technicolor - 2018 Registration document

6 FINANCIAL STATEMENTS NOTE 2 SCOPE OF CONSOLIDATION

Change in the scope of consolidation of 2018

2.2

GRI [102-10] [102-49]

PATENT LICENSING DIVISION On December 18, 2017, the Group announced being in negotiations for the divestiture of its Patent Licensing Division, which represents substantially all the revenues and income of its former reporting segment “Technology”. The disposal was considered as “highly probable” according to IFRS 5 – Non-current assets held for sale and Discontinued operations. As a result, Patent Licensing has been presented as Discontinued Operations for all periods reported and assets and liabilities classified as Assets and Liabilities held for sale in the Consolidated Statement of Financial Position as of December 2017. On July 30, 2018, the Group concluded the sale to InterDigital of its Patent Licensing Division excluding some mobile patents, some patents for nascent technologies and some patents associated with patents pools, and a Research Cooperation Agreement. The consideration received for this sole transaction is composed of 4 items: U.S.$150 million (€129 million) cash paid up-front ; • an earn-out consisting in a variable contingent consideration equal to • to 42.5% of all future cash receipts from InterDigital's licensing activities in the Consumer Electronics field beyond operating expenses over 20 years ;

a perpetual grant-back licensing agreement, which gives Technicolor • freedom to run its operating businesses and benefit from existing and future patents, over their remaining life, whilst providing Technicolor with an adequate level of intellectual property protection. This grant-back is a non-cash consideration received in the sale transaction; a funded research coopertaion agreement, under which InterDigital • Labs and Technicolor R&I Labs will collaborate in th development of research programs in the areas of video coding, connected home and immersive technologies until December 31, 2021. The Research Cooperation Agreement cannot be considered as a separate transaction to the sale. The research projects developed under this Agreement extensively use the patents-portfolio, which has been sold to InterDigital. By allocating 50 searchers on a full-time basis on projects which can become patentable under the sole ownership of Interdigital, the Group is providing services, at a price, which, as defined in the contract, is not a market price. The total value of the transaction is then based on the addition of the fair value of each of above-identified item.

As a result, the accounting treatment of the sale transaction is resulting in a net gain of €210 million presented in the Net profit from discontinued operations in the consolidated statement of operations (see note 12.1) and detailed as follows:

December 31, 2018

(in million euros)

129

Up-front payment ($150 million) (1)

Earn-out (2)

-

Grant back (3)

92

Net commitment under research cooperation agreement (4)

(33) 188

CONSIDERATION PRICE

Assets and liabilities transferred net of transaction costs

22

CAPITAL GAIN BEFORE TAX

210

the up-front payment is recognized at spot rate. (1) earn-out: the contingent variable consideration will be recognized when earned by analogy to the principles of IFRS 15 – Revenue recognition on variable consideration. As the (2) Group does not control InterDigital licensing activities, the contingent variable consideration will be recognized only when it becomes highly probable. the perpetual grant-back licensing agreement is an intangible asset evaluated €92 million on the basis of royalty rates used by other licensors for similar license programs applied (3) to the forecasted volumes over 11 years. This intangible asset is amortized over the average remaining life of the patents on the basis of the actual usage by the 2 businesses. the cooperation agreement generates a deferred income, recorded at transaction date as a decrease of the transaction consideration and recognized over time as the services are (4) rendered. Its fair value is the difference between the contractual price to be paid by InterDigital (U.S.$5 million per year, i.e. €15 million in total) and the fair value of the services to be rendered over 3 years and 5 months (€48 million).

The net impact on the cash flows statement amounts to €116 million and is presented in the line Net cash from discontinued operations.

188

TECHNICOLOR REGISTRATION DOCUMENT 2018