Notes to the Accounts
In November 1998 the Group acquired the education, reference and business & professional publishing divisions of Simon & Schuster Inc. All acquisitions have been consolidated applying acquisition accounting principles.
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 £(12)m and adjustments to tax £2m.
NOTE: Simon & Schuster was acquired at the end of 1998 and therefore all fair value adjustments are provisional.
Accounting policy alignment
Simon & Schuster’s accounting policies have been changed to make them consistent with Pearson Education’s accounting policies. The main items are to expense internal software product development costs capitalised by Simon & Schuster’s software publishing company and to expense freight costs as incurred.
A. Fixed assets have been reduced to write down certain back office software development costs to their recoverable amount.
B. Pre publication expenditure has been reduced by £12m to its net realisable value. This relates primarily to titles required to be sold under the Department of Justice ruling. Finished goods of £5m have also been written off in respect of obsolete product to bring it to net realisable value.
C. Debtors have been reduced by £19m to bring them to their net realisable value. This is principally to increase the reserve for returns to reflect current return rates.
D. Additional accruals have been made, primarily for remuneration and retention obligations (£28m) existing at acquisition date. A further £6m has been included in provisions in respect of this.
E. Provisions have been made for various outstanding legal claims and other remuneration obligations (refer above) identified at acquisition.
F. Deferred taxation liabilities recorded in respect of the US have been written off as the availability of tax
losses in the Pearson US Group means that these obligations will not crystallise within the reasonably foreseeable future. Deferred tax has not been provided on the revaluations described above to the extent that they arise in the US.
Other items relate to the businesses of Simon & Schuster that Pearson do not intend to retain. The net assets of these businesses have not been consolidated in the individual balance sheet lines, but are included in current asset investments at the anticipated net proceeds from sale.
The above results are shown using the accounting policies of Simon & Schuster prior to acquisition (before goodwill amortisation). Taxation numbers are not available as the taxation of Simon & Schuster was accounted for as part of a larger group. Accordingly, no statement of recognised gains and losses is presented.
NOTE: Contributions to the cash flow from acquisitions in 1998 are as follows: net cash inflow from operating activities £15m, returns on investments and servicing of finance £(1)m, taxation £(1)m, and capital expenditure and financial investment £(7)m.
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