Notes to the Accounts

13. Associates

	valuations	book values	valuations	book values
Partnership interests	200	111	200	123
Unlisted associates	189	(31)	130	(32)
Loans	65	65	95	107
	454	145	425	198

NOTE: Principal associates are listed on page 88. The valuations of unlisted partnerships and other associates are at directors’ valuations as at 31 December 1998. If realised at these values there would be an estimated liability for taxation, at year end rates, of £68m. The Group had no capital commitments to subscribe for further capital and loan stock.

	equity	share of loans	reserves	total
Summary of movements
At 31 December 1997	87	107	4	198
Exchange differences	(2)	–	–	(2)
Additions	2	11	–	13
Goodwill written back	16	–	1	17
Owned by subsidiary undertakings disposed	–	(6)	–	(6)
Disposals	(26)	(47)	22	(51)
Retained loss for the year	–	–	(24)	(24)
At 31 December 1998	77	65	3	145

NOTE: During the year the Group sold its 40.5% share in Port Aventura SA for £56m giving rise to a profit on sale of £28m before tax estimated at £6m. This includes compensation of £18m from Port Aventura SA for the cancellation of the management agreement. During the year the Group sold its 20% share in the Canadian Financial Post for £13m giving rise to a profit on sale of £8m before tax estimated at £4m.

	operating profit	net assets	operating profit	net assets
Analysis of partnerships and other associates
Business sectors
FT Group	15	6	16	(3)
Pearson Education	4	5	3	5
The Penguin Group	–	–	1	1
Pearson Television	(8)	23	(20)	49
Lazard	42	111	43	123
Continuing operations	53	145	43	175
Discontinued operations	(2)	–	4	23
	51	145	47	198
Geographical markets supplied
and location of net assets
United Kingdom	10	109	(1)	138
Continental Europe	11	13	9	11
North America	29	15	30	19
Rest of World	3	8	5	7
Continuing operations	53	145	43	175
Discontinued operations	(2)	–	4	23
	51	145	47	198

Reconciliation to retained loss
Operating profit of partnerships and other associates	51
Net interest of other associates	(3)
Profit on sale of an associate by an associate	11
UK taxation	(8)
Overseas taxation	(5)
Distributions receivable in respect of the year from partnership interests	(59)
Dividends (including tax credits) from unlisted associates	(11)
Retained loss for the year	(24)

The aggregate of Pearson’s share in its associates, excluding the interest in Lazard Partners Limited Partnership and the three Lazard Houses, is shown below.

Sales	239	225
Fixed assets	57	130
Current assets	126	126
Liabilities due within one year	(88)	(101)
Liabilities due after one year or more	(61)	(80)
Net assets	34	75

Pearson’s interest in Lazard Partners Limited Partnership and the three Lazard Houses is shown below.

Profit before tax	53	43
Taxation	(7)	(6)
Profit after taxation	46	37
Fixed assets	28	48
Current assets	5,151	3,925
Liabilities due within one year	(4,829)	(3,753)
Liabilities due after one year or more	(239)	(97)

NOTE: Pearson’s indirect general partnership interest in Lazard Frères et Cie and Maison Lazard et Cie held directly and indirectly through Lazard Partners Limited Partnership is an unlimited liability interest. Pearson holds these partnership interests through a subsidiary undertaking registered in England, with no other material assets. The aggregate liabilities of these partnerships included above are £851m (1997: £930m). Pearson also holds direct interests in Lazard Frères & Co., a New York Limited Liability Company.

* Limited Liability Company.

NOTE: The beneficial percentages held for the investment banking partnership interests are interests in partnership profits.

With effect from 1 January 1996, Lazard Frères & Co., ‘LLC’, Lazard Frères et Cie, Maison Lazard et Cie and Lazard Brothers & Co., Limited (together known as the three Lazard Houses) created a new system of interhouse profit sharing through the establishment of the Three Houses Pooling Partnership (the ‘Pool’) which became a limited partner of Lazard Partners Limited Partnership. As a result, the members, directors or partners in a particular Lazard House receive an interest in the profits of the other Lazard Houses in exchange for part of their existing profit entitlement in their own House. Pearson received additional income in 1998 (the ‘Pearson Adjustment’) to reflect the reduction in its profit entitlements from its direct holding in Lazard Frères & Co, ‘LLC’, Lazard Frères et Cie and Maison Lazard et Cie and accordingly did not receive any income through the Pool. The share of net distributable profits of Lazard Partners Limited Partnership (after the Pool’s profit share and the Pearson Adjustment) is divided in accordance with the respective capital interests of the original partners (Pearson plc – 50%).

On 8 December 1998 Lazard Brothers & Co. Limited‘s holding in Les Fils Dreyfus & Cie., Banquiers, a private bank incorporated in Switzerland, was reduced from 30% to 13% on the cancellation of some of its shares. The Group’s share of the resulting profit was £11m, before tax of £1m.