Notes to the Accounts

27. Acquisitions

In May 2000 the Group acquired Dorling Kindersley plc and in September 2000 the Group acquired National Computer Systems Inc (NCS). In February 2000 the Group combined its Asset Valuation business with Data Broadcasting Inc (DBC) and retained a 60% shareholding in the new combined business. In July 2000 the Group combined its television business with CLT-Ufa and retained a 22% shareholding in the new combined business, the RTL Group. All acquisitions and combinations have been consolidated applying acquisition accounting principles.

a. Acquisition of subsidiaries and businesses

note • Goodwill written off to reserves relates to acquisitions made before 1 January 1998.

note • Other fair value adjustments comprise the revaluation of net assets.

b. Dorling Kindersley

note • Dorling Kindersley was acquired in May 2000. All fair value adjustments are provisional. These adjustments will be finalised in the 2001 financial statements when a detailed review of fair values has been completed.

Accounting policy alignment

The accounting policies of Dorling Kindersley have been changed to bring them into line with the accounting policies of Penguin. The most significant changes are to expense internal pre-publication costs, which were carried in stock until the publication of a title, and to align policies on stock provisioning.

Revaluations

a Fixed assets have been reduced to write down certain back office software development costs to their recoverable amount.

b Work in progress and finished goods amounting to £12m have been written off in respect of obsolete product to bring the value down to its net realisable value.

c Debtors have been reduced by £7m to bring the value down to its net realisable value.

note • The above results are based on the accounting policies of Dorling Kindersley prior to acquisition.

c. National Computer Systems

note • NCS was acquired in September 2000. All fair value adjustments are provisional. These adjustments will be finalised in the 2001 financial statements when a detailed review of fair values has been completed.

Revaluations

a Current taxation payable has been reduced to reflect the receipt of £29m post acquisition which related to pre-acquisition items. Creditors of £6m have been moved to provisions to more accurately reflect the nature of the liability and creditors of £2m no longer required have been released.

b Additional provisions have been made of which £8m relates to severance obligations existing at the acquisition date, £3m relates to various outstanding claims and £3m relates to deferred consideration in respect of earlier acquisitions.

note • The above results are based on the accounting policies of NCS prior to acquisition.

d. Data Broadcasting Corporation Inc – combination of assets

On 29 February 2000 the Group combined its Asset Valuation business with Data Broadcasting Corporation Inc (DBC) and retained a 60% shareholding in the new combined business. The difference between the value of the net assets of the Group’s Asset Valuation business contributed and the fair value of the Group’s share of the net assets of the DBC business acquired has been taken to goodwill.

note • All fair value adjustments are provisional. These adjustments will be finalised in the 2001 financial statements when a detailed review of fair values has been completed.

Revaluations

The carrying value of the associate, CBSMarketwatch, has been increased to reflect its market value, based on the quoted share price, at the date of acquisition.

note • The net assets of the Group’s Asset Valuation business contributed amounted to £92m.

note • The above results are based on the accounting policies of DBC prior to acquisition.

e. RTL – combination of assets

On 25 July 2000 the Group combined its television business with CLT-Ufa and retained a 22% shareholding in the new combined business, the RTL Group. The difference between the value of the net assets of the Group’s television business contributed and the fair value of the Group’s share of the net assets of the CLT-Ufa business acquired has been taken to goodwill.

note • All fair value adjustments are provisional. These adjustments will be finalised in the 2001 financial statements when a detailed review of fair values has been completed.

Revaluations

Fixed assets have been revalued to their fair market value.

f. Cash flow from acquisitions

note • Contributions to the cash flow from acquisitions in 2000 are as follows: net cash outflow from operating activities £(44)m, returns on investments and servicing of finance £(1)m, taxation £(3)m and capital expenditure and financial investment £1m.