Ubisoft 2006 Annual Report Download - page 94

UBISOFT • FINANCIAL REPORT 2007
Note 25 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 most of the licensing and external development
agreements. In this way, all of the foreign exchange risk
is centralized at Ubisoft EMEA SAS and Ubisoft
Entertainment SA. When foreign exchange 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
foreign currency advances or investments to manage the
time lags. Amounts that cannot be offset are hedged by
forward sales contracts and option contracts (for
contract details, cf. section 2.5.4 Notes to the balance
sheet - Note 10. Current financial assets).
Note 26 Share in earnings of associates
The net income/expenses of associates break down as
follows:
Note 27 Income tax expense
Income tax expense breaks down as follows:
Current tax
Tax owed by French companies was calculated at the rate
in force at March 31, 2007, i.e. 33.33%.
There are two tax integration groups:
- in France, the group includes nine companies: Ubisoft
Entertainment SA, Ubisoft EMEA SAS, Ubisoft France
SAS, Ubisoft Books and Records SAS, Ubisoft Graphics
SAS, Ubisoft Organisation SAS, Ubisoft World SAS, Ludi
Factory SAS and Ubisoft Manufacturing et Administration
SAS. At March 31, 2007, the tax group had written back
deferred tax assets in the amount of €2,153 thousand;
however, any tax savings arising from the use of losses at
the tax group’s member companies will only be tempo-
rary, since the company in question may use them at any
time for its own purposes;
- in the United States, the group includes three companies:
Ubisoft Holdings Inc., Red Storm Entertainment Inc. and
Ubisoft Inc. At March 31, 2007, the tax group had a tax
expense of €1,951 thousand.
Deferred tax
03.31.07 03.31.06
Cost of net borrowings - 5,591 - 8,510
Interests earned on placements 1,521 1,764
Interest paid on financing operations - 7,067 - 10,693
Income/expenses from cash hedging operations - 45 419
Financial income 38,201 17,369
Dividends --
Exchange gains 11,108 9,850
Change in fair value and sale of the equity swap 27,057 7,519
Other financial incomes 36 -
Financial expenses - 14,563 - 17,969
Exchange losses - 12,807 - 16,531
Other financial expenses - 1,756 - 1,438
Total 18,047 - 9,110
03.31.07 03.31.06
Share in earnings 3,149 707
Result of dilution - 2,576
Result of sales - 15,826
Total 3,149 19,109
03.31.07 03.31.06
Current tax - 7,129 - 5,018
Deferred tax - 8,088 8,342
Total - 15,217 3,324
03.31.07 03.31.06
Deferred tax assets (see details in Note 6) 37,630 42,321
Deferred tax liabilities (see details in Note 16) 28,214 22,854