annual report and accounts 2007 1 financial highlights 
record results in 2007
2 chairman’s statement
4 chief executive’s review
7 our business and society
8 business review
25 board of directors
26 directors’ report
33 additional information 
for shareholders
35 report on directors’ remuneration
50 consolidated income statement
50 consolidated statement of 
recognised income and expense
51 consolidated balance sheet
52 consolidated cash flow statement
53 independent auditors’ report 
to the members of pearson plc
54 notes to the consolidated 
financial statements
95 company statement of recognised 
income and expense
95 company balance sheet
96 company cash flow statement
97 notes to the company
financial statements
102 principal subsidiaries
103 five y ear summary
105 corporate and operating measures
107 index to the financial statements
108 shareholder information
notes
throughout this document 
unless otherwise stated
growth rates are stated on an
underlying basis ie excluding
currency movements and portfolio
changes the business performance
measures are nongaap measures 
and reconciliations to the equivalent
statutory heading under ifrs are
included in notes 2 8 and 32 to the
annual report dollar comparative
figures have been translated at the 
year end rate of 199£1 sterling 
for illustrative purposes only
reliance on this document
our business review on pages 8 to 24
has been prepared in accordance with
the directors’ report business review
requirements of section 234zzb of the
companies act 1985 it also
incorporates much of the guidance 
set out in the accounting standards
board’s reporting statement on the
operating and financial review
the intention of this document is to
provide information to shareholders and
is not designed to be relied upon by any
other party or for any other purpose
forwardlooking statements
this document contains forward
looking statements which are made 
by the directors in good faith based on
information available to them at the time
of approval of this report in particular
all statements that express forecasts
expectations and projections with
respect to future matters including
trends in results of operations margins
growth rates overall market trends the
impact of interest or exchange rates the 
availability of financing anticipated costs
savings and synergies and the execution
of pearsons strategy are forward
looking statements by their nature
forwardlooking statements involve risks
and uncertainties because they relate 
to events and depend on circumstances
that will occur in future there are a
number of factors which could cause
actual results and developments to differ
materially from those expressed or
implied by these forwardlooking
statements including a number of
factors outside pearsons control any
forwardlooking statements speak only
as of the date they are made and pearson
gives no undertaking to update forward
looking statements to reflect any changes
in its expectations with regard thereto or
any changes to events conditions or
circumstances on which any such
statement is based
pearson is a world leader in education business
information and consumer publishing we help children
and adults to learn business people to make good
decisions readers to enjoy a good book our aim is to
help all of them understand the world a little better and
enjoy doing it – what we call ‘education in the broadest
sense of the word’  
we’ve consistently grown the company by investing 
in content technology international expansion and
efficiency gains in 2007 that strategy and investment
focus produced the best results in pearson’s 164year
history – and helped millions of our customers 
get on in their lives 
contents financial highlights record results n 2007
1    pearson annual report and accounts 2007
adjusted earnings per share return on invested capital dividend 
467p  929¢ £684m  1361m 82 316p  629¢ 
8 19 02 pts  78 
2007 2006 
£m m £m m
headline
growth 
underlying
growth  
business performance 
sales 4218 8394 4051 8061 46
adjusted operating profit 634 1262 592 1178 714
adjusted profit before tax 549 1093 502 999 9–
adjusted earnings per share 467p 929¢ 431p 858¢ 8–
operating cash flow 684 1361 575 1144 19 –
operating free cash flow 533 1061 434 864 23 –
return on invested capital 82 – 80 – 02 pts 10 pts
net debt 973 1936 1059 2107 8 –
2007 2006 
£m £m m
headline
growth 
underlying
growth  
statutory results 
sales 4162 8282 3990 7940 4–
operating profit 574 1142 522 1039 10 –
profit before tax 468 931 448 892 4–
basic earnings per share 356p 708¢ 559p 1112¢ 36 –
basic earnings per share – 
continuing 390p 776¢ 527p 1049¢ 26 –
cash generated
from operations 659 1311 621 1236 6–
dividend per share 316p 629¢ 293p 583¢ 78 –
growth rates are stated on an underlying basis ie excluding currency movements and portfolio changes unless otherwise stated the business performance measures are nongaap measures and 
reconciliations to the equivalent statutory heading under ifrs are included in notes 2 8 and 32 to the annual report dollar comparative figures have been translated at the year end rate of 199£1 sterling for 
illustrative purposes only 
operating cash flow 
i
m chairman’s statement 
2    pearson annual report and accounts 2007 
 
 
dear shareholder 
our goal at pearson is to increase the value of your company for the 
long term 
so we look back on 2007 with somewhat mixed feelings pride in our 
financial and operational performance tempered by disappointment 
that we did not sustain the steady share price increases of recent years  
the results we describe in this report include record operating profits 
record earnings per share and record operating cash flow our return 
on invested capital – the ultimate test of whether we are generating a 
return on all the capital invested in the company – moved up to 82 
even as we made some significant acquisitions to extend the breadth 
and worldwide leadership of our education company  
i’d like to thank and congratulate everyone who works at pearson for 
their dedication and success in 2007 these are remarkable results – 
and all the more so because they were achieved against the headwind 
of a 9 decline in the value of the us dollar our principal trading 
currency against the pound 
but that performance brought little immediate reward in share price 
terms amid more turbulent market conditions than we have seen for 
some years the value of our shares declined by 5 that compares 
with a 4 increase in the ftse100 and a 1 decline in the ftse 
media index including our dividend our total return to shareholders 
was marginally negative at 2 so while we were producing those 
record results shareholder value was affected by a series of external 
factors – the dramatic downturn in credit markets the reaction  
of equity markets the further weakening of the us dollar the 
perceived cyclicality of the media sector in more uncertain 
macroeconomic conditions  
history tells us that bear markets can bring a silver lining for longterm 
investors – the chance to acquire quality companies at historically 
attractive multiples and yields we continue to believe that in the long 
term sustained growth in earnings cash and returns will be the most 
reliable way for pearson to increase shareholder value so let me 
highlight some of the indicators i find encouraging  
1 first of all our excellent results in 2007 were not a oneoff they 
build on a trend of consistently strong growth over the past five years 
our operating profit growth has averaged 15 each year at constant 
exchange rates our adjusted earnings per share growth has averaged 
14 and our operating cash flow has more than doubled to £684m   3    pearson annual report and accounts 2007
2 second that track record is the result of an effective organic  
growth strategy that is to invest behind our worldleading market 
positions building on the content technology and international 
growth opportunities of each one of our companies at the same time 
as we make the business more efficient  
3 third we can see that strategy paying off in every part of pearson  
it is particularly pleasing to see substantial profit growth at penguin 
up 20 and ft publishing up 85 adding to the consistent 
upward trends at pearson education up 9 and interactive data  
up 13 
4 fourth we are steadily shifting capital towards our most attractive 
growth opportunities we began the year by selling our government 
solutions business and continued with a series of disposals of 
companies that we viewed as no longer central to our longterm 
strategy they included les echos in france and early in 2008  
ft deutschland and our us data management scanners business 
meanwhile we acquired new companies that bring us hugely  
valuable content international reach and technology – the harcourt 
international education and educational testing companies and 
ecollege a pioneer in online distance learning  
5 fifth and at the heart of everything we do we made significant 
advances in the value we bring to our customers through our content 
technology and services there are many examples all around pearson 
– from the ft’s outstanding and indispensible coverage of the turmoil 
in global credit markets to penguin’s uncannily timely publication of 
alan greenspan’s memoirs to our education company’s pioneering 
use of technology to advance student success  
examples like those remind us that pearson plays a unique and 
valuable role in society thank you for making that possible 
we begin 2008 with a good strategy strong businesses and healthy 
trading momentum we are certainly living through a more uncertain 
economic environment and more nervous stock markets our focus 
will be on serving our customers building our business and producing 
consistent financial progress in the belief that those over the long 
term are the surest path to value creation  
as always i look forward to seeing as many of you as possible at our 
annual shareholders’ meeting 
glen moreno chairman chief executive’s review 
4    pearson annual report and accounts 2007
dear shareholder 
this year just as last year pearson’s results are a record i’m sure i 
don’t have to tell you that they’re due to the ingenuity and dedication 
of the 32000 people who work in pearson nearly all of whom are 
owners of this company just like you we all thank you for the trust 
and confidence you’ve placed in us by investing in the company  
we’re proud of the numbers in this report but they signify something 
more than one good year they’re a trend – one more point on a 
consistent upward march that makes them not just a footnote to  
the past but a source of confidence in the future  
our last five years make the point 
– operating profit has increased from £416m to £631m at an annual 
growth rate of 15 at constant exchange rates 
– adjusted earnings per share are up from 276p to 467p an annual 
rate of 14 
– we have more than doubled the cash we produce from operations 
from £318m to £684m 
– the return we make on the capital we invest is up from 6  
to 82 and now above our cost of that capital 
– and we have increased the dividend by an average of 6 each year 
in fact our record of increasing the dividend above the rate of 
inflation is now an unbroken 16 years 
i hope the consistency is reassuring to you it’s encouraging to the 
shareholders who work here because it validates much of the work 
we’ve done to change the company we had a few goals in mind as we 
did that we wanted to make pearson a cohesive company rather than 
a collection of companies a company of reliable and durable financial 
performance a company with big growth possibilities and a leader 
and innovator in its markets  
while we’ve made great progress toward those goals we’re still on the 
move in that same direction we don’t see any reason to slow down 
and the success so far just makes us want to move faster with a strategy 
that’s working well 
that strategy has four parts  
– creating the most compelling content  
– using technology to make our products more useful and  
more valuable 
– being a truly international company and 
– generating the firepower through efficiency to invest in those goals 
we apply that same strategy across all parts of pearson i hope those 
numbers tell you that it’s working but i’d like to show you how with 
some highlights from this past year 
content dethroned 
people in the media world used to assert that ‘content is king’  
today many experts would have you believe that technology  
has staged a bloody coup and taken the throne 
pearson is still in the court somewhere in the middle we’re happy 
with our rich history as a ‘content’ company which stretches back to 
the first longman english dictionary of 1725 the forerunners of the 
current financial times in the late 19th century and the first penguin 
paperbacks in the 1930s but today our challenge is to live up to the 
creative standards of those illustrious predecessors and at the same 
time to make what we do relevant and useful to our customers of 
today that brings a slightly different attitude toward ‘content’ and 
what we should be doing with it  
467p
431p
275p
276p
341p
adjusted earnings per share
8
467p  929¢
£634m
£592m
£426m
£447m
£506m
adjusted operating profit
14
£634m  1262m
£684m
£575m
£418m
£318m
£570m
operating cash flow
19
£684m  1361m
82
80
62
60
67
return on invested capital
02 pts
82
 underlying growth 
 as reported before restatement for tax deductibility of goodwill amortisation 
our investment in content has been steady and unrelenting even 
when that has been out of fashion in each of the past four years that 
investment has topped 1bn 
we sustained our investment in journalism at the financial times
even when it was making losses during a savage advertising downturn 
we believed that a brand built on quality for over a century should 
sustain its editorial values – and weather the shortterm consequences 
and it has profits at ft publishing were up 85 to £56 million last year  
at the newspaper and ftcom our depth of insight in the financial 
markets made us the place to come for news and analysis of the 
mortgage crisis and the global credit crunch the biggest business story 
in years we refreshed our design and we introduced to our readers  
a stable of new writers all its wonderful content earned the ft many 
accolades from the newspaper of the year title to the biggest accolade 
of all a growing audience of readers in print and online 
penguin the uk’s publisher of the year made bestsellers of some of the 
books by the world’s bestknown authors and thinkers – and created 
some new superstars along the way  
– just as the world was waking up to that global credit crunch alan 
greenspan’s the age of turbulence came out and was snapped up 
by one million buyers – and bemused investors – all over the world  
– no one has done more to explain life in afghanistan than khaled 
hosseini who followed up the kite runner with another 
wonderful story a thousand splendid suns this past year  
– and kim edwards’ first novel the memory keeper’s daughter was 
a bestseller in the us canada australia and the uk and a story 
that will stick with us for a long time 
03
0
05
0
0
4
6
7
03
0
05
0
0
4
6
7
03
0
05
0
0
4
6
7
03
0
05
0
0
4
6
7 5    pearson annual report and accounts 2007
our largest investment of all was in our education business here our 
bestsellers might be a little less famous than those in penguin but they 
are no less valuable to their readers for instance we had a new edition 
of reading street last year’s leading programme for america’s 
elementary school students it helps teachers lay a foundation  
of reading skills and we hope inspires children to love reading all  
their lives
we also extended our programmes that help people of all ages learn 
english enrolling such familiar characters as donald duck and buzz 
lightyear in the effort through our worldwide elementary school 
programme english adventure now used in 60 countries from 
argentina to yemen   
we extended and modernised many of the bestsellers that have  
been central to the learning and understanding of each generation of 
college students in subjects from ancient history to computer science 
fundamentals of biology to applied healthcare mathematics to 
accounting and finance creative writing to literature social science  
to marketing  
and with our acquisition of harcourt’s assessment and testing 
business we took on some of the most popular and reliable 
assessments of educational skills and intellectual progress among them 
the stanford achievement test and the wechsler intelligence scale 
technology made central 
proud as we are of that kind of content for some years now we’ve 
insisted that it is not enough today our customers expect products 
and services that are built to meet their needs and easy to use  
our education customers for example are asking for ‘solutions’  
not textbooks technology helps us create those 
for decades the endofterm or endofyear test has come too late for 
too many students if a test can establish how each child is learning 
and pinpoint where he might be falling behind why would anyone 
wait until the end of the course to check shouldn’t the teacher take 
that information along the way analyse it and use it to accelerate the 
student’s learning 
that is precisely the ‘solution’ that has been our strategy and a new 
generation of our education products provide that for college 
students our ‘mylabs’ are online programmes that allow each
student to practice new concepts at their own pace in their own time 
the software records their responses to practice test questions and 
intervenes if a student shows he’s mastered one kind of problem he 
moves on quickly if he seems to be struggling we slow him down 
serve up more practice and help him discover strategies to find the 
right answers in educational jargon this is known as ‘adaptive 
learning’ the path to learning is built around the student 
not surprisingly demand for these kinds of services is growing very 
fast we now cover about 40 of the main disciplines for universitylevel 
courses and students who buy the programmes are really using it – 
usage has grown 50 a year for the past five years and we believe the 
opportunity is a worldwide one these mylabs are now available in 
more than 50 countries 
and that kind of service is valuable to younger students too in 2006 
we unveiled a revolutionary new kind of school programme for 
california a digital service allowing teachers to fashion their lessons 
from a rich mix of video audio class exercises tests and digital books 
that social studies programme was a huge hit so this year we’ve 
applied a similar approach to mathematics one of the biggest and 
most important subjects in any country’s school curriculum this new 
programme envisionmath blends beautiful graphics animation  
and text to get young children inspired about learning maths it’s a 
little too early to know how this new experiment will fare – but so far 
the teachers are excited and that means we are too 
digital products like these now account for 13bn or about 25  
of our total education sales today pearson is a technology company 
as much as we are an ‘education’ or ‘publishing’ or ‘media’ company 
those kinds of changes are taking place at penguin too travel guides 
for example are still much in demand but technology now allows 
travellers to create their own customised travel guides with dorling 
kindersley material  
and last year we created what we like to refer to as ‘the most written 
novel in history’ a wikinovel called a million penguins that attracted 
online contributions from nearly 1500 people – who made over 
11000 edits in britain a new penguin social networking site called 
‘spinebreakers’ is run by teenagers and it’s not only inspiring them to 
read books and write about books it’s helping penguin to get a deeper 
understanding of the reading habits of young people 
perhaps helped along by these kinds of conversations online sales of 
penguin books grew rapidly last year through both our own websites 
and other online retailers such as amazon 
in the financial times group great content was not confined to pink 
paper we started new features on ftcom like our live markets blog 
alphaville and ‘view from the top’ a regular video interview with 
business leaders monthly unique users of ftcom were up 30 with 
a 2007 average of 57 million users 
interactive data our financial information company grew its sales by 
8 as it introduced new services – for example delivering information 
about mergers tender offers and rights offerings for securities 
throughout the day meanwhile our new addition mergermarket 
provided musthave intelligence about potential deals for companies 
bankers lawyers and advisers its revenue grew by more than half and 
more than 90 of its customers renewed their subscriptions  
and to that online library of sources the ft group added new 
companies – moneymedia for the fund management market and 
execappointments in the recruitment field these moves have not 
only given us new growth possibilities they’ve also diversified our 
revenues away from print advertising notoriously vulnerable to 
economic cycles in 2000 some 52 of the ft group’s revenue was 
from advertising now it has just 30 even though its advertising has 
grown in the last few years  
flatter and wiser 
content and technology are big opportunities for us and we’re 
pursuing them intently but for a company that is the world leader  
in learning and information of all kinds from kindergarten children  
to adults there may be a bigger opportunity still 
while developing countries are home to 80 of the world’s 
population only half the world’s college students come from those 
nations globally adult illiteracy is estimated at around 800 million 
people and about half the world’s population will be speaking or 
learning english – the global language of business and international 
politics – over the next decade  
so in every part of pearson we’re stepping up our efforts to be a truly 
international company  chief executive’s review continued
6    pearson annual report and accounts 2007
at penguin we’re publishing more books on a worldwide basis at the 
same time as we build our presence in fastgrowing markets like india 
china and parts of africa last year penguin announced plans to 
publish its first penguin classics in mandarin meanwhile we’ve taken 
jiang rong’s wolf totem – a huge bestseller in china and the winner of 
the inaugural man booker asian literary prize – and we’re publishing 
it in english around the world this year  
during our celebration of penguin’s 20th anniversary in india last 
year we agreed on a strategy to invest heavily in that country as a 
vibrant source of writing talent and as a centre for highquality 
publishing services like design technology and software development 
many of which we already use in our business around the world 
this kind of international outlook features heavily on every page of the 
financial times its whole mission in life is international to explain 
and illuminate business finance and politics in a global context  
that attitude sets the ft apart both editorially and commercially  
in circulation last year the us overtook the uk as the ft’s biggest 
single market i know of only one other newspaper anywhere in the 
world the economist which has achieved the feat of selling more 
copies outside its home market than inside in advertising we are 
providing global companies the ability to talk to the world’s senior 
decisionmakers in business and politics on a worldwide basis – and 
that’s a valuable niche that explains the consistent increase in the  
ft’s advertising for each of the past three years  
in education we have steadily grown the sales and profits of our 
international meaning nonus businesses we’ve had particular 
success in english language teaching through the worldfamous 
longman brand in investing in local editions of our major textbook 
programmes for school college and professional students in school 
testing in the uk through edexcel and in professional qualifications 
and testing worldwide and in digital programmes  
this past year we accelerated that strategy through the acquisition of 
the harcourt international education businesses that makes us the 
leading school publishing company in the uk and it extends our 
strong positions in key markets including australia new zealand  
and south africa 
meanwhile ecollege our recentlyacquired online distance learning 
company has a big opportunity to become international now that  
it is a part of our worldwide education business 
altogether our education businesses outside america had sales of 
close to 2bn this past year – and we believe the worldwide demand  
for skills and learning can keep pushing that number higher 
leaner and stronger 
we have the firepower to do all this – invest in highquality content 
innovative technology and international expansion – for one reason 
pearson has become much more efficient in the way we do business 
because we’ve become a cohesive company   
today we have a strong centralised operations structure in charge  
of quality and efficiency in a whole range of centrallypurchased  
and administered services across technology property warehousing 
distribution printing and many other areas in some markets our 
book publishing companies operate as one business in almost every 
one they now share warehouses and distribution and anything else 
they can  
so while sales growth was strong last year up an underlying 6 
increased efficiency meant that profit growth was especially rapid up 
14 with excellent results across all our businesses on an underlying 
basis adjusted operating profit rose 9 in education 20 at penguin 
and 30 at the ft group  
our overall profit margin increased last year to 15 – from 108  
just three years ago – reflecting broad margin improvement across 
every business 
and by reducing the cash that’s tied up in our businesses we lowered 
our working capitaltosales ratio for the sixth straight year to 256 
last year – compared to 319 in 2001 
the numbers and more 
our goal has been to create a kind of virtuous circle – to take those 
efficiency savings and to invest them in the kind of content technology 
and international expansion that can sustain our growth so far that 
circle is spinning nicely and we’re determined to move it faster  
but as we’ve said many times before our goal as a company goes 
beyond those financial targets as crucial as they are to our continued 
progress in a company like ours our profits endure and grow as the 
result of our seeing the broader picture – working for a broader 
purpose than profits whether that is helping a child learn to read 
helping a teacher inspire her class helping a business person 
understand the markets and make good decisions about them  
helping a professional move on in his career helping a talented  
writer to find her voice and her audience helping people make 
progress in their lives
we’re extremely proud of what we accomplished in 2007 in 
improving both our financial performance and our customers’ lives 
and we’re confident that the steps we took last year to bolster all our 
strategies will yield even more in 2008 that is the kind of progress we 
can all look forward to celebrating 
marjorie scardino chief executive our business and society 
7    pearson annual report and accounts 2007
welcome to our report on ‘business in society’ for 2007  
as marjorie describes in her review as an education and information 
company almost all our products and services help our customers 
succeed and get on in their lives whether it’s through formal education 
lifelong learning or intellectual stimulation our goal is simple to be  
a socially responsible company that has a positive impact on society  
each year we set out targets to help us focus on the way we impact  
on society across the company and across the world here you can  
see how we performed against these targets last year and our new  
ones for 2008 there were several particular highlights in 2007  
we are rapidly increasing our commitment to digital products and 
services – nowhere more so than in our education business where  
we lead our industry in developing new ‘adaptive learning’ products 
which use interactive technology to zero in on the needs of individuals 
these services can deliver significant learning gains and help schools 
and colleges to be even more responsive to their students  
we made good progress towards our aim of becoming climate neutral 
across all of our operations by the end of 2009 of course there is still  
a lot more to do and the innovative use of technology will play an 
important part in helping us reach our goal  
our targets for 2007 
maintain our position in the key indices of social 
responsibility achieved 
expand the environmentally friendly book 
packaging options to distribution centres outside our 
key markets of the us and uk ongoing 
continue our environmental and labour standards 
auditing programme with our printers in asia the 
far east and parts of continental europe achieved 
continue to advance our programme for 
independent certification of the paper we purchase 
for our books and newspapers achieved 
continue the process of becoming a climate neutral 
company with a view to completing that process 
globally by the end of 2009 ongoing 
continue our commitment to build a truly 
international business by helping more of our  
people experience a new country on a shortterm 
assignment with our developing markets as priority ongoing 
show evidence of progress in retention of people 
with diverse backgrounds for both entry level and 
management positions ongoing 
launch the pearson foundation development fund 
to support our businesses in their work with
communitybased programmes around the world achieved 
work with the uk government to extend our  
flagship community programme booktime  
build on the success of read for the record with 
jumpstart in the us achieved 
it is central to our strategy that we should become a more international 
and more diverse organisation we have stepped up our efforts to 
achieve this – launching for example a new development programme 
to swap people between our companies and between countries 
primarily on shortterm assignments 
the pearson foundation continued its work partnering with leading 
businesses and notforprofit organisations to support education and 
literacy across the globe the ft’s seasonal campaign once again raised 
money for the charity camfed with readers and staff donating over 
£16m for the charity which is dedicated to providing better 
educational opportunities for girls across africa we extended our 
booktime programme in the uk to encourage adults and children  
to read together and again helped set a new world record with 
jumpstart’s read for the record campaign in the us we were also 
awarded a big tick by the uk’s business in the community – an 
award of excellence which recognises companies’ social impact and  
in pearson’s case the use of technology to transform student learning 
you can find further details about these and our other activities  
online in our full csr report at 
wwwpearsoncomcommunitycsrreport2007 
we welcome any comments or suggestions you have which can be 
sent to me at davidbellpearsoncom  
our plans for 2008 
maintain our position in the key indices of social responsibility 
expand our individual company environmental committees into our  
us and other businesses directly involving many more of our people  
continue our environmental and labour standards auditing programme 
revisiting our printers in asia north america and parts of europe 
continue the process of becoming a climate neutral company with a view  
to completing that process globally by the end of 2009 
audit the social and environmental policies and impact of companies 
acquired in 2007 and set out plans to integrate them into pearson’s 
framework for corporate responsibility 
accelerate our commitment to build a truly international business by 
helping more of our people experience a new country on a shortterm 
assignment with our developing markets as a priority  
show evidence of progress in retention of people with diverse backgrounds 
for both entry level and management positions 
launch the pearson international education summit bringing  
together global education leaders to identify and share exemplary 
educational practices 
use the pearson foundation development fund to work with our 
businesses in africa india and asia to provide training and support for local 
teachers in developing communities 
build on the success of our ongoing booktime and read for the record 
campaigns to showcase the importance of early reading for young
people everywhere 
david bell director for people business review 
8    pearson annual report and accounts 2007
about pearson 
pearson is an international media and education company with  
worldleading businesses in education business information and 
consumer publishing  
we create and manage intellectual property which we promote and 
sell to our customers under wellknown 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 administration and processing to teacher development and  
school software 
though we operate in countries around the world today our largest
markets are the us 59 of sales and europe 26 of sales on a 
continuing basis 
our businesses 
pearson consists of three major worldwide businesses 
pearson education is the world’s leading education company we are  
a leading publisher of textbooks supplementary learning materials  
and electronic education programmes for teachers and students of  
all ages and we play a major role in the testing and certification of 
school students and professionals pearson education operates 
through three worldwide segments serving school higher education 
and professional markets  
the financial times group is a leading provider of international 
business and financial news data comment and analysis in print  
and online it has two major parts 
– ft publishing includes the financial times and ftcom one of  
the world’s premier sources of business information alongside a 
portfolio of financial magazines it also includes an online financial 
information business mergermarket which provides early stage 
intelligence to financial institutions and corporates as well as 
several joint ventures and associates including 50 of both the 
economist group and the ftse index business 
– interactive data provides specialist financial data to financial 
institutions and retail investors pearson owns a 62 interest in 
interactive data which is publicly listed on the new york stock 
exchange nyseidc 
the penguin group is one of the world’s foremost english language 
publishers we publish the works of many authors in an extensive 
portfolio of fiction nonfiction and reference titles under imprints 
including penguin hamish hamilton putnam berkley viking and 
dorling kindersley 
our strategy 
over the past decade we have transformed pearson by focusing on 
companies which provide ‘education’ in the broadest sense of the 
word companies that educate inform and entertain through a 
combination of organic investment and acquisitions we have built 
each one of our businesses into a leader in its market and have 
integrated our operations so that our businesses can share assets 
brands processes facilities technology and central services 
our goal is to produce sustainable growth on our three key financial 
measures – adjusted earnings per share cash flow and return on 
invested capital – which we believe are together good indicators  
that we are building the longterm value of pearson 
we do this by investing consistently in four areas which are common 
to all our businesses 
– content we invest steadily in unique valuable publishing  
content and keep replenishing it over the past five years for 
example we have invested 17bn in new content in our education 
business alone 
– technology and services we invested early and consistently in 
technology believing that in the digital world content alone would 
not be enough we now generate more than 1bn in sales from 
technology products and services and our testing and assessment 
businesses serving school students and professionals make more 
than 12bn of sales up from around 200m eight years ago 
– international markets though we currently generate around 60 
of our sales in the us our brands content and technologyplus
services models work around the world all parts of pearson are 
investing in selected emerging markets where the demand for 
information and education is growing particularly fast 
– efficiency we’ve invested to become a leaner more efficient 
company through savings in our individual businesses and through 
a strong centralised operations structure over the past three years 
we have increased our operating profit margins from 108 to 
150 and reduced average working capital as a percentage of sales 
in pearson education and penguin from 294 to 256 freeing 
up cash for further investment 
we believe this strategy can create a virtuous circle – efficiency 
investment market share gains and scale – which in turn can produce 
sustainable growth on our financial goals and the value of the 
company this strategy helped us to achieve another set of record 
results in 2007 
2007 financial overview 
pearson’s three key financial measures are adjusted earnings per share 
cash flow and return on invested capital in 2007 adjusted eps and 
cash flow reached record levels and we generated a further significant 
underlying improvement in return on invested capital 
in 2007 pearson’s sales increased by 6 to £42bn and adjusted operating 
profit by 14 to a record £634m every part of pearson contributed to 
this profit increase with adjusted operating profit at pearson education 
up 9 penguin up 20 and the ft group up 30 headline earnings 
per share were 467p up 8 and up 15 at constant currency  
growth rates are stated on an underlying basis excluding the impact 
of currency movements and portfolio changes in 2007 currency 
movements reduced adjusted sales by £228m adjusted operating 
profit by £37m and adjusted earnings per share by 27p whilst 
portfolio changes increased adjusted sales by £146m and adjusted 
operating profit by £22m 
we also produced record cash flows operating cash flow increased  
by 19 or £109m to £684m and operating free cash flow by £99m  
to £533m cash conversion was once again very strong at 108 of 
operating profit over the past three years the proportion of our 
profits converted to cash has averaged more than 100 the ratio  
of average working capital to sales at pearson education and penguin 
improved by a further 07 points to 256 our return on invested 
capital shows a headline increase of 02 points to 82 and a 10 
point underlying improvement 
statutory results show an increase of £52m in operating profit to 
£574m £522m in 2006 basic earnings per share for continuing 
businesses was 390p in 2007 against 527p in 2006 largely reflecting 
the absence of a 2006 tax credit net debt was £86m lower at £973m 
from £1059m in 2006 
60 9    pearson annual report and accounts 2007
the board is proposing a dividend increase of 78 to 316p subject  
to shareholder approval 2007 will be pearson’s 16th straight year of 
increasing our dividend above the rate of inflation 
during the year we announced the acquisition of harcourt 
assessment and harcourt education international from reed elsevier 
for 950m the transaction closed in several stages with the final stage 
completed in january 2008 following clearance by the us department 
of justice aside from the harcourt deal we also announced the 
acquisition of ecollege in 2007 a key provider of elearning and 
enrolment services to postsecondary education 
these two transactions extend pearson’s position as the world’s 
leading education company by adding new capabilities 
complementary products and further international reach 
in february 2008 pearson completed the sale of its data management 
business to m  f worldwide corp for 225m 
in december 2007 we completed the sale of les echos to lvmh
for€240m in cash in january 2008 we announced that we had 
these two transactions will allow us to focus the ft group on the 
worldwide expansion of the financial times and our digital financial 
information business 
note 
throughout this review we refer to a series of ‘key performance indicators’ alongside our key financial 
measures management uses these indicators to track performance on nonfinancial measures such as 
market share or growth relative to our industries 
pearson education overview  
pearson education is the world’s largest publisher of textbooks and 
online teaching materials it serves the growing demands of teachers 
students parents and professionals throughout the world for 
stimulating and effective education programmes in print and online  
in 2007 pearson education had sales of £2684m or 64 of pearson’s 
total of these £19bn 70 were generated in north america and 
£08bn 30 in the rest of the world pearson education generated 
64 of pearson’s operating profit 
pearson education competes with other publishers and creators of 
educational materials and services these competitors include large 
international companies such as mcgrawhill and houghton  
mifflin harcourt alongside smaller niche players that specialise  
in a particular academic discipline or focus on a learning technology 
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 
we report pearson education’s performance by the three worldwide 
market segments it serves school higher education and professional 
school overview 
our school business contains a unique mix of publishing testing and 
technology products which are increasingly integrated it generates 
around twothirds of its sales in the us  
in the us we publish high quality curriculum programmes for school 
students covering subjects such as reading literature maths science 
and social studies we publish under a range of wellknown imprints 
that include scott foresman in the elementary school market and 
prentice hall in secondary  
our school testing business is the leading provider of test 
development processing and scoring services to us states and the 
federal government processing some 40 million tests each year its 
capabilities will be further enhanced through the integration of the 
recently acquired harcourt assessment 
we are also the leading provider of electronic learning programmes  
for schools and of ‘student information systems’ technology which 
enables schools and districts to record and manage information about 
student attendance and performance  
in the us more than 90 of school funds come from state or local 
government with the remainder coming from federal sources  
the major customers of our school business are state education 
boards and local school districts  
restated to reflect the impact of the 2007 change in tax treatment of amortisation of goodwill 29p 
 underlying growth
agreed to sell our 50 stake in ft deutschland to gruner  jahr 
the transaction increases gruner  jahr’s stake to 100 and is  
expected to complete in the first quarter of 2008   business review continued 
10    pearson annual report and accounts 2007 
outside the us we publish school materials in local languages in a 
number of countries we are the world’s leading provider of english 
language teaching materials for children and adults published under 
the wellknown longman imprint we bolstered our position further 
in international markets through the recent acquisition of harcourt 
education international  
we are also a leading provider of testing assessment and qualification 
services our key markets outside the us include canada the uk 
australia new zealand italy spain south africa hong kong and the 
middle east 
school 2007 performance 
£ millions 2007 2006 
headline 
growth 
underlying 
growth 
sales 1537 1455 6 6 
adjusted operating profit 203 184 10 11 
 
continued share gains in school publishing 
– pearson us school publishing up 35 against industry growth of 
27 source association of american publishers as we benefit 
from our sustained investment in new basal programmes and 
innovative digital services  
– faster underlying growth in international school publishing with 
continued margin improvement 
– pearson takes a leading share of the new us adoption market 30 
of the total market and 31 where we competed 1 or 2 market 
share in reading maths science and social studies total 2007 new 
adoption opportunity of approximately 830m up from 670m  
in 2006  
– us school new adoption market expected to remain strong over 
the next three years estimated at 900m in 2008 860m in 2009 
and more than 1bn in 2010 in 2008 we are competing for around 
90 of the total new adoption opportunity  
– acquisition of harcourt international brings leading content for 
school and vocational customers in many markets including the 
uk south africa australia and new zealand transaction adds 
further scale to pearson’s international education businesses and 
accelerates the combination of educational content and innovative 
technology to personalise learning integration of the harcourt 
business is progressing well 
– major cross company global english maths and science projects 
launched with the aim of sharing assets expertise investment and 
technology across all major international markets 
– successful global elt publishing franchises in every major  
market segment – primary secondary adult business and exam 
preparation – drives strong growth worldwide sales of student 
editions of english adventure developed with disney top six 
million units in less than three years economist and ft branded 
courses also performing strongly with major launch of penguin 
readers planned for this year 
– strong performance from school publishing businesses in south 
africa and australia in italy integration of pearson paravia bruno 
mondadori complete producing integration savings margin 
improvement and market share gains strong organic growth in 
spanish language school publishing 
innovation in school technology 
– 13 product nominations in ten categories more than any other 
education company for the software and information industry 
association ‘codie’ awards the products include paseries the 
first formative assessment product designed to measure progress 
and forecast student growth toward state goals or grade level 
expectations pearson inform 41 a k12 data analysis and decision 
support tool powerschool premier a student information system 
that provides access to student information enabling datadriven 
decisions that enhance student learning and ecollege an on
demand distance learning platform 
– continued investment in digital programmes both for basal 
adoption and for special populations including novanet and 
successmaker prepublication expenditure for digital programmes 
growing as a proportion of total prepublication expenditure 
– envisionmath our new integrated printanddigital elementary 
maths programme and the next generation of our successful 
california social studies programme successfully launched  
for the 2008 adoption campaign in 2008 maths accounts for 
approximately onethird of the total new adoption opportunity  
strong growth and share gains in school testing 
– us school testing sales up in double digits after high single digit 
growth in 2006 benefiting from further contract wins market 
share gains and strength in online assessment 
– 25 million secure online tests delivered across 13 states during  
the year up from 14 million in 2006  
– acquisition of harcourt assessment complements our existing 
assessment business broadens our scale and reach in adjacent 
markets and creates new publishing and digital opportunities  
both in the us and around the world  
– in the uk we marked a total of 96 million gcse as and alevel 
exam scripts 46 million of which were marked onscreen 
resultsplus rolled out across the uk and internationally providing 
more than 2250 schools with secure online access to questionlevel 
examination performance data on exam results day for the first 
time more than 100000 students access their results online on 
results day for the first time  11    pearson annual report and accounts 2007 
 
 
higher education overview 
pearson 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 prentice hall 
addison wesley allyn  bacon and benjamin cummings  
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 fastgrowing custom publishing business which 
works with professors to produce textbooks and online resources 
specifically adapted for their particular course 
in 2007 our higher education business generated approximately  
77 of its sales in the us outside the us we adapt our textbooks and 
technology services for individual markets and we have a growing 
local publishing programme our key markets outside the us include 
canada the uk benelux mexico germany hong kong korea 
taiwan and malaysia 
higher education 2007 performance 
£ millions 2007 2006 
headline
growth 
underlying 
growth 
sales 793 795 – 5 
adjusted operating profit 161 161 – 5 
rapid growth in online learning and custom publishing 
– investment in established and new author franchises such as 
campbell’s biology kotler’s marketing management hubbard’s 
economics and cicarrelli’s psychology continues to underpin the 
strong performance of our higher education business 
– ‘mylab’ digital homework and assessment programmes launched 
in 22 new subject disciplines in 2007 increasing the total number  
of disciplines covered to 38 these programmes support over 2000 
textbooks and were used globally by 29 million students in 2007 
up more than 30 on 2006 evaluation studies show that the use 
of the mylab programmes can significantly improve student test 
scores and instructional productivity  
– in corporate finance one of the largest global markets in business 
education pearson publishes the successful first edition bestseller 
berkdemarzo’s corporate finance together with myfinancelab 
pearson’s market share increases from 4 to 11 in the us and 
from 39 to 48 in the uk it is the most successful launch of a 
first edition in this discipline in more than a decade and one of 
pearson’s most successful global launches ever winning university 
adoptions in 22 countries in world history the first edition of 
fernandezarmesto’s the world a history with myhistorylab 
increases pearson’s market share from 25 to 35  
– acquisition of ecollege builds pearson’s position as an education 
services provider ecollege works with partner educational 
institutions to design build and support online degree certificate 
diploma and professional development programmes student 
enrolments increase 44 in 2007 to 19 million ecollege broadens 
pearson’s services to academic institutions pearson’s scale and 
reach enable ecollege to access new customers in the school  
postsecondary and professionalvocational markets both in the  
us and worldwide 
– pearson is the largest publisher on coursesmartcom a joint 
venture of the largest us education textbook publishers with over 
2500 titles coursesmartcom provides cost effective ebooks to 
students and timeefficient review of textbooks for professors 
– continued strong double digit growth in our custom solutions 
business – which builds customised textbooks and online services 
and has become a leader in the creation of courseware and 
curriculum for elearning institutions 
good progress in international markets 
– in europe good revenue growth and strong margin improvement 
as organic and acquisition investment in international education 
continues to bear fruit particular areas of strength included local 
language editions of our major authors and custom publishing 
including the successful launch of ‘local language’ science 
publishing in germany  business review continued 
12    pearson annual report and accounts 2007 
– major programme of adaptingversioning ‘mylab’ and  
‘mastering’ technology platforms for international markets  
mylab programmes now being used internationally in almost  
50 countries with almost 160000 student registrations for online 
courses in europe the middle east and africa  
 
professional overview 
our professional education business publishes educational materials 
and provides testing and qualifications services for adults our 
publishing imprints include addison wesley professional prentice 
hall ptr cisco press for it professionals peachpit press and new 
riders press for graphics and design professionals quesams 
consumer and professional imprint and prentice hall financial 
times and wharton school publishing for the business education 
market  
we have a fastgrowing professional testing business pearson vue 
which manages major longterm contracts to provide qualification  
and assessment services through its network of test centres around  
the world key customers include major technology companies the 
graduate management admissions council and the uk’s driving 
standards agency  
professional 2007 performance 
£ millions 2007 2006 
headline 
growth 
underlying 
growth 
sales 354 341 4 9 
adjusted operating profit 40 38 5 11 
excludes government solutions and includes data management 
– with the sale of government solutions in 2007 and data 
management in 2008 our professional business is focused on 
publishing for professionals in business and technology and  
on testing and certifying adults to be professionals 
professional testing rapid organic sales and profit growth  
– professional testing sales up 14 in 2007 approximately  
58 million secure online tests delivered in more than 5000 test 
centres worldwide in 2007 
– strong margin improvement as test volumes rise driven by higher 
demand from existing customers such as gmac for business 
school applicants nclex for nurses and the dsadvta 
driving theory test good new contract performance including the 
american board of internal medicine and the national association 
boards of pharmacy and strong renewals including the institute  
of financial services and the american registry of radiological 
technologists 
professional publishing good sales growth and further margin 
improvement 
– technology publishing achieves good sales growth and significantly 
improves profitability benefiting from a focused and refreshed 
front list a favourable software release schedule and safari books 
online our electronic publishing platform a joint venture with 
o’reilly media scott kelby a peachpit author is the topselling 
us computer book author for the fourth consecutive year with 
titles including the ipod book the digital photography book and 
the adobe photoshop lightroom book for digital photographers  
– strong performance in europe helped by success of publishing for 
the new windows vista launch a new partnership with microsoft 
press in the netherlands and a successful move into digital 
publishing and training in germany 
– strong performance from business imprints wharton school 
publishing and ftpress aided by pearson’s global distribution and 
strong retail relationships wharton school publishing recognised 
on the amazoncom best business books of 2007 with we are 
smarter than me how to unleash the power of crowds in your 
business by barry libert and jon spector and firms of endearment 
how worldclass companies profit from passion and purpose by 
rajendra s sisodia david b wolfe and jaqdish n sheth 
data management sale completed 22 february 2008 
– sale of data management to m  f worldwide corp for 225m 
data management contributed 112m of sales and 25m of 
operating profit to pearson in 2007 
financial times group overview 
the ft group provides a broad range of data analysis and services to 
an audience of internationallyminded business people and financial 
institutions in 2007 the ft group had sales of £688m or 16 of 
pearson’s total sales 15 in 2006 and contributed 24 of pearson’s 
operating profit  
it has two major parts ft publishing a combination of the financial 
times ftcom and a portfolio of financial magazines and online 
financial information companies and interactive data our 62
owned financial information company  
ft publishing competes with newspapers and other information 
sources such as the wall street journal by offering timely and expert 
journalism 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  
interactive data competes with bloomberg reuters and thomson 
financial on a global basis for the provision of financial data to  
the back office financial institutions in europe telekurs is also a 
direct competitor for these services smaller more specialised vendors 
also compete with interactive data in certain market segments and  
in certain geographic areas  13    pearson annual report and accounts 2007 
 
 
 underlying growth 
 
ft publishing 
the financial times is the world’s leading international daily business 
newspaper its six month average circulation of approximately 440000 
copies at december 2007 is split between the uk 31 of circulation 
europe middle east and africa 29 the us 30 asia 10 its 
main sources of revenue are from sales of the newspaper advertising  
and conferences  
the ft also sells content and advertising online through ftcom 
which charges subscribers for detailed industry news comment and 
analysis while providing general news and market data to a wider 
audience the new ftcom access model was successfully introduced 
in 2007 and is based on frequency of use and is intended to drive usage 
and accelerate advertising growth while providing greater value and 
services to its premium paying customers 
ft publishing also includes ft business which publishes specialist 
information on the retail personal and institutional finance industries 
through titles including investors chronicle money management 
financial adviser the banker and mergermarket our online financial 
data and intelligence provider  
mergermarket provides early stage proprietary intelligence to financial 
institutions and corporates its key products include mergermarket 
debtwire dealreporter wealthmonitor and pharmawire which was 
launched in 2007 
ft publishing joint ventures and associates 
our joint ventures and associates include 
– 50 interest in the economist group publisher of the world’s 
leading weekly business and current affairs magazine 
– 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 
– 50 interest in business day and financial mail publishers  
of south africa’s leading business newspaper and magazine 
– 33 interest in vedomosti a leading russian business newspaper 
– 14 interest in business standard one of india’s leading business 
newspapers 
interactive data 
interactive data is a leading global provider of financial market data 
analytics and related services to financial institutions active traders  
and individual investors the company’s customers use its offerings  
to support their portfolio management and valuation research and 
analysis trading sales and marketing and client service activities 
interactive data’s four businesses provide a range of enterprisewide 
services including  
pricing and reference data supplying global securities pricing 
evaluations and reference data for more than 35 million securities 
traded around the world including hardtovalue instruments  
realtime services providing realtime global market data and 
managed solutions to financial institutions redistributors and online 
financial portals worldwide services range from a consolidated low
latency data feed to tools for building managing and hosting 
customised applications  
fixed income analytics providing fixed income portfolio analytics  
in north america and europe  
desktop solutions esignal through its esignal division interactive 
data’s esignal provides global realtime market data and decision 
support tools to active investors and professionals worldwide  
ft group 2007 performance 
£ millions 2007 2006 
headline
growth 
underlying
growth 
sales     
ft publishing 344 280 23 12 
interactive data 344 332 4 8 
total 688 612 12 10 
adjusted operating profit     
ft publishing 56 27 107 85 
interactive data 97 89 9 13 
total 153 116 32 30 
note excludes les echos sold in december 2007 
great publishing continued growth and significant margin improvement 
– ft publishing revenues up 12 advertising revenues up 10 
with operating profit more than doubling to £56m in  
headline terms 
– outstanding year at the financial times 
– ft newspaper circulation up 2 to almost 440000 for the  
julydecember 2007 abc period with a 19 increase  
in subscriptions 
– digital subscribers to the ft up 13 to 101000 monthly 
unique users up 30 to 57 million monthly page views up 33  
to 482 million 
– ftcom attracts 150000 new registered users since launch of its 
innovative new access model in october 2007 strong growth 
continues in the early part of 2008  
– ft named newspaper of the year at the 2007 what the papers  
say awards  
– strong trading performance at ft business as integration with  
the ft newspaper helps to generate additional revenue and  
reduce costs 
– the economist in which pearson owns a 50 stake increases  
its circulation by 9 to 13 million for the julydecember 2007  
abc period 
continued shift towards global digital businesses and subscription 
revenues 
– strong contribution from mergermarket rapid revenue growth 
with 90 subscription renewal rates and a series of new product 
launches around the world including pharmawire debtwire in  
asia pacific and dealreporter in emerging europe middle east  
and africa  business review continued
14    pearson annual report and accounts 2007
– ftse in which pearson owns a 50 stake achieves double digit 
sales growth benefiting from a strong new business performance  
a joint venture with xinhua finance in china and strong growth  
in exchange traded fund etf licenses 
– several small acquisitions of complementary subscriptionbased 
and digital businesses 
– infinata a provider of research and business information to  
life science and financial services companies the company’s 
products which include biopharm insight and hnw insight 
provide clients with comprehensive timely information used  
to make strategic and tactical business decisions 
– execappointments a wellestablished global job site that 
focuses on the highearning executive sector with approximately 
200000 registered executive users 
– moneymedia acquired in january 2008 a provider of must
have news and analysis via email and websites to us mutual 
fund managers institutional investors high networth 
individuals company directors and advisers approximately 
twothirds of moneymedia’s revenues were generated through 
subscriptions with close to 90 renewal rates 
– sale of les echos to lvmh for €240m £174m completed in 
december 2007  
– sale of 50 stake in ft deutschland to gruner  jahr announced 
in january 2008  
interactive data 
strong sales momentum 
– underlying sales growth of 8 driven primarily by strong sales  
to both existing and new institutional customers and a renewal rate 
of approximately 95 within the institutional services segment 
– strong new sales momentum in q4 2007 further supported 
activities to realign the company’s two largest institutional 
businesses under a single management structure 
continued focus on high value services 
– pricing and reference data continues to generate good growth  
in north america and europe the business continues to broaden 
its coverage of complex securities by expanding its universe  
of european assetbacked and mortgagebacked securities  
the business also launched a new webbased offering the basket 
calculation service designed to provide clients with the indicative 
optimised portfolio value for equity and fixed income exchange 
traded funds  
– realtime services continues to achieve strong growth with new 
institutional sales in its two core product areas of realtime data 
feeds and managed solutions highlights include growing adoption 
of its plusfeed data service for algorithmic trading applications the 
introduction of directplus a new ultra low latency direct exchange 
data service and excellent sales momentum for managed solutions 
in north america with new customers including media companies 
online brokerages stock exchanges and financial institutions 
– fixed income analytics completed 30 new bondedge® installations 
during the year and made good progress in the development of its 
nextgeneration bondedge® platform 
– in the active trader services segment esignal experienced modest 
expansion of its direct subscriber base delivered numerous 
innovations across its suite of active trader services and added new 
content and capabilities on its financial websites 
– interactive data is listed on the new york stock exchange nyse 
idc and pearson owns a 62 stake interactive data’s 2007 results 
under us gaap are available at wwwpearsoncom
the penguin group overview 
penguin is one of the world’s premier english language book 
publishers we publish an extensive backlist and frontlist of titles 
including fiction and nonfiction literary prize winners commercial 
bestsellers classics and children’s titles we rank in the top three 
consumer publishers based upon sales in all major english speaking 
and related markets – the us the uk australia new zealand 
canada india and south africa 
penguin publishes under many imprints including in the adult 
market allen lane avery berkley dorling kindersley dk dutton 
hamish hamilton michael joseph plume putnam riverhead and 
viking our leading children’s imprints include puffin ladybird 
warne and grosset  dunlap  
in 2007 penguin had sales of £846m representing 20 of pearson’s 
total sales 21 in 2006 and contributed 12 of pearson’s operating 
profit its largest market is the us which generated around 55  
of penguin’s sales in 2007 the penguin group earns around 99  
of its revenues from the sale of hard cover and paperback books  
the balance comes primarily from audio books and ebooks  
ft publishing advertising
revenue growth
ft group key performance indicators
10
10
ft publishing’s year on year
advertising sales growth
07
06
ft average copy sales growth
1
2
the ft newspaper’s year on year
average growth in copy sales
abc
the ft’s year on year growth
in unique users of ftcom
 internal statistics
 this kpi now reflects advertising growth of ft publishing ft newspaper ftcom ft business  
 and ft chinese
the number of customers
renewing contracts as a percentage
of total customer base
07
06
ftcom unique user growth
13
30
07
06
07
06
interactive data customer retention
95
95 15    pearson annual report and accounts 2007 
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 amazoncom as well as penguin’s own website 
penguin competes with other publishers of fiction and nonfiction 
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 
 
 underlying growth 
 
the penguin group 2007 performance 
£ millions 2007 2006 
headline
growth 
underlying 
growth 
sales 846 848 – 3 
adjusted operating profit 74 66 12 20 
strong competitive performance in major markets 
– successful global publishing performance led by alan greenspan’s 
the age of turbulence with almost 1 million hard cover copies 
shipped to date worldwide and kim edwards’ first novel  
the memory keeper’s daughter a global 1 bestseller for penguin  
in the us uk australia and canada  
– outstanding year for bestsellers in the us with titles including 
elizabeth gilbert’s eat pray love 44 million copies shipped to 
date khaled hosseini’s a thousand splendid suns 22 million 
and ken follett’s world without end almost 1 million  
– uk bestsellers included marian keyes’ anybody out there jamie 
oliver’s jamie at home jeremy clarkson’s don’t stop me now and 
charlie higson’s double or die strong year for brands  licensing 
division driven by the dr who annual the second bestselling 
children’s book of 2007 and bestselling in the night garden titles  
– australia strong publishing from authors including bryce 
courtenay with the persimmon tree and dr manny noakes  
with csiro total wellbeing diet book 2 
– dk delivered a strong global performance in traditional custom 
and digital publishing benefiting from innovative formats 
including the human body book personalised travel guides  
via traveldkcom and the first dk textbooks for higher  
education markets 
rapid growth in emerging markets 
– india penguin india celebrated its 20th anniversary in 2007 with 
continued rapid growth penguin authors win all the major english 
language prizes in india’s national book awards vikram chandra 
in fiction for sacred games vikram seth in nonfiction for two 
lives and kiran desai in readers’ choice for the inheritance of loss  
– china jiang rong and howard goldblatt win inaugural man asian 
literary prize for wolf totem to be published in english around the 
world by penguin in 2008 
– south africa another strong year led by john van de ruit’s spud 
the madness continues 
innovation in print and online 
– rapid growth in sales through online retail and digital channels 
driven by innovative digital marketing initiatives and investment  
in ebooks with 5000 penguin titles currently available and digital 
content strong growth in online revenues and unique visitors to 
penguin and dk websites  
– continued innovation in formats including the pioneering us 
premium paperback and personalised ‘ondemand’ travel guides 
genres portfolio business imprint in india sales channels 
bestselling ebooks via online retailers and penguin’s own websites 
audio books via itunes and audible rough guides via motorola 
nokia and samsung phones and communications channels 
wwwspinebreakerscom an online community for teenagers  
– subscribers to penguin and dk optin newsletters building rapidly 
up 34 yearonyear to over 150000 allowing penguin consumers 
to personalise areas of interest and strengthening relationship with 
penguin brand 
continued focus on quality and efficiency 
– pearsonwide renegotiation of major global paper print and 
binding contracts continue to bring cost savings in 2007 
– further improvement expected in 2008 from ongoing management 
of production warehousing and distribution costs  
strong 2008 publishing schedule strong start to the year 
– strong list of new titles for 2008 from bestselling and new authors 
including patricia cornwell steve coll michael pollan jamie 
oliver marian keyes jeremy clarkson thomas friedman niall 
ferguson and the new james bond book from sebastian faulks 
– outstanding sales performance from eckhart tolle’s a new earth 
with 4 million copies shipped since its selection for oprah 
winfrey’s book club on 30 january first of ten online classes 
featuring eckhart tolle and oprah winfrey aired on 3 march 
07
06
  business review continued 
16    pearson annual report and accounts 2007 
pearson outlook 2008  
in recent years we have significantly changed the shape of pearson 
building and diversifying our education company shifting our 
financial information businesses towards recurring revenue streams 
and becoming more efficient through a centralised operations 
organisation these moves have made pearson a more profitable  
more cash generative and more resilient company and we expect  
to make further progress on our financial goals in 2008  
at this early stage our outlook for 2008 is 
– in education 64 of 2007 sales and operating profit we expect 
another year of good profit growth benefiting once again from  
the unique breadth of our education business – from preschool  
to adult learning across publishing testing and technology and in 
the us and around the world  
 in our school business integration of our recentlyacquired 
harcourt businesses is progressing well in 2008 we expect school 
margins to be similar to 2007 after expensing integration costs 
relating to the acquisition in 2009 we expect school margins to  
rise to around 15 as the majority of the integration costs fall  
away and as we realise the financial benefits of the acquisition  
 including the harcourt contribution we expect our school 
business to grow sales well into double digits in 2008 at constant 
currency excluding harcourt we expect underlying sales growth  
in the low single digits as us market growth of 34 is partly  
offset by our lower participation rate in new us adoptions and  
the conclusion of our uk key stage testing contract 
 in higher education we expect our underlying sales to grow in the 
mid single digits a little ahead of the industry we expect margins 
to be stable as we continue to invest in expanding our adaptive 
learning technologies and in taking our recentlyacquired ecollege 
platform into new segments and geographic markets  
 in professional we expect sales to increase in the low single digits in 
underlying terms with underlying margins improving once again  
– penguin 20 of sales 12 of operating profit expects to improve 
margins further and into double digits penguin’s good publishing 
and trading performance has continued into the early part of 2008 
– the financial times group 16 of sales 24 of operating profit 
expects to continue its profit growth we have substantially 
increased our digital and subscription revenues and reduced our 
exposure to print advertising in recent years in 2007 digital 
services accounted for 63 of ft group revenues compared with 
28 in 2000 advertising accounted for 30 of ft group revenues 
down from 52 in 2000 at ft publishing advertising revenues 
have continued to grow in the early part of the year but future 
advertising trends remain difficult to predict however as a result 
of our revenue diversification and cost actions we expect further 
profit improvement at ft publishing this year even without any 
growth in advertising revenues interactive data expects to achieve 
revenue growth in the 79 range and operating profit growth in 
the 911 range headline growth under us gaap 
group financial review 
operating result  
on a headline basis adjusted sales increased by £167m or 4 from 
£4051m to £4218m and total adjusted operating profit increased by 
£42m or 7 to £634m in 2007 from £592m in 2006  
adjusted sales include discontinued operations held throughout the 
current and previous year in 2007 the sales by our data management 
business have been included in adjusted sales adjusted operating 
profit excludes amortisation and adjustment of acquired intangibles 
but also includes the adjusted profits from discontinued operations  
statutory operating profit from continuing operations increased  
by £52m or 10 to £574m in 2007 from £522m in 2006  
the statutory operating profit includes the effect of increased 
intangible amortisation but does not reflect the decreased  
contribution from discontinued operations 
net finance costs  
£ millions 2007 2006 
net interest payable 95 94
finance income in respect of employee benefits 10 4 
net finance costs reflected in adjusted earnings 85 90
net foreign exchange lossesgains 17 19 
other losses 4 3
net finance costs 106 74
net finance costs reported in our adjusted earnings comprise net 
interest payable and net finance income relating to postretirement 
plans net interest payable in 2007 was £95m up from £94m in 2006 
although we were partly protected by our fixed rate policy a rise in 
average us dollar floating interest rates had an adverse effect year  
on year average three month libor weighted for the group’s 
borrowings in us dollars euros and sterling at each year end rose  
by 05 to 54 reflecting a rise in interest rates and a change in the 
currency mix of year end debt these two factors together with a 
decrease in the group’s average net debt of £90m increased the 
group’s average net interest rate payable by 03 to 73 the net 
finance income relating to postretirement plans rose by £6m in  
2007 resulting in an overall net finance cost reflected in adjusted 
earnings of £85m 
we expect our interest charge in 2008 to be similar to that in 2007 with 
the higher level of net debt following the completion of the harcourt 
transaction offset by strong cash generation and the recent proceeds 
from the disposals of les echos and data management we expect our 
pension credit will remain at a similar level to 2007 despite an upward 
revision of life expectancy assumptions  
also included in the statutory definition of net finance costs are foreign 
exchange and other gains and losses these are excluded from adjusted 
earnings as they represent shortterm fluctuations in market value and 
are subject to significant volatility other gains and losses may not be 
realised in due course as it is normally the intention to hold the related 
instruments to maturity net foreign exchange losses of £17m in 2007 
mainly relate to exchange losses on legacy euro denominated debt  
held to hedge the receipt of euro proceeds from the sale of les echos  
a corresponding gain is included in the higher proceeds realised on 
this sale in 2006 euro borrowings and cross currency swaps that were 
not designated as net investment hedges contributed to the overall 
foreign exchange gains  17    pearson annual report and accounts 2007 
taxation  
in 2007 we revised our calculation of the effective tax rate on  
adjusted earnings to reflect the benefit of tax deductions attributable  
to amortisation of acquired goodwill and intangibles as this  
more accurately aligns the adjusted tax charge with the expected 
mediumterm rate of cash tax payment we have restated the 2006 
comparative figure 
on this basis the effective tax rate on adjusted earnings was 264  
in 2007 compared with 259 in 2006 our overseas profits which 
arise mainly in the us remain mostly subject to tax rates which are 
higher than the uk corporation tax rate which was 30 in 2007  
but will fall to 28 from 1 april 2008 this factor was offset by the 
amortisationrelated tax deductions and as in 2006 by releases from 
provisions reflecting continued progress in agreeing our tax affairs 
with the authorities 
for 2008 we expect our effective tax rate on adjusted earnings to  
be in the 27 to 29 range  
the reported tax charge on a statutory basis was £131m  
representing a rate of 280 as we explained last year the 2006  
rate was abnormally low because of oneoff adjustments related to  
the recognition of deferred tax assets for both capital losses and  
operating losses the tax effects of the disposals during 2007 mainly 
government solutions tax £93m and les echos tax £nil are 
reflected in discontinued operations 
tax paid in 2007 was £87m compared with £59m in 2006 the 2007 
amount included £26m paid in respect of disposals 
discontinued operations  
discontinued operations relate to the disposal of government 
solutions in february 2007 les echos in december 2007 and the 
data management business in february 2008 in total we received 
cash proceeds of £469m for disposals in 2007  
as previously announced we realised a loss before tax of £19m and a 
tax charge of £93m on the sale of government solutions we realised a 
profit before tax of £165m with no tax payable on the sale of les echos 
in anticipation of a loss on sale of the data management business  
a goodwill impairment of £97m has been charged to the income 
statement in 2007 we received cash proceeds of 225m on  
the sale of data management on 22 february 2008 
minority interests  
our minority interests comprise mainly the minority share in 
interactive data our stake in interactive data remained at 62 
throughout 2007 leaving the minority interest unchanged at 38 
dividends  
the dividend accounted for in our 2007 financial statements totalling 
£238m represents the final dividend 188p in respect of 2006 and the 
2007 interim dividend of 111p 
we are proposing a final dividend for 2007 of 205p bringing the total 
paid and payable in respect of 2007 to 316p a 78 increase on 2006 
this final 2007 proposed dividend was approved by the board in 
february 2008 is subject to shareholder approval at the forthcoming 
agm and will be charged against 2008 profits for 2007 the dividend 
is covered 15 times by adjusted earnings 
we seek to maintain a balance between the requirements of our 
shareholders for a rising stream of dividend income and the 
reinvestment opportunities which we identify around the group  
the board expects to raise the dividend more in line with earnings 
growth while building our dividend cover towards two times earnings 
pensions 
pearson operates a variety of pension plans our uk group plan  
is by far the largest and includes a significant defined benefit section 
we also have some smaller defined benefit plans in the us and 
canada outside the uk most of our companies operate defined 
contribution plans  
the income statement expense for defined benefit plans is determined 
using annually derived assumptions as to salary inflation investment 
returns and discount rates based on prevailing conditions at the start 
of the year the assumptions for 2007 are disclosed in note 24 to our 
accounts along with the year end surpluses and deficits in our defined 
benefit plans we recognise actuarial gains and losses arising when 
assumptions diverge from reality through the statement of recognised 
income and expense sorie 
our charge to profit in respect of worldwide pensions and post 
retirement benefits amounted to £61m in 2007 2006 £60m of which 
a charge of £71m 2006 £64m was reported in operating profit and 
the net finance benefit of £10m 2006 £4m was reported against net 
finance costs  
pension funding levels are kept under regular review by the company 
and the plan trustee following the completion of the latest actuarial 
valuation of the uk group pension plan as at january 2006 we  
made additional payments to the plan in 2007 amounting to £100m 
these additional payments have contributed to the overall surplus 
recognised in the uk plan 
corporate responsibility 
alongside our commitment to our financial goals pearson has a clear 
social purpose to provide education information and entertainment 
and help our customers get on in their lives our corporate 
responsibility programme addresses four main areas  
– society – making communities better places to live and work  
– our people – the issues that affect the people who work for us  
– environment – our environmental impacts and what we do to 
manage them  
– governance – our business procedures code of conduct and supply 
chain management  
pearson is a founder signatory of the un global compact on labour 
standards human rights the environment and anticorruption  
we are also longstanding members of the dow jones sustainability 
and ftse4good ethical indices in 2007 pearson was named media 
sector leader in the dow jones sustainability indices our ranking in 
the business in the community corporate responsibility index again 
rose and we were awarded the highest ‘platinum’ status 
we publish a detailed annual report on corporate responsibility 
providing details of our progress and plans in all these areas which  
is available at wwwpearsoncomcommunitycsrreport2007 
society 
each one of our businesses pays great attention to the quality and 
accuracy of its content and services in education for example we are 
investing in a series of longterm studies to measure the robustness of 
our programmes in enhancing student achievement 
beyond those basic products and services pearson has a proud history 
of corporate giving and supporting projects in our communities 
through the pearson foundation – and also through the efforts of  
our businesses and employees – we focus our charitable giving on 
education and literacy projects around the world  business review continued
18    pearson annual report and accounts 2007
people
the following table shows for 2007 and 2006 the average number of 
people employed in each of our operating divisions
average number employed 2007 2006
school 12906 11064
higher education 5098 4368
professional 3458 3204
penguin 4163 3943
ft publishing 2083 1766
interactive data 2300 2200
other 1614 1669
continuing operations 31622 28214
discontinued operations 1070 6127
total 32692 34341
our people are our biggest – and most important – asset we want to 
be the best company to work for we want the people who work with 
us to enjoy what they do to know they are good enough to work 
anywhere but to stay with us because they think we are the best  
we have a way still to go but each year we have got closer to making 
this a reality we think our benefits incentive plans and training and 
management development programmes are as good as anywhere else 
and they all help to reinforce a strong culture which is anchored in the 
simple idea that as a company we want to be brave imaginative and 
decent in the way we treat our customers our suppliers and ourselves 
training and development last year 220 senior managers went on 
pearsonrun management development and training programmes 
650 of our senior managers have now been on one or more of these 
programmes which cover finance strategic planning and advanced 
management techniques which are taught by business school 
professors from both sides of the atlantic each of our operating 
companies also run extensive training programmes of their own 
talent management our goal is to make absolutely sure that we  
have a strong pipeline of talented people for the future and we have 
introduced personal development plans for many of our senior 
management but we take care to identify and develop talent at all 
levels within the company and review this talent regularly with each 
operating company we are committed to ensuring that everyone in 
the company has an annual appraisal each operating company also 
reviews its talent annually and the results of this process are reviewed 
by the ceo of pearson the director for people and the ceo of each 
company we focus on performance and potential each autumn the 
pearson board has a special session devoted solely to reviewing senior 
talent and some of our most promising people in the company  
this ensures that we have a comprehensive succession plan for each 
part of our business 
international development as we become more and more international 
– we are now at work in countries – we have significantly expanded
new directions our programme of short term overseas assignments 
in the first year of this centrallymanaged programme we moved 67 
people between companies and countries and in 2008 our target is to 
move at least 100 in 2008 we will also launch a senior international 
leadership programme which will help prepare senior executives to 
work overseas on two to threeyear assignments as part  
of their management development 
people for the future pearson has a lot of talented people at all levels  
and we continue to run very successful programmes to identify and 
develop great talent deep within the company the cornerstone of this 
is our annual forum which brings together about 100 of our newest  
and brightest managers from all over the world for a threeday session 
with the pearson management committee and other senior managers 
similar forums are held within our operating companies and we also 
bring together our talent in functions like marketing human resources 
and finance 
diversity our goal is to be a company that reflects the societies in 
which we operate and we seek to attract the very best candidates at all 
levels regardless of race gender age physical ability religion or sexual 
orientation we don’t set specific targets but we do work very hard to 
make sure that the pool of applicants for jobs is diverse we have made 
progress on several fronts in the past year but there is still a great  
deal to do we have increased the number of people we hire from 
minorities in the us and the uk expanded our minority intern 
programmes on both sides of the atlantic and added new titles to our 
africanamerican and hispanic publishing lists but we do not have 
enough executives at middle and senior management levels from 
minority backgrounds and we continue to work hard to correct this 
health and safety a group level health and safety policy is in place  
and there are many examples of good practice relating to management 
initiatives and employee engagement particularly in our distribution 
centres 
share ownership we want everyone in pearson to own shares in  
the company and believe that the best way for people to profit from  
the success of the company is for them to become shareholders  
employee feedback and communication we continue to ask employees 
what they think about working in pearson and each operating 
company also seeks and reviews its own feedback in detail we have  
an internal communications programme which enables us to reach 
people through emails employee road shows and visits from our 
senior managers we try to listen as much as we talk so that we can  
act upon ideas suggestions and views 
additional detail concerning our people is found on page 31 
suppliers 
to be a successful and sustainable business we have to ensure that  
we balance our objective of securing supplies without compromising 
our standards of quality causing harm to the environment or 
damaging our suppliers and their workers wherever they are in  
the world 
we were one of the founder signatories to the united nations global 
compact this sets out a series of principles on labour standards 
human rights the environment and anticorruption we have set out  
a series of commitments that reflect these principles against which we 
monitor and report our performance  
the majority of our key suppliers are located in north america and 
western europe however some of our suppliers particularly those 
providing print and production services are based in less developed 
countries since signing the global compact we have 
– written to many thousands of our suppliers to advise them of our 
commitment to the global compact and our code of conduct  
– included specific contractual commitments relating to the 
environment labour standards and human rights in our key 
contracts particularly those that relate to paper supply printing 
and distribution  
– managed an ongoing programme of supplier visits to assess 
compliance with the global compact and our contractual 
commitments  
60 19    pearson annual report and accounts 2007
– worked with the uk book publishing industry to introduce 
common standards on labour standards and human rights and  
on an industry database on the environmental characteristics of 
paper purchased  
paper is our most significant area of supply and is predominantly 
sourced from north america and scandinavia pearson was the first 
global publishing company to publicly disclose our environmental 
standards with regard to paper purchasing and we set targets relevant 
to our policy 
in addition to auditing suppliers against our commitments we ensure 
that our commercial purchasing teams have received training on our 
supply chain labour standards 
consistent with prior years our 2007 supplier audits have not 
identified any material breaches of our supply chain policies 
details of our supplier payment policy are shown on page 31 in the 
directors’ report 
environment 
increasing consensus over the causes of climate change is emerging 
pearson does not directly operate in industries where there is a 
potential for serious industrial pollution our main products are based 
on intellectual property however our offices and distribution centres 
do have an impact and we are committed to playing our part in 
tackling climate change  
a formal environmental policy has been in place at pearson since 1992 
our director for people is responsible for the policy but daytoday 
implementation is with our operating companies 
pearson has an established environmental management system 
ems in place for its global operations broadly based on the 
requirements of the international environmental management  
system standard iso 14001  
our approach has been successful we were two years ahead of target 
in achieving our aim of reducing energy use by 10 compared to our 
2003 baseline however we felt we could go further so last year we 
made a commitment to become climate neutral for those operations 
we directly control with a view to completing the process by the end  
of 2009 the challenge is also to every pearson employee to become 
climate aware and to identify opportunities for improvement  
we have set up an environment executive committee which will  
have responsibility for overseeing progress against our climate  
neutral commitment  
our main environmental performance indicator is our greenhouse  
gas emissions expressed in metric tonnes of carbon dioxide co
2
 the 
main greenhouse gas our target is to reduce these emissions from the 
2006 level to zero by the end of 2009 in 2008 we will also be reviewing 
the environmental impact of companies acquired during 2007 
we have widened the scope of what we include within the company’s 
greenhouse gas inventory and carried out a review of our data 
collection processes as a result we expect the total tonnes of co
2
we report for 2007 to increase based on this our initial focus is on 
strategies to reduce our greenhouse gas emissions we will be outlining 
our plans further in our environmental review for 2007 which will be 
available in april 
in addition to our broad objectives management in our operating 
companies and individual facilities are encouraged to set targets to 
reduce energy use emissions and other environmental impacts  
for further information you can read about our environmental policy 
practices and our progress towards our climate neutral commitment  
at wwwpearsoncomenvironment
governance and ethical standards 
we are committed to complying with the standards of corporate 
governance in all countries in which we operate including uk 
governance rules contained in the combined code on corporate 
governance our director for people has board responsibility for 
matters relating to corporate responsibility 
we also recognise the additional standards that are expected of us in 
terms of how we conduct our business to ensure we behave and report 
in an open and transparent manner pearson has established its own 
code of conduct and whistleblowing policies these are supported  
by detailed policies on specific issues such as editorial standards and  
we adhere to external codes such as those of the press complaints 
commission editors and journalists have freedom to make their own 
content choices within these frameworks these codes are enforced  
as an integral part of editorial management and are subject to regular 
communication training and compliance audits  
risk management 
we conduct regular risk reviews to identify risk factors which may 
affect our business and financial performance our internal audit 
function reviews these risks with each business agreeing measures and 
controls to mitigate these risks wherever possible it is not possible to 
identify every risk that could affect our businesses and the actions 
taken to mitigate the risks described below cannot provide absolute 
assurance that a risk will not materialise andor adversely affect our 
business or financial performance our principal risks and 
uncertainties are outlined on the following pages 
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 regulations have 
not significantly affected our international operations regulatory 
authorities may have enforcement powers that could have an impact 
on us we believe however that we have taken and continue to take 
measures to comply with all applicable laws and governmental 
regulations in the jurisdictions where we operate so that the risk  
of these sanctions does not represent a material threat to us 
principal risks and uncertainties 
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 largely comprise intellectual property delivered through 
a variety of media including newspapers books and the internet we 
rely on trademark copyright and other intellectual property laws to 
establish and protect our proprietary rights in these products 
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 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 thirdparties may copy  
infringe or otherwise profit from our proprietary rights without  
our authorisation  business review continued 
20    pearson annual report and accounts 2007 
these unauthorised activities may be more easily facilitated by the 
internet the lack of internetspecific 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 penguin group usa inc and pearson 
education have joined three other major us publishers in a suit 
brought under the auspices of the association of american publishers 
to challenge google’s plans to copy the full text of all books ever 
published without permission from the publishers or authors this 
lawsuit seeks to demarcate the extent to which search engines other 
internet operators and libraries may rely on the fairuse doctrine to 
copy content without authorisation from the copyright proprietors 
and may give publishers more control over online users of their 
intellectual property if the lawsuit is unsuccessful publishers and 
authors may be unable to control copying of their content for 
purposes of online searching which could have an adverse impact  
on our business and financial performance  
we seek to mitigate this type of risk through general vigilance co
operation with other publishers and trade associations as well as 
recourse to law as necessary 
we operate in a highly competitive environment that is subject to rapid 
change and we must continue to invest and adapt to remain competitive  
our education business information and book publishing businesses 
all operate in highly competitive markets which are constantly 
changing in response to competition technological innovations and 
other factors a common trend facing all our businesses is the 
digitisation of content and proliferation of distribution channels  
either over the internet or via other electronic means replacing 
traditional print formats if we do not adapt rapidly to these changes 
we may lose business to ‘faster’ more ‘agile’ competitors who 
increasingly are nontraditional competitors making their 
identification all the more difficult 
to remain competitive we continue to invest in our authors products 
services and people to take advantage of these opportunities there is 
no guarantee that these investments will generate the anticipated 
returns or protect us from being placed at a competitive disadvantage 
with respect to scale resources and our ability to develop and  
exploit opportunities 
other competitive threats we face at present include 
– students seeking cheaper sources of content eg online used books 
or reimported textbooks to counter this trend we introduced our 
own digital textbook programmes and are providing students with 
a greater choice and customisation of our products 
– competition from major publishers and other educational material 
and service providers including not for profit organisations in our 
us educational textbook and assessment businesses 
– penguin authors’ advances in consumer publishing we compete 
with other publishing businesses to purchase the rights to author 
manuscripts our competitors may bid to a level at which we could 
not generate a sufficient return on our investment and so typically 
we would not purchase these rights  
– ft we face competitive threats both from large media players  
as well as from smaller businesses online portals and news 
redistributors operating in the digital arena and providing 
alternative sources of news and information  
– people the investments we make in our employees combined  
with our employment policies and practices we believe are critical 
factors enabling us to recruit and retain the very best people in our 
business sectors  
our us educational textbook and assessment businesses may be adversely 
affected by changes in state educational funding resulting from either 
general economic conditions changes in government educational funding 
programmes and legislation both at the federal and state level andor 
changes in the state procurement process 
the results and growth of our us educational textbook and 
assessment business is 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 
programmes state finances could be adversely affected by a us 
recession andor fallout from the subprime mortgage crisis reducing 
property values and hence state property tax receipts  
federal andor state legislative changes can also affect the funding 
available for educational expenditure eg the no child left  
behind act  
similarly changes in the state 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 adoptions and changes in the student testing 
process can all affect these programmes 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 
programmes or that we will win this business 
education remains a priority across the us political spectrum  
our customer relationship teams have detailed knowledge of each  
state market we are investing in new and innovative ways to expand 
and combine our product and services to provide a superior customer 
offering when compared to our competitors thereby reducing our 
reliance on any particular funding stream in the us market 
failure to generate anticipated revenue growth synergies andor  
cost savings from recent acquisitions leading to goodwill and intangible 
asset impairments 
we continually acquire and dispose of businesses to achieve our 
strategic objectives we recently completed two relatively large 
acquisitions ie the harcourt assessment and harcourt education 
international business for 950m and the acquisition of ecollege for 
491m if we are unable to generate the anticipated revenue growth 
synergies andor cost savings associated with these acquisitions there is 
a risk the goodwill and intangible assets acquired estimated at £430m 
could be impaired in future years  
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 we estimate that if 
2006 average rates had prevailed in 2007 sales for 2007 would have 
been £228m or 6 higher  
this is predominantly a currency translation risk ie noncash flow 
item and not a trading risk ie cash flow item as our currency 
trading flows are relatively limited   21    pearson annual report and accounts 2007
pearson generates about 60 of its sales in the us and each 5¢ change 
in the average £ exchange rate for the full year which in 2007 was 
£1200 would have an impact of 1p on adjusted earnings per share 
we estimate that a 5¢ change in the closing exchange rate between  
the us dollar and sterling in any year could affect our reported 
adjusted earnings per share by 1p and shareholders’ funds by 
approximately £55m 
the group’s policy on managing foreign currency risk is described  
on page 24 
other risks 
our newspaper businesses may be adversely affected by reductions in 
advertising revenues andor circulation either because of competing news 
information distribution channels particularly online and digital formats 
or due to weak general economic conditions 
changes in consumer purchasing habits as readers look to alternative 
sources andor providers of information such as the internet and 
other digital formats may change the way we distribute our content 
we might see a decline in print circulation in our more mature 
markets as readership habits change and readers migrate online 
although we see further opportunities for growth in our less mature 
markets outside europe if the migration of readers to new digital 
formats occurs more quickly than we expect this is likely to affect  
print advertising spend by our customers adversely affecting  
our profitability 
our newspaper businesses are highly geared and remain dependent on 
print advertising revenue relatively small changes in revenue positive 
or negative have a disproportionate affect on profitability therefore 
any downturn in corporate and financial advertising spend would 
negatively impact our results 
the diversification of the ft group into other business models  
and revenue streams eg subscription based businesses higher 
proportion of digital revenues increased business to business 
products conferences and its global reach goes some way to  
offsetting reliance on newspaper print advertising  
a control breakdown 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 uk a breakdown in our testing and 
assessment products and processes could lead to a misgrading of 
student tests andor 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 nonrenewal of contracts andor the 
suspension or withdrawal of our accreditation to conduct tests  
it is also probable that such events would result in adverse publicity 
which may affect our ability to retain existing contracts andor obtain 
new customers 
our robust testing procedures and controls combined with  
our investment in technology project management and skills 
development of our people minimise the risk of a breakdown  
in our student marking 
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 andor reputation may be adversely affected if 
these contracts and relationships are not properly managed 
these businesses are characterised by multimillion pound contracts 
spread over several years as in any contracting business there  
are inherent risks associated with the bidding process startup 
operational performance and contract compliance including penalty 
clauses which could adversely affect our financial performance andor 
reputation failure to retain 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 – for 
example introduction of new qualifications  could have a significant 
impact on our present business model  
in addition to the internal business procedures and controls 
implemented to ensure we successfully deliver on our contractual 
commitments we also seek to develop and maintain good 
relationships with our customers whether they are commercial or 
governmental we also look to diversify our portfolio to minimise 
reliance on any single contract 
at penguin changes in product distribution channels increased book 
returns andor customer bankruptcy may restrict our ability to grow and 
affect our profitability 
new distribution channels eg digital format the internet used books 
combined with the concentration of retailer power pose multiple 
threats and opportunities to our traditional consumer publishing 
models potentially impacting both sales volumes and pricing  
penguin’s financial performance can also be negatively affected if book 
return rates increase above historical average levels similarly the 
bankruptcy of a major retail customer would disrupt shortterm 
product supply to the market as well as result in a large debt write off 
we develop new distribution channels wherever possible by adapting 
our product offering and investing in new formats we take steps to 
challenge illegal distribution sources to minimise returns we are 
careful about how we supply orders taking account of expected sell 
through the application of strict credit control policies is used to 
monitor customer debt 
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 
technology we either provide software andor internet services to our 
customers or we use complex it systems and products to support our 
business activities particularly in business information publishing 
backoffice 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 
ecommerce enterprise resource planning system implementations 
and upgrades the failure to recruit and retain staff with relevant skills 
may constrain our ability to grow as we combine traditional 
publishing products with online and service offerings  
we mitigate these it risks by employing project management 
techniques to manage new software developments andor system 
implementations and have implemented an array of security measures 
to protect our it assets from attack  
reputational damage to our brands and financial loss arising from a 
major data privacy breach 
across our businesses we hold increasingly large volumes of personal 
data including that of employees customers and in our assessment 
businesses citizens failure to adequately protect personal data  
could lead to penalties significant remediation costs andor 
reputational damage   business review continued 
22    pearson annual report and accounts 2007 
the protection of personal data and compliance with data privacy 
legislation has always been a considered a business risk we have 
recently reevaluated our data security procedures and controls across 
all our businesses with the aim of ensuring personal data is secured  
and we comply with relevant legislation  
operational disruption to our business caused by a major disaster andor 
external threats restricting our ability to supply products and services to 
our customers 
across all our businesses we manage complex operational and 
logistical arrangements including distribution centres data centres and 
large office facilities as well as relationships with third party printsites 
failure to recover from a major disaster eg fire flood etc at a key 
facility or the disruption of supply from a key thirdparty vendor could 
restrict our ability to service our customers similarly external threats 
such as avian flu terrorist attacks strikes etc could all affect our 
business and employees disrupting our daily business activities  
we have developed business continuity arrangements including it 
disaster recovery plans and backup delivery systems to minimise any 
business disruption in the event of a major disaster however despite 
regular updates and testing of these plans there is no guarantee that 
our financial performance will not be adversely affected in the event  
of a major disaster andor external threat to our business insurance 
coverage may minimise any losses in certain circumstances  
investment returns outside our traditional core us and uk markets may 
be lower than anticipated  
to minimise dependence on our core markets particularly the us  
we are seeking growth opportunities outside these markets building 
on our existing substantial international presence certain markets we 
may target for growth are inherently more risky than our traditional 
markets political economic currency and corporate governance  
risks including fraud as well as unmanaged expansion are all  
factors which could limit our returns on investments made in these 
nontraditional markets  
we draw on our experience of developing businesses outside our  
core markets and our existing international infrastructure to manage 
specific country risks as well as expanding our financial control 
resources in those areas the diversification of our international 
portfolio and relative size of ‘emerging markets’ in relation to the 
group further minimises the effect any one territory could have on  
the overall group results 
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 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 
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 
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 
the latest valuation of our uk defined benefit pension plan has  
been completed and future funding arrangements have been agreed 
between the company and the pension fund trustee additional 
payments amounting to £100m were made by the company in 2007 
we review these arrangements every three years and are confident  
that the pension funding plans are sufficient to meet future liabilities 
without unduly affecting the development of the company 
changes in our tax position can significantly affect our reported earnings 
and cash flows 
changes in corporate tax rates andor other relevant tax laws in the uk 
andor the us could have a material impact on our future reported tax 
rate andor our future tax payments 
we have internal tax professionals in the uk and us who review all 
significant arrangements around the world and respond to changes in 
tax legislation they work closely with local management and external 
tax advisers 
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 2007 
risk assessments did not identify any significant undermanaged see 
risks nor have any of our most important see risks many concerned 
with reputational risk changed year on year these are 
– journalisticauthor integrity  
– ethical business behaviour  
– compliance with un global compact principles on labour 
standards human rights environment and anticorruption  
– environmental impact 
– people  
our risk reporting systems together with our approach to managing 
the key see risks above are described in ‘our business and society’ the 
pearson corporate responsibility report the web link is available at 
wwwpearsoncomcommunitycsrreport2007 
financial risk management 
this section explains the group’s approach to the management  
of financial risk 
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 
shortterm 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 group’s 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 2007 
the audit committee and a group of external treasury advisers receives 
reports on the group’s treasury activities policies and procedures  
the treasury department is not a profit centre and its activities are 
subject to regular internal audit  23    pearson annual report and accounts 2007 
interest rate risk management 
the group’s 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 group’s policy 
objective has continued to be to set a target proportion of its forecast 
borrowings taken at the year end with cash netted against floating 
rate debt and before any adjustments for ifrs to be hedged ie  
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 2007 the hedging ratio on the 
above basis was approximately 58 a simultaneous 1 change on  
1 january in the group’s variable interest rates in each of us dollar 
euro and sterling taking into account forecast seasonal debt would 
have a £6m effect on profit before tax  
use of interest rate derivatives  
the policy 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 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 group’s accounting objective in its use of interest rate derivatives 
is to minimise the impact on the income statement of changes in the 
marktomarket 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 
hedgeaccounted and pooled segments so that the expected 
movement on the pooled segment is minimal 
interest rate derivative sensitivity analysis 
the following sensitivity analysis of derivative financial instruments to 
interest rate movements is based on the assumption of a 1 change in 
interest rates for all currencies and maturities with all other variables 
held constant 
  2007 
£ millions 
net carrying 
amount 1 change –1 change 
interest rate derivatives – in a fair value 
hedge relationship 10  24 26 
interest rate derivatives – not in hedge 
relationship 1 1 1
cross currency rate derivatives – in a net 
investment hedge relationship 17  – – 
cross currency rate derivatives – not in 
hedge relationship 9  – – 
total 35  23 25 
 
  2006 
£ millions 
net carrying 
amount 1 change –1 change 
interest rate derivatives – in a fair value 
hedge relationship 3 28 31 
interest rate derivatives – not in hedge 
relationship 7 1 1 
cross currency rate derivatives – in a net 
investment hedge relationship 40 – – 
cross currency rate derivatives – not in 
hedge relationship 17 1 1 
total 67 2831 
liquidity and refinancing risk management 
the group’s 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 group’s policy 
objective has been that the weighted average maturity of its core gross 
borrowings treating shortterm advances as having the final maturity 
of the facilities available to refinance them should be between three 
and ten years at the end of 2007 the average maturity of gross 
borrowings was 46 years of which bonds represented 72 of these 
borrowings up from 45 years and down from 90 respectively at  
the beginning of the year  
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 group’s 
credit ratings remained unchanged during the year the longterm 
ratings are baa1 from moody’s and bbb from standard  poor’s 
and the shortterm ratings are p2 and a2 respectively  
the group’s policy is to strive to maintain a rating of baa1bbb 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 
during the year the group extended the maturity date of its main 
revolving credit facility by one year and entered into a shortterm 
bridge financing facility at the end of 2007 the committed facilities 
amounted to £1369m and their weighted average maturity was  
32 years 
analysis of group debt including the impact of derivatives 
the following tables analyse the group’s sources of funding and  
the impact of derivatives on the group’s debt instruments 
net borrowings fixed and floating rate stated after the impact of  
rate derivatives 
£ millions 2007 2006 
fixed rate 567 514 
floating rate 406 545 
total 973 1059 
gross borrowings 
£ millions 2007 2006 
bank debt 458 177 
bonds 1150 1566 
total 1608 1743 
gross borrowings by currency 
2007 2006 
£ millions as reported 
currency 
derivatives combined  
us dollar 1251 150 1401 1253 
sterling 357 150 207 206 
euro – – – 284 
total 1608 – 1608 1743 
financial counterparty risk management  
the group’s risk of loss on deposits or derivative contracts with 
individual banks is managed in part through the use of counterparty 
limits these limits which take published credit limits among other 
things into account are approved by the chief financial officer within 
guidelines approved by the board in addition prior to their maturity 
in february 2007 for a currency rate swap that transformed a major 
part of the 6125 euro bonds due 2007 into a us dollar liability the 
group entered into a marktomarket agreement which significantly 
reduced the counterparty risk of that rate swap transaction  business review continued
24    pearson annual report and accounts 2007
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 group’s 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 our 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 noncash 
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 with its forecast operating profit before depreciation 
and amortisation this policy aims to dampen 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 however the group still 
borrows small amounts in other currencies typically for seasonal 
working capital needs in addition the group currently expects to 
hold legacy borrowings in sterling to their maturity dates our policy 
does not require existing currency debt to be terminated to match 
declines in that currency’s share of group operating profit before 
depreciation and amortisation included within year end net debt the 
net borrowingscash in the two principal currencies above taking 
into account the effect of cross currency swaps were us dollar 
£1119m and sterling £45m  
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 
gainslosses on the derivatives and debt offset the lossesgains 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 – sensitivity analysis 
the sensitivity of the group’s financial instruments to fluctuations  
in interest rates and exchange rates is as follows 
2007
all amounts in £ millions 
carrying 
value
impact of 1 
increase in 
interest rates 
impact of 1 
decrease in 
interest rates 
impact of 
10
strengthening
in sterling 
impact of 
10
weakening in 
sterling 
investments in 
unlisted securities 52 – – 4 5
cash and cash 
equivalents 560 – – 36 44
marketable
securities 40 – – 3 4
derivative financial 
instruments 35 23 25 11 13
bonds 1150 24 26 71 87
other borrowings 458 – – 42 51
other net financial 
assets 408 – – 29 35
total financial 
instruments 513 1 1 52 63
2006
all amounts in £ millions 
carrying 
value
impact of 1 
increase in 
interest rates 
impact of 1 
decrease in 
interest rates 
impact of 
10
strengthening
in sterling 
impact of 
10
weakening in 
sterling 
investments in 
unlisted securities 17 – – 1 1 
cash and cash 
equivalents 592 – – 38 46 
marketable
securities 25 – – 2 2 
derivative financial 
instruments 67 28 31 8 10
bonds 156628 31 108 132
other borrowings 177 – – 16 19
other net financial 
assets 425 – – 31 38 
total financial 
instruments 617 – – 60 74
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 
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 
robin freestone chief financial officer board of directors 
25    pearson annual report and accounts 2007
chairman 
glen moreno†• chairman aged 64 was appointed chairman of 
pearson on 1 october 2005 he is the senior independent director  
of man group plc and a director of fidelity international limited 
executive directors 
marjorie scardino• chief executive aged 61 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 a nonexecutive director of nokia corporation and a 
director of several charitable organisations 
david bell director for people aged 61 became a director of pearson 
in march 1996 in 1998 he was appointed pearson’s director for people 
with responsibility for finding keeping rewarding and inspiring our 
employees he is chairman of the financial times and sadler’s wells 
theatre he is also chairman of crisis a charity for the homeless and 
the institute for war and peace reporting 
rona fairhead chairman and chief executive of the financial times 
group aged 46 joined the pearson board in june 2002 as chief 
financial officer she was appointed chief executive of the financial 
times group in june 2006 from 1996 until 2001 she worked at ici 
where she served as executive vice president group control and 
strategy she is also chairman of interactive data a nonexecutive 
director of hsbc holdings plc and chairs the hsbc audit committee 
robin freestone chief financial officer aged 49 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 having joined amersham as chief financial officer of their health 
business in 2000 prior to that he held a number of senior financial 
positions with ici zeneca and henkel he is also a nonexecutive 
director and founder shareholder in echem limited 
john makinson chairman and chief executive of the penguin group 
aged 53 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 institute of public 
policy research and a director of the international rescue  
committee uk 
nonexecutive directors 
david arculus†• aged 61 is a nonexecutive director of telefónica sa 
and was previously chairman of o2 plc from 2004 until it was acquired 
by telefónica at the beginning of 2006 his previous roles include 
chairman of severn trent plc and ipc group chief operating officer 
of united business media plc and group managing director of emap 
plc he became a nonexecutive director of pearson in february 2006 
terry burns†• aged 63 has been chairman of marks and spencer 
group plc since july 2006 having previously been deputy chairman 
from october 2005 he is chairman of abbey national plc and a non
executive director of banco santander central hispano he is also 
chairman of glas cymru limited he was the uk government’s chief 
economic adviser from 1980 until 1991 and permanent secretary  
of hm treasury from 1991 until 1998 he was appointed a non
executive director of pearson in may 1999 and senior independent 
director in february 2004 
patrick cescau• aged 59 is group chief executive of unilever  
he became a nonexecutive director of pearson in april 2002 
susan fuhrman• aged 63 is president of teachers college at 
columbia university america’s oldest and largest graduate school  
of education she was previously dean of the graduate school of 
education at the university of pennsylvania she is a member of the 
board of trustees of the carnegie foundation for the advancement  
of teaching and an officer of the national academy of education  
she became a nonexecutive director of pearson in july 2004 
ken hydon• aged 63 is a nonexecutive director of tesco plc  
reckitt benckiser plc and royal berks nhs foundation trust he was 
previously financial director of vodafone group plc and subsidiaries 
of racal electronics he became a nonexecutive director of pearson  
in february 2006 
 a member of the audit committee  
† a member of the personnel committee 
• a member of the nomination committee  directors’ report 
26    pearson annual report and accounts 2007
the directors are pleased to present their report to shareholders 
together with the financial statements for the year ended 31 december 
2007 on pages 50 to 52 and 54 to 101 respectively details of the 
businesses the development of the group and its subsidiaries and 
likely future developments are given on pages 1 to 24 sales and  
profits of the different sectors and geographical markets are given  
on pages 59 to 61 
principal business activities 
pearson is an international media company with marketleading 
businesses in education business information and consumer 
publishing with more than 32000 employees based in countries
we are a large family of businesses focused on making the reading and 
learning experience as enjoyable and as beneficial as it can possibly be 
results and dividend 
the profit for the financial year ended 31 december 2007 was £310m 
2006 £469m and has been transferred to reserves a final dividend  
of 205p per share is recommended for the year ended 31 december 
2007 this together with the interim dividend already paid makes a 
total for the year of 316p 2006 293p the final dividend will be paid 
on 9 may 2008 to shareholders on the register at close of business on 
11 april 2008 the record date 
business review 
the chairman’s statement and chief executive’s review on pages 2 to 6 
report on the development and performance of the group during the 
year ended 31 december 2007 and our likely future development  
the elements covered in these reports are required by the business 
review and are incorporated into the directors’ report by reference 
the business review itself can be found on pages 8 to 24  
significant acquisitions and disposals 
during the year pearson announced the acquisition of harcourt 
assessment and harcourt education international from reed elsevier 
for 950m in cash harcourt assessment has an extensive catalogue  
of high quality researchbased education and clinical assessment 
products for children and adults in international education harcourt 
publishes textbooks and online learning materials for teachers and 
students in primary and secondary schools and the vocational market 
the harcourt education international acquisition was completed in 
stages during 2007 and the harcourt assessment acquisition was 
completed in january 2008  
in july 2007 pearson completed the acquisition of ecollege a leading 
provider of elearning and enrollment services to postsecondary 
education for 491m in cash 
pearson also made a number of other smaller acquisitions during  
the year mainly within the ft group net consideration paid for all 
acquisitions during the year ended 31 december 2007 was £472m  
and provisional goodwill recognised was £304m 
in total the acquisitions made in 2007 contributed an additional £90m 
of sales and £13m of operating profit 
on 15 february 2007 pearson completed its sale of government 
solutions and on 24 december 2007 the group sold les echos to
lvmh for€240m 
transactions with related parties 
details of transactions with related parties which are reportable under 
ias 24 ‘related party disclosures’ are given in note 35 to the accounts 
on page 94 
capital expenditure 
the analysis of capital expenditure and details of capital commitments 
are shown in notes 10 11 and 34 to the accounts on pages 68 to 70  
and 94 
events after the balance sheet date 
on 2 january 2008 the group completed its acquisition of money
media a usbased company offering online news and commentary  
for the money management industry 
on 30 january 2008 the group completed its acquisition of harcourt 
assessment from reed elsevier after receiving clearance from the  
us department of justice  
also on 30 january 2008 the group announced that it had agreed to 
sell its 50 interest in financial times deutschland to its joint venture 
partner gruner  jahr 
on 22 february 2008 the group completed the sale of its data 
management business to m  f worldwide corp for 225m 
directors 
the present members of the board together with their biographical 
details are shown on page 25 details of directors’ remuneration 
interests and dealings in ordinary shares and options of the company 
are contained in the report on directors’ remuneration on pages 35  
to 49
four directors terry burns ken hydon glen moreno and marjorie 
scardino will retire by rotation at the forthcoming annual general 
meeting agm on 25 april 2008 all of them being eligible will  
offer themselves for reelection  
details of directors’ service contracts can be found on page 42  
no director was materially interested in any contract of significance to 
the company’s business 
60 27    pearson annual report and accounts 2007 
corporate governance 
introduction  
a detailed account of how we comply with the provisions of the 2006 
combined code on corporate governance the code can be found 
on our website at wwwpearsoncominvestorcorpgovhtm 
the board believes that we are in full compliance with the code  
with one exception since the resignation of rana talwar last april  
our personnel committee is made up of only two independent  
nonexecutive directors and the chairman the board is aware of  
this issue and intends to appoint an additional independent director  
in due course 
composition of the board  
the board consists of the chairman glen moreno five executive 
directors including the chief executive marjorie scardino and five 
independent nonexecutive directors  
senior independent director  
terry burns was appointed as our senior independent director in 2004 
his role includes being available to shareholders if they should have 
concerns that have not been addressed through the normal channels 
and attending meetings with shareholders in order to gain a balanced  
understanding of what those concerns might be the senior 
independent director also meets with the nonexecutive directors at 
least once a year in order to appraise the performance of the chairman 
and would be expected to chair the nomination committee on those 
occasions when it is considering succession to the role of chairman of 
the board 
independence of directors  
the board considers all of the nonexecutive directors to be 
independent particular consideration was given to the assessment of 
terry burns’ independence since he has now served on the board for 
almost nine years terry has been asked by the chairman to remain  
on the board because of his experience knowledge and effectiveness  
as a nonexecutive director and he has indicated that he is willing to 
stand for reelection as a director of the company on an annual basis 
a resolution for his reelection will be proposed at the forthcoming 
agm the board believes that it is in shareholders’ interests for terry 
burns to be reelected as an independent nonexecutive director of the 
company they believe that he continues to challenge rigorously the 
executive directors the board and the committees on which he sits  
and brings a wealth of useful experience both in his position as a  
nonexecutive director and as the senior independent director
board meetings 
the board meets six times a year and at other times as appropriate the following table sets out the attendance of our directors at the board and 
committee meetings during 2007 
 
board 
meetings 
maximum 6 
audit 
committee 
meetings 
maximum 4 
personnel
committee
meetings
maximum 5 
nomination
committee
meetings
maximum 2 
chairman     
glen moreno 66 – 55 22 
executive directors     
marjorie scardino 66 – – 22 
david bell 56 – – – 
rona fairhead 66 – – – 
robin freestone 66 – – – 
john makinson 66 – – – 
nonexecutive directors     
david arculus 66 44 55 22 
terry burns 66 – 55 22 
patrick cescau 66 44 – 22 
susan fuhrman 66 44 – 22 
ken hydon 66 44 – 22 
rana talwar
1
 12 – 22 12 
1
 resigned on 30 april 2007  directors’ report continued 
28    pearson annual report and accounts 2007 
the role and business of the board  
the formal matters reserved for the board’s decision and approval 
include the company’s strategy and reviewing performance against it 
major changes to the company’s corporate structure approval of all 
shareholder documents acquisitions disposals and capital expenditure 
projects above certain thresholds all guarantees over £10m treasury 
policies the interim and final dividends and the financial statements 
borrowing powers ensuring adequate succession planning for the 
board and senior management appointments to the board and the 
appointment and removal of the company secretary 
the board receives timely regular and necessary management and 
other information to fulfil its duties directors can obtain independent 
professional advice at the company’s expense in the performance of 
their duties as directors all directors have access to the advice and 
services of the company secretary 
in addition to these formal roles we endeavour to give the non
executive directors access to the senior managers of the business via 
involvement at both formal and informal meetings in this way we 
hope that the experience and expertise of the nonexecutive directors 
can be garnered to the benefit of the company at the same time the 
nonexecutive directors develop an understanding of the abilities of 
the most senior managers which will help them judge the company’s 
prospects and plans for succession 
board evaluation 
following the chairman’s review of the effectiveness of our board  
and of the board committees as described last year the board 
identified four areas where it could most effectively contribute to the 
company’s success strategy governance operating effectiveness and 
management succession 
the board cycle was adapted to ensure that at least one board meeting 
per year is primarily devoted to each of these themes with significant 
time for thorough review and discussion  
in addition the chairman asked the deputy secretary to meet with each 
of the directors to gather their views on the level of support they felt 
they were receiving as board directors the deputy secretary duly met 
with each of the directors and asked for feedback on a number of 
matters including the pearson induction programme their ongoing 
training needs the logistical support they receive and their thoughts  
on the process for board and committee meetings following this 
review a paper was tabled at a subsequent board meeting which set  
out the findings from these one to one sessions and detailed what the 
company planned to do to address some of the concerns that were 
expressed as a result of this review a number of actions have been 
taken including making changes to the balance of board meetings  
held outside of the uk and deciding on the process for the next  
board evaluation 
in early 2008 the chairman asked the directors to complete an 
evaluation questionnaire on the board and each of its committees 
responses will be gathered and communicated to the board at a 
forthcoming meeting 
during the course of the year the executive directors were evaluated  
by the chief executive on their performance against personal objectives 
under the company’s standard appraisal mechanism the chairman 
leads the assessment of the chief executive and the senior independent 
director conducts a review of the chairman’s performance 
directors’ training  
directors receive a significant induction programme and a range  
of information about the company when they join the board  
this includes background information on pearson and details of 
board procedures directors’ responsibilities and various governance
related issues including procedures for dealing in pearson shares and 
their legal obligations as directors the induction also includes a series 
of meetings with members of the board presentations regarding the 
business from senior executives and a briefing on pearson’s investor 
relations programme we supplement the existing directors’ training 
programme through continuing presentations about the company’s 
operations at board meetings and by making available to the directors 
the opportunity for additional visits to operating company divisions  
as well as meetings with local management externally run courses are 
also made available should directors wish to make use of them 
directors’ indemnities  
the company grants an indemnity to all of its directors in accordance 
with section 232 of the companies act 2006 in relation to costs 
incurred by them in defending any civil or criminal proceedings and in 
connection with an application for relief under section 1443 or 4 or 
section 727 of the companies act 1985 so long as it is repaid not later 
than when the outcome becomes final if i they are convicted in the 
proceedings ii judgement is given against them or iii the court 
refuses to grant the relief sought 
the company has purchased and maintains directors’ and officers’ 
insurance cover against certain legal liabilities and costs for claims in 
connection with any act or omission by such directors and officers in 
the execution of their duties 
dialogue with institutional shareholders  
there is an extensive programme for the chairman ceo executive 
directors and senior managers to meet with institutional shareholders 
the nonexecutive directors meet informally with shareholders both 
before and after the agm and respond to shareholder queries and 
requests the chairman and senior independent director make 
themselves available to meet any significant shareholder as required 
makinson cowell reports to the board on the results of an extensive 
survey on major shareholders’ views 
furthermore reports on changes in shareholder positions and views 
are given to the board at every board meeting  29    pearson annual report and accounts 2007
board committees 
the board has established three committees the audit committee  
the personnel committee and the nomination committee chairmen 
and members of these committees are appointed by the board on the 
recommendation where appropriate of the nomination committee 
and in consultation with each requisite committee chairman 
i audit committee  
the audit committee comprises ken hydon chairman david 
arculus patrick cescau and susan fuhrman 
all of the committee members are independent nonexecutive 
directors and have financial andor related business experience due to 
the senior positions they hold or held in other listed or publicly traded 
companies andor similar public organisations ken hydon is our 
designated financial expert 
the committee has written terms of reference which clearly set out  
its authority and duties these are reviewed annually and can be found 
on the company website at wwwpearsoncominvestorcorpgovhtm
the committee has been established by the board primarily for the 
purpose of overseeing the accounting and financial reporting processes 
of the company and audits of the financial statements of the company  
the committee is responsible for assisting the board’s oversight of  
the quality and integrity of the company’s external financial reporting 
and statements and the company’s accounting policies and practices 
the group’s internal and external auditors have direct access to the 
committee to raise any matter of concern and to report on the results 
of work directed by the committee the committee reports to the full 
board on a regular basis it also reviews the objectivity of the external 
auditors including services supplied and ensures that there is an 
appropriate audit relationship 
the committee met four times during the year with the chief financial 
officer head of internal audit and other members of the senior 
management team together with the external auditors in attendance 
the committee also met regularly in private with the external auditors 
and the head of internal audit 
the committee receives regular technical updates as well as specific  
or personal training as required 
during the course of the year the audit committee considered 
amongst other things the following matters 
– the annual report and accounts and preliminary announcement 
the interim statement and trading updates 
– the group accounting policies 
– the annual accounts being prepared on a going concern basis 
– the form 20f and related disclosures including the annual 
sarbanes – oxley act 404 attestation of financial reporting  
internal controls 
– monitoring of the company’s financial reporting internal controls 
and risk management procedures 
– review of company risk returns including social ethical and 
environmental see risks 
– assessment of the effectiveness of the company’s risk management 
and internal control systems including appropriate disclosure 
requirements 
– the committees’ and internal audit’s terms of reference 
– the annual internal audit plan including resourcing of the internal 
audit function 
– reports on the activities of the internal audit function including  
the results of internal audits risk reviews project assurance reviews 
and fraudwhistleblowing 
– a review of its own effectiveness and both the internal and  
external auditors 
– reporting of whistleblowing incidents 
– reappointment of the external auditors 
– approval of the external audit engagement scope and fees 
– receipt of the external auditor report on the year end audit and 
form 20f filing 
– assessment of the external auditor relationship to confirm 
independence and compliance with professional and  
auditing standards 
– approval of  services and fees provided by the external auditor 
– significant legal claims and regulatory issues where applicable  
in the context of the impact on financial reporting and 
– a review of treasury policy 
ii personnel committee  
the members of the committee comprise david arculus chairman 
terry burns and glen moreno the board will appoint an additional 
independent director in due course so as to comply with the code 
the committee has responsibility for determining the remuneration 
and benefits packages of the executive directors the chief executives  
of the principal operating companies and other members of the 
management committee as well as recommending the chairman’s 
remuneration to the board for its decision 
the committee takes independent advice from consultants when 
required no director takes part in any discussion or decision 
concerning their own remuneration the committee reports to the  
full board and its report on directors’ remuneration which has been 
considered and adopted by the board is set out on pages 34 to 48 
the committee met five times during the year and has written  
terms of reference which clearly set out its authority and duties  
these can be found on the company website at 
wwwpearsoncominvestorcorpgovhtm
iii nomination committee  
the nomination committee comprises glen moreno chairman 
marjorie scardino david arculus terry burns patrick cescau susan 
fuhrman and ken hydon and meets as and when required during 
2007 the committee met twice to consider the ongoing search for a 
new nonexecutive director the committee primarily monitors the 
composition and balance of the board and its committees and 
identifies and recommends to the board the appointment of new 
directors
when considering the appointment of a new director the committee 
reviews the current balance of skills and experience of the board  
whilst the chairman of the board chairs this committee he is not 
permitted to chair meetings when the appointment of his successor  
is being considered or during discussion regarding his performance 
in accordance with the company’s articles of association directors are 
subject to reappointment at the agm immediately following the date 
of their appointment and thereafter must seek reelection no more 
than three years from the date they were last reelected the committee 
will recommend to the board the names of the directors who are to 
seek reelection at the agm  directors’ report continued 
30    pearson annual report and accounts 2007 
the committee has written terms of reference which clearly set out  
its authority and duties these can be found on the company website 
at wwwpearsoncominvestorcorpgovhtm 
internal control 
the board of directors has overall responsibility for pearson’s system 
of internal control which is designed to manage the risks facing the 
group safeguard assets and provide reasonable but not absolute 
assurance against material financial misstatement or loss 
in accordance with the provisions of the code the directors confirm 
that they have reviewed the effectiveness of the group’s internal 
control system 
they also confirm there is an ongoing process allowing for the 
identification evaluation and management of significant business 
risks this process accords with the revised turnbull guidance and has 
been in place throughout 2007 and up to the date of approval of this 
annual report 
the group’s internal control framework covers financial operational 
and compliance risks its main features are described below 
i board  
the board of directors exercises its control through an organisational 
structure with clearly defined levels of responsibility and authority and 
appropriate reporting procedures to maintain effective control over 
strategic financial operational and compliance matters the board 
meets regularly and has a formal schedule of matters that is brought to 
it or its duly authorised committees for attention responsibility for 
monitoring financial management and reporting internal control and 
risk management has been delegated to the audit committee by the 
board at each meeting the audit committee considers reports from 
management internal audit and the external auditors with the aim  
of reviewing the effectiveness of the internal financial and operating 
control environment of the group 
ii operating company controls 
the identification and mitigation of major business risks is the 
responsibility of operating company management each operating 
company including the corporate centre maintains internal controls 
and procedures appropriate to its structure and business environment 
whilst complying with group policies standards and guidelines these 
controls include those over external financial reporting which are 
documented and tested in accordance with the requirements of section 
404 of the sarbanesoxley act which is relevant to our us listing 
iii financial reporting  
there is a comprehensive strategic planning budgeting and forecasting 
system with an annual operating plan approved by the board of 
directors monthly financial information including trading results 
balance sheets cash flow statements and indebtedness is reported 
against the corresponding figures for the plan and prior years with 
corrective action outlined by operating company executives as 
appropriate group senior management meet on a quarterly basis 
with operating company management to review their business and 
financial performance against plan and forecast major business risks 
relevant to each operating company as well as performance against the 
stated strategic objectives are reviewed in these meetings 
in addition the chief executive prepares a monthly report 11 times  
a year for the board on key developments performance and issues in 
the business 
iv risk management 
operating companies undertake formal semiannual risk reviews to 
identify new or potentially undermanaged risks the results of these 
reviews are submitted to internal audit for evaluation and onward 
reporting to the board via the audit committee throughout the year 
risk sessions facilitated by internal audit are held with operating 
company management and with the pearson management committee 
to discuss and review the significant risks facing the business 
v internal audit  
the internal audit function is responsible for providing independent 
assurance to management on the effectiveness of internal controls  
the annual internal audit plan derived from a risk model is approved 
by the audit committee internal audit activity is supplemented by 
annual financial control selfassessment returns completed by the 
businesses recommendations to improve internal controls andor  
to mitigate risks are agreed with operating company management  
after each audit formal followup procedures allow internal audit  
to monitor operating companies’ progress in implementing its 
recommendations and to resolve any control deficiencies the internal 
audit function also has a remit to monitor significant group projects 
in conjunction with the central project management office to provide 
assurance that appropriate project governance and risk management 
strategies are in place regular reports on the work of internal audit  
are provided to executive management and via the audit committee 
to the board 
the head of internal audit is jointly responsible with the group legal 
counsel for monitoring compliance with our code of business 
conduct and investigating any reported incidents 
vi treasury management 
the treasury department operates within policies approved by  
the board and its procedures are reviewed regularly by the audit 
committee major transactions are authorised outside the department 
at the requisite level and there is an appropriate segregation of duties 
frequent reports are made to the chief financial officer and regular 
reports are prepared for the audit committee and the board 
vii insurance  
insurance is provided through pearson’s insurance subsidiary or 
externally depending on the scale of the risk and the availability of 
cover in the external market with the objective of achieving the most 
cost effective balance between insured and uninsured risks 
going concern 
having reviewed the group’s liquid resources and borrowing facilities 
and the group’s 2008 and 2009 cash flow forecasts the directors 
believe that the group has adequate resources to continue as a going 
concern for this reason the financial statements have as usual been 
prepared on that basis  31    pearson annual report and accounts 2007
shareholder communication 
pearson has an extensive programme of communication with all of its 
shareholders – large and small institutional and private we also make 
a particular effort to communicate regularly with our employees a 
large majority of whom are shareholders in the company we post all 
company announcements on our website wwwpearsoncom as soon 
as they are released and major shareholder presentations are made 
accessible via webcast or conference call our website contains a 
dedicated investor relations section with an extensive archive of past 
announcements and presentations historical financial performance 
share price data and a calendar of events it also includes information 
about all of our businesses links to their websites and details of our 
corporate responsibility policies and activities 
we have an established programme of educational seminars for our 
institutional shareholders focusing on individual parts of pearson  
the seminars are available to all shareholders via webcast on 
wwwpearsoncom
our agm – which will be held on 25 april this year – includes 
opportunities to meet the company’s managers presentations about 
pearson’s businesses and the previous year’s results as well as general 
agm business 
people
during 2007 pearson employed over 32000 people in countries
each business has detailed employment practices for recruitment 
remuneration employee relations health and safety and terms and 
conditions designed for the different sectors and countries in which  
it operates 
we are committed to equality of opportunity for all regardless of 
gender race age physical ability religion or sexual orientation this 
applies equally to recruitment and to the promotion development and 
training of people who are already part of pearson the company takes 
seriously its obligations to the disabled and seeks not to discriminate 
against current or prospective employees because of any disability  
we are always willing to make reasonable adjustments to premises  
or employment arrangements if these substantially disadvantage a 
disabled employee or prospective employee every effort is made to 
find a suitable alternative job and as necessary training for those who 
are unable to continue in their existing role due to disability 
pearson is committed to clear and timely communication with its 
people to ensure they understand the financial and economic factors 
that affect the performance of the company pearson supports 
employee representation to help positive employee relations  
we believe that the best way for employees to profit from the  
success of the company is for them to become shareholders pearson 
operates worldwide share plans taking account of local country tax  
and securities regulations with most of our people based in the us 
we have taken special care to make it easy for them to acquire shares  
in pearson the listing of our shares on the new york stock  
exchange allows us to operate a us employee stock purchase plan 
that makes share ownership in pearson accessible to the majority  
of our employees 
supplier payment policy 
operating companies are responsible for agreeing the terms and 
conditions under which business transactions with their suppliers are 
conducted these supplier payment terms vary by operating company 
reflecting the different industries and countries in which they operate 
it is company policy that suppliers are aware of such terms of payment 
and that payments to them are made in accordance with these 
provided that the supplier is also complying with all relevant terms  
and conditions group trade creditors at 31 december 2007 were 
equivalent to 28 days of purchases during the year ended on that date 
the company does not have any significant trade creditors and 
therefore is unable to disclose average supplier payment terms 
external giving 
during 2007 pearson’s cash charitable giving totalled £72m 2006 
£36m in addition to cash donations pearson also provides inkind 
support such as books publishing expertise advertising space and  
staff time through the pearson foundation we focus our charitable 
giving on education and literacy projects around the world  
we encourage our employees to support their personal charities  
by matching donations and payroll giving and by providing 
volunteering opportunities 
more details can be found in our 2007 csr report at 
wwwpearsoncomcommunitycsrreport2007 
share capital 
details of share issues are given in note 26 to the accounts on page 88 
the company has a single class of shares which is divided into ordinary 
shares of 25p each the ordinary shares are in registered form  
the company’s current authorised share capital is £298500000 
comprising 1194000000 ordinary shares of which 808028141 were 
issued as at 31 december 2007 at the agm held on 27 april 2007  
the company was authorised subject to certain conditions to  
acquire up to 80 million of its ordinary shares by market purchase 
shareholders will be asked to renew this authority at the agm on  
25 april 2008 
at 29 february 2008 the company had been notified of the following 
substantial shareholdings 3 or more in the capital of the company 
number of 
shares  percentage 
aviva plc 40126002 496
legal  general group plc 33336528 412
templeton global advisors ltd 56508060 699
60 directors’ report continued
32    pearson annual report and accounts 2007
annual general meeting 
the notice convening the agm to be held at 12 noon on friday  
25 april 2008 at the queen elizabeth ii conference centre broad 
sanctuary westminster london sw1p 3ee is contained in a circular 
to shareholders to be dated 20 march 2008 
registered auditors  
in accordance with section 384 of the companies act 1985 and  
section 489 of the companies act 2006 resolutions proposing the 
reappointment of pricewaterhousecoopers llp pwc as auditors to 
the company will be proposed at the agm at a level of remuneration 
to be agreed by the directors 
auditor independence 
in line with best practice our relationship with pwc our independent 
auditor 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 nonaudit services that the independent 
auditor 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 nonaudit services 
provided by the independent auditor certain categories of allowable 
nonaudit services have been preapproved by the audit committee 
subject to the authorities below 
– preapproved nonaudit services can be authorised by the chief 
financial officer up to £100000 per project subject to a cumulative 
limit of £500000 per annum 
– acquisition due diligence services up to £100000 per transaction 
– tax compliance and related activities up to the greater of £1m per 
annum or 50 of the external audit fee 
– 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 £100000  
per project subject to a cumulative limit of £500000 per annum 
has been delegated by the audit committee to management 
services provided by the independent auditor above these limits and 
all other allowable nonaudit services irrespective of value must be 
approved by the audit committee where appropriate services will be 
tendered prior to awarding work to the auditor 
during 2007 interactive data appointed ernst  young llp ernst  
 young as its independent auditor to maintain ernst  young’s 
independence we have restricted the services that ernst  young can 
provide to pearson and its subsidiaries similar to those we impose  
on pwc 
the audit committee receives regular reports summarising the amount 
of fees paid to the auditor 
a full statement of the fees for audit and services is provided in note 4 
to the accounts on page 63 
statement of directors’ responsibilities 
company law requires the directors to prepare financial statements for 
each financial year which give a true and fair view of the state of affairs 
of the group as at the end of the year and of the profit or loss of the 
group for that period the directors are responsible for keeping 
proper accounting records that disclose with reasonable accuracy at 
any time the financial position of the company and the group and to 
enable them to ensure that the financial statements comply with the 
companies act 1985 companies act 2006 and the report on 
directors’ remuneration  
they are also responsible for safeguarding the assets of the group  
and hence for taking reasonable steps towards preventing and 
detecting fraud and other irregularities in preparing the financial 
statements on pages 50 to 52 and 54 to 101 inclusive the directors 
consider that appropriate accounting policies have been used and 
applied in a consistent manner supported by reasonable and prudent 
judgements and estimates and that all relevant accounting standards 
have been followed 
the directors confirm that the auditors have concluded that the 
directors’ report is consistent with the financial statements 
the directors also confirm that for all directors in office at the date  
of this report 
so far as each director is aware there is no relevant audit information 
of which the company’s auditors are unaware 
each director has taken all the steps that they ought to have taken as 
directors in order to make themselves aware of any relevant audit 
information and to establish that the company’s auditors are aware  
of that information 
approved by the board on 13 march 2008 and signed on its  
behalf by
philip hoffman secretary  additional information for shareholders 
33    pearson annual report and accounts 2007 
amendment of articles of association 
any amendments to the articles of association articles of the 
company may be made in accordance with the provisions of the 
companies acts by way of special resolution a special resolution will 
be put to the agm to be held on 25 april 2008 to amend the articles 
details of which are set out in the notice of agm 
rights attaching to shares 
the rights attaching to the ordinary shares are defined in the 
company’s articles a shareholder whose name appears on the 
company’s register of members can choose whether his shares are 
evidenced by share certificates ie in certificated form or held in 
electronic ie uncertificated form in crest the electronic 
settlement system in the uk 
subject to any restrictions below shareholders may attend any general 
meeting of the company and on a show of hands every shareholder 
or hisher representative who is present at a general meeting has one  
vote on each resolution for every ordinary share of which they are  
the registered shareholder a resolution put to the vote at a general 
meeting is decided on a show of hands unless before or on the 
declaration of the result of a vote on a show of hands a poll is 
demanded by the chairman of the meeting or by at least three 
shareholders or their representatives present in person and having 
the right to vote or by any shareholders or their representatives 
present in person having at least 10 of the total voting rights of all 
shareholders or by any shareholders or their representatives present 
in person holding ordinary shares on which an aggregate sum has been 
paid up of at least 10 of the total sum paid up on all ordinary shares 
shareholders can declare a final dividend by passing an ordinary 
resolution but the amount of the dividend cannot exceed the amount 
recommended by the board the board can pay interim dividends on 
any class of shares of the amounts and on the dates and for the periods 
they decide provided the distributable profits of the company justify 
such payment the board may if authorised by an ordinary resolution 
of the shareholders offer any shareholder the right to elect to receive 
new ordinary shares which will be credited as fully paid instead of 
their cash dividend 
any dividend which has not been claimed for 12 years after it became 
due for payment will be forfeited and will then belong to the company 
unless the directors decide otherwise 
if the company is wound up the liquidator can with the sanction  
of a special resolution passed by the shareholders divide among the 
shareholders all or any part of the assets of the company and heshe 
can value assets and determine how the division shall be carried out  
as between the members or different classes of members  
the liquidator can also transfer the whole or any part of the  
assets to trustees upon any trusts for the benefit of the members 
voting at general meetings 
any form of proxy sent by the company to shareholders in relation  
to any general meeting must be delivered to the company whether  
in written form or in electronic form not less than 48 hours before  
the time appointed for holding the meeting or adjourned meeting  
at which the person named in the appointment proposes to vote 
no shareholder is unless the board decide otherwise entitled to attend 
or vote either personally or by proxy at a general meeting or to exercise 
any other right conferred by being a shareholder if heshe or any 
person with an interest in shares has been sent a notice under section 
793 of the companies act 2006 which confers upon public 
companies the power to require information with respect to interests 
in their voting shares and heshe or any interested person failed to 
supply the company with the information requested within 14 days 
after delivery of that notice the board may also decide where the 
relevant shareholding comprises at least 025 of the nominal value  
of the issued shares of that class that no dividend is payable in respect 
of those default shares and that no transfer of any default shares shall 
be registered  
the company operates two employee benefit trusts to hold  
shares pending employees becoming entitled to them under the 
company’s employee share plans 11760626 shares were so held  
as at 31 december 2007 each trust has an independent trustee  
which has full discretion in relation to the voting of such shares  
a dividend waiver operates on the shares held in these trusts 
the company also operates a nominee shareholding arrangement 
known as sharestore which holds shares on behalf of employees 
1857818 shares were so held as at 31 december 2007 the trustees 
holding these shares seek voting instructions from the employee as 
beneficial owner and voting rights are not exercised if no instructions 
are given 
transfer of shares 
the board may refuse to register a transfer of a certificated share which 
is not fully paid provided that the refusal does not prevent dealings in 
shares in the company from taking place on an open and proper basis 
the board may also refuse to register a transfer of a certificated share 
unless i the instrument of transfer is lodged duly stamped if 
stampable at the registered office of the company or any other place 
decided by the board accompanied by the certificate for the share to 
which it relates and such other evidence as the board may reasonably 
require to show the right of the transferor to make the transfer ii is 
in respect of only one class of shares and iii is in favour of not more 
than four transferees 
transfers of uncertificated shares must be carried out using crest 
and the board can refuse to register a transfer of an uncertificated share 
in accordance with the regulations governing the operation of crest 
variation of rights 
if at any time the capital of the company is divided into different 
classes of shares the special rights attaching to any class may be varied 
or revoked either 
i with the written consent of the holders of at least 75 in nominal 
value of the issued shares of the class or 
ii with the sanction of a special resolution passed at a separate general 
meeting of the holders of the shares of the class 
without guidance to any special rights previously conferred on the 
holders of any existing shares or class of shares any share may be 
issued with such preferred deferred or other special rights or such 
restrictions whether in regard to dividend voting return of capital  
or otherwise as the company may from time to time by ordinary 
resolution determine  additional information for shareholders continued
34    pearson annual report and accounts 2007
appointment and replacement of directors 
directors shall number no less than two directors may be appointed 
by the company by ordinary resolution or by the board a director 
appointed by the board shall hold office only until the next agm and 
shall then be eligible for reappointment but shall not be taken into 
account in determining the directors or the number of directors who 
are to retire by rotation at that meeting the board may from time to 
time appoint one or more directors to hold executive office with the 
company for such period subject to the provisions of the companies 
acts and upon such terms as the board may decide and may revoke  
or terminate any appointment so made 
at every agm of the company onethird of the directors shall retire 
by rotation or if their number is not a multiple of three the number 
nearest to onethird the first directors to retire by rotation shall be 
those who wish to retire and not offer themselves for reappointment 
any further directors so to retire shall be those of the other directors 
subject to retirement by rotation who have been longest in office  
since their last appointment but as between persons who became or 
were last appointed on the same day those to retire shall unless they 
otherwise agree among themselves be determined by lot in addition 
any director who would not otherwise be required to retire shall retire 
by rotation at the third agm after his last appointment 
the company may by ordinary resolution remove any director  
before the expiration of his term of office in addition the board  
may terminate an agreement or arrangement with any director  
for the provision of his services to the company 
powers of the directors 
subject to the company’s memorandum of association and the 
articles the companies acts and any directions given by special 
resolution the business of the company will be managed by the  
board who may exercise all the powers of the company including 
powers relating to the issue andor buying back of shares by the 
company subject to any statutory restrictions or restrictions  
imposed by shareholders in general meeting 
significant agreements 
the following significant agreements contain provisions entitling the 
counterparties to exercise termination or other rights in the event of  
a change of control of the company 
– under the 1750000000 revolving credit facility agreement  
dated july 2004 as amended with a final maturity date of july 2012 
between amongst others the company hsbc bank plc as facility 
agent and the banks and financial institutions named therein as 
lenders together the ‘credit facilities’ the facility agent must 
upon a change of control cancel the total commitments of the 
lenders under such credit facilities and declare all outstanding 
advances together with accrued interest and any other amounts 
payable in respect of such credit facilities to be immediately due 
and payable for these purposes a ‘change of control’ occurs if the 
company becomes a subsidiary of any other company or one or 
more persons acting either individually or in concert obtains 
control as defined in section 840 of the income and corporation 
taxes act 1988 of the company 
– under the 975000000 revolving credit facility agreement  
dated july 2007 as amended by an agreement dated february  
2008 under which the facility will reduce to 300000000 in 
december 2008 with a final maturity date of september 2009 
between amongst others the company barclays bank plc  
as facility agent and the banks and financial institutions named 
therein as lenders together the ‘credit facilities’ the facility agent 
must upon a change of control cancel the total commitments of 
the lenders under such credit facilities and declare all outstanding 
advances together with accrued interest and any other amounts 
payable in respect of such credit facilities to be immediately due 
and payable for these purposes a ‘change of control’ occurs if the 
company becomes a subsidiary of any other company or one or 
more persons acting either individually or in concert obtains 
control as defined in section 840 of the income and corporation 
taxes act 1988 of the company  
– shares acquired through the company’s employee share plans rank 
pari passu with shares in issue and have no special rights for legal 
and practical reasons the rules of these plans set out the 
consequences of a change of control of the company  report on directors’ remuneration 
 
35    pearson annual report and accounts 2007 
the board presents its report on directors’ remuneration to 
shareholders this report complies with the directors’ remuneration 
report regulations 2002 and was approved by the board of directors 
at the board meeting on 29 february 2008 
the committee believes that the company has complied with the 
provisions regarding remuneration matters contained within the 
combined code with one exception since the resignation of  
rana talwar last april our personnel committee is made up of  
only two independent nonexecutive directors and the chairman 
a resolution will be put to shareholders at the annual general  
meeting agm on 25 april 2008 inviting them to consider and 
approve this report 
the personnel committee 
during 2007 david arculus chaired the personnel committee the 
other members were rana talwar who stood down as a member  
of the committee at the agm on 27 april 2007 terry burns and  
glen moreno david arculus rana talwar and terry burns were 
independent nonexecutive directors glen moreno chairman of the 
board joined the committee in 2007 as permissible under the uk 
combined code 
the board will appoint an additional independent director to join the 
personnel committee in due course so as to comply with the code 
marjorie scardino chief executive david bell director for people 
robert head compensation and benefits director and stephen  
jones deputy company secretary provided material assistance to the 
committee during the year they attended meetings of the committee 
although no director was involved in any decisions as to his or her own 
remuneration 
to ensure that it receives independent advice the committee has 
appointed towers perrin to supply survey data and to advise on 
market trends longterm incentives and other general remuneration 
matters towers perrin also advised the company on health and 
welfare benefits in the us and provided consulting advice directly  
to certain pearson operating companies 
the committee’s terms of reference are set out on the company’s 
website the committee met five times during 2007 the matters 
discussed and actions taken were as follows 
15 and 23 february 2007 
reviewed and approved 2006 annual incentive plan payouts 
reviewed and approved 2004 longterm incentive plan payouts 
approved vesting of 2002 and 2004 annual bonus share matching awards  
and operation of plan for 2007 
reviewed and approved increases in executive base salaries for 2007 
reviewed and approved 2007 pearson and operating company annual 
incentive plan targets 
reviewed 2007 longterm incentive awards and associated performance 
conditions for pearson management committee 
reviewed strategy on 2007 longterm incentive awards for executives and 
managers 
reviewed and approved 2006 report on directors’ remuneration 
noted company’s use of equity for employee share plans 
26 july 2007 
approved 2007 longterm incentive awards for pearson management 
committee and other executives and managers 
reviewed and amended committee’s charter and terms of reference 
3 october 2007 
considered towers perrin’s report on remuneration for pearson  
management committee for 2008 
noted status of outstanding longterm incentive awards 
3 december 2007 
reviewed 2008 annual incentive plan structure and metrics 
agreed to submit annual bonus share matching plan for renewal by 
shareholders in 2008 
remuneration policy 
this report sets out the company’s policy on directors’ remuneration 
this policy will continue to apply to each director for 2008 and so far 
as practicable for subsequent years the committee considers that a 
successful remuneration policy needs to be sufficiently flexible to take 
account of future changes in the company’s business environment  
and in remuneration practice future reports which will continue to 
be subject to shareholder approval will describe any changes in policy 
for years after 2008 shareholders should consider all statements in this 
report about remuneration policy for years after 2008 in this context  report on directors’ remuneration continued
36    pearson annual report and accounts 2007
pearson’s goal is to produce sustainable growth on our three key 
financial measures – adjusted earnings per share cash generation  
and return on invested capital – which we believe are together  
good indicators that we are building the longterm value of pearson 
we do this by investing consistently in four areas which are common 
to all our businesses content technology and services international 
markets and efficiency we believe this strategy can create a virtuous 
circle of efficiency investment market share gains and scale which in 
turn can produce sustainable growth on our financial goals and the 
value of the company 
we seek to generate a performance culture that supports these  
goals by operating incentive programmes that directly reward their 
achievement the committee selects performance conditions for the 
company’s various performancerelated annual or longterm incentive 
plans that are linked to the company’s strategic objectives set out above 
and aligned with the interests of shareholders  
share ownership is encouraged throughout the company  
all outstanding longterm incentive awards for each of the executive 
directors are set out in tables 4 and 5 on pages 46 to 49 of this report 
the committee determines whether or not targets have been met 
under the company’s various performancerelated annual or long
term incentive plans based on the relevant internal information and 
input from external advisers since 2005 the group’s financial results 
have been reported under ifrs earnings per share and any other 
accounting measures used for the purposes of the company’s short  
or longterm incentive plans are adjusted for ifrs where applicable 
it is the company’s policy that total remuneration base  
compensation plus short and longterm incentives should reward 
both short and longterm results delivering competitive rewards  
for target performance but outstanding rewards for exceptional 
company performance
main elements of remuneration 
total remuneration is made up of fixed and performancelinked elements with each element supporting different objectives 
element objective performance period performance conditions 
base salary
see page 37 
reflects competitive market level role and 
individual contribution 
not applicable normally reviewed annually taking into account 
the remuneration of directors and executives in 
similar positions in comparable companies 
individual performance and levels of pay and pay 
increases throughout the company 
annual incentives
see page 37 
motivates achievement of annual strategic goals one year subject to achievement of targets for sales earnings 
per share or profit working capital 
and cash 
bonus share matching
see page 38 
encourages executive directors and other senior 
executives to acquire and hold pearson shares
aligns executives and shareholders’ interests 
three years subject to achievement of target for earnings 
per share growth 
longterm incentives
see page 39 
drives longterm earnings and share price 
growth and value creation
aligns executives’ and shareholders’ interests 
three years subject to achievement of targets for relative 
total shareholder return return on invested capital 
and earnings per share growth 
consistent with its policy the committee places considerable emphasis 
on the performancelinked elements ie annual incentives bonus 
share matching and longterm incentives the relative importance of 
fixed and performancerelated remuneration for each of the directors 
is as follows 
marjorie scardino 
proportion of total compensation
david bell 
robin freestone
rona fairhead
john makinson
390
342
384
471
base salary and other fixed remuneration 
annual incentive and bonus share matching
longterm incentives
328
317
297
290
283
266
293
361
326
246
406
the committee will continue to review the mix of fixed and 
performancelinked remuneration on an annual basis consistent  
with its overall philosophy 
benchmarking 
our policy is that the remuneration of the executive directors should 
be competitive with those of directors and executives in similar 
positions in comparable companies we use a range of uk companies 
in different sectors including the media sector some are of a similar 
size to pearson while others are larger but the method which the 
committee’s independent advisers use to make comparisons on 
remuneration takes this into account all have very substantial 
overseas operations we also use selected media companies in  
north america 
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 
the market assessments against the two groups are not a simple 
statistical outcome and nor are they an average of the two groups  
in preparing the assessments and comparisons with the pearson  
data the data for the comparator group companies are considered 
separately and are adjusted using regression analysis to take  
account of those factors which towers perrin’s research shows 
differentiate remuneration for jobs of a similar nature the factors 
include sales board membership reporting relationships and 
international activities  37    pearson annual report and accounts 2007 
for benchmarking purposes the main elements of remuneration are 
valued as follows 
element of remuneration valuation 
base salary actual base salary 
annual incentive target level of annual incentive 
bonus share matching expected value of matching award based on 50  
of target level of annual incentive 
longterm incentive expected value of longterm incentive award 
pension and benefits cost to company of providing pension and  
other benefits 
total remuneration sum of all elements of remuneration 
expected value means the net present value of awards taking into 
account the vesting schedule risk of forfeiture and the probability  
that any performance target will be met 
base salary 
our normal policy is to review salaries annually consistent with our 
approach to benchmarking set out above for 2007 the increases in 
base salary for the executive directors were in line with the general 
guideline for increases in the company as a whole with two exceptions 
in the light of its review the committee concluded that higher 
increases were justified for the chief executive to keep her salary  
in line with competitive market levels and for the chief financial 
officer to bring his salary up to competitive market levels following  
his appointment in 2006 
the committee has reviewed executive directors’ base salaries for 2008 
full details will be set out in the report on directors’ remuneration  
for 2008 
allowances and benefits 
it is the company’s policy that benefit programmes should be 
competitive in the context of the local labour market but as an 
international company we require executives to operate worldwide 
and recognise that recruitment also operates worldwide 
annual incentives 
the committee establishes the annual incentive plans for the executive 
directors and the chief executives of the company’s principal operating 
companies including performance measures and targets 
the financial performance measures relate to the company’s main 
drivers of business performance at both the corporate and operating 
company level performance is measured separately for each item  
for each performance measure the committee establishes threshold 
target and maximum levels of performance for different levels  
of payout  
with the exception of the ceo 10 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 ceo these  
may include inter alia objectives relating to corporate social 
responsibility the company publishes a detailed annual report  
on our progress and plans in this area which is available at 
wwwpearsoncomcommunitycsrreport2007 
for 2008 the financial performance measures for pearson plc are  
sales growth in underlying adjusted earnings per share for continuing 
operations at constant exchange rates average working capital as  
a ratio to sales and operating cash flow for subsequent years the 
measures will be set at the time 
for 2008 the committee has reviewed the structure for annual 
incentives for the executive directors other than the ceo  
previously this has expressed individual annual incentive 
opportunities by reference to base salary in future starting in 2008 
these incentive opportunities will be expressed as absolute cash 
amounts the committee with the advice of the ceo will determine 
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 performance 
required to achieve the maximum payout 
in aggregate the target individual incentive opportunities for the 
current executive directors including the ceo will be up to 04 of 
operating profit in the company’s operating plan each year in each 
year’s report on directors’ remuneration the committee will set out 
the target and maximum incentive opportunities for the ceo and the 
other executive directors for the year ahead 
for 2008 there is no change to the incentive opportunity for the ceo 
which remains at 100 of base salary at target and 150 of salary at 
maximum the average target individual incentive opportunity for the 
other executive directors is £381000 compared to £345000 in 2007 
and the maximum is twice target as in 2007 
the annual incentive plans are discretionary and the committee 
reserves the right to make adjustments to payouts up or down  
taking into account exceptional factors in line with the committee’s 
existing policy 
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 the committee 
will continue to disclose details of the operation of the annual incentive 
plans in the report on directors’ remuneration each year 
annual incentive payments do not form part of pensionable earnings 
for 2007 total annual incentive opportunities were based on pearson 
plc and operating company financial performance and performance 
against personal objectives as follows 
name pearson plc 
operating
company 
personal
objectives 
marjorie scardino 100 – – 
david bell 90 – 10 
rona fairhead 30 60
ft group 
10 
robin freestone 90 – 10 
john makinson 30 60 
penguin 
group 
10  report on directors’ remuneration continued
38    pearson annual report and accounts 2007
performance in 2007 against the incentive plans was as follows 
performance against incentive plan 
incentive plan performance measure 
below
threshold 
between  
threshold  
and target 
between
target and
maximum
above
maximum
sales underlying growth in adjusted earnings per share at constant  
exchange rates average working capital to sales ratio pearson plc 
operating cash flow sales operating profit ft group
operating cash flow sales operating margin average working capital to sales ratio penguin group 
operating cash flow none of the executive directors was directly covered by the plans  
for the education businesses where the same performance measures 
applied the performance of these businesses is covered elsewhere  
in the annual report 
details of actual payouts for 2007 are set out in table 1 on page 45 
bonus share matching 
we are asking shareholders by separate resolution to approve the 
renewal of the annual bonus share matching plan first approved by 
shareholders in 1998 
the committee has reviewed the operation of this plan since its 
introduction taking into account how plans of this type have evolved 
we are seeking to renew the plan for a further tenyear term on broadly 
similar terms but we are proposing certain changes that we think are 
consistent with market practice will simplify the plan enhance take
up particularly in our key market avoid compliance difficulties in the 
us and benefit the plan’s administration 
subject to shareholders’ approval the renewed annual bonus share 
matching plan will operate in 2008 in respect of annual incentives for 
2007 the plan will continue to permit executive directors and senior 
executives around the company to invest up to 50 of any aftertax 
annual bonus in pearson shares  
if the participant’s invested shares are held they will be matched 
subject to earnings per share growth over the threeyear performance 
period on a gross basis up to a maximum of one matching share for 
every one held ie the number of matching shares will be equal to the 
number of shares that could have been acquired with the amount of 
the pretax annual bonus taken in invested shares 
one matching share for every two invested shares held ie 50 of the 
maximum matching award will be released if the company’s adjusted 
earnings per share increase in real terms by 3 per annum compound 
over the threeyear performance period one matching share for every 
one invested share held ie 100 of the maximum matching award 
will be released if the company’s adjusted earnings per share increase 
in real terms by 5 per annum compound over the same period 
for real growth in adjusted earnings per share of between 3 and 5 
per annum compound the rate at which the participant’s invested 
shares will be matched will be calculated according to a straightline 
sliding scale 
real earnings per share growth per annum proportion of maximum matching award released 
less than 3 0 
3 50 
between 3 and 5 sliding scale between 50 and 100 
5 or more 100 
earnings per share growth is calculated using the pointtopoint 
method this method compares the adjusted earnings per share in the 
company’s accounts for the financial year ended prior to the grant date 
with the adjusted earnings per share for the financial year ending three 
years later and calculates the implicit compound annual growth rate 
over the period 
real growth is calculated by reference to the uk government’s  
retail prices index all items we choose to test our earnings  
per share growth against uk inflation over three years to measure the 
company’s 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 ‘dividend’ shares representing the gross value of 
dividends that would have been paid on the matching shares during 
the holding period and reinvested 
under the previous plan if a participant’s invested shares are held  
and the company’s adjusted earnings per share increase in real terms 
by at least 3 per annum over a fiveyear period the company will 
match them on a gross basis of one share for every one held half the 
matching shares will vest if the performance condition is met over the 
first three years since its introduction there have been six full fiveyear 
cycles of this plan for the 1998 award the first onefortwo match 
vested but not the full oneforone for both the 1999 and 2000 
award both matches lapsed and for the 2001 2002 and 2003 awards 
the full oneforone match vested  39    pearson annual report and accounts 2007
details of awards made held or released under the annual bonus share matching plan in 2007 are as follows subject to audit 
date of award 
share price on 
date of award vesting  status 
22 may 2007 8999p 50 on 22 may 2010 outstanding subject to 2006 to 2009 performance 
  100 on 22 may 2012 outstanding subject to 2006 to 2011 performance 
12 april 2006 7762p 50 on 12 april 2009 outstanding subject to 2005 to 2008 performance 
  100 on 12 april 2011 outstanding subject to 2005 to 2010 performance 
15 april 2005 6310p 50 on 15 april 2008 performance condition met increase in adjusted earnings per 
share for 2004 to 2007 of 698 against target of 201 
  100 on 15 april 2010 outstanding subject to participants not electing to call for 50 
of shares that vest on 15 april 2008 and subject to 2004 
to 2009 performance 
16 april 2004 6520p 50 on 16 april 2007 target met as reported in report on directors’ remuneration for 
2006 shares held pending release on 16 april 2009 
  100 on 16 april 2009 outstanding subject to 2003 to 2008 performance 
17 april 2003 5410p 100 on 17 april 2008 performance condition met increase in adjusted earnings 
per share for 2002 to 2007 of 846 against target of 332 
shares held pending release on 17 april 2008 
19 april 2002 8920p 100 on 19 april 2007 target met as reported in report on directors’ remuneration 
for 2006 shares released on 17 may 2007 
all of the executive directors hold or held awards under this plan 
details are set out in table 4 on pages 46 and 47 and itemised as a or a 
longterm incentives 
at the annual general meeting in april 2006 shareholders approved 
the renewal of the longterm incentive plan first introduced in 2001 
executive directors senior executives and other managers are eligible 
to participate in the plan which can deliver restricted stock andor 
stock options the aim is to give the committee a range of tools with 
which to link corporate performance to management’s longterm 
reward in a flexible way it is not the committee’s intention to grant 
stock options in 2008 
restricted stock granted to executive directors vests only when 
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
governing an award of restricted stock prior to grant 
the performance measures that have applied since 2006 and that  
will apply for 2008 and subsequent awards for the executive directors 
are focused on delivering and improving returns to shareholders 
these are relative total shareholder return tsr return on invested 
capital roic and earnings per share eps growth 
total shareholder return is the return to shareholders from any  
growth in pearson’s share price and reinvested dividends over the 
performance period for longterm incentive awards tsr is measured 
relative to the constituents of the ftse world media index over a 
threeyear period companies that drop out of the index are excluded 
ie only companies in the index for the entire period are counted  
share price is averaged over 20 days at the start and end of the 
performance period commencing on the date of pearson’s results’ 
announcement in the year of grant and the year of vesting dividends 
are treated as reinvested on the exdividend date in line with the 
datastream methodology 
return on invested capital is adjusted operating profit less cash tax 
expressed as a percentage of gross invested capital net operating assets 
plus gross goodwill 
earnings per share is calculated by dividing the profit attributable to 
equity shareholders of pearson by the weighted average number of 
ordinary shares in issue during the year excluding ordinary shares 
purchased by pearson and held as treasury shares  
for 2008 and subsequent awards earnings per share growth is 
calculated using the pointtopoint method this method compares 
the adjusted earnings per share in the company’s accounts for the 
financial year ended prior to the grant date with the adjusted earnings 
per share for the financial year ending three years later and calculates 
the implicit compound annual growth rate over the period  
for awards prior to 2008 earnings per share growth is calculated using 
the aggregate method that sums the results for each year and calculates 
the compound aggregate average annual growth assuming a constant 
increase on the base year through the period sales growth – relevant to 
awards prior to 2006 – was also calculated using the aggregate method 
pearson’s reported financial results for the relevant periods are used  
to measure performance the committee has discretion to make 
adjustments taking into account exceptional factors that distort 
underlying business performance in exercising such discretion the 
committee is guided by the principle of aligning shareholder and 
management interests 
the committee determines the performance measures and targets report on directors’ remuneration continued
40    pearson annual report and accounts 2007
the vesting of shares based on relative total shareholder return is 
subject to the committee satisfying itself that the recorded total 
shareholder return is a genuine reflection of the underlying financial 
performance of the business 
the committee chose total shareholder return relative to the 
constituents of the ftse world media index because in line  
with many of our shareholders it felt that part of executive  
directors’ rewards should be linked to performance relative to  
the company’s peers 
we chose return on invested capital because over the past few years 
the transformation of pearson has significantly increased the capital 
invested in the business mostly in the form of goodwill associated 
with acquisitions and required substantial cash investment to 
integrate those acquisitions 
earnings per share growth was chosen because strong bottomline 
growth is imperative if we are to improve our total shareholder return 
and our return on invested capital 
pearson wishes to encourage executives and managers to build up a 
longterm 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 threeyear period 75 of the award 
vests at the end of the threeyear period the remaining 25 of the 
award only vests if the participant retains the aftertax number of 
shares that vest at year three for a further two years 
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 
where shares vest participants receive additional shares representing 
the gross value of dividends that would have been paid on these shares 
during the performance period and reinvested the expected value of 
awards made on this basis takes this into account 
the committee’s independent advisers calculate each year the  
expected value of awards ie their net present value after taking into 
account the vesting schedule risk of forfeiture and the probability  
that any performance targets will be met in the case of return on 
invested capital and earnings per share growth these probabilities  
take into account the company’s strategic objectives over the 
performance period 
the committee establishes each year the expected value of individual 
awards taking into account these values and assessments by the 
committee’s independent advisers of market practice for comparable 
companies and of directors’ total remuneration relative to the market 
in establishing the expected value of individual awards the committee 
also has regard to the face value of the awards and their potential value 
should the performance targets be met in full 
the committee will set stretching targets for the 2008 awards that are 
consistent with the company’s strategic objectives over the period to 
2010 it is the committee’s intention that these targets will be no less 
demanding than the targets for the 2007 awards full details of the 
targets and individual awards will be set out in the report on directors’ 
remuneration for 2008  41    pearson annual report and accounts 2007 
details of awards made vested or released under the longterm incentive plan in 2007 are as follows subject to audit 
date of award 
share 
price on  
date of 
award vesting date 
performance 
measures award  
split equally across 
three measures 
performance
period payout at threshold payout at maximum 
actual 
performance 
proportion of 
award vested status of award 
30 july 2007 778p 30 july 2010 relative 
tsr 
2007 to 2010 30 at 
median 
100 at upper 
quartile 
– – outstanding 
   roic 2009 25 for roic 
of 85 
100 for 
roic of 
105 
– – outstanding 
   eps growth 2007 2008 
and 2009 
compared to 
2006 base year 
30 for 
eps growth 
of 60 
100 for 
eps growth 
of 120 
– – outstanding 
23 september 
2005 
655p 23 september 
2008 
relative tsr 2005 to 2008 40 at median 100 at upper 
quartile 
– – remain held 
because the 
performance 
period ends 
after the date of 
this report 
   roic 2007 25 for roic 
of 75 
100 for 
roic of 90 
82 60  vested and 
remain held 
pending release 
   eps growth 
and sales 
growth matrix 
2005 2006 
and 2007 
compared to 
2004 base year 
30 for real 
growth in both 
sales and eps 
100 for 10 
growth in 
either sales or 
eps or 
between real 
and 10 
growth 
in both 
eps growth 
204  
sales growth 
50 
100 vested and 
remain held 
pending release 
21 december 
2004 
613p 21 december 
2007 
relative tsr 2004 to 2007 40 at median 100 at upper 
quartile
71st percentile 
31 out of 104 
companies 
8992
   roic 2006 25 for roic 
of 65
100 for 
roic of 80
80 100
   eps growth 
and sales 
growth matrix 
2004 2005 and 
2006 compared 
to 2003 base 
year
30 for real 
growth in both 
sales and eps
100 
for 10 
growth in 
either sales or 
eps or 
between real 
and 10 
growth 
in both
eps growth 
107  
sales growth 
15 
50 for 
details see 
report on 
directors’ 
remuneration 
for 2006
7997 of 
shares vested 
three
quarters were 
released on 
21 december 
2007 if after
tax number of 
share are 
retained for a 
further two 
years the 
remaining 
quarter will 
be released on 
21 december 
2009
 
awards of restricted shares made on 16 december 2002 26 september 
2003 and 13 october 2006 remain outstanding the original terms  
of the awards were disclosed in detail in the reports on directors’ 
remuneration for the years in which the awards were made we will 
disclose at the relevant time performance against targets and the  
extent to which these awards vest or lapse all of the executive directors 
hold or held awards under this plan details are set out in table 4 on 
pages 46 and 47 and itemised as b or b 
allemployee share plans 
executive directors are eligible to participate in the company’s  
allemployee share plans on the same terms as other employees  
these plans comprise share acquisition savings programmes in  
the uk and the us 
 
these plans operate within specific tax legislation including a 
requirement to finance acquisition of shares using the proceeds of  
a monthly savings contract and the acquisition of shares under  
these plans is not subject to the satisfaction of a performance target 
dilution and use of equity 
awards under the company’s various stock plans may be satisfied 
using existing shares bought in the market treasury shares or  
newlyissued shares 
in the case of restricted stock awards under the longterm incentive 
plan and matching share awards under the annual bonus share 
matching plan the company would normally expect to use  
existing shares  report on directors’ remuneration continued
42    pearson annual report and accounts 2007
in any rolling tenyear period no more than 10 of pearson equity 
will be issued or be capable of being issued under all pearson’s share 
plans and no more than 5 of pearson equity will be issued or be 
capable of being issued under executive or discretionary plans 
at 31 december 2007 stock awards to be satisfied by newissue equity 
granted in the last ten years under all employee share plans amounted 
to 40 of the company’s issued share capital and under executive or 
discretionary plans amounted to 27 
the headroom available for all employee plans and executive or 
discretionary plans is as follows 
2007 2006 2005 
headroom for all employee plans 60 66 64 
headroom for executive or  
discretionary plans 23 27 25 
in addition no more than 5 of pearson equity may be held in trust  
at any time against this limit shares held in trust amount to 16 
15 in 2006 of the company’s issued share capital and the available 
headroom is 34 
shareholding of executive directors 
as previously noted in line with the policy of encouraging widespread 
employee ownership the company encourages executive directors to 
build up a substantial shareholding in the company 
given the share retention features of the annual bonus share matching 
and longterm incentive plans and the volatility of the stock market 
we do not think it is appropriate to specify a particular relationship  
of shareholding to salary however we describe separately here both 
the number of shares that the executive directors hold and the value 
expressed as a percentage of base salary  
no executive director sold shares during the year other than to cover 
the cost of exercising share options or to satisfy income tax liability  
on the exercise of share options or the release of restricted shares 
the current value of the executive directors’ own shares based on the 
middle market value of pearson shares of 666p on 29 february 2008 
against the annual base salary set out in this report is as follows 
own shares 
number of 
shares 
value  of 
base salary 
marjorie scardino 400886 297
david bell 172896 261
rona fairhead 121556 166
robin freestone 7930 13
john makinson 306592 403
in addition the executive directors have prospective holdings as a 
result of restricted shares that have vested and are held pending release 
the current value of these shares before any withholdings is as follows 
restricted shares 
number of 
shares 
value  of 
base salary 
marjorie scardino 323197 239
david bell 132024 199
rona fairhead 167217 229
robin freestone – –
john makinson 141212 185
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 these service agreements 
provide that the company may terminate these agreements by  
giving 12 months’ notice and in some instances they specify the 
compensation payable by way of liquidated damages in circumstances 
where the company terminates the agreements without notice or 
cause we feel that these notice periods and provisions for liquidated 
damages are adequate compensation for loss of office and in line with 
the market 
we summarise the service agreements that applied during 2007 and that continue to apply for 2008 as follows 
name  date of agreement notice periods  
compensation on termination by the 
company without notice or cause 
glen moreno 29 july 2005 12 months from the director 
12 months from the company 
100 of annual fees at the date 
of termination 
marjorie scardino 27 february 2004 six months from the director 
12 months from the company 
100 of annual salary at the date of 
termination the annual cost of pension 
and all other benefits and 50 of 
potential annual incentive 
david bell 15 march 1996 six months from the director 
12 months from the company 
100 of annual salary at the date of 
termination the annual cost of pension 
and all other benefits and 50 of 
potential annual incentive 
rona fairhead 24 january 2003 six months from the director 
12 months from the company 
100 of annual salary at the date of 
termination the annual cost of pension 
and all other benefits and 50 of 
potential annual incentive 
robin freestone 5 june 2006 six months from the director 
12 months from the company 
no contractual provisions 
john makinson 24 january 2003 six months from the director 
12 months from the company 
100 of annual salary at the date of 
termination the annual cost of pension 
and all other benefits and 50 of 
potential annual incentive  43    pearson annual report and accounts 2007 
retirement benefits 
we describe the retirement benefits for each of the executive directors 
details of directors’ pension arrangements are set out in table 2 on 
page 45 of this report 
executive directors participate in the pension arrangements set up for 
pearson employees 
marjorie scardino 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 pension arrangements for all the executive directors include life 
insurance cover while in employment and entitlement to a pension in 
the event of illhealth or disability a pension for their spouse andor 
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 a pension on 
retirement the lump sum accrued at 6 of capped compensation 
until 31 december 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 spouse’s pension on death in service and the 
option to provide a death in retirement pension by reducing the 
member’s pension 
the defined contribution arrangement in the us is a 401k 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 after age 50  
the accrued pension is reduced on retirement prior to age 60 
pensions in payment are guaranteed to increase each year at 5  
or the increase in the index of retail prices if lower pensions for a 
member’s spouse dependant children andor nominated financial 
dependant are payable in the event of death 
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 £108600 as 
at 6 april 2006 was abolished by the finance act 2004 however the 
pearson group pension plan has retained its own ‘cap’ which will 
increase annually in line with the uk government’s index of retail 
prices all items the cap was £112800 as at 6 april 2007 
in response to the uk government’s plans for pensions simplification 
and socalled ‘aday’ 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 were offered 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 401k plan 
additional pension benefits are provided through an unfunded 
unapproved defined contribution plan and a funded defined 
contribution plan approved by hm revenue and customs as a 
corresponding plan to replace part of the unfunded plan the account 
balance of the unfunded unapproved defined contribution plan is 
determined by reference to the value of a notional cash account that 
increases annually by a specified notional interest rate this plan 
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 
david bell 
david bell is a member of the pearson group pension plan he is 
eligible for a pension of twothirds of his final base salary at age 62  
due to his long service but early retirement before that date is possible 
subject to company consent 
rona fairhead 
rona fairhead is a member of the pearson group pension plan  
her pension accrual rate is 130th 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 nonpensionable  
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 nonpensionable 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 31 december 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 twothirds of a revalued base 
salary on retirement at age 62 the revalued base salary is defined as 
£450000 effective at 1 june 2002 increased at 1 january each year  
by reference to the increase in the uk government’s 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 possible 
from age 50 with company consent 
the pension is reduced to reflect the shorter service and before age 60 
further reduced for early payment  report on directors’ remuneration continued
44    pearson annual report and accounts 2007
executive directors’ nonexecutive directorships 
our policy is that executive directors may by agreement with the 
board serve as nonexecutives of other companies and retain any fees 
payable for their services 
the following executive directors served as nonexecutive directors 
elsewhere and received fees or other benefits for the period covered by 
this report as follows 
company feesbenefits 
marjorie scardino nokia corporation €150000
 macarthur foundation 20000
david bell vitec group plc £12283
rona fairhead hsbc holdings plc £102501
robin freestone echem £3115
john makinson 
george weston 
limited c34625 
chairman’s remuneration 
our policy is that the chairman’s 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 longterm incentive 
retirement or other benefits 
in accordance with the terms of his appointment the committee 
reviewed the chairman’s remuneration in 2007 in the light of this 
review including a market assessment by towers perrin the board 
approved the committee’s recommendation that the chairman’s 
remuneration be increased to £450000 per year with effect from  
1 january 2007 
nonexecutive directors 
fees for nonexecutive directors are determined by the full board 
having regard to market practice and within the restrictions contained 
in the company’s articles of association nonexecutive directors 
receive no other pay or benefits other than reimbursement for 
expenses incurred in connection with their directorship of the 
company and do not participate in the company’s equitybased 
incentive plans 
the report on directors’ remuneration for 2006 noted that the board 
intended to review the level and structure of nonexecutive directors’ 
fees in 2007 which had been last reviewed with effect from 1 january 
2005 in the light of this review which included a market assessment 
by towers perrin the board agreed an increase in the basic fee an 
increase in the fees for committee chairmanship audit committee 
membership and the senior independent director and the removal  
of the previous separate fee for overseas meetings 
the level and structure of nonexecutive directors’ fees effective from  
1 july 2007 is as follows 
fees 
payable from 
1 july 
2007
nonexecutive director £60000
chairmanship of audit committee £20000
chairmanship of personnel committee £15000
membership of audit committee £10000
membership of personnel committee £5000
senior independent director £15000
a minimum of 25 of the basic fee is paid in pearson shares that the 
nonexecutive directors have committed to retain for the period of 
their directorships 
patrick cescau’s fee is paid directly to his employer 
nonexecutive 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 
total shareholder return performance 
below we set out pearson’s total shareholder return on three bases 
pearson is a constituent of all the indices shown 
first we set out pearson’s total shareholder return performance 
relative to the ftse allshare index on an annual basis over the  
fiveyear period 2002 to 2007 we have chosen this index and used  
it consistently in each report on directors’ remuneration since 2002  
on the basis that it is a recognisable reference point and an appropriate 
comparator for the majority of our investors 
250
200
100
150
50
t otal shareholder return
pearson ftse allshare
03 02 04 05 06 07
secondly to illustrate performance against our sector we show 
pearson’s total shareholder return relative to the ftse media index 
over the same fiveyear period 
and thirdly we show pearson’s total shareholder return relative to the 
ftse allshare and media indices on a monthly basis over 2007 the 
period to which this report relates 
130
120
110
100
t otal shareholder return
pearson ftse allshare ftse media
mar dec jun sep dec 45    pearson annual report and accounts 2007
items subject to audit 
the following tables form the auditable part of the remuneration report 
table 1 remuneration of the directors 
excluding contributions to pension funds and related benefits set out in table 2 directors’ remuneration was as follows 
2007 2007 2007 2007 2007 2006
all figures in £000s salariesfees 
annual
incentive allowances benefits total total 
chairman 
glen moreno 450 – – – 450 425
executive directors 
marjorie scardino 900 1341 52 39 2332 1962
david bell 442 650 0 19 1111 954
rona fairhead 487 693 0 27 1207 1062
robin freestone 405 597 0 15 1017 460
john makinson 507 743 169 29 1448 1326
nonexecutive directors 
david arculus 76 – – – 76 51
terry burns 76 – – – 76 67
patrick cescau 64 – – – 64 53
susan fuhrman 64 – – – 64 61
ken hydon 71 – – – 71 48
rana talwar resigned 27 april 2007 19 – – – 19 53
total 3561 4024 221 129 7935 6522
total 2006 including former directors 3219 3022 233 85 – 6559 
note 1 allowances for marjorie scardino include £41760 in respect of housing costs and a us payroll supplement of £10446 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 £168545 for 2007 
note 2 benefits include company car car allowance and health care and for marjorie scardino pension planning and financial advice marjorie scardino rona fairhead david bell and john makinson have  
the use of a chauffeur 
note 3 no amounts as compensation for loss of office and no expense allowances chargeable to uk income tax were paid during the year
note 4 patrick cescau’s fee is paid over to his employer 
note 5 the company provided benefits to vernon sankey after he stepped down from the board to the value of £3600 
table 2 directors’ pensions and other pensionrelated items 
directors’ pensions 
age at 
31 dec 07 
increase 
decrease 
in accrued 
pension
over the 
period
£000
accrued
pension at 
31 dec 07 
£000
1
transfer
value at
31 dec 06
£000
transfer
value at
31 dec 07
£000
2
increase
decrease
in transfer
value
over the
period
£000
increase
decrease
in accrued
pension†
over the
period
£000
transfer 
value of the  
increase 
decrease 
in accrued 
pension† at 
31 dec 07 
£000
other 
pension
costs to the 
company
over the 
period
£000
3
other
allowances
in lieu of
pension
£000
4
other
pension
related
benefit
costs
£000
5
marjorie scardino 60 01 36 317 327 10 02 18 5827 – 422
david bell 61 212 3045 50226 56237 5790 101 1646 – – –
rona fairhead 46 41 226 1386 2148 708 34 271 – 1237 28
robin freestone 49 – – – – – – – 174 1048 05
john makinson 53 237 2118 20953 27996 6989 164 2114 – – 42
less directors’ contributions 
†net of inflation 
note 1 the accrued pension at 31 december 2007 is that which would become payable from normal retirement age if the member left service at 31 december 2007 for marjorie scardino it relates only to the 
pension from the us plan and there is a decrease because of exchange rate changes over the year for david bell and rona fairhead it relates to the pension payable from the uk plan for john makinson it 
relates to the pension from the uk plan the furbs and the uurbs in aggregate 
note 2 the uk transfer values at 31 december 2007 are calculated using the assumptions for cash equivalents payable from the uk plan and are based on the accrued pension at that date for the us serp 
transfer values are calculated using a discount rate equivalent to current us government longterm bond yields the us plan is a lump sum plan and the accrued balance is shown 
note 3 for uk benefits this column comprises employer contributions to the money purchase 2003 section of the pearson group pension plan for us benefits it includes company contributions to funded 
defined contribution plans and notional contributions to unfunded defined contribution plans 
note 4 this column comprises cash allowances paid in lieu of pension benefits above the plan earnings cap 
note 5 this column comprises life cover and longterm disability insurance not covered by the retirement plans  report on directors’ remuneration continued 
46    pearson annual report and accounts 2007 
table 3 interests of directors 
 
ordinary
shares at 
1 jan 07 
ordinary
shares at
31 dec 07
or date of
leaving 
if earlier  
glen moreno 110000 170000 
marjorie scardino 216777 400886 
david arculus  1065 2223 
david bell 122962 172896 
terry burns 7097 8471 
patrick cescau 2758 2758 
rona fairhead 62593 121556 
robin freestone  2089 7930 
susan fuhrman 3830 5301 
ken hydon  6065 7172 
john makinson 172872 306592 
rana talwar resigned 27 april 2007 17728 18683 
note 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 aftertax annual bonus in pearson shares under the annual bonus share matching plan 
note 2 at 31 december 2007 and 29 february 2008 11760626 pearson ordinary shares of 25p each were held in the pearson employee share ownership trust  
no director sold shares during the year other than to cover the cost of exercising share options or to satisfy income tax liability on the exercise of share options or the release of restricted shares 
note 3 at 31 december 2007 john makinson held 1000 shares in interactive data corporation 
note 4 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 
note 5 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  
31 december 2007 was 7320p per share and the range during the year was 6945p to 9145p 
table 4 movements in directors’ interests in restricted shares 
restricted shares designated as a annual bonus share matching plan b longterm incentive plan and  where shares at 31 december 2007 have 
vested and are held pending release 
date of award 1 jan 07 awarded released lapsed 31 dec 07 
market value  
at date  
of award 
earliest  
release  
date 
date of
release 
market value
at date
of release 
marjorie scardino          
a 22507 0 60287   60287 8999p 22510   
b 161202 301700    301700 6385p 28605   
b 26903 120200    120200 5820p 26906   
b 211204 208065  156049  52016 6130p 211207 211207 7350p 
b 211204 138710  93546 13983 31181 6130p 211207 211207 7350p 
b 23905 300000   60000 240000 6550p 23908   
b 23905 150000    150000 6550p 23908   
b 131006 450000    450000 7675p 131009   
b 30707 0 420000   420000 7780p 30710   
total 1668675 480287 249595 73983 1825384     
david bell          
a 17403 6105    6105 5410p 17408   
a 16404 2251    2251 6520p 16407   
a 16404 2252    2252 6520p 16409   
b 161202 133065    133065 6385p 28605   
b 26903 82400    82400 5820p 26906   
b 211204 82531  61898  20633 6130p 211207 211207 7350p 
b 211204 55021  37107 5545 12369 6130p 211207 211207 7350p 
b 23905 113333   22667 90666 6550p 23908   
b 23905 56667    56667 6550p 23908   
b 131006 125000    125000 7675p 131009   
b 30707 0 100000   100000 7780p 30710   
total  658625 100000 99005 28212 631408      47    pearson annual report and accounts 2007 
table 4 movements in directors’ interests in restricted shares continued 
restricted shares designated as a annual bonus share matching plan b longterm incentive plan and  where shares at 31 december 2007 have 
vested and are held pending release 
date of award 1 jan 07 awarded released lapsed 31 dec 07 
market value 
at date  
of award  
earliest  
release  
date 
date of
release 
market value
at date
of release 
rona fairhead          
a 19402 933  933  0 8920p 19407 17507 9015p 
a 17403 15103    15103 5410p 17408   
a 16404 2573    2573 6520p 16407   
a 16404 2573    2573 6520p 16409   
a 15405 9873    9873 6310p 15408   
a 15405 9873    9873 6310p 15410   
a 12406 16101    16101 7762p 12409   
b 161202 133065    133065 6385p 28605   
b 26903 82400    82400 5820p 26906   
b 211204 82531  61898  20633 6130p 211207 211207 7350p 
b 211204 55021  37107 5545 12369 6130p 211207 211207 7350p 
b 23905 133333   26667 106666 6550p 23908   
b 23905 66667    66667 6550p 23908   
b 131006 140000    140000 7675p 131009   
b 30707 0 125000   125000 7780p 30710   
total 750046 125000 99938 32212 742896     
robin freestone          
a 12406 3435    3435 7762p 12409   
a 22507 0 4708   4708 8999p 22510   
b 24904 5000  5000  0 6090p 24907 24907 7500p 
b 23905 20000    20000 6550p 23908   
b 131006 125000    125000 7675p 131009   
b 30707 0 125000   125000 7780p 30710   
total 153435 129708 5000 0 278143     
john makinson          
a 17403 12210    12210 5410p 17408   
b 161202 172400    172400 6385p 28605   
b 26903 82400    82400 5820p 26906   
b 211204 82531  61898  20633 6130p 211207 211207 7350p 
b 211204 55021  37107 5545 12369 6130p 211207 211207 7350p 
b 23905 120000   24000 96000 6550p 23908   
b 23905 60000    60000 6550p 23908   
b 131006 140000    140000 7675p 131009   
b 30707 0 100000   100000 7780p 30710   
total 724562 100000 99005 29545 696012     
total 3955343 934995 552543 163952 4173843     
note 1 the number of shares shown represents the maximum number of shares that may vest subject to any performance conditions being met 
note 2 no variations to the terms and conditions of plan interests were made during the year 
note 3 the performance and other conditions that apply to outstanding awards under the annual bonus share matching plan and the longterm incentive plan and that have yet to be met were set out in the 
reports on directors’ remuneration for the years in which they were granted 
note 4 in the case of the longterm incentive plan awards made on 21 december 2004 and 23 september 2005 we detail separately the part of the award based on roic and eps growth two thirds of total 
award and that part based on relative tsr one third of total award because vesting of that part of the awards based on tsr was not known at the date of the 2006 and 2007 reports  report on directors’ remuneration continued
48    pearson annual report and accounts 2007
table 5 movements in directors’ interests in share options 
shares under option are designated as a executive b worldwide save for shares c premium priced d longterm incentive and  where options 
are exercisable 
date of grant 1 jan 07 granted exercised lapsed 31 dec 07 option price 
earliest
exercise date expiry  date 
date of 
exercise 
price on
exercise 
gain on
exercise 
marjorie scardino       
a 14998 176556 176556 9733p 14901 14908    
a 14998 5660 5660 10900p 14901 14908    
c 8699 37583 37583 13724p 8602 8609    
c 8699 37583 37583 16475p 8602 8609    
c 3500 36983 36983 0 32243p 3503 3510    
d 9501 41550 41550 14210p 9502 9511    
d 9501 41550 41550 14210p 9503 9511    
d 9501 41550 41550 14210p 9504 9511    
d 9501 41550 41550 14210p 9505 9511    
total 460565 0 0 36983 423582      £0
david bell       
a 14998 20496 20496 9733p 14901 14908    
b 30404 1142 1142 0 4948p 1807 1208 1807 7890p £3360 
b 6505 373 373 5076p 1808 1209    
b 5506 297 297 6296p 1809 1210    
b 4507 0 821 821 6904p 1810 1211    
c 8699 18705 18705 13724p 8602 8609    
c 8699 18705 18705 16475p 8602 8609    
c 3500 18686 18686 0 32243p 3503 3510    
d 9501 16350 16350 14210p 9502 9511    
d 9501 16350 16350 14210p 9503 9511    
d 9501 16350 16350 14210p 9504 9511    
d 9501 16350 16350 14210p 9505 9511    
total 143804 821 1142 18686 124797      £3360
rona fairhead       
b 30404 1904 1904 4948p 1807 1208    
b 4507 0 2371 2371 6904p 1812 1213    
d 11101 20000 20000 8220p 11102 11111    
d 11101 20000 20000 8220p 11103 11111    
d 11101 20000 20000 8220p 11104 11111    
total 61904 2371 0 0 64275     £0 49    pearson annual report and accounts 2007
table 5 movements in directors’ interests in share options continued 
shares under option are designated as a executive b worldwide save for shares c premium priced d longterm incentive and  where options 
are exercisable 
date of grant 1 jan 07 granted exercised lapsed 31 dec 07 option price 
earliest
exercise date expiry  date 
date of 
exercise 
price on
exercise 
gain on
exercise 
robin freestone 
b 6505 1866 18665076p 1808 1209    
total 1866 0 0 0 1866 £0
john makinson 
a 12997 73920 73920 0 6764p 12900 12907 25607 8365p £118346 
a 14998 30576 305769733p 14901 14908    
b 9503 4178 41784248p 1810 1211    
c 8699 21477 2147713724p 8602 8609    
c 8699 21477 2147716475p 8602 8609    
c 3500 21356 21356 032243p 3503 3510    
d 9501 19785 1978514210p 9502 9511    
d 9501 19785 1978514210p 9503 9511    
d 9501 19785 1978514210p 9504 9511    
d 9501 19785 1978514210p 9505 9511    
total 252124 0 73920 21356 156848 £118346 
total 920263 3192 75062 77025 771368 £121706 
note 1 no variations to the terms and conditions of share options were made during the year 
note 2 each plan is described below 
a executive – the plans under which these options were granted were replaced with the introduction of the longterm incentive plan in 2001 no executive options have been granted to the directors since 1998 
all options that remain outstanding are exercisable all performance conditions having already been met prior to 2007 and lapse if they remain unexercised at the tenth anniversary of the date of grant 
marjorie scardino david bell and john makinson hold options under this plan details of these awards are itemised as a 
b 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
david bell rona fairhead robin freestone and john makinson hold options under this plan details of these holdings are itemised as b 
c premium priced – the plan under which these options were granted was replaced with the introduction of the longterm incentive plan in 2001 no premium priced options ppos have been granted to the 
directors since 1999 
the share price targets for the threeyear and fiveyear tranches of ppos granted in 1999 have already been met prior to 2007 the share price target for the sevenyear tranche of ppos granted in 2000 was not 
met in 2007 and the options lapsed the secondary real growth in earnings per share target for any ppos to become exercisable has already been met prior to 2007 
all ppos that remain outstanding lapse if they remain unexercised at the tenth anniversary of the date of grant 
marjorie scardino david bell and john makinson hold ppos under this plan details of these awards are itemised as c 
d longterm incentive – all options that remain outstanding are exercisable and lapse if they remain unexercised at the tenth anniversary of the date of grant 
details of the option grants under this plan for marjorie scardino david bell rona fairhead and john makinson are itemised as d 
note 3 in addition marjorie scardino contributes us1000 per month the maximum allowed to the us employee stock purchase plan the terms of this plan allow participants to make monthly contributions 
for one year and to acquire shares at the end of that period at a price that is the lower of the market price at the beginning or the end of the period both less 15 
note 4 the market price on 31 december 2007 was 7320p per share and the range during the year was 6945p to 9145p 
approved by the board and signed on its behalf by 
david arculus director 13 march 2008  consolidated income statement 
year ended 31 december 2007 
50    pearson annual report and accounts 2007 
all figures in £ millions notes 2007 2006 
continuing operations    
sales 2 4162 3990 
cost of goods sold 4 1910 1841
gross profit  2252 2149 
operating expenses 4 1701 1651
share of results of joint ventures and associates 12 23 24 
operating profit 2 574 522 
finance costs 6 150 133
finance income  6 44 59 
profit before tax  468 448 
income tax 7 131 4
profit for the year from continuing operations  337 444 
lossprofit for the year from discontinued operations 3 27 25 
profit for the year  310 469 
attributable to    
equity holders of the company  284 446 
minority interest  26 23 
earnings per share for profit from continuing and discontinued operations attributable to the equity holders of the 
company during the year expressed in pence per share    
– basic 8 356p 559p 
– diluted 8 356p 558p 
earnings per share for profit from continuing operations attributable to the equity holders of the company during the 
year expressed in pence per share    
– basic 8 390p 527p 
– diluted 8 390p 526p 
 
 
consolidated statement of recognised income and expense 
year ended 31 december 2007 
 
all figures in £ millions notes 2007 2006 
net exchange differences on translation of foreign operations 28 25 417
actuarial gains on retirement benefit obligations 24 80 107 
taxation on items charged to equity 7 29 12 
net incomeexpense recognised directly in equity  134 298
profit for the year  310 469 
total recognised income and expense for the year  444 171 
attributable to    
equity holders of the company  418 148 
minority interest  26 23  consolidated balance sheet 
as at 31 december 2007 
51    pearson annual report and accounts 2007 
all figures in £ millions notes 2007 2006 
assets    
noncurrent assets    
property plant and equipment 10 355 348 
intangible assets 11 3814 3581 
investments in joint ventures and associates 12 20 20 
deferred income tax assets 13 328 417 
financial assets – derivative financial instruments 16 23 36 
retirement benefit assets 24 62 – 
other financial assets  15 52 17 
other receivables 19 129 124 
  4783 4543 
current assets    
intangible assets – prepublication 17 450 402 
inventories 18 368 354 
trade and other receivables 19 946 953 
financial assets – derivative financial instruments 16 28 50 
financial assets – marketable securities  40 25 
cash and cash equivalents excluding overdrafts 20 560 592 
  2392 2376 
noncurrent assets classified as held for sale 30 117 294 
  2509 2670 
total assets  7292 7213 
liabilities    
noncurrent liabilities    
financial liabilities – borrowings 21 1049 1148
financial liabilities – derivative financial instruments 16 16 19
deferred income tax liabilities 13 287 245
retirement benefit obligations 24 95 250
provisions for other liabilities and charges 22 44 29
other liabilities 23 190 162
  1681 1853
current liabilities   
trade and other liabilities 23 1050 998
financial liabilities – borrowings 21 559 595
current income tax liabilities  96 74
provisions for other liabilities and charges 22 23 23
  1728 1690
liabilities directly associated with noncurrent assets classified as held for sale 30 9 26
total liabilities  3418 3569
net assets  3874 3644 
equity    
share capital 26 202 202 
share premium 26 2499 2487 
treasury shares 27 216 189
other reserves 28 514 592
retained earnings 28 1724 1568 
total equity attributable to equity holders of the company  3695 3476 
minority interest  179 168 
total equity  3874 3644 
these financial statements have been approved for issue by the board of directors on 13 march 2008 and signed on its behalf by 
robin freestone chief financial officer consolidated cash flow statement 
year ended 31 december 2007 
52    pearson annual report and accounts 2007 
all figures in £ millions notes 2007 2006 
cash flows from operating activities    
net cash generated from operations 32 659 621 
interest paid  109 106
tax paid  87 59
net cash generated from operating activities  463 456 
cash flows from investing activities    
acquisition of subsidiaries net of cash acquired 29 472 363
acquisition of joint ventures and associates  4 4
purchase of property plant and equipment ppe  86 68
proceeds from sale of ppe 32 14 8 
purchase of intangible assets  33 29
disposal of subsidiaries net of cash disposed 31 469 10 
interest received  19 24 
dividends received from joint ventures and associates  32 45 
net cash used in investing activities  61 377
cash flows from financing activities    
proceeds from issue of ordinary shares 26 12 11 
purchase of treasury shares  72 36
proceeds from borrowings  272 84 
liquid resources acquired  15 24
repayment of borrowings  391 145
finance lease principal payments  2 3
dividends paid to company’s shareholders 9 238 220
dividends paid to minority interests  10 15
net cash used in financing activities  444 348
effects of exchange rate changes on cash and cash equivalents  3 44
net decrease in cash and cash equivalents  39 313
cash and cash equivalents at beginning of year  531 844 
cash and cash equivalents at end of year 20 492 531  independent auditors’ report to the members of pearson plc 
53    pearson annual report and accounts 2007 
we have audited the group and company financial statements 
together the ‘financial statements’ of pearson plc for the year ended 
31 december 2007 the group financial statements comprise the 
consolidated income statement the consolidated balance sheet  
the consolidated statement of recognised income and expense  
the consolidated cash flow statement and the related notes to  
the consolidated financial statements the company financial 
statements comprise the company statement of recognised income 
and expense the company balance sheet the company cash flow 
statement and the related notes to the company financial statements 
these financial statements have been prepared under the accounting 
policies set out therein we have also audited the information in  
the report on directors’ remuneration that is described as having 
been audited 
respective responsibilities of directors and auditors 
the directors’ responsibilities for preparing the annual report  
and accounts in accordance with applicable law and international 
financial reporting standards ifrss as adopted by the european 
union are set out in the statement of directors’ responsibilities 
our responsibility is to audit the financial statements and the part of 
the report on directors’ remuneration to be audited in accordance 
with relevant legal and regulatory requirements and international 
standards on auditing uk and ireland this report including the 
opinion has been prepared for and only for the company’s members 
as a body in accordance with section 235 of the companies act 1985 
and for no other purpose we do not in giving this opinion accept  
or assume responsibility for any other purpose or to any other person 
to whom this report is shown or into whose hands it may come save 
where expressly agreed by our prior consent in writing 
we report to you our opinion as to whether the financial statements 
give a true and fair view and whether the financial statements and  
the part of the report on directors’ remuneration to be audited  
have been properly prepared in accordance with the companies act 
1985 and as regards the group financial statements article 4 of the 
ias regulation we also report to you whether in our opinion the 
information given in the directors’ report is consistent with the 
financial statements the information given in the directors’ report 
includes that specific information presented in the business review 
that is cross referred from the directors’ report 
in addition we report to you if in our opinion the company has  
not kept proper accounting records if we have not received all  
the information and explanations we require for our audit or if 
information specified by law regarding directors’ remuneration  
and other transactions is not disclosed 
we review whether the corporate governance statement reflects the 
company’s compliance with the nine provisions of the combined 
code 2006 specified for our review by the listing rules of the 
financial services authority and we report if it does not we are  
not required to consider whether the board’s statements on internal 
control cover all risks and controls or form an opinion on the 
effectiveness of the group’s corporate governance procedures  
or its risk and control procedures 
we read other information contained in the annual report and 
accounts and consider whether it is consistent with the audited 
financial statements the other information comprises the business 
review the directors’ report the unaudited part of the report on 
directors’ remuneration and all other information referred to on  
the contents page we consider the implications for our report if  
we become aware of any apparent misstatements or material 
inconsistencies with the financial statements our responsibilities  
do not extend to any other information 
basis of audit opinion 
we conducted our audit in accordance with international standards 
on auditing uk and ireland issued by the auditing practices board 
an audit includes examination on a test basis of evidence relevant  
to the amounts and disclosures in the financial statements and the 
part of the report on directors’ remuneration to be audited it also 
includes an assessment of the significant estimates and judgments 
made by the directors in the preparation of the financial statements 
and of whether the accounting policies are appropriate to the  
group’s and company’s circumstances consistently applied and 
adequately disclosed 
we planned and performed our audit so as to obtain all the 
information and explanations which we considered necessary in order 
to provide us with sufficient evidence to give reasonable assurance  
that the financial statements and the part of the report on directors’ 
remuneration to be audited are free from material misstatement 
whether caused by fraud or other irregularity or error in forming our 
opinion we also evaluated the overall adequacy of the presentation of 
information in the financial statements and the part of the report on 
directors’ remuneration to be audited 
opinion 
in our opinion 
– the group financial statements give a true and fair view in 
accordance with ifrss as adopted by the european union of the 
state of the group’s affairs as at 31 december 2007 and of its profit 
and cash flows for the year then ended 
– the company financial statements give a true and fair view in 
accordance with ifrss as adopted by the european union as 
applied in accordance with the provisions of the companies act 
1985 of the state of the company’s affairs as at 31 december 2007 
and cash flows for the year then ended 
– the financial statements and the part of the report on directors’ 
remuneration to be audited have been properly prepared in 
accordance with the companies act 1985 and as regards the  
group financial statements article 4 of the ias regulation and 
– the information given in the directors’ report is consistent with 
the financial statements 
pricewaterhousecoopers llp 
chartered accountants and registered auditors london 
13 march 2008  notes to the consolidated financial statements 
54    pearson annual report and accounts 2007 
general information 
pearson plc the company and its subsidiaries together the group 
are involved in the provision of information for the educational sector 
consumer publishing and business information 
the company is a limited liability company incorporated and 
domiciled in england the address of its registered office is 80 strand 
london wc2r 0rl 
the company has its primary listing on the london stock exchange 
but is also listed on the new york stock exchange 
these consolidated financial statements were approved for issue  
by the board of directors on 13 march 2008 
1 accounting policies 
the principal accounting policies applied in the preparation of these 
consolidated financial statements are set out below 
a basis of preparation  
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 1985 andor the companies  
act 2006 as applicable 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 euadopted 
and iasbadopted 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 at  
fair value 
1 interpretations and amendments to published standards effective  
in 2007 – the group has adopted ifrs 7 ‘financial instruments 
disclosures’ from 1 january 2007 the impact of the standard has  
been to expand the disclosures provided in these financial statements 
regarding the group’s financial instruments see notes 14 16 19 and 
21 the group has also adopted amendments to ias 1 ‘presentation 
of financial statements – capital disclosures’ which resulted in the 
presentation of its objectives policies and processes for managing 
capital as set out in note 26 
in addition ifric 10 ‘interim financial reporting and impairment’  
is mandatory for the group’s accounting periods beginning on or  
after 1 january 2007 management assessed the relevance of this 
interpretation with respect to the group’s operations and concluded 
that it is not relevant to the group 
2 standards interpretations and amendments to published standards 
that are not yet effective – the group has decided to adopt ifric 14 
‘ias 19 – the limit on a defined benefit asset minimum funding 
requirements and their interaction’ before its effective date  
1 january 2008 ifric 14 resulted in no change to the full 
recognition of the pension asset as disclosed in note 24 
the group has not early adopted the following new pronouncements 
that are not yet effective 
– ifrs 8 ‘operating segments’ effective for annual reporting periods 
beginning on or after 1 january 2009 ifrs 8 requires an entity  
to adopt the ‘management approach’ to reporting on the financial 
performance of its operating segments revise explanations of the  
basis on which the segment information is prepared and provide 
reconciliations to the amounts recognised in the income statement 
and balance sheet 
– amendment to ias 23 ‘borrowing costs’ effective for annual 
reporting periods beginning on or after 1 january 2009  
the amendment to ias 23 requires capitalisation of borrowing costs 
that relate to assets that take a substantial period of time to get ready 
for use or sale with the exception of assets measured at fair value  
or inventories manufactured or produced in large quantities on  
a repetitive basis 
– ifric 11 ‘group and treasury share transactions’ effective  
for annual reporting periods beginning on or after 1 march 2007  
ifric 11 addresses how to apply ifrs 2 sharebased payment to 
sharebased payment arrangements involving an entity’s own equity 
instruments or equity instruments of another entity in the same group 
management is currently assessing the impact of these new standards 
and interpretations on the group’s financial statements 
in addition management has assessed the relevance of the  
following amendments and interpretations with respect to the  
group’s operations 
– ifric 13 ‘customer loyalty programmes’ effective for annual 
reporting periods beginning on or after 1 july 2008 ifric 13 explains 
how entities that grant loyalty award credits to customers should 
account for their obligations to provide free or discounted goods  
or services to customers who redeem award credits as none of the  
group entities operate a customer loyalty programme ifric 13  
is not relevant to the group’s operations 
– ifric 12 ‘service concession arrangements’ effective for annual 
reporting periods beginning on or after 1 january 2008 ifric 12 
addresses the accounting by privatesector entities that by contract 
with a government participate in developing financing operating 
and maintaining infrastructure assets relating to public services 
traditionally provided by governments as none of the group entities 
participate in these activities ifric 12 is not relevant to the group 
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 group’s 
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  prepublication assets 
– royalty advances   
– taxation 
– employee benefits  pension obligations 
– revenue recognition  55    pearson annual report and accounts 2007 
1 accounting policies continued 
b consolidation 
1 business combinations – the purchase method of accounting  
is used to account for the acquisition of subsidiaries by the group  
the cost of an acquisition is measured as the fair value of the assets 
given equity instruments issued and liabilities incurred or assumed at 
the date of exchange plus costs directly attributable to the acquisition 
where the settlement of consideration payable is deferred or 
contingent on future events the fair value of the deferred component 
is determined by discounting the amount payable or probable to be 
paid to its present value using an appropriate discount rate  
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 cost of acquisition over the fair value of the group’s share of the 
identifiable net assets acquired is recorded as goodwill see note 1e1 
for the accounting policy on goodwill 
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 deconsolidated from  
the date that control ceases 
3 joint ventures and associates – joint ventures are entities in which 
the group holds an interest on a longterm 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 group’s share of its joint ventures’ and associates’ postacquisition 
profits or losses is recognised in the income statement and its share  
of postacquisition movements in reserves is recognised in reserves 
the group’s share of its joint ventures’ and associates’ results is 
recognised as a component of operating profit as these operations 
form part of the core publishing business of the group and an integral 
part of existing wholly owned businesses the cumulative post
acquisition movements are adjusted against the carrying amount of 
the investment when the group’s 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 group’s 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 company’s 
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 
translation differences on other nonmonetary items such as  
equities held at fair value are reported as part of the fair value gain  
or loss through the income statement fair value adjustments on  
nonmonetary items such as equities classified as available for sale 
financial assets are included in the fair value reserve in equity 
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 intercompany 
loan balances which are not intended to be repaid in the foreseeable 
future as part of its net investment when a foreign entity 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 200 2006 184 
and the year end rate was 199 2006 196 
d property plant and equipment 
property plant and equipment is stated at historical cost less 
depreciation  land is not depreciated depreciation on other assets  
is calculated using the straightline method to allocate their cost to 
their residual values over their estimated useful lives as follows 
buildings freehold 20–50 years 
buildings leasehold 50 years or over the period of the  
  lease if shorter 
plant and equipment 3–20 years 
the assets’ residual values and useful lives are reviewed and adjusted  
if appropriate at each balance sheet date 
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  notes to the consolidated financial statements continued 
 
56    pearson annual report and accounts 2007 
1 accounting policies continued 
e intangible assets 
1 goodwill – goodwill represents the excess of the cost of an 
acquisition over the fair value of the group’s share of the net 
identifiable assets of the acquired subsidiary or associate at the date  
of acquisition goodwill on acquisitions of subsidiaries is included  
in intangible assets 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 the recoverable amounts of  
cashgenerating units have been determined based on value in use 
calculations these calculations require the use of estimates see note 
11 goodwill is allocated to cashgenerating units for the purpose of 
impairment testing the allocation is made to those cashgenerating 
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 straightline 
basis over its estimated useful life of between three and five 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 straightline basis  
over its estimated useful life of between three and five years 
4 acquired intangible assets – acquired intangible assets comprise 
publishing rights customer lists and relationships technology trade 
names and trademarks 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 a 
depreciation method that reflects the pattern of their consumption 
5 prepublication assets – prepublication costs 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 prepublication 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 the investment in prepublication assets has been 
disclosed as part of cash generated from operations in the cash flow 
statement see note 32 
the assessment of the recoverability of prepublication 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 
prepublication assets the carrying amount of prepublication assets 
is set out in note 17 
f other financial assets 
other financial assets designated as available for sale investments  
are nonderivative 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 through the income statement 
g inventories 
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 
h royalty advances 
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 then 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 noncurrent 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  
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 at call with banks other shortterm 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 
shortterm 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  57    pearson annual report and accounts 2007 
1 accounting policies continued 
k share capital 
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 company’s 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 company’s 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 company’s equity holders 
l borrowings 
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 to reflect the 
hedged risk interest on borrowings is expensed as incurred 
m derivative financial instruments 
derivatives are recognised at fair value and remeasured 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 equity 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 
n taxation 
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 
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 in which case the tax is also recognised in equity 
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 
o employee benefits 
1 pension obligations – the retirement benefit assetobligation 
recognised in the balance sheet represents the present value of the 
defined benefit obligation less 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 group’s 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 
the statement of recognised income and expense 
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  notes to the consolidated financial statements continued 
 
58    pearson annual report and accounts 2007 
1 accounting policies continued 
2 other postretirement 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 
material other postretirement obligations are assessed annually by 
independent qualified actuaries 
3 sharebased payments –the fair value of options or shares  
granted under the group’s share and option plans is recognised as an 
employee expense after taking into account the group’s 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 exercised the group has applied ifrs 2 ‘sharebased payment’ 
retrospectively to all options granted but not fully vested at the date  
of transition to ifrs 
p provisions 
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 in the 
period in which 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 noncancellable operating leases  
net of estimated subleasing revenue 
q revenue recognition 
revenue comprises the fair value of the consideration received or 
receivable for the sale of goods and services net of valueadded tax  
and other 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 straightline 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 standalone 
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 multiyear 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 longterm 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 longterm 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 
r leases 
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 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 is 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 straightline basis over the period of the lease 
s dividends 
dividends are recorded in the group’s financial statements in the 
period in which they are approved by the company’s shareholders 
interim dividends are recorded in the period in which they are 
approved and paid 
t noncurrent assets held for sale and discontinued operations 
noncurrent assets are classified as assets 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 noncurrent assets classified as held for sale 
amounts relating to noncurrent assets held for sale are classified as 
discontinued operations in the income statement where appropriate 
u trade receivables 
trade receivables are stated at fair value less provision for bad and 
doubtful debts and anticipated future sales returns see also note 1q  59    pearson annual report and accounts 2007 
2 segment information 
due to the differing risks and rewards associated with each business segment and the different customer focus of each segment the group’s 
primary segment reporting format is by business the group is organised into the following five business segments 
school –  publisher of textbooks and webbased learning tools provider of testing and software services for primary and secondary schools  
higher education –  publisher of textbooks and related course materials for colleges and universities 
penguin – publisher with brand imprints such as penguin putnam berkley viking dorling kindersley 
ft publishing – publisher of the financial times other business newspapers magazines and specialist information 
interactive data – provider of financial and business information to financial institutions and retail investors 
the remaining business group professional brings together a number of education publishing testing and services businesses that publish 
texts reference and interactive products for industry professionals and does not meet the criteria for classification as a ‘segment’ under ifrs 
for more detail on the services and products included in each business segment refer to the business review 
primary reporting format – business segments 
       2007 
all figures in £ millions notes school 
higher 
education professional 
ft 
publishing 
interactive  
data penguin corporate group 
continuing operations          
sales external  1537 793 298 344 344 846 – 4162 
sales intersegment  1 – – – – 19 – 20 
operating profit before joint ventures and 
associates  169 159 26 34 90 73 – 551 
share of results of joint ventures and 
associates  6 – 1 16 – – – 23 
operating profit  175 159 27 50 90 73 – 574 
finance costs 6        150
finance income 6        44 
profit before tax         468 
income tax  7        131
profit for the year from continuing 
operations         337 
 
reconciliation to adjusted operating profit          
operating profit  175 159 27 50 90 73 – 574 
amortisation of acquired intangibles  28 2 1 6 7 1 – 45 
adjusted operating profit – continuing 
operations  203 161 28 56 97 74 – 619 
 
segment assets  2780 1742 318 397 330 937 651 7155 
joint ventures 12 5 – – 4 – 2 – 11 
associates 12 3 1 – 5 – – – 9 
assets – continuing operations  2788 1743 318 406 330 939 651 7175 
assets – discontinued operations  – – 117 – – – – 117 
total assets  2788 1743 435 406 330 939 651 7292 
total liabilities  798 266 130 251 129 220 1624 3418
other segment items          
capital expenditure  10 11 17 147 98 20 28 19 44 – 356 
depreciation  10 22 11 9 9 10 7 – 68 
amortisation  11 17 124 80 11 9 8 30 – 262  notes to the consolidated financial statements continued 
 
60    pearson annual report and accounts 2007 
2 segment information continued 
       2006 
all figures in £ millions notes school 
higher
education professional 
ft
publishing 
interactive 
data penguin corporate group 
continuing operations          
sales external  1455 795 280 280 332 848 – 3990 
sales intersegment  1 – – – – 18 – 19 
operating profit before joint ventures and 
associates  161 161 23 13 82 58 – 498 
share of results of joint ventures and 
associates  6 – 1 17 – – – 24 
operating profit  167 161 24 30 82 58 – 522 
finance costs 6        133
finance income 6        59 
profit before tax         448 
income tax  7        4
profit for the year from continuing 
operations         444 
 
reconciliation to adjusted operating profit          
operating profit  167 161 24 30 82 58 – 522 
adjustment to goodwill on recognition of 
preacquisition deferred tax  – – – – – 7 – 7 
amortisation of acquired intangibles  17 – 1 2 7 1 – 28 
other net gains and losses of associates  – – – 4 – – – 4
other net finance costs of associates  – – – 1 – – – 1
adjusted operating profit – continuing 
operations  184 161 25 27 89 66 – 552 
 
segment assets  2684 1347 580 317 314 954 703 6899 
joint ventures 12 5 – – 4 – 3 – 12 
associates 12 4 – – 4 – – – 8 
assets – continuing operations  2693 1347 580 325 314 957 703 6919 
assets – discontinued operations  – – 294 – – – – 294 
total assets  2693 1347 874 325 314 957 703 7213 
total liabilities  662 268 177 300 131 269 1762 3569
other segment items          
capital expenditure 10 11 17 124 88 30 19 20 38 – 319 
depreciation  10 21 8 19 9 13 7 – 77 
amortisation  11 17 117 78 21 4 7 34 – 261 
in 2007 sales from the provision of goods were £3086m 2006 £3031m and sales from the provision of services were £1076m 2006 
£959m sales from the group’s educational publishing consumer publishing and newspaper business are classified as being from the 
provision of goods and sales from its assessment and testing market pricing corporate training and management 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 intersegment pricing is determined on an arm’s length basis segment assets consist of property plant 
and equipment intangible assets inventories receivables retirement benefit assets and deferred taxation and exclude cash and cash equivalents 
and derivative assets segment liabilities comprise operating liabilities and retirement benefit obligations and exclude borrowings and derivative 
liabilities corporate assets and liabilities comprise cash and cash equivalents marketable securities borrowings and derivative financial 
instruments capital expenditure comprises additions to property plant and equipment and intangible assets including prepublication but 
excluding goodwill see notes 10 11 and 17  
property plant and equipment and intangible assets acquired through business combination were £226m 2006 £173m see note 29  
capital expenditure depreciation and amortisation include amounts relating to discontinued operations discontinued operations relate  
to government solutions datamark les echos and the data management business see note 3  61    pearson annual report and accounts 2007 
2 segment information continued 
secondary reporting format – geographic segments 
the group’s business segments are managed on a worldwide basis and operate in the following main geographic areas 
sales total assets  capital expenditure 
all figures in £ millions 2007 2006 2007 2006  2007 2006 
continuing operations        
european countries 1102 1003 1827 1608  90 70 
north america 2591 2585 4867 4908  248 231 
asia pacific 351 295 365 327  14 12 
other countries 118 107 96 56  2 2 
total 4162 3990 7155 6899  354 315 
discontinued operations         
european countries 83 103 – 9  1 1 
north america 78 314 117 281  1 2 
other countries 6 16 – 4  – 1 
total 167 433 117 294  2 4 
joint ventures and associates – – 20 20  – – 
total 4329 4423 7292 7213  356 319 
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  
3 discontinued operations 
discontinued operations relate to the following disposals made in the year see note 31 
– government solutions sold 15 february 2007 
– datamark acquired with ecollege and subsequently sold on 31 july 2007 
– les echos sold 24 december 2007 
the results of government solutions previously included in the professional segment and les echos previously included in the ft 
publishing segment have been included in discontinued operations for both 2006 and 2007 and have been consolidated up to the date of sale  
datamark was sold immediately following its acquisition as part of the ecollege transaction and consequently none of the results for this 
business have been consolidated 
on 22 february 2008 the group completed the sale of its data management business previously included in the professional segment  
and this business has been included in discontinued operations for the full year in both 2006 and 2007 in anticipation of the loss on sale  
an impairment to held for sale goodwill has been charged to the income statement in 2007 
the assets and liabilities of the data management business have been reported as held for sale in the 31 december 2007 balance sheet  
at 31 december 2006 held for sale assets and liabilities relate to government solutions see note 30 
an analysis of the results and cash flows of discontinued operations are as follows 
2007 
all figures in £ millions 
government
solutions 
data 
management les echos datamark total 
sales 29 56 82 – 167 
      
operating profit 2 12 1 – 15 
goodwill impairment – 97 – – 97
lossprofit before tax 2 85 1 – 82
attributable tax expense 1 4 – – 5
lossprofit after tax 1 89 1 – 87
profitloss on disposal of discontinued operations before tax 19 – 165 – 146 
attributable tax expensebenefit 93 – – 7 86
lossprofit for the year from discontinued operations 111 89 166 7 27
operating cash flows 8 11 4 – 7 
investing cash flows – 1 4 – 3 
financing cash flows 4 10 7 – 21
total cash flows 12 – 1 – 11 notes to the consolidated financial statements continued 
 
62    pearson annual report and accounts 2007 
3 discontinued operations continued 
2006 
all figures in £ millions 
government 
solutions 
data 
management les echos total 
sales 286 61 86 433 
     
operating profit 22 13 5 40 
profit before tax 22 13 5 40 
attributable tax expense 8 5 2 15
profit after tax 14 8 3 25 
profitloss on disposal of discontinued operations before tax – – – – 
attributable tax expense – – – – 
profit for the year from discontinued operations 14 8 3 25 
operating cash flows 20 9 4 33 
investing cash flows 8 2 – 10
financing cash flows 1 7 7 15
total cash flows 11 – 3 8 
4 operating expenses 
all figures in £ millions 2007 2006 
by function   
cost of goods sold 1910 1841 
operating expenses   
distribution costs 264 288 
administrative and other expenses 1538 1462 
other income 101 99
total operating expenses 1701 1651 
total 3611 3492 
 
all figures in £ millions notes 2007 2006 
by nature    
utilisation of inventory  18 732 702 
depreciation of property plant and equipment  10 65 68 
amortisation of intangible assets – prepublication  17 192 210 
amortisation of intangible assets – other  11 70 48 
employee benefit expense  5 1288 1225 
operating lease rentals  129 122 
other property costs  122 121 
royalties expensed  365 360 
advertising promotion and marketing  195 190 
information technology costs  70 71 
other costs  484 474 
other income  101 99
total  3611 3492  63    pearson annual report and accounts 2007 
4 operating expenses continued 
during the year the group obtained the following services from the group’s auditor 
all figures in £ millions 2007 2006 
fees payable to the company’s auditor for the audit of parent company and consolidated accounts 1 1 
the audit of the company’s subsidiaries pursuant to legislation 2 4 
other services pursuant to legislation 1 4 
tax services 2 1 
other services 1 1 
total 7 11 
reconciliation between audit and nonaudit service fees is shown below 
all figures in £ millions 2007 2006 
group audit fees including fees for attestation under section 404 of the sarbanesoxley act 4 9 
nonaudit fees 3 2 
total audit fees 7 11 
other services pursuant to legislation represent fees payable for services in relation to other statutory filings or engagements that are required  
to be carried out by the appointed auditor in particular this includes fees for attestation under section 404 of the sarbanesoxley act  
tax services include services related to tax planning and various other tax advisory services 
other services include services related to the disposal of the data management business due diligence on acquisitions and advisory services  
in relation to information technology and section 404 
5 employee information 
all figures in £ millions notes 2007 2006 
employee benefit expense    
wages and salaries including termination benefits and restructuring costs  1087 1035 
social security costs  100 101 
sharebased payment costs  25 30 25 
pension costs – defined contribution plans  24 39 36 
pension costs – defined benefit plans  24 31 29 
other postretirement benefits  24 1 1
  1288 1225 
the details of the emoluments of the directors of pearson plc are shown on pages 35 to 49  
average number employed 2007 2006 
employee numbers   
school 12906 11064 
higher education 5098 4368 
professional 3458 3204 
penguin 4163 3943 
ft publishing 2083 1766 
interactive data 2300 2200 
other 1614 1669 
continuing operations 31622 28214 
discontinued operations 1070 6127 
 32692 34341  notes to the consolidated financial statements continued 
 
64    pearson annual report and accounts 2007 
6 net finance costs 
all figures in £ millions notes 2007 2006 
interest payable  114 117
net foreign exchange losses  25 2
other losses on financial instruments in a hedging relationship    
– fair value hedges  1 – 
– net investment hedges  1 2
other losses on financial instruments not in a hedging relationship    
– derivatives  9 12
finance costs  150 133
interest receivable  19 23 
finance income in respect of employee benefits 24 10 4 
net foreign exchange gains  8 21 
other gains on financial instruments in a hedging relationship    
– fair value hedges  – – 
– net investment hedges  – – 
other gains on financial instruments not in a hedging relationship    
– amortisation of transitional adjustment on bonds  1 8 
– derivatives  6 3 
finance income  44 59 
net finance costs  106 74
analysed as   
net interest payable  95 94
finance income in respect of employee benefits 24 10 4 
net finance costs reflected in adjusted earnings   85 90
other net finance costsincome  21 16 
total net finance costs  106 74
the £1m net loss on fair value hedges comprises a £20m loss on the underlying bonds offset by a £19m gain on the related derivative  
financial instruments 
7 income tax 
all figures in £ millions notes 2007 2006 
current tax    
charge in respect of current year  71 81
recognition of previously unrecognised trading losses  – 23 
other adjustments in respect of prior years  27 35 
total current tax charge  44 23
deferred tax    
in respect of timing differences  96 73
recognition of previously unrecognised capital losses  – 76 
recognition of previously unrecognised trading losses  – 37 
other adjustments in respect of prior years  9 21
total deferred tax chargebenefit 13 87 19 
total tax charge  131 4
  65    pearson annual report and accounts 2007 
7 income tax continued 
the tax on the group’s profit before tax differs from the theoretical amount that would arise using the uk tax rate as follows 
all figures in £ millions 2007 2006 
profit before tax 468 448 
tax calculated at uk rate 141 135
effect of overseas tax rates 25 17
joint venture and associate income reported net of tax 7 7 
income not subject to tax 3 5 
expenses not deductible for tax purposes 12 18
utilisation of previously unrecognised tax losses 3 7 
recognition of previously unrecognised tax losses – 136 
unutilised tax losses 2 3
prior year adjustments 36 14 
total tax charge 131 4
uk 42 15
overseas 89 11 
total tax charge 131 4
 
add back tax benefit on other net gains and losses  9 4
add back tax benefit on amortisation of acquired intangibles 19 10
add back tax benefitcharge on other finance income  6 5 
tax amortisation benefit on goodwill and intangibles 25 25 
recognition of tax losses – 127
adjusted income tax charge – continuing operations 140 115
adjusted income tax charge – discontinued operations 5 15
total adjusted income tax charge 145 130
tax rate reflected in adjusted earnings 264 259 
the tax benefit on items charged to equity is as follows 
all figures in £ millions 2007 2006 
sharebased payments 7 2 
pension contributions and actuarial gains and losses 28 9 
net investment hedges and other foreign exchange gains and losses 6 1 
 29 12 
8 earnings per share 
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  notes to the consolidated financial statements continued 
 
66    pearson annual report and accounts 2007 
8 earnings per share continued 
all figures in £ millions notes 2007 2006 
profit for the year from continuing operations  337 444 
minority interest  26 23
earnings from continuing operations  311 421 
lossprofit for the year from discontinued operations 3 27 25 
earnings  284 446 
 
weighted average number of shares millions  7968 7984 
effect of dilutive share options millions  13 15 
weighted average number of shares millions for diluted earnings  7981 7999 
 
earnings per share from continuing and discontinued operations   
basic 356p 559p 
diluted 356p 558p 
earnings per share from continuing operations   
basic 390p 527p 
diluted 390p 526p 
earnings per share from discontinued operations   
basic 34p 32p 
adjusted 
in order to show results from operating activities on a consistent basis an adjusted earnings per share is presented the company’s definition  
of adjusted earnings per share may not be comparable to other similarly titled measures reported by other companies 
the following items are excluded in the calculation of adjusted earnings 
amortisation of acquired intangibles is the amortisation of intangible assets acquired through business combinations the amortisation charge  
is not considered to be fully reflective of the underlying performance of the group   
other net gains and losses represent profits and losses on the sale of subsidiaries joint ventures associates and other financial assets that are 
included within continuing or discontinued operations but which distort the performance of the group 
other net finance incomecosts are foreign exchange and other gains and losses that represent shortterm fluctuations in market value and 
foreign exchange movements on transactions and balances that are no longer in a hedge relationship these gains and losses are subject to 
significant volatility and may not be realised in due course as it is normally the intention to hold these instruments to maturity other net 
finance costs of group companies are included in finance costs or finance income as appropriate other net finance costs of joint ventures  
and associates are included within the share of results of joint ventures and associates within operating profit 
tax on the above items is excluded from adjusted earnings from 2007 the group has also added the benefit of tax amortisation of goodwill 
and intangibles as this benefit more accurately aligns the adjusted tax charge with the expected mediumterm rate of cash tax payments  
the 2006 comparative has been restated accordingly in 2006 the company excluded tax benefits from the recognition of its tax losses  
which due to their size and nonrecurring nature were not considered to be fully reflective of the underlying tax rate of the group 
minority interest for the above items is excluded from adjusted earnings   67    pearson annual report and accounts 2007
8 earnings per share continued
the following tables reconcile statutory earnings to adjusted earnings 
2007
all figures in £ millions 
statutory 
income 
statement 
reanalyse 
discontinued
operations
other 
net gains and 
losses
amortisation of 
acquired
intangibles 
other net 
finance
costsincome 
tax 
amortisation 
benefit 
recognition 
of
tax losses 
adjusted 
income 
statement 
operating profit 574 15 – 45 – – – 634
net finance costs 106 – – – 21 – – 85
profit before tax 468 15 – 45 21 – – 549
income tax 131 5 9 19 6 25 – 145
profit for the year from continuing operations 337 10 9 26 15 25 – 404
profit for the year from discontinued operations 27 10 37 – – – – –
profit for the year 310 – 28 26 15 25 – 404
minorities 26 – – 4 – 2 – 32
earnings 284 – 28 22 15 23 – 372
weighted average number of shares millions 7968
adjusted earnings per share 467p
2006
all figures in £ millions 
statutory 
income 
statement 
reanalyse 
discontinued
operations
other 
net gains and 
losses
amortisation of 
acquired
intangibles 
other net 
finance
costsincome 
tax 
amortisation 
benefit 
recognition 
of
tax losses 
adjusted 
income 
statement 
operating profit 522 40 4 35 1 – – 592 
net finance costs 74 – – – 16 – – 90
profit before tax 448 40 4 35 17 – – 502 
income tax 4 15 4 10 5 25 127 130
profit for the year from continuing operations 444 25 8 25 12 25 127 372 
profit for the year from discontinued operations 25 25 – – – – – – 
profit for the year 469 – 8 25 12 25 127 372 
minorities 23 – – 3 – 2 – 28
earnings 446 – 8 22 12 23 127 344 
weighted average number of shares millions        7984 
adjusted earnings per share        431p 
9 dividends 
all figures in £ millions 2007 2006
final paid in respect of prior year 188p 2006 17p 150 136
interim paid in respect of current year 111p 2006 105p 88 84
238 220
the directors are proposing a final dividend in respect of the financial year ended 31 december 2007 of 205p per share which will absorb an 
estimated £164m of shareholders’ funds it will be paid on 9 may 2008 to shareholders who are on the register of members on 11 april 2008 
these financial statements do not reflect this dividend  notes to the consolidated financial statements continued 
 
68    pearson annual report and accounts 2007 
10 property plant and equipment 
all figures in £ millions 
land and 
buildings 
plant and 
equipment 
assets in 
course of
construction total 
cost     
at 1 january 2006 328 683 7 1018 
exchange differences 20 54 – 74
transfers – 11 1 12
additions 12 52 13 77 
disposals 9 32 – 41
acquisition through business combination 9 12 – 21 
reclassifications – 8 8 – 
transfer to noncurrent assets held for sale 7 27 – 34
at 31 december 2006 313 631 11 955 
exchange differences 2 – – 2
additions 20 62 11 93 
disposals 24 65 – 89
acquisition through business combination – 27 – 27 
disposal through business disposal 1 25 – 26
reclassifications – 6 6 – 
transfer to noncurrent assets held for sale 8  14 –  22
at 31 december 2007 298 622 16 936 
 
all figures in £ millions 
land and 
buildings 
plant and 
equipment 
assets in
course of 
construction total 
depreciation     
at 1 january 2006 130 504 – 634
exchange differences 10 41 – 51 
transfers – 5 – 5 
charge for the year 17 60 – 77
disposals 4 27 – 31 
acquisition through business combination – 8 – 8
transfer to noncurrent assets held for sale 5 20 – 25 
at 31 december 2006 128 479 – 607
exchange differences – 1 – 1 
charge for the year 14 54 – 68
disposals 11 63 – 74 
acquisition through business combination – 16 – 16
disposal through business disposal – 20 – 20 
transfer to noncurrent assets held for sale 5 10 – 15 
at 31 december 2007 126 455 – 581
carrying amounts     
at 1 january 2006 198 179 7 384 
at 31 december 2006 185 152 11 348 
at 31 december 2007 172 167 16 355 
depreciation expense of £13m 2006 £18m has been included in the income statement in cost of goods sold £5m 2006 £6m in distribution 
expenses and £50m 2006 £53m in administrative and other expenses in 2007 £3m 2006 £9m 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 £6m 2006 £4m  69    pearson annual report and accounts 2007 
11 intangible assets 
all figures in £ millions goodwill software 
acquired 
publishing 
rights 
other  
intangibles 
acquired 
total
intangibles 
acquired total 
cost       
at 1 january 2006 3654 197 68 83 151 4002 
exchange differences 396 17 8 8 16 429
transfers – 6 – – – 6 
additions – 29 – – – 29 
disposals 52– – – 7
acquisition through business combination 246 4 36 117 153 403 
adjustment on recognition of preacquisition deferred tax 7 – – – – 7
transfer to noncurrent assets held for sale 221 16 – – – 237
at 31 december 2006 3271 201 96 192 288 3760 
exchange differences 4 2 3 1 4 2
additions – 33 – – – 33 
disposals 34 19 3 – 3 56
acquisition through business combination 304 4 40 155 195 503 
transfer to noncurrent assets held for sale 194 – – – – 194
at 31 december 2007 3343 217 136 348 484 4044 
 
all figures in £ millions goodwill software 
acquired 
publishing 
rights 
other  
intangibles 
acquired 
total
intangibles 
acquired total 
amortisation       
at 1 january 2006 – 129 5 14 19 148
exchange differences – 13 1 2 3 16 
transfers – 5 – – – 5
charge for the year – 23 11 17 28 51
disposals – 1 – – – 1 
acquisition through business combination – 1 – – – 1
transfer to noncurrent assets held for sale – 9 – – – 9 
at 31 december 2006 – 135 15 29 44 179
exchange differences – 1 – 1 1 2 
charge for the year – 25 17 28 45 70
disposals – 19 – – – 19 
acquisition through business combination – 2 – – – 2
transfer to noncurrent assets held for sale – – – – – – 
at 31 december 2007 – 142 32 56 88 230
carrying amounts       
at 1 january 2006 3654 68 63 69 132 3854 
at 31 december 2006 3271 66 81 163 244 3581 
at 31 december 2007 3343 75 104 292 396 3814 
other intangibles acquired include customer lists and relationships software rights technology trade names and trademarks amortisation  
of £3m 2006 £4m is included in the income statement in cost of goods sold and £67m 2006 £47m in administrative and other expenses  
in 2007 £nil 2006 £3m of software amortisation relates to discontinued operations  notes to the consolidated financial statements continued 
 
70    pearson annual report and accounts 2007 
11 intangible assets continued 
impairment tests for cashgenerating 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 
goodwill is allocated to the group’s cashgenerating units identified according to the business segment goodwill has been allocated as follows 
all figures in £ millions notes 2007 2006 
higher education  1031 780 
school curriculum 2006 school book  867 683 
school assessment and information 2006 school assessment and testing  540 342 
school technology  – 356 
other assessment and testing  247 490 
technology and business publishing 2006 other book  55 56 
pearson education total  2740 2707 
penguin us  155 156 
penguin uk  111 114 
pearson australia  52 44 
penguin total  318 314 
financial times  12 4 
mergermarket  126 97 
interactive data  147 149 
ft group total  285 250 
total goodwill – continuing operations  3343 3271 
goodwill held for sale  30 96 221 
total goodwill  3439 3492 
goodwill has been allocated for impairment purposes to 11 cashgenerating units cgus during 2007 three cgus school book school 
assessment and testing and other book were renamed following the reorganisation of the school segment the reorganisation resulted in  
the school technology cgu being allocated between school assessment and information formerly school assessment and testing and 
school curriculum formerly school book 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 
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 riskfree 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 cashgenerating unit the average pretax discount rates used 
are in the range of 105 to 120 for the pearson education businesses 89 to 117 for the penguin businesses and 104 to 172 for the 
ft group businesses 
perpetuity growth rates – the cash flows subsequent to the approved budget period are based upon the longterm historic growth rates of  
the underlying territories in which the cgu operates and reflect the longterm growth prospects of the sectors in which the cgu operates  
the perpetuity growth rates used vary between 25 and 35 the perpetuity growth rates are consistent with appropriate external sources  
for the relevant markets 
cash flow growth rates – the cash flow growth rates are derived from forecast sales growth taking into consideration past experience of 
operating margins achieved in the cashgenerating unit historically such forecasts have been reasonably accurate 
sensitivities 
the group’s impairment review is sensitive to a change in the key assumptions used most notably the discount rates and the perpetuity rates 
based on the group’s sensitivity analysis a reasonable possible change in a single factor will not cause impairment in any of the group’s cgus 
however a significant adverse change in our key assumptions could result in an impairment in our school curriculum andor penguin uk 
cgus as their fair value currently exceeds their carrying value only by between 10 and 20  71    pearson annual report and accounts 2007 
12 investments in joint ventures and associates 
joint ventures 
all figures in £ millions 2007 2006 
at beginning of year 12 12 
exchange differences – 3
share of profit after tax 4 3 
dividends 8 4
additions and further investment 3 4 
at end of year 11 12 
investments in joint ventures are accounted for using the equity method of accounting and are initially recognised at cost 
the aggregate of the group’s share in its joint ventures none of which are individually significant are as follows 
all figures in £ millions 2007 2006 
assets   
noncurrent assets 3 3 
current assets 23 24 
liabilities   
current liabilities 15 15
net assets 11 12 
income 61 52 
expenses 57 49
profit after income tax 4 3 
associates 
all figures in £ millions 2007 2006 
at beginning of year 8 24 
exchange differences 1 1
share of profit after tax 19 21 
dividends 24 41
additions 1 – 
distribution from associate in excess of carrying value 6 5 
at end of year 9 8 
investments in associates are accounted for using the equity method of accounting there is no acquisition goodwill relating to the group’s 
investments in associates 
the group’s interests in its principal associates all of which are unlisted were as follows 
2007 
all figures in £ millions 
country of 
incorporation 
 
interest held assets liabilities revenues profit 
the economist newspaper ltd england 50 63 63 131 15 
other   30 21 56 4 
total   93 84 187 19 
 
2006 
all figures in £ millions 
 country of 
incorporation 
 
interest held assets liabilities revenues profit 
the economist newspaper ltd england 50 64 64 122 18 
other   28 20 48 3 
total   92 84 170 21 
the interest held in associates is equivalent to voting rights  notes to the consolidated financial statements continued 
 
72    pearson annual report and accounts 2007 
13 deferred income tax 
all figures in £ millions 2007 2006 
deferred income tax assets   
deferred income tax assets to be recovered after more than 12 months 262 288 
deferred income tax assets to be recovered within 12 months 66 129 
 328 417 
deferred income tax liabilities   
deferred income tax liabilities to be settled after more than 12 months 287 245
deferred income tax liabilities to be settled within 12 months – – 
 287 245
net deferred income tax 41 172 
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 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 at 31 december 2007 in respect of uk losses of £34m 2006 £35m none of these unrecognised deferred income tax assets have 
expiry dates associated with them 
the recognition of the deferred income tax assets is supported by management’s forecasts of the future profitability of the relevant  
business units  
the movement on the net deferred income tax account is as follows 
all figures in £ millions notes 2007 2006 
at beginning of year  172 181 
exchange differences  4 16
income statement chargebenefit 7 87 19 
acquisition through business combination 29 45 26
disposal through business disposal 31 2 – 
tax benefit to equity   3 14 
at end of year  41 172 
the movement in deferred income tax assets and liabilities during the year is as follows 
all figures in £ millions 
capital
losses 
trading 
losses 
goodwill and 
intangibles 
returns 
provisions other total 
deferred income tax asset       
at 1 january 2006  – 134 35 83 133 385 
exchange differences – 17 4 10 11 42
income statement benefitcharge 76 12 6 7 12 63 
tax benefit to equity – – – – 11 11 
at 31 december 2006 76 129 25 66 121 417 
exchange differences – 5 – 1 2 8
acquisition through business combination – 10 – – 1 11 
income statement chargebenefit 76 47 5 14 19 95
tax benefit to equity – – – – 3 3 
at 31 december 2007 – 87 20 79 142 328 
other deferred income tax assets include temporary differences on sharebased payments inventory retirement benefit obligations and  
other provisions  73    pearson annual report and accounts 2007 
13 deferred income tax continued 
all figures in £ millions 
goodwill and  
intangibles other  total 
deferred income tax liabilities    
at 1 january 2006  117 87 204
exchange differences 15 11 26 
acquisition through business combination 20 6 26
income statement charge 27 17 44
tax benefit to equity – 3 3 
at 31 december 2006 149 96 245
exchange differences 3 1 4 
acquisition through business combination 56 – 56
disposal through business disposal – 2 2 
income statement chargebenefit 12 20 8 
tax benefit to equity – – – 
at 31 december 2007 214 73 287
other deferred tax liabilities include temporary differences in respect of depreciation and royalty advances 
14 financial instruments and risk management 
the group’s approach to the management of financial risks together with sensitivity analysis is set out on pages 22 to 24 the accounting 
classification of each class of the group’s financial assets and financial liabilities together with their fair values is as follows 
2007 
fair value amortised cost  
all figures in £ millions notes 
available 
for sale 
derivatives 
deemed held 
for trading 
derivatives 
in hedging 
relationships 
loans and  
receivables 
other  
liabilities 
total 
carrying 
value 
total 
market
value 
investments in unlisted securities 15 52 – – –  –  52 52 
marketable securities  40 – – –  –  40 40 
derivative financial instruments 16 – 16 35 –  –  51 51 
trade receivables 19 – – – 750 –  750 750 
cash and cash equivalents 20 – – – 560  –  560 560 
total financial assets  92 16 35 1310 –  1453 1453 
derivative financial instruments 16 – 8 8 –  –  16 16
trade payables 23 – – – –  342 342 342
bank loans and overdrafts 21 – – – –  444 444 444
borrowings due within one year 21 – – – –  115 115 112
borrowings due after more than one year 21 – – – –  1049 1049 1046
total financial liabilities  – 8 8 –  1950 1966 1960 notes to the consolidated financial statements continued 
 
74    pearson annual report and accounts 2007 
14 financial instruments and risk management continued 
2006 
fair value amortised cost   
all figures in £ millions notes 
available 
for sale 
derivatives 
deemed held 
for trading 
derivatives 
in hedging 
relationships 
loans and 
receivables 
other  
liabilities 
total 
carrying 
value 
total 
market
value 
investments in unlisted securities 15 17 – – – –  17 17 
marketable securities  25 – – – –  25 25 
derivative financial instruments 16 – 25 61 – –  86 86 
trade receivables 19 – – – 768 –  768 768 
cash and cash equivalents 20 – – – 592 –  592 592 
total financial assets  42 25 61 1360 –  1488 1488 
derivative financial instruments 16 – 2 17 – –  19 19
trade payables 23 – – – – 343 343 343
bank loans and overdrafts 21 – – – – 173 173 173
borrowings due within one year 21 – – – – 422 422 400
borrowings due after more than one year 21 – – – – 1148 1148 1157
total financial liabilities  – 2 17 – 2086 2105 2092
certain of the group’s derivative financial instruments are deemed to be held for trading either as they do not meet the hedge accounting 
criteria specified in ias 39 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 group’s treasury policy see page 22 
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 equity 
none of the group’s financial assets or liabilities are designated at fair value through the profit  loss account upon initial recognition 
more detail on the group’s accounting for financial instruments is included in the group’s accounting policies on page 57 
the maturity of contracted cash flows on the group’s borrowings and all of its derivative financial instruments are as follows 
2007 
all figures in £ millions usd gbp eur total 
not later than one year 153 30 – 123 
later than one year and not later than five years 966 70 – 1036 
later than five years 420 285 – 705 
total 1539 325 – 1864 
analysed as     
revolving credit facilities and commercial paper 429 – – 429 
bonds 1017 483 – 1500 
rate derivatives – inflows 268 160 – 428
rate derivatives – outflows 361 2 – 363 
total 1539 325 – 1864  75    pearson annual report and accounts 2007
14 financial instruments and risk management continued
2006
all figures in £ millions usd gbp eur total 
not later than one year 166 18 265 449 
later than one year and not later than five years 758 60 – 818 
later than five years 478 242 – 720 
total 1402 320 265 1987 
analysed as     
revolving credit facilities and commercial paper 99 – – 99 
bonds 1045 511 423 1979 
rate derivatives – inflows 318 329 192 839
rate derivatives – outflows 576 138 34 748 
total 1402 320 265 1987 
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 company net settles these amounts wherever possible 
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 
15 other financial assets 
all figures in £ millions notes 2007 2006
at beginning of year 17 18
exchange differences – 1
equity interest received on sale of government solutions 31 35 –
at end of year 52 17
other financial assets comprise noncurrent unlisted securities 
16 derivative financial instruments 
the group’s approach to the management of financial risks is set out on pages 22 to 24 the group’s outstanding derivative financial 
instruments are as follows 
2007 2006 
gross  notional 
amounts assets liabilities 
gross notional 
amounts assets liabilities 
interest rate derivatives – in a fair value hedge relationship 522 18 8 953 20 17
interest rate derivatives – not in a hedge relationship 796 7 8 1026 9 2
cross currency rate derivatives – in a net investment hedge relationship 100 17 – 230 40 – 
cross currency rate derivatives – not in a hedge relationship 50 9 – 180 17 – 
total 1468 51 16 2389 86 19
analysed as expiring     
in less than one year 320 28 – 976 50 – 
later than one year and not later than five years 796 13 8 1005 26 4
later than five years 352 10 8 408 10 15
total 1468 51 16 2389 86 19
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 2007 the currency split of the marktomarket values of rate derivatives including the exchange of principal on cross currency 
rate derivatives was us dollar £119m and sterling £154m 2006 us dollar £247m euro £157m and sterling £157m  
the fixed interest rates on outstanding rate derivative contracts at the end of 2007 range from 445 to 700 2006 302 to 700 and the 
floating rates are based on libor in us dollar and sterling 
all figures in £ millions  notes to the consolidated financial statements continued
76    pearson annual report and accounts 2007
16 derivative financial instruments continued
the group’s 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 
counterparty exposure from all derivatives is managed together with that from deposits and bank account balances within credit limits that 
reflect published credit ratings 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 group’s consolidated total equity 
at the end of 2006 the group held an amount of £29m as collateral under a marktomarket agreement this reflected the amount at market 
rates prevailing at the end of october 2006 owed to the group by a counterparty for a set of three related rate derivatives the amount was 
settled at the beginning of february 2007 along with repayment of the €591m bond 
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 intangible assets – prepublication 
all figures in £ millions 2007 2006
cost
at beginning of year 1152 1357
exchange differences 7 148
transfers – 6
additions 230 213
disposals 125 280
acquisition through business combination 19 4
transfer to noncurrent assets held for sale 5 –
at end of year 1264 1152
amortisation  
at beginning of year 750 931
exchange differences 1 111
charge for the year 192 210
disposals 125 280
acquisition through business combination 1 –
transfer to noncurrent assets held for sale 3 –
at end of year 814 750
carrying amounts  
at end of year 450 402
included in the above are prepublication assets amounting to £292m 2006 £243m which will be realised in more than 12 months
amortisation is included in the income statement in cost of goods sold there was no amortisation relating to discontinued operations in 2007 
and 2006 
18 inventories 
all figures in £ millions 2007 2006
raw materials 24 26
work in progress 30 28
finished goods 314 300
368 354
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 £732m 2006 £702m in 2007 £47m 2006 £46m of inventory provisions was charged in the income statement none of the 
inventory is pledged as security  77    pearson annual report and accounts 2007 
19 trade and other receivables 
all figures in £ millions 2007 2006 
current    
trade receivables 750 768 
royalty advances 84 91 
prepayments and accrued income 48 34 
other receivables 59 58 
receivables from related parties 5 2 
 946 953 
noncurrent    
royalty advances 68 80 
prepayments and accrued income 4 4 
other receivables 57 40 
 129 124 
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 
all figures in £ millions 2007 2006 
at beginning of year 46 45
exchange differences 1 3 
income statement movements 19 23
utilised 15 21 
acquisition through business combination 3 2
disposal through business disposal 2 – 
at end of year  52 46
concentrations of credit risk with respect to trade receivables are limited due to the group’s large number of customers who are 
internationally dispersed  
the ageing of the group’s trade receivables is as follows 
all figures in £ millions 2007 2006 
within due date 811 810 
up to three months past due date 161 177 
three to six months past due date 43 62 
six to nine months past due date 7 6 
nine to 12 months past due date 13 8 
more that 12 months past due date 4 1 
total trade receivables 1039 1064 
less provision for sales returns 281 243
transfer to noncurrent assets held for sale 8 53
net trade receivables 750 768 
the group’s provision for bad and doubtful debts is specific to individual debts identified during the bad debt review process consequently 
the ageing analysis above is presented after deducting the associated specific bad debt provision 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  notes to the consolidated financial statements continued
78    pearson annual report and accounts 2007
20 cash and cash equivalents excluding overdrafts 
all figures in £ millions 2007 2006
cash at bank and in hand 439 421
shortterm bank deposits 121 171
560 592
shortterm bank deposits are invested with banks and earn interest at the prevailing shortterm deposit rates  
at the end of 2007 the currency split of cash and cash equivalents is us dollars 37 2006 31 sterling 29 2006 35 euros 16  
2006 21 and other 18 2006 13 
cash and cash equivalents have fair values that approximate to their carrying amounts due to their shortterm nature 
cash and cash equivalents include the following for the purpose of the cash flow statement 
all figures in £ millions 2007 2006
cash and cash equivalents 560 592
bank overdrafts 68 61
492 531
21 financial liabilities – borrowings 
the group’s current and noncurrent borrowings are as follows 
all figures in £ millions 2007 2006
noncurrent  
105 sterling bonds 2008 nominal amount £100m – 105
47 us dollar bonds 2009 nominal amount 350m 176 178
7 global dollar bonds 2011 nominal amount 500m 264 266
7 sterling bonds 2014 nominal amount £250m 251 251
57 us dollar bonds 2014 nominal amount 400m 211 206
4625 us dollar notes 2018 nominal amount 300m 143 139
finance lease liabilities 4 3
1049 1148
current
due within one year or on demand 
bank loans and overdrafts 444 173
6125 euro bonds 2007 nominal amount €591m – 421
105 sterling bonds 2008 nominal amount £100m 105 –
loan notes 8 –
finance lease liabilities 2 1
559 595
total borrowings 1608 1743
included in the noncurrent borrowings above is £6m of accrued interest 2006 £12m included in the current borrowings above is £7m of 
accrued interest 2006 £22m 
the maturity of the group’s noncurrent borrowing is as follows 
all figures in £ millions 2007 2006
between one and two years 178 107
between two and five years 266 445
over five years 605 596
1049 1148
as at 31 december 2007 the exposure of the borrowings of the group to interest rate changes when the borrowings reprice is as follows
all figures in £ millions 
less than 
one year 
one to  
five years 
more than 
five years total 
carrying value of borrowings 559 444 605 1608
effect of rate derivatives 359 7 352 –
918 437 253 1608 79    pearson annual report and accounts 2007 
21 financial liabilities – borrowings continued 
the carrying amounts and market values of noncurrent borrowings are as follows 
all figures in £ millions 
effective
interest rate 
carrying 
amount  
2007 
market value 
2007 
carrying 
amount
2006 
market value
2006 
105 sterling bonds 2008 1053 – – 105 106 
47 us dollar bonds 2009 486 176 176 178 176 
7 global dollar bonds 2011 716 264 267 266 269 
7 sterling bonds 2014 720 251 261 251 265 
57 us dollar bonds 2014 588 211 203 206 203 
4625 us dollar notes 2018 469 143 135 139 135 
finance lease liabilities na 4 4 3 3 
  1049 1046 1148 1157 
the market values 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 group’s borrowings are denominated in the following currencies 
all figures in £ millions 2007 2006 
us dollar 1251 966 
sterling 357 356 
euro – 421 
 1608 1743 
the group has the following undrawn committed borrowing facilities as at 31 december 
all figures in £ millions 2007 2006 
floating rate   
– expiring within one year – – 
– expiring beyond one year 1007 894 
 1007 894 
during the year the group extended the maturity date of its main revolving credit facility by one year and also entered into a shortterm 
bridge financing facility 
in addition to the above facilities there are a number of shortterm facilities that are utilised in the normal course of business 
all of the group’s borrowings are unsecured in respect of finance lease obligations the rights to the leased asset revert to the lessor in the  
event of default 
the maturity of the group’s finance lease obligations is as follows 
all figures in £ millions 2007 2006 
finance lease liabilities – minimum lease payments   
not later than one year 2 1 
later than one year and not later than two years 2 3 
later than two years and not later than three years 1 – 
later than three years and not later than four years 1 – 
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 6 4 
the present value of finance lease liabilities is as follows 
all figures in £ millions 2007 2006 
not later than one year 2 1 
later than one year and not later than five years 4 3 
later than five years – – 
 6 4 
the carrying amounts of the group’s lease obligations approximate their fair value  notes to the consolidated financial statements continued 
 
80    pearson annual report and accounts 2007 
22 provisions for other liabilities and charges 
all figures in £ millions 
deferred  
consideration leases other total 
at 1 january 2007 25 12 15 52 
exchange differences 1 – 1 2
charged to consolidated income statement     
– additional provisions interest 2 – – 2 
– additional provisions prior year adjustments 3 – – 3 
– additional provisions other – – 12 12 
– unused amounts reversed – 1 1 2
acquisition through business combination 12 – 2 14 
disposal through business disposal – – 1 1
utilised  4 2 5 11
at 31 december 2007  37 9 21 67 
 
all figures in £ millions 2007 2006 
analysis of provisions   
noncurrent 44 29 
current 23 23 
 67 52 
deferred consideration including interest and prior year adjustments primarily relates to the acquisition of mergermarket in 2006  
these amounts are payable in march 2009 additional amounts incurred relate to the group’s smaller acquisitions during the year  
see note 29 
lease commitments relate primarily to onerous lease contracts acquired through business combinations which have various expiry dates  
up to 2017 the provision is based on current occupancy estimates 
23 trade and other liabilities 
all figures in £ millions 2007 2006 
trade payables 342 343 
social security and other taxes 23 18 
accruals 402 345 
deferred income 290 276 
dividends payable to minority 12 – 
other liabilities 171 178 
 1240 1160 
less noncurrent portion   
accruals 30 24 
deferred income 58 47 
other liabilities 102 91 
 190 162 
current portion 1050 998 
the carrying value of the group’s trade and other liabilities approximates its fair value 
the deferred income balances comprise 
– multiyear obligations to deliver workbooks to adoption customers in school businesses 
– advance payments in contracting businesses 
– subscription income in school newspaper and market pricing businesses  
– advertising income relating to future publishing days in newspaper businesses and 
– obligations to deliver digital content in future periods  81    pearson annual report and accounts 2007 
24 retirement benefit and other postretirement 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 postretirement medical benefit plans prmbs principally in the us prmbs are unfunded but are accounted for  
and valued similarly to defined benefit pension plans 
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  
 2007  2006 
 
uk group
plan 
other
plans prmb  
uk group 
plan 
other
plans prmb 
inflation 330 293 300  300 291 300 
rate used to discount plan liabilities 580 601 605  520 570 585 
expected return on assets 650 727 –  640 718 – 
expected rate of increase in salaries 500 436 –  470 437 – 
expected rate of increase for pensions in payment and deferred pensions 250 to 430 – –  210 to 460 – – 
initial rate of increase in healthcare rate – – 950  – – 1000 
ultimate rate of increase in healthcare rate – – 500  – – 500 
the uk discount rate is based on the annualised yield on the iboxx over 15year aarated corporate bond index 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 longterm asset returns for 
the defined portfolio at the end of the year 
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 plan’s investment portfolio 
the uk mortality assumptions have been derived by adjusting standard mortality tables pmfa 92 tables projected forward with medium 
cohort improvement factors the group changed its mortality assumptions in the uk in 2007 to reflect an assumed increased life expectancy 
of pensioners by adding a 1 floor to the medium cohort projections 
for the us plans the assumptions used were based on standard us mortality tables gam94 
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 
 2007 2006  2007 2006 
male 213 209  179 179 
female 216 213  213 213 
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 
 2007 2006  2007 2006 
male 231 222  179 179 
female 236 225  213 213 
  notes to the consolidated financial statements continued 
 
82    pearson annual report and accounts 2007 
24 retirement benefit and other postretirement obligations continued 
financial statement information  
the amounts recognised in the income statement are as follows 
2007 
all figures in £ millions 
uk group
plan 
defined
benefit
other sub total 
defined  
contribution prmb total 
current service cost 29 2 31 39 1 71 
total operating expense 29 2 31 39 1 71 
expected return on plan assets 96 7 103 – – 103
interest on plan liabilities 84 7 91 – 2 93 
net finance incomeexpense 12 – 12 – 2 10
net income statement charge 17 2 19 39 3 61 
       
actual return on plan assets 128 4 132 – – 132 
 
2006 
all figures in £ millions 
uk group
plan 
defined
benefit
other sub total 
defined  
contribution prmb total 
current service cost 27 2 29 36 1 66 
past service cost – – – – 2 2
total operating expenseincome 27 2 29 36 1 64 
expected return on plan assets 85 7 92 – – 92
interest on plan liabilities 78 7 85 – 3 88 
net finance incomeexpense 7 – 7 – 3 4
net income statement charge 20 2 22 36 2 60 
       
actual return on plan assets 153 13 166 – – 166 
the total operating charge is included in administrative and other expenses 
the amounts recognised in the balance sheet are as follows 
 2007 2006 
all figures in £ millions 
uk group
plan 
other
funded
plans 
other
unfunded
plans total 
uk group 
plan 
other 
funded 
plans 
other
unfunded
plans total 
fair value of plan assets 1744 109 – 1853 1528 105 – 1633 
present value of defined benefit obligation 1682 117 12 1811 1683 115 12 1810
net pension assetliability 62 8 12 42 155 10 12 177
other postretirement medical benefit obligation    47  48
other pension accruals    28  25
net retirement benefit obligations    33  250
analysed as       
retirement benefit asset    62   – 
retirement benefit obligations    95  250
the following gains have been recognised in the statement of recognised income and expense 
all figures in £ millions 2007 2006 
amounts recognised for defined benefit plans 79 102 
amounts recognised for postretirement medical benefit plans 1 5 
total recognised in year 80 107 
cumulative amounts recognised 124 44  83    pearson annual report and accounts 2007 
24 retirement benefit and other postretirement obligations continued 
the fair value of plan assets comprises the following 
 2007  2006 
 
uk group
plan 
other
funded
plans total  
uk group 
plan 
other
funded
plans total 
equities 343 34 377  466 39 505 
bonds 349 20 369  238 21 259 
properties 77 – 77  92 – 92 
other 172 05 177  140 04 144 
the plan assets do not include any of the group’s own financial instruments or any property occupied by the group 
changes in the values of plan assets and liabilities of the retirement benefit plans are as follows 
 2007  2006 
all figures in £ millions 
uk group
  plan 
other
plans total  
uk group  
plan 
other
plans total 
fair value of plan assets        
opening fair value of plan assets 1528 105 1633  1390 110 1500 
exchange differences – 1 1  – 12 12
expected return on plan assets 96 7 103  85 7 92 
actuarial gains and losses 32 3 29  68 6 74 
contributions by employer 152 5 157  43 2 45 
contributions by employee 8 – 8  7 – 7 
benefits paid 72 6 78  65 8 73
closing fair value of plan assets 1744 109 1853  1528 105 1633 
present value of defined benefit obligation       
opening defined benefit obligation 1683 127 1810  1661 142 1803
exchange differences – 1 1  – 15 15 
current service cost 29 2 31  27 2 29
interest cost 84 7 91  78 7 85
actuarial gains and losses 50 – 50  25 3 28 
contributions by employee 8 – 8  7 – 7
benefits paid 72 6 78  65 8 73 
acquisition through business combination – – –  – 2 2
closing defined benefit obligation 1682 129 1811  1683 127 1810
changes in the value of the us prmb are as follows 
all figures in £ millions 2007 2006 
opening defined benefit obligation 48 60
exchange differences – 8 
current service cost 1 1
past service cost – 2 
interest cost 2 3
actuarial gains and losses 1 5 
benefits paid 3 4 
reclassifications – 3
closing defined benefit obligation 47 48 notes to the consolidated financial statements continued 
 
84    pearson annual report and accounts 2007 
24 retirement benefit and other postretirement obligations continued 
the history of the defined benefit plans is as follows 
all figures in £ millions 2007 2006 2005 2004 2003 
fair value of plan assets 1853 1633 1500 1280 1164 
present value of defined benefit obligation 1811 1810 1803 1615 1454
net pension assetliability 42 177 303 335 290
experience adjustments on plan assets 29 74 140 67 88 
experience adjustments on plan liabilities 50 28 119 127 113
funding 
the uk group plan is selfadministered 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 plan’s beneficiaries the most recently completed triennial actuarial valuation for funding purposes was completed 
as at 1 january 2006 and revealed a funding shortfall the group has agreed that the funding shortfall will be eliminated by 31 december 2014 
in 2007 the group contributed £121m including a special contribution of £100m and has agreed to contribute £21m in 2008 and £219m per 
annum thereafter in excess of an estimated £30m of regular contributions 
the group expects to contribute 70m in 2008 and 73m in 2009 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 
 2007 
all figures in £ millions 1 increase 1 decrease 
effect on   
decreaseincrease in defined benefit obligation – uk group plan 222 275 
decreaseincrease of aggregate of service cost and interest cost – uk group plan 46 58 
decreaseincrease in defined benefit obligation – us plan 67 73 
the effect of a one percentage point increase and decrease in the assumed medical cost trend rates is as follows 
 2007 
all figures in £ millions 1 increase 1 decrease 
effect on   
decreaseincrease in postretirement medical benefit obligation 37 41 
increasedecrease of aggregate of service cost and interest cost 01 01
25 sharebased payments 
the group recognised the following charges in the income statement in respect of its equitysettled sharebased payment plans 
all figures in £ millions 2007 2006 
pearson plans 23 18 
interactive data plans 7 7 
total sharebased payment costs 30 25 
the group operates the following equitysettled employee option and share plans 
worldwide save for shares plan – since 1994 the group has operated a saveasyouearn 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 employee’s participation in the plan options that 
are not exercised within six months of the third fifth or seventh anniversary after grant 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  85    pearson annual report and accounts 2007 
25 sharebased payments continued 
longterm incentive plan – this plan was introduced in 2001 and renewed in 2006 and consists of two parts share options andor  
restricted shares  
options were granted under this plan in 2001 based on a pregrant 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 andor upon the satisfaction of corporate performance targets  
over a threeyear period these targets may be based on market andor nonmarket performance criteria restricted shares awarded to senior 
management in october 2006 and july 2007 vest dependent on relative 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 2006 and 2007 vest depending on continuing 
service over a threeyear 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 of up to one share for every one held 
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 longterm incentive plan in 2001 
the number and weighted average exercise prices of share options granted under the group’s plans are as follows 
2007  2006 
 
number of 
share  
options 
000s 
weighted  
average  
exercise  
price 
£  
number of
share 
options
000s 
weighted
average
exercise
price
£ 
outstanding at beginning of year 18861 1336  21677 1315 
granted during the year 773 690  837 630 
exercised during the year 1326 580  1396 536 
forfeited during the year 1434 1963  1828 1539 
expired during the year 93 768  429 672 
outstanding at end of year 16781 1315  18861 1336 
options exercisable at end of year 13999 1463  15595 1414 
options were exercised regularly throughout the year the weighted average share price during the year was £802 2006 £745 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 
2007  2006 
range of exercise prices 
£ 
number of  
share 
options 
000s 
weighted 
average   
contractual  
life 
years  
number of
share 
options
000s 
weighted
average
contractual
life
years 
0 – 5 930 156  1649 194 
5 – 10 4909 322  5254 385 
10 – 15 7257 262  7638 363 
15 – 20 980 185  1050 288 
20 – 25 400 219  424 319 
25 2305 219  2846 322 
 16781 262  18861 342 
in 2007 and 2006 options were granted under the worldwide save for shares plan the weighted average estimated fair value for the options 
granted was calculated using a blackscholes option pricing model   notes to the consolidated financial statements continued 
 
86    pearson annual report and accounts 2007 
25 sharebased payments continued 
the weighted average estimated fair values and the inputs into the blackscholes model are as follows 
 
2007
weighted
average 
2006
weighted
average 
fair value £253 £192 
weighted average share price £891 £766 
weighted average exercise price £690 £630 
expected volatility 1972 2312 
expected life 40 years 40 years 
risk free rate 534 442 
expected dividend yield 329 352 
forfeiture rate 35 50 
the expected volatility is based on the historic volatility of the company’s 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 
2007  2006 
 
number 
of shares 
000s 
weighted  
average 
fair value 
£  
number
of shares
000s 
weighted
average
fair value
£ 
annual bonus share matching plan 143 767  90 627 
longterm incentive plan 3377 712  3585 696 
restricted shares granted under the annual bonus share matching plan are valued using the share price at the date of grant discounted by the 
dividend yield 2007 326 2006 366 to take into account any dividends foregone the fair value of shares granted under the longterm 
incentive plan that vest unconditionally is determined using the share price at the date of grant participants of the longterm 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 with a market performance condition were valued by an independent actuary using a monte 
carlo model restricted shares with a nonmarket performance condition were fair valued based on the share price at the date of grant  
nonmarket performance conditions were considered by adjusting the number of shares expected to vest based on the most likely outcome  
of the relevant performance criteria 
subsidiary share option plans 
interactive data a 62 subsidiary of the group operates the following sharebased payment plans 
2001 employee stock purchase plan  
the 2001 employee stock purchase plan allows all eligible employees worldwide to purchase stock at a discounted price at specific times 
2000 longterm incentive plan  
under this plan the compensation committee of the board of directors can grant sharebased awards representing up to 20 of the total 
number of shares of common stock outstanding at the date of grant the plan provides for the discretionary issuance of sharebased awards  
to directors officers and employees of interactive data as well as persons who provide consulting or other services to interactive data  
the exercise price for all options granted to date has been equal to the market price of the underlying shares at the date of grant options  
expire ten years from the date of grant and generally vest over a three to four year period without any performance criteria attached 
in addition grants of restricted stock can be made to certain executives and members of the board of directors of interactive data  
the awarded shares are available for distribution at no cost at the end of a threeyear vesting period no performance criteria are attached  
to shares granted under this plan 
interactive data employees purchased 186343 shares 2006 206324 under the 2001 employee stock purchase plan at an average share  
price of 1777 £893 2006 1558 £796 the weighted average fair value at the date of grant was 476 £239 2006 398 £203  87    pearson annual report and accounts 2007 
25 sharebased payments continued 
the number and weighted average exercise prices of share options granted under the 2000 longterm incentive plan are as follows 
2007  2006 
 
number
of share
options
000s 
weighted
average
exercise
price
 
weighted 
average 
exercise 
price 
£  
number 
of share 
options 
000s 
weighted
average
exercise
price
 
weighted
average
exercise
price
£ 
outstanding at beginning of year 10506 1633 834  10068 1516 837 
granted during the year 1560 2717 1365  1835 2058 1052 
exercised during the year 1935 1488 748  1252 1288 658 
forfeited during the year 293 2038 1024  139 1902 972 
expired during the year 11 1812 910  6 1146 586 
outstanding at end of year 9827 1821 915  10506 1633 834 
options exercisable at end of year 6199 1527 767  6547 1411 721 
the options outstanding at the end of the year have a weighted average remaining contractual life and exercise price as follows 
2007  2006 
range of exercise prices 
 
number 
of share 
options 
000s 
weighted 
average 
contractual 
life 
years  
number
of share
options
000s 
weighted
average
contractual
life
years 
0 – 44 – –  30 31 
44 – 75 72 21  157 23 
75 – 12 1745 34  2164 44 
12 – 20 3464 56  4640 64 
 20 4546 85  3515 90 
 9827 66  10506 68 
the fair value of the options granted under the longterm incentive plan and of the shares awarded under the 2001 employee stock purchase 
plan was estimated using a blackscholes model the weighted average estimated fair values and the inputs into the blackscholes model are  
as follows 
longterm incentive plan  employee stock purchase plan 
2007 2006  2007 2006 
 
weighted 
average 
weighted 
average  
weighted
average 
weighted
average 
fair value 660 657  476 398 
weighted average share price 2717 2058  1777 1558 
weighted average exercise price 2717 2058  1777 1558 
expected volatility 2340 2590  2050 1832 
expected life 50 years 47 years  05 years 05 years 
risk free rate 42 
to 49 
46 
to 51  
43
to 51 
37
to 52 
expected dividend yield 19 00  20 00 
forfeiture rate 00 00  00 00 
the expected volatility is based on the historic volatility of interactive data’s share price over the vesting term of the options 
during the year interactive data granted the following shares under restricted share arrangements 
   2007   2006 
 
number
of shares
000s 
weighted
average
fair value
 
weighted 
average 
fair value 
£ 
number 
of shares 
000s 
weighted
average
fair value
 
weighted
average
fair value
£ 
2000 longterm incentive plan 185 2707 1360 196 2082 1064 
shares awarded under the 2000 longterm incentive plan were valued based on the share price prevailing at the date of grant 
  notes to the consolidated financial statements continued 
 
88    pearson annual report and accounts 2007 
26 share capital and share premium 
 
number  
of shares 
000s 
ordinary
shares
£m 
share
premium
£m 
at 1 january 2006 804020 201 2477 
issue of ordinary shares – share option schemes 2089 1 10 
at 31 december 2006 806109 202 2487 
issue of ordinary shares – share option schemes 1919 – 12 
at 31 december 2007 808028 202 2499 
the total authorised number of ordinary shares is 1194m shares 2006 1190m shares with a par value of 25p per share 2006 25p per share 
all issued shares are fully paid all shares have the same rights 
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 21 cash and cash equivalents see note 20 and equity attributable to equity 
holders of the parent comprising issued capital reserves and retained earnings see notes 26 27 and 28 
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 on pages 22 to 24 
27 treasury shares 
pearson plc  interactive data total 
 
number
of shares
000s £m  
number 
of shares 
000s £m  £m 
at 1 january 2006 5249 110  4552 43 153 
purchase of treasury shares 4700 36  1500 16 52 
release of treasury shares 1188 16  – – 16
at 31 december 2006 8761 130  6052 59 189 
purchase of treasury shares 4900 40  1177 16 56 
release of treasury shares 1900 29  – – 29
at 31 december 2007 11761 141  7229 75 216 
the group holds pearson plc shares in trust to satisfy its obligations under its restricted share plans see note 25 these shares representing 
15 2006 11 of calledup share capital are held as treasury shares and have a par value of 25p per share 
interactive data hold their own shares in respect of share buyback programmes these shares are held as treasury shares and have a par value 
of 001 
the nominal value of pearson plc treasury shares amounts to £29m 2006 £22m the nominal value of interactive data treasury shares 
amounts to £004m 2006 £003m 
at 31 december 2007 the market value of pearson plc treasury shares was £861m 2006 £676m and the market value of interactive data 
treasury shares was £1199m 2006 £743m  89    pearson annual report and accounts 2007 
28 other reserves and retained earnings 
all figures in £ millions notes 
translation  
reserve 
fair value 
reserve 
total
other 
reserves 
retained
earnings 
at 1 january 2006  175 – 175 1214 
net exchange differences on translation of foreign operations  417 – 417 – 
profit for the year attributable to equity holders of the company  – – – 446 
dividends paid to equity holders of the company 9 – – – 220
equity settled transactions  25 – – – 25 
actuarial gains on retirement benefit obligations 24 – – – 107 
treasury shares released under employee share plans  27 – – – 16
taxation on items charged to equity  7 – – – 12 
at 31 december 2006  592 – 592 1568 
net exchange differences on translation of foreign operations  25 – 25 – 
cumulative translation adjustment disposed 31 53 – 53 – 
profit for the year attributable to equity holders of the company  – – – 284 
dividends paid to equity holders of the company 9 – – – 238
equity settled transactions  25 – – – 30 
actuarial gains on retirement benefit obligations 24 – – – 80 
treasury shares released under employee share plans  27 – – – 29
taxation on items charged to equity  7 – – – 29 
at 31 december 2007  514 – 514 1724 
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 included in the translation reserve is a £49m loss 2006 £53m loss 
relating to net assets classified as held for sale  notes to the consolidated financial statements continued 
 
90    pearson annual report and accounts 2007 
29 business combinations 
on 4 may 2007 the group announced that it had agreed to acquire harcourt assessment a leading test provider and harcourt education 
international publisher of textbooks and online materials the harcourt education international acquisition has closed in several stages 
following regulatory reviews of the relevant authorities where required the acquisition of harcourt assessment completed on 30 january 2008 
and is therefore excluded from the numbers below see note 36 
on 31 july 2007 the group acquired ecollege a leader in the us online distance learning market in addition several other businesses were 
acquired in the current year mainly within the ft group none of these other acquisitions were individually material to the group the largest 
single acquisition in 2006 was mergermarket 
the provisional assets and liabilities arising from acquisitions are as follows 
2007 2006 
all figures in £ millions notes 
harcourt
fair value 
ecollege 
fair value 
other 
fair value 
total
fair value 
total
fair value 
property plant and equipment 10 6 5 – 11 13 
intangible assets 11 81 100 16 197 156 
intangible assets – prepublication 17 16 2 – 18 4 
inventories  15 – – 15 14 
trade and other receivables  12 13 3 28 24 
cash and cash equivalents  – – – – 28 
trade and other liabilities  23 12 3 38 52
financial liabilities – borrowings  – 1  1 3
current income tax  2 2 – 4 – 
net deferred income tax liabilities 13 21 24 – 45 26
retirement benefit obligations 24 – – – – 2
provisions for other liabilities and charges 22 1 – 1 2 3
equity minority interest  – – – – 9
net assets acquired at fair value  87 85 15 187 144 
goodwill 11 68 181 55 304 246 
total   155 266 70 491 390 
satisfied by       
cash  155 266 47 468 382
deferred consideration  – – 12 12 17
net prior year adjustments  – – 11 11 9 
total consideration  155 266 70 491 390
       
carrying value of net assets acquired  25 15 1 41 48 
fair value adjustments  62 70 14 146 96 
fair value to the group  87 85 15 187 144 
the goodwill arising on the acquisition of harcourt and ecollege results from substantial cost and revenue synergies and from benefits that 
cannot be separately recognised such as the assembled workforce 
the fair value adjustments relating to the acquisition of harcourt and ecollege are provisional and will be finalised during 2008 they include 
the valuation of intangible assets and the related deferred tax effect prior year adjustments relate to the finalisation of fair value adjustments 
and increases in deferred consideration relating to mergermarket  91    pearson annual report and accounts 2007 
29 business combinations continued 
harcourt 
all figures in £ millions 
carrying  
value 
fair 
value adjs 
provisional
fair value 
property plant and equipment 6 – 6 
intangible assets – 81 81 
intangible assets – prepublication 14 2 16 
inventories 15 – 15 
trade and other receivables 12 – 12 
trade and other liabilities 23 – 23
current income tax 2 – 2 
net deferred income tax liabilities – 21 21
provisions for other liabilities and charges 1 – 1
net assets acquired at fair value 25 62 87 
goodwill   68 
total    155 
ecollege 
all figures in £ millions 
carrying  
value 
fair 
value adjs 
provisional
fair value 
property plant and equipment 5 – 5 
intangible assets 2 98 100 
intangible assets – prepublication 2 – 2 
trade and other receivables 13 – 13 
trade and other liabilities 10 2 12
financial liabilities – borrowings 1 – 1
current income tax 2 – 2 
net deferred income tax assetsliabilities 2 26 24
net assets acquired at fair value 15 70 85 
goodwill   181 
total    266 
net cash outflow on acquisition 
all figures in £ millions 2007 2006 
cash – current year acquisitions 468 382
deferred payments for prior year acquisitions and other items 4 9
cash and cash equivalents acquired – 28 
cash outflow on acquisition 472 363
harcourt contributed £71m of sales and £7m to the group’s profit before tax between the date of acquisition and the balance sheet date 
ecollege contributed £15m of sales and £4m to the group’s profit before tax between the date of acquisition and the balance sheet date  
other businesses acquired contributed £4m to the group’s sales and £2m to the group’s profit before tax between the date of acquisition  
and the balance sheet date 
if the acquisitions had been completed on 1 january 2007 the group estimates that sales for the period would have been £4307m and profit 
before tax would have been £479m  notes to the consolidated financial statements continued
92    pearson annual report and accounts 2007
30 noncurrent assets classified as held for sale 
the group disposed of its data management business on 22 february 2008 and this business is classified as held for sale in 2007 the data 
management business was formerly part of the group’s other assessment and testing cashgenerating unit cgu and was carved out of
this cgu in preparation for disposal as a result the group has recognised an impairment on the goodwill allocated to the data management 
business in anticipation of the loss on disposal see note 3 in 2006 assets classified as held for sale related to government solutions the major 
classes of assets and liabilities comprising the operations classified as held for sale at the balance sheet date are as follows
notes 2007 2006
property plant and equipment 10 7 9
intangible assets – goodwill 96 221
intangible assets – other 11 – 7
intangible assets – prepublication 2 –
inventories 4 1
trade and other receivables 8 56
noncurrent assets classified as held for sale 117 294
other liabilities 9 26
liabilities directly associated with noncurrent assets classified as held for sale 9 26
net assets classified as held for sale 108 268
31 disposals 
2006
all figures in £ millions 
government
solutions les echos datamark other total total 
disposal of subsidiaries 
property plant and equipment 10 3 3 – 16 –
intangible assets 6 – – – 6 –
inventories – – 1 – 1 –
trade and other receivables 63 26 5 1 95 –
cash and cash equivalents – 14 – – 14 –
deferred income tax liabilities – 2 – – 2 –
trade and other liabilities 23 42 6 2 73 1
retirement benefit obligations – 3 – – 3 –
provisions for other liabilities and charges – 1 – – 1 –
equity minority interests – – – 8 8 4
attributable goodwill 221 4 17 8 250 5
cumulative translation adjustment 53 – – – 53 –
net assetsliabilities disposed 330 1 20 15 364 10
cash received 286 174 20 15 495 10
other proceeds received 35 – – – 35 –
costs 10 10 – – 20 –
lossprofit on sale 19 165 – – 146 –
2007 2006
cash flow from disposals 
cash – current year disposals 495 10
costs paid 12 –
cash and cash equivalents disposed  14 –
net cash inflow 469 10
details of the businesses disposed are shown in note 3 
the proceeds received for the sale of government solutions include £286m in cash £20m in loan stock and a 10 interest in the acquiring
company valued at £15m  
other includes share options exercised in interactive data 
2007
all figures in £ millions  93    pearson annual report and accounts 2007 
32 cash generated from operations 
all figures in £ millions notes 2007 2006 
net profit  310 469 
adjustments for    
income tax  222 19 
depreciation 10 68 77 
amortisation of purchased intangible assets 11 45 28 
adjustment on recognition of preacquisition deferred tax 11 – 7 
amortisation of other intangible assets 11 25 23 
investment in prepublication assets 17 230 213
amortisation of prepublication assets 17 192 210 
loss on sale of property plant and equipment  1 2 
net finance costs 6 106 74 
share of results of joint ventures and associates 12 23 24
profit on sale of discontinued operations 3 146 – 
goodwill impairment of discontinued operation 3 97 – 
net foreign exchange gainslosses from transactions  11 37
sharebased payment costs 25 30 25 
inventories  1 16
trade and other receivables  5 60
trade and other liabilities  80 54 
retirement benefit obligations  126 17
provisions  3 – 
net cash generated from operations  659 621 
 
dividends from joint ventures and associates 12 32 45 
purchase of property plant and equipment  86 68
purchase of intangible assets  33 29
finance lease principal payments  2 3
proceeds from sale of property plant and equipment  14 8 
add back special pension contribution  100 – 
add back cash spent against integration and fair value provisions  – 1 
operating cash flow  684 575 
operating tax paid  61 59
net operating finance costs paid  90 82
operating free cash flow  533 434 
nonoperating tax paid  26 – 
special pension contribution  100 – 
cash spent against integration and fair value provisions  – 1
total free cash flow  407 433 
dividends paid including to minorities  248 235
net movement of funds from operations  159 198 
included in net cash generated from operations is an amount of £7m 2006 £33m relating to discontinued operations 
operating cash flow operating free cash flow and total free cash flow have been disclosed as they are part of pearson’s corporate and operating 
measures following the completion of the latest actuarial valuation of the uk group pension plan as at january 2006 the group agreed that 
during 2007 it would make additional payments to the plan amounting to £100m the group has excluded this £100m from its definition of 
operating cash flow and operating free cash flow as it distorts the underlying operating performance for the year 
in the cash flow statement proceeds from sale of property plant and equipment comprise 
all figures in £ millions 2007 2006 
net book amount 15 10 
loss on sale of property plant and equipment 1 2
proceeds from sale of property plant and equipment 14 8 
the principal other noncash transactions are movements in finance lease obligations of £4m 2006 £4m  notes to the consolidated financial statements continued
94    pearson annual report and accounts 2007
33 contingencies 
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 and associates in addition there are contingent liabilities of the 
group in respect of legal claims none of these claims are expected to result in a material gain or loss to the group 
34 commitments 
capital commitments 
capital expenditure contracted for at the balance sheet date but not yet incurred is as follows 
all figures in £ millions 2007 2006
property plant and equipment 3 –
the group leases various offices and warehouses under noncancellable 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 
all figures in £ millions 2007 2006
not later than one year 123 123
later than one year and not later than two years 116 113
later than two years and not later than three years 102 103
later than three years and not later than four years 93 90
later than four years and not later than five years 85 83
later than five years 834 857
1353 1369
35 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 amounts falling due from joint ventures and associates are set out in note 19 
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 
36 events after the balance sheet date 
on 2 january 2008 the group completed its acquisition of moneymedia a usbased company offering online news and commentary  
for the money management industry for 64m 
on 30 january 2008 the group completed its 647m acquisition of harcourt assessment from reed elsevier after receiving clearance from  
the us department of justice  
also on 30 january 2008 the group announced that it had agreed to sell its 50 interest in financial times deutschland ftd to its joint 
venture partner gruner  jahr the group’s share of ftd assets at 31 december 2007 was €8m and a small profit on sale is expected 
on 22 february 2008 the group completed the sale of its data management business to m  f worldwide corp for 225m the group
expects to report a loss on this transaction in 2008 after taking into account the cumulative translation adjustment and tax  company statement of recognised income and expense 
year ended 31 december 2007 
95    pearson annual report and accounts 2007 
all figures in £ millions 2007 2006 
lossprofit for the year 43 78 
total recognised income and expense for the year 43 78 
 
 
company balance sheet 
as at 31 december 2007 
 
all figures in £ millions notes 2007 2006 
assets    
noncurrent assets    
investments in subsidiaries 2 6650 7103 
amounts due from subsidiaries  73 460 
financial assets – derivative financial instruments 6 23 36 
other financial assets  1 1 
  6747 7600 
current assets    
amounts due from subsidiaries  2040 1372 
current income tax assets  42 73 
cash and cash equivalents excluding overdrafts 4 61 153 
financial assets – derivative financial instruments 6 28 50 
other assets  – 1 
total assets  8918 9249 
liabilities    
noncurrent liabilities    
financial liabilities – borrowings 5 658 761
financial liabilities – derivative financial instruments 6 16 19
amounts due to subsidiaries  425 519
  1099 1299
current liabilities   
other liabilities  – 17
financial liabilities – borrowings 5 749 784
amounts due to subsidiaries  3401 3194
total liabilities  5249 5294
net assets  3669 3955 
 
equity    
share capital 7 202 202 
share premium 7 2499 2487 
treasury shares 8 82 65
other reserves 9 447 447 
retained earnings 9 603 884 
total equity attributable to equity holders of the company  3669 3955 
these financial statements have been approved for issue by the board of directors on 13 march 2008 and signed on its behalf by  
robin freestone chief financial officer  company cash flow statement  
year ended 31 december 2007 
96    pearson annual report and accounts 2007 
 
all figures in £ millions notes 2007 2006 
cash flows from operating activities    
net lossprofit  43 78 
adjustments for    
income tax   67 67
net finance costs  183 63 
other liabilities  1 16 
amounts due from subsidiaries  499 115
profit on sale of subsidiaries  32 – 
amount written down in investments in subsidiaries  – 20 
net cash used in operations  459 5
interest paid  247 175
tax received  99 55 
net cash used in operating activities  607 125
cash flows from investing activities    
acquisition of subsidiaries net of cash acquired  46 120
disposal of subsidiaries net of cash disposed  913 – 
interest received  5 15 
net cash generatedused in from investing activities  872 105
cash flows from financing activities    
proceeds from issue of ordinary shares 7 12 11 
net investment ingroup contribution to purchase of treasury shares  33 6 
proceeds from borrowings  347 – 
repayment of borrowings  391 12
dividends paid to company’s shareholders  238 220
net cash used in financing activities  303 215
effects of exchange rate changes on cash and cash equivalents  1 10
net decrease in cash and cash equivalents  37 455
cash and cash equivalents at beginning of year  183 272 
cash and cash equivalents at end of year 4 220 183
  notes to the company financial statements 
 
 
97    pearson annual report and accounts 2007 
20b1 accounting policies 
29ba basis of preparation 
the financial statements on pages 95 to 101 comprise the separate financial statements of pearson plc as permitted by section 2304 of the 
companies act 1985 only the group’s income statement has been presented 
the company has no employees 
30bb group accounting policies 
the accounting policies applied in the preparation of these company financial statements are the same as those set out in note 1 to the group 
financial statements with the addition of the following 
32binvestments  
investments in subsidiaries are stated at cost less provision for impairment 
0b2 investments in subsidiaries 
all figures in £ millions 2007 2006 
at beginning of year 7103 6883 
subscription for share capital in subsidiaries 425 1019 
external disposal 1 – 
disposal to subsidiary 877 779
provision for impairment – 20
at end of year 6650 7103 
3 financial instruments and risk management 
the company’s financial instruments comprise amounts due tofrom subsidiary undertakings cash and cash equivalents derivative  
financial instruments and current and noncurrent borrowings derivative financial instruments are held at fair value with all other  
financial instruments held at amortised cost the company’s approach to the management of financial risks is discussed on pages 22 to 24  
the company believes the value of its financial assets to be fully recoverable 
the company designates certain of its 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 carrying value of the company’s financial instruments is exposed to movements in interest rates and foreign currency exchange rates 
primarily us dollars the company estimates that a 1 increase in interest rates would result in a £9m decrease in the carrying value of  
its financial instruments with a 1 decrease in interest rates resulting in a £10m increase in their carrying value the company also estimates 
that a 10 strengthening in sterling would increase the carrying value of its financial instruments by £21m while a 10 decrease in the  
value of sterling would decrease the carrying value by £25m these increases and decreases in carrying value would be recorded through the 
income statement 
the maturity of contracted cash flows on the company’s borrowings and all of its derivative financial instruments are as follows 
 2007 
all figures in £ millions usd gbp eur total 
not later than one year 132 30 – 102 
later than one year and not later than five years 734 70 – 804 
later than five years 198 285 – 483 
total 1064 325 – 1389 
analysed as     
revolving credit facility and commercial paper 425 – – 425 
bonds 546 483 – 1029 
rate derivatives – inflows 268 160 – 428
rate derivatives – outflows 361 2 – 363 
total 1064 325 – 1389 
  notes to the company financial statements continued
98    pearson annual report and accounts 2007
3 financial instruments and risk management continued
2006
all figures in £ millions usd  gbp  eur  total 
not later than one year 142 18 265 425 
later than one year and not later than five years 429 60 – 489 
later than five years 248 242 – 490 
total 819 320 265 1404 
analysed as 
revolving credit facility and commercial paper – – – – 
bonds 561 511 423 1495 
rate derivatives – inflows 318 329 192 839
rate derivatives – outflows 576 138 34 748 
total 819 320 265 1404 
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 those prevailing at 31 december in the relevant year 
amounts drawn under revolving credit facilities 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 all derivative amounts are shown gross although the 
company net settles these wherever possible 
4 cash and cash equivalents excluding overdrafts 
all figures in £ millions 2007 2006
cash at bank and in hand 1 48
shortterm bank deposits 60 105
61 153
shortterm bank deposits are invested with banks and earn interest at the prevailing shortterm deposit rates cash and cash equivalents have 
fair values that approximate to their carrying amounts due to their shortterm nature 
cash and cash equivalents include the following for the purpose of the cash flow statement 
all figures in £ millions 2007 2006
cash and cash equivalents 61 153
bank overdrafts 281 336
220 183
21b5 financial liabilities – borrowings 
all figures in £ millions 2007 2006
noncurrent 
105 sterling bonds 2008 nominal amount £100m – 105
7 global dollar bonds 2011 nominal amount 500m 264 266
7 sterling bonds 2014 nominal amount £250m 251 251
4625 us dollar notes 2018 nominal amount 300m 143 139
658 761
current
due within one year or on demand 
bank loans and overdrafts 644 363
625 euro bonds 2007 nominal amount €591m – 421
105 sterling bonds 2008 nominal amount £100m 105 –
749 784
total borrowings 1407 1545
included in the noncurrent borrowings above is £4m of accrued interest 2006 £10m 
included in the current borrowings above is £7m of accrued interest 2006 £22m   
99    pearson annual report and accounts 2007 
5 financial liabilities – borrowings continued 
the maturity of the company’s noncurrent borrowings is as follows 
all figures in £ millions 2007 2006 
between one and two years – 105 
between two and five years 264 266 
over five years 394 390 
 658 761 
as at 31 december 2007 the exposure of the borrowings of the company to interest rate changes when the borrowings reprice is as follows 
all figures in £ millions total one year 
one to
five years 
more than
five years 
carrying value of borrowings 1407 749 264 394 
effect of rate derivatives – 359 7 352
 1407 1108 257 42 
the carrying amounts and market values of noncurrent borrowings are as follows 
all figures in £ millions 
effective
interest rate 
carrying  
amount 
2007 
market value 
2007 
carrying 
amount
2006 
market
value
2006 
105 sterling bonds 2008 1053 – – 105 106 
7 global dollar bonds 2011 716 264 267 266 269 
7 sterling bonds 2014 720 251 261 251 265 
4625 us dollar notes 2018 469 143 135 139 135 
  658 663 761 775 
the market values 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 company’s borrowings are denominated in the following currencies 
all figures in £ millions 2007 2006 
us dollar 779 462 
sterling 620 654 
euro 8 429 
 1407 1545 
2b6 derivative financial instruments 
the company’s outstanding derivative financial instruments are as follows 
2007  2006 
all figures in £ millions 
gross notional
amounts assets liabilities  
gross notional 
amounts assets liabilities 
interest rate derivatives – in a fair value hedge relationship 522 18 8  953 20 17
interest rate derivatives – not in hedge relationship 796 7 8  1026 9 2
cross currency rate derivatives 150 26 –  410 57 – 
total 1468 51 16  2389 86 19
 
analysed as expiring        
in less than one year 320 28 –  976 50 – 
later than one year and not later than five years 796 13 8  1005 26 4
later than five years 352 10 8  408 10 15
total 1468 51 16  2389 86 19
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  
3b  notes to the company financial statements continued 
 
100    pearson annual report and accounts 2007 
7 share capital and share premium 
 
number  
of shares 
000s 
ordinary
shares
£m 
share
premium
£m 
at 1 january 2006 804020 201 2477 
issue of shares – share option schemes 2089 1 10 
at 31 december 2006 806109 202 2487 
issue of shares – share option schemes 1919 – 12 
at 31 december 2007 808028 202 2499 
the total authorised number of ordinary shares is 1194m shares 2006 1190m shares with a par value of 25p per share 2006 25p per share 
all issued shares are fully paid all shares have the same rights 
23b8 treasury shares 
 
number
of shares
000s £m 
at 1 january 2006 5249 55 
purchase of treasury shares less contributions received 4700 26 
release of treasury shares  1188 16
at 31 december 2006 8761 65 
purchase of treasury shares less contributions received 4900 46 
release of treasury shares  1900 29
at 31 december 2007 11761 82 
the company holds its own shares in trust to satisfy its obligations under its restricted share plans these shares are held as treasury shares and 
have a par value of 25p per share the nominal value of the company’s treasury shares amounts to £29m 2006 £22m at 31 december 2007 
the market value of the company’s treasury shares was £861m 2006 £676m 
4b9 other reserves and retained earnings 
all figures in £ millions 
special 
reserve 
retained 
earnings total 
at 1 january 2006 447 1026 1473 
profit for the financial year – 78 78 
dividends paid – 220 220
balance at 31 december 2006 447 884 1331 
loss for the financial year – 43 43
dividends paid – 238 238
at 31 december 2007 447 603 1050 
the special reserve represents the cumulative effect of cancellation of the company’s share premium account  
included within retained earnings in 2007 is an amount of £131m 2006 £99m relating to profit on intragroup disposals that is  
not distributable 
5b   
101    pearson annual report and accounts 2007 
10 contingencies 
there are contingent liabilities that arise in the normal course of business in respect of indemnities warranties and guarantees in relation to 
former subsidiaries and guarantees in relation to subsidiaries in addition there are contingent liabilities in respect of legal claims none of these 
claims is expected to result in a material gain or loss to the company 
611 audit fees 
statutory audit fees relating to the company were £35000 2006 £35000 auditrelated regulatory reporting fees relating to the company 
were £nil 2006 £nil 
7b12 related party transactions 
31bsubsidiaries  
the company transacts and has outstanding balances with its subsidiaries amounts due from subsidiaries and amounts due to subsidiaries  
are disclosed on the face of the company balance sheet  
these loans are generally unsecured and interest is calculated based on market rates the company has interest payable to subsidiaries during 
the year of £221m 2006 £149m and interest receivable from subsidiaries during the year of £115m 2006 £61m management fees payable to 
subsidiaries in respect of centrally provided services amounted to £33m 2006 £33m dividends received from subsidiaries in 2007 were £74m 
2006 £28m 
key management personnel 
key management personnel are deemed to be the members of the board of directors of the company it is this board which has responsibility 
for planning directing and controlling the activities of the company key management personnel compensation is disclosed in the directors’ 
remuneration report of the group  
there were no other material related party transactions  principal subsidiaries 
102    pearson annual report and accounts 2007 
the principal operating subsidiaries at 31 december 2007 are listed below they operate mainly in the countries of incorporation or 
registration the investments are in equity share capital and they are all 100 owned unless stated otherwise 
 country of incorporation or registration 
pearson education  
pearson education inc us 
pearson education ltd england 
edexcel ltd england 
ncs pearson inc us 
ft group  
the financial times ltd england 
mergermarket ltd england 
interactive data 62 us 
the penguin group  
penguin group usa inc us 
the penguin publishing co ltd england 
dorling kindersley holdings ltd england 
direct investment of pearson plc five year summary 
103    pearson annual report and accounts 2007 
all figures in £ millions 2003 2004 2005 2006 2007 
sales      
continuing operations 3510 3340  3662  3990 4162 
discontinued businesses included in adjusted sales 73 66  63  61 56 
adjusted sales 3583 3406  3725  4051 4218 
discontinued businesses excluded from adjusted sales 436 480  398  372 111 
total sales 4019 3886  4123  4423 4329 
adjusted sales  continuing as reported 3850 3696  4096  4051 4218 
 
school 1149 1087  1295  1455 1537 
higher education 770 729  779  795 793 
professional 318 300  301  341 354 
education 2237 2116  2375  2591 2684 
ft publishing 233 235  249  280 344 
interactive data 273 269  297  332 344 
ft group 506 504  546  612 688 
penguin 840 786  804  848 846 
continuing 3583 3406  3725  4051 4218 
discontinued 436 480  398  372 111 
total sales 4019 3886  4123  4423 4329 
 
adjusted operating profit      
school 116 108  147  184 203 
higher education 142 129  156  161 161 
professional 33 18  25  38 40 
education 291 255  328  383 404 
ft publishing 31 2 17  27 56 
interactive data 70 67  80  89 97 
ft group 39 65  97  116 153 
penguin 83 52  60  66 74 
continuing 413 372  485  565 631 
discontinued 34 54  21  27 3 
total adjusted operating profit 447 426  506  592 634 
adjusted operating profit – continuing as reported 416 400  509  565 631 
 
operating margin – continuing as reported 108 108 124 139 150 
 
adjusted earnings      
total adjusted operating profit 447 426  506  592 634 
interest 90 76 84 90 85
tax 116 108 128 130 145
minorities 22 23 22 28 32
adjusted earnings 219 219  272  344 372 
weighted average shares 7944 7956  7979  7984 7968 
adjusted earnings per share 276 p 275 p 341 p 431 p 467 p  five year summary continued 
 
104    pearson annual report and accounts 2007 
 
all figures in £ millions 2003 2004 2005 2006 2007 
operating cash flow 318 418  570  575 684 
operating cash conversion 71 98 113 97 108 
operating free cash flow 208 278  440  434 533 
operating free cash flow per share 262p 349p 551p 544p 669p 
free cash flow 190 284  431  433 407 
free cash flow per share 239p 357p 540p 542p 511p 
 
net assets 3161 3014  3733  3644 3874 
net debt 1376 1221  996  1059 973 
 
return on invested capital      
total adjusted operating profit 447 426  506  592 634 
cash tax 15 67 64 76 89 95
return 380 362  430  503 539 
invested capital 6315 5879  6454  6280 6592 
return on invested capital 60 62 67 80 82 
 
dividend per share 242p 254p 270p 293p 316p 
includes data management business classified as discontinued for statutory purposes 
includes government solutions and les echos in continuing for 2003 2004 and 2005 
2006 and 2007 restated for tax deductibility of goodwill and intangible amortisation 2003 2004 and 2005 not restated  corporate and operating measures 
105    pearson annual report and accounts 2007 
24bsales – underlying and constant exchange rate movement 
sales movement for total operations including the data management business excluding the impact of acquisitions and disposals and 
movements in exchange rates 
all figures in £ millions 2007 
underlying increase 249 
portfolio changes 146 
exchange differences 228
total sales increase 167 
underlying increase 6 
constant exchange rate increase 10 
8badjusted income statement 
reconciliation of the consolidated income statement to the adjusted numbers presented as nongaap measures in the financial statements 
       2007 
all figures in £ millions 
statutory
income
statement 
reanalyse
discontinued
operations 
other
net gains
and losses 
amortisation
of acquired
intangibles 
other net 
finance 
costsincome 
tax 
amortisation 
benefit 
recognition
of tax
losses 
adjusted
income
statement 
sales  4162 56 – – – – – 4218 
gross profit 2252 72 – – – – – 2324 
operating expenses 1701 57 – 45 – – – 1713
share of results of joint ventures and associates 23 – – – – – – 23 
operating profit 574 15 – 45 – – – 634 
net finance costs 106 – – – 21 – – 85 
profit before tax 468 15 – 45 21 – – 549 
income tax 131 5 9 19 6 25 – 145
profit for the year from continuing operations 337 10 9 26 15 25 – 404 
profit for the year from discontinued operations 27 10 37 – – – – – 
profit for the year 310 – 28 26 15 25 – 404 
minority interest 26 – – 4 – 2 – 32
earnings 284 – 28 22 15 23 – 372 
 
       2006 
all figures in £ millions 
statutory
income
statement 
reanalyse
discontinued
operations 
other
net gains
and losses 
amortisation
of acquired
intangibles 
other net 
finance 
costsincome 
tax 
amortisation 
benefit 
recognition
of tax
losses 
adjusted
income
statement 
sales  3990 61 – – – – – 4051 
gross profit 2149 130 – – – – – 2279 
operating expenses 1651 90 – 35 – – – 1706
share of results of joint ventures and associates 24 – 4 – 1 – – 19 
operating profit 522 40 4 35 1 – – 592 
net finance costs 74 – – – 16 – – 90
profit before tax 448 40 4 35 17 – – 502 
income tax 4 15 4 10 5 25 127 130
profit for the year from continuing operations 444 25 8 25 12 25 127 372 
profit for the year from discontinued operations 25 25 – – – – – – 
profit for the year 469 – 8 25 12 25 127 372 
minority interest 23 – – 3 – 2 – 28
earnings 446 – 8 22 12 23 127 344 
amortisation of acquired intangibles includes a £7m adjustment to goodwill on recognition of preacquisition deferred tax 
adjusted sales include sales from discontinued operations held throughout the current and previous years  corporate and operating measures continued 
 
106    pearson annual report and accounts 2007 
25badjusted operating profit – underlying and constant exchange rate movement 
operating profit movement excluding the impact of acquisitions and disposals and movements in exchange rates 
all figures in £ millions 2007 
underlying increase 81 
portfolio changes 2
exchange differences 37
total adjusted operating profit increase 42 
underlying increase 14 
constant exchange rate increase 13 
9bfree cash flow per share 
operating cash flow for continuing and discontinued operations before tax finance charges and integration costs paid divided by the weighted 
average number of shares in issue 
all figures in £ millions 2007 2006 
adjusted operating profit 634 592 
cash conversion 108 97 
operating cash flow 684 575 
operating tax paid 61 59
net operating finance costs paid 90 82
operating free cash flow 533 434 
non operating tax paid 26 – 
special pension contribution 100 – 
integration costs paid – 1
total free cash flow 407 433 
weighted average number of shares in issue millions 7968 7984 
operating free cash flow per share 669p 544p 
total free cash flow per share 511p 542p 
10breturn on invested capital 
adjusted operating profit less cash tax expressed as a percentage of gross invested capital 
all figures in £ millions  2007 2006 
adjusted operating profit 634 592 
cash tax 15 95 89
return 539 503 
gross goodwill 5592 5477 
net operating assets 1000 803 
invested capital 6592 6280 
return on invested capital 82 80  index to the financial statements 
107    pearson annual report and accounts 2007 
accounting policies  54 55 56 57 58 
business combinations  90 91 
cash and cash equivalents  78 
cash generated from operations  93 
commitments  94 
company balance sheet  95 
company cash flow statement  96 
company statement of recognised income and expense  95 
consolidated balance sheet  51 
consolidated cash flow statement  52 
consolidated income statement  50 
consolidated statement of recognised income and expense  50 
contingencies  94 
derivative financial instruments  75 76 
discontinued operations  61 62 
disposals  92 
dividends  67 
earnings per share  65 66 67 
employee information  63 
events after balance sheet date  94 
financial instruments and risk management  73 74 75 
financial liabilities – borrowings  78 79 
independent auditors’ report – report to the members of pearson plc  53 
intangible assets  69 70 76 
inventories  76 
joint ventures and associates  71 
net finance costs  64 
noncurrent assets classified as held for sale  92 
notes to the company financial statements  97 98 99 100 101 
operating expenses  62 63 
other financial assets  75 
other reserves and retained earnings  89 
property plant and equipment  68 
provisions  80 
related party transactions  94 
retirement benefit and other postretirement obligations  81 82 83 84 
segment information  59 60 61 
share capital and share premium  88 
sharebased payments  84 85 86 87 
taxation  64 65 72 73 
trade and other liabilities  80 
trade and other receivables  77 
treasury shares  88 
  shareholder information 
108    pearson annual report and accounts 2007 
26bpayment of dividends to mandated accounts 
where shareholders have given instructions for payment to be made 
direct into a bank or building society this is done through the bankers 
automated clearing system bacs with the associated tax voucher 
showing the tax credit attributable to the dividend payment sent direct 
to the shareholder at the address shown on our register if you wish the 
tax voucher to be sent to your bank or building society please contact 
equiniti aspect house spencer road lancing west sussex bn99 
6da telephone 0871 384 2043 or for those shareholders with 
hearing difficulties textphone number 0871 384 2255 
11bdividend reinvestment plan drip 
the drip gives shareholders the right to buy the company’s shares  
on the london stock market with the cash dividend if you would  
like further information about the drip please contact equiniti  
on 0871 384 2268 
12bindividual savings accounts isas 
equiniti offers isas in pearson shares for more information please 
call them on 0871 384 2244 
13bshare dealing facilities 
a telephone and internet dealing service has been arranged through 
equiniti which provides a simple way of buying and selling pearson 
shares commission rates are shown at wwwshareviewcouk or call 
the telephone sales number for telephone sales call 08456 037 037 
between 830 am and 430 pm monday to friday and for internet 
sales log on to wwwshareviewcoukdealing you will need your 
shareholder reference number as shown on your share certificate  
a postal facility which provides a simple low cost way of buying  
and selling pearson shares is also available through the company’s 
stockbroker jpmorgan cazenove limited 20 moorgate london 
ec2r 6da telephone 020 7588 2828 an alternative weekly postal 
dealing service is available through our registrars please telephone 
0871 384 2248 for details 
14bsharegift 
shareholders with small holdings of shares whose value makes them 
uneconomic to sell may wish to donate them to sharegift the share 
donation charity registered charity number 1052686 sharegift is 
particularly designed to accept unwanted shares and uses the ultimate 
proceeds to support a wide range of uk charities over £11m has been 
given by sharegift so far to over 1400 different uk charities further 
information about sharegift and the charities it has supported may  
be obtained from their website wwwsharegiftorg or by contacting 
sharegift at 17 carlton house terrace london sw1y 5ah 
15bshareholder information online 
equiniti provides a range of shareholder information online you can 
check your holding and find practical help on transferring shares or 
updating your details at wwwshareviewcouk equiniti can be 
contacted for information on 0871 384 2030 
16binformation about the pearson share price 
the current price of pearson ordinary shares can be obtained from  
the company’s website wwwpearsoncom or from wwwftcom 
27bamerican depositary receipts adrs 
pearson’s ordinary shares are listed on the new york stock exchange 
in the form of adrs and traded under the symbol pso each adr 
represents one ordinary share all enquiries regarding registered adr 
holder accounts and payment of dividends should be directed to  
the bank of new york the authorised depositary bank for pearson’s 
adr programme at the bank of new york investor services  
po box 11258 church street station new york ny 102861258 
telephone 1888bnyadrs toll free within the us or 1 212 815 
3700 outside the us or email shareownersbankofnycom or  
signin at wwwstockbnycom voting rights for registered adr 
holders can be exercised through the bank of new york and for 
beneficial adr holders andor nominee accounts through your  
us brokerage institution pearson will file with the securities and 
exchange commission a form 20f 
17bshare register fraud protecting your investment 
pearson does not contact its shareholders directly to provide 
recommendation advice and neither does it appoint third parties to do 
so as required by law our shareholder register is available for public 
inspection but we cannot control the use of information obtained by 
persons inspecting the register please treat any approaches purporting 
to originate from pearson with caution 
28btips on protecting your shares 
– keep any documentation that contains your shareowner reference 
number in a safe place and destroy any documentation which you 
no longer need by shredding it 
– inform the registrars promptly when you change your address 
– be aware of dividend payment dates and contact the registrars  
if you do not receive your dividend cheque or better still make 
arrangements to have the dividend paid directly into your  
bank account 
– consider holding your shares electronically in a crest account  
via a nominee 
for more information on how you can protect your shares from fraud 
please visit our website at wwwpearsoncomshareholderfaqs 
18badvisers  
auditors pricewaterhousecoopers llp 
bankers hsbc bank plc 
brokers jpmorgan cazenove limited and citigroup 
financial advisers goldman sachs citigroup and lazard 
solicitors freshfields bruckhaus deringer herbert smith and morgan 
lewis  bockius 
19b2008 financial calendar 
exdividend date 9 april 
record date 11 april 
last date for dividend reinvestment election  15 april 
annual general meeting   25 april 
payment date for dividend and share purchase date  
for dividend reinvestment 9 may 
interim results  28 july 
payment date for interim dividend 19 september 
calls to these numbers are charged at 8p per minute from a bt landline  
other provider costs may vary  principal officesworldwide
pearson uk
80 strandlondonwc2r 0rluk
t 44 020 7010 2000
f 44 020 7010 6060
firstnamelastnamepearsoncom
wwwpearsoncom
pearson us
1330avenue of theamericas
newyork cityny 10019usa
t 1 212 641 2400
f 1 212 641 2500
firstnamelastnamepearsoninccom
wwwpearsoncom
pearson education
one lake street
upper saddle river
nj 07458usa
t 1 201 236 7000
f 1 201 236 3222
firstnamelastnamepearsonedcom
wwwpearsonedcom
financial times group
number one southwark bridge
london se1 9hluk
t 44 020 7873 3000
f 44 020 7873 3076
firstnamelastnameftcom
wwwftcom
the penguin group uk
80 strandlondonwc2r 0rluk
t 44 020 7010 2000
f 44 020 7010 6060
firstnamelastnameukpenguingroupcom
wwwpenguincouk
the penguin group us
375 hudson streetnewyork city
ny 10014usa
t 1 212 366 2000
f12123662666
firstnamelastnameuspenguingroupcom
uspenguingroupcom
pearson plc registered number
53723 england
design  productionradleyyeldar
printburlington
pearson has supported the planting of 350 trees with thewoodland trusthelping
to offset the carbon dioxide emissions generated by the production of this report
the cover of this report has been printed on take 2 silk which is fsc certified and
contains 75 recycled and deinked pulp from post consumer waste and 25 ecf
elemental chlorine free virgin pulpthe text pages are printed on take 2 offset
which is 100 recycledthis report was printed by an fsc and iso 14001 certified
printer using vegetable oil and soya based inksit is 100 recyclable
sgscoc2958 wwwpearsoncom
find out how we educateentertain and
inform at wwwpearsoncompearsonville


Summary:
 chief executive’s review 
4    pearson annual report and accounts 2007
dear shareholder 
this year just as last year pearson’s results are a record i’m sure i 
don’t have to tell you that they’re due to the ingenuity and dedication 
of the 32000 people who work in pearson nearly all of whom are 
owners of this company just like you we all thank you for the trust 
and confidence you’ve placed in us by investing in the company  
we’re proud of the numbers in this report but they signify something 
more than one good year they’re a trend – one more point on a 
consistent upward march that makes them not just a footnote to  
the past but a source of confidence in the future  
our last five years make the point 
– operating profit has increased from £416m to £631m at an annual 
growth rate of 15 at constant exchange rates 
– adjusted earnings per share are up from 276p to 467p an annual 
rate of 14 
– we have more than doubled the cash we produce from operations 
from £318m to £684m 
– the return we make on the capital we invest is up from 6  
to 82 and now above our cost of that capital 
– and we have increased the dividend by an average of 6 each year 
in fact our record of increasing the dividend above the rate of 
inflation is now an unbroken 16 years 
i hope the consistency is reassuring to you it’s encouraging to the 
shareholders who work here because it validates much of the work 
we’ve done to change the company we had a few goals in mind as we 
did that we wanted to make pearson a cohesive company rather than 
a collection of companies a company of reliable and durable financial 
performance a company with big growth possibilities and a leader 
and innovator in its markets  
while we’ve made great progress toward those goals we’re still on the 
move in that same direction we don’t see any reason to slow down 
and the success so far just makes us want to move faster with a strategy 
that’s working well 
that strategy has four parts  
– creating the most compelling content  
– using technology to make our products more useful and  
more valuable 
– being a truly international company and 
– generating the firepower through efficiency to invest in those goals 
we apply that same strategy across all parts of pearson i hope those 
numbers tell you that it’s working but i’d like to show you how with 
some highlights from this past year 
content dethroned 
people in the media world used to assert that ‘content is king’  
today many experts would have you believe that technology  
has staged a bloody coup and taken the throne 
pearson is still in the court somewhere in the middle we’re happy 
with our rich history as a ‘content’ company which stretches back to 
the first longman english dictionary of 1725 the forerunners of the 
current financial times in the late 19th century and the first penguin 
paperbacks in the 1930s but today our challenge is to live up to the 
creative standards of those illustrious predecessors and at the same 
time to make what we do relevant and useful to our customers of 
today that brings a slightly different attitude toward ‘content’ and 
what we should be doing with it  
467p
431p
275p
276p
341p
adjusted earnings per share
8
467p  929¢
£634m
£592m
£426m
£447m
£506m
adjusted operating profit
14
£634m  1262m
£684m
£575m
£418m
£318m
£570m
operating cash flow
19
£684m  1361m
82
80
62
60
67
return on invested capital
02 pts
82
 underlying growth 
 as reported before restatement for tax deductibility of goodwill amortisation 
our investment in content has been steady and unrelenting even 
when that has been out of fashion in each of the past four years that 
investment has topped 1bn 
we sustained our investment in journalism at the financial times
even when it was making losses during a savage advertising downturn 
we believed that a brand built on quality for over a century should 
sustain its editorial values – and weather the shortterm consequences 
and it has profits at ft publishing were up 85 to £56 million last year  
at the newspaper and ftcom our depth of insight in the financial 
markets made us the place to come for news and analysis of the 
mortgage crisis and the global credit crunch the biggest business story 
in years we refreshed our design and we introduced to our readers  
a stable of new writers all its wonderful content earned the ft many 
accolades from the newspaper of the year title to the biggest accolade 
of all a growing audience of readers in print and online 
penguin the uk’s publisher of the year made bestsellers of some of the 
books by the world’s bestknown authors and thinkers – and created 
some new superstars along the way  
– just as the world was waking up to that global credit crunch alan 
greenspan’s the age of turbulence came out and was snapped up 
by one million buyers – and bemused investors – all over the world  
– no one has done more to explain life in afghanistan than khaled 
hosseini who followed up the kite runner with another 
wonderful story a thousand splendid suns this past year  
– and kim edwards’ first novel the memory keeper’s daughter was 
a bestseller in the us canada australia and the uk and a story 
that will stick with us for a long time 
03
0
05
0
0
4
6
7
03
0
05
0
0
4
6
7
03
0
05
0
0
4
6
7
03
0
05
0
0
4
6
7 5    pearson annual report and accounts 2007
our largest investment of all was in our education business here our 
bestsellers might be a little less famous than those in penguin but they 
are no less valuable to their readers for instance we had a new edition 
of reading street last year’s leading programme for america’s 
elementary school students it helps teachers lay a foundation  
of reading skills and we hope inspires children to love reading all  
their lives
we also extended our programmes that help people of all ages learn 
english enrolling such familiar characters as donald duck and buzz 
lightyear in the effort through our worldwide elementary school 
programme english adventure now used in 60 countries from 
argentina to yemen   
we extended and modernised many of the bestsellers that have  
been central to the learning and understanding of each generation of 
college students in subjects from ancient history to computer science 
fundamentals of biology to applied healthcare mathematics to 
accounting and finance creative writing to literature social science  
to marketing  
and with our acquisition of harcourt’s assessment and testing 
business we took on some of the most popular and reliable 
assessments of educational skills and intellectual progress among them 
the stanford achievement test and the wechsler intelligence scale 
technology made central 
proud as we are of that kind of content for some years now we’ve 
insisted that it is not enough today our customers expect products 
and services that are built to meet their needs and easy to use  
our education customers for example are asking for ‘solutions’  
not textbooks technology helps us create those 
for decades the endofterm or endofyear test has come too late for 
too many students if a test can establish how each child is learning 
and pinpoint where he might be falling behind why would anyone 
wait until the end of the course to check shouldn’t the teacher take 
that information along the way analyse it and use it to accelerate the 
student’s learning 
that is precisely the ‘solution’ that has been our strategy and a new 
generation of our education products provide that for college 
students our ‘mylabs’ are online programmes that allow each
student to practice new concepts at their own pace in their own time 
the software records their responses to practice test questions and 
intervenes if a student shows he’s mastered one kind of problem he 
moves on quickly if he seems to be struggling we slow him down 
serve up more practice and help him discover strategies to find the 
right answers in educational jargon this is known as ‘adaptive 
learning’ the path to learning is built around the student 
not surprisingly demand for these kinds of services is growing very 
fast we now cover about 40 of the main disciplines for universitylevel 
courses and students who buy the programmes are really using it – 
usage has grown 50 a year for the past five years and we believe the 
opportunity is a worldwide one these mylabs are now available in 
more than 50 countries 
and that kind of service is valuable to younger students too in 2006 
we unveiled a revolutionary new kind of school programme for 
california a digital service allowing teachers to fashion their lessons 
from a rich mix of video audio class exercises tests and digital books 
that social studies programme was a huge hit so this year we’ve 
applied a similar approach to mathematics one of the biggest and 
most important subjects in any country’s school curriculum this new 
programme envisionmath blends beautiful graphics animation  
and text to get young children inspired about learning maths it’s a 
little too early to know how this new experiment will fare – but so far 
the teachers are excited and that means we are too 
digital products like these now account for 13bn or about 25  
of our total education sales today pearson is a technology company 
as much as we are an ‘education’ or ‘publishing’ or ‘media’ company 
those kinds of changes are taking place at penguin too travel guides 
for example are still much in demand but technology now allows 
travellers to create their own customised travel guides with dorling 
kindersley material  
and last year we created what we like to refer to as ‘the most written 
novel in history’ a wikinovel called a million penguins that attracted 
online contributions from nearly 1500 people – who made over 
11000 edits in britain a new penguin social networking site called 
‘spinebreakers’ is run by teenagers and it’s not only inspiring them to 
read books and write about books it’s helping penguin to get a deeper 
understanding of the reading habits of young people 
perhaps helped along by these kinds of conversations online sales of 
penguin books grew rapidly last year through both our own websites 
and other online retailers such as amazon 
in the financial times group great content was not confined to pink 
paper we started new features on ftcom like our live markets blog 
alphaville and ‘view from the top’ a regular video interview with 
business leaders monthly unique users of ftcom were up 30 with 
a 2007 average of 57 million users 
interactive data our financial information company grew its sales by 
8 as it introduced new services – for example delivering information 
about mergers tender offers and rights offerings for securities 
throughout the day meanwhile our new addition mergermarket 
provided musthave intelligence about potential deals for companies 
bankers lawyers and advisers its revenue grew by more than half and 
more than 90 of its customers renewed their subscriptions  
and to that online library of sources the ft group added new 
companies – moneymedia for the fund management market and 
execappointments in the recruitment field these moves have not 
only given us new growth possibilities they’ve also diversified our 
revenues away from print advertising notoriously vulnerable to 
economic cycles in 2000 some 52 of the ft group’s revenue was 
from advertising now it has just 30 even though its advertising has 
grown in the last few years  
flatter and wiser 
content and technology are big opportunities for us and we’re 
pursuing them intently but for a company that is the world leader  
in learning and information of all kinds from kindergarten children  
to adults there may be a bigger opportunity still 
while developing countries are home to 80 of the world’s 
population only half the world’s college students come from those 
nations globally adult illiteracy is estimated at around 800 million 
people and about half the world’s population will be speaking or 
learning english – the global language of business and international 
politics – over the next decade  
so in every part of pearson we’re stepping up our efforts to be a truly 
international company  chief executive’s review continued
6    pearson annual report and accounts 2007
at penguin we’re publishing more books on a worldwide basis at the 
same time as we build our presence in fastgrowing markets like india 
china and parts of africa last year penguin announced plans to 
publish its first penguin classics in mandarin meanwhile we’ve taken 
jiang rong’s wolf totem – a huge bestseller in china and the winner of 
the inaugural man booker asian literary prize – and we’re publishing 
it in english around the world this year  
during our celebration of penguin’s 20th anniversary in india last 
year we agreed on a strategy to invest heavily in that country as a 
vibrant source of writing talent and as a centre for highquality 
publishing services like design technology and software development 
many of which we already use in our business around the world 
this kind of international outlook features heavily on every page of the 
financial times its whole mission in life is international to explain 
and illuminate business finance and politics in a global context  
that attitude sets the ft apart both editorially and commercially  
in circulation last year the us overtook the uk as the ft’s biggest 
single market i know of only one other newspaper anywhere in the 
world the economist which has achieved the feat of selling more 
copies outside its home market than inside in advertising we are 
providing global companies the ability to talk to the world’s senior 
decisionmakers in business and politics on a worldwide basis – and 
that’s a valuable niche that explains the consistent increase in the  
ft’s advertising for each of the past three years  
in education we have steadily grown the sales and profits of our 
international meaning nonus businesses we’ve had particular 
success in english language teaching through the worldfamous 
longman brand in investing in local editions of our major textbook 
programmes for school college and professional students in school 
testing in the uk through edexcel and in professional qualifications 
and testing worldwide and in digital programmes  
this past year we accelerated that strategy through the acquisition of 
the harcourt international education businesses that makes us the 
leading school publishing company in the uk and it extends our 
strong positions in key markets including australia new zealand  
and south africa 
meanwhile ecollege our recentlyacquired online distance learning 
company has a big opportunity to become international now that  
it is a part of our worldwide education business 
altogether our education businesses outside america had sales of 
close to 2bn this past year – and we believe the worldwide demand  
for skills and learning can keep pushing that number higher 
leaner and stronger 
we have the firepower to do all this – invest in highquality content 
innovative technology and international expansion – for one reason 
pearson has become much more efficient in the way we do business 
because we’ve become a cohesive company   
today we have a strong centralised operations structure in charge  
of quality and efficiency in a whole range of centrallypurchased  
and administered services across technology property warehousing 
distribution printing and many other areas in some markets our 
book publishing companies operate as one business in almost every 
one they now share warehouses and distribution and anything else 
they can  
so while sales growth was strong last year up an underlying 6 
increased efficiency meant that profit growth was especially rapid up 
14 with excellent results across all our businesses on an underlying 
basis adjusted operating profit rose 9 in education 20 at penguin 
and 30 at the ft group  
our overall profit margin increased last year to 15 – from 108  
just three years ago – reflecting broad margin improvement across 
every business 
and by reducing the cash that’s tied up in our businesses we lowered 
our working capitaltosales ratio for the sixth straight year to 256 
last year – compared to 319 in 2001 
the numbers and more 
our goal has been to create a kind of virtuous circle – to take those 
efficiency savings and to invest them in the kind of content technology 
and international expansion that can sustain our growth so far that 
circle is spinning nicely and we’re determined to move it faster  
but as we’ve said many times before our goal as a company goes 
beyond those financial targets as crucial as they are to our continued 
progress in a company like ours our profits endure and grow as the 
result of our seeing the broader picture – working for a broader 
purpose than profits whether that is helping a child learn to read 
helping a teacher inspire her class helping a business person 
understand the markets and make good decisions about them  
helping a professional move on in his career helping a talented  
writer to find her voice and her audience helping people make 
progress in their lives
we’re extremely proud of what we accomplished in 2007 in 
improving both our financial performance and our customers’ lives 
and we’re confident that the steps we took last year to bolster all our 
strategies will yield even more in 2008 that is the kind of progress we 
can all look forward to celebrating 
marjorie scardino chief executive