Pearson plc 2001 Annual Report - Notes to the Accounts

Notes to the Accounts

20. Financial instruments

A full discussion on treasury policy is given in the Financial Review. Short-term debtors and creditors have been excluded from all the following disclosures, other than currency risk disclosures.

a. Maturity of borrowings and other financial liabilities

The maturity profile of the Group’s borrowings and other financial liabilities is shown below.


	2001		2000
all figures in Ł millions	group	company	group	company

Maturity of borrowings
Short-term
Bank loans and overdrafts	65	109	112	225
10.75% Sterling Bonds 2002	100	–	–	–

Total due within one year	165	109	112	225
Medium and long-term
Loans or instalments thereof repayable:
From one to two years	154	154	100	–
From two to five years	1,285	705	1,626	905
After five years not by instalments	1,168	1,168	979	813

Total due after more than one year	2,607	2,027	2,705	1,718

Total borrowings	2,772	2,136	2,817	1,943

note At 31 December 2001 Ł625m (2000: Ł1,134m) of debt, including commercial paper, currently classified from two to five years would be repayable within one year if refinancing contracts were not in place. The short-term bank loans and overdrafts of the Group are lower than those of the company because of bank offset arrangements.


	2001			2000
all figures in Ł millions	group finance leases	group other financial liabilities	group total	group finance leases	group other financial liabilities	group total

Maturity of other financial liabilities
Amounts falling due:
In one year or less or on demand	5	11	16	6	5	11
In more than one year but not more than two years	1	9	10	3	16	19
In more than two years but not more than five years	8	18	26	6	14	20
In more than five years	–	11	11	1	10	11

	14	49	63	16	45	61

b. Borrowings by instrument


	2001		2000
all figures in Ł millions	group	company	group	company

Unsecured
10.75% Sterling Bonds 2002	100	–	100	–
5% Euro Bonds 2003	154	154	–	–
9.5% Sterling Bonds 2004	133	–	130	–
4.625% Euro Bonds 2004	353	353	356	356
7.375% US Dollar notes 2006	170	–	166	–
6.125% Euro Bonds 2007	448	448	441	441
10.5% Sterling Bonds 2008	100	100	100	100
7% Global Dollar Bonds 2011	342	342	–	–
7% Sterling Bonds 2014	278	278	272	272
Variable rate loan notes	72	72	74	74
Bank loans and overdrafts and commercial paper	622	389	1,178	700

Total borrowings	2,772	2,136	2,817	1,943

c. Undrawn committed borrowing facilities


all figures in Ł millions	2001	2000

Expiring within one year	–	–
Expiring between one and two years	–	–
Expiring in more than two years	1,172	609

	1,172	609

note All of the above committed borrowing facilities incur commitment fees at market rates.

d. Currency and interest rate risk profile


	2001
				fixed rate borrowings
	borrowings £ m	total variable rate Łm	total fixed rate Łm	weighted average interest rate %	weighted average period for which rate is fixed – years

Currency and interest rate risk profile of borrowings
US dollar	1,829	625	1,204	6.1	3.5
Sterling	520	410	110	9.3	5.1
Euro	404	320	84	5.2	2.4
Other currencies	19	19	–	–	–

	2,772	1,374	1,398


	2000
				fixed rate borrowings
	borrowings Łm	total variable rate Łm	total fixed rate Łm	weighted average interest rate %	weighted average period for which rate is fixed – years

Currency and interest rate risk profile of borrowings
US dollar	1,782	721	1,061	6.2	4.1
Sterling	587	447	140	8.4	4.8
Euro	417	379	38	5.4	4.2
Other currencies	31	31	–	–	–

	2,817	1,578	1,239

note The figures shown in the tables above take into account interest rate, currency swaps and forward rate contracts entered into by the Group. Variable rate borrowings bear interest at rates based on relevant national LIBOR equivalents.


	2001
all figures in Ł millions	other financial liabilities	total fixed rate	total no interest paid

Currency and interest rate risk profile of other financial liabilities
US dollar	48	11	37
Sterling	6	3	3
Euro	9	–	9

	63	14	49


	2000
all figures in Ł millions	other financial liabilities	total fixed rate	total no interest paid

Currency and interest rate risk profile of other financial liabilities
US dollar	48	11	37
Sterling	13	5	8

	61	16	45

note Variable rate financial liabilities bear interest at rates based on relevant national LIBOR equivalents.


	2001
all figures in Ł millions	us dollar	sterling	euro	other currencies	total

Currency and interest rate risk profile of financial assets
Cash at bank and in hand	166	40	62	32	300
Short-term deposits	10	27	40	16	93
Other financial assets	37	4	3	–	44

Total	213	71	105	48	437


Floating rate	149	50	58	21	278
Fixed rate	3	15	44	26	88
Weighted average interest rate %	3.0%	4.1%	3.3%	1.8%
No interest received	61	6	3	1	71

Total	213	71	105	48	437

The weighted average period for which the interest rate on financial assets is fixed does not exceed two months.


	2000
all figures in Ł millions	cash at bank and in hand	short-term deposits	other financial assets	total

Currency and interest rate risk profile of financial assets
US dollar	223	56	21	300
Sterling	6	15	9	30
Euro	69	3	1	73
Other currencies	127	17	–	144

	425	91	31	547

Floating rate	326	7	–	333
Fixed rate	50	84	2	136
No interest received	49	–	29	78

	425	91	31	547

note Floating rate cash and deposits earn interest based on relevant national LIBID equivalents. Fixed rate cash and deposits earn interest at rates between 4.5% and 12%. Of the total financial assets earning interest at fixed rates, Ł94m are US dollar denominated.

e. Currency exposures

The table below shows the extent to which Group companies have monetary assets and liabilities in currencies other than their local currency.


	2001
	net foreign monetary assets/(liabilities)
all figures in Ł millions	us dollar	sterling	euro	other	total

Functional currency of entity:
US dollar	–	–	–	3	3
Sterling	(67)	–	8	5	(54)
Euro	–	–	–	–	–
Other currencies	(5)	(2)	–	–	(7)

	(72)	(2)	8	8	(58)


	2000
	net foreign monetary assets/(liabilities)
all figures in Ł millions	us dollar	sterling	euro	other	total

Functional currency of entity:
US dollar	–	1	–	6	7
Sterling	10	–	12	19	41
Euro	–	2	–	–	2
Other currencies	–	(1)	–	–	(1)

	10	2	12	25	49

f. Fair values of financial assets and financial liabilities

The table below shows the book value and the fair value of the Group’s financial assets and financial liabilities.


	2001		2000
all figures in Ł millions	book value	fair value	book value	fair value

Primary financial instruments held or issued to finance the Group’s operations
Other financial assets	44	44	31	31
Other financial liabilities	(63)	(63)	(61)	(61)
Cash at bank and in hand	300	300	425	425
Short-term deposits	93	93	91	91
Short-term borrowings	(165)	(165)	(112)	(112)
Medium and long-term borrowings	(2,607)	(2,527)	(2,705)	(2,683)

Derivative financial instruments held to manage the interest rate and currency profile
Interest rate swaps	–	(30)	–	(4)
Currency swaps	–	16	–	20
Foreign exchange contracts	–	(1)	–	2

note Other financial assets, other financial liabilities, cash at bank and in hand, short-term deposits and short-term borrowings: the fair value approximates to the carrying value due to the short maturity periods of these financial instruments. Medium and long-term borrowings: the fair value is based on market values or, where these are not available, on the quoted market prices of comparable debt issued by other companies. Interest rate swaps: the fair value of interest rate swaps is based on market values. At 31 December 2001 the notional principal value of these swaps was Ł2,391m (2000: Ł2,057m). Currency swaps: the fair value of these contracts is based on market values. At 31 December 2001 the Group had Ł924m (2000: Ł890m) of such contracts outstanding.

g. Hedges

The Group’s policy on hedges is explained in the Financial Review. The table below shows the extent to which the Group has off-balance sheet (unrecognised) and on-balance sheet (deferred) gains and losses in respect of financial instruments used as hedges at the beginning and end of the year. It also shows the amount of such gains and losses which have been included in the profit and loss account for the year and those gains and losses which are expected to be included in next year’s or later profit and loss accounts.


		unrecognised
all figures in Ł millions	gains	losses	total net gains/(losses)	deferred gains

Gains and losses on hedges at 31 December 2000	41	(23)	18	2
Gains and losses arising in previous years that were recognised in 2001	(2)	–	(2)	(2)

Gains and losses arising before 31 December 2000 that were not recognised in 2001	39	(23)	16	–
Gains and losses arising in 2001 that were not recognised in 2001	4	(35)	(31)	–

Unrecognised gains and losses on hedges at 31 December 2001	43	(58)	(15)	–
Of which:
Gains and losses expected to be recognised in 2002	–	(1)	(1)	–
Gains and losses expected to be recognised in 2003 or later	43	(57)	(14)	–

2001 Annual Report
	Financial Highlights

	Chairman's Statement

	Chief Executive's Review

	The Pearson Goals

	Corporate & Operating Measures

	Operating Review

	Financial Review

	Board of Directors

	Directors' Report

	Personnel Committee Report

	Consolidated Profit and Loss Account

	Consolidated Balance Sheet

	Consolidated Statement of Cash Flows

	Statement of Total Recognised Gains and Losses

	Reconciliation of Movements in Equity Shareholders' Funds

	Independent Auditors' Report to the Members of Pearson plc

	Five Year Summary

	Corporate and Operating Measures (2)

	Shareholder Information


	Notes to the Accounts

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