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5 Operating expenses
| All figures in £ millions | Notes | 2006 | 2005 |
|---|---|---|---|
| By function: | |||
| Cost of goods sold | 1,917 | 1,787 | |
| Operating expenses | |||
| Distribution costs | 299 | 292 | |
| Administrative and other expenses | 1,504 | 1,351 | |
| Other income | (99) | (84) | |
| Total operating expenses | 1,704 | 1,559 | |
| Total | 3,621 | 3,346 | |
| By nature: | |||
| Utilisation of inventory | 18 | 820 | 767 |
| Depreciation of property, plant and equipment | 11 | 71 | 76 |
| Amortisation of intangible assets – pre-publication | 17 | 210 | 192 |
| Amortisation of intangible assets – other | 12 | 48 | 26 |
| Employee benefit expense | 6 | 1,280 | 1,177 |
| Operating lease rentals | 125 | 111 | |
| Other property costs | 121 | 84 | |
| Royalties expensed | 360 | 363 | |
| Advertising, promotion and marketing | 212 | 198 | |
| Information technology costs | 90 | 81 | |
| Other costs | 383 | 355 | |
| Other income | (99) | (84) | |
| Total | 3,621 | 3,346 | |
During the year the Group obtained the following services from the Group's auditor:
| All figures in £ millions | 2006 | 2005 |
|---|---|---|
| Audit services | ||
| Fees payable to the Company’s auditor for the audit of parent companyand consolidated accounts |
1 | 1 |
| Non-audit services | ||
| Fees payable to the Company’s auditor and its associates for other services: |
||
| – The audit of the Company’s subsidiaries pursuant to legislation |
4 | 3 |
| – Other services pursuant to legislation | 4 | – |
| – Tax services | 1 | 1 |
| – Services relating to corporate finance transactions | 1 | 1 |
| – All other services | – | 1 |
| 11 | 7 |
'Other services pursuant to legislation' represents fees payable for services in relation to other statutory filings or engagements that are required to be carried out by the appointed auditor. In particular, this includes fees for reports under section 404 (S-404) of the US Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley) which are required for the first time in 2006.
'Services relating to corporate finance transactions' relate to a carve-out audit of Pearson Government Solutions in 2006. In 2005 this largely related to due diligence work at IDC.
'All other services' in 2005 relate to IFRS transition work and Sarbanes-Oxley section 404 compliance services.
Audit fees in relation to the IDC SEC filings have been entirely included in 'The audit of the Company's subsidiaries pursuant to legislation'. The audit fee relates to an integrated S-404 review and audit in which the audit work takes leverage from the results of S-404 testing. The fees for the S-404 review and the audit are not separate, therefore no IDC fees have been included in 'Other services pursuant to legislation'.