Interim Results Cont.

Pearson PLC
30 July 2001

PART 2

Consolidated Profit and Loss Account

for the six months to 30 June 2001




                                                             2001   2000   2000

all figures in £ millions                            Note    half   half   full
                                                             year   year   year

Sales (including share of joint ventures)                   1,855  1,548  3,891
Less: share of joint ventures                                 (5)    (3)   (17)
Continuing operations                                       1,850  1,545  3,874
Acquisitions                                                   26      -      -
Total sales                                              2  1,876  1,545  3,874

Operating (loss)/profit analysed between:                2


Continuing operations - Group                               (110)   (19)    222
Acquisitions - Group                                            4      -      -
Total operating (loss)/profit - Group                       (106)   (19)    222

Share of operating loss of joint ventures:
Continuing operations                                        (10)   (10)   (21)
Total share of operating loss of joint ventures              (10)   (10)   (21)


Share of operating (loss)/profit of associates:
Continuing operations                                         (7)     10      2
Discontinued operations                                         -      8      8
Total share of operating (loss)/profit of associates          (7)     18     10

Total operating (loss)/profit analysed between:
Operating profit before internet enterprises,
goodwill amortisation and integration costs                   174    156    686
Internet enterprises before goodwill amortisation            (81)   (84)  (196)
Goodwill amortisation                                       (188)   (72)  (239)
Integration costs                                            (28)   (11)   (40)

Total operating (loss)/profit                               (123)   (11)    211




Consolidated Profit and Loss Account (continued)

for the six months to 30 June 2001




                                                            2001   2000   2000

all figures in £ millions                           Note    half   half   full
                                                            year   year   year

Total operating (loss)/profit                              (123)   (11)    211

Continuing operations:
(Loss)/profit on sale of fixed assets and               3    (2)      2    (4)
investments
(Loss)/profit on sale of businesses and associates      4   (28)   (15)     30
Discontinued operations:
Profit on sale of businesses and associates             4      -    231    231
                                                            (30)    218    257
Continuing operations:

Profit/(loss) on sale of businesses, associates and            8      -    (3)
investments by an associate
(Loss)/profit before interest and taxation                 (145)    207    465


Net finance costs

Net interest payable - Group                                (82)   (67)  (154)
Net interest payable - associates                            (6)    (1)    (3)
Other net finance costs                                        -   (16)   (24)
Total net finance costs                                     (88)   (84)  (181)
(Loss)/profit before taxation                              (233)    123    284
Taxation                                                6    109   (32)  (106)
(Loss)/profit after taxation                               (124)     91    178
Equity minority interests                                   (13)    (3)      1
(Loss)/profit for the financial year                       (137)     88    179
Dividends on equity shares                              7   (70)   (58)  (164)
(Loss)/profit retained                                     (207)     30     15

Adjusted earnings per equity share before internet      5   6.8p   8.9p  54.6p
enterprises
Adjusted (loss)/earnings per equity share after         5 (2.6)p (0.6)p  31.9p
internet enterprises
(Loss)/earnings per equity share                        5(17.2)p  12.7p  24.6p
                                                               
Diluted (loss)/earnings per equity share                5    n/a  12.4p  24.0p
Dividends per equity share                              7   8.7p   8.2p  21.4p



There is no difference between the (loss)/profit on ordinary activities before
taxation and the retained (loss)/profit for the period stated above and their
historical cost equivalents.



The results for the 2000 full year are an abridged version of the full
accounts which have received an unqualified audit report from the auditors and
have been filed with the Registrar of Companies.  First half figures are
neither audited nor reviewed.



Earnings per equity share and dividends per equity share in the half year and
full year 2000 have been restated to reflect the right issue of equity shares
during 2000.





Consolidated Balance Sheet

as at 30 June 2001



                                                         2001     2000     2000

all figures in £ millions                                half     half     full
                                                         year     year     year
Fixed assets
Intangible assets                                       4,635    3,018    4,522
Tangible assets                                           557      453      524
Investments: joint ventures
Share of gross assets                                      17        8       13
Share of gross liabilities                                  -        -      (1)
                                                           17        8       12
Investments: associates                                   955      281    1,024
Investments: other                                        147      191      155
                                                        6,311    3,951    6,237
Current assets
Stocks                                                    969      945      828
Debtors                                                 1,215    1,233    1,217
Investments                                                 4        3       12
Cash at bank and in hand                                  584      369      516
                                                        2,772    2,550    2,573

Creditors - amounts falling due within one
year
Short term borrowing                                    (244)    (902)    (112)
Other creditors                                       (1,140)  (1,356)  (1,484)
                                                      (1,384)  (2,258)  (1,596)

Net current assets                                      1,388      292      977
Total assets less current liabilities                   7,699    4,243    7,214
Creditors - amounts falling due after more
than one year
Medium and long term borrowing                        (3,212)  (2,011)  (2,705)
Other creditors                                          (54)     (58)     (34)
                                                      (3,266)  (2,069)  (2,739)
Provisions for liabilities and charges
Deferred taxation                                         (5)     (17)      (9)
Other provisions for liabilities and charges            (238)    (213)    (257)
Net assets                                              4,190    1,944    4,209

Capital and reserves
Called up share capital                                   200      156      199
Share premium account                                   2,445      774    2,440
Profit and loss account                                 1,372      901    1,405
Equity shareholders' funds                              4,017    1,831    4,044
Equity minority interests                                 173      113      165
                                                        4,190    1,944    4,209






Consolidated Statement of Cash Flows

for the six months to 30 June 2001



                                                   2001         2000     2000

all figures in £ millions                    Note      half     half     full
                                                       year     year     year
Net cash (outflow)/inflow from operating         9    (187)    (200)      361
activities

Dividends from joint ventures and associates             19       43       49

Interest received                                        19       23       16
Interest paid                                          (98)    (105)    (179)
Debt issue costs                                        (1)        -      (4)
Dividends paid to minority interests                    (9)        -        -
Returns on investments and servicing of                (89)     (82)    (167)
finance

Taxation                                               (39)     (30)     (90)

Purchase of tangible fixed assets                      (93)     (65)    (139)
Sale of tangible fixed assets                             5        8       22
Purchase of investments                                 (4)     (90)    (132)
Sale of investments                                      19        3        1
 Capital expenditure and financial                     (73)    (144)    (248)
investment

Purchase of subsidiary undertakings                    (14)    (482)  (2,276)
Net debt acquired with subsidiary                       (2)     (19)     (31)
undertakings
Purchase of joint ventures and associates              (15)     (88)    (108)
Sale of subsidiary undertakings                           6        3      158
Net cash disposed with subsidiary                       (1)        -        -
undertakings
Sale of associates                                        1      394      392
Acquisitions and disposals                             (25)    (192)  (1,865)
Equity dividends paid                                 (105)     (87)    (143)

Net cash outflow before management of liquid




resources and financing                               (499)    (692)  (2,103)
Liquid resources acquired                                 -     (49)     (16)
Liquid resources disposed                                 -       44        -
Collateral deposit reclaimed/(placed)                    17     (61)    (118)
Management of liquid resources                           17     (66)    (134)
Issue of equity share capital                             6      257    1,959
Capital element of finance lease rentals                (5)      (4)     (10)
Loan facility advanced                                    -        -      473
Loan facility repaid                                  (112)    (676)    (735)
Notes advanced                                          508        -        -
Bonds advanced                                            -      368      411
Loan notes advanced                                       -      131      134
Net movement in other borrowings                         40      597       63
Financing                                               437      673    2,295

(Decrease)/increase in cash in the period              (45)     (85)       58





Statement of Total Recognised Gains and Losses

for the six months to 30 June 2001



                                                      2001      2000      2000

all figures in £ millions                        half year half year full year
(Loss)/profit for the financial period               (137)        88       179
Other net gains and losses recognised in
reserves:
Currency translation differences                       169       106        95
Taxation on currency translation differences -        (13)       (9)       (8)
UK
Total recognised gains relating to the period           19       185       266



  Reconciliation of Movements in Equity Shareholders' Funds

for the six months to 30 June 2001



                                                       2001     2000     2000

all figures in £ millions                              half     half     full
                                                       year     year     year
(Loss)/profit for the financial period                (137)       88      179
Dividends on equity shares                             (70)     (58)    (164)
                                                      (207)       30       15
Currency translation differences (net of taxation)      156       97       87
Goodwill arising on prior period acquisitions             -        1        1
Goodwill written back on business combinations            -       75      585
Goodwill written back                                    17       50       68
Shares issued                                             6      257    1,961
Replacement options granted on acquisition of             1        -        6
subsidiary
Net movement for the period                            (27)      510    2,723
Equity shareholders' funds at beginning of the        4,044    1,321    1,321
period
Equity shareholders' funds at end of the period       4,017    1,831    4,044



Notes

for the six months to 30 June 2001

1. Basis of preparation



The interim results for the six months to 30 June 2001 have been prepared in
accordance with the accounting policies set out in the 2000 Annual Report.
FRS 18 'Accounting Policies' has been adopted but this has had no impact on
the 2001 interim results.



2a. Sector analysis - sales
                                         2001             2000             2000

all figures in £ millions           half year        half year        full year
Pearson Education                       1,045              647            2,090
FT Group                                  429              408              844
The Penguin Group                         402              326              755
Television                                  -              164              185
Continuing operations                   1,876            1,545            3,874



Sales in respect of internet enterprises, the Group's discrete internet
operations, are included within Pearson Education £3m (2000 half year: £nil;
2000 full year: £3m) and the FT Group £26m (2000 half year: £16m; 2000 full
year: £42m).



2b. Sector analysis - operating profit


                     -----------------------------------------  2001 half year
                                     ------------------------------------------
                     Results        Internet Integration     Goodwill Operating
                     from        enterprises       costs amortisation    profit
all figures in       operations            
£ millions            
Pearson                       16        (43)        (12)        (129)     (168)
Education
FT Group                      88        (38)           -         (33)        17
The Penguin                   37           -        (16)         (10)        11
Group
Television                    33           -           -         (16)        17
Continuing                   174        (81)        (28)        (188)     (123)
operations


                     -----------------------------------------  2000 half year
                     -----------------------------------------
                     Results        Internet Integration     Goodwill Operating
                     from        enterprises       costs amortisation    profit
all figures in       operations            
£ millions            
Pearson                     (26)        (20)         (8)         (54)     (108)
Education
FT Group                     109        (64)           -         (10)        35
The Penguin                   33           -         (3)          (5)        25
Group
Television                    32           -           -          (3)        29
Continuing                   148        (84)        (11)         (72)      (19)
operations
Discontinued                   8           -           -            -         8
operations
                             156        (84)        (11)         (72)      (11)




2b. Sector analysis - operating profit (continued)


                     ------------------------------------------  2000 full year
                       ------------------------------------------
                         Results    Internet Integration     Goodwill Operating
                            from enterprises       costs amortisation    profit
all figures in        operations           
£ millions            
Pearson                      320        (83)        (13)        (157)        67
Education
FT Group                     211       (113)           -         (53)        45
The Penguin                   79           -        (27)         (14)        38
Group
Television                    68           -           -         (15)        53
Continuing                   678       (196)        (40)        (239)       203
operations
Discontinued                   8           -           -            -         8
operations
                             686       (196)        (40)        (239)       211



Integration costs include costs in respect of the Simon & Schuster acquisition
in 1998 and the Dorling Kindersley and National Computer Systems acquisitions
in 2000. Discontinued operations relate to the withdrawal of the Group from
the banking business following its disposal of Lazard in March 2000.  Internet
enterprises consist of the Group's discrete internet operations, principally
FT.com and Learning Network.   Analyses of the profits of joint ventures and
associates are shown in note 2c.



2c. Sector analysis - joint ventures and associates



Included in the analysis of operating profit in note 2b are the following
amounts in respect of joint ventures and associates:


                                          ---------------------- Joint ventures
                                                          ---------------------
                                         2001             2000             2000

all figures in £ millions           half year        half year        full year
Continuing operations - FT               (10)             (10)             (21)
Group



The results above include internet enterprises of £(1)m (2000 half year: £(1)
m; 2000 full year: £(2)m).


             -----------------------------------------------------  Associates
                         -----------------------------------------------------
              Results before        Results before        Results before
                    goodwill              goodwill              goodwill
                amortisation          amortisation          amortisation
                        2001                  2000                  2000
                   half year Total       half year Total       full year Total
                              2001                  2000                  2000
all figures                   half                  half                  full
in £                          year                  year                  year
millions                      
Pearson                    2     2               5     5               7     7
Education
FT Group                 (2)  (26)               2     -               7  (30)
Television                33    17               5     5              39    25
Continuing                33   (7)              12    10              53     2
operations
Discontinued               -     -               8     8               8     8
operations
                          33   (7)              20    18              61    10



The results above include internet enterprises in FT Group of £(6)m (2000 half
year: £(4)m; 2000 full year: £(10)m).


3. (Loss)/profit on sale of fixed assets and investments
                                                         2001    2000    2000

All figures in £ millions                                half    half    full
                                                         year    year    year
Continuing operations:
Net (loss)/profit on other investments and                (2)       2     (4)
property interests



4. (Loss)/profit on sale of businesses and associates
                                                         2001    2000    2000

All figures in £ millions                                half    half    full
                                                         year    year    year
Continuing operations:
Profit on sale of 20% of Recoletos                          -       -      86
Loss on closure of Dorling Kindersley Family                -       -    (16)
Learning business
Net loss on sale of other businesses and                 (28)    (15)    (40)
associates
                                                         (28)    (15)      30
Discontinued operations:
Profit on sale of Lazard (before taxation                   -     231     231
estimated at £34m)




5. Earnings per share



In order to show results from operating activities on a comparable basis two
adjusted earnings per equity share are presented.  First, an adjusted earnings
per share is presented which excludes profits or losses on the sale of fixed
assets and investments, businesses and associates (see notes 3 and 4).  Also
excluded are integration costs in respect of the acquisitions of Simon &
Schuster, Dorling Kindersley and National Computer Systems (NCS) (see note 2),
the accelerated amortisation of a financing arrangement fee following the
early redemption of a borrowing facility in 2000, the premium paid in respect
of a forward currency option in connection with the acquisition of NCS in
2000, and goodwill amortisation.  Due to a significant level of expenditure on
internet enterprises, a second adjusted earnings per equity share is presented
in which the results of these are also excluded from earnings.


                                                              2001  2000  2000

All figures in £ millions                                     half  half  full
                                                              year  year  year
(Loss)/profit for the financial period                       (137)    88   179
Adjustments:
Loss/(profit) on sale of fixed assets and investments:           2   (2)     4
continuing operations
Loss/(profit) on sale of businesses and associates:             28    15  (30)
continuing operations
(Profit) on sale of businesses and associates:                   - (231) (231)
discontinued operations
(Profit)/loss on sale of businesses, associates and
investments by an associate: continuing operations             (8)     -     3
                                                               
Internet enterprises                                            81    84   196
Interest on internet enterprises                                 7     2     9
Goodwill amortisation                                          188    72   239
Integration costs                                               28    11    40
Other net finance costs                                          -    16    24
Taxation on above items                                      (132)     9  (18)
Minority interest share of above items                         (3)   (2)  (18)
Adjusted earnings before internet enterprises                   54    62   397
Internet enterprises                                          (81)  (84) (196)
Interest on internet enterprises                               (7)   (2)   (9)
Taxation on internet enterprises                                12    18    37
Minority interest share of internet enterprises                  1     2     3
Adjusted (loss)/earnings after internet enterprises           (21)   (4)   232
(Loss)/profit for the financial period                       (137)    88   179
Taxation on the conversion of ordinary shares                    -   (1)   (2)
Diluted (loss)/earnings                                      (137)    87   177
Weighted average number of equity shares (millions)
- for earnings and adjusted earnings                         794.7 694.8 727.7
Effect of dilutive share options                               n/a   9.2   8.4
Weighted average number of equity shares (millions)
- for diluted earnings                                         n/a 704.0 736.1
Adjusted earnings per equity share before internet            6.8p  8.9p 54.6p
enterprises
Adjusted (loss)/earnings per equity share after             (2.6)p(0.6)p 31.9p
internet enterprises                                                  
(Loss)/earnings per equity share                           (17.2)p 12.7p 24.6p
                                                                 
Diluted (loss)/earnings per equity share                       n/a 12.4p 24.0p



For the half year 2001 the effect of share options on the loss per share is
anti-dilutive.


6. Taxation





The tax rate provided in the profit and loss account is analysed as follows:


                                                           2001    2000    2000

All figures in percentages                                 half    half    full
                                                           year    year    year
United Kingdom tax rate                                    30.0    30.0    30.0
Effect of overseas tax rates                                5.5     3.4     2.2
Effect of utilisation of tax losses in the US             (9.6)   (4.5)   (7.8)
Other items                                               (0.9)   (3.9)   (1.4)
Tax rate reflected in adjusted earnings (before            25.0    25.0    23.0
internet enterprises)
Tax rate reflected in earnings                             46.8    26.0    37.3



Taxation is analysed as:


                                            2001           2000           2000

All figures in £ millions              half year      half year      full year
Parent and subsidiaries                      116           (28)           (92)
Joint ventures and associates                (7)            (4)           (14)
                                             109           (32)          (106)



The Group has significant tax losses available in the US which are not
recognised in the accounts and hence the tax rate reflected in adjusted
earnings is lower than the UK tax rate.  Included in the parent and
subsidiaries taxation of £116m, and hence in the tax rate reflected in
earnings, is an adjustment of £121m relating to a prior year transaction.



7. Dividends





The directors have declared an interim dividend of 8.7p per equity share,
payable on 26 October 2001 to shareholders on the register at the close of
business on 10 August 2001.



8. Exchange rates

Pearson earns a significant proportion of its sales and profits in overseas
currencies, the most important being the US dollar.  The relevant rates are as
follows:


                                   -------------- £ versus US$ ---------------
                                   2001           2000           2000

                                   half year      half year      full year
Average for operating              1.43           1.56           1.51
profits
Period end rate                    1.41           1.51           1.49



The weakening of sterling on an average basis in 2001 has had a beneficial
impact on sales and profits.  It is estimated that if the 2000 average rates
had prevailed in 2001 then sales would have been lower by £64m and operating
profit lower by £5m.




9. Note to consolidated statement of cash flows


                                                          2001    2000    2000

All figures in £ millions                                 half    half    full
                                                          year    year    year
Reconciliation of operating (loss)/profit to net
cash (outflow)/
inflow from operating activities
Operating (loss)/profit - total                          (123)    (11)     211
Share of loss/(profit) of joint ventures and                17     (8)      11
associates
Depreciation charges                                        64      44     100
Goodwill amortisation                                      148      70     188
(Increase) in stocks                                      (98)   (137)    (97)
(Increase)/decrease in debtors                            (49)      37      53
(Decrease) in creditors                                  (155)   (199)   (119)
Increase/(decrease) in operating provisions                  3     (6)     (4)
Other and non-cash items                                     6      10      18
Net cash (outflow)/inflow from operating                 (187)   (200)     361
activities

Purchase of fixed assets and finance lease                (98)    (69)   (149)
payments
Sale of tangible fixed assets                                5       8      22
Dividends from joint ventures and associates                19      43      49
Other                                                       13       -     (8)
Operating cash flow                                      (248)   (218)     275

Analysed between:
Operating cash flow before internet enterprises          (152)   (104)     580
and other items
Dorling Kindersley exceptional payments                      -       -    (46)
Integration costs:
Simon & Schuster/NCS                                       (5)    (19)    (36)
Dorling Kindersley                                        (23)     (7)    (25)
Cash effect of internet enterprises                       (68)    (88)   (198)
Operating cash flow                                      (248)   (218)     275



The Dorling Kindersley exceptional payments are in respect of creditors on the
acquisition balance sheet beyond normal trading terms.