| All figures in £ millions | Goodwill | Software | Acquired customer lists and relationships |
Acquired trademarks and brands | Acquired publishing rights | Other intangibles acquired | Total |
|---|---|---|---|---|---|---|---|
| Cost | |||||||
| At 1 January 2009 | 4,570 | 310 | 341 | 128 | 165 | 258 | 5,772 |
| Exchange differences | (420) | (25) | (32) | (9) | (5) | (22) | (513) |
| Additions – internal development | – | 35 | – | – | – | – | 35 |
| Additions – purchased | – | 24 | – | – | – | – | 24 |
| Disposals | (9) | (5) | – | – | – | – | (14) |
| Acquisition through business combination | 205 | – | 38 | 24 | 55 | 25 | 347 |
| At 31 December 2009 | 4,346 | 339 | 347 | 143 | 215 | 261 | 5,651 |
| Exchange differences | 140 | 9 | 10 | 4 | 9 | 10 | 182 |
| Additions – internal development | – | 41 | – | – | – | – | 41 |
| Additions – purchased | – | 15 | – | – | – | – | 15 |
| Disposals | (11) | (18) | – | – | – | – | (29) |
| Acquisition through business combination | 288 | 9 | 159 | 40 | 6 | 76 | 578 |
| Disposal through business disposal | (195) | (43) | (85) | (1) | – | (41) | (365) |
| At 31 December 2010 | 4,568 | 352 | 431 | 186 | 230 | 306 | 6,073 |
| All figures in £ millions | Goodwill | Software | Acquired customer lists and relationships |
Acquired trademarks and brands | Acquired publishing rights | Other intangibles acquired | Total |
|---|---|---|---|---|---|---|---|
| Amortisation | |||||||
| At 1 January 2009 | – | (203) | (67) | (17) | (69) | (63) | (419) |
| Exchange differences | – | 19 | 6 | 1 | 6 | 8 | 40 |
| Charge for the year | – | (44) | (35) | (11) | (22) | (35) | (147) |
| Disposals | – | 4 | – | – | – | – | 4 |
| At 31 December 2009 | – | (224) | (96) | (27) | (85) | (90) | (522) |
| Exchange differences | – | (5) | (3) | (2) | (2) | (1) | (13) |
| Charge for the year | – | (51) | (39) | (12) | (24) | (38) | (164) |
| Disposals | – | 16 | – | – | – | – | 16 |
| Acquisition through business combination | – | (5) | – | – | – | – | (5) |
| Disposal through business disposal | – | 19 | 35 | – | – | 28 | 82 |
| At 31 December 2010 | – | (250) | (103) | (41) | (111) | (101) | (606) |
| Carrying amounts | |||||||
| At 1 January 2009 | 4,570 | 107 | 274 | 111 | 96 | 195 | 5,353 |
| At 31 December 2009 | 4,346 | 115 | 251 | 116 | 130 | 171 | 5,129 |
| At 31 December 2010 | 4,568 | 102 | 328 | 145 | 119 | 205 | 5,467 |
The goodwill carrying value of £4,568m relates to acquisitions
completed after 1 January 1998. Prior to 1 January 1998 all goodwill was
written off to reserves on the date of acquisition. £3,090m of the
carrying value relates to acquisitions completed between
1 January 1998
and 31 December 2002 and £1,478m relates to acquisitions completed after
1 January 2003 (the date of transition to IFRS).
For acquisitions completed between 1 January 1998 and 31 December 2002 no value was ascribed to intangibles other than goodwill and the goodwill on each acquisition was amortised over a period of up to 20 years. On adoption of IFRS on 1 January 2003, the Group chose not to restate the goodwill balance and at that date the balance was frozen (i.e. amortisation ceased). If goodwill had been restated then a significant value would have been ascribed to other intangible assets, which would be subject to amortisation, and the carrying value of goodwill would be significantly lower. For acquisitions completed after 1 January 2003 value has been ascribed to other intangible assets which are amortised.
Other intangibles acquired include content, technology, contracts and software rights. Amortisation of £3m (2009: £5m) is included in the income statement in cost of goods sold and £149m (2009: £126m) in administrative and other expenses. In 2010 £12m (2009: £16m) of amortisation relates to discontinued operations.
Impairment tests have been carried out where appropriate as described below. The recoverable amount for each unit tested exceeds its carrying value.
Goodwill in respect of continuing operations is allocated to 12 cash-generating units (CGUs) within the business segments as follows:
| All figures in £ millions | 2010 | 2009 |
|---|---|---|
| US Education Publishing | 1,976 | 1,876 |
| US School Assessment and Information | 683 | 652 |
| Canada | 197 | 181 |
| International Education Publishing | 686 | 468 |
| International Education Assessment and Testing | 227 | 222 |
| Professional Publishing | 13 | 13 |
| Professional Assessment and Training | 287 | 226 |
| Pearson Education total | 4,069 | 3,638 |
| Financial Times | 48 | 43 |
| Mergermarket | 136 | 125 |
| FT Group total | 184 | 168 |
| Penguin US | 196 | 190 |
| Penguin UK | 103 | 103 |
| Penguin Asia Pacific & International | 16 | 63 |
| Penguin total | 315 | 356 |
| Continuing operations | 4,568 | 4,162 |
| Interactive Data | – | 184 |
| Total goodwill | 4,568 | 4,346 |
As highlighted in the 2008 business review, integration of the US School and Higher Education businesses began in 2008. This integration continued throughout 2009 and advanced to a point where, from 1 January 2010, these companies have been combined into one CGU for impairment review purposes.
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. The goodwill is generally denominated in the currency of the relevant cash flows and therefore the impairment review is not materially sensitive to exchange rate fluctuations.
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 risk-free 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 CGU. The average pre-tax discount rates used are in the range of 11.2% to 12.1% for the Pearson Education businesses (2009: 10.9% to 11.8%), 12.9% to 20.0% for the FT Group businesses (2009: 12.7% to 18.1%) and 10.5% to 13.0% for the Penguin businesses (2009: 9.5% to 11.4%).
Perpetuity growth rates
A perpetuity growth rate of 2.0% was used for cash flows subsequent to the approved budget period for all CGUs in 2010 (2009: 2.0%). This perpetuity growth rate is a conservative rate and is considered to be lower than the long-term historic growth rates of the underlying territories in which the CGU operates and the long-term growth rate prospects of the sectors in which the CGU operates.
Cash flow growth rates
The cash flow growth rates are derived from management’s latest forecast of sales taking into consideration experience of operating margins achieved in the CGU. Historically, such forecasts have been reasonably accurate.
Sensitivities
The Group’s impairment review is sensitive to a change in assumptions used, most notably the discount rates, the perpetuity growth rates and expected future cash flows. Based on the Group’s sensitivity analysis, a reasonably possible change in any of these assumptions is unlikely to cause an impairment in any of the CGUs.