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Accounting Principles

The interim financial report for Bertelsmann SE & Co. KGaA has been prepared according to Section 37w of the German Securities Trading Act (Wertpapierhandelsgesetz – WpHG) and has been subject to a limited review by the Group’s auditor. It complies with the International Financial Reporting Standards (IFRS) and the related interpretations (IFRIC) of the IFRS Interpretations Committee (IFRS IC) applicable in the European Union (EU-IFRS) and contains condensed interim consolidated financial statements prepared in accordance with IAS 34 Interim Financial Reporting, including selected explanatory notes. This report was prepared using – with the exception of the financial reporting standards applied for the first time in the current financial year – fundamentally the same accounting and measurement policies as in the consolidated financial statements of December 31, 2014. A detailed description of these policies and the new or revised financial reporting standards and interpretations to be applied from 2015 is presented in the notes to the consolidated financial statements in the 2014 Annual Report.

As of June 30, 2015, the following financial reporting standards have been applied for the first time:

  • IFRIC 21 Levies
  • Improvements to IFRS 2011–2013 (issued in December 2013)

The effects from the first-time application of the new accounting standards are not material for the Bertelsmann Group. The Bertelsmann Group has not opted for further early adoption of any additional standards, interpretations or amendments that have been issued but are not yet mandatory.

Scope of Consolidation

The condensed interim consolidated financial statements as of June 30, 2015, include Bertelsmann SE & Co. KGaA and all material subsidiaries over which Bertelsmann SE & Co. KGaA is able to exercise control according to IFRS 10. Joint ventures and associates are accounted for using the equity method in accordance with IAS 28. As of June 30, 2015, the scope of consolidation including Bertelsmann SE & Co. KGaA consists of 964 (December 31, 2014: 955) companies with 45 entries and 36 exits in the first half of 2015. This includes 900 (December 31, 2014: 896) fully consolidated companies, of which 771 (December 31, 2014: 771) are wholly-owned subsidiaries. In addition, investments in 28 (December 31, 2014: 29) joint ventures and 36 (December 31, 2014: 30) associates are accounted for using the equity method in the consolidated financial statements. A total of 229 (December 31, 2014: 240) affiliated companies without significant business operations are excluded from consolidation due to their negligible importance for the financial position and financial performance of the Bertelsmann Group.

Acquisitions and Disposals

The Group made several acquisitions in the first half of 2015, none of which was material on a stand-alone basis. In total, the impact on the Group’s financial position and financial performance was also minor. The consideration paid for these acquisitions, less cash and cash equivalents acquired, amounted to €73 million. The consideration transferred in the sense of IFRS 3 totaled €73 million. The acquisitions resulted in partly non-tax-deductible goodwill totaling €56 million, which reflects synergy potential. The transaction-related costs of the acquisitions amounted to €3 million.

The following table shows the fair values of the assets and liabilities of the acquisitions on their dates of initial consolidation based on the currently still preliminary purchase price allocations:

Effects of Acquisitions  

in € millionsTotal
Non-current assets
Goodwill56
Other intangible assets37
Property, plant and equipment7
Trade and other receivables5
Other non-current assets11
Current assets
Inventories
Trade and other receivables6
Other current assets3
Cash and cash equivalents20
 
Liabilities
Provisions for pensions and similar obligations
Financial debt14
Sundry financial and non-financial liabilities57
 
Gains from business combinations
Non-controlling interests(1)

Since initial consolidation, all acquisitions under IFRS 3 have contributed €33 million to revenues and €-2 million to Group profit or loss. If consolidated as of January 1, 2015, they would have contributed €40 million to revenues and €‑8 million to Group profit or loss.

The purchase price allocations of the business combinations SpotXchange and StyleHaul in 2014 have been finalized in the reporting period. The following table shows the slightly adjusted final fair values of the assets and liabilities on their dates of initial consolidation:

in € millionsSpotXchangeStyleHaul
Non-current assets
Goodwill9999
Other intangible assets104
Property, plant and equipment3
Trade and other receivables
Other non-current assets512
Current assets
Inventories
Trade and other receivables325
Other current assets
Cash and cash equivalents41
 
Liabilities
Provisions for pensions and similar obligations
Financial debt24
Sundry financial and non-financial liabilities295
 
Non-controlling interests(5)

After considering the cash and cash equivalents disposed of, the Group generated cash flows totaling €-5 million from disposals that were carried out in the first half of 2015.

The disposals led to income from deconsolidation of €1 million, which was carried under results from disposals of investments.

Effects of Disposals  

in € millionsTotal
Non-current assets
Goodwill2
Other intangible assets14
Property, plant and equipment16
Other non-current assets1
Current assets
Inventories8
Other current assets67
Cash and cash equivalents14
 
Liabilities
Provisions for pensions and similar obligations2
Financial debt7
Sundry financial and non-financial liabilities44

Currency Translation

The following euro exchange rates were used to translate the currencies that are most significant to the Bertelsmann Group.

  Average rateClosing rate
Foreign currency unit per €1 H1 2015H1 20146/30/201512/31/20146/30/2014
Australian dollarAUD1.42581.49871.45501.48291.4537
Canadian dollarCAD1.37681.50321.38391.40631.4589
Chinese renminbiCNY6.93788.45366.93667.53588.4722
British poundGBP0.73240.82140.71140.77890.8015
US dollarUSD1.11521.37071.11891.21411.3658

Additional Disclosures on Financial Instruments

The principles and methods used for the fair value measurement remain unchanged compared to the previous year. Further information about the additional information and disclosure on financial instruments is presented in the notes to the consolidated financial statements in the 2014 Annual Report. Only disclosures on financial instruments that are significant to an understanding of the changes in financial position and performance since the end of the last annual reporting period are explained below.

The following hierarchy is used to determine the fair value of financial instruments.

Level 1:
The fair value of the existing financial instruments is determined on the basis of stock exchange listings at the balance sheet date.

Level 2:
To determine the fair values of unlisted derivatives, Bertelsmann uses various financial methods reflecting the prevailing market conditions and risks at the respective balance sheet dates. Irrespective of the type of financial instrument, future cash flows are discounted as of the balance sheet date based on the respective market interest rates and interest-rate structure curves on the balance sheet date.
The fair value of forward exchange transactions is calculated using the average spot prices as of the balance sheet date and taking into account forward markdowns and markups for the remaining term of the transactions. The fair value of interest rate derivatives is calculated on the basis of the respective market rates and interest-rate structure curves on the balance sheet date. The fair value of forward commodity transactions is derived from the stock exchange listings published on the balance sheet date. Any incongruities to the standardized stock exchange contracts are reflected through interpolation or additions.

Level 3:
If no observable market data is available, the fair values are mostly determined based on cash flow-based valuation methods.

The valuation of financial assets and financial liabilities according to level 2 and level 3 requires management to make certain assumptions about the model inputs including cash flows, discount rate and credit risk. In the first half of 2015, no reclassifications were performed between levels 1, 2 and 3.

The option offered in IFRS 13.48 (net risk position) is used to measure the fair value of financial derivatives. In order to identify the credit exposure from financial derivatives, the respective net position of the fair values with the contractual partners is used as a basis, as these are managed based on a net position in view of their market or credit default risks.

Investments in affiliates and other investments that are classified as available-for-sale within financial assets are measured at cost of €243 million (December 31, 2014: €221 million). These financial assets are measured at cost, as they do not have a quoted price in an active market and a reliable estimate of the fair value is not possible. No plan has been made to sell significant holdings of the other available-for-sale investments reported as of June 30, 2015, in the near future. No significant holdings valued at cost were sold in the first half of 2015.

The market value of the 2001 profit participation certificates with a closing rate of 300.1 percent on the last day of trading in the first half of 2015 on the Frankfurt Stock Exchange totaled €853 million (December 31, 2014: €856 million with a rate of 301.0 percent) and, correspondingly, €28 million for the 1992 profit participation certificates with a rate of 164.0 percent (December 31, 2014: €34 million with a rate of 200.0 percent). The market values are based on level 1 of the fair value hierarchy.

In April 2015, Bertelsmann SE & Co. KGaA issued two subordinated hybrid bonds totaling a volume of €1,250 million. The first bond, with a nominal volume of €650 million, has a term of 60 years and a 3.0 percent coupon for the first eight years. Afterwards, interest rates will be reset every five years based on the five-year swap rate. This bond can be called by Bertelsmann for the first time in 2023 and redeemed at its nominal value. The second bond with a nominal volume of €600 million also has a term of 60 years and a 3.5 percent coupon for the first twelve years. Afterwards, interest rates will be reset every five years based on the five-year swap rate. Bertelsmann can first call this bond in 2027 and redeem it at its nominal value. Interest for the two bonds may be deferred depending on a dividend payment to the owners of Bertelsmann SE & Co. KGaA.

On June 30, 2015, the cumulative fair value of the listed bonds totaled €3,747 million (December 31, 2014: €2,635 million) with a nominal volume of €3,716 million (December 31, 2014: €2,466 million) and a carrying amount of €3,694 million (December 31, 2014: €2,452 million). The stock market prices are based on level 1 of the fair value hierarchy. On June 30, 2015, the total carrying amount for private placements and the promissory note loans totaled €258 million (December 31, 2014: €258 million) and the total market value was €288 million (December 31, 2014: €297 million). The fair values of private placements and promissory note loans are determined using actuarial methods based on yield curves adjusted for the Group’s credit margin. This credit margin results from the market price for credit-default swaps at the end of the respective reporting periods. The fair value is determined on the basis of discount rates ranging from 0.10 percent to 2.24 percent. The fair value of the private placements and promissory note loans is to be allocated to level 2 of the fair value hierarchy. For all other financial assets and financial liabilities, the carrying amount represents a reasonable approximation of fair value.

Fair Values of Financial Assets Categorized Using the Fair Value Measurement Hierarchy  

in € millionsLevel 1:
Quoted prices
in active markets
Level 2:
Observable
market data
Level 3:
Unobservable
market data
Balance as of
6/30/2015
Financial assets initially recognized at fair value through profit or loss99
Available-for-sale financial assets1113244
Primary and derivative financial assets held for trading4545
Derivatives with hedge relation7575
1113032173

Financial Assets Measured at Fair Value Based on Level 3  

in € millionsFinancial
assets initially
recognized at fair
value through
profit or loss
Available-for-sale
financial assets
Primary and
derivative financial
assets held for
trading
Derivatives with hedge relationTotal
Balance as of 1/1/20153434
Total gain or loss(2)(2)
– in profit or loss
– in other comprehensive income(2)(2)
Transfers from Investments accounted for using the equity method
Purchases
Issues
Sales/settlements
Transfers out of/into level 3
Balance as of 6/30/20153232
Gain (+) or loss (-) for assets still held at the end of the reporting period

Fair Values of Financial Liabilities Categorized Using the Fair Value Measurement Hierarchy  

in € millionsLevel 1:
Quoted prices
in active markets
Level 2:
Observable
market data
Level 3:
Unobservable
market data
Balance as of
6/30/2015
Financial liabilities initially recognized at fair value through profit or loss2929
Primary and derivative financial liabilities held for trading4747
Derivatives with hedge relation1414
612990

Financial Liabilities Measured at Fair Value Based on Level 3  

in € millionsFinancial
liabilities initially
recognized at fair
value through
profit or loss
Primary and
derivative
financial liabilities
held for trading
Derivatives with
hedge relation
Total
Balance as of 1/1/20154343
Total gain or loss
– in profit or loss11
– in other comprehensive income(1)(1)
Purchases
Issues
Settlements(14)(14)
Transfers out of/into level 3
Balance as of 6/30/20152929
Gain (+) or loss (-) for liabilities still held at the end of the reporting period11

Income Taxes

Tax expenses for the first half of 2015 were calculated in line with IAS 34 using the average annual tax rate expected for the whole of 2015, which is calculated at 34.6 percent according to Bertelsmann management’s current estimation. In addition, current tax and deferred tax of prior periods have been recognized, which resulted in a lower tax rate in the income statement.

Other Information

As a result of seasonal influences on the divisions, higher revenues and a higher operating result tend to be expected in the second half of the year compared to the first half of the year. The higher revenues in the second half of the year are due to the increasing demand during the year-end holiday season, in particular in advertising-driven companies as well as Arvato’s customer-oriented services.

Due to continuing pressure on the production and distribution business as a result of lower volumes and pricing, the company’s internal forecasts for the cash-generating unit Fremantle Media, which belongs to RTL Group, have been updated taking into account the latest available information, primarily on the United States. The recoverable amount was determined using the value in use on the basis of the discounted cash flow method with a long-term growth rate of 2.5 percent (December 31, 2014: 2.5 percent) and a discount rate of 7.5 percent (December 31, 2014: 7.7 percent). As of June 30, 2015, the recoverable amount exceeds the carrying amount by €64 million (December 31, 2014: €124 million). In the event of an increase in the discount rate by 0.3 percentage points, a reduction in the annual revenue growth rate by 0.4 percentage points or a reduction in the EBITDA margin by 0.4 percentage points, the recoverable amount would fall below the carrying amount for the first time.

A new advertising tax was adopted by the Hungarian parliament on June 11, 2014. On July 4, 2014, the Hungarian parliament adopted several amendments, which came into force on August 15, 2014. The tax is steeply progressive, with rates between zero and 40 percent, and is calculated, in general, on the net revenues derived from advertising plus the margins which the sales houses affiliated with the taxpayers charge to their customers. The tax base is calculated by aggregating the tax bases of subsidiaries. As a result, entities belonging to a group of companies are taxed at higher tax rates than group independent legal entities. On November 18, 2014, the Hungarian parliament adopted an amendment by which the highest applicable tax rate was increased from 40 to 50 percent. This amendment entered into force on January 1, 2015. As of June 30, 2014, RTL Group’s management has recognized a full impairment of the goodwill for an amount of €77 million and additional impairment losses on non-current intangible assets of €11 million, of which €9 million is related to assets identified in connection with the preliminary purchase price allocations. Furthermore, as of December 31, 2014, a valuation allowance on current program rights has been recorded for an amount of €7 million. On May 27, 2015, the Hungarian parliament amended retrospectively the advertising tax. The tax rate was changed into a flat rate of 5.3 percent for a tax base above HUF100 million and zero percent under HUF100 million. The retrospective impact resulted in a one-off positive impact of €4.5 million reported in the position “Other operating expenses.” In addition, as of June 30, 2015, RTL Group’s management re-assessed the fair value of the non-current intangible assets identified in connection with the initial purchase price allocations and fully reversed the remaining impairment for an amount of €7 million. In addition, the re-assessment of the net realizable value of the current program rights resulted in the recognition of a reversal of the valuation allowance of €3 million.

Together with the investment company Bozano Investimentos and other partners, Bertelsmann invested in a fund that will invest in educational companies in Brazil, such as in the field of medical education. There are contribution obligations to this fund in the amount of €90 million. The increase in the balance sheet position “Investments accounted for using the equity method” to €674 million mainly results from several acquisitions, including Affero Lab, Brazil’s largest corporate training and e-learning company in the amount of €27 million, and the Chinese company Bigo, one of the leading global free mobile VoIP call and instant-messaging service providers, in the amount of €27 million.

The ownership of RTL Group in Atresmedia decreased from 19.2 percent at December 31, 2014, to 18.6 percent at June 30, 2015. A capital gain of €10 million was generated from this transaction. Considering the ongoing representation of RTL Group at the Board of Directors and other governing bodies of Atresmedia, RTL Group’s management considers that this does not change the significant influence of RTL Group in Atresmedia.

The provisions for pensions were reduced by a funding in the amount of €400 million to the plan assets managed by Bertelsmann Pension Trust e. V. and by an adjustment of the discount rate. The increase in the discount rate for the measurement of the pension provisions resulted in actuarial gains being recognized in the amount of €237 million under “Remeasurement component of defined benefit plans.” The discount rate determination for the Eurozone was modified regarding the data selection in the current year. Further refinements were also implemented. If the discount rate at June 30, 2015, had been determined without these changes, the discount rate would have been around 10 basis points higher. The actuarial gains attributable thereto would have reduced the pension provisions by €62 million.

Earnings after taxes from discontinued operations of €3 million (H1 2014: €3 million) comprise follow-on effects related to the disposal of the former Direct Group division.

Segment Reporting

Segment reporting continues to present five operating reportable segments (RTL Group, Penguin Random House, Gruner + Jahr, Arvato and Be Printers) as well as other operating activities (Corporate Investments).

Reconciliation of Segments’ EBIT to the Group Profit or Loss  

in € millionsH1 2015H1 2014
(adjusted)
Operating EBITDA of divisions1,0961,054
Corporate Center(31)(37)
Consolidation(2)1
Amortization/depreciation, impairment losses and reversals of intangible assets and property, plant and equipment(293)(389)
Adjustments on amortization/depreciation, impairment charges and reversals of intangible assets and property, plant and equipment included in special items1100
Special items(101)(172)
EBIT from continuing operations670557
Financial result(119)(125)
Earnings before taxes from continuing operations551432
Income taxes(156)(178)
Earnings after taxes from continuing operations395254
Earnings after taxes from discontinued operations33
Group profit or loss398257

Events after the Reporting Date

No events of special importance occurred after the balance sheet date that could have a material impact on the financial position and results of operations of the Bertelsmann Group.