Ubisoft 2003 Annual Report Download - page 68

FINANCIAL REPORT
2004
68
Foreign exchange risk
In order to limit the group's foreign exchange risk, Ubisoft
Entertainment SA hedges exchange rate fluctuations in several
ways:
●When it makes a loan in a foreign currency to its
subsidiaries, the parent company also takes out a loan in
the same currency. Thus, if the exchange rate rises or falls,
any gain or loss on the loan is offset by a gain or loss on the
parent company's loan in the opposite direction.
●The distribution subsidiaries pay a royalty to the parent
company as compensation for the development costs
incurred by the latter. Moreover, Ubisoft EMEA SARL
centralizes the purchases of finished products for the entire
region and then resells them in local currencies to the
subsidiaries. At the same time, Ubisoft Entertainment SA
finances all the production studios around the world
and most of the licensing and external development
agreements. In this way, all of the exchange rate risk is
centralized with Ubisoft EMEA SARL and Ubisoft
Entertainment SA. When exchange rate risk exists with
regard to a single currency in opposite directions (for
example, royalties received and cost of a studio in the same
currency), the group offsets this by using advances or
currency investments to manage the time lags. Amounts
that cannot be offset are hedged by forward sales contracts
and option contracts.
As of March 31, 2004, the total amounts covered resulting in
purchases and sales of currencies was ¤28,136,000 (see the
breakdown by currency and maturity date in Section 2.1.8:
Off-balance-sheet commitments).
Note 21 Extraordinary income/expense
Extraordinary income breaks down as follows:
*The sale and provision write-back of own shares generated extraordinary income of
€9,511,0000 (net loss of appropriations and write-backs).
Note 22 Corporate tax
Corporate tax breaks down as follows:
Tax payable by French companies was calculated at the rate
in force on March 31, 2004, i.e. 33.33% plus 3%.
There are two groups of fiscal integration:
●In France, the group encompasses three companies: Ubisoft
Entertainment SA, Ubisoft EMEA SARL and Ubisoft France
SAS. As of March 31, 2004, the tax group had generated a
reduction in deferred tax on assets of ¤1,203,000. Under
the tax integration agreement, it was decided that the tax
savings resulting from implementation of this group tax
system would be irrevocably allocated to the integrating
company.
●In the United States, the group encompasses five companies:
Ubisoft Holdings Inc., Red Storm Entertainment Inc., Blue
Byte Software Inc., Ubisoft Inc. and Ubi.com Inc. As of
March 31, 2004, the tax group had generated deferred tax
on assets of ¤229,000. Under the tax integration agreement,
it was decided that the integrating company would reallocate
the tax savings resulting from implementation of this group
tax system to the integrated companies.
* See Note 9 for a breakdown.
3/31/04
Losses from the sale of own shares -13,210 *
Capital losses from sales -384
Other extraordinary expenses -88
Appropriations/net write-backs on own shares 22,721
Other appropriations -101
TOTAL EXTRAORDINARY INCOME/EXPENSE 8,938
3/31/04 3/31/03
Deferred tax assets* 15,577 17,254
Deferred tax liabilities 5,136 5,829
3/31/04 3/31/03
Current tax -365 14,606
Deferred tax 1,785 -7,308
TOTAL 1,420 7,298