FORM 20-F THOMSON multimedia - Technicolor

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
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