Ubisoft 2005 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ...02 > 1986 - 2006 Highlights 04 > President and CEO's Statement 07 > Top Management 08 > key figures 10 > A global organization, built to last 12 > A growing industry, driven by new technologies 02 STRATEGY 14 > Leading by example 16 > Creating quality games people want to play 18 > Building strong...

  • Page 3
    ...- is proof of the company's winning strategy to create and commercialize unique gaming experiences through in-house development, strong brands and an increasingly diverse product portfolio. Employing close to 3,500 people worldwide, Ubisoft has the second largest internal production workforce in the...

  • Page 4
    ... educational software and video game publishing and distribution company. 1992-93 FIRST IN-HOUSE STUDIOS France and Romania become home to Ubisoft's first internal development studios. LISTING ON PARIS STOCK EXCHANGE Ubisoft goes public, accelerating its growth opportunities. 1995 UBISOFT CREATES...

  • Page 5
    ...Xbox® Live, establishing an important foothold in the growing online gaming business. Ubisoft reinforces its status as a convincing partner for Hollywood licenses, selling in excess of 4.5 million units of Peter Jackson's King Kong: The Official Game of the Movie and recording strong handheld sales...

  • Page 6
    ... - our full year sales - realized on next-gen platforms, Ubisoft's share of next-gen sales for the fiscal year was double that of our main competitors. We also benefited from four exceptional achievements in 2005-2006: In the fourth fiscal quarter, we took 20% of market share on Microsoft's Xbox 360...

  • Page 7
    ... of a film(2). Ubisoft pursued its objective of creating new brands, launching the hit title Blazing Angels™ Squadrons of World War II in March and successfully introducing our best-selling PC brand Far Cry® to home consoles. Finally, we stepped up investment in research and development to enable...

  • Page 8
    ...will enable the company to fully benefit from the upcoming growth cycle. Indeed fiscal 2007-2008 is set to be a year of exciting growth for video game publishers, with a market that is due to increase by around 17%. Next-gen console games should generate around 70% of industry software sales in 2008...

  • Page 9
    ... business structure, Alain has developed a profound knowledge of the global market. Since he took charge of the San Francisco office, Laurent has established Ubisoft as a major force in the US market. Alain joined Ubisoft in 2000, when the company entered the Premier Marché of the Paris stock...

  • Page 10
    Key Figures In fiscal 2006, Ubisoft recorded strong market share growth and increased its sales by 3% despite a global industry decline. The company also pursued the reduction of its net debt while continuing to increase investment in next-generation development. 2005/2006 AT A GLANCE SALES % OF ...

  • Page 11
    ... 2004 1,990 1,901 2002 2003 GEOGRAPHIC BREAKDOWN OF SALES NORTH AMERICA EUROPE BREAKDOWN OF SALES BY PLATFORM OLD GENERATION CONSOLES 45% 49% 55% NEXT-GENERATION CONSOLES 29% REST OF THE WORLD PC 6% 16% UBISOFT • 2006 ANNUAL REPORT FINANCIAL POSITION (â,¬ MILLION) 400 350 300 250 200...

  • Page 12
    ...outstanding quality and innovation of Ubisoft's evolving game catalogue. CANADA North America 1,795 USA th independent publisher Development studios Business offices Number of employees (2) per country/region (1) Excluding Japan. Source: NPD, Chart Track, Media Control, GFK, in value terms...

  • Page 13
    ... UNITED KINGDOM GERMANY BELGIUM AUSTRIA HQ Paris FRANCE SWITZERLAND France 673 ROMANIA BULGARIA ITALY SPAIN EUROPE SOUTH KOREA JAPAN MOROCCO CHINA Asia-Pacific 458 AUSTRALIA 11 4th INDEPENDANT PUBLISHER WORLWIDE (1) rd independent publisher GROUP UBISOFT • 2006 ANNUAL REPORT

  • Page 14
    ...to next-gen will clearly benefit those publishers who have anticipated and prepared their business for the shift. 12.3 BOX OFFICE 16% 19% MUSIC 23% VIDEO GAME SOFTWARE & HARDWARE 2005 ENTERTAINMENT INDUSTRY TURNOVER IN THE USA(2) (in billions of dollars) ONLINE AND MOBILE GAMING: NEW A VENUES...

  • Page 15
    ... mobilize creative talents such as artists, storytellers, animators, musicians and programmers - film directors and artistic game designers are increasingly working together to improve the quality of video games inspired by movies - and vice versa - by leveraging technical expertise and financial...

  • Page 16
    ASSASSIN'S CREEDâ„¢ Lead by example

  • Page 17
    ... home consoles to hit the market. Ranking number one independent publisher in France on the Xbox 360â„¢ and number two in the US, UK and Canada in Q4 fiscal 2006, Ubisoft will further prove in fiscal 2007 that it's more than ready to seize the imminent opportunities afforded by next-gen technology...

  • Page 18
    ... proved that creating superior games is not incompatible with being financially sound. Consistently recognized for producing games of outstanding quality, Ubisoft's award-winning studios are part of a carefully planned human resources strategy which has enabled the company to boast production costs...

  • Page 19
    ... Ubisoft's strategy to be a forerunner in providing quality after-sales service. The company's proactive policy to improve the efficiency and availability of its customer service in recent years has resulted in a free online FAQ system that offers round the clock "self-service" technical support...

  • Page 20
    ... strategy is central to its growth. The company's strong track record of continual market share gains is unquestionably the result of its goal to aim always higher in providing innovative and immersive gaming experiences. Strong brands play a pivotal role in ensuring recurrent revenues and long term...

  • Page 21
    ... in terms of the number of units sold in the first week of sales. Ubisoft also successfully introduced its best selling Far Cry® brand on the home console market last year, launching new titles on the Xbox® and Xbox 360™ and subsequently doubling its unit sales. In addition, Ubisoft acquired all...

  • Page 22
    ...high-quality sequel for the multi-million unit selling Rayman® franchise and by collaborating closely with Sony Pictures Animation on the development of two titles based on Sony's first Computer Generated Image (CGI) motion pictures. In addition, Ubisoft signed two key license agreements to develop...

  • Page 23
    ...elevision will see Ubisoft develop the game adaptation of blockbuster TV series Lost® in 2007. PETER JACKSON'S KING KONG: THE OFFICIAL GAME OF THE MOVIE SUSTAINING SALES THROUGH MUL TIPLATFORM SUPPORT Along with creating strong brands and entering new market segments, Ubisoft's growth also relies...

  • Page 24
    Teams, tools and techniques RAYMAN RAVING RABBIDSâ„¢

  • Page 25
    .... The company's extensive expertise at all levels of game creation, development and commercialization is the driving force behind Ubisoft's past and current successes and will play a key role in the company's achievement of its long-term business goals. 23 EXPERTISE UBISOFT • 2006 ANNUAL REPORT

  • Page 26
    ... competency development play a primordial role both in terms of personal motivation and collective success. Ubisoft faces this challenge by mixing on-the-job learning with specific technical training programs to ensure UBISOFT SAN FRANCISCO SCOOPS "EMPLOYER OF EXCELLENCE" MERIT AWARD To help local...

  • Page 27
    ... 500 production staff per year to support its in-house development policy, Ubisoft has a proactive recruitment strategy that draws on its reputation as a quality creator of games to attract the best in the business. The number one video games employer in China, Canada, France and Romania, Ubisoft...

  • Page 28
    ...company's studios, increasing productivity and guaranteeing quality across the board. In addition, a growing number of web-based collaborative work spaces enable employees to share information and ideas more easily. Playing a pivotal role in this strategy, Ubisoft's Academy of Experts is an internal...

  • Page 29
    ... to share know-how and fully exploit the power of next-gen technology. A multi-site production, and, as such, a Ubisoft first, the game was developed using the collective talents of several of its studios around the world, each bringing their own set of competencies to the project. The result took...

  • Page 30

  • Page 31
    financial report 2006

  • Page 32
    ... L. 225-235 of the French Commercial Code on the report of the Chairman of the Board of Directors of Ubisoft Entertainment SA concerning the internal control procedures related to the preparation and treatment of accounting and financial information Persons responsible for the reference document...

  • Page 33
    ... 1.5.4 1.5.5 Ubisoft worldwide key figures at March 31, 2006 A motivating, friendly work environment Valuing individual and group performance Skills development: a priority Ubisoft employment in France Social service activities Recycling Destruction of non-marketable products Electrical consumption...

  • Page 34
    ...the acquisition of game rights and external licenses, as well as product marketing) and distribution (the physical delivery of the final product to all types of retailer). Over time, Ubisoft has successfully implemented these three activities at 13 production sites around the world, where the talent...

  • Page 35
    ... last week of the year. Publishing agreement with 4Kids Entertainment and Mirage Group for the development and distribution of a game based on the Ninja Turtle license, which will be coupled with the release of an animated feature film. T wo new Far Cry Instincts® games announced on Xbox® and Xbox...

  • Page 36
    ... taxes) +/- Other calculated income and expenses +/- Internal development and brand/license development expenses Operating cash flow before cost of net financial debt and taxes +/- Taxes paid Inventory Trade receivables Other assets Trade payables Other liabilities +/- Change in working capital...

  • Page 37
    ... Ubisoft finances and supervises production in exchange for acquiring the Breakdown of sales by activity (%) Development Publishing Distribution Total 2005-06 85% 10% 5% 100% 2004-05 87% 10% 3% 100% Change in volume 0% +3% +71% 35 FINANCIER UBISOFT • 2006 ANNUAL REPORT The group continues...

  • Page 38
    ...distribution activities, and is the result of gains in market share made by the group, which now position it as a major player in most countries. In addition, the company has significantly developed its film license activities: Peter Jackson's King Kong - The Official Game of the Movie and Star Wars...

  • Page 39
    ... Gameloft's earnings. - â,¬2.6 million in income from dilution. - â,¬15.8 million in profits from sales of shares. The company recorded a net tax credit of â,¬3.3 million. This net tax resulted from: - A tax credit of â,¬3.2 million for losses during the year, excluding the share of equity-accounted...

  • Page 40
    ... the working capital requirement can be greater then. As a result, the company's net debt varied between â,¬65 million and â,¬130 million, with the peak debt period occurring between November and January. 1.3.1 The video game business requires investments in development in excess of 30% of sales...

  • Page 41
    ... to technical engineers and business professionals, all of whom are united through their passion and shared objectives. Ubisoft has offices in 21 countries, which means that the group boasts at least as many different nationalities. (1) These include only permanent employees. The total number of...

  • Page 42
    ... 03/31/05, making Ubisoft the world's second-largest production force in the video game market. To support this growth, a new studio was created in April 2005 in Quebec, which today already employs 117 people. Most hiring has occurred in Canada, China, the United States and France, which has made...

  • Page 43
    ... office over the past two years, for example, nine of 16 recent graduates hired were individuals who had previously completed a traineeship at Ubisoft. In terms of human resources management, Ubisoft continues to strengthen its foundations and develop new programs that support its growth strategy...

  • Page 44
    ...IT-Cup in France) and has continued to coordinate "leisure" days at children's hospitals in France. 1.5 Environmental data Morocco and Switzerland have taken this approach. Our Ubisoft Divertissements Inc subsidiary gives some of its used equipment to a social services company that works in the IT...

  • Page 45
    ... the growth in business. The countries with the greatest consumption levels were as follows: CANADA Kwh (in thousands) 03/31/06 Kwh (in thousands) 03/31/05 Staff as of 03/31/06 Staff as of 03/31/05 % Additional employees 4,778 4,093 1,444 1,110 +30% FRANCE 3,064 2,660 673 656 +3% UNITED STATES 1,233...

  • Page 46
    ... Ubisoft Graphics SAS Ubisoft Divertissements Inc Shanghai Ubi Computer Software Co Ltd Ubisoft Sarl Ubisoft Music Publishing Inc Ubisoft Productions France SARL Ubisoft Studios Srl Ubisoft SRL Ubisoft Music Inc Red Storm Entertainment Inc (1) Blue Byte GmbH Ubisoft Development SARL (France) (France...

  • Page 47
    ... for software design and development. Their business has expanded substantially as a result of the increasing number of projects conducted internally and of a larger workforce. Marketing subsidiaries These subsidiaries, which are responsible for distributing Ubisoft products throughout the world...

  • Page 48
    ... on the business, results, financial position or assets of Ubisoft Entertainment SA or its subsidiaries. 1.7.2 Research and development policy In an ongoing effort to create top-quality video games, Ubisoft has developed a policy of researching and developing tools for each project, incorporating...

  • Page 49
    ... a period of opportunity in which to expand its market share by entering market segments in which the Group has not yet developed a presence. Ubisoft has a first-rate design staff operating in development studios in Canada, China and Romania, where production costs are lower. As a result, and thanks...

  • Page 50
    ...117 employees 1.8.6 Risk related to intellectual property Ubisoft Entertainment's games and trademarks are covered by intellectual property rights both in Europe and internationally (for France: Institut National de la Propriété Industrielle [French Patent Office], Paris; for Europe: Office for...

  • Page 51
    ..., the main subsidiaries, which represent more than 92% of Group sales, are covered by credit insurance. Ubisoft's 10 largest customers account for 40% of the Group's pre-tax sales. and variable-rate loans to finance specific needs related to an increase in working capital during particularly...

  • Page 52
    ... currencies on sales and operating income in thousands of euros for FY 2005-06: Equity price risk: The company has four main types of equity investment: Long-term strategic investments in sectors related to video games, such as the investment in Gameloft in which Ubisoft owns 13,367,923 shares and...

  • Page 53
    ... of at least one year. In order to finance temporary needs related to increases in working capital requirements during particularly active periods, the group has a syndicated loan of â,¬100 million and has also established lines of credit with banking institutions totaling â,¬86 million as of...

  • Page 54
    ...in 2003. In total, 97% of the share subscription warrants were converted between 2003 and 2006. - Licensing agreement with Touchstone Television to develop and publish a video game adaptation of the Emmy Award-winning TV series "Lost". Developed by the studio in Montreal, this game will be available...

  • Page 55
    ... as of March 31, 2006 2 2 Ubisoft group's consolidated accounts as of March 31, 2006 2.1 2.2 2.3 2.4 2.5 Consolidated balance sheet Consolidated income statement Consolidated statements of changes Consolidated cash flow statement Notes to the consolidated Financial Statements 54 55 56 58 59 59 59...

  • Page 56
    ...-in capital Equity component Consolidated reserves Consolidated earnings Equity (group share) Minority interests Total equity Provisions Employee benefits Borrowings Deferred tax liabilities Non-current liabilities Borrowings Trade creditors and related accounts payable Sundry creditors Financial...

  • Page 57
    ... Financial income Financial expenses Financial result Share in earnings of associates Income tax expense Result after income tax of consolidated companies Minority interests Net result group share Net earnings per share Diluted net earnings per share 55 FINANCIER UBISOFT • 2006 ANNUAL REPORT

  • Page 58
    ... and sale of own shares Profit (loss) resulting from the evaluation entered in equity Dilution in equity of associates Other results recognized directly in equity Total recognized income and expenses for the period Change in capital of mother company Options on ordinary shares issued Exchange rate...

  • Page 59
    Ubisoft group's consolidated accounts as of March 31, 2006 2 Consolidated reserves Translation reserves Fiscal year earnings -8,153 8,153 24,732 Total equity group share 284,571 24,732 Minority Interests Total equity...370 2,692 8,410 381,258 UBISOFT • 2006 ANNUAL REPORT 24,732 -24,732 11,932...

  • Page 60
    ... gains and losses resulting from changes in fair value +/- Cost of share-based payments +/- Flows from disposal of fixed assets +/- Dilution profit and loss +/- Other calculated income and expenses Inventory Trade receivables Other assets Trade payables Other liabilities +/-Change in working capital...

  • Page 61
    ... of the fiscal year The financial statements have been approved for issue by the Board of Directors on June 22, 2006. 2.5.2.1 Change in the percentage holding in Gameloft SA On June 28, 2005, Ubisoft Entertainment SA did not subscribe for shares under the Gameloft SA equity issue; its percentage...

  • Page 62
    ...in which Ubisoft Entertainment SA exercises significant influence on the financial and operational policies but no control. The consolidated financial statements include the group share in the total amount of profits and losses recorded by the associates, using the equity accounting method, starting...

  • Page 63
    ... programs" or "External developments" accounts. Commercial software is amortized over three years using the straight-line method, beginning on the date of its commercial release. At the close of each fiscal year and for each program, when there are indicators of a loss of value (basically when sales...

  • Page 64
    ... shares The own shares are booked at their purchase cost as a deduction from equity. The results of the sale of these Japan Rate of salary changes Discount rate Average remaining years of service 5% 4.25% 23 years Italy 1.50% 4.25% 30 years France 3 to 6% 4.25% 32 years Share-based payments Stock...

  • Page 65
    ... at the pre-tax rate that reflects the current market assessment of the time value of the money, and when this is appropriated, the risks specific to this liability. between the book value of assets and liabilities and their tax bases. The evaluation of deferred income tax assets and liabilities is...

  • Page 66

  • Page 67
    ... HOLDINGS INC. France United States FC = Full consolidation EA = Equity affiliate The fiscal year of all consolidated companies ends on March 31 of each year, except Ubisoft SRL (Romania) and Gameloft SA, which close their accounts on December 31. No ad hoc company belongs to the Ubisoft group...

  • Page 68
    ...Games Inc. Blue Byte Software Inc. Red Storm Entertainment Inc. Wolfpack Studios Inc. Distribution in the US Ubisoft Spa Ubisoft Canada Inc. Tiwak SAS Ubisoft Divertissements Inc. Blue Byte GmbH Ubisoft France SAS Ubisoft BV Ubisoft Warenhandels GmbH Ubi Games SA Total 3D Planet SPA Ubisoft Canada...

  • Page 69
    ... Released commercial software External commercial software Office software Leased office software Other Total 27,815 5,711 1,378 34,904 (1) Includes â,¬69.3 million of additional depreciation reflecting the shortfall in estimated sales and projected operating income on certain games. (2) Includes...

  • Page 70
    ... 3,866 3,641 Decreases 5,294 1,577 6,871 Exchange rate differences As of 03.31.06 Gross 25,719 4,315 30,034 Share in equity Total equity in subsidiaries Increases During the fiscal year, Gameloft SA conducted a capital increase to which Ubisoft Entertainment SA did not subscribe. The impact of the...

  • Page 71
    ... 71 170 106 22,906 UBISOFT • 2006 ANNUAL REPORT 18,693 930 943 94 199 19 93 654 118 227 160 129 22,259 235 (1) Ubisoft Entertainment SA's activated losses before fiscal integration came to â,¬16,933 thousand. The change in tax credits is principally the result of: - The activation of â,¬9,500...

  • Page 72
    ... In order to limit the group's foreign exchange risk, Ubisoft Entertainment SA hedges exchange rate fluctuations by forward sales contracts and options contracts. The derivatives are recorded at their fair value as balance sheet assets or current financial liabilities. Losses and gains reflecting...

  • Page 73
    ...change in value booked as income is â,¬419 thousand. (2) Fair value of the Equity Swap 03.31.06 Fair value Margin call received Total 17,803 -17,710 93 03.31.05 10,284 -10,290 -6 Due date 02.28.08 The change in value entered as income is â,¬7,519 thousand, i.e., â,¬5,013 thousand after tax. Equity...

  • Page 74
    ...the capitalization of reserves, profits or issue premiums, this right is also conferred at the date of issue on registered shares allotted free of charge to a shareholder in exchange for old shares for which this right was enjoyed. Number of Ubisoft Entertainment SA shares As of 04.01.05 Exercised...

  • Page 75
    ...2006 inclusive. â,¬28. The 1,169,733 subscription warrants granted to Ubisoft Entertainment SA were cancelled. 2,331,615 stock purchase warrants were exercised during the fiscal year; 2,973 shares were delivered from directly held shares and 152,468 shares were created. As of March 31, 2006, 13,316...

  • Page 76
    ... 4 4 Provisions for litigation Total Impact Operating result Financial result Extraordinary result 4 4 Miscellaneous Our Canadian subsidiary, Ubisoft Divertissements Inc., has received an audit notification letter relating to the transfer price for the year 1999, involving approximately CDN...

  • Page 77
    ... risk is aimed mainly at minimizing the cost of the group's borrowings and at reducing exposure to this risk. In this regard, the group gives priority to fixed-rate loans for long-term financing needs and variable-rate loans to finance specific needs related to an increase in working capital during...

  • Page 78
    ... finance temporary cash requirements generated by changes in working capital requirements. They may be offset with existing liquid assets at other group companies as part of a notional cash pooling system. Net financial indebtedness was reduced by â,¬9,058 thousand over the course of the fiscal year...

  • Page 79
    ... item. Due date of deferred tax liabilities: Short-term: â,¬994 thousand Long-term: â,¬21,860 thousand UBISOFT • 2006 ANNUAL REPORT Note 17 Trade creditors and related accounts payable Trade creditors break down as follows: 03.31.06 Trade payables Debts on fixed assets Total 65,305 5,728 71,033...

  • Page 80
    ... linked to a lease in Canada; the remainder represents prepaid sales. Other debts have a maturity of less than one year. Note 19 Financial liabilities Financial liabilities break down as follows: 03.31.06 Derivatives on exchange rate transactions Equity swap contracts Total 1 1 03.31.05 433...

  • Page 81
    Ubisoft group's consolidated accounts as of March 31, 2006 2 Note 21 Other operating income Other operating income breaks down as follows: 03.31.06 Capitalized commercial software production costs Capitalized production costs on other software Write-back of provisions Liabilities Doubtful debts ...

  • Page 82
    ... assets Released software programs External developments Office software Leased office software Logo Other Depreciation of tangible fixed assets Plant & machinery Computer equipment and furniture Development kits Transportation equipment Leased computer hardware and transportation equipment Total...

  • Page 83
    ...assets). The result of dilution is related to the capital increase to which Ubisoft Entertainment SA did not subscribe. The result of sales relates to the sale of 5,155,000 Gameloft SA shares. Note 28 Income tax expense Income tax expense breaks down as follows: 03.31.06 Tax due Deferred tax Total...

  • Page 84
    ...Divertissements Inc tax additions Ubisoft SpA tax additions Ubisoft GmbH tax additions Taxes independent of income Tax on Ubisoft Entertainment SA long-term capital gains Taxation of foreign companies at different rates Fiscal integration impact France USA tax credit Research tax credit Total income...

  • Page 85
    ... -600 -9,110 19,109 3,324 11,932 UBISOFT • 2006 ANNUAL REPORT Sales Other operating income Cost of sales Inter-company flows (1) Inventory changes in finished products and work-in-progress Wages and social security costs Other operating expenses Tax and duty Depreciation and provisions Reinvoiced...

  • Page 86
    ...-in capital Equity component Consolidated reserves Consolidated earnings Equity (group share) Minority interests Total equity Provisions Employee benefits Borrowings Deferred tax liabilities Non-current liabilities Borrowings Trade creditors and related accounts payable Sundry creditors Financial...

  • Page 87
    ... France Germany UK Rest of United States Europe & Canada 57 8 39 326 14 31 57 532 2,977 1,806 2,062 6,850 35 13,730 Rest of world 327 490 680 1 1,498 03.31.06 Total 130,657 52,802 2,517 598 1,500 8 2,758 9,243 1,509 103 66 105 201,866 Released commercial software External commercial software Office...

  • Page 88
    ... short-term lines of credit amount to â,¬86.2 million; they are unconfirmed and revocable with 30 days prior notice. The syndicated loan is confirmed for the amount of â,¬100 million; it has not been used as of March 31, 2006. Europe Asia Canada United States Morocco Romania Australia Total 929...

  • Page 89
    ... in July 2006. - Sale of assets On April 1, Ubisoft Warenhandels GmbH sold its distribution rights to Ubisoft GmbH. - Conversion of share subscription warrants granted in May 2003 A capital increase of Ubisoft Entertainment SA of â,¬24 million in April and May 2006 as a result of the conversion of...

  • Page 90
    ... options Equity swap Change in foreign exchange rates Goodwill Internal created trademarks Accrued expenses related to marketing expenses Investment grant Correction of income taxes from previous fiscal years 293,649 -793 4,815 -641 993 - 14,618 37 -567 -357 -33 2,086 284,571 Equity (group share...

  • Page 91
    Ubisoft group's consolidated accounts as of March 31, 2006 2 89 FINANCIER UBISOFT • 2006 ANNUAL REPORT

  • Page 92
    ...group share) Minority interests Total equity Provisions Commitments to staff Long-term financial debt Deferred tax liabilities Non-current liabilities Short-term financial debt Advances and installments received T rade creditors and related accounts payable Sundry creditors Financial liabilities Tax...

  • Page 93
    Ubisoft group's consolidated accounts as of March 31, 2006 2 IFRS 3 Goodwill IAS 38 Internal created trademarks 8 -652 IAS 1 Accrued expenses IFRS 2 Compensation paid in shares 12 IAS 8 Correction of income taxes on previous FYs 13 IAS 17 Lease agreement 14 29 151 Reclassi fications 31.03....

  • Page 94
    ...IAS 8 IAS 17 Own shares Bond debentures Exchange rate options Equity swap Variation in non-consolidated investments Share-based payments Goodwill Internal created trademarks Accrued expenses related to marketing expenses Correction of income taxes from previous fiscal years Leases 20,022 -116 -1,213...

  • Page 95
    ... be booked as assets. Note 7 Goodwill - IFRS 3 In the course of a first-time adoption of International Financial Reporting Standards, Ubisoft has opted for the option offered by IFRS 1 to not retrospectively restate business combinations that took place before April 1, 2004. Note 12 Share-based...

  • Page 96
    ... income tax from previous fiscal years reported in March 2005 must be posted to the opening share capital in March 2004. Note 14 Leases - IAS 17 Under IAS 17, lease contracts that substantially transfer all the risks and rewards incident to ownership of the asset are considered to be finance...

  • Page 97
    ... the income statement Other information 3.5.8.1 Personnel 3.5.8.2 Financial commitments and other information 3.5.8.3 Compensation of corporate officers 3.5.8.4 Events after closure of accounts 3.5.9 Subsidiaries and affiliated companies (March 31, 2006) 95 FINANCIER UBISOFT • 2006 ANNUAL REPORT

  • Page 98
    ... premiums Adjustment accounts Total assets Liabilities Capital Premiums Reserves Income for fiscal year Net investment grants Equity Provisions for risk and charges Bond debentures Borrowings (1) (2) Miscellaneous financial debts Trade creditors and related accounts payable Tax and social security...

  • Page 99
    ...9,073 1,401 96 1,305 1,235 931 UBISOFT • 2006 ANNUAL REPORT Sales Other operating income and transfer of expenditures Total operating income Stored purchases and other procurement Changes in inventory Other purchases and external charges Tax and duty Wages and social security costs Other expenses...

  • Page 100
    ... 431 40,624 41,055 Reclassification 2005-06 Earnings Balance as of 03.31.06 Capital Issue premium Legal reserves Regulated reserves Other reserves Profit and loss account reserve brought forward Net earnings for fiscal year Total 5,594 274,795 505 238 11,665 -25,593 20,085 287,289 -238 -5,271...

  • Page 101
    ...- and medium-term loans Increase in capital Increase in issue premium Increase in issue premium on shares with warrants Increase in issue premium on group savings plan Increase in bond redemption premiums Variation in current accounts Total cash flow from financial transactions Net change in cash...

  • Page 102
    ... the change in tax position with regard to calculating added value in the film industries and the production of commercial software, as of April 1 2004, development costs subcontracted to group subsidiaries are being recorded as subcontracting charges and carried to assets in the form of capitalized...

  • Page 103
    ... "Released software programs" or "External developments" accounts (208 accounts). Development costs subcontracted to group subsidiaries are being recorded as subcontracting charges and carried to assets in the form of capitalized production costs. Commercial software is amortized over 3 years using...

  • Page 104
    ... remaining to be paid during the next fiscal year. Acquisition of the license to use CryEngine technology for â,¬3 million during this fiscal year. Depreciation Released commercial software (1) External commercial software ERP Production licenses Other Total (2) As of 03.31.05 Cumulative 262,790...

  • Page 105
    ... on exchange-listed companies: Listed company Book value on 03.31.06 (â,¬) Number of shares Value of one share as of 03.31.06 (â,¬) Write-back over fiscal year Depreciation over fiscal year Gameloft SA 27,343,883 13,367,923 6.12 UBISOFT • 2006 ANNUAL REPORT Provisions Equity holdings Total As...

  • Page 106
    ... bond debentures Borrowings from credit institutions Miscellaneous borrowings and financial debt Trade creditors and related accounts payable Tax and social security liabilities Other debts Debts on fixed assets Deferred income Total Bank loans taken out during the year Buy-back of OCEANE...

  • Page 107
    ... accounts of Ubisoft Entertainment SA as of March 31, 2006 3 Note 7. Accrued receivables 03.31.06 03.31.05 3,620 12,953 18 16,591 1,798 20,394 65 22,257 Credits receivable from suppliers Sales not yet billed Interest receivable Total Note 8. Nature Short-term investment securities Name Number...

  • Page 108
    ... 14. Equity Capital On March 31, 2006, the capital of Ubisoft Entertainment SA consisted of 19,434,336 shares with a face value of â,¬0.31 each, i.e. â,¬6,024,644.16. Number of Ubisoft Entertainment SA shares As of April 1, 2005 Exercised options Bond conversions Exercise of subscription warrants...

  • Page 109
    ... to Ubisoft Entertainment SA were canceled. During the fiscal year, 2,331,615 warrants were exercised, 2,973 shares were delivered from directly held shares and 152,468 shares were created. As of March 31, 2006, 13,316,874 subscription warrants remained to be converted. Stock options The capital...

  • Page 110
    ... and settlement day: Term of bond: Annual yield: Gross yield to maturity: Normal redemption: The company bought back 1,400,699 bonds, which were canceled. As of March 31, 2006, 1,749,301 bonds remain to be converted. Chief characteristics of OBSAR (bonds with redeemable share subscription warrants...

  • Page 111
    ...3,857 276 4,133 3,857 110 3,967 3.5.7 Explanatory notes on the income statement UBISOFT • 2006 ANNUAL REPORT Note 18. Sales Breakdown of sales by geographical area: Kâ,¬ Europe USA Canada Rest of the world Sales Capitalized production costs Total 87,082 80,502 14,384 181,968 132,260 314,228 03...

  • Page 112
    ... of tangible fixed assets Provision for charges to be spread over several fiscal years Total 132,865(1) 404 133,269 03.31.05 116,054 539 205 116,798 (1) Includes â,¬73.6 million of additional amortization reflecting the shortfall in estimated sales and projected operating income on certain games.

  • Page 113
    .... 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 at Ubisoft EMEA SAS and Ubisoft Entertainment SA. When exchange rate risk exists...

  • Page 114
    ... the company in question may also use the deficits for its own purposes. The data for Ubisoft Entertainment SA, independent of the tax group, are as follows: 03.31.06 Pre-tax operating profit (loss) less financial profit (loss) Extraordinary income/expense Pre-tax profit (loss) Fiscal result -29...

  • Page 115
    ...of 96.6% of the share subscription warrants (BSA) granted in May 2003. 2. Financial leasing There are no longer any rentals pertaining to financial lease contracts recorded in the accounts of Ubisoft Entertainment SA. 3. Authorizations Short-term bilateral lines of credit amount to â,¬86.2 million...

  • Page 116
    ... units % of capital held In K of currency units SUBSIDIARIES (AT LEAST 50% OF CAPITAL HELD) UBISOFT HOLDINGS INC. UBISOFT EMEA SAS UBISOFT FRANCE SAS UBISOFT GMBH UBISOFT DIVERTISSEMENTS INC. Total Currency OTHER SUBSIDIARIES French subsidiaries Foreign subsidiaries Subtotal AFFILIATED COMPANIES...

  • Page 117
    ... 2006 3 Book value of securities held In thousands of euros Gross Net Loans and advances granted by the company and not yet repaid In K of currency units Total collateral and guarantees provided by the company Net sales excluding tax Net earnings for last complete year Dividends collected In...

  • Page 118
    4 Declaration by the statutory auditors 4.1 Report on the consolidated account statements for the fiscal year ending March 31, 2006.. 4.2 General report on the fiscal year ending March 31, 2006 4.3 Special report on regulated agreements for the fiscal year ending March 31, 2006 117 118 119

  • Page 119
    ... to the assignment vested in us by your General Meeting, we have audited the consolidated accounts of Ubisoft Entertainment SA for the fiscal year ending March 31, 2006, as appended to this report. The annual accounts have been prepared by the Board of Directors. It is our task to express an opinion...

  • Page 120
    ...principles in France, the annual accounts give a true and fair view of the results obtained for the period in question and of the company's financial situation and assets at the end of this accounting period. Without compromising the foregoing opinion on the accounting method changes appeared during...

  • Page 121
    ...annual accounts. As required by law, we have ascertained that the various information relating to acquisition of equity holdings and control and to the identity of the holders of share capital was given to you in the management report. Rennes, September 1st 2006 By the statutory auditors KPMG Audit...

  • Page 122
    ... purchase price of the share was â,¬15.25. 8) Purchase of UBISOFT BOOKS AND RECORDS SARL shares Directors concerned: Messrs Yves, Michel, Gérard, Claude and Christian Guillemot 4) Purchase of a UBISOFT EMEA SARL share Directors concerned: Mr. Yves Guillemot Nature and purpose: Your board meeting...

  • Page 123
    ... company contracted with Gameloft SA a licensing agreement for current and future brands licensed exclusively for the development of interactive video games for telephone, fax and telecommunications devices; personal digital assistants (PDA); and interactive television. Modalities: Term: 10 years...

  • Page 124
    ... agreement, and therefore couldn't voting on the approval in question. Nature and purpose: Your company bought shares held in WORLD STUDIOS SAS from Mrs. Yvette Guillemot and Messrs Yves, Claude, Michel, Gérard and Christian Guillemot. 2) Purchase of UBISOFT FRANCE SAS shares Directors concerned...

  • Page 125
    ...on the Company 5.1 General information on the capital 5.1.1 5.1.2 5.1.3 5.1.4 5.1.5 5.1.6 5.1.7 Company name and registered office Legal status Applicable legislation Company founding date and term Trade and Companies Register Site for consultation of legal documents regarding the company Accounting...

  • Page 126
    ... Board of Directors, governed by the French Commercial Code. Site for consultation of legal documents regarding the company 5.1.3 Applicable legislation The Articles of Association, financial statements and reports, and minutes of General Meetings may be consulted at the business address (28 Rue...

  • Page 127
    ... (Paris time) of the day before the meeting, the information needed to cancel his vote or proxy or to change the number of shares and corresponding votes. The deadline for returning absentee voting ballots and proxies is set by the Board of Directors and announced in the notice of meeting published...

  • Page 128
    ... with the exercise of rights attached to securities granting entitlement by any means, either immediately or subsequently, to the company's capital. - The allotment of shares to employees and corporate officers of the Ubisoft Entertainment group, including as part of (I) a company gainsharing plan...

  • Page 129
    ...term of one year and is renewable by tacit agreement. The company allocated a sum of â,¬1,500,000 to implement this contract. 5.2.2.3.3Situation as of March 31, 2006 Percentage of capital held directly and indirectly Number of shares cancelled in the last 24 months Number of shares held in the Book...

  • Page 130
    ... were redeemed. b) At its meeting on November 13, 2001, the Board of Directors used the authorization granted by the Extraordinary General Meeting of October 19, 2001 to issue bonds with the option of conversion into and/or exchange for new or existing shares of the company (OCEANE) up to an amount...

  • Page 131
    ... Ubisoft Entertainment SA were cancelled. 2,331,615 share subscription warrants were exercised during the fiscal year. 152,468 shares were created and 2,973 shares were delivered on directlyheld shares. As of March 31, 2006, 13,316,874 subscription warrants were not yet converted. e) At its meeting...

  • Page 132
    ...Stock options granted to the 10 non-officer employees receiving the most options, and options exercised by them Options granted during the fiscal year by the issuer and any company authorized to grant the issuer's options having the largest number of options thus granted (global information) Number...

  • Page 133
    INFORMATION ON THE COMPANY 5 Expiration date Terms and conditions of exercise 25%/year 25%/year 25%/year 50% on 01.19.05 75% on 08.16.05 100% on 08.16.06 25%/year 25%/year 25%/year 24% at the end of 1 year then 2% per month (France- Italy) 24% at the end of 1 year then 2% per month (United States...

  • Page 134
    ... in the company's capital over the last three fiscal years. Date Type of operation Number of shares issued Amount of equity issue by cash contribution Issue premium Share face value Total number of shares Total share capital 03.31.03 11.11.03 Equity issue through conversion and exercise of options...

  • Page 135
    ... ON THE COMPANY 5 5.2.2.13 Market in which the company's stock is traded Ubisoft share fact sheet ISIN code Listing market Face value Number of outstanding shares as of 03/31/06 Closing price as of 03/31/06 Market capitalization as of 03/31/06 Initial listing price on July 1, 1996 Month March...

  • Page 136
    ...its voting rights. On April 24, 2006, Guillemot Brothers SA informed the company that it had fallen below the 10% capital threshold following an equity issue linked to the creation of new shares resulting from the exercise of stock options, subscription warrants and convertible bonds (AMF; Decisions...

  • Page 137
    ... COMPANY 5 5.2.3.2 Changes in distribution of capital during the last three fiscal years As of 03.31.04 Capital Number of shares Guillemot Brothers SA Claude Guillemot Yves Guillemot Michel Guillemot Gérard Guillemot Christian Guillemot Other members of the Guillemot family Guillemot Corporation...

  • Page 138
    ... offices held by the Directors 6.6.1 Offices held as of March 31. 2006 6.6.2 Expired terms (last five fiscal years) 137 138 138 138 138 139 139 141 6.7 Compensation of managers 6.7.1 Compensation of managers and members of the Board of Directors 6.7.2 Stock option plan 144 144 144 6.8 Services...

  • Page 139
    ...Ordinary General Meeting of September, 25, 2006 Additional information concerning the group's management: Managing Director EMEA Territories: Managing Director for North American Territories: Chief Finance Officer: Managing Director International Production: Editor-in-Chief: Each director must hold...

  • Page 140
    ...Chairman of the Board of Directors' duties from those of its general management. As a result, the statutory role of Mr. Yves Guillemot, as Chairman of the Board of Directors, is to represent the company's Board of Directors, organize its work and report 6.4 Absence of fraud conviction, association...

  • Page 141
    ...ANNUAL REPORT President and Director Ubisoft Ubisoft Ubisoft Ubisoft Divertissements INC Canada INC Music INC Music Publishing INC Switzerland President - Ubi Games SA China Director - Ubi Computer Software Beijing Company LTD - Shanghaï Ubi Computer Software Company LTD Claude Guillemot France...

  • Page 142
    ... Romania SRL (Roumanie) Germany Manager - Guillemot GmbH Michel Guillemot France Director and Executive Vice President - Guillemot Corporation SA - Guillemot Brothers SA Canada Director Gameloft INC Ubisoft Divertissements INC Ubisoft Canada INC Ubisoft Music INC Ubisoft Music Publishing INC CEO...

  • Page 143
    ...Software Company LTD - Guillemot Corporation (HK) Limited Spain Director - Gameloft Iberica SA Canada Director - Gameloft INC - Guillemot INC United States Ubisoft INC Ubisoft Holdings INC Gameloft INC Guillemot INC UBISOFT • 2006 ANNUAL REPORT Director China Director - Ubisoft LTD (Hong-Kong...

  • Page 144
    ...Euroland Finance (France) - TFJ (France) President and Director 6.6.2 Expired terms (last five fiscal years) - Wolfpack INC - Blue Byte Software INC Great Britain Director - Blue Byte Software LTD - Ubi Studios LTD Yves Guillemot France Director and CEO - Ubi Ventures SA - Ludigames SA Claude...

  • Page 145
    ... - Ubisoft Divertissements INC President and Director - Ubisoft Music Publishing INC President - Ubi Digital Movies INC Director - Ubi Soft Publishing OEM INC - Ubisoft Canada INC Denmark President - Gameloft.com AS United States Director - Guillemot Online.com INC - Hercules Technologies INC...

  • Page 146
    ... Soft Entertainment INC Ludiwap INC Director Great Britain Director - Guillemot Logistic Limited - Guillemot Manufacturing Limited Manager - Ubi Books & Records SARL - Ubi Administration SARL Italy Director - Ubisoft SpA (Italy) Canada Director - Ubi Soft Publishing OEM INC (Canada) - Ubisoft...

  • Page 147
    ... Sale Sale Date of operation 04.11.05 04.12.05 04.13.05 Number of shares 2,500 9,000 5,000 Unit price Amount of operation â,¬7,681.11 â,¬283,053.85 â,¬161,218.28 UBISOFT • 2006 ANNUAL REPORT 6.9.1 Operations performed on Ubisoft's share First name-last name Title Mr. Michel Guillemot Director...

  • Page 148
    ... Chief Executive Officer 7.4 Statutory auditors' report, prepared in accordance with the last paragraph of Article L. 225-235 of the French Commercial Code. on the report of the Chairman of the Board of Directors of Ubisoft Entertainment SA concerning the internal control procedures related to the...

  • Page 149
    ... strategic matters concerning the Ubisoft group; examining collective agreements in accordance with Article L. 225-38 of the French Commercial Code. The Board of Directors met 12 times during FY 2005-06. UBISOFT • 2006 ANNUAL REPORT 7.1.2 Information about the directors The Chairman and Chief...

  • Page 150
    ... management is centralized and handled exclusively by the staff of the group's Finance department on the basis of guidelines approved by the CEO. To limit interest rate and foreign exchange risk resulting from business financing needs and international activities, the group uses certain financial...

  • Page 151
    ... the financial information required for a proper understanding of the group's strategy to shareholders, financial analysts, investors and so on. All financial announcements, as well as press releases, are reviewed and approved by general management. The role of the Human Resources and Benefits...

  • Page 152
    ... product release dates. This reporting procedure makes it possible to measure each subsidiary's performance and contribution to the group's income. For certain operating information, the department has access to data in real time. Meetings are held with the Administration, Finance and Financial...

  • Page 153
    .... Certain accounting software parameters were reviewed to ensure that they adhere to the new standards. In order to optimize the application of this new reference document and prepare ahead of time for the annual closing of accounts, Ubisoft decided to publish all financial data according to...

  • Page 154
    ... funds, letters of credit, comfort letters, price guarantees, securities etc.) are managed by the group Finance department. Bank guarantees are used to enable subsidiaries to place orders with their main suppliers by directly committing the parent company. Disputes and litigation: The group Legal...

  • Page 155
    ... Article L. 225-235 of the French Commercial Code, on the report of the Chairman of the Board of Directors of Ubisoft Entertainment SA concerning the internal control procedures related to the preparation and treatment of accounting and financial information Ladies and Gentlemen: In our capacity as...

  • Page 156
    ...for the audit of the accounts 8.1 Person responsible for the reference document 8.2 Declaration of the person responsible for the reference document 8.3 Names, addresses and professional fees of the statutory auditors 8.4 Documents available to the public 8.5 Schedule of financial communications for...

  • Page 157
    ... the reference document in full." Mr. Yves Guillemot Chairman and Chief Executive Officer 8.3 Names, addresses and professional fees of the statutory auditors Date of first appointment Expiration of current term 1986 2010 Name Principal auditor: SARL Audit AMLD represented by Mr. André Métayer...

  • Page 158
    In thousands of euros Audit - Statutory audit, certification, review of individual and consolidated financial statements - Incidental assignments Sub-total Other services - Legal, tax, social - Information technologies - Internal audit - Other Sub-total Total 2005-2006 Audit AMLD 2004-2005 KPMG ...

  • Page 159
    ...Nintendo's DSâ„¢ (including the new DS Lite) are the Next Gen handled consoles. Hit: A highly successful video game, with sales of several hundred thousand units. Localization: The linguistic and cultural adaptation of a game for use in a different country. MMO (massively multiplayer online): A term...

  • Page 160
    ... name and trade name The Company registered address and registration numbers Company creation date and term Registered office, legal status, applicable legislation, original country, address and phone number Historical background Investments OVERVIEW OF OPERATIONS Main operations Main Markets...

  • Page 161
    ...employees in share capital KEY SHAREHOLDERS Distributions of capital and voting rights Different voting rights Control of the issuer Agreements that could lead to a change in control AGREEMENTS WITH RELATED PARTIES FINANCIAL INFORMATION REGARDING THE ISSUER'S ASSETS, FINANCIAL CONDITION, AND RESULTS...

  • Page 162
    ...license to Ubisoft Entertainment. Developed by Cyan Worlds, Inc. Open Season: TM & © 2006 Sony Pictures Animation Inc. All rights reserved. Game Software excluding Sony Elements: © 2006 Ubisoft Entertainment. All rights reserved. Ubisoft and the Ubisoft logo are trademarks of Ubisoft Entertainment...

  • Page 163
    UBISOFT WORLDWIDE WORLDWIDE HEADQUARTERS 28 rue Armand Carrel 93 108 Montreuil Cedex France Tel: +33 (1) 48 18 50 00 Fax: + 33 (1) 48 57 07 41 FINLAND World Trade Center Helsinki P.O. Box 800 Aleksanterinkatu 17 00101 Helsinki Tel: +358 (9) 69 69 41 80 Fax: + 358 (9) 68 68 41 85 SOUTH KOREA ...