FORM 20-F THOMSON multimedia - Technicolor

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.
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