Penguin Random House Venture Combined Financial Statements

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Penguin Random House Venture Combined Financial Statements Penguin Random House Venture Combined Financial Statements Report of Independent Auditors To Penguin Random House LLC, Wilmington (USA), and Penguin Random House Ltd, London (UK) We have audited the accompanying combined financial statements of Penguin Random House Venture as described in note 1 to these combined financial statements which comprise the combined balance sheets as of December 31, 2018, 2017 and 2016, and the related combined income statements, combined statements of comprehensive income, combined statements of cash flows and combined statements of changes in equity and the notes to the combined financial statements for the years then ended. Management’s Responsibility for the Combined Financial Statements Management of Penguin Random House LLC, New York City (US), and Penguin Random House Ltd, London (UK), is responsible for the preparation and fair presentation of the combined financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB); this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of combined financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on the combined financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company’s preparation and fair presentation of the combined financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Penguin Random House Venture as of December 31, 2018, 2017 and 2016, and the results of its operations and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB). Emphasis of matter We draw attention to the fact that, as described in note 1 to the combined financial statements, the Penguin Random House Venture included in the combined financial statements has not operated as a separate group of companies. These combined financial statements are, therefore, not necessarily indicative of results that would F-87 have occurred if the Penguin Random House Venture had operated as a separate group of companies during the years presented or of future results of the Penguin Random House Venture. Our opinion is not modified with respect to this matter. Bielefeld (Germany), March 26, 2019 PricewaterhouseCoopers GmbH Wirtschaftsprüfungsgesellschaft /s/ Christian Landau /s/ ppa. Michael Kleffmann Wirtschaftsprüfer Wirtschaftsprüfer (German Public Auditor) (German Public Auditor) F-88 Penguin Random House Venture Combined Financial Statements COMBINED FINANCIAL STATEMENTS Combined Income Statement in € millions Notes 2018 2017 2016 Revenues .......................................................... 1 3,134 3,075 3,100 Other operating income .............................................. 2 31 33 56 Cost of materials .................................................... 3 (616) (630) (679) Royalties .......................................................... 16 (591) (631) (626) Personnel costs ..................................................... 4 (705) (715) (723) Amortization/depreciation, impairment and reversals on intangible assets and property, plant and equipment ....................................... 5 (71) (75) (76) Other operating expenses ............................................. 6 (791) (655) (648) Results from investments accounted for using the equity method .............. 12 (2) —— Impairment and reversals on investments accounted for using the equity method ......................................................... 12 — (10) — Results from financial assets .......................................... n/a (1) — Results from disposals of investments ................................... 6 2— EBIT (earnings before interest and taxes) ................................ 395 393 404 Interest income ..................................................... 7 1 31 Interest expenses .................................................... 7 (45) (13) (4) Other financial income ............................................... 8 3 12 Other financial expenses .............................................. 8 (6) (8) (3) Financial result ..................................................... (47) (17) (4) Earnings before taxes ................................................ 348 376 400 Income tax expense .................................................. 9 (34) (10) (27) Group profit or loss .................................................. 314 366 373 attributable to: Penguin Random House shareholders ................................... 314 366 373 Non-controlling interests ............................................. — —— As of January 1, 2018, the new accounting standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers were applied for the first time. In accordance with the transitional provisions of IFRS 9 and IFRS 15, prior year comparatives have not been adjusted. Further details are presented in the section “Impact of New Financial Reporting Standards.” F-89 Penguin Random House Venture Combined Financial Statements Combined Statement of Comprehensive Income in € millions Notes 2018 2017 2016 Group profit or loss ..................................................... 314 366 373 Items that will not be reclassified subsequently to profit or loss Remeasurement component of defined benefit plans ........................... 21 20 (21) Changes in fair value of equity instruments .................................. (2) n/a n/a Share of other comprehensive income of investments accounted for using the equity method ............................................................. — — — Items that will be reclassified subsequently to profit or loss when specific conditions are met Exchange differences – changes recognized in other comprehensive income .......................... 14 (161) (19) – reclassification adjustments to profit or loss ................................ — —— Cash flow hedges – changes in fair value recognized in other comprehensive income ................ 1 (1) (1) – reclassification adjustments to profit or loss ................................ (1) —— Share of other comprehensive income of investments accounted for using the equity method ............................................................. (1) (2) 11 Other comprehensive income net of tax ..................................... 18 32 (144) (30) Group total comprehensive income ......................................... 346 222 343 attributable to: Penguin Random House shareholders ....................................... 346 222 344 Non-controlling interests ................................................. — — (1) As of January 1, 2018, the new accounting standards IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers were applied for the first time. In accordance with the transitional provisions of IFRS 9 and IFRS 15, prior year comparatives have not been adjusted. Further details are presented in the section “Impact of New Financial Reporting Standards.” F-90 Penguin Random House Venture Combined Financial Statements Combined Balance Sheet in € millions Notes 12/31/2018 12/31/2017 12/31/2016 Assets Non-current assets Goodwill .................................................. 10 835 815 859 Other intangible assets ....................................... 10 351 380 446 Property, plant and equipment ................................. 11 152 150 169 Investments accounted for using the equity method ................ 12 9 12 25 Other financial assets ........................................ 13 9 97 Trade and other receivables ................................... 15 — 45 Other non-financial assets .................................... 16 377 282 295 Deferred tax assets .......................................... 9 37 42 31 1,770 1,694 1,837 Current assets Inventories ................................................ 14 279 253 263 Trade and other receivables ................................... 15 1,113 777 734 Other financial assets .......................................
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