FORM 20-F THOMSON multimedia - Technicolor

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
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