Pearson plc 1999 Annual Report

: notes to the accounts :

19. Financial instruments

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

all figures in Ł millions	1999		1998
	Group	company	Group	company
Maturity of borrowings
Short-term
Bank loans, overdrafts and commercial paper	47	130	72	172

Total due within one year	47	130	72	172
Medium and long term
Loans or instalments thereof repayable:
From one to two years	155	155	151	151
From two to five years	1,617	906	2,036	1,935
After five years not by instalments	504	351	365	100

Total due after more than one year	2,276	1,412	2,552	2,186

Total borrowings	2,323	1,542	2,624	2,358

Note : In the absence of enforceable contracts from the relevant lenders to refinance current advances as they fall due, at 31 December 1999 Ł547m (1998: Ł755m) of debt currently classified from two to five years would be repayable within one year. The short-term bank loans, overdrafts and commercial paper of the Group are lower than those of the company because of bank offset arrangements.

all figures in Ł millions	1999			1998
	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	––	5	9	––	9
In more than one year
but not more than two years	7	11	18	5	32	37
In more than two years
but not more than five years	3	4	7	4	3	7
In more than five years	––	1	1	1	––	1

	15	16	31	19	35	54

all figures in Ł millions	1999		1998
	Group	company	Group	company
Borrowing by instrument
Unsecured
10.75% Sterling Bonds 2002	100	––	100	––
9.5% Sterling Bonds 2004	120	––	117	––
4.625% euro Bonds 2004	345	345	––	––
10.5% Sterling Bonds 2008	100	100	100	100
7% Sterling Bonds 2014	251	251	––	––
7.125% US Dollar Notes 2006	153	––	148	––
Bank loans and overdrafts and
commercial paper	1,254	846	2,159	2,258

Total borrowings	2,323	1,542	2,624	2,358

all figures in Ł millions	1999	1998

Undrawn committed borrowing facilities
Expiring within one year	––	––
Expiring between one and two years	155	3
Expiring in more than two years	362	832

	517	835

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

	1999
	borrowings Łm	total variable rate Łm	fixed rate borrowings
			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	1,795	790	1,005	6.1	4.6
Sterling	280	130	150	8.5	5.0
Euro	248	248	––	––	––

	2,323	1,168	1,155

	1998
				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	1,964	1,365	599	6.0	4.6
Sterling	492	372	120	9.4	6.3
Spanish peseta	95	95	––	––	––
French franc	62	62	––	––	––
Other currencies	11	11	––	––	––

	2,624	1,905	719

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

all figures in Ł millions	1999
	other financial liabilities	total fixed rate	total no interest paid



Currency and interest rate risk profile of other financial liabilities
US dollar	21	14	7
Sterling	9	––	9
Other currencies	1	1	––

	31	15	16

all figures in Ł millions	1998
	other financial liabilities	total variable rate	total fixed rate	total no interest paid



Currency and interest rate risk
profile of other financial liabilities
US dollar	45	––	19	26
Sterling	5	––	––	5
Spanish peseta	2	2	––	––
Other currencies	2	––	––	2

	54	2	19	33

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

all figures in Ł millions	1999
	net foreign monetary assets/(liabilities)

	us dollar	sterling	euro	other	total

Currency exposures
Functional currency of entity:
US dollar	––	(4)	2	9	7
Sterling	21	––	6	14	41
Other currencies	5	(3)	––	––	2

	26	(7)	8	23	50

all figures in Ł millions	1998
	net foreign monetary assets/(liabilities)

			french franc	spanish peseta
	us dollar	sterling	french franc	spanish peseta	other	total

Currency exposures
Functional currency of entity:
US dollar	––	(133)	1	––	12	(120)
Sterling	42	––	1	2	17	62
Spanish peseta	––	(1)	––	––	––	(1)
Other currencies	(8)	(8)	––	––	––	(16)

	34	(142)	2	2	29	(75)

all figures in Ł millions	1999
	cash at bank and in hand	short- term deposits	other financial assets	total



Currency and interest rate risk profile of financial assets
US dollar	183	7	1	191
Sterling	5	17	2	24
€uro	61	14	1	76
Other currencies	39	2	––	41

	288	40	4	332

Floating rate	221	1	––	222
Fixed rate	48	35	––	83
No interest paid	19	4	4	27

	288	40	4	332

Note : Floating rate cash and deposits earn interest based on relevant national LIBID equivalents. Fixed rate cash and deposits earn interest at rates between 3% and 8.4%.

all figures in Ł millions	1998
	cash at bank and in hand	short- term deposits	other financial assets	total


Currency and interest rate risk profile of financial assets
US dollar	123	10	2	135
Sterling	32	17	––	49
Spanish peseta	67	––	––	67
French franc	17	3	1	21
Other currencies	66	10	1	77

	305	40	4	349

Floating rate	199	4	––	203
Fixed rate	89	36	––	125
No interest paid	17	––	4	21

	305	40	4	349

Note : Floating rate cash and deposits earn interest based on relevant national LIBID equivalents. Fixed rate cash and deposits earn interest at rates between 3% and 7.5%.

all figures in Ł millions	1999		1998
	book value	fair value	book value	fair value
Primary financial instruments held or issued
to finance the Group’s operations
Other financial assets	4	4	4	4
Other financial liabilities	(31)	(31)	(54)	(54)
Cash at bank and in hand	288	288	305	305
Short-term deposits	40	40	40	40
Short-term borrowings	(47)	(47)	(72)	(72)
Medium and long term borrowings	(2,276)	(2,307)	(2,552)	(2,635)

Derivative financial instruments held to manage
the interest rate and currency profile
Interest rate swaps	––	23	––	(15)
Currency swaps	––	10	––	24
Foreign exchange contracts	––	1	––	--

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 1999 the notional

principal value of these swaps was Ł1,818m (1998: Ł368m). Currency swaps: the fair value of these contracts is based on market values. At 31 December 1999 the Group had Ł473m (1998: Ł117m) of such contracts outstanding.

	unrecognised
all figures in Ł millions
	gains	losses	total net gains/(losses)	deferred gains
	gains	losses	total net gains/(losses)	deferred gains
Gains and losses on hedges at 31 December 1998	50	(41)	9	7
Gains and losses arising in previous years that were recognised in 1999	(2)	––	(2)	(3)

Gains and losses arising before 31 December 1998 that were not recognised in 1999	48	(41)	7	4
Gains and losses arising in 1999 that were not recognised in 1999	3	24	27	––

Unrecognised gains and losses on hedges at 31 December 1999	51	(17)	34	4

Of which:
Gains and losses expected to be recognised in 2000	2	(1)	1	3
Gains and losses expected to be recognised in 2001 or later	49	(16)	33	1

1999 Annual Report
	Introduction
	Chairman's letter
	Chief executive's review
	The Pearson Goals
	Internet Goals
	The Results
	Financial Review
	Financial Policy
	Directors' Report
	Personnel Committee Report
	Pearson Education
	Penguin Group
	Financial Times Group
	Pearson Televison
	Recolétos
	Lazard
	Consolidated profit and loss account
	Consolidated balance sheet
	Consolidated statement of cash flows
	Statement of total recognised gains and losses
	Note of historical cost profits and losses
	Reconciliation of movements in equity shareholders' funds
	Report to the Auditors to the Members of Pearson plc
	Principal subsidiaries and associates
	Five year summary
	Shareholder information

	Notes to the accounts

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