Ubisoft 2005 Annual Report Download - page 83

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UBISOFT • 2006 ANNUAL REPORT
FINANCIER
Ubisoft group’s consolidated accounts as of March 31, 2006
Note 26 Financial result
Financial result breaks down as follows:
Foreign exchange risk
In order to limit the group’s foreign exchange risk, Ubisoft
Entertainment SA hedges exchange rate fluctuations in
several ways:
- When the parent company makes a loan in a foreign cur-
rency to its subsidiaries, it 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 SAS
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 almost all 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 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 (for contract details,
cf § 2.5.4 Notes to the balance sheet - Note 10. Financial
assets).
Note 27 Share in earnings of associates
The net income/expenses of the associates breaks down as
follows:
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:
- Tax due:
Tax payable by French companies was calculated at the
rate in force on March 31, 2006, i.e. 33.33%.
There are two groups of fiscal integration:
- In France, the group encompasses nine companies:
Ubisoft Entertainment SA , Ubisoft EMEA SAS, Ubisoft
France SAS, Ubisoft Books and Records SARL, Ubisoft
Graphics SAS, Ubisoft Organisation SAS, Ubisoft World
SAS, Ludi Factory SAS and Ubisoft Manufacturing et
Administration SARL. As of March 31, 2006, the tax
group had generated deferred tax assets of €9,550 thou-
sand and €2,383 thousand of taxes at a reduced rate.
However, any tax savings arising from the use of deficits
at the tax group’s member companies will only be tem-
porary, since the company in question may also use the
deficits for its own purposes.
The last tax inspection of Ubisoft Entertainment SA took
place in 2003, on the fiscal years running from April 1,
2000 to March 31, 2003.
- In the United States, the group encompasses three com-
panies: Ubisoft Holdings Inc., Red Storm Entertainment
Inc. and Ubisoft Inc. As of March 31, 2006, the tax group
had generated a tax charge of €2,716 thousand.
03.31.06 03.31.05
Cost of net borrowings -8,510 -9,167
Interests earned on placements 1,764 464
Interests paid on financing operations -10,693 -10,531
Income/expenses from cash hedging operations 419 900
Financial income 17,369 19,343
Dividends -81
Exchange gains 9,850 10,441
Change in the fair value of the equity swap 7,519 8,772
Other financial income -49
Financial expenses -17,969 -12,144
Exchange losses -16,531 -11,028
Other financial expenses -1,438 -1,116
Total -9,110 -1,968
03.31.06 03.31.05
Share of earnings 707 371
Result of dilution 2,576 -172
Result of sales 15,826 -
Total 19,109 199
03.31.06 03.31.05
Tax due -5,018 -4,147
Deferred tax 8,342 -2,807
Total 3,324 6,954