Financial Statements and Combined Management Report Bertelsmann SE & Co. KGaA, Gütersloh December 31, 2020 Contents Balance sheet Income statement Notes to the financial statements Combined Management Report Responsibility Statement Auditor’s report 1 FINANCIAL STATEMENTS Assets as of December 31, 2020 in € millions Notes 12/31/2020 12/31/2019 Non-current assets Intangible assets Acquired industrial property rights and similar rights as well as licenses to such rights 1 9 8 9 8 Tangible assets Land, rights equivalent to land and buildings 1 306 311 Technical equipment and machinery 1 1 1 Other equipment, fixtures, furniture and office equipment 1 42 47 Advance payments and construction in progress 1 7 2 356 361 Financial assets Investments in affiliated companies 1 15,974 14,960 Loans to affiliated companies 1 230 712 Investments 1 - - Non-current securities 1 1,461 1,252 17,665 16,924 18,030 17,293 Current assets Receivables and other assets Accounts receivable from affiliated companies 2 4,893 4,392 Other assets 2 94 148 4,987 4,540 Securities Other securities - - Cash on hand and bank balances 3 2,476 513 7,463 5,053 Prepaid expenses and deferred charges 4 20 20 25,513 22,366 2 Equity and liabilities as of December 31, 2020 in € millions Notes 12/31/2020 12/31/2019 Equity Subscribed capital 5 1,000 1,000 Capital reserve 2,600 2,600 Retained earnings Legal reserve 100 100 Other retained earnings 6 5,685 5,485 5,785 5,585 Net retained profits 898 663 10,283 9,848 Provisions Provisions for pensions and similar obligations 7 377 357 Provision for taxes 145 - Other provisions 8 214 213 736 570 Liabilities Bonds and promissory notes 9, 10 6,300 4,600 Liabilities to banks 9 - - Profit participation capital 9, 11 413 413 Trade payables 9 19 12 Liabilities to affiliated companies 9 7,601 6,780 Other liabilities 9 155 139 14,488 11,944 Deferred income 6 4 25,513 22,366 3 Income statement for the financial year from January 1 to December 31, 2020 in € millions Notes 2020 2019 Revenues 12 109 113 Other own work capitalized - - Other operating income 13 398 189 Cost of materials Cost of purchased services -29 -31 Personnel costs 14 Wages and salaries -109 -112 Social security contributions and post-employment and other employee benefit expenses -38 -47 -147 -159 Amortization, depreciation and write-downs Amortization of intangible assets and depreciation of tangible assets -20 -23 Other operating expenses 15 -258 -225 Income from investments 16 Income from profit and loss transfer agreements 756 705 Income from participations 3 3 Expenses from transfer of losses -28 -45 731 663 Interest income and interest expense 17 Income from other securities and long-term loans 39 35 Other interest and similar income 191 160 Other interest and similar expenses -300 -262 -70 -67 Write-downs of long-term financial assets 18 -65 - Taxes on income 19 -212 -60 Earnings after taxes 437 400 Other taxes -2 -3 Net income 435 397 Unappropriated retained profits brought forward 663 461 Additions to other retained earnings -200 -195 Net retained profits 898 663 4 Notes to the financial statements for the financial year from January 1 to December 31, 2020 Principles and methods Bertelsmann SE & Co. KGaA is based in Gütersloh. The company is registered in the Commercial Register held at Gütersloh District Court under number 9194. Accounting principles The annual financial statements and the management report combined with the Group management report of Ber- telsmann SE & Co. KGaA pursuant to section 315 (5) German Commercial Code (Handelsgesetzbuch, hereinafter HGB) in conjunction with section 298 (2) HGB have been prepared in accordance with the HGB accounting princi- ples for large corporations and the additional regulations of Germany’s Stock Corporation Act (Aktiengesetz, herein- after AktG). Balance sheet and income statement presentation The balance sheet and the income statement comply basically with the presentation provisions specified in sections 266 and 275 HGB. The income statement has been prepared according to the nature of expense method. Accounting and measurement policies Intangible assets and property, plant and equipment The option to capitalize internally generated intangible assets was not exercised. Acquired intangible assets as well as property, plant and equipment are measured at cost. Amortization and depreciation rates and methods are based on the economic useful lives. Amortization and depreciation is applied using the straight-line or declining bal- ance method, although assets acquired after December 31, 2007, are amortized or depreciated exclusively on a straight-line basis. Assets expected to suffer permanent impairment are written down to the lower fair value. Non- current assets whose cost is €800 or below are amortized or depreciated in full in the year of acquisition. Inde- pendently movable items of property, plant and equipment that are subject to wear and tear at a cost of up to €250 are immediately reported as expenses. Long-term financial assets, receivables and other assets Long-term financial assets are measured at cost, at their nominal amount or the lower fair value if impairment is ex- pected to be permanent. Any write-downs are reversed as soon as the reasons for the impairments no longer apply. Receivables and other assets are generally stated at the nominal value or at the lower fair value on the balance sheet date. The determination of the fair values of investments in affiliated companies as well as loans to and receivables from affiliated companies is typically determined using a discounted cash flow method. Under this method, the future cash flows are discounted using the cost of capital calculated on an individual basis for the company to be meas- ured. If the company holds investments in affiliated companies to which the company also has extended loans (loans to or receivables from affiliated companies), and if the carrying amount of this total equity and debt financing exposure exceeds the calculated fair value, the investments in affiliated companies are initially written down. If nec- essary, an impairment of loans to and/or receivables from affiliated companies is recorded subsequently. Financial assets qualifying as plan assets which are inaccessible to all other creditors and serve exclusively to fulfill pension obligations or other similar long-term obligations are measured at fair value in accordance with section 246 (2) sentence 2 HGB and are offset against the underlying obligations. If offsetting results in a remaining surplus of assets, this amount shall be disclosed separately on the balance sheet under the item “Excess of plan assets over post-employment benefit liabilities.” If the fair value of the plan assets exceeds the historical cost, this portion is sub- ject to a restriction on distribution in accordance with section 268 (8) HGB. In accordance with section 246 (2) sen- tence 2 HGB, expenses and income from discounting the obligations and from the corresponding assets are offset against each other. 5 Securities Securities are carried at cost or at the lower market price on the balance sheet date to the extent that for long-term securities the lower price is expected to be permanent. Cash on hand and bank balances Bank balances and cash on hand are carried at nominal value. Foreign currency holdings are valued at the applica- ble exchange rate as of the balance sheet date. Prepaid expenses and deferred charges Payments made before the reporting date are reported as prepaid expenses and deferred charges if they represent expenses for a specific period after this date. Differences between the issuance and settlement amounts of bonds are included in prepaid expenses and deferred charges in accordance with section 250 (3) HGB. Subscribed capital Subscribed capital is recognized at the nominal amount. Provisions Provisions for pensions and similar obligations are measured using the projected unit credit method. The biometric calculations are based on the 2018 G mortality tables in the version issued by the Heubeck Richttafeln GmbH in October 2018. The pension provisions are calculated on a lump-sum basis corresponding to a 15-year term at the average market interest rate of the last ten years specified by Deutsche Bundesbank. The calculation also reflects future-oriented measurement parameters such as the rate of salary increase, rate of pension increase and fluctua- tion. The provisions for taxes and other provisions are measured according to a reasonable commercial assessment. They are measured at their respective settlement value. Future cost and price increases are taken into account where there are sufficient objective indications that they will arise. Provisions with a term of over one year are dis- counted at the average market interest rate for the last seven years corresponding to their remaining term. The ap- plicable interest rate is published by Deutsche Bundesbank. In order to fulfill certain obligations relating to employee pension plans and similar long-term obligations, the corre- sponding funds are invested in a pension plan reinsurance scheme, in securities and in restricted cash assets held in a trust arrangement. These are used solely to fulfill pension obligations and are not accessible to the other credi- tors. The pension plan reinsurance policy is used to cover amounts for higher pension provision. The pension plan reinsurance is measured at the capitalized value derived from the fund capital calculated at the end of the insurance period or at least derived from the guaranteed redemption value, where such a value has been agreed or derived from the budgeted fund capital. The securities are used to fulfill corresponding commitments to employees. Meas- urement of securities is at fair value which equals the market price. Pension obligations – the amount of which is determined solely based on the fair value of securities – are recognized at the fair value of the securities in accord- ance with section 253 (1) sentence 3 HGB.