e20vf
AS FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ON March 25, 2011
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 20-F
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(Mark One)
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o
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REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934
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or
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the fiscal year ended December 31, 2010
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
for the transition period
from to
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or
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o
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SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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Date of event requiring this shell company report
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Commission file number
1-16055
PEARSON PLC
(Exact name of Registrant as
specified in its charter)
England and Wales
(Jurisdiction of incorporation
or organization)
80 Strand
London, England WC2R
0RL
(Address of principal executive
offices)
Stephen Jones
Telephone: +44 20 7010
2000
Fax: +44 20 7010 6060
80 Strand
London, England WC2R
0RL
(Name, Telephone,
E-mail
and/or Facsimile Number and Address of Company Contact
Person)
Securities registered or to be
registered pursuant to Section 12(b) of the Act:
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Title of Class
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Name of Each Exchange on Which Registered
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*Ordinary Shares, 25p par value
American Depositary Shares, each Representing One Ordinary
Share, 25p per Ordinary Share
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New York Stock Exchange
New York Stock Exchange
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* Not for trading, but only in
connection with the registration of American Depositary Shares,
pursuant to the requirements of the SEC.
Securities registered or to be
registered pursuant to Section 12(g) of the Act:
None
Securities for which there is a
reporting obligation pursuant to Section 15(d) of the
Act:
None
Indicate the number of outstanding shares of each of the
issuers classes of capital or common stock at the close of
the period covered by the annual report:
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Ordinary Shares, 25p par value
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812,677,377
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes þ No o
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Securities Exchange
Act of
1934. Yes o No þ
Note Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 from their
obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated file and
large accelerated filer, in Rule 12b-2 of the
Exchange Act. (Check one):
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þ Large accelerated filer
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o Accelerated filer
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o Non-accelerated filer
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Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this
filing
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o
US GAAP
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þ
International financial Reporting Standards as Issued by
the
International Accounting Standards Board
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o Other
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If Other has been checked in response to the
previous question, indicate by check mark which financial
statement item the Registrant has elected to follow:
If this is an annual report, indicate by check mark whether the
registrant is a shell company (as defined in
Rule 12b-2
of the Exchange Act):
INTRODUCTION
In this Annual Report on
Form 20-F
(the Annual Report) references to
Pearson, the Company or the
Group are references to Pearson plc, its
predecessors and its consolidated subsidiaries, except as the
context otherwise requires. Ordinary Shares refer to
the ordinary share capital of Pearson of par value 25p each.
ADSs refer to American Depositary Shares which are
Ordinary Shares deposited pursuant to the Deposit Agreement
dated March 21, 1995, amended and restated as of
August 8, 2000 among Pearson, The Bank of New York as
depositary (the Depositary) and owners and holders
of ADSs (the Deposit Agreement). ADSs are
represented by American Depositary Receipts (ADRs)
delivered by the Depositary under the terms of the Deposit
Agreement.
We have prepared the financial information contained in this
Annual Report in accordance with International Financial
Reporting Standards (IFRS) as issued by the
International Accounting Standards Board (IASB)
which in respect of the accounting standards applicable to the
Group do not differ from IFRS as adopted by the European Union
(EU). Unless we indicate otherwise, any reference in
this Annual Report to our consolidated financial statements is
to the consolidated financial statements and the related notes,
included elsewhere in this Annual Report.
We publish our consolidated financial statements in sterling. We
have included, however, references to other currencies. In this
Annual Report:
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references to sterling, pounds,
pence or £ are to the lawful
currency of the United Kingdom,
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references to euro or are to the
euro, the lawful currency of the participating Member States in
the Third Stage of the European Economic and Monetary Union of
the Treaty Establishing the European Commission, and
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references to US dollars, dollars,
cents or $ are to the lawful currency of
the United States.
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For convenience and except where we specify otherwise, we have
translated some sterling figures into US dollars at the rate of
£1.00 = $1.54, the noon buying rate in The City of New York
for cable transfers and foreign currencies as certified by the
Federal Reserve Bank of New York for customs purposes on
December 31, 2010, the last business day of 2010. We do not
make any representation that the amounts of sterling have been,
could have been or could be converted into dollars at the rates
indicated. On February 28, 2011 the noon buying rate for
sterling was £1.00 = $1.62.
The Group consists of three major worldwide businesses, Pearson
Education, The FT Group (FT) and the Penguin Group
(Penguin). See Item 4. Information on the
Company Overview of operating divisions.
FORWARD-LOOKING
STATEMENTS
You should not rely unduly on forward-looking statements in this
Annual Report. This Annual Report, including the sections
entitled Item 3. Key Information Risk
Factors, Item 4. Information on the
Company and Item 5. Operating and Financial
Review and Prospects, contains forward-looking statements
that relate to future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terms such as may, will,
should, expect, intend,
plan, anticipate, believe,
estimate, predict,
potential, continue or the negative of
these terms or other comparable terminology. Examples of these
forward-looking statements include, but are not limited to,
statements regarding the following:
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operations and prospects,
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growth strategy,
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funding needs and financing resources,
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expected financial position,
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market risk,
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currency risk,
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4
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US federal and state spending patterns,
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debt levels, and
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general market and economic conditions.
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These forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause our or our
industrys actual results, levels of activity, performance
or achievements to be materially different from any future
results, levels of activity, performance or achievements
expressed or implied by the forward-looking statements. In
evaluating them, you should consider various factors, including
the risks outlined under Item 3. Key
Information Risk Factors, which may cause
actual events or our industrys results to differ
materially from those expressed or implied by any
forward-looking statement. Although we believe that the
expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of
activity, performance or achievements.
5
PART I
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ITEM 1.
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IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
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Not applicable.
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ITEM 2.
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OFFER
STATISTICS AND EXPECTED TIMETABLE
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Not applicable.
Selected
consolidated financial data
Following the publication of SEC Release No
33-8879
Acceptance From Foreign Private Issuers of Financial
Statements Prepared in Accordance With International Financial
Reporting Standards Without Reconciliation to
U.S. GAAP, the Group no longer provides a
reconciliation between IFRS and U.S. GAAP.
The table below shows selected consolidated financial data under
IFRS as issued by the IASB. The selected consolidated profit and
loss account data for the years ended December 31, 2010,
2009 and 2008 and the selected consolidated balance sheet data
as at December 31, 2010 and 2009 have been derived from our
audited consolidated financial statements included in
Item 18. Financial Statements in this Annual
Report.
The results of the Interactive Data business (disposed in July
2010) have been included in discontinued operations for all
the years to 2010. The results of the Data Management business
(disposed in February 2008) have been included in
discontinued operations for all years to 2008. The results of
Government Solutions (disposed in February 2007) and
Les Echos (disposed in December 2007) have been
included in discontinued operations for all the years to 2007.
The selected consolidated financial information should be read
in conjunction with Item 5. Operating and Financial
Review and Prospects and our consolidated financial
statements and the related notes appearing elsewhere in this
Annual Report. The information provided below is not necessarily
indicative of the results that may be expected from future
operations.
For convenience, we have translated the 2010 amounts into US
dollars at the rate of £1.00 = $1.54, the noon buying rate
in The City of New York for cable transfers and foreign
currencies as certified by the Federal Reserve Bank of New York
for customs purposes on December 31, 2010.
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Year Ended December 31
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2010
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2010
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2009
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2008
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2007
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2006
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$
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£
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£
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£
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£
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£
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(In millions, except for per share amounts)
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Consolidated Income Statement data
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Total sales
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8,721
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5,663
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5,140
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4,405
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3,818
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3,658
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Total operating profit
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1,144
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743
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619
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564
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484
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440
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Profit after taxation from continuing operations
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807
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524
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377
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344
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274
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405
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Profit for the financial year
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2,002
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1,300
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462
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323
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310
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469
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Consolidated Earnings data per share
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Basic earnings per equity share(1)
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$
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2.49
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161.9p
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53.2p
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36.6p
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35.6p
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55.9p
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Diluted earnings per equity share(2)
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$
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2.49
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161.5p
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53.1p
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36.6p
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35.6p
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55.8p
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Basic earnings from continuing operations per equity share(1)
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$
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1.02
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66.0p
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47.0p
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42.9p
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34.1p
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50.6p
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Diluted earnings from continuing operations per equity share(2)
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$
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1.01
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65.9p
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47.0p
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42.9p
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34.1p
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50.5p
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Dividends per ordinary share
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$
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0.60
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38.7p
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35.5p
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33.8p
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31.6p
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29.3p
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Consolidated Balance Sheet data at period end
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Total assets (non-current assets plus current assets)
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16,429
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10,668
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9,412
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9,896
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7,292
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7,213
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Net assets
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8,632
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5,605
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4,636
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5,024
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3,874
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3,644
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Long-term obligations(3)
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(4,344
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(2,821
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(3,051
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(2,902
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(1,681
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(1,853
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Capital stock
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313
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203
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203
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202
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202
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202
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Number of equity shares outstanding (millions of ordinary shares)
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813
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813
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810
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809
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808
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806
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6
Notes:
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(1) |
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Basic earnings per equity share is based on profit for the
financial period and the weighted average number of ordinary
shares in issue during the period. |
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(2) |
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Diluted earnings per equity share is based on diluted earnings
for the financial period and the diluted weighted average number
of ordinary shares in issue during the period. Diluted earnings
comprise earnings adjusted for the tax benefit on the conversion
of share options by employees and the weighted average number of
ordinary shares adjusted for the dilutive effect of share
options. |
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(3) |
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Long-term obligations comprise any liabilities with a maturity
of more than one year, including medium and long-term
borrowings, derivative financial instruments, pension
obligations and deferred income tax liabilities. |
Dividend
information
We pay dividends to holders of ordinary shares on dates that are
fixed in accordance with the guidelines of the London Stock
Exchange. Our board of directors normally declares an interim
dividend in July or August of each year to be paid in September
or October. Our board of directors normally recommends a final
dividend following the end of the fiscal year to which it
relates, to be paid in the following May or June, subject to
shareholders approval at our annual general meeting. At
our annual general meeting on April 28, 2011 our
shareholders will be asked to approve a final dividend of 25.7p
per ordinary share for the year ended December 31, 2010.
The table below sets forth the amounts of interim, final and
total dividends paid in respect of each fiscal year indicated,
and is translated into cents per ordinary share at the noon
buying rate in The City of New York on each of the respective
payment dates for interim and final dividends. The final
dividend for the 2010 fiscal year will be paid on May 6,
2011.
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Fiscal year
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Interim
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Final
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Total
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Interim
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Final
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Total
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(Pence per ordinary share)
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(Cents per ordinary share)
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2010
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13.0
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25.7
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38.7
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20.3
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39.6
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*
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59.9
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2009
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12.2
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23.3
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35.5
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19.8
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34.3
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54.1
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2008
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11.8
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22.0
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33.8
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21.6
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33.2
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54.8
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2007
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11.1
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20.5
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31.6
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22.4
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39.9
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62.3
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2006
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10.5
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18.8
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29.3
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20.0
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31.4
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51.4
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* |
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As the 2010 final dividend had not been paid by the filing date,
the dividend has been translated into cents using the noon
buying rate for sterling at December 31, 2010. |
Future dividends will be dependent on our future earnings,
financial condition and cash flow, as well as other factors
affecting the Group.
Exchange
rate information
The following table sets forth, for the periods indicated,
information concerning the noon buying rate for sterling,
expressed in dollars per pound sterling. The average rate is
calculated by using the average of the noon buying rates in The
City of New York on each day during a monthly period and on the
last day of each month during an annual period. On
December 31, 2010 the noon buying rate for cable transfers
and foreign currencies as certified by the Federal Reserve Bank
of New York for customs purposes for sterling was £1.00 =
$1.54. On February 28, 2011 the noon buying rate for
sterling was £1.00 = $1.62.
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Month
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High
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Low
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February 2011
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$
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1.62
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$
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1.60
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January 2011
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$
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1.60
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$
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1.55
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December 2010
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$
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1.59
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$
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1.54
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November 2010
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$
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1.63
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$
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1.56
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October 2010
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$
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1.60
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$
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1.57
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September 2010
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$
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1.59
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$
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1.53
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7
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Year Ended December 31
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Average rate
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2010
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$
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1.54
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2009
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$
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1.57
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2008
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$
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1.84
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2007
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$
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2.01
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2006
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$
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1.84
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Risk
factors
You should carefully consider the risk factors described
below, as well as the other information included in this Annual
Report. Our business, financial condition or results from
operations could be materially adversely affected by any or all
of these risks, or by other risks that we presently cannot
identify.
Our
education, business information and book publishing businesses
will be impacted by the rate of and state of technological
change, including the digital evolution and other disruptive
technologies.
A common trend facing all our businesses is the digitization of
content and proliferation of distribution channels, either over
the internet, or via other electronic means, replacing
traditional print formats. The digital migration brings the need
for change in product distribution, consumers perception
of value and the publishers position between retailers and
authors, which affects managing stock levels. The trend to
e-books has
created contraction in the consumer books retail market which
increases the risk of bankruptcy of a major retail customer;
this could disrupt short-term product supply to the market as
well as could result in a large debt write off.
We face competitive threats both from large media players and
from smaller businesses, online and mobile portals and news
redistributors operating in the digital arena and providing
alternative sources of news and information. New distribution
channels, e.g. digital format, the internet, online retailers,
growing delivery platforms (e.g.
e-readers),
combined with the concentration of retailer power pose both
threats and opportunities to our traditional consumer publishing
models, potentially impacting both sales volumes and pricing.
If we do not adapt rapidly to these changes we may lose business
to faster more agile competitors, who
increasingly are non-traditional competitors, i.e. technology
companies, making their identification all the more difficult.
We may be required to invest significant resources to further
adapt to the changing competitive environment.
Investment
returns outside our traditional core US and UK markets may be
lower than anticipated.
To take advantage of international growth opportunities and to
reduce our reliance on our core US and UK markets we are
increasing our investments in a number of emerging markets, some
of which are inherently more risky than our traditional markets.
Political, regulatory, economic and legal systems in emerging
markets may be less predictable than in countries with more
developed institutional structures. Political, regulatory,
economic, currency, reputational and corporate governance risks
(including fraud) as well as unmanaged expansion are all factors
which could limit our returns on investments made in these
markets.
Our US
educational solutions and assessment businesses may be adversely
affected by changes in state and local educational funding
resulting from either general economic conditions, changes in
government educational funding, programs, policy decisions,
legislation at both at the federal and state level and/or
changes in the state procurement processes.
The results and growth of our US educational solutions and
assessment businesses are dependent on the level of federal and
state educational funding, which in turn is dependent on the
robustness of state finances and the level of funding allocated
to educational programs. State, local and municipal finances
have been adversely affected by the US recession and the unknown
timing of economic recovery. Funding pressures remain, with
competition from low price and disruptive new business models
and promotion of open source to keep costs down. The current
challenging environment could impact our ability to collect on
education-related debt.
Federal
and/or state
legislative changes can also affect the funding available for
educational expenditure, which include the impact of education
reform, such as the reauthorization of the Elementary and
Secondary Education Act, the introduction of the Common Core and
Race to the Top funding. Similarly changes in the state
8
procurement process for textbooks, learning material and student
tests, particularly in the adoptions market can also affect our
markets. For example, changes in curricula, delays in the timing
of the adoptions and changes in the student testing process can
all affect these programs and therefore the size of our market
in any given year.
There are multiple competing demands for educational funds and
there is no guarantee that states will fund new textbooks or
testing programs, or that we will win this business.
A
control breakdown or service failure in our school assessment
businesses could result in financial loss and reputational
damage.
There are inherent risks associated with our school assessment
businesses, both in the US and the UK. A service failure caused
by a breakdown in our testing and assessment processes could
lead to a mis-grading of student tests
and/or late
delivery of test results to students and their schools. In
either event we may be subject to legal claims, penalty charges
under our contracts, non-renewal of contracts
and/or the
suspension or withdrawal of our accreditation to conduct tests.
It is also possible that such events would result in adverse
publicity, which may affect our ability to retain existing
contracts
and/or
obtain new customers.
Our
reported earnings and cash flows may be adversely affected by
changes in our pension costs and funding
requirements.
We operate a number of pension plans throughout the world, the
principal ones being in the UK and the US. The major plans are
self-administered with the plans assets held independently
of the Group. Regular valuations, conducted by independent
qualified actuaries, are used to determine pension costs and
funding requirements. As these assets are invested in the
capital markets, which are often volatile, the plans may require
additional funding from us, which could have an adverse impact
on our results.
It is our policy to ensure that each pension plan is adequately
funded, over time, to meet its ongoing and future liabilities.
Our earnings and cash flows may be adversely affected by the
need to provide additional funding to eliminate pension fund
deficits in our defined benefit plans. Our greatest exposure
relates to our UK defined benefit pension plan, which is valued
once every three years. Pension fund deficits may arise because
of inadequate investment returns, increased member life
expectancy, changes in actuarial assumptions and changes in
pension regulations, including accounting rules and minimum
funding requirements.
Our
intellectual property and proprietary rights may not be
adequately protected under current laws in some jurisdictions
and that may adversely affect our results and our ability to
grow.
Our products and services largely comprise intellectual property
delivered through a variety of media, including newspapers,
books, the internet and other growing delivery platforms. We
rely on trademark, copyright and other intellectual property
laws to establish and protect our proprietary rights in these
products and services.
We cannot be sure that our proprietary rights will not be
challenged, invalidated or circumvented. Our intellectual
property rights in countries such as the US and the UK,
jurisdictions covering the largest proportion of our operations,
are well established. However, we also conduct business in other
countries where the extent of effective legal protection for
intellectual property rights is uncertain, and this uncertainty
could affect our future growth. Moreover, despite trademark and
copyright protection, third parties may copy, infringe or
otherwise profit from our proprietary rights without our
authorization.
These unauthorized activities may be more easily facilitated by
the internet. The lack of internet-specific legislation relating
to trademark and copyright protection creates an additional
challenge for us in protecting our proprietary rights relating
to our online business processes and other digital technology
rights. The loss or diminution in value of these proprietary
rights or our intellectual property could have a material
adverse effect on our business and financial performance.
In that regard, Google reached a tentative settlement in 2008
with the Authors Guild and the Association of American
Publishers over Googles plans to copy the full text of all
books ever published without permission of the copyright owners,
including Pearson. The agreement was revised in 2009 to narrow
the definition of books covered under the settlement agreement
to those registered with the US Copyright Office by January 2009
or published in Australia, UK, Canada or US. Subject to final
court approvals, the settlement would allow copyright owners of
9
books covered by it to control the online display of those books
by Google, with a sharing of revenues derived from that display.
The amended settlement agreement has yet to be approved.
A
major data privacy breach may cause reputational damage to our
brands and financial loss.
Across our businesses we hold large volumes of personal data
including that of employees, customers and, in our assessment
businesses, students and citizens. Individuals may try to gain
unauthorized access to our data in order to misappropriate such
information for potentially fraudulent purposes. As the
techniques used to gain unauthorized access change frequently,
we may be unable to anticipate or protect against the threat of
breaches. Failure to adequately protect personal data could lead
to penalties, significant remediation costs, reputational
damage, potential cancellation of some existing contracts and
inability to compete for future business.
Operational
disruption to our business caused by our third party providers,
a major disaster and/or external threats could restrict our
ability to supply products and services to our
customers.
Across all our businesses, we manage complex operational and
logistical arrangements including distribution centers, data
centers and large office facilities as well as relationships
with third party print sites. We have also outsourced some
support functions, including information technology, to third
party providers. The failure of third parties to whom we have
outsourced business functions could adversely affect our
reputation and financial condition. Failure to recover from a
major disaster, (e.g. fire, flood etc) at a key facility or the
disruption of supply from a key third party vendor or partner
(e.g. due to bankruptcy) could restrict our ability to service
our customers. Similarly external threats, such as a flu
pandemic, terrorist attacks, strikes, weather etc, could all
affect our business and employees, disrupting our daily business
activities.
Changes
in students buying and distribution behaviour put downward
pressure on price.
Students are seeking cheaper sources of content, e.g. online
discounters, file sharing, use of pirated copies, and rentals,
along with open source. This change in behaviour, along with the
move from professor-centric decision-making, puts downward
pressure on textbook prices in our major markets.
Our
professional services and school assessment businesses involve
complex contractual relationships with both government agencies
and commercial customers for the provision of various testing
services. Our financial results, growth prospects and/or
reputation may be adversely affected if these contracts and
relationships are poorly managed.
These businesses are characterized by multi-million pound
sterling contracts spread over several years. As in any
contracting business, there are inherent risks associated with
the bidding process,
start-up,
operational performance and contract compliance (including
penalty clauses) which could adversely affect our financial
performance
and/or
reputation. Failure to retain these contracts at the end of the
contract term could adversely impact our future revenue growth.
At Edexcel, our UK Examination board and testing business, any
change in UK Government policy to examination marking (e.g.
price capping) could have a significant impact on our present
business model.
We
operate in markets which are dependent on Information Technology
(IT) systems and technological change.
All our businesses, to a greater or lesser extent, are dependent
on information technology. We either provide software
and/or
internet services to our customers or we use complex IT systems
and products to support our business activities, particularly in
business information publishing, back-office processing and
infrastructure. We face several technological risks associated
with software product development and service delivery in our
educational businesses, information technology security
(including virus and hacker attacks),
e-commerce,
enterprise resource planning system implementations and
upgrades. Although plans and procedures are in place to reduce
such risks, our businesses could be adversely affected if our
systems and infrastructure experience a significant failure or
interruption.
10
Failure
to generate anticipated revenue growth, synergies and/or cost
savings from acquisitions could lead to goodwill and intangible
asset impairments.
We continually acquire and dispose of businesses to achieve our
strategic objectives. In 2010 we acquired Melorio plc, Medley
Global Advisors LLC, Sistema Educacional Brasileiro, Wall Street
Institute Education Sarl, Americas Choice Inc and several
other small acquisitions, and we sold our interest in
Interactive Data. Acquired goodwill and intangible assets could
be impaired if we are unable to generate the anticipated revenue
growth, synergies
and/or cost
savings associated with these or other acquisitions.
Expected
benefits from our finance transformation programme initiatives
may not be realised.
We have entered into a substantial finance transformation
programme based around shared and common processes and services,
including the outsourcing of financial transaction processing,
which is expected to result in significant cost savings in
future years. The programme may take longer than planned, cost
more than planned, and may cause disruption to our business.
There is no assurance that the full extent of the anticipated
benefits will be realised in the timeline envisaged.
Changes
in our tax position can significantly affect our reported
earnings and cash flows.
Changes in corporate tax rates
and/or other
relevant tax laws in the UK
and/or the
US could have a material impact on our future reported tax rate
and/or our
future tax payments.
We
generate a substantial proportion of our revenue in foreign
currencies particularly the US dollar, and foreign exchange rate
fluctuations could adversely affect our earnings and the
strength of our balance sheet.
As with any international business our earnings can be
materially affected by exchange rate movements. We are
particularly exposed to movements in the US dollar to sterling
exchange rate as approximately 60% of our revenue is generated
in US dollars. Sales for 2010, translated at 2009 average rates,
would have been £128m or 2% lower.
This is primarily a currency translation risk that only arises
on consolidation and is the result of translating entities into
sterling for reporting purposes (i.e. non-cash flow item), and
not a trading risk (i.e. cash flow item) as our foreign currency
trading cash flows in individual operating companies are
relatively limited. See Item 5. Operating and
Financial Review and Prospects General Overview,
Exchange rate fluctuations.
Each 5¢ change in the average £:$ exchange rate for
the full year (which in 2010 was £1:$1.54) has a
translation impact of approximately 1.3p on reported earnings
per share and affect shareholders funds by approximately
£115m.
The
inherent volatility of advertising could adversely affect the
profitability of our newspaper business.
Advertising revenue is susceptible to fluctuations in economic
cycles. Certain of our products, such as the Financial Times
newspaper, are more advertising-driven than our other
products. Consequently, these products are more affected by
decreases in advertising revenue. As the internet continues to
grow as a global medium for information, communication and
commerce, advertisers are increasingly shifting advertising
dollars from print to online media. Any downturn in corporate
and financial advertising spend due to the economic slowdown
will negatively impact the results.
A
significant deterioration in Group profitability and/or cash
flow caused by a severe economic depression could reduce our
liquidity and/or impair our financial ratios, and trigger a need
to raise additional funds from the capital markets and/or
renegotiate our banking covenants.
A prolonged and severe economic depression could significantly
reduce the Groups revenues, profitability and cash flows
as customers would be unable to purchase products and services
in the expected quantities
and/or pay
for them within normal agreed terms. A liquidity shortfall may
delay certain development initiatives or may expose the Group to
a need to negotiate further funding. If there was a steep
decline in operating profit the Group might breach its banking
covenants, creating (or exacerbating) a need for further funding
(or a renegotiation of the terms of the bank credit agreement)
to maintain operations. The current fragile state of the credit
markets could expose the Group to a risk that it could neither
re-negotiate its existing banking facilities, nor raise enough
new
11
funding, at a cost level that was sustainable for the business.
Were this to occur, the inability to raise funding would likely
lead to a curtailment in investment and growth plans, potential
asset disposals (if possible), reduction or elimination in the
dividend and in an extreme case a need to restructure the
Groups debt, business model and terms of trade. In such
event, the value of the Groups equity could not be assured.
Social,
environmental and ethical risk.
We consider social, environmental and ethical (SEE) risks no
differently to the way we manage any other business risk. Our
2009 risk assessment did not identify any significant
under-managed SEE risks, nor have any of our most important SEE
risks, many concerned with reputational risks, changed year on
year. These are: journalistic/author integrity, ethical business
behaviour, intellectual copyright protection, compliance with UN
Global Compact standards, environmental impact, people and data
privacy.
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ITEM 4.
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INFORMATION
ON THE COMPANY
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Pearson
plc
Pearson plc, (Pearson) is an international media and education
company with its principal operations in the education, business
information and consumer publishing markets. We create and
manage intellectual property, which we promote and sell to our
customers under well-known brand names, to inform, educate and
entertain. We deliver our content in a variety of forms and
through a variety of channels, including books, newspapers and
online services. We increasingly offer services as well as
content, from test creation, administration and processing to
teacher development and school software. Though we operate in
more than 70 countries around the world, today our largest
markets are the US (59% of sales) and Europe (21% of sales) on a
continuing basis.
Pearson was incorporated and registered in 1897 under the laws
of England and Wales as a limited company and re-registered
under the UK Companies Act as a public limited company in 1981.
We conduct our operations primarily through our subsidiaries and
other affiliates. Our principal executive offices are located at
80 Strand, London WC2R 0RL, United Kingdom (telephone: +44
(0) 20 7010 2000).
Overview
of operating divisions
Pearson consists of three major worldwide businesses:
Pearson Education is a leading provider of educational
materials and learning technologies. It provides test
development, processing and scoring services to governments,
educational institutions, corporations and professional bodies
around the world. It publishes across the curriculum and
provides a range of education services including teacher
development, educational software and system-wide solutions. In
2010, Pearson Education operated through three worldwide
segments, which we refer to as North American
Education, International Education and
Professional:
The FT Group provides business and financial news, data,
comment and analysis, in print and online, to the international
business community. The FT Group includes the Financial
Times newspaper and FT.com website, a range of specialist
financial magazines and online services, and Mergermarket, which
provides proprietary forward-looking insights and intelligence
to businesses and financial institutions. During the year
Pearson sold its 61% interest in Interactive Data, previously
part of the FT Group.
The FT Group also has a 50% ownership stake in both The
Economist Group and FTSE International.
The Penguin Group is one of the worlds leading
consumer publishing businesses and an iconic global brand. We
publish the works of many authors in an extensive portfolio of
fiction, non-fiction and reference titles under imprints
including Penguin, Hamish Hamilton, Putnam, Berkley, and Dorling
Kindersley.
Our
strategy
Our goal is to be the worlds leading learning
company, and to help people make progress in their lives through
learning, wherever and whenever they are learning
young or old; at home, school or at work; and through whatever
medium and style of learning is most effective.
We aim to produce consistent growth on three key financial
measures earnings per share, cash flow and return on
invested capital which we believe are, together,
good indicators that we are building long-term value of Pearson.
12
To achieve this goal, our strategy has four parts, common to all
our businesses:
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Long-term organic investment in content: We invest steadily in
content such as new education programmes, new and established
authors for Penguin and the FT Groups journalism. We
believe that this constant investment is critical to the quality
and effectiveness of our products and services.
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Digital products and services businesses: Our strategy centers
on adding services to our content, usually enabled by
technology, to make the content more useful, personal and
valuable. These digital and services businesses give us access
to new sources of revenues to sustain growth. We now receive
close to one-third of our annual sales from digital products and
services which is more than double the total five years ago.
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International expansion: Pearson has market leading positions in
major developed economies, particularly the US, UK and Western
Europe. We are already present in more than 70 countries and we
are investing to become a much larger global company, with
particular emphasis on emerging markets, such as China, India,
Africa and Latin America. Over the past 5 years our
international (meaning outside North
America) education business has grown sales at an average
annual rate of 18% through strong organic growth and
acquisitions.
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Efficiency: The businesses of Pearson have a lot in common, in
costs, assets, and activities. Pooling those makes the company
stronger and more efficient. It also allows our businesses to
learn from each other and to collaborate to save money. On that
basis we have invested for efficiency through savings in our
individual businesses and through a strong centralized
operations structure. We are integrated in many areas where our
businesses share the same needs purchasing,
warehousing, distribution, facilities and real estate, project
management, people resources, finance and accounting, and
transactions. Over the past five years, we have increased our
adjusted operating profit margins from 12.7% to 15.1% and
reduced average working capital as a percentage of sales from
26.3% to 20.1%. Adjusted operating profit is a key financial
measure used by management to evaluate performance and allocate
resources to our business segments. See Item 5.
Operating and Financial Review and Prospects.
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Operating
divisions
Pearson
Education
Pearson Education is one of the largest publishers of textbooks
and online teaching materials, and provider of assessment
services. It serves the growing demands of teachers, students,
parents and professionals throughout the world for stimulating
and effective education programs in print and online.
We report Pearson Educations performance in the three
segments: North American Education, International Education, and
Professional. In 2010, Pearson Education had sales of
£4,207m or 74% (74% in 2009) of Pearsons total
continuing sales. Pearson Education generated 78% of
Pearsons continuing operating profit.
North
American Education
Our North American Education business serves educators and
students in the USA and Canada from early education through
elementary, middle and high schools and into higher education
with a wide range of products and services: curriculum textbooks
and other learning materials; student assessments and testing
services; and education technologies. Pearson has a leading
position in each of these areas and a distinctive strategy of
connecting those parts to support institutions and personalize
learning. We have now integrated our North American School and
Higher Education companies, which we believe will bring
significant opportunities to develop growth businesses, to share
investments and technologies and to gain further efficiencies.
Our North American School business contains a unique mix of
publishing, testing and technology products for the elementary
and secondary school markets, which are increasingly integrated.
The major customers of this business are state education boards
and local school districts. The business publishes high quality
curriculum programmes for school students, at both elementary
and secondary level, under a number of imprints including
Pearson Scott Foresman and Pearson Prentice Hall. We also
provide digital instructional solutions under Pearson Digital
Learning, such as enVisionMATH and Miller-Levine Biology. The
business also provides student information, assessment,
reporting and business solutions (Pearson School Systems), which
enables elementary and secondary schools and school districts to
record and manage information about student attendance and
performance.
13
Our school testing business is the leading provider of test
development, processing and scoring services to US states
and the federal government. Its capabilities have been further
enhanced through the integration of the Harcourt Assessment
business.
Our North American Higher Education business is the largest
publisher of textbooks and related course materials for colleges
and universities in the US. We publish across all of the main
fields of study with imprints such as Pearson Prentice Hall,
Pearson Addison Wesley, Pearson Allyn & Bacon, Pearson
Benjamin Cummings and Pearson Longman. Typically, professors or
other instructors select or adopt the textbooks and
online resources they recommend for their students, which
students then purchase either in a bookstore or online. Today
the majority of our textbooks are accompanied by online services
which include homework and assessment tools, study guides and
course management systems that enable professors to create
online courses. We have also introduced new formats such as
downloadable audio study guides and electronic textbooks which
are sold on subscription. In addition, we have a fast-growing
custom publishing business which works with professors to
produce textbooks and online resources specifically adapted for
their particular course.
See Item 5 Operating and Financial Review and
Prospects Results of Operations Year
ended December 31, 2010 compared to year ended
December 31, 2009 Sales and operating profit by
division North American Education for a
discussion of developments during 2010 with respect to this
division.
International
Education
Our International Education business covers all educational
publishing and related services outside North America.
Our International schools business publishes educational
materials in local languages in a number of countries. We are
one of the worlds leading providers of English Language
Teaching (ELT) materials for children and adults, published
under the well-known Longman imprint. In 2009 we strengthened
our position further in international markets through the
acquisition of Wall Street English, a chain of premium English
language schools in China, and investment in vocational training
and online learning in India, and in 2010 through the
acquisition of Wall Street Institute, providing premium spoken
English training for adults in 25 territories across Asia,
Europe, the Middle East and Latin America, and Sistema
Educacional Brasileiros schools learning systems business.
Our International higher education business adapts our textbooks
and technology services for individual markets, and we have a
growing local publishing program, with our key markets including
the UK, Benelux, Mexico, Germany, Hong Kong, Korea, Taiwan,
Singapore, Japan and Malaysia.
We are also a leading provider of testing, assessment and
qualification services in a number of key markets including, the
UK under the brand name Edexcel, Australia, New Zealand, South
Africa, Hong Kong and the Middle East.
See Item 5. Operating and Financial Review and
Prospects Results of Operations Year
ended December 31, 2010 compared to year ended
December 31, 2009 Sales and operating profit by
division International Education for a
discussion of developments during 2010 with respect to this
division.
Professional
Our Professional education business is focused on publishing,
training, testing and certification for professionals. Over the
past five years we have significantly re-orientated our
professional publishing business towards long-term growth
markets and built professional testing into a profitable
industry leader.
Our Professional education business publishes under the
following imprints: Addison Wesley Professional, Prentice Hall
and Cisco Press (for IT professionals); Peachpit Press and New
Riders (for graphics and design professionals); Que and Sams
(consumer and professional imprint); and Financial
Times-Prentice Hall (for the business education market).
Our professional testing business, Pearson VUE, manages major
long-term contracts to provide qualification and assessment
services through its network of test centers around the world.
Key customers include major technology companies, the Graduate
Management Admissions Council, NCLEX, the Financial Industry
Regulatory Authority and the UKs Driving Standards Agency.
14
Our professional training business has developed over the year
with the acquisition of Melorio plc, a vocational training group.
See Item 5. Operating and Financial Review and
Prospects Results of Operations Year
ended December 31, 2010 compared to year ended
December 31, 2009 Sales and operating profit by
division Professional for a discussion of
developments during 2010 with respect to this division.
The FT
Group
The FT Group provides a broad range of data, analysis and
services to an audience of internationally-minded business
people and financial institutions. In 2010, the FT Group had
sales of £403m, or 7% of Pearsons total continuing
sales (7% in 2009), and contributed 8% of Pearsons
operating profit from continuing operations.
FT Group comprises the Financial Times, FT.com website,
and a portfolio of financial magazines and online financial
information companies. During the year Interactive Data, our
61%-owned financial information company was sold and has been
reclassified as a discontinued operation.
The FT Group has significantly shifted its business towards
digital, subscription and content revenues and has continued to
invest in talent and in services in faster growing emerging
markets.
The Financial Times is one of the worlds leading
international daily business newspapers, with five editions in
the UK, Europe, Middle East and Africa, the US and Asia.
Its main sources of revenue are from sales of the newspaper,
advertising and conferences. The Financial Times is
complemented by FT.com which sells content and advertising
online, and which charges subscribers for detailed industry
news, comment and analysis, while providing general news and
market data to a wider audience.
FT Business publishes specialist information on the retail,
personal and institutional finance industries through titles
including Investors Chronicle, Money Management,
Financial Adviser and The Banker.
Mergermarket, our online financial data and intelligence
provider, provides early stage proprietary intelligence to
financial institutions and corporates. Its key products include
Mergermarket, Debtwire, dealReporter,
Wealthmonitor and Pharmawire.
See Item 5. Operating and Financial Review and
Prospects Results of Operations Year
ended December 31, 2010 compared to year ended
December 31, 2009 Sales and operating profit by
division FT Group for a discussion of
developments during 2010 with respect to this division.
Joint
Ventures and Associates
The FT Group also has a number of associates and joint ventures,
including:
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50% interest in The Economist Group, publisher of one of the
worlds leading weekly business and current affairs
magazines.
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50% interest in FTSE International, a joint venture with the
London Stock Exchange, which publishes a wide range of global
indices, including the FTSE index.
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50% interest in Business Day and Financial Mail,
publishers of one of South Africas leading financial
newspapers and magazines.
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33% interest in Vedomosti, a leading Russian business
newspaper.
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On March 27, 2008, Financial Times International Publishing
Ltd sold its 50% partnership interest in Financial Times
Deutschland GmbH & Co KG to Gruner & Jahr
AG & Co KG.
The
Penguin Group
Penguin is one of the most famous brands in book publishing. It
publishes over 4,000 fiction and non-fiction books each year, on
paper, screens and in audio formats for readers of all ages, and
has an extensive range of backlist and frontlist titles
including top literary prize winners, classics, reference
volumes and childrens titles.
Penguin operates around the world through a series of connected
national publishing houses. It publishes under a number of well
known imprints including Putnam, Viking, Allen Lane, Hamish
Hamilton, Berkley, Dorling Kindersley, Puffin and Ladybird.
Penguin combines a longstanding commitment to local publishing
with a
15
determination to benefit from its worldwide scale, a globally
recognized brand and growing demand for books in emerging
markets. Its largest businesses are in the US, the UK,
Australia, Canada, Ireland, India, South Africa and New Zealand.
In 2010, Penguin had sales of £1,053m, representing 19% of
Pearsons total continuing sales (19% in 2009) and
contributed 14% of Pearsons operating profit from
continuing operations. Its largest market is the US, which
generated around 59% of Penguins sales in 2010. Penguin
earns around 93% of its revenues from the sale of hard cover and
paperback books. The balance comes from audio books and
e-books.
Penguin sells directly to bookshops and through wholesalers.
Retail bookshops normally maintain relationships with both
publishers and wholesalers and use the channel that best serves
the specific requirements of an order. It also sells through
online retailers such as Amazon.com, as well as Penguins
own website. Penguin also sells direct to the customer via
digital sales agents.
See Item 5. Operating and Financial Review and
Prospects Results of Operations Year
ended December 31, 2010 compared to year ended
December 31, 2009 Sales and operating profit by
division The Penguin Group for a discussion of
developments during 2010 with respect to this division.
Operating
cycles
Pearson determines a normal operating cycle separately for each
entity/cash generating unit within the Group with distinct
economic characteristics. The normal operating cycle
for each of the Groups education businesses is primarily
based on the expected period over which the educational programs
and titles will generate cash flows, and also takes account of
the time it takes to produce the educational programs.
Particularly for the North American Education businesses, there
are well established cycles operating in the market:
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The School market is primarily driven by an adoption cycle in
which major state education boards adopt programs
and provide funding to schools for the purchase of these
programs. There is an established and published adoption cycle
with new adoptions taking place on average every 5 years
for a particular subject. Once adopted, a program will typically
sell over the course of the subsequent 5 years. The Company
renews its pre-publication assets to meet the market adoption
cycles. Therefore the operating cycle naturally follows the
market cycle.
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The Higher Education market has a similar pattern, with colleges
and professors typically refreshing their courses and selecting
revised programs on a regular basis, often in line with the
release of new editions or new technology offerings. The Company
renews its pre-publication assets to meet the typical demand for
new editions of, or revisions to, educational programs. Analysis
of historical data shows that the average life cycle of Higher
Education content is up to 5 years. Again the operating
cycle mirrors the market cycle.
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A development phase of typically 12 to 18 months for Higher
Education and up to 24 months for School precedes the
period during which the Company receives and delivers against
orders for the products it has developed for the program.
The International Education markets operate in a similar way
although often with less formal adoption processes.
The operating cycles in respect of Professional and the Penguin
segment are more specialized in nature as they relate to
educational or heavy reference products released into smaller
markets (e.g. the financial training, IT and travel sectors).
Nevertheless, in these markets, there is still a regular cycle
of product renewal, in line with demand which management
monitor. Typically the life cycle is 5 years for
Professional content and up to 4 years for Penguin content.
Elsewhere in the Group operating cycles are typically less than
one year.
Competition
All of Pearsons businesses operate in highly competitive
environments.
Pearson Education competes with other publishers and creators of
educational materials and services. These companies include
large international companies, such as McGraw-Hill and Houghton
Mifflin Harcourt, alongside smaller niche players that
specialize in a particular academic discipline or focus on a
learning technology.
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Competition is based on the ability to deliver quality products
and services that address the specified curriculum needs and
appeal to the school boards, educators and government officials
making purchasing decisions.
The FT Group competes with newspapers and other information
sources, such as The Wall Street Journal, by offering timely and
expert journalism and market intelligence. It competes for
advertisers with other forms of media based on the ability to
offer an effective means for advertisers to reach their target
audience.
The Penguin Group competes with other publishers of fiction and
non-fiction books. Principal competitors include Random House,
HarperCollins, and Hachette Group. Publishers compete by
developing a portfolio of books by established authors and by
seeking out and promoting talented new writers.
Intellectual
property
Our principal intellectual property assets consist of our
trademarks and other rights in our brand names, particularly the
Financial Times and the various imprints of Penguin and
Pearson Education, as well as all copyrights for our content and
our patents held in the testing business in the name of Pearson
NCS. We believe we have taken all appropriate available legal
steps to protect our intellectual property in all relevant
jurisdictions.
Raw
materials
Paper is the principal raw material used by each of Pearson
Education, the FT Group and the Penguin Group. We purchase most
of our paper through our Global Sourcing department located in
the United States. We have not experienced and do not anticipate
difficulty in obtaining adequate supplies of paper for our
operations, with sourcing available from numerous suppliers.
While local prices fluctuate depending upon local market
conditions, we have not experienced extensive volatility in
fulfilling paper requirements. In the event of a sharp increase
in paper prices, we have a number of alternatives to minimize
the impact on our operating margins, including modifying the
grades of paper used in production.
Government
regulation
The manufacture of certain of our products in various markets is
subject to governmental regulation relating to the discharge of
materials into the environment. Our operations are also subject
to the risks and uncertainties attendant to doing business in
numerous countries. Some of the countries in which we conduct
these operations maintain controls on the repatriation of
earnings and capital and restrict the means available to us for
hedging potential currency fluctuation risks. The operations
that are affected by these controls, however, are not material
to us. Accordingly, these controls have not significantly
affected our international operations. Regulatory authorities
may have enforcement powers that could have an impact on us. We
believe, however, that in light of the nature of our business
the risk of these sanctions does not represent a material threat
to us.
Licenses,
patents and contracts
We are not dependent upon any particular licenses, patents or
new manufacturing processes that are material to our business or
profitability. Likewise, we are not materially dependent upon
any contracts with suppliers or customers, including contracts
of an industrial, commercial or financial nature.
Legal
Proceedings
We and our subsidiaries are from time to time the subject of
legal proceedings incidental to the nature of our and their
operations. These may include private litigation or
arbitrations, governmental proceedings and investigations by
regulatory bodies. We do not currently expect that the outcome
of pending proceedings or investigations, either individually or
in aggregate, will have a significant effect on our financial
position or profitability nor have any such proceedings had such
effect in the recent past. To our knowledge, there are no
material proceedings in which any member of senior management or
any of our affiliates is a party adverse to us or any of our
subsidiaries or in respect of which any of those persons has a
material interest adverse to us or any of our subsidiaries.
Recent
developments
On November 22, 2010, the Group announced the proposed
acquisition of a 75% stake in CTI Education Group, a leading
South African education company for £31m. As at the end of
December 2010 this acquisition had not been completed but is
expected to complete in the first half of 2011.
17
On January 18, 2011, the Group announced that it had agreed
to increase it shareholding in Tutorvista, the Bangalore based
tutoring services company, to a controlling 76% stake for a
consideration of $127m.
On March 7, 2011, the Group and Education Development
International plc (EDI) announced that they had reached
agreement on the terms of a recommended cash offer to be made by
Pearson for the entire issued share capital of EDI. The offer
values EDI at approximately £112.7m. EDI is a leading
provider of education and training qualifications and assessment
services, with a strong reputation for the use of information
technology to administer learning programmes and deliver
on-screen assessments.
Organizational
structure
Pearson plc is a holding company which conducts its business
primarily through subsidiaries and other affiliates throughout
the world. Below is a list of our significant subsidiaries as at
December 31, 2010, including name, country of incorporation
or residence, proportion of ownership interest and, if
different, proportion of voting power held.
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
|
|
interest/voting
|
|
Name
|
|
Country of incorporation/residence
|
|
power
|
|
|
Pearson Education
|
|
|
|
|
|
|
Pearson Education Inc.
|
|
United States (Delaware)
|
|
|
100
|
%
|
Pearson Education Ltd.
|
|
England and Wales
|
|
|
100
|
%
|
Edexcel Ltd.
|
|
England and Wales
|
|
|
100
|
%
|
NCS Pearson Inc.
|
|
United States (Minnesota)
|
|
|
100
|
%
|
FT Group
|
|
|
|
|
|
|
The Financial Times Limited
|
|
England and Wales
|
|
|
100
|
%
|
Mergermarket Ltd.
|
|
England and Wales
|
|
|
100
|
%
|
The Penguin Group
|
|
|
|
|
|
|
Penguin Group (USA) Inc.
|
|
United States (Delaware)
|
|
|
100
|
%
|
The Penguin Publishing Co Ltd.
|
|
England and Wales
|
|
|
100
|
%
|
Dorling Kindersley Holdings Ltd
|
|
England and Wales
|
|
|
100
|
%
|
Property,
plant and equipment
Our headquarters are located at leasehold premises in London,
England. We own or lease approximately 1,000 properties,
including approximately 550 testing/teaching centers in more
than 70 countries worldwide, the majority of which are located
in the United Kingdom and the United States.
The properties owned and leased by us consist mainly of offices,
distribution centers and computer testing/teaching centers.
The vast majority of our printing is carried out by third party
suppliers. We operate a small digital print operation as part of
our Pearson Assessment & Testing businesses which
provides short-run and
print-on-demand
products, typically custom client applications.
We own the following principal properties at December 31,
2010:
|
|
|
|
|
|
|
General use of property
|
|
Location
|
|
Area in square feet
|
|
|
Warehouse/Office
|
|
Kirkwood, New York, USA
|
|
|
524,000
|
|
Warehouse/Office
|
|
Pittston, Pennsylvania, USA
|
|
|
406,000
|
|
Office
|
|
Iowa City, Iowa, USA
|
|
|
310,000
|
|
Warehouse/Office
|
|
Old Tappan, New Jersey, USA
|
|
|
210,112
|
|
Warehouse/Office
|
|
Cedar Rapids, Iowa, USA
|
|
|
205,000
|
|
Office
|
|
Southwark, London, UK
|
|
|
155,000
|
|
Office
|
|
Hadley, Massachusetts, USA
|
|
|
137,070
|
|
Printing
|
|
Owatonna, Minnesota, USA
|
|
|
128,000
|
|
18
We lease the following principal properties at December 31,
2010:
|
|
|
|
|
|
|
General use of property
|
|
Location
|
|
Area in square feet
|
|
|
Warehouse/Office
|
|
Lebanon, Indiana, USA
|
|
|
1,091,435
|
|
Warehouse/Office
|
|
Cranbury, New Jersey, USA
|
|
|
886,747
|
|
Warehouse/Office
|
|
Indianapolis, Indiana, USA
|
|
|
737,850
|
|
Warehouse/Office
|
|
San Antonio, Texas, USA
|
|
|
559,258
|
|
Office
|
|
Upper Saddle River, New Jersey, USA
|
|
|
474,801
|
|
Warehouse/Office
|
|
Rugby, UK
|
|
|
446,077
|
|
Office
|
|
New York City, New York, USA
|
|
|
443,229
|
|
Office
|
|
London, UK
|
|
|
282,923
|
|
Warehouse/Office
|
|
Newmarket, Ontario, Canada
|
|
|
278,912
|
|
Warehouse/Office
|
|
Austin, Texas, USA
|
|
|
226,076
|
|
Office
|
|
Boston, Massachusetts, USA
|
|
|
225,299
|
|
Warehouse
|
|
Scoresby, Victoria, Australia
|
|
|
197,255
|
|
Office
|
|
Glenview, Illinois, USA
|
|
|
187,500
|
|
Warehouse/Office
|
|
Bedfordshire, UK
|
|
|
186,570
|
|
Office
|
|
Bloomington, Minnesota, USA
|
|
|
153,240
|
|
Office
|
|
Boston, Massachusetts, USA
|
|
|
138,112
|
|
Office
|
|
Harlow, UK
|
|
|
137,857
|
|
Office
|
|
Chandler, Arizona, USA
|
|
|
135,460
|
|
Warehouse/Office
|
|
Cedar Rapids, Iowa, USA
|
|
|
119,682
|
|
Office
|
|
New York City, New York, USA
|
|
|
117,478
|
|
Warehouse
|
|
San Antonio Zomeyucan, Mexico
|
|
|
113,638
|
|
Office
|
|
London, UK
|
|
|
112,000
|
|
Call Center
|
|
Lawrence, Kansas, USA
|
|
|
105,000
|
|
Capital
Expenditures
See Item 5. Operating and Financial Review and
Prospects Liquidity and Capital Resources for
description of the Companys capital expenditure.
|
|
ITEM 4A.
|
UNRESOLVED
STAFF COMMENTS
|
The Company has not received, 180 days or more before the
end of the 2010 fiscal year, any written comments from the
Securities and Exchange Commission staff regarding its periodic
reports under the Exchange Act which remain unresolved.
|
|
ITEM 5.
|
OPERATING
AND FINANCIAL REVIEW AND PROSPECTS
|
The following discussion and analysis is based on and should be
read in conjunction with the consolidated financial statements,
including the related notes, appearing elsewhere in this Annual
Report. The financial statements have been prepared in
accordance with IFRS as issued by the IASB.
Where this discussion refers to constant currency comparisons,
these are estimated by re-calculating the current year results
using the exchange rates prevailing for the prior period. The
increase or reduction in the value calculated is the estimate of
impact of exchange rates. We believe this presentation provides
a more useful period to period comparison as changes due solely
to changes in exchange rates are eliminated.
General
overview
Introduction
Sales from continuing operations increased from £5,140m in
2009 to £5,663m in 2010, an increase of 10%. The year on
year growth was impacted by exchange rates, in particular the US
dollar. The average US dollar exchange rate in 2010 strengthened
in comparison to sterling in 2009, which had the effect of
increasing reported sales in 2010 by £128m when compared to
the equivalent figure at constant 2009 rates. When measured at
constant 2009 exchange rates, all our businesses contributed to
the growth. The International Education business in particular,
benefited from acquisitions made in 2009 and 2010.
19
Reported operating profit increased by 20% from £619m in
2009 to £743m in 2010. The relative strength of the US
dollar contributed to this increase and operating profit would
have been approximately £37m lower if translated at
constant 2009 exchange rates. Again, when measured at constant
rates, we saw contributions to the growth in operating profit
from all our businesses as we benefited from the improved sales
performance and cost efficiencies.
Profit before taxation in 2010 of £670m compares to a
profit before taxation of £523m in 2009. The increase of
£147m reflects the improved operating performance and a
reduction in net finance costs. Net finance costs reduced from
£96m in 2009 to £73m in 2010. The Groups net
interest payable decreased by £13m in 2010 as we benefited
from a fall in average interest rates on our floating-rate US
dollar debt and a decrease in our overall level of average net
debt following the receipt of proceeds from the sale of
Interactive Data. Exchange losses of £7m in 2009 compare to
a net exchange gain of £9m in 2010. The gain in 2010 mainly
relates to exchange on new US borrowing raised in the year. In
2009, the charge mainly related to losses on cross currency
swaps. The finance charge relating to post-retirement plans of
£12m in 2010 was the same as that in 2009.
On 29 July 2010, Pearsons 61% share in Interactive
Data Corporation was sold to Silver Lake Technology Management
LLC (Silver Lake) and Warburg Pincus LLC (Warburg Pincus) for
$2bn. The results of Interactive Data have been included as
discontinued operations for the period to 29 July 2010 and
in prior periods. Included in discontinued operations in 2010 is
the gain on sale of Interactive Data of £1,037m and the
attributable tax charge of £306m. On February 22, 2008
the Group completed the sale of its Data Management business and
this business has been included in discontinued operations for
the period to February 22 in 2008, and in prior periods.
Net cash generated from operations increased to £1,169m in
2010 from £1,012m in 2009. The improved cash generation in
2010 was due to strong cash collections, particularly in our
education businesses and was helped by our transition to a more
digital and service based business. This transition is also
helping to reduce our working capital and on an average basis,
the ratio of working capital to sales improved from 25.1% to
20.1%, also reflecting tight working capital management and the
favourable working capital profile of 2009 and 2010
acquisitions. Average working capital comprises the average of
the monthly carrying values over the relevant 12 month
period for inventory, pre-publication costs, debtors and
creditors. Net interest paid at £68m in 2010 was £19m
below the previous year, as a result of the fall in overall net
interest and to the timing of interest payments on the bond
portfolio. Tax paid excluding the amounts paid on the
Interactive Data disposal in 2010 decreased to £85m
compared to £103m in 2009 as Interactive Data itself had
been a significant tax payer. Net capital expenditure on
property, plant and equipment after proceeds from sales
increased to £76m in 2010 from £61m in 2009. The net
cash outflow in respect of businesses acquired increased from
£208m in 2009 to £535m in 2010 whilst the Interactive
Data sale in 2010 raised proceeds of £734m net of tax paid.
There were no disposals in 2009. Dividends from joint ventures
and associates were broadly flat year on year at £23m in
2010 against £22m in 2009. Dividends paid of £293m in
2009 (including £20m paid to non-controlling interests)
compares to £298m in 2010 (including £6m paid to
non-controlling interests). Overall net borrowings decreased by
£662m from £1,092m at the end of 2009 to £430m at
the end of 2010 largely due to the proceeds from the Interactive
Data sale and the strong cash collections.
Outlook
Over the past five years Pearson has produced growth in earnings
and cash flow. We sustained our growth even in the face of very
tough economic and market conditions in recent years. We are
planning for some of our markets to remain weak in 2011,
particularly those that depend on government spending and
traditional print publishing business models. In addition, we
face tough comparatives (especially in the first half of the
year) after our particularly strong competitive and financial
performance in 2010.
Even so, we have built a series of competitive advantages which
should help us deliver another good year in 2011. These
advantages include our sustained investment, digital leadership,
educational effectiveness, positions in fast-growing economies
and operating efficiency.
Pearson
Education
In education, we expect to achieve continued growth in 2011. In
North America, we see growth in higher education (despite slower
enrolment rates) and assessment more than offsetting a slower
year for the school publishing industry (the result of the lower
new adoption opportunity and pressure on state budgets). Our
International Education business will benefit from its
rapidly-growing position in services, technology and developing
economies, enabling it to grow again despite the weak public
spending environment in some markets.
20
FT
Group
At the FT Group, we are rapidly shifting our business model
towards digital and subscription revenues. Advertising revenues
remain unpredictable, but we see healthy demand for the
FTs premium content, especially in digital formats, and a
recovery in business conditions for Mergermarket.
The
Penguin Group
Penguin will face another year of fast-changing industry
conditions, driven by the rapid growth of both digital sales
channels and digital books, and by the resulting pressures on
physical bookstores. After a particularly strong competitive
performance and financial results in 2010, we expect Penguin to
perform in line with the overall consumer publishing industry
this year, while we continue to adapt the business to these
industry changes.
Sales
information by operating division
The following table shows sales information for each of the past
three years by operating division:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
Education:
|
|
|
|
|
|
|
|
|
|
|
|
|
North American
|
|
|
2,640
|
|
|
|
2,470
|
|
|
|
2,002
|
|
International
|
|
|
1,234
|
|
|
|
1,035
|
|
|
|
866
|
|
Professional
|
|
|
333
|
|
|
|
275
|
|
|
|
244
|
|
FT Group
|
|
|
403
|
|
|
|
358
|
|
|
|
390
|
|
Penguin
|
|
|
1,053
|
|
|
|
1,002
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,663
|
|
|
|
5,140
|
|
|
|
4,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
information by geographic market supplied
The following table shows sales information for each of the past
three years by geographic region:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
European countries
|
|
|
1,205
|
|
|
|
1,081
|
|
|
|
1,092
|
|
North America
|
|
|
3,589
|
|
|
|
3,344
|
|
|
|
2,761
|
|
Asia Pacific
|
|
|
577
|
|
|
|
497
|
|
|
|
403
|
|
Other countries
|
|
|
292
|
|
|
|
218
|
|
|
|
149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,663
|
|
|
|
5,140
|
|
|
|
4,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange
rate fluctuations
We earn a significant proportion of our sales and profits in
overseas currencies, principally the US dollar. Sales and
profits are translated into sterling in the consolidated
financial statements using average rates. The average rate used
for the US dollar was £1:$1.54 in 2010, £1:$1.57 in
2009 and £1:$1.85 in 2008. Fluctuations in exchange rates
can have a significant impact on our reported sales and profits.
In 2010, Pearson generated 59% of its sales in the US (2009:
61%; 2008: 59%). In 2010 we estimate that a five cent change in
the average exchange rate between the US dollar and sterling
would have had an impact on our reported earnings per share of
1.3p and a five cent change in the closing exchange rate between
the US dollar and sterling would have had an impact on
shareholders funds of approximately £115m. See
Item 11. Quantitative and Qualitative Disclosures
about Market Risk for more information. The year-end US
dollar rate for 2010 was £1:$1.57 compared to £1:$1.61
for 2009. In terms of the year end rate, the weakening of
sterling in comparison to the US dollar in 2010 was less
significant than the strengthening of sterling compared to the
US dollar in the previous year when the relatively weak value of
the US dollar had the effect of reducing shareholders
funds. The net effect of movement in all currencies in 2010 was
an increase in our shareholders funds of £173m. The
year-end rate for the US dollar in 2009 was £1:$1.61
compared to £1:$1.44 for
21
2008. The comparative weakness of the US dollar, contributed to
an overall reduction in shareholders funds due to exchange
movements of £388m in 2009.
Critical
accounting policies
Our consolidated financial statements, included in
Item 18. Financial Statements, are prepared
based on the accounting policies described in note 1 to the
consolidated financial statements.
Certain of our accounting policies require the application of
management judgment in selecting assumptions when making
significant estimates about matters that are inherently
uncertain. Management bases its estimates on historical
experience and other assumptions that it believes are
reasonable. These policies are described in note 1a(3) in
Item 18. Financial Statements.
Results
of operations
Year
ended December 31, 2010 compared to year ended
December 31, 2009
Consolidated
results of operations
Sales
Our total sales from continuing operations increased by
£523m, or 10%, to £5,663m in 2010, from £5,140m
in 2009. The increase reflected growth, on a constant exchange
rate basis, at all of our businesses together with additional
contributions from acquisitions made in both 2009 and 2010. The
year on year growth was impacted by movements in exchange rates,
particularly in the US dollar. 2010 sales, translated at 2009
average exchange rates, would have been £5,535m.
Pearson Education increased sales by £427m or 11% from
£3,780m to £4,207m. The North American, International
and Professional businesses all contributed to the increase
although the International Education business was helped by
acquisitions made in 2009 and 2010 and the Professional business
benefited from the acquisition of Melorio in 2010. A high
proportion of the increase was also due to exchange. We estimate
that after excluding acquisitions, Pearson Education saw sales
growth of 5% at constant last year exchange rates. The North
American business saw strong growth in Higher Education which
again out-performed the market which grew at 7.3% in 2010,
according to the Association of American Publishers after
benefiting from healthy enrolment growth and good demand for
instructional materials. The North American publishing business
also gained share in the US school curriculum market as this
market returned to growth, benefiting from the stronger new
adoption opportunity and in spite of the fact that state budgets
remained under pressure. The US school publishing market grew
3.2% according to the Association of American Publishers.
Revenues at the US Assessment and Information division were
broadly level against 2009. State funding issues produced tough
market conditions for our state assessment and teacher licensure
testing businesses. This was offset by good growth in clinical
and diagnostic assessments. International Education sales also
benefited from exchange and a contribution from the acquisitions
of Sistema Educacional Brasileiro and Wall Street Institute in
2010 and a full year contribution from the 2009 acquisitions of
Wall Street English and Fronter and the increased shareholdings
in Longman Nigeria and Maskew Miller Longman. After excluding
the effect of acquisitions we estimate that there was growth of
6% at constant last year exchange rates in the International
Education business. Professional sales increased in 2010 by 21%
although much of this increase was due to the contribution from
Melorio, the UK vocational training business acquired in June
2010. In terms of constant last year exchange rates and after
taking out the acquisition of Melorio there was still good
growth in professional testing and modest growth in the
professional publishing business.
FT Group sales were 13% ahead of last year driven by strong
growth at the Financial Times with growth in digital
readership and subscriptions, helped by good advertising growth
in 2010. Mergermarket continued to benefit from an improvement
in market conditions and its flexibility in adapting to new
client investment strategies which supported a recovery in
renewal rates and growth in new business revenues. An increase
in global merger and acquisition activity benefited Mergermarket
and dealReporter and continued volatility in debt markets helped
sustain the strong performance of DebtWire.
Penguins sales were up 5% in 2010 and it gained share in
its three largest markets, the US, UK and Australia. Growth was
also due to the very strong growth in ebooks which now account
for 6% of Penguin revenues worldwide.
22
Pearson Education, our largest business sector, accounted for
74% of our continuing business sales in 2010 and 2009. North
America continued to be the most significant source of our sales
and as a proportion of total continuing sales contributed 63% in
2010 and 65% in 2009.
Cost
of goods sold and operating expenses
The following table summarizes our cost of sales and net
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2010
|
|
|
2009
|
|
|
|
£m
|
|
|
£m
|
|
|
Cost of goods sold
|
|
|
2,588
|
|
|
|
2,382
|
|
|
|
|
|
|
|
|
|
|
Distribution costs
|
|
|
298
|
|
|
|
275
|
|
Administration and other expenses
|
|
|
2,190
|
|
|
|
2,014
|
|
Other operating income
|
|
|
(115
|
)
|
|
|
(120
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,373
|
|
|
|
2,169
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold. Cost of sales consists of
costs for raw materials, primarily paper, printing and binding
costs, amortization of pre-publication costs, royalty charges
and the cost of service provision in the assessment and testing
business. Our cost of sales increased by £206m, or 9%, to
£2,588m in 2010, from £2,382m in 2009. The increase
corresponds to the increase in sales with cost of sales at 45.7%
of sales in 2010 compared to 46.3% in 2009.
Distribution costs. Distribution costs consist
primarily of shipping costs, postage and packing and remain a
fairly constant percentage of sales.
Administration and other expenses. Our
administration and other expenses increased by £176m, or
9%, to £2,190m in 2010, from £2,014m in 2009. As a
percentage of sales they remained consistent at 39% in 2010 and
2009.
Other operating income. Other operating income
mainly consists of freight recharges,
sub-rights
and licensing income and distribution commissions together with
income from the sale of assets. Other operating income decreased
slightly to £115m in 2010 compared to £120m in 2009.
Share
of results of joint ventures and associates
The contribution from our joint ventures and associates
increased from £30m in 2009 to £41m in 2010. The 2010
result included a one off profit relating to a stepped
acquisition at FTSE of £12m. The majority of the remainder
of the profit comes from our 50% interest in the Economist.
Operating
profit
The total operating profit increased by £124m, or 20%, to
£743m in 2010 from £619m in 2009. 2010 operating
profit, translated at 2009 average exchange rates, would have
been £37m lower.
Operating profit attributable to Pearson Education increased by
£71m, or 14%, to £576m in 2010, from £505m in
2009. The increase was attributable to a strong performance in
the US Higher Education business and in the International
businesses and due to the positive impact of exchange and a
contribution from acquisitions. Operating profit attributable to
the FT Group increased by £31m, or 100%, to £62m in
2010, from £31m in 2009. The increase reflects the improved
profitability from digital businesses and the pick up in
advertising together with the one off profit recorded by FTSE
referred to above. Operating profit attributable to Penguin
increased by £22m, or 27%, to £105m in 2010, from
£83m in 2009. This increase was due to the improved sales
performance and improved margins partly due to charges relating
to the reorganisation of the business in the UK in 2009.
Net
finance costs
Net finance costs decreased from £96m in 2009 to £73m
in 2010. Net interest payable in 2010 was £73m, down from
£86m in 2009. The Groups net interest payable
decreased by £13m in 2010, mainly due to a reduction in
average interest rates on our floating US dollar debt and the
effect of lower average levels of net debt following the receipt
of proceeds from the sale of Interactive Data. Year on year,
average three month LIBOR (weighted for the
23
Groups net borrowings in US dollars and sterling at each
year end) fell by 0.3% to 0.4%. This reduction in floating
market interest rates drove the Groups lower interest
charge. However the low rates on deposited funds coupled with
the impact on the calculation of significantly lower net debt,
created an increase in the Groups average net interest
payable of 5.3% to 7.9%. The Groups average net debt fell
by £681m, reflecting the impact of the Interactive Data
disposal. Finance charges relating to post-retirement plans were
£12m in both 2010 and 2009.
Other net finance costs relating to foreign exchange and
short-term fluctuations in the market value of financial
instruments included a net foreign exchange loss of £7m in
2009 compared to a gain of £9 in 2010. In 2009 the loss
mainly relates to losses on cross currency swaps and in 2010 the
gain relates to exchange on new US dollar borrowing raised in
the year. For a more detailed discussion of our borrowings and
interest expenses see Liquidity and Capital
Resources Capital Resources and
Borrowings below and Item 11.
Quantitative and Qualitative Disclosures about Market Risk.
Taxation
The total tax charge in 2010 of £146m represents 22% of
pre-tax profits compared to a charge of £146m or 28% of
pre-tax profits in 2009. Our overseas profits, which arise
mainly in the US, are largely subject to tax at higher rates
than the UK corporation tax rate (which had an effective
statutory rate of 28% in 2010 and in 2009). Higher tax rates
were partly offset by the recognition of tax losses and credits
in the year including pre-acquisition and capital losses that
were utilised in connection with the Interactive Data sale. The
tax charge relating to that sale in July 2010 is included in the
profit on discontinued businesses.
Non-controlling
interest
The non-controlling interest in the income statement comprises
mainly the publicly-held share of Interactive Data for the
period to disposal in July 2010. There are also non-controlling
interests in the Groups businesses in South Africa,
Nigeria, China and India although none of these are material to
the Group numbers. The non-controlling interest in the
Groups newly acquired Brazilian business, Sistema
Educacional Brasileiro, is expected to be bought out in the
first half of 2011.
Discontinued
operations
On 29 July 2010, Pearsons 61% share in Interactive
Data Corporation was sold to Silver Lake and Warburg Pincus for
$2bn. The results of Interactive Data have been included as
discontinued operations up to the date of sale on 29 July
2010. Included in discontinued operations in 2010 is Interactive
Datas results for the seven months to the date of sale,
the gain on sale of £1,037m and the attributable tax charge
of £306m. The total profit from discontinued operations,
after taking account of the above items, was £776m in 2010
compared to £85m in 2009.
Profit
for the year
The profit for the financial year in 2010 was £1,300m
compared to a profit in 2009 of £462m. The overall increase
of £838m was mainly due to the gain on sale of Interactive
Data but also due to the improved operating performance and
decrease in net finance costs.
Earnings
per ordinary share
The basic earnings per ordinary share, which is defined as the
profit for the financial year divided by the weighted average
number of shares in issue, was 161.9p in 2010 compared to 53.2p
in 2009 based on a weighted average number of shares in issue of
801.2m in 2010 and 799.3m in 2009. The increase in earnings per
share was due to the increase in profit for 2010 described above
and was not significantly affected by the movement in the
weighted average number of shares.
The diluted earnings per ordinary share of 161.5p in 2010 and
53.1p in 2009 was not significantly different from the basic
earnings per share in those years as the effect of dilutive
share options was again not significant.
Exchange
rate fluctuations
The strengthening of the US dollar and other currencies against
sterling on an average basis had a positive impact on reported
sales and profits in 2010 compared to 2009. 2010 sales,
translated at 2009 average exchange rates, would have been lower
by £128m and operating profit, translated at 2009 average
exchange rates, would have
24
been lower by £37m. See Item 11. Quantitative
and Qualitative Disclosures about Market Risk for a
discussion regarding our management of exchange rate risks.
Sales
and operating profit by division
The following tables summarize our sales and operating profit
for each of Pearsons business segments. Adjusted operating
profit is a non-GAAP financial measure and is included as it is
a key financial measure used by management to evaluate
performance and allocate resources to business segments. See
also note 2 of Item 18. Financial
Statements.
In our adjusted operating profit we have excluded amortization
of acquired intangibles and acquisition costs. The amortization
of acquired intangibles is the amortization of intangible assets
acquired through business combinations and acquisition costs are
the direct costs of acquiring those businesses. Neither of these
charges are considered to be fully reflective of the underlying
performance of the Group. Other net gains and losses that
represent profits and losses on the sale of subsidiaries, joint
ventures, associates and other financial assets are excluded
from adjusted operating profit as they distort the performance
of the Group.
Adjusted operating profit enables management to more easily
track the underlying operational performance of the Group. A
reconciliation of operating profit to adjusted operating profit
for continuing operations is included in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2010
|
|
|
|
North American
|
|
|
International
|
|
|
|
|
|
FT
|
|
|
Interactive
|
|
|
|
|
|
|
|
£m
|
|
Education
|
|
|
Education
|
|
|
Professional
|
|
|
Group
|
|
|
Data
|
|
|
Penguin
|
|
|
Total
|
|
|
Sales
|
|
|
2,640
|
|
|
|
1,234
|
|
|
|
333
|
|
|
|
403
|
|
|
|
|
|
|
|
1,053
|
|
|
|
5,663
|
|
|
|
|
47%
|
|
|
|
22%
|
|
|
|
6%
|
|
|
|
7%
|
|
|
|
|
|
|
|
18%
|
|
|
|
100%
|
|
Total operating profit
|
|
|
415
|
|
|
|
119
|
|
|
|
42
|
|
|
|
62
|
|
|
|
|
|
|
|
105
|
|
|
|
743
|
|
|
|
|
56%
|
|
|
|
16%
|
|
|
|
6%
|
|
|
|
8%
|
|
|
|
|
|
|
|
14%
|
|
|
|
100%
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net gains and losses
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
(12)
|
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
Acquisition costs
|
|
|
1
|
|
|
|
7
|
|
|
|
2
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
Amortization of acquired intangibles
|
|
|
53
|
|
|
|
35
|
|
|
|
7
|
|
|
|
9
|
|
|
|
|
|
|
|
1
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit: continuing operations
|
|
|
469
|
|
|
|
171
|
|
|
|
51
|
|
|
|
60
|
|
|
|
|
|
|
|
106
|
|
|
|
857
|
|
Adjusted operating profit: discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted operating profit
|
|
|
469
|
|
|
|
171
|
|
|
|
51
|
|
|
|
60
|
|
|
|
81
|
|
|
|
106
|
|
|
|
938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50%
|
|
|
|
18%
|
|
|
|
5%
|
|
|
|
6%
|
|
|
|
9%
|
|
|
|
12%
|
|
|
|
100%
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
North American
|
|
|
International
|
|
|
|
|
|
FT
|
|
|
Interactive
|
|
|
|
|
|
|
|
£m
|
|
Education
|
|
|
Education
|
|
|
Professional
|
|
|
Group
|
|
|
Data
|
|
|
Penguin
|
|
|
Total
|
|
|
Sales
|
|
|
2,470
|
|
|
|
1,035
|
|
|
|
275
|
|
|
|
358
|
|
|
|
|
|
|
|
1,002
|
|
|
|
5,140
|
|
|
|
|
48%
|
|
|
|
20%
|
|
|
|
6%
|
|
|
|
7%
|
|
|
|
|
|
|
|
19%
|
|
|
|
100%
|
|
Total operating profit
|
|
|
354
|
|
|
|
109
|
|
|
|
42
|
|
|
|
31
|
|
|
|
|
|
|
|
83
|
|
|
|
619
|
|
|
|
|
57%
|
|
|
|
18%
|
|
|
|
7%
|
|
|
|
5%
|
|
|
|
|
|
|
|
13%
|
|
|
|
100%
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired intangibles
|
|
|
49
|
|
|
|
32
|
|
|
|
1
|
|
|
|
8
|
|
|
|
|
|
|
|
1
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit: continuing operations
|
|
|
403
|
|
|
|
141
|
|
|
|
43
|
|
|
|
39
|
|
|
|
|
|
|
|
84
|
|
|
|
710
|
|
Adjusted operating profit: discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted operating profit
|
|
|
403
|
|
|
|
141
|
|
|
|
43
|
|
|
|
39
|
|
|
|
148
|
|
|
|
84
|
|
|
|
858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47%
|
|
|
|
16%
|
|
|
|
5%
|
|
|
|
5%
|
|
|
|
17%
|
|
|
|
10%
|
|
|
|
100%
|
|
North
American Education
North American Education sales increased by £170m, or 7%,
to £2,640m in 2010, from £2,470m in 2009 and adjusted
operating profit increased by £66m, or 16%, to £469m
in 2010 from £403m in 2009. The results were affected by
the relative strength of the US dollar, which we estimate
increased sales by £53m and adjusted operating profit by
£10m when compared to the equivalent figures at constant
2009 exchange rates. At constant exchange and after taking
account of the contribution from acquisitions there was
underlying growth in sales of 4% and profits of 12%. Growth was
driven by the US Higher Education business.
The US School publishing market grew 3.2% in 2010, according to
the Association of American Publishers. State budgets continue
to be under pressure but the industry returned to growth,
benefiting from the stronger new adoption opportunity this year
(total opportunity of $800m in 2010 against $500m in 2009). The
US School curriculum business gained share with a strong
performance from enVisionMATH, our digital math curriculum.
Successnet, our online learning platform for teachers and
students which supports Pearsons digital instruction,
assessment and remediation programs, grew strongly, achieving
almost 6 million registrations in 2010, up 33% on 2009,
with the number of assessments taken through the system rising
53% to more than 8m. We continue to develop digital programs,
platforms and mobile apps to boost achievement and to increase
access and affordability. We successfully launched three major
new school programs: digits
(http://bit.ly/i9NcId),
our digital middle school math program, which provides services
for teachers including embedded assessment, differentiation of
students and automation of administrative tasks; Writing Coach
(http://www.phwritingcoach.com/)
which is a blended print and online program that helps middle
and high school students in writing and grammar with
personalized assignments and grading; and Online Learning
Exchange (www.onlinelearningexchange.com) which is an open
education resource that allows teachers to create personalized
digital learning programs using standards-based Pearson content
as well as teacher-generated material. Poptropica
(www.poptropica.com) is the largest virtual world for young
children in the US with average monthly unique visitors growing
by 40% to 8.1m from more than 100 countries and speaking more
than 70 languages. Poptropica launched seven new islands
and was the fifth most searched-for video game on Google.com in
2010. In September 2010 we acquired Americas Choice to
boost Pearsons services in school reform, a major focus of
the US education department. Americas Choice brings
together instruction, assessment, leadership development,
professional development, coaching and ongoing consulting
services.
Revenues at our US Assessment & Information division
were broadly level against 2009. State funding pressures
produced tough market conditions for our state assessment and
teacher licensure testing businesses. This was offset by good
growth in clinical and diagnostic assessments. We saw good
profit growth at Assessment and Information as we benefited from
a shift to premium products and further efficiencies generated
from the integration of the Harcourt Assessment business. We
renewed two important contracts, extending our long-standing
relationships with the College Board to administer the SATs and
with the Texas Education Agency to
26
administer state-wide student assessments. We continue to
achieve strong growth in secure online testing, delivering
13.3 million secure online tests in 2010, up 41% over 2009.
Our market leading student information systems business in the
US continued to achieve rapid organic growth further boosted by
the acquisition of Administrative Assistants Limited in 2010. We
now support almost 16 million US students, an increase of
49% over 2009. We achieved strong growth with AIMSWEB, our
progress monitoring service which enables early intervention and
remediation for struggling students. AIMSWEB now supports almost
four million students, an increase of more than 20%.
The US Higher Education publishing market grew 7.3% in 2010,
according to the Association of American Publishers with the
industry benefiting from healthy enrolment growth and good
demand for instructional materials. Pearson gained share from
its lead in technology and customisation. Our US Higher
Education business has now grown faster than its industry for 12
consecutive years. The pioneering MyLab digital
learning, homework and assessment programs again grew strongly
with student registrations up 32% to more than 7.3m in North
America. We launched LearningStudio which provides a broad suite
of learning management technologies including eCollege and
Fronter. LearningStudio increased fully online enrolments by 54%
to 8.3m in North America. Renewal rates remained high at
approximately 90% by value.
Overall adjusted operating margins in the North American
Education business were higher at 17.8% in 2010 compared to
16.3% in 2009 with the majority of the increase attributable to
cost efficiencies and the relative success of higher margin
digital products.
International
Education
International Education sales increased by £199m, or 19%,
to £1,234m in 2010, from £1,035m in 2009 and adjusted
operating profit increased by £30m, or 21%, to £171m
in 2010 from £141m in 2009. The sales results benefit from
exchange gains and a full year contribution from acquisitions
made in 2009.
The International Education business is active in more than 70
countries. More than 670,000 students outside America used our
MyLab digital learning, homework and assessment programs, an
increase of more than 40%. They included 150,000 users of our
online
English-language
products MyEnglishLabs and MyNorthStarLab, a 170% increase. Our
eCollege learning management system won new contracts in
Malaysia and Colombia. Our Fronter learning management system
continued to grow strongly with unique registration rising more
than 20% to 1.1 million students in more than 8,700
schools, colleges and universities around the world. Pearson
Learning Solutions, which combines products and services from
across Pearson to deliver a systematic approach to improving
student performance, won new contracts in South Africa, Malta,
Vietnam and the UK. During the year, the International Education
business acquired Wall Street Institute (WSI), which provides
premium spoken English training for adults, for $101m in cash.
WSI has about 340 franchised learning centers in 25 territories
in Asia, Europe, the Middle East and Africa. The acquisition
reunites Wall Street Institute with Wall Street English, the
Chinese arm of the company acquired by Pearson in 2009.
In the UK, BTEC, our flagship vocational qualification,
attracted more than 1.4 million student registrations, up
28% on 2009. Registrations for our NVQ work-based learning
qualification grew 45% to more than 165,000, and we introduced
the BTEC Apprenticeship to serve the work-based learning market.
We marked more than 5.4 million A/AS Level and GCSE and
Diploma scripts in the
2009-2010
academic year, with 90% now marked onscreen. Pearson marked and
delivered 3.4 million tests in six weeks for the National
Curriculum Tests at Key Stage 2. We established a new school
improvement business in the UK, which will work with schools to
help them train teachers, improve strategic planning and
structure teaching methods.
In Italy, adoption of our Linx digital secondary science program
increased three-fold, helping Pearson to grow strongly and
become joint market leader for combined lower and upper
secondary education. Linx is built around content from our North
American science programs customized for the Italian market. We
began to develop a broader range and depth of digital products
and services, including teacher training, to personalize
learning and increase educational effectiveness. In the
Netherlands, we launched iPockets, the first fully digital Early
English course for 4-8 year-olds in Primary Education. The
course is 100% digital and subscription based and customized for
the Dutch market.
In South Africas Western Cape province, we won a
three-year contract to prepare, administer and report all Grade
9 student assessments. The tests focus on both individual
student results and the systemic performance of
27
schools and districts. Pearson won new national contracts in
Ethiopia, to supply 2.9 million Biology, Physics and
English learning materials for Senior Secondary Grades 9 to 12.
In Zimbabwe, we were awarded a contract by UNICEF to deliver
13.5 million textbooks to children in Grades 1 to 7 in
Mathematics, Environmental Science, English, Shona and Ndebele.
We generated strong growth in the Gulf region in higher
education with integrated technology products in
Business & Economics and Science. Student enrolments
at our Wall Street English schools in China increased by 27% and
we announced plans to open 50 new English language centers in
China over the next three to five years, adding to the 66
centers and schools already operating under the Wall Street
English and Longman English brands
Pearson announced a strategic partnership with Sistema
Educacional Brasileiro (SEB) in Brazil to provide services to
its educational institutions and to acquire its school learning
systems (sistema) business for $517m. A sistema is
an integrated learning system incorporating curriculum design,
teacher support and training, print and digital content,
technology platforms, assessment and other services. SEBs
sistemas serve more than 450,000 students across both private
and public schools. Our School Curriculum business grew
strongly, particularly in Mexico, Colombia, Chile and Peru, as
we continued to build our locally developed materials as well as
Spanish language adaptations of US school programmes. There was
strong growth of English Language Teaching materials across
Latin America underpinned by performance in Brazil, Colombia,
Argentina, Chile, Dominican Republic and Peru.
International Education adjusted operating margins improved
slightly from 13.6% in 2009 to 13.9% in 2010.
Professional
Professional sales increased by £58m, or 21%, to £333m
in 2010 from £275m in 2009. Adjusted operating profit
increased by £8m or 19% to £51m in 2010, from
£43m in 2009. Sales growth in the assessment and training
businesses was strong and benefited from the acquisition of
Melorio in June 2010.
In professional testing we continued to see good growth at
Pearson VUE which administered more than 8 million tests in
2010, up 3% on 2009. Average revenues per test are increasing as
we develop a broader range of services and enhance our systems
and assessments to meet our customers needs. Pearson VUE
renewed a number of major contracts including the Driving
Standards Agency (DSA) of Great Britain and the
Driver & Vehicle Agency (DVA) of Northern Ireland;
Cisco; and Colorado Department of Regulatory Agencies. We also
won a number of new contracts to deliver computer-based tests in
the US, UK, UAE, Saudi Arabia, Egypt and Bahrain, covering the
real estate, accountancy, legal, healthcare, skills and finance
sectors.
In professional training, we acquired Melorio plc, one of the
UKs leading vocational training groups, for £98m,
supporting our vocational education strategy by combining
Melorios training delivery skills with our existing
complementary strengths in educational publishing, technology
and assessments. Melorio traded well in the second half of the
year securing a number of large key contracts for training
delivery, and successfully graduating and placing the largest IT
graduate cohort in the history of the business. Our investment
in systems, streamlining the course offering and training
centres and back office integration are all on track.
Our Professional publishing business was level in 2010 with
steady margins as strong growth in digital products and services
offset continued challenging trading conditions in the retail
market and a planned reduction in the number of print titles
published. We launched online learning products with
customisable content, assessment and personalised study paths
and also delivered 450 hours of technical training through
online subscriptions for the IT certification market. We
developed applications for social networks and mobile devices to
extend the reach and accessibility of our content and videos
available within our Safari Books Online platform.
Overall adjusted operating margins in the Professional business
were slightly lower at 15.3% in 2010 compared to 15.6% in 2009
as margins were impacted by the acquisition of Melorio.
FT
Group
Sales at FT Group increased by £45m or 13%, from £358m
in 2009 to £403m in 2010. Adjusted operating profit
increased by £21m, from £39m in 2009 to £60m in
2010. The sales and profit increase is mainly from the
Financial Times which saw increased demand for digital
products and a pick up in advertising in the year. The Economist
and other joint ventures and associates also contributed to the
profit growth.
28
The Financial Times saw strong and accelerating growth in
digital readership with digital subscriptions up over 50% to
207,000, more than 1,000 direct corporate customers and
registered users up 79% to more than 3 million. It
generated over 900,000 downloads of FT apps on mobile phones and
tablet devices and won a prestigious Apple Design Award for its
iPad app. The FTs combined paid print and digital
circulation reached 597,000 in the fourth quarter of 2010. After
weak advertising markets in 2009, we saw good advertising growth
in 2010 although the visibility for advertising revenues is
poor. We extended the breadth and depth of FTs premium
subscription services through the launch of FT Tilt, focused on
emerging markets; the launch of MandateWire US, extending the
reach of this successful European brand into new markets; and
the acquisition of Medley Global Advisors, a premier provider of
macro policy intelligence.
Mergermarket benefited from improving market conditions and its
flexibility in adapting to new client investment strategies,
which supported stronger renewal rates and new business
revenues. An increase in global merger and acquisition activity
benefited Mergermarket and dealReporter; while continued
volatility in debt markets helped sustain the strong performance
of DebtWire. We saw strong growth in developing markets
supported by new product launches including our first local
language version of Mergermarket in China. In March 2010 we
acquired Xtract research, which provides bond covenant data to
allow investors to understand how covenants might impact on
valuation.
The Economist, in which Pearson owns a 50% stake,
increased global weekly circulation by 3.7% to 1.47 million
(for the July-December 2010 ABC period) and total annual online
visits increased to 118 million, up 21% on 2009. FTSE, our
50% owned joint venture with the London Stock Exchange,
increased revenues by 20% and acquired the remaining 50% of FXI,
FTSEs joint venture with Xinhua Finance in China. Business
Day and Financial Mail (BDFM), our 50% owned joint-venture in
South Africa with Avusa, returned to profitability with revenue
increasing by 5%. The business benefited from a recovery in
advertising and the closure of non-profitable operations.
Overall adjusted operating margins at FT Publishing increased
from 10.9% in 2009 to 14.9% in 2010 as advertising revenue fell
through to the bottom line.
The
Penguin Group
Penguin sales increased by £51m or 5%, to £1,053m in
2010 from £1,002m in 2009 and adjusted operating profit was
up 26% to £106m in 2010 from £84m in 2009. Both sales
and adjusted operating profit were affected by the stronger US
dollar which we estimate increased sales by £32m and
adjusted operating profit by £13m when compared to the
equivalent figures at constant 2009 exchange rates. In 2010,
Penguin benefited from a series of organisational changes in the
UK made in 2009. These were designed to strengthen its
publishing, reduce costs and accelerate the transition to
digital production, sales channels and formats and to lower cost
markets for design and production. Penguins 2009 results
include approximately £9m of charges relating to these
organisational changes.
Penguin saw a strong and consistent publishing performance
across imprints and territories producing market share gains in
the US, UK and Australia, our three largest markets. Strong
growth in developing markets was boosted by the launch of new
imprints and the increasing breadth and depth of our local
publishing programs in India, China and South Africa. There was
continued investment in global publishing with the launch of
Penguins Classics in Portuguese and Arabic, joining
existing Mandarin and Korean editions, the launch in India of a
new imprint in partnership with bestselling author Shobhaa De,
and the continued international roll-out of our non-fiction
imprint Allen Lane in Canada.
eBook sales were up 182% on the previous year and now account
for 6% of Penguin revenues worldwide. We accelerated our
investment in digital products and innovation with new app
releases in the childrens market including Spot, Peppa
Pig, The Little Engine That Could, Ladybirds Babytouch and
the Mad Libs app, which was named one of the best apps at the
2010 E-Book
Summit. For adults, we launched the groundbreaking myFry app;
published the amplified ebook of Ken Folletts
international bestselling novel The Pillars of the Earth,
featuring video, art and music from the original TV series; and
we introduced ten DK Eyewitness Top Ten Travel Guides apps with
more to follow in 2011. Penguin continued to invest to transform
its internal publishing processes onto Pearson-wide digital
platforms enabling faster product development and more efficient
creation and re-use of content.
29
Penguin performed strongly in the US with a broad range of
number one bestsellers from repeat authors such as Charlaine
Harris, Nora Roberts, Tom Clancy, Ken Follett and Patricia
Cornwell. Kathryn Stocketts The Help stayed on the
New York Times bestseller list for the whole of 2010 and
has sold more than three million copies to date. Our outstanding
performance in the UK, resulting in our market share rising two
percentage points to 10%, was led by Jamie Olivers 30
Minute Meals. It sold 1.2 million copies to become the
UKs biggest selling non-fiction title of the last decade.
Major bestsellers included Stephen Frys The Fry
Chronicles, Kathryn Stocketts The Help, and
The History of the World in 100 Objects (published in
partnership with the BBC and the British Museum), as well as the
Percy Jackson and Diary of a Wimpy Kid series. DK
produced a very good year thanks in part to its top-performing
franchise LEGO (Lego Star Wars Visual Dictionary was on
the New York Times bestseller list for the whole of 2010
with 18 weeks at number one). Other bestselling titles
included The Masterchef Cookbook, Complete Human Body
and Natural History. DK continues to benefit from the
organisation changes made in 2009 as well as the ongoing
development of its publishing centre in India. Penguin
Childrens had an excellent year in both the US, with
Penguin Young Readers Group achieving a record 39 New York
Times bestsellers, and in the UK, where we reclaimed our
position as the number one childrens publisher with
significant market share gains.
Penguin adjusted operating margins improved in 2010 to 10.1%
from 8.4% in 2009.
Year
ended December 31, 2009 compared to year ended
December 31, 2008
Consolidated
results of operations
Sales
Our total sales from continuing operations increased by 735m, or
17%, to £5,140m in 2009, from £4,405m in 2008. The
increase reflected growth, on a constant exchange rate basis, at
our North American Education and International Education
businesses together with additional contributions from
acquisitions made in both 2008 and 2009. The year on year growth
was impacted by movements in exchange rates, particularly in the
US dollar. 2009 sales, translated at 2008 average exchange
rates, would have been £4,558m.
Pearson Education increased sales by £668m or 21% from
£3,112m to £3,780m. The North American business was
the major contributor to the increase although a high proportion
of that increase was due to exchange. We estimate that after
excluding acquisitions, Pearson Education saw sales growth of 4%
at constant last year exchange rates. The North American
Education business grew ahead of the market in its US Curriculum
and Higher Education businesses which together grew at 5%
compared to the industry which remained flat according to the
Association of American Publishers. There was also a strong
performance in the US Assessment and Information division which
benefited from the successful integration of the Harcourt
Assessment business acquired at the start of 2008. In
International Education sales also benefited from exchange and a
contribution from the acquisitions of Wall Street English and
Fronter (a European online learning company based in Oslo) and
the increased shares of Longman Nigeria and Maskew Miller
Longman (MML), our publishing businesses in West Africa and
South Africa respectively, which were all acquired in 2009.
After excluding the effect of acquisitions we estimate that
there was growth of 4% at constant last year exchange rates in
the International Education business. Professional sales
increased in 2009 by 13% although all of this increase was due
to exchange and in terms of constant last year exchange rates
there was a small decline in sales of 1%. This decline was
entirely due to weakness in the professional publishing market
which has offset growth in the professional testing and
certification businesses.
FT Group sales were 8% behind last year or 12% after excluding
the effect of exchange rates with adverse variances at the
Financial Times. FT Groups sales decline mainly
reflects tough market conditions for financial and corporate
advertising. The impact of advertising revenue declines was
partially mitigated by growth in content revenues, the
resilience of our subscription businesses and an increase in
paying online subscribers at FT.com.
Penguins sales were up 11% in 2009 but this represents a
2% decline at constant last year exchange rates and before the
effect of portfolio changes. Much of the underlying decline was
due to a fall in sales of illustrated reference books which
offset good performances in other categories.
Pearson Education, our largest business sector, accounted for
74% of our continuing business sales in 2009 compared to 71% in
2008. North America continued to be the most significant source
of our sales and as a proportion of total continuing sales
contributed 65% in 2009 and 63% in 2008.
30
Cost
of goods sold and operating expenses
The following table summarizes our cost of sales and net
operating expenses:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
2009
|
|
|
2008
|
|
|
|
£m
|
|
|
£m
|
|
|
Cost of goods sold
|
|
|
2,382
|
|
|
|
2,046
|
|
|
|
|
|
|
|
|
|
|
Distribution costs
|
|
|
275
|
|
|
|
235
|
|
Administration and other expenses
|
|
|
2,014
|
|
|
|
1,687
|
|
Other operating income
|
|
|
(120
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,169
|
|
|
|
1,820
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold. Cost of sales consists of
costs for raw materials, primarily paper, printing and binding
costs, amortization of pre-publication costs, royalty charges
and the cost of service provision in our assessment and testing
businesses. Our cost of sales increased by £336m, or 16%,
to £2,382m in 2009, from £2,046m in 2008. The increase
corresponds to the increase in sales with cost of sales at 46.3%
of sales in 2009 compared to 46.4% in 2008.
Distribution costs. Distribution costs consist
primarily of shipping costs, postage and packing and remain a
fairly constant percentage of sales.
Administration and other expenses. Our
administration and other expenses increased by £327m, or
19%, to £2,014m in 2009, from £1,687m in 2008. As a
percentage of sales they remained consistent at 38% in 2008 and
39% in 2009.
Other operating income. Other operating income
mainly consists of freight recharges,
sub-rights
and licensing income and distribution commissions together with
income from the sale of assets. Other operating income increased
to £120m in 2009 compared to £102m in 2008 although
much of this increase can be ascribed to exchange.
Share
of results of joint ventures and associates
The contribution from our joint ventures and associates
increased from £25m in 2008 to £30m in 2009. The
majority of the profit comes from our 50% interest in the
Economist.
Operating
profit
The total operating profit increased by £55m, or 10%, to
£619m in 2009 from £564m in 2008. 2009 operating
profit, translated at 2008 average exchange rates, would have
been £40m lower.
Operating profit attributable to Pearson Education increased by
£99m, or 24%, to £505m in 2009, from £406m in
2008. The increase was attributable to strong performances in
the US Higher Education business and both the US and
International Assessments businesses and due to the positive
impact of exchange. Operating profit attributable to the FT
Group decreased by £36m to £31m in 2009, from
£67m in 2008. The decrease reflects the decline in
profitability at the Financial Times, as they faced tough
conditions in the advertising market. Operating profit
attributable to the Penguin Group decreased by £8m, or 9%,
to £83m in 2009, from £91m in 2008. This decrease was
principally due to charges relating to reorganisation of the
business in the UK.
Net
finance costs
Net finance costs increased from £95m in 2008 to £96m
in 2009. Net interest payable in 2009 was £86m, down from
£93m in 2008. The Groups net interest payable
decreased by £7m in 2009 as we benefited from a fall in
average interest rates on our floating US dollar debt and a
decrease in our overall level of average net debt. Year on year,
average three month LIBOR (weighted for the Groups net
borrowings in US dollars and sterling at each year end) fell by
2.4% to 0.7%. This reduction in floating market interest rates
was partially offset by higher fixed bond coupons prevailing at
the time of our 2009 bond issue. The overall result was a
decrease in the Groups average net interest rate payable
by 0.6% to 5.3%. In 2009 the net finance income relating to
post-retirement plans was a charge of £12m compared to an
income of £8m in the previous year reflecting lower returns
on plan assets.
31
Other net finance costs relating to foreign exchange and
short-term fluctuations in the market value of financial
instruments included a net foreign exchange loss of £7m in
2009 compared to a loss of £11m in 2008. The losses in 2008
mainly relate to the retranslation of foreign currency bank
accounts together with other net losses on inter-company items.
In 2009 the loss mainly relates to losses on cross currency
swaps. For a more detailed discussion of our borrowings and
interest expenses see Liquidity and Capital
Resources Capital Resources and
Borrowings below and Item 11.
Quantitative and Qualitative Disclosures about Market Risk.
Taxation
The total tax charge in 2009 of £146m represents 28% of
pre-tax profits compared to a charge of £125m or 27% of
pre-tax profits in 2008. Our overseas profits, which arise
mainly in the US are largely subject to tax at higher rates than
the UK corporation tax rate (28% in 2009 compared to 28.5% in
2008). Higher tax rates were partly offset by releases from
provisions reflecting continuing progress in agreeing our tax
affairs with the authorities.
Non-controlling
interest
This comprises mainly the non-controlling interest in
Interactive Data. Our share of Interactive Data was 61% in 2009,
compared to 62% in 2008.
Discontinued
operations
On 29 July 2010, Pearsons 61% share in Interactive
Data Corporation was sold to Silver Lake and Warburg Pincus for
$2bn. The results of Interactive Data have been included as
discontinued operations in both 2009 and 2008. Discontinued
operations in 2008 also relate to the disposal of the Data
Management business (in February 2008). The results of the Data
Management business were included in discontinued operations to
the date of disposal in 2008. The loss before tax on disposal in
2008 was £53m, mainly relating to the cumulative
translation adjustment. There was a tax charge of £37m on
the sale.
Profit
for the year
The profit for the financial year in 2009 was £462m
compared to a profit in 2008 of £323m. The overall increase
of £139m was mainly due to the absence of the loss on
discontinued operations in 2009 but also benefited from the
improved operating performance offset by a small increase in net
finance costs.
Earnings
per ordinary share
The basic earnings per ordinary share, which is defined as the
profit for the financial year divided by the weighted average
number of shares in issue, was 53.2p in 2009 compared to 36.6p
in 2008 based on a weighted average number of shares in issue of
799.3m in 2009 and 797.0m in 2008. The increase in earnings per
share was due to the increase in profit for 2009 described above
and was not significantly affected by the movement in the
weighted average number of shares.
The diluted earnings per ordinary share of 53.1p in 2009 and
36.6p in 2008 was not significantly different from the basic
earnings per share in those years as the effect of dilutive
share options was again not significant.
Exchange
rate fluctuations
The strengthening of the US dollar and other currencies against
sterling on an average basis had a positive impact on reported
sales and profits in 2009 compared to 2008. 2009 sales,
translated at 2008 average exchange rates, would have been lower
by £582m and operating profit, translated at 2008 average
exchange rates, would have been lower by £40m. See
Item 11. Quantitative and Qualitative Disclosures
about Market Risk for a discussion regarding our
management of exchange rate risks.
Sales
and operating profit by division
The following tables summarize our sales and operating profit
for each of Pearsons divisions. Adjusted operating profit
is a non-GAAP financial measure and is included as it is a key
financial measure used by
32
management to evaluate performance and allocate resources to
business segments. See also note 2 of Item 18.
Financial Statements.
In our adjusted operating profit we have excluded amortization
of acquired intangibles. The amortization of acquired
intangibles is the amortization of intangible assets acquired
through business combinations. The charge is not considered to
be fully reflective of the underlying performance of the Group.
Adjusted operating profit enables management to more easily
track the underlying operational performance of the Group. A
reconciliation of operating profit to adjusted operating profit
for continuing operations is included in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
International
|
|
|
|
|
|
FT
|
|
|
Interactive
|
|
|
|
|
|
|
|
£m
|
|
Education
|
|
|
Education
|
|
|
Professional
|
|
|
Group
|
|
|
Data
|
|
|
Penguin
|
|
|
Total
|
|
|
Sales
|
|
|
2,470
|
|
|
|
1,035
|
|
|
|
275
|
|
|
|
358
|
|
|
|
|
|
|
|
1,002
|
|
|
|
5,140
|
|
|
|
|
48%
|
|
|
|
20%
|
|
|
|
6%
|
|
|
|
7%
|
|
|
|
|
|
|
|
19%
|
|
|
|
100%
|
|
Total operating profit
|
|
|
354
|
|
|
|
109
|
|
|
|
42
|
|
|
|
31
|
|
|
|
|
|
|
|
83
|
|
|
|
619
|
|
|
|
|
57%
|
|
|
|
18%
|
|
|
|
7%
|
|
|
|
5%
|
|
|
|
|
|
|
|
13%
|
|
|
|
100%
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired intangibles
|
|
|
49
|
|
|
|
32
|
|
|
|
1
|
|
|
|
8
|
|
|
|
|
|
|
|
1
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit: continuing operations
|
|
|
403
|
|
|
|
141
|
|
|
|
43
|
|
|
|
39
|
|
|
|
|
|
|
|
84
|
|
|
|
710
|
|
Adjusted operating profit: discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted operating profit
|
|
|
403
|
|
|
|
141
|
|
|
|
43
|
|
|
|
39
|
|
|
|
148
|
|
|
|
84
|
|
|
|
858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47%
|
|
|
|
16%
|
|
|
|
5%
|
|
|
|
5%
|
|
|
|
17%
|
|
|
|
10%
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
International
|
|
|
|
|
|
FT
|
|
|
Interactive
|
|
|
|
|
|
|
|
£m
|
|
Education
|
|
|
Education
|
|
|
Professional
|
|
|
Group
|
|
|
Data
|
|
|
Penguin
|
|
|
Total
|
|
|
Sales
|
|
|
2,002
|
|
|
|
866
|
|
|
|
244
|
|
|
|
390
|
|
|
|
|
|
|
|
903
|
|
|
|
4,405
|
|
|
|
|
45%
|
|
|
|
20%
|
|
|
|
6%
|
|
|
|
9%
|
|
|
|
|
|
|
|
20%
|
|
|
|
100%
|
|
Total operating profit
|
|
|
258
|
|
|
|
113
|
|
|
|
35
|
|
|
|
67
|
|
|
|
|
|
|
|
91
|
|
|
|
564
|
|
|
|
|
46%
|
|
|
|
20%
|
|
|
|
6%
|
|
|
|
12%
|
|
|
|
|
|
|
|
16%
|
|
|
|
100%
|
|
Add back:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired intangibles
|
|
|
45
|
|
|
|
22
|
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
2
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit: continuing operations
|
|
|
303
|
|
|
|
135
|
|
|
|
36
|
|
|
|
74
|
|
|
|
|
|
|
|
93
|
|
|
|
641
|
|
Adjusted operating profit: discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjusted operating profit
|
|
|
303
|
|
|
|
135
|
|
|
|
36
|
|
|
|
74
|
|
|
|
121
|
|
|
|
93
|
|
|
|
762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40%
|
|
|
|
17%
|
|
|
|
5%
|
|
|
|
10%
|
|
|
|
16%
|
|
|
|
12%
|
|
|
|
100%
|
|
33
North
American Education
North American Education sales increased by £468m, or 23%,
to £2,470m in 2009, from £2,002m in 2008 and adjusted
operating profit increased by £100m, or 33%, to £403m
in 2009 from £303m in 2008. The results were significantly
affected by the relative strength of the US dollar, which we
estimate increased sales by £365m and adjusted operating
profit by £60m when compared to the equivalent figures at
constant 2008 exchange rates. At constant exchange and after
taking account of the contribution from acquisitions there was
underlying growth in sales of 5% and profits of 13%. Although
the contribution from the US school curriculum business declined
due to State budget pressures and a fall in the adoption market
there were strong contributions from the US Higher Education, US
Assessment and Information and Canadian businesses.
In the US school market, the Association of American
Publishers estimated that there was an overall decrease
for the industry in 2009 of 13.8% as state budget pressures and
a slower new adoption year caused particular weakness in the
basal publishing market. Though Pearsons US School
publishing sales declined we attained an estimated 37% of new
adoptions we competed for (our highest market share for a
decade) and 32% of the total new adoption market. Pearsons
enVisionMATH (www.envisionmath.com), an integrated
print-and-digital
program, was the top-selling basal program in the United States
in 2009. It helped the School Curriculum business to an
estimated 46% share of all math adoptions and sold strongly
across the open territories. Successnet, the online learning
platform for teachers and students which supports all
Pearsons digital instruction, assessment and remedial
programs, also grew strongly achieving more than 4 million
registrations in 2009.
The US Assessment and Information business saw significant
profit improvement in 2009, benefiting from the successful
integration of the Harcourt Assessment business acquired in
2008. Our National Services assessment business renewed its
contract with the College Board, worth $210m over 10 years,
to process and score the SAT and contracts to support the
College Boards new Readi-Step and ACCUPLACER diagnostics
programs. Our State Services business won a number of
significant new contracts including new programs in Florida and
Arizona. We continued to gain share, winning 60% of the
contracts bid for by value, and to be a leader in online
testing, delivering 9 million secure online assessments in
2009, up more than 100% on 2008. Our Evaluation Systems teacher
certification business secured contract extensions in
California, Illinois, Arizona and Washington; won re-bids in
Michigan and New York, each for five years; and added new
contracts in California and Minnesota. In Clinical Assessments,
our AIMSWeb
response-to-intervention
data management and progress monitoring service for children who
are having difficulty learning, continued to grow and had more
than 3 million students on the system at the end of 2009.
Our Edustructures business, which provides interoperable systems
to support data collection and reporting between school
districts and state governments, doubled the number of students
served to 8 million. Our Student Information Systems (SIS)
business grew strongly, benefiting from strong demand for its
services that help teachers automate and manage student
attendance records, gradebooks, timetables and the like. It
supported more than 12 million students
8 million of them through its flagship PowerSchool product
which was available in more than 50 countries. In 2009 it won
contracts for new school districts including Nova Scotia
Department of Education (133,000 students), Newark, NJ (45,000
students), and the Hamilton County DOE, TN (40,000 students).
The US Higher Education publishing market grew 11.5% in 2009,
according to the Association of American Publishers, benefiting
from strong enrolment growth and federal government action to
support student funding. Our US Higher Education business grew
faster than the industry and outperformed the market for the
eleventh straight year, continuing to see strong demand for
instructional materials enhanced by technology and
customization. Our sustained investment in content and
technology continues to grow existing franchises and build new
ones. In Engineering Mechanics, our market leading textbook,
Hibbelers Statistics and Dynamics 12th Edition,
gained an additional four percentage points of market share with
the addition of our newly launched MasteringEngineering digital
learning and assessment platform. Pearson became market leader
in psychology supported by the recently launched textbook
Psychology 2nd Edition by Cicarelli with MyPsychLab. The
MyLab digital learning, homework and assessment
programs again grew strongly. Our MyLab products saw more than
6 million student registrations globally, 39% higher than
in 2008. In North America, student registrations grew 37% to
more than 5.6 million. Custom Solutions grew strongly
across both bespoke books and customized services including
content creation, technology, curriculum, assessments and
courseware. We partnered with the Kentucky Virtual Learning
Initiative, for example, to deliver personalized mathematics
instruction mapped to state college entry standards and have
begun to extend this program into transitional English and
Reading. eCollege, our platform for fully-online
34
distance learning in higher education, increased online
enrolments by 36% to 3.5 million and benefited from
continued strong renewal rates of 95% by value, new contract
wins and strong growth in the usage of the platform,
particularly by US for-profit colleges. Thirteen Pearson higher
education and school products in ten categories were nominated
as Americas best educational software products in the
Software & Information Industry Associations
25th Annual CODiE Awards. They include MyMathLab,
Miller & Levine Biology, PowerSchool, Prentice Hall
Literature, myWorld Geography, MyWritingLab, CourseConnect and
eCollege.
Overall adjusted operating margins in the North American
Education business were higher at 16.3% in 2009 compared to
15.1% in 2008 with the majority of the increase attributable to
the Harcourt Assessment integration costs that were charged in
2008.
International
Education
International Education sales increased by £169m, or 20%,
to £1,035m in 2009, from £866m in 2008 and adjusted
operating profit increased by £6m, or 4%, to £141m in
2009 from £135m in 2008. The sales results benefit from
exchange gains and a full year contribution from acquisitions
made in 2009. At the adjusted operating profit level the 2008
results benefited from transactional exchange gains that were
not repeated in 2009.
In the UK, we received over 3.7 million registrations for
vocational assessment and general qualifications. We marked
4.5 million A-level and GCSE scripts on-screen
and successfully delivered the 2009 National Curriculum test
series and were awarded the contract to administer the 2010
National Curriculum Tests at Key Stage 2. We made significant
investments in supporting the new Diploma qualification for
14-19 year-olds;
the IGCSE qualifications to meet the needs of International
schools and colleges; and BTEC, our flagship vocational
qualification. BTEC registrations totalled more than
1 million for the first time and were up almost 30% on
2008. Our UK Higher Education business grew strongly, helped by
the success of new first editions, the rapid take up of MyLabs
adapted to meet local requirements, and the growing popularity
of custom publishing. Sales of UK primary resources fell, on the
back of minimal curriculum change and some signs of schools
managing their budgets more tightly.
In Continental Europe, the launch of our digi libre (Content
Plus) products helped us to gain share in the lower and upper
secondary markets in Italy and positioned us well for major
curriculum reforms in 2010. In Spain, our sales were down
sharply with pressures on central and regional government
spending and a worsening retail environment. Our ELT sales
continued to grow in Poland, and across central and Eastern
Europe we saw good demand for our publishing and digital
resources and our fledgling Language Learning Solutions
activities. The Fronter learning management system continued to
grow very strongly with more than 6 million students in
more than 8,000 schools, colleges and Universities around the
world at the end of 2009.
In the Middle East we successfully implemented the Abu Dhabi
Education Councils (ADEC) External Measurement of Student
Achievement (EMSA) program covering English, Arabic, Math and
Science in April 2009. In South Africa, we launched Platinum,
the first blended print and online course developed for the
South African National Curriculum. In addition 7,000
students registered for MyMathLab+ at the University of
Witwatersrand in 2009.
In China, we acquired Wall Street English, the leading provider
of premium English language training to adults, for £101m.
The combination of Longman Schools and Wall Street English gives
Pearson a leading position in the English language teaching
market in China, serving students from elementary school to
professional levels. We stepped up our presence in the Indian
education market with two investments totalling $30m: a 50:50
joint-venture with Educomp, called IndiaCan, to offer vocational
and skills training through 120 training centres across the
country; and a 17.2% stake in TutorVista, which provides online
tutoring for K-12 and college students.
New editions of the proven bestsellers, BackPack and Pockets,
along with the successful launch of two new courses, CornerStone
and KeyStone, helped to deliver strong growth in the sales of
ELT materials across Latin America. In Brazil, which has one of
Latin Americas largest and fastest-growing university
populations, our virtual library supported 30 post-secondary
institutions. And, in Panama, 75,000 high school students were
learning Biology and Chemistry, using Prentice Hall Virtual Labs.
On a global basis our MyLab digital learning,
homework and assessment programmes were used by more than
470,000 students, up almost 60% on 2008, and are now sold in
more than 200 countries. In 2009, we launched the Pearson Test
of English, our new test of Academic English which will be
delivered in up to 200 Pearson VUE testing centers in 37
countries. Approximately 1,000 academic programs worldwide now
recognise, or are in the
35
process of recognising, the Pearson Test of English. Our
eCollege learning management system is growing rapidly in
international markets, winning new contracts in Australia,
Brazil, Mexico, Colombia, Puerto Rico and Saudi Arabia in 2009.
Our new Pearson Learning Solutions business won its first
contracts in the UK, the Gulf and Africa. It combines a broad
range of products and services from across Pearson to deliver a
systematic approach to improving student performance.
International Education adjusted operating margins declined from
15.6% in 2008 to 13.6% in 2009 as the benefit from transactional
exchange gains at the profit level in 2008 werent repeated
in 2009.
Professional
Professional sales increased by £31m, or 13%, to £275m
in 2009 from £244m in 2008. Adjusted operating profit
increased by £7m or 19% to £43m in 2009, from
£36m in 2008. The sales growth was entirely due to exchange
rates which increased sales by £33m when compared to the
equivalent figures at constant 2008 exchange rates.
In Professional testing and certification in the UK, we extended
our contract with the Driving Standards Agency to deliver the UK
drivers theory test until 2014. More than seven million secure
online tests were delivered in more than 4,000 test centers
worldwide in 2009, an increase of 9% over 2008. Registration
volumes for the Graduate Management Admissions Council test rose
8% worldwide in 2009, including a 16% increase outside the US.
In the US, Pearson VUE won a number of new contracts with
organizations including Oracle, Citrix, Novell, VMWare, and
Adobe, the National Registry of Food Safety Professionals and
the National Institute for Certification in Engineering
Technologies. Pearson VUE extended its international reach,
signing an agreement with the Dubai Road and Transport Authority
to deliver a new, high-tech Driver Testing System and launching
the Law School Admission Test in India.
Our Professional education business experienced tough trading
conditions in the retail market but benefited from the increased
breadth of its publishing and range of revenue streams, from
online retail through digital subscriptions. A best-selling
product in 2009 was CCNA Network Simulator, which are digital
networking labs designed, developed and published by Pearson, to
help candidates successfully pass the Cisco CCNA certification
exam. Pearson launched new learning solutions for IT
Professionals preparing for certification accreditation. Cert
Flash Card applications were launched for students studying for
Cisco CCNA, CompTIA and Microsoft certification exams and are
accessible through web browsers and iPhone and iPod Touch
devices. FT Press launched a new
e-publishing
imprint, FT Press Delivers, providing essential insights from
some of its leading business authors including Jim Champy, Brian
Solis, Mark Zandi, Jon M. Huntsman, John Kao, Michael Abrashoff,
and Seth Goldman.
Overall adjusted operating margins in the Professional business
continued to improve and were higher at 15.6% in 2009 compared
to 14.8% in 2008 as margins improved again in both the testing
and professional publishing businesses.
FT
Group
Sales at FT Group decreased by £32m or 8%, from £390m
in 2008 to £358m in 2009. Adjusted operating profit
decreased by £35m, from £74m in 2008 to £39m in
2009. The sales and profit decrease is mainly from the FT
Newspaper business which faced tough market conditions for
financial and corporate advertising. The impact of advertising
revenue declines was partially mitigated by growth in content
revenues, the resilience of our subscription businesses and
early actions to manage our cost base tightly.
We continued to see good demand in 2009 for high-quality
analysis of global business, finance, politics and economics
which resulted in a 15% increase in paying online subscribers to
more than 126,000 with registered users on FT.com up 85% to
1.8 million and users up 12% to 1.4 million on
FTChinese.com. Financial Times worldwide newspaper
circulation was 7% lower at 402,799 (for the July-December 2009
ABC period) although subscription circulation grew modestly. We
continued to invest in fast-growing digital formats. We launched
a new luxury lifestyle website, to complement our existing
How To Spend It magazine; a new iPhone application which
has received more than 200,000 downloads; and, in association
with Longman, Lexicon, an online glossary of economic, financial
and business terms.
Mergermarket faced challenging conditions in some of its markets
with reduced Mergers and Acquisition activity impacting the
merger arbitrage sector serviced by dealReporter whilst Debtwire
benefited from an
36
increased focus on distressed debt. Mergermarket continued to
launch new products and expand globally. MergerID was launched
in September 2009, providing a secure online environment for
principals and professionals to post and view merger and
acquisition opportunities globally and by the end of 2009 had
secured over 1,500 active users in more than 450 companies
across the globe.
The Economist, in which Pearson owns a 50% stake,
increased global weekly circulation by 2.2% to 1.42 million
(for the July December 2009 ABC period). FTSE, our
50% owned joint-venture with the London Stock Exchange,
increased revenues 17% and made a strong improvement in profits.
Overall adjusted operating margins at FT Group decreased from
19.0% in 2008 to 10.9% in 2009 as lost advertising revenue fell
through to the bottom line.
The
Penguin Group
Penguin sales increased by £99m or 11%, to £1,002m in
2009 from £903m in 2008 but adjusted operating profit was
down 10% to £84m in 2009 from £93m in 2008. Both sales
and adjusted operating profit were affected by the stronger US
dollar which we estimate increased sales by £109m and
adjusted operating profit by £7m when compared to the
equivalent figures at constant 2008 exchange rates. In 2009,
Penguin implemented a series of organisational changes in the UK
designed to strengthen its publishing, reduce costs and
accelerate the transition to digital production, sales channels
and formats and to lower cost markets for design and production.
Penguins 2009 results include approximately £9m of
charges relating to these organisational changes.
In the US, Penguin had 30 number 1 New York Times
bestsellers, Penguins most ever, and placed 243
bestsellers on New York Times lists. Bestsellers included
works from debut novels such as Kathryn Stocketts The
Help and Janice Y.K. Lees The Piano Teacher,
along with books by established authors such as Charlaine Harris
and Nora Roberts.
In the UK, top-selling titles included Marian Keyes
This Charming Man, Malcolm Gladwells
Outliers, Ant and Decs Ooh! What a Lovely Pair
and Antony Beevors
D-Day.
Penguin Childrens list had a very strong year with
standout performances from brands such as The Very Hungry
Caterpillar (which celebrated its 40th anniversary) and
Peppa Pig. Through an iPhone app, consumers were offered
a try-before-you buy model of Paul Hoffmans The Left
Hand of God, providing free downloads of the first three
chapters.
In Australia, Penguin was named Publisher of the Year for the
second year running at the Australian Book Industry Awards.
Number 1 bestselling authors included Bryce Courtenay, Tom
Winton, Clive Cussler and Richelle Mead. In Canada, top-selling
local authors included Joseph Boyden and Alice Munro, who was
awarded the International Man Booker prize, and our
international authors Greg Mortenson and Elizabeth Gilbert led
the paperback non-fiction category. In India, Penguin is the
largest English language trade publisher, with bestselling
authors in 2009 including Narayana Murthy and Nandan Nilekani.
In South Africa, top-selling Penguin authors included John van
de Ruit and Justin Bonello.
eBook sales grew fourfold on the previous year. 14,000 eBook
titles were available at the end of 2009, benefiting from the
popularity of
e-readers
such as Amazons Kindle, the Sony Reader and Barnes and
Nobles nook as well as new devices such as Apples
iPad.
Penguins adjusted operating margins deteriorated in 2009,
dropping to 8.4% from 10.3% in 2008. The main reason for the
decline was the charges in 2009 relating to the reorganisation
of the UK business.
Liquidity
and capital resources
Cash
flows and financing
Net cash generated from operations increased by £157m (or
16%), to £1,169m in 2010 from £1,012m in 2009. This
increase reflected strong cash contributions, particularly from
our education businesses. The exchange rate for translation of
dollar cash flows was $1.57 in 2010, $1.61 in 2009 and $1.44 in
2008. In 2010, the average working capital to sales ratio for
our book publishing businesses improved to 20.1% from 25.1% in
2009, reflecting tight working capital management and the
financial impact of the shift to more digital and
service-orientated products and businesses. Average working
capital is the average month end balance in the year of
inventory (including pre-publication), receivables and payables.
Net cash generated from operations increased by £118m (or
13%), to £1,012m in 2009 from £894m in 2008. This
increase reflected strong cash contributions from all
businesses,
37
together with the significant strengthening of the US dollar
against sterling. In 2009, the headline average working capital
to sales ratio for our book publishing businesses improved to
25.1% from 26.1% in 2008, reflecting tight working capital
management and the favourable working capital profile of 2009
acquisitions.
Net interest paid decreased to £68m in 2010 from £87m
in 2009. The decrease reflects the repayment of a US Dollar
bond in 2009 and lower variable interest rates. Net interest
paid increased to £87m in 2009 from £76m in 2008. The
increase is due to the timing of payments on bonds issued in
2008 and 2009.
Capital expenditure on property, plant and equipment was
£76m in 2010, £62m in 2009 and £75m in 2008. The
increase in 2010 reflects a return to a more normal level of
expenditure given the improved economic environment and exchange
rate movements. The reduction in spend in 2009 reflects a more
cautious approach to capital investment, given the uncertain
economic environment, particularly in the first half of the year.
The acquisition of subsidiaries, joint ventures and associates
accounted for a cash outflow of £557m in 2010 against
£222m in 2009 and £400m in 2008. The principal
acquisitions in 2010 were of Sistema Educacional Brasileiro for
£228m, Melorio for £98m, Wall Street Institute for
£65m and Americas Choice for £65m. The principal
acquisitions in 2009 were of Wall Street English for £101m
and a controlling interest in Maskew Miller Longman for
£54m, comprising £49m in cash and £5m in other
consideration.
The sale of subsidiaries and associates produced a net cash
inflow of £734m in 2010 against £nil in 2009 and
£99m in 2008. The proceeds in 2010 relate to the sale of
Interactive Data, with proceeds received being £984 and tax
paid relating to this disposal of £250m. Proceeds of
£99m in 2008 relate to the sale of the Data Management
business.
The cash outflow from financing of £92m in 2010 reflects a
further increase in the group dividend and the purchase of
treasury shares, with some offset from a $350m US Dollar
Note issued in the year. The cash outflow from financing of
£366m in 2009 reflects the repayment of one $350m bond, the
repayment of borrowings under the Groups committed
borrowing facility and an increase of the dividend in line with
earnings. Offsetting this, the Group issued £300m of
sterling bonds in the year. The cash outflow from financing of
£137m in 2008 reflects the repayment at maturity of one
£100m bond, the repayment of borrowings against a
short-term bridge financing facility and a further increase in
the dividend. Offsetting this, the Group issued $900m of
US Dollar bonds.
Capital
resources
Our borrowings fluctuate by season due to the effect of the
school year on the working capital requirements in the
educational materials business. Assuming no acquisitions or
disposals, our maximum level of net debt normally occurs in
July, and our minimum level of net debt normally occurs in
December. Based on a review of historical trends in working
capital requirements and of forecast monthly balance sheets for
the next 12 months, we believe that we have sufficient
funds available for the Groups present requirements, with
an appropriate level of headroom given our portfolio of
businesses and current plans. Our ability to expand and grow our
business in accordance with current plans and to meet long-term
capital requirements beyond this
12-month
period will depend on many factors, including the rate, if any,
at which our cash flow increases and the availability of public
and private debt and equity financing, including our ability to
secure bank lines of credit. We cannot be certain that
additional financing, if required, will be available on terms
favorable to us, if at all.
At December 31, 2010, our net debt was £430m compared
to net debt of £1,092m at December 31, 2009. Net debt
is defined as all short-term, medium-term and long-term
borrowing (including finance leases), less all cash, cash
equivalents and liquid resources. Cash equivalents comprise
short-term deposits with a maturity of up to 90 days, while
liquid resources comprise short-term deposits with maturities of
more than 90 days and other marketable instruments which
are readily realizable and held on a short-term basis.
Short-term, medium-term and long-term borrowing amounted to
£2,312m at December 31, 2010, compared to £2,008m
at December 31, 2009 reflecting the $350m US Dollar
Note issued in the year and the strengthening of sterling
relative to the US Dollar. At December 31, 2010, cash
and liquid resources were £1,736m, compared to £750m
at December 31, 2009. This increase in cash is due to
receipt of the proceeds from the sale of Interactive Data, only
partially re-invested in acquisitions, and strong cash
generation in our education businesses.
38
Contractual
obligations
The following table summarizes the maturity of our borrowings,
our obligations under non-cancelable leases, and pension funding
obligations, exclusive of anticipated interest payments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
Two to
|
|
|
After five
|
|
|
|
Total
|
|
|
one year
|
|
|
two years
|
|
|
five years
|
|
|
years
|
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
£m
|
|
|
Gross borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank loans, overdrafts and commercial paper
|
|
|
73
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
2,226
|
|
|
|
325
|
|
|
|
|
|
|
|
1,077
|
|
|
|
824
|
|
Finance lease obligations
|
|
|
13
|
|
|
|
6
|
|
|
|
4
|
|
|
|
3
|
|
|
|
|
|
Operating lease obligations
|
|
|
1,437
|
|
|
|
164
|
|
|
|
151
|
|
|
|
337
|
|
|
|
785
|
|
UK Pension funding obligations
|
|
|
410
|
|
|
|
41
|
|
|
|
41
|
|
|
|
123
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,159
|
|
|
|
609
|
|
|
|
196
|
|
|
|
1,540
|
|
|
|
1,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2010 the Group had capital commitments for
fixed assets, including finance leases already under contract,
of £13m (2009: £15m). There are contingent liabilities
in respect of indemnities, warranties and guarantees in relation
to former subsidiaries and in respect of guarantees in relation
to subsidiaries and associates. In addition there are contingent
liabilities in respect of legal and royalty claims. None of
these claims or guarantees is expected to result in a material
gain or loss.
In 2010, the Group negotiated a new $1,750m committed revolving
credit facility which matures in November 2015. The Group is
committed to an annual fee of 0.2625% payable quarterly, on the
unused amount of this facility.
Off-Balance
sheet arrangements
The Group does not have any off-balance sheet arrangements, as
defined by the SEC Final Rule 67 (FR-67), Disclosure
in Managements Discussion and Analysis about Off-Balance
Sheet Arrangements and Aggregate Contractual Obligations,
that have or are reasonably likely to have a material current or
future effect on the Groups financial position or results
of operations.
Borrowings
The Group finances its operations by a mixture of cash flows
from operations, short-term borrowings from banks and commercial
paper markets, and longer term loans from banks and capital
markets.
We have in place a committed revolving credit facility of
$1.75bn, which matures in November 2015. At December 31,
2010, the full $1.75bn was available under this facility. This
credit facility contains two key covenants measured for each
12 month period ending June 30 and December 31:
We must maintain the ratio of our profit before interest, tax
and amortization to our net interest payable at no less than
3:1; and
We must maintain the ratio of our net debt to our EBITDA, which
we explain below, at no more than 4:1.
EBITDA refers to earnings before interest, taxes,
depreciation and amortization. We are currently in compliance
with these covenants.
Treasury
policy
Our treasury policy is described in note 19 of
Item 18. Financial Statements. For a more
detailed discussion of our borrowing and use of derivatives, see
Item 11. Quantitative and Qualitative Disclosures
about Market Risk.
Related
parties
There were no significant or unusual related party transactions
in 2010, 2009 or 2008. Refer to note 34 in
Item 18. Financial Statements.
39
Accounting
principles
For a description of our principal accounting policies used
refer to note 1 in Item 18. Financial
Statements.
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ITEM 6.
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DIRECTORS,
SENIOR MANAGEMENT AND EMPLOYEES
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Directors
and senior management
We are managed by a board of directors and a chief executive who
reports to the board and manages through a management committee.
We refer to the board of directors and the chairman of the board
of directors as our senior management.
The following table sets forth information concerning senior
management, as of March 2011*.
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Name
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Age
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Position
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Glen Moreno
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67
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Chairman
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Marjorie Scardino
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64
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Chief Executive
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David Arculus
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64
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Non-executive Director
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Patrick Cescau
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62
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Non-executive Director
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Will Ethridge
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59
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Chief Executive, Pearson North American Education
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Rona Fairhead
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49
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Chairman and Chief Executive, The Financial Times Group
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Robin Freestone
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52
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Chief Financial Officer
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Susan Fuhrman
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66
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Non-executive Director
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Ken Hydon
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66
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Non-executive Director
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Joshua Lewis
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48
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Non-executive Director
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John Makinson
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56
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Chairman and Chief Executive, The Penguin Group
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Glen Moreno was appointed chairman of Pearson on
October 1, 2005 and is chairman of the nomination
committee. He was appointed deputy chairman of The Financial
Reporting Council Limited in November 2010. He is also the
senior independent director of Lloyds Banking Group plc as well
as a non-executive director of Fidelity International Limited.
He was previously the senior independent director of Man Group
plc and acting chairman of UK Financial Investments Limited, the
company set up by HM Treasury to manage the governments
shareholdings in UK banks.
Marjorie Scardino joined the Pearson board in January
1997. She trained and practised as a lawyer, and was chief
executive of The Economist Group from 1993 until joining
Pearson. She is also vice chairman of Nokia Corporation and on
the boards of several charitable organisations. In 2010 she was
named a fellow of the American Academy of Arts and Sciences.
David Arculus is a non-executive director of
Telefónica S.A. He is also chairman of Numis Corporation
plc and in October 2010 was appointed chairman of Aldermore Bank
plc. His previous roles include chairman of O2 plc, Severn Trent
plc and IPC Group, chief operating officer of United Business
Media plc and group managing director of EMAP plc. He became a
non-executive director of Pearson in February 2006 and is
chairman of the remuneration committee.
Patrick Cescau is the senior independent director of
Tesco plc and a director of INSEAD, the Business School for the
World. In September 2010, he joined the board of IAG, the
International Consolidated Airlines Group, S.A. He was
previously group chief executive of Unilever. He became a
non-executive director of Pearson in April 2002 and senior
independent director in April 2010.
Will Ethridge joined the Pearson board in May 2008,
having held a number of senior positions within Pearson
Education, including CEO of the International and Higher
Education divisions. He is chairman of CourseSmart, a
publishers digital retail consortium and chairman of the
Association of American Publishers.
Rona Fairhead joined the Pearson board in June 2002 as
chief financial officer. She was appointed chief executive of
The Financial Times Group in June 2006 and became responsible
for Pearson VUE in March 2008.
* Terry Burns retired
from the Pearson plc board on April 30, 2010. CK Prahalad
passed away on April 16, 2010. Joshua Lewis was appointed
to the Pearson plc board effective March 1, 2011.
40
From 1996 until 2001, she served as executive vice president,
group control and strategy at ICI. She is also a non-executive
director of HSBC Holdings plc and chairs the HSBC audit and risk
committees. In December 2010 she was appointed as a
non-executive director of The Cabinet Office.
Robin Freestone joined Pearson in 2004 as deputy chief
financial officer and became chief financial officer in June
2006, when he also joined the Pearson board. He was previously
group financial controller of Amersham plc (now part of GE). He
qualified as a chartered accountant with Touche Ross (now
Deloitte). He is also a non-executive director and founder
shareholder of eChem Limited.
Susan Fuhrman is president of Teachers College at
Columbia University, Americas oldest and largest graduate
school of education and president of the National Academy of
Education. She was previously dean of the Graduate School of
Education at the University of Pennsylvania and on the board of
trustees of the Carnegie Foundation for the Advancement of
Teaching. She became a non-executive director of Pearson in July
2004.
Ken Hydon is a non-executive director of Reckitt
Benckiser Group plc, Royal Berkshire NHS Foundation Trust and
Tesco plc. He was previously financial director of Vodafone
Group plc and of subsidiaries of Racal Electronics. He became a
non-executive director of Pearson in February 2006 and is
chairman of the audit committee.
Joshua Lewis is managing principal of Salmon River
Capital LLC, a private equity/venture capital investment firm,
and is also an advisor to the Bill & Melinda Gates
Foundations Next Generation Learning Challenges programme.
He was previously a general partner of both Warburg Pincus and
Forstmann Little, and served on the board of the Capella
Education Company, a pioneering provider of web-based
post-secondary education. He was also chair of New Leaders for
New Schools, a social enterprise training the next generation of
US urban principals, and remains involved with that organisation.
John Makinson joined the Pearson board in March 1996 and
was finance director until June 2002. He was appointed chairman
of The Penguin Group in May 2001. He is also chairman of The
Royal National Theatre and trustee of the Institute for Public
Policy Research.
Compensation
of senior management
It is the role of the remuneration committee (the committee) to
approve the remuneration and benefits packages of the executive
directors, the chief executives of the principal operating
companies and other members of the Pearson Management Committee.
The committee also takes note of the remuneration for those
executives with base pay over a certain level, representing
approximately the top 50 executives of the company.
Remuneration
policy
Our goal as a company is to make an impact on peoples
lives and on society through education and information. Our
strategy to achieve that goal is pursued by all Pearsons
businesses in some shape or form and has four parts: investment
in quality content; adding services to this content; working in
markets around the world, particularly in the developing world;
and efficiency.
An important measure of our strategy is financial performance.
Our goal is to achieve sustainable growth in three key financial
measures earnings, cash and return on invested
capital and reliable cash returns to our investors
through healthy and growing dividends. Therefore those measures,
or others that contribute to them such as operating margins and
working capital, form the basis of our annual budgets and plans,
and the basis for bonuses and long-term incentives.
Our starting point continues to be that total remuneration (base
compensation plus annual and long-term incentives) should reward
both short and long-term results, delivering competitive rewards
for target performance, but outstanding rewards for exceptional
company performance. The performance conditions that we select
for the companys various performance related annual or
long-term incentive plans are linked to the companys
strategic objectives set out above and aligned with the
interests of shareholders.
Total remuneration is made up of fixed and performance-linked
elements, with each element supporting different objectives.
Base salary reflects competitive market level, role and
individual contribution. Annual incentives motivate the
achievement of annual strategic goals. Bonus share matching
encourages executive directors and other senior executives to
acquire and hold Pearson shares and aligns executives and
shareholders
41
interests. Long-term incentives drive long-term earnings and
share price growth and value creation and align executives
and shareholders interests.
Consistent with its policy, the committee places considerable
emphasis on the performance-linked elements i.e. annual
incentives, bonus share matching and long-term incentives. The
committee will continue to review the mix of fixed and
performance-linked remuneration on an annual basis, consistent
with its overall philosophy.
We want our executive directors remuneration to be
competitive with those of directors and executives in similar
positions in comparable companies. For benchmarking purposes we
review remuneration by reference to the UK and US market
depending on the relevant market or markets for particular jobs.
We look separately at three comparator groups:
First, we use a select peer group of FTSE 100 companies
with very substantial overseas operations. These companies are
of a range of sizes around Pearson, but the method our
independent advisers use to make comparisons on remuneration
takes this variation in size into account; secondly, for the US,
we use a broad media industry group; and thirdly, we look at the
FTSE 20-50,
excluding financial services. We use these companies because
they represent the wider executive talent pool from which we
might expect to recruit externally and the pay market to which
we might be vulnerable if our remuneration was not competitive.
Base
salary
Our normal policy is to review salaries annually, consistent
with the way we benchmark pay and taking into account the
approach to pay across the company as a whole.
Allowances
and benefits
It is the companys policy that benefit programs should be
competitive in the context of the local labour market, but as an
international company we require executives to operate worldwide
and recognize that recruitment also operates worldwide.
Annual
incentives
The committee establishes the annual incentive plans for the
executive directors and the chief executives of the
companys principal operating companies, including
performance measures and targets. These plans then become the
basis of the annual incentive plans below the level of the
principal operating companies, particularly with regard to the
performance measures used and the relationship between the
relevant business unit operating plans and the incentive targets.
The committee will continue to review the annual incentive plans
each year and to revise the performance measures, targets and
individual incentive opportunities in light of current
conditions.
Annual incentive payments do not form part of pensionable
earnings.
Performance
Measures
The financial performance measures relate to the companys
main drivers of business performance at both the corporate,
operating company and business unit level. Performance is
measured separately for each item. For each performance measure,
the committee establishes thresholds, target and maximum levels
of performance for different levels of payout.
A proportion (which for 2011 may be up to 30%) of the total
annual incentive opportunity for the executive directors and
other members of the Pearson Management Committee is based on
performance against personal objectives as agreed with the chief
executive (or in this case the chief executive or chairman).
These comprise functional, operational, strategic and
non-financial objectives relevant to the executives
specific areas of responsibility and inter alia may
include objectives relating to environmental, social and
governance issues.
For 2011 the principle financial performance measures for
Pearson plc are sales, operating profit (for the operating
companies) and growth in underlying earnings per share for
continuing operations at constant exchange rates (for Pearson
plc), average working capital as a ratio to sales and operating
cash flow. The selection and weighting of the performance
measures takes into account the strategic objectives and the
business priorities relevant to each operating company and to
Pearson overall each year.
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The individual annual incentive opportunities for the executive
directors other than the chief executive are expressed as % of
base salary. The committee with the advice of the chief
executive determines the aggregate level of annual incentives
and individual incentive opportunities taking into account all
relevant factors. These factors may include the profitability of
the company, individual roles and responsibilities, market
annual incentive levels, and the level of stretch in the
performance targets.
For 2011, there are no changes to the target and maximum annual
incentive opportunities for the chief executive which remain at
100% and 180% respectively, of base salary (as in 2010).
For the other members of the Pearson Management Committee,
individual incentive opportunities take into account their
membership of that committee and the contribution of their
respective businesses or role to Pearsons overall
financial goals. In the case of the executive directors, the
target individual incentive opportunity for 2011 is in a range
from 80% to 87.5% of base salary (as in 2010). The maximum
opportunity remains at twice target (as in 2010).
The annual incentive plans are discretionary and the committee
reserves the right to make adjustments to payouts up or down if
it believes exceptional factors warrant doing so. The committee
may also award individual discretionary incentive payments.
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Name
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Pearson plc
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Operating company
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Personal objectives
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Marjorie Scardino
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90
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%
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10
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%
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Will Ethridge
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30
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%
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60
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%
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10
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%
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Rona Fairhead
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30
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%
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60
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%
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10
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%
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Robin Freestone
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80
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%
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20
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%
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John Makinson
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30
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%
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60
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%
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10
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%
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For Pearson plc, the performance measures were sales, earnings
per share growth, average working capital to sales ratio and
operating cash flow. Underlying growth in adjusted earnings per
share at constant exchange rates, average working capital as a
ratio to sales and operating cash flow were all above maximum.
Sales were above target but below maximum.
For North American Education, the performance measures were
sales, operating profit, and average working capital as a ratio
to sales and operating cash flow. Average working capital as a
ratio to sales and operating cash flow were above maximum. Sales
and operating profit were above target but below maximum.
For FT Publishing, the performance measures were sales,
operating profit and operating cash flow. All performance
measures were above maximum.
For Pearson VUE, the performance measures were sales, operating
profit, average working capital as a ratio to sales and
operating cash flow. Sales were above target but below maximum.
Performance across all other measures was above maximum.
For Penguin Group, the performance measures were sales,
operating profit, operating margin, average working capital as a
ratio to sales and operating cash flow. Operating profit,
operating margin and average working capital as a ration to
sales were all above maximum. Sales and operating cash flow were
above target but below maximum.
Bonus
share matching
In 2008, shareholders approved the renewal of the annual bonus
share matching plan, which permits executive directors and
senior executives around the company to invest up to 50% of any
after-tax annual bonus in Pearson shares.
If the participants invested shares are held, they will be
matched subject to earnings per share growth over the three-year
performance period on a gross basis up to a maximum of one
matching share for every one held i.e. the number of matching
shares will be equal to the number of shares that could have
been acquired with the amount of the pre-tax annual bonus taken
in invested shares.
One matching share for every two invested shares held i.e. 50%
of the maximum matching award, will be released if the
companys adjusted earnings per share increase in real
terms by 3% per annum compound over the three-year performance
period. One matching share for every one invested share held
i.e. 100% of the maximum matching award, will be released if the
companys adjusted earnings per share increase in real
terms by 5% per annum compound over the same period.
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For real growth in adjusted earnings per share of between 3% and
5% per annum compound, the rate at which the participants
invested shares will be matched will be calculated according to
a straight-line sliding scale.
Real growth is calculated by reference to the UK
Governments Index of Retail Prices (All Items). We choose
to test our earnings per share growth against UK inflation over
three years to measure the companys financial progress
over the period to which the entitlement to matching shares
relates.
Where matching shares vest in accordance with the plan, a
participant will also receive additional shares representing the
gross value of dividends that would have been paid on the
matching shares during the performance period and re-invested.
Long-term
incentives
By separate resolution, shareholders are being asked to approve
the renewal of the long-term incentive plan first introduced in
2001 and renewed again in 2006. The committee has reviewed the
operation of this plan in light of the companys strategic
goals. The committee has concluded that the plan is achieving
its objectives and, looking forward, will continue to enable the
company to recruit and retain the most able managers worldwide
and to ensure their long-term incentives encourage outstanding
performance and are competitive in the markets in which we
operate. We are therefore seeking approval of its renewal on
broadly its existing terms.
Subject to shareholders approval, executive directors,
senior executives and other managers can participate in this
plan which can deliver restricted stock
and/or stock
options. Approximately 6% of the companys employees
currently hold awards under this plan. The aim is to give the
committee a range of tools with which to link corporate
performance to managements long-term reward in a flexible
way. It is not the committees intention to grant stock
options in 2011.
Restricted stock granted to executive directors vests only if
stretching corporate performance targets over a specified period
have been met. Awards vest on a sliding scale based on
performance over the period. There is no retesting. The
committee determines the performance measures and targets
governing an award of restricted stock prior to grant.
The performance measures that will apply for the executive
directors for awards in 2011 and subsequent years will continue
to be focused on delivering and improving returns to
shareholders. These measures, which have applied since 2004, are
relative total shareholder return (TSR), return on invested
capital (ROIC) and earnings per share (EPS) growth.
Restricted stock may be granted without performance conditions
to satisfy recruitment and retention objectives. Restricted
stock awards that are not subject to performance conditions will
not be granted to any of the current executive directors.
Pearsons approach to the level of individual awards takes
into account a number of factors. First, we take into account
the face value of individual awards at the time of grant
assuming that the performance targets are met in full. Secondly,
we take into account the assessments by our independent advisers
of market practice for comparable companies and of
directors total remuneration relative to the market. And
thirdly, we take into account individual roles and
responsibilities, and company and individual performance.
Where shares vest, in accordance with the plan, participants
receive additional shares representing the gross value of
dividends that would have been paid on these shares during the
performance period and reinvested.
Pearson wishes to encourage executives and managers to build up
a long-term holding of shares so as to demonstrate their
commitment to the company. To achieve this, for awards of
restricted stock that are subject to performance conditions over
a three-year period, a percentage of the award (normally 75%)
vests at the end of the three-year period. The remainder of the
award (normally 25%) only vests if the participant retains the
after-tax number of shares that vest at year three for a further
two years.
There are limits on the amount of new-issue equity we can use.
In any rolling ten-year period, no more than 10% of Pearson
equity will be issued, or be capable of being issued, under all
Pearsons share plans, and no more than 5% of Pearson
equity will be issued, or be capable of being issued, under
executive or discretionary plans. In addition, for existing
shares no more than 5% of Pearson equity may be held in trust at
any time.
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Shareholding
policy
The committee expects executive directors to build up a
substantial shareholding in the company in line with the policy
of encouraging widespread employee ownership. To complement the
operation of the companys long-term incentive
arrangements, we will in future, operate formal shareholding
guidelines for executive directors. The target holding will be
200% of the salary for the chief executive and 125% of salary
for the other executive directors consistent with median
practice in FTSE 100 companies that operate such
arrangements.
Service
agreements
In accordance with long established policy, all continuing
executive directors have rolling service agreements under which,
other than by termination in accordance with the terms of these
agreements, employment continues until retirement.
The committee reviewed the policy on executive service
agreements in 2008 and again in 2010. Future executive director
service agreements should provide that the company may terminate
these agreements by giving no more than 12 months
notice. As an alternative, the company may at its discretion pay
in lieu of that notice. Payment in lieu of notice may be made in
instalments and may be subject to mitigation. In the case of the
longer serving directors with legacy employment agreements, the
compensation payable in circumstances where the company
terminates the agreements without notice or cause takes the form
of liquidated damages.
There are no special provisions for notice, pay in lieu of
notice or liquidated damages in the event of termination of
employment in the event of a change of control of Pearson. On
termination of employment, executive directors
entitlements to any vested or unvested awards under
Pearsons discretionary share plans are treated in
accordance with the terms of the relevant plan.
Retirement
benefits
Executive directors participate in the pension arrangements set
up for Pearson employees. Marjorie Scardino, Will Ethridge, John
Makinson, Rona Fairhead and Robin Freestone will also have other
retirement arrangements because of the cap on the amount of
benefits that can be provided from the pension arrangements in
the US and the UK.
The differences in the arrangements for the current executive
directors reflect the different arrangements in the UK and the
US and the changes in pension arrangements generally over the
periods of their employment. Executive directors are entitled to
life insurance cover while in employment, and to a pension in
the event of ill-health or disability. A pension for their
spouse
and/or
dependants is also available on death.
In the US, the defined benefit arrangement is the Pearson Inc.
Pension Plan. This plan provides a lump sum convertible to an
annuity on retirement. The lump sum accrued at 6% of capped
compensation until December 31, 2001 when further benefit
accruals ceased. Normal retirement age is 65 although early
retirement is possible subject to a reduction for early payment.
No increases are guaranteed for pensions in payment. There is a
spouses pension on death in service and the option to
provide a death in retirement pension by reducing the
members pension.
The defined contribution arrangement in the US is a 401(k) plan.
At retirement, the account balances will be used to provide
benefits. In the event of death before retirement, the account
balances will be used to provide benefits for dependants.
In the UK, the pension plan is the Pearson Group Pension Plan
and executive directors participate in either the Final Pay or
the Money Purchase 2003 section. Normal retirement age is 62,
but, subject to company consent, retirement is currently
possible from age 55. In the Final Pay section, the accrued
pension is reduced on retirement prior to age 60. Pensions
in payment are guaranteed to increase each year at 5% or the
rise in inflation each year, if lower. Pensions for a
members spouse, dependant children
and/or
nominated financial dependant are payable in the event of death.
In the Money Purchase 2003 section the account balances are used
to provide benefits at retirement. In the event of death before
retirement pensions for a members spouse, dependant
children
and/or
nominated financial dependant are payable.
Members of the Pearson Group Pension Plan who joined after May
1989 are subject to an upper limit of earnings that can be used
for pension purposes, known as the earnings cap. This limit,
£108,600 as at April 6, 2006, was abolished by the
Finance Act 2004. However the Pearson Group Pension Plan has
retained its own cap, which
45
will increase annually in line with the UK Governments
Index of Retail Prices (All Items). The cap was £123,600 as
at April 6, 2010.
As a result of the UK Governments
A-Day
changes effective from April 2006, UK executive directors and
other members of the Pearson Group Pension Plan who are, or
become, affected by the lifetime allowance are provided with a
cash supplement as an alternative to further accrual of pension
benefits on a basis that is broadly cost neutral to the company.
Marjorie
Scardino
Marjorie Scardino participates in the Pearson Inc. Pension Plan
and the approved 401(k) plan.
Since 2010, additional pension benefits are provided through: a
taxable and non-pensionable cash supplement in place of the
unfunded plan; a funded defined contribution plan approved by HM
Revenue and Customs (HMRC) as a corresponding plan; and amounts
in the legacy unfunded plan. In aggregate, the cash supplement
and contributions to the funded plan are based on a percentage
of salary and a fixed cash amount index-linked to inflation. The
notional cash balance of the legacy unfunded plan increases
annually by a specified notional interest rate. The unfunded
plan also provides the opportunity to convert a proportion of
this notional cash account into a notional share account
reflecting the value of a number of Pearson ordinary shares. The
number of shares in the notional share account is determined by
reference to the market value of Pearson shares at the date of
conversion.
Will
Ethridge
Will Ethridge is a member of the Pearson Inc. Pension Plan and
the approved 401(k) plan. He also participates in an unfunded,
non-qualified Supplemental Executive Retirement Plan (SERP) that
provides an annual accrual of 2% of final average earnings, less
benefits accrued in the Pearson Inc. Pension Plan and US Social
Security. Additional defined contribution benefits are provided
through a funded, non-qualified Excess Plan.
Rona
Fairhead
Rona Fairhead is a member of the Pearson Group Pension Plan. Her
pension accrual rate is 1/30th of pensionable salary per
annum, restricted to the plan earnings cap. Until April 2006,
the company also contributed to a Funded Unapproved Retirement
Benefits Scheme (FURBS) on her behalf. Since April 2006, she has
received a taxable and non-pensionable cash supplement in
replacement of the FURBS.
Robin
Freestone
Robin Freestone is a member of the Money Purchase 2003 section
of the Pearson Group Pension Plan. Company contributions are 16%
of pensionable salary per annum, restricted to the plan earnings
cap. Until April 2006, the company also contributed to a Funded
Unapproved Retirement Benefits Scheme (FURBS) on his behalf.
Since April 2006, he has received a taxable and non-pensionable
cash supplement in replacement of the FURBS.
John
Makinson
John Makinson is a member of the Pearson Group Pension Plan
under which his pensionable salary is restricted to the plan
earnings cap. The company ceased contributions on December
31, 2001 to his FURBS arrangement. During 2002 it set up an
Unfunded Unapproved Retirement Benefits Scheme (UURBS) for him.
The UURBS tops up the pension payable from the Pearson Group
Pension Plan and the closed FURBS to target a pension of
two-thirds of a revalued base salary on retirement at
age 62. The revalued base salary is defined as
£450,000 effective at June 1, 2002, increased at
January 1, each year by reference to the increase in the UK
Governments Index of Retail Prices (All Items). In the
event of his death a pension from the Pearson Group Pension
Plan, the FURBS and the UURBS will be paid to his spouse or
nominated financial dependant. Early retirement is currently
possible from age 55, with company consent.
The pension is reduced to reflect the shorter service, and
before age 60, further reduced for early payment.
Executive
directors non-executive directorships
Our policy is that executive directors may, by agreement with
the board, serve as non-executives of other companies and retain
any fees payable for their services.
46
The following executive directors served as non-executive
directors elsewhere and received fees or other benefits for the
period covered by this report as follows: Marjorie Scardino
(Nokia Corporation and MacArthur Foundation); Rona Fairhead
(HSBC Holdings plc and Spencer Stuart Advisory Board).
Chairmans
remuneration
Our policy is that the chairmans pay should be set at a
level that is competitive with those of chairmen in similar
positions in comparable companies. He is not entitled to any
annual or long-term incentive, retirement or other benefits.
There were no changes in the chairmans remuneration in
2010. With effect from 1 January 2007, his remuneration was
£450,000 per year. We reviewed the chairmans
remuneration at the end of 2010 and agreed that this would be
increased to £500,000 per year with effect from
April 1, 2011. The next review will take place in three
years time.
Non-executive
directors
Fees for non-executive directors are determined by the full
board having regard to market practice and within the
restrictions contained in Pearsons Articles of
Association. Non-executive directors receive no other pay or
benefits (other than reimbursement for expenses incurred in
connection with their directorship of Pearson) and do not
participate in Pearsons equity-based incentive plans.
With effect from July 1, 2010, the structure and fees are
as follows:
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Fees payable from
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July 1, 2010 (£)
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Non-executive director fee
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65,000
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Chairmanship of audit committee
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25,000
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Chairmanship of remuneration committee
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20,000
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Membership of audit committee
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10,000
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Membership of remuneration committee
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5,000
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Senior independent director
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20,000
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A minimum of 25% of the basic fee is paid in Pearson shares that
the non-executive directors have committed to retain for the
period of their directorships.
Non-executive directors serve Pearson under letters of
appointment and do not have service contracts. There is no
entitlement to compensation on the termination of their
directorships.
Remuneration
of senior management
Excluding contributions to pension funds and related benefits,
senior management remuneration for 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries/
|
|
|
Annual
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees
|
|
|
Incentive
|
|
|
Allowances(1)
|
|
|
Benefits(2+3)
|
|
|
Total
|
|
|
|
£000
|
|
|
£000
|
|
|
£000
|
|
|
£000
|
|
|
£000
|
|
|
Non-executive Chairman
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glen Moreno
|
|
|
450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
450
|
|
Executive directors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marjorie Scardino
|
|
|
969
|
|
|
|
1,606
|
|
|
|
70
|
|
|
|
17
|
|
|
|
2,662
|
|
Will Ethridge
|
|
|
661
|
|
|
|
1,010
|
|
|
|
|
|
|
|
|
|
|
|
1,671
|
|
Rona Fairhead
|
|
|
516
|
|
|
|
826
|
|
|
|
12
|
|
|
|
19
|
|
|
|
1,373
|
|
Robin Freestone
|
|
|
460
|
|
|
|
685
|
|
|
|
7
|
|
|
|
6
|
|
|
|
1,158
|
|
John Makinson
|
|
|
536
|
|
|
|
801
|
|
|
|
232
|
|
|
|
6
|
|
|
|
1,575
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior management as a group
|
|
|
3,592
|
|
|
|
4,928
|
|
|
|
321
|
|
|
|
48
|
|
|
|
8,889
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
(1)
|
Allowances for Marjorie Scardino include £45,005 in respect
of housing costs and a US payroll supplement of £11,754.
John Makinson is entitled to a location and market premium in
relation to the management of the business of the Penguin Group
in the US and received £218,653 for 2010.
|
|
(2)
|
Benefits include company car, car allowance and UK health care
premiums. US health and welfare benefits for Marjorie Scardino
and Will Ethridge are self-insured and the company cost, after
employee contributions, is tax free to employees. For Marjorie
Scardino, benefits include £15,450 for pension planning and
financial advice. Marjorie Scardino, Rona Fairhead and John
Makinson have the use of a chauffeur.
|
|
(3)
|
No amounts as compensation for loss of office and no expense
allowances chargeable to UK income tax were paid during the year.
|
Share
options of senior management
This table sets forth for each director the number of share
options held as of December 31, 2010 as well as the
exercise price, rounded to the nearest whole pence/cent, and the
range of expiration dates of these options.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
Exercise
|
|
Earliest
|
|
|
Director
|
|
Options
|
|
(2)
|
|
Price
|
|
Exercise Date
|
|
Expiry Date
|
|
Marjorie Scardino
|
|
1,672
|
|
a
|
|
547.2p
|
|
08/01/12
|
|
02/01/13
|
|
|
41,550
|
|
b*
|
|
1421.0p
|
|
05/09/02
|
|
05/09/11
|
|
|
41,550
|
|
b*
|
|
1421.0p
|
|
05/09/03
|
|
05/09/11
|
|
|
41,550
|
|
b*
|
|
1421.0p
|
|
05/09/04
|
|
05/09/11
|
|
|
41,550
|
|
b*
|
|
1421.0p
|
|
05/09/05
|
|
05/09/11
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
167,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Will Ethridge
|
|
11,010
|
|
b*
|
|
$21.00
|
|
05/09/02
|
|
05/09/11
|
|
|
11,010
|
|
b*
|
|
$21.00
|
|
05/09/03
|
|
05/09/11
|
|
|
11,010
|
|
b*
|
|
$21.00
|
|
05/09/04
|
|
05/09/11
|
|
|
11,010
|
|
b*
|
|
$21.00
|
|
05/09/05
|
|
05/09/11
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
44,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rona Fairhead
|
|
2,371
|
|
a
|
|
690.4p
|
|
08/01/12
|
|
02/01/13
|
|
|
20,000
|
|
b*
|
|
822.0p
|
|
11/01/02
|
|
11/01/11
|
|
|
20,000
|
|
b*
|
|
822.0p
|
|
11/01/03
|
|
11/01/11
|
|
|
20,000
|
|
b*
|
|
822.0p
|
|
11/01/04
|
|
11/01/11
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
62,371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robin Freestone
|
|
1,757
|
|
a
|
|
534.8p
|
|
08/01/11
|
|
02/01/12
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
1,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Makinson
|
|
19,785
|
|
b*
|
|
1421.0p
|
|
05/09/02
|
|
05/09/11
|
|
|
19,785
|
|
b*
|
|
1421.0p
|
|
05/09/03
|
|
05/09/11
|
|
|
19,785
|
|
b*
|
|
1421.0p
|
|
05/09/04
|
|
05/09/11
|
|
|
19,785
|
|
b*
|
|
1421.0p
|
|
05/09/05
|
|
05/09/11
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
79,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
No variations to the terms and conditions of share options were
made during the year.
|
|
(2)
|
Each plan is described below.
|
|
|
a |
Worldwide save for shares The acquisition of shares
under the worldwide save for shares plan is not subject to the
satisfaction of a performance target.
|
|
|
b
|
Long-term incentive All options that remain
outstanding are exercisable and lapse if they remain unexercised
at the tenth anniversary of the date of grant.
|
|
*
|
Where options are exercisable.
|
|
|
(3) |
Marjorie Scardino contributes US$1,000 per month (the maximum
allowed) to the US employee stock purchase plan. The terms of
this plan allow participants to make monthly contributions for
6 month periods
|
48
|
|
|
and to acquire shares twice annually at the end of these periods
at a price that is the lower of the market price at the
beginning or the end of each period, both less 15%.
|
|
|
(4) |
The market price on December 31, 2010 was 1,008.0p per
share and the range during the year was 855.0p to 1,051.0p.
|
Share
ownership of senior management
The table below sets forth the number of ordinary shares and
restricted shares held by each of our directors as at
February 28, 2011. Additional information with respect to
share options held by, and bonus awards for, these persons is
set out above in Remuneration of Senior Management
and Share Options of Senior Management. The total
number of ordinary shares held by senior management as of
February 28, 2011 was 2,735,220 representing less than 1%
of the issued share capital on February 28, 2011.
|
|
|
|
|
|
|
|
|
|
|
Ordinary
|
|
|
Restricted
|
|
As at February 28, 2011
|
|
shares(1)
|
|
|
shares(2)
|
|
|
Glen Moreno
|
|
|
150,000
|
|
|
|
|
|
Marjorie Scardino
|
|
|
1,107,118
|
|
|
|
1,641,511
|
|
David Arculus
|
|
|
14,053
|
|
|
|
|
|
Terry Burns (stepped down on April 30, 2010 )
|
|
|
12,222
|
|
|
|
|
|
Patrick Cescau
|
|
|
6,282
|
|
|
|
|
|
Will Ethridge
|
|
|
333,395
|
|
|
|
665,820
|
|
Rona Fairhead
|
|
|
342,669
|
|
|
|
467,143
|
|
Robin Freestone
|
|
|
193,954
|
|
|
|
560,526
|
|
Susan Fuhrman
|
|
|
11,363
|
|
|
|
|
|
Ken Hydon
|
|
|
10,715
|
|
|
|
|
|
John Makinson
|
|
|
551,039
|
|
|
|
446,042
|
|
CK Prahalad (deceased April 16, 2010)
|
|
|
2,410
|
|
|
|
|
|
Notes:
|
|
|
(1) |
|
Ordinary shares include both ordinary shares listed on the
London Stock Exchange and American Depositary Receipts
(ADRs) listed on the New York Stock Exchange. The figures
include both shares and ADRs acquired by individuals investing
part of their own after-tax annual bonus in Pearson shares under
the annual bonus share matching plan. |
|
(2) |
|
From 2004, Marjorie Scardino is also deemed to be interested in
a further number of shares under her unfunded pension
arrangement described in this report, which provides the
opportunity to convert a proportion of her notional cash account
into a notional share account reflecting the value of a number
of Pearson shares. |
|
(3) |
|
The register of directors interests (which is open to
inspection during normal office hours) contains full details of
directors shareholdings and options to subscribe for
shares. The market price on December 31, 2010 was 1,008.0p
per share and the range during the year was 855.0p to 1,051.0p. |
|
(4) |
|
At December 31, 2010, Patrick Cescau held 168,000 Pearson
bonds. |
|
(5) |
|
Ordinary shares do not include any shares vested but held
pending release under a restricted share plan. |
Employee
share ownership plans
Worldwide
save for shares and US employee share purchase
plans
In 1998, we introduced a worldwide save for shares plan. Under
this plan, our employees around the world have the option to
save a portion of their monthly salary over periods of three,
five or seven years. At the end of this period, the employee has
the option to purchase ordinary shares with the accumulated
funds at a purchase price equal to 80% of the market price
prevailing at the commencement of the employees
participation in the plan.
In the United States, this plan operates as a stock purchase
plan under Section 423 of the US Internal Revenue Code of
1986. This plan was introduced in 2000 following Pearsons
listing on the New York Stock Exchange. Under it, participants
save a portion of their monthly salary over six month periods,
at the end of which they have the
49
option to purchase ADRs with their accumulated funds at a
purchase price equal to 85% of the lower of the market price
prevailing at the beginning or end of the period.
Board
practices
Our board currently comprises the chairman, who is a part-time
non-executive director, five executive directors and five
non-executive directors. Our articles of association provide
that at every annual general meeting, one-third of the board of
directors, or the number nearest to one-third, shall retire from
office. The directors to retire each year are the directors who
have been longest in office since their last election or
appointment. A retiring director is eligible for re-election. If
at any annual general meeting, the place of a retiring director
is not filled, the retiring director, if willing, is deemed to
have been re-elected, unless at or prior to such meeting it is
expressly resolved not to fill the vacated office, or unless a
resolution for the re-election of that director has been put to
the meeting and lost. Our articles of association also provide
that every director be subject to re-appointment by shareholders
at the next annual general meeting following their appointment.
However since 2008, in accordance with good corporate
governance, the board has resolved that all directors should
offer themselves for re-election on an annual basis at the
companys annual general meeting. Accordingly, all of the
directors will offer themselves for re-election, (or
re-appointment in the case of directors who were appointed since
the last meeting), at the forthcoming annual general meeting on
28 April 2011.
Pearson is listed on the New York Stock Exchange
(NYSE). As a listed non-US issuer, we are required
to comply with some of the NYSEs corporate governance
rules, and otherwise must disclose on our website any
significant ways in which our corporate governance practices
differ from those followed by US companies under the NYSE
listing standards. At this time, the Company believes that it is
in compliance in all material respects with all the NYSE rules
except that the Nomination Committee is not composed entirely of
independent directors, and that it is the full board, not the
Nomination Committee, that develops and recommends corporate
governance principles.
The board of directors has established the following committees,
all of which report to the board. Each committee has its own
written terms of reference setting out their authority and
duties. These can be found on our website
(www.pearson.com/investors/shareholder-information/governance).
Audit
committee
This committee provides the board with a vehicle to appraise our
financial management and reporting and to assess the integrity
of our accounting procedures and financial controls. Ken Hydon
chairs this committee and its other members are David Arculus,
Patrick Cescau, Susan Fuhrman and Joshua Lewis. Ken Hydon is
also the designated audit committee financial expert within the
meaning of the applicable rules and regulations of the US
Securities and Exchange Commission. Our internal and external
auditors have direct access to the committee to raise any matter
of concern and to report the results of work directed by the
committee.
Remuneration
committee
This committee meets regularly to decide the remuneration and
benefits of the executive directors and the chief executives of
our three operating divisions. The committee also recommends the
chairmans remuneration to the board of directors for its
decision and reviews management development and succession
plans. David Arculus chairs this committee and its other members
are Patrick Cescau, Glen Moreno and Ken Hydon.
Nomination
committee
This committee meets from time to time as necessary to consider
the appointment of new directors. The committee is chaired by
Glen Moreno and comprises Marjorie Scardino and all of the
non-executive directors.
Employees
The average number of persons employed by us in continuing
operations during each of the three fiscal years ended 2010 were
as follows:
50
|
|
|
|
|
34,705 in fiscal 2009, and
|
|
|
|
31,171 in fiscal 2008.
|
We, through our subsidiaries, have entered into collective
bargaining agreements with employees in various locations. Our
management has no reason to believe that we would not be able to
renegotiate any such agreements on satisfactory terms. We
encourage employees to contribute actively to the business in
the context of their particular job roles and believe that the
relations with our employees are generally good.
The table set forth below shows for 2010, 2009 and 2008 the
average number of persons employed in each of our operating
divisions.
|
|
|
|
|
|
|
|
|
|
|
|
|
Average number employed
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
North American Education
|
|
|
14,828
|
|
|
|
15,606
|
|
|
|
15,412
|
|
International Education
|
|
|
10,713
|
|
|
|
8,899
|
|
|
|
5,718
|
|
Professional
|
|
|
3,721
|
|
|
|
2,662
|
|
|
|
2,641
|
|
FT Group
|
|
|
2,557
|
|
|
|
2,328
|
|
|
|
2,379
|
|
Penguin
|
|
|
3,470
|
|
|
|
4,163
|
|
|
|
4,112
|
|
Other
|
|
|
1,028
|
|
|
|
1,047
|
|
|
|
909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
36,317
|
|
|
|
34,705
|
|
|
|
31,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average number employed in discontinued operations was 2,459
in 2009 and 2,509 in 2008.
|
|
ITEM 7.
|
MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
|
To our knowledge, as of February 28, 2011, the beneficial
owners of 3% or more of our issued and outstanding ordinary
share capital were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
% of outstanding
|
|
|
|
|
ordinary shares
|
|
|
|
|
represented by
|
|
|
Number of ordinary
|
|
number of shares
|
Name of shareholder
|
|
shares held
|
|
held
|
|
Legal & General Group plc
|
|
|
32,300,784
|
|
|
|
3.98
|
%
|
Libyan Investment Authority
|
|
|
24,431,000
|
|
|
|
3.01
|
%
|
On February 28, 2011, record holders with registered
addresses in the United States held 48,543,471 ADRs, which
represented 5.97% of our outstanding ordinary shares. Some of
these ADRs are held by nominees and so these numbers may not
accurately represent the number of beneficial owners in the
United States.
Loans and equity advanced to joint ventures and associates
during the year and as at December 31, 2010 are shown in
note 12 in Item 18. Financial Statements.
Dividends receivable from joint ventures and associates are set
out in note 12 in Item 18. Financial
Statements. There were no other related party transactions
in 2010.
51
|
|
ITEM 8.
|
FINANCIAL
INFORMATION
|
The financial statements filed as part of this Annual Report are
included on pages F-1 through F-69 hereof.
Other than those events described in note 35 in
Item 18. Financial Statements of this
Form 20-F
and seasonal fluctuations in borrowings, there has been no
significant change to our financial condition or results of
operations since December 31, 2010. Our borrowings
fluctuate by season due to the effect of the school year on the
working capital requirements of the educational book business.
Assuming no acquisitions or disposals, our maximum level of net
debt normally occurs in July, and our minimum level of net debt
normally occurs in December.
Our policy with respect to dividend distributions is described
in response to Item 3. Key Information above.
|
|
ITEM 9.
|
THE
OFFER AND LISTING
|
The principal trading market for our ordinary shares is the
London Stock Exchange. Our ordinary shares also trade in the
United States in the form of ADSs evidenced by ADRs under a
sponsored ADR facility with The Bank of New York Mellon, as
depositary. We established this facility in March 1995 and
amended it in August 2000 in connection with our New York Stock
Exchange listing. Each ADS represents one ordinary share.
The ADSs trade on the New York Stock Exchange under the symbol
PSO.
The following table sets forth the highest and lowest middle
market quotations, which represent the average of closing bid
and asked prices, for the ordinary shares, as derived from the
Daily Official List of the London Stock Exchange and the average
daily trading volume on the London Stock Exchange:
|
|
|
|
|
on an annual basis for our five most recent fiscal years,
|
|
|
|
on a quarterly basis for our most recent quarter and two most
recent fiscal years, and
|
|
|
|
on a monthly basis for the six most recent months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ordinary
|
|
|
|
|
shares
|
|
Average daily
|
Reference period
|
|
High
|
|
Low
|
|
trading volume
|
|
|
(In pence)
|
|
(Ordinary shares)
|
|
Five most recent fiscal years
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
1051
|
|
|
|
855
|
|
|
|
2,424,600
|
|
2009
|
|
|
893
|
|
|
|
578
|
|
|
|
4,030,500
|
|
2008
|
|
|
733
|
|
|
|
519
|
|
|
|
4,758,300
|
|
2007
|
|
|
915
|
|
|
|
695
|
|
|
|
6,405,600
|
|
2006
|
|
|
811
|
|
|
|
671
|
|
|
|
5,004,500
|
|
Most recent quarter and two most recent fiscal years
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Fourth quarter
|
|
|
1034
|
|
|
|
926
|
|
|
|
2,126,500
|
|
Third quarter
|
|
|
1029
|
|
|
|
864
|
|
|
|
2,167,800
|
|
Second quarter
|
|
|
1051
|
|
|
|
888
|
|
|
|
2,967,400
|
|
First quarter
|
|
|
1037
|
|
|
|
855
|
|
|
|
2,466,700
|
|
2009 Fourth quarter
|
|
|
893
|
|
|
|
755
|
|
|
|
2,777,200
|
|
Third quarter
|
|
|
777
|
|
|
|
578
|
|
|
|
3,158,500
|
|
Second quarter
|
|
|
733
|
|
|
|
600
|
|
|
|
4,554,700
|
|
First quarter
|
|
|
714
|
|
|
|
584
|
|
|
|
5,695,700
|
|
Most recent six months
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2011
|
|
|
1064
|
|
|
|
1013
|
|
|
|
1,524,200
|
|
January 2011
|
|
|
1066
|
|
|
|
983
|
|
|
|
2,075,800
|
|
December 2010
|
|
|
1034
|
|
|
|
961
|
|
|
|
1,673,100
|
|
November 2010
|
|
|
974
|
|
|
|
926
|
|
|
|
1,909,900
|
|
October 2010
|
|
|
1009
|
|
|
|
948
|
|
|
|
2,806,800
|
|
September 2010
|
|
|
1022
|
|
|
|
985
|
|
|
|
1,877,000
|
|
52
|
|
ITEM 10.
|
ADDITIONAL
INFORMATION
|
Articles
of association
We summarize below the material provisions of our articles of
association, as amended, which have been filed as an exhibit to
our annual report on
Form 20-F
for the year ended December 31, 2010. The summary below is
qualified entirely by reference to the Articles of Association.
We have multiple business objectives and purposes and are
authorized to do such things as the board may consider fit to
further our interests or incidental or conducive to the
attainment of our objectives and purposes.
Directors
powers
Our business shall be managed by the board of directors and the
board may exercise all such of our powers as are not required by
law or by the Articles of Association or by any directions given
by the Company by special resolution, to be exercised in a
general meeting.
Interested
directors
For the purposes of section 175 of the Companies Act 2006
the board may authorize any matter proposed to it which would,
if not so authorized, involve a breach of duty by a Director
under that section, including, without limitation, any matter
which relates to a situation in which a Director has, or can
have, an interest which conflicts, or possibly may conflict,
with the interests of the Company. Any such authorization will
be effective only if:
|
|
|
|
(a)
|
any requirement as to quorum at the meeting at which the matter
is considered is met without counting the Director in question
or any other interested Director; and
|
|
|
|
|
(b)
|
the matter was agreed to without their voting or would have been
agreed to if their votes had not been counted.
|
The board may (whether at the time of the giving of the
authorization or subsequently) make any such authorization
subject to any limits or conditions it expressly imposes, but
such authorization is otherwise given to the fullest extent
permitted. The board may vary or terminate any such
authorization at any time.
Provided that he has disclosed to the board the nature and
extent of his interest, a Director notwithstanding his office:
|
|
|
|
(a)
|
may be a party to, or otherwise interested in, any transaction
or arrangement with the Company or in which the Company is
otherwise (directly or indirectly) interested;
|
|
|
|
|
(b)
|
may act by himself or his firm in a professional capacity for
the Company (otherwise than as auditor) and he or his firm shall
be entitled to remuneration for professional services as if he
were not a Director;
|
|
|
|
|
(c)
|
may be a director or other officer of, or employed by, or a
party to a transaction or arrangement with, or otherwise
interested in, any body corporate in which the Company is
otherwise (directly or indirectly) interested.
|
A Director shall not, by reason of his office, be accountable to
the Company for any remuneration or other benefit which he
derives from any office or employment or from any transaction or
arrangement or from any interest in any body corporate:
|
|
|
|
(a)
|
the acceptance, entry into or existence of which has been
approved by the board (subject, in any such case, to any limits
or conditions to which such approval was subject); or
|
|
|
|
|
(b)
|
which he is permitted to hold or enter into by virtue of
paragraph (a), (b) or (c) above;
|
nor shall the receipt of any such remuneration or other benefit
constitute a breach of his duty under section 176 of the
Act.
A Director shall be under no duty to the Company with respect to
any information which he obtains or has obtained otherwise than
as a director of the Company and in respect of which he owes a
duty of confidentiality to another person. However, to the
extent that his relationship with that other person gives rise
to a conflict of interest
53
or possible conflict of interest, which has been approved by the
board: the director shall not be in breach of the general duties
he owes to the Company by virtue of sections 171 to 177 of
the Act because he fails:
|
|
|
|
(a)
|
to disclose any such information to the board or to any Director
or other officer or employee of the Company; and/or
|
|
|
|
|
(b)
|
to use or apply any such information in performing his duties as
a Director of the Company.
|
Where the existence of a Directors relationship with
another person has been approved by the board and his
relationship with that person gives rise to a conflict of
interest or possible conflict of interest, the Director shall
not be in breach of the general duties he owes to the Company by
virtue of sections 171 to 177 of the Act because he:
|
|
|
|
(a)
|
absents himself from meetings of the board at which any matter
relating to the conflict of interest or possible conflict of
interest will or may be discussed or from the discussion of any
such matter at a meeting or otherwise; and/or
|
|
|
|
|
(b)
|
makes arrangements not to receive documents and information
relating to any matter which gives rise to the conflict of
interest or possible conflict of interest sent or supplied by
the Company
and/or for
such documents and information to be received and read by a
professional adviser,
|
for so long as he reasonably believes such conflict of interest
or possible conflict of interest subsists.
Except as stated below, a Director shall not vote in respect of
any contract or arrangement or any other proposal whatsoever in
which he has an interest which is, to his knowledge, a material
interest, otherwise than by virtue of his interests in shares or
debentures or other securities of or otherwise in or through the
Company. A Director shall not be counted in the quorum at a
meeting of the Board in relation to any resolution on which he
is debarred from voting.
Notwithstanding the foregoing, a director will be entitled to
vote, and be counted in the quorum, on any resolution concerning
any of the following matters:
|
|
|
|
|
the giving of any guarantee, security or indemnity in respect of
money lent or obligations incurred by him or by any other person
at the request of or for the benefit of the Company or any of
its subsidiaries;
|
|
|
|
the giving of any guarantee, security or indemnity to a third
party in respect of a debt or obligation of the Company or any
of its subsidiaries for which he himself has assumed
responsibility in whole or in part and whether alone or jointly
with others under a guarantee or indemnity or by the giving of
security;
|
|
|
|
any proposal relating to the Company or any of its subsidiary
undertakings where it is offering securities in which offer a
Director is or may be entitled to participate as a holder of
securities or in the underwriting or
sub-underwriting
of which a Director is to participate;
|
|
|
|
any proposal relating to another company in which he and any
persons connected with him do not to his knowledge hold an
interest in shares (as that term is used in sections 820 to
825 of the Act) representing one per cent or more of either any
class of the equity share capital, or the voting rights, in such
company;
|
|
|
|
any proposal relating to an arrangement for the benefit of the
employees of the Company or any of its subsidiary undertakings
which does not award him any privilege or benefit not generally
awarded to the employees to whom such arrangement
relates; and
|
|
|
|
any proposal concerning insurance that we propose to maintain or
purchase for the benefit of directors or for the benefit of
persons, including directors.
|
Where proposals are under consideration concerning the
appointment of two or more directors to offices or employment
with us or any company in which we are interested, these
proposals may be divided and considered separately and each of
these directors, if not prohibited from voting under the
provisions of the eighth paragraph before this one, will be
entitled to vote and be counted in the quorum with respect to
each resolution except that concerning his or her own
appointment.
54
Borrowing
powers
The board of directors may exercise all powers to borrow money
and to mortgage or charge our undertaking, property and uncalled
capital and to issue debentures and other securities, whether
outright or as collateral security for any of our or any third
partys debts, liabilities or obligations. The board of
directors must restrict the borrowings in order to secure that
the aggregate amount of undischarged monies borrowed by us (and
any of our subsidiaries), but excluding any intra-group debts,
shall not at any time (without the previous sanction of the
Company in the form of an ordinary resolution) exceed a sum
equal to twice the aggregate of the adjusted capital and
reserves.
Other
provisions relating to directors
Under the articles of association, directors are paid out of our
funds for their services as we may from time to time determine
by ordinary resolution and, in the case of non-executive
directors, up to an aggregate of £750,000 or such other
amounts as resolved by the shareholders at a general meeting.
Directors currently are not required to hold any share
qualification.
Annual
general meetings
In every year the Company must hold an annual general meeting
(within a period of not more than 15 months after the date
of the preceding annual general meeting) at a place and time
determined by the board. The following matters are usually
considered at an annual general meeting:
|
|
|
|
|
approving final dividends;
|
|
|
|
consideration of the accounts and balance sheet;
|
|
|
|
ordinary reports of the board of directors and auditors and any
other documents required to be annexed to the balance sheet;
|
|
|
|
the re-appointment or re-election of directors;
|
|
|
|
appointment or reappointment of, and authorizing the directors
to determine the remuneration of, the auditors; and
|
|
|
|
the renewal, limitation, extension, variation or grant of any
authority to the board in relation to the allotment of
securities.
|
The board may call a general meeting whenever it thinks fit. If
at any time there are not within the United Kingdom
sufficient directors capable of acting to form a quorum, any
director or any two members may convene a general meeting in the
same manner as nearly as possible as that in which meetings may
be convened by the board.
No business shall be dealt with at any general meeting unless a
quorum is present when the meeting proceeds to business. Three
members present in person and entitled to vote shall be a quorum
for all purposes. A corporation being a member shall be deemed
to be personally present if represented by its duly authorized
representative.
If a quorum for a meeting convened at the request of
shareholders is not present within fifteen minutes of the
appointed time, the meeting will be dissolved. In any other
case, the general meeting will be adjourned to the same day in
the next week, at the same time and place, or to a time and
place that the chairman fixes. If at that rescheduled meeting a
quorum is not present within fifteen minutes from the time
appointed for holding the meeting, the shareholders present in
person or by proxy will be a quorum. The chairman or, in his
absence, the deputy chairman or any other director nominated by
the board, will preside as chairman at every general meeting. If
no director is present at the general meeting or no director
consents to act as chairman, the shareholders present shall
elect one of their number to be chairman of the meeting.
Share
certificates
Every person whose name is entered as a member in the
Companys Register of Members shall be entitled to one
certificate in respect of each class of shares held. (The law
regarding this does not apply to stock exchange
55
nominees). Subject to the terms of issue of the shares,
certificates are issued following allotment or receipt of the
form of transfer bearing the appropriate stamp duty by our
registrar, Equiniti, Aspect House, Spencer Road, Lancing, West
Sussex, BN99 6DA, United Kingdom, telephone number +44
(0) 121 415 7062.
Share
capital
Any share may be issued with such preferred, deferred or other
special rights or other restrictions as we may determine by way
of a shareholders vote in general meeting. Subject to the
Act, any shares may be issued on terms that they are, or at our
or the shareholders option are, liable to be redeemed on
such terms and in such manner as we, before the issue of the
shares, may determine by special resolution of the shareholders.
There are no provisions in the Articles of Association which
discriminate against any existing or prospective shareholder as
a result of such shareholder owning a substantial number of
shares.
Subject to the terms of the shares which have been issued, the
directors may from time to time make calls upon the shareholders
in respect of any moneys unpaid on their shares, provided that
(subject to the terms of the shares so issued) no call on any
share shall be payable at less than fourteen clear days from the
last call. The directors may, if they see fit, receive from any
shareholder willing to advance the same, all and any part of the
moneys uncalled and unpaid upon any shares held by him.
Voting
rights
Every holder of ordinary shares present in person at a meeting
of shareholders has one vote on a vote taken by a show of hands.
On a poll, every holder of ordinary shares who is present in
person or by proxy has one vote for every ordinary share of
which he or she is the holder. Voting at any meeting of
shareholders is by a show of hands unless a poll is properly
demanded before the declaration of the results of a show of
hands. A poll may be demanded by:
|
|
|
|
|
the chairman of the meeting;
|
|
|
|
at least three shareholders present in person or by proxy and
entitled to vote;
|
|
|
|
any shareholder or shareholders present in person or by proxy
representing not less than one-tenth of the total voting rights
of all shareholders having the right to vote at the
meeting; or
|
|
|
|
any shareholder or shareholders present in person or by proxy
holding shares conferring a right to vote at the meeting being
shares on which the aggregate sum paid up is equal to not less
than one-tenth of the total sum paid up on all shares conferring
that right.
|
Dividends
Holders of ordinary shares are entitled to receive dividends out
of our profits that are available by law for distribution, as we
may declare by ordinary resolution, subject to the terms of
issue thereof. However, no dividends may be declared in excess
of an amount recommended by the board of directors. The board
may pay interim dividends to the shareholders as it deems fit.
We may invest or otherwise use all dividends left unclaimed for
six months after having been declared for our benefit, until
claimed. All dividends unclaimed for a period of twelve years
after having been declared will be forfeited and revert to us.
The directors may, with the sanction of an ordinary resolution
of the shareholders, offer any holders of ordinary shares the
right to elect to receive ordinary shares credited as fully
paid, in whole or in part, instead of cash in respect of such
dividend.
The directors may deduct from any dividend payable to any
shareholder all sums of money (if any) presently payable by that
shareholder to us on account of calls or otherwise in relation
to our shares.
Liquidation
rights
In the event of our liquidation, after payment of all
liabilities, our remaining assets would be used to repay the
holders of ordinary shares the amount they paid for their
ordinary shares. Any balance would be divided among the holders
of ordinary shares in proportion to the nominal amount of the
ordinary shares held by them.
56
Other
provisions of the articles of association
Whenever our capital is divided into different classes of
shares, the special rights attached to any class may, unless
otherwise provided by the terms of the issue of the shares of
that class, be varied or abrogated, either with the written
consent of the holders of three-fourths of the issued shares of
the class or with the sanction of a special resolution passed at
a separate meeting of these holders.
In the event that a shareholder or other person appearing to the
board of directors to be interested in ordinary shares fails to
comply with a notice requiring him or her to provide information
with respect to their interest in voting shares pursuant to
section 820 of the Act, we may serve that shareholder with
a notice of default. After service of a default notice, that
shareholder shall not be entitled to attend or vote at any
general meeting or at a separate meeting of holders of a class
of shares or on a poll until he or she has complied in full with
our information request.
If the shares described in the default notice represent at least
one-fourth of 1% in nominal value of the issued ordinary shares,
then the default notice may additionally direct that in respect
of those shares:
|
|
|
|
|
we will not pay dividends (or issue shares in lieu of
dividends); and
|
|
|
|
we will not register transfers of shares unless the shareholder
is not himself in default as regards supplying the information
requested and the transfer, when presented for registration, is
in such form as the board of directors may require to the effect
that after due and careful inquiry, the shareholder is satisfied
that no person in default is interested in any of the ordinary
shares which are being transferred or the transfer is an
approved transfer, as defined in our articles of association.
|
No provision of our articles of association expressly governs
the ordinary share ownership threshold above which shareholder
ownership must be disclosed. Under UK regulations, any person
who acquires, either alone or, in specified circumstances, with
others an interest in our voting share capital equal to or in
excess of 3% (and each percentage point above it) comes under an
obligation to disclose prescribed particulars to us in respect
of those ordinary shares. A disclosure obligation also arises
where a persons notifiable interests fall below the
notifiable percentage, or where, above that level, the
percentage of our voting share capital in which a person has a
notifiable interest increases or decreases.
Limitations
affecting holders of ordinary shares or American Depositary
Shares (ADSs)
Under English law and our articles of association, persons who
are neither UK residents nor UK nationals may freely hold, vote
and transfer ordinary shares in the same manner as UK residents
or nationals.
With respect to the items discussed above, applicable UK law is
not materially different from applicable US law.
Material
contracts
Pearson has not entered into any contracts outside the ordinary
course of business during the two year period immediately
preceding the date of this annual report.
Executive
employment contracts
We have entered into agreements with each of our executive
directors pursuant to which such executive director is employed
by us. These agreements describe the duties of such executive
director and the compensation to be paid by us. See
Item 6. Directors, Senior Management and
Employees Compensation of Senior Management.
Each agreement may be terminated by us on 12 months
notice or by the executive director on six months notice.
In the event we terminate any executive director, excluding the
current chief financial officer, without giving the full
12 months advance notice, the executive director is
entitled to receive liquidated damages equal to
12 months base salary and benefits together with a
proportion of potential bonus. The chief financial officer has
no contractual provisions for compensation on termination by the
company without notice or cause.
57
Exchange
controls
There are no UK government laws, decrees, regulations or other
legislation which restrict or which may affect the import or
export of capital, including the availability of cash and cash
equivalents for use by us or the remittance of dividends,
interest or other payments to nonresident holders of our
securities, except as otherwise described under Tax
Considerations below.
Tax
considerations
The following is a discussion of the material US federal income
tax considerations and UK tax considerations arising from the
acquisition, ownership and disposition of ordinary shares and
ADSs by a US holder. A US holder is a beneficial owner of
ordinary shares or ADSs who is:
|
|
|
|
|
an individual citizen or resident of the US, or
|
|
|
|
a corporation created or organized in or under the laws of the
US or any of its political subdivisions, or
|
|
|
|
an estate or trust the income of which is subject to US federal
income taxation regardless of its source.
|
This discussion deals only with ordinary shares and ADSs that
are held as capital assets by a US holder, and does not address
tax considerations applicable to US holders that may be subject
to special tax rules, such as:
|
|
|
|
|
dealers or traders in securities or currencies,
|
|
|
|
financial institutions or other US holders that treat income in
respect of the ordinary shares or ADSs as financial services
income,
|
|
|
|
insurance companies,
|
|
|
|
tax-exempt entities,
|
|
|
|
US holders that hold the ordinary shares or ADSs as a part of a
straddle or conversion transaction or other arrangement
involving more than one position,
|
|
|
|
US holders that own, or are deemed for US tax purposes to own,
10% or more of the total combined voting power of all classes of
our voting stock,
|
|
|
|
US holders that have a principal place of business or tax
home outside the United States, or
|
|
|
|
US holders whose functional currency is not the US
dollar.
|
For US federal income tax purposes, holders of ADSs will be
treated as the owners of the ordinary shares represented by
those ADSs.
In addition, the following discussion assumes that The Bank of
New York will perform its obligations as depositary in
accordance with the terms of the depositary agreement and any
related agreements.
Because US and UK tax consequences may differ from one holder
to the next, the discussion set out below does not purport to
describe all of the tax considerations that may be relevant to
you and your particular situation. Accordingly, you are advised
to consult your own tax advisor as to the US federal, state and
local, UK and other, including foreign, tax consequences of
investing in the ordinary shares or ADSs. The statements of US
and UK tax law set out below are based on the laws and
interpretations in force as of the date of this Annual Report,
and are subject to any changes occurring after that date.
UK
income taxation of distributions
The UK does not impose dividend withholding tax on dividends
paid to US holders.
US
income taxation of distributions
Distributions that we make with respect to the ordinary shares
or ADSs, other than distributions in liquidation and
distributions in redemption of stock that are treated as
exchanges, will be taxed to US holders as ordinary
58
dividend income to the extent that the distributions do not
exceed our current and accumulated earnings and profits. The
amount of any distribution will equal the amount of the cash
distribution. Distributions, if any, in excess of our current
and accumulated earnings and profits will constitute a
non-taxable return of capital to a US holder and will be applied
against and reduce the US holders tax basis in its
ordinary shares or ADSs. To the extent that these distributions
exceed the tax basis of the US holder in its ordinary shares or
ADSs, the excess generally will be treated as capital gain.
Dividends that we pay will not be eligible for the dividends
received deduction generally allowed to US corporations
under Section 243 of the Code.
In the case of distributions in pounds, the amount of the
distributions generally will equal the US dollar value of the
pounds distributed, determined by reference to the spot currency
exchange rate on the date of receipt of the distribution by the
US holder in the case of shares or by The Bank of New York in
the case of ADSs, regardless of whether the US holder reports
income on a cash basis or an accrual basis. The US holder will
realize separate foreign currency gain or loss only to the
extent that this gain or loss arises on the actual disposition
of pounds received. For US holders claiming tax credits on a
cash basis, taxes withheld from the distribution are translated
into US dollars at the spot rate on the date of the
distribution; for US holders claiming tax credits on an accrual
basis, taxes withheld from the distribution are translated into
US dollars at the average rate for the taxable year.
A distribution by the Company to noncorporate shareholders
before 2013 will be taxed as net capital gain at a maximum rate
of 15%, provided certain holding periods are met, to the extent
such distribution is treated as a dividend under US federal
income tax principles.
UK
income taxation of capital gains
Under the Income Tax Treaty, each country generally may tax
capital gains in accordance with the provisions of its domestic
law. Under present UK law, a US holder that is not a resident,
and, in the case of an individual, not ordinarily resident, in
the UK for UK tax purposes and who (in the case of an
individual) does not carry on a trade, profession or vocation in
the UK through a branch or agency, or (in the case of a company)
does not carry on a trade in the UK through a UK permanent
establishment, to which ordinary shares or ADSs are attributable
will not be liable for UK taxation on capital gains or eligible
for relief for allowable losses, realized on the sale or other
disposal (including redemption) of these ordinary shares or ADSs.
A US holder who is an individual and who has ceased to be
resident or ordinarily resident for tax purposes in the UK on or
after 17 March 1988 or who falls to be regarded as resident
outside the UK for the purposes of any double tax treaty
(Treaty Non-resident) on or after 16 March 2005
and continues to not be resident or ordinarily resident in the
UK, or continues to be Treaty Non-resident, for a period of less
than five years of assessment and who disposes of his ordinary
shares or ADSs during that period may also be liable on his
return to the UK to UK tax on capital gains, subject to any
available exemption or relief, even though he is not resident or
ordinarily resident in the UK, or is Treaty Non-resident, at the
time of the disposal.
US
income taxation of capital gains
Upon a sale or exchange of ordinary shares or ADSs to a person
other than Pearson, a US holder will recognize gain or loss in
an amount equal to the difference between the amount realized on
the sale or exchange and the US holders adjusted tax basis
in the ordinary shares or ADSs. Any gain or loss recognized will
be capital gain or loss and will be long-term capital gain or
loss if the US holder has held the ordinary shares or ADSs for
more than one year. Long-term capital gain of a noncorporate US
holder is generally taxed at a maximum rate of 15%. This
long-term capital gain rate is scheduled to expire in 2013.
Gain or loss realized by a US holder on the sale or exchange of
ordinary shares or ADSs generally will be treated as US-source
gain or loss for US foreign tax credit purposes.
Estate
and gift tax
The current Estate and Gift Tax Convention, or the Convention,
between the US and the UK generally relieves from UK Inheritance
Tax (the equivalent of US Estate and Gift Tax) the transfer of
ordinary shares or of ADSs
59
where the transferor is domiciled in the US, for the purposes of
the Convention. This relief will not apply if the ordinary
shares or ADSs are part of the business property of an
individuals permanent establishment in the UK or pertain
to the fixed base in the UK of a person providing independent
personal services. If no relief is given under the Convention,
inheritance tax may be charged on the amount by which the value
of the transferors estate is reduced as a result of any
transfer made by way of gift or other gratuitous transfer by an
individual, in general within seven years of death, or on the
death of an individual. In the unusual case where ordinary
shares or ADSs are subject to both UK Inheritance Tax and US
Estate or Gift Tax, the Convention generally provides for tax
paid in the UK to be credited against tax payable in the US or
for tax paid in the US to be credited against tax payable in the
UK based on priority rules set forth in the Convention.
Stamp
duty
The statements below reflect what is understood to be
HMRCs currency practice under existing law.
No stamp duty or stamp duty reserve tax (SDRT) will be payable
in the UK on the purchase or transfer of an ADS, provided that
the ADS, and any separate instrument or written agreement of
transfer, remain at all times outside the UK and that the
instrument or written agreement of transfer is not executed in
the UK. Subject to the following paragraph, stamp duty or SDRT
is, however, generally payable at the rate of 1.5% of the amount
or value of the consideration or, in some circumstances, the
value of the ordinary shares, where ordinary shares are issued
or transferred to a person whose business is or includes issuing
depositary receipts, or to a nominee or agent for such a person,
or issued or transferred to a person whose business is or
includes the provision of clearance services or a nominee or
agent for such a person.
Following a decision of the European Court of Justice in 2009,
HMRC has announced that it will not seek to apply the 1.5% SDRT
charge when new shares are issued an EU clearance service or EU
depositary receipt system. It seems that HMRCs view is
that the 1.5% SDRT charge will continue to apply to transfer of
shares into a clearance service or depositary receipt system,
and also in respect of issues of shares into non-EU clearance
services and non-EU depositary receipt systems. Arguably the
1.5% SDRT charge in such situations is not consistent with the
2009 decision of the European Court of Justice, although HMRC is
likely to impose such charges until further case law or
legislation resolves the issue.
A transfer for value of the underlying ordinary shares will
generally be subject to either stamp duty or SDRT, normally at
the rate of 0.5% of the amount or value of the consideration. A
transfer of ordinary shares from a nominee to its beneficial
owner, including the transfer of underlying ordinary shares from
the Depositary to an ADS holder, under which no beneficial
interest will not be subject to stamp duty or SDRT.
Close
company status
We believe that the close company provisions of the UK
Corporation Tax Act 2010 do not apply to us.
Documents
on display
A copy of Articles of Association is filed as an exhibit to this
Annual Report and certain other documents referred to in this
Annual Report are available for inspection at our registered
office at 80 Strand, London WC2R 0RL
(c/o the
Company Secretary), or, in the US, at the registered office of
Pearson Inc. at 1330 Avenue of the Americas, 7th Floor, New
York, New York, during usual business hours upon reasonable
prior request.
|
|
ITEM 11.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Introduction
Our principal market risks are changes in interest rates and
currency exchange rates. Following an evaluation of these
positions, we selectively enter into derivative financial
instruments to manage our risk exposure. For this purpose, we
primarily use interest rate swaps, interest rate caps and
collars, forward rate agreements, currency swaps and forward
foreign exchange contracts. Managing market risks is the
responsibility of the chief financial officer, who acts pursuant
to policies approved by the board of directors. The Audit
Committee receives regular reports on our treasury activities.
60
We have a policy of not undertaking any speculative
transactions, and we do not hold our derivative and other
financial instruments for trading purposes.
We have formulated policies for hedging exposures to interest
rate and foreign exchange risk, and have used derivatives to
ensure compliance with these policies. Although a proportion of
our derivative contracts were transacted without regard to
existing IFRS requirements on hedge accounting, during 2010 and
2009 we qualified for hedge accounting under IFRS on a number of
our key derivative contracts.
The following discussion addresses market risk only and does not
present other risks that we face in the normal course of
business, including country risk, credit risk and legal risk.
Interest
rates
The Groups financial exposure to interest rates arises
primarily from its borrowings. The Group manages its exposure by
borrowing at fixed and variable rates of interest, and by
entering into derivative transactions. Objectives approved by
the board concerning the proportion of debt outstanding at fixed
rates govern the use of these financial instruments.
The Groups objectives are applied to core net debt, which
is measured at the year-end and comprises borrowings net of cash
and other liquid funds. Our objective is to maintain a
proportion of forecast core net debt in fixed or capped form for
the next four years, subject to a maximum of 65% and a minimum
that starts at 40% and falls by 10% each year.
The principal method of hedging interest rate risk is to enter
into an agreement with a bank counterparty to pay a fixed rate
and receive a variable rate, known as a swap. Under interest
rate swaps, the Group agrees with other parties to exchange, at
specified intervals, the difference between fixed-rate and
variable-rate amounts calculated by reference to an agreed
notional principal amount. The majority of the Groups swap
contracts are US dollar denominated, and some of them have
deferred start dates, in order to maintain the desired risk
profile as other contracts mature. The variable rates received
are normally based on three-month or six-month LIBOR, and the
dates on which these rates are set do not necessarily exactly
match those of the hedged borrowings. Management believes that
our portfolio of these types of swaps is an efficient hedge of
our portfolio of variable rate borrowings.
In addition, from time to time, the Group issues bonds or other
capital market instruments to refinance existing debt. To avoid
the fixed rate on a single transaction unduly influencing our
overall net interest expense, our typical practice has been to
enter into a related derivative contract effectively converting
the interest rate profile of the bond transaction to a variable
interest rate. In some cases, the bond issue is denominated in a
different currency to the Groups desired borrowing risk
profile and the Group enters into a related cross currency
interest rate swap in order to maintain this risk profile, which
is predominantly borrowings denominated in US dollars.
The Groups accounting objective in its use of interest
rate derivatives is to minimize the impact on the income
statement of changes in the
mark-to-market
value of its derivative portfolio as a whole. It uses duration
calculations to estimate the sensitivity of the derivatives to
movements in market rates. The Group also identifies which
derivatives are eligible for fair value hedge accounting (which
reduces significantly the income statement impact of changes in
the market value of a derivative). The Group then divides the
total portfolio between hedge-accounted and pooled segments, so
that the expected movement on the pooled segment is minimized.
Currency
exchange rates
Although the Group is based in the UK, it has significant
investments in overseas operations. The most significant
currency in which the Group trades is the US dollar.
The Groups policy is to align approximately the currency
composition of its core net borrowings with its forecast
operating profit before depreciation and amortization. This
policy aims to soften the impact of changes in foreign exchange
rates on consolidated interest cover and earnings. This policy
applies only to currencies that account for more than 15% of
group operating profit, which currently are the US dollar and
sterling. However, the Group still borrows small amounts in
other currencies, typically for seasonal working capital needs.
In addition, the Groups policy does not require existing
currency debt to be terminated to match declines in that
currencys share of
61
Group operating profit. Also, the chief financial officer may
request the inclusion of currencies that account for less than
15% of Group operating profit before depreciation and
amortization in the above hedging process. Only one hedging
transaction, denominated in South African rand, has been
undertaken under that authority.
At December 31, 2010 the Groups net borrowings in our
main currencies (taking into account the effect of cross
currency rate swaps) were: US dollar £683m, sterling
£179m, and South African rand £9m.
The Group uses both currency denominated debt and derivative
instruments to implement the above policy. Its intention is that
gains/losses on the derivatives and debt offset the losses/gains
on the foreign currency assets and income. Each quarter the
value of hedging instruments is monitored against the assets in
the relevant currency and, where practical, a decision is made
whether to treat the debt or derivative as a net investment
hedge (permitting foreign exchange movements on it to be taken
to reserves) for the purposes of reporting under IFRS.
Investments in overseas operations are consolidated for
accounting purposes by translating values in one currency to
another currency, in particular from US dollars to sterling.
Fluctuations in currency exchange rates affect the currency
values recorded in our accounts, although they do not give rise
to any realized gain or loss, nor to any currency cash flows.
The Group is also exposed to currency exchange rates in its cash
transactions and its investments in overseas operations. Cash
transactions typically for purchases, sales,
interest or dividends require cash conversions
between currencies. Fluctuations in currency exchange rates
affect the cash amounts that the Group pays or receives.
Forward
foreign exchange contracts
The Group sometimes uses forward foreign exchange contracts
where a specific major project or forecasted cash flow,
including acquisitions and disposals, arises from a business
decision that has used a specific foreign exchange rate. The
Groups policy is to effect routine transactional
conversions between currencies, for example to collect
receivables or settle payables, at the relevant spot exchange
rate.
The Group seeks to offset purchases and sales in the same
currency, even if they do not occur simultaneously. In addition,
its debt and cash portfolios management gives rise to temporary
currency shortfalls and surpluses. Both of these activities
require using short-dated foreign exchange swaps between
currencies.
Although the Group prepares its consolidated financial
statements in sterling, significant sums have been invested in
overseas assets, particularly in the US. Therefore, fluctuations
in currency exchange rates, particularly between the US dollar
and sterling, and to a lesser extent between the euro and
sterling, are likely to affect shareholders funds and
other accounting values.
Derivatives
Under IFRS, the Group is required to record all derivative
instruments on the balance sheet at fair value. Derivatives not
classified as hedges are adjusted to fair value through
earnings. Changes in the fair value of derivatives that the
Group has designated and that qualify as effective hedges are
either recorded in reserves or are offset in earnings by the
corresponding movement in the fair value of the underlying
hedged item. Any ineffective portion of derivatives that are
classified as hedges is immediately recognized in earnings.
In 2010 and 2009 the Group met the prescribed designation
requirements and hedge effectiveness tests under IFRS for some
of its derivative contracts. As a result, the movements in the
fair value of the effective portion of fair value hedges and net
investment hedges have been offset in earnings and reserves
respectively by the corresponding movement in the fair value of
the underlying hedged item.
In line with the Groups treasury policy, none of these
instruments were considered trading instruments and each
instrument was transacted solely to match an underlying
financial exposure.
62
Quantitative
information about market risk
The sensitivity of the Groups derivative portfolio to
changes in interest rates is found in note 19 of
Item 18. Financial Statements.
|
|
ITEM 12.
|
DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES
|
|
|
ITEM 12D.
|
AMERICAN
DEPOSITARY SHARES
|
Fees paid
by ADR holders
Our ordinary shares trade in the United States under a sponsored
ADR facility with The Bank of New York Mellon as depositary.
The depositary collects its fees for delivery and surrender of
ADSs directly from investors depositing shares or surrendering
ADSs for the purpose of withdrawal, or from intermediaries
acting for them. The depositary collects fees for making
distributions to investors by deducting those fees from the
amounts distributed or by selling a portion of distributable
property to pay the fees. The depositary may collect its annual
fee for depositary services by deductions from cash
distributions or by directly billing investors or by charging
the book-entry system accounts of participants acting for them.
The depositary may generally refuse to provide fee-attracting
services until its fees for those services are paid.
The following table summarizes various fees currently charged by
The Bank of New York Mellon:
|
|
|
Person depositing or withdrawing shares
|
|
|
must pay to the depositary:
|
|
For:
|
|
$5.00 (or less) per 100 ADSs (or portion of 100 ADSs)
|
|
Issuance of ADSs, including issuances
resulting from a distribution of shares or rights or other
property
Cancellation of ADSs for the purpose of
withdrawal, including if the deposit agreement terminates
|
$.02 (or less) per ADS
|
|
Any cash distribution to ADS registered
holders
|
A fee equivalent to the fee that would be payable if securities
distributed had been shares and the shares had been deposited
for issuance of ADSs
|
|
Distribution of securities by the
depositary to ADS registered holders of deposited securities
|
$.02 (or less) per ADS per calendar year
|
|
Depositary services
|
Registration of transfer fees
|
|
Transfer and registration of shares on
the share register to or from the name of the depositary or its
agent when shares are deposited or withdrawn
|
Expenses of the depositary
|
|
Cable, telex and facsimile transmissions
(when expressly provided in the deposit agreement)
Converting foreign currency to U.S.
dollars
|
Taxes and other governmental charges the depositary or the
custodian have to pay on any ADS or share underlying an ADS, for
example, stock transfer taxes, stamp duty or withholding taxes
|
|
As necessary
|
Any charges incurred by the depositary or its agents for
servicing the deposited securities
|
|
As necessary
|
Fees
incurred in past annual period and fees to be paid in the
future
From January 1, 2010 to February 28, 2011 the Company
received payments from the depositary of $350,000 and $38,000
for continuing annual stock exchange listing fees, standard
out-of-pocket
maintenance costs for the ADRs (consisting of the expenses of
postage and envelopes for mailing the annual and interim
financial reports, printing and distributing dividend cheques,
electronic filing of U.S. Federal tax information, mailing
required tax forms, stationery, postage, facsimile and telephone
calls), any applicable performance indicators relating to the
ADR facility, underwriting fees and legal fees.
63
The depositary has agreed to reimburse the Company for expenses
they incur that are related to establishment and maintenance
expenses of the ADS programme. The depositary has agreed to
reimburse the Company for its continuing annual stock exchange
listing fees. The depositary has also agreed to pay the standard
out-of-pocket
maintenance costs for the ADRs, which consists of the expenses
of postage and envelopes for mailing annual and interim
financial reports, printing and distributing dividend cheques,
electronic filing of U.S. Federal tax information, mailing
required tax forms, stationery, postage, facsimile and telephone
calls. It has also agreed to reimburse the Company annually for
certain investor relationship programmes or special investor
relations promotional activities. In certain instances, the
depositary has agreed to provide additional payments to the
Company based on any applicable performance indicators relating
to the ADR facility. There are limits on the amount of expenses
for which the depositary will reimburse the Company, but the
amount of reimbursement available to the Company is not
necessarily tied to the amount of fees the depositary collects
from investors.
The depositary collects its fees for delivery and surrender of
ADSs directly from investors depositing shares or surrendering
ADSs for the purpose of withdrawal, or from intermediaries
acting for them. The depositary collects fees for making
distributions to investors by deducting those fees from the
amounts distributed or by selling a portion of distributable
property to pay the fees. The depositary may collect its annual
fee for depositary services by deduction from cash distributions
or by directly billing investors or by charging the book-entry
system accounts of participants acting for them. The depositary
may generally refuse to provide fee-attracting services until
its fees for those services are paid.
64
PART II
|
|
ITEM 13.
|
DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES
|
None.
|
|
ITEM 14.
|
MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
PROCEEDS
|
None.
|
|
ITEM 15.
|
CONTROLS
AND PROCEDURES
|
Disclosure
controls and procedures
An evaluation of the effectiveness of the design and operation
of our disclosure controls and procedures as of
December 31, 2010 was carried out by us under the
supervision and with the participation of our management,
including the chief executive officer and chief financial
officer. Based on that evaluation the chief executive officer
and chief financial officer concluded that Pearsons
disclosure controls and procedures have been designed to
provide, and are effective in providing, reasonable assurance
that the information required to be disclosed by us in reports
filed under the Securities Exchange Act of 1934, as amended, is
recorded, processed, summarized and reported within the time
periods specified in the U.S. Securities and Exchange
Commissions rules and forms and that such information is
accumulated and communicated to management, including the chief
executive officer and chief financial officer, as appropriate to
allow such timely decision regarding required disclosures. A
controls system, no matter how well designed and operated cannot
provide absolute assurance to achieve its objectives.
Managements
annual report on internal control over financial
reporting
The Companys management is responsible for establishing
and maintaining adequate internal control over financial
reporting for the Company. Internal control over financial
reporting is designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.
Management conducted an evaluation of the effectiveness of
internal control over financial reporting based on the framework
in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway
Commission.
Management has assessed the effectiveness of internal control
over financial reporting, as at December 31, 2010, and has
concluded that such internal control over financial reporting
was effective.
PricewaterhouseCoopers LLP, which has audited the consolidated
financial statements of the Company for the year ended
December 31, 2010, has also audited the effectiveness of
the Companys internal control over financial reporting
under Auditing Standard No. 5 of the Public Company
Accounting Oversight Board (United States). Their audit report
may be found on
page F-2.
Change in
internal control over financial reporting
During the period covered by this Annual Report on
Form 20-F,
Pearson has made no changes to its internal controls over
financial reporting that have materially affected or are
reasonably likely to materially affect Pearsons internal
control over financial reporting.
|
|
ITEM 16A.
|
AUDIT
COMMITTEE FINANCIAL EXPERT
|
The members of the Board of Directors of Pearson plc have
determined that Ken Hydon is an audit committee financial expert
within the meaning of the applicable rules and regulations of
the US Securities and Exchange Commission.
65
Pearson has adopted a code of ethics (the Pearson code of
business conduct) which applies to all employees including the
chief executive officer and chief financial officer and other
senior financial management. This code of ethics is available on
our website
(www.pearson.com/responsibility/sustainable-business-practice/ethics/).
The information on our website is not incorporated by reference
into this report.
|
|
ITEM 16C.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
In line with best practice, our relationship with
PricewaterhouseCoopers LLP (PwC) is governed by our external
auditor policy, which is reviewed and approved annually by the
audit committee. The policy establishes procedures to ensure the
auditors independence is not compromised as well as
defining those non-audit services that PwC may or may not
provide to Pearson. These allowable services are in accordance
with relevant UK and US legislation.
The audit committee approves all audit and non-audit services
provided by PwC. Certain categories of allowable non-audit
services have been pre-approved by the audit committee subject
to the authorities below:
|
|
|
|
|
Pre-approved non-audit services can be authorized by the chief
financial officer up to £100,000 per project, subject to a
cumulative limit of £500,000 per annum;
|
|
|
|
Acquisition due diligence services up to £100,000 per
transaction;
|
|
|
|
Tax compliance and related activities up to the greater of
£1,000,000 per annum or 50% of the external audit
fee; and
|
|
|
|
For forward-looking tax planning services we use the most
appropriate advisor, usually after a tender process. Where we
decide to use our independent auditor, authority, up to
£100,000 per project subject to a cumulative limit of
£500,000 per annum, has been delegated by the audit
committee to management.
|
Services provided by PwC above these limits and all other
allowable non-audit services, irrespective of value, must be
approved by the audit committee. Where appropriate, services
will be tendered prior to awarding this work to the auditor.
The following table sets forth remuneration paid to PwC for 2009
and 2010:
|
|
|
|
|
|
|
|
|
Auditors Remuneration
|
|
2010
|
|
2009
|
|
|
£m
|
|
£m
|
|
Audit fees
|
|
|
6
|
|
|
|
6
|
|
Tax fees
|
|
|
2
|
|
|
|
2
|
|
All other fees
|
|
|
2
|
|
|
|
1
|
|
Audit fees include £35,000 (2009: £35,000) of audit
fees relating to the audit of the parent company.
Fees for the audit of the effectiveness of the Groups
internal control over financial reporting are allocated to audit
fees paid.
Tax services include services related to tax planning and
various other tax advisory services.
Other services relates mainly to due diligence on acquisitions,
notably our Brazilian acquisition, Sistema Educacional
Brasileiro where we assessed that our auditors were best
qualified and cost effective in taking on this role.
|
|
ITEM 16D.
|
EXEMPTIONS
FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
|
Not applicable.
66
|
|
ITEM 16E.
|
PURCHASES
OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
number
|
|
|
|
|
|
|
Total number of
|
|
of shares that
|
|
|
|
|
|
|
units purchased
|
|
may yet be
|
|
|
|
|
|
|
as part of publicly
|
|
purchased under
|
|
|
Total number of
|
|
Average price
|
|
announced plans
|
|
the plans or
|
Period
|
|
shares purchased
|
|
paid per share
|
|
or programs
|
|
programs
|
|
June 1, 2009 - June 30, 2009
|
|
|
2,000,000
|
|
|
|
£6.14
|
|
|
|
N/A
|
|
|
|
N/A
|
|
May 1, 2010 - May 31, 2010
|
|
|
3,000,000
|
|
|
|
£9.94
|
|
|
|
N/A
|
|
|
|
N/A
|
|
June 1, 2010 - June 30, 2010
|
|
|
2,000,000
|
|
|
|
£9.17
|
|
|
|
N/A
|
|
|
|
N/A
|
|
October 1, 2010 - October 31, 2010
|
|
|
1,000,000
|
|
|
|
£9.83
|
|
|
|
N/A
|
|
|
|
N/A
|
|
November 1, 2010 - November 31, 2010
|
|
|
2,000,000
|
|
|
|
£9.46
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Purchases of shares were made to satisfy obligations under
Pearson employee share award programs. All purchases were made
in open-market transactions. None of the foregoing share
purchases was made as part of a publicly announced plan or
program.
|
|
ITEM 16F.
|
CHANGE
IN REGISTRANTS CERTIFYING AUDITOR
|
Not applicable.
|
|
ITEM 16G.
|
CORPORATE
GOVERNANCE
|
Pearson is listed on the New York Stock Exchange
(NYSE). As a listed non-US issuer, we are required
to comply with some of the NYSEs corporate governance
rules, and otherwise must disclose on our website any
significant ways in which our corporate governance practices
differ from those followed by US companies under the NYSE
listing standards. At this time, the Company believes that it is
in compliance in all material respects with all the NYSE rules
except that the Nomination Committee is not composed entirely of
independent directors, and that it is the full board, not the
Nomination Committee, that develops and recommends corporate
governance principles.
PART III
|
|
ITEM 17.
|
FINANCIAL
STATEMENTS
|
Not applicable.
|
|
ITEM 18.
|
FINANCIAL
STATEMENTS
|
The financial statements filed as part of this Annual Report are
included on pages F-1 through F-70 hereof.
|
|
|
1.1
|
|
Articles of Association of Pearson plc.
|
2.1
|
|
Indenture dated June 23, 2003 between Pearson plc and The
Bank of New York, as trustee *
|
2.2
|
|
Indenture dated May 25, 2004 among Pearson Dollar Finance
plc, as Issuer, Pearson plc, Guarantor, and the Bank of New
York, as trustee, Paying Agent and Calculation Agent. #
|
2.3
|
|
Indenture dated June 21, 2001 between Pearson plc and The
Bank of New York, as trustee.
|
2.4
|
|
Indenture dated March 26, 2009 among Pearson Funding One
plc, as the Issuer, Pearson plc, Guarantor, and The Law
Debenture Trust Corporation P.L.C., as trustee.
¥
|
2.5
|
|
Indenture dated May 6, 2008 among Pearson Dollar Finance
Two plc, as the Issuer, Pearson plc, Guarantor, and The Bank of
New York, as trustee, Paying Agent and Calculation Agent.
¥
|
67
|
|
|
2.6
|
|
Indenture dated October 27, 1999 between Pearson plc, as
the Issuer and The Law Debenture Trust Corporation P.L.C.,
as trustee.
¥
|
2.7
|
|
Indenture dated May 17, 2010 between Pearson Funding Two
plc, as the Issuer, Pearson plc, Guarantor, and The Bank of New
York Mellon, as trustee, Paying Agent and Calculation Agent.
|
8.1
|
|
List of Significant Subsidiaries.
|
12.1
|
|
Certification of Chief Executive Officer.
|
12.2
|
|
Certification of Chief Financial Officer.
|
13.1
|
|
Certification of Chief Executive Officer.
|
13.2
|
|
Certification of Chief Financial Officer.
|
15
|
|
Consent of PricewaterhouseCoopers LLP.
|
|
|
|
* |
|
Incorporated by reference from the
Form 20-F
of Pearson plc for the year ended December 31, 2003 and
filed May 7, 2004. |
|
# |
|
Incorporated by reference from the
Form 20-F
of Pearson plc for the year ended December 31, 2004 and
filed June 27, 2005. |
|
|
|
Incorporated by reference from the
Form 20-F
of Pearson plc for the year ended December 31, 2001 and
filed June 10, 2002. |
|
¥ |
|
Incorporated by reference from the
Form 20-F
of Pearson plc for the year ended December 31, 2009 and
filed March 31, 2010. |
68
FINANCIAL
STATEMENTS: CONTENTS
|
|
|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
|
|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-7
|
|
|
|
|
F-9
|
|
|
|
|
F-10
|
|
F-1
Report of
Independent Registered Public Accounting Firm
To the
Board of Directors and Shareholders of Pearson plc
In our opinion, the accompanying consolidated balance sheets
and the related consolidated statements of income, comprehensive
income, equity and cash flows present fairly, in all material
respects, the financial position of Pearson plc and its
subsidiaries (the Group) at December 31, 2010
and December 31, 2009 and the results of their operations
and their cash flows for each of the three years in the period
ended December 31, 2010, in conformity with International
Financial Reporting Standards as issued by the International
Accounting Standards Board. Also in our opinion, the Group
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2010, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
The Groups management is responsible for these financial
statements, for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness
of internal control over financial reporting, included in
Managements Annual Report on Internal Control Over
Financial Reporting appearing under Item 15 of this
Form 20-F.
Our responsibility is to express opinions on these financial
statements and on the Groups internal control over
financial reporting based on our integrated audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
London
United Kingdom
March 25, 2011
F-2
Consolidated
Income Statement
Year ended 31 December 2010
All figures in £ millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Sales
|
|
|
2
|
|
|
|
5,663
|
|
|
|
5,140
|
|
|
|
4,405
|
|
Cost of goods sold
|
|
|
4
|
|
|
|
(2,588
|
)
|
|
|
(2,382
|
)
|
|
|
(2,046
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
3,075
|
|
|
|
2,758
|
|
|
|
2,359
|
|
Operating expenses
|
|
|
4
|
|
|
|
(2,373
|
)
|
|
|
(2,169
|
)
|
|
|
(1,820
|
)
|
Share of results of joint ventures and associates
|
|
|
12
|
|
|
|
41
|
|
|
|
30
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
2
|
|
|
|
743
|
|
|
|
619
|
|
|
|
564
|
|
Finance costs
|
|
|
6
|
|
|
|
(109
|
)
|
|
|
(122
|
)
|
|
|
(136
|
)
|
Finance income
|
|
|
6
|
|
|
|
36
|
|
|
|
26
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
|
|
|
|
|
670
|
|
|
|
523
|
|
|
|
469
|
|
Income tax
|
|
|
7
|
|
|
|
(146
|
)
|
|
|
(146
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year from continuing operations
|
|
|
|
|
|
|
524
|
|
|
|
377
|
|
|
|
344
|
|
Profit/(loss) for the year from discontinued operations
|
|
|
3
|
|
|
|
776
|
|
|
|
85
|
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year
|
|
|
|
|
|
|
1,300
|
|
|
|
462
|
|
|
|
323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the company
|
|
|
|
|
|
|
1,297
|
|
|
|
425
|
|
|
|
292
|
|
Non-controlling interest
|
|
|
|
|
|
|
3
|
|
|
|
37
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for profit from continuing and
discontinued operations attributable to equity holders of the
company during the year (expressed in pence per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
|
|
8
|
|
|
|
161.9p
|
|
|
|
53.2p
|
|
|
|
36.6p
|
|
diluted
|
|
|
8
|
|
|
|
161.5p
|
|
|
|
53.1p
|
|
|
|
36.6p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share for profit from continuing operations
attributable to equity holders of the company during the year
(expressed in pence per share)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
basic
|
|
|
8
|
|
|
|
66.0p
|
|
|
|
47.0p
|
|
|
|
42.9p
|
|
diluted
|
|
|
8
|
|
|
|
65.9p
|
|
|
|
47.0p
|
|
|
|
42.9P
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-3
Consolidated
Statement of Comprehensive Income
Year ended 31 December 2010
All figures in £ millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Profit for the year
|
|
|
|
|
|
|
1,300
|
|
|
|
462
|
|
|
|
323
|
|
Net exchange differences on translation of foreign operations
|
|
|
|
|
|
|
173
|
|
|
|
(388
|
)
|
|
|
1,125
|
|
Currency translation adjustment disposed subsidiaries
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
49
|
|
Currency translation adjustment disposed joint
venture
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Actuarial gains/(losses) on retirement benefit
obligations Group
|
|
|
25
|
|
|
|
70
|
|
|
|
(299
|
)
|
|
|
(71
|
)
|
Actuarial gains/(losses) on retirement benefit
obligations associate
|
|
|
12
|
|
|
|
1
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Net increase in fair values of proportionate holding arising on
stepped acquisition
|
|
|
|
|
|
|
|
|
|
|
18
|
|
|
|
|
|
Tax on items recognised in other comprehensive income
|
|
|
7
|
|
|
|
(41
|
)
|
|
|
91
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income/(expense) for the year
|
|
|
|
|
|
|
216
|
|
|
|
(581
|
)
|
|
|
1,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income/(expense) for the year
|
|
|
|
|
|
|
1,516
|
|
|
|
(119
|
)
|
|
|
1,433
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity holders of the company
|
|
|
|
|
|
|
1,502
|
|
|
|
(127
|
)
|
|
|
1,327
|
|
Non-controlling interest
|
|
|
|
|
|
|
14
|
|
|
|
8
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-4
Consolidated
Balance Sheet
As at 31 December 2010
All figures in £ millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
10
|
|
|
|
366
|
|
|
|
388
|
|
Intangible assets
|
|
|
11
|
|
|
|
5,467
|
|
|
|
5,129
|
|
Investments in joint ventures and associates
|
|
|
12
|
|
|
|
71
|
|
|
|
30
|
|
Deferred income tax assets
|
|
|
13
|
|
|
|
276
|
|
|
|
387
|
|
Financial assets Derivative financial instruments
|
|
|
16
|
|
|
|
134
|
|
|
|
112
|
|
Other financial assets
|
|
|
15
|
|
|
|
58
|
|
|
|
62
|
|
Trade and other receivables
|
|
|
22
|
|
|
|
129
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,501
|
|
|
|
6,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets Pre-publication
|
|
|
20
|
|
|
|
647
|
|
|
|
650
|
|
Inventories
|
|
|
21
|
|
|
|
429
|
|
|
|
445
|
|
Trade and other receivables
|
|
|
22
|
|
|
|
1,337
|
|
|
|
1,284
|
|
Financial assets Derivative financial instruments
|
|
|
16
|
|
|
|
6
|
|
|
|
|
|
Financial assets Marketable securities
|
|
|
14
|
|
|
|
12
|
|
|
|
63
|
|
Cash and cash equivalents (excluding overdrafts)
|
|
|
17
|
|
|
|
1,736
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,167
|
|
|
|
3,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
10,668
|
|
|
|
9,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-5
Consolidated
Balance Sheet (Continued)
As at 31 December 2010
All figures in £ millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities Borrowings
|
|
|
18
|
|
|
|
(1,908
|
)
|
|
|
(1,934
|
)
|
Financial liabilities Derivative financial
instruments
|
|
|
16
|
|
|
|
(6
|
)
|
|
|
(2
|
)
|
Deferred income tax liabilities
|
|
|
13
|
|
|
|
(471
|
)
|
|
|
(473
|
)
|
Retirement benefit obligations
|
|
|
25
|
|
|
|
(148
|
)
|
|
|
(339
|
)
|
Provisions for other liabilities and charges
|
|
|
23
|
|
|
|
(42
|
)
|
|
|
(50
|
)
|
Other liabilities
|
|
|
24
|
|
|
|
(246
|
)
|
|
|
(253
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,821
|
)
|
|
|
(3,051
|
)
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other liabilities
|
|
|
24
|
|
|
|
(1,605
|
)
|
|
|
(1,467
|
)
|
Financial liabilities Borrowings
|
|
|
18
|
|
|
|
(404
|
)
|
|
|
(74
|
)
|
Financial liabilities Derivative financial
instruments
|
|
|
16
|
|
|
|
|
|
|
|
(7
|
)
|
Current income tax liabilities
|
|
|
|
|
|
|
(215
|
)
|
|
|
(159
|
)
|
Provisions for other liabilities and charges
|
|
|
23
|
|
|
|
(18
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,242
|
)
|
|
|
(1,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
|
|
|
(5,063
|
)
|
|
|
(4,776
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
|
|
|
|
5,605
|
|
|
|
4,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Share capital
|
|
|
27
|
|
|
|
203
|
|
|
|
203
|
|
Share premium
|
|
|
27
|
|
|
|
2,524
|
|
|
|
2,512
|
|
Treasury shares
|
|
|
28
|
|
|
|
(137
|
)
|
|
|
(226
|
)
|
Translation reserve
|
|
|
|
|
|
|
402
|
|
|
|
227
|
|
Retained earnings
|
|
|
|
|
|
|
2,546
|
|
|
|
1,629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity attributable to equity holders of the company
|
|
|
|
|
|
|
5,538
|
|
|
|
4,345
|
|
Non-controlling interest
|
|
|
|
|
|
|
67
|
|
|
|
291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity
|
|
|
|
|
|
|
5,605
|
|
|
|
4,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These financial statements have been approved for issue by the
board of directors on 7 March 2011 and signed on its behalf
by
Robin Freestone Chief financial officer
F-6
Consolidated
Statement of Changes in Equity
Year ended 31 December 2010
All figures in £ millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to equity holders of the company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Share
|
|
|
Share
|
|
|
Treasury
|
|
|
Translation
|
|
|
Retained
|
|
|
|
|
|
controlling
|
|
|
Total
|
|
|
|
capital
|
|
|
premium
|
|
|
shares
|
|
|
reserve
|
|
|
earnings
|
|
|
Total
|
|
|
interest
|
|
|
equity
|
|
|
At 1 January 2010
|
|
|
203
|
|
|
|
2,512
|
|
|
|
(226
|
)
|
|
|
227
|
|
|
|
1,629
|
|
|
|
4,345
|
|
|
|
291
|
|
|
|
4,636
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,297
|
|
|
|
1,297
|
|
|
|
3
|
|
|
|
1,300
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
175
|
|
|
|
30
|
|
|
|
205
|
|
|
|
11
|
|
|
|
216
|
|
Equity-settled transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
50
|
|
|
|
|
|
|
|
50
|
|
Tax on equity-settled transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Issue of ordinary shares under share option schemes
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
(77
|
)
|
Release/cancellation of treasury shares
|
|
|
|
|
|
|
|
|
|
|
166
|
|
|
|
|
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-controlling shareholding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
|
|
(231
|
)
|
|
|
(237
|
)
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(292
|
)
|
|
|
(292
|
)
|
|
|
(7
|
)
|
|
|
(299
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
203
|
|
|
|
2,524
|
|
|
|
(137
|
)
|
|
|
402
|
|
|
|
2,546
|
|
|
|
5,538
|
|
|
|
67
|
|
|
|
5,605
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to equity holders of the company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Share
|
|
|
Share
|
|
|
Treasury
|
|
|
Translation
|
|
|
Retained
|
|
|
|
|
|
controlling
|
|
|
Total
|
|
|
|
capital
|
|
|
premium
|
|
|
shares
|
|
|
reserve
|
|
|
earnings
|
|
|
Total
|
|
|
interest
|
|
|
equity
|
|
|
At 1 January 2009
|
|
|
202
|
|
|
|
2,505
|
|
|
|
(222
|
)
|
|
|
586
|
|
|
|
1,679
|
|
|
|
4,750
|
|
|
|
274
|
|
|
|
5,024
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
425
|
|
|
|
425
|
|
|
|
37
|
|
|
|
462
|
|
Other comprehensive expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(359
|
)
|
|
|
(193
|
)
|
|
|
(552
|
)
|
|
|
(29
|
)
|
|
|
(581
|
)
|
Equity-settled transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37
|
|
|
|
37
|
|
|
|
|
|
|
|
37
|
|
Tax on equity-settled transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Issue of ordinary shares under share option schemes
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
8
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
|
|
(33
|
)
|
Release of treasury shares
|
|
|
|
|
|
|
|
|
|
|
29
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Put option over non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
(23
|
)
|
Changes in non-controlling shareholding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
24
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(273
|
)
|
|
|
(273
|
)
|
|
|
(15
|
)
|
|
|
(288
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009
|
|
|
203
|
|
|
|
2,512
|
|
|
|
(226
|
)
|
|
|
227
|
|
|
|
1,629
|
|
|
|
4,345
|
|
|
|
291
|
|
|
|
4,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity attributable to equity holders of the company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-
|
|
|
|
|
|
|
Share
|
|
|
Share
|
|
|
Treasury
|
|
|
Translation
|
|
|
Retained
|
|
|
|
|
|
controlling
|
|
|
Total
|
|
|
|
capital
|
|
|
premium
|
|
|
shares
|
|
|
reserve
|
|
|
earnings
|
|
|
Total
|
|
|
interest
|
|
|
equity
|
|
|
At 1 January 2008
|
|
|
202
|
|
|
|
2,499
|
|
|
|
(216
|
)
|
|
|
(514
|
)
|
|
|
1,724
|
|
|
|
3,695
|
|
|
|
179
|
|
|
|
3,874
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
292
|
|
|
|
31
|
|
|
|
323
|
|
Other comprehensive income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,100
|
|
|
|
(65
|
)
|
|
|
1,035
|
|
|
|
75
|
|
|
|
1,110
|
|
Equity-settled transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33
|
|
|
|
33
|
|
|
|
|
|
|
|
33
|
|
Tax on equity-settled transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
(7
|
)
|
Issue of ordinary shares under share option schemes
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
6
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
(47
|
)
|
Release of treasury shares
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in non-controlling shareholding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(257
|
)
|
|
|
(257
|
)
|
|
|
(17
|
)
|
|
|
(274
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2008
|
|
|
202
|
|
|
|
2,505
|
|
|
|
(222
|
)
|
|
|
586
|
|
|
|
1,679
|
|
|
|
4,750
|
|
|
|
274
|
|
|
|
5,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The translation reserve includes exchange differences arising
from the translation of the net investment in foreign operations
and of borrowings and other currency instruments designated as
hedges of such investments.
F-8
Consolidated
Cash Flow Statement
Year ended 31 December 2010
All figures in £ millions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from operations
|
|
|
31
|
|
|
|
1,169
|
|
|
|
1,012
|
|
|
|
894
|
|
Interest paid
|
|
|
|
|
|
|
(78
|
)
|
|
|
(90
|
)
|
|
|
(87
|
)
|
Tax paid
|
|
|
|
|
|
|
(85
|
)
|
|
|
(103
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from operating activities
|
|
|
|
|
|
|
1,006
|
|
|
|
819
|
|
|
|
718
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of subsidiaries, net of cash acquired
|
|
|
29
|
|
|
|
(535
|
)
|
|
|
(208
|
)
|
|
|
(395
|
)
|
Acquisition of joint ventures and associates
|
|
|
|
|
|
|
(22
|
)
|
|
|
(14
|
)
|
|
|
(5
|
)
|
Purchase of investments
|
|
|
|
|
|
|
(7
|
)
|
|
|
(10
|
)
|
|
|
(1
|
)
|
Purchase of property, plant and equipment
|
|
|
|
|
|
|
(76
|
)
|
|
|
(62
|
)
|
|
|
(75
|
)
|
Proceeds from the sale of investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
Proceeds from sale of property, plant and equipment
|
|
|
31
|
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
Purchase of intangible assets
|
|
|
|
|
|
|
(56
|
)
|
|
|
(58
|
)
|
|
|
(45
|
)
|
Disposal of subsidiaries, net of cash disposed
|
|
|
30
|
|
|
|
984
|
|
|
|
|
|
|
|
99
|
|
Tax paid on disposal of subsidiaries
|
|
|
|
|
|
|
(250
|
)
|
|
|
|
|
|
|
|
|
Interest received
|
|
|
|
|
|
|
10
|
|
|
|
3
|
|
|
|
11
|
|
Dividends received from joint ventures and associates
|
|
|
|
|
|
|
23
|
|
|
|
22
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash received from/(used in) investing activities
|
|
|
|
|
|
|
71
|
|
|
|
(326
|
)
|
|
|
(381
|
)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issue of ordinary shares
|
|
|
|
|
|
|
12
|
|
|
|
8
|
|
|
|
6
|
|
Purchase of treasury shares
|
|
|
|
|
|
|
(77
|
)
|
|
|
(33
|
)
|
|
|
(47
|
)
|
Proceeds from borrowings
|
|
|
|
|
|
|
241
|
|
|
|
296
|
|
|
|
455
|
|
Liquid resources acquired
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
Liquid resources sold
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
Repayment of borrowings
|
|
|
|
|
|
|
(13
|
)
|
|
|
(343
|
)
|
|
|
(275
|
)
|
Finance lease principal payments
|
|
|
|
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(3
|
)
|
Dividends paid to companys shareholders
|
|
|
9
|
|
|
|
(292
|
)
|
|
|
(273
|
)
|
|
|
(257
|
)
|
Dividends paid to non-controlling interest
|
|
|
|
|
|
|
(6
|
)
|
|
|
(20
|
)
|
|
|
(28
|
)
|
Transactions with non-controlling interest
|
|
|
|
|
|
|
(7
|
)
|
|
|
14
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
|
|
|
|
(92
|
)
|
|
|
(366
|
)
|
|
|
(137
|
)
|
Effects of exchange rate changes on cash and cash equivalents
|
|
|
|
|
|
|
(1
|
)
|
|
|
(36
|
)
|
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
|
|
|
|
984
|
|
|
|
91
|
|
|
|
97
|
|
Cash and cash equivalents at beginning of year
|
|
|
|
|
|
|
680
|
|
|
|
589
|
|
|
|
492
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
|
17
|
|
|
|
1,664
|
|
|
|
680
|
|
|
|
589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The consolidated cash flow statement includes discontinued
operations (see note 3).
F-9
Notes to
the Consolidated Financial Statements
General
information
Pearson plc (the company) and its subsidiaries (together the
Group) are international media businesses covering education,
business information and consumer publishing.
The company is a public limited liability company incorporated
and domiciled in England. The address of its registered office
is 80 Strand, London WC2R ORL.
The company has its primary listing on the London Stock Exchange
and is also listed on the New York Stock Exchange.
These consolidated financial statements were approved for issue
by the board of directors on 7 March 2011.
The principal accounting policies applied in the preparation of
these consolidated financial statements are set out below.
These consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards
(IFRS) and International Financial Reporting Interpretations
Committee (IFRIC) interpretations as adopted by the European
Union (EU) and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS. These consolidated
financial statements are also prepared in accordance with IFRS
as issued by the International Accounting Standards Board
(IASB). In respect of the accounting standards applicable to the
Group there is no difference between EU-adopted and IASB-adopted
IFRS. The Group transitioned from UK GAAP to IFRS on
1 January 2003.
These consolidated financial statements have been prepared under
the historical cost convention as modified by the revaluation of
financial assets and liabilities (including derivative financial
instruments) to fair value.
1. Interpretations and amendments to published
standards effective in 2010
|
|
|
|
|
IFRS 3 (Revised) Business Combinations and
amendments to IAS 27 Consolidated and Separate Financial
Statements, effective for annual reporting periods
beginning on or after 1 July 2009. The amendments affect the
accounting for business combinations, including the requirement
to re-measure the fair value of previously held interests in
step acquisitions with any gain or loss arising being recognised
in the income statement, the requirement to expense acquisition
costs and the requirement to recognise adjustments to contingent
consideration in the income statement.
|
|
|
|
Amendments to IAS 39 Financial Instruments: Recognition
and Measurement, effective for annual reporting periods
beginning on or after 1 July 2009. The amendments clarify that
inflation may only be hedged where changes in inflation are a
specified portion of cash flows of a financial instrument, and
also clarify hedging with options. Management have assessed that
the amendments have no impact on the Groups financial
statements.
|
|
|
|
Amendments to IFRS 2 Share-based Payment: Group
cash-settled share-based payment transactions, effective for
annual reporting periods beginning on or after 1 January 2010.
The amendments clarify the scope and accounting for group
cash-settled share-based payment transactions. Management have
assessed that the amendments have no impact on the Groups
financial statements.
|
|
|
|
IFRIC 17 Distributions of Non-cash Assets to Owners,
effective for annual reporting periods beginning on or after 1
July 2009. IFRIC 17 provides guidance on the appropriate
accounting treatment when an entity distributes assets other
than cash as dividends, including recognition upon authorisation
and measurement at fair value of assets distributed, with any
difference between fair value and carrying value of these assets
being recognised in the income statement when an entity settles
the dividend payable. This does not apply to distributions of
non-cash assets under common control. Management have assessed
that this interpretation has no impact on the Groups
financial statements as the Group does not currently distribute
non-cash assets.
|
F-10
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
IFRIC 18 Transfers of Assets from Customers,
effective for transfers of assets from customers received on or
after 1 July 2009. IFRIC 18 states that when an item of
property, plant and equipment is received from a customer and it
meets the definition of an asset from the perspective of the
recipient, the recipient should recognise the asset at its fair
value at the date of transfer and recognise the credit in
accordance with IAS 18 Revenue. Management have
assessed that this interpretation has no impact on the
Groups financial statements as the Group has not received
such assets from customers.
|
|
|
|
Improvements to IFRSs 2009, effective
dates vary upon the amendment. This is the second set of
amendments published under the IASBs annual improvements
process and incorporates minor amendments to 12 standards and
interpretations. Management have assessed that these amendments
have no impact on the Groups financial statements.
|
2. Standards, interpretations and amendments to
published standards that are not yet effective
The Group has not early adopted the following new pronouncements
that are not yet effective:
|
|
|
|
|
Amendments to IAS 24 Related Parties, effective for
annual reporting periods beginning on or after 1 January
2011. The amendments simplify disclosure for government related
entities and clarify the definition of a related party.
|
|
|
|
Amendments to IAS 32 Financial Instruments:
Presentation - Classification of Rights, effective for
annual reporting periods beginning on or after 1 February 2010.
The amendments clarify that rights, options or warrants issued
to acquire a fixed number of an entitys own non-derivative
equity instruments for a fixed amount in any currency are
classified as equity instruments provided the offer is made
pro-rata to all existing owners of the same class of the
entitys own non-derivative equity instruments.
|
|
|
|
IFRS 9 Financial Instruments, effective for annual
reporting periods beginning on or after 1 January 2013. The new
standard details the requirements for the classification and
measurement of financial assets and liabilities.
|
|
|
|
IFRIC 19 Extinguishing Financial Liabilities with Equity
Instruments, effective for annual reporting periods
beginning on or after 1 July 2010. IFRIC 19 clarifies accounting
required by entities issuing equity instruments to extinguish
all or part of a financial liability.
|
|
|
|
Amendments to IFRIC 14 Prepayments of a Minimum Funding
Requirement, effective for annual reporting periods
beginning on or after 1 January 2011. The amendments remedy a
consequence of IFRIC 14 where, in certain circumstances, an
entity was not permitted to recognise prepayments of a minimum
funding requirement as an asset.
|
|
|
|
Amendments to IFRS 7 Financial Instruments:
Disclosures Transfers of Financial Assets,
effective for annual reporting periods beginning on or after 1
July 2011. The amendments require enhanced disclosure where an
asset is transferred but not derecognised, and new disclosure
for assets that are derecognised but to which the entity
continues to have an exposure.
|
|
|
|
Amendments to IAS 12 Deferred Tax
Recoverability of Underlying Assets, effective for annual
reporting periods beginning on or after 1 January 2012. The
amendments provide, for certain investment properties, an
exception to the principle that the measurement of deferred tax
assets and liabilities should reflect the tax consequences that
would follow from the manner in which the entity expects to
recover the carrying amount of an asset.
|
|
|
|
Improvements to IFRSs 2010, effective
dates vary upon the amendment. This is the third set of
amendments published under IASBs annual improvements
process and incorporates minor amendments to seven standards and
interpretations.
|
Management are currently assessing the impact of these new
standards, interpretations and amendments on the Groups
financial statements.
F-11
Notes to
the Consolidated Financial Statements (Continued)
3. Critical accounting assumptions and
judgements
The preparation of financial statements in conformity with IFRS
requires the use of certain critical accounting assumptions. It
also requires management to exercise its judgement in the
process of applying the Groups accounting policies. The
areas requiring a higher degree of judgement or complexity, or
areas where assumptions and estimates are significant to the
consolidated financial statements, are discussed in the relevant
accounting policies under the following headings:
|
|
|
Intangible assets:
|
|
Goodwill
|
Intangible assets:
|
|
Pre-publication assets
|
Royalty advances
|
|
|
Taxation
|
|
|
Employee benefits:
|
|
Pension obligations
|
Revenue recognition
|
|
|
1. Business combinations The
acquisition method of accounting is used to account for business
combinations of the Group with an acquisition date on or after 1
January 2010. The consideration transferred for the acquisition
of a subsidiary is the fair value of the assets transferred, the
liabilities incurred and the equity interest issued by the
Group. The consideration transferred includes the fair value of
any asset or liability resulting from a contingent consideration
arrangement. Acquisition related costs are expensed as incurred.
Identifiable assets and contingent assets acquired and
identifiable liabilities and contingent liabilities assumed in a
business combination are measured initially at their fair values
at the acquisition date. For material acquisitions, the fair
value of the acquired intangible assets is determined by an
external, independent valuer. The excess of the consideration
transferred, the amount of any non-controlling interest in the
acquiree and the acquisition date fair value of any previous
equity interest in the acquiree over the fair value of the
identifiable net assets acquired is recorded as goodwill. See
note 1e(1) for the accounting policy on goodwill. If this is
less than the fair value of the net assets of the subsidiary
acquired, in the case of a bargain purchase, the difference is
recognised directly in the income statement.
On an
acquisition-by-acquisition
basis, the Group recognises any non-controlling interest in the
acquiree either at fair value or at the non-controlling
interests proportionate share of the acquirees net
assets.
2. Subsidiaries Subsidiaries are
entities over which the Group has the power to govern the
financial and operating policies, generally accompanying a
shareholding of more than one half of the voting rights.
Subsidiaries are fully consolidated from the date on which
control is transferred to the Group and are de-consolidated from
the date that control ceases.
3. Transactions with non-controlling
interests Transactions with non-controlling
interests are treated as transactions with shareholders. Any
surplus or deficit arising from disposals to a non-controlling
interest is recorded in equity. For purchases from a
non-controlling interest, the difference between consideration
paid and the relevant share acquired of the carrying value of
the subsidiary is recorded in equity.
4. Joint ventures and associates
Joint ventures are entities in which the Group holds an interest
on a long-term basis and which are jointly controlled, with one
or more other venturers, under a contractual arrangement.
Associates are entities over which the Group has significant
influence but not the power to control the financial and
operating policies, generally accompanying a shareholding of
between 20% and 50% of the voting rights. Investments in joint
ventures and associates are accounted for by the equity method
and are initially recognised at cost.
The Groups share of its joint ventures and
associates post-acquisition profits or losses is
recognised in the income statement and its share of
post-acquisition movements in reserves is recognised in
reserves. The Groups share of its joint ventures and
associates results is recognised as a component of
operating profit as these
F-12
Notes to
the Consolidated Financial Statements (Continued)
operations form part of the core publishing business of the
Group and are an integral part of existing wholly-owned
businesses. The cumulative post-acquisition movements are
adjusted against the carrying amount of the investment. When the
Groups share of losses in a joint venture or associate
equals or exceeds its interest in the joint venture or associate
the Group does not recognise further losses unless the Group has
incurred obligations or made payments on behalf of the joint
venture or associate.
|
|
c.
|
Foreign
currency translation
|
1. Functional and presentation
currency Items included in the financial
statements of each of the Groups entities are measured
using the currency of the primary economic environment in which
the entity operates (the functional currency). The
consolidated financial statements are presented in sterling,
which is the companys functional and presentation currency.
2. Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from
the settlement of such transactions and from the translation at
year end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income
statement, except when deferred in equity as qualifying net
investment hedges.
3. Group companies The results
and financial position of all Group companies that have a
functional currency different from the presentation currency are
translated into the presentation currency as follows:
i) assets and liabilities are translated at the closing
rate at the date of the balance sheet;
ii) income and expenses are translated at average exchange
rates;
iii) all resulting exchange differences are recognised as a
separate component of equity.
On consolidation, exchange differences arising from the
translation of the net investment in foreign entities, and of
borrowings and other currency instruments designated as hedges
of such investments, are taken to shareholders equity. The
Group treats specific inter-company loan balances, which are not
intended to be repaid in the foreseeable future, as part of its
net investment. When a foreign operation is sold, such exchange
differences are recognised in the income statement as part of
the gain or loss on sale.
At the date of transition to IFRS the cumulative translation
differences in respect of foreign operations have been deemed to
be zero.
Any gains and losses on disposals of foreign operations will
exclude translation differences that arose prior to the
transition date.
The principal overseas currency for the Group is the US dollar.
The average rate for the year against sterling was $1.54 (2009:
$1.57) and the year end rate was $1.57 (2009: $1.61).
|
|
d.
|
Property,
plant and equipment
|
Property, plant and equipment are stated at historical cost less
depreciation. Land is not depreciated. Depreciation on other
assets is calculated using the straight-line method to allocate
their cost less their residual values over their estimated
useful lives as follows:
Buildings (freehold):
20-50 years
Buildings (leasehold): over the period of the lease
Plant and equipment: 3-10 years
The assets residual values and useful lives are reviewed,
and adjusted if appropriate, at each balance sheet date.
F-13
Notes to
the Consolidated Financial Statements (Continued)
The carrying value of an asset is written down to its
recoverable amount if the carrying value of the asset is greater
than its estimated recoverable amount.
1. Goodwill For the acquisition
of subsidiaries made on or after 1 January 2010 goodwill
represents the excess of the consideration transferred, the
amount of any non-controlling interest in the acquiree and the
acquisition date fair value of any previous equity interest in
the acquiree over the fair value of the identifiable net assets
acquired. For the acquisition of subsidiaries made from the date
of transition to IFRS to 31 December 2009 goodwill
represents the excess of the cost of an acquisition over the
fair value of the Groups share of the net identifiable
assets acquired. Goodwill on acquisitions of subsidiaries is
included in intangible assets. Goodwill on acquisition of
associates and joint ventures represents the excess of the cost
of an acquisition over the fair value of the Groups share
of the net identifiable assets acquired. Goodwill on
acquisitions of associates and joint ventures is included in
investments in associates and joint ventures.
Goodwill is tested annually for impairment and carried at cost
less accumulated impairment losses. An impairment loss is
recognised to the extent that the carrying value of goodwill
exceeds the recoverable amount. The recoverable amount is the
higher of fair value less costs to sell and value in use. These
calculations require the use of estimates and significant
management judgement. A description of the key assumptions and
sensitivities is included in note 11. Goodwill is allocated
to cash-generating units for the purpose of impairment testing.
The allocation is made to those cash-generating units that are
expected to benefit from the business combination in which the
goodwill arose.
Gains and losses on the disposal of an entity include the
carrying amount of goodwill relating to the entity sold.
IFRS 3 Business Combinations has not been applied
retrospectively to business combinations before the date of
transition to IFRS. Subject to the transition adjustments to
IFRS required by IFRS 1, the accounting for business
combinations before the date of transition has been
grandfathered.
2. Acquired software Software
separately acquired for internal use is capitalised at cost.
Software acquired in material business combinations is
capitalised at its fair value as determined by an independent
valuer. Acquired software is amortised on a straight-line basis
over its estimated useful life of between three and eight years.
3. Internally developed software
Internal and external costs incurred during the preliminary
stage of developing computer software for internal use are
expensed as incurred. Internal and external costs incurred to
develop computer software for internal use during the
application development stage are capitalised if the Group
expects economic benefits from the development. Capitalisation
in the application development stage begins once the Group can
reliably measure the expenditure attributable to the software
development and has demonstrated its intention to complete and
use the software. Internally developed software is amortised on
a straight-line basis over its estimated useful life of between
three and eight years.
4. Acquired intangible assets
Acquired intangible assets include customer lists and
relationships, trademarks and brands, publishing rights, content
and technology. These assets are capitalised on acquisition at
cost and included in intangible assets. Intangible assets
acquired in material business combinations are capitalised at
their fair value as determined by an independent valuer.
Intangible assets are amortised over their estimated useful
lives of between two and 20 years, using an amortisation
method that reflects the pattern of their consumption.
5. Pre-publication assets
Pre-publication assets represent direct costs incurred in the
development of educational programmes and titles prior to their
publication. These costs are recognised as current intangible
assets where the title will generate probable future economic
benefits and costs can be measured reliably. Pre-publication
assets are amortised upon publication of the title over
estimated economic lives of five years or less, being an
estimate of the expected operating life cycle of the title, with
a higher proportion of the amortisation taken in the earlier
years.
F-14
Notes to
the Consolidated Financial Statements (Continued)
The investment in pre-publication assets has been disclosed as
part of cash generated from operations in the cash flow
statement (see note 31).
The assessment of the recoverability of pre-publication assets
and the determination of the amortisation profile involve a
significant degree of judgement based on historical trends and
management estimation of future potential sales. An incorrect
amortisation profile could result in excess amounts being
carried forward as intangible assets that would otherwise have
been written off to the income statement in an earlier period.
Reviews are performed regularly to estimate recoverability of
pre-publication assets. The carrying amount of pre-publication
assets is set out in note 20.
|
|
f.
|
Other
financial assets
|
Other financial assets, designated as available for sale
investments, are non-derivative financial assets measured at
estimated fair value. Changes in the fair value are recorded in
equity in the fair value reserve. On the subsequent disposal of
the asset, the net fair value gains or losses are taken to the
income statement.
Inventories are stated at the lower of cost and net realisable
value. Cost is determined using the first in first out (FIFO)
method. The cost of finished goods and work in progress
comprises raw materials, direct labour, other direct costs and
related production overheads. Net realisable value is the
estimated selling price in the ordinary course of business, less
estimated costs necessary to make the sale. Provisions are made
for slow moving and obsolete stock.
Advances of royalties to authors are included within trade and
other receivables when the advance is paid less any provision
required to adjust the advance to its net realisable value. The
realisable value of royalty advances relies on a degree of
management judgement in determining the profitability of
individual author contracts. If the estimated realisable value
of author contracts is overstated, this will have an adverse
effect on operating profits as these excess amounts will be
written off.
The recoverability of royalty advances is based upon an annual
detailed management review of the age of the advance, the future
sales projections for new authors and prior sales history of
repeat authors. The royalty advance is expensed at the
contracted or effective royalty rate as the related revenues are
earned. Royalty advances which will be consumed within one year
are held in current assets. Royalty advances which will be
consumed after one year are held in non-current assets.
|
|
i.
|
Newspaper
development costs
|
Investment in the development of newspaper titles consists of
measures to increase the volume and geographical spread of
circulation. The measures include additional and enhanced
editorial content, extended distribution and remote printing.
These costs are expensed as incurred as they do not meet the
criteria under IAS 38 Intangible Assets to be
capitalised as intangible assets.
|
|
j.
|
Cash and
cash equivalents
|
Cash and cash equivalents in the cash flow statement include
cash in hand, deposits held on call with banks, other short-term
highly liquid investments with original maturities of three
months or less, and bank overdrafts. Bank overdrafts are
included in borrowings in current liabilities in the balance
sheet.
Short-term deposits and marketable securities with maturities of
greater than three months do not qualify as cash and cash
equivalents. Movements on these financial instruments are
classified as cash flows from financing activities in the cash
flow statement as these amounts are used to offset the
borrowings of the Group.
F-15
Notes to
the Consolidated Financial Statements (Continued)
Ordinary shares are classified as equity.
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of
tax, from the proceeds.
Where any Group company purchases the companys equity
share capital (treasury shares) the consideration paid,
including any directly attributable incremental costs, net of
income taxes, is deducted from equity attributable to the
companys equity holders until the shares are cancelled,
reissued or disposed of. Where such shares are subsequently sold
or reissued, any consideration received, net of any directly
attributable transaction costs and the related income tax
effects, is included in equity attributable to the
companys equity holders.
Borrowings are recognised initially at fair value, which is
proceeds received net of transaction costs incurred. Borrowings
are subsequently stated at amortised cost with any difference
between the proceeds (net of transaction costs) and the
redemption value being recognised in the income statement over
the period of the borrowings using the effective interest
method. Accrued interest is included as part of borrowings.
Where a debt instrument is in a fair value hedging relationship,
an adjustment is made to its carrying value in the income
statement to reflect the hedged risk. Interest on borrowings is
expensed in the income statement as incurred.
|
|
m.
|
Derivative
financial instruments
|
Derivatives are recognised at fair value and re-measured at each
balance sheet date. The fair value of derivatives is determined
by using market data and the use of established estimation
techniques such as discounted cash flow and option valuation
models. The Group designates certain of the derivative
instruments within its portfolio to be hedges of the fair value
of its bonds (fair value hedges) or hedges of net investments in
foreign operations (net investment hedges).
Changes in the fair value of derivatives that are designated and
qualify as fair value hedges are recorded in the income
statement, together with any changes in the fair value of the
hedged asset or liability that are attributable to the hedged
risk.
The effective portion of changes in the fair value of
derivatives that are designated and qualify as net investment
hedges are recognised in other comprehensive income. Gains and
losses accumulated in equity are included in the income
statement when the corresponding foreign operation is disposed
of. Gains or losses relating to the ineffective portion are
recognised immediately in finance income or finance costs in the
income statement.
Certain derivatives do not qualify or are not designated as
hedging instruments. Such derivatives are classified at fair
value and any movement in their fair value is recognised
immediately in finance income or finance costs in the income
statement.
Current tax is recognised on the amounts expected to be paid or
recovered under the tax rates and laws that have been enacted or
substantively enacted at the balance sheet date.
Deferred income tax is provided, using the liability method, on
temporary differences arising between the tax bases of assets
and liabilities and their carrying amounts. Deferred income tax
is determined using tax rates and laws that have been enacted or
substantively enacted by the balance sheet date and are expected
to apply when the related deferred tax asset is realised or the
deferred income tax liability is settled.
Deferred tax assets are recognised to the extent that it is
probable that future taxable profit will be available against
which the temporary differences can be utilised.
F-16
Notes to
the Consolidated Financial Statements (Continued)
Deferred income tax is provided in respect of the undistributed
earnings of subsidiaries other than where it is intended that
those undistributed earnings will not be remitted in the
foreseeable future.
Current and deferred tax are recognised in the income statement,
except when the tax relates to items charged or credited
directly to equity or other comprehensive income, in which case
the tax is also recognised in equity or other comprehensive
income.
The Group is subject to income taxes in numerous jurisdictions.
Significant judgement is required in determining the estimates
in relation to the worldwide provision for income taxes. There
are many transactions and calculations for which the ultimate
tax determination is uncertain during the ordinary course of
business. The Group recognises liabilities for anticipated tax
audit issues based on estimates of whether additional taxes will
be due. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such
differences will impact the income tax and deferred tax
provisions in the period in which such determination is made.
Deferred tax assets and liabilities require management judgement
in determining the amounts to be recognised. In particular,
significant judgement is used when assessing the extent to which
deferred tax assets should be recognised with consideration
given to the timing and level of future taxable income together
with any future tax planning strategies.
1. Pension obligations The
retirement benefit asset and obligation recognised in the
balance sheet represents the net of the present value of the
defined benefit obligation and the fair value of plan assets at
the balance sheet date. The defined benefit obligation is
calculated annually by independent actuaries using the projected
unit credit method. The present value of the defined benefit
obligation is determined by discounting estimated future cash
flows using yields on high quality corporate bonds which have
terms to maturity approximating the terms of the related
liability.
The determination of the pension cost and defined benefit
obligation of the Groups defined benefit pension schemes
depends on the selection of certain assumptions, which include
the discount rate, inflation rate, salary growth, longevity and
expected return on scheme assets.
Actuarial gains and losses arising from differences between
actual and expected returns on plan assets, experience
adjustments on liabilities and changes in actuarial assumptions
are recognised immediately in other comprehensive income.
The service cost, representing benefits accruing over the year,
is included in the income statement as an operating cost. The
unwinding of the discount rate on the scheme liabilities and the
expected return on scheme assets are presented as finance costs
or finance income.
Obligations for contributions to defined contribution pension
plans are recognised as an operating expense in the income
statement as incurred.
2. Other post-retirement
obligations The expected costs of
post-retirement healthcare and life assurance benefits are
accrued over the period of employment, using a similar
accounting methodology as for defined benefit pension
obligations. The liabilities and costs relating to significant
other post-retirement obligations are assessed annually by
independent qualified actuaries.
3. Share-based payments The fair
value of options or shares granted under the Groups share
and option plans is recognised as an employee expense after
taking into account the Groups best estimate of the number
of awards expected to vest. Fair value is measured at the date
of grant and is spread over the vesting period of the option or
share. The fair value of the options granted is measured using
an option model that is most appropriate to the award. The fair
value of shares awarded is measured using the share price at the
date of grant unless another method is more appropriate. Any
proceeds received are credited to share capital and share
premium when the options are
F-17
Notes to
the Consolidated Financial Statements (Continued)
exercised. The Group has applied IFRS 2 Share-based
Payment retrospectively to all options granted but not
fully vested at the date of transition to IFRS.
Provisions are recognised if the Group has a present legal or
constructive obligation as a result of past events, it is more
likely than not that an outflow of resources will be required to
settle the obligation and the amount can be reliably estimated.
Provisions are discounted to present value where the effect is
material.
The Group recognises a provision for deferred consideration when
the payment of the deferred consideration is probable.
The Group recognises a provision for onerous lease contracts
when the expected benefits to be derived from a contract are
less than the unavoidable costs of meeting the obligations under
the contract.
The provision is based on the present value of future payments
for surplus leased properties under non-cancellable operating
leases, net of estimated
sub-leasing
income.
Revenue comprises the fair value of the consideration received
or receivable for the sale of goods and services net of sales
taxes, rebates and discounts, and after eliminating sales within
the Group.
Revenue from the sale of books is recognised when title passes.
A provision for anticipated returns is made based primarily on
historical return rates. If these estimates do not reflect
actual returns in future periods then revenues could be
understated or overstated for a particular period.
Circulation and advertising revenue is recognised when the
newspaper or other publication is published. Subscription
revenue is recognised on a straight-line basis over the life of
the subscription.
Where a contractual arrangement consists of two or more separate
elements that can be provided to customers either on a
stand-alone basis or as an optional extra, such as the provision
of supplementary materials with textbooks, revenue is recognised
for each element as if it were an individual contractual
arrangement.
Revenue from multi-year contractual arrangements, such as
contracts to process qualifying tests for individual professions
and government departments, is recognised as performance occurs.
The assumptions, risks, and uncertainties inherent in long-term
contract accounting can affect the amounts and timing of revenue
and related expenses reported. Certain of these arrangements,
either as a result of a single service spanning more than one
reporting period or where the contract requires the provision of
a number of services that together constitute a single project,
are treated as long-term contracts with revenue recognised on a
percentage of completion basis. Losses on contracts are
recognised in the period in which the loss first becomes
foreseeable. Contract losses are determined to be the amount by
which estimated total costs of the contract exceed the estimated
total revenues that will be generated by the contract.
On certain contracts, where the Group acts as agent, only
commissions and fees receivable for services rendered are
recognised as revenue. Any third-party costs incurred on behalf
of the principal that are rechargeable under the contractual
arrangement are not included in revenue.
Income from recharges of freight and other activities which are
incidental to the normal revenue generating activities is
included in other income.
Leases of property, plant and equipment where the Group has
substantially all the risks and rewards of ownership are
classified as finance leases. Finance leases are capitalised at
the commencement of the lease at the lower of the fair value of
the leased property and the present value of the minimum lease
payments. Each lease
F-18
Notes to
the Consolidated Financial Statements (Continued)
payment is allocated between the liability and finance charges
to achieve a constant rate on the finance balance outstanding.
The corresponding rental obligations, net of finance charges,
are included in financial liabilities -borrowings. The interest
element of the finance cost is charged to the income statement
over the lease period to produce a constant periodic rate of
interest on the remaining balance of the liability for each
period. The property, plant and equipment acquired under finance
leases are depreciated over the shorter of the useful life of
the asset or the lease term.
Leases where a significant portion of the risks and rewards of
ownership are retained by the lessor are classified as operating
leases by the lessee. Payments made under operating leases (net
of any incentives received from the lessor) are charged to the
income statement on a straight-line basis over the period of the
lease.
Dividends are recorded in the Groups financial statements
in the period in which they are approved by the companys
shareholders. Interim dividends are recorded in the period in
which they are approved and paid.
|
|
t.
|
Non-current
assets and liabilities held for sale
|
Assets and liabilities are classified as held for sale and
stated at the lower of carrying amount and fair value less costs
to sell if it is intended to recover their carrying amount
principally through a sale transaction rather than through
continuing use. No depreciation is charged in respect of
non-current assets classified as held for sale. Amounts relating
to non-current assets and liabilities held for sale are
classified as discontinued operations in the income statement
where appropriate.
Trade receivables are stated at fair value after provision for
bad and doubtful debts and anticipated future sales returns (see
also note 1q).
The Group is organised into five business segments:
North American Education Educational
publishing, assessment and testing for the school and higher
education market within the USA and Canada;
International Education Educational
publishing, assessment and testing for the school and higher
education market outside of North America;
Professional Business and technology
publishing, training, testing and certification for professional
bodies;
FT Group Publisher of the Financial
Times, business magazines and specialist information;
Penguin Publisher with brand imprints
such as Penguin, Putnam, Berkley, Viking and Dorling Kindersley.
F-19
Notes to
the Consolidated Financial Statements (Continued)
For more detail on the services and products included in each
business segment refer to the business review.
The results of the Interactive Data segment are shown as
discontinued.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
International
|
|
|
|
|
|
FT
|
|
|
|
|
|
|
|
|
Discontinued
|
|
|
|
|
|
|
Notes
|
|
Education
|
|
|
Education
|
|
|
Professional
|
|
|
Group
|
|
|
Penguin
|
|
|
Corporate
|
|
|
operations
|
|
|
Group
|
|
|
|
All figures in £ millions
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (external)
|
|
|
|
|
|
|
2,640
|
|
|
|
1,234
|
|
|
|
333
|
|
|
|
403
|
|
|
|
1,053
|
|
|
|
|
|
|
|
|
|
|
|
5,663
|
|
Sales (inter-segment)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit
|
|
|
|
|
|
|
469
|
|
|
|
171
|
|
|
|
51
|
|
|
|
60
|
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
857
|
|
Amortisation of acquired intangibles
|
|
|
|
|
|
|
(53
|
)
|
|
|
(35
|
)
|
|
|
(7
|
)
|
|
|
(9
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(105
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition costs
|
|
|
|
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11
|
)
|
Other net gains and losses
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Operating profit
|
|
|
|
|
|
|
415
|
|
|
|
119
|
|
|
|
42
|
|
|
|
62
|
|
|
|
105
|
|
|
|
|
|
|
|
|
|
|
|
743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(109
|
)
|
Finance income
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
670
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
|
|
|
|
4,401
|
|
|
|
2,122
|
|
|
|
601
|
|
|
|
447
|
|
|
|
1,138
|
|
|
|
1,888
|
|
|
|
|
|
|
|
10,597
|
|
Joint ventures
|
|
|
12
|
|
|
|
15
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Associates
|
|
|
12
|
|
|
|
24
|
|
|
|
6
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
4,440
|
|
|
|
2,128
|
|
|
|
602
|
|
|
|
471
|
|
|
|
1,139
|
|
|
|
1,888
|
|
|
|
|
|
|
|
10,668
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segment items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of results of joint ventures and associates
|
|
|
12
|
|
|
|
(3
|
)
|
|
|
1
|
|
|
|
1
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
Capital expenditure
|
|
|
10,11
|
|
|
|
45
|
|
|
|
27
|
|
|
|
16
|
|
|
|
17
|
|
|
|
18
|
|
|
|
|
|
|
|
21
|
|
|
|
144
|
|
Pre-publication investment
|
|
|
20
|
|
|
|
215
|
|
|
|
61
|
|
|
|
7
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
319
|
|
Depreciation
|
|
|
10
|
|
|
|
23
|
|
|
|
19
|
|
|
|
9
|
|
|
|
5
|
|
|
|
13
|
|
|
|
|
|
|
|
13
|
|
|
|
82
|
|
Amortisation
|
|
|
11,20
|
|
|
|
307
|
|
|
|
111
|
|
|
|
18
|
|
|
|
23
|
|
|
|
43
|
|
|
|
|
|
|
|
12
|
|
|
|
514
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-20
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
|
|
|
|
|
|
|
Notes
|
|
|
Education
|
|
|
Education
|
|
|
Professional
|
|
|
FT Group
|
|
|
Penguin
|
|
|
Corporate
|
|
|
operations
|
|
|
Group
|
|
|
|
All figures in £ millions
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (external)
|
|
|
|
|
|
|
2,470
|
|
|
|
1,035
|
|
|
|
275
|
|
|
|
358
|
|
|
|
1,002
|
|
|
|
|
|
|
|
|
|
|
|
5,140
|
|
Sales (inter-segment)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit
|
|
|
|
|
|
|
403
|
|
|
|
141
|
|
|
|
43
|
|
|
|
39
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
710
|
|
Amortisation of acquired intangibles
|
|
|
|
|
|
|
(49
|
)
|
|
|
(32
|
)
|
|
|
(1
|
)
|
|
|
(8
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
(91
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
354
|
|
|
|
109
|
|
|
|
42
|
|
|
|
31
|
|
|
|
83
|
|
|
|
|
|
|
|
|
|
|
|
619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122
|
)
|
Finance income
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(146
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
377
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
|
|
|
|
4,382
|
|
|
|
1,635
|
|
|
|
377
|
|
|
|
420
|
|
|
|
1,173
|
|
|
|
924
|
|
|
|
471
|
|
|
|
9,382
|
|
Joint ventures
|
|
|
12
|
|
|
|
13
|
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
18
|
|
Associates
|
|
|
12
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
4,395
|
|
|
|
1,640
|
|
|
|
378
|
|
|
|
428
|
|
|
|
1,176
|
|
|
|
924
|
|
|
|
471
|
|
|
|
9,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segment items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of results of joint ventures and associates
|
|
|
12
|
|
|
|
(2
|
)
|
|
|
6
|
|
|
|
1
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30
|
|
Capital expenditure
|
|
|
10,11
|
|
|
|
38
|
|
|
|
22
|
|
|
|
12
|
|
|
|
15
|
|
|
|
10
|
|
|
|
|
|
|
|
29
|
|
|
|
126
|
|
Pre-publication investments
|
|
|
20
|
|
|
|
220
|
|
|
|
58
|
|
|
|
8
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
322
|
|
Depreciation
|
|
|
10
|
|
|
|
24
|
|
|
|
16
|
|
|
|
10
|
|
|
|
5
|
|
|
|
9
|
|
|
|
|
|
|
|
21
|
|
|
|
85
|
|
Amortisation
|
|
|
11,20
|
|
|
|
274
|
|
|
|
89
|
|
|
|
13
|
|
|
|
20
|
|
|
|
42
|
|
|
|
|
|
|
|
16
|
|
|
|
454
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-21
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American
|
|
|
International
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued
|
|
|
|
|
|
|
Notes
|
|
|
Education
|
|
|
Education
|
|
|
Professional
|
|
|
FT Group
|
|
|
Penguin
|
|
|
Corporate
|
|
|
operations
|
|
|
Group
|
|
|
|
All figures in £ millions
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales (external)
|
|
|
|
|
|
|
2,002
|
|
|
|
866
|
|
|
|
244
|
|
|
|
390
|
|
|
|
903
|
|
|
|
|
|
|
|
|
|
|
|
4,405
|
|
Sales (inter-segment)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted operating profit
|
|
|
|
|
|
|
303
|
|
|
|
135
|
|
|
|
36
|
|
|
|
74
|
|
|
|
93
|
|
|
|
|
|
|
|
|
|
|
|
641
|
|
Amortisation of acquired intangibles
|
|
|
|
|
|
|
(45
|
)
|
|
|
(22
|
)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
(77
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
|
|
|
|
258
|
|
|
|
113
|
|
|
|
35
|
|
|
|
67
|
|
|
|
91
|
|
|
|
|
|
|
|
|
|
|
|
564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(136
|
)
|
Finance income
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit for the year from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
|
|
|
|
4,952
|
|
|
|
1,358
|
|
|
|
423
|
|
|
|
482
|
|
|
|
1,211
|
|
|
|
923
|
|
|
|
524
|
|
|
|
9,873
|
|
Joint ventures
|
|
|
12
|
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
2
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
Associates
|
|
|
12
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
|
|
|
4,952
|
|
|
|
1,370
|
|
|
|
423
|
|
|
|
490
|
|
|
|
1,214
|
|
|
|
923
|
|
|
|
524
|
|
|
|
9,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other segment items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share of results of joint
|
|
|
12
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
19
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
ventures and associates
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditure
|
|
|
10, 11
|
|
|
|
22
|
|
|
|
30
|
|
|
|
15
|
|
|
|
17
|
|
|
|
15
|
|
|
|
|
|
|
|
25
|
|
|
|
124
|
|
Pre-publication investments
|
|
|
20
|
|
|
|
202
|
|
|
|
52
|
|
|
|
7
|
|
|
|
|
|
|
|
36
|
|
|
|
|
|
|
|
|
|
|
|
297
|
|
Depreciation
|
|
|
10
|
|
|
|
25
|
|
|
|
12
|
|
|
|
8
|
|
|
|
13
|
|
|
|
9
|
|
|
|
|
|
|
|
13
|
|
|
|
80
|
|
Amortisation
|
|
|
11, 20
|
|
|
|
219
|
|
|
|
69
|
|
|
|
12
|
|
|
|
12
|
|
|
|
36
|
|
|
|
|
|
|
|
12
|
|
|
|
360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2010, sales from the provision of goods were £4,200m
(2009: £3,838m; 2008: £3,374m) and sales from the
provision of services were £1,463m (2009: £1,302m;
2008: £1,031m). Sales from the Groups educational
publishing, consumer publishing and newspaper business are
classified as being from the provision of goods and sales from
its assessment and testing and other service businesses are
classified as being from the provision of services.
Corporate costs are allocated to business segments on an
appropriate basis depending on the nature of the cost and
therefore the segment result is equal to the Group operating
profit. Inter-segment pricing is determined on an
arms-length basis. Segment assets consist of property,
plant and equipment, intangible assets, inventories,
receivables, deferred taxation and other financial assets and
exclude cash and cash equivalents and derivative assets.
Corporate assets comprise cash and cash equivalents, marketable
securities and derivative financial instruments. Capital
expenditure comprises additions to property, plant and equipment
and software (see notes 10 and 11).
Property, plant and equipment and intangible assets acquired
through business combination were £311m (2009: £153m)
(see note 29). Capital expenditure, depreciation and
amortisation include amounts relating to discontinued operations.
F-22
Notes to
the Consolidated Financial Statements (Continued)
The Group operates in the following main geographic areas:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
|
Non-current assets
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
Continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
790
|
|
|
|
694
|
|
|
|
700
|
|
|
|
1,031
|
|
|
|
904
|
|
|
|
660
|
|
Other European countries
|
|
|
415
|
|
|
|
387
|
|
|
|
392
|
|
|
|
237
|
|
|
|
179
|
|
|
|
154
|
|
USA
|
|
|
3,361
|
|
|
|
3,146
|
|
|
|
2,596
|
|
|
|
3,790
|
|
|
|
3,607
|
|
|
|
4,396
|
|
Canada
|
|
|
228
|
|
|
|
198
|
|
|
|
165
|
|
|
|
235
|
|
|
|
204
|
|
|
|
209
|
|
Asia Pacific
|
|
|
577
|
|
|
|
497
|
|
|
|
403
|
|
|
|
364
|
|
|
|
319
|
|
|
|
155
|
|
Other countries
|
|
|
292
|
|
|
|
218
|
|
|
|
149
|
|
|
|
376
|
|
|
|
121
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total continuing
|
|
|
5,663
|
|
|
|
5,140
|
|
|
|
4,405
|
|
|
|
6,033
|
|
|
|
5,334
|
|
|
|
5,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
31
|
|
|
|
54
|
|
|
|
55
|
|
|
|
|
|
|
|
37
|
|
|
|
41
|
|
Other European countries
|
|
|
48
|
|
|
|
86
|
|
|
|
71
|
|
|
|
|
|
|
|
63
|
|
|
|
70
|
|
USA
|
|
|
196
|
|
|
|
317
|
|
|
|
272
|
|
|
|
|
|
|
|
204
|
|
|
|
228
|
|
Canada
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia Pacific
|
|
|
18
|
|
|
|
23
|
|
|
|
12
|
|
|
|
|
|
|
|
21
|
|
|
|
24
|
|
Other countries
|
|
|
1
|
|
|
|
2
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total discontinued
|
|
|
296
|
|
|
|
484
|
|
|
|
414
|
|
|
|
|
|
|
|
325
|
|
|
|
363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,959
|
|
|
|
5,624
|
|
|
|
4,819
|
|
|
|
6,033
|
|
|
|
5,659
|
|
|
|
5,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales are allocated based on the country in which the customer
is located. This does not differ materially from the location
where the order is received. Non-current assets are based on the
subsidiarys country of domicile. This is not materially
different to the location of the assets. Non-current assets
comprise property, plant and equipment, intangible assets,
investments in joint ventures and associates and trade and other
receivables.
F-23
Notes to
the Consolidated Financial Statements (Continued)
|
|
3.
|
Discontinued
operations
|
Discontinued operations in 2009 and 2010 relate to the
Groups interest in Interactive Data (sold on 29 July
2010). Discontinued operations in 2008 relate to interactive
Data and the Data Management business (sold on 22 February
2008).
An analysis of the results and cash flows of discontinued
operations is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2008
|
|
|
2008
|
|
|
|
Interactive
|
|
|
Interactive
|
|
|
Interactive
|
|
|
Data
|
|
|
|
|
|
|
Data
|
|
|
Data
|
|
|
Data
|
|
|
Management
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Sales
|
|
|
296
|
|
|
|
484
|
|
|
|
406
|
|
|
|
8
|
|
|
|
414
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
73
|
|
|
|
136
|
|
|
|
112
|
|
|
|
|
|
|
|
112
|
|
Finance income
|
|
|
|
|
|
|
1
|
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit before tax
|
|
|
73
|
|
|
|
137
|
|
|
|
116
|
|
|
|
|
|
|
|
116
|
|
Attributable tax expense
|
|
|
(28
|
)
|
|
|
(52
|
)
|
|
|
(47
|
)
|
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit after tax
|
|
|
45
|
|
|
|
85
|
|
|
|
69
|
|
|
|
|
|
|
|
69
|
|
Profit/(loss) on disposal of discontinued operations before tax
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
(53
|
)
|
Attributable tax expense
|
|
|
(306
|
)
|
|
|
|
|
|
|
|
|
|
|
(37
|
)
|
|
|
(37
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for the year from discontinued operations
|
|
|
776
|
|
|
|
85
|
|
|
|
69
|
|
|
|
(90
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flows
|
|
|
85
|
|
|
|
132
|
|
|
|
127
|
|
|
|
|
|
|
|
127
|
|
Investing cash flows
|
|
|
(35
|
)
|
|
|
(23
|
)
|
|
|
(50
|
)
|
|
|
|
|
|
|
(50
|
)
|
Financing cash flows
|
|
|
49
|
|
|
|
(80
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash flows
|
|
|
99
|
|
|
|
29
|
|
|
|
48
|
|
|
|
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
By function:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
2,588
|
|
|
|
2,382
|
|
|
|
2,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Distribution costs
|
|
|
298
|
|
|
|
275
|
|
|
|
235
|
|
Administrative and other expenses
|
|
|
2,190
|
|
|
|
2,014
|
|
|
|
1,687
|
|
Other income
|
|
|
(115
|
)
|
|
|
(120
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
2,373
|
|
|
|
2,169
|
|
|
|
1,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,961
|
|
|
|
4,551
|
|
|
|
3,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
By nature:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilisation of inventory
|
|
|
21
|
|
|
|
836
|
|
|
|
843
|
|
|
|
832
|
|
Depreciation of property, plant and equipment
|
|
|
10
|
|
|
|
69
|
|
|
|
64
|
|
|
|
67
|
|
Amortisation of intangible assets Pre-publication
|
|
|
20
|
|
|
|
350
|
|
|
|
307
|
|
|
|
244
|
|
Amortisation of intangible assets Other
|
|
|
11
|
|
|
|
152
|
|
|
|
131
|
|
|
|
104
|
|
Employee benefit expense
|
|
|
5
|
|
|
|
1,849
|
|
|
|
1,725
|
|
|
|
1,392
|
|
Operating lease rentals
|
|
|
|
|
|
|
166
|
|
|
|
157
|
|
|
|
156
|
|
Other property costs
|
|
|
|
|
|
|
64
|
|
|
|
70
|
|
|
|
102
|
|
Royalties expensed
|
|
|
|
|
|
|
524
|
|
|
|
479
|
|
|
|
400
|
|
Advertising, promotion and marketing
|
|
|
|
|
|
|
250
|
|
|
|
219
|
|
|
|
238
|
|
Information technology costs
|
|
|
|
|
|
|
78
|
|
|
|
72
|
|
|
|
60
|
|
Other costs
|
|
|
|
|
|
|
738
|
|
|
|
604
|
|
|
|
373
|
|
Other income
|
|
|
|
|
|
|
(115
|
)
|
|
|
(120
|
)
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
4,961
|
|
|
|
4,551
|
|
|
|
3,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year the Group obtained the following services from
the Groups auditors:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
Fees payable to the companys auditors for the audit of
parent company and consolidated financial statements
|
|
|
4
|
|
|
|
4
|
|
|
|
3
|
|
The audit of the companys subsidiaries pursuant to
legislation
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Tax services
|
|
|
2
|
|
|
|
2
|
|
|
|
2
|
|
Other services
|
|
|
2
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10
|
|
|
|
9
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation between audit and non-audit service fees is shown
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
Group audit fees including fees for attestation under
section 404 of the
Sarbanes-Oxley Act
|
|
|
6
|
|
|
|
6
|
|
|
|
5
|
|
Non-audit fees
|
|
|
4
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
10
|
|
|
|
9
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees for attestation under section 404 of the
Sarbanes-Oxley Act are allocated between fees payable for the
audits of consolidated and subsidiary accounts.
Tax services include services related to tax planning and
various other tax advisory matters. Other services is mainly due
diligence on acquisitions, notably our Brazilian acquisition,
Sistema Educational Brasileiro (SEB), where we assessed that our
auditors were best qualified and cost effective in taking on
this role.
F-25
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
All figures in £ millions
|
|
|
Employee benefit expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wages and salaries (including termination benefits and
restructuring costs)
|
|
|
|
|
|
|
1,588
|
|
|
|
1,496
|
|
|
|
1,184
|
|
Social security costs
|
|
|
|
|
|
|
136
|
|
|
|
124
|
|
|
|
103
|
|
Share-based payment costs
|
|
|
26
|
|
|
|
35
|
|
|
|
27
|
|
|
|
25
|
|
Retirement benefits defined contribution plans
|
|
|
25
|
|
|
|
66
|
|
|
|
60
|
|
|
|
39
|
|
Retirement benefits defined benefit plans
|
|
|
25
|
|
|
|
22
|
|
|
|
16
|
|
|
|
35
|
|
Other post-retirement benefits
|
|
|
25
|
|
|
|
2
|
|
|
|
2
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,849
|
|
|
|
1,725
|
|
|
|
1,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The details of the emoluments of the directors of Pearson plc
are shown in the report on directors remuneration.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Average number employed
|
|
|
Employee numbers
|
|
|
|
|
|
|
|
|
|
|
|
|
North American Education
|
|
|
14,828
|
|
|
|
15,606
|
|
|
|
15,412
|
|
International Education
|
|
|
10,713
|
|
|
|
8,899
|
|
|
|
5,718
|
|
Professional
|
|
|
3,721
|
|
|
|
2,662
|
|
|
|
2,641
|
|
FT Group
|
|
|
2,557
|
|
|
|
2,328
|
|
|
|
2,379
|
|
Penguin
|
|
|
3,470
|
|
|
|
4,163
|
|
|
|
4,112
|
|
Other
|
|
|
1,028
|
|
|
|
1,047
|
|
|
|
909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
36,317
|
|
|
|
34,705
|
|
|
|
31,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average number employed in discontinued operations in 2009
was 2,459, and in 2008 was 2,509.
F-26
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
All figures in £ millions
|
|
|
Interest payable
|
|
|
|
|
|
|
(82
|
)
|
|
|
(92
|
)
|
|
|
(106
|
)
|
Finance costs in respect of retirement benefits
|
|
|
25
|
|
|
|
(12
|
)
|
|
|
(12
|
)
|
|
|
|
|
Net foreign exchange losses
|
|
|
|
|
|
|
(9
|
)
|
|
|
(7
|
)
|
|
|
(11
|
)
|
Other losses on financial instruments in a hedging relationship:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fair value hedges
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(7
|
)
|
Other losses on financial instruments not in a hedging
relationship:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
derivatives
|
|
|
|
|
|
|
(6
|
)
|
|
|
(10
|
)
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
|
|
|
|
|
(109
|
)
|
|
|
(122
|
)
|
|
|
(136
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest receivable
|
|
|
|
|
|
|
9
|
|
|
|
6
|
|
|
|
13
|
|
Finance income in respect of retirement benefits
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Net foreign exchange gains
|
|
|
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
Other gains on financial instruments in a hedging relationship:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
fair value hedges
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
2
|
|
net investment hedges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
Other gains on financial instruments not in a hedging
relationship:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
amortisation of transitional adjustment on bonds
|
|
|
|
|
|
|
2
|
|
|
|
3
|
|
|
|
1
|
|
derivatives
|
|
|
|
|
|
|
7
|
|
|
|
13
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance income
|
|
|
|
|
|
|
36
|
|
|
|
26
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net finance costs
|
|
|
|
|
|
|
(73
|
)
|
|
|
(96
|
)
|
|
|
(95
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The £nil net gain (2009: £3m net gain; 2008: £5m
net loss) on fair value hedges comprises a £40m loss (2009:
£96m gain; 2008: £156m loss) on the underlying bonds
offset by a £40m gain (2009: £93m loss; 2008:
£151m gain) on the related derivative financial instruments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
All figures in £ millions
|
|
|
Current tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge in respect of current year
|
|
|
|
|
|
|
(82
|
)
|
|
|
(106
|
)
|
|
|
(48
|
)
|
Other adjustments in respect of prior years
|
|
|
|
|
|
|
13
|
|
|
|
7
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax charge
|
|
|
|
|
|
|
(69
|
)
|
|
|
(99
|
)
|
|
|
(36
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In respect of temporary differences
|
|
|
|
|
|
|
(77
|
)
|
|
|
(51
|
)
|
|
|
(93
|
)
|
Other adjustments in respect of prior years
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax charge
|
|
|
13
|
|
|
|
(77
|
)
|
|
|
(47
|
)
|
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax charge
|
|
|
|
|
|
|
(146
|
)
|
|
|
(146
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-27
Notes to
the Consolidated Financial Statements (Continued)
The tax on the Groups profit before tax differs from the
theoretical amount that would arise using the UK tax rate as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
Profit before tax
|
|
|
670
|
|
|
|
523
|
|
|
|
469
|
|
Tax calculated at UK rate (2010: 28%, 2009: 28%, 2008: 28.5%)
|
|
|
(188
|
)
|
|
|
(147
|
)
|
|
|
(134
|
)
|
Effect of overseas tax rates
|
|
|
(40
|
)
|
|
|
(27
|
)
|
|
|
(13
|
)
|
Joint venture and associate income reported net of tax
|
|
|
11
|
|
|
|
8
|
|
|
|
7
|
|
Net income/(expense) not subject to tax
|
|
|
8
|
|
|
|
8
|
|
|
|
(5
|
)
|
Utilisation of previously unrecognised tax losses and credits
|
|
|
56
|
|
|
|
2
|
|
|
|
4
|
|
Unutilised tax losses
|
|
|
(6
|
)
|
|
|
(1
|
)
|
|
|
|
|
Prior year adjustments
|
|
|
13
|
|
|
|
11
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax charge
|
|
|
(146
|
)
|
|
|
(146
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
(28
|
)
|
|
|
(41
|
)
|
|
|
(47
|
)
|
Overseas
|
|
|
(118
|
)
|
|
|
(105
|
)
|
|
|
(78
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax charge
|
|
|
(146
|
)
|
|
|
(146
|
)
|
|
|
(125
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax rate reflected in earnings
|
|
|
21.8
|
%
|
|
|
27.9
|
%
|
|
|
26.7
|
%
|
A number of changes to the UK Corporation tax system were
announced in the June 2010 Budget Statement. The Finance
(No. 2) Act 2010 was enacted in July 2010 and reduces
the main rate of corporation tax from 28% to 27% from 1 April
2011. A reduction in the rate of corporation tax from 28% to 27%
resulted in a reduction in the net deferred tax asset provided
at 31 December 2010 of £3m, of which £1m was
charged to the income statement and £2m to other
comprehensive income.
The tax (charge)/benefit recognised in other comprehensive
income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
Pension contributions and actuarial gains and losses
|
|
|
(42
|
)
|
|
|
79
|
|
|
|
10
|
|
Net investment hedges and other foreign exchange gains and losses
|
|
|
1
|
|
|
|
12
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41
|
)
|
|
|
91
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A tax benefit of £4m (2009: tax benefit £6m; 2008: tax
charge £7m) relating to share-based payments has been
recognised directly in equity.
Basic
Basic earnings per share is calculated by dividing the profit
attributable to equity shareholders of the company by the
weighted average number of ordinary shares in issue during the
year, excluding ordinary shares purchased by the company and
held as treasury shares.
Diluted
Diluted earnings per share is calculated by adjusting the
weighted average number of ordinary shares to take account of
all dilutive potential ordinary shares and adjusting the profit
attributable, if applicable, to account for any tax consequences
that might arise from conversion of those shares.
F-28
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
All figures in £ millions
|
|
|
Profit for the year from continuing operations
|
|
|
|
|
|
|
524
|
|
|
|
377
|
|
|
|
344
|
|
Non-controlling interest
|
|
|
|
|
|
|
5
|
|
|
|
(1
|
)
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings from continuing operations
|
|
|
|
|
|
|
529
|
|
|
|
376
|
|
|
|
342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(loss) for the year from discontinued operations
|
|
|
3
|
|
|
|
776
|
|
|
|
85
|
|
|
|
(21
|
)
|
Non-controlling interest
|
|
|
|
|
|
|
(8
|
)
|
|
|
(36
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings
|
|
|
|
|
|
|
1,297
|
|
|
|
425
|
|
|
|
292
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares (millions)
|
|
|
|
|
|
|
801.2
|
|
|
|
799.3
|
|
|
|
797.0
|
|
Effect of dilutive share options (millions)
|
|
|
|
|
|
|
1.8
|
|
|
|
0.8
|
|
|
|
0.5
|
|
Weighted average number of shares (millions) for diluted earnings
|
|
|
|
|
|
|
803.0
|
|
|
|
800.1
|
|
|
|
797.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing and discontinued
operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
161.9p
|
|
|
|
53.2p
|
|
|
|
36.6p
|
|
Diluted
|
|
|
|
|
|
|
161.5p
|
|
|
|
53.1p
|
|
|
|
36.6p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from continuing operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
66.0p
|
|
|
|
47.0p
|
|
|
|
42.9p
|
|
Diluted
|
|
|
|
|
|
|
65.9p
|
|
|
|
47.0p
|
|
|
|
42.9p
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share from discontinued operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
|
|
|
95.9p
|
|
|
|
6.2p
|
|
|
|
(6.3p
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
Final paid in respect of prior year 23.3p (2009: 22.0p; 2008:
20.5p)
|
|
|
187
|
|
|
|
176
|
|
|
|
163
|
|
Interim paid in respect of current year 13.0p (2009: 12.2p;
2008: 11.8p)
|
|
|
105
|
|
|
|
97
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
292
|
|
|
|
273
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The directors are proposing a final dividend in respect of the
financial year ended 31 December 2010 of 25.7p per share
which will absorb an estimated £206m of shareholders
funds. It will be paid on 6 May 2011 to shareholders who
are on the register of members on 8 April 2011. These
financial statements do not reflect this dividend.
F-29
Notes to
the Consolidated Financial Statements (Continued)
|
|
10.
|
Property,
plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets in
|
|
|
|
|
|
|
Land and
|
|
|
Plant and
|
|
|
course of
|
|
|
|
|
|
|
buildings
|
|
|
equipment
|
|
|
construction
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2009
|
|
|
355
|
|
|
|
839
|
|
|
|
7
|
|
|
|
1,201
|
|
Exchange differences
|
|
|
(21
|
)
|
|
|
(55
|
)
|
|
|
(1
|
)
|
|
|
(77
|
)
|
Additions
|
|
|
14
|
|
|
|
46
|
|
|
|
7
|
|
|
|
67
|
|
Disposals
|
|
|
(2
|
)
|
|
|
(41
|
)
|
|
|
|
|
|
|
(43
|
)
|
Acquisition through business combination
|
|
|
1
|
|
|
|
17
|
|
|
|
|
|
|
|
18
|
|
Reclassifications
|
|
|
1
|
|
|
|
5
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009
|
|
|
348
|
|
|
|
811
|
|
|
|
7
|
|
|
|
1,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences
|
|
|
8
|
|
|
|
28
|
|
|
|
|
|
|
|
36
|
|
Additions
|
|
|
21
|
|
|
|
55
|
|
|
|
12
|
|
|
|
88
|
|
Disposals
|
|
|
(4
|
)
|
|
|
(58
|
)
|
|
|
|
|
|
|
(62
|
)
|
Acquisition through business combination
|
|
|
8
|
|
|
|
25
|
|
|
|
|
|
|
|
33
|
|
Disposal through business disposal
|
|
|
(48
|
)
|
|
|
(201
|
)
|
|
|
|
|
|
|
(249
|
)
|
Reclassifications
|
|
|
3
|
|
|
|
5
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
336
|
|
|
|
665
|
|
|
|
11
|
|
|
|
1,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets in
|
|
|
|
|
|
|
Land and
|
|
|
Plant and
|
|
|
course of
|
|
|
|
|
|
|
buildings
|
|
|
equipment
|
|
|
construction
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2009
|
|
|
(170
|
)
|
|
|
(608
|
)
|
|
|
|
|
|
|
(778
|
)
|
Exchange differences
|
|
|
11
|
|
|
|
42
|
|
|
|
|
|
|
|
53
|
|
Charge for the year
|
|
|
(17
|
)
|
|
|
(68
|
)
|
|
|
|
|
|
|
(85
|
)
|
Disposals
|
|
|
2
|
|
|
|
39
|
|
|
|
|
|
|
|
41
|
|
Acquisition through business combination
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009
|
|
|
(174
|
)
|
|
|
(604
|
)
|
|
|
|
|
|
|
(778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences
|
|
|
(4
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
(23
|
)
|
Charge for the year
|
|
|
(16
|
)
|
|
|
(66
|
)
|
|
|
|
|
|
|
(82
|
)
|
Disposals
|
|
|
3
|
|
|
|
58
|
|
|
|
|
|
|
|
61
|
|
Acquisition through business combination
|
|
|
(3
|
)
|
|
|
(13
|
)
|
|
|
|
|
|
|
(16
|
)
|
Disposal through business disposal
|
|
|
28
|
|
|
|
164
|
|
|
|
|
|
|
|
192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
(166
|
)
|
|
|
(480
|
)
|
|
|
|
|
|
|
(646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2009
|
|
|
185
|
|
|
|
231
|
|
|
|
7
|
|
|
|
423
|
|
At 31 December 2009
|
|
|
174
|
|
|
|
207
|
|
|
|
7
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
170
|
|
|
|
185
|
|
|
|
11
|
|
|
|
366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
Notes to
the Consolidated Financial Statements (Continued)
Depreciation expense of £10m (2009: £12m) has been
included in the income statement in cost of goods sold, £7m
(2009: £7m) in distribution expenses and £52m (2009:
£45m) in administrative and other expenses. In 2010
£13m (2009: £21m) relates to discontinued
operations.
The Group leases certain equipment under a number of finance
lease agreements. The net carrying amount of leased plant and
equipment included within property, plant and equipment was
£12m (2009: £15m).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
customer
|
|
|
Acquired
|
|
|
Acquired
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
lists and
|
|
|
trademarks
|
|
|
publishing
|
|
|
intangibles
|
|
|
|
|
|
|
Goodwill
|
|
|
Software
|
|
|
relationships
|
|
|
and brands
|
|
|
rights
|
|
|
acquired
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2009
|
|
|
4,570
|
|
|
|
310
|
|
|
|
341
|
|
|
|
128
|
|
|
|
165
|
|
|
|
258
|
|
|
|
5,772
|
|
Exchange differences
|
|
|
(420
|
)
|
|
|
(25
|
)
|
|
|
(32
|
)
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
(22
|
)
|
|
|
(513
|
)
|
Additions internal development
|
|
|
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
Additions purchased
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
Disposals
|
|
|
(9
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(14
|
)
|
Acquisition through business combination
|
|
|
205
|
|
|
|
|
|
|
|
38
|
|
|
|
24
|
|
|
|
55
|
|
|
|
25
|
|
|
|
347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009
|
|
|
4,346
|
|
|
|
339
|
|
|
|
347
|
|
|
|
143
|
|
|
|
215
|
|
|
|
261
|
|
|
|
5,651
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences
|
|
|
140
|
|
|
|
9
|
|
|
|
10
|
|
|
|
4
|
|
|
|
9
|
|
|
|
10
|
|
|
|
182
|
|
Additions internal development
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
Additions purchased
|
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
|
|
Disposals
|
|
|
(11
|
)
|
|
|
(18
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
Acquisition through business combination
|
|
|
288
|
|
|
|
9
|
|
|
|
159
|
|
|
|
40
|
|
|
|
6
|
|
|
|
76
|
|
|
|
578
|
|
Disposal through business disposal
|
|
|
(195
|
)
|
|
|
(43
|
)
|
|
|
(85
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
(41
|
)
|
|
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
4,568
|
|
|
|
352
|
|
|
|
431
|
|
|
|
186
|
|
|
|
230
|
|
|
|
306
|
|
|
|
6,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-31
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
customer
|
|
|
Acquired
|
|
|
Acquired
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
lists and
|
|
|
trademarks
|
|
|
publishing
|
|
|
intangibles
|
|
|
|
|
|
|
Goodwill
|
|
|
Software
|
|
|
relationships
|
|
|
and brands
|
|
|
rights
|
|
|
acquired
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Amortisation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2009
|
|
|
|
|
|
|
(203
|
)
|
|
|
(67
|
)
|
|
|
(17
|
)
|
|
|
(69
|
)
|
|
|
(63
|
)
|
|
|
(419
|
)
|
Exchange differences
|
|
|
|
|
|
|
19
|
|
|
|
6
|
|
|
|
1
|
|
|
|
6
|
|
|
|
8
|
|
|
|
40
|
|
Charge for the year
|
|
|
|
|
|
|
(44
|
)
|
|
|
(35
|
)
|
|
|
(11
|
)
|
|
|
(22
|
)
|
|
|
(35
|
)
|
|
|
(147
|
)
|
Disposals
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009
|
|
|
|
|
|
|
(224
|
)
|
|
|
(96
|
)
|
|
|
(27
|
)
|
|
|
(85
|
)
|
|
|
(90
|
)
|
|
|
(522
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences
|
|
|
|
|
|
|
(5
|
)
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
(13
|
)
|
Charge for the year
|
|
|
|
|
|
|
(51
|
)
|
|
|
(39
|
)
|
|
|
(12
|
)
|
|
|
(24
|
)
|
|
|
(38
|
)
|
|
|
(164
|
)
|
Disposals
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
Acquisition through business combination
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Disposal through business disposal
|
|
|
|
|
|
|
19
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
28
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
|
|
|
|
(250
|
)
|
|
|
(103
|
)
|
|
|
(41
|
)
|
|
|
(111
|
)
|
|
|
(101
|
)
|
|
|
(606
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying amounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2009
|
|
|
4,570
|
|
|
|
107
|
|
|
|
274
|
|
|
|
111
|
|
|
|
96
|
|
|
|
195
|
|
|
|
5,353
|
|
At 31 December 2009
|
|
|
4,346
|
|
|
|
115
|
|
|
|
251
|
|
|
|
116
|
|
|
|
130
|
|
|
|
171
|
|
|
|
5,129
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
4,568
|
|
|
|
102
|
|
|
|
328
|
|
|
|
145
|
|
|
|
119
|
|
|
|
205
|
|
|
|
5,467
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
The goodwill carrying value of £4,568m relates to
acquisitions completed after 1 January 1998. Prior to 1 January
1998 all goodwill was written off to reserves on the date of
acquisition. £3,090m of the carrying value relates to
acquisitions completed between 1 January 1998 and
31 December 2002 and £1,478m relates to acquisitions
completed after 1 January 2003 (the date of transition to IFRS).
For acquisitions completed between 1 January 1998 and
31 December 2002 no value was ascribed to intangibles other
than goodwill and the goodwill on each acquisition was amortised
over a period of up to 20 years. On adoption of IFRS on 1
January 2003, the Group chose not to restate the goodwill
balance and at that date the balance was frozen (i.e.
amortisation ceased). If goodwill had been restated then a
significant value would have been ascribed to other intangible
assets, which would be subject to amortisation, and the carrying
value of goodwill would be significantly lower. For acquisitions
completed after 1 January 2003 value has been ascribed to other
intangible assets which are amortised.
Other
intangible assets
Other intangibles acquired include content, technology,
contracts and software rights. Amortisation of £3m (2009:
£5m) is included in the income statement in cost of goods
sold and £149m (2009: £126m) in administrative and
other expenses. In 2010 £12m (2009: £16m) of
amortisation relates to discontinued operations.
Impairment
tests for cash-generating units containing goodwill
Impairment tests have been carried out where appropriate as
described below. The recoverable amount for each unit tested
exceeds its carrying value.
F-32
Notes to
the Consolidated Financial Statements (Continued)
Goodwill in respect of continuing operations is allocated to 12
cash-generating units (CGUs) within the business segments as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
US Education Publishing
|
|
|
1,976
|
|
|
|
1,876
|
|
US School Assessment and Information
|
|
|
683
|
|
|
|
652
|
|
Canada
|
|
|
197
|
|
|
|
181
|
|
International Education Publishing
|
|
|
686
|
|
|
|
468
|
|
International Education Assessment and Testing
|
|
|
227
|
|
|
|
222
|
|
Professional Publishing
|
|
|
13
|
|
|
|
13
|
|
Professional Assessment and Training
|
|
|
287
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
|
Pearson Education total
|
|
|
4,069
|
|
|
|
3,638
|
|
|
|
|
|
|
|
|
|
|
Financial Times
|
|
|
48
|
|
|
|
43
|
|
Mergermarket
|
|
|
136
|
|
|
|
125
|
|
|
|
|
|
|
|
|
|
|
FT Group total
|
|
|
184
|
|
|
|
168
|
|
|
|
|
|
|
|
|
|
|
Penguin US
|
|
|
196
|
|
|
|
190
|
|
Penguin UK
|
|
|
103
|
|
|
|
103
|
|
Penguin Asia Pacific & International
|
|
|
16
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
Penguin total
|
|
|
315
|
|
|
|
356
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
4,568
|
|
|
|
4,162
|
|
|
|
|
|
|
|
|
|
|
Interactive Data
|
|
|
|
|
|
|
184
|
|
|
|
|
|
|
|
|
|
|
Total goodwill
|
|
|
4,568
|
|
|
|
4,346
|
|
|
|
|
|
|
|
|
|
|
As highlighted in the 2008 business review, integration of the
US School and Higher Education businesses began in 2008. This
integration continued throughout 2009 and advanced to a point
where, from 1 January 2010, these companies have been combined
into one CGU for impairment review purposes.
The recoverable amount of each CGU is based on value in use
calculations. Goodwill is tested for impairment annually. Other
than goodwill there are no intangible assets with indefinite
lives. The goodwill is generally denominated in the currency of
the relevant cash flows and therefore the impairment review is
not materially sensitive to exchange rate fluctuations.
Key
assumptions
The value in use calculations use cash flow projections based on
financial budgets approved by management covering a five-year
period. The key assumptions used by management in the value in
use calculations were:
Discount rate The discount rate is
based on the risk-free rate for government bonds, adjusted for a
risk premium to reflect the increased risk in investing in
equities. The risk premium adjustment is assessed for each
specific CGU. The average pre-tax discount rates used are in the
range of 11.2% to 12.1% for the Pearson Education businesses
(2009: 10.9% to 11.8%), 12.9% to 20.0% for the FT Group
businesses (2009: 12.7% to 18.1%) and 10.5% to 13.0% for the
Penguin businesses (2009: 9.5% to 11.4%).
Perpetuity growth rates A perpetuity
growth rate of 2.0% was used for cash flows subsequent to the
approved budget period for all CGUs in 2010 (2009: 2.0%). This
perpetuity growth rate is a conservative rate and is considered
to be lower than the long-term historic growth rates of the
underlying territories in which the CGU operates and the
long-term growth rate prospects of the sectors in which the CGU
operates.
F-33
Notes to
the Consolidated Financial Statements (Continued)
Cash flow growth rates The cash flow
growth rates are derived from managements latest forecast
of sales taking into consideration experience of operating
margins achieved in the CGU. Historically, such forecasts have
been reasonably accurate.
Sensitivities
The Groups impairment review is sensitive to a change in
assumptions used, most notably the discount rates, the
perpetuity growth rates and expected future cash flows. Based on
the Groups sensitivity analysis, a reasonably possible
change in any of these assumptions is unlikely to cause an
impairment in any of the CGUs.
|
|
12.
|
Investments
in joint ventures and associates
|
Joint
ventures
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
At beginning of year
|
|
|
18
|
|
|
|
13
|
|
Share of (loss)/profit after tax
|
|
|
(1
|
)
|
|
|
4
|
|
Dividends
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Loan repayment
|
|
|
|
|
|
|
(3
|
)
|
Additions and further investment
|
|
|
4
|
|
|
|
13
|
|
Transfer to subsidiary
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Investments in joint ventures are accounted for using the equity
method of accounting and are initially recognised at cost. The
total goodwill recorded on acquisition of joint ventures at
31 December 2010 was £12m (2009: £11m).
The aggregate of the Groups share of its joint
ventures assets (including goodwill) and liabilities, none
of which are individually significant, are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
15
|
|
|
|
15
|
|
Current assets
|
|
|
14
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
(11
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
Income
|
|
|
17
|
|
|
|
12
|
|
Expenses
|
|
|
(18
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
(Loss)/profit after tax
|
|
|
(1
|
)
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
F-34
Notes to
the Consolidated Financial Statements (Continued)
Associates
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
At beginning of year
|
|
|
12
|
|
|
|
10
|
|
Exchange differences
|
|
|
(1
|
)
|
|
|
4
|
|
Share of profit after tax
|
|
|
42
|
|
|
|
26
|
|
Dividends
|
|
|
(20
|
)
|
|
|
(19
|
)
|
Additions
|
|
|
17
|
|
|
|
1
|
|
Reversal of distribution from associate in excess of carrying
value
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Actuarial gains/(losses) on retirement benefit obligations
|
|
|
1
|
|
|
|
(3
|
)
|
Transfer from other financial assets
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
53
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
Included in the share of profit after tax is a gain in fair
values of £12m (2009: £nil) arising on a stepped
acquisition by FTSE International Ltd.
In addition to the amounts disclosed above, FTSE paid royalties
of £11m (2009: £10m) to the FT Group during the year.
Investments in associates are accounted for using the equity
method of accounting and are initially recognised at cost. The
total goodwill recorded on acquisition of associates at
31 December 2010 was £21m (2009: £nil).
The Groups interests in its principal associates, all of
which are unlisted, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
Country of incorporation
|
|
|
interest held
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Revenues
|
|
|
Profit
|
|
|
|
All figures in £ millions
|
|
|
The Economist Newspaper Ltd
|
|
|
England
|
|
|
|
50
|
|
|
|
129
|
|
|
|
(129
|
)
|
|
|
169
|
|
|
|
25
|
|
FTSE International Ltd
|
|
|
England
|
|
|
|
50
|
|
|
|
62
|
|
|
|
(44
|
)
|
|
|
45
|
|
|
|
17
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
(6
|
)
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
232
|
|
|
|
(179
|
)
|
|
|
223
|
|
|
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
Country of incorporation
|
|
|
interest held
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Revenues
|
|
|
Profit
|
|
|
|
All figures in £ millions
|
|
|
The Economist Newspaper Ltd
|
|
|
England
|
|
|
|
50
|
|
|
|
116
|
|
|
|
(116
|
)
|
|
|
161
|
|
|
|
22
|
|
FTSE International Ltd
|
|
|
England
|
|
|
|
50
|
|
|
|
28
|
|
|
|
(24
|
)
|
|
|
38
|
|
|
|
4
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
14
|
|
|
|
(6
|
)
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
158
|
|
|
|
(146
|
)
|
|
|
211
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The interests held in associates are equivalent to voting rights.
F-35
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
Deferred income tax assets to be recovered after more than
12 months
|
|
|
276
|
|
|
|
374
|
|
Deferred income tax assets to be recovered within 12 months
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
276
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
|
Deferred income tax liabilities to be settled after more than
12 months
|
|
|
(471
|
)
|
|
|
(473
|
)
|
Deferred income tax liabilities to be settled within
12 months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(471
|
)
|
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax
|
|
|
(195
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
Deferred income tax assets to be recovered within 12 months
relate to the utilisation of losses in the US.
Deferred income tax assets and liabilities may be offset when
there is a legally enforceable right to offset current income
tax assets against current income tax liabilities and when the
deferred income taxes relate to the same fiscal authority. The
Group has unrecognised deferred income tax assets of £14m
at 31 December 2010 in respect of UK losses, and
approximately £16m in respect of losses in other
territories. None of the unrecognised UK losses have expiry
dates associated with them.
The recognition of the deferred income tax assets is supported
by managements forecasts of the future profitability of
the relevant business units.
The movement on the net deferred income tax account is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
All figures in
|
|
|
|
|
|
|
£ millions
|
|
|
At beginning of year
|
|
|
|
|
|
|
(86
|
)
|
|
|
(75
|
)
|
Exchange differences
|
|
|
|
|
|
|
(4
|
)
|
|
|
10
|
|
Income statement charge
|
|
|
7
|
|
|
|
(72
|
)
|
|
|
(51
|
)
|
Acquisition through business combination
|
|
|
29
|
|
|
|
(37
|
)
|
|
|
(45
|
)
|
Disposal through business disposal
|
|
|
30
|
|
|
|
47
|
|
|
|
|
|
Tax (charge)/benefit to other comprehensive income or equity
|
|
|
|
|
|
|
(43
|
)
|
|
|
75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
|
|
|
|
(195
|
)
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in the income statement charge above is a £5m
credit relating to discontinued operations (2009: £4m
charge).
F-36
Notes to
the Consolidated Financial Statements (Continued)
The movement in deferred income tax assets and liabilities
during the year is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement
|
|
|
|
|
|
|
|
|
|
Trading
|
|
|
Goodwill and
|
|
|
Returns
|
|
|
benefit
|
|
|
|
|
|
|
|
|
|
losses
|
|
|
intangibles
|
|
|
provisions
|
|
|
obligations
|
|
|
Other
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Deferred income tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2009
|
|
|
73
|
|
|
|
20
|
|
|
|
106
|
|
|
|
7
|
|
|
|
166
|
|
|
|
372
|
|
Exchange differences
|
|
|
(5
|
)
|
|
|
(2
|
)
|
|
|
(10
|
)
|
|
|
(1
|
)
|
|
|
(17
|
)
|
|
|
(35
|
)
|
Acquisition through business combination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income statement (charge)/benefit
|
|
|
(46
|
)
|
|
|
(7
|
)
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
|
42
|
|
|
|
(21
|
)
|
Tax benefit to other comprehensive income or equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
3
|
|
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009
|
|
|
22
|
|
|
|
11
|
|
|
|
92
|
|
|
|
68
|
|
|
|
194
|
|
|
|
387
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences
|
|
|
1
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
5
|
|
|
|
9
|
|
Acquisition through business combination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
Disposal through business disposal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
|
|
(7
|
)
|
Income statement (charge)/benefit
|
|
|
(18
|
)
|
|
|
(7
|
)
|
|
|
1
|
|
|
|
(9
|
)
|
|
|
(35
|
)
|
|
|
(68
|
)
|
Tax (charge)/benefit to other comprehensive income or equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
4
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
5
|
|
|
|
4
|
|
|
|
96
|
|
|
|
6
|
|
|
|
165
|
|
|
|
276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other deferred income tax assets include temporary differences
on share-based payments, inventory and other provisions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill and
|
|
|
|
|
|
|
|
|
|
intangibles
|
|
|
Other
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Deferred income tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
At 1 January 2009
|
|
|
(318
|
)
|
|
|
(129
|
)
|
|
|
(447
|
)
|
Exchange differences
|
|
|
30
|
|
|
|
15
|
|
|
|
45
|
|
Acquisition through business combination
|
|
|
(41
|
)
|
|
|
(4
|
)
|
|
|
(45
|
)
|
Income statement benefit/(charge)
|
|
|
10
|
|
|
|
(40
|
)
|
|
|
(30
|
)
|
Tax benefit to other comprehensive income or equity
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009
|
|
|
(319
|
)
|
|
|
(154
|
)
|
|
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange differences
|
|
|
(9
|
)
|
|
|
(4
|
)
|
|
|
(13
|
)
|
Acquisition through business combination
|
|
|
(41
|
)
|
|
|
|
|
|
|
(41
|
)
|
Disposal through business disposal
|
|
|
25
|
|
|
|
29
|
|
|
|
54
|
|
Income statement benefit/(charge)
|
|
|
10
|
|
|
|
(14
|
)
|
|
|
(4
|
)
|
Tax benefit to other comprehensive income or equity
|
|
|
|
|
|
|
6
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
(334
|
)
|
|
|
(137
|
)
|
|
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other deferred income tax liabilities include temporary
differences in respect of depreciation and royalty advances.
F-37
Notes to
the Consolidated Financial Statements (Continued)
|
|
14.
|
Classification
of financial instruments
|
The accounting classification of each class of the Groups
financial assets and financial liabilities, together with their
fair values, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
Fair value
|
|
|
Amortised cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
Available
|
|
|
deemed held
|
|
|
in hedging
|
|
|
Other
|
|
|
Loans and
|
|
|
Other
|
|
|
carrying
|
|
|
market
|
|
|
|
Notes
|
|
|
for sale
|
|
|
for trading
|
|
|
relationships
|
|
|
liabilities
|
|
|
receivables
|
|
|
liabilities
|
|
|
value
|
|
|
value
|
|
|
|
All figures in £ millions
|
|
|
Investments in unlisted securities
|
|
|
15
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
58
|
|
Cash and cash equivalents
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,736
|
|
|
|
|
|
|
|
1,736
|
|
|
|
1,736
|
|
Marketable securities
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
12
|
|
Derivative financial instruments
|
|
|
16
|
|
|
|
|
|
|
|
28
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
140
|
|
|
|
140
|
|
Trade receivables
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,031
|
|
|
|
|
|
|
|
1,031
|
|
|
|
1,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
|
|
|
|
|
70
|
|
|
|
28
|
|
|
|
112
|
|
|
|
|
|
|
|
2,767
|
|
|
|
|
|
|
|
2,977
|
|
|
|
2,977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
16
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Trade payables
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(470
|
)
|
|
|
(470
|
)
|
|
|
(470
|
)
|
Other financial liabilities put option over
non-controlling interest
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
Bank loans and overdrafts
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(73
|
)
|
|
|
(73
|
)
|
|
|
(73
|
)
|
Borrowings due within one year
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(331
|
)
|
|
|
(331
|
)
|
|
|
(333
|
)
|
Borrowings due after more than one year
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,908
|
)
|
|
|
(1,908
|
)
|
|
|
(1,939
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
(2,782
|
)
|
|
|
(2,813
|
)
|
|
|
(2,846
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Fair value
|
|
|
Amortised cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives
|
|
|
Derivatives
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Total
|
|
|
|
|
|
|
Available
|
|
|
deemed held
|
|
|
in hedging
|
|
|
Other
|
|
|
Loans and
|
|
|
Other
|
|
|
carrying
|
|
|
market
|
|
|
|
Notes
|
|
|
for sale
|
|
|
for trading
|
|
|
relationships
|
|
|
liabilities
|
|
|
receivables
|
|
|
liabilities
|
|
|
value
|
|
|
value
|
|
|
|
All figures in £ millions
|
|
|
Investments in unlisted securities
|
|
|
15
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
62
|
|
Cash and cash equivalents
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750
|
|
|
|
|
|
|
|
750
|
|
|
|
750
|
|
Marketable securities
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63
|
|
|
|
63
|
|
Derivative financial instruments
|
|
|
16
|
|
|
|
|
|
|
|
42
|
|
|
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
112
|
|
|
|
112
|
|
Trade receivables
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
989
|
|
|
|
|
|
|
|
989
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial assets
|
|
|
|
|
|
|
125
|
|
|
|
42
|
|
|
|
70
|
|
|
|
|
|
|
|
1,739
|
|
|
|
|
|
|
|
1,976
|
|
|
|
1,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
16
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
Trade payables
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(461
|
)
|
|
|
(461
|
)
|
|
|
(461
|
)
|
Other financial liabilities put option over
non controlling interest
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
Bank loans and overdrafts
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(70
|
)
|
|
|
(70
|
)
|
|
|
(70
|
)
|
Borrowings due within one year
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4
|
)
|
|
|
(4
|
)
|
|
|
(4
|
)
|
Borrowings due after more than one year
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,934
|
)
|
|
|
(1,934
|
)
|
|
|
(1,969
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial liabilities
|
|
|
|
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
(2,469
|
)
|
|
|
(2,501
|
)
|
|
|
(2,536
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of the Groups derivative financial instruments are
classified as held for trading either as they do not meet the
hedge accounting criteria specified in IAS 39 Financial
Instruments: Recognition and Measurement or the Group has
chosen not to seek hedge accounting for these instruments. None
of these derivatives are held for speculative trading purposes.
Transactions in derivative financial instruments are only
undertaken to manage risks arising from underlying business
activity, in accordance with the Groups treasury policy as
described in note 19.
The Group designates certain qualifying derivative financial
instruments as hedges of the fair value of its bonds (fair value
hedges). Changes in the fair value of these derivative financial
instruments are recorded in the income statement, together with
any change in the fair value of the hedged liability
attributable to the hedged risk.
The Group also designates certain of its borrowings and
derivative financial instruments as hedges of its investments in
foreign operations (net investment hedges). Movements in the
fair value of these financial instruments (to the extent they
are effective) are recognised in other comprehensive income.
None of the Groups financial assets or liabilities are
designated at fair value through the income statement upon
initial recognition.
More detail on the Groups accounting for financial
instruments is included in the Groups accounting policies.
The Groups approach to managing risks in relation to
financial instruments is described in note 19.
F-39
Notes to
the Consolidated Financial Statements (Continued)
|
|
15.
|
Other
financial assets
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
At beginning of year
|
|
|
62
|
|
|
|
63
|
|
Exchange differences
|
|
|
1
|
|
|
|
(6
|
)
|
Acquisition of investments
|
|
|
7
|
|
|
|
10
|
|
Transfers to associates
|
|
|
(9
|
)
|
|
|
|
|
Disposal of investments
|
|
|
(3
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
58
|
|
|
|
62
|
|
|
|
|
|
|
|
|
|
|
Other financial assets comprise non-current unlisted securities.
|
|
16.
|
Derivative
financial instruments
|
The Groups approach to the management of financial risks
is set out in note 19. The Groups outstanding
derivative financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Gross notional
|
|
|
|
|
|
|
|
|
Gross notional
|
|
|
|
|
|
|
|
|
|
amounts
|
|
|
Assets
|
|
|
Liabilities
|
|
|
amounts
|
|
|
Assets
|
|
|
Liabilities
|
|
|
|
All figures in £ millions
|
|
|
Interest rate derivatives in a fair value hedge
relationship
|
|
|
1,327
|
|
|
|
112
|
|
|
|
|
|
|
|
1,103
|
|
|
|
70
|
|
|
|
|
|
Interest rate derivatives not in a hedge relationship
|
|
|
256
|
|
|
|
8
|
|
|
|
|
|
|
|
486
|
|
|
|
13
|
|
|
|
(7
|
)
|
Cross currency rate derivatives in a net investment
hedge relationship
|
|
|
220
|
|
|
|
20
|
|
|
|
(6
|
)
|
|
|
220
|
|
|
|
29
|
|
|
|
(2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,803
|
|
|
|
140
|
|
|
|
(6
|
)
|
|
|
1,809
|
|
|
|
112
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysed as expiring:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In less than one year
|
|
|
319
|
|
|
|
6
|
|
|
|
|
|
|
|
238
|
|
|
|
|
|
|
|
(7
|
)
|
Later than one year and not later than five years
|
|
|
749
|
|
|
|
74
|
|
|
|
(6
|
)
|
|
|
844
|
|
|
|
60
|
|
|
|
(2
|
)
|
Later than five years
|
|
|
735
|
|
|
|
60
|
|
|
|
|
|
|
|
727
|
|
|
|
52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,803
|
|
|
|
140
|
|
|
|
(6
|
)
|
|
|
1,809
|
|
|
|
112
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The carrying value of the above derivative financial instruments
equals their fair value. Fair values are determined by using
market data and the use of established estimation techniques
such as discounted cash flow and option valuation models.
At the end of 2010, the currency split of the
mark-to-market
values of rate derivatives, including the exchange of principal
on cross currency rate derivatives, was US dollar £(97)m,
sterling £259m and South African rand £(28)m (2009: US
dollar £(127)m, sterling £252m and South African rand
£(22)m).
The fixed interest rates on outstanding rate derivative
contracts at the end of 2010 range from 3.65% to 9.28% (2009:
3.65% to 9.28%) and the floating rates are based on LIBOR in US
dollar and sterling.
The Groups portfolio of rate derivatives is diversified by
maturity, counterparty and type. Natural offsets between
transactions within the portfolio and the designation of certain
derivatives as hedges significantly reduce the risk of income
statement volatility. The sensitivity of the portfolio to
changes in market rates is set out in note 19.
F-40
Notes to
the Consolidated Financial Statements (Continued)
Counterparty exposure from all derivatives is managed, together
with that from deposits and bank account balances, within credit
limits that reflect published credit ratings and by reference to
other market measures (e.g. market prices for credit default
swaps) to ensure that there is no significant risk to any one
counterparty. No single derivative transaction had a market
value (positive or negative) at the balance sheet date that
exceeded 3% of the Groups consolidated total equity.
In accordance with IAS 39 Financial Instruments:
Recognition and Measurement the Group has reviewed all of
its material contracts for embedded derivatives that are
required to be separately accounted for if they do not meet
certain requirements, and has concluded that there are no
material embedded derivatives.
|
|
17.
|
Cash and
cash equivalents (excluding overdrafts)
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Cash at bank and in hand
|
|
|
763
|
|
|
|
580
|
|
Short-term bank deposits
|
|
|
973
|
|
|
|
170
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,736
|
|
|
|
750
|
|
|
|
|
|
|
|
|
|
|
Short-term bank deposits are invested with banks and earn
interest at the prevailing short-term deposit rates.
At the end of 2010 the currency split of cash and cash
equivalents was US dollar 73% (2009: 35%), sterling 9% (2009:
22%), euro 6% (2009: 18%) and other 12% (2009: 25%).
Cash and cash equivalents have fair values that approximate to
their carrying value due to their short-term nature.
Cash and cash equivalents include the following for the purpose
of the cash flow statement:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Cash and cash equivalents
|
|
|
1,736
|
|
|
|
750
|
|
Bank overdrafts
|
|
|
(72
|
)
|
|
|
(70
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
1,664
|
|
|
|
680
|
|
|
|
|
|
|
|
|
|
|
F-41
Notes to
the Consolidated Financial Statements (Continued)
|
|
18.
|
Financial
liabilities Borrowings
|
The Groups current and non-current borrowings are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
7.0% Global Dollar Bonds 2011 (nominal amount $500m)
|
|
|
|
|
|
|
322
|
|
5.5% Global Dollar Bonds 2013 (nominal amount $350m)
|
|
|
236
|
|
|
|
226
|
|
5.7% US Dollar Bonds 2014 (nominal amount $400m)
|
|
|
288
|
|
|
|
274
|
|
7.0% Sterling Bonds 2014 (nominal amount £250m)
|
|
|
256
|
|
|
|
254
|
|
6.0% Sterling Bonds 2015 (nominal amount £300m)
|
|
|
297
|
|
|
|
297
|
|
4.0% US Dollar Notes 2016 (nominal amount $350m)
|
|
|
227
|
|
|
|
|
|
6.25% Global Dollar Bonds 2018 (nominal amount $550m)
|
|
|
389
|
|
|
|
359
|
|
4.625% US Dollar Notes 2018 (nominal amount $300m)
|
|
|
208
|
|
|
|
191
|
|
Finance lease liabilities
|
|
|
7
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,908
|
|
|
|
1,934
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
Due within one year or on demand:
|
|
|
|
|
|
|
|
|
Bank loans and overdrafts
|
|
|
73
|
|
|
|
70
|
|
7.0% Global Dollar Bonds 2011 (nominal amount $500m)
|
|
|
325
|
|
|
|
|
|
Finance lease liabilities
|
|
|
6
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
404
|
|
|
|
74
|
|
|
|
|
|
|
|
|
|
|
Total borrowings
|
|
|
2,312
|
|
|
|
2,008
|
|
|
|
|
|
|
|
|
|
|
Included in the non-current borrowings above is £12m of
accrued interest (2009: £12m). Included in the current
borrowings above is £1m of accrued interest (2009:
£nil).
The maturity of the Groups non-current borrowing is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Between one and two years
|
|
|
4
|
|
|
|
327
|
|
Between two and five years
|
|
|
1,080
|
|
|
|
760
|
|
Over five years
|
|
|
824
|
|
|
|
847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,908
|
|
|
|
1,934
|
|
|
|
|
|
|
|
|
|
|
F-42
Notes to
the Consolidated Financial Statements (Continued)
The carrying amounts and market values of borrowings are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Effective
|
|
|
Carrying
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
interest rate
|
|
|
value
|
|
|
Market value
|
|
|
value
|
|
|
Market value
|
|
|
|
All figures in £ millions
|
|
|
Bank loans and overdrafts
|
|
|
n/a
|
|
|
|
73
|
|
|
|
73
|
|
|
|
70
|
|
|
|
70
|
|
7.0% Global Dollar Bonds 2011
|
|
|
7.16
|
%
|
|
|
325
|
|
|
|
327
|
|
|
|
322
|
|
|
|
331
|
|
5.5% Global Dollar Bonds 2013
|
|
|
5.76
|
%
|
|
|
236
|
|
|
|
241
|
|
|
|
226
|
|
|
|
232
|
|
5.7% US Dollar Bonds 2014
|
|
|
5.88
|
%
|
|
|
288
|
|
|
|
277
|
|
|
|
274
|
|
|
|
266
|
|
7.0% Sterling Bonds 2014
|
|
|
7.20
|
%
|
|
|
256
|
|
|
|
282
|
|
|
|
254
|
|
|
|
276
|
|
6.0% Sterling Bonds 2015
|
|
|
6.27
|
%
|
|
|
297
|
|
|
|
329
|
|
|
|
297
|
|
|
|
317
|
|
4.0% US Dollar Notes 2016
|
|
|
4.26
|
%
|
|
|
227
|
|
|
|
226
|
|
|
|
|
|
|
|
|
|
6.25% Global Dollar Bonds 2018
|
|
|
6.46
|
%
|
|
|
389
|
|
|
|
385
|
|
|
|
359
|
|
|
|
360
|
|
4.625% US Dollar Notes 2018
|
|
|
4.69
|
%
|
|
|
208
|
|
|
|
192
|
|
|
|
191
|
|
|
|
176
|
|
Finance lease liabilities
|
|
|
n/a
|
|
|
|
13
|
|
|
|
13
|
|
|
|
15
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,312
|
|
|
|
2,345
|
|
|
|
2,008
|
|
|
|
2,043
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The market values stated above are based on clean market prices
at the year end or, where these are not available, on the quoted
market prices of comparable debt issued by other companies. The
effective interest rates above relate to the underlying debt
instruments.
The carrying amounts of the Groups borrowings are
denominated in the following currencies:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
US dollar
|
|
|
1,759
|
|
|
|
1,457
|
|
Sterling
|
|
|
553
|
|
|
|
551
|
|
Euro
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,312
|
|
|
|
2,008
|
|
|
|
|
|
|
|
|
|
|
The Group has the following undrawn capacity on its committed
borrowing facilities as at 31 December:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Floating rate
|
|
|
|
|
|
|
|
|
expiring within one year
|
|
|
|
|
|
|
|
|
expiring beyond one year
|
|
|
1,118
|
|
|
|
1,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,118
|
|
|
|
1,084
|
|
|
|
|
|
|
|
|
|
|
In addition to the above facilities, there are a number of
short-term facilities that are utilised in the normal course of
business.
All of the Groups borrowings are unsecured. In respect of
finance lease obligations, the rights to the leased asset revert
to the lessor in the event of default.
F-43
Notes to
the Consolidated Financial Statements (Continued)
The maturity of the Groups finance lease obligations is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Finance lease liabilities minimum lease
payments
|
|
|
|
|
|
|
|
|
Not later than one year
|
|
|
6
|
|
|
|
4
|
|
Later than one year and not later than two years
|
|
|
4
|
|
|
|
5
|
|
Later than two years and not later than three years
|
|
|
3
|
|
|
|
3
|
|
Later than three years and not later than four years
|
|
|
|
|
|
|
3
|
|
Later than four years and not later than five years
|
|
|
|
|
|
|
|
|
Later than five years
|
|
|
|
|
|
|
|
|
Future finance charges on finance leases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of finance lease liabilities
|
|
|
13
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
The Present value of finance lease liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Not later than one year
|
|
|
6
|
|
|
|
4
|
|
Later than one year and not later than five years
|
|
|
7
|
|
|
|
11
|
|
Later than five years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
The carrying amounts of the Groups lease obligations
approximate their fair value.
|
|
19.
|
Financial
risk management
|
The Groups approach to the management of financial risks
together with sensitivity analyses is set out below.
Treasury
policy
The Group holds financial instruments for two principal
purposes: to finance its operations and to manage the interest
rate and currency risks arising from its operations and its
sources of finance. The Group finances its operations by a
mixture of cash flows from operations, short-term borrowings
from banks and commercial paper markets, and longer term loans
from banks and capital markets. The Group borrows principally in
US dollars and sterling, at both floating and fixed rates of
interest, using derivative financial instruments
(derivatives), where appropriate, to generate the
desired effective currency profile and interest rate basis. The
derivatives used for this purpose are principally rate swaps,
rate caps and collars, currency rate swaps and forward foreign
exchange contracts. The main risks arising from the Groups
financial instruments are interest rate risk, liquidity and
refinancing risk, counterparty risk and foreign currency risk.
These risks are managed by the chief financial officer under
policies approved by the board, which are summarised below. All
the treasury policies remained unchanged throughout 2010, except
for a revision to the Groups bank counterparty limits.
The audit committee receives reports on the Groups
treasury activities, policies and procedures. The treasury
department is not a profit centre and its activities are subject
to regular internal audit.
Interest
rate risk management
The Groups exposure to interest rate fluctuations on its
borrowings is managed by borrowing on a fixed rate basis and by
entering into rate swaps, rate caps and forward rate agreements.
The Groups policy objective has continued to be to set a
target proportion of its forecast borrowings (taken at the year
end, with cash netted against
F-44
Notes to
the Consolidated Financial Statements (Continued)
floating rate debt and before certain adjustments for IAS 39
Financial Instruments: Recognition and Measurement)
to be hedged (i.e. fixed or capped at the year end) over the
next four years, subject to a maximum of 65% and a minimum that
starts at 40% and falls by 10% at each year end. At the end of
2010 the fixed to floating hedging ratio, on the above basis,
was approximately 136%. This above-policy level reflects the
receipt of the proceeds from the divestment of Interactive Data
in 2010, combined with strong cash collections, resulting in
lower than typical net debt and hence a higher hedging ratio.
Our policy does not require us to cancel derivative contracts
and we expect to return to compliance with this policy during
2011. A simultaneous 1% change on 1 January 2011 in the
Groups variable interest rates in US dollar and sterling,
taking into account forecast seasonal debt, would have a
£2m effect on profit before tax.
Use of
interest rate derivatives
The policy described in the section above creates a group of
derivatives, under which the Group is a payer of fixed rates and
a receiver of floating rates. The Group also aims to avoid undue
exposure to a single interest rate setting. Reflecting this
objective, the Group has predominantly swapped its fixed rate
bond issues to floating rate at their launch. This creates a
second group of derivatives, under which the Group is a receiver
of fixed rates and a payer of floating rates. The Groups
accounting objective in its use of interest rate derivatives is
to minimise the impact on the income statement of changes in the
mark-to-market
value of its derivative portfolio as a whole. It uses duration
calculations to estimate the sensitivity of the derivatives to
movements in market rates. The Group also identifies which
derivatives are eligible for fair value hedge accounting (which
reduces sharply the income statement impact of changes in the
market value of a derivative). The Group then balances the total
portfolio between hedge-accounted and pooled segments, so that
the expected movement on the pooled segment is minimal.
Liquidity
and refinancing risk management
The Groups objective is to secure continuity of funding at
a reasonable cost. To do this it seeks to arrange committed
funding for a variety of maturities from a diversity of sources.
The Groups policy objective has been that the weighted
average maturity of its core gross borrowings (treating
short-term advances as having the final maturity of the
facilities available to refinance them) should be between three
and ten years. At the end of 2010 the average maturity of gross
borrowings was 4.4 years (2009: 5.1 years) of which
bonds represented 96% (2009: 96%) of these borrowings.
The Group believes that ready access to different funding
markets also helps to reduce its liquidity risk, and that
published credit ratings and published financial policies
improve such access. All of the Groups credit ratings
remained unchanged during the year. The long-term ratings are
Baal from Moodys and BBB+ from Standard &
Poors, and the short-term ratings are P2 and A2
respectively. The Groups policy is to strive to maintain a
rating of Baal/BBB+ over the long term. The Group will also
continue to use internally a range of ratios to monitor and
manage its finances. These include interest cover, net debt to
operating profit and cash flow to debt measures. The Group also
maintains undrawn committed borrowing facilities. At the end of
2010 the committed facilities amounted to £1,118m and their
weighted average maturity was 4.9 years.
F-45
Notes to
the Consolidated Financial Statements (Continued)
Analysis
of Group debt, including the impact of derivatives
The following tables analyse the Groups sources of funding
and the impact of derivatives on the Groups debt
instruments.
The Groups net debt position is set out below:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Cash and cash equivalents
|
|
|
1,736
|
|
|
|
750
|
|
Marketable securities
|
|
|
12
|
|
|
|
63
|
|
Derivative financial instruments
|
|
|
134
|
|
|
|
103
|
|
Bank loans, overdrafts and loan notes
|
|
|
(73
|
)
|
|
|
(70
|
)
|
Bonds
|
|
|
(2,226
|
)
|
|
|
(1,923
|
)
|
Finance lease liabilities
|
|
|
(13
|
)
|
|
|
(15
|
)
|
|
|
|
|
|
|
|
|
|
Net debt
|
|
|
(430
|
)
|
|
|
(1,092
|
)
|
|
|
|
|
|
|
|
|
|
The split of net debt between fixed and floating rate, stated
after the impact of rate derivatives, is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Fixed rate
|
|
|
577
|
|
|
|
772
|
|
Floating rate
|
|
|
(147
|
)
|
|
|
320
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
430
|
|
|
|
1,092
|
|
|
|
|
|
|
|
|
|
|
Gross borrowings, after the impact of cross-currency rate
derivatives, analysed by currency are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
US dollar
|
|
|
1,954
|
|
|
|
1,656
|
|
Sterling
|
|
|
333
|
|
|
|
330
|
|
Other
|
|
|
25
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,312
|
|
|
|
2,008
|
|
|
|
|
|
|
|
|
|
|
As at 31 December 2010 the exposure of the borrowings of
the Group to interest rate changes when the borrowings re-price
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than
|
|
|
One to
|
|
|
More than
|
|
|
|
|
|
|
one year
|
|
|
five years
|
|
|
five years
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Re-pricing profile of borrowings
|
|
|
403
|
|
|
|
1,084
|
|
|
|
825
|
|
|
|
2,312
|
|
Effect of rate derivatives
|
|
|
1,264
|
|
|
|
(529
|
)
|
|
|
(735
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,667
|
|
|
|
555
|
|
|
|
90
|
|
|
|
2,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-46
Notes to
the Consolidated Financial Statements (Continued)
The maturity of contracted cash flows associated with the
Groups financial liabilities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
USD
|
|
|
GBP
|
|
|
Other
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Not later than one year
|
|
|
571
|
|
|
|
117
|
|
|
|
160
|
|
|
|
848
|
|
Later than one year and not later than five years
|
|
|
767
|
|
|
|
399
|
|
|
|
32
|
|
|
|
1,198
|
|
Later than five years
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,130
|
|
|
|
516
|
|
|
|
192
|
|
|
|
2,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysed as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
1,938
|
|
|
|
710
|
|
|
|
|
|
|
|
2,648
|
|
Rate derivatives inflows
|
|
|
(364
|
)
|
|
|
(297
|
)
|
|
|
|
|
|
|
(661
|
)
|
Rate derivatives outflows
|
|
|
340
|
|
|
|
7
|
|
|
|
34
|
|
|
|
381
|
|
Trade creditors
|
|
|
216
|
|
|
|
96
|
|
|
|
158
|
|
|
|
470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
2,130
|
|
|
|
516
|
|
|
|
192
|
|
|
|
2,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
USD
|
|
|
GBP
|
|
|
Other
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Not later than one year
|
|
|
265
|
|
|
|
110
|
|
|
|
151
|
|
|
|
526
|
|
Later than one year and not later than five years
|
|
|
878
|
|
|
|
313
|
|
|
|
30
|
|
|
|
1,221
|
|
Later than five years
|
|
|
739
|
|
|
|
106
|
|
|
|
|
|
|
|
845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,882
|
|
|
|
529
|
|
|
|
181
|
|
|
|
2,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysed as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds
|
|
|
1,692
|
|
|
|
745
|
|
|
|
|
|
|
|
2,437
|
|
Rate derivatives inflows
|
|
|
(386
|
)
|
|
|
(313
|
)
|
|
|
|
|
|
|
(699
|
)
|
Rate derivatives outflows
|
|
|
353
|
|
|
|
8
|
|
|
|
32
|
|
|
|
393
|
|
Trade creditors
|
|
|
223
|
|
|
|
89
|
|
|
|
149
|
|
|
|
461
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,882
|
|
|
|
529
|
|
|
|
181
|
|
|
|
2,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All cash flow projections shown above are on an undiscounted
basis. Any cash flows based on a floating rate are calculated
using interest rates as set at the date of the last rate reset.
Where this is not possible, floating rates are based on interest
rates prevailing at 31 December in the relevant year. All
derivative amounts are shown gross, although the Group net
settles these amounts wherever possible.
Any amounts drawn under revolving credit facilities and
commercial paper are assumed to mature at the maturity date of
the relevant facility, with interest calculated as payable in
each calendar year up to and including the date of maturity of
the facility.
Financial
counterparty risk management
Counterparty credit limits, which take published credit rating
and other factors into account, are set to cover our total
aggregate exposure to a single financial institution. The limits
applicable to published credit ratings bands are approved by the
chief financial officer within guidelines approved by the board.
Exposures and limits applicable to each financial institution
are reviewed on a regular basis.
F-47
Notes to
the Consolidated Financial Statements (Continued)
Foreign
currency risk management
Although the Group is based in the UK, it has its most
significant investment in overseas operations. The most
significant currency for the Group is the US dollar. The
Groups policy on routine transactional conversions between
currencies (for example, the collection of receivables, and the
settlement of payables or interest) remains that these should be
transacted at the relevant spot exchange rate. The majority of
the Groups operations are domestic within their country of
operation. No unremitted profits are hedged with foreign
exchange contracts, as the company judges it inappropriate to
hedge non-cash flow translational exposure with cash flow
instruments. However, the Group does seek to create a natural
hedge of this exposure through its policy of aligning
approximately the currency composition of its core net
borrowings (after the impact of cross currency rate derivatives)
with its forecast operating profit before depreciation and
amortisation. This policy aims to soften the impact of changes
in foreign exchange rates on consolidated interest cover and
earnings. The policy above applies only to currencies that
account for more than 15% of Group operating profit before
depreciation and amortisation, which currently is only the US
dollar. The Group still borrows small amounts in other
currencies, typically for seasonal working capital needs. Our
policy does not require existing currency debt to be terminated
to match declines in that currencys share of Group
operating profit before depreciation and amortisation. In
addition, currencies that account for less than 15% of Group
operating profit before depreciation and amortisation can be
included in the above hedging process at the request of the
chief financial officer.
Included within year end net debt, the net borrowings/(cash) in
the hedging currencies above (taking into account the effect of
cross currency swaps) were: US dollar £683m, sterling
£179m and South African rand £9m.
Use of
currency debt and currency derivatives
The Group uses both currency denominated debt and derivative
instruments to implement the above policy. Its intention is that
gains/losses on the derivatives and debt offset the losses/gains
on the foreign currency assets and income. Each quarter the
value of hedging instruments is monitored against the assets in
the relevant currency and, where practical, a decision is made
whether to treat the debt or derivative as a net investment
hedge (permitting foreign exchange movements on it to be taken
to reserves) for the purposes of IAS 39.
Financial
instruments fair value measurement
The following table provides an analysis of those financial
instruments that are measured subsequent to initial recognition
at fair value, grouped into levels 1 to 3, based on the
degree to which the fair value is observable:
Level 1 fair value measurements are those derived from
unadjusted quoted prices in active markets for identical assets
or liabilities;
Level 2 fair value measurements are those derived from
inputs, other than quoted prices included within level 1,
that are observable for the asset or liability, either directly
(as prices) or indirectly (derived from prices); and
Level 3 fair value measurements are those derived from
valuation techniques that include inputs for the asset or
liability that are not based on observable market data
(unobservable inputs).
F-48
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Financial assets at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial assets
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
140
|
|
|
|
|
|
|
|
112
|
|
|
|
|
|
|
|
112
|
|
Marketable securities
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
63
|
|
|
|
|
|
|
|
63
|
|
Available for sale financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in unlisted securities
|
|
|
|
|
|
|
|
|
|
|
58
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
62
|
|
|
|
62
|
|
Financial liabilities at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial liabilities
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(6
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
|
|
|
|
(9
|
)
|
Other financial liabilities put option over
non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
(25
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
146
|
|
|
|
33
|
|
|
|
179
|
|
|
|
|
|
|
|
166
|
|
|
|
39
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table analyses the movements in level 3 fair
value measurements:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
Investments in
|
|
|
Other financial
|
|
|
|
unlisted securities
|
|
|
liabilities
|
|
|
|
All figures in £ millions
|
|
|
At beginning of year
|
|
|
62
|
|
|
|
(23
|
)
|
Exchange differences
|
|
|
1
|
|
|
|
|
|
Additions
|
|
|
7
|
|
|
|
(2
|
)
|
Disposals
|
|
|
(12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
58
|
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
The fair value of the investments in unlisted securities is
determined by reference to the financial performance of the
underlying asset and amounts realised on the sale of similar
assets. The fair value of other financial liabilities represents
the present value of the estimated future liability.
F-49
Notes to
the Consolidated Financial Statements (Continued)
Financial
instruments sensitivity analysis
As at 31 December 2010 the sensitivity of the carrying
value of the Groups financial instruments to fluctuations
in
interest rates and exchange rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of 1%
|
|
|
Impact of 1%
|
|
|
Impact of 10%
|
|
|
Impact of 10%
|
|
|
|
Carrying
|
|
|
increase in
|
|
|
decrease in
|
|
|
strengthening in
|
|
|
weakening in
|
|
|
|
value
|
|
|
interest rates
|
|
|
interest rates
|
|
|
sterling
|
|
|
sterling
|
|
|
|
|
|
|
All figures in £ millions
|
|
|
|
|
|
Investments in unlisted securities
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
(2
|
)
|
|
|
3
|
|
Cash and cash equivalents
|
|
|
1,736
|
|
|
|
|
|
|
|
|
|
|
|
(140
|
)
|
|
|
171
|
|
Marketable securities
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative financial instruments
|
|
|
134
|
|
|
|
(62
|
)
|
|
|
67
|
|
|
|
11
|
|
|
|
(14
|
)
|
Bonds
|
|
|
(2,226
|
)
|
|
|
59
|
|
|
|
(64
|
)
|
|
|
142
|
|
|
|
(174
|
)
|
Other borrowings
|
|
|
(86
|
)
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
(9
|
)
|
Put option over non-controlling interest
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
2
|
|
|
|
(3
|
)
|
Other net financial assets
|
|
|
556
|
|
|
|
|
|
|
|
|
|
|
|
(42
|
)
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total financial instruments
|
|
|
159
|
|
|
|
(3
|
)
|
|
|
3
|
|
|
|
(21
|
)
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table shows the sensitivities of the fair values of each
class of financial instruments to an isolated change in either
interest rates or foreign exchange rates. The class Other
net financial assets comprises trade assets less trade
liabilities.
The sensitivities of derivative instruments are calculated using
established estimation techniques such as discounted cash flow
and option valuation models. Where modelling an interest rate
decrease of 1% led to negative interest rates, these points on
the yield curve were adjusted to 0%. A large proportion of the
movements shown above would impact equity rather than the income
statement, depending on the location and functional currency of
the entity in which they arise and the availability of net
investment hedge treatment. The changes in valuations are
estimates of the impact of changes in market variables and are
not a prediction of future events or anticipated gains or losses.
F-50
Notes to
the Consolidated Financial Statements (Continued)
|
|
20.
|
Intangible
assets Pre-publication
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
Cost
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
|
1,727
|
|
|
|
1,800
|
|
Exchange differences
|
|
|
52
|
|
|
|
(160
|
)
|
Additions
|
|
|
319
|
|
|
|
322
|
|
Disposals
|
|
|
(248
|
)
|
|
|
(230
|
)
|
Acquisition through business combination
|
|
|
13
|
|
|
|
(1
|
)
|
Transfer to inventories
|
|
|
|
|
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
1,863
|
|
|
|
1,727
|
|
|
|
|
|
|
|
|
|
|
Amortisation
|
|
|
|
|
|
|
|
|
At beginning of year
|
|
|
(1,077
|
)
|
|
|
(1,105
|
)
|
Exchange differences
|
|
|
(33
|
)
|
|
|
102
|
|
Charge for the year
|
|
|
(350
|
)
|
|
|
(307
|
)
|
Disposals
|
|
|
248
|
|
|
|
230
|
|
Acquisition through business combination
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
(1,216
|
)
|
|
|
(1,077
|
)
|
|
|
|
|
|
|
|
|
|
Carrying amounts
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
647
|
|
|
|
650
|
|
|
|
|
|
|
|
|
|
|
Included in the above are pre-publication assets amounting to
£399m (2009: £398m) which will be realised in more
than one year.
Amortisation is included in the income statement in cost of
goods sold.
21. Inventories
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
Raw materials
|
|
|
34
|
|
|
|
32
|
|
Work in progress
|
|
|
19
|
|
|
|
23
|
|
Finished goods
|
|
|
376
|
|
|
|
390
|
|
|
|
|
|
|
|
|
|
|
|
|
|
429
|
|
|
|
445
|
|
|
|
|
|
|
|
|
|
|
The cost of inventories relating to continuing operations
recognised as an expense and included in the income statement in
cost of goods sold amounted to £836m (2009: £843m). In
2010 £87m (2009: £75m) of inventory provisions was
charged in the income statement. None of the inventory is
pledged as security.
F-51
Notes to
the Consolidated Financial Statements (Continued)
|
|
22.
|
Trade
and other receivables
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
Current
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
1,028
|
|
|
|
989
|
|
Royalty advances
|
|
|
111
|
|
|
|
99
|
|
Prepayments and accrued income
|
|
|
77
|
|
|
|
75
|
|
Other receivables
|
|
|
121
|
|
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,337
|
|
|
|
1,284
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
Trade receivables
|
|
|
3
|
|
|
|
|
|
Royalty advances
|
|
|
89
|
|
|
|
86
|
|
Prepayments and accrued income
|
|
|
28
|
|
|
|
24
|
|
Other receivables
|
|
|
9
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
Trade receivables are stated at fair value, net of provisions
for bad and doubtful debts and anticipated future sales returns.
The movements on the provision for bad and doubtful debts are as
follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
At beginning of year
|
|
|
(76
|
)
|
|
|
(72
|
)
|
Exchange differences
|
|
|
(2
|
)
|
|
|
5
|
|
Income statement movements
|
|
|
(33
|
)
|
|
|
(26
|
)
|
Utilised
|
|
|
26
|
|
|
|
20
|
|
Acquisition through business combination
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Disposal through business disposal
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At end of year
|
|
|
(83
|
)
|
|
|
(76
|
)
|
|
|
|
|
|
|
|
|
|
Concentrations of credit risk with respect to trade receivables
are limited due to the Groups large number of customers,
who are internationally dispersed.
F-52
Notes to
the Consolidated Financial Statements (Continued)
The ageing of the Groups trade receivables is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
Within due date
|
|
|
1,180
|
|
|
|
1,096
|
|
Up to three months past due date
|
|
|
234
|
|
|
|
228
|
|
Three to six months past due date
|
|
|
39
|
|
|
|
51
|
|
Six to nine months past due date
|
|
|
6
|
|
|
|
20
|
|
Nine to 12 months past due date
|
|
|
13
|
|
|
|
4
|
|
More than 12 months past due date
|
|
|
21
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
Total trade receivables
|
|
|
1,493
|
|
|
|
1,419
|
|
Less: provision for bad and doubtful debts
|
|
|
(83
|
)
|
|
|
(76
|
)
|
Less: provision for sales returns
|
|
|
(379
|
)
|
|
|
(354
|
)
|
|
|
|
|
|
|
|
|
|
Net trade receivables
|
|
|
1,031
|
|
|
|
989
|
|
|
|
|
|
|
|
|
|
|
The Group reviews its bad debt provision at least twice a year
following a detailed review of receivable balances and historic
payment profiles. Management believe all the remaining
receivable balances are fully recoverable.
|
|
23.
|
Provisions
for other liabilities and charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
consideration
|
|
|
Leases
|
|
|
Other
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
At 1 January 2010
|
|
|
38
|
|
|
|
9
|
|
|
|
21
|
|
|
|
68
|
|
Exchange differences
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
Charged to income statement
|
|
|
2
|
|
|
|
|
|
|
|
5
|
|
|
|
7
|
|
Deferred consideration on acquisition current year
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
8
|
|
Deferred consideration on acquisition prior year
adjustments
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
Acquisition through business combination current year
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
Utilised
|
|
|
(20
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(25
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
29
|
|
|
|
10
|
|
|
|
21
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
Analysis of provisions
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
42
|
|
|
|
50
|
|
Current
|
|
|
18
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
|
Deferred consideration primarily relates to the acquisition of
Fronter in 2009.
F-53
Notes to
the Consolidated Financial Statements (Continued)
|
|
24.
|
Trade
and other liabilities
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
Trade payables
|
|
|
470
|
|
|
|
461
|
|
Social security and other taxes
|
|
|
22
|
|
|
|
30
|
|
Accruals
|
|
|
559
|
|
|
|
504
|
|
Deferred income
|
|
|
559
|
|
|
|
487
|
|
Interest payable
|
|
|
12
|
|
|
|
10
|
|
Put option over non-controlling interest
|
|
|
25
|
|
|
|
23
|
|
Other liabilities
|
|
|
204
|
|
|
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,851
|
|
|
|
1,720
|
|
|
|
|
|
|
|
|
|
|
Less: non-current portion
|
|
|
|
|
|
|
|
|
Accruals
|
|
|
26
|
|
|
|
23
|
|
Deferred income
|
|
|
120
|
|
|
|
116
|
|
Put option over non-controlling interest
|
|
|
25
|
|
|
|
23
|
|
Other liabilities
|
|
|
75
|
|
|
|
91
|
|
|
|
|
246
|
|
|
|
253
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
|
1,605
|
|
|
|
1,467
|
|
|
|
|
|
|
|
|
|
|
The carrying value of the Groups trade and other
liabilities approximates its fair value.
The deferred income balance comprises principally: multi-year
obligations to deliver workbooks to adoption customers in school
businesses; advance payments in assessment and testing
businesses; subscription income in school and newspaper
businesses; and obligations to deliver digital content in future
periods.
The put option over non-controlling interest is the fair value
of an option held by the non-controlling interest in the
Groups South African business. The option enables the
non-controlling interest to sell their 15% share of Pearson
South Africa to Pearson from 1 January 2012 at a price
determined by the future performance of that business.
|
|
25.
|
Retirement
benefit and other post-retirement obligations
|
Background
The Group operates a number of defined benefit and defined
contribution retirement plans throughout the world. For the
defined benefit plans, benefits are based on employees
length of service and final pensionable pay. Defined
contribution benefits are based on the amount of contributions
paid in respect of an individual member, the investment returns
earned and the amount of pension this money will buy when a
member retires.
The largest plan is the Pearson Group Pension Plan (UK
Group plan) with both defined benefit and defined
contribution sections. From 1 November 2006, all sections
of the UK Group plan were closed to new members with the
exception of a defined contribution section that was opened in
2003. This section is available to all new employees of
participating companies. The other major defined benefit plans
are based in the US.
Other defined contribution plans are operated principally
overseas with the largest plan being in the US. The specific
features of these plans vary in accordance with the regulations
of the country in which employees are located.
Pearson also has several post-retirement medical benefit plans
(PRMBs), principally in the US. PRMBs are unfunded but are
accounted for and valued similarly to defined benefit pension
plans.
F-54
Notes to
the Consolidated Financial Statements (Continued)
Assumptions
The principal assumptions used for the UK Group plan and the US
PRMB are shown below. Weighted average assumptions have been
shown for the other plans, which primarily relate to US pension
plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
UK Group
|
|
|
Other
|
|
|
|
|
|
UK Group
|
|
|
Other
|
|
|
|
|
|
UK Group
|
|
|
Other
|
|
|
|
|
|
|
plan
|
|
|
plans
|
|
|
PRMB
|
|
|
plan
|
|
|
plans
|
|
|
PRMB
|
|
|
plan
|
|
|
plans
|
|
|
PRMB
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inflation
|
|
|
3.50
|
|
|
|
2.50
|
|
|
|
2.50
|
|
|
|
3.50
|
|
|
|
2.50
|
|
|
|
2.50
|
|
|
|
2.80
|
|
|
|
2.80
|
|
|
|
2.80
|
|
Rate used to discount plan liabilities
|
|
|
5.50
|
|
|
|
5.10
|
|
|
|
5.10
|
|
|
|
5.70
|
|
|
|
5.30
|
|
|
|
5.50
|
|
|
|
6.40
|
|
|
|
6.30
|
|
|
|
6.30
|
|
Expected return on assets
|
|
|
6.00
|
|
|
|
6.60
|
|
|
|
|
|
|
|
6.00
|
|
|
|
6.80
|
|
|
|
|
|
|
|
6.30
|
|
|
|
7.60
|
|
|
|
|
|
Expected rate of increase in salaries
|
|
|
4.70
|
|
|
|
4.00
|
|
|
|
|
|
|
|
5.00
|
|
|
|
4.00
|
|
|
|
|
|
|
|
4.30
|
|
|
|
4.50
|
|
|
|
|
|
Expected rate of increase for pensions in payment and deferred
pensions
|
|
|
2.60 to 4.40
|
|
|
|
|
|
|
|
|
|
|
|
2.60 to 4.40
|
|
|
|
|
|
|
|
|
|
|
|
2.30 to 4.20
|
|
|
|
|
|
|
|
|
|
Initial rate of increase in healthcare rate
|
|
|
|
|
|
|
|
|
|
|
8.00
|
|
|
|
|
|
|
|
|
|
|
|
8.50
|
|
|
|
|
|
|
|
|
|
|
|
9.00
|
|
Ultimate rate of increase in healthcare rate
|
|
|
|
|
|
|
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The UK discount rate is based on the annualised yield on the
iBoxx over
15-year
AA-rated corporate bond index, adjusted to reflect the duration
of liabilities. The US discount rate is set by reference to a US
bond portfolio matching model. The expected return on assets is
based on market expectations of long-term asset returns for the
defined portfolio at the end of the year.
The inflation rate of 3.5% reflects the RPI rate. In line with
changes to legislation certain benefits have been calculated
with reference to CPI as the inflationary measure and in these
instances a rate of 2.8% has been used. The change from RPI to
CPI for deferred revaluation and Post 88 GMP pension increases
in payment has been included in these results, resulting in a
gain of £23m, taken as an actuarial gain on the obligation.
The expected rates of return on categories of plan assets are
determined by reference to relevant indices. The overall
expected rate of return is calculated by weighting the
individual rates in accordance with the anticipated balance in
the plans investment portfolio, plus a diversification
premium.
The expected rate of increase in salaries has been set at 4.7%
for 2010 with a short-term assumption of 3.3% for two years.
In 2008 the UK mortality assumptions were derived by adjusting
standard mortality tables (PMFA 92 tables projected forward with
medium cohort improvement factors). In 2009 the Group changed
its mortality assumptions in the UK. The mortality base table
assumptions have been derived from the SAPS all
pensioners tables for males and the SAPS normal
health pensioners tables for females, adjusted to reflect
the observed experience of the plan,
F-55
Notes to
the Consolidated Financial Statements (Continued)
with medium cohort improvement factors. In 2008 a 1% improvement
floor on the medium cohort was applied. In 2009 this was changed
to 1.5% for males and 1.25% for females, with tapering.
For the US plans, the assumptions used were based on standard US
mortality tables. In 2008 a switch from GAM94 to RP2000 was
made, to reflect the mortality assumption now more prevalent in
the US, and in 2010 a 10 year projection was added.
Using the above tables, the remaining average life expectancy in
years of a pensioner retiring at age 65 on the balance
sheet date for the UK and US Group plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
US
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Male
|
|
|
22.8
|
|
|
|
22.7
|
|
|
|
18.4
|
|
|
|
17.6
|
|
Female
|
|
|
23.6
|
|
|
|
23.5
|
|
|
|
20.6
|
|
|
|
20.2
|
|
The remaining average life expectancy in years of a pensioner
retiring at age 65, 20 years after the balance sheet
date, for the UK and US Group plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK
|
|
|
US
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
Male
|
|
|
25.4
|
|
|
|
25.3
|
|
|
|
18.4
|
|
|
|
17.6
|
|
Female
|
|
|
25.7
|
|
|
|
25.6
|
|
|
|
20.6
|
|
|
|
20.2
|
|
Financial
statement information
The amounts recognised in the income statement are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
|
|
Defined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Group
|
|
|
benefit
|
|
|
|
|
|
Defined
|
|
|
|
|
|
|
|
|
|
plan
|
|
|
other
|
|
|
Sub-total
|
|
|
contribution
|
|
|
PRMB
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Current service cost
|
|
|
21
|
|
|
|
2
|
|
|
|
23
|
|
|
|
68
|
|
|
|
2
|
|
|
|
93
|
|
Curtailments
|
|
|
(5
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
16
|
|
|
|
2
|
|
|
|
18
|
|
|
|
68
|
|
|
|
2
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets
|
|
|
(93
|
)
|
|
|
(7
|
)
|
|
|
(100
|
)
|
|
|
|
|
|
|
|
|
|
|
(100
|
)
|
Interest on plan liabilities
|
|
|
100
|
|
|
|
9
|
|
|
|
109
|
|
|
|
|
|
|
|
3
|
|
|
|
112
|
|
Net finance expense
|
|
|
7
|
|
|
|
2
|
|
|
|
9
|
|
|
|
|
|
|
|
3
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income statement charge
|
|
|
23
|
|
|
|
4
|
|
|
|
27
|
|
|
|
68
|
|
|
|
5
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
177
|
|
|
|
13
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-56
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
|
|
Defined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Group
|
|
|
benefit
|
|
|
|
|
|
Defined
|
|
|
|
|
|
|
|
|
|
plan
|
|
|
other
|
|
|
Sub-total
|
|
|
contribution
|
|
|
PRMB
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Current service cost
|
|
|
14
|
|
|
|
3
|
|
|
|
17
|
|
|
|
62
|
|
|
|
2
|
|
|
|
81
|
|
Past service cost
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
14
|
|
|
|
4
|
|
|
|
18
|
|
|
|
62
|
|
|
|
2
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets
|
|
|
(83
|
)
|
|
|
(5
|
)
|
|
|
(88
|
)
|
|
|
|
|
|
|
|
|
|
|
(88
|
)
|
Interest on plan liabilities
|
|
|
89
|
|
|
|
8
|
|
|
|
97
|
|
|
|
|
|
|
|
3
|
|
|
|
100
|
|
Net finance expense
|
|
|
6
|
|
|
|
3
|
|
|
|
9
|
|
|
|
|
|
|
|
3
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income statement charge
|
|
|
20
|
|
|
|
7
|
|
|
|
27
|
|
|
|
62
|
|
|
|
5
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual return on plan assets
|
|
|
136
|
|
|
|
8
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
Defined
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UK Group
|
|
|
benefit
|
|
|
|
|
|
Defined
|
|
|
|
|
|
|
|
|
|
plan
|
|
|
other
|
|
|
Sub-total
|
|
|
contribution
|
|
|
PRMB
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Current service cost
|
|
|
33
|
|
|
|
3
|
|
|
|
36
|
|
|
|
41
|
|
|
|
1
|
|
|
|
78
|
|
Past service cost
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
|
|
|
|
|
|
5
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
33
|
|
|
|
4
|
|
|
|
37
|
|
|
|
41
|
|
|
|
6
|
|
|
|
84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets
|
|
|
(104
|
)
|
|
|
(7
|
)
|
|
|
(111
|
)
|
|
|
|
|
|
|
|
|
|
|
(111
|
)
|
Interest on plan liabilities
|
|
|
93
|
|
|
|
7
|
|
|
|
100
|
|
|
|
|
|
|
|
3
|
|
|
|
103
|
|
Net finance (income)/expense
|
|
|
(11
|
)
|
|
|
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
3
|
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income statement charge
|
|
|
22
|
|
|
|
4
|
|
|
|
26
|
|
|
|
41
|
|
|
|
9
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual loss on plan assets
|
|
|
(130
|
)
|
|
|
(27
|
)
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
(157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included within the 2010 results are discontinued operations of
£5m relating to the curtailment credit, a £1m charge
relating to defined benefit schemes and a £2m charge
relating to defined contribution schemes (2009: £2m charge
relating to defined benefit schemes and £2m charge relating
to defined contribution schemes; 2008: £2m charge relating
to defined benefit schemes and £2m charge relating to
defined contribution schemes).
In 2008 the UK Group plan current service cost included
£14m relating to defined contribution sections. In 2009 and
2010 the defined contribution section of the UK Group plan is
recorded within the defined contribution expense.
F-57
Notes to
the Consolidated Financial Statements (Continued)
The amounts recognised in the balance sheet are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
|
|
Other
|
|
|
Other
|
|
|
|
|
|
|
UK Group
|
|
|
funded
|
|
|
unfunded
|
|
|
|
|
|
UK Group
|
|
|
funded
|
|
|
unfunded
|
|
|
|
|
|
|
plan
|
|
|
plans
|
|
|
plans
|
|
|
Total
|
|
|
plan
|
|
|
plans
|
|
|
plans
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Fair value of plan assets
|
|
|
1,847
|
|
|
|
135
|
|
|
|
|
|
|
|
1,982
|
|
|
|
1,609
|
|
|
|
118
|
|
|
|
|
|
|
|
1,727
|
|
Present value of defined benefit obligation
|
|
|
(1,852
|
)
|
|
|
(158
|
)
|
|
|
(20
|
)
|
|
|
(2,030
|
)
|
|
|
(1,798
|
)
|
|
|
(151
|
)
|
|
|
(18
|
)
|
|
|
(1,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension liability
|
|
|
(5
|
)
|
|
|
(23
|
)
|
|
|
(20
|
)
|
|
|
(48
|
)
|
|
|
(189
|
)
|
|
|
(33
|
)
|
|
|
(18
|
)
|
|
|
(240
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other post-retirement medical benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(65
|
)
|
Other pension accruals
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(28
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net retirement benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Analysed as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement benefit assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following gains/(losses) have been recognised in other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
|
|
|
Amounts recognised for defined benefit plans
|
|
|
75
|
|
|
|
(295
|
)
|
|
|
(74
|
)
|
Amounts recognised for post-retirement medical benefit plans
|
|
|
(5
|
)
|
|
|
(4
|
)
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total recognised in year
|
|
|
70
|
|
|
|
(299
|
)
|
|
|
(71
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative amounts recognised
|
|
|
(176
|
)
|
|
|
(246
|
)
|
|
|
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fair value of plan assets comprises the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
UK Group
|
|
|
funded
|
|
|
|
|
|
UK Group
|
|
|
funded
|
|
|
|
|
|
|
plan
|
|
|
plans
|
|
|
Total
|
|
|
plan
|
|
|
plans
|
|
|
Total
|
|
|
|
%
|
|
|
Equities
|
|
|
27.0
|
|
|
|
3.3
|
|
|
|
30.3
|
|
|
|
27.4
|
|
|
|
2.4
|
|
|
|
29.8
|
|
Bonds
|
|
|
49.3
|
|
|
|
2.7
|
|
|
|
52.0
|
|
|
|
47.2
|
|
|
|
2.1
|
|
|
|
49.3
|
|
Properties
|
|
|
11.2
|
|
|
|
0.1
|
|
|
|
11.3
|
|
|
|
9.4
|
|
|
|
0.0
|
|
|
|
9.4
|
|
Other
|
|
|
5.6
|
|
|
|
0.8
|
|
|
|
6.4
|
|
|
|
10.4
|
|
|
|
1.1
|
|
|
|
11.5
|
|
The plan assets do not include any of the Groups own
financial instruments, or any property occupied by the Group.
F-58
Notes to
the Consolidated Financial Statements (Continued)
Changes in the values of plan assets and liabilities of the
retirement benefit plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
UK Group
|
|
|
Other
|
|
|
|
|
|
UK Group
|
|
|
Other
|
|
|
|
|
|
|
plan
|
|
|
plans
|
|
|
Total
|
|
|
plan
|
|
|
plans
|
|
|
Total
|
|
|
|
All figures in £ millions
|
|
|
Fair value of plan assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening fair value of plan assets
|
|
|
1,609
|
|
|
|
118
|
|
|
|
1,727
|
|
|
|
1,478
|
|
|
|
100
|
|
|
|
1,578
|
|
Exchange differences
|
|
|
|
|
|
|
4
|
|
|
|
4
|
|
|
|
|
|
|
|
(6
|
)
|
|
|
(6
|
)
|
Expected return on plan assets
|
|
|
93
|
|
|
|
7
|
|
|
|
100
|
|
|
|
83
|
|
|
|
5
|
|
|
|
88
|
|
Actuarial gains
|
|
|
84
|
|
|
|
6
|
|
|
|
90
|
|
|
|
53
|
|
|
|
3
|
|
|
|
56
|
|
Contributions by employer
|
|
|
132
|
|
|
|
13
|
|
|
|
145
|
|
|
|
64
|
|
|
|
26
|
|
|
|
90
|
|
Contributions by employee
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
Benefits paid
|
|
|
(74
|
)
|
|
|
(13
|
)
|
|
|
(87
|
)
|
|
|
(72
|
)
|
|
|
(10
|
)
|
|
|
(82
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing fair value of plan assets
|
|
|
1,847
|
|
|
|
135
|
|
|
|
1,982
|
|
|
|
1,609
|
|
|
|
118
|
|
|
|
1,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Present value of defined benefit obligation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Opening defined benefit obligation
|
|
|
(1,798
|
)
|
|
|
(169
|
)
|
|
|
(1,967
|
)
|
|
|
(1,429
|
)
|
|
|
(165
|
)
|
|
|
(1,594
|
)
|
Exchange differences
|
|
|
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
|
|
|
|
|
14
|
|
|
|
14
|
|
Current service cost
|
|
|
(21
|
)
|
|
|
(2
|
)
|
|
|
(23
|
)
|
|
|
(14
|
)
|
|
|
(3
|
)
|
|
|
(17
|
)
|
Past service cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Curtailment
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost
|
|
|
(100
|
)
|
|
|
(9
|
)
|
|
|
(109
|
)
|
|
|
(89
|
)
|
|
|
(8
|
)
|
|
|
(97
|
)
|
Actuarial losses
|
|
|
(9
|
)
|
|
|
(6
|
)
|
|
|
(15
|
)
|
|
|
(335
|
)
|
|
|
(16
|
)
|
|
|
(351
|
)
|
Contributions by employee
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(3
|
)
|
|
|
|
|
|
|
(3
|
)
|
Benefits paid
|
|
|
74
|
|
|
|
13
|
|
|
|
87
|
|
|
|
72
|
|
|
|
10
|
|
|
|
82
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing defined benefit obligation
|
|
|
(1,852
|
)
|
|
|
(178
|
)
|
|
|
(2,030
|
)
|
|
|
(1,798
|
)
|
|
|
(169
|
)
|
|
|
(1,967
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in the value of the US PRMB are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in £ millions
|
|
|
Opening defined benefit obligation
|
|
|
(65
|
)
|
|
|
(68
|
)
|
Exchange differences
|
|
|
(2
|
)
|
|
|
8
|
|
Current service cost
|
|
|
(2
|
)
|
|
|
(2
|
)
|
Interest cost
|
|
|
(3
|
)
|
|
|
(3
|
)
|
Actuarial losses
|
|
|
(5
|
)
|
|
|
(4
|
)
|
Benefits paid
|
|
|
5
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
|
Closing defined benefit obligation
|
|
|
(72
|
)
|
|
|
(65
|
)
|
|
|
|
|
|
|
|
|
|
F-59
Notes to
the Consolidated Financial Statements (Continued)
The history of the defined benefit plans is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
All figures in £ millions
|
|
|
Fair value of plan assets
|
|
|
1,982
|
|
|
|
1,727
|
|
|
|
1,578
|
|
|
|
1,853
|
|
|
|
1,633
|
|
Present value of defined benefit obligation
|
|
|
(2,030
|
)
|
|
|
(1,967
|
)
|
|
|
(1,594
|
)
|
|
|
(1,811
|
)
|
|
|
(1,810
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension (liability)/asset
|
|
|
(48
|
)
|
|
|
(240
|
)
|
|
|
(16
|
)
|
|
|
42
|
|
|
|
(177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Experience adjustments on plan assets
|
|
|
90
|
|
|
|
56
|
|
|
|
(268
|
)
|
|
|
29
|
|
|
|
74
|
|
Experience adjustments on plan liabilities
|
|
|
(15
|
)
|
|
|
(351
|
)
|
|
|
194
|
|
|
|
50
|
|
|
|
28
|
|
Funding
The UK Group plan is self-administered with the plans
assets being held independently of the Group. The trustees of
the plan are required to act in the best interest of the
plans beneficiaries. The most recent triennial actuarial
valuation for funding purposes was completed as at 1 January
2009 and this valuation revealed a funding shortfall. The Group
has agreed that the funding shortfall will be eliminated by
31 December 2020. In 2010 the Group contributed £41m
(2009: £42m) towards the funding shortfall and has agreed
to contribute a similar amount per annum until 2020 in excess of
regular contributions. Regular contributions to the plan are
estimated to be £22m for 2011.
Under UK law (section 75 debt) a company that participates
in a multi-employer defined benefit plan is liable, on
withdrawal from that pension plan, for its share of the total
deficit in the plan calculated on a solvency or
buy out basis. The Interactive Data sale and the
termination of Interactive Data Corporation (Europe) Ltds
participation in the UK Group plan triggered this
section 75 liability. £68m was contributed
to the plan in respect of this liability.
The Group expects to contribute $94m in 2011 and $97m in 2012 to
its US pension plans.
Sensitivities
The net retirement benefit obligations are calculated using a
number of assumptions, the most significant being the discount
rate used to calculate the defined benefit obligation. The
effect of a one percentage point increase and decrease in the
discount rate on the defined benefit obligation and the total
pension expense is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
1% increase
|
|
|
1% decrease
|
|
|
|
All figures in £ millions
|
|
|
Effect on:
|
|
|
|
|
|
|
|
|
(Decrease)/increase in defined benefit obligation UK
Group plan
|
|
|
(262.0
|
)
|
|
|
324.0
|
|
(Decrease)/increase of aggregate of service cost and interest
cost UK Group plan
|
|
|
(13.7
|
)
|
|
|
16.3
|
|
(Decrease)/increase in defined benefit obligation US
plan
|
|
|
(2.5
|
)
|
|
|
1.3
|
|
The effect of members living one year more or one year less on
the defined benefit obligation is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
1 year increase
|
|
|
1 year decrease
|
|
|
|
All figures in £ millions
|
|
|
Effect on:
|
|
|
|
|
|
|
|
|
lncrease/(decrease) in defined benefit obligation UK
Group plan
|
|
|
52.7
|
|
|
|
(50.5
|
)
|
lncrease/(decrease) in defined benefit obligation US
plan
|
|
|
1.6
|
|
|
|
(1.7
|
)
|
F-60
Notes to
the Consolidated Financial Statements (Continued)
The effect of a one percentage point increase and decrease in
the assumed medical cost trend rates is as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
1% increase
|
|
|
1% decrease
|
|
|
|
All figures in £ millions
|
|
|
Effect on:
|
|
|
|
|
|
|
|
|
lncrease/(decrease) in post-retirement medical benefit obligation
|
|
|
3.1
|
|
|
|
(2.8
|
)
|
lncrease/(decrease) of aggregate of service cost and interest
cost
|
|
|
0.1
|
|
|
|
(0.1
|
)
|
The Group recognised the following charges in the income
statement in respect of its equity-settled share-based payment
plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
Pearson plans
|
|
|
35
|
|
|
|
27
|
|
|
|
25
|
|
Share-based payments included in discontinued operations
amounted to £4m (2009: £10m; 2008: £8m).
The Group operates the following equity-settled employee option
and share plans:
Worldwide Save for Shares Plan
Since 1994, the Group has operated a Save-As-You-Earn plan for
UK employees. In 1998, the Group introduced a Worldwide Save for
Shares Plan. Under these plans, employees can save a
portion of their monthly salary over periods of three, five or
seven years. At the end of this period, the employee has the
option to purchase ordinary shares with the accumulated funds at
a purchase price equal to 80% of the market price prevailing at
the time of the commencement of the employees
participation in the plan. Options that are not exercised within
six months of the end of the savings period lapse
unconditionally.
Employee Stock Purchase Plan In 2000,
the Group established an Employee Stock Purchase Plan which
allows all employees in the US to save a portion of their
monthly salary over six month periods. At the end of the period,
the employee has the option to purchase ADRs with their
accumulated funds at a purchase price equal to 85% of the lower
of the market price prevailing at the beginning or end of the
period.
Long-Term Incentive Plan This plan was
introduced in 2001 and renewed in 2006 and consists of two
parts: share options
and/or
restricted shares.
Options were last granted under this plan in 2001 based on a
pre-grant earnings per share growth test and are not subject to
further performance conditions on exercise. The options became
exercisable in tranches and lapse if they remain unexercised at
the tenth anniversary of the date of grant.
The vesting of restricted shares is normally dependent on
continuing service over a three to five-year period, and in the
case of senior management upon the satisfaction of corporate
performance targets over a three-year period. These targets may
be based on market
and/or
non-market performance criteria. Restricted shares awarded to
senior management in March 2009 and March 2010 vest dependent on
relative total shareholder return, return on invested capital
and earnings per share growth. The award was split equally
across all three measures. Other restricted shares awarded in
2009 and 2010 vest depending on continuing service over a
three-year period.
Annual Bonus Share Matching Plan This
plan permits executive directors and senior executives around
the Group to invest up to 50% of any after tax annual bonus in
Pearson shares. If these shares are held and the Group meets an
earnings per share growth target, the company will match them on
a gross basis i.e. the maximum number of matching shares is
equal to the number of shares that could have been acquired with
the amount of the pre-tax annual bonus taken in invested shares.
F-61
Notes to
the Consolidated Financial Statements (Continued)
In addition to the above, share options remain outstanding under
Executive Share Option, Reward and Special Share Option Plans.
These are legacy plans which were replaced with the introduction
of the Long-Term Incentive Plan in 2001.
The number and weighted average exercise prices of share options
granted under the Groups plans are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
average
|
|
|
Number of
|
|
|
average
|
|
|
|
share
|
|
|
exercise
|
|
|
share
|
|
|
exercise
|
|
|
|
options
|
|
|
price
|
|
|
options
|
|
|
price
|
|
|
|
000s
|
|
|
£
|
|
|
000s
|
|
|
£
|
|
|
Outstanding at beginning of year
|
|
|
12,487
|
|
|
|
12.78
|
|
|
|
14,379
|
|
|
|
13.14
|
|
Granted during the year
|
|
|
628
|
|
|
|
8.06
|
|
|
|
1,320
|
|
|
|
5.47
|
|
Exercised during the year
|
|
|
(1,154
|
)
|
|
|
7.12
|
|
|
|
(656
|
)
|
|
|
5.91
|
|
Forfeited during the year
|
|
|
(457
|
)
|
|
|
9.08
|
|
|
|
(2,488
|
)
|
|
|
13.02
|
|
Expired during the year
|
|
|
(2,626
|
)
|
|
|
23.47
|
|
|
|
(68
|
)
|
|
|
5.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of year
|
|
|
8,878
|
|
|
|
10.20
|
|
|
|
12,487
|
|
|
|
12.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at end of year
|
|
|
5,825
|
|
|
|
12.40
|
|
|
|
9,264
|
|
|
|
15.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options were exercised regularly throughout the year. The
weighted average share price during the year was £9.63
(2009: £7.15). Early exercises arising from redundancy,
retirement or death are treated as an acceleration of vesting
and the Group therefore recognises in the income statement the
amount that otherwise would have been recognised for services
received over the remainder of the original vesting period.
The options outstanding at the end of the year have weighted
average remaining contractual lives and exercise prices as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number
|
|
|
average
|
|
|
Number
|
|
|
average
|
|
|
|
of share
|
|
|
contractual
|
|
|
of share
|
|
|
contractual
|
|
Range of exercise prices
|
|
options
|
|
|
life
|
|
|
options
|
|
|
life
|
|
£
|
|
000s
|
|
|
Years
|
|
|
000s
|
|
|
Years
|
|
|
0 5
|
|
|
38
|
|
|
|
0.65
|
|
|
|
172
|
|
|
|
1.07
|
|
5 10
|
|
|
4,757
|
|
|
|
1.86
|
|
|
|
5,523
|
|
|
|
2.37
|
|
10 15
|
|
|
4,083
|
|
|
|
0.36
|
|
|
|
4,225
|
|
|
|
1.36
|
|
15 20
|
|
|
|
|
|
|
|
|
|
|
270
|
|
|
|
0.75
|
|
20 25
|
|
|
|
|
|
|
|
|
|
|
344
|
|
|
|
0.19
|
|
>25
|
|
|
|
|
|
|
|
|
|
|
1,953
|
|
|
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,878
|
|
|
|
1.17
|
|
|
|
12,487
|
|
|
|
1.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2010 and 2009 options were granted under the Worldwide Save
for Shares Plan. The weighted average estimated fair value
for the options granted was calculated using a Black-Scholes
option pricing model.
F-62
Notes to
the Consolidated Financial Statements (Continued)
The weighted average estimated fair values and the inputs into
the Black-Scholes model are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
average
|
|
|
average
|
|
|
Fair value
|
|
|
£2.14
|
|
|
|
£1.69
|
|
Weighted average share price
|
|
|
£9.48
|
|
|
|
£7.13
|
|
Weighted average exercise price
|
|
|
£8.06
|
|
|
|
£5.47
|
|
Expected volatility
|
|
|
28.28
|
%
|
|
|
27.32
|
%
|
Expected life
|
|
|
4.0 years
|
|
|
|
4.0 years
|
|
Risk free rate
|
|
|
2.24
|
%
|
|
|
2.45
|
%
|
Expected dividend yield
|
|
|
3.75
|
%
|
|
|
4.74
|
%
|
Forfeiture rate
|
|
|
3.5
|
%
|
|
|
3.5
|
%
|
The expected volatility is based on the historic volatility of
the companys share price over the previous three to seven
years depending on the vesting term of the options.
The following shares were granted under restricted share
arrangements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
average
|
|
|
Number of
|
|
|
average
|
|
|
|
shares
|
|
|
fair value
|
|
|
shares
|
|
|
fair value
|
|
|
|
000s
|
|
|
£
|
|
|
000s
|
|
|
£
|
|
|
Long-Term Incentive Plan
|
|
|
4,742
|
|
|
|
9.45
|
|
|
|
4,519
|
|
|
|
5.77
|
|
Annual Bonus Share Matching Plan
|
|
|
266
|
|
|
|
10.25
|
|
|
|
271
|
|
|
|
6.70
|
|
The fair value of shares granted under the Long-Term Incentive
Plan that vest unconditionally is determined using the share
price at the date of grant. Participants of the Long-Term
Incentive Plan are entitled to dividends during the vesting
period. The number of shares to vest has been adjusted, based on
historical experience, to account for any potential forfeitures.
Restricted shares granted under the Annual Bonus Share Matching
Plan are valued using the share price at the date of grant.
Shares granted include the entitlement to dividends during the
vesting period and therefore the share price is not discounted.
Restricted shares with a market performance condition were
valued by an independent actuary using a Monte Carlo model.
Restricted shares with a non-market performance condition were
fair valued based on the share price at the date of grant.
Non-market performance conditions were considered by adjusting
the number of shares expected to vest based on the most likely
outcome of the relevant performance criteria.
|
|
27.
|
Share
capital and share premium
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
Ordinary
|
|
|
Share
|
|
|
|
of shares
|
|
|
shares
|
|
|
premium
|
|
|
|
000s
|
|
|
£m
|
|
|
£m
|
|
|
At 1 January 2009
|
|
|
809,276
|
|
|
|
202
|
|
|
|
2,505
|
|
Issue of ordinary shares share option schemes
|
|
|
1,523
|
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009
|
|
|
810,799
|
|
|
|
203
|
|
|
|
2,512
|
|
Issue of ordinary shares share option schemes
|
|
|
1,878
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
812,677
|
|
|
|
203
|
|
|
|
2,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The ordinary shares have a par value of 25p per share (2009: 25p
per share). All issued shares are fully paid. All shares have
the same rights.
F-63
Notes to
the Consolidated Financial Statements (Continued)
The Group manages its capital to ensure that entities in the
Group will be able to continue as a going concern while
maximising the return to shareholders through the optimisation
of the debt and equity balance.
The capital structure of the Group consists of debt (see
note 18), cash and cash equivalents (see
note 17) and equity attributable to equity holders of
the parent, comprising issued capital, reserves and retained
earnings.
The Group reviews its capital structure on a regular basis and
will balance its overall capital structure through payments of
dividends, new share issues as well as the issue of new debt or
the redemption of existing debt in line with the financial risk
policies outlined in note 19.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pearson plc
|
|
|
Interactive Data
|
|
|
Total
|
|
|
|
Number
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
of shares
|
|
|
|
|
|
of shares
|
|
|
|
|
|
|
|
|
|
000s
|
|
|
£m
|
|
|
000s
|
|
|
£m
|
|
|
£m
|
|
|
At 1 January 2009
|
|
|
10,448
|
|
|
|
112
|
|
|
|
9,205
|
|
|
|
110
|
|
|
|
222
|
|
Purchase of treasury shares
|
|
|
2,200
|
|
|
|
13
|
|
|
|
1,280
|
|
|
|
20
|
|
|
|
33
|
|
Release of treasury shares
|
|
|
(2,983
|
)
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2009
|
|
|
9,665
|
|
|
|
96
|
|
|
|
10,485
|
|
|
|
130
|
|
|
|
226
|
|
Purchase of treasury shares
|
|
|
8,000
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
|
|
77
|
|
Release/cancellation of treasury shares
|
|
|
(3,656
|
)
|
|
|
(36
|
)
|
|
|
(10,485
|
)
|
|
|
(130
|
)
|
|
|
(166
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At 31 December 2010
|
|
|
14,009
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Group holds Pearson plc shares in trust to satisfy its
obligations under its restricted share plans (see note 26).
These shares, representing 1.7% (2009: 1.2%) of
called-up
share capital, are treated as treasury shares for accounting
purposes and have a par value of 25p per share.
The nominal value of Pearson plc treasury shares amounts to
£3.5m (2009: £2.4m).
At 31 December 2010 the market value of Pearson plc
treasury shares was £141.2m (2009: £86.1m).
|
|
29.
|
Business
combinations
|
On 17 June 2010 the Group acquired 100% of the shares of
Melorio plc, a vocational training provider. On 19 August
2010 the Group acquired 100% of the shares of Wall Street
Institute Education S.a.r.l (WSI), a group providing spoken
English training for adults. On 1 September 2010 the Group
acquired 69% of the voting equity of Sistema Educacional
Brasileiros (SEB) school learning systems division. On
7 September 2010 the Group acquired 100% of the shares of
Americas Choice Inc, a provider of school improvement
services.
F-64
Notes to
the Consolidated Financial Statements (Continued)
Provisional values for the assets and liabilities arising from
these and other acquisitions completed in the year together with
adjustments to prior year acquisitions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Melorio
|
|
|
SEB
|
|
|
WSI
|
|
|
Choice
|
|
|
Other
|
|
|
Total
|
|
|
Total
|
|
|
|
Notes
|
|
|
fair value
|
|
|
fair value
|
|
|
fair value
|
|
|
fair value
|
|
|
fair value
|
|
|
fair value
|
|
|
fair value
|
|
|
|
All figures in £ millions
|
|
|
Property, plant and equipment
|
|
|
10
|
|
|
|
4
|
|
|
|
7
|
|
|
|
3
|
|
|
|
|
|
|
|
3
|
|
|
|
17
|
|
|
|
9
|
|
Intangible assets
|
|
|
11
|
|
|
|
89
|
|
|
|
103
|
|
|
|
32
|
|
|
|
24
|
|
|
|
37
|
|
|
|
285
|
|
|
|
142
|
|
Intangible assets Pre-publication
|
|
|
20
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
9
|
|
|
|
2
|
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
1
|
|
|
|
1
|
|
|
|
(5
|
)
|
|
|
2
|
|
|
|
14
|
|
Trade and other receivables
|
|
|
|
|
|
|
8
|
|
|
|
13
|
|
|
|
8
|
|
|
|
7
|
|
|
|
5
|
|
|
|
41
|
|
|
|
23
|
|
Cash and cash equivalents
|
|
|
|
|
|
|
3
|
|
|
|
5
|
|
|
|
2
|
|
|
|
12
|
|
|
|
4
|
|
|
|
26
|
|
|
|
29
|
|
Financial liabilities Borrowings
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
Net deferred income tax liabilities
|
|
|
13
|
|
|
|
(24
|
)
|
|
|
|
|
|
|
(3
|
)
|
|
|
(4
|
)
|
|
|
(6
|
)
|
|
|
(37
|
)
|
|
|
(45
|
)
|
Retirement benefit obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Provisions for other liabilities and charges
|
|
|
23
|
|
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10
|
)
|
|
|
|
|
Trade and other liabilities
|
|
|
|
|
|
|
(9
|
)
|
|
|
(10
|
)
|
|
|
(14
|
)
|
|
|
(5
|
)
|
|
|
1
|
|
|
|
(37
|
)
|
|
|
(91
|
)
|
Current income tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
|
|
(3
|
)
|
|
|
(4
|
)
|
Non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(39
|
)
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired at fair value
|
|
|
|
|
|
|
48
|
|
|
|
87
|
|
|
|
26
|
|
|
|
35
|
|
|
|
44
|
|
|
|
240
|
|
|
|
62
|
|
Goodwill
|
|
|
11
|
|
|
|
50
|
|
|
|
141
|
|
|
|
39
|
|
|
|
30
|
|
|
|
28
|
|
|
|
288
|
|
|
|
205
|
|
Increase in fair values of proportionate holding arising on
stepped acquisition
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
98
|
|
|
|
228
|
|
|
|
65
|
|
|
|
65
|
|
|
|
72
|
|
|
|
528
|
|
|
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Satisfied by:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
|
|
|
(98
|
)
|
|
|
(228
|
)
|
|
|
(65
|
)
|
|
|
(65
|
)
|
|
|
(74
|
)
|
|
|
(530
|
)
|
|
|
(201
|
)
|
Other consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5
|
)
|
Deferred consideration
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8
|
)
|
|
|
(8
|
)
|
|
|
(27
|
)
|
Net prior year adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
|
|
|
|
10
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consideration
|
|
|
|
|
|
|
(98
|
)
|
|
|
(228
|
)
|
|
|
(65
|
)
|
|
|
(65
|
)
|
|
|
(72
|
)
|
|
|
(528
|
)
|
|
|
(244
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The goodwill arising on these acquisitions results from
substantial cost and revenue synergies and from benefits that
cannot be separately recognised, such as the assembled workforce.
The fair value of trade and other receivables is £41m and
includes trade receivables with a fair value of £34m. The
gross contractual amount for trade receivables due is £37m
of which £3m is expected to be uncollectable.
A provisional value of £12m of goodwill arising on 2010
acquisitions is expected to be deductible for tax purposes.
The non-controlling interest in SEB was measured using the
non-controlling interests proportionate share of the
acquirees net assets.
F-65
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Cash flow on acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Current year acquisitions
|
|
|
(530
|
)
|
|
|
(201
|
)
|
|
|
(394
|
)
|
Cash Acquisitions yet to complete
|
|
|
|
|
|
|
(4
|
)
|
|
|
(12
|
)
|
Deferred payments for prior year acquisitions and other items
|
|
|
(20
|
)
|
|
|
(32
|
)
|
|
|
(5
|
)
|
Cash and cash equivalents acquired
|
|
|
26
|
|
|
|
29
|
|
|
|
16
|
|
Acquisition costs paid
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash outflow
|
|
|
(535
|
)
|
|
|
(208
|
)
|
|
|
(395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In 2010, acquisitions contributed £84m to sales and
£6m to operating profit before acquisition costs and
amortisation of acquired intangibles from the date of
acquisition to the balance sheet date. Of these amounts, Melorio
contributed £38m of sales and £5m of profit, SEB
contributed £11m of sales and a loss of £2m, WSI
contributed £13m of sales and £1m of profit and
Americas Choice contributed £9m of sales and
£nil of profit.
If the acquisitions had completed on 1 January 2010, the Group
estimates that sales for the period would have been £5,799m
and profit before tax would have been £676m.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
All figures in £ millions
|
|
|
Disposal of subsidiaries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
|
|
|
10
|
|
|
|
(57
|
)
|
|
|
|
|
|
|
(7
|
)
|
Intangible assets
|
|
|
11
|
|
|
|
(88
|
)
|
|
|
|
|
|
|
(3
|
)
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7
|
)
|
Other financial assets
|
|
|
|
|
|
|
(3
|
)
|
|
|
|
|
|
|
|
|
Trade and other receivables
|
|
|
|
|
|
|
(103
|
)
|
|
|
|
|
|
|
(8
|
)
|
Cash and cash equivalents
|
|
|
|
|
|
|
(165
|
)
|
|
|
|
|
|
|
|
|
Net deferred income tax liabilities
|
|
|
13
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
Retirement benefit obligations
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
Trade and other liabilities
|
|
|
|
|
|
|
132
|
|
|
|
|
|
|
|
9
|
|
Current income tax liabilities
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
Non-controlling interest
|
|
|
|
|
|
|
271
|
|
|
|
|
|
|
|
|
|
Attributable goodwill
|
|
|
11
|
|
|
|
(195
|
)
|
|
|
|
|
|
|
(99
|
)
|
Cumulative translation adjustment
|
|
|
|
|
|
|
(13
|
)
|
|
|
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets disposed
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
(164
|
)
|
Cash received
|
|
|
|
|
|
|
1,234
|
|
|
|
|
|
|
|
114
|
|
Deferred receipts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2
|
|
Costs
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit/(Loss) on sale
|
|
|
|
|
|
|
1,037
|
|
|
|
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-66
Notes to
the Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
Cash flow from disposals
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Current year disposals
|
|
|
1,234
|
|
|
|
|
|
|
|
114
|
|
Cash and cash equivalents disposed
|
|
|
(165
|
)
|
|
|
|
|
|
|
|
|
Costs paid
|
|
|
(32
|
)
|
|
|
|
|
|
|
(15
|
)
|
Pension contribution paid on disposal
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash inflow
|
|
|
984
|
|
|
|
|
|
|
|
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The disposal in 2010 relates to Interactive Data and the
disposal in 2008 relates to the Data Management business.
Further details are shown in note 3.
|
|
31.
|
Cash
generated from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
All figures in £ millions
|
|
|
Profit
|
|
|
|
|
|
|
1,300
|
|
|
|
462
|
|
|
|
323
|
|
Adjustments for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax
|
|
|
|
|
|
|
480
|
|
|
|
198
|
|
|
|
209
|
|
Depreciation
|
|
|
10
|
|
|
|
82
|
|
|
|
85
|
|
|
|
80
|
|
Amortisation of acquired intangible assets
|
|
|
11
|
|
|
|
113
|
|
|
|
103
|
|
|
|
86
|
|
Amortisation of other intangible assets
|
|
|
11
|
|
|
|
51
|
|
|
|
44
|
|
|
|
30
|
|
Loss on sale of property, plant and equipment
|
|
|
|
|
|
|
3
|
|
|
|
2
|
|
|
|
1
|
|
Net finance costs
|
|
|
3,6
|
|
|
|
73
|
|
|
|
95
|
|
|
|
91
|
|
Share of results of joint ventures and associates
|
|
|
12
|
|
|
|
(41
|
)
|
|
|
(30
|
)
|
|
|
(25
|
)
|
(Profit)/loss on disposal of discontinued operations
|
|
|
3
|
|
|
|
(1,037
|
)
|
|
|
|
|
|
|
53
|
|
Loss on disposal
|
|
|
|
|
|
|
10
|
|
|
|
|
|
|
|
|
|
Acquisition costs
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
Net foreign exchange adjustment from transactions
|
|
|
|
|
|
|
(3
|
)
|
|
|
(14
|
)
|
|
|
105
|
|
Share-based payment costs
|
|
|
26
|
|
|
|
39
|
|
|
|
37
|
|
|
|
33
|
|
Pre-publication
|
|
|
|
|
|
|
29
|
|
|
|
(16
|
)
|
|
|
(58
|
)
|
Inventories
|
|
|
|
|
|
|
37
|
|
|
|
32
|
|
|
|
(12
|
)
|
Trade and other receivables
|
|
|
|
|
|
|
(82
|
)
|
|
|
(14
|
)
|
|
|
(81
|
)
|
Trade and other liabilities
|
|
|
|
|
|
|
165
|
|
|
|
103
|
|
|
|
82
|
|
Retirement benefit obligations
|
|
|
|
|
|
|
(64
|
)
|
|
|
(72
|
)
|
|
|
(14
|
)
|
Provisions for other liabilities and charges
|
|
|
|
|
|
|
3
|
|
|
|
(3
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from operations
|
|
|
|
|
|
|
1,169
|
|
|
|
1,012
|
|
|
|
894
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash generated from operations is translated at an exchange
rate approximating to the rate at the date of cash flow. The
difference between this rate and the average rate used to
translate profit gives rise to a currency adjustment in the
reconciliation between net profit and net cash generated from
operations. This adjustment reflects the timing difference
between recognition of profit and the related cash receipts or
payments.
Operating cash flow, operating free cash flow and total free
cash flow are non-GAAP measures and have been disclosed as they
are part of Pearsons corporate and operating measures.
F-67
Notes to
the Consolidated Financial Statements (Continued)
In the cash flow statement, proceeds from sale of property,
plant and equipment comprise:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
All figures in £ millions
|
|
|
Net book amount
|
|
|
3
|
|
|
|
3
|
|
|
|
3
|
|
Loss on sale of property, plant and equipment
|
|
|
(3
|
)
|
|
|
(2
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of property, plant and equipment
|
|
|
|
|
|
|
1
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal other non-cash transactions are movements in
finance lease obligations of £2m (2009: £8m; 2008:
£2m).
There are contingent Group liabilities that arise in the normal
course of business in respect of indemnities, warranties and
guarantees in relation to former subsidiaries and in respect of
guarantees in relation to subsidiaries, joint ventures and
associates. In addition there are contingent liabilities of the
Group in respect of legal claims and rights and royalty
agreements. None of these claims are expected to result in a
material gain or loss to the Group.
There were no commitments for capital expenditure contracted for
at the balance sheet date but not yet incurred.
The Group leases various offices and warehouses under
non-cancellable operating lease agreements. The leases have
varying terms and renewal rights. The Group also leases various
plant and equipment under operating lease agreements, also with
varying terms. The lease expenditure charged to the income
statement during the year is disclosed in note 4.
The future aggregate minimum lease payments in respect of
operating leases are as follows:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
All figures in
|
|
|
|
£ millions
|
|
|
Not later than one year
|
|
|
164
|
|
|
|
153
|
|
Later than one year and not later than two years
|
|
|
151
|
|
|
|
144
|
|
Later than two years and not later than three years
|
|
|
130
|
|
|
|
129
|
|
Later than three years and not later than four years
|
|
|
112
|
|
|
|
114
|
|
Later than four years and not later than five years
|
|
|
95
|
|
|
|
99
|
|
Later than five years
|
|
|
785
|
|
|
|
848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,437
|
|
|
|
1,487
|
|
|
|
|
|
|
|
|
|
|
|
|
34.
|
Related
party transactions
|
Joint ventures and associates Amounts
advanced to joint ventures and associates during the year and at
the balance sheet date are set out in note 12. There are no
material amounts falling due from joint ventures and associates.
Key management personnel Key
management personnel are deemed to be the members of the board
of directors of Pearson plc. It is this board which has
responsibility for planning, directing and controlling the
activities of the Group. Key management personnel compensation
is disclosed in the directors remuneration report.
There were no other material related party transactions.
No guarantees have been provided to related parties.
F-68
Notes to
the Consolidated Financial Statements (Continued)
|
|
35.
|
Events
after the balance sheet date
|
On 22 November 2010, the Group announced the proposed
acquisition of a 75% stake in CTI Education Group, a leading
South African education company for £31m. As at the end of
December 2010, this acquisition had not been completed but is
expected to complete in the first half of 2011.
On 18 January 2011, the Group announced that it had agreed
to increase its shareholding in TutorVista, the Bangalore based
tutoring services company, to a controlling 76% stake for a
consideration of $127m.
On 7 March 2011, the Group and Education Development
International plc (EDI) announced that they had reached
agreement on the terms of a recommended cash offer to be made by
Pearson for the entire issued share capital of EDI. The offer
values EDI at approximately £112.7m. EDI is a leading
provider of education and training qualifications and assessment
services, with a strong reputation for the use of information
technology to administer learning programmes and deliver
on-screen assessments.
SIGNATURES
The registrant hereby certifies that it meets the requirements
for filing on Form 20-F and that it has caused and authorized
the undersigned to sign this annual report on its behalf
Pearson plc
Robin Freestone
Chief Financial Officer
Date: March 25, 2011
F-69