Notes to the Financial Statements of Bertelsmann SE & Co. KGaA (in accordance with HGB, German Commercial Code)

In addition to the Group reporting, the business development of Bertelsmann  SE & Co. KGaA  is outlined below. Bertelsmann SE & Co. KGaA is a parent company and a management holding company of the Bertelsmann Group. Its tasks include management functions for the Bertelsmann Group as well as the management of its investments and financing. There are also service functions for individual divisions within the Corporate Center. It also bears the tax liability for most of the subsidiaries in Germany. The position of Bertelsmann SE & Co. KGaA is essentially determined by the business success of the Bertelsmann Group.

The Annual Financial Statements of Bertelsmann SE & Co. KGaA, in contrast to the Consolidated Financial Statements, have not been prepared in accordance with the International Financial Reporting Standards ( IFRS ) but in accordance with the regulations of the German Commercial Code (HGB) and the supplementary regulations of the German Stock Corporation Act (AktG).

Results of Operations of Bertelsmann SE & Co. KGaA

The results of operations of Bertelsmann SE & Co. KGaA will continue to be significantly affected by the amount of income from other participations, due to that company’s role as the parent company of the Bertelsmann Group. The decrease in net income to €363 million (previous year: €450 million) is primarily attributable to the lower income from other participations and higher tax expenses. This development was partially offset by higher other operating income.

The increase in other operating income is attributable to increased write-ups recognized on the shares in Bertelsmann Inc., Wilmington, of €67 million and currency gains.

The downward trend in the income from participations from €857 million to €687 million is primarily attributable to income from profit and loss transfer agreements. Firstly, this development is the result of the absence of the positive special effects of the 2016 financial year in connection with the new accounting rules of the law “Gesetz zur Umsetzung der Wohnimmobilienkreditrichtlinie und zur Änderung handelsrechtlicher Vorschriften.” Secondly, the income from subsidiaries is negatively impacted by write-downs of longterm financial assets in the 2017 financial year.

In addition to higher taxable income, the increase in tax expenses from €-131 million to €-198 million is the result of the complete use of the corporate income tax loss carryforward in the previous year.

Income Statement of Bertelsmann SE & Co. KGaA in accordance with HGB

in € millions20172016
Other operating income311180
Cost of materials(28)(26)
Personnel costs(143)(134)
Amortization, depreciation and write-downs(17)(16)
Other operating expenses(194)(188)
Income from other participations687857
Interest income(80)(131)
Write-downs of long-term financial assets(79)(59)
Taxes on income(198)(131)
Earnings after taxes364456
Other taxes(1)(6)
Net income363450
Income brought forward from previous year462402
Transfer to retained earnings from net income(160)(210)
Unappropriated income665642

Net Assets and Financial Position of Bertelsmann SE & Co. KGaA

The total assets of Bertelsmann SE & Co. KGaA increased from €19,482 million to €21,182 million. A high ratio of equity (45 percent) and long-term financial assets (79 percent) to total assets continues to dictate the performance of the net assets and financial position.

The increase in long-term financial assets of €1,267 million concerns the medium- and long-term loans granted to Bertelsmann, Inc., Wilmington, which are presented as loans to affiliated companies. To a significant degree, the loans granted are the result of converting short-term receivables due from Bertelsmann, Inc., Wilmington. The receivables due from affiliated companies decreased by a corresponding amount compared to the previous year. In addition, the carrying amount of investments in affiliated companies increased by €588 million mainly in connection with the contributions to subsidiaries. In the 2017 financial year, contributions are primarily concerning Bertelsmann Capital Holding GmbH, Gütersloh, and the Gruner + Jahr GmbH & Co KG, Hamburg.

The equity increased as a result of the net income of the reporting year by €363 million and decreased by €180 million as a result of distributions to shareholders. The increase in liabilities to €11,177 million (previous year: €9,673 million) includes €650 million from bonds and promissory notes as a result of issuing one new bond and one new promissory note. In addition, liabilities to affiliated companies increased by €633 million. The amount of the loans granted by subsidiaries to Bertelsmann SE & Co. KGaA is affected by the development of the financial position of these subsidiaries.

Balance Sheet of Bertelsmann SE & Co. KGaA in accordance with HGB (Summary)

in € millions12/31/201712/31/2016
Fixed assets
Intangible and tangible assets377358
Financial assets16,70214,714
Current assets
Receivables and other assets3,5624,067
Securities, cash and cash equivalents520326
Prepaid expenses and deferred charges2117
Deferred income23

Risks and Opportunities for Bertelsmann SE & Co. KGaA

As Bertelsmann SE & Co. KGaA is largely linked to the Bertelsmann Group companies, among other things through the financing and guarantee commitments as well as through direct and indirect investments in the subsidiaries, the situation of Bertelsmann SE & Co. KGaA in terms of risks and opportunities is primarily dependent on the risks and opportunities of the Bertelsmann Group. In this respect, the statements made by corporate management concerning the overall assessment of the risks and opportunities also constitute a summary of the risks and opportunities of Bertelsmann SE & Co. KGaA (see the “Risks and Opportunities” section).

Outlook for Bertelsmann SE & Co. KGaA

As the parent company of the Bertelsmann Group, Bertelsmann SE & Co. KGaA receives dividend distributions from its subsidiaries as well as income from services provided to them. Consequently, the performance of Bertelsmann SE & Co. KGaA is primarily determined by the business performance of the Bertelsmann Group (see the “Outlook” section).

Dependent Company Report (Statement in accordance with Section 312 of the German Stock Corporation Act (AktG))

The Executive Board of Bertelsmann Management SE, as general partner of Bertelsmann SE & Co. KGaA, has submitted a voluntary report to the Supervisory Board of Bertelsmann SE & Co. KGaA in accordance with sections 278 (3) and 312 (1) of the German Stock Corporation Act, in which it outlines its relationships with affiliated companies for the financial year 2017. The Executive Board hereby declares that Bertelsmann SE & Co. KGaA received adequate consideration in return for each and every legal transaction under the circumstances known at the time that the transactions were undertaken.