Ubisoft 2004 Annual Report Download - page 56

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UBISOFT > 2005 FINANCIAL REPORT
recognized as an employee expense spread over the
benefit vesting period, in counterpart of the reserves
increase of the group; so there is no impact on the opening
balance sheet:
lgroup savings plan: the accounting expense is equal to
the discount granted to current and retired employees,
i.e., the difference between the share subscription price
and the share price on the grant date. Ubisoft applies
adiscount of 20%, the maximum allowed by law.
This charge is recognized immediately as of the plan
subscription date;
lstock option plans: the accounting charge reflects the
value of the options on the grant date for each plan.
Therefore, the fair value of the options depends on the
vesting date. Ubisoft uses a binomial model to measure
the employee expense. This deferred compensation is
amortized to earnings over the vesting period but not
using the straight-line method, in accordance with the
vesting procedures defined in the rules governing the
various Ubisoft plans.
d) Equity swaps (IAS 39)
IAS 39 requires that equity swaps be recorded as “Financial
assets or financial liabilities through profit or loss”.
An equity swap is a derivative, since its value varies in
accordance with an underlying value (the Ubisoft share); it
requires no initial investment and will be paid at a future
date. It will be posted to assets at its fair value, and any
variations in the fair value are included in earnings.
lImpact on the balance sheet
The treatment of derivatives in accordancewith IAS 32-39
had a positiveimpact on equity as of April 1, 2004, of
€993 thousand, after deferredtax.
e) Convertible bonds, convertible exchangeable
bonds (OCEANE), bonds with redeemable share
subscription warrants (OBSAR) (IAS 32-39)
The convertible bonds issued by Ubisoft in July 1998, the
convertible bonds exchangeable for new or existing shares
(OCEANE) issued in November 2001 and the bonds with
redeemable share subscription warrants (OBSAR) issued in
November 2003 are compound financial instruments
pursuant to IAS 32 and include a liability component and a
equity component.
lImpact on the transitional IFRS balance sheet as of
April 1, 2004:
Convertible bonds
In the balance sheet prepared according to French
standards, convertible bonds were recorded as “financial
debts” based on their face value when issued. Under IFRS,
the convertible bond's equity component (€2.8 million)
is reclassified under “equity capital components” in
reserves, while the liability component is shown as a debt.
Taking into account the differential between interest
charges under French accounting standards and IFRS after
application of the effective rate, the after-tax impact on
opening equity is €938 thousand.
Bonds exchangeable or convertible to new or existing
shares (OCEANE)
In the balance sheet prepared according to French
standards, OCEANE were recorded as “financial debts”
based on their face value when issued. Under IFRS, the
OCEANE's equity component (€5.8 million) is reclassified
under “equity capital components” in reserves, while the
liability component is shown as a debt.
Taking into account the differential between interest
charges under French accounting standards and IFRS after
application of the effective rate, the after-tax impact on
opening equity is €4,363 thousand.
Bonds with redeemable share subscription warrants
(OBSAR)
In the balance sheet prepared according to French
standards, OBSAR were recorded as “financial debts”
based on their face value when issued. Under IFRS, OBSAR
are broken down into a liability instrument and the sale by
the issuer of an option on its own shares. The issuer
(Ubisoft) may offer early redemption of redeemable share
warrants via cash payment, in which case these redeemable
share warrants are reported as derivatives. The amount is
recorded on the line “Proceeds from liability derivative” as
€4.5 million as of March 31, 2004.
Taking into account the change in fair value of the
redeemable share warrants, the after-tax impact on
opening equity is -€753 thousand.
f) Other restatements under IAS 32-39
Deposits and guarantees
In accordance with IAS 39, financial assets acquired by the
company that are not intended for short-term resale as
defined by IAS 39 are recorded on the balance sheet
(under “other non-current financial assets”) at their
market value. Deposits and guarantees are restated by
remeasuring them at the fair value of the consideration
received, discounted if the impact is significant. This
consideration is charged to equity on the line “Valuation
reserves”. Since these assets are discounted under IFRS,
the impact on equity is negative.
Thus, as of January 1, 2004, the impact on equity from
the revaluation of deposits and guarantees stood at
-€149 thousand.
Own shares
Own shares must be deducted from equity. No profit or
loss may be reported on the income statement following
the purchase, sale, issue or cancellation of own equity
instruments.
The impact on opening equity is -€793 thousand.
Foreign exchange hedge transactions
Under French accounting standards, gains and losses
resulting from the remeasurement of derivatives classified
for accounting purchase as hedging instruments were
deferreduntil the gains and losses generated by the
hedgeditems in question were realized. Consequently,
derivatives were reported at their fair value or historical
cost, whichever was lower.
Under IAS 39, derivative instruments are recognized
at their fair value against the income statement. The
standard offers two special hedge accounting methods
(cash flow hedge and fair value hedge). In order to
be eligible for the more restrictive fair value hedge
accounting method in IFRS, financial instruments must