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Notes to the Consolidated Financial Statements

32. Cash generated from operations

All figures in millions Notes 2007 2006
Net profit 310 469
Adjustments for:
Income tax 222 19
Depreciation 10 68 77
Amortisation of purchased intangible assets 11 45 28
Adjustment on recognition of pre-acquisition deferred tax 11 7
Amortisation of other intangible assets 11 25 23
Investment in pre-publication assets 17 (230) (213)
Amortisation of pre-publication assets 17 192 210
Loss on sale of property, plant and equipment 1 2
Net finance costs 6 106 74
Share of results of joint ventures and associates 12 (23) (24)
Profit on sale of discontinued operations 3 (146)
Goodwill impairment of discontinued operation 3 97
Net foreign exchange gains/(losses) from transactions 11 (37)
Share-based payment costs 25 30 25
Inventories (1) (16)
Trade and other receivables (5) (60)
Trade and other liabilities 80 54
Retirement benefit obligations (126) (17)
Provisions 3
Net cash generated from operations 659 621
Dividends from joint ventures and associates 12 32 45
Purchase of property, plant and equipment (86) (68)
Purchase of intangible assets (33) (29)
Finance lease principal payments (2) (3)
Proceeds from sale of property, plant and equipment 14 8
Add back: Special pension contribution 100
Add back: Cash spent against integration and fair value provisions 1
Operating cash flow 684 575
Operating tax paid (61) (59)
Net operating finance costs paid (90) (82)
Operating free cash flow 533 434
Non-operating tax paid (26)
Special pension contribution (100)
Cash spent against integration and fair value provisions (1)
Total free cash flow 407 433
Dividends paid (including to minorities) (248) (235)
Net movement of funds from operations 159 198

Included in net cash generated from operations is an amount of 7m (2006: 33m) relating to discontinued operations.

Operating cash flow, operating free cash flow and total free cash flow have been disclosed as they are part of Pearson’s corporate and operating measures. Following the completion of the latest actuarial valuation of the UK Group pension plan as at January 2006, the Group agreed that during 2007 it would make additional payments to the plan amounting to 100m. The Group has excluded this 100m from its definition of operating cash flow and operating free cash flow as it distorts the underlying operating performance for the year.

In the cash flow statement, proceeds from sale of property, plant and equipment comprise:

All figures in millions 2007 2006
Net book amount 15 10
Loss on sale of property, plant and equipment (1) (2)
Proceeds from sale of property, plant and equipment 14 8

The principal other non-cash transactions are movements in finance lease obligations of 4m (2006: 4m).

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