Recognition of Income and Expense
Revenues are measured at the fair value of the compensation received or receivable and reduced by anticipated reductions in price, trade discounts and similar deductions.
Revenues from the sale of goods are recognized when the Group has transferred the significant risks and rewards associated with ownership of the goods to the purchaser and the amount of revenue can be reliably determined, except for revenues from transactions applying the percentage of completion method in accordance with IAS 11. The latter includes income from services measured by reference to the stage of completion to the extent the point of completion can be reliably determined at the balance sheet date. The stage of completion is determined using the input-oriented method. Under the input-oriented method, contract costs accruing up to the balance sheet date are applied as a percentage of total estimated contract costs (cost-to-cost method).
Revenues from advertising are recorded when the corresponding advertisement or commercial appears in the respective medium.
Income from royalties (licenses) is recognized on an accrual basis in line with the provisions of the underlying contract. Interest income and expenses are recognized on an accrual basis using the effective interest method in accordance with IAS 39. Dividends are only recognized in income when the shareholder’s legal entitlement to payment is established. Revenues from services rendered are recognized based on their percentage of completion.
Other income is recognized when the economic benefits are probable and the amount can be measured reliably. Expenses are deferred on the basis of underlying facts or the period of time to which they relate.
Goodwill arising from business combinations accounted for in accordance with IFRS 3 represents the consideration transferred in excess of the Group’s share of the fair value of identifiable assets acquired, liabilities and contingent liabilities assumed. Initial recognition is at acquisition cost, with subsequent recognition at acquisition cost less accumulated impairments. Goodwill is subject to at least annual impairment testing. Impairment losses are measured as the difference between the carrying amount and the recoverable amount of the cash-generating units to which goodwill has been allocated. Any impairment loss is immediately recognized in profit or loss. Impairment, including impairment losses recognized during the year, is not reversed. In the Bertelsmann Group, goodwill is tested for impairment each year as of December 31, as outlined in the section “Impairment Losses,” and if a triggering event arises.
Other Intangible Assets
Internally generated intangible assets of the non-current assets are carried at cost, which must be capitalized in the balance sheet if the criteria for recognition as set out in IAS 38 have been met. Intangible assets acquired separately are carried at acquisition cost less accumulated amortization and accumulated impairment losses. Intangible assets acquired as part of a business combination are initially recognized at fair value at the acquisition date in accordance with IFRS 3.
Intangible assets with finite useful life are amortized systematically on a straight-line basis over their estimated useful life. Impairment losses and write-ups are determined by applying the requirements for impairment testing (IAS 36). As a rule, capitalized software has a useful life of between three and five years. Supply rights and subscriber portfolios are amortized over a period of two to 15 years, while the amortization period for trademarks and music and publishing rights is three to 25 years. Licenses are amortized on a straight-line basis over the term of the license agreement or depending on performance (based on the ratios of income from use generated in the reporting period to the estimated total income from use over the whole useful life).
The estimate of useful life and amortization methods are reviewed annually and prospectively adjusted to reflect changes in expectations. Intangible assets with indefinite useful life are not amortized on a systematic basis. Instead, they are subject to at least annual impairment testing and written down to their recoverable amount if applicable.
Property, Plant and Equipment
Items of property, plant and equipment are carried at cost less accumulated depreciation and, where applicable, impairment losses. The cost of items of property, plant and equipment produced internally within the Group includes direct costs and a portion of overhead costs directly attributable to their production. The cost of property, plant and equipment produced over a longer period of time also includes borrowing costs accrued up to the completion date. The amounts involved are insignificant to the Group. All other borrowing costs are expensed in the period accrued. Maintenance costs are carried as expenses of the period, whereas expenses for activities that lead to a longer useful life or improved use are generally capitalized.
Items of property, plant and equipment are depreciated on a straight-line basis over their estimated useful life. Estimates of useful life and the depreciation method are reviewed annually in line with IAS 16 and are adjusted prospectively according to the changed expectations. During the reporting period, depreciation was generally based on the following useful lives:
- buildings: ten to 50 years
- plant, technical equipment and machinery: four to 15 years
- furniture, fixtures and other equipment: three to twelve years
Land is not subject to depreciation.
Individually significant components of property, plant and equipment are recorded and depreciated separately (component approach).
Goodwill and intangible assets with indefinite useful life are tested for impairment at least annually. Intangible assets with a finite useful life and property, plant and equipment are tested for impairment at the end of each reporting period in accordance with IAS 36 if there are indications that an impairment loss has occurred.
An impairment loss occurs when the recoverable amount of a cash-generating unit has fallen below its carrying amount. The recoverable amount is the higher of fair value less costs of disposal and value in use; fair value less costs of disposal is always calculated first. If the result is greater than the carrying amount, value in use is not calculated in most cases. For assets held for sale, only fair value less cost to sell is used as a basis for comparison.
As long as an active market exists, the market price or the price in the most recent comparable transaction is used in determining fair value. If there is no active market, fair value less costs of disposal is generally calculated using the discounted cash flow method. If it is not possible to allocate cash inflows to assets, the relevant impairment losses are determined on the basis of cash flows attributable to the cash-generating unit to which the assets belong. Projected cash flows are based on internal estimates for three planning periods. Generally, two further planning periods are applied in addition. The company’s internal forecasts take into account both historical data as well as anticipated market performance. For periods beyond this detailed horizon, a perpetual annuity is recognized, taking into account individual business-specific growth rates of generally -1 to 3 percent. Discounting is generally based on the weighted average cost of capital (WACC) after tax. Specific WACCs are derived for cash-generating units with different risk profiles. Management estimates of cash flow are based on factors including assumptions of economic trends and the associated risks, the regulatory environment, the competitive environment, market share, investments and growth rates. The values allocated to the key assumptions are in line with external sources of information. The figures obtained using the respective discount rates reflect the recoverable amount of the cash-generating units. Material changes in the market or competitive environment may therefore impair the value of cash-generating units.
If the reasons for impairment no longer apply, impairment losses are to be reversed up to a maximum of the carrying amount of the respective asset if the impairment loss had not been recognized. The latter does not apply to goodwill.
If the Bertelsmann Group bears all material rewards and risks as part of leasing agreements, and is thus to be regarded as the economic owner (finance lease), the leased item is capitalized at its fair value at the inception of the lease term or the lower present value of the future minimum lease payments. Payment obligations arising from finance leases are recognized as financial liabilities in the same amount. In the subsequent periods, the minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability such that this results in a constant interest rate on the remaining balance of the liability. As a rule, financing costs are recognized in profit or loss as “Interest expenses.” The leased item is subject to depreciation. If it is sufficiently certain that ownership of the leased assets will pass to the lessee at the end of the lease term, the assets are depreciated over their useful life. Otherwise, they are depreciated over the term of the lease or the period of use, whichever is shorter. Contingent lease payments are recognized as an expense in the period in which they result.
Leased assets primarily relate to buildings. Finance leases for buildings are generally subject to non-cancelable minimum lease terms of approximately 20 years. Upon expiry of the lease term, the lessee is as a rule entitled to purchase the leased asset at its residual value. The operating leases entered into by the Bertelsmann Group primarily relate to rental agreements for buildings and technical transmission facilities. Based on the substance of transaction, the leased assets are allocated to the lessor. The lease installments constitute expenses for the period and are carried as “Other operating expenses” using the straight-line method over the term of the lease.
Financial assets are recognized initially at fair value taking into account transaction costs that are directly attributable to the acquisition of the financial asset. In the case of financial assets that are recognized at fair value through profit or loss, transaction costs are recognized directly in the income statement. Regular purchases and sales of financial assets are recognized on the trading date – the day on which the Group enters into an obligation to buy or sell the asset.
For subsequent measurement, financial assets are classified into the following categories and subcategories:
- held-to-maturity investments
- available-for-sale financial assets
- financial assets recognized at fair value through profit or loss
- non-derivative and derivative financial assets held for trading
- financial assets initially recognized at fair value through profit or loss
- loans and receivables
- originated loans and trade receivables
- cash and cash equivalents
Financial instruments are held to maturity if they have fixed or determinable payments and a fixed maturity that the Group is to hold to maturity. They are subsequently measured at amortized cost using the effective interest method.
Available-for-sale financial assets:
The available-for-sale category primarily includes current and non-current securities and equity investments not classified as held-to-maturity investments, as loans and receivables, or at fair value through profit or loss. In accordance with IAS 39, available-for-sale financial assets are measured at their fair value at the balance sheet date to the extent that this value can be reliably measured. Otherwise, they are carried at amortized cost. With deferred taxes taken into consideration, gains and losses resulting from fluctuations in the fair value are recognized in other comprehensive income. However, if there is objective evidence of impairment, this is recognized in profit or loss. A significant or prolonged decline in the fair value of an equity instrument held below its acquisition costs is also to be regarded as objective evidence of impairment. If these assets are sold, the accumulated gains and losses previously recognized in other comprehensive income are reclassified from equity to the income statement.
Non-derivative and derivative financial assets held for trading:
As a rule, this category includes derivatives that do not meet the formal requirements of IAS 39 for hedge accounting. They are measured at their fair value. Gains or losses from changes to the fair values are recognized in profit or loss.
Financial assets initially recognized at fair value through profit
This category includes financial assets that are designated upon initial recognition at fair value through profit or loss. Changes in fair value are recognized in the other financial result.
Originated loans and trade receivables:
Originated loans and trade receivables are non-derivative financial assets with fixed or determinable payments that are not listed on an active market. They are carried at amortized cost using the effective interest method. Long-term interest-free or low-interest loans and receivables are discounted. Foreign currency items are translated using the closing rate. If there is an objective indicator, impairments are recognized in profit or loss using allowance accounts.
Cash and cash equivalents:
Cash includes bank balances and cash on hand. Cash equivalents include short-term, highly liquid securities with a term to maturity on acquisition of a maximum of three months. Foreign currency items are translated at the exchange rate at the end of the reporting period.
All derivatives that fulfill the formal requirements of IAS 39 for hedge accounting are carried separately as derivative financial assets used in hedging relationships and are measured at fair value. Further details are presented in the section “Derivative Financial Instruments.”.
Measurement at fair value:
In the case of financial assets measured at fair value, the valuation method applied depends on the respective valuation parameters present in each case. If listed prices can be identified for identical assets on active markets, they are used for valuation (level 1). If this is not possible, the fair values of comparable market transactions are applied, and financial methods that are based on observable market data are used (level 2). If the fair values are not based on observable market data, they are identified using recognized financial methods (level 3).
Impairment losses and reversals of financial assets:
The carrying amounts of financial assets not recognized at fair value through profit or loss are examined at each balance sheet date in order to determine whether there is an objective indication of impairment. There are objective indicators that impairment has occurred in the following cases: information concerning financial difficulties of a customer or a group of customers; not upholding or not paying interest or capital; the probability of being subject to bankruptcy or other financial restructuring; and recognizable facts that point to a measurable reduction in the estimated future cash flows, such as an unfavorable change in the borrower’s payment status or the economic situation that corresponds to the delayed performance. In the case of financial assets carried at amortized cost, the impairment corresponds to the difference between the carrying amount and the present value of the anticipated future cash flows – discounted using the original effective interest rate for the financial asset. If it is established that the fair value has increased at a later measurement date, the impairment loss previously recognized is reversed up to a maximum of amortized cost. Impairment losses are not reversed in the case of unlisted equity instruments that are classified as available-for-sale assets and carried at cost. The impairment on available-for-sale assets carried at cost is calculated as the difference between the carrying amount of the financial asset and the present value of the estimated future cash flows discounted using the risk-adjusted interest rate.
Offsetting financial instruments:
Financial assets and liabilities are offset and the net amount is presented in the balance sheet if there is a legally enforceable right to set off the recognized amounts and if it is intended to settle on a net basis.
Inventories – including raw materials and supplies, finished goods and work in progress as well as merchandise – are recognized at the lower of historical cost and net realizable value at the end of the reporting period. Similar inventories are reported at average cost less cost to sell or using the FIFO (first-in, first-out) method. Inventories originating from intragroup suppliers are adjusted to eliminate intercompany earnings and are measured at the Group’s manufacturing cost.
Inventories are tested for impairment on each balance sheet date. For this purpose, net realizable value is determined. Net realizable value is defined as the estimated sales price less expected costs to complete and estimated selling expenses. A write-down is recognized if the net realizable value of an item of inventories is lower than its historical cost. Write-downs are reversed if the circumstances causing their recognition no longer apply. The new carrying amount then represents the lower of historical cost and adjusted net realizable value.
In addition to raw materials and supplies, finished goods, work in progress and merchandise, inventories include all short-term film, television and similar rights that are intended for broadcast or sale within the Group’s normal operating cycle. In particular, this includes films and TV shows currently in production, coproductions and acquired broadcasting rights. The carrying amount of such items at the balance sheet date is as a rule the lower of historical cost or net realizable value.
The consumption of film and television rights starts from the date of initial broadcast and depends either on the number of planned broadcasts or the expected revenues. The broadcastbased consumption of film and television rights is as follows:
- Entertainment programs such as soap operas, documentaries and sports, quiz or music programs are written off in full at the initial broadcast date.
- 50 percent of the carrying amount of children’s programs and cartoons is written off at each of the first two broadcast dates.
- The consumption of cinema productions, TV feature films and series also spans a maximum of two broadcasts: 67 percent of the value is consumed upon the first broadcast, the remaining 33 percent upon the second broadcast.
The consumption of inventories is reported in the income statement in the cost of materials and changes in inventories, respectively.
Customer-Specific Production Contracts
To the extent that they meet the requirements of IAS 11, customer-specific contracts are reported using the percentage of completion method.
Under this method, revenues and gains on customer-specific contracts are recognized by reference to the stage of completion of the respective projects. The stage of completion is calculated as the ratio of the contract costs incurred up to the end of the financial year to the total estimated project cost (cost-to-cost method). Irrespective of the extent to which a project has been completed, losses resulting from customerspecific contracts are immediately recognized in full in the period in which losses are identified. In the reporting period, no material revenues were recognized from customer-specific production contracts.
In accordance with IAS 12, deferred tax assets and liabilities are recognized for temporary differences between the tax base and the carrying amounts shown on the IFRS consolidated balance sheet, and for as yet unused tax loss carryforwards and tax credits. Deferred tax assets are only reported in the amount in which they can be subsequently utilized. The tax rates applied for computation are those expected as of the date of reversal of temporary differences and use of tax loss carryforwards respectively.
Cumulated Other Comprehensive Income
Cumulated other comprehensive income includes foreign exchange gains and losses as well as unrealized gains and losses from the fair value measurement of available-for-sale financial assets and derivatives used in cash flow hedges or hedges of net investments in foreign operations in accordance with IAS 39. In addition, according to IAS 28.11, changes in equity for companies accounted for using the equity method that are taken directly to equity are also recorded. Remeasurement effects of defined benefit pension plans (actuarial gains and losses on the defined benefit obligation, differences between actual investment returns and the return implied by the net interest cost on the plan assets and effects of the asset ceiling) are recognized in the retained earnings in the year in which these gains and losses have been incurred as part of the reconciliation of total comprehensive income for the period in the statement of changes in equity. Deferred taxes on the aforementioned items are also recognized directly in equity.
Provisions for pensions and similar obligations are calculated using the projected unit credit method within the meaning of IAS 19. This method involves the use of biometric calculation tables, current long-term market interest rates and current estimates of future increases in salaries and pensions.
The net interest expense included in pension expense is reported under the financial result. Remeasurement effects of defined benefit pension plans (actuarial gains and losses on the defined benefit obligation, differences between actual investment returns and the return implied by the net interest cost on the plan assets and effects of the asset ceiling) are recognized immediately in equity under other comprehensive income and are not reclassified to profit or loss (recycled).
With the exception of the other personnel-related provisions calculated according to IAS 19, all of the other provisions are established on the basis of IAS 37 where there is a legal or constructive obligation to a third party, the outflow of resources is probable and it is possible to reliably determine the amount of the obligation. Provisions are measured in the amount of the most probable extent of the benefit obligations. Long-term provisions are discounted. The discount rates take into account current market expectations and, if necessary, specific risks for the liability.
Upon initial recognition, trade payables and other original financial liabilities including profit participation certificates (financial liabilities at amortized cost) are measured at their fair value less transaction costs. Subsequent measurement is based on amortized cost using the effective interest method. Liabilities denominated in foreign currency are translated at the exchange rate at the end of the reporting period.
The Bertelsmann Group has not yet exercised the option of classifying financial liabilities initially recognized at fair value through profit or loss. Finance lease liabilities, which are also reported in financial liabilities, are carried at their present value in accordance with IAS 17.
Derivative Financial Instruments
As set out in IAS 39, all derivative financial instruments are recognized at fair value on the balance sheet. Derivative financial instruments are recognized as of the transaction date. When a contract involving a derivative is entered into, it is initially determined whether that contract is intended to serve as a fair value hedge or as a cash flow hedge. Some derivatives do not meet the requirements included in IAS 39 for recognition as hedges despite this being their economic purpose. Changes in the fair values of derivatives are recorded as follows:
- Fair value hedge: Changes in the fair value of these derivatives, which are used to hedge assets or liabilities, are recognized in profit or loss; the corresponding gain or loss on the change in fair value of the underlying balance sheet item is also directly included in the income statement.
- Cash flow hedge: The effective portion of the changes in the fair value of derivatives used to hedge future cash flows is recognized in other comprehensive income. The amounts carried here are included in the first-time valuation when an underlying non-financial asset or a non-financial liability is received (basis adjustment). In other cases, the reclassification of the previously recognized gains and losses from equity to the income statement is performed when the hedged underlying transaction is recognized in income. The ineffective portion of the changes in the fair value of the hedging instrument is recognized in profit or loss.
- Hedge of a net investment in a foreign operation: For this type of hedge, the effective portion of the gains and losses on changes in the fair value of the hedging instrument is taken directly to other comprehensive income. The ineffective portion is recognized in profit or loss. On disposal of the investment, the changes in the fair value of the hedging instruments that are contained in equity are recognized in profit or loss.
- Stand-alone derivatives (no hedge relationship): Changes in the fair value of derivatives that do not meet the criteria for recognition as hedges are recognized in profit or loss in accordance with the held-for-trading category and are therefore classified as at fair value through profit or loss.
Share options are granted to certain directors and senior employees. The options are granted at the market price on the grant date and are exercisable at that price.
For share options, the fair value of the options granted is recognized as personnel costs with a corresponding increase in equity. The fair value is measured at the grant date and allocated over the vesting period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using a binomial option pricing model, taking into account the terms and conditions at which the options were granted. The amount recognized as an expense is adjusted to reflect the actual number of share options vesting. Share options forfeited solely due to share prices not achieving the vesting threshold are excluded.
Non-Current Assets Held for Sale and Related Liabilities
Non-current assets or disposal groups are classified as held for sale if the associated carrying amount will be recovered principally through a sale transaction and not from continued use. These non-current assets and the associated liabilities are presented in separate line items in the balance sheet under IFRS 5. They are measured at the lower of the carrying amount and fair value less cost to sell. Depreciation/ amortization is not recorded if a non-current asset is classified as held for sale or forms part of a disposal group that is classified as held for sale. Components of entities that fulfill the requirements of IFRS 5.32 are classified as discontinued operations and thus are carried separately in the income statement and cash flow statement as well. All of the changes in amounts made during the reporting period that are directly connected with the sale of a discontinued operation in any preceding period are also stated in this separate category. If a component of an entity is no longer classified as held for sale, the results of this entity component that was previously carried under discontinued operations are reclassified to continuing operations for all of the reporting periods shown.
A government grant is not recognized until there is reasonable assurance that the entity will comply with the conditions attached to it and that the grant will be received. Grants for assets are deducted when the carrying amount is calculated and are recognized in profit or loss over the useful life of the depreciable asset as a reduced depreciation expense. Income-related grants are recognized as income in the periods in which the expenses to be compensated by the grants were incurred.
Estimates and Assumptions
The preparation of IFRS-compliant consolidated financial statements requires the use of estimates and assumptions that may impact the carrying amounts of assets, liabilities, income and expenses recognized. Amounts actually realized may differ from estimated amounts. The following section presents estimates and assumptions that are material in the Bertelsmann consolidated financial statements for understanding the uncertainties associated with financial reporting.
- Recognition of income and expense: In the event of return rights, mostly for print products, estimates must be made with regard to the anticipated return volume as revenues are recognized taking the anticipated returns into account. Return ratios determined using statistical methods are used to identify the anticipated returns.
- Trade receivables and other receivables: Valuation allowances are recognized for doubtful receivables based on risk factors such as a customer’s financial difficulties and unfavorable changes in the economic situation, taking into account the maturity structure of the receivables. Sales estimates and assumptions on future sales success are also made in connection with advances paid to authors to secure exploitation rights in their publications. In addition, in the case of sport and film rights, estimates are made with regard to anticipated revenues.
- Impairments: Goodwill and intangible assets with indefinite useful life are tested for impairment at least annually. Intangible assets with finite useful life and property, plant and equipment are tested for impairment in accordance with IAS 36 if there are indications that an asset may be impaired. Impairment loss is recorded when the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of fair value less costs of disposal and value in use; fair value less costs of disposal is always calculated first. As a rule, this is determined using the discounted cash flow method, which is based on future cash flow forecasts which are part of company forecasts. The cash flow forecasts are based on the management’s best possible estimates with regard to future growth. The most important assumptions include estimated growth rates, the weighted average cost of capital and tax rates. Changes to these estimates as a result of more recent information could have a material impact on the amount of the possible impairment. For detailed information on the assumptions and estimates that are used in impairment testing for intangible assets (including goodwill) and property, plant and equipment in the Bertelsmann Group, please refer to notes 11 “Intangible Assets” and 12 “Property, Plant and Equipment.”
- Pension obligations: Pension obligations are measured using the projected unit credit method. Using this approach, biometric calculations, the prevailing long-term capital market interest rates and, in particular, assumptions about future salary and pension increases are taken into account. Information on the assumptions made in pension accounting is presented in note 19 “Provisions for pensions and similar obligations”.
- Provisions for onerous contracts, litigation and warranties are also based to a significant extent on management estimates with regard to their amount and probability of occurrence. Assessments of whether there is a present obligation, whether an outflow of resources is probable and whether it is possible to reliably determine the amount of the obligation are generally based on the expertise of inhouse or third-party specialists. More recent information could change the estimates and thus impact the Group’s financial position and results of operations.
In the case of purchase price allocations, assumptions are also made regarding the measurement of assets and liabilities acquired as part of business combinations – in particular with regard to the acquired intangible assets – as measurements are based on fair value. As a rule, this is the present value of the future cash flows after taking into account the present value of the tax amortization benefit.
In addition, the definition of uniform useful lives within the Group is based on the management’s assumptions. General information on useful lives is presented in the sections “Other Intangible Assets” and “Property, Plant and Equipment”.
As part of the regular review of useful lives for assets in the Bertelsmann Group, the extended useful life by up to 25 years for the music rights at BMG as of January 1, 2013 was also adopted for Group-wide accounting and measurement policies. The adjustments led to at-equity earnings after taxes in the Bertelsmann consolidated financial statements being €2 million higher in the period in which BMG was included at equity as an associate in the reporting period. As a result of the change of status as of March 30, 2013, with regard to BMG, quantification of the impact of the adjustment in the subsequent periods and reporting years has not been made. Management estimates are used to determine whether intangible assets have an indefinite useful life. In contrast to the previous year, the advertising marketing rights in China at Gruner + Jahr are now carried as intangible assets with a definite useful life in the amount of €32 million. Detailed information is presented in note 11 “Intangible Assets.” The adjustments led to increased amortization expenses of less than €1 million in the reporting period and €2 million in future reporting periods.
Assessments of the ability to realize future tax benefits are also based on assumptions and estimates. Deferred tax assets are only carried in the amount in which they are likely to be subsequently utilized. When assessing the probability of the ability to use deferred tax assets in the future, various factors are taken into account, including past earnings, company forecasts, tax forecast strategies and loss carryforward periods. Information relating to the ability to realize tax benefits is presented in note 10 “Income Taxes.”
In addition, estimates have been performed to calculate deferred taxes on fund assets that are held as part of a contractual trust arrangement (CTA) for pension commitments. The estimate is made based on the ongoing basis for taxation per fund for the previous year – according to publications in the “German Federal Gazette” – combined with market values as of the balance sheet date. The change in the estimate of parameters in the reporting period led to an increase in deferred tax liabilities of €3 million, and this is broken down into deferred tax income of €3 million and an opposite effect of €6 million, which is carried under other comprehensive income. The impact on future periods cannot be quantified as it cannot be estimated.
Assumptions are also made when identifying the fair values of financial assets and financial liabilities. In this regard, Bertelsmann uses various actuarial methods that take into account the market conditions and risks in effect at the respective balance sheet dates. The inputs to these models are taken from observable markets where possible, but where this is not feasible assumptions by management are required in establishing fair values. These assumptions relate to input factors such as liquidity risk and default risks.
Estimates and assumptions also relate to share-based payments. The conditions of the stock option plans are presented in greater detail in the section “Stock Option Plans at Subsidiaries” in note 18 “Equity.”
Estimates and the underlying assumptions are reviewed on an ongoing basis. As a rule, adjustments to estimates are taken into account in the period in which the change is made and in future periods.
Prior Year Information
When the revised IAS 19 Employee Benefits came into effect on January 1, 2013, as a result of its retrospective application, the prior year figures for the balance sheet and income statement were adjusted accordingly. As the Bertelsmann Group already uses the option offered in IAS 19 of recognizing actuarial gains and losses in other comprehensive income, the first-time application of this standard did not result in any material impact on the financial position and financial performance for financial year 2012. EBIT fell by €3 million to €1,327 million. The financial result fell by €7 million to €-322 million, income taxes improved by €3 million to €-393 million, and Group profit or loss fell by €7 million to €612 million. As a result of the reduction in EBIT by €3 million, operating EBIT fell to €1,732 million, and operating EBITDA fell to €2,210 million. As a result of these changes, the balance sheet item “Provisions for pensions and similar obligations” decreased by €8 million to €1,730 million as of January 1, 2012 and by €5 million to €2,146 million as of December 31, 2012. Bertelsmann shareholders’ equity increased as of January 1, 2012 by €6 million to €5,313 million and as of December 31, 2012 by €4 million to €5,267 million. The balance sheet item “Deferred tax assets” fell as of January 1, 2012 by €2 million to €1,146 million and as of December 31, 2012 by €1 million to €1,205 million. The effects on the income statement primarily result from the application of the net interest method and the recalculation of the top-up amounts for old-age part-time obligations. The effects on the balance sheet are mainly due to the change in the provision for old-age part-time schemes. No third balance sheet was prepared as of the beginning of the previous annual period in line with IAS 1.40A (b) for reasons of materiality. The impact of the revised IAS 19 on the current reporting period leads to comparable effects as reported for the previous year 2012. Taking into account the cost/benefit ratio and also the immateriality of the amounts, the information according to IAS 8.28 (f) is not provided for the current year.
The first-time application of IFRS 13 Fair Value Measurement did not have a material impact for the Bertelsmann Group.