technicolor - 2018 Registration document

6 FINANCIAL STATEMENTS STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2018

Impairment testing of goodwill Note 4 to the consolidated financial statements

RISK IDENTIFIED Goodwill is recorded in the balance sheet as of December 31, 2018 at a net carrying amount of €886 million, compared with total assets of €3.759 million. Goodwill is recognized in the currency of the acquired subsidiary/associate and measured at cost less accumulated impairment losses and translated into euros at the effective rate at the end of the period. Goodwill is not amortized but is tested annually for impairment. The Group performs impairment tests on goodwill as disclosed in Notes 4.1 (Goodwill) and 4.4 (Impairment on non-current operating assets) of the notes to the consolidated financial statements. We considered the valuation of goodwill to be a key audit matter given the relative importance of these assets in the consolidated financial statements and since the determination of their recoverable amount, generally based on discounted cash flow forecasts, is based on assumptions, estimates and management assessments and judgements, notably concerning business forecasts, long-term growth rates and discount rates. We focused, in particular, on goodwill of the Entertainment Services segment due to the finite useful life of this asset, to the uncertainties surrounding the future of the physical media of the DVD Services division and to the unexpected importance of the decrease in volumes, notably in the distribution activity, which lead to a division goodwill impairment of €77 million in the 2018 financial consolidated statements. OUR RESPONSE We reviewed the implementation of impairment tests by the Group and focused our procedures on the divisions where intangible assets represent a significant portion of net assets and are highly sensitive to changes in budget assumptions. We reviewed the Group’s process for establishing business plans and assessed the reasonableness of the key assumptions and estimates by: verifying the consistency of cash flow forecasts with past performance and 3-years plan approved by the Board of Directors, • comparing growth rates used to extrapolate cash flows beyond the forecast period and discount rates with market data and our benchmarks. And, •

reviewing sensitivity analysis disclosed in the notes to the consolidated financial statements. • We verified the appropriateness of disclosures in the notes to the consolidated financial statements. These analyses were performed with the assistance of our valuation experts. Accounting for disposals or disposal transactions Notes 2.2 and 12 to the consolidated financial statements

RISK IDENTIFIED On July 30, 2018, Technicolor finalized the sale of its Patent Licensing business to InterDigital, for a consideration recognized in the accounts of €188 million. Net income from discontinued operations for fiscal year 2018 therefore includes the related business flows up to this date, and the net gain on disposal of this business of €210 million, before tax. Notes 2.2 (Change in the scope of consolidation in 2018) and 12 (Discontinued operations and held for sale operations) to the consolidated financial statements set out the accounting treatment of the transaction and, in particular, its different components: 1.the consideration paid on the disposal date 2.the potential earn-out 3.the license granted by InterDigital to Technicolor relating to patent user rights sold to InterDigital 4.and the research cooperation agreement. We considered the accounting treatment of the disposal to be a key audit matter for the following reasons: the material amount of the disposal gain; • the complexity of the assumptions used to model the various components of the disposal price and in particular the projections of use of these • licenses; the potential material impact on the Group’s results of an error in judgement or a change in estimate in the data underlying the valuation of the • license granted by InterDigital to Technicolor relating patent user rights sold to InterDigital..

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TECHNICOLOR REGISTRATION DOCUMENT 2018