Ubisoft 2004 Annual Report Download - page 76

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UBISOFT > 2005 FINANCIAL REPORT
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 cur-
rency investments to manage the time lags. Amounts that
cannot be offset are hedged by forward sales contracts and
option contracts. As of March 31, 2005, the total amounts
covered resulting in purchases and sales of currencies
was €64,140 thousand (see the breakdown by currency
and maturity date in § 2.1.9, Off-balance-sheet
commitments).
Note 21 Extraordinary result
Extraordinary income is income not related to the
company's normal operations (French decree of 11.29.83,
Article 14). It is broken down as follows:
Note 22 Corporate tax
Corporate tax breaks down as follows:
Current tax
Tax payable by French companies was calculated at the
rate in force on March 31, 2005, i.e., 33.33% plus 1.5%.
There are two groups of fiscal integration:
lin France, the group includes three companies: Ubisoft
Entertainment SA, Ubisoft EMEA SARL and Ubisoft
France SAS. As of March 31, 2005, the tax group had
used deferred tax assets of €12,780 thousand. However,
any tax savings arising from the use of deficits at the
group's member companies will only be temporary,
since the company in question may also use the deficits
for its own purposes.
l in the United States, the group encompasses three companies:
Ubisoft Holdings Inc., Red Storm Entertainment Inc. and
Ubisoft Inc. As of March 31, 2005, the tax group had
generated a tax charge of €3,920 thousand.
Breakdown of tax on operating income and extraordinary
income
Deferred tax
3.31.05 3.31.04
Tax on operating income -2,868 1,686
Tax on extraordinary income 41 -3,106
Total -2,827 -1,420
3.31.05 3.31.04
Deferred tax assets 22,500 15,577
(see breakdown in Note 9)
Deferred tax liabilities 11,455 5,136
(see breakdown in Note 15)
3.31.05 3.31.04
Current tax -4,147 365
Deferred tax 1,320 -1,785
Total -2,827 -1,420
3.31.05
Consolidated earnings excluding tax, goodwill amortization, and results of companies using the equity method of accounting 29,829
Theoretical income tax (33.83%) 10,092
Activation of earlier deficits: -4,238
•UbisoftEntertainment SA-1,634
•Ubisoft Inc. -1,172
•Ubisoft EMEA SARL -1,318
•Other -114
Adjustments of deferredtaxes from previous fiscal years: -1,336
•Correction of deferred taxes for Red Storm Entertainment Inc. -1,802
•Correction of deferred taxes in foreign subsidiaries 591
•Other -125
Effect of recurring differences between company results and the consolidated result: -1,426
•Goodwill -952
•Ubisoft Entertainment SA -634
•Other 160
Impact of changes in tax rates (liability method of tax allocation) 172
Taxation of foreign companies at different rates 1,310
Tax reduction/Research tax credit: -1,747
•Ubisoft Divertissements Inc. -254
•Ubisoft Entertainment SA -1,289
•Other -204
Total income tax 2,827
Tax basis
3.31.05
Write-back of provisions for risk and charges 174
Other extraordinary income/expense -23
Total 151