Ubisoft 2005 Annual Report Download - page 64

form an integral part of the group’s cash flow management
constitute a component of cash and cash equivalents for
the purposes of the cash flow statement.
• Derivatives
In order to limit the Group’s foreign exchange risk, Ubisoft
Entertainment SA hedges exchange rate fluctuations by
forward sales contracts and options contracts. As the
operations do not meet the criteria for hedge accounting,
they are recorded as transaction instruments. The deriva-
tives are recorded at their fair value in balance sheet as
current financial assets or liabilities. The profit or loss
resulting from the reassessment at fair value is recorded
immediately in the results.
The company has arranged an equity swap contract. This
hedging instrument is recorded at its fair value in balance
sheet as a current financial asset or liability, and changes
in its fair value are entered in the results.
• Loans and other financial liabilities
These include loans and bank overdrafts.
Bond debentures related to CBs (convertible bonds),
OCEANE bonds (bonds with an option for conversion
and/or exchange in new or existing shares) and OBSAR
bonds (bonds with reimbursable subscription warranties)
are compound financial instruments that include a liability
component and an equity component. The liability compo-
nent is valued at the amortized cost using the effective
interest rate method. The equity component is determined
by the difference between the total value of the compound
instrument and the value assigned to the liability compo-
nent. The accrued interest is recorded based on an actua-
rial rate that includes the costs, commissions and
redemption premiums.
Own shares
The own shares are booked at their purchase cost as a
deduction from equity. The results of the sale of these
shares are applied directly to the equity and do not contri-
bute to the results for the period.
Employee benefits
Retirement benefit costs
Ubisoft participates in retirement, social security and pen-
sion plans in accordance with the laws and practices of each
country. These benefits can vary according to a range of
factors, including seniority, salary and payments to com-
pulsory general schemes.
These plans may be either defined-contribution plans or
defined-benefit plans:
In defined-contribution plans, the pension supplement is
determined by the accumulated capital that the
employee and the company have paid into external
funds. The charges correspond to contributions paid in
over the course of the fiscal year. The Group has no fur-
ther payment obligations once the contributions have
been paid. For Ubisoft, this generally involves public reti-
rement plans and specific defined-contribution plans
(such as a 401k plan in the United States).
In a defined-benefit plan, the employee receives a fixed
pension supplement from the group, determined on the
basis of several factors, including age, years of service
and compensation level. Within the group, such plans are
used in France, Italy and Japan.
The employer’s future obligations are evaluated on the
basis of an actuarial calculation, called the projected unit
credit method, in accordance with each plan’s operating
procedures and the data provided by each country. This
method consists of determining the value of likely future
services as discounted for each employee at the time of
end-of-career departure. The assumptions used as of
March 31, 2006 are as follows:
Share-based payments
Stock option plans enable group employees to acquire
company shares. The fair value of the options awarded is
entered as wages and social security costs in exchange for
an increase in equity. The fair value is assessed at the date
of allocation and spread over the period during which the
rights are definitively vested with the employees. The fair
value of the options is assessed using a binomial model that
takes account of the terms and conditions of the options as
defined when they are awarded:
Stock option plans: this deferred compensation is recor-
ded as expenses in staggered form over the entire ves-
ting period but not using the straight-line method, in
accordance with the vesting procedures defined in the
rules governing the various Ubisoft plans.
Group savings plan: the accounting charge is equal to the
discount granted to employees (i.e. the difference
between the share subscription price and the share price
on the award date). This charge is recorded immediately
as of the plan subscription date.
Provisions
A provision should be recognized when:
The company has a present obligation (legal or implicit)
resulting from a past event.
Settlement is expected to result in an outflow of
resources representative of the economic benefits.
The amount of the obligation can be reliably measured.
If these conditions are not fulfilled, no provision may be
recorded.
As of March 31, 2006, the provisions involved provisions
for litigation.
Japan Italy France
Rate of salary changes 5% 1.50% 3 to 6%
Discount rate 4.25% 4.25% 4.25%
Average remaining years of service 23 years 30 years 32 years