Notes to the Accounts
23. Acquisitions
| 1997 | 1996 | |||
| All figures in £ millions | All American Communications |
Other | Total | Total |
| Acquisition
analysis of subsidiary undertakings and businesses |
||||
| Tangible fixed assets | 1.6 | 0.7 | 2.3 | 18.0 |
| Investments | - | - | - | 30.2 |
| Stocks | 47.3 | (11.1) | 36.2 | 111.5 |
| Debtors | 63.1 | 1.0 | 64.1 | 91.3 |
| Creditors | (77.2) | (2.6) | (79.8) | (106.2) |
| Provisions | (3.9) | - | (3.9) | (32.6) |
| Deferred taxation | - | (0.2) | (0.2) | 0.3 |
| Equity minority interests | - | 0.8 | 0.8 | 20.3 |
| Net (borrowing) cash acquired | (102.2) | (15.0) | (117.2) | 4.5 |
| Net assets / (liabilities) acquired at fair value | (71.3) | (26.4) | (97.7) | 137.3 |
| Fair value of consideration: | ||||
| Cash | (230.9) | (20.8) | (251.7) | (685.7) |
| Deferred cash consideration | (15.6) | (3.1) | (18.7) | (12.9) |
| Shares issued | - | - | - | (70.4) |
| Costs accrued | - | (0.1) | (0.1) | (1.2) |
| Net Net prior year adjustments | - | (15.8) | (15.8) | 1.1 |
| Total consideration | (246.6) | (39.8) | (286.3) | (769.1) |
| Goodwill arising | 317.8 | 66.2 | 384.0 | 631.8 |
| 1997 | |||
| All figures in millions | All American Communications |
Other | Total |
| Acquisition goodwill and fair values | |||
| Acquisition cost | 246.5 | 39.8 | 286.3 |
| Book value of net liabilities acquired | (31.5) | (16.4) | (47.9) |
| Fair value adjustments | (39.8) | (10.0) | (49.8) |
| Fair value to the Group | (71.3 | (26.4) | (97.7) |
| Goodwill arising written off to reserves | 317.8 | 66.2 | 384.0 |
Note: Other fair value adjustments comprise the revaluation of assets acquired in HarperCollins Educational in 1996 (see below), adjustments to tax £4.2m and other sundry adjustments of £0.6m. Subsidiaries and businesses acquired recorded £10.8m in asset write-downs in the twelve months prior to acquisition.
| All figures in million | Fair value 31 December 1996 |
Revaluations and other adjustments |
Fair value 31 December 1997 |
Note |
| HarperCollins Educational | ||||
| Tangible fixed assets | 6.0 | - | 6.0 | |
| Stocks | 86.4 | (11.7) | 74.7 | A |
| Debtors | 12.4 | (3.1) | 9.3 | B |
| Creditors | (29.4) | - | (29.4) | |
| Provisions | (27.3) | - | (27.3) | |
| Net assets acquired | 48.1 | (14.8) | 33.3 | |
Note: HarperCollins Educational was acquired in April 1996 and provisional fair value adjustments were made in the 1996 accounts. Final fair value adjustments have been made in 1997.
Final fair value adjustments
Revaluations and other adjustments:
A) Stocks have been written down by £1.4m and pre-publication expenditure
by £7.6m following the establishment of more accurate estimates of their
net realisable values.
B) The reserves against debtors has been increased by £3.1m to reflect
debts which could not be collected.
| All figures in £ millions | Book value |
Accounting policy alignment |
Revaluations and other adjustments |
Fair value | Note |
| All American Communications | |||||
| Tangible fixed assets | 1.6 | - | - | 1.6 | |
| Stocks | 82.3 | (5.7) | (29.3) | 47.3 | A |
| Debtors | 60.5 | - | 2.6 | 63.1 | B |
| Creditors | (76.7) | - | (0.5) | (77.2) | C |
| Provisions | (3.9) | - | - | (3.9) | |
| Net debt acquired | (95.3) | - | (6.9) | (102.2) | D |
| Net liabilities acquired | (31.5) | (5.7) | (34.1) | (71.3) | |
Note: All American Communications was acquired at the end of 1997
and as such all fair value adjustments made are provisional.
Provisional fair value adjustments
Accounting policy alignment:
A) Programme stocks have been reduced by £5.7m to eliminate capitalised
interest and overheads in line with existing Pearson accounting policy.
Revaluations and other adjustments:
A) Programme stocks have been reduced by £29.3m to reflect their net realisable
value.
B) Certain receivables have been revalued by £2.6m to reflect their net
realisable value.
C) Additional accruals have been made for sundry liabilities identified
at the time of purchase.
D) At the time of purchase there was US$100m of loan stock at an interest
rate materially in excess of market rates. The loan was redeemed immediately
following the purchase and the premium payable was provided for as a fair
value adjustment.
| All figures in £ millions | cost | Net assets/ (liabilities) acquired |
Goodwill |
| Total goodwill arising on acquisitions | |||
| Subsidiary undertakings and businesses (see above) | 286.3 | (97.7) | 384.0 |
| Associated undertakings | 67.0 | 52.9 | 14.1 |
| Acquisitions by associated undertakings | - | (3.4) | 3.4 |
| 353.3 | (48.2) | 401.5 | |
| 1997 | 1996 | |
| All figures in £ millions | ||
| Cash flow from acquisitions | ||
| Cash - current year acquisitions (see above) | 251.7 | 685.7 |
| Deferred payments for prior year acquisitions and other items | 17.3 | 12.2 |
| Net cash outflow | 269.0 | 697.9 |
Note: Contributions to the cash flow from acquisitions in 1997 are as follow: net cash inflow from operating activities £1.1m, returns on investments and servicing of finance £(0.8)m, taxation £nil, and investing activities £nil.
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