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2 Segment information

Due to the differing risks and rewards associated with each business segment and the different customer focus of each segment, business is the Group's primary reporting segment. At 31 December 2005 the Group is organised into five primary business segments, School, Higher Education, Penguin, FT Publishing and Interactive Data Corporation (IDC). The remaining business group, Professional, brings together a number of education publishing, testing and services businesses and does not meet the criteria for classification as a 'segment' under IFRS.

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 result. Inter-segment pricing is determined on an arm's length basis. Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, receivables and deferred taxation and exclude cash and cash equivalents and derivative assets. Segment liabilities comprise operating liabilities and exclude borrowings and derivative liabilities. Corporate assets and liabilities comprise cash and cash equivalents, borrowings and derivative financial instruments. Capital expenditure comprises additions to property, plant and equipment and intangible assets, including pre-publication but excluding goodwill (see notes 11, 12 and 17).

Property plant and equipment and intangible assets acquired through business combinations were £111m (2004: £16m; 2003: £54m) (see notes 11, 12 and 17). Capital expenditure, depreciation and amortisation includes amounts relating to discontinued operations. In April 2005, Pearson sold its 79% interest in Recoletos Grupo de Communicación S.A. This operation is now disclosed as a 'discontinued' operation. The related assets and liabilities are disclosed within the FT Publishing segment in 2004 and 2003.

Secondary reporting format - geographical segments

Although the Group's business segments are managed on a worldwide basis, they all operate in the following main geographical areas:

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. Total assets and capital expenditure are allocated to where the assets are located.

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