Thomson’s Full Year 2004 Results

Thomson’s Full Year 2004 Results

PARIS — Thomson (Euronext Paris:18453) (NYSE:TMS):

–A strong performance from Core Businesses – 9.5% constant currency revenue growth, 11% operating margins and EUR 600 million of free cash-flow

–Total exceptional costs of EUR (904) million for the full year, including EUR (667) million for Displays partnership strategy

–Group operating profit pre-exceptionals at EUR 569 million

–Phase 1 of Displays partnership process completed – the project is on track and on schedule

–Two Year Plan revenue and free cash flow objectives re-confirmed today. 2005 goals are in line with the Two Year Plan and call for 10% Core Business growth at 2004 perimeter with stable margins

The Board of Directors of Thomson (Euronext Paris:18453) (NYSE:TMS), chaired by Frank Dangeard, met on 1st March 2004 to review and approve the Group’s 2004 results published today.

Summary of consolidated results FY04 (unaudited(1))

In EUR million otherwise stated FY04 Adjusted

Pre-

FY04 exceptionals FY03

As reported (2) As reported

——————————- ———– ————- ————

Group net sales 7,994 8,459

Operating profit

——————————- ———– ————- ————

Core business 631 631 750

——————————- ———– ————- ————

Other businesses (196) (242)

Group 434 569 508

Exceptional items n.a. (904) (249)

EBITA (3) full year (338) – 252

Net income (636) 26

Free cash-flow (4)

——————————- ———– ————- ————

Core business 595 811

——————————- ———– ————- ————

Other businesses (5) (357) (104)

Group (5) 238 707

Dividend (EUR) 0.285 0.26

——————————- ———– ————- ————

(1) The full year 2004 results are preliminary and subject to final

audit by Thomson’s auditors

(2) Adjusted for 2H04 extraordinary items

(3) EBITA is defined as operating income less extraordinary items

(restructuring costs and other extraordinary items) less equity

investments

(4) Free cash flow is defined as cash flow from operations less net

capital expenditures

(5) Free cash flow has been adjusted for the proceeds from the sale of

the TV inventories (EUR 136 million)

Commenting on the full year results, Frank Dangeard, Chairman & CEO of Thomson stated, “As from September 2004, the Board took a number of urgent strategic decisions, notably the decision to partner our Displays business, our five strategic priorities, the Group’s Two Year Plan and the organizational changes required to implement it.

“These decisions enable Thomson to move forward again and accelerate the implementation of the Board’s strategic goals.

“The focus on Media & Entertainment is fully vindicated by the performance of our core Media & Entertainment activities, which have delivered revenue growth of 9.5%, an operating margin above 11% and free cash flow of nearly EUR 600 million. The decision to partner our Displays business resulted, as we had announced, in a substantial one-off charge and a net loss for the year.

“Our Two-Year Plan is now in place for each of our business units. These roadmaps enable us to reconfirm our 2006 targets: revenue growth of EUR 1.5 to EUR 2 billion at stable margins, and cumulative free cash flow generation from 2004-2006 of EUR 1.2 to EUR 1.5 billion.”

Full year results highlights – Group income statement including adjustments for extraordinary items

Reported income statement data are impacted by exceptional items taken by Thomson during the year, which totalled EUR (904) million and resulted in reported earnings before interest, tax and goodwill amortisation (EBITA) of EUR (338) million. Some of these exceptional items were taken as charges to operating income, resulting in reported operating profit of EUR 434 million. Exceptional items have been recorded in a similar manner under French GAAP and IFRS.

Adjusting for these exceptional items:

–Core business operating profits were EUR 631 million, representing an 11% operating margin (see table – CORE BUSINESSES PERFORMANCE – 2005 ORGANISATION).

–Operating results from other businesses pre-exceptionals were loss-making, including results from TV – now deconsolidated – and Displays.

–Group operating profits pre-exceptionals were accordingly EUR 569 million, representing a 12% increase compared to 2003.

–The core business’ performance reflects the performance of all our Media & Entertainment activities, including a strong contribution from Technology. Our Services and Systems & Equipment divisions achieved their profitability objectives during the year.

The EUR (904) million of exceptional items include:

–Costs for, and incidental to, restructuring and reorganisation of its Displays and Components business in the second half of EUR 667 million

–Costs already incurred in the first half 2004 of EUR 202 million, of which EUR 138 million were for restructuring in Displays; and

–EUR 35 million of costs in the second half related directly to other non-core businesses

Excluding the portion of the exceptional items taken in the first half, Thomson estimates that its EBITA would have increased by more than 40% year-on-year, in line with indications made earlier in 2004.

The Group’s reported net result (including the extraordinary charges of EUR 904 million), was EUR (636) million compared to a EUR 26 million net profit in full year 2003.

Full year results highlights – Group cash flow and balance sheet

Thomson’s core businesses generated significant free cash flow, totaling EUR 595 million (full year 2003, EUR 811 million), whilst the Displays and TV businesses consumed cash.

The Group generated free cash flow of EUR 238 million for the full year 2004. This is consistent with our 2004-2006 objective of EUR 1.2 to EUR 1.5 billion cumulative free cash flow, which is re-confirmed today.

Group total net debt at year-end was EUR 679 million, compared to a net debt position of EUR 244 million a year ago, reflecting acquisitions made during the year.

Board, Dividend and share buyback

The Board of Directors proposes that Thomson pay a net dividend of EUR 0.285, or a 10% increase as compared to the EUR 0.26 dividend paid last year. This dividend is subject to approval at the annual meeting of May 10, 2005, and confirms the intention to grow the dividend progressively.

Thomson has repurchased a total of 5.6 million shares pursuant to its share buyback programme, which was launched on September 16th, 2004.

The Board of Directors appointed Frank Dangeard as Chairman of the Group’s Strategy Committee in replacement of Thierry Breton, who resigned from the Board.

Thomson’s medium term outlook and full year 2005 targets

Thomson set on October 21st, 2004, targets for 2006, which are reiterated today. These include:

–Growth in revenues at constant currency of EUR 1.5 to EUR 2 billion in our core businesses, compared to c. EUR 5.9 billion revenue base recorded in 2004;

–Cumulative free cash flow of EUR 1.2 to EUR 1.5 billion for the period 2004-2006.

The Group targets for operating performance in the year ahead are set against IFRS accounting principles and supports these goals, notably:

–Total revenue growth at constant currency for the Core Business of around 10%, at today’s perimeter against a baseline of c. EUR 5.9 billion.

–Stable IFRS-based operating margin in this Core Business relative to the 2004 level (of approximately 10%).

The Group expects Core Business revenues to grow in the first quarter at a similar rate.

Progress in the partnership strategy for Displays

On January 26, Thomson announced the disposal of its Anagni tube plant to Videocon of India. This transfer was completed on February 28th. In addition, Thomson has now completed the first phase of its review of its main tube manufacturing assets in China, Poland and Mexico and has received indications of interest from both strategic and financial buyers for partnership for these assets. Whilst there can be no assurance as to the timing and structure of the outcome of this process, Thomson will now enter into more in-depth discussions with a number of these interested parties.

OPERATING PERFORMANCE BY DIVISION – 2004 ORGANISATION

Full year operating income by division – as reported 2004 operating

structure

FY04

operating FY04 FY03 FY03

In EUR millions income operating operating operating

As margin income margin

reported

———————————————————————-

Digital Content Solutions 297 13.1% 363 16.0%

Video Network Solutions 196 10.0% 176 11.0%

Industry & Consumer Solutions 13 0.3% 37 0.8%

Other (72) – (68) –

Total Group 434 5.4% 508 6.0%

———————————————————————-

Digital Content Solutions

Full year 2004 operating income was EUR 297 million (down from full year 2003, EUR 363 million), reflecting the impact of currency translation as well as margin pressures.

Digital Content Solutions operating margin was 13.1% compared with 16% for the full year 2003. The operating margin reflects first and foremost a sharp decline in VHS volumes and to a lesser extent increasing raw material prices and DVD pricing. The start-up costs for both North America and Europe distribution expansion also impacted the margin.

Video Network Solutions

Full year 2004 operating income reached EUR 196 million (full year 2003, EUR 176 million).

Video Network Solutions operating margin reached 10% compared with 11% for the full year 2003. This growth in operating income reflects primarily the improved performance in our Grass Valley/Broadcast and Broadband Access Products businesses – where higher sales and a better product mix drove profitability. The Division’s technology Licensing revenues declined, reflecting an exceptional 2003 (see Licensing – below).

Industry & Consumer Solutions

Full year 2004 operating income before adjusting for exceptional items was EUR 13 million (Full year 2003, EUR 37 million).

Our Displays & Components operating loss for the full year 2004 was EUR (105) million, compared with EUR (101) million last year. This reflects in particular the exceptional costs in Displays above the operating level as well as difficult trading conditions.

Licensing overall

For the full year 2004, taking licensing as a whole, operating income was EUR 325 million (Full year 2003, EUR 411 million). Currency translation impacted revenues and therefore operating profits. Licensing’s operating margin was 80.5% compared with 88.8% for the full year 2003, consistent with the Group’s expectations. This reflects a lower amount of past-payment licenses as well as increased investment in new licensing programs.

Full year earnings after restructuring, before financial charges, tax and amortization (“EBITA”) by division

FY04 FY03

In EUR millions FY04 EBITA EBITA FY03 EBITA EBITA

margin margin

———————————————————————-

Digital Content Solutions 266 11.7% 316 13.9%

Video Network Solutions 187 9.5% 147 9.2%

Industry & Consumer Solutions (724) nm (173) nm

Other (66) nm (38) nm

Total Group (338) nm 252 3.0%

———————————————————————-

Digital Content Solutions

In the full year 2004, restructuring costs, write-offs of fixed assets and other non-current expenses amounted to EUR 31 million (Full year 2003, EUR 48 million), mainly resulting from the rationalization in H1 of our VHS facilities in the U.S. and Europe.

Full year 2004 EBITA reached EUR 266 million (Full year 2003, EUR 316 million).

Video Network Solutions

In the full year 2004, restructuring costs, write-offs of fixed assets and other non-current expenses amounted to EUR 10 million (Full year 2003, EUR 30 million).

Full year 2004 EBITA increased to EUR 187 million (Full year 2003, EUR 147 million).

Industry & Consumer Solutions

Reported income for the division is impacted by exceptional items taken by Thomson during the year. Some of these exceptional items were taken as charges to operating income.

In the Full year 2004, restructuring costs and write-offs of fixed assets mainly breakout as follows:

–The closure of the Marion and Circleville tube and glass plants in North America announced in March 2004 for EUR 138 million,

–The one-time charge announced on October 21st consequent to the partnership strategy in our displays activity for EUR 667 million.

OTHER GROUP P&L ITEMS

Financial expenses were flat year-on-year at EUR 79 million. Goodwill amortisation increased by EUR 54 million year-on-year to EUR 130 million, notably due to additional goodwill amortisation related to TTE. Going forward, as Thomson adopts IFRS accounting standards, goodwill will be no longer amortised.

Income tax increased year-on-year to EUR 88 million from EUR 63 million, reflecting the change in capital gains tax regulation in France.

GROUP CASH FLOW

Our net working capital further improved, at 6.9% of last 12 months’ sales at the end of December 2004, compared to 7.5% at the end of June 2004 and 8.1% at the end of December 2003. This reflected a decrease in receivables by EUR 65 million, an increase in payables by EUR 31 million and an increase in inventories by EUR 64 million.

Cash used in restructuring amounted to EUR 200 million, from EUR 173 million in 2003.

Cash payments for tax amounted to EUR 124 million in the full year of 2004.

Gross capital expenditures fell to EUR 348 million in the full year 2004, compared with EUR 510 million in 2003. Capital expenditures concerned mainly the increase in manufacturing and distribution capacities in DVD.

Acquisitions totaled EUR 680 million in the full year 2004, compared with EUR 565 million in 2003: the most significant items were the payments made in connection with the acquisition of The Moving Picture Company (MPC) in the UK, (EUR 78 million), the long term supply agreement with DIRECTV (EUR 204 million), the promissory notes related to the acquisition of Technicolor (EUR 84 million), and bolt-on acquisitions in our core businesses such as Gyration (EUR 15 million) and Command Post (EUR 11 million).

Thomson’s core businesses generated significant free cash-flow, totaling EUR 595 million (full year 2003, EUR 811 million), whilst the Displays and TV businesses consumed cash.

The Group generated free cash flow of EUR 238 million for the full year 2004. This is consistent with our 2004-2006 objectives of EUR 1.2 to EUR 1.5 billion cumulative free cash flow.

BALANCE SHEET AND DEBT

The recently enacted French Law on Financial Security required the consolidation at the start of the year of two equipment leases for tube equipment in Mexico and Poland. The net effect on gross debt was an increase of EUR 321 million, and an increase in fixed assets of EUR 192 million. Adjusting for this impact, the Group’s net debt declined to EUR 679 million at the end of December 2004 from EUR 757 million at the end of June 2004.

CORE BUSINESSES PERFORMANCE – 2005 ORGANISATION

For information, the tables below set out our operating income performance and our free cash flow generation along our 2005 segment organization, which forms the basis of our reporting going forward. The total profitability of our core business in 2004 was 11.1% and generated EUR 645 million.

Revenues

In EUR m FY04 FY03

———————————————————————-

Services 2,338 2,335

Systems & Equipment (1) 3,000 2,820

Technology (2) 506 659

o/w Licensing 404 463

Corporate 23 12

Thomson – Core (1) 5,867 5,825

———————————————————————-

Thomson – Core adjusted (2) 5,605

———————————————————————-

Displays & CE (3) 2,127 2,635

———————————————————————-

Thomson – Group (1) + (3) 7,994 8,459

———————————————————————-

Operating income

FY04 FY04 FY03 FY03

In EUR millions operating operating operating operating

income margin income margin

———————————————————————-

Services 293 12.5% 364 15.6%

Systems & Equipment (1) 159 5.3% 133 4.7%

Technology (2) 251 49.7% 321 48.8%

o/w Licensing 325 80.5% 411 88.9%

Corporate (72) nm (68) nm

———————————————————————-

Thomson – Core (1) 631 10.7% 750 12.9%

———————————————————————-

Adjustments (1) + (2) 16 nm 48 Nm

———————————————————————-

Thomson – Core adjusted (2) 646 11.1% 797 14.2%

———————————————————————-

Displays & CE (3) (196) nm (243) Nm

———————————————————————-

Thomson Group (1) + (3) 434 5.4% 508 6.0%

———————————————————————-

(1) The Systems and Equipment division includes our Cable Modem

business – the disposal of substantial parts of which makes

operating income not strictly comparable year-on-year. Operating

Income 2004 amounted to EUR 4 million vs. EUR (1) million for the

Full Year 2003

(2) The Technology division includes our Optical Modules business –

the disposal of substantial parts of which makes Operating Income

not strictly comparable year-on-year. Operating Income 2004

amounted to EUR (20) million vs. EUR (47) million for the Full

Year 2003

Free cash flow

FY04 FY03

In EUR millions free cash free cash

flow flow

———————————————————————-

Services 254 101

Systems & Equipment 150 477

Technology 433 338

Other (242) (104)

———————————————————————-

Thomson – Core 595 811

———————————————————————-

Displays & CE (357) (104)

O/w proceeds from the sale of the TV inventories 136 –

———————————————————————-

———————————————————————-

Thomson Group 238 707

———————————————————————-

Free-Cash-Flow is defined as Cash-Flow from Operation less net capex

Certain statements in this press release, including any discussion of management expectations for future periods, constitute “forward-looking statements” within the meaning of the “safe harbor” of the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on management’s current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from the future results expressed or implied by the forward-looking statements due to changes in global economic and business conditions, consumer electronics markets, and regulatory factors. More detailed information on the potential factors that could affect the financial results of Thomson is contained in Thomson’s filings with the U.S. Securities and Exchange Commission.

About Thomson – Partner to the Media & Entertainment Industries

Thomson (Euronext Paris:18453) (NYSE:TMS) provides technology, systems and services to help its Media & Entertainment clients – content creators, content distributors and users of its technology – realize their business goals and optimize their performance in a rapidly changing technology environment. The Group intends to become the preferred partner to the Media & Entertainment Industries through its Technicolor, Grass Valley, RCA and Thomson brands. For more information: www.thomson.net.

Appendix:

Thomson’s unaudited consolidated income statements

Thomson’s unaudited consolidated balance sheets

Thomson’s unaudited consolidated statements of cash flows

CONSOLIDATED INCOME STATEMENTS

UNAUDITED

Year ended December 31,

—————————————

2002 2003 2004

———— ———— ————-

(EUR in millions, except per share data)

Net sales 10,187 8,459 7,994

Cost of sales (7,761) (6,536) (6,284)

———— ———— ————-

Gross margin 2,426 1,923 1,710

———— ———— ————-

Selling, general and

administrative expense (1,334) (1,120) (999)

Research and development

expense (374) (295) (277)

———— ———— ————-

Operating income 718 508 434

———— ———— ————-

Restructuring costs (141) (217) (742)

Other income (expense), net 45 (32) (27)

Equity investments – (7) (3)

———— ———— ————-

Earnings before interest,

goodwill amortization and tax 622 252 (338)

———— ———— ————-

Interest income (expense), net 9 (9) (24)

Other financial expense, net (137) (70) (55)

———— ———— ————-

Financial expense (128) (79) (79)

———— ———— ————-

Amortization of goodwill (78) (76) (130)

Income tax (56) (63) (88)

———— ———— ————-

Net income before minority

interests 360 34 (635)

Minority interests 13 (8) (1)

———— ———— ————-

Net income 373 26 (636)

============ ============ =============

Weighted average number of

shares outstanding – basic

net of treasury stock (1) 277,240,438 276,796,602 273,646, 869

Basic net income per share 1.35 0.09 (2.32)

Diluted net income per share (2) 1.29 0.09 (2.32)

CONSOLIDATED BALANCE SHEETS

UNAUDITED

Year ended December 31,

2002 2003 2004

——- ——- ——-

ASSETS: (EUR in millions)

Fixed assets:

Intangible assets, net 2,183 1,935 2,206

——- ——- ——-

Property, plant and equipment 3,800 3,554 3,535

Less: accumulated depreciation (2,178) (2,080) (2,481)

——- ——- ——-

Property, plant and equipment, net 1,622 1,474 1,054

——- ——- ——-

Equity investments 4 11 128

Other investments 58 125 113

Loans and other non-current assets 156 49 39

——- ——- ——-

Total investments and other non-current assets 218 185 280

——- ——- ——-

Total fixed assets 4,023 3,594 3,540

——- ——- ——-

Current assets:

Inventories 962 744 569

Trade accounts and notes receivable, net 1,675 1,315 1,180

Current accounts with affiliated companies 71 79 183

Other receivables 1,278 960 968

Contracts advances, net 242 205 179

Cash and cash equivalents 1,463 2,383 1,906

——- ——- ——-

Total current assets 5,691 5,686 4,985

——- ——- ——-

Total assets 9,714 9,280 8,525

======= ======= =======

CONSOLIDATED BALANCE SHEETS

UNAUDITED

Year ended December 31,

2002 2003 2004

——- ——- ——-

(EUR in millions)

LIABILITIES, SHAREHOLDERS’

EQUITY AND MINORITY INTERESTS

Shareholders’ equity:

Common stock (273,308,032 shares, nominal

value EUR 3.75 per share at December 31,

2004 ; 280,613,508 shares, nominal value EUR

3.75 per share at December 31, 2003 and 2002) 1,052 1,052 1,025

Treasury shares (155) (210) (55)

Additional paid in capital 1,938 1,938 1,748

Retained earnings 1,447 1,411 666

Cumulative translation adjustment (339) (612) (718)

Revaluation reserve 4 4 4

——- ——- ——-

Shareholders’ equity 3,947 3,583 2,670

——- ——- ——-

Minority interests 38 9 20

Reserves:

Reserves for retirement benefits 705 653 589

Restructuring reserves 127 118 104

Other reserves 216 206 176

——- ——- ——-

Total reserves 1,048 977 869

——- ——- ——-

Financial debt 1,694 2,128 2,501

(of which short-term portion) 262 263 904

Current liabilities:

Trade accounts and notes payable 1,235 1,364 1,221

Accrued employee expenses 223 183 165

Other creditors and accrued liabilities 1,070 858 995

Debt related to Technicolor acquisition 459 178 84

——- ——- ——-

Total current liabilities 2,987 2,583 2,465

——- ——- ——-

Total liabilities, shareholders’ equity and

minority interests 9,714 9,280 8,525

======= ======= =======

CONSOLIDATED STATEMENTS OF CASH FLOWS

UNAUDITED

Year ended December 31,

(EUR in millions) 2002 2003 2004

——– ——- ——-

Operating Income 718 508 434

Adjustments to reconcile operating income to

cash provided by operating activities:

Depreciation of property, plant and equipment 358 302 278

Amortization of intangible assets 38 39 40

Amortization of contracts and changes in

reserves reflected in operating income 45 107 118

Decrease (increase) in inventories, net 155 120 (64)

Decrease (increase) in trade and other

receivables, net 401 262 65

Increase (decrease) in trade accounts, notes

payable and accrued expenses (139) 258 (31)

Change in other current assets and current

liabilities (115) (170) (10)

Restructuring cash expenses (175) (173) (200)

Others (182) (70) (229)

——– ——- ——-

Net cash provided by operating activities (I) 1,104 1,183 401

——– ——- ——-

Capital expenditures (608) (510) (348)

Proceeds from disposal of fixed assets 16 34 49

Acquisition of investments (1,273) (565) (680)

Proceeds from disposals of investments 149 249 77

——– ——- ——-

Net cash used by investing activities (II) (1,716) (792) (902)

——– ——- ——-

Net cash provided (used) by operations (I+II) (612) 391 (501)

——– ——- ——-

Dividends paid – (66) (74)

Capital increase and share repurchases – (55) (58)

Increase in short-term debt 218 215 272

Repayment of short-term debt (248) (31) (209)

Increase in long-term debt 607 456 406

Repayment of long-term debt (37) (8) (332)

——– ——- ——-

Net cash provided (used) by financing

activities (III) 540 511 5

——– ——- ——-

Effect of exchange rates and changes in

reporting entities (IV) 3 18 19

Net increase (decrease) in cash and cash

equivalents (I+II+III+IV) (69) 920 (477)

Cash and cash equivalents at the beginning of

year 1,532 1,463 2,383

——– ——- ——-

Cash and cash equivalents at the end of year 1,463 2,383 1,906

======== ======= =======

COPYRIGHT 2005 Business Wire

COPYRIGHT 2005 Gale Group