year. This period may be extended by an order of the 

President of the Tribunal de Commerce. The Board of Directors may also convene an ordinary or 

extraordinary meeting of shareholders upon proper notice at any time during the year. If the Board of 

Directors fails to convene a shareholders’ meeting, our independent auditors or a court-appointed 

agent may call the meeting. Any of the following may request the court to appoint an agent: 

) one or several shareholders holding at least 5% of our share capital, 

) any interested party in cases of urgency, 

) duly qualified associations of shareholders who have held their shares in registered form for 

at least two years and who together hold at least 1% of the voting rights of our company, 

) the Workers’ Council (comité d’entreprise) provided that there is an emergency, or 

) the majority shareholder (either in terms of capital stock or of voting rights) after a takeover 

(offre publique d’achat ou d’échange), or after the transfer of a controlling block. 

In the case of a bankruptcy, our liquidator may also call a shareholders’ meeting in some 

instances. 

Notice of Shareholders’ Meetings 

We must announce general meetings at least 30 days in advance by means of a preliminary 

notice which is published in the Bulletin des Annonces Légales Obligatoires, or ‘‘BALO’’. The 

preliminary notice must first be sent to the COB. The COB also recommends that simultaneously 

with the publication of the preliminary notice in the BALO, a summary of the preliminary notice 

should be published in a newspaper of national circulation in France. It must contain, among other 

things, the agenda, a draft of the resolutions to be submitted to the shareholders, a description of 

the procedures which holders of bearer shares must follow to attend the meeting and the procedure 

for voting by mail. 

At least fifteen days prior to the date set for the meeting on first call, and at least six days 

before any second call, we must send a final notice containing the final agenda, place, date and 

other information for the meeting. The final notice must be sent by mail to all registered shareholders 

who have held shares for more than one month prior to the date of the preliminary notice and 

published in a newspaper authorized to publish legal announcements in the local administrative area 

(département) in which our company is registered as well as in the BALO, with prior notice having 

been given to the COB. 

In general, shareholders can only take action at shareholders’ meetings on matters listed on the 

agenda for the meeting. As an exception to this rule, shareholders may take action with respect to 

the appointment and dismissal of directors even though these actions have not been included on the 

agenda. Additional resolutions to be submitted for approval by the shareholders at the meeting may 

81

e proposed to the Board of Directors within ten days of the publication of the preliminary notice in 

the BALO by: 

) one or several shareholders holding a specified percentage of shares, 

) a duly qualified association of shareholders who have held their shares in registered form for 

at least two years and who together hold at least 1% of our voting rights, or 

) the Workers Council. 

The Board of Directors must submit these resolution to a vote of the shareholders. 

During the two weeks preceding a meeting of shareholders, any shareholder may submit written 

questions to the Board of Directors relating to the agenda for the meeting. The Board of Directors 

must respond to these questions. 

Attendance and Voting at Shareholders’ Meetings 

In general, each shareholder is entitled to one vote per share at any general meeting, except for 

holders of shares with double voting rights. Our statuts provide that if a shareholder holds shares in 

registered form continuously for a period of more than two years beginning at any time after 

October 11, 2000, such shares will carry the right to two votes per share. This second voting right 

will automatically expire for any ordinary share converted from registered to bearer form or for a 

change of ownership. However, a change of ownership as part of an estate, in the division of 

property between spouses, or in an inter vivos transfer to a spouse or relative entitled to inherit will 

not be considered as a change in ownership for the purposes of calculating this two-year ownership 

period. 

If a shareholder fails to properly notify us, in the manner described below under ‘‘— Requirements 

for Holdings Exceeding Certain Percentages’’, on passing the threshold of 1% or integral 

multiples thereof, the shares over that threshold may be deprived of their voting right. 

Under the French Commercial Code, shares of a company held by entities controlled directly or 

indirectly by that company are not entitled to voting rights and do not count for quorum or majority 

purposes. 

Shareholders may attend ordinary general meetings and extraordinary general meetings and 

exercise their voting rights subject to the conditions specified in the French Commercial Code and 

our statuts. There is no requirement that a shareholder have a minimum number of shares in order 

to attend or to be represented at an ordinary or extraordinary general meeting. 

In order to participate in any general meeting, a holder of shares held in registered form must 

have its shares registered in its name in a shareholder account maintained by us or on our behalf by 

an agent appointed by us at least five days prior to the date set for the meeting. A holder of bearer 

shares must obtain a certificate from the accredited intermediary with whom the holder has 

deposited its shares. This certificate must indicate the number of bearer shares the holder owns and 

must state that these shares are not transferable until the time fixed for the meeting. The holder 

must deposit this certificate at the place specified in the notice of the meeting at least five days 

before the meeting. 

Under a French statute dated May 15, 2001, shares may be registered in the name of 

intermediaries who act on behalf of one or more investors residing outside France. When shares are 

so held, we are entitled to request from such intermediaries the name of the investors and the 

number of shares held by such investors. Also, we may request any legal person who holds more 

than 2.5% of our shares, to disclose the name of any person who owns, directly or indirectly, more 

than a third of its share capital or of its voting rights. A person not providing the complete requested 

information in time might be deprived by a French court of either its voting rights or its dividends or 

82

oth for a period of up to five years. A decree must be taken by the government to implement 

certain provisions of this statute. 

Proxies and Votes by Mail 

In general, all shareholders who have properly registered their shares or duly presented a 

certificate from their accredited financial intermediary may participate in general meetings. 

Shareholders may participate in general meetings either in person or be represented by a spouse or 

by another shareholder. Shareholders may vote in person, by proxy either to a spouse or to another 

shareholder or by mail. However, a holder of bearer shares who is not a French resident may be 

represented at shareholders’ meetings by an appointed intermediary as described in ‘‘— Attendance 

and Voting at Shareholders’ Meetings’’. 

Proxies will be sent to any shareholder on request. In order to be counted, such proxies must 

be received at our registered office, or at any other address indicated on the notice convening the 

meeting, prior to the date of the meeting. A shareholder may only grant proxies to his or her spouse 

or to another shareholder. A shareholder that is a corporation may grant proxies to a legal 

representative. Alternatively, the shareholder may send us a blank proxy without nominating any 

representative. In this case, the chairman of the meeting will vote the blank proxies in favor of all 

resolutions proposed or allowed by the Board of Directors and against all others. 

With respect to votes by mail, we must send shareholders a voting form. The completed form 

must be returned to us at least three days prior to the date of the shareholders’ meeting. 

Quorum 

The French Commercial Code requires that shareholders having at least 25% of the shares 

entitled to voting rights must be present in person, vote by mail or be represented to fulfill the 

quorum requirement for: 

) an ordinary general meeting, or 

) an extraordinary general meeting where an increase in our Share Capital is proposed through 

incorporation of reserves, profits or share premium. 

The quorum requirement is one-third of the shares entitled to voting rights, on the same basis, 

for any other extraordinary general meeting. 

If a quorum is not present at a meeting, the meeting is adjourned. When an adjourned meeting 

is resumed, there is no quorum requirement for an ordinary meeting or for an extraordinary general 

meeting where an increase in our share capital is proposed through incorporation of reserves, profits 

or share premium. In the case of any other reconvened extraordinary general meeting, shareholders 

having at least 25% of the voting rights attached to outstanding shares must be present in person or 

voting by mail or by proxy for a quorum. However, only questions that were on the agenda of the 

adjourned meeting may be discussed and voted upon. If a quorum is not present, the reconvened 

meeting may be adjourned for a maximum of two months. No deliberation by the shareholders may 

take place without a quorum. 

Majority 

A simple majority of the shareholder votes cast may pass a resolution at an ordinary general 

meeting or an extraordinary general meeting concerning only a capital increase by incorporation of 

reserves, profits or share premium. At any other extraordinary general meeting, a two-thirds majority 

of the shareholder votes cast, including abstentions by shareholders present or represented by proxy 

or voting by mail, is required. 

A unanimous shareholder vote is required to increase liabilities of shareholders. 

83

Abstention from voting by those present or those represented by proxy or voting by mail is 

counted as a vote against the resolution submitted to a shareholder vote. 

Shareholder Rights 

Shareholder rights can be amended only after an extraordinary general meeting of the class of 

shareholders affected has taken place. Two-thirds of the votes appertaining to shares of the affected 

class voting either in person or by mail or proxy must approve any proposal to amend shareholder 

rights. The voting requirements applicable to this type of special meeting are the same as those 

applicable to an extraordinary general meeting, and the quorum requirements for a special meeting 

are 50% of the voting shares, or 25% upon resumption of an adjourned meeting. A unanimous 

shareholder vote is required to increase liabilities of shareholders. 

Financial Statements and other Communications with Shareholders 

In connection with any shareholders’ meeting, we must provide a set of documents including our 

Annual Report and a summary of the results of the five last fiscal years to any shareholder who so 

requests. 

Dividends 

We may only distribute dividends out of our ‘‘distributable profits’’, plus any amounts held in our 

reserve which the shareholders decide to make available for distribution, other than those reserves 

which are specifically required by law or our statuts. ‘‘Distributable profits’’ consist of our 

unconsolidated net profit in each fiscal year, as increased or reduced by any profit or loss carried 

forward from prior years, less any contributions to the reserve accounts. 

Legal Reserve 

The French Commercial Code provides that French sociétés anonymes such as our company 

must allocate 5% of their unconsolidated statutory net profit for each year to their legal reserve fund 

before dividends may be paid with respect to that year. Funds must be allocated until the amount in 

the legal reserve is equal to 10% of the aggregate nominal value of the issued and outstanding 

share capital. The legal reserve of any company subject to this requirement may only be distributed 

to shareholders upon liquidation of the company. This restriction on the payment of the dividends 

also applies on an unconsolidated basis to each of our French subsidiaries organized as a société 

anonyme, société en commandite par actions, société par actions simplifiée or société à 

responsabilité limitée. 

Approval of Dividends 

According to the French Commercial Code, the Board of Directors may propose a dividend for 

approval by the shareholders at the annual general meeting of shareholders. If we have earned 

distributable profits since the end of the preceding fiscal year, as reflected in an interim income 

statement certified by our auditors, the Board of Directors may distribute interim dividends to the 

extent of the distributable profits for the period covered by the interim income statement. The Board 

of Directors exercises this authority subject to French law and regulations and may do so without 

obtaining shareholder approval. 

Distribution of Dividends 

Dividends are distributed to shareholders pro rata according to their respective holdings of 

shares. Outstanding dividends are payable to shareholders on the date of the shareholders’ meeting 

at which the distribution of dividends is approved. In the case of interim dividends, distributions are 

made to shareholders on the date of the Board of Directors’ meeting in which the distribution of 

interim dividends is approved. The actual dividend payment date is decided by the shareholders in 

84

an ordinary general meeting, or by the Board of Directors in the absence of such a decision by the 

shareholders. 

Timing of Payment 

According to the French Commercial Code, we must pay any dividends within nine months of 

the end of our fiscal year, unless otherwise authorized by court order. Dividends on shares that are 

not claimed within five years of the actual dividend payment date revert to the French State. 

Changes in Share Capital 

Increases in share capital 

As provided by the French Commercial Code, our share capital may be increased only with the 

shareholders’ approval at an extraordinary general meeting following the recommendation of the 

Board of Directors. Increases in our share capital may be effected by: 

) issuing additional shares, 

) increasing the nominal value of existing shares, or 

) creating a new class of equity securities. 

Increases in share capital by issuing additional securities may be effected through one or a 

combination of the following: 

) for cash, 

) for assets contributed in kind, 

) by conversion or exchange of debt securities previously issued, 

) by capitalization of profits, reserves or share premiums, or 

) subject to various conditions, in satisfaction of debt incurred by our company. 

Decisions to increase the share capital through the capitalization of reserves, profits and/or 

share premiums require the approval of an extraordinary general meeting, acting under the quorum 

and majority requirements applicable to ordinary shareholders’ meetings. Increases effected by an 

increase in the nominal value of shares require unanimous approval of the shareholders, unless 

effected by capitalization of reserves, profits or share premiums. All other capital increases require 

the approval of an extraordinary general meeting. See ‘‘— Shareholders’ Meetings and Voting 

Rights’’. 

Pursuant to a French law of February 19, 2001, any decision to increase the share capital 

requires the shareholders, at an extraordinary shareholders’ meeting, to consider and vote upon a 

capital increase reserved for employees, although such capital increase need not be approved. Noncompliance 

with this requirement may result in the invalidity of the voted capital increase. At our next 

annual general meeting scheduled to be held on May 3, 2002, we intend to complete this formality 

with respect to the issuance of shares to Carlton pursuant to the March 2001 ORAs by ratifying such 

issuance and proposing a capital increase reserved for employees. 

The shareholders may delegate the right to carry out any increase in share capital to the Board 

of Directors, provided that the increase has been previously authorized by the shareholders. The 

Board of Directors may further delegate this right to our Chairman and Chief Executive Officer. 

Decreases in share capital 

According to the French Commercial Code, any decrease in our share capital requires approval 

by the shareholders entitled to vote at an extraordinary general meeting. The share capital may be 

reduced either by decreasing the nominal value of the outstanding share capital or by reducing the 

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number of outstanding shares. The number of outstanding shares may be reduced either by an 

exchange of shares or by the repurchase and cancellation of shares. In the case of a capital 

reduction, through a reduction of the number of outstanding shares other than a reduction to absorb 

losses or a reduction as part of a program to purchase our own shares, all holders of shares must 

be offered the possibility to participate in such a reduction. Holders of each class of shares must be 

treated equally unless each affected shareholder agrees otherwise. 

Preferential subscription rights 

According to the French Commercial Code, if we issue specific kinds of additional securities, 

current shareholders will have preferential subscription rights to these securities on a pro rata basis. 

These preferential rights require us to give priority treatment to those shareholders. The rights entitle 

the individual or entity that holds them to subscribe to an issue of any securities that may increase 

the share capital of our company by means of a cash payment or a set-off of cash debts. 

Preferential subscription rights are transferable during the subscription period relating to a particular 

offering. These rights may also be listed on Euronext Paris. 

A two-thirds majority of the votes appertaining to the shares entitled to vote at an extraordinary 

general meeting may waive the preferential subscription rights of all shareholders with respect to any 

particular offering or a portion of that offering. French law requires that the Board of Directors and 

our independent auditors present reports that specifically address any proposal to waive preferential 

subscription rights. In the event of a waiver, the issue of securities must be completed within the 

period prescribed by law. The shareholders may also decide at an extraordinary general meeting to 

give the existing shareholders a non-transferable priority right to subscribe to the new securities, 

during a limited period of time. Shareholders also may notify us that they wish to waive their own 

preferential subscription rights with respect to any particular offering if they so choose. 

Form, Holding and Transfer of shares 

Form of shares 

Our statuts provide that the shares may be held in registered or bearer form at the holder’s 

election. Our statuts also provide that any person holding more than 2% of our share capital must 

within fifteen days of passing this threshold request that its shares be converted into registered form. 

Holding of shares 

In accordance with French law concerning dematerialization of securities, shareholders’ 

ownership rights are represented by book entries instead of share certificates. 

We maintain a share account with Euroclear France (a French clearing system, which holds 

securities for its participants) for all shares in registered form, which is administered by Crédit 

Agricole Indosuez. In addition, we maintain separate accounts in the name of each registered 

shareholder either directly, or, at a shareholder’s request, through the shareholder’s accredited 

intermediary. Each shareholder account shows the name of the holder and the number of shares 

held and, in the case of shares held through an accredited intermediary, shows that they are so 

held. Crédit Agricole Indosuez, as a matter of course, issues confirmations to each registered 

shareholder as to shares registered in the shareholder’s account, but these confirmations are not 

documents of title. 

Shares held in bearer form are held on the shareholder’s behalf in an account maintained by an 

accredited intermediary and are registered in an account which the accredited intermediary 

maintains with Euroclear France. That account is separate from our company’s share account with 

Euroclear France. Each accredited intermediary maintains a record of shares held through it and will 

issue certificates of deposit for the shares that it holds. Shares held in bearer form may only be 

transferred through accredited intermediaries and Euroclear France. Our statuts permit us to request 

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that Euroclear France provide us at any time with the identity of the holders of our shares or other 

securities granting immediate or future voting rights, held in bearer form, and with the number of 

shares or other securities so held. Also, we may request any legal person (personne morale) who 

holds more than 2.5% of our shares, to disclose the name of any person who owns, directly or 

indirectly, more than a third of its share capital or of its voting rights. 

Transfer of shares 

Registered shares must be converted into bearer form before being transferred on the Euronext 

Paris and, accordingly, must be registered in an account maintained by an accredited intermediary. 

A shareholder may initiate a transfer by giving instructions to the relevant accredited intermediary. 

For dealings on Euronext Paris, a tax assessed on the price at which the securities were traded, or 

impôt sur les opérations de bourse, is payable at the rate of 0.3% on transactions of up to 0 153,000 

and at a rate of 0.15% thereafter. This tax is subject to a rebate of 0 23 per transaction and a 

maximum assessment of 0 610 per transaction. However, non-residents of France are not required 

to pay this tax. In addition, a fee or commission is payable to the broker involved in the transaction, 

regardless of whether the transaction occurs within or outside France. No registration duty is 

normally payable in France, unless a transfer instrument has been executed in France. 

Liquidation Rights 

If we are liquidated, any assets remaining after payment of our debts, liquidation expenses and 

all of our remaining obligations will be distributed first to repay in full the nominal value of our 

shares. Any surplus will be distributed pro rata among shareholders in proportion to the nominal 

value of their shareholdings. 

Requirements for Holdings Exceeding Certain Percentages 

The French Commercial Code provides that any individual or entity, acting alone or in concert 

with others, that becomes the owner, directly or indirectly, of more than 5%, 10%, 20%, 331 /3%, 50% 

or 662 /3% of the outstanding shares or voting rights of a listed company in France, such as our 

company, or that increases or decreases its shareholding or voting rights above or below any of 

those percentages, must notify the company within fifteen calendar days of the date it crosses the 

threshold, of the number of shares it holds (directly or in the form of ADSs or by an intermediary as 

described in ‘‘— Attendance and Voting at Shareholders’ Meetings’’) and their voting rights. The 

individual or entity must also notify the CMF within five trading days of the date it crosses the 

threshold. 

French law and the COB regulations impose additional reporting requirements on persons who 

are increasing their ownership above 10% or 20% of the outstanding shares or voting rights of a 

listed company. These persons must file a report with the company, the COB and the CMF within 

15 days of the date they cross the threshold. In the report, the acquirer must specify its intentions for 

the following 12-month period, including whether or not it intends to continue its purchases, to 

acquire control of the company in question or to seek nomination to the board of directors. The CMF 

makes the notice public. The acquirer must also publish a press release stating its intentions in a 

financial newspaper of national circulation in France. The acquirer may amend it stated intentions, 

provided that it does so on the basis of significant changes in its own situation or shareholders. 

Upon any change of intention, it must file a new report. 

Under CMF regulations, and subject to limited exemptions granted by the CMF, any person or 

persons acting in concert owning in excess of 331 /3% of the share capital or voting rights of a French 

listed company must initiate a public tender offer for the balance of the share capital of such 

company. The regulations provide for some exceptions to the rule. 

If any person fails to comply with the legal notification requirement, the shares or voting rights in 

excess of the relevant threshold will be deprived of voting rights for all shareholders’ meetings until 

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the end of a two-year period following the date on which the owner thereof complies with the 

notification requirements. In addition, any shareholder who fails to comply with these requirements 

may have all or part of its voting rights suspended for up to five years by the Commercial Court at 

the request of our Chairman, any shareholder or the COB, and may be subject to criminal fees. 

In addition, our statuts provide that any person who becomes, directly or indirectly, the owner of 

1% of our share capital or voting rights (as defined in Article L.233-7 of the French Commercial 

Code) must notify us by registered mail, return receipt requested, within 7 days of the number of 

shares or voting rights it holds. The same notification requirement applies to each subsequent 

increase or decrease in ownership of 1% or integral multiples of 1%. Each shareholder who does 

not comply with these requirements may be deprived of voting rights for the shares representing the 

percentage exceeding the mentioned thresholds. In addition, upon holding directly or indirectly more 

than 2% of our share capital a person is required within 15 days of passing this threshold to request 

that its shares be converted into registered form. By sending a copy of the request to us by letter, 

telex or fax within this 15-day period, a shareholder will also comply with the notification 

requirements of the threshold. 

In order to permit holders to give the required notice, we must publish in the BALO, not later 

than fifteen calendar days after the annual ordinary general meeting of shareholders, information 

with respect to the total number of voting rights outstanding as of the date of such meeting. In 

addition, if the number of outstanding voting rights changes by 5% or more between two annual 

ordinary general meetings, we must publish in the BALO, within fifteen calendar days of such 

change, the number of voting rights outstanding and provide the CMF with a written notice. The 

CMF publishes the total number of voting rights so notified by all listed companies in a weekly notice 

(avis), mentioning the date each such number was last updated. In order to facilitate compliance with 

the notification requirements, a holder of ADSs may deliver any such notification to the Depositary 

and the Depositary shall, as soon as practicable, forward such notification to us and to the CMF. 

Purchase of our own shares 

Under French law, our company may not issue shares to itself. However, we may, either directly 

or through a financial intermediary acting on our behalf, purchase our shares for one of three 

purposes: 

1. To reduce our share capital with our shareholders’ approval at an extraordinary general 

meeting. 

2. To provide shares to our employees under a profit-sharing plan or stock option plan after 

obtaining approval of the shareholders at an extraordinary general meeting, or 

3. To acquire up to 10% of our share capital, provided our shares are listed on a regulated 

market (e.g., the Premier Marché, the Second Marché or the Nouveau Marché) through a 

share repurchase program. To acquire our shares for this purpose, we first must file a note 

d’information that has received the approval, or visa of the COB and obtain our shareholders’ 

approval at an ordinary general meeting. 

We may not cancel more than 10% of our outstanding share capital over any 24-month period. 

In addition, we may not repurchase under either 2. or 3. above an amount of shares that would 

result in our company holding, directly or through a person acting on our behalf, more than 10% of 

our outstanding share capital, or if we have different classes of shares, 10% of the shares in each 

class. 

We must hold any shares we repurchase in registered form. These shares also must be fully 

paid up. Ordinary shares repurchased by us are deemed outstanding under French law but are not 

entitled to dividends or voting rights, and we may not exercise the preferential subscription rights 

attached to them. 

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The shareholders, at an extraordinary general meeting, may decide not to take these shares 

into account in determining the preferential subscription rights attached to the other shares. 

However, if the shareholders decide to take them into account, we must either sell the rights 

attached to the shares we hold on the market before the end of the subscription period or distribute 

them to the other shareholders on a pro rata basis. 

On November 10, 2000, the shareholders authorized our Board of Directors to repurchase up to 

10% of our share capital. The purchase price may not exceed 0 100 per share and the sale price 

must be at least 0 40 per share, except in certain limited circumstances. This authorization will 

remain valid for eighteen months beginning November 10, 2000. A resolution will be submitted to the 

next ordinary general meeting of shareholders to renew the authorization, provided that the purchase 

price and the sale price may change. 

Trading in our own shares 

Under Regulation No. 90-04 of the COB, as amended, we may not trade in our own shares for 

the purpose of manipulating the market. There are three general requirements for trades by a 

company in its own shares to be deemed valid: 

) These trades must be executed on our behalf by only one intermediary in each trading 

session, except during the issue period of any securities if the trades are made to ensure the 

success of the issuance, 

) Any block trades may not be made at a price above the current market price, and 

) Each trade must be made at a price that falls between the lowest and the highest trading 

price of the trading session during which it is executed. 

If a company’s shares, like our shares, are continuously quoted (cotation en continu), then a 

trade must meet three further requirements to be deemed valid: 

) The trade must not influence the determination of the quoted price before the opening of 

trading, at the first trade of the shares, at the reopening of trading following a suspension or 

reservation of securities, or, as applicable, in the last half-hour of any trading session or at the 

fixing of the closing price, 

) The trade must not be carried out in order to influence the price of a derivative instrument 

relating to the company’s shares, and 

) The trade must not account for more than 25% of the average total daily trading volume on 

Euronext Paris in the shares during a certain reference period immediately preceding the 

trade. In the case of shares eligible for the deferred settlement service, like our shares, this 

reference period is three days. This 25% limit does not apply to off-market block trades or to 

acquisitions made by an investment service provider on our behalf pursuant to a liquidity 

agreement meeting certain criteria. 

However, there are two periods during which we are not permitted to trade in our own securities 

other than through an investment service provider acting on our behalf pursuant to a liquidity 

agreement meeting certain criteria: the 15-day period before the date on which we make our 

consolidated or annual accounts public, and the period beginning on the date at which we become 

aware of information that, if disclosed, would have a significant impact on the market price of our 

securities and ending on the date this information is made public. 

After making an initial purchase of our own shares, we must file monthly reports with the COB 

and the CMF that contain specified information about subsequent transactions. The CMF makes this 

information publicly available. 

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B — Material Contracts 

Purchase and Sale of Technicolor from Carlton 

On March 16, 2001, we purchased the Technicolor businesses from Carlton for an initial 

aggregate purchase price of approximately U.S.$1.3 billion, with a post-closing adjustment of 

U.S.$39.5 million paid to Carlton in January 2002. In addition, we paid Carlton U.S.$750 million for 

debt owed by the Technicolor businesses to Carlton. 

Consideration for the acquisition was comprised of (i) two cash payments at closing on 

March 16, 2001 of U.S.$750 million and 0 761 million, (ii) U.S.$39.5 million paid in January 2002 and 

(iii) U.S.$600 million (plus interest) to be paid over the next four years in four equal installments on 

March 16, 2002, 2003, 2004 and 2005. We may elect to pay up to half of the U.S.$600 million 

deferred consideration in our shares. The first of these installments was fully paid in cash. In 

parallel, we issued ORAs to Carlton that were reimbursed on March 16, 2002 in 15.5 million of our 

shares. 

Subject to certain exceptions, Carlton (including certain of its subsidiaries) agreed not to 

compete with the Technicolor businesses, as they were carried on at closing, or to solicit any of the 

employees of Technicolor or to induce any customer of business relation from ceasing to do 

business with Technicolor for a period of thirty-six months from the date of closing. 

C — Exchange Controls and Other Limitations Affecting Security Holders 

Ownership of shares or American Depositary Shares by Non-French Persons 

Under French law, there is no limitation on the right of non-French residents or non-French 

security holders to own, or where applicable, to vote securities of a French company, subject to 

generally applicable restrictions. 

A person who is not a resident of the European Union is not required to obtain an authorisation 

préalable or prior authorization prior to acquiring a controlling interest in a French company. 

However, both EU and non-EU residents must file a déclaration administrative or administrative 

notice with French authorities in connection with the acquisition of a controlling interest in any 

French company. Under existing administrative rulings, ownership of 20% or more of a listed 

company’s Share Capital or voting rights is regarded as a controlling interest; however, a lower 

percentage may be held to be a controlling interest in certain circumstances depending upon such 

factors as the acquiring party’s intentions, its ability to elect directors or financial reliance by the 

French company on the acquiring party. 

Exchange Controls 

Under current French exchange control regulations, there are no limitations on the amount of 

payments that may be remitted by a French company to non-residents. Laws and regulations 

concerning foreign exchange controls do require, however, that all payments or transfers of funds 

made by a French resident to a non-resident be handled by an accredited intermediary. In France, 

all registered banks and substantially all credit establishments are accredited intermediaries. 

D — Taxation 

French Taxation 

The following generally summarizes the material French tax consequences of purchasing, 

owning and disposing of our shares. The statements relating to French tax laws set forth below are 

based on the laws in force as of the date hereof and are subject to any changes in applicable laws 

and tax treaties after that date. 

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This discussion is intended only as a descriptive summary and does not purport to be a 

complete analysis or listing of all potential tax effects of the purchase, ownership or disposition of 

the shares. 

The following summary does not discuss the treatment of shares that are held by a resident of 

France (except for purposes of illustration) or in connection with a permanent establishment or fixed 

base through which a holder carries on business or performs personal services in France, or by a 

person that owns, directly or indirectly, 5% or more of the stock of our company. 

Taxation of Dividends on Shares 

In France, dividends are paid out of after-tax income. French residents are entitled to a tax 

credit, known as the avoir fiscal, in respect of dividends they receive from French companies. 

Individuals are entitled to an avoir fiscal equal to 50% of the dividend. The avoir fiscal applicable to 

corporate investors is currently generally equal to 15%, unless they hold at least 5% of the French 

distributing company and meet the conditions to qualify under the French parent subsidiary regime, 

in which case the avoir fiscal is equal to 50% of the dividend. Dividends paid to non-residents 

normally are subject to a 25% French withholding tax and are not eligible for the benefit of the avoir 

fiscal. However, non-resident holders that are entitled to and comply with the procedures for claiming 

benefits under an applicable tax treaty may be subject to a reduced rate of withholding tax, and may 

be entitled to benefit from a refund of the avoir fiscal, as described below. 

France has entered into tax treaties with the following countries and Territoires d’Outre-Mer 

under which qualifying residents are generally entitled to obtain from the French tax authorities a 

reduction (generally to 15%) of the French dividend withholding tax and a refund of the avoir fiscal 

(net of applicable withholding tax). Some of the treaties listed below contain specific limitations on 

the ability of corporate holders to receive payments in respect of the avoir fiscal, or provide that such 

payments are available only to individuals. 

Australia Italy Niger 

Austria Ivory Coast Norway 

Belgium Japan Pakistan 

Bolivia Latvia Saint-Pierre et Miquelon 

Brazil Lithuania Senegal 

Burkina Faso Luxembourg Singapore 

Cameroon Malaysia South Korea 

Canada Mali Spain 

Estonia Malta Sweden 

Finland Mauritius Switzerland 

Gabon Mayotte Togo 

Germany (1) 

Mexico Turkey 

Ghana Namibia Ukraine 

Iceland Netherlands United Kingdom 

India New Caledonia United States of America 

Israel New Zealand Venezuela 

(1) According to a common statement of the French and German tax authorities dated July 13, 2001, dividends paid to 

German resident holders other than individuals as of January 1, 2001 no longer give right to the avoir fiscal. As regards 

German resident individuals, a supplementary agreement to the tax treaty between France and Germany was signed by 

the French Republic and the Federal Republic of Germany on December 20, 2001, which provides that German resident 

holders, including German resident individual holders, should no longer be entitled to the avoir fiscal. Such supplementary 

agreement has not yet been adopted but, if adopted, should apply retroactively as of January 1, 2002. 

If a non-resident holder establishes its entitlement to treaty benefits prior to the payment of a 

dividend, then French tax generally will be withheld at the reduced rate provided under the treaty. 

91

Dividends paid out of profits that have not been taxed at the ordinary corporate rate, or were 

earned and taxed more than five years before the distribution, are subject to an equalization tax 

called the précompte, which is payable by the distributing corporation. The précompte generally is 

equal to one-half of the amount of the dividend paid to the shareholder prior to deduction of 

withholding tax. Corporate investors entitled under a tax treaty to a refund of the avoir fiscal at a rate 

of 15% may claim an additional payment equal to 70% of the précompte actually paid in cash by the 

distributing corporation, net of applicable withholding tax. Such additional payment is considered an 

increase to the avoir fiscal. 

When a tax treaty does not provide for a refund of the avoir fiscal, or when a non-resident 

investor is not entitled to such a refund but is otherwise entitled to the benefits of the tax treaty, then 

a qualifying investor may obtain from the French tax authorities a payment equal to 100% of the 

précompte actually paid in cash by the distributing corporation, net of applicable withholding tax. 

Taxation on Sale or Disposition of Shares 

Subject to more favorable provisions of any relevant double tax treaty, holders that are not 

residents of France for tax purposes, do not hold shares in connection with the conduct of a 

business or profession in France, and have held not more than 25% of our dividend rights 

(bénéfices sociaux), directly or indirectly, alone or with relatives at any time during the preceding five 

years, are not subject to any French income tax or capital gains tax on the sale or disposition of our 

shares. 

A 1% registration duty (subject to a maximum of 0 3,049 per transfer) applies to certain 

transfers of shares in French companies. The duty does not apply to transfers of shares in listed 

companies that are not evidenced by a written agreement, or if any such agreement is executed 

outside France. No stock exchange stamp tax is payable on the sale of shares by non-French 

residents. 

Estate and Gift Tax 

France imposes estate and gift tax on shares of a French company that are acquired by 

inheritance or gift. The tax applies without regard to the residence of the transferor. However, France 

has entered into estate and gift tax treaties with a number of countries pursuant to which, assuming 

certain conditions are met, residents of the treaty country may be exempted from such tax or obtain 

a tax credit. Prospective investors should consult their own advisors concerning the applicability of 

French estate and gift tax to these ownership of shares and the availability of, and the conditions for 

claiming exemptions under, such a treaty. 

Wealth Tax 

The French wealth tax (impôt de solidarité sur la fortune) generally does not apply to non- 

French resident individual investors owning directly or indirectly less than 10 percent of our share 

capital assuming the shares do not permit such non-French residents to exercise influence over our 

company. 

Taxation of U.S. Investors 

This section describes the material United States federal income tax consequences and French 

tax consequences to U.S. holders of shares or ADSs. It applies to you only if you hold your shares 

or ADSs as capital assets for tax purposes. This section does not apply to you if you are a member 

of a special class of holders subject to special rules, including: 

) a dealer in securities, 

) a trader in securities that elects to use a mark-to-market method of accounting for your 

securities holdings, 

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) a tax-exempt organization, 

) a life insurance company, 

) a person liable for alternative minimum tax, 

) a person that actually or constructively owns 5% or more of the voting stock or the share 

capital of Thomson, 

) a person that holds shares or ADSs as part of a straddle or a hedging or conversion 

transaction, or 

) a person whose functional currency is not the U.S. dollar. 

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, 

existing and proposed regulations, published rulings and court decisions, and the laws of France all 

as currently in effect, as well as on the income tax treaty between the United States of America and 

France (the ‘‘Treaty’’). These laws are subject to change, possibly on a retroactive basis. In addition, 

this section is based in part upon the representations of the Depositary and the assumption that 

each obligation in the Deposit Agreement and any related agreement will be performed in 

accordance with its terms. 

You are a U.S. holder if you are a beneficial owner of shares or ADSs and you are: 

) a citizen or resident of the United States, 

) a domestic corporation, 

) an estate whose income is subject to United States federal income tax regardless of its 

source, or 

) a trust if a United States court can exercise primary supervision over the trust’s administration 

and one or more United States persons are authorized to control all substantial decisions of 

the trust. 

You should consult your own tax advisor regarding the United States federal, state and local 

and the French and other tax consequences of owning and disposing of shares and ADSs in 

your particular circumstances. 

In general, and taking into account the earlier assumptions, for United States federal income 

and French tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of 

the shares represented by those ADSs. Exchanges of shares for ADSs, and ADSs for shares 

generally will not be subject to United States federal income or to French tax. 

This discussion addresses only United States federal income taxation and French income and 

gift and inheritance taxation. 

Taxation of Dividends 


As discussed in more detail under ‘‘French Taxation,’’ dividends paid by French companies to 

non-residents of France generally are subject to French withholding tax at a 25% rate, and are not 

eligible for the benefit of the avoir fiscal. 

However, under the Treaty, you can claim the benefit of a reduced dividend withholding tax rate 

of 15%. You will also be entitled to a payment equal to the avoir fiscal, less a 15% withholding tax. 

French tax will be withheld directly at the 15% Treaty rate if you have established before the date of 

payment that you are a resident of the United States under the Treaty and, if you are not an 

individual, that you are the owner of all the rights relating to the full ownership of the shares 

93

(including, but not limited to, dividend rights). A U.S. holder generally will be entitled to receive a 

refund of the avoir fiscal only if the holder (or its partners, beneficiaries or grantors, if the holder is a 

partnership, estate or trust) is subject to U.S. federal income tax on the avoir fiscal payment and the 

dividend to which it relates. 

The refund of the avoir fiscal will not be made available until after the close of the calendar year 

in which the dividend is paid. Accordingly, a U.S. holder that is a corporation generally will be 

entitled to an avoir fiscal refund of 15% of the amount of a dividend paid. A U.S. holder that is an 

individual generally will be entitled to an avoir fiscal refund at the 50% rate. 

Pension funds and certain other tax-exempt U.S. holders are entitled under the Treaty to a 

reduced withholding tax rate of 15%, and to a payment at least equal to 30/85 of the avoir fiscal 

generally payable to a corporation, net of a 15% withholding tax. 

U.S. holders that are not entitled to receive payments in respect of the avoir fiscal at the 50% 

rate (e.g., corporations and certain tax-exempt investors) will be entitled to receive an additional 

payment from the French tax authorities if we are liable for the précompte equalization tax 

(discussed under ‘‘— French Taxation,’’ above) in respect of a dividend distribution. Corporate 

holders receiving dividends generally will be entitled to receive a payment equal to 70% of the 

précompte that we actually pay in cash in respect of dividends paid, less a 15% withholding tax. 

Pension funds and other tax-exempt U.S. holders generally will be entitled to receive 30/85 of this 

amount, less a 15% withholding tax. The additional payment is considered an increase to the avoir 

fiscal, and will also not be made available until after the close of the calendar year in which the 

dividend is paid. 

Thus, for example, if we pay a dividend of 100 to an individual U.S. holder, the holder, provided 

he/she establishes his/her entitlement to treaty benefits before the payment of the dividend, will 

initially receive 85, but will be entitled to an additional payment of 42.50, consisting of the avoir fiscal 

of 50 less a 15% withholding tax. If we pay a dividend of 100 to a U.S. holder that is a corporation, 

such U.S. holder initially will receive 85, but will generally be entitled to an additional payment of 

12.75, consisting of the avoir fiscal of 15, less a 15% withholding tax on that amount (equal to 2.25); 

in the event that the dividend distribution triggers payment by us of the précompte, such U.S. holder, 

generally, may also obtain from the French tax authorities an additional payment equal to 70% of the 

précompte that we actually pay in cash, less a 15% withholding tax. If we pay a dividend of 100 to a 

U.S. holder who is a U.S. pension fund, such U.S. pension fund initially will receive 85, but will 

generally be entitled to an additional payment of 4.5 consisting of the avoir fiscal of 5.29, less a 15% 

withholding tax on that amount; in the event that the dividend distribution triggers payment by us of 

the précompte, such U.S. pension fund may also obtain from the French tax authorities an additional 

payment equal to 30/85 of 70% of the précompte we actually pay in cash, less a 15% withholding 

tax. 

If you are not entitled to a refund of the avoir fiscal, you generally may obtain from the French 

tax authorities a refund of the entire précompte we actually pay in cash in respect of a dividend, less 

a 15% French withholding tax. Pension funds and certain other tax-exempt U.S. holders are also 

entitled to a refund of the précompte we actually pay in cash but only up to the amount exceeding 

the payments to which they are entitled in respect of the avoir fiscal and the avoir fiscal increase. 

French Refund Procedure 

In order to claim Treaty benefits, you must complete and deliver to the French tax authorities 

either: 

) the simplified certificate described below; or 

) an application for refund on French Treasury form RF 1A EU-No. 5052. 

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A simplified certificate must state that: 

) you are a U.S. resident within the meaning of the Treaty; 

) you do not maintain a permanent establishment or fixed base in France with which the 

holding giving rise to the dividend is effectively connected; 

) you own all the rights attached to the full ownership of the shares (including dividend rights); 

) you meet all the requirements of the Treaty for obtaining the benefit of the reduced rate of 

withholding tax and the refund of the avoir fiscal; and 

) you claim the reduced rate of withholding tax and payment of the avoir fiscal. 

If a holder that is not an individual submits an application for refund on form RF 1 A EU- 

No. 5052, the application must be accompanied by an affidavit attesting that the holder is the owner 

of all the rights attached to the full ownership of the shares (including dividend rights) or, if the 

holder is not the owner of all such rights, providing certain information concerning other owners. 

Copies of the simplified certificate and the application for refund are available from the 

U.S. Internal Revenue Service. If the certificate or application is not filed prior to a dividend payment, 

then holders may claim withholding tax and avoir fiscal refunds by filing an application for refund at 

the latest by December 31 of the second year following the year in which the withholding tax is paid. 

If you are not entitled to a refund of the avoir fiscal but are entitled to a full refund of the 

précompte, or if you are a U.S. pension fund or other tax-exempt U.S. holder that is entitled to a 

partial refund of the précompte, you must apply for such a refund by filing French Treasury form RF 

lB EU-No. 5053 before the end of the year following the year in which the dividend was paid. This 

form, together with instructions, is available from the U.S. Internal Revenue Service or at the Centre 

des Impôts des Non-Résidents (9, rue d’Uzès, 75094 Paris Cedex 2). 

United States Federal Income Taxation 

Under the United States federal income tax laws, and subject to the passive foreign investment 

company, or PFIC rules discussed below, if you are a U.S. holder, you must include in your gross 

income the gross amount of any dividend paid by us out of our current or accumulated earnings and 

profits (as determined for United States federal income tax purposes). You must include any French 

tax withheld from the dividend payment in this gross amount even though you do not in fact receive 

it. The dividend is ordinary income that you must include in income when you, in the case of shares, 

or the Depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend 

will not be eligible for the dividends-received deduction generally allowed to United States 

corporations in respect of dividends received from other United States corporations. The amount of 

the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar 

value of the euro payments made, determined at the spot euro/U.S. dollar rate on the date the 

dividend distribution is includible in your income, regardless of whether the payment is in fact 

converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations 

during the period from the date you include the dividend payment in income to the date you convert 

the payment into U.S. dollars will be treated as ordinary income or loss. The gain or loss generally 

will be income or loss from sources within the United States for foreign tax credit limitation purposes. 

Distributions in excess of current and accumulated earnings and profits, as determined for United 

States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of 

your basis in the shares or ADSs and thereafter as capital gain. 

Subject to generally applicable limitations, the French tax withheld in accordance with the Treaty 

and paid over to France will be creditable against your United States federal income tax liability. To 

the extent a refund of the tax withheld is available to you under French law or under the Treaty, the 

amount of tax withheld that is refundable will not be eligible for credit against your United States 

95

federal income tax liability. See ‘‘Taxation of Dividends’’ — ‘‘French Refund Procedure’’, above, for 

the procedures for obtaining a tax refund. 

Dividends will be income from sources outside the United States, but generally will be ‘‘passive 

income’’ or ‘‘financial services income’’ which is treated separately from other types of income for 

purposes of computing the foreign tax credit allowable to you. 

Taxation of Capital Gains 


Under the Treaty, you will not be subject to French tax on any gain derived from the sale or 

exchange of our shares, unless the gain is effectively connected with a permanent establishment or 

fixed base maintained by you in France. 

United States Federal Income Taxation 

Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise 

dispose of your shares or ADSs, you will recognize capital gain or loss for United States federal 

income tax purposes equal to the difference between the U.S. dollar value of the amount that you 

realize and your tax basis, determined in U.S. dollars, in your shares or ADSs. Capital gain of a noncorporate 

U.S. holder is generally taxed long-term capital gain rates where the property is held for 

more than one year. The gain or loss will generally be income or loss from sources within the United 

States for foreign tax credit limitation purposes. 

French Gift and Inheritance Tax 

Under the estate and gift tax convention between the United States and France, a transfer of 

shares by gift or by reason of the death of a U.S. holder entitled to benefits under that convention 

will not be subject to French gift or inheritance tax, so long as the donor or decedent was not 

domiciled in France at the time of the transfer, and the shares were not used or held for use in the 

conduct of a business or profession through a permanent establishment or fixed base in France. 

Passive Foreign Investment Company Status 

We believe that our shares and ADSs should not be treated as stock of a PFIC, for United 

States federal income tax purposes, but this conclusion is a factual determination that is made 

annually and thus may be subject to change. If we were to become a PFIC, the tax treatment of 

distributions on our shares or ADSs and of any gains realized upon the disposition of our shares or 

ADSs may be less favorable than as described herein. You should consult your own tax advisors 

regarding the PFIC rules and their effect on you if you hold shares or ADSs. 

E — Documents on Display 

Thomson is subject to the reporting requirements of the Securities Exchange Act of 1934 and as 

a result files reports and other information with the Securities and Exchange Commission. However, 

as Thomson is a foreign private issuer, it and its stockholders are exempt from some of the 

Exchange Act reporting requirements. The reporting requirements that do not apply to us or our 

stockholders include the proxy solicitation rules, the rules regarding the furnishing of annual reports 

to stockholders, and Section 16 short-swing profit reporting for our officers and directors and for 

holders of more than 10% of our shares. You may read and copy any document Thomson files with 

the SEC at its public reference room at 450 Fifth Street, N.W., Washington D.C. 20549. Please call 

the SEC at 1-800-SEC-0330 for more information on the public reference room and its copy 

charges. 

96

ITEM 11 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS 

Our policy is not to use derivatives for any purpose other than for hedging our commercial and 

financial exposures. This policy does not permit us to take speculative market positions or to 

authorize our subsidiaries or businesses to take speculative market positions. 

In order to reduce our exposure to interest rate and currency fluctuations, we use currency and 

interest rate derivative instruments in accordance with market conditions and within the framework of 

procedures established by us. All interest rate transactions are effected centrally. Foreign exchange 

operations are monitored centrally in Boulogne and carried out, depending on local regulations or to 

permit practical access to the market, either by the corporate treasury department in Boulogne or by 

the Singapore regional treasury. Foreign exchange operations for Mexican affiliates are executed by 

the U.S. regional treasury. We may also use derivatives to reduce our exposure to stock price 

fluctuation of certain of our investments in quoted companies. 

Financial instruments are only used to hedge existing or anticipated financial and commercial 

exposures or investments. We undertake this hedging in the over-the-counter market with a limited 

number of highly rated counterparts. 

Exchange Rate Fluctuations 

Translation Risks 

The assets, liabilities, revenues and expenses of our operating entities are denominated in 

various currencies, principally U.S. dollars. Our consolidated financial statements are presented in 

euro. Thus, assets, liabilities, revenues and expenses denominated in currencies other than the euro 

must be translated into euro at the applicable exchange rate to be included in its financial 

statements. 

If the euro increases in value against a currency, the value in euro of assets, liabilities, 

revenues and expenses originally recorded in such other currency will decrease. Conversely, if the 

euro decreases in value against a currency, the value in euro of assets, liabilities, revenues and 

expenses originally recorded in such other currency will increase. Thus, increases and decreases in 

the value of the euro can have an impact on the value in euro of our non-euro assets, liabilities, 

revenues and expenses, even if the value of these items has not changed in their original currency. 

The introduction of the euro on January 1, 1999 has partially reduced our translation risk because a 

portion of our sales are in countries that have adopted the euro. 

Transaction Risks 

Commercial Exposure. Our foreign exchange risk exposure mainly arises from purchase and 

sale transactions completed by our subsidiaries in currencies other than their functional currencies. 

The principal currencies to which we had significant exposure in 2001 were the U.S. dollar, 

Japanese yen, Canadian dollar and Hong Kong dollar. 

In order to reduce the currency exposure on commercial transactions, our subsidiaries seek to 

denominate their costs either in the same currencies as their sales or in specific cases in currencies 

that we believe are not likely to increase in value compared with the currencies in which sales are 

made. Our policy is for our subsidiaries to report regularly their projected foreign currency needs and 

receipts to the corporate treasury department, which then reduces overall exposure by netting 

purchases and sales in each currency on a global basis. Exposures that remain after this process is 

hedged with banks using foreign currency forward contracts and occasionally foreign currency 

options. 

In most cases, our corporate treasury department will hedge the full amount of our estimated 

net exposure with banks, thereby eliminating the currency risk. In exceptional cases in which it 

97

anticipates a favorable currency exchange rate fluctuation, the corporate treasury department may 

leave a portion of our estimated exposure unhedged. 

Financial exposure. Our general policy is for subsidiaries to borrow and invest excess cash in 

the same currency as their functional currency. In certain developing countries with depreciating 

currencies we may, however, elect to maintain deposits in U.S. dollars or euro rather than the 

subsidiaries’ functional currency. These transactions are performed through the corporate treasury 

department to the extent practical. In order to balance the currencies that the corporate treasury 

department borrows (both internally and externally) with currencies that we lend to affiliates, we 

enter into currency swaps, unless local regulation makes it impossible. At December 31, 2001, these 

swaps were primarily undertaken to swap euro deposited internally with our corporate treasury 

against U.S. dollars lent out by our corporate treasury department. 

Impact on Thomson. The majority of our net sales have traditionally been denominated in 

U.S. dollars. This reflects our strong presence in the United States, particularly with our Consumer 

Products division, and the important contribution of this division to our net sales. As a result, the 

fluctuations of the euro/U.S. dollar exchange rate have a significant translation impact on our net 

sales. 

Nevertheless, we believe that the impact of exchange rate fluctuations on our net income is 

limited due to certain natural hedges. 

) Our euro/U.S. dollar commercial exposure is reduced since most of the U.S. dollar sales 

generated by European subsidiaries (mainly Patents and Licensing) are offset by their 

U.S. dollar purchases in Asia (mainly finished products). 

) The euro/Japanese yen commercial exposure is also reduced since most of Japanese yen 

sales generated by European subsidiaries (mainly Patents and Licensing) are offset by their 

Japanese yen purchases in Asia (components and finished products). 

) Remaining net exposures are generally hedged with financial counterparts as described 

above. 

Interest Rate Fluctuations 

We are exposed to interest rate risk exposure through our deposits and indebtedness. In order 

to reduce this exposure, we enter into interest rate swaps and forward rate agreements. 

Our policy is for all subsidiaries to borrow from, and invest excess cash with, our corporate 

treasury department, which in turn satisfies its net cash needs by borrowing from external 

counterparts. Subsidiaries that are unable to enter into transactions with our corporate treasury 

department because of local laws or regulations borrow or invest directly with local banks under 

policies established by the corporate treasury department. 

The corporate treasury department manages our financing by applying established procedures, 

and it hedges interest rate risk exposure in accordance with target ratios of fixed to floating debt, 

which are set periodically as a function of market conditions. 

Because a portion of our debt and all of our deposits are at floating rates, changes in interest 

rates will impact our net interest expense. In 2001, our average debt amounted to approximately 

0 1,148 million, 28% at floating rates taking into account interest rate hedging operations. Our 

average deposits in 2001 amounted to approximately 0 1,121 million, 100% at floating rates. A 1% 

point variation in interest rates applied to the floating rate debt and deposits would have had an 

impact on our annual financial expenses of approximately 0 8.0 million. In 2000 our average debt 

amounted to 0 583 million, 63% at floating rates taking into account interest rate hedging operations, 

and our average deposits amounted to 0 597 million, 100% at floating rates. 

98

Sensitivity To Exchange Rate Fluctuations 

The tables below provide an indication of the estimated future cash flows from our existing 

currency hedging instruments at December 31, 2001, shown by maturity dates and calculated based 

on the applicable forward rate. 

At December 31, 2001 2002 2003 2004 2005 2006 Thereafter 


Commercial Transactions 

Forward purchases: 

euro.......................................................................... 341 — — — — — 

U.S. dollar................................................................ 147 — — — — — 

Japanese yen .......................................................... 57 — — — — — 

Canadian dollar ....................................................... 49 — — — — — 

Singaporean dollar .................................................. 33 — — — — — 

Mexican peso .......................................................... 20 — — — — — 

British pound ........................................................... 20 — — — — — 

Other currencies...................................................... 2 — — — — — 

Total..................................................................... 669 — — — — — 

Forward sales: 

U.S. dollar................................................................ 300 — — — — — 

euro.......................................................................... 138 — — — — — 

British pound ........................................................... 64 — — — — — 


Japanese yen .......................................................... 38 — — — — — 

Swedish crown ........................................................ 15 — — — — — 

Australian dollar....................................................... 14 — — — — — 

Swiss franc .............................................................. 13 — — — — — 


Total..................................................................... 669 — — — — — 

Financial Transactions 

Forward purchases: 

euro.......................................................................... 1,127 — — — — — 

U.S. dollar................................................................ 126 — — — — — 


Total..................................................................... 1,281 — — — — — 

Forward sales: 

U.S. dollar................................................................ 976 — — — — — 

euro.......................................................................... 147 — — — — — 

British pound ........................................................... 78 — — — — — 


Swiss franc .............................................................. 27 — — — — — 


Total..................................................................... 1,290 — — — — — 

Options 

Purchases: 

U.S. dollar................................................................ 27 — — — — — 

Total..................................................................... 27 — — — — — 

Sales: 


Total..................................................................... 28 — — — — — 

99

Sensitivity to Interest Rate Fluctuations 

The table below provides an indication of the estimated future cash flows existing at 

December 31, 2001 from our interest rate hedging instruments and the related hedged assets and 

liabilities. These cash flows are calculated based as applicable on the LIBOR 3 months of (1.88%) 

and on the applicable spot currency exchange rates at December 31, 2001. 

At December 31, 2001 2002 2003 2004 2005 2006 Thereafter 


Interest-rate swaps 

Fixed rates: 

Borrower.................................................................... — — — — — — 

Lender (average rate: 8.96%)................................... 0.3 — — — — — 

Floating rates: 

Borrower (3-months LIBOR) ..................................... (0.1) — — — — — 

Lender (3-months LIBOR) ........................................ — — — — — — 

Total interest-rate swaps.................................... 0.2 — — — — — 

Long-term debt 

Fixed rates.................................................................... (8.5) (8.5) (8.4) (8.4) (87.0) (0.2) 

Floating rate.................................................................. — — — — — — 

(LIBOR 1-month: 1.87%).............................................. (0.2) (0.2) (0.2) (0.2) (0.2) (0.1) 

Total long-term debt................................................... (8.7) (8.7) (8.6) (8.6) (87.2) (0.3) 

Short-term debt and bank overdraft net of cash and 

cash equivalents (floating rate 1-month EURIBOR: 

3.33%)....................................................................... 3.4 — — — — — 

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 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 shortterm 

maturities. The fair value of long-term debt is 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 arrangements. The fair value of listed investment securities is 

calculated using their last known market price at year-end. The table below shows the net book 

value and market value of financial assets, liabilities and off-balance sheet items. 

100

December 31, 2000 December 31, 2001 

Net book Market Net book Market 

value value value value 


Balance sheet: 

Liability: 

Long-term debt........................................................................ 33 33 26 26 

Convertible/exchangeable bonds (OCEANEs) ....................... 

Assets: 

812 826 812 776 

GEMSTAR-TV Guide .............................................................. 42 589 31 258 

M.I.H ........................................................................................ 40 36 23 21 

Other........................................................................................ 

Off-balance sheet: 

Interest rate instruments 

24 18 9 9 

Interest rate swaps — received fixed ..................................... 

Foreign exchange instruments 

— 1 — — 

Forward contracts.................................................................... — 9 — (1) 

Currency option contracts ....................................................... 

Equity instruments 

— (7) — — 

Collar ....................................................................................... — 15 — 47 

ITEM 12 — DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES 


101

PART II 

ITEM 13 — DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES 

None. 

ITEM 14 — MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND 

USE OF PROCEEDS 

None. 

102

ITEM 17 — FINANCIAL STATEMENTS 


ITEM 18 — FINANCIAL STATEMENTS 

PART III 

The following consolidated financial statements and related notes, together with the report of the 

Independent Auditors, are filed as part of this Annual Report: 

Report of Independent Auditors........................................................................................................ F-1 

Consolidated Income Statement....................................................................................................... F-2 

Consolidated Balance Sheet............................................................................................................. F-3 

Consolidated Statements of Cash Flow ........................................................................................... F-5 

Consolidated Statements of Changes in Shareholders’ Equity and Minority Interests ................... F-6 

Notes to the Consolidated Financial Statements ............................................................................. F-7 

ITEM 19 — EXHIBITS 

The following exhibits are filed as part of this Annual Report: 

) Exhibit 1: Bylaws of Thomson (1) 

) Exhibit 4: The agreement for the sale and purchase of Technicolor (2) 

) Exhibit 8: Subsidiaries (See Note 28 to our consolidated financial statements) 

) Exhibit 10-1: Letter from Thomson multimedia to the SEC concerning representations provided 

by Barbier Frinault & Autres (a member of Andersen Worldwide) to THOMSON multimedia 

regarding its audit quality control system 

) Exhibit 10-2: Consents of Barbier Frinault & Autres (a member of Andersen Worldwide), 

Befec-Price Waterhouse and of Mazars & Guérard 

(1) Previously filed as an exhibit to our Annual Report on Form 20-F for the year ended December 31, 2000, Commission file 

number 0-3003, and incorporated by reference hereto. 

(2) Previously filed as an exhibit to Carlton’s Annual Report on Form 20-F for the year ended December 31, 2000, Commission 

file number D-15252, and incorporated by reference hereto. 

103

Signature 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and 

that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf. 

Dated: March 29, 2002 

104 

THOMSON multimedia S.A. 

By: 

Name: Frank Dangeard 

Title: Senior Executive Vice President

FORM 20-F THOMSON multimedia - Technicolor

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