As filed with the Securities and Exchange Commission on March 20, 200813, 2009
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 20-F
 
   
(Mark One)  
o REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Or  
   
þ ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 20072008
 
Or  
   
o TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from          to  
 
Or  
   
o SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission filenumber: 1-3334
 
   
REED ELSEVIER PLC
REED ELSEVIER NV
(Exact name of Registrant as specified in its charter)(Exact name of Registrant as specified in its charter)

England
The Netherlands
(Jurisdiction of incorporation or organisation)(Jurisdiction of incorporation or organisation)

1-3 Strand, London, WC2N 5JR, England
Radarweg 29, 1043 NX, Amsterdam, The Netherlands
(Address of principal executive offices)(Address of principal executive offices)

Stephen Cowden
Company Secretary
Reed Elsevier PLC
1-3 Strand, London, WC2N 5JR, England
011 44 20 7166 5681
steve.cowden@reedelsevier.com
(Name, telephone, e-mail and/or facsimile number and address of
Company Contact Person)		 Erik EkkerREED ELSEVIER NV
(Exact name of Registrant as specified in its charter)
The Netherlands
(Jurisdiction of incorporation or organisation)
Radarweg 29, 1043 NX, Amsterdam, The Netherlands
(Address of principal executive offices)
Jans van der Woude
Company Secretary
Reed Elsevier NV
Radarweg 29, 1043 NX, Amsterdam, The Netherlands
011 31 20 485 29062905
erik.ekker@reedelsevier.comj.vanderwoude@reedelsevier.com
(Name, telephone, e-mail and/or facsimile number and address of
Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
   
  Name of exchange on which
Title of each class registered
Reed Elsevier PLC:
  
American Depositary Shares
(each representing four Reed Elsevier PLC ordinary shares)		 New York Stock Exchange
Ordinary shares of 12.5p14 51/116p each(1)
(the “Reed Elsevier PLC ordinary shares”)
 New York Stock Exchange*
Reed Elsevier NV:
  
American Depositary Shares
(each representing two Reed Elsevier NV ordinary shares)		 New York Stock Exchange
Ordinary shares of €0.06€0.07 each(2)
(the “Reed Elsevier NV ordinary shares”)
 New York Stock Exchange*
 
 
* Listed, not for trading, but only in connection with the listing of the applicable Registrant’s American Depositary Shares issued in respect thereof.
 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None
 
 
Indicate the number of outstanding shares of each of the issuers’ classes of capital or common stock as of December 31, 2007:2008:
 
Reed Elsevier PLC:Number of outstanding shares
   
Ordinary shares of 12.5p14 51/116p each(1)
 1,305,891,4971,136,924,693
Reed Elsevier NV:
  
Ordinary shares of €0.06€0.07 each(2)
 760,250,364660,629,462
R-shares of €0.60€0.70 each (held by a subsidiary of Reed Elsevier PLC)(2)
 4,679,2494,050,720
(1)On January 7, 2008 the existing ordinary shares of 12.5p each were consolidated into new ordinary shares of 1451/116 p each on the basis of 58 new ordinary shares for every 67 existing shares held.
(2)On January 7, 2008 the existing ordinary shares of €0.06 each were consolidated into new ordinary shares of €0.07 each on the basis of 58 new ordinary shares for every 67 existing ordinary shares held. The R-Shares were consolidated on a similar basis into new R-Shares of €0.70 each.
 
 
Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act.
Yes          þ            No          o
 
If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
Yes          o            No          þ
 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:
 
Yes          þ            No          o
 
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act.
 
Large accelerated filer          þ            Accelerated filer          o            Non-accelerated filer          o
Large accelerated filer þAccelerated filer oNon-accelerated filer o
 
Indicate by check mark which basis of accounting the registrants have used to prepare the financial statements included in this filing.
 
     o  US GAAP       þ  International Financial Reporting Standards as issued by the International Accounting Standards Board       o  Other     
 
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrants have elected to follow:
 
Item 17      o            Item 18      o
 
If this is an annual report, indicate by check mark whether the registrants are shell companies (as defined inRule 12b-2 of the Exchange Act):
 
Yes          o            No          þ
 

TABLE OF CONTENTS
 
     
    Page
 
 GENERAL
 SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
 2
PART I
  
ITEM 1: IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS N/A
ITEM 2: OFFER STATISTICS AND EXPECTED TIMETABLE N/A
ITEM 3:
 KEY INFORMATION 3
    Selected financial data 3
   Risk factors 7
ITEM 4:
 INFORMATION ON REED ELSEVIER 1011
    History and development 1011
    Business overview 1213
    Organisational structure 1820
    Property, plants and equipment 1921
ITEM 4A: UNRESOLVED STAFF COMMENTS N/A
ITEM 5:
 OPERATING AND FINANCIAL REVIEW AND PROSPECTS 2022
    Operating results — Reed Elsevier 2022
    Liquidity and capital resources — Reed Elsevier 3033
    Operating results — Reed Elsevier PLC and Reed Elsevier NV 3337
    Trend information 3439
ITEM 6:
 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES 3540
    Directors 3540
    Senior management 3742
    Compensation 3742
    Board practices 4955
    Employees 5057
    Share ownership 5258
ITEM 7:
 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS 6271
    Major shareholders 6271
    Related party transactions 6371
ITEM 8:
 FINANCIAL INFORMATION 6472
ITEM 9:
 THE OFFER AND LISTING 6574
    Trading markets 6574
ITEM 10:
 ADDITIONAL INFORMATION 6776
    Memorandum and articles of association 6776
    Material contracts 6877
    Exchange controls 6877
    Taxation 6877
    Documents on display 7079
ITEM 11:
 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 7180
ITEM 12: DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES N/A

     
    Page
 
PART II
  
ITEM 13: DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES N/A
ITEM 14: MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS N/A
ITEM 15:
 CONTROLS AND PROCEDURES 7383
ITEM 16A:
 AUDIT COMMITTEE FINANCIAL EXPERT 7686
ITEM 16B:
 CODES OF ETHICS 7686
ITEM 16C:
 PRINCIPAL ACCOUNTANT FEES AND SERVICES 7686
ITEM 16D:
 EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES 7686
ITEM 16E:
 PURCHASES OF EQUITY SECURITIES BY THE ISSUERS AND AFFILIATED PURCHASERS 7787
   
PART III
  
ITEM 17:
 FINANCIAL STATEMENTS* 7888
ITEM 18:
 FINANCIAL STATEMENTS F-1
ITEM 19:
 EXHIBITS F-83S-1
 Exhibit 1.2EX-1.1
 Exhibit 4.12EX-8
 Exhibit 4.13EX-12.1
 Exhibit 4.14EX-12.2
 Exhibit 8EX-12.3
 Exhibit 12.1EX-12.4
 Exhibit 12.2EX-13.1
 Exhibit 12.3EX-13.2
 Exhibit 12.4EX-13.3
 Exhibit 13.1EX-13.4
 Exhibit 13.2EX-15.1
 Exhibit 13.3EX-15.2
 Exhibit 13.4EX-15.3
 Exhibit 15.1EX-15.4
 Exhibit 15.2EX-15.5
 Exhibit 15.3
Exhibit 15.4
Exhibit 15.5
Exhibit 15.6EX-15.6
 
*  The registrants have responded to Item 18 in lieu of responding to this Item.

 
THIS PAGE INTENTIONALLY BLANK
 

 
GENERAL
 
Reed Elsevier PLC and Reed Elsevier NV conduct their business through two jointly owned companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier PLC and Reed Elsevier NV have retained their separate legal and national identities. Reed Elsevier is not a legal entity but a collective reference to the separate legal entities of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures. The businesses of all of the entities comprising Reed Elsevier are collectively referred to in this annual report as “Reed Elsevier”, and the financial statements of the combined businesses are referred to as the “combined financial statements”. In this annual report, references to “we”, “our”, or “us” are to all of the entities comprising Reed Elsevier.
 
In this annual report, references to US dollars, $ and ¢ are to US currency; references to sterling, £, pence or p are to UK currency; references to euro and € are to the currency of the European Economic and Monetary Union.


1

 
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
 
This document contains or incorporates by reference a number of forward looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act 1934, as amended, with respect to:
 
 •  financial condition;
 
 •  results of operations;
 
 •  competitive positions;
 
 •  the features and functions of and markets for the products and services we offer; and
 
 •  our business plans and strategies.
 
We consider any statements that are not historical facts to be “forward looking statements”. These statements are based on the current expectations of the management of our businesses and are subject to risks and uncertainties that could cause actual results or outcomes to differ from those expressed in any forward looking statement. These differences could be material; therefore, you should evaluate forward looking statements in light of various important factors, including those set forth or incorporated by reference in this annual report.
 
Important factors that could cause actual results to differ materially from estimates or forecasts contained in the forward looking statements include, among others:
 
 •  generalcurrent and future economic and business conditions;
•  exchange rate fluctuations;
•  the impact of technological change, including the impact of electronic or other distribution formats, on our businesses;
 
 •  competitive factors in the industries in which we operate;
 
 •  demand for our products and services;
 
 •  uncertainties as to whether our strategiesexchange rate fluctuations;
•  legislative, fiscal and business plans will produce the expected returns;regulatory developments and political risks;
 
 •  changes in the market valueslaw and legal interpretation affecting our intellectual property rights, internet communications and provision of defined benefit pension scheme assets and in the market related assumptions used to value scheme liabilities;
•  significant failures or interruptions of our electronic delivery platforms;third party information;
 
 •  breaches of our data security systems or other unauthorised access to our databases;
 
 •  our ability to maintain high quality management;
 
 •  changes in law and legal interpretation affectingthe impact of technological change, including the impact of electronic or other distribution formats, on our intellectual property rights and internet communications;businesses;
 
 •  legislative, fiscaluncertainties as to whether our strategies, business plans and regulatory developments and political risks;acquisitions will produce the expected returns;
 
 •  requirementssignificant failures or actionsinterruptions of anti-trust authorities;our electronic delivery platforms;
•  failure of third parties to whom we have outsourced business activities;
 
 •  changes in the seasonal and cyclical nature of the markets for our products and services;
 
 •  changes in, and the timingrequirements or actions of public funding and spending by academic institutions and states;anti-trust authorities;
 
 •  failurechanges in the market values of third partiesdefined benefit pension scheme assets and in the market related assumptions used to whom we have outsourced business activities;value scheme liabilities;
•  downgrades to the credit ratings of our long term debt;
 
 •  disruption to our business or markets arising from natural disasters, international security or public health concerns and acts of terrorism or war;
•  failure to obtain regulatory approval for the acquisition of ChoicePoint, Inc. or the approval of its shareholders for the proposed merger; and
 
 •  other risks referenced from time to time in the filings of Reed Elsevier PLC and Reed Elsevier NV with the Securities and Exchange Commission (the “SEC”).
 
The terms “estimate”, “project”, “plan”, “intend”, “expect”, “believe”, “should” and similar expressions identify forward looking statements. These forward looking statements are found at various places throughout this annual report and the other documents incorporated by reference in this annual report (see “Item 19: Exhibits” onpage F-83S-1 of this annual report).
 
You should not place undue reliance on these forward looking statements, which speak only as of the date of this annual report. We undertake no obligation to publicly update or release any revisions to these forward looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.


2

 
PART I
 
ITEM 3: KEY INFORMATION
 
SELECTED FINANCIAL DATA
 
REED ELSEVIER
 
The selected combined financial data for Reed Elsevier should be read in conjunction with, and is qualified by, the combined financial statements included in this annual report. In addition, as separate legal entities, Reed Elsevier PLC and Reed Elsevier NV prepare separate consolidated financial statements which reflect their respective shareholders’ economic interests in Reed Elsevier accounted for on an equity basis.
 
All of the selected financial data for Reed Elsevier set out below has been extracted or derived from the combined financial statements which have been audited by Deloitte & Touche LLP, London and Deloitte Accountants BV, Amsterdam.
 
Combined Income Statement Data(1)
 
                                            
 As at December 31,  For the year ended December 31, 
 2007(2) 2007 2006 2005 2004  2008(2) 2008 2007 2006 2005 2004 
 (in millions)  (in millions) 
Amounts in accordance with IFRS:
                                            
Revenue from continuing operations $9,168   £4,584   £4,509   £4,265   £3,944  $7,734   £5,334   £4,584   £4,509   £4,265   £3,944 
Operating profit from continuing operations(3)
  1,776   888   837   752   699   1,306   901   888   837   752   699 
Net finance costs  (278)  (139)  (158)  (140)  (132)  (278)  (192)  (139)  (158)  (140)  (132)
Disposals and other non operating items(4)
  126   63   (1)  2   (3)  (133)  (92)  63   (1)  2   (3)
Profit before tax from continuing operations  1,624   812   678   614   564   895   617   812   678   614   564 
Taxation in continuing operations(5)
  164   82   (86)  (219)  (156)  (225)  (155)  82   (86)  (219)  (156)
Profit from discontinued operations(6)
  618   309   33   69   53   26   18   309   33   69   53 
Minority interests  (6)  (3)  (2)  (2)  (2)  (6)  (4)  (3)  (2)  (2)  (2)
Profit attributable to parent companies’ shareholders  2,400   1,200   623   462   459   690   476   1,200   623   462   459 
                    
 
Combined Balance Sheet Data(1)
 
                                            
 As at December 31,  As at December 31, 
 2007(2) 2007 2006 2005 2004  2008(2) 2008 2007 2006 2005 2004 
 (in millions)  (in millions) 
Amounts in accordance with IFRS:
                                            
Total assets $19,556   £9,778   £8,532   £9,127   £7,952  $18,656   £12,866   £9,778   £8,532   £9,127   £7,952 
Long term obligations less current portion  (4,004)  (2,002)  (2,085)  (2,264)  (1,706)  (8,256)  (5,694)  (2,002)  (2,085)  (2,264)  (1,706)
Minority interests  (22)  (11)  (13)  (15)  (13)  (41)  (28)  (11)  (13)  (15)  (13)
Combined shareholders’ equity  5,930   2,965   1,966   1,970   1,664   1,382   953   2,965   1,966   1,970   1,664 
 
 
(1)The combined financial statements are prepared in accordance with accounting policies that are in conformity with International Financial Reporting Standards (“IFRS”) as adopted by the European Union (“EU”) and IFRS as issued by the International Accounting Standards Board (“IASB”). As permitted, following the transition to IFRS on January 1, 2004 only four years of IFRS information are presented. Pursuant to SECRelease 33-8879 eliminating the requirement for foreign private issuers to reconcile their financial statements to US GAAP, no US GAAP reconciliation has been presented. The figures for 2005 and 2004 have been extracted or derived from the combined financial statements for the years ended December 31, 2005 and 2004, not included herein, and in respect of the year ended December 31, 2004 not included herein, and after adjustingare unaudited for the effects of the classification of Harcourt Education as a discontinued operation. On December 10, 2008 Reed Elsevier announced the termination of discussions to sell Reed Business Information (RBI) as it was judged not possible to structure a transaction on acceptable terms at that time. RBI has therefore been presented as a continuing operation of the combined businesses in the current and prior periods.
 
(2)Noon buying rates as at December 31, 20072008 have been used to provide a convenience translation into US dollars, see “— Exchange Rates” on page 6. At December 31, 20072008 the noon buying rate was $2.00$1.45 per £1.00. This compares to the average exchange rate for the year ended December 31, 2008 of $1.85 to £1.00 applied in the translation of the combined income statement for the year. Consequently, the rate used in the convenience translation of $1.45 to £1.00 effectively understates the US dollar amounts.
 
(3)Operating profit from continuing operations is stated after charging £221£290 million in respect of amortisation of acquired intangible assets (2006:and goodwill impairment (2007: £221 million; 2006: £211 million; 2005: £203 million; 2004: £181 million); £20£152 million in respect of exceptional restructuring costs (2007: nil; 2006: nil; 2005: nil; 2004: nil); £27 million in respect of acquisition integrationrelated costs (2006:(2007: £20 million; 2006: £23 million; 2005: £20 million; 2004: £21 million); and £8£9 million in respect of taxation in joint ventures (2006:(2007: £8 million; 2006: £10 million; 2005: £6 million; 2004: £7 million). Exceptional restructuring costs relate to the restructuring program announced on February 21, 2008 and expanded in February 2009 to include RBI, which was to be divested and not part of the original programme.


3

(4)Disposals and other non operating items comprise a £65£86 million gainloss on disposal and write downs of businesses and other assets (2006:(2007: £65 million gain; 2006: £2 million loss; 2005: £1 million loss; 2004: £3 million loss) and a £2£6 million loss relating to the revaluation of held for trading investments (2006:(2007: £2 million loss; 2006: £1 million gain; 2005: £3 million gain; 2004: nil).


3

(5)Taxation in continuing operations in 2007 includes credits of £223 million in respect of previously unrecognised deferred tax assets and capital losses that have been realised as a result of the disposal of discontinued operations. Taxation in continuing operations in 2006 includes credits of £65 million in respect of prior period disposals.
 
(6)Following announcementProfit from discontinued operations in February 20072008 includes the gain on disposal of Harcourt Assessment of £67 million (2007: £611 million on disposal of the planned sale of Harcourt EducationUS K-12 Schools and International businesses). Taxes on the division is presented for current and prior periods as a discontinued operation.completed disposals were £49 million (2007: £380 million).
 
REED ELSEVIER PLC
 
The selected financial data for Reed Elsevier PLC should be read in conjunction with, and is qualified by, the consolidated financial statements of Reed Elsevier PLC included in this annual report. The results and financial position of Reed Elsevier PLC reflect the 52.9% economic interest of Reed Elsevier PLC’s shareholders in Reed Elsevier, after taking account of results arising in Reed Elsevier PLC and its subsidiaries. These interests have been accounted for on an equity basis.
 
All of the selected consolidated financial data for Reed Elsevier PLC set out below has been extracted or derived from the financial statements of Reed Elsevier PLC, which have been audited by Deloitte & Touche LLP, London.
 
                                            
 As at December 31,  As at December 31, 
 2007(3) 2007 2006 2005 2004  2008(3) 2008 2007 2006 2005 2004 
 (in millions, except per share amounts)  (in millions, except per share amounts) 
Amounts in accordance with IFRS:(1)
                                            
Profit before tax(2)
  $1,286   £643   £328   £242   £240   $358   £247   £643   £328   £242   £240 
Taxation  (38)  (19)  (8)  (7)  (5)  (9)  (6)  (19)  (8)  (7)  (5)
Profit attributable to ordinary shareholders  1,248   624   320   235   235   349   241   624   320   235   235 
Earnings per Reed Elsevier PLC ordinary share from total operations of the combined businesses  99.4¢  49.7p  25.6p  18.6p  18.6p  32.0¢  22.1p  49.7p  25.6p  18.6p  18.6p
Earnings per Reed Elsevier PLC ordinary share from continuing operations of the combined businesses(4)
  73.2¢  36.6p  24.1p  15.7p  16.4p  30.7¢  21.2p  36.6p  24.1p  15.7p  16.4p
Dividends per Reed Elsevier PLC ordinary share(5)(4)
  32.6¢  16.3p  14.8p  13.3p  12.1p  $1.46   100.9p  16.3p  14.8p  13.3p  12.1p
Total assets  $3,168   £1,584   £1,090   £1,090   £929   $747   £515   £1,584   £1,090   £1,090   £929 
Long term obligations  —   —   —   (36)  (36)  —   —   —   —   (36)  (36)
Total equity/Net assets  3,136   1,568   1,040   1,042   880   731   504   1,568   1,040   1,042   880 
Weighted average number of shares(6)(5)
  1,256.5   1,256.5   1,251.9   1,266.2   1,264.6   1,089.5   1,089.5   1,256.5   1,251.9   1,266.2   1,264.6 
 
 
(1)The consolidated financial statements of Reed Elsevier PLC are prepared in accordance with accounting policies that are in conformity with IFRS as adopted by the EU and IFRS as issued by the IASB. As permitted, following the transition to IFRS on January 1, 2004 only four years of IFRS information are presented. Pursuant to SECRelease 33-8879 eliminating the requirement for foreign private issuers to reconcile their financial statements to US GAAP, no US GAAP reconciliation has been presented. The figures for 2005 and 2004 have been extracted or derived from the consolidated financial statements for the years ended December 31, 2005 and 2004, not included herein, and in respect of the year ended December 31, 2004 not included herein, and after adjustingare unaudited for the effects of the classification of Harcourt Education as a discontinued operation.operation of the combined businesses. On December 10, 2008 Reed Elsevier announced the termination of discussions to sell RBI as it was judged not possible to structure a transaction on acceptable terms at that time. RBI has therefore been presented as a continuing operation of the combined businesses in the current and prior periods.
 
(2)Profit before tax includes Reed Elsevier PLC’s share of the post-tax earnings of joint ventures, being both the continuing and discontinued operations of the Reed Elsevier combined businesses. Profit before tax includes Reed Elsevier PLC’s £10 million share of joint ventures’ post-tax gain on disposal of Harcourt Assessment (2007: £122 million post-tax net gain on disposal of the Harcourt Education US K-12 Schools and International businesses).
 
(3)Noon buying rates as at December 31, 20072008 have been used to provide a convenience translation into US dollars, see “— Exchange Rates” on page 6. At December 31, 20072008 the noon buying rate was $2.00$1.45 per £1.00. This compares to the average exchange rate for the year ended December 31, 2008 of $1.85 to £1.00 applied in the translation of the combined income statement for the year. Consequently, the rate used in the convenience translation of $1.45 to £1.00 effectively understates the US dollar amounts.
 
(4)Following announcement in February 2007 of the planned sale of Harcourt Education and its subsequent classification as a discontinued operation, earnings per Reed Elsevier PLC ordinary share from continuing operations of the combined businesses has been presented.
(5)The amount of dividends per Reed Elsevier PLC ordinary share shown excludes the UK tax credit available to certain Reed Elsevier PLC shareholders, including beneficial owners of Reed Elsevier PLC ADSs who are residents of the United States for the purposes of the UK Tax Treaty, and do not include any deduction on account of UK withholding taxes, currently at the rate of 15% of the sum of the dividend and the related tax credit in most cases; see “Item 10: Additional Information — Taxation”.
 
Dividends declared in the year, in amounts per ordinary share, comprise a 2006special distribution of 82.0p, a 2007 final dividend of 11.8p13.6p and 20072008 interim dividend of 4.5p5.3p giving a total of 16.3p.100.9p. The directors of Reed Elsevier PLC have proposed a 20072008 final dividend of 13.6p (2006:15.0p (2007: 13.6p; 2006: 11.8p; 2005: 10.7p; 2004: 9.6p), giving a total dividend in respect of the financial year of 18.1p (2006:20.3p (2007: 18.1p; 2006: 15.9p; 2005: 14.4p; 2004: 13.0p).
 
Dividends per Reed Elsevier PLC ordinary share for the year ended December 31, 20062007 translated into cents at the noon buying rate on December 31, 20062007 were 29.032.6 cents. See “— Exchange Rates” on page 6.


4

(6)(5)Weighted average number of shares excludes shares held in treasury and shares held by the Reed Elsevier Group plc Employee Benefit Trust. On January 7, 2008 the existing ordinary shares were consolidated into new ordinary shares on the basis of 58 new ordinary shares for every 67 existing ordinary shares. For the purposes of calculating earnings per share, the effective date of the share consolidation is deemed to be January 18, 2008, being the date on which the accompanying special distribution was paid.


4

 
REED ELSEVIER NV
 
The selected financial data for Reed Elsevier NV should be read in conjunction with, and is qualified by, the consolidated financial statements of Reed Elsevier NV included in this annual report. The results and financial position of Reed Elsevier NV reflect the 50% economic interest of Reed Elsevier NV’s shareholders in Reed Elsevier. These interests are accounted for on an equity basis.
 
All of the selected financial data for Reed Elsevier NV set out below has been extracted or derived from the consolidated financial statements of Reed Elsevier NV, which have been audited by Deloitte Accountants BV, Amsterdam.
 
                                          
 As at December 31, As at December 31, 
 2007(3) 2007 2006 2005 2004 2008(3) 2008 2007 2006 2005 2004 
 (in millions, except per share amounts) (in millions, except per share amounts) 
Amounts in accordance with IFRS:(1)
                                          
  
Profit before tax(2)
  $1,283   €873   €459   €338  €338  $441   €313   €873   €459   €338   €338 
Taxation  (26)  (18)  (1)  —  —  (27)  (19)  (18)  (1)  —   — 
Profit attributable to ordinary shareholders  1,257   855   458   338  338  414   294   855   458   338   338 
Earnings per Reed Elsevier NV ordinary share from total operations of the combined businesses  $1.62   €1.10   €0.59   €0.43  €0.43  $0.62   €0.44   €1.10   €0.59   €0.43   €0.43 
Earnings per Reed Elsevier NV ordinary share from continuing operations of the combined businesses(4)
  $1.23   €0.84   €0.56   €0.37  €0.38  $0.61   €0.43   €0.84   €0.56   €0.37   €0.38 
Dividends per Reed Elsevier NV ordinary share(5)(4)
  61.4¢  €0.418   €0.369   €0.332  €0.310  $3.09   €2.192   €0.418   €0.369   €0.332   €0.310 
Total assets  $3,071   €2,089   €1,537   €1,510  €1,245  $799   €567   €2,089   €1,537   €1,510   €1,245 
Total equity/Net assets  2,964   2,016   1,465   1,438  1,173  692   491   2,016   1,465   1,438   1,173 
Weighted average number of shares(6)(5)
  774.9   774.9   772.1   783.1  783.3  669.0   669.0   774.9   772.1   783.1   783.3 
 
 
(1)The consolidated financial statements of Reed Elsevier NV are prepared in accordance with accounting policies that are in conformity with IFRS as adopted by the EU and IFRS as issued by the IASB. As permitted, following the transition to IFRS on January 1, 2004 only four years of IFRS information are presented. Pursuant to SECRelease 33-8879 eliminating the requirement for foreign private issuers to reconcile their financial statements to US GAAP, no US GAAP reconciliation has been presented. The figures for 2005 and 2004 have been extracted or derived from the consolidated financial statements for the years ended December 31, 2005 and 2004, not included herein, and in respect of the year ended December 31, 2004 not included herein, and after adjustingare unaudited for the effects of the classification of Harcourt Education as a discontinued operation.operation of the combined businesses. On December 10, 2008 Reed Elsevier announced the termination of discussions to sell RBI as it was judged not possible to structure a transaction on acceptable terms at that time. RBI has therefore been presented as a continuing operation of the combined businesses in the current and prior periods.
 
(2)Profit before tax includes Reed Elsevier NV’s share of post-tax earnings of joint ventures, being both the continuing and discontinued operations of the Reed Elsevier combined businesses. Profit before tax includes Reed Elsevier NV’s €5 million share of joint ventures’ post-tax gain on disposal of Harcourt Assessment (2007: €147 million post-tax gains on disposal of the Harcourt Education US K-12 Schools and International businesses).
 
(3)Noon buying rates as at December 31, 20072008 have been used to provide a convenience translation into US dollars, see “— Exchange Rates” on page 6. At December 31, 20072008 the Noon Buying Rate was $1.47$1.41 per €1.00.
 
(4)Following announcement in February 2007 of the planned sale of Harcourt Education and it subsequent classification as a discontinued operation, earnings per Reed Elsevier NV ordinary share from continuing operations of the combined businesses has been presented.
(5)Dividends declared in the year, comprise, in amounts per ordinary share, comprise a 2006special distribution of €1.767, a 2007 final dividend of €0.304€0.311 and 20072008 interim dividend of €0.114 giving a total of €0.418.€2.192. The directors of Reed Elsevier NV have proposed a 20072008 final dividend of €0.311 (2006:€0.290 (2007: €0.311; 2006: €0.304; 2005: €0.267; 2004: €0.240), giving a total dividend in respect of the financial year of €0.425 (2006:€0.404 (2007: €0.425; 2006: €0.406; 2005: €0.359; 2004: €0.330).
Dividends per Reed Elsevier NV ordinary share for the year ended December 31, 2006 translated into cents at the noon buying rate on December 31, 2006 were 48.7 cents. See “— Exchange Rates” on page 6.
Dividends per Reed Elsevier NV ordinary share for the year ended December 31, 2007 translated into cents at the noon buying rate on December 31, 2007 were 61.4 cents. See “— Exchange Rates” on page 6.
(6)
(5)Weighted average number of shares excludes shares held in treasury and shares held by the Reed Elsevier Group plc Employee Benefit Trust. On January 7, 2008 the existing ordinary shares were consolidated into new ordinary shares on the basis of 58 new ordinary shares for every 67 existing ordinary shares. For the purposes of calculating earnings per share, the effective date of the share consolidation is deemed to be January 18, 2008, being the date on which the accompanying special distribution was paid.


5

EXCHANGE RATES
 
For a discussion of the impact of currency fluctuations on Reed Elsevier’s combined results of operations and combined financial position, see “Item 5: Operating and Financial Review and Prospects”.
 
The following tables illustrate, for the periods and dates indicated, certain information concerning the Noon Buying Rate for pounds sterling expressed in US dollars per £1.00 and for the euro expressed in US dollars per €1.00. The exchange rate on February 20, 200818, 2009 was £1.00 = $1.94$1.42 and €1.00 = $1.47.$1.25.
 
US dollars per £1.00 — Noon Buying Rates
 
                            
 Period Period 
Year ended December 31,
 End Average(1) High Low End Average(1) High Low 
2008  1.45   1.85   2.03   1.44 
2007  2.00  2.00  2.11  1.92  2.00   2.00   2.11   1.92 
2006  1.96  1.85  1.98  1.73  1.96   1.85   1.98   1.73 
2005  1.73  1.82  1.93  1.71  1.73   1.82   1.93   1.71 
2004  1.93  1.83  1.95  1.75  1.93   1.83   1.95   1.75 
2003  1.78  1.64  1.78  1.55
 
       
Month
 High Low
 
February 2008 (through February 20, 2008)  1.98  1.94
January 2008  1.99  1.95
December 2007  2.07  1.97
November 2007  2.11  2.05
October 2007  2.08  2.03
September 2007  2.04  1.99
August 2007  2.04  1.98
         
Month
 High  Low 
 
February 2009 (through February 18, 2009)  1.49   1.42 
January 2009  1.53   1.37 
December 2008  1.55   1.44 
November 2008  1.62   1.48 
October 2008  1.78   1.55 
September 2008  1.86   1.75 
August 2008  1.97   1.82 
 
US dollars per €1.00 — Noon Buying Rates
 
                            
 Period Period 
Year ended December 31,
 End Average(1) High Low End Average(1) High Low 
2008  1.41   1.47   1.60   1.24 
2007  1.47  1.37  1.49  1.29  1.47   1.37   1.49   1.29 
2006  1.32  1.26  1.33  1.18  1.32   1.26   1.33   1.18 
2005  1.18  1.24  1.37  1.17  1.18   1.24   1.37   1.17 
2004  1.37  1.24  1.36  1.18  1.37   1.24   1.36   1.18 
2003  1.26  1.13  1.26  1.04
 
       
Month
 High Low
 
February 2008 (through February 20, 2008)  1.49  1.45
January 2008  1.49  1.46
December 2007  1.48  1.43
November 2007  1.49  1.44
October 2007  1.45  1.41
September 2007  1.42  1.36
August 2007  1.38  1.34
         
Month
 High  Low 
 
February 2009 (through February 18, 2009)  1.31   1.25 
January 2009  1.39   1.28 
December 2008  1.44   1.26 
November 2008  1.30   1.25 
October 2008  1.41   1.24 
September 2008  1.47   1.39 
August 2008  1.56   1.47 
 
 
(1)The average of the Noon Buying Rates on the last day of each month during the relevant period.
 
Noon Buying Rates have not been used in the preparation of the Reed Elsevier combined financial statements, the Reed Elsevier PLC consolidated financial statements or the Reed Elsevier NV consolidated financial statements but have been used for certain convenience translations where indicated.


6

 
RISK FACTORS
 
The key material risks to our business are included below. Additional risks not presently known to us or that we currently deem immaterial may also impair our business.
Current and future economic, political and market forces, and dislocations beyond our control may adversely affect demand for our products and services.
The demand for our products and services may be impacted by factors that are beyond our control, including macroeconomic, political and market conditions, the availability of short-term and long-term funding and capital, the level of volatility of interest rates, currency exchange rates and inflation. The United States and other major economies are currently undergoing a period of severe economic recession, and the future global economic environment may be less favourable than in recent years. Any one or more of these factors may contribute to reduced activity by our customers, may result in a reduction of demand for our products and services, and may adversely affect suppliers and third parties to whom we have outsourced business activities. The current global dislocation of the credit markets, which has significantly contributed to the economic recession described above, may have further disruptive consequences for global economic growth and customer demand.
 
We operate in a highly competitive environment that is subject to rapid change and we must continue to invest and adapt to remain competitive.
 
Our businesses operate in highly competitive markets. These markets continue to change in response to technological innovations, changing legislation and other factors. We cannot predict with certainty the changes that may occur and the effect of those changes on the competitiveness of our businesses. In particular, the means of delivering our products and services, and the products and services themselves, may be subject to rapid technological and other changes. We cannot predict whether technological innovations, changing legislation or other factors will, in the future, make some of our products wholly or partially obsolete.obsolete or less profitable. We may be required to invest significant resources to further adapt to the changing competitive environment.
 
We cannot assure you that there will be continued demand for our products and services.
 
Our businesses are dependent on the continued acceptance by our customers of our products and services and the prices which we charge for our products and services. We cannot predict whether there will be changes in the future, either in the market demand or from the actions of competitors, which will affect the acceptability of products, services and prices to our customers.
 
Fluctuations in exchange rates may affect our reported results.
 
Our financial statements are expressed in pounds sterling and euros and are, therefore, subject to movements in exchange rates on the translation of the financial information of businesses whose operational currencies are other than our reporting currencies. The United States is our most important market and, accordingly, significant fluctuations in US dollar/sterling and US dollar/euro exchange rates can significantly affect our reported results and financial position from year to year. In addition, in some of our businesses we incur costs in currencies other than those in which revenues are earned. The relative movements between the exchange rates in the currencies in which costs are incurred and the currencies in which revenues are earned can significantly affect the results of those businesses.
 
Changes in tax laws or uncertainty over their application and interpretation may adversely affect our reported results.
 
Our businesses operate in over 100 locations worldwide and our earnings are subject to taxation in many differing jurisdictions and at differing rates. We seek to organise our affairs in a tax efficient manner, taking account of the jurisdictions in which we operate. TaxRelevant authorities may amend tax laws that apply to Reed Elsevier businesses may be amended by the relevant authorities, for(for example as a result of changes in fiscal circumstances or priorities.priorities). Such amendments, or their application to Reed Elsevier businesses, may adversely affect our reported results.
 
Changes in regulation on information collection and use could adversely affect our revenues and our costs.
 
Legal regulation relating to internet communications, data protection,e-commerce, direct marketing, credit scoring and digital advertising and use of public records is becoming more prevalent. Existing and proposed legislation and regulations, including changes in the manner in which such legislation and regulations are interpreted by courts, in the United States, the European Union and other jurisdictions may impose limits on our collection and use of certain kinds of information about individuals and our ability to communicate such information effectively with our customers. For example, the background screening report businesses offered by LexisNexis and ChoicePoint are governed by the US Fair Credit Reporting Act and analogous state laws requiring that consumers be provided the contents of background reports and allowed to have any inaccuracies in the reports corrected. It further provides for statutory penalties and attorney fees for non-compliance. We are unable to predict in what form laws and regulations will be adopted or modified or how they will be construed by the courts, or the extent to which any such laws or interpretation changes might adversely affect our business.


7

Changes in provision of third party information to us could adversely affect our businesses.
 
A number of our businesses rely extensively upon content and data from external sources to maintain our databases. Data is obtained from public records, governmental authorities, customers and other information companies, including competitors. In the case of public records including social security number data which are obtained from public authorities, our access is governed by law. We also obtain the credit header data in our databases from consumer credit reporting agencies. The disruption or loss of data sources in the future, because of changes in the law or because data suppliers decide not to supply them, could adversely affect our business if we were unable to arrange for substitute sources in a timely manner or at all.
 
Breaches of our data security systems or other unauthorised access to our databases could adversely affect our business and operations.
 
Our businesses provide customers with access to database information such as caselaw, treatises, journals, and publications as well as other data. Our LexisNexis risk management business also provides authorised customers with access to public records and other information on US individuals made available in accordance with applicable privacy laws and regulations. There are persons who try to breach our data security systems or gain other unauthorised access to our databases in order to


7

misappropriate such information for potentially fraudulent purposes and we have previously disclosed incidents of such unauthorised access. Because the techniques used by such persons change frequently, we may be unable to anticipate or protect against the threat of breaches of data security or other unauthorised access. Breaches of our data security systems or other unauthorised access to our databases could damage our reputation and expose us to a risk of loss or litigation and possible liability, as well as increase the likelihood of more extensive governmental regulation of these activities in a way that could adversely affect this aspect of our business.
 
Changes in government funding of, or spending by, academic institutions may adversely affect demand for the products and services of our science and medical businesses.
 
The principal customers for the information products and services offered by our Elsevier science and medical publishing business are academic institutions, which fund purchases of these products and services from limited budgets that may be sensitive to changes in private and governmental sources of funding. Accordingly any decreases in budgets of academic institutions or changes in the spending patterns of academic institutions could adversely affectnegatively impact our businesses.
 
Our intellectual property rights may not be adequately protected under current laws in some jurisdictions, which may adversely affect our results and our ability to grow.
 
Our products and services are largely comprised of intellectual property content delivered through a variety of media, including journals, books, CDs, and online, including the internet. We rely on trademark, copyright, patent and other intellectual property laws to establish and protect our proprietary rights in these products and services. However, we cannot assure you that our proprietary rights will not be challenged, limited, invalidated or circumvented. Despite trademark and copyright protection and similar intellectual property protection laws, third parties may be able to copy, infringe or otherwise profit from our proprietary rights without our authorisation. These unauthorised activities may be facilitated by the internet.
 
In addition, whilst there is now certain internet-specific copyright legislation in the United States and in the European Union, there remains significant uncertainty as to the date from which these will be enforced and the form copyright law regulating digital content may ultimately take. In several jurisdictions, including the United States, Australia and the European Union, copyright laws are increasingly coming under legal challenge and, in the European Union, national legislation by the member states implementing the EU Copyright Directive has not yet been adopted.review. These factors create additional challenges for us in protecting our proprietary rights to content delivered through the internet and electronic platforms. Moreover, whilst non-copyrightable databases are protected in many circumstances by law in the European Union, there is no equivalent legal protection in the United States.
We may be unable to implement and execute our strategic and business plans if we cannot maintain high quality management.
The implementation and execution of our strategic and business plans depend on the availability of high quality management resources across all our businesses. We cannot predict that in the future such resources will be available.
We cannot assure you whether our substantial investment in electronic product and platform initiatives will produce satisfactory, long term returns.
We are investing significant amounts to develop and promote electronic products and platforms. The provision of electronic products and services is very competitive and we may experience difficulties developing this aspect of our business due to a variety of factors, many of which are beyond our control. These factors may include competition from comparable and new technologies and changes in regulation.


8

Our businesses may be adversely affected if their electronic delivery platforms, networks or distribution systems experience a significant failure or interruption.
Our businesses are increasingly dependent on electronic platforms and distribution systems, primarily the internet, for delivery of their products and services. Although plans and procedures are in place to reduce such risks, our businesses could be adversely affected if their electronic delivery platforms and networks experience a significant failure or interruption.
Our businesses may be adversely affected by the failure of third parties to whom we have outsourced business activities.
New organisational and operational structures have been developed and new appointments made to leverage more effectively our skills, technology and resources. This includes outsourcing and offshoring activities such as IT, production and development engineering and will in the future extend into further operational and administrative activities. The failure of third parties to whom we have outsourced business functions could adversely affect our reputation and financial condition.
Our scientific, technical and medical primary journals could be adversely affected by changes in the market.
The scientific, technical and medical (STM) primary publications of Elsevier, like those of most of our competitors, are published on a paid subscription basis. There has been recent debate in the academic and library communities, which are the principal customers for our STM publications, regarding whether such publications should be free and funded instead through fees charged to authors and from governmental and other subsidies or made freely available after a period following publication. If these methods of STM publishing are widely adopted or mandated, it could adversely affect our revenue from Elsevier’s paid subscription publications.
A significant portion of our revenue is derived from advertising and exhibitions and spending by companies on advertising and other marketing activities has historically been cyclical.
Approximately 14% of our revenue from continuing operations in 2008 was derived from advertising and 13% from exhibitions. In Reed Business Information, 54% of revenue was derived from advertising in 2008. Total advertising revenues for our continuing businesses in 2008 were £737 million compared with £699 million in the prior year.
Traditionally, spending by companies on advertising and other marketing activities has been cyclical with companies spending significantly less on advertising in times of economic slowdown or recession, as has been the case in the last quarter of 2008. Our results could be adversely affected by a reduction of advertising revenues following economic slowdown or recession.
The exhibitions business is similarly affected by cyclical pressures on spending by companies. Additionally, participation and attendance at exhibitions is affected by the availability of exhibition venues and the propensity of exhibitors and attendees to travel. Our results could be adversely affected if the availability of venues or the demand from exhibitors and attendees were reduced, for example due to international security or public health concerns or acts of terrorism or war.
We cannot be certain that our substantial investment in ChoicePoint, Inc. will provide satisfactory, long term returns.
We acquired ChoicePoint, Inc. (ChoicePoint) on September 19, 2008 and expect the acquisition will deliver satisfactory strategic and financial benefits. We cannot be certain that we will realise these anticipated benefits in full or at all, and this will depend, amongst other things, on whether its markets develop as anticipated and on whether the operations and personnel of our existing operations and those of the acquired business can be integrated in an efficient and effective manner. This process may take longer than we anticipate and may cause disruption of our business. The performance of the combined businesses may not meet our expectations if integration is not successful or if the process is prolonged.
We cannot be certain that our restructuring programmes will provide satisfactory, long term returns.
We are embarked on substantial restructuring programmes to further consolidate and streamline operational activities and back office support, and which are expected to result in significant cost savings in future years. The programmes may take longer than planned, cost more than planned, and may cause disruption to our business. We cannot be certain that we will realise the anticipated savings in full.
 
Changes in the market values of defined benefit pension scheme assets and in the assumptions used to value defined benefit pension scheme obligations may adversely affect our businesses.
 
We operate a number of pension schemes around the world, the largest schemes being of the defined benefit type in the United Kingdom, the United States and the Netherlands. The assets and obligations associated with defined benefit pension schemes are particularly sensitive to changes in the market values of assets and the market related assumptions used to value scheme liabilities. In particular, a decrease in the discount rate used to value scheme liabilities, an increase in life expectancy of scheme members, an increase in the rate of inflation or a decline in the market value of investments held by the defined benefit pension schemes (absent any change in their expected long term rate of return) may adversely affect the reported results and financial position of the combined businesses.
We may be unable to implement and execute our strategic and business plans if we cannot maintain high quality management.
The implementation and execution of our strategic and business plans depend on the availability of high quality management resources across all our businesses. We cannot predict that in the future such resources will be available.
We cannot assure you whether our substantial investment in electronic product and platform initiatives will produce satisfactory, long term returns.
We are investing significant amounts to develop and promote electronic products and platforms. The provision of electronic products and services is very competitive and we may experience difficulties developing this aspect of our business due to a variety of factors, many of which are beyond our control. These factors may include competition from comparable and new technologies, new business models and changes in regulation.
Our businesses may be adversely affected if their electronic delivery platforms, networks or distribution systems experience a significant failure or interruption.
Our businesses are increasingly dependent on electronic platforms and distribution systems, primarily the internet, for delivery of their products and services. Although plans and procedures are in place to reduce such risks, our businesses could be adversely affected if their electronic delivery platforms and networks experience a significant failure or interruption.


89

Our scientific, technicalimpairment analysis of goodwill and medical primary journals couldindefinite lived intangible assets incorporates various assumptions which are highly judgemental. If these assumptions are not realised, we may be adversely affected by changesrequired to recognise a charge in the market.future for impairment.
 
As at December 31, 2008 goodwill on the combined balance sheet amounted to £4,901 million and indefinite lived intangible assets amounted to £397 million. We conduct an impairment test at least annually, which involves a comparison of the carrying value of goodwill and indefinite lived intangible assets by cash generating unit with estimated values in use based on latest management cash flow projections. The scientific, technical and medical (STM) primary publications of Elsevier, like those of most of our competitors, are published on a paid subscription basis. There has been recent debateassumptions used in the academicestimation of value in use are, by their very nature, highly judgemental, and library communities,include profit growth of the business over a five year forecast period, the long term growth rate of the business thereafter, and related discount rates. There is no guarantee that our businesses will be able to achieve the forecasted results which have been included in the impairment tests and impairment charges may be required in future periods if we are the principal customers for our STM publications, regarding whether such publications should be free and funded instead through fees chargedunable to authors and from governmental and other subsidies or made freely available after a period following publication. Ifmeet these methods of STM publishing are widely adopted or mandated, it could adversely affect our revenue from Elsevier’s paid subscription publications.assumptions.
 
A significant portion of our revenue is derived from advertisingOur business, operations and exhibitions and spending by companies on advertising and other marketing activities has historically been cyclical.
Approximately 15% of our revenue in 2007 was derived from advertising and 12% from exhibitions. The Reed Business segment in particular is highly dependent on advertising and exhibitions revenue. In 2007, 34% of Reed Business segment revenue was derived from advertising and 39% from exhibitions.
Traditionally, spending by companies on advertising and other marketing activities has been cyclical with companies spending significantly less on advertising in times of economic slowdown or recession. Our resultsreputation could be adversely affected by a reduction of advertising revenues following economic slowdown or recession.failure to comply with FTC Settlement Orders.
 
In February 2006, ChoicePoint reached a settlement with the US Federal Trade Commission (“FTC”) resolving an FTC investigation into its compliance with federal laws governing consumer information security and related issues, including certain fraudulent data access incidents. In August 2008, the FTC approved a settlement with Reed Elsevier Inc. addressing certain other data access matters (together the two settlements are the “FTC Settlement Orders”). The exhibitionsFTC Settlement Orders required Reed Elsevier Inc. and ChoicePoint to institutionalise a number of information security, verification, and credentialing, audit and compliance, and reporting and record retention practices. Reed Elsevier Inc. and ChoicePoint are also required to obtain every two years for 20 years an assessment from a qualified, independent third-party professional to ensure that their information security programmes meet the standards of the FTC Settlement Orders. A failure to comply with the FTC Settlement Orders could lead to civil penalties and adversely affect our business, is similarly affected by cyclical pressures on spending by companies. Additionally, participationoperations and attendance at exhibitions is affected by the availability of exhibition venuesreputation.
Our borrowing costs and the propensity of exhibitors and attendeesaccess to travel. Our results couldcapital may be adversely affected if the availability of venues or the demand from exhibitors and attendees were reduced, for example duecredit rating assigned to international security or public health concerns or acts of terrorism or war.
Our businesses may be adversely affected by the failure of third parties to whom we have outsourced business activities.our long term debt is downgraded.
 
New organisationalAs at March 13, 2009 the credit ratings assigned to our long term debt were Baa1 from Moody’s Investors Service, Inc., BBB+ from Standard & Poor’s Ratings Services (“S&P”) and operational structures have been developedA- from Fitch Ratings Ltd. Each of these rating agencies had assigned a negative outlook to its rating. Factors cited as a basis for the assignment of a negative outlook include the challenging macroeconomic environment and new appointments made to leverage more effectivelythe level of our skills, technology and resources across an increasingly synergistic portfolio. This includes outsourcing and offshoring activities suchindebtedness as IT, production and development engineering and willa consequence of our acquisition of ChoicePoint. If the ratings of our long term debt are downgraded in the future, extend into further operationalour borrowing costs and administrative activities. The failure of third partiesaccess to whom we have outsourced business functions couldcapital may be adversely affectaffected. A rating is based upon information furnished by us or obtained by the relevant rating agency from its own sources and is subject to revision, suspension or withdrawal by the rating agency at any time. Rating agencies may review the assigned ratings due to developments that are beyond our reputation and financial condition.control.


910

 
ITEM 4: INFORMATION ON REED ELSEVIER
 
HISTORY AND DEVELOPMENT
 
Corporate structure
 
Reed Elsevier came into existence in January 1993, when Reed Elsevier PLC and Reed Elsevier NV contributed their businesses to two jointly owned companies, Reed Elsevier Group plc, a UK registered company which owns the publishing and information businesses, and Elsevier Reed Finance BV, a Dutch registered company which owns the financing activities. Reed Elsevier PLC and Reed Elsevier NV have retained their separate legal and national identities and are publicly held companies. Reed Elsevier PLC’s securities are listed in London and New York, and Reed Elsevier NV’s securities are listed in Amsterdam and New York.
 
Equalisation arrangements
 
Reed Elsevier PLC and Reed Elsevier NV each hold a 50% interest in Reed Elsevier Group plc. Reed Elsevier PLC holds a 39% interest in Elsevier Reed Finance BV, with Reed Elsevier NV holding a 61% interest. Reed Elsevier PLC additionally holds a 5.8% indirect equity interest in Reed Elsevier NV, reflecting the arrangements entered into between the two companies at the time of the merger, which determined the equalisation ratio whereby one Reed Elsevier NV ordinary share is, in broad terms, intended to confer equivalent economic interests to 1.538 Reed Elsevier PLC ordinary shares. The equalisation ratio is subject to change to reflect share splits and similar events that affect the number of outstanding ordinary shares of either Reed Elsevier PLC or Reed Elsevier NV.
 
Under the equalisation arrangements, Reed Elsevier PLC shareholders have a 52.9% economic interest in Reed Elsevier, and Reed Elsevier NV shareholders (other than Reed Elsevier PLC) have a 47.1% economic interest in Reed Elsevier. Holders of ordinary shares in Reed Elsevier PLC and Reed Elsevier NV enjoy substantially equivalent dividend and capital rights with respect to their ordinary shares.
 
The boards of both Reed Elsevier PLC and Reed Elsevier NV have agreed, other than in special circumstances, to recommend equivalent gross dividends (including, with respect to the dividend on Reed Elsevier PLC ordinary shares, the associated UK tax credit), based on the equalisation ratio. A Reed Elsevier PLC ordinary share pays dividends in sterling and is subject to UK tax law with respect to dividend and capital rights. A Reed Elsevier NV ordinary share pays dividends in euros and is subject to Dutch tax law with respect to dividend and capital rights.
 
The principal assets of Reed Elsevier PLC comprise its 50% interest in Reed Elsevier Group plc, its 39% interest in Elsevier Reed Finance BV, its indirect equity interest in Reed Elsevier NV and certain amounts receivable from subsidiaries of Reed Elsevier Group plc. The principal assets of Reed Elsevier NV comprise its 50% interest in Reed Elsevier Group plc, its 61% interest in Elsevier Reed Finance BV and certain amounts receivable from subsidiaries of Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier NV also owns shares, carrying special dividend rights, in Reed Elsevier Overseas BV, a Dutch registered subsidiary of Reed Elsevier Group plc. These shares enable Reed Elsevier NV to receive dividends from companies within its tax jurisdiction, thereby mitigating Reed Elsevier’s potential tax costs.
 
Presentation of Reed Business Information
On February 21, 2008 we announced a plan to divest Reed Business Information (“RBI”) which was accordingly then classified as a discontinued operation in our unaudited interim financial information for the six months ended June 30, 2008 and 2007, and in our re-presented audited financial statements for the years ended December 31, 2007, 2006 and 2005, in each case, as filed on our joint report on Form 6-K on November 26, 2008.
On December 10, 2008 we announced the termination of discussions to sell RBI as it was judged not possible to structure a transaction on acceptable terms in the economic environment and credit market prevailing at that time. RBI has therefore been re-presented as part of our continuing operations in our financial statements for the year ended December 31, 2008 with prior period comparatives also being re-presented accordingly.
Material acquisitions and disposals
 
Total acquisition expenditure for continuing operations in the three years ended December 31, 20072008 was £797£2,621 million, after taking into account borrowings and cash acquired. During 2008 a number of acquisitions were made for a total consideration of £2,131 million, the most significant of which was ChoicePoint, Inc, a leading provider of risk information and analytics, for £1,931 million in September. Goodwill and intangible assets acquired as part of the ChoicePoint acquisition were £1,162 million and £1,471 million respectively. During 2007 a number of acquisitions were made for a total consideration of £319 million, none of which were individually material and the most significant of which was the purchase of the Beilstein chemical compound database. During 2006 a number of acquisitions were made for a total consideration of £171 million, none of which were individually material. During 2005 a number of acquisitions were made for a total consideration of £307 million, the most significant of which was MediMedia MAP, a medical books and journals publishing business based principally in France, Spain, Italy and the United States, for £188 million in August, 2005.
 
On May 4, 2007 the sale of the Harcourt Assessment and Harcourt Education International businesses for $950 million was announced, and on July 16, 2007 the sale of Harcourt US Schools Education businesses for $4.0 billion was announced. WithThe sales had completed by December 31, 2007 with the exception of Harcourt Assessment and certain Harcourt International businesses the sales had completed by December 31, 2007. The sale of the remaining Harcourt Education businesseswhich completed on January 30, 2008.
On February 20, The post-tax gain on disposals for 2008 Reed Elsevier approved a plan to divest Reed Business Information. In the year to December 31, 2007 Reed Business Information reported revenues of £906was £18 million and operating profits of £89 million.
Also on February 20, 2008 Reed Elsevier entered into a definitive merger agreement with ChoicePoint Inc. to acquire the company for cash. Taking into account ChoicePoint’s estimated net debt of $0.6 billion, the total value of the transaction is $4.1 billion. The merger is subject to customary regulatory approvals and the approval of ChoicePoint’s shareholders. It is expected to be completed later in the year.(2007: £231 million).


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Restructuring programme
In February 2008 we announced a major restructuring plan to further consolidate and streamline operational activities and back office support. The programme was expected to cost approximately $290 million. In February 2009, having identified further restructuring and consolidation opportunities, we announced an expansion of this programme and a major restructuring in RBI for approximately a further $220 million restructuring costs. We expect these restructuring costs to result in significant cost savings in future years. Restructuring costs incurred in 2008 were £152 million.
Capital expenditure
 
Capital expenditure on property, plant, equipment and internally developed intangible assets principally relates to investment in systems infrastructure to support electronic publishing activities, computer equipment and office facilities. Total such capital expenditure, which is financed from operating cash flows, amounted to £145£172 million in 2007 (2006:2008 (2007: £145 million; 2006: £167 million; 2005: £173 million) for continuing operations of the combined businesses. Further information on capital expenditure is given in notes 17 and 19 to the combined financial statements.
 
Principal Executive Offices
 
The principal executive offices of Reed Elsevier PLC are located at 1-3 Strand, London WC2N 5JR, England. Tel: +44 20 7930 7077. The principal executive offices of Reed Elsevier NV are located at Radarweg 29, 1043 NX Amsterdam, the Netherlands. Tel: +31 20 485 2434. The principal executive office located in the United States is at 125 Park Avenue, 23rd Floor, New York, New York, 10017. Tel +1 212 309 5498. Our internet address is www.reedelsevier.com. The information on our website is not incorporated by reference into this report.


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BUSINESS OVERVIEW
 
We are one of the world’s leading publishers and information providers. Our activities include science and medical, legal and business publishing.publishing and the organisation of trade exhibitions. Our principal operations are in North America and Europe. For the year ended December 31, 20072008 we had total revenue from continuing operations of approximately £4.6£5.3 billion and an average of approximately 31,60032,800 employees. As at December 31, 20072008 we had approximately 31,50034,800 employees. In 2007,2008, North America represented our largest single geographic market, based on revenue by destination, contributing 49% of our total revenue from continuing operations.
 
Our businesses provide products and services that are organised in threefour business divisions: Elsevier serves the science and medical sector; LexisNexis, the legal and other professional sectors; Reed Exhibitions, the exhibitions and conferences sector; and Reed Business Information, the trade magazines and information business sector.
The United States and other major economies are currently undergoing a period of severe economic recession, and the future economic environment may be less favourable than in recent years. The professional markets which are served by Elsevier and LexisNexis, whilst not immune to the economic recession, have historically been more resilient than most and Reed Elsevier benefits from its subscription base and demand for online solutions. In business to business sector.markets, served by Reed Exhibitions and Reed Business Information, the demand for advertising and marketing services is typically more affected by a tougher economic environment.
 
Revenue is derived principally from subscriptions, circulation sales, advertising sales and exhibition fees. In 2007, 46%2008, 45% of Reed Elsevier’s revenue from continuing operations was derived from subscriptions; 20%21% from circulation sales; 15%14% from advertising sales; 12%13% from exhibition fees; and 7% from other sources. An increasing proportion of revenue is derived from electronic information products, principally internet based, and in 2007, 47%2008, 50% of our revenue was derived from such sources, including 72%74% of LexisNexis revenue, 48%54% of Elsevier revenue, and 19%1% of Reed Exhibitions revenue and 34% of Reed Business Information revenue.
 
Subscription sales are defined as revenue derived from the periodic distribution or update of a product or from the provision of access to online services, which is often prepaid. Circulation sales include all other revenue from the distribution of a product and transactional sales of online services, usually on cash or credit terms. The level of publishing related advertising sales and exhibition fees has historically been tied closely to the economic and business investment cycle with changes in the profit performance of advertisers, business confidence and other economic factors having a high correlation with changes in the size of the market. Subscription sales and circulation sales have tended to be more stable than advertising sales through economic cycles.
 
Revenue is recognised for the various categories as follows: subscriptions — on periodic despatch of subscribed product or rateably over the period of the subscription where performance is not measurable by despatch; circulation — on despatch; advertising — on publication or period of online display; and exhibitions — on occurrence of the exhibition. Where sales consist of two or more independent components whose value can be reliably measured, revenue is recognised on each component as it is completed by performance, based on attribution of relative value.
 
Certain of our businesses are seasonal in nature. In Elsevier, a significant proportion of annual revenue is derived from calendar year based journal subscriptions, with the substantial majority of annual cash inflow from these arising in the fourth quarter of each financial year. The majority of medical publishing and sales arise in the second half of the year. This, together with the phasing of other subscription receipts and exhibition deposits, results in significant cash flow seasonality whereby the substantial majority of annual operating cash inflows normally arise in the second half of the year.
 
Our businesses compete for subscription, circulation and marketing expenditures in scientific and medical, legal and business sectors. The bases of competition include, for readers and users of the information, the quality and variety of the editorial content and data, the quality of the software to derive added value from the information, the timeliness and the price of the products and, for advertisers, the quality and the size of the audiences targeted.
 
                                             
 Revenue from continuing operations(1)
  Revenue from continuing operations(1)
 
 Year ended December 31,  Year ended December 31, 
 2007 2006 2005  2008 2007 2006 
 (in millions, except percentages)  (in millions, except percentages) 
Elsevier £1,507  33% £1,521  34% £1,436  34% £1,700   32% £1,507   33% £1,521   34%
LexisNexis  1,594  35   1,570  35   1,466  34   1,940   36   1,594   35   1,570   35 
Reed Business  1,483  32   1,418  31   1,363  32 
Reed Exhibitions  707   13   577   12   522   11 
Reed Business Information  987   19   906   20   896   20 
                          
Total £4,584  100% £4,509  100% £4,265  100% £5,334   100% £4,584   100% £4,509   100%
                          
 
 
(1)Following announcement in February 2007 of the planned sale of Harcourt Education, the division is presented in the financial statements as a discontinued operation and is excluded from the above analysis. On December 10, 2008 Reed Elsevier announced the termination of discussions to sell Reed Business Information (RBI) as it was judged not possible to structure a transaction on acceptable terms at that time. RBI has therefore been presented as a continuing operation of the combined businesses in the current and prior periods. RBI and Reed Exhibitions, previously presented together as the Reed Business segment, are now managed as separate divisions and are presented as separate business segments.


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ELSEVIER
 
            
 Year ended December 31, Year ended December 31,
 2007 2006 2005 2008 2007 2006
 (in millions) (in millions)
Revenue
            
Elsevier            
Science & Technology £774 £792 £785 £848 £774 £792
Health Sciences 733 729 651 £852 733 729
            
 £1,507 £1,521 £1,436 £1,700 £1,507 £1,521
            
 
Elsevier comprises worldwide scientific, technical and medical publishing and communications businesses. Elsevier’s principal operations are located in Amsterdam, London, Oxford, New York, Philadelphia, St. Louis, San Diego, Boston, Paris, Munich, Madrid, Singapore, Tokyo, Delhi and Delhi.Chennai.
 
Elsevier is managed as two customer-facing divisions: Science & Technology and Health Sciences, supported by shared service functions that provide book and journal production, application management, information technology, fulfilment and distribution services.
 
Science & Technology
 
The Science & Technology division contributed 51%50% of the total Elsevier revenue in 2007.2008. Of this revenue, 77%79% came from journals (both print and electronic), 11% from books and the rest mainly from databases and software. Approximately 35%34% of Science & Technology revenue in 20072008 was derived from North America, 34%36% from Europe and the remaining 31%30% from the rest of the world.
 
Through a number of imprints, includingElsevier, Academic Press, Focal PressandButterworth Heinemann,Elsevier supplies scientific and technical information through journals and books, in print and electronic media, to libraries, scientists and professionals serving a wide range of research fields including the life sciences, social sciences, materials, engineering, chemistry, physics, economics, mathematics, earth sciences, computer sciences, management and psychology. Among Elsevier’s scientific journals well known in their fields areCell, Brain Research, Neuroscience, Journal of Molecular Biology, Molecular TherapyandDevelopmental Biologyin the life sciences; TetrahedronandJournal of Chromatography Ain chemistry;Physics Letters A, Solid State Communications, Journal of Computational PhysicsandJournal of Sound and Vibrationin physics;Journal of Financial EconomicsandSocial Sciences in Medicinein the fields of economics and social sciences;Artificial Intelligencein the computer sciences field; andBiomaterialsin the field of material sciences and engineering.
 
Science & Technology’s flagship electronic product isScienceDirect, the world’s largest database of scientific, technical and medical journal articles.ScienceDirectnow holds almost nine million scientific research articles and an expanding portfolio of books currently comprising over 6575 major reference works, over 5070 book series, seven handbooks totaling over 175190 volumes, and more than 4,000 4,700e-books. Beginning in 2008 oversome 500e-books will be added toScienceDirecteach year. Elsevier also publishes secondary material in the form of supporting bibliographic data, indexes and abstracts, and tertiary information in the form of review and reference works.
 
Elsevier’s online products includeScopus, which provides scientists with a comprehensive database and intuitive tool to navigate their way quickly through the world’s accumulated scientific research. TheScopusdatabase now has nearly 33more than 37 million records of scientific research articles from over 15,000 peer reviewed journals, over 2123 million patents, and references to over 386434 million web pages.
 
Elsevier offers secondary databases, available electronically, online or on CD. These include:EMBASE, covering pharmaceutical and biomedical sciences;Compendex, which is largely distributed through the online discovery platformEngineering Village, covering the engineering disciplines;CrossFire BeilsteinReaxys, a database in organic chemistry;workflow solution including the world’s largest online compilation of chemical reactions; andGeobase, focusing on geoscience and related areas.
 
Competition within the science and technology publishing fields is generally on a title by title and product by product basis. Competing journals, books and databases are typically published by other professional publishers and learned societies such as the American Chemical Society, the Institute of Electrical and Electronics Engineers and the American Institute of Physics in the United States and the Royal Society of Chemistry in the United Kingdom.
 
Elsevier’s print science journals are generally sold to libraries on a paid subscription basis, with subscription agents facilitating the administrative process. Electronic products, such asScienceDirect, are sold directly to libraries, corporations and other end users through our dedicated sales force which has offices around the world including Amsterdam, New York, Rio de Janeiro, Singapore and Tokyo. Books are sold through book stores, both traditional and online, wholesalers and direct marketing.


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Health Sciences
 
The Health Sciences division of Elsevier operates an international network of nursing, health professions and medical publishing and communications businesses under theElsevier, Saunders, Mosby, Churchill Livingstone, Excerpta Medica, Lancet, Masson, DoymaandNetterimprints and brands. It also operates an electronic health care content delivery business including brands such brands asMD Consult, Evolve, Gold Standard, MEDaiandMC Strategies.Its principal geographic markets are the United States, the United Kingdom, Germany, France and Spain, while other important markets include Italy, Canada, Brazil, Australia, Japan, China, India and South East Asia.
 
Health Sciences contributed approximately 49%50% of the total Elsevier revenue in 2007.2008. Of this revenue, 48%39% came from journals and related activities, 43%42% from books and related activities, both delivered in print and electronic form, and the remainder mainly from the pharmaceutical communication business.businesses. Approximately 56%54% of Health Sciences revenue by destination in 20072008 was derived from North America, 28%29% from Europe and the remaining 16%17% from the rest of the world.
 
Elsevier publishes a broad range of journals serving both the healthcare researcher and practitioner, such asThe Lancet, The Journal of the American College of Cardiology, Gastroenterology, The Journal of Allergy and Clinical Immunology, Pain, Journal of Emergency Medical Services, The Journal of Urology, The American Journal of Obstetrics and Gynecology,andEuropean Journal of Cancer.Within its journal publishing programme, Elsevier publishes a number of journals for learned societies.
 
Elsevier publishes English language textbooks and reference works for students and practising professionals in the medical, nursing and health professions in the United States, the United Kingdom, Canada, Australia and Australia.internationally through exported product. Elsevier also publishes local language medical books and journals and provides communications services in many other geographies. Elsevier’s medical textbooks includeGray’s Anatomy, Cecil Medicine, Guyton’s Textbook of Medical Physiology, Robbins & Cotran Pathologic Basis of Disease,andRang and Dale’s Pharmacology.Elsevier’s nursing titles includeMosby’s Medical, Nursing and Allied Health Dictionary, Mosby’s Nursing Drug Reference, Medical-Surgical Nursing, Potter and Perry’s Fundamentals of NursingandWong’s Essentials of Pediatric Nursing.In the allied health professions markets, Elsevier publishesChabner’s The Language of Medicine, Merrill’s Atlas of Radiographic Positioning & Procedures, Ettinger’s Textbook of Veterinary Internal MedicineandSturdevant’s Art and Science of Operative Dentistry.Elsevier’s local language book and journal titles includeEncyclopédie Médico-Chirurgicaleand the book seriesLes Conférences d’Enseignementin France,Medicina Internain Spain andSobotta’s Atlas der Anatomie des Menschenin Germany. Notable local language journals includeLa Presse MedicaleandArchives de Maladies du Coeur et des Vaisseaux(France) andJano(Spain).
 
As an extension of its medical reference works programme, Elsevier publishes fully searchable online web editions.
 
Elsevier offers a suite of electronic products serving both students and practising professionals across health science markets. In addition to offering medical journals online throughScienceDirectand other electronic platforms, Health Sciences’Consultsuite of products provides web access to major medical reference works, databases, clinical journals, drug information, video based procedures content, practice guidelines, education programmes, expert commentaries and medical news for medical students, physicians and other healthcare professionals. In 2007,2008, Elsevier has continued to develop its online health sciences education platform,Evolve,which provides electronic content, services and course management tools to support and develop its health sciences textbook programme.
 
Through Excerpta Medica, Elsevier publishes customised information for healthcare professionals, medical societies and pharmaceutical companies internationally. Excerpta Medica also works closely with pharmaceutical companies to provide international marketing and communications platforms for new drugs.
 
The medical publishing field is fragmented with competition generally on a title by title and product by product basis. In the United States, Elsevier faces regional competition from a number of information publishers and service providers, including Wolters Kluwer Health (Ovid, Adis InternationalandMedi-Span, Lippincott Williams & Wilkins)WilkinandAdis); The Thomson CorporationReuters (Thomson HealthcareMicromedex, Medstat, Solucient, PDR)); McGraw HillMcGraw-Hill (Harrison’s, Access Medicine); Pearson (Prentice Hall); Wiley-Blackwell; Informa (Informa Healthcare,Scrips, Pharmaprojects, Taylor & Francis); the American Medical Association (JAMA); and the Massachusetts Medical Society (New England Journal of Medicine).
 
Books are sold by book stores and wholesalers, and directly, generally through our dedicated sales force. Print journals are generally sold to institutional libraries, with subscription agents facilitating the administrative process, and to individuals, through direct mail and through societies. Electronic products, such asMD Consult, are generally sold directly to hospitals, medical practitioners, health care payers and other end users directly through our dedicated sales force.
 
Shared services
 
The shared service functions provide book and journal production, application management, information technology, customer service and support, and fulfillmentfulfilment and distribution for both the Science & Technology and Health Sciences divisions.
 
Much of the pre-press production for journals and books is outsourced. An electronic production system manages the journal production process from author submission to delivery of the full text of journal articles in whichever format the customer requires, viaScienceDirect,MD Consult, learned society websites, on CD or in print.


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All printing is outsourced to unaffiliated printers in many locations including North America, Europe and Asia. Elsevier’s book warehouse in the United States is owned and operated by Elsevier, but all other distribution and warehousing services are outsourced.
 
LEXISNEXIS
 
                     
 Year ended December 31, Year ended December 31, 
 2007 2006 2005 2008 2007 2006 
 (in millions) (in millions) 
Revenue
                     
LexisNexis                     
United States £1,113 £1,129 £1,061 £1,395  £1,113  £1,129 
International  481  441  405  545   481   441 
             
 £1,594 £1,570 £1,466 £1,940  £1,594  £1,570 
             
 
LexisNexis provides legal, tax, regulatory, risk management, information analytics and business information solutions aligned to the workflow of professional,law firms, business and government customers in the US and internationallyglobally and comprises LexisNexis United States and LexisNexis International.
 
Legal and regulatory markets worldwide are seeing continuing growth driven by the increasing level of legislation and litigation, as well as the increasing number of lawyers. Additional opportunitiesOpportunities are also developing beyond the core research market, through the delivery of value added solutions to meet demands for greater legal efficiency and productivity.
 
Increasingly legal information and services are being delivered online, with potential to deliver such products and solutions in markets outside the United States where online migration is at significantly lower levels than in the US legal market. In recent years, LexisNexis has, with its comprehensive US public records databases, expanded in the market for risk information and analytics, which is growing due to increasing consumer credit losses and fraud and the demand for identity verification.verification and risk evaluation.
 
In 2007,2008, LexisNexis United States contributed approximately 70%72% of the total LexisNexis revenue, with LexisNexis International accounting for 30%28%.
 
LexisNexis United States
 
LexisNexis United States comprises US Legal Markets and US CorporateRisk Information and Public Markets.Analytics. In 2007,2008, approximately 62%57% of LexisNexis United States’ revenue came from subscription sales, including online services, 19%27% from transactional sales, including online services, 8%7% from advertising, including directory listings, 2%1% from circulation and copy sales and the remaining 9%8% from other sources.
 
US Legal Markets develops, markets and sells LexisNexis information products and services in electronic and print formats to law firms and practitioners, law schools, corporations and state and local governments. During 2007,2008, we have selectively acquired a number of small businesses, including providers of software tools and content for litigation professionalslaw firms that complement the assets and customer relationships we already have.
 
The flagship online legal research service,lexisnexis.com, provides online access to state and federal case law; codes and statutes; court documents; over seven billion searchable documents from over 35,000 sources online; business news, legal news, and regional news; expert commentary on the law; and sophisticated searching and linking tools customised for the needs of legal researchers.
 
US Legal Markets is increasingly providing Total Practice Solutions, combining content with online workflow tools to provide products and solutions in Client Development, Research, Practice Management and Litigation Services.
 
Client Development solutions include the Martindale-Hubbell electronic network that showcases the qualifications and credentials of over one million lawyers and law firms worldwide. In addition, it provides a suite of business intelligence tools that help lawyers find and target clients, along with customer relationship management workflow tools. In Research, LexisNexis provides statutes and case law for all 50 US states as well as research, analysis and citation services. They include Matthew Bender publicationsCollier on Bankruptcy, Moore’s Federal PracticeandNimmer on Copyright, Michie’s 600 practice-enhancing titles, 400 custom legal publications and annotated codes as well as itsUnited States Code ServiceandUnited States Supreme Court Reports, Lawyer’s Edition.It also includes Shepard’s, the publisher ofShepard’s Citations Service, a legal citation service delivered online and in print. “Shepardizing” is a common process for US lawyers checking the continuing authority of cases or statutory references. Practice Management solutions include time and billing, case management, and cost recovery and document management.recovery. Litigation Services include a range of workflow solutions for litigators includingTotal Litigator, electronic discovery services, evidence management through Casesoft’s Casemap product, Concordance’s Dataflight case analysis product, court docket tracking ande-filing with our Courtlink service, expert identification and legal document preparation.


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US Corporatepreparation. In addition to law firms, these LexisNexis products and Public Marketsservices are offered to corporations, federal government agencies and academic institutions together with news, business, financial and public records content.
Risk Information and Analytics develops, markets and sells LexisNexis products and services to corporations and state and federal government agencies and academic institutions and also manages news, business, financial and public records content acquisition and enhancements.agencies. The risk management and information analytic applications of US Corporate and Public Markets are designed to assist customers in managing risk through fraud detection and prevention, risk evaluation, identity verification, pre-employment screening and due diligence; and allow business, financial services, legal and government customers to quickly and easily extract valuable knowledge from a vast array of data. On September 19, 2008 Reed Elsevier acquired ChoicePoint, Inc. ChoicePoint has merged with the LexisNexis Risk Information and Analytics Group, creating a risk management business with approximately $1.4 billion in revenues. ChoicePoint’s principal operating groups are Insurance Services, Screening, Business Services and Government Services.
The Insurance Services group, ChoicePoint’s largest core business, provides data, analytics, software and business information services to property and casualty (“P&C”) personal and commercial insurance carriers in the US. Information solutions help insurers effectively assess risks in the underwriting process to ensure that their customers receive appropriate policy pricing. The Insurity business unit provides software, data and analytics to P&C commercial and personal lines carriers to improve risk acceptance and loss mitigation.
The Screening group focuses on employment screenings, tenant screening, and customer enrollment businesses.
The Business Services and Government Services groups provide public information solutions primarily to financial and professional services, and government customers. These services help companies and government agencies with risk management, enhanced due diligence, verification and business credentialing, and allow companies and government agencies to better mitigate financial and reputational risk and improve their processes and productivity.
 
In US legal markets, LexisNexis United States’ principal competitor is West (The Thomson Corporation). The principal competitors in corporate(Thomson Reuters), Dialog (ProQuest) and public markets are West and Dialog (The Thomson Corporation), Factiva (News Corporation). In the insurance service market, ChoicePoint’s primary property and ChoicePoint.casualty competitor is American Insurance Services Group, a unit of Insurance Services Offices, Inc.
 
LexisNexis International
 
The LexisNexis International division comprises LexisNexis business in Europe, Canada Latin America and Africa headquartered in London, and LexisNexisin Asia Pacific, headquartered in Singapore. In 2007,2008, approximately 62%66% of LexisNexis International’s revenue was derived from subscriptions, 27%24% from circulation sales, 2% from advertising and 9%8% from other sources. In the same year, approximately 40%38% of revenue came from the UK, 29%32% from Continental Europe and 31%30% from the rest of the world. The most significant business within Continental Europe is in France.
 
LexisNexis Butterworths in the United Kingdom is a professional publisher, providing legal, tax and business information and solutions via online, print and CD media. The web-basedLexisNexis Butterworthsservice provides a resource for legal, tax, regulatory and business information, including access to a range of UK, US, Australian, New Zealand, South African and other legal materials, via a single gateway. LexisNexis Butterworths’ principal publications areHalsbury’s Laws of England, The Encyclopaedia of Forms and Precedents, Simon’s TaxesandButterworths Company Law Service.The principal competitors in the United Kingdom are Sweet & Maxwell and Westlaw (both part of the Thomson Corporation)Reuters) in legal markets; CCH Croner (Wolters Kluwer) in tax and regulatory markets; and Factiva (News Corporation) in corporate markets.
 
LexisNexis in France is a provider of information to lawyers, notaries and courts, withJurisClasseurandLa Semaine Juridiquebeing the principal publications. Under the brand ofInfolibLexisNexis also provides practice management and computation software tools for lawyers, notaries and accountants. The major competitors of LexisNexis in France are Editions Francis Lefèbvre, Editions Legislatives, Dalloz (Lefèbvre) and Lamy (Wolters Kluwer).
 
REED BUSINESSEXHIBITIONS
 
       
  Year ended December 31,
  2007 2006 2005
  (in millions)
 
Revenue
      
Reed Business Information £906 £896 £892
Reed Exhibitions 577 522 471
       
  £1,483 £1,418 £1,363
       
             
  Year ended December 31,
  2008 2007 2006
  (in millions)
 
Revenue £707  £577  £522 
             
Reed Business comprises Reed Business Information, the business magazine, website and information businesses operating principally in the United States, the United Kingdom, Continental Europe and Asia Pacific, and Reed Exhibitions, an international exhibition organising business.
Reed Business Information
Reed Business Information contributed approximately 61% of Reed Business revenue in 2007. In the United States, business to business magazines are primarily distributed on a “controlled circulation” basis, whereby the product is delivered without charge to qualified buyers within a targeted industry group based upon circulation lists developed and maintained by the publisher. Magazines distributed on a “controlled circulation” basis are therefore wholly dependent on advertising for their revenues. In the United Kingdom, business magazines are distributed both on a “controlled circulation” basis and a “paid circulation” basis, with “paid circulation” titles also dependent on advertising for a significant proportion of their revenues. In the Netherlands, a higher proportion of publications are sold by “paid circulation”.
In 2007, approximately 56% of Reed Business Information revenue came from advertising, 26% from subscription sales, 6% from circulation sales, 3% from training and 9% from other sources. Approximately 33% of Reed Business Information revenue in 2007 came from North America, 25%, from the United Kingdom, 35% from Continental Europe and 7% from the rest of the world.
Online revenue grew by 27% in 2007 to over £250 million reflecting user and advertising demand for our community websites (webzines), recruitment, lead generation and search, as well as our online data services. Supporting the continued


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online growth is an established network of online focused sales, search and marketing resources. Attracting and retaining appropriately skilled people is critical as the business continues to expand and develop its online portfolio.
Reed Business Information US (“RBI US”) is a publisher of business information, with over 60 trade magazines. Amongst the RBI US titles areVariety, Broadcasting & Cable, Multichannel News, Publishers Weekly, EDN, Design NewsandInterior Design, all of which provide online communities to their users by way of associated websites. Through its Reed Construction Data business, RBI US provides national coverage of construction project information, through subscription newsletters, CD and the online serviceConnect. Other products and services include websites, direct mail, newspapers, newsletters and custom published supplements. The online lead generation businessBuyerZonewas acquired in January 2007, enhancing the overall online portfolio.
RBI US operates circulation management and fulfilment facilities in Colorado and the Caribbean island of St Kitts, through which it identifies, qualifies and maintains subscriber lists for substantially all of its titles. Paper and printing services are purchased on a coordinated basis with other Reed Elsevier businesses in the United States. Distribution of magazines is conducted primarily through the US postal service, supplemented by news-stand sales through unaffiliated wholesalers.
Reed Elsevier’s US business titles compete on an individual basis with the titles, print and digital, of individual publishers, including Advanstar, CMP Media (United Business Media), Hanley Wood, McGraw Hill, Penton and Nielsen (formerly VNU).
Reed Business Information UK (“RBI UK”), a business information publisher, has a portfolio of over 100 business magazines, directories, market access products and online services. Its business magazines includeComputer Weekly, Farmers Weekly, Estates Gazette, Flight International, New Scientist, Caterer & Hotelkeeper, Commercial MotorandCommunity Care, all of which provide online communities via associated websites. Its other online services include recruitment sites such astotaljobs.comandCWjobs.co.uk, an online targeted newsletter provider,eMedia,and data services supplying information to the aerospace, property, banking, chemicals industries andXPertHRfor the human resources sector.
Paper and printing services are purchased from unaffiliated third parties, primarily on a coordinated basis with other Reed Elsevier businesses in the United Kingdom. RBI UK’s distribution is generally through public postal systems, with news-stand distribution for some titles through outside wholesalers. RBI UK competes directly with EMAP Business Communications, Nielsen and CMP Media in a number of sectors in the United Kingdom, and also with many smaller companies on an individual title by title basis.
Reed Business Information competes for online advertising with otherbusiness-to-business websites as well as Google and other internet search engines.
In Continental Europe, the principal business is Reed Business Information Netherlands (“RBI NL”), a business magazine and information publisher, publishing over 160 titles. Through trade journals, product news tabloids, directories, documentary systems, databases, newspapers, and websites, RBI NL serves industries which include agriculture, catering, construction, engineering, food, fashion, horticulture, tourism and travel. Its principal titles includeElsevier, a current affairs weekly,Beleggers BelangenandFEMin business and management,Boerderijin agriculture andDistrifoodin retail. Its titles are predominantly subscription based and revenue is principally divided between subscriptions and advertising. Other publications within Continental Europe includeStratégies in France,Arte y Cemento in Spain andDetailin Germany.
Printing and production is contracted out to third parties and distribution is mainly through the postal system. RBI NL competes with a number of companies on a title by title basis in individual market sectors, the largest competitors in print being Wolters Kluwer and Nielsen.
In Asia Pacific, principal titles includeAustralian DoctorandMoney Managementin Australia andEDN, a design news magazine for the electronics industry, in Asia.
Reed Exhibitions
 
Reed Exhibitions organises trade exhibitions and conferences internationally,is one of the world’s leading events organisers, with over 500470 events in 38 countries, attracting37 countries. In 2008 Reed Exhibitions brought together over 90,000 exhibitors and sixseven million visitors annually. The business contributed approximately 39% ofevent participants from around the revenue of Reed Business in 2007. 72%world. Over 70% of Reed Exhibitions’ revenue is derived from exhibitionexhibitor participation fees, with the balance primarily attributable to conference fees, advertising in exhibition guides, sponsorship fees and admission charges. In 2007,2008, approximately 21%19% of Reed Exhibitions’ revenue came from North America, 46%51% from Continental Europe, 11%7% from the United Kingdom and the remaining 22%23% from the rest of the world. As some events are held other than annually, revenue in any single year may beis affected by the cycle of non-annual exhibitions.
 
Reed Exhibitions’Exhibitions organises a wide range of events, are concentrated primarily inincluding exhibitions, conferences and congresses. Its portfolio of over 470 events serves 44 industry sectors, including: Aerospace & Aviation, Automobiles, Broadcasting, Building & Construction, Electronics, Energy, Oil & Gas, Engineering, Manufacturing, Environment, Food Service & Hospitality, Gifts, Healthcare, Interior Design, IT & Telecoms, Jewellery, Life Science & Pharmaceuticals, Machinery, Medical Education, Printing & Graphics,


17

Property & Real Estate, Security & Safety, Sports & Recreation, Travel. The portfolio includes the following industries: aerospace; building and construction; electronics; energy; oil and gas; waste management; food and hospitality; jewellery; pharmaceuticals; property; publishing; sport and recreation; and travel. They includeJCK International Jewellery Shows, International Security Conferences (ISC), Professional Golfers Association (PGA) Merchandise ShowandNational Hardware Showin North America;World Travel Market andLondon Book Fairin the United Kingdom;Batimat,MIPIM, MAPIC, MIPTV, MIPCOM, MIDEM, MIPTV, MIPcom, MIPIM, MAPIC,Equip’Hotel, Salon Nautique, PollutecandMaison et Objetin France;AIMEXPSI andAircraft Interiorsin Germany;World Travel Market, Infosecurity EuropeandAustralian Gift FairsLondon Book Fairin Australia;the United Kingdom;Mostra Convegno Expocomfortin Italy,InterCHARMin Russia,Arabian Travel Marketin Dubai,International Jewellery Tokyoin Japan;International Automobile Trade Showin Brazil andThai Metalexin South-East Asia. In April 2007
Many of Reed Exhibitions’ events are leading events in their respective sectors. Working closely with professional bodies, trade associations and government departments Reed Exhibitions acquiredensures that each and every event is targeted and relevant to industry needs. The business is developing powerful online tools to facilitate networking, and enhance the effectiveness and efficiency of its shows, as well as broadening its event model to include continuing education and professional development.
Growth of the exhibition industry is supported by new industries and new markets, particularly as the emerging markets of Brazil, China, India, Russia and Middle East open up and develop. Exhibitions are a 60% interestkey means for companies to enter these new markets, enabling them to reach and target new customers quickly and cost-effectively. Growth has also been achieved through acquisitions and launches in key growth industries, and by developing strategic partnerships and replicating its brand-leading events in the emerging markets. Such partnerships will become an increasing feature of Reed Exhibitions’ presence in these markets, with the building of local businesses operating close to local markets, supported by Reed Exhibitions’ global networks and organisational expertise.
Reed Exhibitions is expanding the scope of its business model beyond the physical event to create online communities such asISC365,PSIonline andINTERPHEX365. These communities provide tools allowing customers additional opportunities to interact with others in their industry, share knowledge and do business 365 days a year, and they are opening up new revenue streams for Reed Exhibitions.
Reed Exhibitions is particularly prominent in a Brazilian exhibition business, comprising manynumber of sectors, notably Travel, for which it organises some of the world’s leading events, includingWorld Travel Market held annually in London, andArabian Travel Market held in Dubai. Reed Exhibitions is also involved in the Environment sector. Leading events includePollutec, the international environment show held alternately in Lyon and Paris; theWorld Future Energy Summit in Abu Dhabi; andOffshore Europe, Aberdeen, which brings together the global oil and gas market leading events.to debate key issues and create common agendas for the future of the upstream industry.


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The exhibition industry has historically been extremelyhighly fragmented. The main US competitor isOther international exhibition organisers with which Reed Elsevier competes with include United Business Media, DMG World Media, Nielsen Business Media, Informa IIR and the main UK competitor is CMP. Outside the United States, competitionMesse FrankFurt. Competition also comes primarily from industry focusedfocussed trade associations and convention centre and exhibition hall owners who are also seeking an international presence.owners.
 
REED BUSINESS INFORMATION
       
  Year ended December 31,
  2008 2007 2006
  (in millions)
 
Revenue
      
RBI UK £306 £294 £281
RBI US 288 278 299
RBI NL 202 181 178
RBI International 191 153 138
       
  £987 £906 £896
       
Reed Business Information provides information and marketing solutions to business professionals in the United States, the United Kingdom, continental Europe, Australia and Asia.
Business-to-business magazines, community websites and online lead generation services provide an effective marketing channel through which advertisers reach their target audiences and industry professionals can access valued information. The business has a number of leading brands in a range of sectors and online data services which enable users to enhance productivity through quicker and easier access to more comprehensive and searchable data. Business-to-business marketing spend has been driven historically by levels of corporate profitability, which itself has followed overall growth in GDP and business investment.
In the United States,business- to-business magazines are primarily distributed on a “controlled circulation” basis, whereby the product is delivered without charge to qualified buyers within a targeted industry group based upon circulation lists developed and maintained by the publisher. Magazines distributed on a “controlled circulation” only basis are therefore wholly dependent on advertising for their revenues. In the United Kingdom, business magazines are distributed both on a “controlled


18

circulation” basis and a “paid circulation” basis, with “paid circulation” titles also dependent on advertising for a significant proportion of their revenues. In the Netherlands, a higher proportion of publications are sold by “paid circulation”.
In 2008, approximately 54% of Reed Business Information revenue came from advertising, 27% from subscription sales, 7% from circulation sales, 4% from training and 8% from other sources. Online services represented 34% of RBI revenue in 2008. Approximately 32% of RBI revenue in 2008 came from North America, 23%, from the United Kingdom, 38% from Continental Europe and 7% from the rest of the world.
Online revenue grew by 15% in 2008 to over £300 million reflecting user and advertising demand for community websites (webzines), recruitment, lead generation and search, as well as online data services. Supporting the continued online growth is an established network of online focused sales, search and marketing resources. Attracting and retaining appropriately skilled people is critical as the business continues to expand and develop its online portfolio.
Reed Business UK (“RBI UK”), a business information publisher, operates over 100 market leading brands in over 20 markets through its multi-platform media of web products, magazines, exhibitions, conferences and industry awards. Its business magazines includeComputer Weekly, Farmers Weekly, Estates Gazette, Flight International, New Scientist, Caterer & Hotelkeeper, Commercial Motor andCommunity Care,all of which provide online communities via associated websites. Online services include leading recruitment job boards such astotaljobs.com,an online targeted newsletter provider,eMedia,and data services supplying information to the aerospace industry, property, banking(bankersalmanc.com), chemicals industries (ICIS) and the human resources sector. Heren was acquired in March 2008 adding Energy reporting to the online data business serving the chemicals business.XpertHR, the data services supplying the human resources sector, has been enhanced by the acquisition of CELRE in May 2008. In addition, Approved Index was acquired in June 2008 expanding the businesses online lead generation services.
Paper and printing services are purchased from unaffiliated third parties, primarily on a coordinated basis with other Reed Elsevier businesses in the United Kingdom. RBI UK’s distribution is generally through public postal systems, with news-stand distribution for some titles through outside wholesalers. RBI UK competes directly with Eden (formally EMAP), United Business Media and McGraw-Hill across a number of sectors. The UKe-recruitment sector is highly competitive, and RBI UK competes in particular with Monster and Daily Mail General Trust. It also competes with a number of companies on an individualproduct-by-product basis.
Reed Business Information US (“RBI US”) is a publisher of business information, with over 60 trade magazines. Amongst the RBI US titles areVariety, Broadcasting & Cable, Multichannel News, Publishers Weekly, EDN, Design News andInterior Design,all of which provide online communities to their users by way of associated websites. Its Reed Construction Data business (RCD) provides on and offline information, data and analytics on US and Canadian construction projects, and from 2008, building information modeling (BIM) solutions. ItsBuyerZonebusiness is an online marketplace for buyers and sellers of business products and services.
RBI US operates circulation management and fulfillment facilities in Colorado and the Caribbean island of St Kitts, through which it identifies, qualifies and maintains subscriber lists for substantially all of its titles. Paper and printing services are purchased on a coordinated basis with other Reed Elsevier businesses in the United States. Distribution of magazines is conducted primarily through the US postal service, supplemented by news-stand sales through unaffiliated wholesalers.
Reed Elsevier’s US business titles compete on an individual basis with the titles, print and digital, of individual publishers, including Advanstar, CMP Media (United Business Media), Hanley Wood, McGraw-Hill, Penton and Nielsen (formerly VNU).
In Continental Europe, the principal business is Reed Business Information Netherlands (“RBI NL”), a business magazine and information publisher, publishing over 160 titles. Through its business magazines, websites, online databases, books, conferences and training courses RBI NL serves industries which include agriculture, catering, construction, engineering, food, fashion, and horticulture. Its principal titles includeElsevier,current affairs weekly,Beleggers BelangenandFEMin business and management,Boerderijin agriculture andDistrifoodin retail. Its titles are predominantly subscription based and revenue is principally divided between subscriptions and advertising. Other publications within Continental Europe includeStratégiesin France,Arte y Cementoin Spain andDetailin Germany.
Printing and production is contracted out to third parties and distribution is mainly through the postal system. RBI NL competes with a number of companies on a title by title basis in individual market sectors, the largest competitors in print being Wolters Kluwer and VNU.
In Asia Pacific, principal titles includeAustralian DoctorandMoney Managementin Australia andEDN,a design news magazine for the electronics industry, in Asia.
Reed Business Information competes for online advertising and users with other business-to-business websites as well as Google and other internet search engines.


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HARCOURT EDUCATION — DISCONTINUED OPERATIONS
 
                     
 Year ended December 31, Year ended December 31, 
 2007 2006 2005 2008 2007 2006 
 (in millions) (in millions) 
Revenue
                     
Harcourt Education                     
US Schools and Testing £708 £776 £785 £12  £708  £776 
International  44  113  116  —   44   113 
             
 £752 £889 £901 £12  £752  £889 
             
 
Following announcement in February 2007 of the planned sale of Harcourt Education, the division is presented as a discontinued operation. On May 4, 2007The disposal of the sale of Harcourt Assessment and Harcourt Education International businesses for $950 million was announced,completed in May and on July 16, 2007August 2007; the saledisposal of the Harcourt US K-12 Schools Education businesses for $4.0 billion was announced. The sales hadbusiness completed byin December 31, 2007 with2007; and the exceptiondisposal of the Harcourt Assessment and certain Harcourt International businesses, the sale of whichbusiness completed onin January 30, 2008.
 
ELSEVIER REED FINANCE BV
 
Elsevier Reed Finance BV, the Dutch parent company of the Elsevier Reed Finance BV group (“ERF”), is directly owned by Reed Elsevier PLC and Reed Elsevier NV. ERF provides treasury, finance, intellectual property and insurance services to the Reed Elsevier Group plc businesses through its subsidiaries in Switzerland: Elsevier Finance SA (“EFSA”), Elsevier Properties SA (“EPSA”) and Elsevier Risks SA (“ERSA”). These three Swiss companies are organised under one Swiss holding company, which is in turn owned by Elsevier Reed Finance BV.
 
EFSA is the principal treasury centre for the combined businesses. It is responsible for all aspects of treasury advice and support for Reed Elsevier Group plc’s businesses operating in Continental Europe, SouthLatin America, the Pacific Rim, India, China and certain other territories, and undertakes foreign exchange and derivatives dealing services for the whole of Reed Elsevier. EFSA also arranges or directly provides Reed Elsevier Group plc businesses with financing for acquisitions and product development and manages cash pools, investments and investmentsdebt programmes on their behalf.
 
EPSA is responsible fora centre of expertise within Reed Elsevier in terms of trademarks and other intangibles. It has continued the managementacquisition of tangible and intangible property rights whilst titles, including the trademark Reed Elsevier in 2008.
ERSA is responsible for insurance activities relating to risk retention.
 
In 2007, EPSA2008, EFSA issued a CHF350CHF150 million bond in the Swiss public market and concludednegotiated several term financing agreements. It renegotiatedwas involved in the financing of the acquisition of ChoicePoint, Inc. and treasury aspects related to the halted divestment of Reed Business Information. EFSA negotiated and advised on a number of banking and cash management arrangements in Continental Europe, and Asia and Latin America. EFSA continued to provide advice toadvise Reed Elsevier Group plc companies on treasury matters, including interest and foreign currency exposures particularly in the context of the disposal of the Harcourt Education businesses.exposures.
 
The average balance of cash under management by EFSA in 2007,2008, on behalf of Reed Elsevier Group plc and its parent companies, was approximately $0.5 billion (2007: $0.9 billion (2006: $0.5 billion).
EPSA acquired additional intangible assets in the period, including the rights to the Beilstein chemical compound database.
 
At the end of 2007,2008, 91% (2007: 89% (2006: 88%) of ERF’s gross assets were held in US dollars and 10% (2006:8% (2007: 10%) in euros, including $8.5$10.6 billion (2006: $8.4(2007: $8.5 billion) and €0.7€0.6 billion (2006: €0.8(2007: €0.7 billion) in loans to Reed Elsevier Group plc subsidiaries. Loans made to Reed Elsevier Group plc businesses are funded from equity, long term debt of $1.3$1.5 billion, medium term debt of $1.4 billion and short term debt of $1.1$0.5 billion backed by medium term committed bank facilities. LongMedium and long term debt is derived from asyndicated bank facilities, Swiss domestic public bond issue,issues, bilateral term loans and private placements. Short term debt is primarily derived from euro and US commercial paper programmes.
 
ORGANISATIONAL STRUCTURE
 
A description of the corporate structure is included under “— History and Development” on page 10.11. A list of significant subsidiaries, associates, joint ventures and business units is included as an exhibit, see “Item 19: Exhibits” onpage F-83.S-1.


1820

PROPERTY, PLANTS AND EQUIPMENT
 
We own or lease over 350 properties around the world, the majority being in the United States. The table below identifies the principal owned and leased properties which we use in our business.
 
       
      Floor space
Location
 
Business segment(s)
 Principal use(s) (square feet)
 
Owned properties
      
Alpharetta, GeorgiaLexisNexisOffice and data centre406,000
Miamisburg, Ohio LexisNexis Office 403,638
Linn, Missouri Elsevier Warehouse 236,105
Albany, New York LexisNexis Office 194,780
Oak Brook, Illinois Reed Business Information and LexisNexis Office 181,659
Colorado Springs, Colorado LexisNexis Office 181,197
Binghamton, New YorkLexisNexisOffice and warehouse162,000
       
Leased properties
      
San Antonio, TexasHarcourt AssessmentOffice and warehouse559,258
New York, New York Reed Business Information and Elsevier Office 451,800
Amsterdam, Netherlands Reed Business Information and Elsevier Office 429,308
Miamisburg, Ohio LexisNexis and Elsevier Office and data centre 213,802
Sutton, England Reed Business Information Office 191,960
Binghamton, New YorkLexisNexisOffice and warehouse162,000
 
 
 
All of the above properties are substantially occupied by Reed Elsevier businesses.
 
None of the real property owned or leased by Reed Elsevier which is considered material to Reed Elsevier taken as a whole is presently subject to liabilities relating to environmental regulations.


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ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS
 
OPERATING RESULTS — REED ELSEVIER
 
The following discussion is based on the combined financial statements of Reed Elsevier for the three years ended December 31, 20072008 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
 
The following discussion should be read in conjunction with, and is qualified by reference to, the combined financial statements.
 
Reed Elsevier derives its revenue principally from subscriptions, circulation sales, advertising sales and exhibition fees.
 
Revenue by source for continuing operations(1)
Year ended December 31,
 
                                             
 2007 2006 2005  2008 2007 2006 
 (in millions, except percentages)  (in millions, except percentages) 
Subscriptions £2,079  46% £2,083  46% £1,926  45% £2,381   45% £2,079   46% £2,083   46%
Circulation  916  20   894  20   876  20   1,142   21   916   20   894   20 
Advertising  699  15   697  16   668  16   737   14   699   15   697   16 
Exhibition fees  569  12   516  11   479  11   702   13   569   12   516   11 
Other  321  7   319  7   316  8   372   7   321   7   319   7 
                          
Total £4,584  100% £4,509  100% £4,265  100% £5,334   100% £4,584   100% £4,509   100%
                          
 
Revenue by geographic market for continuing operations(1)
Year ended December 31,
 
                                             
 2007 2006 2005  2008 2007 2006 
 (in millions, except percentages)  (in millions, except percentages) 
North America £2,233  49% £2,322  52% £2,212  52% £2,624   49% £2,233   49% £2,322   52%
United Kingdom  603  13   531  12   503  12   580   11   603   13   531   12 
The Netherlands  206  4   196  4   195  4   234   4   206   4   196   4 
Rest of Europe  897  20   866  19   790  19   1,136   22   897   20   866   19 
Rest of world  645  14   594  13   565  13   760   14   645   14   594   13 
                          
Total £4,584  100% £4,509  100% £4,265  100% £5,334   100% £4,584   100% £4,509   100%
                          
 
 
 
(1)Following announcement in February 2007 of the planned sale of Harcourt Education, the division is presented as a discontinued operation and is excluded from the above analysis. On December 10, 2008 Reed Elsevier announced the termination of discussions to sell Reed Business Information (RBI) as it was judged not possible to structure a transaction on acceptable terms at that time. RBI has therefore been presented as a continuing operation of the combined businesses in the current and prior periods.
 
The cost profile of individual businesses within Reed Elsevier varies widely and costs are controlled on an individual business unit basis. The most significant cost item for Reed Elsevier as a whole is staff costs, which in 20072008 for continuing operations represented 41%40% of Reed Elsevier’s total cost of sales and operating expenses before amortisation of acquired intangible assets (2006:and goodwill impairment (2007: 41%; 2005: 42%2006: 41%).


2022

The following tables show revenue, operating profit and adjusted operating profit for each of Reed Elsevier’s continuing business segments in each of the three years ended December 31, 20072008 together with the percentage change in 20072008 and 20062007 at both actual and constant exchange rates. Adjusted operating profit is a non-GAAP measure included on the basis that it is a key financial measure used by management to evaluate performance and allocate resources to the business segments, as reported under IAS 14: Segment Reporting in note 3 to the combined financial statements. Adjusted operating profit represents operating profit before amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition integrationrelated costs, and is grossed up to exclude the equity share of taxes in joint ventures. Exceptional restructuring costs principally relate to the major restructuring programme announced in February 2008 and expanded in February 2009 to include RBI, which was to be divested and not part of the original programme. Exceptional restructuring costs principally comprise severance, outsourcing migration and associated property costs. A reconciliation of adjusted operating profit to adjusted operating profit is included below.
 
                                                                             
 Revenue from continuing operations(5)
  Revenue from continuing operations(5)
 
 Year ended December 31,  Year ended December 31, 
 2007 2006 % change 2005 % change  2008 2007 % change 2006 % change 
         actual
 constant
     actual
 constant
          actual
 constant
     actual
 constant
 
         rates rates(1)     rates rates(2)          rates rates(1)     rates rates(2) 
 (in millions, except percentages)  (in millions, except percentages) 
Elsevier £1,507  33% £1,521  34%  -1%  +4% £1,436  34%  +6%  +8% £1,700   32% £1,507   33%  +13%  +4% £1,521   34%  −1%  +4%
LexisNexis  1,594  35   1,570  35   +2   +8   1,466  34   +7   +8   1,940   36   1,594   35   +22   +13   1,570   35   +2   +8 
Reed Business  1,483  32   1,418  31   +5   +7   1,363  32   +4   +5 
Reed Exhibitions  707   13   577   12   +23   +9   522   11   +11   +13 
Reed Business Information  987   19   906   20   +9   +1   896   20   +1   +4 
                                          
Total £4,584  100% £4,509  100%  +2%  +6% £4,265  100%  +6%  +7% £5,334   100% £4,584   100%  +16%  +7% £4,509   100%  +2%  +6%
                                          
 
                                                                                
 Operating Profit from continuing operations(5)
  Operating Profit from continuing operations(5)
 
 Year ended December 31,  Year ended December 31, 
 2007 2006 % change 2005 % change  2008 2007 % change 2006 % change 
         actual
 constant
     actual
 constant
          actual
 constant
     actual
 constant
 
         rates rates(1)     rates rates(2)          rates rates(1)     rates rates(2) 
 (in millions, except percentages)  (in millions, except percentages) 
Elsevier £410   46% £395   47%  +4%  +10% £396   51%  0%  +7% £443   49% £410   46%  +8%  +2% £395   47%  +4%  +10%
LexisNexis  287   32   264   31   +9   +15   218   28   +21   +23   291   32   287   32   +1   −5   264   31   +9   +15 
Reed Business  197   22   183   22   +8   +10   158   21   +16   +18 
Reed Exhibitions  123   13   106   12   +16   −1   98   12   +8   +12 
Reed Business Information  55   6   91   10   −40   −45   85   10   +7   +8 
                                          
Subtotal £894   100% £842   100%         £772   100%         £912   100% £894   100%         £842   100%        
Corporate costs  (45)      (39)              (32)              (50)      (45)              (39)            
Unallocated net pension credit(4)
  39       34               12               39       39               34             
                              
Total £888      £837       +6%  +12% £752       +11%  +16% £901      £888       +2%  −6% £837       +6%  +12%
                              
 
                                                                                
 Adjusted Operating Profit from continuing operations(3)(5)
  Adjusted Operating Profit from continuing operations(3)(5)
 
 Year ended December 31,  Year ended December 31, 
 2007 2006 % change 2005 % change  2008 2007 % change 2006 % change 
         actual
 constant
     actual
 constant
          actual
 constant
     actual
 constant
 
         rates rates(1)     rates rates(2)          rates rates(1)     rates rates(2) 
 (in millions, except percentages)  (in millions, except percentages) 
Elsevier  £477   42%  £465   43%  +3%  +9%  £449   45%  +4%  +10%  £568   41%  £477   42%  +19%  +11%  £465   43%  +3%  +9%
LexisNexis  406   35   380   35   +7   +14   338   34   +12   +13   513   37   406   35   +26   +18   380   35   +7   +14 
Reed Business  260   23   241   22   +8   +10   214   21   +13   +14 
Reed Exhibitions  183   13   139   12   +32   +14   129   12   +8   +10 
Reed Business Information  126   9   121   11   +4   −4   112   10   +8   +10 
                                          
Subtotal  £1,143   100%  £1,086   100%          £1,001   100%          £1,390   100%  £1,143   100%          £1,086   100%        
Corporate costs  (45)      (39)              (32)              (50)      (45)              (39)            
Unallocated net pension credit(4)
  39       34               12               39       39               34             
                              
Total  £1,137       £1,081       +5%  +11%  £981       +10%  +14%  £1,379       £1,137       +21%  +12%  £1,081       +5%  +11%
                              


2123

Adjusted operating profit is derived from operating profit as follows:
 
                     
 2007 2006 2005 2008 2007 2006 
 (in millions) (in millions) 
Operating profit  £888  £837  752  £901   £888   £837 
Adjustments:                     
Amortisation of acquired intangible assets  221  211  203
Acquisition integration costs  20  23  20
Amortisation of acquired intangible assets and goodwill impairment  290   221   211 
Exceptional restructuring costs  152   —   — 
Acquisition related costs  27   20   23 
Reclassification of tax in joint ventures  8  10  6  9   8   10 
             
Adjusted operating profit  £1,137  £1,081  £981  £1,379   £1,137   £1,081 
             
 
 
(1)Represents percentage change in 2008 over 2007 at constant rates of exchange, which have been calculated using the average and hedge exchange rates for the 2007 financial year. These rates were used in the preparation of the 2007 combined financial statements.
(2)Represents percentage change in 2007 over 2006 at constant rates of exchange, which have been calculated using the average and hedge exchange rates for the 2006 financial year. These rates were used in the preparation of the 2006 combined financial statements.
 
(2)Represents percentage change in 2006 over 2005 at constant rates of exchange, which have been calculated using the average and hedge exchange rates for the 2005 financial year. These rates were used in the preparation of the 2005 combined financial statements.
(3)Adjusted operating profit represents operating profit before the amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition integrationrelated costs, and is grossed up to exclude the equity share of taxes in joint ventures, and is reconciled to operating profit above.
 
(4)The unallocated net pension credit of £39 million (2006:(2007: £39 million; 2006: £34 million; 2005: £12 million) comprises the expected return on pension scheme assets of £219 million (2007: £196 million (2006:million; 2006: £178 million; 2005: £149 million) less interest on pension scheme liabilities of £180 million (2007: £157 million (2006:million; 2006: £144 million; 2005: £137 million).
 
(5)Following announcement in February 2007 of the planned sale of Harcourt Education, the division is presented as a discontinued operation and is excluded from the above analysis. On December 10, 2008 Reed Elsevier announced the termination of discussions to sell Reed Business Information (RBI) as it was judged not possible to structure a transaction on acceptable terms at that time. RBI has therefore been presented as a continuing operation of the combined businesses in the current and prior periods.
 
In the commentary below, percentage movements are at actual exchange rates unless otherwise stated. Percentage movements at constant exchange rates are calculated using the average and hedge exchange rates for the previous financial year. Percentage movements at both actual rates and constant rates are shown in tables on page 21.23. The effect of currency movements on the 20072008 results is further described separately below (see “— Effect of Currency Translation” on pages 2831 and 29)32). References to operating profit relate to operating profit including joint ventures. References to underlying performance are calculated to exclude the effects of acquisitions and disposals in the current and prior year and the impact of currency. Adjusted operating margin and underlying growth are defined in the glossary on page F-84.
Results of Operations for the Year Ended December 31, 2008
Compared to the Year Ended December 31, 2007
General — continuing operations
Revenue increased by 16% to £5,334 million. At constant exchange rates, revenue was 7% higher, or 4% higher excluding acquisitions and disposals.
Operating profits of £901 million were up 1%, or down 6% at constant exchange rates, compared with £888 million in 2007. Operating profit is stated after amortisation of acquired intangible assets and goodwill impairment of £290 million (2007: £221 million), exceptional restructuring costs in respect of a restructuring programme announced in February 2008 and expanded in February 2009 to include RBI of £152 million (2007: nil), acquisition related costs of £27 million (2007: £20 million) and includes tax charges in respect of joint ventures of £9 million (2007: £8 million). Excluding these items, operating profits would have been up 21% at £1,379 million (2007: £1,137 million), or up 12% at constant exchange rates, and up 9% on an underlying basis. The increase in operating profits at constant exchange rates principally reflects improved underlying operating performance and the part year contribution from ChoicePoint, acquired in September 2008.
Operating margin, including amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related costs, was 16.9% (2007: 19.4%). Excluding amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition related costs, and the equity share of taxes in joint ventures, the margin would have been 25.9%, up 1.1 percentage points compared to 2007, and also up 1.1 percentage points on an underlying basis.
The amortisation charge for acquired intangible assets, including the share of amortisation for joint ventures, of £281 million was up £60 million on the prior year principally as a result of ChoicePoint and other recent acquisitions, and currency translation effects. Goodwill impairment charges of £9 million relate to minor exhibition businesses.
Net finance costs, at £192 million, were £53 million higher than in the prior year due to the funding of ChoicePoint and other recent acquisitions and currency translation effects, and include £18 million of fees incurred in connection with ChoicePoint acquisition financing.


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Profit before tax was £617 million, compared with £812 million in 2007, a decrease of 24%. The decrease in profit before tax principally reflects the decreased operating profits and losses on disposals and other non operating items.
The tax charge of £155 million compares with a credit of £82 million in the prior year. The prior year credit includes the benefit of £223 million in respect of previously unrecognised deferred tax assets and capital losses arising in continuing operations, which are realisable as a result of the gain on disposal of Harcourt Education. The reported tax credit also reflects movements on deferred tax balances arising on unrealised exchange differences on long term interaffiliate lending. These deferred tax movements are recognised in the income statement but are not expected to crystallise in the foreseeable future.
Net profit from discontinued operations comprises the gain on disposal of Harcourt Assessment of £67 million (2007: £611 million on disposals of the Harcourt International and US K-12 Schools businesses). Taxes on the disposals were £49 million (2007: £380 million). Net profit from discontinued operations in 2007 also included the post-tax results of Harcourt Education of £78 million.
The profit attributable to shareholders of £476 million was down 60% compared to £1,200 million in 2007, which included the tax credits, the results of Harcourt Education and gain on sale of businesses.
Elsevier
Revenue and adjusted operating profits were up 13% and up 19% respectively compared to 2007. At constant exchange rates, revenue and adjusted operating profits were up 4% and 11% respectively, or 5% and 10% on an underlying basis.
The Science & Technology business saw underlying revenue growth of 6%, reflecting volume growth andScienceDirect and journal subscription renewals at 98%.ScienceDirect saw a continued widening of distribution in small academic and emerging markets, and usage increased by over 20% measured by article downloads. Growth in online databases, including theScopus scientific abstract and indexing database, and electronic book sales also contributed to the revenue growth. Taking the disposal of the MDL software business into account, revenues were up 2% at constant currencies. Increasing pressure on academic budgets is likely to affect future discretionary purchases.
The Health Sciences business saw underlying revenue growth of 4%, held back by the continued weakness in pharma promotion markets. The growth reflects the performance of the Clinical Solutions business with new publishing and demand for online workflow solutions that combine content with predictive analytical algorithms. The Nursing and Health Professionals segment also saw growth with its publishing programme and online resources. In the pharma market, advertising and other promotional revenues declined 5% reflecting fewer drug launches and a contraction of marketing budgets in pharmaceutical companies. Excluding pharma, Health Sciences’ underlying revenues were up 6%. We expect to see continued weakness in pharma promotion markets and lower growth in Asian markets, particularly in imported US medical books given the strengthening of the US dollar.
The adjusted operating margin was 1.7 percentage points higher in 2008 than in 2007, reflecting progress made during the year in improving cost efficiency through restructuring of operations and leveraging shared service functions. Journal and book production operations have increasingly been outsourced in recent years and 2008 saw a step up in production activities in Elsevier’s offshore facilities in India. The year also saw outsourcing of software engineering and financial transaction processing. These ongoing programmes together with the increasing consolidation across Reed Elsevier of technology operations, procurement and real estate management are keeping costs under tight control.
Operating profit of Elsevier, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, increased by £33 million to £443 million (a 2% increase at constant exchange rates), reflecting the increase in adjusted operating profit described above, partially offset by exceptional restructuring costs.
LexisNexis
Revenue and adjusted operating profits were up 22% and up 26% respectively compared to 2007, including the part year contribution from ChoicePoint. At constant exchange rates, revenue and adjusted operating profits were up 13% and 18% respectively, or 5% and 10% on an underlying basis, excluding ChoicePoint and other recent acquisitions.
LexisNexis US saw underlying revenue growth of 4%. In US legal markets, growth in online information solutions in the large law firm market was tempered by slower growth in smaller law firms and marginal declines in corporate and government markets reflecting an increasingly challenging economic environment. The risk information and analytics group saw underlying growth, ie before taking into account the ChoicePoint business, driven by the collections sector, government and growing demand from the insurance, healthcare and energy sectors, whilst revenues from the financial services sector were flat. Including acquisitions and disposals, revenues were up 16% at constant currencies. Law firm activity and corporate and government budgets are increasingly under pressure and this is likely to affect future revenue growth.
ChoicePoint, acquired in September 2008, saw 2008 revenue growth on a stand alone basis of 10% in the insurance business, which contributes over 85% of ChoicePoint’s adjusted operating profits. The insurance business, which helps insurance carriers evaluate underwriting risk, was driven by increased transaction activity, reflecting insurance policy churn in the auto and property insurance markets, and by the increasing adoption by carriers of more powerful analytics in the underwriting process. The remaining ChoicePoint businesses saw revenues 6% lower reflecting the effect of the weaker


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economic environment on demand for pre-employment screening and for identity verification products from the mortgage and financial services sector.
The LexisNexis International business saw underlying revenue growth of 5%, driven by new publishing and the growing penetration of online information services across its markets. Growth was seen in UK legal markets, France and elsewhere in Europe, and in South Africa, although the growth rate was behind the previous year’s reflecting the tougher economic environment. Electronic products now account for 46% of International revenues and the business has continued to expand its workflow solutions through organic development and selective acquisition. In April, the Latin American business was sold as it did not offer sufficiently attractive strategic and financial returns. Taking acquisitions and disposals into account, revenues were up 6% at constant currencies.
The adjusted operating margin was up 95 basis points in 2008 compared with 2007, or up 130 basis points on an underlying basis, reflecting organisational consolidation and restructuring. The US Legal business and the Corporate and Public Markets business other than Risk were combined into one organisation early in the year and the US operations consolidated with streamlining of management and operational activities. Outsourcing of non-core activities has also accelerated with the outsourcing of systems engineering and maintenance, data fabrication, software development engineering and other activities. These ongoing programmes together with consolidation within Reed Elsevier of technology operations, procurement and real estate management are keeping costs under firm control.
Operating profit of LexisNexis, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, increased by £4 million to £291 million (a 5% decrease at constant exchange rates), reflecting the increase in adjusted operating profit described above, partially offset by exceptional restructuring costs and increased amortisation charges following the acquisition of ChoicePoint in September 2008.
Reed Exhibitions
Revenue and adjusted operating profits were up 23% and up 32% respectively compared to 2007. At constant exchange rates, revenue and adjusted operating profits were up 9% and 14% respectively, or 11% and 20% on an underlying basis. The growth was driven by the performance of annual shows and new launches together with the cycling in of non-annual shows. Excluding cycling effects, underlying revenue growth was 5%.
Growth was seen across most of the show portfolio, notably at theISC West security show, andNational Hardware in the US; theInterclima Interconfort heating/cooling systems show, and theEquip’ Hotel catering show in Paris, and thePollutec Lyon environment event; theAluminium show in Germany; theMipim international property show andMipcom in Cannes; and theLondon International Book Fair andWorld Travel Market in London. The downturn in the Spanish residential property sector did however reduce the size of theSIMA residential property show in Madrid. The biennial shows cycling in contributed 6% to underlying revenue growth, notably the cycling in of theMostra Convegno Expocomfort show in Milan.
During the year Reed Exhibitions launched 24 new shows includingPhotovoltaic Power Generation event in Tokyo, and acquired nine others, expanding its footprint in the Middle East, Russia, India and China. The sale of the defence shows was completed in May 2008. This will further exaggerate the year on year impact of show cycling in 2009 and beyond with no ‘odd’ yearDSEi show to balance the ‘even’ year benefit ofMostra Convegno and other biennial shows.
Reed Exhibitions’ performance in 2008 is in part reflective of the more resilient and late cycle nature of the exhibitions business, in comparison to other marketing channels. Exhibitors book hall space well in advance and in a downturn demand tends to concentrate on leading events. The second half saw continued growth overall in annual shows and in cycling events, although some shows were cancelled. The budget pressures on exhibitors and visiting delegates are likely to affect future revenue growth.
The adjusted operating margin showed underlying improvement of 180 basis points reflecting the revenue growth, tight cost control and the effect of the net cycling in at the show contribution level.
Operating profit of Reed Exhibitions, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, increased by £17 million to £123 million (a 1% decrease at constant exchange rates), reflecting the increase in adjusted operating profit described above, partially offset by exceptional restructuring costs.
Reed Business Information
Revenue and adjusted operating profits were up 9% and up 4% respectively compared to 2007. At constant exchange rates, revenue and adjusted operating profits were up 1% and down 4% respectively, or down 1% and down 5% on an underlying basis. The performance reflects the impact on advertising markets of the downturn in global economic conditions, which was particularly felt in the last quarter.
In the UK, underlying revenues were up 1% reflecting growth in online sales, up 12%, which now represent over 50% of RBI UK revenues. For most of the year, overall revenue momentum was encouraging although weakness was seen in sectors such as property and technology. However towards the end of the year, the deteriorating economic environment took its toll most particularly on recruitment advertising across most sectors, with overall underlying revenues year-on-year down 7% in the fourth quarter, compared with 3% growth in the third quarter. Online revenues continued to grow in the fourth quarter despite


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the weakness in advertising markets. In addition to organic development of its online franchises, RBI UK made a number of small acquisitions to further develop its online services to the energy, aerospace and personnel verticals as well as horizontal lead generation services matching vendors and buyers.
In the US, underlying revenues were 5% lower, with online revenue growth of 9% more than offset by the 9% decline in print revenues despite market share gains. Online revenues now represent nearly 30% of RBI US revenues. The economic slowdown has affected most sectors, including electronics, manufacturing, residential construction, furniture and home furnishings, jewellery and entertainment withVariety also impacted by the film and TV screenwriters’ strike earlier in the year. Year-on-year revenues were down 11% in the fourth quarter, compared to 3% decline in the third quarter. Reed Construction Data saw growth in data services to the commercial construction industry following investment in online product development, research and sales. Online services were further expanded with the acquisition in February 2008 of Tectonic, a provider of building information modeling for the architectural, engineering and construction industries.
In the Netherlands, underlying revenues were 1% lower, with online revenues up 11% against only a 3% decline in the print business which benefits from a higher proportion of subscription and circulation revenues than in other RBI geographies. Growth was seen in the agriculture, construction and healthcare sectors and in tuition although most other sectors saw revenue declines from weaker advertising markets. Fourth quarter revenues were down 6% against the prior year, with the third quarter down 1%. Online revenues now represent 17% of RBI NL revenues.
The International business (Europe, excluding UK and Netherlands, and Asia Pacific) saw underlying revenue growth of 2% with online revenues up 26%, including strong growth from theHotfrog online directory search business, more than offsetting a 4% decline in print. In Europe, France saw growth from a recovery in training sales, whilst Spain and Italy saw revenues decline with weaker advertising markets particularly in the construction and automotive sectors respectively. Asia Pacific saw 9% underlying revenue growth, reflecting growth inHotfrog sales and in healthcare and construction in Australia. Fourth quarter revenues were flat against the prior year. Online revenues now represent 25% of RBI International revenues.
Adjusted operating margin was 60 basis points lower than in 2007, reflecting the underlying revenue decline, partially mitigated by tight cost management.
The advertising markets served by RBI are significantly impacted by the global economic downturn, with slowing online revenue growth and accelerating print decline. Adjusted operating margins are likely to be affected by the impact on revenue growth.
Operating profit of RBI, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, decreased by £36 million to £55 million (a 45% decrease at constant exchange rates), reflecting the increase in adjusted operating profit described above offset by exceptional restructuring costs.
 
Results of Operations for the Year Ended December 31, 2007
Compared to the Year Ended December 31, 2006
 
General — continuing operations
 
Revenue increased by 2% to £4,584 million. At constant exchange rates, revenue was 6% higher, both including and excluding acquisitions and disposals.
 
Operating profits of £888 million were up 6%, or 12% at constant exchange rates, compared with £837 million in 2006. Operating profit is stated after amortisation of acquired intangible assets of £221 million (2006: £211 million), acquisition integration costs of £20 million (2006: £23 million) and includes tax charges in respect of joint ventures of £8 million (2006: £10 million). Excluding these items, operating profits would have been up 5% at £1,137 million (2006: £1,081 million), or up 11% at constant exchange rates, and up 10% on an underlying basis. The increase in operating profits at constant exchange rates principally reflects improved underlying performance.
 
Operating margin, including amortisation of acquired intangible assets and acquisition integration costs, was 19.4% (2006: 18.6%). Excluding amortisation of acquired intangible assets, acquisition integration costs and the equity share of taxes in joint ventures, the margin would have been 24.8%, up 0.8 percentage points compared to 2006, or up 1.0 percentage points on an underlying basis. The cycling out of biennial joint venture exhibitions, which contribute to profit but not to revenues, had a 0.1 percentage point adverse effect on overall margin growth. Currency translation mix and the effect of the science journal currency hedging programme reduced margin by 0.2 percentage points. (The net benefit of the Elsevier science journal hedging programme is lower in 2007 than in 2006 as the effect of the weaker US dollar is incorporated within the three year rolling hedging programme.) For further explanation of the effects of currency translation, see “— Effect of Currency Translation” on pages 2831 and 29.32.
 
The amortisation charge for acquired intangible assets, including the share of amortisation for joint ventures, of £221 million was up £10 million on the prior year principally as a result of recent acquisitions, partly offset by currency translation effects.
 
Net finance costs, at £139 million, were £19 million lower than in the prior year due to currency translation effects and the benefit of proceeds from the disposal of Harcourt Education.


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Profit before tax was £812 million, compared with £678 million in 2006, an increase of 20%, or 26% at constant exchange rates. The increase in profit before tax principally reflects the increased operating profits and gains on disposals.


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The tax credit of £82 million compares with a charge of £86 million in the prior year. The current year2007 credit includes the benefit of £223 million in respect of previously unrecognised deferred tax assets and capital losses arising in continuing operations, which are realisable as a result of the gain on disposal of Harcourt Education. The reported tax credit also reflects movements on deferred tax balances arising on unrealised exchange differences on long term interaffiliate lending. These deferred tax movements are recognised in the income statement but are not expected to crystallise in the foreseeable future.
 
Net profit from discontinued operations comprises the post-tax profit of Harcourt Education of £78 million, compared with £33 million in 2006, the pre-tax gain on the disposal of the Harcourt US Schools business and those Harcourt International businesses completed in the year of £611 million, less taxes on the completed disposals of £380 million (before taking account of the tax credits arising in continuing operations described above).
 
The profit attributable to shareholders of £1,200 million was up 93%, or 105% at constant exchange rates, compared to £623 million in 2006, reflecting the operating performance of the business and the gain arising on the disposal of Harcourt Education businesses.
 
Elsevier
 
Revenue and adjusted operating profits were down 1% and up 3% respectively compared to 2006. At constant exchange rates, revenue and adjusted operating profits were up 4% and 9% respectively, or 6% and 10% on an underlying basis. The adjusted operating margin was 1.1 percentage points higher in 2007 than in 2006, driven by revenue growth and cost efficiency, particularly in production and procurement.
 
The Science & Technology business saw underlying revenue growth of 6%, or 2% at constant currencies after acquisitions and disposals, reflecting journal subscription renewals at 97% and growing online sales with increasing market penetration. This was driven by ScienceDirect, which saw widening distribution especially in small academic and emerging markets, and from the further launch of electronic books.
 
In Health Sciences, revenue growth at constant currencies was 6%, both before and after the impact of acquisitions and disposals, driven by growth in the nursing and allied health professional sector, and expanding online solutions in response to a growing need within the healthcare industry for technology enabled information solutions to improve the quality and effectiveness of diagnosis, treatment and care. Growth was partly held back by a flat performance in pharmaceutical advertising markets, with share gains compensating for weaker markets.
 
In March 2007, Elsevier acquired the full rights to the Beilstein chemical compounds database, previously operated under licence, which is now being integrated with other resources to deliver content and innovative online solutions. In October 2007, Elsevier sold the MDL software services business which no longer fitted with Elsevier’s strategy.
 
Operating profit of Elsevier, including amortisation of acquired intangible assets and acquisition integration costs, increased by £15 million to £410 million (a 10% increase at constant exchange rates), reflecting the 9% increase in adjusted operating profit described above.
 
LexisNexis
 
Revenue and adjusted operating profits were up 2% and 7% respectively compared to 2006. At constant exchange rates, revenue and adjusted operating profits were up by 8% and 14% respectively, or 7% and 12% on an underlying basis. The adjusted operating margin was 1.3 percentage points higher reflecting the revenue growth and actions to control costs.
 
In US Legal Markets, subscription renewals and additional online information and solutions sales, partly held back by fewer large sized discovery cases, drove underlying revenue growth of 5%. New Total Solutions products were introduced throughout the year in the core areas of litigation, client development, practice management, and research. The growth in the Total Solutions markets is being driven through acquisition and organic investment. Acquisitions included Juris and Image Capture Engineering. These businesses are being integrated within Total Litigator to service the majority of electronic discovery needs and are steadily migrating to a subscription model.
 
In US Corporate and Public Markets underlying revenue growth was 6%, driven by demand in risk management and in processing higher volumes for the US patent and trademark office, partly held back by slower growth in the news and business information business. The Risk Information and Analytics business again saw double-digit revenue growth and further margin expansion driven by market growth combined with our technology and content.
 
The LexisNexis International business outside the US delivered underlying revenue growth of 8% at constant rates, or 10% including acquisitions, and margins improved. Underlying revenue growth has now been at or around this level for each of the last four years, driven by the growing penetration of online information services across our markets and new publishing. Growth was seen in the UK, France and Southern Africa in particular as well as in emerging markets such as India, Korea, China and Taiwan.


28

Operating profit of LexisNexis, including amortisation of acquired intangible assets and acquisition integration costs, increased by £23 million to £287 million. This reflects the increase in adjusted operating profit described above.


23

Reed BusinessExhibitions
 
Revenue and adjusted operating profits were up 5%11% and 8% respectively compared to 2006. At constant exchange rates, revenue and adjusted operating profits were up 7%13% and 10%, or 6%12% and 8%6% on an underlying basis. The overall adjusted operating margin was up 0.5down 0.4 percentage points, with the cycling out of contribution from biennial joint venture exhibitions reducing margin growth by 0.20.6 percentage points.
 
At Reed Exhibitions, revenues were 13% higher at constant currencies, or 12% on an underlying basis. Growth was seen across the show portfolio, notably at the Mipim international property show in Cannes and the JCK Jewellery show in Las Vegas. Adjusted operating profits were up 11% at constant currencies, or 8% excluding acquisitions and disposals, held back by the cycling out of the contribution from biennial joint venture shows. Excluding the cycling of shows, underlying revenue growth and adjusted operating profit growth were 10% and 11% respectively. The defence sector part of the business is to be divested.
 
Operating profit of Reed Exhibitions, including amortisation of acquired intangible assets and acquisition integration costs, increased by £8 million to £106 million. This principally reflects the increase in adjusted operating profit.
Reed Business Information
Revenue and adjusted operating profits were up 1% and 8% respectively compared to 2006. At constant exchange rates, revenue and adjusted operating profits were up 4% and 10%, or 3% and 9% on an underlying basis.
The Reed Business Information magazine and information businesses saw revenues 4% ahead at constant currencies, or 3% before acquisitions and disposals. Continued growth in online services of 20% on an underlying basis compensated for a 2% decline in print as the business migrates online. Online revenues now contributein 2007 contributed 30% of RBI’s revenues. Adjusted operating profits were up 10% at constant currencies through continued actions to improve cost efficiency.
 
In the UK, underlying revenues were up 5% reflecting growth in online sales, up 19% and which now representin 2007 represented 46% of total RBI UK revenue. Totaljobs, the UK recruitment site, continued its growth with revenues up 35%. In the Netherlands and International, underlying revenue growth was 4% with growth in online products. In the US, RBI underlying revenue was flat, with online revenues growing, offset by the decline in print including discontinued titles. Advertising revenues grew across community sites, up 31%. This reflects increased web traffic as these sites increasingly become a starting point on the web for the communities they serve with their mix of professional content, community interaction and online tools proving attractive for both users and advertisers.
 
The growth of online sales in RBI was helped by a number of acquisitions, including BuyerZone, an online service for matching vendors and buyers in procurement tendering, acquired in January 2007, and DoubleTrade, an online tendering service, acquired in April 2007.
 
Operating profit of Reed Business Information, including amortisation of acquired intangible assets and acquisition integration costs, increased by £14£6 million to £197£91 million. This principally reflects the increase in adjusted operating profit.
 
Results of Operations for the Year Ended December 31, 2006
Compared to the Year Ended December 31, 2005
General — continuing operations
Revenue from continuing operations increased by 6% to £4,509 million. At constant exchange rates, revenue was 7% higher, or 6% higher on an underlying basis.
Operating profits from continuing operations of £837 million were up 11%, or 16% at constant exchange rates, compared with £752 million in 2005. Operating profit is stated after amortisation of acquired intangible assets of £211 million (2005: £203 million), acquisition integration costs of £23 million (2005: £20 million) and includes tax charges in respect of joint ventures of £10 million (2005: £6 million). Excluding these items, operating profits would have been up 10% at £1,081 million (2005: £981 million), or up 14% at constant exchange rates, and up 13% on an underlying basis. The increase in operating profits at constant exchange rates principally reflects improved operating performance and the contribution from acquisitions.
Operating margin in continuing operations, including amortisation of acquired intangible assets and acquisition integration costs, was 18.6% (2005: 17.6%). Excluding amortisation of acquired intangible assets, acquisition integration costs and the equity share of taxes in joint ventures, the margin would have been 24.0%, up 1.0 percentage points compared to 2005, or up 1.5 percentage points on an underlying basis. The increase in the reported margin was held back by the inclusion of lower margin acquisitions and currency effects, most particularly the year on year movement in hedge rates for Elsevier journal subscriptions. For further explanation of the effects of currency translation, see “— Effect of Currency Translation” on pages 28 and 29.
The amortisation charge for acquired intangible assets of £211 million was up £8 million on 2005, principally as a result of recent acquisitions.
Net finance costs, at £158 million, were £18 million higher than in 2005 due to higher short term interest rates, the financing costs of acquisitions and the share repurchase programme, partly offset by the benefit of free cash flow.
Profit before tax from continuing operations was £678 million, compared with £614 million in 2005, an increase of 10%, or 16% at constant exchange rates. The increase in profit before tax principally reflects the increased operating profits, partially offset by increased net finance costs.
The tax expense from continuing operations was £86 million in 2006, compared with £219 million in 2005, a decrease of £133 million. The effective tax rate on earnings for 2006 was 13% (2005: 36%), reflecting the favourable settlement of tax on prior year disposals and movements in deferred tax balances arising on unrealised exchange differences on long term inter-


24

affiliate lending. These deferred tax movements are recognised in the income statement under IFRS but are not expected to crystallise in the foreseeable future.
Net profit from discontinued operations comprising the post-tax profit of Harcourt Education, was £33 million, compared to £69 million in 2005.
The profit attributable to shareholders of £623 million was up 35%, or 42% at constant exchange rates, compared to £462 million in 2005, reflecting the operating performance of the business and the reduction in tax expense referred to above.
Elsevier
Revenue and adjusted operating profits were up 6% and 4% respectively compared to 2005. At constant exchange rates, revenue and adjusted operating profits were up 8% and 10% respectively, or 5% and 8% on an underlying basis. Excluding the effects of acquisitions, disposals and currency, the operating margin was 0.9 percentage points higher in 2006 than in 2005, driven by revenue growth, stabilising investment levels and further supply chain efficiency.
The Science & Technology business saw underlying revenue growth of 5% at constant exchange rates reflecting a journal subscription renewal rate of 97%, widening distribution through an expanded sales force, and growth in online databases. ScienceDirect usage continues to grow at over 20% per annum ande-only contracts now account for 45% of journal subscription revenues. The Scopus abstract and indexing database has been well received in the market and is seeing conversion of trials into firm contracts.
In Health Sciences, revenue growth was 13% at constant exchange rates, or 6% on an underlying basis, reflecting growth in the nursing and allied health professional sectors and in new society journal publishing. Online revenues are growing, up 37% in total, as the medical community increasingly adopts online information services to drive productivity and enhance outcomes. The year saw increasing penetration of the ScienceDirect and MDConsult products and further launches made and planned of electronic reference materials, medical education resources, and specialist information services and workflow tools.
The integration of the MediMedia MAP businesses acquired in August 2005 is now complete with revenue growth initiatives building momentum and improving margins. The acquisition in May of the Gold Standard drug information database and related products is accelerating our market strategies in electronic health information services to enhance the efficacy of clinical diagnosis and treatment. In December, the Endeavor software business was sold following a reappraisal of its position within Elsevier’s overall market strategies.
Operating profit of Elsevier, including amortisation of acquired intangible assets and acquisition integration costs, decreased by £1 million to £395 million (a 7% increase at constant exchange rates). This decrease reflects the 4% increase in adjusted operating profit described above offset by currency effects, higher amortisation of acquired intangible assets and higher acquisition integration costs in respect of MediMedia MAP and other recent acquisitions.
LexisNexis
Revenue and adjusted operating profits were up 7% and 12% respectively compared to 2005. At constant exchange rates, revenue and adjusted operating profits were up by 8% and 13% respectively, or 7% and 13% on an underlying basis. This 7% organic revenue growth compares with 6% in 2005 and 4% in 2004 and reflects the momentum in the business. The adjusted operating margin was 1.1 percentage points higher reflecting the revenue growth and tight cost control.
In US Legal Markets, subscription renewals and additional online information and solutions sales to both large and small firms drove underlying revenue growth of 6%. The Total Solutions strategy launched in the year has gained traction in the market, focused on the distinctive needs of lawyers across four major areas of their workflow: litigation, client development, research and practice management. An integrated solutions product was also launched for the risk management market. The product portfolio was expanded through organic development and selective acquisition: Casesoft (litigation case analysis) and Dataflight (online repository and tools for evidence management).
In Corporate and Public Markets underlying revenue growth was 8% reflecting improvement in online news and business information, higher patent volumes and demand in risk management. The Seisint business acquired in 2004 saw continued revenue growth and LexisNexis’ existing risk management business has now been fully migrated to the Seisint technology platform.
The LexisNexis International business outside the US saw underlying revenue growth of 8% driven by the growing demand for LexisNexis’ online information services across its markets, notably in the UK, France, Germany, Canada and South Africa, and new publishing. The Total Solutions strategy is also being rolled out in these international markets behind increasing online penetration. In the UK this was accelerated with the acquisition of Visualfiles (case management and compliance tools).
Operating profit of LexisNexis, including amortisation of acquired intangible assets and acquisition integration costs, increased by £46 million to £264 million. This reflects the increase in adjusted operating profit described above and a reduction in acquisition integration costs following the completion of the integration of Seisint.


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Reed Business
Revenue and adjusted operating profits were up 4% and 13% respectively compared to 2005. At constant exchange rates, revenue and adjusted operating profits were up 5% and 14%, with acquisitions and disposals having no overall effect on these growth rates. Adjusted operating margins increased by 1.3 percentage points to 17.0% reflecting the growth in the exhibitions business and tight cost control.
At Reed Exhibitions, revenues were 12% higher, or 10% on an underlying basis. Growth was seen in key shows across the principal geographies in the US, Europe and Asia Pacific, notably in Japan and in the international Midem entertainment and property shows held in Cannes. Whilst much of business-to-business marketing is moving online, the demand for exhibitions remains as exhibitors and buyers place great value on physical meetings and events to balance other information sources and connections. Underlying profit growth was 16% including 6% from share of joint ventures cycling in. The net effect of other biennial shows cycling in and out is broadly neutral. The Sinopharm exhibitions acquired in a joint venture in China in 2005 are performing ahead of plan and new shows are to be launched in 2007.
The Reed Business Information magazine and information businesses saw continued underlying revenue growth in online services of over 20%, more than compensating for the 3% decline in print as the business migrates online. Overall RBI revenues were up 2% on an underlying basis. With 24% of revenues now from online services, the overall growth trajectory is encouraging. Adjusted operating profits were up 12% through continued action on costs as resources are rebalanced to the digital opportunity.
In the US, RBI underlying revenues were 2% lower. Online revenues are growing, particularly from advertising in community sites and new services, and are close to offsetting the print decline seen across most sectors. In the UK, RBI underlying revenues were up 6% reflecting the growth in online recruitment (up 39%) and online subscription services (up 17%). Online revenues now account for 41% of RBI UK revenues with growth and new launches set to increase this further. Print revenues benefited from innovative publishing and design. In continental Europe underlying revenues were up 3%, with again growth in new online services and some further recovery in advertising markets. Revenues in Asia grew 6%.
As part of a repositioning of the portfolio, the US manufacturing product news tabloid business was sold during the year as well as a number of other titles and North American manufacturing shows. In January 2007 RBI acquired BuyerZone, a fast growing online service for matching vendors and buyers in procurement tendering that can be leveraged across RBI’s categories.
Operating profit of Reed Business, including amortisation of acquired intangible assets and acquisition integration costs, increased by £25 million to £183 million. This principally reflects the increase in adjusted operating profit.
Critical Accounting Policies
 
Introduction
 
The accounting policies of the Reed Elsevier combined businesses under IFRS are described in note 2 to the combined financial statements. The most critical accounting policies and estimates used in determining the financial condition and results of the combined businesses, and those requiring the most subjective or complex judgments, relate to the valuation of goodwill and acquired intangible assets, pensions, share based remuneration, financial instruments, taxation and deferred taxation. These critical accounting policies and estimates are discussed further below.
 
Revenue recognition policies, while an area of management focus, are generally straightforward in application as the timing of product or service delivery and customer acceptance for the various revenue types can be readily determined. Allowances for product returns are deducted from revenue based on historical return rates. Where sales consist of two or more independent components, revenue is recognised on each component as it is completed by performance, based on attribution of relative value. Sales commissions are recognised as an expense on sale, other than in respect of certain subscription products, where sales commissions may be expensed over the period of the subscription.
 
Pre-publication costs incurred in the creation of content prior to production and publication are deferred and expensed over their estimated useful lives based on sales profiles. Such costs typically comprise direct internal labour costs and externally commissioned editorial and other fees. Estimated useful lives generally do not exceed five years. Annual reviews are carried out to assess the recoverability of carrying amounts.
 
Development spend encompasses investment in new product and other initiatives, ranging from the building of new online delivery platforms, to launch costs of new services, to building new infrastructure applications. Launch costs and other operating expenses of new products and services are expensed as incurred. The costs of building product applications and


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infrastructure are capitalised as internally developed intangible assets and amortised over their estimated useful lives. Impairment reviews are carried out at least annually.
 
The Audit Committees of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc have reviewed the development and selection of critical accounting estimates, and the disclosure of critical accounting policies in this annual report.


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Goodwill and acquired intangible assets
 
We target acquisitions and alliances that accelerate our strategic development and meet our financial criteria. We have spent £797£2,621 million on acquisitions in the last three years, including the £188 million£1.9 billion acquisition in 20052008 of MediMedia MAP,ChoicePoint, Inc., a leading medical publisher in France, Spain, Italyprovider of risk information and the United States.analytics.
 
Publishing businesses generally have relatively modest requirements for physical property, plant and equipment. The principal assets acquired through acquisitions are intangible assets, such as market related assets (e.g. trademarks, imprints, brands), customer based assets (e.g. subscription bases, customer lists, customer relationships), editorial content, software and systems (e.g. application infrastructure, product delivery platforms, in-process research and development), contract based assets (e.g. other publishing rights, exhibition rights, supply contracts) and goodwill. The total cost of acquired intangible assets other than goodwill as at December 31, 20072008 was £3.7£6.8 billion, on which accumulated amortisation of £1.9£2.7 billion had been charged. The total carrying value of acquired goodwill, which is not amortised, as at December 31, 20072008 was £2.5£4.9 billion.
 
Reed Elsevier’s accounting policy is that, on acquisition of a subsidiary or business, the purchase consideration is allocated between the net tangible and intangible assets other than goodwill on a fair value basis, with any excess purchase consideration representing goodwill. The valuation of identifiable intangible assets represents the estimated economic value in use, using standard valuation methodologies, including as appropriate, discounted cash flow, relief from royalty and comparable market transactions. Acquired intangible assets with indefinite lives are not amortised, while those with definite lives are amortised systematically over their estimated useful lives, subject to annual impairment review. Capitalised goodwill is not amortised and is subject to annual impairment review. Appropriate amortisation periods are selected based on assessments of the longevity of the brands and imprints, the strength and stability of customer relationships, the market positions of the acquired assets and the technological and competitive risks that they face. Certain intangible assets, more particularly in relation to acquired science and medical publishing businesses, have been determined to have indefinite lives. The longevity of these assets is evidenced by their long established and well regarded brands and imprints, and their characteristically stable market positions.
 
At each balance sheet date, or earlier if indicators are present, reviews are carried out of the carrying amounts of acquired intangible assets and goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, estimates are made of the cash flows of the cash generating unit to which the asset belongs. Intangible assets with an indefinite useful life are tested for impairment at least annually and whenever there is an indication that the asset may be impaired.
 
The recoverable amount is the higher of fair value, less costs to sell, and value in use. In assessing valueValue in use is calculated based on estimated future cash flows, are discounted to their present value using a discount rate appropriate to the specific asset or cash generating unit. The pre-tax discount rates used are10-12%, including a risk premium appropriate to the unit being reviewed.value. Estimated future cashflowscash flows are based ondetermined by reference to latest budgets and forecasts for the next five years withapproved by management, after which a 3% long termlong-term perpetuity growth rate assumed thereafter.is applied. The estimates of future cash flows are consistent with past experience adjusted for management’s best estimates of future performance. The key assumptions used in determining the value in use of a business are the pre-tax discount rate, which is based on the Reed Elsevier weighted average cost of capital, adjusted to reflect a risk premium specific to the business, and the perpetuity growth rate which is based on the long-term historic growth rates of the territory where the business operates and the growth prospects for the business sector. Pre-tax discount rates used are 9-11% and perpetuity growth rates used are 3%.
The impairment reviews performed are sensitive to changes in key assumptions, particularly discount rates and profit growth. A sensitivity analysis is performed on the base assumptions to determine whether an impairment charge would result from any possible changes in key assumptions. Disclosures are made where such sensitivities would give rise to impairment.
 
If the recoverable amount of an asset or cash generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash generating unit is reduced to its recoverable amount. Impairment losses are recognised immediately in the income statement. Further detail on impairment testing is provided in note 16 to the combined financial statements.
 
Pensions and other retirement benefits
 
We operate a number of pension schemes around the world, the most significant of which are defined benefit plans. Pension costs are accounted for in accordance with IAS19 — Employee Benefits. Net pension obligations in respect of defined benefit schemes are included in the balance sheet at the present value of scheme liabilities, less the fair value of scheme assets. Where assets exceed liabilities, any net pension asset is limited to the extent that it is recoverable through reductions in future contributions. The expense of defined benefit pension schemes and other post-retirement benefits is determined using the projected unit credit method and charged to the income statement as an operating expense, based on actuarial assumptions reflecting market conditions at the beginning of the financial year. Actuarial gains and losses are recognised in full in the


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statement of recognised income and expense in the period in which they occur. For defined contribution schemes, the charge to income represents contributions payable.
 
Accounting for these pension schemes involves judgement about uncertain events, including the life expectancy of the members, salary and pension increases, inflation, the rate of return on scheme assets and the rate at which the future pension payments are discounted. We use estimates for all of these factors in determining the pension cost and obligations recorded in our combined financial statements. Although we believe the estimates are appropriate, differences arising from actual experience or future changes in assumptions may materially affect future pensions charges. In particular, a decline in the market value of pension scheme assets, absent any change in their estimated rate of return,and/or a reduction to discount rates would result in an increase to future pension costs. The market value of investments held by our defined benefit pension schemes as of December 31, 2008 was £2,682 million compared with £3,018 million as of December 31, 2007, reflecting the decline in global equity markets during 2008. These estimates and the sensitivity to them of pension costs and obligations are described in further detail in note 8 to the combined financial statements.


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Share based remuneration
 
The share based remuneration charge is determined based on the fair value of the award at the date of grant, and is spread over the vesting period on a straight line basis, taking account of the number of shares that are expected to vest. The number of awards that will ultimately vest is dependent on the extent to which any performance conditions are met. These conditions are regularly monitored to ensure that appropriate assumptions are used.
 
The fair value of awards is determined at the date of grant by use of a binomial or Monte Carlo simulation model as appropriate, which require assumptions to be made regarding share price volatility, dividend yield, risk free rate of return and expected option lives. The number of awards that are expected to vest requires assumptions to be made regarding forfeiture rates and the extent to which performance conditions will be met. We use estimates for all of these factors in determining the share based remuneration charge and although we believe the estimates used are appropriate, differences arising from the number of awards that ultimately vest and changes to the assumptions used to determine the fair value of future grants may materially affect future charges to net income.
 
Financial instruments
 
The main treasury risks faced by Reed Elsevier include interest rate risk and foreign currency risk. Reed Elsevier’s treasury policies to manage the exposures to fluctuations in interest rates and exchange rates, which are set out on pages 31 and 32,34 to 36, include the use of interest rate swaps, forward interest rate agreements, interest rate options and foreign exchange forward contracts. All such derivative financial instruments are required to be carried at fair value on the balance sheet. Changes in fair value are accounted for through the income statement or equity depending on the derivative’s designation and effectiveness as a hedging instrument.
 
Derivative instruments used by Reed Elsevier as fair value hedges are designated as qualifying hedge instruments. Fair value movements in these instruments are recorded in net income and are offset, to the extent that the hedge is effective, by fair value movements to the carrying value of the hedged item, which are also recognised in net income. In addition certain interest rate swaps and forward exchange rate contracts have been designated as qualifying cash flow hedges. Accordingly the fair value of these instruments is recorded in the balance sheet and to the extent that the hedges are effective, fair value movements are recorded in equity until the hedged transaction affects net income. Other than in relation to these interest rate swaps and forward exchange contracts, other derivative instruments, which act as economic hedges, have not been designated as qualifying hedge instruments and accordingly a charge or credit to net income is recorded for changes in the fair value of those instruments. The fair values of the instruments used are determined by reference to quoted market rates.
 
Taxation and deferred tax
 
Reed Elsevier operates in over 100 locations worldwide and seeks to organise its affairs in a tax efficient manner, taking account of the jurisdictions in which it operates. A number of acquisitions and disposals have been made in recent years giving rise to complex tax issues requiring management to use its judgment to make various tax determinations. Although we are confident that tax returns have been appropriately compiled, there are risks that further tax may be payable on certain transactions or that the deductibility of certain expenditure for tax purposes may be disallowed. Reed Elsevier’s policy is to make provision for tax uncertainties where it is considered probable that tax payments may arise.
 
Deferred taxation is provided for nearly all differences between the balance sheet amounts of assets and liabilities and their tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that they are considered recoverable based on forecasts of available taxable profits in jurisdictions where such assets have arisen. This assessment of the recoverability of deferred tax assets is judgmental. Forecasts are made of taxable profits, taking into account any unresolved tax risks.
 
Effect of Currency Translation
 
The combined financial statements are expressed in sterling and are therefore subject to the impact of movements in exchange rates on the translation of the financial information of individual businesses whose operational currencies are other


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than sterling. The principal exposures in relation to the results reported in sterling are to the US dollar and the euro, reflecting Reed Elsevier’s business exposure to the USUnited States and the Euro Zone, its most important markets outside the United Kingdom.
 
The currency profile of Reed Elsevier’s revenue, operating profit and profit before tax from continuing operations for 2007,2008, taking account of the currencies of the interest on its borrowings and cash over that period, is set forth below.


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Revenue, operating profit and profit before tax in each currency as a percentage of total revenue,
operating profit and profit before tax respectively
 
                                   
 US Dollars Sterling Euro Other Total US Dollars Sterling Euro Other Total 
Revenue  46%  19%  26%  9%  100%  47%   17%   27%   9%   100% 
Operating profit  39%  20%  33%  8%  100%  36%   20%   37%   7%   100% 
Profit before tax  34%  21%  34%  11%  100%  12%   22%   55%   11%   100% 
                     
 
Currency differences decreasedincreased Reed Elsevier’s revenue from continuing operations by £205£429 million in 20072008 compared to 2006.2007. Excluding amortisation of acquired intangible assets and goodwill impairment, currency differences would have decreasedincreased operating profits from continuing operations by £61£107 million in 20072008 compared to 2006.2007. Acquired intangible assets are predominantly denominated in US dollars and, after charging amortisation and goodwill impairment, currency differences decreasedincreased operating profits from continuing operations by £49£67 million in 20072008 compared to 2006.2007. Borrowings are predominantly denominated in US dollars and, after charging net finance costs, currency differences decreasedincreased profit before tax from continuing operations by £41£51 million in 20072008 compared to 2006. The currency effects described above include the effect of the year on year movement in hedge rates in Elsevier journal subscriptions, the net benefit of which is lower in 2007 than in 2006 as the effect of the weaker US dollar is systematically incorporated within the three year rolling hedging programme.2007.
 
To help protect Reed Elsevier PLC’s and Reed Elsevier NV’s shareholders’ equity from the effect of currency movements, Reed Elsevier will, if deemed appropriate, hedge foreign exchange translation exposures by borrowing in those currencies where significant translation exposure exists or by selling forward surplus cash flow into one of the shareholders’ currencies. Hedging of foreign exchange translation exposure is undertaken only by the regional centralised treasury departments and under policies agreed by the boards of Reed Elsevier PLC and Reed Elsevier NV. Borrowing in the operational currency of individual businesses provides a structural hedge for the assets in those markets and for the income realised from those assets. The currencies of Reed Elsevier’s borrowings, therefore, reflect two key objectives, namely to minimise funding costs and to hedge currencies where it has significant business exposure.
 
Individual businesses within Reed Elsevier Group plc and ERF are subject to foreign exchange transaction exposures caused by the effect of exchange rate movements on their revenue and operating costs, to the extent that such revenue and costs are not denominated in their operating currencies. Individual businesses are required to hedge their exposures at market rates with the centralised treasury department within ERF. Hedging of foreign exchange transaction exposure is the only hedging activity undertaken by the individual businesses. For further details see note 20 to the combined financial statements.
 
Recently Issued Accounting Pronouncements
 
IFRS8 — Operating Segments (effective for the 2009 financial year). IFRS8 sets out requirements for disclosure of information about an entity’s operating segments, its products and services, the geographical areas in which it operates, and its major customers. IFRS8 replaces IAS14 — Segment Reporting. Adoption of this standard is not expected to change significantly the disclosure of information in respect of Reed Elsevier’s operating segments.
 
Amendment to IAS23 — Borrowing Costs (effective for the 2009 financial year). The amendment removes the option to immediately recognise as an expense borrowing costs relating to assets requiring a substantial period of time to get ready for use or sale and requires such costs to be capitalised. Adoption of this standard will change our accounting policy on borrowing costs but is not expected to significantly impact the presentation or disclosure of borrowing costs in the combined financial statements.
Amendment to IAS1 — Presentation of Financial Statements (effective for the 2009 financial year). The amendment introduces changes to the way in which movements in equity must be disclosed and requires an entity to disclose separately disclose each component of other comprehensive income not recognised in profit or loss. The amendment also requires disclosure of the amount of income tax relating to each component of other comprehensive income as well as several other minor disclosure amendments. Other than described above this amendment is not expected to significantly change the presentation of the combined financial statements.
 
IFRIC14Amendment to IFRS2 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their InteractionShare Based Payment (effective for the 20082009 financial year). The interpretationamendment clarifies how to assessthat cancellations of share options, whether by the limit in IAS19 Employee Benefits onentity or holder, should be accounted for as an acceleration of the amountvesting period. The amendment also restricts the definition of a defined benefit pension surplusvesting condition to a condition that canincludes an explicit or implicit requirement to provide services. Any other conditions are non-vesting conditions, which have to be recognised as an asset. Adoptiontaken into account to determine the fair value of this interpretationthe equity instruments granted. The amendment is not expected to significantly impact the measurement, presentation or disclosure of employee benefitsshare based remuneration in the combined financial statements.
 
Amendments to IFRS3 — Business Combinations (effective for the 2010 financial year). The amendments introduce changes that will require future acquisition related costs (including professional fees previously capitalised)fees) to be expensed and adjustments to contingent consideration to be recognised in income and will allow the full goodwill methodnon-controlling interests to be used when accounting for non-controlling interests.measured at either fair value or the proportionate share of net identifiable assets.


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Amendments to IAS27 — Consolidated and Separate Financial Statements (effective for the 2010 financial year). The amendments introduce changes to the accounting for partial disposals of subsidiaries, associates and joint ventures. Adoption of these amendments is not expected to significantly impact the measurement, presentation or disclosure of future disposals.
 
Amendment to IAS39 — Financial Instruments: Recognition and Measurement (effective for the 2010 financial year). The amendment clarifies the eligibility of hedge accounting for inflation and hedging with options. Adoption of this amendment is not expected to have a significant impact on the measurement, presentation or disclosure of financial instruments in the combined financial statements.
Additionally, a number of interpretations have been issued which are not expected to have any significant impact on Reed Elsevier’s accounting policies and reporting.


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LIQUIDITY AND CAPITAL RESOURCES — REED ELSEVIER
 
Cash Flow
 
Reed Elsevier’s net cash generated from continuing operations in 20072008 amounted to £1,452 million (2007: £1,218 million (2006:million; 2006: £1,213 million; 2005: £1,081 million). Included in these net cash inflows are cash outflows relating to exceptional restructuring and acquisition integration costs charged to operating profit of £99 million (2007: £19 million (2006:million; 2006: £22 million; 2005: £23 million). Reed Elsevier generates significant cash inflows as its principal businesses do not generally require major fixed or working capital investments. A substantial proportion of revenue is received through subscription and similar advanced receipts, principally for scientific and medical journals and exhibition fees. At December 31, 20072008 subscriptions and other revenues in advance totalled £1,375 million (2007: £966 million (2006:million; 2006: £969 million; 2005: £979 million).
 
Reed Elsevier’s cash outflow on the purchase of property, plant and equipment in 20072008 was £57 million (2007: £65 million (2006:million; 2006: £68 million; 2005: £77 million), while proceeds from the sale of property, plant and equipment amounted to £5 million (2007: £4 million (2006:million; 2006: £2 million; 2005: £7 million). The cash outflow on internally developed intangible assets in 20072008 was £115 million (2007: £80 million (2006:million; 2006: £99 million; 2005: £96 million), principally relating to investment in software and systems development.
 
During 2007,2008, Reed Elsevier paid a total of £2,131 million (2007: £319 million (2006:million; 2006: £171 million; 2005: £307 million) for acquisitions, including £1,931 million to acquire ChoicePoint, after taking account of net cash acquired of £51 million (2007: £11 million (2006:million; 2006: £7 million; 2005: £8 million) and of which £19 million (2007: £26 million (2006:million; 2006: £22 million; 2005: £14 million) is deferred to future years. In addition, £24£30 million (2006: £1(2007: £10 million; 2005: £15 million) was paid in respect of investments in joint ventures and £10 million (2006:2006: £13 million; 2005: £9 million) of deferred payments were made in respect of acquisitions made in prior years. These payments wereThe acquisition of ChoicePoint was financed by a new $4.35 billion loan facility and other acquisition expenditure was financed by net cash inflow from operating activities, available cash resources and commercial paper borrowings. Proceeds from sale of equity investments and businesses were £8 million (2007: £82 million (2006:million; 2006: £48 million; 2005: £21 million).
 
During 2007,2008, Reed Elsevier paid ordinary dividends totalling £416£418 million to the shareholders of the parent companies (2006:(2007: £416 million; 2006: £371 million; 2005: £336 million). In addition, £199£40 million was spent in buying back Reed Elsevier PLC and Reed Elsevier NV ordinary shares under the share repurchase programme announced in February 2006. A further £54 million (2007: £74 million (2006:million; 2006: £68 million; 2005: £27 million) was paid by the Reed Elsevier Group plc Employee Benefit Trust to purchase Reed Elsevier PLC and Reed Elsevier NV shares to meet commitments under the Reed Elsevier share option and conditional share schemes. Dividend payments and share repurchases are funded by the operating cash flow of the business after capital spend. A special distribution of £2,013 million was paid in January 2008, funded by the net proceeds of the disposal of Harcourt Education.
 
Net borrowings, a key indebtedness measure used in assessing Reed Elsevier’s financial position, at December 31, 20072008 were £5,726 million (2007: £492 million (2006:million; 2006: £2,314 million; 2005: £2,694 million), comprising gross borrowings of £3,129£6,142 million, less £170£41 million of gains on related derivative financial instrumentsinstrument assets and cash and cash equivalents of £2,467£375 million. The decreaseincrease of £1,822£5,234 million from the prior year end principally reflects the net cash proceeds received from the disposalpayment of Harcourt Education businesses of £1,933 million, which were included in the special distribution of £2,013 million to shareholders, the acquisition of the parent companies in January 2008. The benefit from free cash flowChoicePoint and proceeds from share issuances, were offset bycurrency translation effects, together with ordinary dividends paid, share repurchases and acquisition spend.and restructuring spend, partly offset by the operating cash flow from continuing operations, proceeds from the exercise of share options and disposals. Currency translation differences increased net borrowings by £1,281 million, reflecting the impact of the strengthening of the US dollar against sterling on largely US dollar denominated net borrowings.
 
The directors of Reed Elsevier PLC and Reed Elsevier NV, having made appropriate enquiries, consider that adequate resources exist for the combined businesses to continue in operational existence for the foreseeable future.
 
Contractual Obligations
 
The contractual obligations of Reed Elsevier relating to debt finance and operating leases at December 31, 20072008 analysed by when payments are due, are summarised below.
 
                                   
   Less than
     After
   Less than
     After
 
 Total 1 year 1-3 years 3-5 years 5 years Total 1 year 1-3 years 3-5 years 5 years 
 (in millions) (in millions) 
Short term debt(1)(2)
  £753  £753  £—  £—  £— £446  £446  £—  £—  £— 
Long term debt (including finance leases)(2)(3)
  3,415  503  436  871  1,605  6,919   214   3,883   850   1,972 
Operating leases  698  104  176  143  275  863   144   238   188   293 
                     
Total  £4,866  £1,360  £612  £1,014  £1,880 £8,228  £804  £4,121  £1,038  £2,265 
                     
 
(1)Short term debt is supported by committed facilities and by centrally managed cash and cash equivalents, and primarily comprises commercial paper. During February 2009, Reed Elsevier cancelled its $3.0 billion committed bank facility down to $2.5 billion and, at the


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same time, a new $2.0 billion committed bank facility, forward starting in May 2010 and maturing in May 2012, was put in place. Together, these two back up facilities provide security of funding for $2.5 billion of debt to May 2010 and $2.0 billion of debt from May 2010 to May 2012.
 
(2)Short and long term debt obligations comprise undiscounted principal and interest cash flows.
(3)In January 2009 term debt of £1,086 million due after five years from December 31, 2008 was issued and used to repay long term debt maturing in one to three years.
 
Information on retirement benefit obligations is set out in note 8 to the combined financial statements.


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Off-Balance Sheet Arrangements
 
At December 31, 20072008 Reed Elsevier had outstanding guarantees in respect of property leases. The maximum amount guaranteed as at December 31, 20072008 is £32£34 million for certain property leases up to 2016,2021, of which an amount of £4£8 million is held as a provision. These guarantees, which would crystallise in the event that existing lessees default on payment of their lease commitments, are unrelated to the ongoing business.
 
Save as disclosed above and under contractual obligations, Reed Elsevier has no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on the combined businesses’ financial condition, results of operations, liquidity, capital expenditure or capital resources.
 
Treasury Policies
 
The boards of Reed Elsevier PLC and Reed Elsevier NV have requested that Reed Elsevier Group plc and Elsevier Reed Finance BV have due regard to the best interests of Reed Elsevier PLC and Reed Elsevier NV shareholders in the formulation of treasury policies.
 
Financial instruments are used to finance the Reed Elsevier businesses and to hedge transactions. Reed Elsevier’s businesses do not enter into speculative transactions. The main treasury risks faced by Reed Elsevier are liquidity risk, interest rate risk, and foreign currency risk and credit risk. The boards of the parent companies agree overall policy guidelines for managing each of these risks and the boards of Reed Elsevier Group plc and Elsevier Finance SA agree policies (in conformity with parent company guidelines) for their respective business and treasury centres. These policies are summarised below.
 
Liquidity
 
Reed Elsevier maintains a range of borrowing facilities and debt programmes to fund its requirements, at short notice and at competitive rates. The significance of Reed Elsevier Group plc’s US operations means that the majority of debt is denominated in US dollars and is raised in the US debt markets.dollars. A mixture of short term and long term debt is utilised and Reed Elsevier maintains a maturity profile to facilitate refinancing. Reed Elsevier’s policy isPolicy was amended in 2008 to provide more flexibility to respond to investor demand and fund at attractive rates and requires that no more than $1.5 billion (formerly $1.0 billionbillion) of term debt issues should mature in any12-month period. In addition, minimum levels of borrowings with maturities over three and five years are specified, depending on the level of net debt.
 
From time to time, Reed Elsevier may repurchase outstanding debt in the open market depending on market conditions. No such purchases were made in 2007.2008.
In March 2008, Reed Elsevier signed a new $4,350 million committed loan facility with a syndicate of banks to finance its acquisition of ChoicePoint, Inc., subsequently cancelled down to $4,207 million in July 2008, comprising $2,032 million maturing in March 2010 (Tranche A) and $2,175 million maturing in March 2011 (Tranche B). The full $4,207 million was drawn down on completion of the acquisition in September 2008. Following the successful issue of $1,500 million of term debt in the US market and a €50 million term debt issue in January 2009, Reed Elsevier used the proceeds to reduce Tranche A to $470 million. Of the $1,500 million of the term debt, $550 million of five year notes will pay a coupon of 7.75% and mature on January 15, 2014, and $950 million of ten year notes will pay a coupon of 8.625% and mature on January 15, 2019.
 
During August and September 2007,October 2008, following the turbulence in the banking and credit markets, there was uncertainty in demand for commercial paper. Whilst Reed Elsevier faced a moderate increase incontinued to access the credit margin at which itsUS commercial paper was priced together with increasedmarket throughout the period, the uncertainty in investor demand. This pricing escalation and uncertaintydemand for euro commercial paper was mitigated by drawing down under existing bank back up facilities with a fixed pricing structure for one month in an amount of up to $670$461 million in aggregate. Commercial paper issuance continued throughout this period in moderately lower volumes at good terms. TheThese back up facility borrowings were repaid in October and November.November as investor demand for euro commercial paper returned.
 
At December 31, 20072008 gross borrowings after fair value adjustments amounted to £6,142 million and the fair value of cashrelated derivative assets was £41 million. Cash and cash equivalents was £2,467totalled £375 million, and given concerns over counterparty credit risk, these funds were all held on deposit with banks and of which £2,250£345 million was held with banks rated AAA+ or higher by Moody’s, Standard and Poor’s, Moody’s, or Fitch.
At December 31, 2008, in addition to the fully drawn ChoicePoint facility, Reed Elsevier had access to $3.0 billion (2007: $3.0 billion) of committed bank facilities, of which $38 million was drawn. These facilities principally provide back up for short term debt as well as security of funding for future acquisition spend. These committed facilities expire in May 2010.
During February 2009, Reed Elsevier cancelled this $3.0 billion facility down to $2.5 billion and, at the same time, a new $2.0 billion committed bank facility, forward starting in May 2010 and maturing in May 2012, was put in place. Together, these two back up facilities provide security of funding for $2.5 billion of debt to May 2010 and $2.0 billion of debt from May 2010 to May 2012.
 
After taking account of the maturity of committed bank facilities that back short term borrowing and after utilising available cash resources (excluding £1,933 million of cash received from the part disposal of Harcourt Education, which was included in the special distribution paid of £2,013 million to shareholders of the parent companies in January 2008) at December 31, 20072008, no borrowings mature in the next twelve months, 31% of borrowings mature in


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the second year, 33% of borrowings mature in the third year,12% in the fourth and fifth years,16% in the sixth to tenth years, and 8% beyond the tenth year. Allowing for the $1.6 billion term debt issued in January and the $2.0 billion forward start facility, no borrowings mature in the next two years, 27%21% of borrowings mature in the third year, 29%36% in the fourth and fifth years, 31%23% in the sixth to tenth years, and 13%20% beyond the tenth year.
 
At December 31, 2007 Reed Elsevier had access to $3.0 billion (2006: $3.0 billion) of committed bank facilities, of which $85 million was drawn. These facilities principally provide back up for short term debt as well as security of funding for future acquisition spend in the event that commercial paper markets are not available. All these committed facilities expire within two to three years (2006: two to three years).
The $4.1 billion acquisition of ChoicePoint Inc, announced by Reed Elsevier on February 21, 2008 will be financed initially from new bank facilities of up to $4.35 billion which three major banks have committed to underwrite and arrange. This initial funding will be refinanced later through the issuance of term debt.
Interest Rate Exposure Management
 
Reed Elsevier’s interest rate exposure management policy is aimed at reducing the exposure of the combined businesses to changes in interest rates. The proportion of interest expense that is fixed on net debt is determined by reference to the level of net interest cover. Reed Elsevier uses fixed rate term debt, interest rate swaps, forward rate agreements and a range of interest rate options to manage the exposure. Interest rate derivatives are used only to hedge an underlying risk and no net market positions are held.


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At December 31, 20072008, after taking account of interest rate and currency derivatives, $3.3US$7.0 billion of Reed Elsevier’s net debt was denominated in US dollars and net interest expense was fixed or capped on approximately $2.3US$4.2 billion of forecast US dollar net debt for the next 12 months. In January 2009 a further US$1.5 billion of fixed rate US dollar debt was issued, replacing floating rate US dollar debt, and increasing the amount of US dollar debt on which net interest expense is fixed or capped to approximately US$5.7 billion. This fixed or capped net debt reduces to approximately $1.3US$3.8 billion by the end of the third year2011 and reduces further thereafter with all but $0.1US$0.7 billion of fixed rate term debt (not swapped back to floating rate) having matured by the end of 2012.2019.
 
At December 31, 20072008, fixed rate US dollar term debt (not swapped back to floating rate) amounted to $1.2US$2.2 billion (2006: $1.3(2007: US$1.2 billion) and had a weighted average life remaining of 8.19.5 years (2006: 8.3(2007: 8.1 years) and a weighted average interest couponrate of 5.4% (2007: 5.9% (2006: 6.0%). After the issuance of a further US$1.5 billion of US dollar term debt in January 2009, fixed rate US dollar term debt (not swapped back to floating rate) amounted to US$3.7 billion and had a weighted average life remaining of 9.0 years and a weighted average interest rate of 6.6%. Interest rate derivatives in place at December 31, 20072008, which fix or cap the interest cost on an additional $1.1US$1.6 billion (2006: $1.5(2007: US$1.1 billion) of variable rate US dollar debt, have a weighted average maturity of 1.11.8 years (2006: 1.4(2007: 1.1 years) and a weighted average interest rate of 4.6% (2007: 4.8% (2006: 4.5%).
 
Foreign Currency Exposure Management
 
Translation exposures arise on the earnings and net assets of business operations in countries other than those of each parent company. These exposures are hedged, to a significant extent, by a policy of denominating borrowings in currencies where significant translation exposures exist, most notably US dollars.
 
Currency exposures on transactions denominated in a foreign currency are required to be hedged using forward contracts. In addition, recurring transactions and future investment exposures may be hedged, within defined limits, in advance of becoming contractual. The precise policy differs according to the specific circumstances of the individual businesses. Expected future net cash flows may be covered for sales expected for up to the next 12 months (50 months for Elsevier science and medical subscription businesses up to limits staggered by duration). Cover takes the form of foreign exchange forward contracts.
 
As at December 31, 20072008 the amount of outstanding foreign exchange cover designated against future transactions was $1.4$1.6 billion (2006: $1.2(2007: $1.4 billion).
 
Credit risk
Reed Elsevier seeks to limit interest rate and foreign exchange risks described above by the use of financial instruments and as a result has a credit risk from the potential non performance by the counterparties to these financial instruments, which are unsecured. The amount of this credit risk is normally restricted to the amounts of any hedge gain and not the principal amount being hedged. Reed Elsevier also has a credit exposure to counterparties for the full principal amount of cash and cash equivalents. Credit risks are controlled by monitoring the credit quality of these counterparties, principally licensed commercial banks and investment banks with strong long term credit ratings, and the amounts outstanding with each of them.
Reed Elsevier has treasury policies in place which do not allow concentrations of risk with individual counterparties and do not allow significant treasury exposures with counterparties which are rated lower than A by Standard and Poor’s, Moody’s or Fitch.


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Capital Management
 
The capital structure is managed to support Reed Elsevier’s objective of maximising long-term shareholder value through ready access to debt and capital markets, cost effective borrowing and flexibility to fund business and acquisition opportunities whilst maintaining appropriate leverage to optimise the cost of capital.
 
Over the long term Reed Elsevier targets cash flow conversion (the proportion of adjusted operating profits converted into operating cash flow)cash) and credit metrics to reflect this aim and that are consistent with a solid investment grade credit rating. Levels of net debt should not exceed those consistent with such a rating other than for relatively short periods of time, for instance following an acquisition. The principal metrics utilised are free cash flow (after interest, tax and dividends) to net debt, net debt to EBITDA (earnings before interest, taxation, depreciation and amortisation) and EBITDA to net interest. Cash flow conversion of 90% or higher and a net debt to EBITDA target, over the long term, in the range of 2x to 3x are consistent with the rating target.
 
Reed Elsevier’s use of cash reflects these objectives through a progressive dividend policy, an annualselective acquisitions, and, from time to time when conditions suggest, share repurchase programme and selective acquisitions,repurchases, whilst retaining the balance sheet strength to maintain access to the most cost effective sources of borrowing and to support Reed Elsevier’s strategic ambition in evolving publishing and information markets.
 
The balance of long term debt, short term debt and committed bank facilities is managed to provide security of funding, taking into account the cash generation of the business and the uncertain size and timing of acquisition spend.
There were no changes in Reed Elsevier’s approach to capital management during the year.


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OPERATING RESULTS — REED ELSEVIER PLC AND REED ELSEVIER NV
 
The following discussion is based on the financial statements of Reed Elsevier PLC and Reed Elsevier NV for the three years ended December 31, 2007.2008. The results of Reed Elsevier PLC reflect its shareholders’ 52.9% economic interest in the Reed Elsevier combined businesses. The results of Reed Elsevier NV reflect its shareholders’ 50% economic interest in the Reed Elsevier combined businesses. The respective economic interests of the Reed Elsevier PLC and Reed Elsevier NV shareholders take account of Reed Elsevier PLC’s 5.8% interest in Reed Elsevier NV. Both parent companies equity account for their respective share in the Reed Elsevier combined businesses.
Results of Operations for the Year Ended December 31, 2008
Compared to the Year Ended December 31, 2007
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 22.1p and €0.44 respectively in 2008, compared to 49.7p and €1.10 in 2007. The decline principally reflects that 2007 included the gain on disposal of Harcourt Education businesses and prior year tax credits. The earnings per share reflect the interests of the respective shareholders of Reed Elsevier PLC and Reed Elsevier NV in the results of the continuing and discontinued operations of the combined businesses.
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation — as defined in the Reed Elsevier merger agreement — is the spot euro/sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend.
Dividends declared in the year, in amounts per ordinary share, comprise: a 2007 final dividend of 13.6p and 2008 interim dividend of 5.3p giving a total of 18.9p (2007: 16.3p) for Reed Elsevier PLC; and a 2007 final dividend of €0.311 and 2008 interim dividend of €0.114 giving a total of €0.425 (2007: €0.418) for Reed Elsevier NV.
The board of Reed Elsevier PLC has proposed a 2008 final dividend of 15.0p, giving a total dividend of 20.3p in respect of the financial year, up 12% on 2007. The boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, have proposed a 2008 final dividend of €0.290, which results in a total dividend of €0.404 in respect of the financial year, down 5% on 2007. The difference in growth rates in the equalised dividends reflects the significant strengthening of the euro against sterling between dividend announcement dates.
On January 18, 2008 a special distribution was paid to shareholders in the equalisation ration from the estimated net proceeds of the sale of the Harcourt Education division. The distribution was 82.0p per share for Reed Elsevier PLC and €1.767 per share for Reed Elsevier NV and amounted to £2,013 million in aggregate.
The special distribution was accompanied by a consolidation of the ordinary share capital of Reed Elsevier PLC and Reed Elsevier NV on the basis of 58 new ordinary shares for every 67 existing ordinary shares. This represented a 13.4% consolidation of ordinary share capital, being the aggregate special distribution expressed as a percentage of the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at the date of the announcement of the special distribution.
For the purposes of calculating earnings per share, the effective date of the share consolidation is deemed to be January 18, 2008, being the date on which the special distribution was paid.
Shares repurchased in the year totalled 3.2 million ordinary shares of Reed Elsevier PLC and 2.1 million ordinary shares of Reed Elsevier NV.
 
Results of Operations for the Year Ended December 31, 2007
Compared to the Year Ended December 31, 2006
 
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 49.7p and €1.10 respectively in 2007, compared to 25.6p and €0.59 in 2006. The earnings per share reflect the interests of the respective shareholders of Reed Elsevier PLC and Reed Elsevier NV in the results of the continuing and discontinued operations of the combined businesses.
 
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation — as defined in the Reed Elsevier merger agreement — is the spot euro/sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend.


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Dividends declared in the year, in amounts per ordinary share, comprise: a 2006 final dividend of 11.8p and 2007 interim dividend of 4.5p giving a total of 16.3p (2006: 14.8p) for Reed Elsevier PLC; and a 2006 final dividend of €0.304 and 2007 interim dividend of €0.114 giving a total of €0.418 (2006: €0.369) for Reed Elsevier NV.
 
The board of Reed Elsevier PLC has proposed a 2007 final dividend of 13.6p, giving a total dividend of 18.1p in respect of the financial year, up 14% on 2006. The boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, have proposed a 2007 final dividend of €0.311, which results in a total dividend of €0.425 in respect of the financial year, up 5% on 2006. The difference in dividend growth rates reflects the movement in the euro:sterling exchange rate between dividend announcement dates.
 
Shares repurchased in the year under the annual share repurchase plan announced in February 2006 totalled 15.2 million ordinary shares of Reed Elsevier PLC and 11.9 million ordinary shares of Reed Elsevier NV. Taking into account the associated financing cost, these share repurchases are estimated to have added 0.2% to earnings per share in 2007.
On January 18, 2008 a special distribution was paid to shareholders in the equalisation ration from the estimated net proceeds of the sale of the Harcourt Education division. The distribution was 82.0p per share for Reed Elsevier PLC and €1.767 per share for Reed Elsevier NV and amounted to £2,013 million in aggregate.
The special distribution was accompanied by a consolidation of the ordinary share capital of Reed Elsevier PLC and Reed Elsevier NV on the basis of 58 new ordinary shares for every 67 existing ordinary shares. This represents a 13.4% consolidation of ordinary share capital, being the aggregate special distribution expressed as a percentage of the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at the date of the announcement of the special distribution.
Results of Operations for the Year Ended December 31, 2006
Compared to the Year Ended December 31, 2005
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 25.6p and €0.59 respectively in 2006, compared to 18.6p and €0.43 in 2005. The earnings per share reflect the interests of the respective shareholders of Reed Elsevier PLC and Reed Elsevier NV in the results of the continuing and discontinued operations of the combined businesses.
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation — as defined in the Reed Elsevier merger agreement — is the spot euro/sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend.
Dividends declared in the year, in amounts per ordinary share, comprise: a 2005 final dividend of 10.7p and 2006 interim dividend of 4.1p giving a total of 14.8p (2005: 13.3p) for Reed Elsevier PLC; and a 2005 final dividend of €0.267 and 2006 interim dividend of €0.102 giving a total of €0.369 (2005: €0.332) for Reed Elsevier NV.
The board of Reed Elsevier PLC proposed a 2006 final dividend of 11.8p, giving a total dividend of 15.9p in respect of the financial year, up 10% on 2005. The boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, proposed a 2006 final dividend of €0.304, which results in a total dividend of €0.406 in respect of the financial year, up 13% on 2005. The difference in dividend growth rates reflects the movement in the euro:sterling exchange rate between dividend announcement dates.
Shares repurchased in the year under the annual share repurchase plan announced in February 2006 totalled 20.6 million ordinary shares of Reed Elsevier PLC and 13.4 million ordinary shares of Reed Elsevier NV. Taking into account the associated financing cost, these share repurchases are estimated to have added 0.5% to earnings per share in 2006.


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TREND INFORMATION
 
Trends, uncertainties and events which can affect the revenue, operating profit and liquidity and capital resources of the Reed Elsevier combined businesses include the usage, penetration and customer renewal of our print and electronic products, the migration of print and CD products to online services, investment in new products and services, cost control and the impact of our cost reduction programmes on operational efficiency, the levels of academic library funding, the impact of economic conditions on corporate budgets and the level of advertising demand and regulatory and legislative developments.
 
Trends, uncertainties and events which could have a material impact on Reed Elsevier’s revenue, operating profit and liquidity and capital resources are discussed in further detail in “Item 3: Key Information — Risk Factors”; “Item 4: Information on Reed Elsevier”; and “Item 5: Operating and Financial Review and Prospects — Operating Results Reed Elsevier — Liquidity and Capital Resources — Reed Elsevier; Operating Results — Reed Elsevier PLC and Reed Elsevier NV”.


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ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
DIRECTORS
 
The directors of each of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV at February 20, 200818, 2009 were:
 
         
      Reed Elsevier
 Elsevier Reed
Name (Age)
 Reed Elsevier PLC Reed Elsevier NV Group plc Finance BV
 
Gerard van de Aast (50)Mark Armour (54) Executive Director
and Chief Financial
Officer		 Member of the
Executive Board and
Chief Financial Officer		 Executive Director—
Executive Board
Mark Armour (53)Executive Director and Chief Financial Officer Member of theExecutive Director andMember of the
and Chief FinancialExecutive Board andChief Financial OfficerSupervisory Board
OfficerChief Financial
Officer
Jacques Billy (37)(38) — — — Member of the
Management Board
Dien de Boer-Kruyt (63)(64) — Member of the
Supervisory Board(4)		 — Member of the
Supervisory Board(4)
Supervisory Board
Rudolf van den Brink (60)(61) — — — Chairman of the
Supervisory Board
Sir Crispin Davis (58)(59) Executive Director
and Chief Executive
Officer(3)		 Chairman of the
Executive Board and Chief Executive Officer(3)		 Executive Director and
Chief Executive Officer		 —
and Chief ExecutiveExecutive Board andChief Executive Officer
Officer(3)Chief Executive
Officer(3)
Mark Elliott (58)(59) Non-executive
Director(3)(4)		 Member of the Supervisory
Board(3)(4)		 Non-executive
Director(2)		 —
Director(3)(4)SupervisoryDirector(2)
Board(3)(4)
Erik Engstrom (44)(45) Executive Director Member of the
Executive Board		 Executive Director —
Executive Board
Jan Hommen (64)(65) Non-executive
Chairman(3)(4)		 Chairman of the
Supervisory Board(3)®(4)		 Non-executive Chairman(2) —
Chairman(3)(4)SupervisoryChairman(2)
Board(3)(4)
Lisa Hook (50)(51) Non-executive
Director(1)(4)		 Member of the Supervisory
Board(1)(4)		 Non-executive Director(1) —
Gerben de Jong (63)(64) — — — Member of the
Management Board
Robert Polet (52)(53) Non-executive
Director(4)		 Member of the Supervisory
Board(4)		 Non-executive
Director(2)		 —
Director(4)SupervisoryDirector(2)
Board(4)
Andrew Prozes (62)(63) Executive Director Member of the Executive Board Executive Director —
Executive Board
David Reid (61)(62) Non-executiveMember of theNon-executive—

Director(1)(3)(4)(5)		 Member of the SupervisoryDirector(1)(5)

Board(1)(3)(4)(5)		 
Lord Sharman (64)Non-executiveMember of theNon-executive
Director(1)(2)(5)		 —
Lord Sharman (66) Non-executive
Director(1)(3)(4)		 Member of the SupervisoryDirector(1)

Board(1)(3)(4)		 
Rolf Stomberg (67)Non-executiveMember of theNon-executive
Director(1)		 —
Ian Smith (55) Executive Director
and Chief
Executive
Officer designate		—(3)(4)(6) SupervisoryExecutive Director and Chief Executive Officer designate Director(2)
Board(3)(4)—
 
 
(1)Member of the Audit Committees of the boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc.
 
(2)Member of the Remuneration Committee of the board of Reed Elsevier Group plc.
 
(3)Member of the joint Nominations Committee of the boards of Reed Elsevier PLC and Reed Elsevier NV.
 
(4)Member of the joint Corporate Governance Committee of the boards of Reed Elsevier PLC and Reed Elsevier NV.
 
(5)Senior independent non-executive director, as defined by The Combined Code: Principles of Good Governance and Code of Best Practice in the United Kingdom.
(6)Will be proposed for appointment to the Executive Board of Reed Elsevier NV at the 2009 Annual General Meeting and, upon appointment, will become Chairman of the Executive Board, replacing Sir Crispin Davis who has announced his retirement.
 
A person described as a non-executive director of Reed Elsevier PLC or Reed Elsevier Group plc or a member of the Supervisory Board of Reed Elsevier NV is a director not employed by such company in an executive capacity.


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Gerard van de Aast is Chief Executive Officer of the Reed Business division. Appointed a director of Reed Elsevier Group plc and Reed Elsevier PLC in December 2000 and director of Reed Elsevier NV in April 2001. Member of the Supervisory Board of Océ NV. Prior to joining Reed Elsevier was Vice President and General Manager of Compaq’s Enterprise business in Europe, Middle East and Africa.
Mark Armour was appointed Chief Financial Officer of Reed Elsevier Group plc and Reed Elsevier PLC in 1996, and of Reed Elsevier NV in April 1999. Appointed a member of the Supervisory Board of Elsevier Reed Finance BV in December 1998. Prior to joining Reed Elsevier as Deputy Chief Financial Officer in 1995, was a partner in Price Waterhouse.
 
Jacques Billy was appointed a member of the Management Board of Elsevier Reed Finance BV in February 2002. He is Managing Director of Elsevier Finance SA, having joined that company as Finance Manager in 1999.
 
Dien de Boer-Kruyt was appointed a member of the Supervisory Board of Reed Elsevier NV and of Elsevier Reed Finance BV in 2000. A member of the Supervisory Boards of Sara Lee International (a subsidiary of Sara Lee Corporation), Imtech NV and Allianz Nederland Group NV. Member of the Supervisory Board of the National Registry of non-executive directors and director of the leadership programmes Call and Ravel, for leaders in business, government and universities.
 
Rudolf van den Brink was appointed Chairman of the Supervisory Board of Elsevier Reed Finance BV in January 2006. A former member of the Managing Board of ABN AMRO Bank NV and of the Advisory Board of Deloitte & Touche. A member of the supervisory boardsboard of Akzo Nobel NV, Van der Moolen Holding NV and Samas-Groep NV.
 
Sir Crispin Davis was appointed Chief Executive Officer of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV in September 1999.1999 and will retire from Reed Elsevier on March 19, 2009. Knighted in 2004 for his services to the information industry. Non-executive director of GlaxoSmithKline plc.plc and a member of the International Advisory Board, Citigroup. Prior to joining Reed Elsevier, was Chief Executive Officer of Aegis Group plc. From 1990 to 1993 was a member of the main board at Guinness plc, and Group Managing Director of United Distillers. Spent over 20 years at Procter and Gamble where he held senior positions in the UK and Germany, before heading up the North American Food Business.
 
Mark Elliott was appointed a non-executive director of Reed Elsevier Group plc, Reed Elsevier PLC and a member of the Supervisory Board of Reed Elsevier NV in April 2003. Non-executive director of G4S plc. Until his retirement in April 2008, was General Manager IBM Global Solutions. HeldSolutions, having held a number of positions with IBM, including Managing Director of IBM Europe, Middle East and Africa. Served on the board of IBAX, a hospital software company jointly owned by IBM and Baxter Healthcare, and as chairman of the Dean’s Advisory council of the Kelly School of Business, Indiana University. Non-executive director of Group 4 Securicor plc.
 
Erik Engstrom is Chief Executive Officer of the Elsevier division. He joined Reed Elsevier in August 2004, when he was also appointed a director of Reed Elsevier Group plc and Reed Elsevier PLC. Appointed to the board of Reed Elsevier NV in April 2005. Prior to joining Reed Elsevier, was a partner at General Atlantic Partners. Before that was president and chief operating officer of Random House. Began his career as a consultant with McKinsey. Served as a non-executive director of Eniro AB.
 
Jan Hommen was appointed non-executive Chairman of Reed Elsevier PLC and Reed Elsevier Group plc, and Chairman of the Supervisory Board of Reed Elsevier NV in April 2005. Chairman of the Supervisory Board of ING Group NV TNT NV,(and CEO designate), Academisch Ziekenhuis Maastricht and TiasNimbas Business School of Tilburg University. A member of the Supervisory Board of TNT NV (until April 2009) and of Royal Friesland Campina BV.NV. Was vice-chairman of the board of management and chief financial officer of Royal Philips Electronics NV until his retirement in 2005. Will retire in April 2009.
 
Lisa Hook was appointed a non-executive director of Reed Elsevier Group plc, Reed Elsevier PLC and a member of the Supervisory Board of Reed Elsevier NV in April 2006. President and Chief Operating Officer of NeuStar Inc. Before that wasA director of The Ocean Foundation. Was President and Chief Executive Officer of Sun Rocket, Inc. WasBefore that was President of AOL Broadband, Premium and Developer Services. Prior to joining AOL, was a founding partner at Brera Capital Partners LLC. Previously was Chief Operating Officer of Time Warner Telecom. Has served as Senior Advisor to the Federal Communications Commission Chairman and as Senior Counsel to Viacom Cable.
 
Gerben de Jong was appointed a member of the Management Board of Elsevier Reed Finance BV in December 2007. Previously held senior finance positions in Royal Philips Electronics NV Group.
 
Robert Polet was appointed a non-executive director of Reed Elsevier Group plc, Reed Elsevier PLC and a member of the Supervisory Board of Reed Elsevier NV in April 2007. President and Chief Executive Officer of Gucci Group. Before that spent 26 years at Unilever working in a variety of marketing and senior executive positions throughout the world including President of Unilever’s Worldwide Ice Cream and Frozen Foods division.
 
Andrew Prozes is Chief Executive Officer of the LexisNexis division. Appointed a director of Reed Elsevier Group plc and Reed Elsevier PLC in July 2000 and director of Reed Elsevier NV in April 2001. Non-executive director of Cott Corporation. Prior to joining Reed Elsevier was an Executive Vice President with the West Group, part of the Thomson Corporation,Reuters, and prior to that was Group President of Southam Inc.
 
David Reid was appointed a non-executive director of Reed Elsevier Group plc, Reed Elsevier PLC and a member of the Supervisory Board of Reed Elsevier NV in April 2003. Non-executive Chairman of Tesco plc, having previously been executive deputy chairman until December 2003, and finance director from 1985 to 1997. Chairman of Kwik-Fit and previously anon-executive director of De Vere plc, Legal & General plc and Westbury plc.


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Lord Sharman was appointed a non-executive director of Reed Elsevier Group plc and Reed Elsevier PLC in January 2002, and a member of the Supervisory Board of Reed Elsevier NV in April 2002. Non-executive chairman of Aviva plc and Aegis Group plc, and a non-executive director of BG Group.Group plc. Member of the House of Lords since 1999. Joined KPMG in 1966 where he was elected


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UK Senior Partner in 1994 and also joined both the International and Executive Committees of KPMG. Between 1997 and 1999 he was Chairman of KPMG Worldwide.
 
Rolf StombergIan Smith was appointed Chief Executive Officer designate and a non-executive director of Reed Elsevier PLC and Reed Elsevier Group plc on January 1, 2009. A non-executive director of Galiform plc and a panel member of the UK Royal Mail Review Board. Was Chief Executive Officer of Taylor Woodrow plc from January 2007 until July 2007 when it merged with Wimpey plc. Prior to that was Chief Executive Officer of the General Healthcare Group since 2004, having previously been Chief Executive Officer Europe for Exel, Group Commercial Director of Ocean Group plc and Reed Elsevier PLC in January 1999 andprior to that, Managing Director of Monitor Company Europe, a member of the Supervisory Board of Reed Elsevier NV in April 1999. Chairman of the Supervisory Board of Lanxess AG and Francotype AG. Non-executive director of Smith & Nephew plc, AOA Severstal, TNT NV, Deutsche BP AG, HOYER GmbH and Biesterfeld AG. Formerly a director of The British Petroleum Company plc where he spent 27 years, latterly as Chief Executive of BP Oil International.strategy consulting firm.
 
SENIOR MANAGEMENT
 
The executive officers of Reed Elsevier Group plc, other than directors, at February 20, 200818, 2009 were:
 
Nick Baker:Julian Ashworth:  Chief Strategy Officer. A member of the Reed Elsevier management committee. Appointed to the position on November 17, 2008, succeeding Nick Baker. He has been withjoined Reed Elsevier since 1986 and within Corporate Strategy since 1997.August 17, 2006.
 
Stephen Cowden:General Counsel and Company Secretary of Reed Elsevier PLC and Reed Elsevier Group plc. A UK lawyer. Joined Reed Elsevier in 2000 as General Counsel, and was appointed Company Secretary of Reed Elsevier Group plc and Reed Elsevier PLC in 2001. Prior to joining Reed Elsevier, was Group Company Secretary of Glaxo Wellcome plc.
 
Erik Ekker:  Legal Director Continental Europe and Company Secretary Reed Elsevier NV and Company Secretary of Elsevier Reed Finance BV. A Dutch lawyer. Has been Legal Director (Continental Europe) of Reed Elsevier Group plc since 1993. Joined Reed Elsevier NV in 1977 as Legal Counsel.
Ian Fraser:Group HR Director. A member of the Reed Elsevier management committee. Joined Reed Elsevier in 2005. Prior to joining Reed Elsevier, he was Human Resources Director at BHP Billiton plc and, before that, held senior positions in human resources at Charter plc and Woolworths plc.
 
Mark Popolano:Chief Technology Officer. A member of the Reed Elsevier management committee. Joined Reed Elsevier in March 2007. PreviouslyPrior to joining Reed Elsevier, he was Corporate Senior Vice President and Global Chief Information Officer of AIG Inc.
Jans van der Woude:  Company Secretary and Legal Counsel of Reed Elsevier NV. A Dutch lawyer. She joined Reed Elsevier NV on January 1, 2009, succeeding Erik Ekker who retired June 30, 2008. Prior to joining Reed Elsevier she held the positions of Corporate Legal Director at TNT NV, General Counsel at Getronics NV and latterly Legal Adviser to Corporate Express NV.
 
COMPENSATION
REMUNERATION COMMITTEE
 
Remuneration Committee Terms of Reference and Constitution
 
The Remuneration Committee (“Thethe Committee”) is responsible for:
 
 •  setting the remuneration in all its forms, and the terms of the service contracts and all other terms and conditions of employment of directors of Reed Elsevier Group plc appointed to any executive office of employment;
 •  advising the Chief Executive Officer on the remuneration of members of the Management Committee (other than executive directors) of Reed Elsevier Group plc and of the Company Secretary;
 •  providing advice to the Chief Executive Officer, as required, on major policy issues affecting the remuneration of executives at a senior level below the board; and
 •  establishing and amending the rules of all share basedshare-based incentive plans for approval by shareholders.
 
A copy of the terms of reference of the Committee can be found on the Reed Elsevier website www.reedelsevier.com. The information on our website is not incorporated by reference into this report.
 
Throughout 2007,2008, the Committee consisted of independent non-executive directors as defined by the UK Combined Code on Corporate Governance and the Dutch Corporate Governance Code, and the Chairman of Reed Elsevier. On July 4, 2007 Mark Elliott took over from Rolf Stomberg asis the Chairman of the Committee. The other members of the Committee are Jan Hommen and Robert Polet. The Company Secretary, Steve Cowden, also attends the meetings in his capacity as secretary to the Committee. At the invitation of the Committee Chairman, the Chief Executive Officer attends the meetingsappropriate parts of the meetings.
Ian Fraser (Group HR director) and Philip Wills (Director, Group Compensation and Benefits) provided material advice to the Committee except when his own remuneration is under consideration.during the year.
 
Towers Perrin acted as external advisors to the Committee throughout 20072008 and also provided market data and data analysis. During the year, the CommitteeTowers Perrin also received advice from Kepler Associates relatingprovide actuarial and other human resources consultancy services directly to the review of the remuneration policy and the benchmarking approach.some Reed Elsevier companies.


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Executive directorsEXECUTIVE DIRECTORS
 
Remuneration philosophy and policy
 
The context for Reed Elsevier’s remuneration policy and practices is set by the needs of a group of global business divisions, each of which operates internationally by line of business. Furthermore, Reed Elsevier’s market listings in London and Amsterdam combined with the majority of its employees being based in the US provides a particular set of challenges in the design and operation of remuneration policy.
 
Our remuneration philosophy
 
Reed Elsevier’s guiding remuneration philosophy for senior executives is based on the following precepts:
 
 •  Performance-related compensation; this underpinsis underpinned by Reed Elsevier’s demanding performance standards.
 
 •  Creation of shareholder value; this is at the heart of our corporate strategy and is vital to meeting our investors’ goals.
 
 •  Competitive remuneration opportunity; this helps Reed Elsevier attract and retain the best executive talent from anywhere in the world.
 
 •  Balanced mix of remuneration; this includes salary, incentive opportunitiesbetween fixed and benefits.variable elements, and short and long term performance.
 
 •  Aligning the interests of executive directors with shareholders; this is the foundation for remuneration decisions.shareholders.
 
Our remuneration policy
 
In line with this guiding philosophy our remuneration policy is described below.
 
 •  Reed Elsevier aims to provide a total remuneration package that is able to attract and retain the best executive talent from anywhere in the world, at an appropriate level of cost.
•  In reaching decisions on executive remuneration, the Committee takes into account the remuneration arrangements and levels of increase applicable to senior management and Reed Elsevier employees generally.
 
 •  The Committee considers environmental, social and governance matters in making its decisions on remuneration policy, practice and setting performance targets.targets, and seeks to ensure that incentives are consistent with the appropriate management of risk.
 
 •  Total remuneration of senior executives will be competitive with that of executives in similar positions in comparable companies, includingwhich includes global sector peers and companies of similar scale and international complexity.
 
 •  Competitiveness will beis assessed in terms of total remuneration.remuneration (i.e. salary, short and long term incentives and benefits).
 
 •  The intention is to provide total remuneration that reflects sustained individual and business performance; i.e. median performance will be rewarded by total remuneration that is positioned around the median of relevant market data and upper quartile performance by upper quartile total remuneration.
•  The Committee will consider all available discretion to claw back any payouts made on the basis of materially misstated data. With effect from 2009, the rules of all incentive plans have been amended to provide for specific provisions in this regard.
 
How the performance measures in incentives link to our business strategy
 
The Committee believes that the main driver of long term shareholder value is sustained growth in profitability. The primary measure of profitability that is used throughout the business is growth in adjusted earnings per share at constant currencies (“Adjusted EPS”)(Adjusted EPS). This performance measure has therefore been adopted as the key driver of performance in our longer term incentives.
 
In our Annual Incentive Plan, we reward operational excellence by focusing on the financial measures of revenue, growth, profitabilityprofit and cash generation. In addition, a significant portion of the annual bonus is dependent on performance against a set of key businessperformance objectives that focus(KPOs), including returns metrics appropriate for each business. These are focused on the delivery of our strategic priorities. Performance against these strategic priorities createswhich create the essential platform for growth in longer term profitability.sustainable growth. These priorities align with Reed Elsevier’s strategic imperatives.
 
In 2006, we introduced a further performance measure into our Long Term Incentive Plan of total shareholder returnwe also use Total Shareholder Return (“TSR”) relative to a focused industry peer group. This measure is designed to reflect more directly the returns that we deliver to shareholders via a combination of share price appreciation and dividends. Together with significantSignificant shareholding requirements asare a condition of participation in the LTIP program and of vesting thisthe awards. This performance measure increases alignment of interest between our senior executives and our shareholders.


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The balance between fixed and performance related pay
 
Around two thirdsAt target performance around 70% of each executive director’s remuneration package is linked to performance.performance-related. The fixed pay element is 31%30% (salary 19%20%; pension and other benefits 12%10%) and the variable pay element of 70% is 69% (long term incentives 52%;made up of 20% annual incentives 17%).and 50% long-term incentives.


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Our approach to market positioning and benchmarking
 
During the year, the Committee undertook a review of the benchmarking methodology applied in assessing the competitiveness of the executive directors’ total remuneration. The market competitiveness of total remuneration (i.e. salary, short and long term incentives and benefits) will beis assessed against a range of relevant comparator groups as follows:
 
 •  Global peers in the media sector.sector which includes those companies in our TSR comparator group set out on page 48.
 
 •  UK listed companies of similar size and international scope (excluding those in the financial services sector).
 
 •  US listed companies of similar size and international scope (excluding those in the financial services sector).
 
 •  Companies listed in the Netherlands of similar size and international scope.
 
The competitiveness of our remuneration packages is assessed by the Committee as part of the annual review cycle for pay and performance, in line with the process set out below.
 
 •  First, the overall competitiveness of the remuneration packages is assessed in terms of total remuneration.
 
 •  The Committee then considers market data and benchmarks for the different elements of the package including salary, total annual cash and total remuneration.
•  The appropriate positioning of an individual’s total remuneration against the market is determined based on the Committee’s judgement of individual performance and potential.
 
 •  The aim is to target total remuneration normally betweenCommittee then considers market data and benchmarks for the median and upper quartiledifferent elements of the relevant market for median / upper quartile performers respectively.package including salary, total annual cash and total remuneration.
 
 •  If it is determined that a competitive gap exists in total remuneration terms, the Committee believes that this should be addressed via a review of performance linked compensation elements in the first instance.
 
 •  Benefits, including medical and retirement benefits, are positioned to reflect local country practice.
 
Overview of individualThe total remuneration elementspackage
 
Each element of the remuneration package is designed to achieve specific objectives, as described in the table below. The maincombination of elements creates a unified and balanced reward mix. The value of the reward package is only maximised through the integrated delivery of short and longer term performance. Reward for the delivery of business results is connected with reward for value flowing to shareholders. The incentive arrangements are structured in such a way that reward cannot be maximised through inappropriate short term risk-taking.
The key elements of the reward package for executive directors are summarised below:
 
       
Element Purpose Performance period Performance measure
 
Salary Positions the role and individual appropriately within the relevant market for executive talent Not applicable Reflects the sustained value of the individual in terms ofan executive’s skills, experience and contribution compared with the relevant talent market
       
Annual Incentive Plan (AIP) Provides focus on the delivery of theannual financial targets set out in the annual budgettargets/budgets

Motivates the achievement of annual strategic annual goals and milestones (“KPOs”) that create a platform for future performance		 One year Award subject to the achievement of annualAnnual targets for:
• Revenue — 30%
• Profit — 30%
• Cash Flow Conversion Rate — 10%
• Key Performance Objectives — 30% revenue, profit, cash flow conversion rate and ley performance objectives
       
Bonus Investment Plan (BIP) Encourages personal investment in and ongoing holding of Reed Elsevier shares to developpromoting greater alignment with shareholders

Supports the retention of executives		 Three years Matching shares vest after three yearsVesting subject to continued employment and the achievement of an Adjusted EPS growth hurdle,

retention of personal investment in Reed Elsevier securities and continued employment
Supports the retention of key talentThere is no retesting of the performance condition


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Element Purpose Performance period Performance measure
 
Executive Share Option Scheme (ESOS) Provides focus on longer term share price growth

Rewards sustained delivery and quality of earnings growth		 Three years On grant — Adjusted EPS growth and individualover the three-year performance over three-year period prior to grant and individual performance

On vesting — Adjusted EPS growth over the three-year performance period post grant

There is no retesting of the performance condition
       
Long Term Incentive Plan (LTIP) Drives value creation via longer term earnings, share price and dividend growth

Motivates and rewards the delivery of a total return tosustained earnings growth and superior returns for shareholders		 Three years Vesting subject to Adjusted EPS growth over the three-year performance periodand

Relative Total Shareholder Return (“TSR”) against a selected group of comparator companies over the three-year performance periodmeasured relative to industry peers

There is no retesting of the performance conditions
       
Retirement benefits Positioned to ensure broad competitiveness with local country practice Not applicable SpecificTerms and vesting are specific to individual with reference to relevant country practice
 
Salary
 
Salary reflects the role and the sustained value of the individual in terms of skills, experience and contribution compared within the context of the relevant market. Salaries are reviewed annually in the context of the competitiveness of total remuneration. Any increases typically take effect on January 1.
 
During 2007 Erik Engstrom’s total remuneration package was alteredNotwithstanding Reed Elsevier’s strong performance during 2008 and positive outlook for 2009, in view of the wider economic climate, the Committee decided not to parallel UK remuneration arrangements. His base salary was translated from US dollars to Sterling using a conversion rate of £1.00: $1.90 which reflectedincrease the average £:$ exchange rate during his period of employment.
Following the successful sale of Harcourt Education, Patrick Tierney retired on January 30, 2008. His salary was not increased from January 1, 2008.
The annual salary increases made tosalaries for executive directors with effect from January 1, 2008 were in a range of 4-6% with an average of 4.4% for those executive directors who received an increase. This was slightly below UK and US norms.2009.
 
It is importantDuring 2008 Erik Engstrom’s remuneration package was returned to emphasisea US dollar base. His previous dollar-denominated annualised base salary as at January 1, 2007 of $1,146,600 was increased by 4%, representing the salary increase that took effect on January 1, 2008 whilst his salary was denominated in sterling.
Reed Elsevier uses the same factors: relevant pay market, skills, experience and contribution,factors to determine the levels of increase across all employee populations globally. However,globally: i.e. relevant pay market, skills, experience and contribution. Reed Elsevier operates across many diverse countries in terms of their remuneration structures and practices. The levels of pay increaseAny increases awarded to different employee groups in different geographies reflect this diversity and range of practices. No salary increases are being awarded across the senior management population for 2009, except for promotions or where significant market adjustments are required.
 
Annual Incentive Plan (AIP)
 
The Annual Incentive Plan provides focus on the delivery of the financial targets set out in the annual budget. It further motivates the achievement of strategic annual goals and milestones that create a platform for future performance.
 
How the AIP works
 
For 2008,2009, directors have a target bonus opportunity of 100% of salary (for 2007 this was 90%). (unchanged from 2008) that is weighted as follows across the four elements:
Measure
Weighting
— Revenue30%
— Profit*30%
— Cash Flow Conversion Rate10%
— Key Performance Objectives (KPOs)30%
*The Profit measure for the Reed Elsevier CEO and CFO is Adjusted Profit After Tax for the Reed Elsevier combined businesses. The profit measure for Divisional CEOs is Adjusted Operating Profit for their respective divisions.

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The target bonus opportunity for the financial measures is payable for the achievement of highly stretching financial targets, set in line with the

40

annual budget for the relevant business. The 100% target bonus opportunity is weighted as follows across the performance measures set out below:
— Revenue30%
— Profit*30%
— Cash Flow Conversion Rate10%
— Key Performance Objectives (KPOs)30%
*The Profit measure for the CEO and CFO is adjusted profit after tax for the Reed Elsevier combined businesses. The profit measure for Divisional CEOs is the adjusted operating profit for their respective division.
The four elements are measured separately, such that there could be a payout on one element and not on others.
The KPOs are individual to each executive director. Each director is typically set aroundup to six KPOs to reflect critical business priorities for which they are accountable. For 2009, the KPOs for executive directors will include returns metrics, reinforcing the importance placed by the Board on investment returns. Against each objective, a number of measurable ‘milestone targets’ are set for the year. All financial targets and KPOs are approved by the Committee at the beginning of the year.
 
For 2008,2009, payment against each financial performance measure will only commence if a threshold of 97.5% of the target is achieved (unchanged from 2007)2008). A maximum bonus of 150% of salary can be earned (unchanged from 2007)2008) for substantial out-performance against the demanding annual budget targets and for the achievement of agreed KPOs to an exceptional standard.
 
AIP Payments for 20072008
 
The annual bonuses paid to directors2008 financial results were based on performance against targets set forstrong. At constant exchange rates, revenue growth profit growth, the achievement of the targeted cash flow conversion rate,in continuing operations was +7% (or 4% higher underlying, i.e. before acquisitions and performance against key strategic objectives. The Harcourt Education sale was treated as a non-recurring item and its positive impact was excluded from the financial results for the purposes of the AIP.
The 2007 financial results saw 6% revenue growth (at constant currencies),disposals); underlying margin improvement of 100margins improved by 110 basis points,points; and adjusted operating profits were up 10% at constant currencies. The quality of earnings was underpinned by cash flow with 97%12% (or 9% underlying). Return on capital, increasing for the fifth successive year to 12.1% post tax, and conversion of adjusted operating profits convertingprofit into cash and higher returns on invested capital. Overall,at 102% underpinned the quality of the earnings at constant currency grew 12%, Reed Elsevier’s highest growth for ten years. There was above market revenue growth inachieved.
At divisional level, Elsevier, LexisNexis and Reed Exhibitions all showed underlying revenue growth and double-digit growth in adjusted operating profit (at constant currencies). Reed Business Information held up well for most of the year, but was impacted by deteriorating advertising markets in the final quarter.
The financial performance was accompanied by very solid performances by individual directors against their key performance objectives. The only significant shortfall was in respect of the failure to divest Reed Business Information, which was largely due to the poor credit markets and marginthe deteriorating economic environment. Achievements included the acquisition and well-advanced integration of ChoicePoint and progress in all three businesses.refinancing the acquisition facility; innovation in new products and services to match the growing demand for online information and workflow solutions; the delivery of major restructuring programmes across the businesses and corporate functions, and the further development of business sectors targeted for strategic growth.
 
In additionOverall, in the directors were generally assessed as having delivered well against their KPOs with some exceptional performances noted. Individual KPOs were largely focused against execution and delivery of Reed Elsevier’s key strategic priorities: development of workflow solutions, improving cost efficiency, and strengthening and refocusingcontext of the Reed Elsevier portfolio. Overall,highly challenging financial targets set for 2008, this resulted in bonus payments above target.bonuses for directors below the on-target level.
 
Bonus Investment Plan (BIP)
 
The Bonus Investment Plan encourages personal investment and ongoing shareholding in Reed Elsevier shares to develop greater alignment with shareholders.
 
How the BIP works
 
Executive directors and other designated key senior executives may invest up to half of their cash bonus received under the AIP in shares of Reed Elsevier PLC or Reed Elsevier NV.NV securities. Subject to continued employment and their retaining these investment shares during a three-year performance period, participants will be awarded an equivalent number of matching shares.
 
The vesting of the matching shares is subject to the achievement of a performance condition. For the 2008 and 2009 matching awards this has been increased to at least 8% (from 6% in 2007)2007 and 2006) per annum compound growth in the average of Reed Elsevier PLC and Reed Elsevier NV Adjusted EPS over the three-year performance period. In the event of a change of control, the vesting of the matching shares is subject to the discretion of the Committee.
 
Executive Share Option Scheme (ESOS)
 
The Executive Share Option Scheme is designed to provide focus on longer term share price growth and reward the sustained delivery and quality of earnings growth.
 
How the ESOS works
 
Annual grants of options are made over shares in Reed Elsevier PLC and Reed Elsevier NV at the market price on the date of grant. The maximum size of the total grant topool available for all participants is determined by the compound annual growth in Adjusted EPS


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EPS over the three years prior to grant. The Target Grant Poolmaximum target grant pool for all participants is defined with reference to share usage during the base year as follows:
 
     
Adjusted EPS Growth
per annum
  
per annum2008 & 2009 ESOS grants
 Target Grant Pool
 
Less than 8%  5050%%
8% or more  7575%%
10% or more  100100%%
12% or more  125125%%
14% or more  150150%%
 
ESOS optionsawards granted in 2005, 2006 and 2007 were subject to a pre-grant performance condition relating to the target grant pool of 6% to 12% compound Adjusted EPS growth per annum respectively.
 
ESOS grantsawards made to executive directors are subject to an annual individual maximum of three times salary. The awards to individual directors are subject to the following three performance criteria:
 
     
Test 1 On grant The size of the Target Grant Pool determined as above.
Test 2 On grant Individual performance over the three-year period prior to grant.
Test 3 On vesting Compound Adjusted EPS growth during the three years following grant of at least 8% per annum (increased from 6%(6% p.a.) for 2006 and 2007 ESOS awards). There is no retesting of the performance condition.
 
ESOS options granted in 2005, 2006 and 2007 are subject to a post-grant performance hurdle of 6% per annum compound Adjusted EPS growth over three years.
Options are exercisable (except for defined categories of approved leavers) between three and ten years from the date of grant.grant (except for defined categories of approved leavers). In the event of a change of control, the performance test applied under the ESOS for executive directors will be based on an assessment by the Committee of progress against the targets at the time the change of control occurs.
 
Long Term Incentive Plan (LTIP)
 
The Long Term IncentiveLTIP rewards the creation of value via the delivery of sustained earnings growth and superior returns for shareholders.
 
How the LTIP works
 
The LTIP works as follows:
 
 •  Award of a target number of shares
 
 •  Performance is measured over a three-year performance period
 
 •  Vesting depends on compound growth in adjustedAdjusted EPS at constant currencies
 
 •  Relative TSR performance can increase or decrease the target award
 
 •  Final pay out inNumber of shares isvesting plus accrued notional dividends determined by performance achieved
 
Executive directors are eligible to receive an annual award of performance shares with a target value of around 135% of salary.
The vesting of the award is subject to performance against two measures: Adjusted EPS growth and relative TSR performance over the same three-year performance period. The awards are subject to meeting shareholding requirements and to the executive agreeing to be bound by strict non-compete provisions.
 
How the LTIP performance measures work
 
EPS measure
No payout is made under the LTIP unless Reed Elsevier achieves compound Adjusted EPS growth of at least 10% per annum (at least 8% for 2006 and 2007 LTIP). This is irrespective of the associated TSR performance.
Maximum vesting (under the EPS component) is achieved for compound growth of 14% per annum or higher (12% or higher for 2006 and 2007 LTIP).
TSR measure
The combinationaward earned under the EPS component may be increased or decreased by TSR performance measured against a group of industry peers over three years:
•  If TSR performance is below median, this will reduce the target award.


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•  The maximum uplift to the target award will be applied if TSR performance places Reed Elsevier at or above the upper quartile of the comparator group.
LTIP Vesting Schedule for 2008 and 2009 awards
The combined effect of the two performance measures is shown in the following table, which sets out the potential payment as a percentage of the initial target award:
 
                 
  TSR Ranking 
        62.5th
  Upper quartile
 
Adjusted EPS growth p.a.
 Below median  Median  percentile  and above 
 
Below 10%  0%   0%   0%   0% 
10%  28%   35%   42%   49% 
12%  80%   100%   120%   140% 
14% and above  108%   135%   162%   189% 
LTIP Performance Schedule
 
                 
  TSR Ranking 
        62.5th
  Upper quartile
 
Adjusted EPS Growth (constant currencies) p.a.
 Below median  Median  percentile  and above 
Below 10%  0%  0%  0%  0%
10%  28%  35%  42%  49%
12%  80%  100%  120%  140%
14% and above  108%  135%  162%  189%


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The EPS performance condition for LTIP awards granted in 2006 and 2007 ranges from 8% to 12% p.a. Adjusted EPS growth.
The TSR comparator group is made up of global industry peers. The comparators applicable to the outstanding LTIP awards and the 2009 award are set out below.
TRS comparators*
2009 Award2008 Award2007 Award2006 Award
ChoicePointüüü
DMGTüüüü
Dow Jonesüü
Dun & Bradstreetüüüü
Emapüüü
Experianü
Fair Issacüüüü
Informaüüüü
John Wiley & Sonsüüüü
Lagardere Groupeüüüü
McGraw-Hillüüüü
Pearsonüüüü
Reuters Groupüü
Taylor Nelson Sofresüüü
The Thomson Corporationüü
Thomson Reutersüü
United Business Mediaüüüü
VNUü
Wolters Kluwerüüüü
WPP Groupüüüü
*Reflects the composition of the comparator group as at the date of grant.
 
The Committee considers the above performance conditions to be tougher than normal UK practice because the TSR element can enhance the reward to participants if, but only if, the Adjusted EPS test has first been achieved, as explained below.
EPS measure
The target award may be increased or decreased by relative TSR performance over three years
No payout is made under the LTIP unless Reed Elsevier achieves a compound annual level of Adjusted EPS growth of at least 10% per annum. This is irrespective of the associated TSR performance.TSR is measured against a group of global media peers.
• If TSR performance is below median, this will reduce the target award.
• The maximum uplift to the target award will be applied if TSR performance places Reed Elsevier in the upper quartile of the comparator group.
Maximum vesting (under the EPS component) is achieved for compound growth of 14% per annum or higher.For awards made in 2007, the comparator group comprised: The Thomson Corporation, United Business Media, McGraw Hill, Fair Isaac, Reuters Group, John Wiley & Sons, Pearson, DMGT, Wolters Kluwer, Lagardere, ChoicePoint, Dun & Bradstreet, EMAP, WPP, Informa, Taylor Nelson, Dow Jones.
above.
 
The Committee has full discretion to reduce or cancel awards granted to participants based on its assessment as to whether the Adjusted EPS and TSR performance fairly reflects the progress of the business having regard to underlying revenue growth, cash generation, return on capital employed and any significant changes in currency and inflation, as well as individual performance.
 
Notional dividends accrue on the award during the vesting period (i.e. toTo the extent that the underlying shares vest, notional dividends are paid out as a cash bonus at the end of the three-year performance period).period.


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Operation of the LTIP
 
ForNumerous mergers and acquisitions have impacted the purposes of determining Reed Elsevier’scomparator group companies during the performance cycle. The Committee applies a fair and consistent basis to determine the relative TSR performance of each company for these purposes. Companies which are taken over within six months after the start of a performance period are excluded from the comparator group. For those that are subject to a transaction more than six months into a performance period, any transaction-related share price premium is eliminated and the TSR prior to the transaction is indexed forward using the daily average share price movement for the remaining companies in the peer group.
The averaging period applied for TSR measurement purposes is six months prior to the start of the financial year in which the award is made and the final six months of the third financial year of the performance period.
The TSR of Reed Elsevier and each of the comparator companies will becompany is calculated in the currency of its primary listing, which the Committee considers to be the fairest test of management’s relative performance. listing.
Reed Elsevier’s TSR will beis taken as a simple average of the TSR of Reed Elsevier PLC and Reed Elsevier NV.
 
For awards made in 2006, VNU was also a member of the peer group. It has been removed for awards made in 2007 as it has become a private company.
In addition to achieving appropriate levels of performance against the two measures, the ultimate vesting of the LTIP award is subject to the executive meeting a shareholding requirement. In the event of a change of control, the performance test applied under the LTIP will be based on an assessment by the Committee of progress against the Adjusted EPS and TSR targets at the time the change of control occurs (subject to any rollover that may apply).
LTIP shareholding requirement
The shareholding requirement for the Reed Elsevier Chief Executive Officer is three times salary and for the other executive directors two times salary. Executive directors have five years to build up their shareholding to the required level. The shareholding requirement must be met in order to vest the designated LTIP awards and once met, is a condition of ongoing participation in the LTIP.
Details of directors’ shareholdings as at December 31, 2008 are set out on page 69. As at December 31, 2008, those directors who were granted an LTIP award in 2006 and who are subject to ongoing shareholding requirements, well exceeded their requirement in order to vest this award on February 27, 2009.
 
Treatment of the special distribution for share-based incentives
 
In January 2008 a special distribution was paid on ordinary shares in Reed Elsevier PLC and Reed Elsevier NV.
 
The special distribution was not attributed to any unvested share-based awards nor to any vested share options that had been granted under the incentive plans. None of these awards was therefore adjusted as a result of the consolidation of share capital in January 2008.
 
Other employee share plans
 
UK-based executive directors are eligible to participate in the HMRC approved all-employee UK Savings-Related Share Option Scheme.Scheme (SAYE). US-based directors are eligible to participate in the all-employee US-based Employee Stock Investment Plan (EMSIP). Under the EMSIP, employees are able to purchase Reed Elsevier PLC and Reed Elsevier NV securities at the prevailing market price, with commissions and charges being met by Reed Elsevier.
 
Dilution
The estimated dilution over a ten-year period from outstanding awards over Reed Elsevier PLC shares under all share-based plans was 6.8%7.4% of the Reed Elsevier PLC share capital at December 31, 2007. This estimate2008. The estimated dilution over the same period in respect of outstanding awards over Reed Elsevier NV shares was made before7.6% of the Reed Elsevier NV share capital at December 31, 2008. These estimates reflect the impact of the share consolidation which took place in January 2008.
 
Retirement benefits policy
 
The Committee reviews policy retirement benefit provisions in the context of the total remuneration for each executive director, bearing in mind his age and service and against the background of evolving legislation and practice in Reed Elsevier’s major countries of operation. Base salary is the only pensionable element of remuneration.


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Retirement benefits for UK-based executive directors
 
The UK-based executive directorsSir Crispin Davis is provided with a UK defined benefit pension arrangement targeting a pension of 45% of salary at his retirement age of 60. Mark Armour and Erik Engstrom are provided with conventional UK defined benefit pension arrangements targetingunder which they accrue a pension of 1/30th of salary for every year of service (up to a maximum of two thirds (Sir Crispin Davis 45%) of salary at a normal retirement age of 60.
salary). The targeted pension is provided through a combination of:
 
 •  the main UK Reed Elsevier Pension Scheme for salary restricted to a cap, determined annually on the same basis as the pre-April 2006 Inland Revenue earnings cap;cap, and
 
 •  Reed Elsevier’s unfunded unapproved pension arrangement for salary above the cap.


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Retirement benefits for non UK-based executive directorsPrior to November 1, 2007, Erik Engstrom was not a member of any company pension scheme and Reed Elsevier made annual contributions of 19.5% of his salary to his personal pension plan. From November 1, 2007 contributions to his designated retirement account ceased and he became a member of the UK defined benefit pension arrangement.
 
The two US-based directors, In respect of Ian Smith, Reed Elsevier pays him a cash allowance in lieu of pension equal to 30% of base salary per annum.
Gerard van de Aast was a member of the UK defined benefit pension arrangement until the termination of his employment on December 31, 2008. On the termination date his period of pensionable service was increased by eight months, reflecting his mitigated notice period.
Andrew Prozes, and Patrick Tierney, are covered by a mixUS-based director, is provided with a mixed arrangement of defined benefit and defined contribution arrangements.contribution. In accordance with US legislation, they havehe has no defined retirement age. On July 17, 2007 he became vested in an annual pension of US$300,000. His basic pension continues to accrue at a rate of $42,857 per annum for each completed year of service between July 17, 2007 and February 1, 2011. In addition Andrew Prozes will be entitled to receive an enhancement to his annual pension unless he resigns or if his employment is terminated by Reed Elsevier for cause prior to February 1, 2011. Any such enhancement will be equal to $3,720.93 times the number of completed calendar months between July 1, 2007 and the date of termination or, if earlier, February 1, 2011. For these purposes, his termination date shall be deemed to be 12 months after he ceases employment.
Patrick Tierney retired on January 30, 2008 and became fully vested in his pension.
During 2007,pension in November 2007. The pension is reduced by the Committee reviewed Andrew Prozes’ pension provision in the contextvalue of relevant market data and determined that he will receive an enhancement to his annual pension of $44,651 for each completed year of service between July 1, 2007 and February 1, 2011 applied on a pro-rata basis.
Prior to 2007any other retirement benefits payable by Reed Elsevier paid an annual contribution of 19.5% of salaryor any former employer (other than those attributable to Erik Engstrom’s personal pension plan. This arrangement ended on October 31, 2007 and with effect from November 1, 2007 he was provided with similar defined benefit pension arrangements as those set out above for UK-based executive directors, targeting two thirds of salary at a normal retirement age of 60.employee contributions).
Shareholding requirements
Participants in the LTIP are required to build up a significant personal shareholding in Reed Elsevier PLC and/or Reed Elsevier NV.
 
The shareholding requirements were increasedpension arrangements for all directors (UK and non-UK) include life assurance cover whilst in 2006, whenemployment, an entitlement to a pension in the new LTIP cycle for 2006-08 was launched. event of ill health or disability and a spouse’s and/or dependants’ pension on death.
The new higher requirements must be met prior to any payout under that cycleincrease in March 2009. The shareholding requirementthe transfer value of the directors’ pensions, after deduction of contributions, is shown in the table below. Transfer values for the Reed Elsevier Chief Executive Officer was increased to three times salary (previously two times)UK directors have been calculated in accordance with the guidance note GN11 published by the UK Institute of Actuaries and for other executive directors to two times salary (previously one and a half times).Faculty of Actuaries. The transfer values at December 31, 2008 have been calculated using the transfer value basis adopted by the trustees from October 1, 2008.
 
These shareholding requirements are a condition of vesting under the LTIP. The executive directors that participated in the 2004 LTIP grant met and exceeded their shareholding requirementstransfer value in respect of individual directors represents a liability in respect of directors’ pensions entitlement, and is not an amount paid or payable to the 2007 vestingdirector.
Transfer values of this award.accrued pension benefits
                                     
                          Transfer
 
                          value at
 
                          December 31,
 
                          2008 of
 
                          increase
 
              Increase in
        Increase in
  in accrued
 
        Transfer
  Transfer
  transfer
     Increase in
  accrued
  pension
 
        value
  value
  value during
  Accrued
  accrued
  annual
  during the
 
        of accrued
  of accrued
  the year
  annual
  annual
  pension
  year (net
 
        pension
  pension
  (net of
  pension
  pension
  during the year
  of inflation
 
  Age
  Director’s
  December 31,
  December 31,
  director’s
  December 31,
  during
  (net of
  and director’s
 
  December 31,
  contributions
  2007
  2008
  contributions)***
  2008
  the year
  inflation)
  contributions)
 
  2008  £  £  £  £  £  £  £  £ 
 
Gerard van de Aast*  51   5,820   1,379,993   2,352,882   967,069   170,943   40,385   35,163   478,166 
Mark Armour  54   5,820   3,466,035   4,358,939   887,084   284,535   30,613   20,470   307,772 
Sir Crispin Davis  59   5,820   9,416,905   9,609,144   186,419   519,601   73,514   55,670   1,023,707 
Erik Engstrom**  45   5,820   28,306   271,227   237,101   24,415   21,054   20,919   226,568 
Andrew Prozes  62   —   2,498,231   3,059,120   560,889   231,184   47,302   47,302   625,913 
Patrick Tierney  63   —   3,095,761   3,020,215   (75,546)  237,838   —   —   — 
* On January 1, 2009 he started to draw his pension of £137,894 p.a.
**Based on a sterling salary which at January 1, 2008 was £627,612.
***For UK directors, includes changes in the calculation basis of transfer values adopted by the scheme trustees from October 1, 2008.
 
Service contracts policy
 
Executive directors are employed under service contracts that provide for a maximum of one year’s notice. The contracts neither specify a pre-determined level of severance payment nor contain specific provisions in respect of change in control.
 
The Committee believes that as a general rule, notice periods should be twelve months and that the directors should, subject to practice within their base country, be required to mitigate their damages in the event of termination. The Committee will, however, note local market conditions so as to ensure that the terms offered are appropriate to attract and retain top executives operating in global businesses.


50

 
The service contracts for executive directors (and for approximately 100 other senior executives) contain the following three provisions:
 
 •  non-compete provisions which prevent them from working with specified competitors, from recruiting Reed Elsevier employees and from soliciting Reed Elsevier customers for a period of 12 months after leaving employment;
 
 •  in the event of their resigning, they will immediately lose all rights to any outstanding awards under the LTIP, ESOS and BIP granted from 2004 onwards including any vested but unexercised options; and
 
 •  in the event that they were to join a specified competitor within 12 months of termination, any gains made in the six months prior to termination on the vesting or exercise of an LTIP, ESOS and BIP award made from 2004 onwards shall be repayable.


44

 
Each of the executive directors has a service contract, as summarised below:
 
         
    Expiry date
    
    (subject to
    
  Contract Date notice period) Notice period Subject to:
G J A van de Aast(i)
 November 15, 2000 July 17, 2017Ended December 31, 2008 12 months— English law
M H Armour(i)
 October 7, 1996 July 29, 2014 12 months English law
Sir Crispin Davis(i)
 July 19, 1999 March 19, 2009 12 months English law
E Engstrom(i)
 June 25, 2004 June 14, 2025 12 months English law
A Prozes(ii)
 July 5, 2000 Indefinite 12 monthsmonths’ salary payable for termination without cause New York law
I Smith(i)
 November 3, 2008 January 22, 2019 payable for termination12 months 
without causeEnglish law
P Tierney(ii)
 November 19, 2002 Retired on
January 30,
2008		 — New York law
 
(i) 
(i)Employed by Reed Elsevier Group plc
(ii)Employed by Reed Elsevier Inc.
Gerard van de Aast’s severance arrangements
 
(ii) Employed byGerard van de Aast’s position as CEO of Reed Elsevier Inc.Business ceased to exist with effect from December 15, 2008 and his employment ended on December 31, 2008. He received the following compensation on termination:
 
The committee reviewed Erik Engstrom’s contract and remuneration arrangements during 2007 and altered his terms of employment to parallel UK remuneration arrangements. This change was made to reflect the current circumstances of his role.
•  a gross cash sum of £391,000, equal to eight months’ annual base salary, representing a mitigated payment in respect of his notice period (this payment was made in January 2009); and
•  an augmentation of his accrued benefit under the UK defined benefit pension arrangement by an amount that reflects the crediting of his pensionable service by eight months (also reflecting mitigation).
 
At the request of the Board, Patrick Tierney agreed to defer his planned retirement in early 2007 in order to manage and oversee the sale of Harcourt Education for maximum value. In order to secure that deferred retirement, the Committee put special retention and incentive arrangements in place which: i) rewarded his continuing commitment to Reed Elsevier and ii) incentivised him to optimise the Harcourt Education sale proceeds. Such payments are established practice in the US, and increasingly in Europe.
The successful completion of the Harcourt Education sale on January 30, 2008 resulted in aggregate sale proceeds of $4.95 billion and a special distribution of $4 billion was paid to shareholders. The Committee consequently awarded Patrick Tierney a sale bonus of $2,917,150 calculated by reference to the excess of the above sale proceeds over a pre-determined target figure. Furthermore, the Committee recognised his outstanding management contribution to the Harcourt Education performance in meeting its financial targets during the extended sale period, and awarded Patrick Tierney a payment of $1,500,000 under the terms of his retention bonus.
Patrick Tierney’s service contract terminated on January 30, 2008 following his retirement from Reed Elsevier. Any outstandingHis share-based awards under the ESOS, BIP and LTIP have beenwere treated in accordance with the standardrules of the respective plans and his LTIP shareholding requirement ceased on termination.
Sir Crispin Davis’ retirement rules under those plans. Patrick Tierney’s shareholding requirementsarrangements
The Committee determined that the following terms shall apply in respect of his share-based awards terminated upon his retirement. For the avoidance of doubt, no severance payment has applied and he did not receive an increaseSir Crispin Davis’ retirement in March 2009:
•  he will continue to be eligible for a pro rata 2009 annual bonus under the AIP. Any bonus due will be paid in the first quarter of 2010 and will be subject to performance in the same way as the bonuses payable to the other executive directors;
•  as is standard practice for retirements early in the year, he did not receive 2009 grants under ESOS and LTIP and will not participate in the 2009 BIP;
•  no termination payments are due since he will be retiring;
•  all unvested share-based awards will be treated in accordance with the rules of the plans, and outstanding options will be exercisable forthree-and-a-half years from retirement; and
•  his LTIP shareholding requirement will cease on retirement.


51

Ian Smith’s remuneration arrangements
Ian Smith’s base salary fromon his recruitment on January 1, 2008. With effect from2009 was £900,000. He has an on target annual bonus opportunity under AIP of 100% of base salary for 2009 and will be eligible to participate in BIP in 2010 up to a maximum of 50% of his earned annual bonus for 2009.
Ian Smith is eligible to participate in ESOS and received a grant of an option over shares with a market value on the date of retirement,grant of 100% of his base salary on February 19, 2009. In addition, he became fully vestedis eligible for a target grant under the 2009-11 cycle of the LTIP with a market value on the date of grant of 135% of base salary. Ian Smith is subject to a shareholding requirement of three times salary to be built up over five years.
The Company will pay a cash allowance in lieu of pension equal to 30% of his base salary. His other benefits are a company car, private medical insurance, disability and life assurance.
Under the pension arrangements thatterms of his contract, Ian Smith was eligible for an award of performance shares with a market value equal to 90% of his base salary. The grant was made on February 19, 2009 on terms equivalent to the 2008 LTIP awards made to other executive directors (described on pages 47 to 49), including the same vesting date, vesting schedule, performance conditions (subject to such adjustments as the Committee considers appropriate) and entitlement to notional dividends.
Any shares to which Ian Smith becomes entitled when the award vests, subject to performance, in early 2011 will be satisfied out of existing ordinary shares only. The award will not be pensionable.
The Committee considered the grant of this performance share award to have been set outessential to secure Ian Smith’s services, and was satisfied that the award was appropriate and would align his interests with those of shareholders. As this was a special arrangement to facilitate, in unusual circumstances, Ian Smith’s recruitment, shareholder approval was not required by virtue of 9.4.2(2)R of the current and prior remuneration reports.UK Listing Rules.
 
External appointments policy
 
The Committee believes that the experience gained by allowing executive directors to serve as non-executive directors on the boards of other organisations is of benefit to Reed Elsevier. Accordingly, executive directors may, subject to the approval of the Chairman and the Chief Executive Officer, serve as non-executive directors on the boards of up to two non-associated companies (of which only one may be to the board of a major company) and they may retain remuneration arising from such appointments.
 
 •  Gerard van de Aast becameis a non-executive director of OCE NV on May 1, 2006 and received a fee of €37,216€44,723 (£35,494) during 2008 (€37,216 (£25,490) during 2007 (€23,342 (£15,879) during 2006)2007).
 
 •  Sir Crispin Davis is a non-executive director of GlaxoSmithKline plc and received a fee of £70,000£86,250 during 20072008 (£70,000 during 2006)2007).
 
 •  Andrew Prozes is a non-executive director of the Cott Corporation and received a fee of $62,270$153,790 (£83,130) during 2008 ($62,270 (£31,135) during 2007 ($56,000 (£30,435) during 2006)2007).
 
Non-executive directorsNON-EXECUTIVE DIRECTORS
 
Policy on non-executive directors’ fees
 
Reed Elsevier seeks to recruit non-executive directors with the experience to contribute to the boardboards of a dual-listed global business and with a balance of personal skills that will make a major contribution to the boards and their committee structures. With the exception of Dien de Boer-Kruyt, who serves only on the supervisory boardSupervisory Board of Reed Elsevier NV, non-executive


45

directors, including the Chairman, are appointed to the boards of Reed Elsevier Group plc, Reed Elsevier PLC and the supervisory boardSupervisory Board of Reed Elsevier NV. Non-executive directors’ fees reflect the directors’ membership of the three Reed Elsevier boards.
 
The primary source for comparative market data is the practice of FTSE50 companies, although reference is also made to AEX and US listed companies.
 
Non-executive directors, including the Chairman, serve under letters of appointment, do not have contracts of service and are not entitled to notice of, or payments following, retirement from the board.
 
Fee levels
 
Non-executive directors receive onean annual fee in respect of their memberships of the boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc. The fee paid to Dien de Boer-Kruyt, who serves only on the supervisory boardSupervisory Board of Reed Elsevier NV, reflects her time commitment to that company and to other companies within the Reed Elsevier combined businesses. Non-executive directors are reimbursed for expenses incurred in attending meetings. They do not receive any performance related bonuses, pension provision, share options or other forms of benefit. Fees may be reviewed annually, although in practice they have changed on a less frequent basis.
 
During 2007,Following a review was conducted ofin 2007, new fee levels for the non-executive director fees in the context of relevant market data. This was the first time that non-executive directors’ fees had been reviewed since 2003. The fee for the Chairman, which was last reviewed in 2005, was also included in this review. The review indicated that fees paid by Reed Elsevier were no longer competitive with those paid by companies of a comparable size and international scope. New fee levels were made effectivedirectors took effect from January 1, 2008. The Chairman indicated that his fee should remain unchanged and will therefore remainit remained at €350,000 per annum.annum for 2008. The chairmanship of


52

the Audit and Remuneration Committees attracts an additional fee of £15,000/€20,000. The Reed Elsevier Chairman chairs the Nominations Committee and does not receive a separate fee for his role as chairman of that committee.
 
In 2007 the Reed Elsevier Group plc board had a charityThe non-executive directors’ donation matching programme for non-executive directors. Under the policy, where a non-executive director donates all or part of their fees to a registered charity, Reed Elsevier may, at its sole discretion, make a matching donation to any charity, provided the charity’s objectives are judged to be appropriate and are not political or religious in nature. David Reid, Strauss Zelnick, Cees van Lede, Mark Elliott and Jan Hommen each donated a proportion of their fees in respect of 2007 to charity and, in accordance with the programme, matching charitable donations were made of £45,000, £44,325, £13,699, £22,500 and £6,849 respectively. This programme will not be operating in 2008.was discontinued on December 31, 2007.
 
Emoluments of the directorsDirectors’ emoluments and fees
(a) Aggregate emoluments
 
The emoluments of the directors of Reed Elsevier PLC and Reed Elsevier NV (including any entitlement to fees or emoluments from either Reed Elsevier Group plc or Elsevier Reed Finance BV) were as follows:
 
(a) Aggregate emoluments
                
 2007 2006  2008 2007 
 (In thousands)  (In thousands) 
Salaries and fees  £4,566   £4,502   £4,360   £4,566 
Benefits  117   126   115   117 
Annual performance-related bonuses  4,073   3,273   5,547   4,073 
Pension contributions  131   139   51   131 
Pension in respect of former director  203   221 
Pension in respect of former directors  429   203 
          
Total  £9,090   £8,261   £10,502   £9,090 
          
 
NoPatrick Tierney retired on January 30, 2008 and did not receive any compensation payments have been made for loss of office or termination in 2006 and 2007.office. Gerard van de Aast’s employment ended on December 31, 2008 under the arrangements described on page 51. No loans, advances or guarantees have been provided on behalf of any director.
 
Details of long-term share basedshare-based incentives which vested and were exercised by the directors over shares in Reed Elsevier PLC and Reed Elsevier NV during the year are shown on pages 5258 to 55.63. The aggregate notional pre-tax gain made by the directors from such incentives during the year was £15,031,942 (2006: £1,408,072)£1,857,517 (2007: £15,031,942).


46

(b) Individual emoluments In relation to Patrick Tierney and Gerard van de Aast this reflects the vesting of executive directorsshares during 2008 up to their respective termination dates.
 
                     
  2007  2006 
  Salary  Benefits  Bonus  Total  Total 
 
G J A van de Aast  £552,825   £17,535   £594,563   £1,164,923   £1,061,603 
M H Armour  589,838   19,843   666,222   1,275,903   1,072,305 
Sir Crispin Davis  1,135,680   28,137   1,267,419   2,431,236   2,040,008 
E Engstrom  578,328   18,359   592,004   1,188,691   1,153,480 
A Prozes  584,220   23,184   525,798   1,133,202   1,193,922 
P Tierney (until February 1, 2008)  535,600   9,714   427,329   972,643   805,462 
                     
Total  £3,976,491   £116,772   £4,073,335   £8,166,598   £7,326,780 
                     
(b) Individual emoluments of executive directors
                     
  2008  2007 
  Salary  Benefits  Bonus  Total  Total 
 
G J A van de Aast  £585,996   £17,792   £344,273   £948,061   £1,164,923 
M H Armour  613,440   21,381   558,230   1,193,051   1,275,903 
Sir Crispin Davis  1,181,100   29,246   1,074,801   2,285,147   2,431,236 
E Engstrom  629,026*  22,949   667,643   1,319,618   1,188,691 
A Prozes  656,854   18,278   513,988   1,189,120   1,133,202 
P Tierney (until January 30, 2008)  52,706   5,372   2,387,649**  2,445,727   972,643 
                     
Total  £3,719,122   £115,018   £5,546,584   £9,380,724   £8,166,598 
                     
*This reflects the pro-rating of his sterling salary to the end of November 2008 and one month of his US dollar denominated salary for December 2008.
**As disclosed in the 2007 Annual Report on Form 20-F filed with the SEC on March 20, 2008, in connection with Patrick Tierney’s agreement to defer his planned retirement in early 2007 in order to manage and oversee the sale of Harcourt Education and the successful completion of the Harcourt Education sale in January 2008, the Committee awarded Patrick Tierney a sale bonus of $2,917,150 calculated by reference to the excess of the sale proceeds over a predetermined target figure and a payment of $1,500,000 under the terms of his retention bonus in recognition of his outstanding management contribution to the Harcourt Education performance in meeting financial targets during the extended sale period.
 
Benefits principally comprise the provision of a company car or car allowance, health and disability insurance.
 
Messrs.Andrew Prozes, and Tierney, together with certain other senior US-based executives and managers, participateparticipates in a bonus deferral plan that affords participants the ability to defer payment of all or part of the annual incentive bonuses otherwise payable to them, provided that such deferral is elected before the amount of such bonus is determined. Prior to his retirement, Patrick Tierney also participated in this plan.
Deferral can be for a stated term or until termination of employment. The deferred funds are credited with income based on the performance of specified reference investment funds or indices. Deferred funds may be drawn at any time subject to a 10% forfeiture, or without forfeiture in the event of severe financial hardship resulting from illness or accident to the participant or a beneficiary, loss of principal residence due to casualty or other circumstances beyond the control of the participant determined to constitute severe financial hardship by the Remuneration Committee that administers the plan.
 
Sir Crispin DavisPatrick Tierncy was the highest paid director in 2007. His aggregate notional pre-tax gain on the exercise2008. In respect of share based incentives during the year was £3,560,951 (2006: £252,260).
(c) Pensions in more detail
Pension Benefits
The target pension for Sir Crispin Davis at normal retirement age of 60 is 45% of salary in the 12 months prior2008 up to retirement. Gerard van de Aast and Mark Armour are provided with pension benefits at an accrual rate of 1/30th of salary for each year of pensionable service, payable at normal retirement age of 60. Prior to November 1, 2007 Erik Engstrom was not a member of any company pension scheme and Reed Elsevier made a contribution to Erik Engstrom’s designated retirement account of £93,160, equivalent to 19.5% of his salary for the period January 1, 2007 to October 31, 2007. From November 1, 2007 contributions to Erik Engstrom’s designated retirement account ceased and he became a member of the Reed Elsevier pension scheme. Since November 1, 2007 Erik Engstrom has accrued pension benefits at an accrual rate of 1/30th of salary for each year of pensionable service after November 1, 2007 payable at normal retirement age of 60.
On July 17, 2007 Andrew Prozes, a US-based director, vested in an annual pension of $300,000. His basic pension continues to accrue at a rate of $42,857 per annum for each completed year of service between July 17, 2007 and February 1, 2011. In addition, a lifetime benefit is payable to his surviving spouse equal to 50% of his vested and accrued pension at the time of death. The pension will be reduced by the value of any other retirement benefits payable by Reed Elsevier or any former employer (other than those attributable to employee contributions). In addition, Andrew Prozes will be entitled to receive an enhancement to his annual pension unless he resigns or his employment is terminated by Reed Elsevier for cause prior to February 1, 2011. Any such enhancement will be equal to $3,721 times the number of completed calendar months between July 1, 2007 and the date of termination or, if earlier, February 1, 2011. For these purposes, his termination date shall be deemed to be 12 months after he ceases employment.
Patrick Tierney completed five years of service in November 2007. Following his retirement, he made no notional pre-tax gains on January 30, 2008 he became entitled to draw his pensionthe vesting of $440,000 p.a.
The pension arrangements for all directors include life assurance cover whilst in employment, an entitlement to a pension in the event of ill health or disabilityshare-based incentives and a spouse’sand/or dependents’ pension on death.did not exercise any options (2007: £3,085,160).


4753

The increase in the transfer value of the directors’ pensions, after deduction of contributions, is shown below:
                                     
                          Transfer
 
                          value
 
                          of increase
 
                       Increase in
  in accrued
 
              Increase in
        accrued
  annual
 
        Transfer
  Transfer
  transfer
     Increase in
  annual
  pension
 
        value
  value
  value during
  Accrued
  accrued
  pension
  during the
 
        of accrued
  of accrued
  the period
  annual
  annual
  during
  period (net
 
        pension
  pension
  (net of
  pension
  pension
  the period
  of inflation
 
  Age
  Directors’
  December 31,
  December 31,
  directors’
  December 31,
  during
  (net of
  and directors’
 
  December 31,
  contributions
  2006
  2007
  contributions)
  2007
  the period
  inflation)
  contributions)
 
  2007  £  £  £  £  £  £  £  £ 
 
G J A van de Aast  50   5,587   1,074,289   1,379,993   300,117   130,558   28,342   23,844   246,445 
M H Armour  53   5,587   2,866,803   3,466,035   593,645   253,922   30,824   21,023   281,381 
Sir Crispin Davis  58   5,587   7,361,487   9,416,905   2,049,831   446,087   72,218   55,768   1,171,671 
E Engstrom  44   940   —   28,306   27,366   3,362   3,362   3,362   27,366 
A Prozes(i)
  61   —   —   2,310,864   2,310,864   170,092   170,092   170,092   2,310,864 
P Tierney  62   —   2,089,880   2,502,228   412,348   190,933   22,000   22,000   285,385 
 
(i)(c) The transfer valueIndividual fees of Andrew Prozes’ pension reflects his entitlement to an annual pension of $300,000 which, having completed seven years of service, vested on July 17, 2007. No contractual entitlement to the pension existed prior to the vesting date. In addition, the transfer value also reflects the pro-rata increase in his pension entitlement since July 2007 up to December 31, 2007 as set out above. The latter is subject to reduction in certain circumstances of termination.non-executive directors
 
Transfer values have been calculated in accordance with the guidance note “GN11” published by the UK Institute of Actuaries and Faculty of Actuaries. The transfer value in respect of individual directors represents a liability in respect of directors’ pension entitlement, and is not an amount paid or payable by the director.
(d) Individual fees of non-executive directors
        
         2008
 2007
 
 2007 2006  £ £ 
G J de Boer-Kruyt  £23,151   £22,993   38,095   23,151 
M W Elliott  48,500   45,000   70,000   48,500 
J Hommen  239,726   238,095   277,778   239,726 
L Hook (from April 19, 2006)  45,000   30,000 
C J A van Lede (until April 18, 2007)  11,130   44,218 
L Hook  55,000   45,000 
R Polet (from April 17, 2007)  31,785   —   55,000   31,785 
D E Reid  45,000   45,000   55,000   45,000 
Lord Sharman  52,000   52,000   70,000   52,000 
R W H Stomberg  48,630   52,381 
R W H Stomberg (until April 23, 2008)  19,841   48,630 
C J A van Lede (until April 18, 2007)  —   11,130 
S Zelnick (until December 7, 2007)  45,000   45,000   —   45,000 
          
Total  £589,922   £574,687   640,714   589,922 
          
 
Compensation of executive officers
 
The aggregate compensation paid to allthose who were executive officers (other than directors) of Reed Elsevier Group plc (five persons)during 2008 as a group, for services in such capacities for the year ended December 31, 20072008 was £2,823,898£2,584,514 which included contributions made to the pension plans in respect of such officers of £49,015.£35,148.


4854

 
BOARD PRACTICES
 
REED ELSEVIER
 
The boards of directors of Reed Elsevier PLC and Reed Elsevier NV manage their respective shareholdings in Reed Elsevier Group plc and Elsevier Reed Finance BV. The boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc are harmonised. Subject to shareholders of Reed Elsevier PLC and Reed Elsevier NV re-electing retiring directors and to shareholders of Reed Elsevier NV electing Ian Smith at their respective Annual General Meetings in 2008,2009, all the directors of Reed Elsevier Group plc will also be directors of Reed Elsevier PLC and of Reed Elsevier NV. For a complete description of the board membership positions and executive officer positions within Reed Elsevier, see “— Directors” and “Senior Management” on page •.pages 40 and 42. Details of the Audit Committees of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV are given under “Item 15: Controls and Procedures” and details of the Remuneration Committee are given under “— Compensation”Remuneration Committee’’ on page 37.42.
 
REED ELSEVIER GROUP PLC
 
The Reed Elsevier Group plc board currently consists of five executive directors and sevensix independent non-executive directors. A person may only be appointed or proposed or recommended for appointment to the board if that person has been nominated for that appointment by the joint Nominations Committee of Reed Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier Group plc board, prior to appointment to the Reed Elsevier Group plc board.
 
Decisions of the board of directors of Reed Elsevier Group plc require a simple majority, and the quorum required for meetings of the board of Reed Elsevier Group plc is any two directors.
 
The Reed Elsevier Group plc board has established the following committees:
 
 — Audit — comprising three independent non-executive directors
 
 — Remuneration — comprising fourthree independent non-executive directors
 
Arrangements established at the time of the merger of Reed Elsevier PLC’s and Reed Elsevier NV’s businesses provide that, if any person (together with persons acting in concert with him) acquires shares, or control of the voting rights attaching to shares, carrying more than 50% of the votes ordinarily exercisable at a general meeting of Reed Elsevier PLC or Reed Elsevier NV and has not made a comparable takeover offer for the other party, the other party may by notice suspend or modify the operation of certain provisions of the merger arrangements, such as (i) the right of the party in which control has been acquired (the “Acquired Party”) to appoint or remove directors of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc and (ii) the Standstill Obligations (defined below) in relation to the Acquired Party. Such a notice will cease to apply if the person acquiring control makes a comparable offer for all the equity securities of the other within a specified period or if the person (and persons acting in concert with him) ceases to have control of the other.
 
In the event of a change of control of one parent company and not the other (where there has been no comparable offer for the other), the parent company which has not suffered the change in control will effectively have the sole right to remove and appoint directors of Reed Elsevier Group plc. Also, a director removed from the board of a parent company which has suffered a change in control will not have to resign from the board of the other parent company or Reed Elsevier Group plc.
 
The Articles of Association of Reed Elsevier Group plc contain certain restrictions on the transfer of shares in Reed Elsevier Group plc. In addition, pursuant to arrangements established at the time of the merger, neither Reed Elsevier PLC nor Reed Elsevier NV may acquire or dispose of any interest in the share capital of the other or otherwise take any action to acquire the other without the prior approval of the other (the “Standstill Obligations”). The Panel on Takeovers and Mergers in the United Kingdom (the “Panel”) has stated that in the event of a change of statutory control of either Reed Elsevier PLC or Reed Elsevier NV, the person or persons acquiring such control will be required to make an offer to acquire the share capital of Reed Elsevier Group plc (but not Elsevier Reed Finance BV) held by the other, in accordance with the requirements of the City Code on Take-overs and Mergers in the United Kingdom. This requirement would not apply if the person acquiring statutory control of either Reed Elsevier PLC or Reed Elsevier NV made an offer for the other on terms which are considered by the Panel to be appropriate.
 
REED ELSEVIER PLC
 
The Reed Elsevier PLC board currently consists of five executive directors and sevensix independent non-executive directors. A person may only be appointed or proposed or recommended for appointment to the board if that person has been nominated for that appointment by the joint Nominations Committee of Reed Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier PLC board, prior to the appointment to the Reed Elsevier PLC board. A copy of the terms of reference of the Nominations Committee is available on request and can be viewed on the Reed Elsevier website, www.reedelsevier.com. The information on our website is not incorporated by reference into this report. The joint Nominations Committee currently comprises fivefour non-executive directors, all of whom are independent, plus the Chief Executive Officer.


4955

Notwithstanding the provisions outlined above in relation to the appointment to the board, Reed Elsevier PLC shareholders retain their rights under Reed Elsevier PLC’s Articles of Association to appoint directors to the Reed Elsevier PLC board by ordinary resolution. Reed Elsevier PLC shareholders may also, by ordinary resolution, remove a director from the board of Reed Elsevier PLC, and in such circumstances that director will also be required to be removed or resign from the boards of Reed Elsevier NV and Reed Elsevier Group plc (except in circumstances where there has been a change of control of Reed Elsevier PLC and not Reed Elsevier NV).
 
The Reed Elsevier PLC board has also established the following committees:
 
 — Audit — comprising three independent non-executive directors; and
 
 — Corporate Governance — a joint committee of Reed Elsevier PLC and Reed Elsevier NV, comprising all non-executive directors and members of the supervisory board of each company, all of whom are independent.
 
Each director on the Reed Elsevier PLC board is required to retire by rotation at least every three years, and are able then to make themselves available for re-election by shareholders at the Annual General Meeting.
 
REED ELSEVIER NV
 
Reed Elsevier NV has a two-tier board structure currently comprising fivefour executive directors (the “executive board”“Executive Board”) and eightseven independent non-executive directors (the “Supervisory Board” and, together with the executive board,Executive Board, the “combined board”“Combined Board”). A person may only be appointed or proposed or recommended for appointment to the boards if that person has been nominated for that appointment by the joint Nominations Committee of Reed Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier NV combined board prior to appointment to the Reed Elsevier NV executiveExecutive or supervisory boardSupervisory Board and by Reed Elsevier NV shareholders. The joint Nominations Committee comprises five members of the Supervisory Board, all of whom are independent, plus the Chief Executive Officer.
 
Notwithstanding the provisions outlined above in relation to the appointment to the board, Reed Elsevier NV shareholders retain their rights under Reed Elsevier NV’s Articles of Association to appoint directors to the Reed Elsevier NV boards by ordinary resolution if such appointment has been proposed by the Reed Elsevier NV combined boardCombined Board and, if such appointment has not, by an ordinary resolution of shareholders requiring a majority of at least two-thirds of the votes cast if less than one half of Reed Elsevier NV’s issued share capital is represented.
 
Reed Elsevier NV shareholders may also, by ordinary resolution, remove a director from the board of Reed Elsevier NV, and in such circumstances that director will also be required to be removed or resign from the boards of Reed Elsevier PLC and Reed Elsevier Group plc (except in circumstances where there has been a change of control of Reed Elsevier NV and not Reed Elsevier PLC).
 
The Reed Elsevier NV supervisory boardSupervisory Board has also established the following committees:
 
 — Audit — comprising three independent members of the Reed Elsevier NV Supervisory Board; and
 
 — Corporate Governance — a joint committee of Reed Elsevier NV and Reed Elsevier PLC, comprising all members of the Supervisory Board and non-executive directors of each company, all of whom are independent.
 
Each director on the Reed Elsevier NV executiveExecutive and supervisory boardsSupervisory Boards is required to retire by rotation at least every three years, and is able then to make themselves available for re-election by shareholders at the Annual General Meeting.
 
ELSEVIER REED FINANCE BV
 
Elsevier Reed Finance BV has a two-tier board structure comprising a management board,Management Board, consisting of two members, and a supervisory board,Supervisory Board, consisting of three non-executive directors. The members of the management boardManagement Board and of the supervisory boardSupervisory Board are appointed by the shareholders of Elsevier Reed Finance BV. The Articles of Association of Elsevier Reed Finance BV provide that certain material resolutions of the management boardManagement Board will require the approval of the supervisory board.Supervisory Board. At a meeting of the supervisory boardSupervisory Board valid resolutions can be taken with a simple majority if the majority of the members are present or represented. Pursuant to the Articles of Association of Elsevier Reed Finance BV, there are specific provisions governing the appointment and dismissal of managing directors and members of the supervisory boardSupervisory Board during periods when a notice of suspension as mentioned in the governing agreement between Reed Elsevier PLC and Reed Elsevier NV is in force. These provisions intend to neutralise the influence of a party which has acquired control over either Reed Elsevier PLC or Reed Elsevier NV without having also acquired control in the other.


56

 
EMPLOYEES
 
The average number of employees in continuing operations in the year ended December 31, 2007,2008, was 31,600 (2006: 31,500; 2005: 30,700)32,800 (2007: 31,600; 2006: 31,500). Approximately 5,400 were located in the UK (2006: 5,300; 2005: 5,200)(2007: 5,400; 2006: 5,300); 15,60016,600 in North America (2006:(2007: 15,600; 2005: 15,700)2006: 15,600); 2,400 in the Netherlands (2006: 2,500; 2005:(2007: 2,400; 2006: 2,500); 4,6004,700 in the rest of Europe (2006:(2007: 4,600; 2005: 4,300)2006: 4,600); and 3,6003,700 in the rest of the world (2006: 3,500; 2005: 3,000)(2007: 3,600; 2006: 3,500). The average number of employees in the business


50

segments in the year ended December 31, 20072008 was 7,200 in Elsevier (2006: 7,300; 2005: 7,100)(2007: 7,200 2006: 7,300); 13,40013,800 in LexisNexis (2006: 13,700; 2005: 13,200)(2007: 13,400; 2006: 13,700); 10,7002,700 in Reed Exhibitions (2007: 2,600; 2006: 2,400); 8,300 in Reed Business (2006: 10,300; 2005: 10,200)Information (2007: 8,100; 2006: 7,900); and 300800 in corporate/shared functions (2006: 200; 2005:(2007: 300; 2006: 200). At December 31, 20072008 the number of employees was approximately 31,500,34,800, which comprised 7,1007,200 in Elsevier; 13,30015,900 in LexisNexis; 10,8002,700 in Reed Business;Exhibitions; 8,200 in Reed Business Information; and 300800 in corporate/shared functions.
 
The average number of employees employed by discontinued operations in the year ended December 31, 20072008 was 4,300 (2006: 5,300; 2005: 5,400)100 (2007: 4,300; 2006: 5,300). At December 31, 20072008 the number of employees employed by discontinued operations was 1,300.nil.
 
The board of Reed Elsevier Group plc is fully committed to the concept of employee involvement and participation, and encourages each of its businesses to formulate its own tailor-made approach with the co-operation of employees. Reed Elsevier is an equal opportunity employer, and recruits and promotes employees on the basis of suitability for the job. Appropriate training and development opportunities are available to all employees. A code of ethics and business conduct applicable to employees within Reed Elsevier has been adopted throughout its businesses.


5157

 
SHARE OWNERSHIP
 
REED ELSEVIERShare-based awards in Reed Elsevier PLC and Reed Elsevier NV
 
Share based awards
The following table sets forth the detailsDetails of vested and unvested options and unvested restricted shares and restricted shares vested during the year held by directors overin Reed Elsevier PLC ordinary sharesand Reed Elsevier NV as at December 31, 20072008 are shown in the tables in this section. For disclosure purposes, any PLC and NV ADRs awarded to directors under the BIP have been converted into ordinary share option schemes whichequivalents. The market price on award for BIP and LTIP, gains on the exercise of options and any notional gains on vesting are described below under “Reed Elsevier — Share option schemes”.based on the middle market price of the respective security.
 
Over shares in Reed Elsevier PLCGerard van de Aast
 
                                     
                 Market
          
                 price at
          
     2004-2006
  Granted
     Exercised
  exercise
          
  January 1,
  performance
  during
  Option
  during
  date
  December 31,
  Exercisable
  Exercisable
 
  2007  adjustment  the year  price (pence)  the year  (pence)  2007  from  until 
 
Gerard van de Aast — ESOS  50,940           638.00           50,940   December 1, 2003   December 1, 2010 
   49,317           659.00           49,317   February 23, 2004   February 23, 2011 
   58,000           600.00           58,000   February 22, 2005   February 22, 2012 
   124,956           487.25           124,956   February 19, 2007   February 19, 2014 
   120,900           533.50           120,900   February 17, 2008   February 17, 2015 
   127,662           530.50           127,662   March 13, 2009   March 13, 2016 
           122,536   644.50           122,536   February 15, 2010   February 15, 2017 
                  — BIP  31,217           Nil   31,217   605.00   —         
   18,633           Nil           18,633   April 4, 2009   April 4, 2009 
                  — LTIP (options)  229,087   4,868       487.25           233,955   February 19, 2007   February 19, 2014 
                  — LTIP (shares)  104,130   2,212       Nil   106,342   578.00   —         
   70,364           Nil           70,364   April 19, 2009   April 19, 2009 
           57,898   Nil           57,898   February 15, 2010   February 15, 2010 
                                     
Total
  985,206   7,080   180,434       137,559       1,035,161         
                                     
Mark Armour — ESOS  52,000           565.75   52,000   607.00   —         
   66,900           523.00           66,900   August 17, 2001   August 17, 2008 
   33,600           537.50           33,600   February 21, 2003   April 19, 2009 
   88,202           436.50   88,202   607.00   —         
   62,974           659.00           62,974   February 23, 2004   February 23, 2011 
   74,000           600.00           74,000   February 22, 2005   February 22, 2012 
   104,319           451.50   104,319   607.00   —         
   155,147           487.25   155,147   607.00   —         
   150,422           533.50           150,422   February 17, 2008   February 17, 2015 
   158,836           530.50           158,836   March 13, 2009   March 13, 2016 
           130,740   644.50           130,740   February 15, 2010   February 15, 2017 
            — BIP  19,225           Nil   19,225   605.00   —         
   21,861           Nil           21,861   April 14, 2008   April 14, 2008 
   21,653           Nil           21,653   April 4, 2009   April 4, 2009 
           19,859   Nil           19,859   April 4, 2010   April 4, 2010 
            — LTIP (options)  284,437   6,044       487.25           290,481   February 19, 2007   February 19, 2014 
            — LTIP (shares)  129,289   2,747       Nil   132,036   578.00   —         
   75,075           Nil           75,075   April 19, 2009   April 19, 2009 
           61,775   Nil           61,775   February 15, 2010   February 15, 2010 
            — SAYE  4,329           377.60           4,329   August 1, 2009   January 31, 2010 
                                     
Total
  1,502,269   8,791   212,374       550,929       1,172,505         
                                     
Sir Crispin Davis — ESOS  160,599           467.00           160,599   February 21, 2003   September 1, 2009 
   80,300           467.00           80,300   September 1, 2003   September 1, 2009 
   80,300           467.00           80,300   September 1, 2004   September 1, 2009 
   171,821           436.50           171,821   May 2, 2003   May 2, 2010 
   122,914           659.00           122,914   February 23, 2004   February 23, 2011 
   148,500           600.00           148,500   February 22, 2005   February 22, 2012 
   209,192           451.50           209,192   February 21, 2006   February 21, 2013 
   305,303           487.25           305,303   February 19, 2007   February 19, 2014 
   292,409           533.50           292,409   February 17, 2008   February 17, 2015 
   305,824           530.50           305,824   March 13, 2009   March 13, 2016 
           251,730   644.50           251,730   February 15, 2010   February 15, 2017 
                  — BIP  39,554           Nil   39,554   605.00   —         
   86,042           Nil           86,042   April 14, 2008   April 14, 2008 
   42,092           Nil           42,092   April 4, 2009   April 4, 2009 
           74,708   Nil           74,708   April 4, 2010   April 4, 2010 
                  — LTIP (options)  559,722   11,894       487.25           571,616   February 19, 2007   February 19, 2014 
                  — LTIP (shares)  254,419   5,406       Nil   259,825   578.00   —         
   144,550           Nil           144,550   April 19, 2009   April 19, 2009 
           118,942   Nil           118,942   February 15, 2010   February 15, 2010 
                  — SAYE  3,793           424.40           3,793   August 1, 2011   January 31, 2012 
                                     
Total
  3,007,334   17,300   445,380       299,379       3,170,635         
                                     
Gerard van de Aast ceased to be a director on December 15, 2008. The tables below reflect the position as at December 31, 2008 when his employment ended.
                                           
       No. of
  No. of
     No. of
     Gross
  No. of
       
       options
  options
     options
  Market
  gains
  options
       
       held on
  ganted
     exercised
  price per
  made on
  held on
  Unvested
  Options
 
  Year of
  Option
 Jan 1,
  during
  Option
  during
  share at
  exercise
  Dec 31,
  options
  exercisable
 
Options
 grant  over: 2008  2008  price  2008  exercise  £/€  2008  vesting on:  until: 
 
ESOS
  2000  PLC ord  50,940      £6.380               50,940       Dec 1, 2010 
      NV ord  35,866      €14.87               35,866       Dec 1, 2010 
   2001  PLC ord  49,317      £6.590               49,317       Dec 31, 2010 
      NV ord  35,148      €14.75               35,148       Dec 31, 2010 
   2002  PLC ord  58,000      £6.000               58,000       Dec 31, 2010 
      NV ord  40,699      €13.94               40,699       Dec 31, 2010 
   2004  PLC ord  124,956      £4.872               124,956       Dec 31, 2010 
      NV ord  85,805      €10.57               85,805       Dec 31, 2010 
   2005  PLC ord  120,900      £5.335               120,900       Dec 31, 2010 
      NV ord  82,478      €11.31               82,478       Dec 31, 2010 
   2006  PLC ord  127,662      £5.305               127,662       Dec 31, 2010 
      NV ord  85,775      €11.47               85,775       Dec 31, 2010 
   2007* PLC ord  122,536      £6.445               81,690       Dec 31, 2010 
      NV ord  80,928      €14.51               53,952       Dec 31, 2010 
   2008* PLC ord      134,000  £6.275               44,666       Dec 31, 2010 
      NV ord      89,000  €12.21               29,666       Dec 31, 2010 
LTIP
  2004  PLC ord  233,955      £4.872               233,955       Dec 31, 2010 
      NV ord  160,651      €10.57               160,651       Dec 31, 2010 
                                           
Total PLC ords        888,266   134,000                   892,086         
Total NV ords        607,350   89,000                   610,040         
                                           
                                           
       No. of
                 No. of
       
       unvested
  No. of
     No. of
     Notional
  unvested
       
       shares
  shares
  Market
  shares
  Market
  gross
  shares
       
       held on
  awarded
  price per
  vested
  price per
  gains at
  held on
       
  Year of
  Type of
 Jan 1,
  during
  share at
  during
  share at
  vesting
  Dec 31,
     Date of
 
Shares
 grant  security 2008  2008  award  2008  vesting  £/€  2008     vesting 
 
BIP
  2005  NV ord  26,347      €11.35   26,347   €12.05  €317,481   —       Apr 14, 2008 
   2006  PLC ord  18,633      £5.470   17,068   £5.055   £86,279   —       Dec 31, 2008 
      NV ord  12,311      €11.74   11,277   €8.42   €94,952   —       Dec 31, 2008 
   2007* NV ord  29,483      €13.49   17,179   €8.42  €144,647   —       Dec 31, 2008 
   2008* NV ord      30,856  €12.44   7,552   €8.42   €63,588   —       Dec 31, 2008 
LTIP
  2006  PLC ord  70,364      £5.350               70,364       Feb 27, 2009 
      NV ord  46,332      €11.76               46,332       Feb 27, 2009 
   2007* PLC ord  57,898      £6.445               38,598       Feb 15, 2010 
      NV ord  38,238      €14.51               25,492       Feb 15, 2010 
   2008* PLC ord      64,000  £6.275               21,333       Feb 21, 2011 
      NV ord      42,000  €12.21               14,000       Feb 21, 2011 
                                           
Total PLC ords        146,895   64,000       17,068       £86,279   130,295         
Total NV ords        152,711   72,856       62,355      €620,668   85,824         
                                           
*All awardes granted in 2007 and 2008 under ESOS, BIP and LTIP have been prorated for service.


5258

                                     
                 Market
          
                 price at
          
     2004-2006
  Granted
     Exercised
  exercise
          
  January 1,
  performance
  during
  Option
  during
  date
  December 31,
  Exercisable
  Exercisable
 
  2007  adjustment  the year  price (pence)  the year  (pence)  2007  from  until 
 
Erik Engstrom — ESOS  63,460           478.00           63,460   August 23, 2007   August 23, 2014 
   154,517           533.50           154,517   February 17, 2008   February 17, 2015 
   178,895           530.50           178,895   March 13, 2009   March 13, 2016 
           130,060   644.50           130,060   February 15, 2010   February 15, 2017 
              — BIP  14,020           Nil           14,020   April 14, 2008   April 14, 2008 
              — LTIP (options)  318,398   6,765       478.00           325,163   August 23, 2007   August 23, 2014 
              — LTIP (shares)  144,726   3,075       Nil   147,801   578.00   —         
   82,092           Nil           82,092   April 19, 2009   April 19, 2009 
           61,453   Nil           61,453   February 15, 2010   February 15, 2010 
              — Restricted shares  38,593           Nil   38,593   591.50   —         
                                     
Total
  994,701   9,840   191,513       186,394       1,009,660         
                                     
Andrew Prozes — ESOS  188,281           566.00           188,281   August 9, 2003   August 9, 2010 
   83,785           659.00           83,785   February 23, 2004   February 23, 2011 
   103,722           600.00           103,722   February 22, 2005   February 22, 2012 
   132,142           451.50           132,142   February 21, 2006   February 21, 2013 
   162,666           487.25           162,666   February 19, 2007   February 19, 2014 
   154,517           533.50           154,517   February 17, 2008   February 17, 2015 
   182,303           530.50           182,303   March 13, 2009   March 13, 2016 
           132,537   644.50           132,537   February 15, 2010   February 15, 2017 
              — BIP  20,104           Nil   20,104   605.00   —         
   23,756           Nil           23,756   April 14, 2008   April 14, 2008 
   26,400           Nil           26,400   April 4, 2009   April 4, 2009 
           21,548   Nil           21,548   April 4, 2010   April 4, 2010 
              — LTIP (options)  298,221   6,337       487.25           304,558   February 19, 2007   February 19, 2014 
              — LTIP (shares)  135,555   2,880       Nil   138,435   578.00   —         
   83,656           Nil           83,656   April 19, 2009   April 19, 2009 
           62,623   Nil           62,623   February 15, 2010   February 15, 2010 
                                     
Total
  1,595,108   9,217   216,708       158,539       1,662,494         
                                     
Patrick Tierney — ESOS  371,426           451.50   371,426   632.75   —         
   162,666           487.25           162,666   February 19, 2007   February 19, 2014 
   154,517           533.50           154,517   February 17, 2008   February 17, 2015 
   175,488           530.50           175,488   March 13, 2009   March 13, 2016 
           121,628   644.50           121,628   February 15, 2010   February 15, 2017 
                — BIP  19,572           Nil   19,572   605.00   —         
   24,156  ��        Nil           24,156   April 14, 2008   April 14, 2008 
   8,124           Nil           8,124   April 4, 2009   April 4, 2009 
           8,012   Nil           8,012   April 4, 2010   April 4, 2010 
                — LTIP (options)  298,221   (100,259)      487.25   90,000   636.00   107,962   February 19, 2007   February 19, 2014 
                — LTIP (shares)  135,555   (45,573)      Nil   89,982   578.00   —         
   80,528           Nil           80,528   April 19, 2009   April 19, 2009 
           57,412   Nil           57,412   February 15, 2010   February 15, 2010 
                                     
Total
  1,430,253   (145,832)  187,052       570,980       900,493         
                                     
Mark Armour
                                           
       No. of
  No. of
     No. of
     Gross
  No. of
       
       options
  options
     options
  Market
  gains
  options
       
       held on
  granted
     exercised
  price per
  made on
  held on
  Unvested
  Options
 
  Year of
  Option
 Jan 1,
  during
  Option
  during
  share at
  exercise
  Dec 31,
  options
  exercisable
 
Options
 grant  over: 2008  2008  price  2008  exercise  £/€  2008  vesting on:  until: 
 
ESOS
  1998  PLC ord  66,900      £5.230   66,900  £5.810  £38,802   —       Aug 17, 2008 
   1999  PLC ord  33,600      £5.375               33,600       Apr 19, 2009 
      NV ord  20,244      €13.55               20,244       Apr 19, 2009 
   2001  PLC ord  62,974      £6.590               62,974       Feb 23, 2011 
      NV ord  44,882      €14.75               44,882       Feb 23, 2011 
   2002  PLC ord  74,000      £6.000               74,000       Feb 22, 2012 
      NV ord  51,926      €13.94               51,926       Feb 22, 2012 
   2005  PLC ord  150,422      £5.335               150,422       Feb 17, 2015 
      NV ord  102,618      €11.31               102,618       Feb 17, 2015 
   2006  PLC ord  158,836      £5.305               158,836   Mar 13, 2009   Mar 13, 2016 
      NV ord  106,720      €11.47               106,720   Mar 13, 2009   Mar 13, 2016 
   2007  PLC ord  130,740      £6.445               130,740   Feb 15, 2010   Feb 15, 2017 
      NV ord  86,347      €14.51               86,347   Feb 15, 2010   Feb 15, 2017 
   2008  PLC ord      144,000  £6.275               144,000   Feb 21, 2011   Feb 21, 2018 
      NV ord      94,000  €12.21               94,000   Feb 21, 2011   Feb 21, 2018 
LTIP
  2004  PLC ord  290,481      £4.872               290,481       Feb 19, 2014 
      NV ord  199,467      €10.57               199,467       Feb 19, 2014 
SAYE
  2006  PLC ord  4,329      £3.776               4,329   Aug 1, 2009   Jan 31, 2010 
                                           
Total PLC ords        972,282   144,000       66,900      £38,802   1,049,382         
Total NV ords        612,204   94,000                   706,204         
                                           
                                           
       No. of
                 No. of
       
       unvested
  No. of
     No. of
     Notional
  unvested
       
       shares
  shares
  Market
  shares
  Market
  gross
  shares
       
       held on
  awarded
  price per
  vested
  price per
  gains at
  held on
       
  Year of
  Type of
 Jan 1,
  during
  share at
  during
  share at
  vesting
  Dec 31,
     Date of
 
Shares
 grant  security 2008  2008  award  2008  vesting  £/€  2008     vesting 
 
BIP
  2005  PLC ord  21,861      £5.365   21,861  £6.435  £140,676   —       Apr 14, 2008 
      NV ord  15,098      €11.35   15,098  €12.05  €181,931   —       Apr 14, 2008 
   2006  PLC ord  21,653      £5.470               21,653       Apr 4, 2009 
      NV ord  14,306      €11.74               14,306       Apr 4, 2009 
   2007  PLC ord  19,859      £6.155               19,859       Apr 4, 2010 
      NV ord  13,371      €13.49               13,371       Apr 4, 2010 
   2008  PLC ord      25,291  £6.600               25,291       Apr 8, 2011 
      NV ord      16,993  €12.44               16,993       Apr 8, 2011 
LTIP
  2006  PLC ord  75,075      £5.350               75,075       Feb 27, 2009 
      NV ord  49,434      €11.76               49,434       Feb 27, 2009 
   2007  PLC ord  61,775      £6.445               61,775       Feb 15, 2010 
      NV ord  40,799      €14.51               40,799       Feb 15, 2010 
   2008  PLC ord      67,000  £6.275               67,000       Feb 21, 2011 
      NV ord      44,000  €12.21               44,000       Feb 21, 2011 
                                           
Total PLC ords        200,223   92,291       21,861      £140,676   270,653         
Total NV ords        133,008   60,993       15,098      €181,931   178,903         
                                           


59

Sir Crispin Davis*
                                           
       No. of
  No. of
     No. of
     Gross
  No. of
       
       options
  options
     options
  Market
  gains
  options
       
       held on
  granted
     exercised
  price per
  made on
  held on
  Unvested
  Options
 
  Year of
  Option
 Jan 1,
  during
  Option
  during
  share at
  exercise
  Dec 31,
  options
  exercisable
 
Options
 grant  over: 2008  2008  price  2008  exercise  £/€  2008  vesting on:  until: 
 
ESOS
  1999  PLC ord  321,199      £4.67               321,199       Sept 1, 2009 
      NV ord  191,550      €12.00               191,550       Sept 1, 2009 
   2000  PLC ord  171,821      £4.365               171,821       May 2, 2010 
      NV ord  120,245      €10.73               120,245       May 2, 2010 
   2001  PLC ord  122,914      £6.590               122,914       Feb 23, 2011 
      NV ord  87,601      €14.75               87,601       Feb 23, 2011 
   2002  PLC ord  148,500      £6.000               148,500 ��     Feb 22, 2012 
      NV ord  104,204      €13.94               104,204       Feb 22, 2012 
   2003  PLC ord  209,192      £4.515               209,192       Feb 21, 2013 
      NV ord  148,946      €9.34               148,946       Feb 21, 2013 
   2004  PLC ord  305,303      £4.872               305,303       Feb 19, 2014 
      NV ord  209,645      €10.57               209,645       Feb 19, 2014 
   2005  PLC ord  292,409      £5.335               292,409       Feb 17, 2015 
      NV ord  199,481      €11.31               199,481       Feb 17, 2015 
   2006  PLC ord  305,824      £5.305               305,824   Mar 13, 2009   Mar 13, 2016 
      NV ord  205,480      €11.47               205,480   Mar 13, 2009   Mar 13, 2016 
   2007  PLC ord  251,730      £6.445               251,730   Feb 15, 2010   Feb 15, 2017 
      NV ord  166,254      €14.51               166,254   Feb 15, 2010   Feb 15, 2017 
   2008  PLC ord      276,000  £6.275               276,000   Feb 21, 2011   Feb 21, 2018 
      NV ord      182,000  €12.21               182,000   Feb 21, 2011   Feb 21, 2018 
LTIP
  2004  PLC ord  571,616      £4.872               571,616       Feb 19, 2014 
      NV ord  392,516      €10.57               392,516       Feb 19, 2014 
SAYE
  2008  PLC ord  3,793      £4.244               3,793   Aug 1, 2011   Jan 31, 2010 
                                           
Total PLC ords        2,704,301   276,000                   2,980,301         
Total NV ords        1,825,922   182,000                   2,007,922         
                                           
                                           
       No. of
                 No. of
       
       unvested
  No. of
     No. of
     Notional
  unvested
       
       shares
  shares
  Market
  shares
  Market
  gross
  shares
       
       held on
  awarded
  price per
  vested
  price per
  gains at
  held on
       
  Year of
  Type of
 Jan 1,
  during
  share at
  during
  share at
  vesting
  Dec 31,
     Date of
 
Shares
 grant  security 2008  2008  award  2008  vesting  £/€  2008     vesting 
 
BIP
  2005  PLC ord  86,042      £5.365   86,042  £6.435  £553,680   —       Apr 14, 2008 
   2006  PLC ord  42,092      £5.470               42,092       Apr 4, 2009 
      NV ord  27,810      €11.74               27,810       Apr 4, 2009 
   2007  PLC ord  74,708      £6.155               74,708       Apr 4, 2010 
   2008  PLC ord      96,227  £6.600               96,227       Apr 8, 2011 
LTIP
  2006  PLC ord  144,550      £5.350               144,550       Feb 27, 2009 
      NV ord  95,181      €11.76               95,181       Feb 27, 2009 
   2007  PLC ord  118,942      £6.445               118,942       Feb 15, 2010 
      NV ord  78,555      €14.51               78,555       Feb 15, 2010 
   2008  PLC ord      129,000  £6.275               129,000       Feb 21, 2011 
      NV ord      85,000  €12.21               85,000       Feb 21, 2011 
                                           
Total PLC ords        466,334   225,227       86,042      £553,680   605,519         
Total NV ords        201,546   85,000                   286,546         
                                           
*Subsequent to Sir Crispin Davis’ retirement, the 2007 and 2008 awards will be treated in accordance with the rules of the respective plans.


60

Erik Engstrom
                                           
       No. of
  No. of
     No. of
     Gloss
  No. of
       
       options
  options
     options
  Market
  Gains
  options
       
       held on
  granted
     exercised
  price per
  Made on
  held on
  Unvested
  Options
 
  Year of
  Option
 Jan 1,
  during
  Option
  during
  share at
  Exercise
  Dec 31,
  options
  exercisable
 
Options
 grant  over: 2008  2008  price  2008  exercise  £/€  2008  vesting on:  until: 
 
ESOS
  2004  PLC ord  63,460      £4.780               63,460       Aug 23, 2014 
      NV ord  43,866      €10.30               43,866       Aug 23, 2014 
   2005  PLC ord  154,517      £5.335               154,517       Feb 17, 2015 
      NV ord  105,412      €11.31               105,412       Feb 17, 2015 
   2006  PLC ord  178,895      £5.305               178,895   Mar 13, 2009   Mar 13, 2016 
      NV ord  120,198      €11.47               120,198 �� Mar 13, 2009   Mar 13, 2016 
   2007  PLC ord  130,060      £6.445               130,060   Feb 15, 2010   Feb 15, 2017 
      NV ord  85,897      €14.51               85,897   Feb 15, 2010   Feb 15, 2017 
   2008  PLC ord      143,000  £6.275               143,000   Feb 21, 2011   Feb 21, 2018 
      NV ord      94,000  €12.21               94,000   Feb 21, 2011   Feb 21, 2018 
LTIP
  2004  PLC ord  325,163       £4.78               325,163       Aug 23, 2014 
      NV ord  224,766      €10.30               224,766       Aug 23, 2014 
                                           
Total PLC ords        852,095   143,000                   995,095         
Total NV ords        580,139   94,000                   674,139         
                                           
                                           
       No. of
                 No. of
       
       unvested
  No. of
     No. of
     Notional
  unvested
       
       shares
  shares
  Market
  shares
  Market
  gross
  shares
       
       held on
  awarded
  price per
  vested
  price per
  gains at
  held on
       
  Year of
  Type of
 Jan 1,
  during
  share at
  during
  share at
  vesting
  Dec 31,
     Date of
 
Shares
 grant  security 2008  2008  award  2008  vesting  £/€  2008     vesting 
 
BIP
  2005  PLC ord  14,020      £5.365   14,020  £6.435  £90,219   —       Apr 14, 2008 
   2006  NV ord  29,442      €11.74               29,442       Apr 4, 2009 
   2007  NV ord  27,572      €13.49               27,572       Apr 4, 2010 
   2008  NV ord      30,318  €12.44               30,318       Apr 8, 2011 
LTIP
  2006  PLC ord  82,092      £5.350               82,092       Feb 27, 2009 
      NV ord  54,055      €11.76               54,055       Feb 27, 2009 
   2007  PLC ord  61,453      £6.445               61,453       Feb 15, 2010 
      NV ord  40,586      €14.51               40,586       Feb 15, 2010 
   2008  PLC ord      68,500  £6.275               68,500       Feb 21, 2011 
      NV ord      45,000  €12.21               45,000       Feb 21, 2011 
                                           
Total PLC ords        157,565   68,500       14,020      £90,219   212,045         
Total NV ords        151,655   75,318                   226,973         
                                           


61

Andrew Prozes
                                           
       No. of
  No. of
     No. of
     Gross
  No. of
       
       options
  options
     options
  Market
  gains
  options
       
       held on
  granted
     exercised
  price per
  made on
  held on
  Unvested
  Options
 
  Year of
  Option
 Jan 1
  during
  Option
  during
  share at
  exercise
  Dec 31
  options
  exercisable
 
Options
 grant  over: 2008  2008  price  2008  exercise  £/€  2008  vesting on:  until: 
 
ESOS
  2000  PLC ord  188,281      £5.660               188,281       Aug 9, 2010 
      NV ord  131,062      €13.60               131,062       Aug 9, 2010 
   2001  PLC ord  83,785      £6.590               83,785       Feb 23, 2011 
      NV ord  59,714      €14.75               59,714       Feb 23, 2011 
   2002  PLC ord  103,722      £6.000               103,722       Feb 22, 2012 
      NV ord  72,783      €13.94               72,783       Feb 22, 2012 
   2003  PLC ord  132,142      £4.515               132,142       Feb 21, 2013 
      NV ord  94,086       €9.34               94,086       Feb 21, 2013 
   2004  PLC ord  162,666      £4.872               162,666       Feb 19, 2014 
      NV ord  111,699      €10.57               111,699       Feb 19, 2014 
   2005  PLC ord  154,517      £5.335               154,517       Feb 17, 2015 
      NV ord  105,412      €11.31               105,412       Feb 17, 2015 
   2006  PLC ord  182,303      £5.305               182,303   Mar 13, 2009   Mar 13, 2016 
      NV ord  122,487      €11.47               122,487   Mar 13, 2009   Mar 13, 2016 
   2007  PLC ord  132,537      £6.445               132,537   Feb 15, 2010   Feb 15, 2017 
      NV ord  87,533      €14.51               87,533   Feb 15, 2010   Feb 15, 2017 
   2008  PLC ord      145,000  £6.275               145,000   Feb 21, 2011   Feb 21, 2018 
      NV ord      96,000  €12.21               96,000   Feb 21, 2011   Feb 21, 2018 
LTIP
  2004  PLC ord  304,558      £4.872               304,558       Feb 19, 2014 
      NV ord  209,133      €10.57               209,133       Feb 19, 2014 
                                           
Total PLC ords        1,444,511   145,000                   1,589,511         
Total NV ords        993,909   96,000                   1,089,909         
                                           
                                           
       No. of
                 No. of
       
       unvested
  No. of
     No. of
     Notional
  unvested
       
       shares
  shares
  Market
  shares
  Market
  gross
  shares
       
       held on
  awarded
  price per
  vested
  price per
  gains at
  held on
       
  Year of
  Type of
 Jan 1,
  during
  share at
  during
  share at
  vesting
  Dec 31,
     Date of
 
Shares
 grant  security 2008  2008  award  2008  vesting  £/€  2008     vesting 
 
BIP
  2005  PLC ord  23,756      £5.365   23,756  £6.435  £152,870   —       Apr 14, 2008 
      NV ord  16,522      €11.35   16,522  €12.05  €199,090   —       Apr 14, 2008 
   2006  PLC ord  26,400      £5.470               26,400       Apr 4, 2009 
      NV ord  17,636      €11.74               17,636       Apr 4, 2009 
   2007  PLC ord  21,548      £6.155               21,548       Apr 4, 2010 
      NV ord  14,574      €13.49               14,574       Apr 4, 2010 
   2008  PLC ord      20,030  £6.600               20,030       Apr 8, 2011 
      NV ord      13,505  €12.44               13,505       Apr 8, 2011 
LTIP
  2006  PLC ord  83,656      £5.350               83,656       Feb 27, 2009 
      NV ord  55,085      €11.76               55,085       Feb 27, 2009 
   2007  PLC ord  62,623      £6.445               62,623       Feb 15, 2010 
      NV ord  41,359      €14.51               41,359       Feb 15, 2010 
   2008  PLC ord      68,000  £6.275               68,000       Feb 21, 2011 
      NV ord      44,500  €12.21               44,500       Feb 21, 2011 
                                           
Total PLC ords        217,983   88,030       23,756      £152,870   282,257         
Total NV ords        145,176   58,005       16,522      €199,090   186,659         
                                           


62

Patrick Tierney
The tables below reflect outstanding options and shares held by Patrick Tierney as at the date of his retirement on January 30, 2008
                                           
                      Gross
          
                No. of
     gains
          
       No. of
  No. of
     options
     made on
  No. of
       
       options
  options
     exercised
  Market
  exercise
  options
       
       held on
  granted
     on Jan 30,
  price per
  at Jan 30,
  held on
  Unvested
  Options
 
  Year of
  Option
 Jan 1,
  during
  Option
  2008
  share at
  2008
  Jan 30,
  options
  exercisable
 
Options
 grant  over: 2008  2008  price  inclusive  exercise  £/€  2008  vesting on:  until: 
 
ESOS
  2004  PLC ord  162,666      £4.872               162,666       Jan 30, 2010 
      NV ord  111,699      €10.57               111,699       Jan 30, 2010 
   2005  PLC ord  154,517      £5.335               154,517       Jan 30, 2010 
      NV ord  105,412      €11.31               105,412       Jan 30, 2010 
   2006* PLC ord  175,488      £5.305               116,992       Jan 30, 2010 
      NV ord  117,908      €11.47               78,605       Jan 30, 2010 
   2007* PLC ord  121,628      £6.445               40,542       Jan 30, 2010 
      NV ord  80,329      €14.51               26,776       Jan 30, 2010 
LTIP
  2004  PLC ord  107,962      £4.872               107,962       Jan 30, 2010 
      NV ord  75,936      €10.57               75,936       Jan 30, 2010 
                                           
Total PLC ords        722,261                       582,679         
Total NV ords        491,284                       398,428         
                                           
                                           
                      Notional
          
       No. of
        No. of
     gross
  No. of
       
       unvested
  No. of
     shares
     gains at
  unvested
       
       shares
  shares
  Market
  vested on
  Market
  vesting at
  shares
       
       held on
  awarded
  price per
  Jan 30,
  price per
  Jan 30,
  held on
       
  Year of
  Type of
 Jan 1,
  during
  share at
  2008
  share at
  2008
  Jan 30,
     Date of
 
Shares
 grant  security 2008  2008  award  inclusive  vesting  £/€  2008     vesting 
 
BIP
  2005  PLC ord  24,156      £5.365               24,156       Apr 14, 2008 
      NV ord  16,800      €11.35               16,800       Apr 14, 2008 
   2006  PLC ord  8,124      £5.470               8,124       Apr 4, 2009 
      NV ord  5,426      €11.74               5,426       Apr 4, 2009 
   2007  PLC ord  8,012      £6.155               8,012       Apr 4, 2010 
      NV ord  5,420      €12.44               5,420       Apr 4, 2010 
LTIP
  2006* PLC ord  80,528      £5.350               53,685       Feb 27, 2009 
      NV ord  53,025      €11.76               35,350       Feb 27, 2009 
   2007* PLC ord  57,412      £6.445               19,137       Feb 15, 2010 
      NV ord  37,917      €14.51               12,639       Feb 15, 2010 
                                           
Total PLC ords        178,232                       113,114         
Total NV ords        118,588                       75,635         
                                           
*Proration for service applied in respect of these awards.
Options granted under ESOS vest on the third anniversary and expire on the tenth anniversary of the date of grant.
 
The proportion of the target award that may vest in 2009relation to 2006, 2007 and 2010 under2008 LTIP grant is subject to the annual growth in Adjusted EPS and relative total shareholder return (“TSR”)TSR measured against a group of competitor companies during the performance period. The numbersnumber of LTIP shares includedsubject to the target award are reflected in the above tabletables which are calculateddetermined by reference to an assumed achievement of 10%12% (10% for the 2006 and 2007 LTIP grants) per annum averaged compound growth in Adjusted EPS and median TSR, which would result in 100% of the award vesting. Depending on actual Adjusted EPS growth and TSR, the proportion of the award that may vest could be lower or higher.
 
Options under the SAYE scheme, in which all eligible UK employees are invited to participate, are granted at a maximum discount of 20% to the market price at time of grant. They are normally exercisable after the expiry of three or five years from the date of grant. No performance targets are attached to this schemethese option grants as it is an all-employee scheme.
The middle market price of a Reed Elsevier PLC ordinary share on the date of the 2007 award under BIP and LTIP was 617.00p and 644.50p, respectively.
The middle market price of a Reed Elsevier PLC ordinary share during the year was in the range 558.00p to 689.50p and at December 31, 2007 was 679.50p.

53
63

REED ELSEVIER NV
 
Share basedShare-based awards
The following table sets forth made and share awards vested since December 31, 2008 in respect of the details of options and restricted shares held byexecutive directors over Reed Elsevier NV ordinary sharesin office as at December 31, 2007 under share option schemes which are described below under “Reed Elsevier — Share option schemes”:
Over shares in Reed Elsevier NV2008
 
                                     
                 Market
          
                 price at
          
     2004-2006
  Granted
     Exercised
  exercise
          
  January 1,
  performance
  during
  Option
  during
  date
  December 31,
  Exercisable
  Exercisable
 
  2007  adjustment  the year  price (€)  the year  (€)  2007  from  until 
 
Gerard van de Aast — ESOS  35,866           14.87           35,866   December 1, 2003   December 1, 2010 
   35,148           14.75           35,148   February 23, 2004   February 23, 2011 
   40,699           13.94           40,699   February 22, 2005   February 22, 2012 
   85,805           10.57           85,805   February 19, 2007   February 19, 2014 
   82,478           11.31           82,478   February 17, 2008   February 17, 2015 
   85,775           11.47           85,775   March 13, 2009   March 13, 2016 
           80,928   14.51           80,928   February 15, 2010   February 15, 2017 
                     — BIP  26,347           Nil           26,347   April 14, 2008   April 14, 2008 
   12,311           Nil           12,311   April 4, 2009   April 4, 2009 
           29,483   Nil           29,483   April 4, 2010   April 4, 2010 
                   — LTIP (options)  157,309   3,342       10.57           160,651   February 19, 2007   February 19, 2014 
                   — LTIP (shares)  71,504   1,519       Nil   73,023   12.93   —         
   46,332           Nil           46,332   April 19, 2009   April 19, 2009 
           38,238   Nil           38,238   February 15, 2010   February 15, 2010 
                                     
Total
  679,574   4,861   148,649       73,023       760,061         
                                     
Mark Armour — ESOS  20,244           13.55           20,244   February 21, 2003   April 19, 2009 
   61,726           10.73   61,726   13.27   —         
   44,882           14.75           44,882   February 23, 2004   February 23, 2011 
   51,926           13.94           51,926   February 22, 2005   February 22, 2012 
   74,276           9.34   74,276   13.27   —         
   106,536           10.57   106,536   13.27   —         
   102,618           11.31           102,618   February 17, 2008   February 17, 2015 
   106,720           11.47           106,720   March 13, 2009   March 13, 2016 
           86,347   14.51           86,347   February 15, 2010   February 15, 2017 
            — BIP  12,842           Nil   12,842   13.25   —         
   15,098           Nil           15,098   April 14, 2008   April 14, 2008 
   14,306           Nil           14,306   April 4, 2009   April 4, 2009 
           13,371   Nil           13,371   April 4, 2010   April 4, 2010 
            — LTIP (options)  195,317   4,150       10.57           199,467   February 19, 2007   February 19, 2014 
            — LTIP (shares)  88,780   1,886       Nil   90,666   12.93   —         
   49,434           Nil           49,434   April 19, 2009   April 19, 2009 
           40,799   Nil           40,799   February 15, 2010   February 15, 2010 
                                     
Total
  944,705   6,036   140,517       346,046       745,212         
                                     
Sir Crispin Davis — ESOS  95,774           12.00           95,774   February 21, 2003   September 1, 2009 
   47,888           12.00           47,888   September 1, 2003   September 1, 2009 
   47,888           12.00           47,888   September 1, 2004   September 1, 2009 
   120,245           10.73           120,245   May 2, 2003   May 2, 2010 
   87,601           14.75           87,601   February 23, 2004   February 23, 2011 
   104,204           13.94           104,204   February 22, 2005   February 22, 2012 
   148,946           9.34           148,946   February 21, 2006   February 21, 2013 
   209,645           10.57           209,645   February 19, 2007   February 19, 2014 
   199,481           11.31           199,481   February 17, 2008   February 17, 2015 
   205,480           11.47           205,480   March 13, 2009   March 13, 2016 
           166,254   14.51           166,254   February 15, 2010   February 15, 2017 
                  — BIP  26,421           Nil   26,421   13.25   —         
   27,810           Nil           27,810   April 4, 2009   April 4, 2009 
                  — LTIP (options)  384,349   8,167       10.57           392,516   February 19, 2007   February 19, 2014 
                  — LTIP (shares)  174,704   3,712       Nil   178,416   12.93   —         
   95,181           Nil           95,181   April 19, 2009   April 19, 2009 
           78,555   Nil           78,555   February 15, 2010   February 15, 2010 
                                     
Total
  1,975,617   11,879   244,809       204,837       2,027,468         
                                     


54

                                     
                 Market
          
                 price at
          
     2004-2006
  Granted
     Exercised
  exercise
          
  January 1,
  performance
  during
  Option
  during
  date
  December 31,
  Exercisable
  Exercisable
 
  2007  adjustment  the year  price (€)  the year  (€)  2007  from  until 
 
Erik Engstrom — ESOS  43,866           10.30           43,866   August 23, 2007   August 23, 2014 
   105,412           11.31           105,412   February 17, 2008   February 17, 2015 
   120,198           11.47           120,198   March 13, 2009   March 13, 2016 
           85,897   14.51           85,897   February 15, 2010   February 15, 2017 
              — BIP  29,442           Nil           29,442   April 4, 2009   April 4, 2009 
           27,572   Nil           27,572   April 4, 2010   April 4, 2010 
              — LTIS (options)  220,090   4,676       10.30           224,766   August 23, 2007   August 23, 2014 
              — LTIS (shares)  100,040   2,125       Nil   102,165   12.93   —         
   54,055           Nil           54,055   April 19, 2009   April 19, 2009 
           40,586   Nil           40,586   February 15, 2010   February 15, 2010 
              — Restricted shares  26,677           Nil   26,677   13.02   —         
                                     
Total
  699,780   6,801   154,055       128,842       731,794         
                                     
Andrew Prozes — ESOS  131,062           13.60           131,062   August 9, 2003   August 9, 2010 
   59,714           14.75           59,714   February 23, 2004   February 23, 2011 
   72,783           13.94           72,783   February 22, 2005   February 22, 2012 
   94,086           9.34           94,086   February 21, 2006   February 21, 2013 
   111,699           10.57           111,699   February 19, 2007   February 19, 2014 
   105,412           11.31           105,412   February 17, 2008   February 17, 2015 
   122,487           11.47           122,487   March 13, 2009   March 13, 2016 
           87,533   14.51           87,533   February 15, 2010   February 15, 2017 
              — BIP  13,612           Nil   13,612   13.25   —         
   16,522           Nil           16,522   April 14, 2008   April 14, 2008 
   17,636           Nil           17,636   April 4, 2009   April 4, 2009 
           14,574   Nil           14,574   April 4, 2010   April 4, 2010 
              — LTIS (options)  204,782   4,351       10.57           209,133   February 19, 2007   February 19, 2014 
              — LTIS (shares)  93,083   1,978       Nil   95,061   12.93   —         
   55,085           Nil           55,085   April 19, 2009   April 19, 2009 
           41,359   Nil           41,359   February 15, 2010   February 15, 2010 
                                     
Total
  1,097,963   6,329   143,466       108,673       1,139,085         
                                     
Patrick Tierney — ESOS  266,258           9.34   266,258   14.08   —         
   111,699           10.57           111,699   February 19, 2007   February 19, 2014 
   105,412           11.31           105,412   February 17, 2008   February 17, 2015 
   117,908           11.47           117,908   March 13, 2009   March 13, 2016 
           80,329   14.51           80,329   February 15, 2010   February 15, 2017 
                — BIP  13,252           Nil   13,252   13.25   —         
   16,800           Nil           16,800   April 14, 2008   April 14, 2008 
   5,426           Nil           5,426   April 4, 2009   April 4, 2009 
           5,420   Nil           5,420   April 4, 2010   April 4, 2010 
                — LTIS (options)  204,782   (68,846)      10.57   60,000   13.19   75,936   February 19, 2007   February 19, 2014 
                — LTIS (shares)  93,083   (31,295)      Nil   61,788   12.93   —         
   53,025           Nil           53,025   April 19, 2009   April 19, 2009 
           37,917   Nil           37,917   February 15, 2010   February 15, 2010 
                                     
Total
  987,645   (100,141)  123,666       401,298       609,872         
                                     
The proportion of the target award that may vest in 2009 and 2010 under LTIP is subject to the annual growth in Adjusted EPS and relative total shareholder return (“TSR”) measured against a group of competitor companies during the performance period. The numbers of LTIP unvested shares included in the above table are calculated by reference to an assumed achievement of 10% per annum averaged compound growth in Adjusted EPS and median TSR, which would result in 100% of the award vesting. Depending on actual Adjusted EPS growth and TSR, the proportion of the award that may vest could be lower or higher.
The market price of a Reed Elsevier NV ordinary share on the date of the 2007 award under BIP and LTIP was €13.52 and €14.51, respectively.
The market price of a Reed Elsevier NV ordinary share during the year was in the range €11.49 to €14.89 and at December 31, 2007 was €13.65.

55

Options awarded since December 31, 2007
(i) Awards made
 
The following options were awarded to directors of Reed Elsevier PLC and Reed Elsevier NV on February 21, 2008:
(a) Under19, 2009 under the Reed Elsevier Group plc Executive Share Option Scheme (ESOS):
 
                                
 Number of
 Number of
      Number of
       
 Reed Elsevier PLC
 Reed Elsevier NV
      Reed Elsevier PLC
 Number of
     
 options granted
 options granted
      options granted
 Reed Elsevier NV
     
 at 627.50p
 at €12.21
 Exercisable
 Exercisable
  at £5.42 
 options granted
 Exercisable
 Exercisable
 
 per share per share from to  per share at €9.415 per share from to 
G J A van de Aast  134,000   89,000   Feb 21, 2011   Feb 21, 2018 
M H Armour  144,000   94,000   Feb 21, 2011   Feb 21, 2018   147,692   95,899   February 19, 2012   February 19, 2019 
Sir Crispin Davis  276,000   182,000   Feb 21, 2011   Feb 21, 2018 
E Engstrom  143,000   94,000   Feb 21, 2011   Feb 21, 2018   146,923   95,399   February 19, 2012   February 19, 2019 
A Prozes  145,000   96,000   Feb 21, 2011   Feb 21, 2018   149,722   97,216   February 19, 2012   February 19, 2019 
I Smith  83,025   53,910   February 19, 2012   February 19, 2019 
 
Exercise of the above options is subject to a post grant performance condition, requiring the achievement of 8% per annum compound growth in adjustedAdjusted EPS expressed at constant exchange rates, during the three years following the grant. There is no retesting of the performance condition.
 
(b) UnderThe following awards were made to directors on February 19, 2009 under the Reed Elsevier Group plc Long Term Incentive Share Option Scheme (LTIP):
 
                        
 Number of
 Number of
      Number of
 Number of
 
 Reed Elsevier PLC
 Reed Elsevier NV
      Reed Elsevier PLC
 Reed Elsevier NV
 
 nil cost
 nil cost
      nil cost
 nil cost
 
 conditional
 conditional
 Exercisable
 Exercisable
  conditional
 conditional
 
 shares awarded shares awarded from to  
shares awarded
 shares awarded 
G J A van de Aast  64,000   42,000   Feb 21, 2011   Feb 21, 2011 
M H Armour  67,000   44,000   Feb 21, 2011   Feb 21, 2011   76,397   49,605 
Sir Crispin Davis  129,000   85,000   Feb 21, 2011   Feb 21, 2011 
E Engstrom  68,500   45,000   Feb 21, 2011   Feb 21, 2011   103,902   67,465 
A Prozes  68,000   44,500   Feb 21, 2011   Feb 21, 2011   105,881   68,750 
I Smith  112,084   72,778 
 
Vesting of the above award is subject to the achievement of 12% per annum averaged compound growth in Adjusted earnings per share (EPS)EPS at constant currencies of Reed Elsevier PLC and Reed Elsevier NV and the achievement of median total shareholder return (TSR) against a comparator group of seventeen media companies,peers, over the three yearthree-year performance period2008-2010. The actual number of conditional shares that will vest in early 2012 will be determined by the Remuneration Committee and in accordance with the rules of the scheme and by reference to the actual EPS and TSR performance over the three yearthree-year performance period. No awards will vest if EPS is below 10% per annum. If EPS is 14% per annum and above and TSR is upper quartile and above, 189% of the award will vest.
 
In addition, in accordance with the terms of his service contract, the following award of conditional shares was made to Ian Smith on February 19, 2009:
         
  Number of
 Number of
  Reed Elsevier PLC
 Reed Elsevier NV
  nil cost
 nil cost
  conditional
 conditional
  shares awarded shares awarded
 
I Smith  64,541   43,956 
The conditions of vesting the award mirror these of the LTIP awards granted in 2008 to the other executive directors. The award will vest, subject to performance, in early 2011.


64

(ii)  Awards vested
The 2006 LTIP award vested on February 27, 2009, based on the Committee’s assessment of Adjusted EPS and TSR performance. The Committee agreed the following performance in relation to each measure:
Compound Adjusted EPS growth over the three-year performance period was 12.5% p.a. This figure represents the simple average of the compound growth in the Adjusted EPS of Reed Elsevier PLC and Reed Elsevier NV over the performance period. The performance for 2008 was the strongest Adjusted EPS growth in a decade. The Committee has determined, with assistance from the Audit Committee, that the compound Adjusted EPS performance of 12.5% p.a. is a fair reflection of the quality of earnings and the progress of the business having regard to underlying revenue growth, cash generation, and return on capital. In reaching this determination, the Committee had due regard to the impact of the strategic initiatives during the period designed to enhance long term shareholder returns, including the divestment of Harcourt Education, the acquisition of ChoicePoint, the share repurchase program and the significant organisational restructuring.
TSR performance over the same three-year period was assessed by the Committee’s external advisor, Towers Perrin, in accordance with a pre-defined methodology, which included specific rules governing companies which de-listed as a result of industry consolidation. The Committee confirmed that the operation of these rules was appropriate and in line with the Committee’s intentions. The report from Towers Perrin showed Reed Elsevier to have attained a 76.4th percentile ranking against the peer group of global competitors.
Based on performance against the combined Adjusted EPS and TSR measures, the target awards under the2006-08 cycle of the LTIP will therefore be subject to the maximum performance uplift of 189% in accordance with the vesting schedule. The Committee believes that this overall level of vesting is fully justified by the earnings growth and comparative returns to shareholders achieved over the performance period.
The table below sets out the number of shares in Reed Elsevier PLC (PLC) and Reed Elsevier NV (NV) that will vest in respect of each director (and former directors) together with the notional dividends accrued during the performance period on the shares due to vest.
                 
           Accrued
 
     No. of shares subject to
  No. of shares
  notional
 
  Type of security  target award  vesting  dividends 
 
Gerard van de Aast  PLC ord   70,364   132,987   £66,493 
   NV ord   46,332   87,567   €106,131 
Mark Armour  PLC ord   75,075   141,891   £70,945 
   NV ord   49,434   93,430   €113,237 
Sir Crispin Davis  PLC ord   144,550   273,199   £136,599 
   NV ord   95,181   179,892   €218,029 
Erik Engstrom  PLC ord   82,092   155,153   £77,576 
   NV ord   54,055   102,163   €123,821 
Andrew Prozes  PLC ord   83,656   158,109   £79,054 
   NV ord   55,085   104,110   €126,181 
Patrick Tierney  PLC ord   53,685   101,464   £50,732 
   NV ord   35,350   66,811   €80,974 
The aggregate notional dividends per Reed Elsevier PLC and Reed Elsevier NV ordinary share are £0.500 and €1.212 respectively. These reflect the dividends paid in 2006, 2007 and 2008 and exclude the special distribution made in January 2008 following the sale of Harcourt Education.
In addition, the Committee determined that the performance condition in respect of the 2006-2008 cycle of the ESOS has been met. Therefore, the 2006 ESOS awards vested on March 13, 2009.
In respect of the2006-2008 cycle of the BIP, at the date of this report the Committee determined that the performance condition had been met. Therefore, subject to continued employment through the vesting date, the 2006 matching awards will vest on April 3, 2009.


65

REED ELSEVIER
Share option schemes
 
As of December 31, 20072008 Reed Elsevier operated and had granted share options and restricted shares under a number of equity-based compensation plans as follows:
 
(i) All-Employee Share Option Plans
 
Reed Elsevier’s All-Employee Option Plansall-employee share option plans comprise:
 
(a) Reed Elsevier Group plc SAYE Share Option Scheme (the “SAYE Scheme”)
 
Options over Reed Elsevier PLC ordinary shares have been granted under the SAYE Scheme. Shares may be acquired at not less than the higher of (i) 80% of the closing middle market price for the relevant share on The London Stock Exchange three days before invitations to apply for options are issued, and (ii) if new shares are to be subscribed, their nominal value.
 
All UK employees of Reed Elsevier Group plc and participating companies under its control in employment at the date of invitation are entitled to participate in the SAYE Scheme. In addition, the directors of Reed Elsevier Group plc may permit other employees of Reed Elsevier Group plc and participating companies under its control to participate.
 
Invitations to apply for options may normally only be issued within 42 days after the announcement of the combined results of Reed Elsevier for any period. No options may be granted more than 10 years after the approval of the scheme.
 
On joining the SAYE Scheme, a save as you earn contract (a “Savings Contract”) must be entered into with an appropriate savings body, under which savings of between £5 and £250 per month may be made to such savings body for a period of three or five years. A bonus is payable under the Savings Contract at the end of the savings period. The amount of the monthly


56

contributions may be reduced if applications exceed the number of Reed Elsevier PLC ordinary shares available for the grant of options on that occasion.
 
The number of Reed Elsevier PLC ordinary shares over which an option may be granted is limited to that number of shares which may be acquired at the exercise price out of the repayment proceeds (including any bonus) of the Savings Contract.
 
Options under the SAYE Scheme may normally only be exercised for a period of six months after the bonus date under the relevant Savings Contract. However, options may be exercised earlier than the normal exercise date in certain specified circumstances, including death, reaching age 60, or on ceasing employment on account of injury, disability, redundancy, reaching contractual retirement age, or the sale of the business or subsidiary for which the participant works, or provided the option has been held for at least three years, on ceasing employment for any other reason. Exercise is allowed in the event of an amalgamation, reconstruction or take-over of the company whose shares are under option; alternatively, such options may, with the agreement of an acquiring company or a company associated with it, be exchanged for options over shares in the acquiring company or that associated company. Options may also be exercised in the event of the voluntarywinding-up of the company whose shares are under option. In the event that options are exercised before the bonus date, the participant may acquire only the number of shares that can be purchased with the accumulated savings up to the date of exercise, plus interest (if any).
 
In the event of any capitalisation or rights issue by Reed Elsevier PLC or Reed Elsevier NV, or of any consolidation, subdivision or reduction of their share capital, the number of shares subject to any relevant optionand/or the exercise price may be adjusted with the approval of the UK HMRC, subject to the independent auditors of Reed Elsevier Group plc confirming in writing that such adjustment is, in their opinion, fair and reasonable.
 
(b) Convertible debenture stock arrangements
 
This facility consists of an annual issue by Reed Elsevier NV of a convertible debenture loan (the “Netherlands Convertible Debenture Stock Scheme”) that is open for subscription by Dutch staff employed by Reed Elsevier companies in the Netherlands or temporarily seconded to affiliates abroad. The interest rate of the scheme is determined on the basis of the average interest for10-year loans at the end of the year preceding the year in which the loan would be issued and be open for subscription. With effect from February 19, 2004 for new issues, interest is determined quarterly on the basis of market rates on internet savings accounts in the Netherlands. Employees can annually subscribe for one or more debentures of €200 each, up to a maximum amount equal to 20%, of the equivalent of their fixed annual salary components. Interest is payable in arrears in the month of January following the subscription year. The loans have a term of 10 years. During the 10 year term of the loan employees can decide to convert their claim on the Company into shares at an exercise price equal to the price of a Reed Elsevier NV ordinary share on Euronext Amsterdam at the end of the month in which the employee has subscribed for the loan (the “exercise price”). Each debenture of €200 can be converted into 50 ordinary shares in Reed Elsevier NV against payment of 50 times the exercise price, less €200.


66

 
(ii) Executive optionshare-based compensation plans
 
Reed Elsevier’s executive optionshare-based compensation plans comprise:
 
(a) Reed Elsevier Group plc executive share option schemes
 
Schemes in this group comprise the Reed Elsevier Group plc Executive UK Share Option Scheme (the “Executive UK Scheme”), the Reed Elsevier Group plc Executive Overseas Share Option Scheme (the “Executive Overseas Scheme”) and the Reed Elsevier Group plc Executive Share Option Schemes (No. 2) (the “No. 2 Scheme”) and the Reed Elsevier Group plc Share Option Scheme (together the “Executive Schemes”).
 
The Executive Schemes provide for the grant of options to employees of Reed Elsevier Group plc and participating companies under its control. All directors and employees of Reed Elsevier Group plc and participating companies under its control who are contracted to work for at least 25 hours per week are eligible to be nominated for participation. The grant of options is administered by a committee of non-executive directors of Reed Elsevier Group plc. No payment is required for the grant of an option under the Executive Schemes.
 
Options granted under the Executive Schemes may be exercised within a period of 10 years and entitle the holder to acquire shares at a price which may not be less than the higher of (i) in the case of a Reed Elsevier PLC ordinary share, the closing middle market price for the relevant share on The London Stock Exchange at the date of grant, (ii) in the case of a Reed Elsevier NV ordinary share, the closing market price for the relevant share on Euronext, Amsterdam at the date of grant and (iii) if new shares are to be subscribed, their nominal value.
 
Employees may be granted options under the Executive Schemes to replace those which have been exercised. In granting such replacement options, the committee of non-executive directors must satisfy itself that the grant of such options is justified by the performance of Reed Elsevier in the previous two to three years.
 
Options may normally only be granted under the Executive Schemes within 42 days after the announcement of the combined results of Reed Elsevier for any period. No option may be granted under the Executive Schemes more than 10 years after the approval of the respective scheme.


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Options granted under the Executive Schemes will normally be exercisable only after the expiry of three years from the date of their grant and by a person who remains a director or employee of Reed Elsevier Group plc and participating companies under its control. Options granted to directors infrom 2008 are subject to performance criteria requiring the achievement of 8% per annum compound growth in Adjusted EPS at constant exchange rates (previously 6% per annum compound growth), during the three years following the grant. There will be no re-testing of the three year EPS performance period.
 
Early exercise of such options is permitted in substantially similar circumstances to those set out in relation to the Reed Elsevier Group plc SAYE Scheme. The committee of non-executive directors has discretion to permit the exercise of options by a participant in certain circumstances where it would not otherwise be permitted.
 
The size of the annual grant pool under the Reed Elsevier Group plc Share Option Scheme is determined by reference to the compound annual growth in Adjusted EPS, at constant exchange rates, over the three years prior to grant, with individual grant size determined by the Committee based on individual performance. At compound growth of between 10% and 12% per annum, the pool of options available will be broadly comparable to the level of options granted under the previous scheme. At executive director level the grants are expected to be up to three times salary.
 
In the event of any capitalisation or rights issue by Reed Elsevier PLC or Reed Elsevier NV, or of any consolidation, subdivision or reduction of their share capital, the number of shares subject to any relevant optionand/or the exercise price may be adjusted with the approval of the UK HMRC, subject to the independent auditors of Reed Elsevier Group plc confirming in writing that such adjustment is, in their opinion, fair and reasonable.
 
Options under the Executive UK Scheme and the Executive Overseas Scheme may be satisfied from new issues or market purchase Reed Elsevier PLC ordinary shares or Reed Elsevier NV ordinary shares. Options under the No. 2 Scheme may be satisfied only from market purchase Reed Elsevier PLC ordinary shares or Reed Elsevier NV ordinary shares.
 
(b)  Reed Elsevier Group plc Retention Share Plan
Since
The Reed Elsevier Group plc Retention Share Plan is a share plan operated under the discretion of the Reed Elsevier Remuneration Committee which approves all grants. It facilitates the grant of restricted share awards over Reed Elsevier PLC and Reed Elsevier NV ordinary shares, subject to such conditions as specified from time to time by the Reed Elsevier Remuneration Committee. Participation in the plan is limited to employees of Reed Elsevier and participating companies under its control, excluding executive directors.
The plan is used to facilitate the grant of one-off awards of restricted shares, where appropriate, to senior new hires, for example, to buy out share-based awards from previous employment.
In addition, since 2006, participants, other than directors, in the Reed Elsevier Group plc Executive Share Option Schemeexecutive share option schemes (see (a) above) have been able to choose to convert a proportionall or part of their option award into restricted shares based on a pre-determined formulapre-


67

determined conversion ratio of one restricted share for every five share options that they would otherwise have been awarded.awarded, and the plan is the vehicle used to facilitate such conversions. The restricted shares vest after the expiry of three years from the date of their grant, subject to the participant remaining a director or employee ofemployed by Reed Elsevier Group plc or a participating company under its control. AwardsThe restricted shares awarded are made under the Reed Elsevier Group plc Retention Share Plan, and will be satisfied by market purchase shares.
Awards made under this plan may not be transferred, assigned, charged or otherwise alienated by anyone except as permitted by law in the event of death.
On termination of employment, unvested awards made under the plan lapse other than in certain specified circumstances or as determined by the Remuneration Committee.
 
(b)(c) Reed Elsevier NV executive option arrangements
 
Under arrangements operated by Reed Elsevier NV (the “Reed Elsevier NV Executive Option Arrangements”), options to subscribe for Reed Elsevier NV ordinary shares were granted in 1999 to the members of the executive boardExecutive Board and to a small number of other senior executives based in the Netherlands. Such options give the beneficiary the right, at any time during periods of either five years or ten years following the date of the grant, to purchase Reed Elsevier NV ordinary shares. Options were granted at an exercise price equal to the market price on the date of grant. During 1999, options were granted with an exercise period of five years at an exercise price 26% above the market price at the date of grant, or with an exercise period of 10 years at an exercise price equal to the market price at the date of grant, or a combination of both.
 
(c)(d) Long term incentive plans
 
From 2006 onwards a small number of key senior executives (approximately 120) have received an annual award, consisting solely of performance shares, under the Reed Elsevier Group plc Long Term Incentive Share Option Scheme (the “2003 LTIS”). Grants will vest subject to the achievement of a demandingan Adjusted EPS performance target over a three year performance period, and an additional TSR performance target over the same three year period. From 2008 the minimum level of compound Adjusted EPS growth will be 10% per annum (previously 8% per annum), with maximum vesting (under the Adjusted EPS measure) being achieved for growth of 14% per annum (previously 12% per annum). Any award earned through EPS performance may then be increased or decreased in line with Reed Elsevier’s TSR performance against a selected international comparator group over the three year period. The maximum increase will be applied at upper quartile or higher levels of TSR achievement. NoThe award will be made to participantslapse if Reed Elsevier fails to achieve the minimum threshold of 8% p.a.10% per annum Adjusted EPS growth (previously 8% per annum), irrespective of the associated TSR performance. Any shares which vest will be treated as attracting notional dividends during the performance period.
 
Participants in the 2003 LTIS are required to build up a significant personal shareholding in Reed Elsevier PLCand/or Reed Elsevier NV. The shareholding requirement for the Group Chief Executive Officer is three times salary and for other executive directors the requirement is two times salary. These shareholding requirements must be met by February 2009 at the latest.latest in order for the 2006 awards to vest.
 
The Committee continues to have full discretion to reduce or cancel awards granted to participants based on its assessment as to whether the Adjusted EPS and TSR performance fairly reflects the progress of the business having regard to underlying revenue growth, cash generation, return on capital and any significant changes in inflation as well as individual performance.


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(d)(e) Bonus investment planInvestment Plan
 
Directors and other senior executives are able to invest up to half of their annual performance related bonus in Reed Elsevier PLC/Reed Elsevier NV shares under the Reed Elsevier Group plc Bonus Investment Plan (the “Bonus Investment Plan”). Subject to continuing to hold the shares and remaining in employment, at the end of a three year period, the participants are awarded an equivalent number of Reed Elsevier PLC/Reed Elsevier NV shares at nil cost. Awards infrom 2008 are subject to a performance condition requiring the achievement of compound growth in the average of the Reed Elsevier PLC and Reed Elsevier NV Adjusted EPS, at constant exchange rates, of 8% per annum (previously 6% per annum) compound during the three year vesting period.
 
Limits over option grants
 
No options may be granted over new issue shares under the SAYE Scheme, the Executive UK Scheme and the Executive Overseas Scheme if they would cause the number of Reed Elsevier PLC ordinary shares issued or issuable in any 10 year period to exceed in aggregate 10% of the issued share capital of Reed Elsevier PLC from time to time. The number of Reed Elsevier NV ordinary shares which may be issued or issuable under the Netherlands Convertible Debenture Scheme, the Executive UK Scheme, the Executive Overseas Scheme and the Reed Elsevier NV Executive Option arrangements will be determined by the combined board of Reed Elsevier NV, but shall not exceed the percentage limits set out above in relation to Reed Elsevier PLC ordinary shares.


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Share options and conditional share awards
 
At February 20, 200818, 2009 the total number of ordinary shares subject to outstanding options were:
 
           
  Number of
      
  outstanding
  Options over
  Option price
  options  shares  range
 
Reed Elsevier Group plc SAYE Share Option Schemes  3,020,0272,527,707   Reed Elsevier PLC  336.20p377.60p — 543.20p504.00p
Reed Elsevier NV Convertible Debenture Stock Scheme  2,314,7502,483,550   Reed Elsevier NV  €9.238.42 — €15.43
Reed Elsevier Group plc Executive Share Option Schemes  32,331,89529,710,212   Reed Elsevier PLC  424.00p — 700.00p
   22,995,57421,409,770   Reed Elsevier NV  €9.299.34 — €16.00
Reed Elsevier NV Executive Options Arrangements  110,463   Reed Elsevier NV  €13.55
Reed Elsevier Group plc Long Term Incentive Share Option Scheme....Scheme  2,872,1442,379,246   Reed Elsevier PLC  478.00p — 524.50p525.50p
   1,978,3461,846,250   Reed Elsevier NV  €10.30 — €11.35
 
Share options are expected, upon exercise, to be met principally by the issue of new ordinary shares, but may also be met from shares held by the Reed Elsevier Group plc Employee Benefit Trust.
 
At February 20, 200818, 2009 the following nil cost conditional share awards were also outstanding:
 
         
  Number of
    
  outstanding
  Awards over
 
  awards  shares in 
 
Reed Elsevier Group plc Long Term Incentive Share Option Scheme  3,136,8574,386,215   Reed Elsevier PLC 
   2,068,2872,871,119   Reed Elsevier NV 
Reed Elsevier Group plc Retention Share Plan  1,596,5252,023,144   Reed Elsevier PLC 
   1,061,6191,337,786   Reed Elsevier NV 
Reed Elsevier Group plc Bonus Investment PlanPlan*  1,769,7771,872,463   Reed Elsevier PLC 
   706,151763,184   Reed Elsevier NV 
*For disclosure purposes, any Reed Elsevier PLC and Reed Elsevier NV ADRs awarded under this plan have been converted into ordinary share equivalents.
 
These awards will be met by the Reed Elsevier Group plc Employee Benefit Trust from shares purchased in the market. Options and awards granted under the schemes are not transferable and may be exercised only by the persons to whom they are granted or their personal representatives.


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REED ELSEVIER
 
Share ownership
 
The interests of thethose individuals who were directors of Reed Elsevier PLC and Reed Elsevier NV as at December 31, 2008 in the issued share capital of the respective companies at the beginning and end of the year are shown below.
 
                     
  Reed Elsevier PLC
  Reed Elsevier NV
 
  ordinary shares  ordinary shares 
�� January 1,
  December 31,
     January 1,
  December 31,
 
  2007(i)  2007     2007(i)  2007 
 
G J A van de Aast  39,169   124,287       57,941   120,523 
M H Armour  112,007   112,378       47,150   47,461 
G J de Boer-Kruyt  —   —       —   — 
Sir Crispin Davis  567,174   787,577       324,344   445,197 
M W Elliott  —   —       —   — 
E Engstrom  29,479   79,379       73,415   219,867 
J Hommen  —   —       —   — 
L Hook  —   —       —   — 
R Polet  —   —       —   — 
A Prozes  123,740   230,981       95,954   169,334 
D E Reid  —   —       —   — 
Lord Sharman  —   —       —   — 
R W H Stomberg  —   —       —   — 
P Tierney  72,212   37,416       48,090   25,448 
                 
  Reed Elsevier PLC
  Reed Elsevier NV
 
  ordinary shares  ordinary shares 
  January 1,
  December 31,
  January 1,
  December 31,
 
  2008  2008(i)  2008  2008(i) 
 
Mark Armour  112,378   131,572   47,661   62,384 
Dien de Boer-Kruyt  —   —   —   — 
Sir Crispin Davis  787,577   800,639   445,197   386,940 
Mark Elliott  —   —   —   — 
Erlk Engstrom  79,379   77,856   219,867   211,760 
Jan Hommen  —   —   —   — 
Lisa Hook  —   —   —   — 
Robert Polet  —   —   —   — 
Andrew Prozes  230,981   231,709   169,334   168,676 
David Reid  —   —   —   — 
Lord Sharman  —   —   —   — 
 
 
(i)On dateJanuary 7, 2008 the Reed Elsevier PLC and Reed Elsevier NV ordinary shares in issue were consolidated on the basis of appointment if subsequent to January 1, 2007.58 new ordinary shares for every 67 existing ordinary shares held, resulting in the number of ordinary shares held by the directors being reduced in accordance with the consolidation ratio.
 
Ian Smith was appointed a director of Reed Elsevier PLC on January 1, 2009. He did not hold an interest in Reed Elsevier PLC or Reed Elsevier NV ordinary shares at the date of his appointment.


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The interests of the executive directors of Reed Elsevier PLC and Reed Elsevier NV in the issued share capital of the respective companies as at March 20, 200811, 2009 were:
         
  Interest in
  Interest in
 
  Reed Elsevier
  Reed Elsevier
 
  PLC ordinary
  NV ordinary
 
  shares  shares 
 
G J A van de Aast  109,018   109,478 
M H Armour  100,922   43,464 
Sir Crispin Davis  693,453   386,940 
E Engstrom  69,592   193,894 
A Prozes  204,893   150,227 
         
  Interest in
  Interest in
 
  Reed Elsevier
  Reed Elsevier
 
  PLC ordinary
  NV ordinary
 
  shares  shares 
 
M H Armour  215,287   117,507 
Sir Crispin Davis  961,826   493,076 
E Engstrom  107,040   313,923 
A Prozes  231,709   168,676 
I Smith  —   — 
 
Employee Benefit Trust
 
Any ordinary shares required to satisfy entitlements under nil cost restricted share awards are provided by the Reed Elsevier Group plc Employee Benefit Trust (EBT) from market purchases. As a potential beneficiary under the EBT in the same way as other employees of Reed Elsevier, each executive director is deemed to be interested in all the shares held by the EBT which at December 31, 20072008 amounted to 18,723,83020,078,899 Reed Elsevier PLC ordinary shares (1.43%(1.76% of issued share capital) and 10,100,76511,177,422 Reed Elsevier NV ordinary shares (1.25%(1.60% of issued share capital).


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Shares and options held by executive officers
 
The following table indicates the total aggregate number of Reed Elsevier PLC ordinary shares and Reed Elsevier NV ordinary shares beneficially owned and the total aggregate number of share options and conditional share awards granted to the executive officers (other than directors) of Reed Elsevier Group plc (three(five persons) as a group in office as of February 20, 2008:18, 2009:
 
                             
     Reed
                
     Elsevier
  Reed
     Reed
       
  Reed
  PLC
  Elsevier
     Elsevier NV
  Reed
    
  Elsevier
  ordinary
  PLC
  Reed
  ordinary
  Elsevier NV
    
  PLC
  shares
  conditional
  Elsevier NV
  shares
  conditional
    
  ordinary
  subject to
  share
  ordinary
  subject to
  share
    
  shares  options  awards  shares(l)(2)  options  awards    
 
Executive officers (other than directors) as a group  90,329   611,820   330,070   17,412   485,445   143,966     
                             
    Reed
          
    Elsevier
 Reed
   Reed
    
  Reed
 PLC
 Elsevier
   Elsevier NV
 Reed
  
  Elsevier
 ordinary
 PLC
 Reed
 ordinary
 Elsevier NV
  
  PLC
 shares
 conditional
 Elsevier NV
 shares
 conditional
  
  ordinary
 subject to
 share
 ordinary
 subject to
 share
  
  shares options awards shares(l) options awards  
 
Executive officers (other than directors) as a group  137,988   563,943   354,717   —   379,282   161,878     
 
 
(1)The Reed Elsevier NV ordinary shares are in registered form, although most ordinary shares are traded in the Dutch Security giro system administered by Euroclear Netherlands.
(2)No individual executive officer of Reed Elsevier Group plc has notified Reed Elsevier NV that he holds more than 5% of the issued share capital of Reed Elsevier NV pursuant to the Dutch law requirement described under “Item 7: Major Shareholders and Related Party Transactions-Reed Elsevier NV”.
 
The options over Reed Elsevier PLC ordinary shares included in the above table are exercisable at prices ranging from 451.50p424.4p to 700.00p700p per share and between the date hereof and 2017.2018. The options over Reed Elsevier NV ordinary shares included in the above table are exercisable at prices ranging from €9.34 to €15.66 per share and between the date hereof and 2017.2018. The Reed Elsevier PLC and Reed Elsevier NV conditional share awards included in the above table will vest between 2009 and 2010.2011.


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ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
 
MAJOR SHAREHOLDERS
 
REED ELSEVIER PLC
 
As of February 20, 2008March 11, 2009 Reed Elsevier PLC had received notification of disclosable interests, in accordance with the UK Disclosure and Transparency Rules, or is aware of Schedule 13G filings in relation to the following disclosable interests of 3% or more in the issued Reed Elsevier PLC ordinary shares:
 
     
Identity of Person or Group(1)
 % of Class 
 
FMR LLCLloyds Banking Group plc  5.294.99 
Fidelity International Limited  4.974.96
Baillie Gifford & Co4.75 
Legal & General Group plc  4.11
Lloyds TSB Group plc3.97
Prudential plc3.404.10 
Directors and Officers  — 
 
 
(1)Under UK Law, subject to certain limited exceptions, persons or groups owning or controlling 3% or more of the issued Reed Elsevier PLC ordinary shares are required to notify Reed Elsevier PLC of the level of their holdings.
 
As far as Reed Elsevier PLC is aware, except as disclosed herein, it is neither directly or indirectly owned nor controlled by one or more corporations or by any government.
 
At December 31, 20072008 there were 21,32420,387 ordinary shareholders, including the depository for Reed Elsevier PLC’s ADR programme, with a registered address in the United Kingdom, representing 99.62%99.22% of shares issued.
 
Reed Elsevier PLC is not aware of any arrangements the operation of which may at a subsequent date result in a change in control of Reed Elsevier PLC. The major shareholders of Reed Elsevier PLC do not have different voting rights to other ordinary shareholders.
 
REED ELSEVIER NV
 
As of February 20, 2008March 11, 2009 Reed Elsevier NV is aware of the following disclosable interests of 5% or more in the issued Reed Elsevier NV ordinary shares having been notified by the Dutch Financial Markets Authority or provided as a Schedule 13G filing, in addition to the 3,915,541 R-shares of €0.70 nominal value each in Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC and representing a 5.8% indirect equity interest in the total share capital of Reed Elsevier NV:
 
     
Identity of Person or Group(1)
 % of Class 
 
Franklin Resources, Inc11.38
ING Group NV9.39
Morgan Stanley  5.605.90
Franklin Resources Inc.5.30 
Mondrian Investment Partners Limited  5.24 
Directors and Officers(2)
  — 
 
 
(1)Under Article 5:38 of the Netherlands Financial Supervision Statute, any person acquiring or disposing of shares or voting rights in public companies established under the laws of the Netherlands listed on a stock exchange in the European Union, is required to notify the Dutch Financial Markets Authority (AFM) without delay if such person knows, or should know, that such interest therein reaches, exceeds or drops below a 5% respectively a 10% threshold. The AFM’s public register discloses that as at February 20, 2008March 11, 2009 Reed Elsevier PLC ING Group and Mondrian Investment Partners Limited each held an interest in shares and voting rights in Reed Elsevier NV of at least 5%. No interest in the shares or voting rights of Reed Elsevier NV of 10% or more has been disclosed in the AFM’s registers.
 
(2)No individual member of the Supervisory Board or the Executive Board of Reed Elsevier NV or executive officer of Reed Elsevier NV has notified the AFM that they hold an interest of 5% or more in the issued share capital or voting rights of Reed Elsevier NV pursuant to the Statute described in the immediately preceding footnote.
 
As far as Reed Elsevier NV is aware, except as disclosed herein, it is neither directly nor indirectly owned or controlled by any single corporation or corporations acting jointly, nor by any government.
 
Reed Elsevier NV is not aware of any arrangements the operation of which may at a subsequent date result in a change in control of Reed Elsevier NV. The major shareholders of Reed Elsevier NV do not have different voting rights to other ordinary shareholders.


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RELATED PARTY TRANSACTIONS
 
Transactions with joint ventures and key management personnel, comprising the executive directors of Reed Elsevier PLC and Reed Elsevier NV, are set out in note 35 to the combined financial statements. Further details of remuneration of key management personnel are set out in “Item 6 — Directors, Senior Management and Employees”.


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ITEM 8: FINANCIAL INFORMATION
 
FINANCIAL STATEMENTS
 
See Item 18: Financial Statements.
See Item 18:  Financial Statements.
 
DIVIDEND POLICY
 
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation as defined in the Reed Elsevier merger agreement is the spot euro/sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend. The dividend policy of the boards of Reed Elsevier PLC and Reed Elsevier NV ishave adopted progressive dividend policies in recent years in respect of their equalised dividends that, subject to the effects of currency movements on dividend equalisation, increases in full year dividends are expected toconsiderations, more closely align dividend growth with growth in adjusted earnings, growthconsistent with the dividend normally being covered over the longer term at least two times by adjusted earnings (i.e. before the amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition integrationrelated costs, disposals and other non operating items, related tax effects and movements in deferred tax assets and liabilities that are not expected to crystallise in the near term).
 
LEGAL PROCEEDINGS
 
We are party to various legal proceedings, the ultimate resolutions of which are not expected to have a material adverse effect on our financial position or the results of our operations.
 
In March and April 2005, Reed Elsevier announced that unauthorised persons, predominantly using IDs and passwords of legitimate customers of LexisNexis, might have fraudulently acquired personal identifying information from its US risk management (including Seisint, Inc.) databases. Investigations have shown that approximately 559,000 consumers’ records have been accessed. LexisNexis has notified, and is working with, Federal authorities in investigating these issues, and has notified all the potentially affected consumers of possible security compromises. LexisNexis has offered affected consumers credit monitoring and anti-fraud assistance. An intensive review of these breaches was completed to identify ways of better protecting against future breaches. IntensifiedIn March 2005, ChoicePoint also announced data security policies and practices have been implemented.breaches.
 
A putative class action against LexisNexis is pending in California arising from these events,Syran v. LexisNexis Group et al. In April 2005, this putative class action was filed in the US District Court for the Southern District of California. The lawsuit alleges that LexisNexis violated the federal Fair Credit Reporting Act and similar state consumer protection legislation by failing to maintain reasonable procedures to protect consumer credit information from unauthorised access by third parties. A second action,Witriol v. LexisNexis Group et al,filed in June 2005 in the US District Court for the Northern District of California and based on the same set of facts, has been consolidated with theSyranaction. The plaintiffs seek unspecified punitive and statutory damages, attorneys’ fees and costs, and injunctive relief.
 
In February 2008, the parties petitioned the court for approval of a settlement of this litigation. The proposed settlement relates to consumers notified through November 30, 2007 and provides for a claim fund capped at $2.8 million (which includes plaintiffs’ legal fees and expense and claims administrative costs), with any unclaimed balance to be donated to an academic institution engaged in research regarding individual data security or privacy; and an undertaking by LexisNexis to maintain certification under recognised web security standards. The parties received notice of final approval of the settlement by the District Court on September 29, 2008.
 
LexisNexis believes that it has strong procedural and substantive defences to thesethe remaining unsettled actions, which it will continue to vigorously pursue, if necessary.
 
Reed Elsevier, Inc. (“REI”) is among several defendants (including ChoicePoint) in a putative class action,Richard Fresco, et al. v. Automotive Directions, Inc., et al., brought in the federal district courtUS District Court in Florida. The plaintiffs allege that REI (through both LexisNexis and Seisint) violated certain provisions of the Driver’s Privacy Protection Act, (the “DPPA”), when it obtained and disclosed information originating from various state departments of highway safety and motor vehicles without the consent of the individuals to whom the information related. A settlement agreement in theFrescocase was negotiated, signed and submitted to the court for preliminary approval in December 2006. Under the proposed settlement, Reed Elsevier Inc. and Seisint would pay a total of US$12$12 million, substantially all of which would be reimbursed by insurance and third-party indemnities, and enter into certain behavioural undertakings that would codify existing practices adopted since 2003 and that substantially would expand practices for the handling of protected data as a result of the settlement. This enhanced and multifaceted compliance programme would be subject to a series of external certifications over a several year period. On January 3, 2007 an objection to the proposed settlement was lodged with the court, and a collateral putative class action,Taylor v. Acxiom,was filed in federal court in Texas. On May 14, 2007 the District Court in Florida granted preliminary approval of theFrescosettlement. By this ruling, the court recgonised a nationwide settlement class, severed the non-settling defendants, denied the motion for limited intervention filed by theTaylorplaintiffs’ counsel, and enjoined other DPPA litigation elsewhere as to the settling defendants. The final approval hearing was held on October 24, 2007. The Court in theTaylorcase granted the defendants’ motion to dismiss. In October 2008, the 11th Circuit Court of Appeals stayed the appeal of the District Court’s stay inTaylor, and directed the District Court to timely rule on the settlement. The parties received notice of final approval of the settlement by the District Court on January 20, 2009. The order reduced the attorneys’ fees to plaintiffs’ counsel from the $25 million requested to approximately $8.8 million.


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REI and ChoicePoint have also entered into certain settlements with regulatory authorities related to data breaches announced in March 2005. Specifically, in February 2006, ChoicePoint reached a settlement with the Federal Trade Commission (“FTC”) regarding the FTC’s investigation into ChoicePoint’s compliance with federal laws governing consumer information security and related issues, including the fraudulent data access that occurred in 2004. The settlement requires, among other things, that ChoicePoint obtain, every two years until 2026, an assessment from a qualified, independent third-party professional to ensure that ChoicePoint’s information security program meets the standards of the settlement. On February 20, 2008, ChoicePoint received a letter from the FTC notifying ChoicePoint that after reviewing ChoicePoint’s180-day Report submitted pursuant to the settlement order, the Enforcement Division of the FTC was not recommending any enforcement action to the FTC. Similarly, on August 1, 2008, FTC approved a settlement and consent order with REI and its indirect subsidiary Seisint, Inc. regarding the FTC’s investigation into compliance with federal laws governing consumer information security and related issues, including the fraudulent data access that occurred at Seisint in 2004 and 2005. The settlement requires, among other things, that REI maintain a detailed security program in its LexisNexis division as well as in other parts of the company that include specified sensitive information in their services. The settlement also requires REI to obtain, in 180 days and then every two years until 2028, an assessment from a qualified, independent third-party professional to ensure that its information security program meets the standards of the settlement. Effective June 5, 2007, ChoicePoint also entered into an Assurance of Voluntary Compliance and Discontinuance with the Attorneys General of 43 states and the District of Columbia. A report on the initial biennial assessment is due to be submitted to the FTC in April 2009.
The background screening report businesses offered by LexisNexis and ChoicePoint are governed by the US Fair Credit Reporting Act (“FCRA”) and analogous state laws requiring that consumers be provided the contents of background reports and allowed to have any inaccuracies in the reports corrected. It further provides for statutory penalties and attorneys fees for non-compliance. In the normal course of its business, LexisNexis and ChoicePoint deal with individual background screening lawsuits, most involving claims that inaccurate information in a background report led to job loss or other economic harm, which actions have not had, and are not expected to have, a material adverse effect on our financial position or the results of our operations. Two class actions involving FCRA claims are currently pending against ChoicePoint, one of which has been preliminarily settled for $3.0 million pending court approval. LexisNexis recently settled, with final court approval, a background screening class action involving FCRA claims for $21.65 million. Substantially all of these amounts are covered by insurance.


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ITEM 9: THE OFFER AND LISTING
 
TRADING MARKETS
 
REED ELSEVIER PLC
 
The Reed Elsevier PLC ordinary shares are listed on the London Stock Exchange and the New York Stock Exchange. The London Stock Exchange is the principal trading market for Reed Elsevier PLC ordinary shares. Trading on the New York Stock Exchange is in the form of American Depositary Shares (ADSs), evidenced by American Depositary Receipts (ADRs) issued by The Bank of New York, as depositary. Each ADS represents four Reed Elsevier PLC ordinary shares.
 
The table below sets forth, for the periods indicated, the high and low closing middle market quotations for the Reed Elsevier PLC ordinary shares on the London Stock Exchange as derived from the Daily Official List of the London Stock Exchange and the high and low last reported sales prices in US dollars for the Reed Elsevier PLC ADSs on the New York Stock Exchange, as derived from the New York Stock Exchange Composite Tape, and reported by Datastream International Ltd:Thomson Reuters Datastream:
 
                            
 Pence per ordinary share US dollars per ADS Pence per ordinary share US dollars per ADS 
Calendar Periods High Low High Low High Low High Low 
2008
  690   451   54.60   27.06 
2007
  690  558  54.85  44.02  690   558   54.85   44.02 
2006
  608  504  46.17  35.90  608   504   46.17   35.90 
2005
  554  475  42.67  35.26  554   475   42.67   35.26 
2004
  543  450  39.75  33.33  543   450   39.75   33.33 
2003
  552  392  37.14  26.15
 
2008
                
Fourth Quarter  586   451   40.82   27.06 
Third Quarter  636   528   47.25   37.25 
Second Quarter  670   567   53.49   44.83 
First Quarter  690   582   54.60   45.47 
  
2007
                            
Fourth Quarter  682  558  54.34  46.18  682   558   54.34   46.18 
Third Quarter  675  573  54.85  45.87  675   573   54.85   45.87 
Second Quarter  690  612  54.41  48.60  690   612   54.41   48.60 
First Quarter  645  561  50.44  44.02  645   561   50.44   44.02 
  
2006
            
Fourth Quarter  608  555  46.17  42.70
Third Quarter  594  514  45.06  37.65
Second Quarter  556  504  40.92  37.82
First Quarter  568  515  39.48  35.90
 
Month
                            
February 2008 (through February 20, 2008)  619  582  48.55  45.47
January 2008  690  583  54.60  46.82
December 2007  682  601  54.34  49.31
November 2007  622  558  51.95  46.18
October 2007  628  599  52.67  48.96
September 2007  634  583  51.13  47.52
August 2007  612  573  49.70  45.87
February 2009 (through February 18, 2009)  543   505   32.06   28.72 
January 2009  560   506   32.36   29.80 
December 2008  543   451   32.50   27.06 
November 2008  562   489   35.98   29.05 
October 2008  586   456   40.82   31.35 
September 2008  636   541   45.81   37.25 
August 2008  625   570   47.25   43.51 
 
REED ELSEVIER NV
 
The Reed Elsevier NV ordinary shares are quoted on Euronext Amsterdam NV and the New York Stock Exchange. Euronext Amsterdam NV is the principal trading market for Reed Elsevier NV ordinary shares. Trading on the New York Stock Exchange is in the form of ADSs, evidenced by ADRs issued by The Bank of New York, as depositary. Each ADS represents two Reed Elsevier NV ordinary shares.


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The table below sets forth, for the periods indicated, the high and low closing middle market quotations for the Reed Elsevier NV Ordinary Shares on Euronext Amsterdam NV as derived from theOfficiële Prijscourantof Euronext Amsterdam NV and the high and low last reported sales prices in US dollars for the Reed Elsevier NV ADSs on the New York Stock Exchange, as derived from the New York Stock Exchange Composite Tape, and reported by Datastream International Ltd.
 
                            
 € per ordinary share US dollars per ADS € per ordinary share US dollars per ADS 
Calendar Periods High Low High Low High Low High Low 
2008
  13.69   7.72   39.61   20.73 
2007
  14.89  11.49  40.49  33.20  14.89   11.49   40.49   33.20 
2006
  13.72  11.08  35.25  26.72  13.72   11.08   35.25   26.72 
2005
  11.91  10.03  31.06  26.25  11.91   10.03   31.06   26.25 
2004
  12.19  9.61  29.16  24.55  12.19   9.61   29.16   24.55 
2003
  12.03  8.13  26.08  18.14
 
2008
                
Fourth Quarter  10.97   7.72   30.00   20.73 
Third Quarter  11.63   9.66   34.22   28.20 
Second Quarter  12.71   10.54   39.54   32.95 
First Quarter  13.69   11.45   39.61   33.81 
  
2007
                            
Fourth Quarter  13.65  11.49  39.81  34.08  13.65   11.49   39.81   34.08 
Third Quarter  14.70  12.50  40.49  33.85  14.70   12.50   40.49   33.85 
Second Quarter  14.89  13.40  40.14  35.94  14.89   13.40   40.14   35.94 
First Quarter  14.51  12.60  38.25  33.20  14.51   12.60   38.25   33.20 
  
2006
            
Fourth Quarter  13.72  12.68  35.25  33.31
Third Quarter  13.22  11.26  33.72  28.22
Second Quarter  12.17  11.08  30.40  28.29
First Quarter  12.20  11.18  29.32  26.62
 
Month
                            
February 2008 (through February 20, 2008)  12.40  11.45  36.83  33.81
January 2008  13.69  11.67  39.78  35.10
December 2007  13.65  12.30  39.81  36.33
November 2007  13.27  11.49  38.40  34.08
October 2007  13.40  12.92  38.94  36.77
September 2007  13.57  12.83  38.21  35.57
August 2007  13.32  12.50  36.64  33.85
February 2009 (through February 18, 2009)  9.17   8.51   23.55   21.62 
January 2009  9.34   8.42   25.05   22.23 
December 2008  9.30   7.72   24.11   20.73 
November 2008  10.46   8.86   27.10   21.41 
October 2008  10.97   7.94   30.00   21.33 
September 2008  11.63   10.13   33.44   28.20 
August 2008  11.43   10.59   34.22   31.91 


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ITEM 10: ADDITIONAL INFORMATION
 
MEMORANDUM AND ARTICLES OF ASSOCIATION
 
REED ELSEVIER PLC
 
A summary of Reed Elsevier PLC’s equity capital structure and related summary information concerning provisions of its Memorandum and Articles of Association and applicable English law as at March 2001 is incorporated by reference from the 2000 Annual Report onForm 20-F filed with the SEC on March 13, 2001. Since March 2001 a number of amendments have been made to the Articles of Association. A summary of those changes is incorporated by reference from the 2002 Annual Report onForm 20-F filed with the SEC on March 10, 2003. Being summaries, they do not contain all the information that may be important to you, and they are qualified in their entirety by reference to the UK Companies Act 1985 and the Reed Elsevier PLC Memorandum and Articles of Association. For more complete information, you should read Reed Elsevier PLC’s Memorandum and Articles of Association. A copy of Reed Elsevier PLC’s Memorandum and Articles of Association is incorporated by reference from the 2002 Annual Report onincluded as an exhibit to thisForm 20-F — filed with the SEC on March 10, 2003 — see “Item 19: Exhibits” onpage F-83.S-1.
Changes to Articles of Association since March 2008
At the 2008 Annual General Meeting of its shareholders, Reed Elsevier PLC shareholders approved new Articles of Association, primarily to implement the phased introduction of the UK Companies Act 2006. The main changes to the Articles of Association were:
(a) the new Articles formalise the company’s power to hold its own shares as treasury shares;
(b) the provisions dealing with the convening of general meetings of shareholders and the length of the notice required have been amended to conform with the UK Companies Act 2006;
(c) the provisions dealing with the time limits for appointment or termination of appointment of a proxy, the appointment of multiple proxies and corporate representations and the method of voting by proxies have been amended to conform with the UK Companies Act 2006;
(d) new provisions have been included to enable the company to communicate with its shareholders by electronic and / or website communications;
(e) the new Articles reflect the widened scope of the powers of the company to indemnify directors; and
(f) in compliance with the UK Companies Act 2006, the new Articles contain provisions for dealing with directors’ conflicts of interest.
The amendments (a) — (e) were implemented on April 23, 2008 and amendment (f) was implemented on October 1, 2008.
 
REED ELSEVIER NV
 
A summary of Reed Elsevier NV’s equity capital structure and related summary information concerning provisions of its Articles of Association and applicable Dutch law as at March 2001 is incorporated by reference from the 2000 Annual Report onForm 20-F filed with the SEC on March 13, 2001. At the 2002, 2005 and 20052007 Annual General Meetings of Shareholders a number of amendments were approved to the Articles of Association. Summaries of these amendments are incorporated by reference from the 2002 Annual Report onForm 20-F filed with the SEC on March 10, 2003, and the 2005 Annual Report onForm 20-F filed with the SEC on March 16, 2006. In2006 and the 2007 a number of further amendments were made toAnnual Report onForm 20-F filed with the Articles of Association, a summary of which is presented below.SEC on March 20, 2008. Being a summary, it maysummaries, they do not contain all the information that may be important to you, and isthey are qualified in itstheir entirety by reference to Dutch law and the Articles of Association of Reed Elsevier NV. For more complete information you should read Reed Elsevier NV’s Articles of Association. A copy of Reed Elsevier NV’s Articles of Association is included as an exhibit to thisincorporated by reference from the 2007 Annual Report onForm 20-F filed with the SEC on March 20, 2008 — see “Item 19: Exhibits” onpage F-83.
Changes to Articles of Association since March 2007
At the 2007 Annual General Meeting of its shareholders, Reed Elsevier NV shareholders approved amendments to the Articles of Association for the following reasons:
(a) to reflect changes in the law, particularly article 9 of the Commercial Register Act allowing notifications of changes in capital only to the Authority Financial Markets;
(b) to add a new article that will clarify that shares in treasury will not be taken into account for distributions by the company;
(c) to change article 40.3 and add a new article 40.5 which will permit that notifications of attendance at the AGM and the record date for such attendance shall be mentioned in the call for the meeting having regard for the earliest date permitted by Dutch corporate law (currently 30 days prior to the AGM); and
(d) an amendment of the nominal value of the ordinary shares (from €0.06 to €0.07) and the R-shares (from €0.60 to €0.70) and accordingly an amendment of the authorised share capital (the maximum share capital that may be issued), subject to the Special Distribution and Share Consolidation, as discussed and approved by the 2007 AGM, taking place.
The amendments (a) — (c) were implemented on June 6, 2007 and amendment (d) was implemented on January 4, 2008.S-1.


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MATERIAL CONTRACTS
 
On May 4, 2007 Reed Elsevier Group plc entered into a sale and purchase agreement with Pearson plc for the sale of its Harcourt Assessment and Harcourt Education International businesses. The sale completed in stages as regulatory approvals were received in each jurisdiction, with the final completion on January 30, 2008.
 
On July 16, 2007 Reed Elsevier Group plc entered into a sale and purchase agreement with Houghton Mifflin Riverdeep Group for the sale of its Harcourt US Schools Education business. Following receipt of regulatory approvals, the transaction closed on December 12, 2007.
 
On February 20,September 19, 2008 Reed Elsevier Group plc entered into an Agreement and Plancompleted the acquisition by merger of Merger (the “Merger Agreement”) with ChoicePoint, Inc. (“ChoicePoint”), a Georgia corporation that provides data, analytics, software and other business information services to insurance companies and other background screening and authentication services. Pursuantservices, pursuant to the Merger Agreement, a wholly owned subsidiary of Reed Elsevier Group plc will merge with and into ChoicePoint, with ChoicePoint continuing as the surviving entity and becoming a wholly owned subsidiary of Reed Elsevier Group plc. Subject to the terms and conditions of the Merger Agreement, we will pay $50.00 in cash for each share of ChoicePoint’s common stock (excluding shares of ChoicePoint’s common stock held by ChoicePoint or us or holders who have properly exercised and preserved their right to dissent under Georgia law). The total value of the transaction, taking into account ChoicePoint’s estimated net debt of $0.6 billion that we will assume, is approximately $4.1 billion.
The consummation of the merger is subject to certain customary closing conditions set forth in the Merger Agreement, including among other things (i) approval of the Merger Agreement by ChoicePoint’s shareholders and (ii) the expiration or termination of theHart-Scott-Rodino waiting period and receipt of certain other antitrust approvals. We currently expect to consummate the merger later in 2008. The description of the Mergeran Agreement and the merger above is qualified in its entirety by reference to thePlan of Merger Agreement.dated February 20, 2008.
 
Copies of the respective sales and purchase agreements and merger agreement are filed as exhibits to thisincorporated by reference from the 2007 Annual Report onForm 20-F filed with the SEC on March 20, 2008 — see “Item 19: Exhibits” onpage F-83.S-1.
 
EXCHANGE CONTROLS
 
There is currently no UK or Dutch legislation restricting the import or export of capital or affecting the remittance of dividends or other payments to holders of, respectively, Reed Elsevier PLC ordinary shares who are non-residents of the United Kingdom and Reed Elsevier NV ordinary shares who are non-residents of the Netherlands.
 
There are no limitations relating only to non-residents of the United Kingdom under UK law or Reed Elsevier PLC’s Memorandum and Articles of Association on the right to be a holder of, and to vote, Reed Elsevier PLC ordinary shares, or to non-residents of the Netherlands under Dutch law or Reed Elsevier NV’s Articles of Association on the right to be a holder of, and to vote, Reed Elsevier NV ordinary shares.
 
TAXATION
 
The following discussion is a summary under present law and tax authority practice of the material UK, Dutch and US federal income tax considerations relevant to the purchase, ownership and disposal of Reed Elsevier PLC ordinary shares or ADSs and Reed Elsevier NV ordinary shares or ADSs. This discussion applies to you only if you are a US holder, you hold your ordinary shares or ADSs as capital assets and you use the US dollar as your functional currency. It does not address the tax treatment of US holders subject to special rules, such as banks, dealers or traders in securities or currencies, insurance companies, tax-exempt entities, partnerships or other pass-through entities for US federal income tax purposes, holders of 10% or more of Reed Elsevier PLC or Reed Elsevier NV voting shares, persons holding ordinary shares or ADSs as part of a hedging, straddle, conversion or constructive sale transaction, persons that are resident or ordinarily resident in the UK (or who have ceased to be resident or ordinarily resident within the past five years of assessment) and persons that are resident in the Netherlands. The summary also does not discuss the US federal alternative minimum tax or the tax laws of particular states or localities in the US.
 
This summary does not consider your particular circumstances. It is not a substitute for tax advice.We urge you to consult your own independent tax advisors about the income, capital gainsand/or transfer tax consequences to you in light of your particular circumstances of purchasing, holding and disposing of ordinary shares or ADSs.
 
As used in this discussion, “US holder” means a beneficial owner of ordinary shares or ADSs that is for US federal income tax purposes: (i) an individual US citizen or resident, (ii) a corporation, partnership or other business entity created or organised under the laws of the United States, any state thereof or the District of Columbia, (iii) a trust (a) that is subject to the control of one or more US persons and the primary supervision of a US court, or (b) that has a valid election in effect under US Treasury regulations to be treated as a US person or (iv) an estate the income of which is subject to US federal income taxation regardless of its source.


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UK Taxation
 
Dividends
 
Under current UK taxation legislation, no tax is required to be withheld at source from dividends paid on the Reed Elsevier PLC ordinary shares or ADSs.
 
Capital Gains
 
You may be liable for UK taxation on capital gains realised on the disposal of your Reed Elsevier PLC ordinary shares or ADSs if at the time of the disposal you carry on a trade, profession or vocation in the United Kingdom through a branch or agency, or in the case of a company a permanent establishment, and such ordinary shares or ADSs are or have been used, held or acquired for the purposes of such trade, profession, vocation, branch, agency or permanent establishment.


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UK Stamp Duty and Stamp Duty Reserve Tax
 
UK stamp duty reserve tax (SDRT) or UK stamp duty is payable upon the transfer or issue of Reed Elsevier PLC ordinary shares to the depositary in exchange for Reed Elsevier PLC ADSs evidenced by ADRs. For this purpose, the current rate of stamp duty and SDRT of 1.5% would be applied, in each case, to: (i) the issue price when the ordinary shares are issued; (ii) the amount or value of the consideration where shares are transferred for consideration in money or money’s worth; or (iii) the value of the ordinary shares in any other case.
 
Provided that the relevant instrument of transfer is not executed in the UK and remains outside the UK, no UK stamp duty will be payable on the acquisition or subsequent transfer of Reed Elsevier PLC ADSs. An agreement to transfer Reed Elsevier PLC ADSs will not give rise to a liability to SDRT.
 
A transfer of Reed Elsevier PLC ordinary shares by the depositary to an ADS holder where there is no transfer of beneficial ownership will give rise tobe exempt from UK stamp duty at the rate of £5 per transfer.duty.
 
Purchases of Reed Elsevier PLC ordinary shares, as opposed to ADSs, will generally give rise to UK stamp duty or SDRT at the time of transfer or agreement to transfer, normally at the rate of 0.5% of the amount payable for the ordinary shares. SDRT and UK stamp duty are usually paid by the purchaser. If the ordinary shares are later transferred to the depositary, additional UK stamp duty or SDRT will normally be payable as described above.
 
Dutch Taxation
 
Withholding tax
 
Dividends distributed to you by Reed Elsevier NV are normally subject to a withholding tax imposed by the Netherlands at a rate of 15%, which rate equals the rate of tax that the Netherlands is generally allowed to levy under theUS-Netherlands income tax treaty. As a consequence, no administrative procedures for a partial relief at source from or a refund of Dutch dividend withholding tax need be complied with in respect of dividend distributions by Reed Elsevier NV. Dividends include, among other things, stock dividends unless the dividend is distributed out of recognised paid-in share premium for Dutch tax purposes.
 
Taxation of dividends and capital gains
 
You will not be subject to any Dutch taxes on dividends distributed by Reed Elsevier NV (other than the withholding tax described above) or any capital gain realised on the disposal of Reed Elsevier NV ordinary shares or ADSs provided that (i) the Reed Elsevier NV ordinary shares or ADSs are not attributable to an enterprise or an interest in an enterprise that you carry on, in whole or part through a permanent establishment or a permanent representative in the Netherlands, (ii) you do not have a substantial interest or a deemed substantial interest in Reed Elsevier NV (generally, 5% or more of either the total issued and outstanding capital or the issued and outstanding capital of any class of shares) or, if you have such an interest, it forms part of the assets of an enterprise, and (iii) if you are an individual, such dividend or capital gain from your Reed Elsevier NV ordinary shares or ADSs does not form benefits from miscellaneous activities(“resultaat uit overige werkzaamheden”) in the Netherlands. From January 1, 2009, benefits from miscellaneous activities in the Netherlands include income and gains derived from the holding, whether directly or indirectly, of (a combination of) shares, debt claims or other rights (together, a “lucrative interest”) that the holder thereof has acquired under such circumstances that such income and gains are intended to be remuneration for work or services performed by such holder (or a related person) in the Netherlands, whether within or outside an employment relation, where such lucrative interest provides the holder thereof, economically speaking, with certain benefits that have a relation to the relevant work or services.
 
US Federal Income Taxation
 
Holders of the ADSs generally will be treated for US federal income tax purposes as owners of the ordinary shares represented by the ADSs. Accordingly deposits or withdrawals of ordinary shares for ADSs will not be subject to US federal income tax.
 
Dividends
 
Dividends on Reed Elsevier PLC ordinary shares or ADSs or Reed Elsevier NV ordinary shares or ADSs (including any Dutch tax withheld) will generally be included in your gross income as ordinary income from foreign sources. The dollar amount recognised on receiving a dividend in pounds sterling or euros will be based on the exchange rate in effect on the date the


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depositary receives the dividend, or in the case of ordinary shares on the date you receive the dividend, as the case may be, whether or not the payment is converted into US dollars at that time. Any gain or loss recognised on a subsequent conversion of pounds sterling or euros for a different amount will be US source ordinary income or loss. Dividends received will not be eligible for the dividends-received deduction available to corporations.
 
With respect to US holders who are individuals, certain dividends received before January 1, 2011 from a qualified foreign corporation may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of certain comprehensive income tax treaties with the United States. United States Treasury Department


78

guidance indicates that the United Kingdom is a country with which the United States has a treaty in force that meets these requirements, and Reed Elsevier PLC believes it is eligible for the benefits of this treaty. Additionally, the same guidance indicates that the Netherlands is also a country with which the United States has a treaty in force that meets the above requirements, and Reed Elsevier NV believes it is eligible for the benefits of this treaty. Individuals that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to section 163(d)(4) of the US Internal Revenue Code of 1986, as amended, will not be eligible for the reduced rates of taxation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. US holders should consult their own tax advisors regarding the application of these rules given their particular circumstances.
 
Subject to certain conditions and limitations, foreign withholding taxes on dividends may be treated as foreign taxes eligible for credit against your US federal income tax liability. For purposes of calculating the foreign tax credit, dividends paid on the ordinary shares or ADSs will be treated as income from sources outside the US and will generally constitute passive category income. Further, in certain circumstances, if you have held the ordinary shares or ADSs for less than a specified minimum period during which you are not protected from risk of loss, or are obligated to make payments related to the dividends, you will not be allowed a foreign tax credit for foreign taxes imposed on the dividends on the ordinary shares or ADSs. The rules governing the foreign tax credit are complex. You are urged to consult your tax advisors regarding the availability of the foreign tax credit under your particular circumstances. Individuals that elect to treat the dividend income as ‘investment income’ pursuant to section 163(d)(4) of the Internal Revenue Code may take into account for foreign tax credit limitation purposes only the portion of the dividend effectively taxed at the highest applicable marginal rate.
 
Dispositions
 
You will recognise a gain or loss on the sale or other disposition of ordinary shares or ADSs in an amount equal to the difference between your basis in the ordinary shares or ADSs and the amount realised. The gain or loss generally will be capital gain or loss. It will be long term capital gain or loss if you have held the ordinary shares or ADSs for more than one year at the time of sale or other disposition. Long term capital gains of individuals are eligible for reduced rates of taxation. Deductions for capital losses are subject to limitations. Any gain or loss you recognise generally will be treated as income from US sources for foreign tax credit limitation purposes.
 
If you receive pounds sterling or euros on the sale or other disposition of your ordinary shares or ADSs, you will realise an amount equal to the US dollar value of the pounds sterling or euros on the date of sale or other disposition (or in the case of cash basis and electing accrual basis taxpayers, if the ordinary shares or ADSs are traded on an established securities market, the settlement date for the sale or other disposition). You will have a tax basis in the pounds sterling or the euros that you receive equal to the US dollar amount received. Any gain or loss realised by a US holder on a subsequent conversion of pounds sterling or euros into US dollars will be US source ordinary income or loss.
 
Information Reporting and Backup Withholding Tax
 
Dividends from ordinary shares or ADSs and proceeds from the sale of the ordinary shares or ADSs may be reported to the Internal Revenue Service (“IRS”) unless the shareholder is a corporation or other exempt recipient. A backup withholding tax may apply to such amounts unless the shareholder (i) is a corporation, (ii) provides an accurate taxpayer identification number and otherwise complies with applicable requirements of the backup withholding rules, or (iii) otherwise establishes a basis for exemption. The amount of any backup withholding tax will be allowed as a credit against the holder’s US federal income tax liability and may entitle the holder to a refund, provided the required information is furnished to the IRS.
 
DOCUMENTS ON DISPLAY
 
You may read and copy documents referred to in this annual report that have been filed with the SEC at the SEC’s public reference room located at 100 F Street NE, Washington, DC20549-2521. Please call the SEC at1-800-SEC-0330 for further information on the public reference rooms and their copy charges.


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ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Market Risk
 
Reed Elsevier’s primary market risks are to changes in interest rate fluctuationsrates and to exchange rate movements. rates as well as liquidity and credit risk.
Net finance costs are exposed to interest rate fluctuations on borrowings, cash and cash equivalents. Upward fluctuations in interest rates increase the interest cost of floating rate borrowings whereas downward fluctuations in interest rates decrease the interest return on floating rate cash and cash equivalents. Interest expense payable on fixed rate borrowings is protected against upward fluctuations in interest rates but does not benefit from downward fluctuations. Reed Elsevier companies engage in foreign currency denominated transactions and are therefore subject to exchange rate risk on such transactions.
Reed Elsevier manages a portfolio of long term debt, short term debt and committed bank facilities to support its capital structure and is exposed to the risk that relevant markets are closed and debt cannot be refinanced on a timely basis. In addition, the credit spread at which Reed Elsevier borrows is exposed to changes in market liquidity and investor demand. Following the recent turbulence in debt capital markets and the subsequent lack of liquidity, credit spreads applicable to new banking facilities and term debt issuance by Reed Elsevier have increased substantially and finance costs will increase accordingly. Reed Elsevier manages these risks by maintaining a range of borrowing facilities and debt programmes with a maturity profile to facilitate refinancing as described on pages 34 to 36 of Item 5: Operating and Financial Review and Prospects: Liquidity and Capital Resources - Reed Elsevier.
 
Reed Elsevier has a credit exposure to counterparties for the full principal amount of cash and cash equivalents. In addition, it has a credit risk from the potential non-performance by counterparties to the derivative financial instruments described below, which are unsecured. The amount of this credit risk is normally restricted to the amounts of any hedge gain and not the principal amount being hedged. Credit risks are controlled by monitoring the credit quality of these counterparties, principally licensed commercial banks and investment banks with strong long term credit ratings, and the amounts outstanding with them. Reed Elsevier has treasury policies in place which do not allow concentrations of risk with individual counterparties and do not allow significant treasury exposures with counterparties which are rated lower than A by Standard and Poor’s, Moody’s or Fitch.
 
Management of Interest Rate Risk and Foreign Exchange Rate Risk
 
Reed Elsevier seeks to limit its risk to interest and exchange rates by means of derivative financial instruments, including interest rate swaps, interest rate options, forward rate agreements and forward foreign exchange contracts. Reed Elsevier only enters into derivative financial instruments to hedge (or reduce) the underlying risks described above, and therefore has no net market risk on derivative financial instruments held at the end of the year.
 
Reed Elsevier enters into interest rate swaps in order to achieve an appropriate balance between fixed and variable rate borrowings, cash and cash equivalents. They are used to hedge the effects of fluctuating interest rates on variable rate borrowings, cash and cash equivalents by allowing Reed Elsevier to fix the interest rate on a notional principal amount equal to the principal amount of the underlying floating rate cash, cash equivalents or borrowings being hedged. They are also used to swap fixed interest rates payable on long term borrowings for a variable rate. Such swaps may be used to swap a whole fixed rate bond for variable rate or they may be used to swap a portion of the period or a portion of the principal amount for the variable rate.
 
Forward swaps and forward rate agreements are entered into to hedge interest rate exposures known to arise at a future date. These exposures may include new borrowings or cash deposits to be entered into at a future date or future rollovers of existing borrowings or cash deposits. Interest exposure arises on future, new and rollover borrowings and cash deposits because interest rates can fluctuate between the time a decision is made to enter into such transactions and the time those transactions are actually entered into. The purpose of forward swaps and forward rate agreements is to fix the interest cost on future borrowings or interest return on cash investments at the time it is known such a transaction will be entered into. The fixed interest rate, the floating rate index (if applicable) and the time period covered by forward swaps and forward rate agreements are known at the time the agreements are entered into. The use of forward swaps and forward rate agreements is limited to hedging activities; consequently no trading position results from their use. The impact of forward swaps and forward rate agreements is the same as interest rate swaps. Similarly, Reed Elsevier utilises forward foreign exchange contracts to hedge the effects of exchange rate movements on its foreign currency revenue and operating costs.
 
Interest rate options protect against fluctuating interest rates by enabling Reed Elsevier to fix the interest rate on a notional principal amount of borrowings or cash deposits (in a similar manner to interest rate swaps and forward rate agreements) whilst at the same time allowing Reed Elsevier to improve the fixed rate if the market moves in a certain way. Reed Elsevier uses interest rate options from time to time when it expects interest rates to move in its favour but it is deemed imprudent to leave the interest rate risk completely unhedged. In such cases, Reed Elsevier may use an option to lock in at certain rates whilst at the same time maintaining some freedom to benefit if rates move in its favour.
 
Reed Elsevier’s net finance cost is also exposed to changes in the fair value of interest rate and foreign exchange derivatives which are not part of a designated hedging relationship under IAS39 — Financial Instruments, and to ineffectiveness that may arise on designated hedging relationships. Reed Elsevier manages these risks by designating derivatives in a highly effective hedging relationship unless the potential change in their fair value is deemed to be insignificant.


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Derivative financial instruments are utilised to hedge (or reduce) the risks of interest rate or exchange rate movements and are not entered into unless such risks exist. Derivatives utilised, while appropriate for hedging a particular kind of risk, are not considered specialised or high-risk and are generally available from numerous sources.
 
Sensitivity Analysis
 
The following analysis sets out the sensitivity of the fair value of Reed Elsevier’s financial instruments to selected changes in interest rates and exchange rates. The range of changes represents Reed Elsevier’s view of the changes that are reasonably possible over a one year period.


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The fair values of interest rate swaps, interest rate options, forward rate agreements and forward foreign exchange contracts set out below represent the replacement costs calculated using market rates of interest and exchange at December 31, 2007.2008. The fair value of long term borrowings has been calculated by discounting expected future cash flows at market rates.
 
Reed Elsevier’s use of financial instruments and its accounting policies for financial instruments are described more fully in notes 2 and 20 to the combined financial statements.
 
(a)  Interest Rate Risk
 
The following sensitivity analysis assumes an immediate 100 basis point change in interest rates for all currencies and maturities from their levels at December 31, 20072008 with all other variables held constant.
 
                                                
 Fair Value
 Fair Value Change Fair Value
      Fair Value
 Fair Value Change Fair Value
     
 December 31,
 +100
 −100
 December 31,
 Fair Value Change  December 31,
 +100
 −100
 December 31,
 Fair Value Change 
Financial Instrument
 2007 basis points basis points 2006 +100 basis points −100 basis points  2008 basis points basis points 2007 +100 basis points −100 basis points 
 (In millions)   (In millions)    (In millions)   (In millions)   
Short term borrowings £(753) £—  £—   £ (574)  £ —   £ —  £(446) £—  £—   £ (753)  £ —   £ — 
Long term borrowings                                                
(including current                        
portion)  (2,508)  109   (121)  (2,541)  107   (121)
(including current portion)  (5,853)  167   (197)  (2,508)  109   (121)
Interest rate swaps (swapping fixed rate debt to floating)  170   (43)  48   169   (38)  44   41   (15)  16   170   (43)  48 
Interest rate swaps (swapping floating rate debt to fixed)  (8)  11   (10)  7   11   (11)  (88)  38   (39)  (8)  11   (10)
 
A 100 basis point change in interest rates would not result in a material change to the fair value of other financial instruments.
 
At December 31, 2007 after adjusting for £1,933 million2008, 52% of cash received from the part disposal of Harcourt Education which was included in the special distributiongross borrowings (equivalent to shareholders of the parent companies in January 2008, 69%56% of net borrowingsborrowings) are either fixed rate or have been fixed through the use of interest rate swaps, forward rate agreements and options. A 100 basis point reduction in interest rates would result in an estimated decrease in net finance costs of £7£25 million (2006: £3(2007: £7 million), based on the composition of financial instruments including cash, cash equivalents, bank loans and commercial paper borrowings at December 31, 2007.2008. A 100 basis points rise in interest rates would result in an estimated increase in net finance costs of £25 million (2007: £7 million (2006: £3 million).
After taking additional account of $1.6 billion of term debt issued in January 2009, 69% of gross borrowings (equivalent to 74% of net borrowings) are either fixed rate or have been fixed through the use of interest rate swaps, forward rate agreements and options, and a 100 basis point reduction in interest rates would result in an estimated decrease in net finance costs of £15 million. A 100 basis point rise in interest rates would result in an estimated increase in net finance costs of £15 million.
 
(b)  Foreign Exchange Rate Risk
 
The following sensitivity analysis assumes an immediate 10% change in all foreign currency exchange rates against sterling from their levels at December 31, 20072008 with all other variables held constant. A +10% change indicates a strengthening of the currency against sterling and a —– 10% change indicates a weakening of the currency against sterling.
 
                         
  Fair Value
        Fair Value
       
  December 31,
  Fair Value Change  December 31,
  Fair Value Change 
Financial Instrument
 2007  +10%  −10%  2006  +10%  −10% 
  (In millions)     (In millions)    
 
Cash and cash equivalents £2,467  £143  £(118)  £519   £39   £ (32)
Short term borrowings  (753)  (82)  68   (574)  (61)  50 
Long term borrowings (including current portion)  (2,508)  (234)  192   (2,541)  (238)  195 
Interest rate swaps (including cross currency interest rate swaps)  162   18   (15)  176   20   (16)
Forward foreign exchange contracts  26   (34)  34   34   (31)  31 


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  Fair Value
        Fair Value
       
  December 31,
  Fair Value Change  December 31,
  Fair Value Change 
Financial Instrument
 2008  +10%  −10%  2007  +10%  −10% 
  (In millions)     (In millions)    
 
Cash and cash equivalents £375  £39  £(32)  £2,467   £143   £ (118)
Short term borrowings  (446)  (49)  41   (753)  (82)  68 
Long term borrowings (including current portion)  (5,853)  (606)  496   (2,508)  (234)  192 
Interest rate swaps (including cross currency interest rate swaps)  (37)  (4)  3   162   18   (15)
Forward foreign exchange contracts  (145)  (61)  61   26   (34)  34 
 
A 10% change in foreign currency exchange rates would not result in a material change to the fair value of other financial instruments. Cash and cash equivalents include the proceeds from the part disposal of Harcourt Education.


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PART II
 
ITEM 15: CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Reed Elsevier is required to comply with applicable US regulations, including the Sarbanes-Oxley Act, insofar as they apply to foreign private issuers. Accordingly, Reed Elsevier PLC and Reed Elsevier NV have established a Disclosure Committee comprising the company secretaries of Reed Elsevier PLC and Reed Elsevier NV and other senior Reed Elsevier managers appointed by the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV. The committee has reviewed and evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2007.2008. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report, timely providing them with all material information required to be disclosed in this annual report.
 
Management’s Annual Report on Internal Control over Financial Reporting
 
In accordance with Section 404 of the Sarbanes-Oxley Act, management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a — 15(f) and 15d — 15(f) under the Exchange Act, as amended. Reed Elsevier’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of Reed Elsevier’s financial statements would be prevented or detected.
 
Reed Elsevier management conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the internal controls over financial reporting of the Reed Elsevier combined businesses, Reed Elsevier PLC and Reed Elsevier NV were effective as of December 31, 2007.2008.
 
Deloitte & Touche LLP and Deloitte Accountants BV, who have audited the financial statements of Reed Elsevier PLC and Reed Elsevier NV respectively for the fiscal year ended December 31, 20072008 have audited the effectiveness of internal control over financial reporting, their reports in respect of the Reed Elsevier combined businesses, Reed Elsevier PLC and Reed Elsevier NV are included herein as exhibits (see “Item 19: Exhibits” onpage F-83)S-1).
 
Certifications by the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV as required by the Sarbanes-Oxley Act are submitted as exhibits to thisForm 20-F (see “Item 19: Exhibits” onpage F-83)S-1).
 
Internal Controls over Financial Reporting
 
Management, including the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV, have reviewed whether or not during the period covered by the annual report, there have been any changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting. Based on that review, the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV have concluded that there have been no such material changes.
 
An outline of the internal control structure is set out below.
 
Parent companies
 
The boards of Reed Elsevier PLC and Reed Elsevier NV exercise independent supervisory roles over the activities and systems of internal control of Reed Elsevier Group plc and Elsevier Reed Finance BV. The boards of Reed Elsevier PLC and Reed Elsevier NV have each adopted a schedule of matters which are required to be brought to them for decision. In relation to Reed Elsevier Group plc and Elsevier Reed Finance BV, the boards of Reed Elsevier PLC and Reed Elsevier NV approve the strategy and the annual budgets, and receive regular reports on the operations, including the treasury and risk management activities of the two companies. Major transactions proposed by the boards of Reed Elsevier Group plc or Elsevier Reed Finance BV require the approval of the boards of both Reed Elsevier PLC and Reed Elsevier NV.
 
The Reed Elsevier PLC and Reed Elsevier NV Audit Committees meet on a regular basis to review the systems of internal control and risk management of Reed Elsevier Group plc and Elsevier Reed Finance BV.
 
Operating companies
 
The board of Reed Elsevier Group plc is responsible for the system of internal control of the Reed Elsevier publishing and information businesses, while the boards of Elsevier Reed Finance BV are responsible for the system of internal control in respect of the finance group activities. The boards of Reed Elsevier Group plc and Elsevier Reed Finance BV are also responsible for reviewing the effectiveness of their system of internal control.


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The boards of Reed Elsevier Group plc and Elsevier Reed Finance BV have implemented an ongoing process for identifying, evaluating, monitoring and managing the more significant risks faced by their respective businesses. This process has been in place throughout the year ended December 31, 20072008 and up to the date of the approvals of this annual report.
 
Reed Elsevier Group plc
 
Reed Elsevier Group plc has an established framework of procedures and internal controls, with which the management of each business is required to comply. Group businesses are required to maintain systems of internal control which are appropriate to the nature and scale of their activities and address all significant operational and financial risks that they face. The board of Reed Elsevier Group plc has adopted a schedule of matters that are required to be brought to it for decision.
 
Reed Elsevier Group plc has a Code of Ethics and Business Conduct that provides a guide for achieving its business goals and requires officers and employees to behave in an open, honest, ethical and principled manner. The code also outlines confidential procedures enabling employees to report any concerns about compliance or about Reed Elsevier’s financial reporting practice.
 
Each division has identified and evaluated its major risks, the controls in place to manage those risks and the level of residual risk accepted. Risk management and control procedures are embedded into the operations of the business and include the monitoring of progress in areas for improvement that come to management and board attention. The major risks identified include business continuity, protection of IT systems and data, challenges to intellectual property rights, management of strategic and operational change, evaluation and integration of acquisitions, and recruitment and retention of personnel. Further detail on the principal risks facing Reed Elsevier is set out on pages 7 to 10.
 
The major strategic risks facing the Reed Elsevier Group plc businesses are considered by the board. During 2008, Reed Elsevier appointed a Chief Risk Officer whose responsibilities include providing regular reports to the Board and Audit Committee. Working closely with divisional and business management and with the central functions, the role of the Chief Risk Officer is to ensure that Reed Elsevier is managing its business risks effectively and in a coordinated manner across the business with clarity on the respective responsibilities and interdependencies. Litigation and other legal and regulatory matters are managed by legal directors in Europe and the United States.
 
The Reed Elsevier Group plc Audit Committee receives regular reports on the management of material risks and reviews these reports. The Audit Committee also receives regular reports from both internal and external auditors on internal control and risk management matters. In addition, each division is required, at the end of the financial year, to review the effectiveness of its internal controls and risk management and report its findings on a detailed basis to the management of Reed Elsevier Group plc. These reports are summarised and, as part of the annual review of effectiveness, submitted to the Audit Committee of Reed Elsevier Group plc. The Chairman of the Audit Committee reports to the board on any significant internal control matters arising.
 
Elsevier Reed Finance BV
 
Elsevier Reed Finance BV has established policy guidelines, which are applied for all Elsevier Reed Finance BV companies. The boards of Elsevier Reed Finance BV have adopted schedules of matters that are required to be brought to them for decision. Procedures are in place for monitoring the activities of the finance group, including a comprehensive treasury reporting system. The major risks affecting the finance group have been identified and evaluated and are subject to regular review. The controls in place to manage these risks and the level of residual risk accepted are monitored by the boards. The internal control system of the Elsevier Reed Finance BV group is reviewed each year by itsthe external auditors.
 
Audit Committees
 
Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV have established Audit Committees which comprise only non-executive directors, all of whom are independent. The Audit Committees, which meet regularly, are chaired by Lord Sharman, the other members being David Reid and Lisa Hook.
 
The main roles and responsibilities of the Audit Committees in relation to the respective companies are set out in written terms of reference and include:
 
 (i) to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them;
 
 (ii) to review the company’s internal financial controls and the company’s internal control and risk management systems;
 
 (iii) to monitor and review the effectiveness of the company’s internal audit function;
 
 (iv) to make recommendations to the board, for it to put to the shareholders for their approval in general meetings, in relation to the appointment, re-appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;
 
 (v) to review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements; and


84

 (vi) to develop and recommend policy on the engagement of the external auditor to supply non audit services, taking into account relevant ethical guidance regarding the provision of non audit services by the external audit firm, and to monitor compliance.


74

 
The Audit Committees report to the respective boards on their activities identifying any matters in respect of which they consider that action or improvement is needed and making recommendations as to the steps to be taken.
 
The Reed Elsevier Group plc Audit Committee fulfils this role in respect of the publishing and information operating business. The functions of an audit committee in respect of the financing activities are carried out by the Supervisory Board of Elsevier Reed Finance BV. The Reed Elsevier PLC and Reed Elsevier NV Audit Committees fulfil their roles from the perspective of the parent companies and both Committees have access to the reports to and the work of the Reed Elsevier Group plc Audit Committee and the Elsevier Reed Finance BV Supervisory Board in this respect.
 
The Audit Committees have explicit authority to investigate any matters within their terms of reference and have access to all resources and information that they may require for this purpose. The Audit Committees are entitled to obtain legal and other independent professional advice and have the authority to approve all fees payable to such advisers.
 
A copy of the terms of reference of each Audit Committee is published on the Reed Elsevier website, www.reedelsevier.com. The information on our website is not incorporated by reference into this report.
 
Compliance with New York Stock Exchange Corporate Governance Rules
 
Reed Elsevier PLC and Reed Elsevier NV, as companies listed on the New York Stock Exchange (the “NYSE”), are subject to the listing requirements of the NYSE and the rules of the U.S. Securities and Exchange Commission (the “SEC”). We also continually monitor our compliance with the provisions of the Sarbanes-Oxley Act of 2002 that are applicable tonon-U.S. issuers.
 
In November 2003, the SEC approved new corporate governance standards for companies that are listed on the NYSE. As a non-US issuer, Reed Elsevier is only required to comply with certain of the NYSE corporate governance rules and is in compliance with all applicable rules. The NYSE’s rules also require disclosure of any significant ways in which our corporate governance practices differ from those required of US companies under the NYSE listing standards.
 
Reed Elsevier follows UK corporate governance practice, which does not differ significantly from the NYSE corporate governance standards for foreign issuers. We also follow Dutch corporate governance practice. We believe that our corporate governance practices do not differ in any significant way from those required to be followed by US companies under the NYSE corporate governance listing standards, except that the joint Nominations Committee of Reed Elsevier PLC and Reed Elsevier NV is not composed entirely of independent directors as defined by the NYSE.
 
The NYSE listing standards provide that US companies must have a nominating/corporate governance committee composed entirely of independent directors and with a written charter that addresses the committee’s purpose and responsibilities which, at a minimum, must be to identify individuals qualified to become board members, develop and recommend to the board a set of corporate governance principles and to oversee the evaluation of the board and management.
 
Reed Elsevier PLC and Reed Elsevier NV have a joint Nominations Committee and a joint Corporate Governance Committee. The written terms of reference adopted by the Reed Elsevier PLC and the Reed Elsevier NV boards for these committees specify purposes and responsibilities that correspond to those of a US company’s nominating/corporate governance committee under the NYSE’s listing standards. The Nominations Committee is made up of four independent directors plus the Chief Executive Officer. The Corporate Governance Committee is made up of eightseven independent directors.


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ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT
 
Each of Reed Elsevier PLC and Reed Elsevier NV has an Audit Committee, the members of which are identified in “Item 15: Controls and Procedures”. The members of the Board of Directors of Reed Elsevier PLC and members of the Supervisory Board of Reed Elsevier NV, respectively, have determined that each of their respective Audit Committees contains at least one Audit Committee financial expert within the meaning of the applicable rules and regulations of the US Securities and Exchange Commission (“SEC”). The Audit Committee financial experts serving on the Reed Elsevier PLC and the Reed Elsevier NV Audit Committees are Lord Sharman and David Reid.
 
ITEM 16B: CODES OF ETHICS
 
Reed Elsevier has adopted a code of ethics (Code of Ethics and Business Conduct) that applies to all directors, officers and employees, and an additional separate code of ethics (Code for Senior Officers) that also applies to the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV and the Group Chief AccountantFinancial Controller of Reed Elsevier Group plc. Both these codes of ethics are available on the Reed Elsevier website, www.reedelsevier.com. The information on our website is not incorporated by reference into this report.
 
ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
The aggregate fees billed by our principal accountants, Deloitte & Touche LLP, Deloitte Accountants BV, the member firms of Deloitte Touche Tohmatsu and their respective affiliates, for the two years ended December 31, 20072008 were as follows:
 
              
 Year ended
 Year ended
 Year Ended
 Year Ended
 
 December 31,
 December 31,
 December 31,
 December 31,
 
 2007 2006 2008 2007 
 (in millions) (in millions) 
Audit fees £3.9 £4.7 £4.8  £3.9 
Audit related fees  0.9  0.6  1.5   0.9 
Tax fees  0.6  0.6  0.6   0.6 
All other fees  —  —  —   — 
         
Total £5.4 £5.9 £6.9  £5.4 
         
 
Auditors’ remuneration for non audit services includes £0.9£1.5 million (2006: £0.6(2007: £0.9 million) for audit related services, comprising £0.7£1.3 million (2006: £0.3(2007: £0.7 million) relating to due diligence and other transaction related services and £0.2 million (2006: £0.3(2007: £0.2 million) for other audit related services such as royalty audits. Tax fees of £0.6 million (2006:(2007: £0.6 million) relate to tax compliance and advisory work.
 
The Audit Committees of Reed Elsevier PLC and Reed Elsevier NV have adopted policies and procedures for the pre-approval of audit and non audit services provided by the auditors. These policies and procedures are summarised below.
 
The terms of engagement and scope of the annual audit of the financial statements are agreed by the respective Audit Committees in advance of the engagement of the auditors in respect of the annual audit. The audit fees are approved by the Audit Committee.
 
The auditors are not permitted to provide non audit services that would compromise their independence or violate any laws or regulations that would affect their appointment as auditors. They are eligible for selection to provide non audit services only to the extent that their skills and experience make them a logical supplier of the services. The respective Audit Committees must pre-approve the provision of all non audit services by the auditors and will consider SEC rules and other guidelines in determining the scope of permitted services. The respective Audit Committees have pre-approved non audit services in respect of individual assignments for permitted services that meet certain criteria. Assignments outside these parameters must be specifically pre-approved by the Audit Committee in advance of commissioning the work. Aggregate non audit fees must not exceed the annual audit fee in any given year, unless approved in advance by the Audit Committees.
 
All of the audit and non audit services carried out in the year ended December 31, 20072008 were pre-approved under the policies and procedures summarised above.
 
ITEM 16D: EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
 
Not applicable.


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ITEM 16E: PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
 
The Reed Elsevier Group plc Employee Benefit Trust (“EBT”) has made the following share purchases to satisfy obligations under the Reed Elsevier share option schemes. All purchases were made in open market transactions. None of the share purchases was made pursuant to a publicly announced plan or programme.
 
             
  Reed Elsevier PLC ordinary shares Reed Elsevier NV ordinary shares
  Total number of
 Average price paid
 Total number of
 Average price paid
  shares purchased
 per share
 shares purchased
 per share
Period   £   €
 
February 1, 2007 to February 28, 2007  2,320,000 £6.40  1,530,000 €14.56
April 1, 2007 to April 30, 2007  440,857  6.20  165,849  13.51
September 1, 2007 to September 30, 2007  1,523,853  6.18  989,858  13.43
October 1, 2007 to October 31, 2007  1,220,000  6.23  800,000  13.35
November 1, 2007 to November 30, 2007  790,000  5.73  510,000  11.95
             
Total
  6,294,710 £6.22  3,995,707 €13.66
             
                 
  Reed Elsevier PLC ordinary shares Reed Elsevier NV ordinary shares
  Total number of
 Average price paid
 Total number of
 Average price paid
  shares purchased
 per share
 shares purchased
 per share
Period   £   €
 
January 1, 2008 to January 31, 2008  2,426,976  £5.94   1,229,592  €8.88 
February 1, 2008 to February 29, 2008  2,200,000   6.33   1,400,000   9.31 
April 1, 2008 to April 30, 2008  582,340   6.64   264,731   9.94 
                 
Total
  5,209,316  £6.18   2,894,323  €9.18 
                 
 
In February 2006 Reed Elsevier announced an annual share repurchase programme. It is expected, subject to prevailing market and business conditions, to spend approximately $1 billion over three years. The repurchase of shares in Reed Elsevier PLC and Reed Elsevier NV will broadly reflecthave made the equalisation ratio and the parent companies therefore expect to spend approximately £300 million and €435 million respectively. The repurchases made by the respective parent companies as part of the annualfollowing share repurchase programmepurchases in the year ended December 31, 2007 are set out below.this year. All purchases were made in open market transactions.
 
                   
  Reed Elsevier PLC ordinary shares Reed Elsevier NV ordinary shares
      Value of
     Value of
  Total number
 Average price
 shares that
 Total number
 Average price
 shares that
  of shares
 paid per
 may yet be
 of shares
 paid per
 may yet be
  purchased
 share
 repurchased
 purchased
 share
 repurchased
Period   £ £m   € €m
 
February 1, 2007 to February 28, 2007  885,000 £6.22  184  590,000 €14.09  271
March 1, 2007 to March 31, 2007  1,450,000  5.90  176  955,000  13.08  259
August 1, 2007 to August 31, 2007  9,235,000  5.90  121  8,965,000  12.90  143
September 1, 2007 to September 30, 2007  2,140,000  5.98  108  1,410,000  13.18  124
October 1, 2007 to October 31, 2007  1,543,000  6.23  99  —  —  124
                   
Total
  15,253,000 £5.96     11,920,000 €13.01   
                   
                 
  Reed Elsevier PLC ordinary shares Reed Elsevier NV ordinary shares
    Average price
   Average price
  Total number of
 paid
 Total number of
 paid
  shares purchased
 per share
 shares purchased
 per share
Period   £   €
 
February 1, 2008 to February 29, 2008  500,000  £6.41   325,000  €12.36 
March 1, 2008 to March 31, 2008  1,465,000   6.31   950,000   12.08 
April 1, 2008 to April 30, 2008  600,000   6.44   400,000   12.22 
May 1, 2008 to May 31, 2008  300,000   6.59   175,000   12.54 
June 1, 2008 to June 30, 2008  300,000   5.85   200,000   10.89 
                 
Total
  3,165,000  £6.33   2,050,000  €12.07 
                 


7787

 
PART III
 
ITEM 17: FINANCIAL STATEMENTS
 
The Registrants have responded to Item 18 in lieu of responding to this Item.


7888

 
ITEM 18: FINANCIAL STATEMENTS
 
Financial Statements filed as part of this annual report
 
The following financial statements and related schedules, together with reports of independent registered public accounting firms thereon, are filed as part of this annual report:
 
     
  Page
 
Index to Financial Statements
  F-1 
Reed Elsevier Combined Financial Statements
  F-3 
Report of Independent Registered Public Accounting Firm
  F-5 
Combined Income Statement for the year ended December 31, 20072008
  F-6 
Combined Cash Flow Statement for the year ended December 31, 20072008
  F-7 
Combined Balance Sheet as at December 31, 20072008
  F-8 
Combined Statement of Recognised Income and Expense for the year ended December 31, 20072008
  F-9 
Combined Reconciliation of Shareholders’ Equity for the year ended December 31, 20072008
  F-9 
Notes to the Combined Financial Statements
  F-10 
Reed Elsevier PLC Consolidated Financial Statements
  F-51F-55 
Report of Independent Registered Public Accounting Firm
  F-52F-56 
Consolidated Income Statement for the year ended December 31, 20072008
  F-53F-57 
Consolidated Cash Flow Statement for the year ended December 31, 20072008
  F-54F-58 
Consolidated Balance Sheet as at December 31, 20072008
  F-55F-59 
Consolidated Statement of Recognised Income and Expense for the year ended December 31, 20072008
  F-56F-60 
Consolidated Reconciliation of Shareholders’ Equity for the year ended December 31, 20072008
  F-56F-60 
Notes to the Consolidated Financial Statements
  F-57F-61 
Reed Elsevier NV Consolidated Financial Statements
  F-67F-69 
Report of Independent Registered Public Accounting Firm
  F-68F-70 
Consolidated Income Statement for the year ended December 31, 20072008
  F-69F-71 
Consolidated Cash Flow Statement for the year ended December 31, 20072008
  F-70F-72 
Consolidated Balance Sheet as at December 31, 20072008
  F-71F-73 
Consolidated Statement of Recognised Income and Expense for the year ended December 31, 20072008
  F-72F-74 
Consolidated Reconciliation of Shareholders’ Equity for the year ended December 31, 20072008
  F-72F-74 
Notes to the Consolidated Financial Statements
  F-73F-75 
Glossary of Terms
  F-82F-84 


F-1

 
THIS PAGE INTENTIONALLY BLANK
 


F-2

 
REED ELSEVIER
COMBINED FINANCIAL STATEMENTS
 


F-3

 
THIS PAGE INTENTIONALLY BLANK
 


F-4

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and members of Reed Elsevier PLC and to the members of the Supervisory and Executive Boards and the shareholders of Reed Elsevier NV:
 
We have audited the accompanying combined balance sheets of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures (together “the combined businesses”) as of December 31, 20072008 and 2006,2007, and the related combined statements of income, cash flow, recognised income and expense and reconciliation of shareholders’ equity for each of the three years in the period ended December 31, 2007.2008. These combined financial statements are the responsibility of the management of Reed Elsevier PLC and Reed Elsevier NV. Our responsibility is to express an opinion on the financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such combined financial statements present fairly, in all material respects, the financial position of the combined businesses as of December 31, 20072008 and 2006,2007, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2007,2008, in conformity with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and IFRS as issued by the International Accounting Standards Board.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the combined businesses internal control over financial reporting as of December 31, 2007,2008, based on the criteria established in Internal Control—Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 200818, 2009 (see Item 19 — Exhibit 15.4) expressed an unqualified opinion on the combined businesses internal control over financial reporting.
 
   
DELOITTE & TOUCHE LLP
London, England
February 20, 200818, 2009		 DELOITTE ACCOUNTANTS B.V.
Amsterdam, The Netherlands
February 20, 200818, 2009


F-5

REED ELSEVIER
COMBINED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note £m £m £m  Note £m £m £m 
Revenue — continuing operations  3  4,584   4,509   4,265   3   5,334   4,584   4,509 
Cost of sales     (1,624)  (1,602)  (1,521)      (1,916)  (1,624)  (1,602)
              
Gross profit     2,960   2,907   2,744       3,418   2,960   2,907 
Selling and distribution costs     (938)  (925)  (896)      (1,053)  (938)  (925)
Administration and other expenses     (1,150)  (1,163)  (1,112)      (1,482)  (1,150)  (1,163)
       
Operating profit before joint ventures     872   819   736 
Share of results of joint ventures     16   18   16       18   16   18 
              
Operating profit — continuing operations  5  888   837   752   5   901   888   837 
              
Finance income  10  43   21   36   10   33   43   21 
Finance costs  10  (182)  (179)  (176)  10   (225)  (182)  (179)
              
Net finance costs     (139)  (158)  (140)      (192)  (139)  (158)
              
Disposals and other non operating items  11  63   (1)  2   11   (92)  63   (1)
              
Profit before tax — continuing operations     812   678   614       617   812   678 
Taxation  12  82   (86)  (219)  12   (155)  82   (86)
              
Net profit from continuing operations     894   592   395       462   894   592 
Net profit from discontinued operations  4  309   33   69   4   18   309   33 
              
Net profit for the year     1,203   625   464       480   1,203   625 
              
Attributable to:                               
Parent companies’ shareholders     1,200   623   462       476   1,200   623 
Minority interests     3   2   2       4   3   2 
              
Net profit for the year     1,203   625   464       480   1,203   625 
              
 
The accompanying notes on pages F-10 to F-50F-54 are an integral part of these combined financial statements


F-6

REED ELSEVIER
COMBINED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note £m £m £m  Note £m £m £m 
Cash flow from operating activities — continuing operations
               
Cash flows from operating activities — continuing operations
                
Cash generated from operations  13  1,218   1,213   1,081   13   1,452   1,218   1,213 
Interest paid     (174)  (172)  (153)      (222)  (174)  (172)
Interest received     26   12   11       43   26   12 
Tax paid     (239)  (165)  (166)      (215)  (239)  (165)
              
Net cash from operating activities     831   888   773       1,058   831   888 
              
Cash flows from investing activities — continuing operations
                               
Acquisitions  13  (327)  (163)  (314)  13   (2,161)  (327)  (163)
Purchases of property, plant and equipment     (65)  (68)  (77)      (57)  (65)  (68)
Expenditure on internally developed intangible assets     (80)  (99)  (96)      (115)  (80)  (99)
Purchase of investments     (4)  (9)  (3)      (4)  (4)  (9)
Proceeds on disposals of property, plant and equipment     4   2   7 
Proceeds from disposals of property, plant and equipment      5   4   2 
Proceeds from other disposals     82   48   21       8   82   48 
Dividends received from joint ventures     12   16   16       23   12   16 
              
Net cash used in investing activities     (378)  (273)  (446)      (2,301)  (378)  (273)
              
Cash flows from financing activities — continuing operations
                               
Dividends paid to shareholders of the parent companies     (416)  (371)  (336)      (2,404)  (416)  (371)
Increase/(decrease) in bank loans, overdrafts and commercial paper     111   72   (492)
(Decrease)/increase in short term bank loans, overdrafts and commercial paper      (407)  111   72 
Issuance of other loans     276   407   544       2,373   276   407 
Repayment of other loans     (311)  (337)  (90)      (411)  (311)  (337)
Repayment of finance leases     (12)  (12)  (13)      (56)  (12)  (12)
Redemption of debt related derivative financial instrument      62   —   — 
Proceeds on issue of ordinary shares     177   93   25       54   177   93 
Purchase of treasury shares     (273)  (285)  (27)      (94)  (273)  (285)
              
Net cash used in financing activities     (448)  (433)  (389)      (883)  (448)  (433)
Net cash from discontinued operations  4  1,912   57   128 
Net cash (used in)/from discontinued operations  4   (48)  1,912   57 
              
Increase in cash and cash equivalents     1,917   239   66 
(Decrease)/increase in cash and cash equivalents      (2,174)  1,917   239 
              
Movement in cash and cash equivalents
                               
At start of year     519   296   225       2,467   519   296 
Increase in cash and cash equivalents     1,917   239   66 
(Decrease)/increase in cash and cash equivalents      (2,174)  1,917   239 
Exchange translation differences     31   (16)  5       82   31   (16)
              
At end of year     2,467   519   296       375   2,467   519 
              
 
The accompanying notes on pages F-10 to F-50F-54 are an integral part of these combined financial statements


F-7

REED ELSEVIER
COMBINED BALANCE SHEET
AS AT DECEMBER 31, 20072008
 
                      
   2007
 2006
    2008
 2007
 
 Note £m £m  Note £m £m 
Non-current assets
                       
Goodwill  16  2,462   2,802   16   4,901   2,462 
Intangible assets  17  2,089   2,524   17   4,404   2,089 
Investments in joint ventures  18  116   73   18   145   116 
Other investments  18  111   50   18   49   111 
Property, plant and equipment  19  239   298   19   329   239 
Net pension assets  8  183   20   8   152   183 
Deferred tax assets  21  141   170   21   353   141 
          
     5,341   5,937       10,333   5,341 
          
Current assets
                       
Inventories and pre-publication costs  22  271   633   22   348   271 
Trade and other receivables  23  1,148   1,224   23   1,685   1,148 
Derivative financial instruments     210   219       76   210 
Cash and cash equivalents     2,467   519   13   375   2,467 
          
     4,096   2,595       2,484   4,096 
          
Assets held for sale  24  341   —   24   49   341 
          
Total assets     9,778   8,532       12,866   9,778 
          
Current liabilities
                       
Trade and other payables  25  1,966   1,925   25   2,769   1,966 
Derivative financial instruments     22   9       258   22 
Borrowings  26  1,127   921   26   448   1,127 
Taxation     752   479       554   752 
Provisions  28   79   — 
          
     3,867   3,334       4,108   3,867 
          
Non-current liabilities
                       
Borrowings  26  2,002   2,085   26   5,694   2,002 
Deferred tax liabilities  21  695   850   21   1,525   695 
Net pension obligations  8  133   256   8   521   133 
Provisions  28  21   28   28   35   21 
          
     2,851   3,219       7,775   2,851 
          
Liabilities associated with assets held for sale  24  84   —   24   2   84 
          
Total liabilities     6,802   6,553       11,885   6,802 
          
Net assets     2,976   1,979       981   2,976 
          
Capital and reserves
                       
Combined share capitals  30  197   191   30   209   197 
Combined share premiums  31  2,143   1,879   31   2,529   2,143 
Combined shares held in treasury  32  (619)  (377)  32   (783)  (619)
Translation reserve  33  (145)  (136)  33   (14)  (145)
Other combined reserves  34  1,389   409   34   (988)  1,389 
          
Combined shareholders’ equity     2,965   1,966       953   2,965 
Minority interests     11   13       28   11 
          
Total equity     2,976   1,979       981   2,976 
          
 
The accompanying notes on pages F-10 toF-50 F-54 are an integral part of these combined financial statements


F-8

REED ELSEVIER
COMBINED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note £m £m £m  Note £m £m £m 
Net profit for the year     1,203   625   464       480   1,203   625 
Exchange differences on translation of foreign operations     (33)  (244)  180       340   (33)  (244)
Actuarial gains/(losses) on defined benefit pension schemes  8  224   139   (37)
Actuarial (losses)/gains on defined benefit pension schemes  8   (347)  224   139 
Fair value movements on available for sale investments     —   3   3       (9)  —   3 
Fair value movements on cash flow hedges     3   54   (10)      (243)  3   54 
Tax recognised directly in equity  12  (50)  (60)  (3)  12   156   (50)  (60)
              
Net income/(expense) recognised directly in equity     144   (108)  133 
Net (expense)/income recognised directly in equity      (103)  144   (108)
              
Cumulative exchange differences on disposal of foreign operations     148   —   —       27   148   — 
Cumulative fair value movements on disposal of available for sale investments     (7)  —   —       —   (7)  — 
Transfer to net profit from hedge reserve (net of tax)  20  (20)  (5)  (19)  20   (14)  (20)  (5)
              
Total recognised income and expense for the year     1,468   512   578       390   1,468   512 
              
Attributable to:                               
Parent companies’ shareholders     1,465   510   576       386   1,465   510 
Minority interests     3   2   2       4   3   2 
              
Total recognised income and expense for the year     1,468   512   578       390   1,468   512 
              
 
COMBINED RECONCILIATION OF SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note £m £m £m  Note £m £m £m 
Total recognised net income attributable to the parent companies’ shareholders     1,465   510   576       386   1,465   510 
Dividends declared  15  (416)  (371)  (336)  15   (2,404)  (416)  (371)
Issue of ordinary shares, net of expenses     177   93   25       54   177   93 
Increase in shares held in treasury  32  (273)  (285)  (27)  32   (94)  (273)  (285)
Increase in share based remuneration reserve     46   49   57       46   46   49 
              
Net increase/(decrease) in combined shareholders’ equity     999   (4)  295 
Net (decrease)/increase in combined shareholders’ equity      (2,012)  999   (4)
Combined shareholders’ equity at January 1     1,966   1,970   1,664       2,965   1,966   1,970 
Transition adjustment on adoption of IAS 39     —   —   11 
              
Combined shareholders’ equity at December 31     2,965   1,966   1,970       953   2,965   1,966 
              
 
The accompanying notes on pages F-10 to F-50F-54 are an integral part of these combined financial statements


F-9

REED ELSEVIER
NOTES TO THE COMBINED FINANCIAL STATEMENTS
 
1.  Basis of preparation
 
The Reed Elsevier combined financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and IFRS as adopted by the European Union.
 
The equalisation agreement between Reed Elsevier PLC and Reed Elsevier NV has the effect that their shareholders can be regarded as having the interests of a single economic group. The Reed Elsevier combined financial statements (“the combined financial statements”) represent the combined interests of both sets of shareholders and encompass the businesses of Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures, together with the two parent companies, Reed Elsevier PLC and Reed Elsevier NV (“the combined businesses”).
 
2.  Accounting policies
 
The Reed Elsevier accounting policies are set out below:
 
Principles of combination
 
In preparing the combined financial statements, subsidiaries of Reed Elsevier Group plc and Elsevier Reed Finance BV are accounted for under the purchase method and investments in associates and joint ventures are accounted for under the equity method. All transactions and balances between the combined businesses are eliminated.
 
On acquisition of a subsidiary, or interest in an associate or joint venture, fair values, reflecting conditions at the date of acquisition, are attributed to the net assets, including identifiable intangible assets, acquired. This includes those adjustments made to bring accounting policies into line with those of the combined businesses. The results of subsidiaries sold or acquired are included in the combined financial statements up to or from the date that control passes from or to the combined businesses.
 
Minority interests in the net assets of the combined businesses are identified separately from combined shareholders’ equity. Minority interests consist of the amount of those interests at the date of original acquisition and the minority’sminority share of changes in equity since the date of acquisition.
 
Foreign exchange translation
 
The combined financial statements are presented in pounds sterling.
 
Transactions in foreign currencies are recorded at the rate of exchange prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing on the balance sheet date. Exchange differences arising are recorded in the income statement other than where hedge accounting applies (see Financial Instruments).as set out below.
 
Assets and liabilities of foreign operations are translated at exchange rates prevailing on the balance sheet date. Income and expense items and cash flows of foreign operations are translated at the average exchange rate for the period. Significant individual items of income and expense and cash flows in foreign operations are translated at the rate prevailing on the date of transaction. Exchange differences arising are classified as equity and transferred to the translation reserve. When foreign operations are disposed of, the related cumulative translation differences are recognised within the income statement in the period.
 
Reed Elsevier uses derivative financial instruments, primarily forward contracts, to hedge its exposure to certain foreign exchange risks. Details of Reed Elsevier’s accounting policies in respect of derivative financial instruments are set out below.
 
Revenue
 
Revenue represents the invoiced value of sales less anticipated returns on transactions completed by performance, excluding customer sales taxes and sales between the combined businesses.
 
Revenues are recognised for the various categories of turnover as follows: subscriptions — on periodic despatch of subscribed product or rateably over the period of the subscription where performance is not measurable by despatch; circulation — on despatch; advertising — on publication or over the period of online display; and exhibitions — on occurrence of the exhibition; and educational testing contracts — over the term of the contract on percentage completed against contract milestones.exhibition.
 
Where sales consist of two or more independent components whose value can be reliably measured, revenue is recognised on each component as it is completed by performance, based on attribution of relative value.


F-10

2.  Accounting policies – (continued)
2.  Accounting policies – (continued)
 
Employee benefits
 
The expense of defined benefit pension schemes and other post-retirement employee benefits is determined using the projected unit credit method and charged in the income statement as an operating expense, based on actuarial assumptions reflecting market conditions at the beginning of the financial year. Actuarial gains and losses are recognised in full in the statement of recognised income and expense in the period in which they occur. Past service costs are recognised immediately to the extent that benefits have vested, or, if not vested, on a straight line basis over the period until the benefits vest.
 
Net pension obligations in respect of defined benefit schemes are included in the balance sheet at the present value of scheme liabilities, less the fair value of scheme assets. Where schemes are in surplus,i.e. assets exceed liabilities, the net pension assets are separately included in the balance sheet. Any net pension asset is limited to the extent that the asset is recoverable through reductions in future contributions.
 
The expense of defined contribution pension schemes and other employee benefits is charged in the income statement as incurred.
 
Share based remuneration
 
The fair value of share based remuneration is determined at the date of grant and recognised as an expense in the income statement on a straight line basis over the vesting period, taking account of the estimated number of shares that are expected to vest. Market based performance criteria are taken into account when determining the fair value at the date of grant. Non-market based performance criteria are taken into account when estimating the number of shares expected to vest. The fair value of share based remuneration is determined by use of a binomial or Monte Carlo simulation model as appropriate. All of Reed Elsevier’s share based remuneration is equity settled.
 
Borrowing costs
 
All interest on borrowings is expensed as incurred. The cost of issuing borrowings is generally expensed over the life of the borrowings so as to produce a constant periodic rate of charge.
 
Taxation
 
The tax expense represents the sum of the tax payable on the current year taxable profits, adjustments in respect of prior years taxable profits, and the movements on deferred tax that are recognised in the income statement.
 
The tax payable on current year taxable profits is calculated using the applicable tax rates that have been enacted, or substantively enacted, by the balance sheet date.
 
Deferred tax is the tax arising on differences between the carrying amounts of assets and liabilities in the financial statements and their corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that, based on current forecasts, it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is not recognised on temporary differences arising in respect of goodwill that is not deductible for tax purposes.
 
Deferred tax is calculated using tax rates that are expected to apply in the period when the liability is expected to be settled or the asset realised. Full provision is made for deferred tax which would become payable on the distribution of retained profits from foreign subsidiaries, associates or joint ventures.
 
Movements in deferred tax are charged or credited in the income statement, except when they relate to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity. Deferred tax credits in respect of share based remuneration are recognised in equity to the extent that expected tax deductions exceed the related expense.
 
Goodwill
 
On the acquisition of a subsidiary or business, the purchase consideration is allocated between the net tangible and intangible assets on a fair value basis, with any excess purchase consideration representing goodwill. Goodwill arising on acquisitions also includes amounts corresponding to deferred tax liabilities recognised in respect of acquired intangible assets.
 
Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the income statement and not subsequently reversed.
 
On disposal of a subsidiary or business, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.


F-11

2.  Accounting policies – (continued)
2.  Accounting policies – (continued)
 
Intangible assets
 
Intangible assets acquired as part of a business combination are stated in the balance sheet at their fair value as at the date of acquisition, less accumulated amortisation. Internally generated intangible assets are stated in the balance sheet at the directly attributable cost of creation of the asset, less accumulated amortisation.
 
Intangible assets acquired as part of business combinations comprise: market related assets (e.g. trademarks, imprints, brands); customer related assets (e.g. subscription bases, customer lists, customer relationships); editorial content; software and systems (e.g. application infrastructure, product delivery platforms, in-process research and development); contract based assets (e.g. publishing rights, exhibition rights, supply contracts); and other intangible assets. Internally generated intangible assets typically comprise software and systems development where an identifiable asset is created that is probable to generate future economic benefits.
 
Intangible assets, other than brands and imprints determined to have indefinite lives, are amortised systematically over their estimated useful lives. The estimated useful lives of intangible assets with finite lives are as follows: market and customer related assets — 3 to 40 years; content, software and other acquired intangible assets — 3 to 20 years; and internally developed intangible assets — 3 to 10 years. Brands and imprints determined to have indefinite lives are not amortised and are subject to an impairment review at least annually.
 
Property, plant and equipment
 
Property, plant and equipment are stated in the balance sheet at cost less accumulated depreciation. No depreciation is provided on freehold land. Freehold buildings and long leases are depreciated over their estimated useful lives up to a maximum of 50 years. Short leases are written off over the duration of the lease. Depreciation is provided on other assets on a straight line basis over their estimated useful lives as follows: leasehold improvements — shorter of life of lease and 10 years; plant — 3 to 20 years; office furniture, fixtures and fittings — 5 to 10 years; computer systems, communication networks and equipment — 3 to 7 years.
 
Investments
 
Investments, other than investments in joint ventures and associates, are stated in the balance sheet at fair value. Investments held as part of the venture capital portfolio are classified as held for trading, with changes in fair value reported through the income statement. All other investments are classified as available for sale with changes in fair value recognised directly in equity until the investment is disposed of or is determined to be impaired, at which time the cumulative gain or loss previously recognised in equity is brought into the net profit or loss for the period. All items recognised in the income statement relating to investments, other than investments in joint ventures and associates, are reported as non operating items.
 
Available for sale investments and venture capital investments held for trading represent investments in listed and unlisted securities. The fair value of listed securities is determined based on quoted market prices, and of unlisted securities on management’s estimate of fair value based on standard valuation techniques.techniques, including market comparisons and discounts of future cash flows, having regard to maximising the use of observable inputs and adjusting for risk. Advice from independent valuation experts are used as appropriate.
 
Investments in joint ventures and associates are accounted for under the equity method and stated in the balance sheet at cost as adjusted for post-acquisition changes in Reed Elsevier’s share of net assets, less any impairment in value.
 
Impairment
 
At each balance sheet date, reviews are carried out of the carrying amounts of tangible and intangible assets and goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount, which is the higher of value in use and fair value less costs to sell, of the asset is estimated in order to determine the extent, if any, of the impairment loss. Where the asset does not generate cash flows that are independent from other assets, value in use estimates are made based on the cash flows of the cash generating unit to which the asset belongs. Intangible assets with an indefinite useful life are tested for impairment at least annually and whenever there is any indication that the asset may be impaired.
 
If the recoverable amount of an asset or cash generating unit is estimated to be less than its net carrying amount, the net carrying amount of the asset or cash generating unit is reduced to its recoverable amount. Impairment losses are recognised immediately in the income statement.statement in administration and other expenses.
 
Inventories and pre-publication costs
 
Inventories and pre-publication costs are stated at the lower of cost, including appropriate attributable overhead, and estimated net realisable value. Pre-publication costs, representing costs incurred in the origination of content prior to publication, are expensed systematically reflecting the expected sales profile over the estimated economic lives of the related products, generally up to five years.


F-12

2.  Accounting policies – (continued)
2.  Accounting policies – (continued)
 
Leases
 
Assets held under leases which confer rights and obligations similar to those attaching to owned assets are classified as assets held under finance leases and capitalised within property, plant and equipment and the corresponding liability to pay rentals is shown net of interest in the balance sheet as obligations under finance leases. The capitalised value of the assets is depreciated on a straight line basis over the shorter of the periods of the leases or the useful lives of the assets concerned. The interest element of the lease payments is allocated so as to produce a constant periodic rate of charge.
 
Operating lease rentals are charged to the income statement on a straight line basis over the period of the leases. Rental income from operating leases is recognised on a straight line basis over the term of the relevant lease.
 
Cash and cash equivalents
 
Cash and cash equivalents comprise cash balances, call deposits and other short term highly liquid investments and are held in the balance sheet at fair value.
 
Assets held for sale
 
Assets of businesses that are available for immediate sale in their current condition and for which a sales process has been initiated are classified as assets held for sale, and are carried at the lower of amortised cost and fair value less costs to sell. Non-current assets are not amortised or depreciated following their classification as held for sale. Liabilities of businesses held for sale are also separately classified on the balance sheet.
 
Discontinued operations
 
A discontinued operation is a component of the combined businesses that represent a separate major line of business or geographical area of operations that has been disposed of or is held for sale. When an operation is classified as discontinued, the comparative income and cash flow statements are re-presented as if the operation had been discontinued from the start of the comparative period.
 
Financial instruments
 
Financial instruments comprise investments (other than investments in joint ventures or associates), trade receivables, cash and cash equivalents, payables and accruals, provisions, borrowings and derivative financial instruments.
 
Investments (other than investments in joint ventures and associates) are classified as either held for trading or available for sale, as described above.
 
Trade receivables are carried in the balance sheet at invoiced value less allowance for estimated irrecoverable amounts. Irrecoverable amounts are estimated based on the ageing of trade receivables, experience and circumstance.
 
Borrowings (other than fixed rate borrowings in designated hedging relationships and for which the carrying value is adjusted to reflect changes in the fair value of the hedged risk), payables, accruals and provisions are recorded initially at nominal value.fair value and subsequently at amortised cost.
 
Derivative financial instruments are used to hedge interest rate and foreign exchange risks. Changes in the fair value of derivative financial instruments that are designated and effective as hedges of future cash flows are recognised (net of tax) directly in equity in the hedge reserve. If a hedged firm commitment or forecasted transaction results in the recognition of a non financial asset or liability, then, at the time that the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. For hedges that do not result in the recognition of an asset or a liability, amounts deferred in equity are recognised in the income statement in the same period in which the hedged item affects net profit or loss. Any ineffective portion of hedges is recognised immediately in the income statement.
 
Derivative financial instruments that are not designated as hedging instruments are classified as held for trading and recorded in the balance sheet at fair value, with changes in fair value recognised in the income statement.
 
Where an effective hedge is in place against changes in the fair value of fixed rate borrowings, the hedged borrowings are adjusted for changes in fair value attributable to the risk being hedged with a corresponding income or expense included in the income statement.statement within finance costs. The offsetting gains or losses from remeasuring the fair value of the related derivatives are also recognised in the income statement.statement within finance costs. When the related derivative expires, is sold or terminated, or no longer qualifies for hedge accounting, the cumulative change in fair value of the hedged borrowing is amortised in the income statement over the period to maturity of the borrowings using the effective interest method.
 
The fair values of interest rate swaps, interest rate options, forward rate agreements and forward foreign exchange contracts represent the replacement costs calculated using market rates of interest and exchange. The fair value of long term borrowings is calculated by discounting expected future cash flows at market rates.


F-13

2.  Accounting policies – (continued)
 
HedgeCash flow hedge accounting is discontinued when a hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is either


F-13

2.  Accounting policies – (continued)
retained in equity until the firm commitment or forecasted transaction occurs, or, where a hedged transaction is no longer expected to occur, is immediately credited or expensed in the income statement.
 
On adoption of IAS39 — Financial Instruments, adjustments were made either to the carrying value of hedged items or to equity, as appropriate, to reflect the differences between the previous UK GAAP carrying values of financial instruments and their carrying values required to be reported under IAS39. Any transition gains or losses on financial instruments that qualified for hedge accounting were reflected in equity and remain in equity until either the forecasted transaction occurs or is no longer expected to occur.
 
Provisions
 
Provisions are recognised when a present obligation exists as a result of a past event, and it is probable that settlement of the obligation will be required. Provisions are measured at the best estimate of the expenditure required to settle the obligation at the balance sheet date.
 
Shares held in treasury
 
Shares of Reed Elsevier PLC and Reed Elsevier NV that are repurchased by the respective parent companies and not cancelled are classified as shares held in treasury. The consideration paid, including directly attributable costs, is recognised as a deduction from equity. Shares of the parent companies that are purchased by the Reed Elsevier Group plc Employee Benefit Trust are also classified as shares held in treasury, with the cost recognised as a deduction from equity.
 
Critical judgements and key sources of estimation uncertainty
 
The most significant accounting policies in determining the financial condition and results of the Reed Elsevier combined businesses, and those requiring the most subjective or complex judgement, relate to the valuation of goodwill and intangible assets, share based remuneration, pensions, taxation and taxation.property provisioning. The carrying amounts of goodwill and intangible assets are reviewed at least twice a year,annually, the key areas of judgment being in relation to the forecast long term growth rates and the appropriate discount rates to be applied to forecast cash flows. Further detail on impairment testing is provided in note 16. The charge for share based remuneration is determined based on the fair value of awards at the date of grant by use of binomial or Monte Carlo simulation models as appropriate, which require judgements to be made regarding share price volatility, dividend yield, risk free rates of return and expected option lives. Further detail on share based remuneration is provided in note 9. Key estimates in accounting for defined benefit pension schemes include the life expectancy of members, expected salary and pension increases, inflation, the return on scheme assets and the rate at which future pension payments are discounted. Further detail is provided in note 8. Reed Elsevier’s policy is to make provision for tax uncertainties where it is considered probable that tax payments may arise. Deferred taxation is provided for nearly all differences between the balance sheet amounts of assets and liabilities and their tax bases. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that they are considered recoverable based on forecasts of available taxable profits in jurisdictions where such assets have arisen. This assessment of the recoverability of deferred tax assets is judgmental. Forecasts are made of taxable profits, taking into account any unresolved tax risks. Property provisions are determined based on management’s estimates of future sublease income.
 
Standards and amendments effective for the year
 
IFRS7IFRIC14 — Financial Instruments: Disclosures, which contains various requirements concerningThe Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction, clarifies how to assess the disclosurelimit in IAS19 Employee Benefits on the amount of financial instruments, is adopted in the combined financial statements for the first time. The adoptiona defined benefit pension surplus that can be recognised as an asset. Adoption of this standardinterpretation has not significantly impacted the measurement, presentation or disclosure of employee benefits in the combined financial statements.
An amendment to IAS1 — Presentation of Financial Statements: Capital Disclosures, which introduces disclosures about an entity’s capital and how it is managed, has been adopted for the first time. The requirements of the amendment have been addressed on page 32 of Item 5: Operating and Financial Review and Prospects, Liquidity and Capital Resources — Reed Elsevier.
 
Standards, amendments and interpretations not yet effective
 
New accounting standards and amendments and their expected impact on the future accounting policies and reporting of Reed Elsevier are set out below.
 
IFRS8 — Operating Segments (effective for the 2009 financial year). IFRS8 sets out requirements for disclosure of information about an entity’s operating segments, its products and services, the geographical areas in which it operates, and its major customers. IFRS8 replaces IAS14 — Segment Reporting. Adoption of this standard is not expected to change significantly the disclosure of information in respect of Reed Elsevier’s operating segments.
 
Amendment to IAS23 — Borrowing Costs (effective for the 2009 financial year). The amendment removes the option to immediately recognise as an expense borrowing costs relating to assets requiring a substantial period of time to get ready for use or sale and requires such costs to be capitalised. Adoption of this standard will change our accounting policy on borrowing costs but is not expected to significantly impact the measurement, presentation or disclosure of borrowing costs in the combined financial statements.


F-14

2.  Accounting policies – (continued)
 
Amendment to IAS1 — Presentation of Financial Statements (effective for the 2009 financial year). The amendment introduces changes to the way in which movements in equity must be disclosed and requires an entity to disclose separately disclose each component of other comprehensive income not recognised in profit or loss. The amendment also requires disclosure of the amount of income tax relating to each component of other comprehensive income as well as several other minor disclosure


F-14

2.  Accounting policies – (continued)
amendments. Other than described above, this amendment is not expected to significantly change the presentation of the combined financial statements.
 
IFRIC14Amendment to IFRS2 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their InteractionShare Based Payment (effective for the 20082009 financial year). The interpretationamendment clarifies how to assessthat cancellations of share options, whether by the limit in IAS19 Employee Benefits onentity or holder, should be accounted for as an acceleration of the amountvesting period. The amendment also restricts the definition of a defined benefit pension surplusvesting condition to a condition that canincludes an explicit or implicit requirement to provide services. Any other conditions are non-vesting conditions, which have to be recognised as an asset. Adoptiontaken into account to determine the fair value of this interpretationthe equity instruments granted. The amendment is not expected to significantly impact the measurement, presentation or disclosure of employee benefitsshare based remuneration in the combined financial statements.
 
Amendments to IFRS3 — Business Combinations (effective for the 2010 financial year). The amendments introduce changes that will require acquisitionfuture transaction related costs (including professional fees previously capitalised)fees) to be expensed and adjustments to contingent consideration to be recognised in income and will allow the full goodwill methodnon-controlling interests to be used when accounting for non-controlling interests.measured at either fair value or the proportionate share of net identifiable assets.
 
Amendments to IAS27 — Consolidated and Separate Financial Statements (effective for the 2010 financial year). The amendments introduce changes to the accounting for partial disposals of subsidiaries, associates and joint ventures. Adoption of these amendments is not expected to significantly impact the measurement, presentation or disclosure of future disposals.
 
Amendment to IAS39 — Financial Instruments: Recognition and Measurement (effective for the 2010 financial year). The amendment clarifies the eligibility of hedge accounting for inflation and hedging with options. Adoption of this amendment is not expected to have a significant impact on the measurement, presentation or disclosure of financial instruments in the combined financial statements.
Additionally, a number of interpretations have been issued which are not expected to have any significant impact on Reed Elsevier’s accounting policies and reporting.
3.  Segment analysis
3.  Segment analysis
 
Reed Elsevier is a publisher and information provider organised as threefour business segments: Elsevier, comprising scientific, technical and medical publishing businesses;publishing; LexisNexis, providing legal, tax, regulatory, risk, management, information and analytics, and business information solutions to professional, business and government customers; Reed Exhibitions, organising trade exhibitions and conferences; and Reed Business Information (RBI), providing information and marketing solutions to business professionals. Internal reporting is consistent with this organisational structure. Harcourt Education,On February 21, 2008 Reed Elsevier announced the intention to divest RBI which has previously been presented as a separate business segment, has beenwas accordingly then classified as a discontinued operation in the 2008 interim results. On December 10, 2008 Reed Elsevier announced the termination of discussions to sell RBI as it was judged not possible to structure a transaction on acceptable terms at that time. RBI has therefore now been presented as a continuing operation. RBI and its results forReed Exhibitions, previously presented together as the yearReed Business segment, are now managed as separate divisions and are presented in note 4.as separate business segments. Comparatives have been restated accordingly.


F-15

3.  Segment analysis – (continued)
 
Analysis by business segment
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Revenue
                        
Elsevier  1,507   1,521   1,436   1,700   1,507   1,521 
LexisNexis  1,594   1,570   1,466   1,940   1,594   1,570 
Reed Business  1,483   1,418   1,363 
Reed Exhibitions  707   577   522 
Reed Business Information  987   906   896 
              
Total  4,584   4,509   4,265   5,334   4,584   4,509 
              
Operating profit
                        
Elsevier  410   395   396   443   410   395 
LexisNexis  287   264   218   291   287   264 
Reed Business  197   183   158 
Reed Exhibitions  123   106   98 
Reed Business Information  55   91   85 
              
Subtotal  894   842   772   912   894   842 
Corporate costs  (45)  (39)  (32)  (50)  (45)  (39)
Unallocated net pension credit  39   34   12   39   39   34 
              
Total  888   837   752   901   888   837 
              
Adjusted operating profit
                        
Elsevier  477   465   449   568   477   465 
LexisNexis  406   380   338   513   406   380 
Reed Business  260   241   214 
Reed Exhibitions  183   139   129 
Reed Business Information  126   121   112 
              
Subtotal  1,143   1,086   1,001   1,390   1,143   1,086 
Corporate costs  (45)  (39)  (32)  (50)  (45)  (39)
Unallocated net pension credit  39   34   12   39   39   34 
              
Total  1,137   1,081   981   1,379   1,137   1,081 
              


F-15F-16

3.  Segment analysis – (continued)
3.  Segment analysis – (continued)
 
Analysis by geographical origin
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Revenue
                        
North America  2,147   2,219   2,118   2,544   2,147   2,219 
United Kingdom  896   828   795   905   896   828 
The Netherlands  505   497   494   594   505   497 
Rest of Europe  708   675   592   893   708   675 
Rest of world  328   290   266   398   328   290 
              
Total  4,584   4,509   4,265   5,334   4,584   4,509 
              
Operating profit
                        
North America  353   329   291   334   353   329 
United Kingdom  180   167   153   183   180   167 
The Netherlands  179   172   158   179   179   172 
Rest of Europe  118   117   104   151   118   117 
Rest of world  58   52   46   54   58   52 
              
Total  888   837   752   901   888   837 
              
Adjusted operating profit
                        
North America  505   486   454   618   505   486 
United Kingdom  211   196   177   239   211   196 
The Netherlands  181   175   163   206   181   175 
Rest of Europe  174   169   139   237   174   169 
Rest of world  66   55   48   79   66   55 
              
Total  1,137   1,081   981   1,379   1,137   1,081 
              
 
Revenue is analysed before the £104 million (2007: £103 million (2006:million; 2006: £108 million; 2005: £91 million) share of joint ventures’ revenue, of which £21£23 million (2006:(2007: £21 million; 2005: £202006: £21 million) relates to LexisNexis, principally to Giuffrè, and£80 million (2007: £82 million (2006:million; 2006: £87 million; 2005: £71 million) relates to Reed Business,Exhibitions, principally to exhibition joint ventures.ventures, and £1 million (2007: nil; 2006: nil) relates to Reed Business Information.
 
Share of post-tax results of joint ventures of £18 million (2007: £16 million (2006:million; 2006: £18 million; 2005: £16 million) included in operating profit comprises £3£4 million (2006:(2007: £3 million; 2005:2006: £3 million) relating to LexisNexis and £14 million (2007: £13 million (2006:million; 2006: £15 million; 2005: £13 million) relating to Reed Business.Exhibitions. The unallocated net pension credit of £39 million (2006:(2007: £39 million; 2006: £34 million; 2005: £12 million) comprises the expected return on pension scheme assets of £219 million (2007: £196 million (2006:million; 2006: £178 million; 2005: £149 million) less interest on pension scheme liabilities of £180 million (2007: £157 million (2006:million; 2006: £144 million; 2005: £137 million).
 
Adjusted operating profit is a non-GAAP measure included on the basis that it is a key financial measure used by management to evaluate performance and allocate resources to the business segments. Adjusted operating profit represents operating profit before amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition integrationrelated costs, and is grossed up to exclude the equity share of taxes in joint ventures. A reconciliation is provided below:
             
  2007
  2006
  2005
 
  £m  £m  £m 
 
Operating profit  888   837   752 
Adjustments:            
Amortisation of acquired intangible assets  221   211   203 
Acquisition integration costs  20   23   20 
Reclassification of tax in joint ventures  8   10   6 
             
Adjusted operating profit  1,137   1,081   981 
             
Exceptional restructuring costs relate principally to the major restructuring programme announced in February 2008 and expanded in February 2009 to include RBI, which was to be divested and not part of the original programme. Exceptional restructuring costs principally comprise


F-16F-17

3.  Segment analysis – (continued)
severance, outsourcing migration and associated property costs. A reconciliation of operating profit to adjusted operating profit is provided below:
             
  2008
  2007
  2006
 
  £m  £m  £m 
 
Operating profit  901   888   837 
Adjustments:            
Amortisation of acquired intangible assets and goodwill impairment  290   221   211 
Exceptional restructuring costs  152   —   — 
Acquisition related costs  27   20   23 
Reclassification of tax in joint ventures  9   8   10 
             
Adjusted operating profit  1,379   1,137   1,081 
             
 
Analysis by geographical market
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Revenue
                        
North America  2,233   2,322   2,212   2,624   2,233   2,322 
United Kingdom  603   531   503   580   603   531 
The Netherlands  206   196   195   234   206   196 
Rest of Europe  897   866   790   1,136   897   866 
Rest of world  645   594   565   760   645   594 
              
Total  4,584   4,509   4,265   5,334   4,584   4,509 
              


F-18

3.  Segment analysis – (continued)
 
Analysis by business segment
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Expenditure on acquired goodwill and intangible assets
                        
Elsevier  193   53   220   31   193   53 
LexisNexis  42   79   58   2,705   42   79 
Reed Business  128   51   46 
Reed Exhibitions  58   61   22 
Reed Business Information  64   67   29 
              
Total  363   183   324   2,858   363   183 
              
Capital expenditure in year
            
Capital expenditure additions
            
Elsevier  50   51   60   54   50   51 
LexisNexis  76   95   95   74   76   94 
Reed Business  29   30   27 
Reed Exhibitions  11   8   8 
Reed Business Information  26   21   22 
              
Subtotal  155   176   182   165   155   175 
Corporate  1   2   3   7   1   2 
              
Total  156   178   185   172   156   177 
              
Amortisation of acquired intangible assets
            
Amortisation of acquired intangible assets and goodwill impairment
            
Elsevier  62   57   49   76   62   57 
LexisNexis  105   104   102   137   105   104 
Reed Business  54   50   52 
Reed Exhibitions  46   27   25 
Reed Business Information  31   27   25 
              
Total  221   211   203   290   221   211 
              
Depreciation and other amortisation
                        
Elsevier  47   47   38   51   47   47 
LexisNexis  72   70   65   68   72   70 
Reed Business  27   27   25 
Reed Exhibitions  6   4   5 
Reed Business Information  25   23   22 
              
Subtotal  146   144   128   150   146   144 
Corporate  2   3   2   17   2   3 
              
Total  148   147   130   167   148   147 
              


F-17F-19

3.  Segment analysis – (continued)
3.  Segment analysis – (continued)
 
Analysis by geographical origin
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Expenditure on acquired goodwill and intangible assets
                        
North America  152   99   93   2,701   152   99 
United Kingdom  26   54   16   54   26   54 
The Netherlands  —   —   9   4   —   — 
Rest of Europe  163   15   196   34   163   15 
Rest of world  22   15   10   65   22   15 
              
Total  363   183   324   2,858   363   183 
              
Capital expenditure in year
            
Capital expenditure additions
            
North America  86   111   114   90   86   110 
United Kingdom  31   33   31   36   31   33 
The Netherlands  22   18   18   26   22   18 
Rest of Europe  11   10   13   11   11   10 
Rest of world  6   6   9   9   6   6 
              
Total  156   178   185   172   156   177 
              
 
Capital expenditure comprises additions to property, plant and equipment and internally developed intangible assets. The net book amount of property, plant and equipment added through acquisitions totalled £48 million (2007: nil; 2006: £1 million). Amortisation of acquired intangible assets includes the share of amortisation in joint ventures of £3 million (2007: £2 million (2006: nil; 2005:million; 2006: nil) in Reed Business.Exhibitions. Other than the depreciation and amortisation above, non cash items of £46 million (2007: £38 million (2006:million; 2006: £44 million; 2005: £48 million) relate to the recognition of share based remuneration and comprise £7 million (2007: £8 million (2006:million; 2006: £10 million; 2005: £11 million) in Elsevier; £8 million (2007: £10 million (2006:million; 2006: £12 million; 2005: £16 million) in LexisNexis; £11£3 million (2006: £14(2007: £3 million; 2005: £142006: £4 million) in Reed Business; and £9Exhibitions; £6 million (2006:(2007: £8 million; 2005: £72006: £10 million) in Reed Business Information; and £22 million (2007: £9 million; 2006: £8 million) in Corporate.


F-20

3.  Segment analysis – (continued)
 
Analysis by business segment
 
              
 2007
 2006
 2008
 2007
 
 £m £m £m £m 
Total assets
              
Elsevier  2,515  2,352  3,264   2,515 
LexisNexis  2,531  2,593  6,758   2,531 
Reed Business  1,340  1,146
Reed Exhibitions  862   658 
Reed Business Information  864   682 
         
Subtotal  6,386  6,091  11,748   6,386 
Harcourt Education (discontinued)  —  1,482
Taxation  141  170  353   141 
Cash  2,467  519  375   2,467 
Net pension assets  183  20  152   183 
Assets held for sale  341  —  49   341 
Other assets  260  250  189   260 
         
Total  9,778  8,532  12,866   9,778 
         
Total liabilities
        
Elsevier  1,240   736 
LexisNexis  774   415 
Reed Exhibitions  379   285 
Reed Business Information  418   321 
     
Subtotal  2,811   1,757 
Taxation  2,079   1,447 
Borrowings  6,142   3,129 
Net pension obligations  521   133 
Liabilities held for sale  2   84 
Other liabilities  330   252 
     
Total  11,885   6,802 
     
Net assets/(liabilities)
        
Elsevier  2,024   1,779 
LexisNexis  5,984   2,116 
Reed Exhibitions  483   373 
Reed Business Information  446   361 
     
Subtotal  8,937   4,629 
Taxation  (1,726)  (1,306)
Cash  375   2,467 
Borrowings  (6,142)  (3,129)
Net pension (obligations)/asset  (369)  50 
Assets and liabilities held for sale  47   257 
Other assets and liabilities  (141)  8 
     
Total  981   2,976 
     


F-18F-21

3.  Segment analysis – (continued)
         
  2007
  2006
 
  £m  £m 
 
Total liabilities
        
Elsevier  736   726 
LexisNexis  415   383 
Reed Business  606   533 
         
Subtotal  1,757   1,642 
Harcourt Education (discontinued)  —   172 
Taxation  1,447   1,329 
Borrowings  3,129   3,006 
Net pension obligations  133   256 
Liabilities held for sale  84   — 
Other liabilities  252   148 
         
Total  6,802   6,553 
         
Net assets/(liabilities)
        
Elsevier  1,779   1,626 
LexisNexis  2,116   2,210 
Reed Business  734   613 
         
Subtotal  4,629   4,449 
Harcourt Education (discontinued)  —   1,310 
Taxation  (1,306)  (1,159)
Cash  2,467   519 
Borrowings  (3,129)  (3,006)
Net pension asset/(obligations)  50   (236)
Assets and liabilities held for sale  257   — 
Other assets and liabilities  8   102 
         
Total  2,976   1,979 
         
3.  Segment analysis – (continued)
 
Analysis by geographical location
 
       
  2007
 2006
  £m £m
Total assets
      
North America  4,549  5,606
United Kingdom  2,119  1,034
The Netherlands  1,541  573
Rest of Europe  1,300  1,097
Rest of world  269  222
       
Total  9,778  8,532
       
Total liabilities
      
North America  3,452  3,313
United Kingdom  1,164  1,123
The Netherlands  312  463
Rest of Europe  1,691  1,511
Rest of world  183  143
       
Total  6,802  6,553
       

F-19

3.  Segment analysis – (continued)
                
 2007
 2006
  2008
 2007
 
 £m £m 
Total assets
        
North America  9,123   4,549 
United Kingdom  967   2,119 
The Netherlands  742   1,541 
Rest of Europe  1,630   1,300 
Rest of world  404   269 
     
Total  12,866   9,778 
     
Total liabilities
        
North America  6,565   3,452 
United Kingdom  1,298   1,164 
The Netherlands  724   312 
Rest of Europe  3,030   1,691 
Rest of world  268   183 
     
Total  11,885   6,802 
 £m £m      
Net assets/(liabilities)
                
North America  1,097   2,293   2,558   1,097 
United Kingdom  955   (89)  (331)  955 
The Netherlands  1,229   110   18   1,229 
Rest of Europe  (391)  (414)  (1,400)  (391)
Rest of world  86   79   136   86 
          
Total  2,976   1,979   981   2,976 
          
 
Investments in joint ventures of £116£145 million (2006: £73(2007: £116 million) included in segment assets above comprise £30£42 million (2006: £27(2007: £30 million) relating to LexisNexis; nil (2007: £1 million (2006: nil)million) relating to Elsevier and £85Elsevier; £99 million (2006: £46(2007: £83 million) relating to Reed Business.
Exhibitions; and £4 million (2007: £2 million) relating to Reed Business Information.
 
4.  Discontinued operations
 
Following announcement in February 2007Discontinued operations comprise the results of the planned sale of Harcourt Education division. The disposal of the division is presented as a discontinued operation. OnHarcourt Education International businesses completed in May 4, 2007and August 2007; the saledisposal of the Harcourt US K-12 Schools Education business completed in December 2007; and the disposal of the Harcourt Assessment and Harcourt Education International businesses for $950 million was announced, and on July 16, 2007 the sale of Harcourt US Schools Education businesses for $4.0 billion was announced. All disposals hadbusiness completed by December 31, 2007 with the exception of Harcourt Assessment and certain Harcourt International businesses, the disposal of which completed onin January 30, 2008. Those businesses are presented in the balance sheet as assets held for sale.
 
Net profit from discontinued operations
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Revenue  752   889   901   12   752   889 
Operating costs  (640)  (846)  (814)  (12)  (640)  (846)
              
Operating profit and profit before tax  112   43   87   —   112   43 
Taxation  (34)  (10)  (18)  —   (34)  (10)
              
Profit after taxation  78   33   69   —   78   33 
Gain on disposals  611   —   —   67   611   — 
Tax on disposals  (380)  —   —   (49)  (380)  — 
              
Net profit from discontinued operations  309   33   69   18   309   33 
              
Operating profit is stated after amortisation of acquired intangible assets of £9 million (2006: £86 million; 2005: £73 million).
 
The gain on disposals of discontinued operations in 2008 relates to the completed sale of Harcourt Assessment (2007: HarcourtUS K-12 Schools Education business and certain of the Harcourt Education International businesses.businesses). Net assets disposed comprise £92 million (2007: £318 millionmillion) of goodwill, £74 million (2007: £383 millionmillion) of intangible assets, £9 million (2007: £39 millionmillion) of property, plant and equipment, £53 million (2007: £377 millionmillion) of inventory and £40£16 million of other net assets.assets


F-22

4.  Discontinued operations – (continued)
(2007: £40 million). Tax on disposals in 2007 is stated before taking account of tax credits of £223 million in respect of previously unrecognised deferred tax assets and capital losses. These have beenwere realised as a result of the disposal of discontinued operations, but arewere reported within continuing operations whence they first arose.
 
Cash flows from discontinued operations
 
                       
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Net cash flow from operating activities  33  86   137   2   33   86 
Net cash flow from/(used in) investing activities  1,879  (29)  (9)
Net cash flow (used in)/from investing activities  (50)  1,879   (29)
Net cash flow from financing activities  —  —   —   —   —   — 
              
Net movement in cash and cash equivalents  1,912  57   128   (48)  1,912   57 
              

F-20

4.  Discontinued operations – (continued)
 
Net cash flow from investing activities includes cash proceeds, net of expenses, on the completed disposals of £1,933£270 million (2006:(2007: £1,912 million; 2006: nil) and taxes paid on completed disposals of £320 million (2007: nil; 2005:2006: nil). Cash and cash equivalents disposed of was nil (2007: £7 million (2006: nil; 2005:million; 2006: nil).
 
5.  Operating profit
 
Operating profit from continuing operations is stated after charging/(crediting) the following:
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note £m £m £m  Note £m £m £m 
Staff costs
                               
Wages and salaries     1,192   1,186   1,127       1,384   1,192   1,186 
Social security costs     144   133   123       164   144   133 
Pensions  8  49   65   85   8   59   49   65 
Share based remuneration  9  38   44   48   9   46   38   44 
              
Total staff costs     1,423   1,428   1,383       1,653   1,423   1,428 
              
Depreciation and amortisation
                               
Amortisation of acquired intangible assets  17  219   211   203   17   278   219   211 
Share of joint ventures’ amortisation of acquired intangible assets     2   —   —       3   2   — 
Goodwill impairment  16   9   —   — 
Amortisation of internally developed intangible assets  17  72   66   53   17   88   72   66 
Depreciation of property, plant and equipment  19  76   81   77   19   79   76   81 
              
Total depreciation and amortisation     369   358   333       457   369   358 
              
Other expenses and income
                               
Pre-publication costs, inventory expenses and other cost of sales     1,624   1,602   1,521       1,916   1,624   1,602 
Operating lease rentals expense     105   106   99       116   105   106 
Operating lease rentals income     (15)  (17)  (14)      (13)  (15)  (17)
              
 
Depreciation, amortisation and amortisationimpairment charges are included within administration and other expenses.
 
Staff costs for discontinued operations for the year ended December 31, 20072008 were £5 million (2007: £162 million (2006:million; 2006: £197 million; 2005: £191 million) for wages and salaries; nil (2007: £10 million (2006: £13 million; 2005:2006: £13 million) for social security costs; nil (2007: £11 million (2006: £15 million; 2005:2006: £15 million) for pensions and nil (2007: £8 million (2006:million; 2006: £5 million; 2005: £9 million) for share based remuneration.


F-23

6.  Auditors’ remuneration
 
                           
   2007
 2006
 2005
   2008
 2007
 2006
 
 Note £m £m £m   £m £m £m 
For audit services     3.9  4.7  3.2      4.8   3.9   4.7 
For non audit services     1.5  1.2  1.6      2.1   1.5   1.2 
             
Total auditors’ remuneration     5.4  5.9  4.8      6.9   5.4   5.9 
             
 
Auditors’ remuneration, in respect of continuing and discontinued operations, for audit services comprises £0.4 million (2006:(2007: £0.4 million; 2005:2006: £0.4 million) payable to the auditors of the parent companies and £4.4 million (2007: £3.5 million (2006:million; 2006: £4.3 million; 2005: £2.8 million) payable to the auditors of the parent companies and their associates for the audit of the financial statements of the operating and financing businesses, including the review and testing of internal controls over financial reporting in accordance with the US Sarbanes-Oxley Act. Auditors’ remuneration for non audit services comprises: £0.6 million (2006:(2007: £0.6 million; 2005: £0.72006: £0.6 million) for taxation services, £1.3 million (2007: £0.7 million (2006:million; 2006: £0.3 million; 2005: £0.4 million) for due diligence and other transaction related services nil (2006: nil; 2005: £0.1 million) for the audit of associated pension schemes and £0.2 million (2006:(2007: £0.2 million; 2006: £0.3 million; 2005: £0.4 million) for other non audit services.


F-21

7.  Personnel
 
Number of people employed – continuing operations
 
                                   
 At December 31, Average during the year At December 31, Average during the year 
 2007 2006 2007 2006 2005 2008 2007 2008 2007 2006 
Business segment
                                   
Elsevier  7,100  7,200  7,200  7,300  7,100  7,200   7,100   7,200   7,200   7,300 
LexisNexis  13,300  13,800  13,400  13,700  13,200  15,900   13,300   13,800   13,400   13,700 
Reed Business  10,800  10,300  10,700  10,300  10,200
Reed Exhibitions  2,700   2,700   2,700   2,600   2,400 
Reed Business Information  8,200   8,100   8,300   8,100   7,900 
                     
Sub-total  31,200  31,300  31,300  31,300  30,500  34,000   31,200   32,000   31,300   31,300 
Corporate/shared functions  300  200  300  200  200  800   300   800   300   200 
                     
Total  31,500  31,500  31,600  31,500  30,700  34,800   31,500   32,800   31,600   31,500 
           
           
Geographical location
                                   
North America  15,500  15,700  15,600  15,600  15,700  18,800   15,500   16,600   15,600   15,600 
United Kingdom  5,300  5,400  5,400  5,300  5,200  5,300   5,300   5,400   5,400   5,300 
The Netherlands  2,400  2,400  2,400  2,500  2,500  2,300   2,400   2,400   2,400   2,500 
Rest of Europe  4,600  4,600  4,600  4,600  4,300  4,700   4,600   4,700   4,600   4,600 
Rest of world  3,700  3,400  3,600  3,500  3,000  3,700   3,700   3,700   3,600   3,500 
                     
Total  31,500  31,500  31,600  31,500  30,700  34,800   31,500   32,800   31,600   31,500 
                     
 
The number of people employed by the discontinued operations at December 31, 20072008 was 1,300 (2006: 5,300)nil (2007: 1,300). The average number of people employed by discontinued operations during the year was 4,300 (2006: 5,300; 2005: 5,400)100 (2007: 4,300; 2006: 5,300).
 
8.  Pension schemes
8.  Pension schemes
 
A number of pension schemes are operated around the world. The major schemes are of the defined benefit type with assets held in separate trustee administered funds. The largest schemes, which cover the majority of employees, are in the UK, the US and the Netherlands. Under these plans, employees are entitled to retirement benefits dependent on the number of years service provided.
 
The principal assumptions for the purpose of valuation under IAS19 — Employee Benefits are presented below as the weighted average of the various defined benefit pension schemes:schemes. The defined benefit pension expense for each year is based on the assumptions and scheme valuations set at December 31 of the prior year.
 
            
          At December 31, 
 2007 2006 2005 2008 2007 2006 
Discount rate  5.9%  5.3%  4.9%  6.2%   5.9%   5.3% 
Expected rate of return on scheme assets  7.1%  7.0%  7.0%  7.1%   7.1%   7.0% 
Expected rate of salary increases  4.4%  4.2%  4.0%  3.7%   4.4%   4.2% 
Inflation  3.1%  2.9%  2.7%  2.7%   3.1%   2.9% 
Future pension increases  3.2%  2.9%  2.8%  2.8%   3.2%   2.9% 


F-24

8.  Pension schemes – (continued)
 
The expected rates of return on individual categories of scheme assets are determined by reference to relevant market indices.indices and market expectations of real rates of return. The overall expected rate of return on scheme assets is based on the weighted average of each asset category.
 
Mortality assumptions used in assessing defined benefit obligations make allowance for future improvements in longevity and have been determined by reference to applicable mortality statistics and expectations for each scheme. The average life expectancies assumed in the valuation of the defined benefit obligations are set out below:
 
                                          
 2007 2006 2005 2008 2007 2006 
Average life expectancy
 Male
 Female
 Male
 Female
 Male
 Female
 Male
 Female
 Male
 Female
 Male
 Female
 
(at December 31)
 (years) (years) (years) (years) (years) (years) (years) (years) (years) (years) (years) (years) 
Member currently aged 60  86  87  86  87  83  86  86   87   86   87   86   87 
Member currently aged 45  86  87  86  87  83  86  86   87   86   87   86   87 


F-22

8.  Pension schemes – (continued)
 
The defined benefit pension expense recognised within the income statement comprises:
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Service cost (including curtailment credits of £19 million (2006: £11 million; 2005: nil))  78   94   91 
Service cost (including curtailment credits of nil (2007:
£19 million; 2006: £11 million))		  75   78   94 
Interest on pension scheme liabilities  157   144   137   180   157   144 
Expected return on scheme assets  (196)  (178)  (149)  (219)  (196)  (178)
              
Net defined benefit pension expense  39   60   79   36   39   60 
              
 
The service cost includes nil (2007: £8 million (2006:million; 2006: £12 million; 2005: £11 million) in respect of discontinued operations. A total of £23 million (2007: £21 million (2006:million; 2006: £20 million; 2005: £21 million) was recognised as an expense in relation to defined contribution pension schemes, including £3 million (2006:nil (2007: £3 million; 2005: £42006: £3 million) in respect of discontinued operations. Included in gains on disposals of discontinued operations are £3 million (2007: £11 million (2006: nil; 2005:million; 2006: nil) of pension curtailment credits.
 
The amount recognised in the balance sheet in respect of defined benefit pension schemes at the start and end of the year and the movements during the year were as follows:
 
                                                                        
 2007 2006 2005  2008 2007 2006 
 Defined
 Fair value
 Net
 Defined
 Fair value
 Net
 Defined
 Fair value
 Net
  Defined
 Fair value
 Net
 Defined
 Fair value
 Net
 Defined
 Fair value
 Net
 
 benefit
 of scheme
 pension
 benefit
 of scheme
 pension
 benefit
 of scheme
 pension
  benefit
 of scheme
 pension
 benefit
 of scheme
 pension
 benefit
 of scheme
 pension
 
 obligations
 assets
 obligations
 obligations
 assets
 obligations
 obligations
 assets
 obligations
  obligations
 assets
 obligations
 obligations
 assets
 obligations
 obligations
 assets
 obligations
 
 £m £m £m £m £m £m £m £m £m  £m £m £m £m £m £m £m £m £m 
At start of year  (3,008)  2,772   (236)  (2,980)  2,575   (405)  (2,525)  2,204   (321)  (2,968)  3,018   50   (3,008)  2,772   (236)  (2,980)  2,575   (405)
Service cost  (78)  —   (78)  (94)  —   (94)  (91)  —   (91)  (75)  —   (75)  (78)  —   (78)  (94)  —   (94)
Interest on pension scheme liabilities  (157)  —   (157)  (144)  —   (144)  (137)  —   (137)  (180)  —   (180)  (157)  —   (157)  (144)  —   (144)
Expected return on scheme assets  —   196   196   —   178   178   —   149   149   —   219   219   —   196   196   —   178   178 
Actuarial gain/(loss)  190   34   224   40   99   139   (267)  230   (37)  418   (765)  (347)  190   34   224   40   99   139 
Contributions by employer  —   83   83   —   61   61   —   47   47   —   79   79   —   83   83   —   61   61 
Contributions by employees  (13)  13   —   (13)  13   —   (13)  13   —   (13)  13   —   (13)  13   —   (13)  13   — 
Benefits paid  114   (110)  4   106   (102)  4   94   (94)  —   119   (119)  —   114   (110)  4   106   (102)  4 
Acquisitions  (9)  —   (9)  —   —   —   —   —   — 
Curtailment on disposal of operations  11   —   11   —   —   —   —   —   —   3   —   3   11   —   11   —   —   — 
Exchange translation differences  (27)  30   3   77   (52)  25   (41)  26   (15)  (346)  237   (109)  (27)  30   3   77   (52)  25 
                                      
At end of year  (2,968)  3,018   50   (3,008)  2,772   (236)  (2,980)  2,575   (405)  (3,051)  2,682   (369)  (2,968)  3,018   50   (3,008)  2,772   (236)
                                      
 
The net pension surplusobligation of £50£369 million at December 31, 20072008 comprise schemes in deficit with net pension obligations of £521 million (2007: £133 million; 2006: £256 million) and schemes in surplus with net pension assets of £152 million (2007: £183 million (2006:million; 2006: £20 million; 2005: nil) and schemes in deficit with net pension obligations of £133 million (2006: £256 million; 2005: £405 million).
 
As at December 31, 20072008 the defined benefit obligations comprise £2,923 million (2007: £2,877 million (2006:million; 2006: £2,921 million; 2005: £2,890 million) in relation to funded schemes and £128 million (2007: £91 million (2006:million; 2006: £87 million; 2005: £90 million) in relation to unfunded schemes. The weighted average duration of defined benefit scheme liabilities is 19 years (2006:(2007: 19 years; 2005:2006: 19 years).


F-25

8.  Pension schemes – (continued)
Deferred tax liabilities of £44 million (2007: £51 million (2006:million; 2006: £6 million; 2005: nil)million) and deferred tax assets of £190 million (2007: £52 million (2006:million; 2006: £92 million; 2005: £133 million) are recognised in respect of the pension scheme surpluses and deficits respectively.


F-23

8.  Pension schemes – (continued)
 
The fair value of scheme assets held as equities, bonds and other assets, and their expected rates of return as at December 31, is shown below:
 
                                                               
 2007 2006 2005 2008 2007 2006 
 Expected
     Expected
     Expected
     Expected
     Expected
     Expected
     
 rate of
   Proportion
 rate of
   Proportion
 rate of
   Proportion
 rate of
   Proportion
 rate of
   Proportion
 rate of
   Proportion
 
 return on
 Fair value
 of total
 return on
 Fair value
 of total
 return on
 Fair value
 of total
 return on
 Fair value
 of total
 return on
 Fair value
 of total
 return on
 Fair value
 of total
 
 scheme
 of scheme
 scheme
 scheme
 of scheme
 scheme
 scheme
 of scheme
 scheme
 scheme
 of scheme
 scheme
 scheme
 of scheme
 scheme
 scheme
 of scheme
 scheme
 
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 assets
 
 % £m % % £m % % £m % % £m % % £m % % £m % 
Equities  8.3  1,904  63  8.0  1,857  67%  8.1  1,708  66  8.9   1,408   52   8.3   1,904   63   8.0   1,857   67% 
Bonds  4.6  970  32  4.4  777  28%  4.3  757  30  4.3   1,167   44   4.6   970   32   4.4   777   28% 
Other  5.3  144  5  5.0  138  5%  5.7  110  4  5.5   107   4   5.3   144   5   5.0   138   5% 
                                     
Total  7.1  3,018  100  7.0  2,772  100%  7.0  2,575  100  7.1   2,682   100   7.1   3,018   100   7.0   2,772   100% 
                                     
 
The actual return on scheme assets for the year ended December 31, 20072008 was a £546 million loss (2007: £230 million (2006:gain; 2006: £277 million; 2005: £379 million)million gain).
 
A summary of pension balances for the fourfive years ended December 31, 20072008 is set out below.
 
                                    
 2007
 2006
 2005
 2004
  2008
 2007
 2006
 2005
 2004
 
 £m £m £m £m  £m £m £m £m £m 
Fair value of scheme assets  3,018   2,772   2,575   2,204   2,682   3,018   2,772   2,575   2,204 
Defined benefit obligations  (2,968)  (3,008)  (2,980)  (2,525)  (3,051)  (2,968)  (3,008)  (2,980)  (2,525)
                    
Net pension surplus/(obligations)  50   (236)  (405)  (321)
Net pension (obligations)/surplus  (369)  50   (236)  (405)  (321)
                    
 
Gains and losses arising on the revaluation of pension scheme assets and liabilities that have been recognised in the statement of recognised income and expense are set out below:
 
                                    
 2007
 2006
 2005
 2004
  2008
 2007
 2006
 2005
 2004
 
 £m £m £m £m  £m £m £m £m £m 
Gains and losses arising during the year:                                    
Experience losses on scheme liabilities  (28)  (30)  (25)  (18)  (9)  (28)  (30)  (25)  (18)
Experience gains on scheme assets  34   99   230   66 
Experience (losses)/gains on scheme assets  (765)  34   99   230   66 
Actuarial gains/(losses) arising on the present value of scheme liabilities due to changes in:                                    
— discount rates  367   198   (217)  (113)  202   367   198   (217)  (113)
— inflation  (152)  (77)  —   —   198   (152)  (77)  —   — 
— life expectancy and other actuarial assumptions  3   (51)  (25)  (9)  27   3   (51)  (25)  (9)
                    
  224   139   (37)  (74)  (347)  224   139   (37)  (74)
Net cumulative gains/(losses) at start of year  28   (111)  (74)  —   252   28   (111)  (74)  — 
                    
Net cumulative gains/(losses) at end of year  252   28   (111)  (74)
Net cumulative (losses)/gains at end of year  (95)  252   28   (111)  (74)
                    
 
Regular contributions to defined benefit pension schemes in 20082009 are expected to be approximately £61£91 million.
 
Sensitivity analysis
 
Valuation of Reed Elsevier’s pension scheme liabilities involves judgment about uncertain events, including the life expectancy of the members, salary and pension increases, inflation and the rate at which the future pension payments are discounted. Estimates are used for each of these factors. Differences arising from actual experience or future changes in assumptions may materially affect future pension charges. In particular, changes in assumptions for discount rates, inflation and


F-24F-26

8.  Pension schemes – (continued)
8.  Pension schemes – (continued)
 
life expectancies would have the following approximate effects on the annual net pension expense and the defined benefit pension obligations:
 
    
  £m
 
Increase/decrease of 0.25% in discount rate:   
Decrease/increase in annual net pension expense  6
Decrease/increase in defined benefit pension obligations  133132
    
Increase/decrease of one year in assumed life expectancy:   
Increase/decrease in annual net pension expense  76
Increase/decrease in defined benefit pension obligations  9690
    
Increase/decrease of 0.25% in the expected inflation rate:   
Increase/decrease in annual net pension expense  65
Increase/decrease in defined benefit pension obligations  106121
    
 
Additionally, the annual net pension expense includes an expected return on scheme assets. A 5% increase/decrease in the market value of equity investments held by the defined benefit pension schemes would, absent any change in their expected long term rate of return, increase/decrease the amount of the expected return on scheme assets by £8£6 million and would increase/decrease the amount of the net pension surplus by £95£70 million.
9.  Share based remuneration
9.  Share based remuneration
 
Reed Elsevier provides a number of share based remuneration schemes to directors and employees. The principal share based remuneration schemes are the Executive Share Option Schemes (ESOS), the Long Term Incentive Plan (LTIP), the Retention Share Plan (RSP) and the Bonus Investment Plan (BIP). Share options granted under ESOS and LTIP are exercisable after three years and up to ten years from the date of grant at a price equivalent to the market value of the respective shares at the date of grant. Conditional shares granted under ESOS, LTIP, RSP and BIP are exercisable after three years for nil consideration if conditions are met. Other awards principally relate to all-employeeall employee share based saving schemes in the UK and the Netherlands.
 
Share based remuneration awards are, other than in exceptional circumstances, subject to the condition that the employee remains in employment at the time of exercise. Share options and conditional shares granted under LTIP, RSP and BIP are subject to the achievement of growth targets of Reed Elsevier PLC and Reed Elsevier NV adjusted earnings per share measured at constant exchange rates. LTIP grants made in 2006, 2007 and 20072008 are also variable subject to the achievement of an additional total shareholder return performance target. The numbers of share options and conditional shares included in the tables below are calculated on the basis that 100% of the awards will vest.
 
The estimated fair value of grants made in the three years ended December 31, 20072008 are set out below. The fair values of grants are recognised in the income statement over the vesting period, typically three years.


F-25F-27

9.  Share based remuneration – (continued)
2008 grants
                             
  In respect of Reed Elsevier PLC
  In respect of Reed Elsevier NV
  Total
 
  ordinary shares  ordinary shares  fair value 
     Weighted
        Weighted
       
     average
        average
       
  Number
  fair value
  Fair
  Number
  fair value
  Fair
    
  of shares
  per award
  value
  of shares
  per award
  value
    
  ’000  £  £m  ’000  £  £m  £m 
 
Share options                            
ESOS  4,397   1.14   5   2,891   1.57   4   9 
Other  656   1.73   1   694   0.97   1   2 
                             
Total share options  5,053   1.22   6   3,585   1.45   5   11 
                             
Conditional shares                            
ESOS  717   5.79   4   469   8.85   4   8 
LTIP  1,524   6.98   11   1,006   10.85   11   22 
RSP  19   5.79   —   13   8.89   —   — 
BIP  720   6.17   4   319   9.10   3   7 
                             
Total conditional shares  2,980   6.49   19   1,807   10.01   18   37 
                             
Total          25           23   48 
                             
 
2007 grants
 
                             
  In respect of Reed Elsevier PLC
  In respect of Reed Elsevier NV
  Total
 
  ordinary shares  ordinary shares  fair value 
     Weighted
        Weighted
       
     average
        average
       
  Number
  fair value
  Fair
  Number
  fair value
  Fair
    
  of shares
  per award
  value
  of shares
  per award
  value
    
  ’000  £  £m  ’000  £  £m  £m 
 
Share options                            
ESOS  4,246   1.30   5   2,802   1.66   5   10 
Other  1,058   1.78   2   423   0.99   —   2 
                             
Total share options  5,304   1.40   7   3,225   1.57   5   12 
                             
Conditional shares                            
ESOS  775   5.94   5   510   8.96   5   10 
LTIP  1,584   7.14   11   1,047   10.92   11   22 
RSP  78   5.50   —   53   7.78   —   — 
BIP  662   5.67   4   308   8.20   3   7 
                             
Total conditional shares  3,099   6.48   20   1,918   9.88   19   39 
                             
Total          27           24   51 
                             


F-28

9.  Share based remuneration – (continued)
 
2006 grants
 
                      
  In respect of Reed Elsevier PLC
 In respect of Reed Elsevier NV
 Total
  ordinary shares ordinary shares fair value
    Weighted
     Weighted
    
    average
     average
    
  Number
 fair value
 Fair
 Number
 fair value
 Fair
  
  of shares
 per award
 value
 of shares
 per award
 value
  
  ’000 £ £m ’000 £ £m £m
 
Share options                     
ESOS  4,731  1.00  4  3,169  1.27  4  8
LTIP  3  1.00  —  2  1.30  —  —
Other  1,168  1.48  2  243  1.48  —  2
                      
Total share options  5,902  1.09  6  3,414  1.29  4  10
                      
Conditional shares                     
ESOS  1,202  4.92  6  806  7.15  6  12
LTIP  2,003  5.43  11  1,318  8.14  11  22
BIP  683  5.07  4  280  7.29  2  6
                      
Total conditional shares  3,888  5.21  21  2,404  7.71  19  40
                      
Total        27        23  50
                      


F-26

9.  Share based remuneration – (continued)
2005 grants
                                                 
 In respect of Reed Elsevier PLC
 In respect of Reed Elsevier NV
 Total
 In respect of Reed Elsevier PLC
 In respect of Reed Elsevier NV
 Total
 
 ordinary shares ordinary shares fair value ordinary shares ordinary shares fair value 
   Weighted
     Weighted
       Weighted
     Weighted
     
   average
     average
       average
     average
     
 Number
 fair value
 Fair
 Number
 fair value
 Fair
   Number
 fair value
 Fair
 Number
 fair value
 Fair
   
 of shares
 per award
 value
 of shares
 per award
 value
   of shares
 per award
 value
 of shares
 per award
 value
   
 ’000 £ £m ’000 £ £m £m ’000 £ £m ’000 £ £m £m 
Share options                                                 
ESOS  10,346  1.03  11  7,049  1.30  9  20  4,731   1.00   4   3,169   1.27   4   8 
LTIP  234  0.99  —  159  1.28  —  —  3   1.00   —   2   1.30   —   — 
Other  940  1.54  1  263  1.38  1  2  1,168   1.48   2   243   1.48   —   2 
                             
Total share options  11,520  1.05  12  7,471  1.31  10  22  5,902   1.09   6   3,414   1.29   4   10 
                             
Conditional shares                                                 
LTIP  107  4.63  —  74  6.68  —  —  1,202   4.92   6   806   7.15   6   12 
RSP  152  4.69  1  103  6.97  1  2  2,003   5.43   11   1,318   8.14   11   22 
BIP  692  4.95  4  229  7.18  2  6  683   5.07   4   280   7.29   2   6 
                             
Total conditional shares  951  4.87  5  406  7.04  3  8  3,888   5.21   21   2,404   7.71   19   40 
                             
Total        17        13  30          27           23   50 
             
 
The main assumptions used to determine the fair values are set out below.
 
Assumptions for grants made during the year
 
                        
 In respect of Reed Elsevier PLC
 In respect of Reed Elsevier NV
 In respect of Reed Elsevier PLC
 In respect of Reed Elsevier NV
 ordinary shares ordinary shares ordinary shares ordinary shares
 2007 2006 2005 2007 2006 2005 2008 2007 2006 2008 2007 2006
Weighted average share price at date of grant                        
ESOS £6.42 £5.32 £5.33 €14.41 €11.51 €11.31 £6.26 £6.42 £5.32 €12.16 €14.41 €11.51
LTIP £6.43 £5.36 £5.12 €14.45 €11.81 €11.01 £6.27 £6.43 £5.36 €12.19 €14.45 €11.81
RSP £6.39 — £4.94 €14.31 — €10.71 £6.28 £6.39 — €12.21 €14.31 —
BIP £6.15 £5.48 £5.37 €13.37 €11.74 €11.35 £6.68 £6.15 £5.48 €12.51 €13.37 €11.74
Other £6.01 £5.30 £5.30 €13.44 €12.05 €11.19 £6.30 £6.01 £5.30 €11.55 €13.44 €12.05
Expected share price volatility 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22% 22%
Expected option life 4 years 4 years 4 years 4 years 4 years 4 years 4 years 4 years 4 years 4 years 4 years 4 years
Expected dividend yield 2.7% 2.6% 2.6% 3.2% 3.1% 2.6% 2.7% 2.7% 2.6% 3.2% 3.2% 3.1%
Risk free interest rate 5.6% 4.6% 5.1% 4.2% 3.5% 3.4% 4.4% 5.6% 4.6% 3.6% 4.2% 3.5%
Expected lapse rate 3-5% 3-5% 3-5% 3-5% 3-5% 3-5% 3-5% 3-5% 3-5% 3-4% 3-5% 3-5%
 
Expected share price volatility has been estimated based on relevant historic data in respect of the Reed Elsevier PLC and Reed Elsevier NV ordinary share prices. Expected share option life has been estimated based on historical exercise patterns in respect of Reed Elsevier PLC and Reed Elsevier NV share options.


F-27

9.  Share based remuneration – (continued)
 
The share based remuneration awards outstanding as at December 31, 20072008 in respect of both Reed Elsevier PLC and Reed Elsevier NV ordinary shares, are set out below.
 
                             
  In respect of Reed Elsevier PLC ordinary shares
  ESOS LTIP Other Total
     Weighted
    Weighted
    Weighted
    Weighted
     average
    average
    average
    average
  Number
  exercise
 Number
  exercise
 Number
  exercise
 Number
  exercise
  of shares
  price
 of shares
  price
 of shares
  price
 of shares
  price
  ’000  (pence) ’000  (pence) ’000  (pence) ’000  (pence)
 
Share options
                            
Outstanding at January 1, 2005  54,641   508  5,138   487  3,876   408  63,655   500
Granted  10,346   533  234   516  940   424  11,520   524
Exercised  (3,027)  441  —   —  (602)  348  (3,629)  426
Forfeited  (4,146)  532  (91)  487  (678)  442  (4,915)  519
Expired  (74)  443  —   —  (18)  423  (92)  439
                             
Outstanding at January 1, 2006  57,740   514  5,281   488  3,518   416  66,539   507
Granted  4,731   532  3   535  1,168   424  5,902   510
Exercised  (9,691)  461  —   —  (792)  411  (10,483)  457
Forfeited  (4,088)  543  (267)  487  (299)  413  (4,654)  532
Expired  (500)  584  —   —  (222)  507  (722)  561
                             
Outstanding at January 1, 2007  48,192   523  5,017   488  3,373   414  56,582   513
Granted  4,246   642  —   —  1,058   480  5,304   610
Exercised  (16,724)  497  (2,145)  487  (771)  411  (19,640)  493
Forfeited  (1,105)  564  —   —  (476)  431  (1,581)  524
Expired  (542)  571  —   —  (74)  415  (616)  552
                             
Outstanding at December 31, 2007  34,067   547  2,872   489  3,110   434  40,049   534
                             
Exercisable at December 31, 2005  22,471   552  65   487  211   506  22,747   552
Exercisable at December 31, 2006  22,121   537  105   487  91   425  22,317   537
Exercisable at December 31, 2007  19,704   536  2,872   489  50   425  22,626   530
                             
                             
  In respect of Reed Elsevier NV ordinary shares
  ESOS LTIP Other Total
     Weighted
    Weighted
    Weighted
    Weighted
     average
    average
    average
    average
  Number
  exercise
 Number
  exercise
 Number
  exercise
 Number
  exercise
  of shares
  price
 of shares
  price
 of shares
  price
 of shares
  price
  ’000  (€) ’000  (€) ’000  (€) ’000  (€)
 
Share options
                            
Outstanding at January 1, 2005  36,770   11.33  3,529   10.55  1,804   12.07  42,103   11.30
Granted  7,049   11.31  159   11.21  263   11.19  7,471   11.30
Exercised  (1,817)  10.29  —   —  (75)  12.26  (1,892)  10.37
Forfeited  (2,750)  11.88  (62)  10.57  —   —  (2,812)  11.85
Expired  —   —  —   —  (111)  10.16  (111)  10.16
                             
Outstanding at January 1, 2006  39,252   11.33  3,626   10.58  1,881   12.05  44,759   11.30
Granted  3,169   11.51  2   11.76  243   12.05  3,414   11.55
Exercised  (6,666)  9.98  —   —  (243)  10.76  (6,909)  10.01
Forfeited  (2,799)  12.13  (183)  10.57  (35)  12.83  (3,017)  12.04
                             
Outstanding at January 1, 2007  32,956   11.55  3,445   10.58  1,846   12.21  38,247   11.50
Granted  2,802   14.41  —   —  423   13,44  3,225   14.28
Exercised  (10,737)  10.73  (1,527)  10.57  (202)  11.50  (12,466)  10.73
Forfeited  (738)  12.29  —   —  (23)  13.89  (761)  12.34
Expired  (390)  13.28  —   —  —   —  (390)  13.28
                             
Outstanding at December 31, 2007  23,893   12.16  1,918   10.60  2,044   12.54  27,855   12.08
                             
Exercisable at December 31, 2005  14,631   12.91  45   10.57  1,881   12.05  16,557   12.81
Exercisable at December 31, 2006  15,055   12.24  72   10.57  1,846   12.21  16.973   12.23
Exercisable at December 31, 2007  14,266   12.16  1,918   10.60  2,044   12.54  18,228   12.04
                             


F-28F-29

9.  Share based remuneration – (continued)
9.  Share based remuneration – (continued)
 
                                                    
 Number of Reed Elsevier PLC ordinary shares (’000)  In respect of Reed Elsevier PLC ordinary shares 
 ESOS LTIP RSP BIP Total  ESOS LTIP Other Total 
   Weighted
   Weighted
   Weighted
   Weighted
 
Conditional shares
                    
Outstanding at January 1, 2005  —   2,346   2,285   710   5,341 
Granted  —   107   152   692   951 
Exercised  —   —   (46)  (5)  (51)
Forfeited  —   (40)  (259)  (18)  (317)
              average
   average
   average
   average
 
 Number
 exercise
 Number
 exercise
 Number
 exercise
 Number
 exercise
 
 of shares
 price
 of shares
 price
 of shares
 price
 of shares
 price
 
 ’000 (pence) ’000 (pence) ’000 (pence) ’000 (pence) 
Share options
                                
Outstanding at January 1, 2006  —   2,413   2,132   1,379   5,924   57,740   514   5,281   488   3,518   416   66,539   507 
Granted  1,202   2,003   —   683   3,888   4,731   532   3   535   1,168   424   5,902   510 
Exercised  (4)  —   (54)  (221)  (279)  (9,691)  461   —   —   (792)  411   (10,483)  457 
Forfeited  (49)  (172)  (246)  (108)  (575)  (4,088)  543   (267)  487   (299)  413   (4,654)  532 
Expired  (500)  584   —   —   (222)  507   (722)  561 
                            
Outstanding at January 1, 2007  1,149   4,244   1,832   1,733   8,958   48,192   523   5,017   488   3,373   414   56,582   513 
Granted  775   1,584   78   662   3,099   4,246   642   —   —   1,058   480   5,304   610 
Exercised  (112)  (2,226)  (1,698)  (457)  (4,493)  (16,724)  497   (2,145)  487   (771)  411   (19,640)  493 
Forfeited  (156)  (170)  (67)  (95)  (488)  (1,105)  564   —   —   (476)  431   (1,581)  524 
Expired  (542)  571   —   —   (74)  415   (616)  552 
                            
Outstanding at December 31, 2007  1,656   3,432   145   1,843   7,076 
Outstanding at January 1, 2008  34,067   547   2,872   489   3,110   434   40,049   534 
Granted  4,397   626   —   —   656   504   5,053   610 
Exercised  (6,134)  517   (547)  487   (659)  411   (7,340)  505 
Forfeited  (846)  607   —   —   (441)  459   (1,287)  556 
Expired  (1,312)  570   —   —   (35)  407   (1,347)  561 
                            
Outstanding at December 31, 2008  30,172   562   2,325   489   2,631   454   35,128   549 
                 
Exercisable at December 31, 2006  22,121   537   105   487   91   425   22,317   537 
Exercisable at December 31, 2007  19,704   536   2,872   489   50   425   22,626   530 
Exercisable at December 31, 2008  19,692   540   2,325   489   69   420   22,086   534 
                 
 
                                                    
 Number of Reed Elsevier NV ordinary shares (’000)  In respect of Reed Elsevier NV ordinary shares 
 ESOS LTIP RSP BIP Total  ESOS LTIP Other Total 
   Weighted
   Weighted
   Weighted
   Weighted
 
Conditional shares
                    
Outstanding at January 1, 2005  —   1,611   1,568   304   3,483 
Granted  —   74   103   229   406 
Exercised  —   —   (32)  —   (32)
Forfeited  —   (28)  (176)  (18)  (222)
              average
   average
   average
   average
 
 Number
 exercise
 Number
 exercise
 Number
 exercise
 Number
 exercise
 
 of shares
 price
 of shares
 price
 of shares
 price
 of shares
 price
 
 ’000 (€) ’000 (€) ’000 (€) ’000 (€) 
Share options
                                
Outstanding at January 1, 2006  —   1,657   1,463   515   3,635   39,252   11.33   3,626   10.58   1,881   12.05   44,759   11.30 
Granted  806   1,318   —   280   2,404   3,169   11.51   2   11.76   243   12.05   3,414   11.55 
Exercised  (3)  —   (36)  (101)  (140)  (6,666)  9.98   —   —   (243)  10.76   (6,909)  10.01 
Forfeited  (33)  (117)  (149)  (45)  (344)  (2,799)  12.13   (183)  10.57   (35)  12.83   (3,017)  12.04 
                            
Outstanding at January 1, 2007  770   2,858   1,278   649   5,555   32,956   11.55   3,445   10.58   1,846   12.21   38,247   11.50 
Granted  510   1,047   53   308   1,918   2,802   14.41   —   —   423   13,44   3,225   14.28 
Exercised  (71)  (1,523)  (1,165)  (199)  (2,958)  (10,737)  10.73   (1,527)  10.57   (202)  11.50   (12,466)  10.73 
Forfeited  (151)  (151)  (68)  (34)  (404)  (738)  12.29   —   —   (23)  13.89   (761)  12.34 
Expired  (390)  13.28   —   —   —   —   (390)  13.28 
                            
Outstanding at December 31, 2007  1,058   2,231   98   724   4,111 
Outstanding at January 1, 2008  23,893   12.16   1,918   10.60   2,044   12.54   27,855   12.08 
Granted  2,891   12.16   —   —   694   11.55   3,585   12.04 
Exercised  (2,579)  10.78   (109)  10.57   (5)  10.85   (2,693)  10.77 
Forfeited  (560)  13.04   —   —   (376)  12.94   (936)  13.00 
Expired  (1,834)  13.43   —   —   —   —   (1,834)  13.43 
                            
Outstanding at December 31, 2008  21,811   12.23   1,809   10.60   2,357   12.19   25,977   12.11 
                 
Exercisable at December 31, 2006  15,055   12.24   72   10.57   1,846   12.21   16,973   12.23 
Exercisable at December 31, 2007  14,266   12.16   1,918   10.60   2,044   12.54   18,228   12.04 
Exercisable at December 31, 2008  14,875   12.04   1,809   10.60   2,357   12.19   19,041   11.92 
                 

F-30

9.  Share based remuneration – (continued)
                     
  Number of Reed Elsevier PLC ordinary shares (’000) 
  ESOS  LTIP  RSP  BIP  Total 
 
Conditional shares
                    
Outstanding at January 1, 2006  —   2,413   2,132   1,379   5,924 
Granted  1,202   2,003   —   683   3,888 
Exercised  (4)  —   (54)  (221)  (279)
Forfeited  (49)  (172)  (246)  (108)  (575)
                     
Outstanding at January 1, 2007  1,149   4,244   1,832   1,733   8,958 
Granted  775   1,584   78   662   3,099 
Exercised  (112)  (2,226)  (1,698)  (457)  (4,493)
Forfeited  (156)  (170)  (67)  (95)  (488)
                     
Outstanding at January 1, 2008  1,656   3,432   145   1,843   7,076 
Granted  717   1,524   19   720   2,980 
Exercised  (85)  —   (101)  (561)  (747)
Forfeited  (237)  (440)  (28)  (101)  (806)
                     
Outstanding at December 31, 2008  2,051   4,516   35   1,901   8,503 
                     
                     
  Number of Reed Elsevier NV ordinary shares (’000) 
  ESOS  LTIP  RSP  BIP  Total 
 
Conditional shares
                    
Outstanding at January 1, 2006  —   1,657   1,463   515   3,635 
Granted  806   1,318   —   280   2,404 
Exercised  (3)  —   (36)  (101)  (140)
Forfeited  (33)  (117)  (149)  (45)  (344)
                     
Outstanding at January 1, 2007  770   2,858   1,278   649   5,555 
Granted  510   1,047   53   308   1,918 
Exercised  (71)  (1,523)  (1,165)  (199)  (2,958)
Forfeited  (151)  (151)  (68)  (34)  (404)
                     
Outstanding at January 1, 2008  1,058   2,231   98   724   4,111 
Granted  469   1,006   13   319   1,807 
Exercised  (57)  —   (63)  (176)  (296)
Forfeited  (112)  (259)  (24)  (29)  (424)
                     
Outstanding at December 31, 2008  1,358   2,978   24   838   5,198 
                     
 
The weighted average share price at the date of exercise of share options and conditional shares during 20072008 was 621p (2006: 564p; 2005: 533p)632p (2007: 621p; 2006: 564p) for Reed Elsevier PLC ordinary shares and €13.76 (2006: €12.34; 2005: €11.31)€12.22 (2007: €13.76; 2006: €12.34) for Reed Elsevier NV ordinary shares.

F-29F-31

9.  Share based remuneration – (continued)
9.  Share based remuneration – (continued)
 
Range of exercise prices for outstanding share options
 
                  
 2007 2006 2005                        
   Weighted
   Weighted
   Weighted
 2008 2007 2006 
   average
   average
   average
   Weighted
   Weighted
   Weighted
 
 Number of
 remaining
 Number of
 remaining
 Number of
 remaining
 Number of
 average
 Number of
 average
 Number of
 average
 
 share
 contractual
 share
 contractual
 share
 contractual
 share
 remaining
 share
 remaining
 share
 remaining
 
 options
 period till
 options
 period till
 options
 period till
 options
 period till
 options
 period till
 options
 period till
 
 outstanding
 expiry
 outstanding
 expiry
 outstanding
 expiry
 outstanding
 expiry
 outstanding
 expiry
 outstanding
 expiry
 
 ’000 (years) ’000 (years) ’000 (years) ’000 (years) ’000 (years) ’000 (years) 
Reed Elsevier PLC ordinary shares (pence)
Reed Elsevier PLC ordinary shares (pence)
            
Reed Elsevier PLC ordinary shares (pence)
                
301-350  —  —  —  —  38  0.1
351-400  668  1.6  1,345  1.4  2,161  2.3  252   1.2   668   1.6   1,345   1.4 
401-450  2,652  2.4  4,733  3.0  6,110  4.0  1,927   1.5   2,652   2.4   4,733   3.0 
451-500  12,356  4.8  23,953  5.5  31,858  6.6  9,111   4.6   12,356   4.8   23,953   5.5 
501-550  12,716  7.1  15,462  7.8  12,981  8.1  9,834   6.1   12,716   7.1   15,462   7.8 
551-600  4,331  4.3  6,639  4.7  8,283  5.2  3,856   3.4   4,331   4.3   6,639   4.7 
601-650  4,280  8.8  852  2.8  1,019  3.6  7,452   8.5   4,280   8.8   852   2.8 
651-700  3,046  3.2  3,598  4.1  4,089  5.1  2,696   2.2   3,046   3.2   3,598   4.1 
                         
Total  40,049  4.8  56,582  5.6  66,539  6.2  35,128   5.3   40,049   4.8   56,582   5.6 
                         
Reed Elsevier NV ordinary shares (euro)
Reed Elsevier NV ordinary shares (euro)
            
Reed Elsevier NV ordinary shares (euro)
                
8.01-9.00  —  —  —  —  9  7.2
9.01-10.00  1,954  5.1  4,146  6.2  8,034  7.0  1,617   4.3   1,954   5.1   4,146   6.2 
10.01-11.00  6,791  5.8  14,595  5.1  17,919  5.9  5,771   4.8   6,791   5.8   14,595   5.1 
11.01-12.00  8,912  7.2  10,589  8.0  8,774  8.0  6,866   6.2   8,912   7.2   10,589   8.0 
12.01-13.00  402  5.3  307  5.6  356  3.3  3,362   8.7   402   5.3   307   5.6 
13.01-14.00  4,269  4.6  5,163  4.8  5,808  5.4  3,777   3.0   4,269   4.6   5,163   4.8 
14.01-15.00  5,041  6.5  2,896  4.2  3,223  4.7  4,382   4.9   5,041   6.5   2,896   4.2 
15.01-16.00  486  2.3  551  2.7  636  2.6  202   2.4   486   2.3   551   2.7 
                         
Total  27,855  6.0  38,247  5.9  44,759  6.3  25,977   5.4   27,855   6.0   38,247   5.9 
                         
 
Share options are expected, upon exercise, to be met principally by the issue of new ordinary shares but may also be met from shares held by the Reed Elsevier Group plc Employee Benefit Trust (EBT) (see note 32). Conditional shares will be met from shares held by the EBT.


F-30

10.  Net finance costs
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Interest on bank loans, overdrafts and commercial paper  (45)  (44)  (44)
Interest on short term bank loans, overdrafts and commercial paper  (62)  (45)  (44)
Interest on other loans  (130)  (128)  (105)  (137)  (130)  (128)
Interest on obligations under finance leases  (1)  (1)  (1)  —   (1)  (1)
              
Total borrowing costs  (176)  (173)  (150)  (199)  (176)  (173)
Acquisition related finance costs  (18)  —   — 
Fair value losses on designated fair value hedge relationships  (2)  —   —   —   (2)  — 
Losses on derivatives not designated as hedges  (2)  (3)  (20)  (8)  (2)  (3)
Fair value losses on interest rate derivatives formerly designated as cash flow hedges transferred from equity  (2)  (3)  (6)  —   (2)  (3)
              
Finance costs  (182)  (179)  (176)  (225)  (182)  (179)
              
Interest on bank deposits  34   14   10   31   34   14 
Gains on loans and derivatives not designated as hedges  9   7   26   2   9   7 
              
Finance income  43   21   36   33   43   21 
              
Net finance costs  (139)  (158)  (140)  (192)  (139)  (158)
              


F-32

10.  Net finance costs – (continued)
 
Finance costs include £6 million (2007: £1 million (2006:million; 2006: £6 million; 2005: £11 million) transferred from the hedge reserve. A net loss of £60 million (2007: £11 million (2006:loss; 2006: £1 million gain; 2005: £11 million gain) on interest rate derivatives designated as cash flow hedges was recognised directly in equity in the hedge reserve.
Acquisition related finance costs comprise underwriting and arrangement fees relating to the ChoicePoint acquisition incurred prior to completion.
 
11.  Disposals and other non operating items
11.  Disposals and other non operating items
 
             
  2007
  2006
  2005
 
  £m  £m  £m 
 
Revaluation of held for trading investments  (2)  1   3 
Gain/(loss) on disposal of businesses and other assets  65   (2)  (1)
             
Net gain/(loss) on disposals and other non operating items  63   (1)  2 
             
             
  2008
  2007
  2006
 
  £m  £m  £m 
 
Revaluation of held for trading investments  (6)  (2)  1 
(Loss)/gain on disposal and write down of businesses and other assets  (86)  65   (2)
             
Net (loss)/gain on disposals and other non operating items  (92)  63   (1)
             
 
The gainloss on disposal and write down of businesses and other assets in 2007 relates principally to2008 comprises gains on disposals of businesses and investments of £15 million, less costs of the disposalRBI divestment process terminated in December 2008 of MDL Information Systems by Elsevier. Proceeds£31 million, and a £70 million write down in the carrying value of the investment in Education Media and Publishing Group that arose on the sale of the Harcourt US K-12 Schools business in 2007. Net proceeds received in respect of disposals of businesses and other assets were £8 million (2007: £82 million (2006:million; 2006: £48 million; 2005: £21 million).
 
12.  Taxation
12.  Taxation
 
                       
 2007
 2006
 2005
 2008
 2007
 2006
 
 £m £m £m £m £m £m 
Current tax
                       
United Kingdom  59   52   82  40   59   52 
The Netherlands  40   50   48  49   40   50 
Rest of world  (111)  (26)  46  36   (111)  (26)
             
Total current tax (credit)/charge  (12)  76   176
Total current tax charge/(credit)  125   (12)  76 
Deferred tax
                       
Origination and reversal of temporary differences  (70)  10   43  30   (70)  10 
             
Total taxation (credit)/charge on profit from continuing operations  (82)  86   219
Total taxation charge/(credit) on profit from continuing operations  155   (82)  86 
             
 
The current tax (credit)/chargecredit in 2007 includes credits of £223 million (2006: nil; 2005: nil) in respect of previously unrecognised deferred tax assets and capital losses that have beenwere realised as a result of the disposal of discontinued operations, and nil (2006: £65 million; 2005: nil) in respect of prior year disposals.


F-31

12.  Taxation — (continued)operations.
 
A reconciliation of the notional tax charge based on average applicable rates of tax (weighted in proportion to accounting profits) to the actual total tax expense is set out below:
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Profit before tax from continuing operations  812   678   614   617   812   678 
              
Tax at average applicable rates  195   156   124   127   195   156 
Tax on share of results of joint ventures  (5)  (6)  (6)  (5)  (5)  (6)
Deferred tax on unrealised exchange differences on long term inter affiliate lending  (21)  (22)  44   —   (21)  (22)
Adjustments relating to prior year disposals  —   (65)  —   —   —   (65)
Offset of tax reliefs against capital gains and tax base differences on disposals  (251)  —   —   —   (251)  — 
Non deductible amounts and other items  —   23   57   33   —   23 
              
Tax (credit)/expense  (82)  86   219 
Tax expense/(credit)  155   (82)  86 
              
Tax (credit)/expense as a percentage of profit before tax  (10)%  13%  36%
Tax expense/(credit) as a percentage of profit before tax  25%  (10)%  13%
 
The following tax has been recognised directly in equity during the year.
 
             
  2007
  2006
  2005
 
  £m  £m  £m 
 
Tax on actuarial movements on defined benefit pension schemes  (65)  (45)  10 
Tax on fair value movements on cash flow hedges  (2)  (18)  (13)
Deferred tax credits on share based remuneration  17   3   — 
             
Net tax charge recognised directly in equity  (50)  (60)  (3)
             


F-33

12.  Taxation – (continued)
             
  2008
  2007
  2006
 
  £m  £m  £m 
 
Tax on actuarial movements on defined benefit pension schemes  116   (65)  (45)
Tax on fair value movements on cash flow hedges  59   (2)  (18)
Deferred tax (charge)/credits on share based remuneration  (19)  17   3 
             
Net tax credit/(charge) recognised directly in equity  156   (50)  (60)
             
 
During 2007,2008, a tax charge of £9£5 million was transferred to net profit from the hedge reserve (2006:(2007: £9 million; 2006: £3 million; 2005: nil)million).
 
13.  Cash flow statement
 
Reconciliation of profit before tax to cash generated from operations — continuing operations
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Profit before tax  812   678   614   617   812   678 
Disposals and other non operating items  (63)  1   (2)  92   (63)  1 
Net finance costs  139   158   140   192   139   158 
Share of results of joint ventures  (16)  (18)  (16)  (18)  (16)  (18)
              
Operating profit before joint ventures  872   819   736   883   872   819 
 
Amortisation of acquired intangible assets  219   211   203 
Amortisation of acquired intangible assets and goodwill impairment  287   219   211 
Amortisation of internally developed intangible assets  72   66   53   88   72   66 
Depreciation of property, plant and equipment  76   81   77   79   76   81 
Share based remuneration  38   44   48   46   38   44 
              
Total non cash items  405   402   381   500   405   402 
              
Increase in inventories and pre-publication costs  (11)  (1)  (20)
Decrease/(increase) in inventories and pre-publication costs  4   (11)  (1)
Increase in receivables  (35)  (44)  (97)  (106)  (35)  (44)
(Decrease)/increase in payables  (13)  37   81 
Increase/(decrease) in payables  171   (13)  37 
              
Increase in working capital  (59)  (8)  (36)
Decrease/(increase) in working capital  69   (59)  (8)
              
Cash generated from operations  1,218   1,213   1,081   1,452   1,218   1,213 
              


F-32

13.  Cash flow statement — (continued)
 
Cash flow on acquisitions — continuing operations
 
                
    2007
  2006
  2005
 
  Note £m  £m  £m 
 
Purchase of businesses  14  (293)  (149)  (290)
Investments in joint ventures     (24)  (1)  (15)
Deferred payments relating to prior year acquisitions     (10)  (13)  (9)
                
Total     (327)  (163)  (314)
                
                 
     2008
  2007
  2006
 
  Note  £m  £m  £m 
 
Purchase of businesses  14   (2,112)  (293)  (149)
Payment of ChoicePoint change of control and other non operating payables assumed      (19)  —   — 
Investments in joint ventures      —   (24)  (1)
Deferred payments relating to prior year acquisitions      (30)  (10)  (13)
                 
Total      (2,161)  (327)  (163)
                 
 
Cash and cash equivalents includes £55 million (2007: nil; 2006: nil) held in trust to satisfy liabilities in respect of change of control obligations related to the acquisition of ChoicePoint.

F-34

14.  Acquisitions
Acquisitions in 2008 — continuing operations
On September 19, 2008 Reed Elsevier acquired the entire share capital of ChoicePoint, Inc. for a total consideration of £1,931 million, after taking account of net cash acquired of £46 million. A number of other acquisitions, none of which were individually significant, were made for a total consideration of £200 million, after taking account of net cash acquired of £5 million.
The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. Provisional fair values of the consideration given and the assets and liabilities acquired are summarised below:
                         
     ChoicePoint  Other    
     Book value
     Book value
       
     on
     on
     Total
 
     acquisition
  Fair value
  acquisition
  Fair value
  Fair value
 
  Note  £m  £m  £m  £m  £m 
 
Goodwill  (i)  —   1,162   —   117   1,279 
Intangible assets  (ii)  15   1,471   —   108   1,579 
Property, plant and equipment      46   46   2   2   48 
Current assets      117   117   11   11   128 
Current liabilities      (221)  (221)  (16)  (16)  (237)
Borrowings      (219)  (219)  —   —   (219)
Current tax      19   19   3   3   22 
Deferred tax      6   (444)  —   (25)  (469)
                         
Net assets acquired      (237)  1,931   —   200   2,131 
                         
Consideration (after taking account of £51 million net cash acquired)  (iii)                  2,131 
Less: consideration deferred to future years                      (19)
                         
Net cash flow                      2,112 
                         
(i) Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits which do not qualify for recognition as intangible assets, including the ability of a business to generate higher returns than individual assets, skilled workforces, acquisition synergies that are specific to Reed Elsevier, and high barriers to market entry. In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets for which amortisation does not qualify for tax deductions.
(ii) The provisional fair value of intangible assets acquired with ChoicePoint have been established with advice from independent qualified valuers.
(iii) Consideration for ChoicePoint comprises £1,955 million to acquire the entire share capital and £22 million of professional fees and other costs relating to the acquisition.
The fair values of the assets and liabilities acquired are provisional pending the completion of the valuation exercises. Final fair values will be incorporated in the 2009 combined financial statements.
The businesses acquired in 2008 contributed £180 million to revenue, decreased profit attributable by £10 million and contributed £42 million to net cash inflow from operating activities for the part of the year under Reed Elsevier ownership and before taking account of acquisition financing costs. Had the businesses been acquired at the beginning of the year, on a proforma basis the Reed Elsevier revenues and profit attributable for the year would have been £5,718 million and £477 million respectively before taking account of acquisition financing costs.
 
Acquisitions in 2007 — continuing operations
 
During the year a number of acquisitions were made for a total consideration amounting to £319 million, after taking account of net cash acquired of £11 million, the most significant of which were the Beilstein chemical compound database and BuyerZone Inc.


F-35

14.  Acquisitions — (continued)
 
The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. The fair values of the consideration given and the assets and liabilities acquired are summarised below:
             
  Book value
       
  on
  Fair value
    
  acquisition
  adjustments
  Fair value
 
  £m  £m  £m 
 
Goodwill  —   101   101 
Intangible assets  —   262   262 
Property, plant and equipment  —   —   — 
Current assets  7   —   7 
Current liabilities  (14)  —   (14)
Deferred tax  (2)  (35)  (37)
             
Net assets acquired  (9)  328   319 
             
Consideration (after taking account of £11 million net cash acquired)          319 
Less: consideration deferred to future years          (26)
             
Net cash flow          293 
             
         
  Book value
    
  on
    
  acquisition
  Fair value
 
  £m  £m 
 
Goodwill  —   101 
Intangible assets  —   262 
Property, plant and equipment  —   — 
Current assets  7   7 
Current liabilities  (14)  (14)
Deferred tax  (2)  (37)
         
Net assets acquired  (9)  319 
         
Consideration (after taking account of £4 million net cash acquired)      319 
Less: consideration deferred to future years      (26)
         
Net cash flow      293 
         
 
The fair value adjustments in relation to the acquisitions made in 2007 relate principally to the valuation of intangible assets. Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits which do not qualify for recognition as intangible assets, including skilled workforces and acquisition synergies that are specific to Reed Elsevier. In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets for which amortisation does not qualify for tax deductions.
 
15.  Equity dividends
The businesses acquired in 2007 contributed £51 million to revenue, increased
On January 18, 2008, Reed Elsevier PLC and Reed Elsevier NV paid special distributions of 82.0p and €1.767 per ordinary share respectively, from the net profit by £1 million and contributed £1 million to net cash inflow from operating activities for the partproceeds of the year underdisposal of Harcourt Education, the aggregate distribution of £2,013 million (including £27 million paid to the employee benefit trust) was recognised when paid.
The special distributions were accompanied by consolidations of the ordinary share capitals of Reed Elsevier ownership. HadPLC and Reed Elsevier NV on the businesses been acquired atbasis of 58 new ordinary shares for every 67 existing ordinary shares, reflecting the beginningratio of the year, on a proforma basisaggregate special distribution to the combined market capitalisation of Reed Elsevier revenuesPLC and net profit forReed Elsevier NV (excluding the year would have been £4,592 million and £1,202 million respectively.5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at December 12, 2007, the date of the announcement of the special distribution.
 
Acquisitions in 2006
During the year a number of acquisitions were made for a total consideration amounting to £171 million, after taking account of net cash acquired of £7 million.


F-33

14.  Acquisitions — (continued)
The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. The fair values of the consideration given and the assets and liabilities acquired are summarised below:
             
  Book value
       
  on
  Fair value
    
  acquisition
  adjustments
  Fair value
 
  £m  £m  £m 
 
Goodwill  —   102   102 
Intangible assets  1   86   87 
Property, plant and equipment  1   —   1 
Current assets  9   —   9 
Current liabilities  (17)  —   (17)
Deferred tax  —   (11)  (11)
             
Net assets acquired  (6)  177   171 
         ��   
Consideration (after taking account of £7 million net cash acquired)          171 
Less: consideration deferred to future years          (22)
             
Net cash flow          149 
             
The fair value adjustments in relation to the acquisitions made in 2006 relate principally to the valuation of intangible assets. Goodwill, being the excess of the consideration over the net tangible and intangible assets acquired, represents benefits which do not qualify for recognition as intangible assets, including skilled workforces and acquisition synergies that are specific to Reed Elsevier. In addition, goodwill arises on the recognition of deferred tax liabilities in respect of intangible assets for which amortisation does not qualify for tax deductions.
15.  EquityOrdinary dividends
Dividends declared in the year
 
                     
 2007
 2006
 2005
 2008
 2007
 2006
 
 £m £m £m £m £m £m 
Reed Elsevier PLC  206  186  168  204   206   186 
Reed Elsevier NV  210  185  168  214   210   185 
             
Total  416  371  336  418   416   371 
             
 
DividendsOrdinary dividends declared in the year, in amounts per ordinary share, comprise: a 20062007 final dividend of 11.8p13.6p and 2007a 2008 interim dividend of 4.5p5.3p giving a total of 16.3p (2006: 14.8p; 2005: 13.3p)18.9p (2007: 16.3p; 2006: 14.8p) for Reed Elsevier PLC; and a 20062007 final dividend of €0.304€0.311 and 2007a 2008 interim dividend of €0.114 giving a total of €0.418 (2006: €0.369; 2005: €0.332)€0.425 (2007: €0.418; 2006: €0.369) for Reed Elsevier NV.
 
The directors of Reed Elsevier PLC have proposed a final dividend of 13.6p (2006: 11.8p; 2005: 10.7p)15.0p (2007: 13.6p; 2006: 11.8p). The directors of Reed Elsevier NV have proposed a final dividend of €0.311 (2006: €0.304; 2005: €0.267)€0.290 (2007: €0.311; 2006: €0.304). The total cost of funding the proposed final dividends is expected to be £291£322 million, for which no liability has been recognised at the balance sheet date.


F-36

15.  Equity dividends – (continued)
 
DividendsOrdinary dividends paid and proposed relating to the financial year
 
                     
 2007
 2006
 2005
 2008
 2007
 2006
 
 £m £m £m £m £m £m 
Reed Elsevier PLC  204  200  183  220   204   200 
Reed Elsevier NV  205  204  182  217   205   204 
             
Total  409  404  365  437   409   404 
             
 
Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level inclusive of the UK tax credit of 10% received by certain Reed Elsevier PLC shareholders. The cost of funding the Reed Elsevier PLC dividends is therefore similar to that of Reed Elsevier NV.


F-34

16.  Goodwill

16.  Goodwill
                       
   2007
 2006
 2005
  2008
 2007
 
 Note £m £m £m  £m £m 
At January 1     2,802   3,030   2,611   2,462   2,802 
Acquisitions     101   102   182   1,279   101 
Disposals     (323)  (20)  (14)  (4)  (323)
Impairment  (9)  — 
Reclassified as held for sale  24  (117)  —   —   —   (117)
Exchange translation differences     (1)  (310)  251   1,173   (1)
            
At December 31     2,462   2,802   3,030   4,901   2,462 
            
 
The carrying amount of goodwill is after cumulative amortisation of £1,313£1,715 million (2006: £1,644(2007: £1,313 million) which was charged prior to the adoption of IFRS.
 
ForImpairment charges principally relate to the purposesSpanish residential property shows business within Reed Exhibitions Continental Europe which has seen a significant contraction of impairmentrevenues since acquisition.


F-37

16.  Goodwill – (Continued)
Impairment review
Impairment testing of goodwill and indefinite lived intangible assets is recorded inperformed at least annually based on cash generating units (CGUs). A CGU is the smallest identifiable group of assets that generate cash inflows that are largely independent of the cash generating unitsinflows from other groups of assets. CGUs which are not individually significant have been aggregated for presentation purposes. Typically, when an acquisition is made the acquired business is fully integrated into the relevant business unit and CGU, and the goodwill arising is allocated to the CGUs, or groups of CGUs, that are expected to benefit from eachthe synergies of the acquisition. LexisNexis Risk has been separated out from LexisNexis US as a separate CGU in 2008 following the acquisition of ChoicePoint and its integration into the existing Risk business, with comparative information restated. The carrying value of goodwill recorded in the major groups of cash generating units is set out below.
 
                 
 2007
 2006
 2005
 2008
 2007
 
 £m £m £m £m £m 
Goodwill
         
Elsevier  767  744  821  1,074   767 
LexisNexis US  1,058  1,077  1,201
     
LexisNexis US Legal  1,104   787 
LexisNexis Risk  1,846   271 
LexisNexis International  118  120  103  137   118 
Harcourt Schools US  —  302  345
     
LexisNexis  3,087   1,176 
     
Reed Exhibitions Continental Europe  336   264 
Reed Exhibitions other  71   38 
     
Reed Exhibitions  302  264  267  407   302 
Other  217  295  293
     
Reed Business Information US  162   113 
Reed Business Information UK  71   41 
Reed Business Information NL  33   23 
Reed Business Information International  67   40 
     
Reed Business Information  333   217 
           
Total  2,462  2,802  3,030  4,901   2,462 
           
 
The carrying value of each cash generating unitCGU is compared with its estimated value in use, which is determined to be its recoverable amount. Value in use is calculated based on estimated future cash flows, discounted to their present value. The pre-tax discount rates used are between10-12%, including a risk premium appropriate to the unit being reviewed. Estimated future cash flows are determined by reference to latest budgets and forecasts for the next five years withapproved by management, after which a 3% long term nominallong-term perpetuity growth rate is applied. The estimates of future cash flows are consistent with past experience adjusted for management’s estimates of future performance. The key assumptions used in the value in use calculations are discount rates and perpetuity growth rates. The discount rates used are based on the Reed Elsevier weighted average cost of capital, adjusted to reflect a risk premium specific to each CGU. The Reed Elsevier weighted average cost of capital reflects an assumed thereafter.equity return, based on the risk free rate for government bonds adjusted for an equity risk premium, and the Reed Elsevier post tax cost of debt. The pre-tax discounts rates applied are 9.5% for Elsevier; 10.0-10.5% for LexisNexis; 10.5-11.0% for Reed Exhibitions and 10.5-11.0% for Reed Business Information. Cash flows subsequent to the forecast period of five years are assumed to grow at a nominal perpetuity growth rate. The rates assumed are based on the long-term historic growth rates of the territories where the CGUs operate and the growth prospects for the sectors in which the CGUs operate. A nominal perpetuity growth rate of 3% is used for all CGUs.
The value in use calculations and impairment reviews are sensitive to changes in key assumptions, particularly relating to discount rates and cash flow growth. A sensitivity analysis has been performed based on changes in key assumptions considered to be possible by management: an increase in discount rate of 0.5%; a decrease in the compound annual growth rate (CAGR) for adjusted operating cash flow in the five year forecast period of between 2.0% and 5.0%, depending on the CGU; and a decrease in perpetuity growth rates of 0.5%. The sensitivity analysis shows that no impairments would result under each of the sensitivity scenarios other than in the case of a 5.0% decline in adjusted operating cash flow CAGR over the five year forecast period which, if applied across all CGUs, would result in an impairment of £24 million, or £35 million if perpetuity growth rates were coincidentally reduced by 0.5%.


F-35F-38

17.  Intangible assets
 
                                       
   Market
 Content,
 Total
 Internally
    Market
 Content,
 Total
 Internally
   
   and
 software
 acquired
 developed
    and
 software
 acquired
 developed
   
   customer
 and
 intangible
 intangible
    customer
 and
 intangible
 intangible
   
   related
 other
 assets
 assets
 Total
  related
 other
 assets
 assets
 Total
 
 Note £m £m £m £m £m  £m £m £m £m £m 
Cost
                                        
At January 1, 2006    1,489   3,083   4,572   647   5,219 
Acquisitions    43   44   87   —   87 
Additions    —   —   —   108   108 
Disposals    (2)  (16)  (18)  (73)  (91)
Exchange translation differences    (175)  (240)  (415)  (49)  (464)
           
At January 1, 2007    1,355   2,871   4,226   633   4,859  1,355  2,871   4,226   633   4,859 
Acquisitions    63   199   262   —   262  63  199   262   —   262 
Additions    —   —   —   80   80  —  —   —   80   80 
Disposals    (544)  (118)  (662)  (60)  (722) (544)  (118)  (662)  (60)  (722)
Reclassified as held for sale 24  (29)  (116)  (145)  (32)  (177) (29)  (116)  (145)  (32)  (177)
Exchange translation differences    (27)  33   6   16   22  (27)  33   6   16   22 
                      
At December 31, 2007    818   2,869   3,687   637   4,324 
           
Amortisation
                      
At January 1, 2006    201   1,682   1,883   357   2,240 
Charge for the year    106   191   297   71   368 
At January 1, 2008 818  2,869   3,687   637   4,324 
Acquisitions 1,349  230   1,579   —   1,579 
Additions —  —   —   115   115 
Disposals    (1)  (16)  (17)  (65)  (82) —  (15)  (15)  (19)  (34)
Exchange translation differences    (30)  (137)  (167)  (24)  (191) 652  85   1,503   207   1,710 
                      
At December 31, 2008 2,819  3,935   6,754   940   7,694 
           
Amortisation
                  
At January 1, 2007    276   1,720   1,996   339   2,335  276  1,720   1,996   339   2,335 
Charge for the year    52   176   228   73   301  52  176   228   73   301 
Disposals    (166)  (111)  (277) ��(52)  (329) (166)  (111)  (277)  (52)  (329)
Reclassified as held for sale 24  (2)  (77)  (79)  (9)  (88) (2)  (77)  (79)  (9)  (88)
Exchange translation differences    (8)  13   5   11   16  (8)  13   5   11   16 
                      
At December 31, 2007    152   1,721   1,873   362   2,235 
At January 1, 2008 152  1,721   1,873   362   2,235 
Charge for the year 84  194   278   88   366 
Disposals —  (15)  (15)  (8)  (23)
Exchange translation differences 74  515   589   123   712 
           
At December 31, 2008 310  2,415   2,725   565   3,290 
                      
Net book amount
                                        
At December 31, 2006    1,079   1,151   2,230   294   2,524 
At December 31, 2007    666   1,148   1,814   275   2,089  666  1,148   1,814   275   2,089 
At December 31, 2008 2,509  1,520   4,029   375   4,404 
                      
 
Intangible assets acquired as part of business combinations comprise: market related assets (e.g. trademarks, imprints, brands); customer related assets (e.g. subscription bases, customer lists, customer relationships); and content, software and other intangible assets (e.g. editorial content, software and product delivery systems, other publishing rights, exhibition rights and supply contracts). Included in content, software and other acquired intangible assets are assets with a net book value of £817£902 million (2006: £935(2007: £817 million) that arose on acquisitions completed prior to the adoption of IFRS that have not been allocated to specific categories of intangible assets. Internally developed intangible assets typically comprise software and systems development where an identifiable asset is created that is probable to generate future economic benefits.
 
Included in market and customer related intangible assets are £288£397 million (2006: £293(2007: £288 million) of brands and imprints relating to Elsevier determined to have indefinite lives based on an assessment of their historical longevity and stable market positions. Indefinite lived intangibles are tested for impairment at least annually using the same value in use assumptions as set out in note 16.
 
The amortisation charge includes nil (2007: £10 million (2006: £91 million) in respect of discontinued operations.


F-36F-39

18.  Investments
 
              
 2007
 2006
 2008
 2007
 
 £m £m £m £m 
Investments in joint ventures  116  73  145   116 
Available for sale investments  90  25  24   90 
Venture capital investments held for trading  21  25  25   21 
         
Total  227  123  194   227 
         
The reduction in value of available for sale investments principally relates to the write down of the investment in Education Media and Publishing Group described in note 11.
 
An analysis of changes in the carrying value of investments in joint ventures is set out below:
 
                
 2007
 2006
  2008
 2007
 
 £m £m  £m £m 
At January 1  73   71   116   73 
Share of results of joint ventures  16   18   18   16 
Dividends received from joint ventures  (12)  (16)  (23)  (12)
Additions  31   1   4   31 
Exchange translation differences  8   (1)  30   8 
          
At December 31  116   73   145   116 
          
 
The principal joint ventures at December 31, 20072008 are exhibition joint ventures within Reed BusinessExhibitions and Giuffrè (an Italian legal publisher in which Reed Elsevier has a 40% shareholding).
 
Summarised aggregate information in respect of joint ventures and Reed Elsevier’s share is set out below:
 
                 
  Total joint ventures  Reed Elsevier share 
  2007
  2006
  2007
  2006
 
  £m  £m  £m  £m 
 
Revenue  214   222   103   108 
Net profit for the year  36   36   16   18 
                 
Total assets  302   215   143   99 
Total liabilities  (165)  (121)  (76)  (55)
                 
Net assets  137   94   67   44 
                 
Goodwill          49   29 
                 
Total          116   73 
                 
                 
  Total joint ventures  Reed Elsevier share 
  2008
  2007
  2008
  2007
 
  £m  £m  £m  £m 
 
Revenue  209   214   104   103 
Net profit for the year  37   36   18   16 
                 
Total assets  325   302   152   143 
Total liabilities  (163)  (165)  (75)  (76)
                 
Net assets  162   137   77   67 
                 
Goodwill          68   49 
                 
Total          145   116 
                 


F-37F-40

19.  Property, plant and equipment
 
                                                   
   2007 2006  2008 2007 
   Land
 Fixtures
   Land
 Fixtures
    Land
 Fixtures
   Land
 Fixtures
   
   and
 and
   and
 and
    and
 and
   and
 and
   
   buildings
 equipment
 Total
 buildings
 equipment
 Total
  buildings
 equipment
 Total
 buildings
 equipment
 Total
 
 Note £m £m £m £m £m £m  £m £m £m £m £m £m 
Cost
                                                   
At January 1     179   667   846   192   695   887   157   510   667   179   667   846 
Acquisitions     —   1   1   —   2   2   30   18   48   —   1   1 
Capital expenditure     6   70   76   9   89   98   13   44   57   6   70   76 
Disposals     (26)  (183)  (209)  (3)  (55)  (58)  (1)  (66)  (67)  (26)  (183)  (209)
Reclassified as held for sale  24  (2)  (45)  (47)  —   —   —   —   —   —   (2)  (45)  (47)
Exchange translation differences     —   —   —   (19)  (64)  (83)  60   138   198   —   —   — 
                          
At December 31     157   510   667   179   667   846   259   644   903   157   510   667 
                          
Accumulated depreciation
                                                   
At January 1     83   465   548   84   489   573   71   357   428   83   465   548 
Acquisitions     —   1   1   —   1   1   —   —   —   —   1   1 
Disposals     (19)  (148)  (167)  (3)  (55)  (58)  (1)  (56)  (57)  (19)  (148)  (167)
Reclassified as held for sale  24  (1)  (30)  (31)  —   —   —   —   —   —   (1)  (30)  (31)
Charge for the year     8   69   77   8   83   91   10   69   79   8   69   77 
Exchange translation differences     —   —   —   (6)  (53)  (59)  26   98   124   —   —   — 
                          
At December 31     71   357   428   83   465   548   106   468   574   71   357   428 
                          
Net book amount     86   153   239   96   202   298   153   176   329   86   153   239 
                          
 
No depreciation is provided on freehold land.land of £51 million (2007: £37 million). The net book amount of property, plant and equipment at December 31, 20072008 includes £17£6 million (2006: £16(2007: £17 million) in respect of assets held under finance leases relating to fixtures and equipment.
 
The depreciation charge includes nil (2007: £1 million (2006: £10 million) in respect of discontinued operations.
 
20.  Financial instruments
 
Details of the objectives, policies and strategies pursued by Reed Elsevier in relation to financial instruments and its capital structure are set out on pages 31 and 3234 to 36 of Item 5: Operating and Financial Review and Prospects; Liquidity and Capital Resources — Reed Elsevier. The main financial risks faced by Reed Elsevier are liquidity risk, market risk — comprising interest rate risk and foreign exchange risk — and credit risk. Financial instruments are used to finance the Reed Elsevier businesses and to hedge interest rate and foreign exchange risks. Reed Elsevier’s businesses do not enter into speculative derivative transactions. Details of financial instruments subject to liquidity, market and credit risks are described below.


F-38F-41

20.  Financial instruments —– (continued)
 
Liquidity risk
 
Reed Elsevier maintains a range of borrowing facilities and debt programmes to fund its requirements, at short notice and at competitive rates. The remaining contractual maturities for borrowings and derivative financial instruments are shown in the table below. The table shows undiscounted principal and interest cash flows and includes contractual gross cash flows to be exchanged as part of cross currency interest rate swaps and forward foreign exchange contracts where there is a legal right of set off.set-off.
 
                                                                
   Contractual cash flow    Contractual cash flow 
 Carrying
 Within
         More than
    Carrying
 Within
         More than
   
 amount
 1 year
 1-2 years
 2-3 years
 3-4 years
 4-5 years
 5 Years
 Total
  amount
 1 year
 1-2 years
 2-3 years
 3-4 years
 4-5 years
 5 years
 Total
 
At December 31, 2007
 £m £m £m £m £m £m £m £m 
At December 31, 2008
 £m £m £m £m £m £m £m £m 
Borrowings                                                                
Fixed rate borrowings  (1,993)  (486)  (95)  (95)  (368)  (327)  (1,602)  (2,973)  (2,265)  (124)  (123)  (504)  (447)  (177)  (1,967)  (3,342)
Floating rate borrowings  (1,136)  (770)  (14)  (232)  (7)  (169)  (3)  (1,195)  (3,877)  (536)  (1,740)  (1,516)  (225)  (1)  (5)  (4,023)
Derivative financial liabilities                                
Interest rate derivatives  (9)  (5)  (5)  (2)  —   —   (6)  (18)
Derivative financial liabilities Interest rate derivatives  (89)  (27)  (37)  (20)  (7)  (3)  —   (94)
Cross currency interest rate swaps  —   (241)  (6)  (7)  (7)  (8)  (158)  (427)  —   (13)  (8)  (13)  (14)  (199)  (204)  (451)
Forward foreign exchange contracts  (13)  (654)  (265)  (118)  —   —   —   (1,037)  (169)  (909)  (358)  (177)  (45)  —   —   (1,489)
Derivative financial assets                                                                
Interest rate derivatives  16   4   7   5   3   2   4   25   1   1   —   —   —   —   —   1 
Cross currency interest rate swaps  155   395   5   5   5   5   166   581   51   15   13   15   15   211   237   506 
Forward foreign exchange contracts  39   680   276   120   —   —   —   1,076   24   837   307   157   42   —   —   1,343 
                                  
Total
  (2,941)  (1,077)  (97)  (324)  (374)  (497)  (1,599)  (3,968)  (6,324)  (756)  (1,946)  (2,058)  (681)  (169)  (1,939)  (7,549)
                                  
 
                                                                
   Contractual cash flow    Contractual cash flow 
 Carrying
 Within
         More than
    Carrying
 Within
         More than
   
 amount
 1 year
 1-2 years
 2-3 years
 3-4 years
 4-5 years
 5 Years
 Total
  amount
 1 year
 1-2 years
 2-3 years
 3-4 years
 4-5 years
 5 years
 Total
 
At December 31, 2006
 £m £m £m £m £m £m £m £m 
At December 31, 2007
 £m £m £m £m £m £m £m £m 
Borrowings                                                                
Fixed rate borrowings  (2,089)  (406)  (445)  (89)  (89)  (369)  (1,781)  (3,179)  (1,993)  (486)  (95)  (95)  (368)  (327)  (1,602)  (2,973)
Floating rate borrowings  (917)  (659)  (13)  (13)  (281)  —   (2)  (968)  (1,136)  (770)  (14)  (232)  (7)  (169)  (3)  (1,195)
Derivative financial liabilities Interest rate derivatives  (6)  (6)  (4)  (1)  (1)  (1)  (8)  (21)
Derivative financial liabilities                                
Interest rate derivatives  (9)  (5)  (5)  (2)  —   —   (6)  (18)
Cross currency interest rate swaps  —   (172)  (238)  —   —   —   —   (410)  —   (241)  (6)  (7)  (7)  (8)  (158)  (427)
Forward foreign exchange contracts  (3)  (506)  (212)  (96)  —   —   —   (814)  (13)  (654)  (265)  (118)  —   —   —   (1,037)
Derivative financial assets Interest rate derivatives  8   9   4   1   1   1   3   19   16   4   7   5   3   2   4   25 
Cross currency interest rate swaps  174   237   355   —   —   —   —   592   155   395   5   5   5   5   166   581 
Forward foreign exchange contracts  37   528   228   100   —   —   —   856   39   680   276   120   —   —   —   1,076 
                                  
Total
  (2,796)  (975)  (325)  (98)  (370)  (369)  (1,788)  (3,925)  (2,941)  (1,077)  (97)  (324)  (374)  (497)  (1,599)  (3,968)
                                  
In January 2009, fixed rate term debt of $1,500 million (£1,037 million) and floating rate term debt of €50 million (£49 million) due in more than five years from December 31, 2008 were issued and used to repay floating rate borrowings maturing in one to two years.
 
The carrying amount of derivative financial liabilities comprises nil (2006: £3 million) in relation to fair value hedges,£240 million (2007: £18 million (2006: £4 million) in relation to cash flow hedges and £4£18 million (2006: £2(2007: £4 million) held for trading. The carrying amount of derivative financial assets comprises £170£41 million (2006: £176(2007: £170 million) in relation to fair value hedges, £28£8 million (2006: £42(2007: £28 million) in relation to cash flow hedges and £12£27 million (2006: £1(2007: £12 million) held for trading. Derivative financial assets and liabilities held for trading comprise interest rate derivatives and forward foreign exchange contracts that were not designated as hedging instruments.


F-39F-42

20.  Financial instruments —– (continued)
 
At December 31, 20072008 Reed Elsevier had access to £1,502£2,074 million (2006: £1,529(2007: £1,502 million) of committed bank facilities that expire in one to two years (2007: two to three years,years), of which £42£26 million (2006: £39(2007: £42 million) was drawn. These facilities principally provide back up for short term borrowings. In February 2009, these facilities were reduced to £1,728 million and, at the same time, new £1,382 million committed bank facilities, forward starting in May 2010 and maturing in May 2012, were put in place.
At December 31, 2008 Reed Elsevier had fully drawn down a £2,908 million (2007: nil) committed loan facility established to finance the acquisition of ChoicePoint, Inc.
 
After taking account of the maturity of committed bank facilities that back short term borrowings at December 31, 20072008, and after utilising available cash resources, (excluding £1,933no borrowings mature in the next twelve months (2007: nil), 31% of borrowings mature in the second year (2007: nil), 33% of borrowings mature in the third year (2007: 27%), 12% in the fourth and fifth years (2007: 29%), 16% in the sixth to tenth years (2007: 31%), and 8% beyond the tenth year (2007: 13%). Allowing for the £1,086 million of cash received from the part disposal of Harcourt Education which was included in the special distribution to shareholders of the parent companiesterm debt issued in January 2008),2009 and the $2,000 million (£1,382 million) forward start facility, no borrowings mature in the next two years, (2006: nil); 27%21% of borrowings mature in the third year, (2006: 25%); 29%36% in the fourth and fifth years, (2006: 24%); 31%23% in the sixth to tenth years, (2006: 37%); and 13%20% beyond the tenth year (2006: 14%).year.
 
Market Risk
 
Reed Elsevier’s primary market risks are to interest rate fluctuations and exchange rate movements. Derivatives are used to hedge or reduce the risks of interest rate and exchange rate movements and are not entered into unless such risks exist. Derivatives used by Reed Elsevier for hedging a particular risk are not specialised and are generally available from numerous sources. The impact of market risks on net post employment benefit obligations and taxation is excluded from the following market risk sensitivity analysis.
 
Interest rate risk
 
Reed Elsevier’s interest rate exposure management policy is aimed at reducing the exposure of the combined businesses to changes in interest rates.
 
At December 31, 2007 after adjusting for £1,933 million2008, 52% of cash received from the part disposal of Harcourt Education which was included in the special distribution to the shareholders of the parent companies in January 2008, 69% of netgross borrowings are either fixed rate or have been fixed through the use of interest rate swaps, forward rate agreements and options. A 100 basis point reduction in interest rates would result in an estimated decrease in net finance costs of £7£25 million (2006: £3(2007: £7 million), based on the composition of financial instruments including cash, cash equivalents, bank loans and commercial paper borrowings at December 31, 2007.2008. A 100 basis point rise in interest rates would result in an estimated increase in net finance costs of £25 million (2007: £7 million (2006: £3 million).
After taking additional account of $1.6 billion of term debt issued in January 2009, 69% of gross borrowings are either fixed rate or have been fixed through the use of interest rate swaps, forward rate agreements and options, and a 100 basis point reduction in interest rates would result in an estimated decrease in net finance costs of £15 million. A 100 basis point rise in interest rates would result in an estimated increase in net finance costs of £15 million.
 
The impact on net equity of a theoretical change in interest rates as at December 31, 20072008 is restricted to the change in carrying value of floating rate to fixed rate interest rate derivatives in a designated cash flow hedge relationship and undesignated interest rate derivatives. A 100 basis point reduction in interest rates would result in an estimated reduction in net equity of £10£39 million (2006: £9(2007: £10 million) and a 100 basis point increase in interest rates would increase net equity by an estimated £10£38 million (2006: £8(2007: £10 million). The impact of a change in interest rates on the carrying value of fixed rate borrowings in a designated fair value hedge relationship would be offset by the change in carrying value of the related interest rate derivative. Fixed rate borrowings not in a designated hedging relationship are carried at amortised cost.
 
Foreign exchange rate risk
 
Translation exposures arise on the earnings and net assets of business operations in countries with currencies other than sterling, most particularly in respect of the US businesses. These exposures are hedged, to a significant extent, by a policy of denominating borrowings in currencies where significant translation exposures exist, most notably US dollars (see note 26).
 
A theoretical weakening of all currencies by 10% against sterling at December 31, 20072008 would decrease the carrying value of net assets, excluding net borrowings, by £262£551 million (2006: £341(2007: £262 million). This would be offset to a large degree by a decrease in net borrowings of £123£495 million (2006: £197(2007: £123 million). A strengthening of all currencies by 10% against sterling at December 31, 20072008 would increase the carrying value of net assets, excluding net borrowings, by £328£685 million (2006: £423(2007: £328 million) and increase net borrowings by £150£605 million (2006: £241(2007: £150 million).
 
A retranslation of the combined businesses’ net profit for the year assuming a 10% weakening of all foreign currencies against sterling but excluding transactional exposures would reduce net profit by £106£38 million (2006: £40(2007: £106 million). A 10% strengthening of all foreign currencies against sterling on this basis would increase net profit for the year by £130£46 million (2006: £49(2007: £130 million).


F-43

20.  Financial instruments – (continued)
 
Credit risk
 
Reed Elsevier seeks to limit interest rate and foreign exchange risks described above by the use of financial instruments and as a result has a credit risk from the potential non performance by the counterparties to these financial instruments, which are unsecured. The amount of this credit risk is normally restricted to the amounts of any hedge gain and not the principal amount being hedged. Reed Elsevier also has a credit exposure to counterparties for the full principal amount of cash and cash equivalents. Credit risks are controlled by monitoring the credit quality of these counterparties, principally licensed commercial banks and investment banks with strong long term credit ratings, and the amounts outstanding with each of them.


F-40

20.  Financial instruments — (continued)
 
Reed Elsevier has treasury policies in place which do not allow concentrations of risk with individual counterparties and do not allow significant treasury exposures with counterparties which are rated lower than A by Standard and Poor’s, Moody’s or Fitch.
 
Reed Elsevier also has credit risk with respect to trade receivables due from its customers that include national and state governments, academic institutions and large and small enterprises including law firms, book stores and wholesalers. The concentration of credit risk from trade receivables is limited due to the large and broad customer base. Trade receivable exposures are managed locally in the business units where they arise. Where appropriate, business units seek to minimise this exposure by taking payment in advance and through management of credit terms. Allowance is made for bad and doubtful debts based on management’s assessment of the risk taking into account the ageing profile, experience and circumstance. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, recorded in the balance sheet.
 
Included within trade receivables are the following amounts which are past due but for which no allowance has been made. Past due up to one month £234£284 million (2006: £336(2007: £234 million); past due two to three months £78£123 million (2006: £111(2007: £78 million); past due four to six months £26£35 million (2006: £46(2007: £26 million); and past due greater than six months £21£11 million (2006: £25(2007: £21 million). Examples of trade receivables which are past due but for which no allowance has been made include those receivables where there is no concern over the creditworthiness of the customer and where the history of dealings with the customer indicate the amount will be settled.
 
Hedge accounting
 
The hedging relationships that are designated under IAS39 — Financial Instruments are described below:
 
Fair value hedges
 
Reed Elsevier has entered into interest rate swaps and cross currency interest rate swaps to hedge the exposure to changes in the fair value of fixed rate borrowings due to interest rate and foreign currency movements which could affect the income statement.
 
Interest rate derivatives (including cross currency interest rate swaps) with a principal amount of £820£300 million were in place at December 31, 2007 (2006: £8392008 swapping fixed rate term debt issues denominated in Swiss francs (CHF) to floating rate USD debt for the whole of their term (2007: £820 million) swapping fixed rate term debt issues denominated in US dollars (USD), euros and Swiss francs (CHF) to floating rate USD debt for the whole or part of their term.term).


F-44

20.  Financial instruments – (continued)
 
The gains and losses on the borrowings and related derivatives designated as fair value hedges, which are included in the income statement, for the three years ended December 31, 20072008 were as follows:
 
Gains/(losses) on borrowings and related derivatives
 
                                
   Fair value
        Fair value
     
 January 1,
 movement
 Exchange
 December 31,
  January 1,
 movement
 Exchange
 December 31,
 
 2005
 gain/(loss)
 gain/(loss)
 2005
  2006
 gain/(loss)
 gain/(loss)
 2006
 
 £m £m £m £m  £m £m £m £m 
USD debt  (5)  (9)  (1)  (15)  (15)  15   1   1 
Related interest rate swaps  5   9   1   15   15   (15)  (1)  (1)
                  
  —   —   —   —   —   —   —   — 
                  
Euro debt  (151)  62   (15)  (104)  (104)  (26)  14   (116)
Related Euro to USD cross currency interest rate swaps  152   (62)  15   105   105   26   (14)  117 
                  
  1   —   —   1   1   —   —   1 
                  
CHF debt  (86)  41   (8)  (53)  (53)  (10)  7   (56)
Related CHF to USD cross currency interest rate swaps  87   (41)  8   54   54   10   (7)  57 
                  
  1   —   —   1   1   —   —   1 
                  
Total USD, Euro and CHF debt  (242)  94   (24)  (172)  (172)  (21)  22   (171)
Total related interest rate derivatives  244   (94)  24   174   174   21   (22)  173 
                  
Net gain  2   —   —   2   2   —   —   2 
                  
                 
     Fair value
       
  January 1,
  movement
  Exchange
  December 31,
 
  2007
  gain/(loss)
  gain/(loss)
  2007
 
  £m  £m  £m  £m 
 
USD debt  1   (16)  —   (15)
Related interest rate swaps  (1)  16   —   15 
                 
   —   —   —   — 
                 
Euro debt  (116)  (35)  2   (149)
Related Euro to USD cross currency interest rate swaps  117   34   (2)  149 
                 
   1   (1)  —   — 
                 
CHF debt  (56)  49   1   (6)
Related CHF to USD cross currency interest rate swaps  57   (50)  (1)  6 
                 
   1   (1)  —   — 
                 
Total USD, Euro and CHF debt  (171)  (2)  3   (170)
Total related interest rate derivatives  173   —   (3)  170 
                 
Net gain  2   (2)  —   — 
                 
 


F-41F-45

20.  Financial instruments —– (continued)
 
                 
     Fair value
       
  January 1,
  movement
  Exchange
  December 31,
 
  2006
  gain/(loss)
  gain/(loss)
  2006
 
  £m  £m  £m  £m 
 
USD debt  (15)  15   1   1 
Related interest rate swaps  15   (15)  (1)  (1)
                 
   —   —   —   — 
                 
Euro debt  (104)  (26)  14   (116)
Related Euro to USD cross currency interest rate swaps  105   26   (14)  117 
                 
   1   —   —   1 
                 
CHF debt  (53)  (10)  7   (56)
Related CHF to USD cross currency interest rate swaps  54   10   (7)  57 
                 
   1   —   —   1 
                 
Total USD, Euro and CHF debt  (172)  (21)  22   (171)
Total related interest rate derivatives  174   21   (22)  173 
                 
Net gain  2   —   —   2 
                 
                                    
   Fair value
        Fair value
       
 January 1,
 movement
 Exchange
 December 31,
  January 1,
 movement
   Exchange
 December 31,
 
 2007
 gain/(loss)
 gain/(loss)
 2007
  2008
 gain/(loss)
 De-designated
 gain/(loss)
 2008
 
 £m £m £m £m  £m £m £m £m £m 
USD debt  1   (16)  —   (15)  (15)  (46)  62   (1)  — 
Related interest rate swaps  (1)  16   —   15   15   46   (62)  1   — 
                    
  —   —   —   —   —   —   —   —   — 
                    
Euro debt  (116)  (35)  2   (149)  (149)  161   —   (12)  — 
Related Euro to USD cross currency interest rate swaps  117   34   (2)  149   149   (161)  —   12   — 
                    
  1   (1)  —   —   —   —   —   —   — 
                    
CHF debt  (56)  49   1   (6)  (6)  (25)  —   (10)  (41)
Related CHF to USD cross currency interest rate swaps  57   (50)  (1)  6   6   25   —   10   41 
                    
  1   (1)  —   —   —   —   —   —   — 
                    
Total USD, Euro and CHF debt  (171)  (2)  3   (170)  (170)  90   62   (23)  (41)
Total related interest rate derivatives  173   —   (3)  170   170   (90)  (62)  23   41 
                    
Net gain  2   (2)  —   —   —   —   —   —   — 
                    
 
All fair value hedges were highly effective throughout the three years ended December 31, 2007.2008. A fair value loss of nil (2007: £2 million (2006: nil; 2005: £3 million)million; 2006: nil) has been included within finance costs.
 
During 2007, no (2006:2008, nil (2007: nil; 2006: £3 million; 2005: £5 million) fair value losses recognised on adoption of IAS39 — Financial Instruments were included in finance income.costs.
Gross borrowings as at December 31, 2008 included £78 million (2007: nil; 2006: nil) in relation to fair value adjustments to borrowings previously designated in a fair value hedge relationship which were de-designated during the year. The related derivatives were closed out on de-designation with a cash inflow of £62 million (£80 million translated at December 31, 2008 exchange rates). During 2008, £2 million (2007: nil; 2006: nil) of these fair value adjustments were amortised as a reduction to finance costs.
 
Cash flow hedges
 
Reed Elsevier enters into two types of cash flow hedge:
 
 (1)  Interest rate derivatives which fix the interest expense on a portion of forecast floating rate denominated debt (including commercial paper, short term bank loans and floating rate term debt).
 
 (2)  Foreign exchange derivatives which fix the exchange rate on a portion of future foreign currency subscription revenues forecast by the Elsevier science and medical businesses for up to 50 months.

F-42F-46

20.  Financial instruments —– (continued)
 
Movements in the hedge reserve (pre-tax) in 2008, 2007 2006 and 2005,2006, including gains and losses on cash flow hedging instruments, were as follows:
 
                                
       Total
        Total
 
     Foreign
 hedge
      Foreign
 hedge
 
 Transition
 Interest rate
 exchange
 reserve
  Transition
 Interest rate
 exchange
 reserve
 
 loss
 hedges
 hedges
 pre-tax
  loss
 hedges
 hedges
 pre-tax
 
 £m £m £m £m  £m £m £m £m 
Hedge reserve at January 1, 2005: (losses)/gains deferred  (10)  (15)  65   40 
Gains/(losses) arising in 2005  —   11   (21)  (10)
Amounts recognised in income statement  6   5   (30)  (19)
Exchange translation differences  (1)  (1)  (2)  (4)
         
Hedge reserve at January 1, 2006: (losses)/gains deferred  (5)  —   12   7   (5)  —   12   7 
Gains/(losses) arising in 2006  —   1   53   54 
Gains arising in 2006  —   1   53   54 
Amounts recognised in income statement  3   3   (14)  (8)  3   3   (14)  (8)
Exchange translation differences  —   —   (1)  (1)  —   —   (1)  (1)
                  
Hedge reserve at January 1, 2007: (losses)/gains deferred  (2)  4   50   52   (2)  4   50   52 
(Losses)/gains arising in 2007  —   (11)  14   3   —   (11)  14   3 
Amounts recognised in income statement  2   (1)  (30)  (29)  2   (1)  (30)  (29)
Exchange translation differences  —   —   2   2   —   —   2   2 
                  
Hedge reserve at December 31, 2007: (losses)/gains deferred  —   (8)  36   28 
Hedge reserve at January 1, 2008: (losses)/gains deferred  —   (8)  36   28 
Losses arising in 2008  —   (60)  (183)  (243)
Amounts recognised in income statement  —   6   (25)  (19)
Exchange translation differences  —   (18)  (4)  (22)
                  
Hedge reserve at December 31, 2008: losses deferred  —   (80)  (176)  (256)
         
 
All cash flow hedges were highly effective throughout the three years ended December 31, 2007.2008.
 
A tax chargecredit of £61 million (2007: £8 million (2006:charge; 2006: £15 million; 2005: nil)million charge) in respect of the above gains and losses at December 31, 20072008 was also deferred in the hedge reserve.
 
Of the amounts recognised in the income statement in the year, gains of £25 million (2007: £30 million (2006:million; 2006: £14 million; 2005: £30 million) were recognised in revenue, and losses of £6 million (2007: £1 million (2006:million; 2006: £6 million; 2005: £11 million) were recognised in finance costs. A tax charge of £5 million (2007: £9 million (2006:million; 2006: £3 million; 2005: nil)million) was recognised in relation to these items.
 
The transition loss relates to interest rate derivatives which were not designated as hedging instruments on adoption of IAS39 — Financial Instruments.
 
The deferred gains and losses on cash flow hedges at December 31, 20072008 are currently expected to be recognised in the income statement in future years as follows:
 
                           
       Total
      Total
 
     Foreign
 hedge
    Foreign
 hedge
 
 Transition
 Interest rate
 exchange
 reserve
  Interest rate
 exchange
 reserve
 
 loss
 hedges
 hedges
 pre-tax
  hedges
 hedges
 pre-tax
 
 £m £m £m £m  £m £m £m 
2008  —  (2)  26   24 
2009  —  (4)  10   6   (23)  (63)  (86)
2010  —  (2)  1   (1)  (29)  (66)  (95)
2011  —  —   (1)  (1)  (16)  (38)  (54)
2012  (9)  (9)  (18)
2013  (3)  —   (3)
                
(Losses)/gains deferred in hedge reserve at end of year  —  (8)  36   28 
Losses deferred in hedge reserve at end of year  (80)  (176)  (256)
                
 
The cash flows for these hedges are expected to occur in line with the recognition of the gains and losses in the income statement, other than in respect of certain forward foreign exchange hedges on subscriptions, where cash flows may be expected to occur in advance of the subscription year.


F-43F-47

21.  Deferred tax
 
                
 2007
 2006
  2008
 2007
 
 £m £m  £m £m 
Deferred tax assets  141   170   353   141 
Deferred tax liabilities  (695)  (850)  (1,525)  (695)
          
Total  (554)  (680)  (1,172)  (554)
          
 
Movements in deferred tax liabilities and assets are summarised as follows:
 
                                                                
 Deferred tax liabilities Deferred tax assets    Deferred tax liabilities Deferred tax assets 
 Excess of
     Other
     Other
    Excess of
     Other
     Other
   
 tax allowances
 Acquired
   temporary
 Tax losses
   temporary
    tax allowances
 Acquired
   temporary
 Tax losses
   temporary
   
 over
 intangible
 Pensions
 differences -
 carried
 Pensions
 differences -
    over
 intangible
 Pensions
 differences -
 carried
 Pensions
 differences -
   
 amortisation
 assets
 assets
 liabilities
 forward
 liabilities
 assets
 Total
  amortisation
 assets
 assets
 liabilities
 forward
 liabilities
 assets
 Total
 
 £m £m £m £m £m £m £m £m  £m £m £m £m £m £m £m £m 
Deferred tax (liability)/asset at January 1, 2006  (115)  (799)  —   (66)  54   133   79   (714)
(Charge)/credit to profit  (27)  87   (4)  7   (47)  5   (4)  17 
(Charge)/credit to equity  —   —   (6)  (18)  —   (39)  3   (60)
Transfers  (4)  5   4   (1)  3   2   (4)  5 
Acquisitions  —   (11)  —   —   —   —   —   (11)
Exchange translation differences  13   76   —   9   (3)  (9)  (3)  83 
                 
Deferred tax (liability)/asset at January 1, 2007  (133)  (642)  (6)  (69)  7   92   71   (680)  (133)  (642)  (6)  (69)  7   92   71   (680)
(Charge)/credit to profit  (29)  63   —   35   (3)  (15)  19   70   (29)  63   —   35   (3)  (15)  19   70 
(Charge)/credit to equity  —   —   (44)  (2)  —   (21)  17   (50)  —   —   (44)  (2)  —   (21)  17   (50)
Acquisitions  —   (38)  —   —   1   —   —   (37)  —   (38)  —   —   1   —   —   (37)
Disposals  34   95   (1)  —   —   (3)  (25)  100   34   95   (1)  —   —   (3)  (25)  100 
Reclassified as held for sale  1   24   —   15   —   —   —   40   1   24   —   15   —   —   —   40 
Exchange translation differences  2   —   —   —   —   (1)  2   3   2   —   —   —   —   (1)  2   3 
                                  
Deferred tax (liability)/asset at December 31, 2007  (125)  (498)  (51)  (21)  5   52   84   (554)
Deferred tax (liability)/asset at January 1, 2008  (125)  (498)  (51)  (21)  5   52   84   (554)
(Charge)/credit to profit  (37)  69   (6)  (5)  —   (10)  (41)  (30)
Credit to equity  —   —   13   7   —   103   33   156 
Acquisitions  —   (536)  —   —   —   4   63   (469)
Disposals  —   7   —   —   —   —   —   7 
Exchange translation differences  (57)  (281)  —   (4)  1   41   18   (282)
                                  
Deferred tax (liability)/asset at December 31, 2008  (219)  (1,239)  (44)  (23)  6   190   157   (1,172)
                 
At December 31, 2006 there were potential deferred tax assets of £193 million not recognised due to uncertainties over availability and timing of relevant taxable income, in relation to tax deductions carried forward of £483 million. These deductions were utilised in 2007 as a result of the disposal of Harcourt Education.
 
22.  Inventories and pre-publication costs
 
              
 2007
 2006
 2008
 2007
 
 £m £m £m £m 
Raw materials  9  16  11   9 
Pre-publication costs  154  403  233   154 
Finished goods  108  214  104   108 
         
Total  271  633  348   271 
         


F-44F-48

23.  Trade and other receivables
 
                
 2007
 2006
  2008
 2007
 
 £m £m  £m £m 
Trade receivables  1,054   1,105   1,578   1,054 
Allowance for doubtful debts  (48)  (50)  (77)  (48)
          
  1,006   1,055   1,501   1,006 
Prepayment and accrued income  142   169 
Prepayments and accrued income  184   142 
          
Total  1,148   1,224   1,685   1,148 
          
 
Trade receivables are predominantly non-interest bearing and their carrying amounts approximate to their fair value.
 
Trade receivables are stated net of allowances for bad and doubtful debt.debts. The movements in the provision during the year were as follows:
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
At January 1  50   66   73   48   50   66 
Charge for the year  19   10   5   29   19   10 
Trade receivables written off  (17)  (20)  (13)  (20)  (17)  (20)
Acquisitions  4   —   — 
Reclassified as held for sale  (5)  —   —   —   (5)  — 
Exchange translation differences  1   (6)  1   16   1   (6)
              
At December 31  48   50   66   77   48   50 
              
 
24.  Assets and liabilities held for sale
 
The major classes of assets and liabilities of operations classified as held for sale principally in respect of Harcourt Assessment, are as follows:
 
              
 2007
 2006
 2008
 2007
 
 £m £m £m £m 
Goodwill  117  —  24   117 
Intangible assets  89  —  3   89 
Property, plant and equipment  16  —  7   16 
Inventories and pre-publication costs  54  —  —   54 
Trade and other receivables  65  —  15   65 
         
Total assets held for sale  341  —  49   341 
         
Trade and other payables  44  —  2   44 
Deferred tax liabilities  40  —  —   40 
         
Total liabilities associated with assets held for sale  84  —  2   84 
         
Assets held for sale as at December 31, 2008 relate to minor businesses within LexisNexis (2007: principally relate to Harcourt Assessment which was sold in January 2008, see note 4).
 
25.  Trade and other payables
 
              
 2007
 2006
 2008
 2007
 
 £m £m £m £m 
Payables and accruals  1,000  956  1,394   1,000 
Deferred income  966  969  1,375   966 
         
Total  1,966  1,925  2,769   1,966 
         


F-45F-49

26.  Borrowings
 
                                          
 2007 2006 2008 2007 
 Falling due
 Falling due
   Falling due
 Falling due
   Falling due
 Falling due
   Falling due
 Falling due
   
 within
 in more
   within
 in more
   within
 in more
   within
 in more
   
 1 year
 than 1 year
 Total
 1 year
 than 1 year
 Total
 1 year
 than 1 year
 Total
 1 year
 than 1 year
 Total
 
 £m £m £m £m £m £m £m £m £m £m £m £m 
Financial liabilities measured at amortised cost:                                          
Bank loans, overdrafts and commercial paper  753  —  753  574  —  574
Short term bank loans, overdrafts and commercial paper  446   —   446   753   —   753 
Finance leases  5  6  11  6  6  12  2   1   3   5   6   11 
Other loans  —  1,378  1,378  131  1,279  1,410  —   4,652   4,652   —   1,378   1,378 
Other loans in fair value hedging relationships  369  618  987  210  800  1,010  —   341   341   369   618   987 
Other loans previously in fair value hedging relationships  —   700   700   —   —   — 
                         
Total  1,127  2,002  3,129  921  2,085  3,006  448   5,694   6,142   1,127   2,002   3,129 
                         
 
The total fair value of financial liabilities measured at amortised cost is £2,206£5,201 million (2006: £2,042(2007: £2,206 million). The total fair value of other loans in fair value hedging relationships is £325 million (2007: £1,054 million). The total fair value of other loans previously in fair value hedging relationships is £773 million (2006: £1,073 million)(2007: nil).
 
Analysis by year of repayment
 
                                
                         2008 2007 
 2007 2006 Short term
       Short term
       
 Bank loans,
       Bank loans,
       bank loans,
       bank loans,
       
 overdrafts
       overdrafts
       overdrafts
       overdrafts
       
 and
       and
       and
       and
       
 commercial
 Other
 Finance
   commercial
 Other
 Finance
   commercial
 Other
 Finance
   commercial
 Other
 Finance
   
 paper
 loans
 leases
 Total
 paper
 loans
 leases
 Total
 paper
 loans
 leases
 Total
 paper
 loans
 leases
 Total
 
 £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m 
Within 1 year  753  369  5  1,127  574  341  6  921  446   —   2   448   753   369   5   1,127 
                                 
Within 1 to 2 years  —  —  3  3  —  340  3  343  —   1,706   1   1,707   —   —   3   3 
Within 2 to 3 years  —  220  3  223  —  —  2  2  —   1,885   —   1,885   —   220   3   223 
Within 3 to 4 years  —  276  —  276  —  275  1  276  —   578   —   578   —   276   —   276 
Within 4 to 5 years  —  423  —  423  —  282  —  282  —   104   —   104   —   423   —   423 
After 5 years  —  1,077  —  1,077  —  1,182  —  1,182  —   1,420   —   1,420   —   1,077   —   1,077 
                                 
  —  1,996  6  2,002  —  2,079  6  2,085  —   5,693   1   5,694   —   1,996   6   2,002 
                                 
Total  753  2,365  11  3,129  574  2,420  12  3,006  446   5,693   3   6,142   753   2,365   11   3,129 
                                 
In January 2009, fixed rate term debt of $1,500 million (£1,037 million) and floating rate term debt of €50 million (£49 million) due in more than five years from December 31, 2008 were issued and used to repay other loans maturing within one to two years. Short term bank loans, overdrafts and commercial paper are backed up at December 31, 2008 by $3,000 million (£2,074 million) of committed bank facilities maturing in May 2010 of which $38 million (£26 million) was drawn. In February 2009 these facilities were reduced to $2,500 million (£1,728 million) and additional $2,000 million (£1,382 million) committed bank facilities, forward starting in May 2010 and maturing in May 2012, were put in place.


F-50

26.  Borrowings – (continued)
 
Analysis by currency
 
                                
                         2008 2007 
 2007 2006 Short term
       Short term
       
 Bank loans,
       Bank loans,
       bank loans,
       bank loans,
       
 overdrafts
       overdrafts
       overdrafts
       overdrafts
       
 and
       and
       and
       and
       
 commercial
 Other
 Finance
   commercial
 Other
 Finance
   commercial
 Other
 Finance
   commercial
 Other
 Finance
   
 paper
 loans
 leases
 Total
 paper
 loans
 leases
 Total
 paper
 loans
 leases
 Total
 paper
 loans
 leases
 Total
 
 £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m £m 
US Dollars  108  1,841  11  1,960  327  1,877  12  2,216  10   5,128   3   5,141   108   1,841   11   1,960 
£ Sterling  7  400  —  407  20  400  —  420  —   400   —   400   7   400   —   407 
Euro  572  124  —  696  180  143  —  323  375   165   —   540   572   124   —   696 
Other currencies  66  —  —  66  47  —  —  47  61   —   —   61   66   —   —   66 
                                 
Total  753  2,365  11  3,129  574  2,420  12  3,006  446   5,693   3   6,142   753   2,365   11   3,129 
                                 
 
Included in the US dollar amounts for other loans above is £521£341 million (2006: £550(2007: £521 million) of debt denominated in euros (€500(nil; 2007: €500 million) and Swiss francs (CHF350(CHF 500 million; 2006:2007: CHF 500350 million) that was swapped into US dollars on issuance and against which there are related derivative financial instruments, which, as at December 31, 20072008, had a fair value of £155£41 million (2006: £174(2007: £155 million).


F-46

27.  Lease arrangements
 
Finance leases
 
At December 31, 20072008 future finance lease obligations fall due as follows:
 
                
 2007
 2006
  2008
 2007
 
 £m £m  £m £m 
Within one year  5   6   2   5 
In the second to fifth years inclusive  7   7   1   7 
          
  12   13   3   12 
Less future finance charges  (1)  (1)  —   (1)
          
Total  11   12   3   11 
          
Present value of future finance lease obligations payable:                
Within one year  5   6   2   5 
In the second to fifth years inclusive  6   6   1   6 
          
Total  11   12   3   11 
          
 
The fair value of the lease obligations approximates to their carrying amount.
 
Operating leases
 
Reed Elsevier leases various properties, principally offices and warehouses, which have varying terms and renewal rights that are typical to the territory in which they are located.
 
At December 31, 20072008 outstanding commitments under non-cancellable operating leases fall due as follows:
 
              
 2007
 2006
 2008
 2007
 
 £m £m £m £m 
Within one year  104  115  144   104 
In the second to fifth years inclusive  319  354  426   319 
After five years  275  358  293   275 
         
Total  698  827  863   698 
         
 
Of the above outstanding commitments, £680£805 million (2006: £803(2007: £680 million) relate to land and buildings.


F-51

27.  Lease arrangements – (Continued)
 
Reed Elsevier has a number of properties that aresub-leased. The future lease receivables contracted withsub-tenants fall as follows:
 
              
 2007
 2006
 2008
 2007
 
 £m £m £m £m 
Within one year  14  15  21   14 
In the second to fifth years inclusive  42  47  52   42 
After five years  11  21  14   11 
         
Total  67  83  87   67 
         
 
28.  Provisions
 
                        
         2008 2007 
 2007
 2006
  Property
 Restructuring
 Total
 Property
 Restructuring
 Total
 
 £m £m  £m £m £m £m £m £m 
At January 1  28   44   21   —   21   28   —   28 
Charged  22   57   79   —   —   — 
Utilised  (6)  (11)  (9)  —   (9)  (6)  —   (6)
Exchange translation differences  (1)  (5)  11   12   23   (1)  —   (1)
                  
At December 31  21   28   45   69   114   21   —   21 
                  


F-47

28.  Provisions – (Continued)
 
TheProperty provisions are for property lease obligations which relate to estimatedsub-lease shortfalls and guarantees given in respect of certain property leases for various periods up to 2016.2021. Restructuring provisions relate to costs incurred in connection with the major restructuring programme announced in February 2008 and in RBI, principally in respect of severance and outsourcing migration costs.
Provisions have been analysed between current and non-current as set out below:
         
  2008
  2007
 
  £m  £m 
 
Current liabilities  79   — 
Non-current liabilities  35   21 
         
Total  114   21 
         
 
29.  Contingent liabilities and capital commitments
 
There are contingent liabilities amounting to £28£26 million (2006: £36(2007: £28 million) in respect of property lease guarantees.
 
30.  Combined share capitals
 
                       
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
At January 1  191  190   191   197   191   190 
Issue of ordinary shares  3  2   1   1   3   2 
Exchange translation differences  3  (1)  (2)  11   3   (1)
              
At December 31  197  191   190   209   197   191 
              
 
Combined share capitals exclude the shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC.
Disclosures in respect of share capital are given in note 13 to the Reed Elsevier PLC consolidated financial statements and note 14 to the Reed Elsevier NV consolidated financial statements.


F-52

31.  Combined share premiums
 
                       
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
At January 1  1,879  1,805   1,805   2,143   1,879   1,805 
Issue of ordinary shares, net of expenses  174  91   24   53   174   91 
Exchange translation differences  90  (17)  (24)  333   90   (17)
              
At December 31  2,143  1,879   1,805   2,529   2,143   1,879 
              
 
Combined share premiums exclude the share premium in respect of shares of Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC.
 
32.  Combined shares held in treasury
 
                        
   Shares held
      Shares held
   
 Shares held
 by parent
    Shares held
 by parent
   
 by EBT
 companies
 Total
  by EBT
 companies
 Total
 
 £m £m £m  £m £m £m 
At January 1, 2005  66   —   66 
Purchase of shares  27   —   27 
Exchange translation differences  —   —   — 
       
At January 1, 2006  93   —   93   93   —   93 
Purchase of shares  68   217   285   68   217   285 
Exchange translation differences  —   (1)  (1)  —   (1)  (1)
              
At January 1, 2007  161   216   377   161   216   377 
Purchase of shares  74   199   273   74   199   273 
Settlement of share awards  (49)  —   (49)  (49)  —   (49)
Exchange translation differences  —   18   18   —   18   18 
              
At December 31, 2007  186   433   619 
At January 1, 2008  186   433   619 
Purchase of shares  54   40   94 
Settlement of share awards  (8)  —   (8)
Exchange translation differences  —   78   78 
              
At December 31, 2008  232   551   783 
       
 
At December 31, 20072008 shares held in treasury related to 18,723,830 (2006: 17,167,145; 2005: 10,780,776)20,078,899 (2007: 18,723,830; 2006: 17,167,145) Reed Elsevier PLC ordinary shares and 10,100,765 (2006: 9,242,214; 2005: 5,539,922)11,177,422 (2007: 10,100,765; 2006: 9,242,214) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (“EBT’’EBT”); and 35,846,500 (2006: 20,593,500; 2005: nil)34,196,298 (2007: 35,846,500; 2006: 20,593,500) Reed Elsevier PLC ordinary shares and 25,301,500 (2006: 13,381,500; 2005: nil)23,952,791 (2007: 25,301,500; 2006: 13,381,500) Reed Elsevier NV ordinary shares held by the respective parent companies.


F-48

The number of shares held by the EBT and parent companies were reduced by the share consolidations of the parent companies which accompanied the payment of the special distribution from the net proceeds of the disposal of Harcourt Education. The ordinary share capitals of the parent companies were consolidated on the basis of 58 new ordinary shares for every 67 existing ordinary shares, reflecting the ratio of the aggregate special distribution to the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at December 12, 2007, the date of the announcement of the special distribution.
32.  Combined shares held in treasury – (Continued)
 
The EBT purchases Reed Elsevier PLC and Reed Elsevier NV shares which, at the trustees’ discretion, can be used in respect of the exercise of share options and to meet commitments under conditional share awards.
 
33.  Translation reserve
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
At January 1  (136)  89   (122)  (145)  (136)  89 
Exchange differences on translation of foreign operations  (33)  (244)  180   340   (33)  (244)
Cumulative exchange differences on disposal of foreign operations  148   —   —   27   148   — 
Exchange translation differences on capital and reserves  (124)  19   31   (236)  (124)  19 
              
At December 31  (145)  (136)  89   (14)  (145)  (136)
              


F-53

34.  Other combined reserves
 
                                        
 2007 2006 2005  2008 2007 2006 
 Hedge
 Other
        Hedge
 Other
       
 reserve
 reserves
 Total
 Total
 Total
  reserve
 reserves
 Total
 Total
 Total
 
 £m £m £m £m £m  £m £m £m £m £m 
At January 1  37   372   409   (21)  (144)  20   1,369   1,389   409   (21)
Transition adjustment on adoption of IAS39  —   —   —   —   11 
           
At January 1, as restated  37   372   409   (21)  (133)
Profit attributable to parent companies’ shareholders  —   1,200   1,200   623   462   —   476   476   1,200   623 
Dividends declared  —   (416)  (416)  (371)  (336)  —   (2,404)  (2,404)  (416)  (371)
Actuarial gains/(losses) on defined benefit pension schemes  —   224   224   139   (37)
Actuarial (losses)/gains on defined benefit pension schemes  —   (347)  (347)  224   139 
Fair value movements on available for sale investments  —   —   —   3   3   —   (9)  (9)  —   3 
Cumulative fair value movements on disposals of available for sale investments  —   (7)  (7)  —   —   —   —   —   (7)  — 
Fair value movements on cash flow hedges  3   —   3   54   (10)  (243)  —   (243)  3   54 
Tax recognised directly in equity  (2)  (48)  (50)  (60)  (3)  59   97   156   (50)  (60)
Increase in share based remuneration reserve  —   46   46   49   57   —   46   46   46   49 
Settlement of share awards  —   (49)  (49)  —   —   —   (8)  (8)  (49)  — 
Transfer from hedge reserve to net profit (net of tax)  (20)  —   (20)  (5)  (19)  (14)  —   (14)  (20)  (5)
Exchange translation differences  2   47   49   (2)  (5)  (17)  (13)  (30)  49   (2)
                      
At December 31  20   1,369   1,389   409   (21)  (195)  (793)  (988)  1,389   409 
                      
Other reserves principally comprise retained earnings, the share based remuneration reserve and available for sale investment reserve.
 
35.  Related party transactions
 
Transactions between the Reed Elsevier combined businesses have been eliminated within the combined financial statements. Transactions with joint ventures were made on normal market terms of trading and comprise sales of goods and services of £6£4 million (2006:(2007: £6 million; 2005:2006: £6 million). As at December 31, 20072008 amounts owed by joint ventures were £3 million (2007: £7 million (2006: £3 million; 2005:2006: £3 million). Key management personnel are also related parties and comprise the executive directors of Reed Elsevier PLC and Reed Elsevier NV. Transactions with key management personnel are set out below.
 
                     
 2007
 2006
 2005
 2008
 2007
 2006
 
 £m £m £m £m £m £m 
Salaries and other short term employee benefits  8  7  7  7   8   7 
Post employment benefits  1  1  1  1   1   1 
Share based remuneration  9  7  10  10   9   7 
             
Total  18  15  18  18   18   15 
             
 
Post employment benefits represent the service cost under IAS19 — Employee Benefits in relation to defined benefit schemes, together with any contributions made to defined contribution schemes. Share based remuneration is the amount charged in respect of executive directors under IFRS2 — Share Based Payment.


F-49

36.  Post balance sheet eventevents
 
OnIn January 18,2009, term debt of $1,500 million (£1,037 million) and €50 million (£49 million) due in more than five years from December 31, 2008 Reed Elsevier PLC paid a special distribution of 82.0p per ordinary sharewere issued and Reed Elsevier NV paid a special distribution of €1.767 per ordinary share, from the net proceeds of the disposal of Harcourt Education. The aggregate special distribution, announced on December 12, 2007 of £2,013 million was recognised when paid in January 2008.used to repay loans maturing within one to two years.
 
The special distributionsAs at December 31, 2008 short term bank loans, overdrafts and commercial paper were accompaniedbacked up by a consolidation$3,000 million of the ordinary share capital of Reed Elsevier PLC and Reed Elsevier NV on the basis of 58 new ordinary shares for every 67 existing ordinary shares, being the ratio of the aggregate special distribution to the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at the date of the announcement of the special distributions.
On January 30, 2008 the sale of Harcourt Assessment and the remaining Harcourt International businesses, first announcedcommitted bank facilities maturing in May 2007, completed following receipt2010, of regulatory clearance in the United States. Proceeds received on disposal were £330 million.
which $38 million (£26 million) was drawn. On February 20, 2008 Reed Elsevier approved a plan17, 2009 these facilities were reduced to divest Reed Business Information. In the year to December 31, 2007 Reed Business Information reported revenues of £906$2,500 million operating profits of £89(£1,728 million) and new $2,000 million and adjusted operating profits of £119 million.
On February 20, 2008 Reed Elsevier entered into a definitive merger agreement with ChoicePoint, Inc to acquire the company for cash. Taking into account ChoicePoint’s estimated net debt of $0.6 billion, the total value of the transaction is $4.1 billion. The ChoicePoint board will convene a meeting of ChoicePoint shareholders to approve the merger and is unanimous in its recommendation of the merger. The merger is subject to customary regulatory approvals and is expected to be completed later in the year. The transaction will be financed initially through(£1,382 million) committed new bank facilities, to be later refinanced through the issuance of term debt.
ChoicePoint provides unique informationforward starting in May 2010 and analytics to support underwriting decisions within the property and casualty insurance sector; screening and authentication services for employment, real estate leasing and customer enrolment; and public information solutions primarily to banking, professional services and government customers. In 2007 ChoicePoint reported revenues of £491 million, operating income (before goodwill and asset writedowns) of £112 million and earnings before interest, tax, depreciation and amortisation of £144 million.maturing in May 2012, were put in place.


F-50F-54

 
REED ELSEVIER PLC
CONSOLIDATED FINANCIAL STATEMENTS
 


F-51F-55

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and members of Reed Elsevier PLC:
 
We have audited the accompanying consolidated balance sheets of Reed Elsevier PLC and its subsidiaries (“the Company”) as of December 31, 20072008 and 2006,2007, and the related consolidated statements of income, cash flow, recognised income and expense and reconciliation of shareholders’ equity for each of the three years in the period ended December 31, 2007.2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 20072008 and 2006,2007, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2007,2008, in conformity with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and IFRS as issued by the International Accounting Standards Board.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007,2008, based on the criteria established inInternal Control—Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 200818, 2009 (see Item 19 — Exhibit 15.5) expressed an unqualified opinion on the Company’s internal control over financial reporting.
 
DELOITTE & TOUCHE LLP
London, England
February 20, 2008
DELOITTE LLP
London, England
February 18, 2009


F-52F-56

REED ELSEVIER PLC
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note £m £m £m  Note £m £m £m 
Administrative expenses  3  (1)  (2)  (2)  3   (1)  (1)  (2)
Effect of tax credit equalisation on distributed earnings  4  (11)  (10)  (9)  4   (11)  (11)  (10)
Share of results of joint ventures  12  658   343   252   12   258   658   343 
              
Operating profit     646   331   241       246   646   331 
Finance (charges)/income  7  (3)  (3)  1 
Finance income/(charges)  7   1   (3)  (3)
              
Profit before tax     643   328   242       247   643   328 
Taxation  8  (19)  (8)  (7)  8   (6)  (19)  (8)
              
Profit attributable to ordinary shareholders     624   320   235       241   624   320 
              
 
                           
   2007
 2006
 2005
   2008
 2007
 2006
 
 Note pence pence pence Note pence pence pence 
Earnings per ordinary share (EPS)
                            
Basic earnings per share                            
From continuing operations of the combined businesses  10  36.6p  24.1p  15.7p  10   21.2p   36.6p   24.1p 
From discontinued operations of the combined businesses  10  13.1p  1.5p  2.9p  10   0.9p   13.1p   1.5p 
             
From total operations of the combined businesses  10  49.7p  25.6p  18.6p  10   22.1p   49.7p   25.6p 
             
Diluted earnings per share                            
From continuing operations of the combined businesses  10  36.2p  23.8p  15.6p  10   21.0p   36.2p   23.8p 
From discontinued operations of the combined businesses  10  12.9p  1.5p  2.8p  10   0.9p   12.9p   1.5p 
             
From total operations of the combined businesses  10  49.1p  25.3p  18.4p  10   21.9p   49.1p   25.3p 
             
 
The accompanying notes on pages F-57F-61 to F-65F-68 are an integral part of these consolidated financial statements


F-53F-57

REED ELSEVIER PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note £m £m £m  Note £m £m £m 
Cash flows from operating activities
                               
Cash used by operations  11  (2)  (2)  (2)  11   (1)  (2)  (2)
Interest (paid)/received     (3)  (3)  1 
Interest paid      —   (3)  (3)
Tax paid     (16)  (6)  (8)      (10)  (16)  (6)
              
Net cash used in operating activities     (21)  (11)  (9)      (11)  (21)  (11)
              
                               
Cash flows from investing activities
                               
Dividends received from joint ventures     850   596   168       500   850   596 
                               
Cash flows from financing activities
                               
Equity dividends paid  9  (206)  (186)  (168)  9   (1,245)  (206)  (186)
Proceeds on issue of ordinary shares     92   47   14       32   92   47 
Purchase of treasury shares     (92)  (112)  —       (20)  (92)  (112)
Repayment of loan from joint venture  11  (36)  —   — 
Increase in net funding balances due from joint ventures  11  (587)  (334)  (5)
Repayment of loan from joint ventures  11   —   (36)  — 
Decrease/(increase) in net funding balances due from joint ventures  11   744   (587)  (334)
              
Net cash used in financing activities     (829)  (585)  (159)      (489)  (829)  (585)
              
Movement in cash and cash equivalents     —   —   —       —   —   — 
              
 
The accompanying notes on pages F-57F-61 to F-65F-68 are an integral part of these consolidated financial statements


F-54F-58

REED ELSEVIER PLC
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 20072008
 
                      
   2007
 2006
    2008
 2007
 
 Note £m £m  Note £m £m 
Non-current assets
                       
Investments in joint ventures  12  1,584   1,090   12   515   1,584 
          
Total assets     1,584   1,090       515   1,584 
          
Current liabilities
                       
Amounts owed to joint ventures     —   36 
Payables     —   1 
Taxation     16   13       11   16 
          
Total liabilities     16   50       11   16 
          
Net assets     1,568   1,040       504   1,568 
          
Capital and reserves
                       
Called up share capital  13  163   161   13   164   163 
Share premium account  14  1,123   1,033   14   1,154   1,123 
Shares held in treasury (including in joint ventures)  15  (302)  (200)  15   (347)  (302)
Capital redemption reserve  16  4   4   16   4   4 
Translation reserve  17  (37)  (98)  17   157   (37)
Other reserves  18  617   140   18   (628)  617 
          
Total equity     1,568   1,040       504   1,568 
          
 
The accompanying notes on pages F-57F-61 to F-65F-68 are an integral part of these consolidated financial statements


F-55F-59

REED ELSEVIER PLC
CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Profit attributable to ordinary shareholders  624   320   235   241   624   320 
Share of joint ventures’ net income/(expense) recognised directly in equity  77   (57)  71 
Share of joint ventures’ net (expense)/income recognised directly in equity  (54)  77   (57)
Share of joint ventures’ cumulative exchange differences on disposal of foreign operations  78   —   —   14   78   — 
Share of joint ventures’ cumulative fair value movements on disposal of available for sale investments  (4)  —   —   —   (4)  — 
Share of joint ventures’ transfer to net profit from hedge reserve  (11)  (3)  (10)  (8)  (11)  (3)
              
Total recognised income and expense for the year  764   260   296   193   764   260 
              
Share of joint ventures’ transition adjustment on adoption of IAS39  —   —   6 
       
 
CONSOLIDATED RECONCILIATION OF SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note £m £m £m  Note £m £m £m 
Total recognised net income     764   260   296       193   764   260 
Equity dividends declared  9  (206)  (186)  (168)  9   (1,245)  (206)  (186)
Issue of ordinary shares, net of expenses     92   47   14       32   92   47 
Increase in shares held in treasury (including in joint ventures)  15  (130)  (151)  (14)  15   (49)  (130)  (151)
Increase in share based remuneration reserve     24   26   30       24   24   26 
Equalisation adjustments     (16)  2   (2)      (19)  (16)  2 
              
Net increase/(decrease) in shareholders’ equity     528   (2)  156 
Net (decrease)/increase in shareholders’ equity      (1,064)  528   (2)
Shareholders’ equity at January 1     1,040   1,042   880       1,568   1,040   1,042 
Share of joint ventures’ transition adjustment on adoption of IAS39     —   —   6 
              
Shareholders’ equity at December 31     1,568   1,040   1,042       504   1,568   1,040 
              
 
The accompanying notes on pages F-57F-61 to F-65F-68 are an integral part of these consolidated financial statements


F-56F-60

REED ELSEVIER PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
1.  Basis of financial statements
 
On January 1, 1993 Reed Elsevier PLC and Reed Elsevier NV contributed their businesses to two companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier Group plc, which owns all the publishing and information businesses, is incorporated in England and Elsevier Reed Finance BV, which owns the financing and treasury companies, is incorporated in the Netherlands. Reed Elsevier PLC and Reed Elsevier NV each hold a 50% interest in Reed Elsevier Group plc. Reed Elsevier PLC holds a 39% interest in Elsevier Reed Finance BV with Reed Elsevier NV holding a 61% interest. Reed Elsevier PLC additionally holds an indirect equity interest in Reed Elsevier NV, reflecting the arrangements entered into between Reed Elsevier PLC and Reed Elsevier NV at the time of the merger, which determined the equalisation ratio whereby one Reed Elsevier NV ordinary share is, in broad terms, intended to confer equivalent economic interests to 1.538 Reed Elsevier PLC ordinary shares.
 
Under the equalisation arrangements Reed Elsevier PLC shareholders have a 52.9% economic interest in the Reed Elsevier combined businesses and Reed Elsevier NV shareholders (other than Reed Elsevier PLC) have a 47.1% interest. Holders of ordinary shares in Reed Elsevier PLC and Reed Elsevier NV enjoy substantially equivalent dividend and capital rights with respect to their ordinary shares.
 
2.  Accounting policies
 
Basis of preparation
 
These consolidated financial statements report the consolidated income statement, cash flow and financial position of Reed Elsevier PLC, and have been prepared under the historic cost convention and in accordance with accounting policies that are in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and IFRS as adopted by the European Union (“EU”).
 
Unless otherwise indicated, all amounts shown in the financial statements are in pounds sterling (“£”).
 
The basis of the merger of the businesses of Reed Elsevier PLC and Reed Elsevier NV is set out on page 10.11.
 
Determination of profit
 
The Reed Elsevier PLC share of the Reed Elsevier combined results has been calculated on the basis of the 52.9% economic interest of the Reed Elsevier PLC shareholders in the Reed Elsevier combined businesses, after taking account of results arising in Reed Elsevier PLC and its subsidiaries. Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level inclusive of the UK tax credit received by certain Reed Elsevier PLC shareholders. In Reed Elsevier PLC’s consolidated financial statements, an adjustment is required to equalise the benefit of the tax credit between the two sets of shareholders in accordance with the equalisation agreement. This equalisation adjustment arises on dividends paid by Reed Elsevier PLC to its shareholders and reduces the consolidated attributable earnings by 47.1% of the total amount of the tax credit.
 
The accounting policies adopted in the preparation of the combined financial statements are set out onpages F-10 toF-15.
 
Investments
 
Reed Elsevier PLC’s 52.9% economic interest in the net assets of the combined businesses has been shown on the balance sheet as investments in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier PLC and its subsidiaries. Investments in joint ventures are accounted for using the equity method.
 
Foreign exchange translation
 
Transactions in foreign currencies are recorded at the rate of exchange prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing on the balance sheet date. Exchange differences arising are recorded in the income statement. The exchange gains or losses relating to the retranslation of Reed Elsevier PLC’s 52.9% economic interest in the net assets of the combined businesses are classified as equity and transferred to the translation reserve.
 
When foreign operations are disposed of, the related cumulative translation differences are recognised within the income statement in the period.
 
Taxation
 
The tax expense represents the sum of the tax payable on the current year taxable profits, adjustments in respect of prior year taxable profits and the movements on deferred tax that are recognised in the income statement. Tax arising in joint ventures is included in the share of results of joint ventures.


F-57F-61

2.  Accounting policies —– (continued)
 
The tax payable on current year taxable profits is calculated using the applicable tax rate that has been enacted, or substantively enacted, by the balance sheet date.
 
Deferred tax is the tax arising on differences between the carrying amounts of assets and liabilities in the financial statements and their corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that, based on current forecasts, it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
 
Deferred tax is calculated using tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Full provision is made for deferred tax which would become payable on the distribution of retained profits from foreign subsidiaries, associates or joint ventures.
 
Movements in deferred tax are charged or credited in the income statement, except when they relate to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity.
 
Critical judgements and key sources of estimation uncertainty
Critical judgments in the preparation of the combined financial statements are set out on page F-14.
Standards, amendments and interpretations not yet effective
 
Recently issued standards, amendments and interpretations when adoptedand their impact on future accounting policies and reporting have been considered on page F-14 and F-15 of the combined financial statements and are not expected to have a significant impact on the consolidated financial statements.
 
3.  Administrative expenses
 
Administrative expenses include £526,000 (2006: £486,000; 2005: £495,000)£604,000 (2007: £526,000; 2006: £486,000) paid in the year to Reed Elsevier Group plc under a contract for the services of directors and administrative support. Reed Elsevier PLC has no employees (2006:(2007: nil; 2005:2006: nil).
 
4.  Effect of tax credit equalisation on distributed earnings
 
The tax credit equalisation adjustment arises on dividends paid by Reed Elsevier PLC to its shareholders and reduces the consolidated profit attributable to ordinary shareholders by 47.1% of the total amount of the tax credit, as set out in the accounting policies in note 2.
 
5.  Auditors’ remuneration
 
Audit fees payable by Reed Elsevier PLC were £25,000 (2006: £24,000; 2005:£26,000 (2007: £25,000; 2006: £24,000). Further information on the audit and non-audit fees paid by the Reed Elsevier combined businesses to Deloitte & Touche LLP and its associates is set out in note 6 to the combined financial statements.
 
6.  Related party transactions
 
All transactions with joint ventures, which are related parties of Reed Elsevier PLC, are reflected in these financial statements. Key management personnel are also related parties and comprise the executive directors of Reed Elsevier PLC. The remuneration of executive directors of Reed Elsevier PLC is disclosed in note 35 to the combined financial statements.
 
7.  Finance income/(charges)/income
 
            
  2007
  2006
  2005
  £m  £m  £m
 
Finance (charges)/income from joint ventures  (3)  (3)  1
            
             
  2008
 2007
 2006
  £m £m £m
 
Finance income/(charges) from joint ventures  1   (3)  (3)
             
 
8.  Taxation
 
          
  2007
 2006
 2005
  £m £m £m
 
UK corporation tax  19  8  7
          
             
  2008
 2007
 2006
  £m £m £m
 
UK corporation tax  6   19   8 
             


F-58

8.  Taxation — (continued)
 
A reconciliation of the notional tax charge based on the applicable rate of tax to the actual total tax expense is set out below.
 
             
  2007
  2006
  2005
 
  £m  £m  £m 
 
Profit before tax  643   328   242 
             
Tax at applicable rate 30% (2006: 30%; 2005: 30%)  193   98   73 
Tax on share of results of joint ventures  (194)  (103)  (73)
Other  20   13   7 
             
Tax expense  19   8   7 
             


F-62

8.  Taxation — (Continued)
             
  2008
  2007
  2006
 
  £m  £m  £m 
 
Profit before tax  247   643   328 
             
Tax at applicable rate 28% (2007: 30%; 2006: 30%)  69   193   98 
Tax on share of results of joint ventures  (72)  (194)  (103)
Other  9   20   13 
             
Tax expense  6   19   8 
             
 
9.  Equity dividends
 
                      
  2007
  2006
  2005
  2007
 2006
 2005
Dividends declared in the year pence  pence  pence  £m £m £m
 
Ordinary shares                     
Final for prior financial year  11.8p  10.7p  9.6p  149  135  120
Interim for financial year  4.5p  4.1p  3.7p  57  51  48
                      
Total  16.3p  14.8p  13.3p  206  186  168
                      
On January 18, 2008 the company paid a special distribution of 82.0p per ordinary share from the net proceeds of the disposal of Harcourt Education. The distribution of £1,041 million was recognised when paid.
The special distribution was accompanied by a consolidation of ordinary share capital on the basis of 58 new ordinary shares of 1451/116p for every 67 existing ordinary shares of 12.5p, reflecting the ratio of the aggregate special distribution (including that paid by Reed Elsevier NV) to the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at December 12, 2007, the date of the announcement of the special distribution.
                         
  2008
  2007
  2006
  2008
  2007
  2006
 
Ordinary dividends declared in the year pence  pence  pence  £m  £m  £m 
 
Ordinary shares                        
Final for prior financial year  13.6p  11.8p  10.7p  146   149   135 
Interim for financial year  5.3p  4.5p  4.1p  58   57   51 
                         
Total  18.9p  16.3p  14.8p  204   206   186 
                         
 
The directors of Reed Elsevier PLC have proposed a final dividend of 13.6p (2006: 11.8p; 2005: 10.7p)15.0p (2007: 13.6p; 2006: 11.8p). The cost of funding the proposed final dividend is expected to be £147£162 million. No liability has been recognised at the balance sheet date.
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
Dividends paid and proposed relating to the financial year pence pence pence 
Ordinary dividends paid and proposed relating to the financial year pence pence pence 
Ordinary shares                        
Interim (paid)  4.5p  4.1p  3.7p  5.3p  4.5p  4.1p 
Final (proposed)  13.6p  11.8p  10.7p  15.0p  13.6p  11.8p 
              
Total  18.1p  15.9p  14.4p  20.3p  18.1p  15.9p 
              
 
10.  Earnings per ordinary share (“EPS”)
 
                     
 2007 2008 
 Weighted
     Weighted
     
 average
     average
     
 number of
     number of
     
 shares
 Earnings
 EPS
 shares
 Earnings
 EPS
 
 (millions) £m pence (millions) £m pence 
Basic EPS
                     
From continuing operations of the combined businesses  1,256.5  460  36.6p  1,089.5   231   21.2p 
From discontinued operations of the combined businesses  1,256.5  164  13.1p  1,089.5   10   0.9p 
             
From total operations of the combined businesses  1,256.5  624  49.7p  1,089.5   241   22.1p 
             
Diluted EPS
                     
From continuing operations of the combined businesses  1,271.3  460  36.2p  1,101.3   231   21.0p 
From discontinued operations of the combined businesses  1,271.3  164  12.9p  1,101.3   10   0.9p 
             
From total operations of the combined businesses  1,271.3  624  49.1p  1,101.3   241   21.9p 
             
 


F-59F-63

10.  Earnings per ordinary share (“EPS”) —– (continued)
 
                     
 2006 2007 
 Weighted
     Weighted
     
 average
     average
     
 number of
     number of
     
 shares
 Earnings
 EPS
 shares
 Earnings
 EPS
 
 (millions) £m pence (millions) £m pence 
Basic EPS
                     
From continuing operations of the combined businesses  1,251.9  302  24.1p  1,256.5   460   36.6p 
From discontinued operations of the combined businesses  1,251.9  18  1.5p  1,256.5   164   13.1p 
             
From total operations of the combined businesses  1,251.9  320  25.6p  1,256.5   624   49.7p 
             
Diluted EPS
                     
From continuing operations of the combined businesses  1,266.4  302  23.8p  1,271.3   460   36.2p 
From discontinued operations of the combined businesses  1,266.4  18  1.5p  1,271.3   164   12.9p 
             
From total operations of the combined businesses  1,266.4  320  25.3p  1,271.3   624   49.1p 
             
 
                     
 2005 2006 
 Weighted
     Weighted
     
 average
     average
     
 number of
     number of
     
 shares
 Earnings
 EPS
 shares
 Earnings
 EPS
 
 (millions) £m pence (millions) £m pence 
Basic EPS
                     
From continuing operations of the combined businesses  1,266.2  199  15.7p  1,251.9   302   24.1p 
From discontinued operations of the combined businesses  1,266.2  36  2.9p  1,251.9   18   1.5p 
             
From total operations of the combined businesses  1,266.2  235  18.6p  1,251.9   320   25.6p 
             
Diluted EPS
                     
From continuing operations of the combined businesses  1,277.2  199  15.6p  1,266.4   302   23.8p 
From discontinued operations of the combined businesses  1,277.2  36  2.8p  1,266.4   18   1.5p 
             
From total operations of the combined businesses  1,277.2  235  18.4p  1,266.4   320   25.3p 
             
 
The diluted EPS figures are calculated after taking account of the effect of potential additional ordinary shares arising from share options and conditional shares.

F-64

10.  Earnings per ordinary share (“EPS”) – (continued)
 
The weighted average number of shares is after deducting shares held in treasury. Movements in the number of shares in issue net of treasury shares for the year ended December 31, 20072008 are shown below:
 
                                       
 Year Ended December 31,  Year Ended December 31, 
     2007
 2006
 2005
      2008
 2007
 2006
 
     Shares in
 Shares in
 Shares in
      Shares in
 Shares in
 Shares in
 
     issue net of
 issue net of
 issue net of
      issue net of
 issue net of
 issue net of
 
 Shares in
 Treasury
 treasury
 treasury
 treasury
  Shares in
 Treasury
 treasury
 treasury
 treasury
 
 issue
 shares
 shares
 shares
 shares
  issue
 shares
 shares
 shares
 shares
 
 (millions) (millions) (millions) (millions) (millions)  (millions) (millions) (millions) (millions) (millions) 
Number of ordinary shares
                                       
At January 1  1,287.4  (37.8)  1,249.6   1,266.2   1,265.4   1,305.9   (54.6)  1,251.3   1,249.6   1,266.2 
Share consolidation  (175.4)  7.3   (168.1)  —   — 
Issue of ordinary shares  18.5  —   18.5   10.4   3.6   6.4   —   6.4   18.5   10.4 
Share repurchases  —  (15.2)  (15.2)  (20.6)  —   —   (3.2)  (3.2)  (15.2)  (20.6)
Net purchase of shares by employee benefit trust  —  (1.6)  (1.6)  (6.4)  (2.8)  —   (3.8)  (3.8)  (1.6)  (6.4)
                      
At December 31  1,305.9  (54.6)  1,251.3   1,249.6   1,266.2   1,136.9   (54.3)  1,082.6   1,251.3   1,249.6 
                      
Weighted average number of equivalent ordinary shares during the year         1,256.5   1,251.9   1,266.2           1,089.5   1,256.5   1,251.9 
              

F-60

10.  Earnings per ordinary share (“EPS”) — (continued)
 
The weighted average number of shares used in the diluted EPS calculations above is after deducting shares held in treasury and is derived as follows:
 
                     
 2007
 2006
 2005
 2008
 2007
 2006
 
 (millions) (millions) (millions) (millions) (millions) (millions) 
Weighted average number of shares — Basic  1,256.5  1,251.9  1,266.2  1,089.5   1,256.5   1,251.9 
Weighted average number of dilutive shares under option  14.8  14.5  11.0  11.8   14.8   14.5 
             
Weighted average number of shares — Diluted  1,271.3  1,266.4  1,277.2  1,101.3   1,271.3   1,266.4 
             
 
11.  Cash flow statement
 
Reconciliation of administrative expenses to cash used by operations
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
Administrative expenses  (1)  (2)  (2)  (1)  (1)  (2)
Net movement in payables  (1)  —   —   —   (1)  — 
              
Cash used by operations  (2)  (2)  (2)  (1)  (2)  (2)
              
 
Reconciliation of net funding balances due from joint ventures
 
                     
 2007
 2006
 2005
 2008
 2007
 2006
 
 £m £m £m £m £m £m 
At January 1  898  564  559  1,521   898   564 
Cash flow  623  334  5  (744)  623   334 
             
At December 31  1,521  898  564  777   1,521   898 
             


F-65

12.  Investments in joint ventures
 
                
 2007
 2006
  2008
 2007
 
 £m £m  £m £m 
Share of results of joint ventures  658   343   258   658 
Share of joint ventures’:                
Net income/(expense) recognised directly in equity  77   (57)
Net (expense)/income recognised directly in equity  (54)  77 
Cumulative exchange differences on disposal of foreign operations  78   —   14   78 
Cumulative fair value movements on disposal of available for sale investments  (4)  —   —   (4)
Transfer to net profit from hedge reserve  (11)  (3)  (8)  (11)
Purchases of treasury shares by employee benefit trust  (38)  (39)  (29)  (38)
Increase in share based remuneration reserve  24   26   24   24 
Equalisation adjustments  (27)  (8)  (30)  (27)
Dividends received from joint ventures  (850)  (596)  (500)  (850)
Increase in net funding balances due from joint ventures  587   334 
(Decrease)/increase in net funding balances due from joint ventures  (744)  587 
          
Net movement in the year  494   —   (1,069)  494 
At January 1  1,090   1,090   1,584   1,090 
          
At December 31  1,584   1,090   515   1,584 
          
 
Summarised information showing total amounts in respect of joint ventures and Reed Elsevier PLC shareholders’ 52.9% share is set out below.
 


F-61

12.  Investments in joint ventures – (continued)
                                          
 Total joint ventures Reed Elsevier PLC shareholders’ share Total joint ventures Reed Elsevier PLC shareholders’ share 
 2007
 2006
 2005
 2007
 2006
 2005
 2008
 2007
 2006
 2008
 2007
 2006
 
 £m £m £m £m £m £m £m £m £m £m £m £m 
Revenue  4,584  4,509  4,265  2,425  2,385  2,256  5,334   4,584   4,509   2,822   2,425   2,385 
Net profit for the year  1,203  625  464  658  343  252  480   1,203   625   258   658   343 
                         
 
                 
     Reed Elsevier PLC
 
  Total joint ventures  shareholders’ share 
  2007
  2006
  2007
  2006
 
  £m  £m  £m  £m 
 
Total assets  9,778   8,532   5,173   4,549 
Total liabilities  (6,802)  (6,553)  (5,110)  (4,393)
                 
Net assets  2,976   1,979   63   156 
                 
Attributable to:                
Joint ventures  2,965   1,966   63   156 
Minority interests  11   13   —   — 
                 
   2,976   1,979   63   156 
                 
Funding balances due from joint ventures          1,521   934 
                 
Total          1,584   1,090 
                 
Reed Elsevier PLC’s share of joint ventures’ net profit attributable to parent company shareholders for the year excludes the net loss that arose directly in Reed Elsevier PLC of £6 million (2007: £23 million; 2006: £13 million).
                 
     Reed Elsevier PLC
 
  Total joint ventures  shareholders’ share 
  2008
  2007
  2008
  2007
 
  £m  £m  £m  £m 
 
Total assets  12,866   9,778   6,806   5,173 
Total liabilities  (11,885)  (6,802)  (7,068)  (5,110)
                 
Net assets/(liabilities)  981   2,976   (262)  63 
                 
Attributable to:                
Joint ventures  953   2,965   (262)  63 
Minority interests  28   11   —   — 
                 
   981   2,976   (262)  63 
                 
Funding balances due from joint ventures          777   1,521 
                 
Total          515   1,584 
                 
 
The above amounts exclude assets and liabilities held directly by Reed Elsevier PLC and include the counterparty balances of amounts owed to and by other Reed Elsevier businesses. Included within Reed Elsevier PLC’s share of assets and liabilities are cash and cash equivalents of £1,305£198 million (2006: £275(2007: £1,305 million) and borrowings of £1,655£3,249 million (2006: £1,590(2007: £1,655 million) respectively.


F-66

13.  Share capital
 
        
 No. of shares £m 
      
Authorised No. of shares £m        
Ordinary shares of 12.5p each  1,305,891,497  163
Unclassified shares of 12.5p each  165,561,679  21
Ordinary shares of 1451/116p each
  1,136,924,693   164 
Unclassified shares of 1451/116p each
  136,870,379   20 
     
Total     184      184 
     
 
On January 7, 2008 the existing ordinary shares of 12.5p each were consolidated into new ordinary shares of 1451/116p each on the basis of 58 new ordinary shares for every 67 existing ordinary shares. The unclassified shares of 12.5p each not in issue were similarly consolidated into new unclassified shares of 1451/116p each.
 
All of the ordinary shares rank equally with respect to voting rights and rights to receive dividends. There are no restrictions on the rights to transfer shares.
 
Called up share capital — issued and fully paid
 
                                          
 2007 2006 2005 2008 2007 2006 
 
No. of shares
 £m No. of shares £m No. of shares £m No. of shares £m No. of shares £m No. of shares £m 
At January 1  1,287,364,048  161  1,277,013,440  160  1,273,674,009  159  1,305,891,497   163   1,287,364,048   161   1,277,013,440   160 
Share consolidation  (175,418,253)  —   —   —   —   — 
Issue of ordinary shares  18,527,449  2  10,350,608  1  3,339,431  1  6,451,449   1   18,527,449   2   10,350,608   1 
                         
At December 31  1,305,891,497  163  1,287,364,048  161  1,277,013,440  160  1,136,924,693   164   1,305,891,497   163   1,287,364,048   161 
                         
 
The issue of ordinary shares relates to the exercise of share options. Details of share option and conditional share schemes are set out in note 9 to the Reed Elsevier combined financial statements.

F-62

13.  Share capital – (continued)
 
Details of issued shares held in treasury are provided in note 15.
 
14.  Share premium
 
                     
 2007
 2006
 2005
 2008
 2007
 2006
 
 £m £m £m £m £m £m 
At January 1  1,033  987  974  1,123   1,033   987 
Issue of ordinary shares, net of expenses  90  46  13  31   90   46 
             
At December 31  1,123  1,033  987  1,154   1,123   1,033 
             
 
15.  Shares held in treasury
 
                      
 2007
 2006
 2005
 2008
 2007
 2006
 
 £m £m £m £m £m £m 
At January 1  200   49  35  302   200   49 
Share repurchases  92   112  —  20   92   112 
Share of joint ventures’ employee benefit trust purchases  38   39  14  29   38   39 
Share of joint ventures’ settlement of share awards by employee benefit trust  (28)  —  —  (4)  (28)  — 
             
At December 31  302   200  49  347   302   200 
             
 
Details of shares held in treasury are provided in note 32 to the Reed Elsevier combined financial statements.
 
16.  Capital redemption reserve
 
          
  2007
 2006
 2005
  £m £m £m
 
At January 1 and December 31  4  4  4
          
             
  2008
  2007
  2006
 
  £m  £m  £m 
 
At January 1 and December 31  4   4   4 
             


F-67

17.  Translation reserve
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
At January 1  (98)  31   (64)  (37)  (98)  31 
Share of joint ventures’ exchange differences on translation of foreign operations  (17)  (129)  95   180   (17)  (129)
Share of joint ventures’ cumulative exchange differences on disposal of foreign operations  78   —   —   14   78   — 
              
At December 31  (37)  (98)  31   157   (37)  (98)
              


F-63

18.  Other reserves
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 £m £m £m  £m £m £m 
At January 1  140   (91)  (158)  617   140   (91)
Share of joint ventures’ transition adjustment on adoption of IAS39  —   —   6 
       
At January 1 restated  140   (91)  (152)
Profit attributable to ordinary shareholders  624   320   235   241   624   320 
Share of joint ventures’:                        
Actuarial gains/(losses) on defined benefit pension schemes  118   73   (19)
Actuarial (losses)/gains on defined benefit pension schemes  (184)  118   73 
Fair value movements on available for sale investments  —   2   2   (5)  —   2 
Cumulative fair value movements on disposal of available for sale investments  (4)  —   —   —   (4)  — 
Fair value movements on cash flow hedges  2   29   (5)  (129)  2   29 
Tax recognised directly in equity  (26)  (32)  (2)  84   (26)  (32)
Increase in share based remuneration reserve  24   26   30   24   24   26 
Settlement of share awards by employee benefit trust  (28)  —   —   (4)  (28)  — 
Transfer to net profit from hedge reserve  (11)  (3)  (10)  (8)  (11)  (3)
Equalisation adjustments  (16)  2   (2)  (19)  (16)  2 
Equity dividends declared  (206)  (186)  (168)  (1,245)  (206)  (186)
              
At December 31  617   140   (91)  (628)  617   140 
              
 
19.  Contingent liabilities
 
There are contingent liabilities in respect of borrowings of joint ventures guaranteed by Reed Elsevier PLC as follows:
 
       
  2007
 2006
  £m £m
 
Fully and unconditionally guaranteed jointly and severally with Reed Elsevier NV  2,759  2,589
       
         
  2008
  2007
 
  £m  £m 
 
Fully and unconditionally guaranteed jointly and severally with Reed Elsevier NV  5,765   2,759 
         
 
Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 20 to the Reed Elsevier combined financial statements.
 
20.  Post balance sheet events
 
OnIn January 18,2009, term debt of $1,500 million (£1,037 million) and €50 million (£49 million) due in more than five years from December 31, 2008 the company paid a special distribution of 82.0p per ordinary share from the net proceeds of the disposal of Harcourt Education. The distribution, announced on December 12, 2007 of £1,041 million was recognised when paid in January 2008.
The special distribution was accompanied by a consolidation of ordinary share capital on the basis of 58 new ordinary shares of 1451/116p for every 67 existing ordinary shares of 12.5p, being the ratio of the aggregate special distribution (including that paid by Reed Elsevier NV) to the combined market capitalisation of Reed Elsevier PLC and Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at the date of the announcement of the special distribution.
Following the share consolidation, effective January 7, 2008 there were 1,130,473,244 ordinary shares of 1451/116p in issue, of which 46,880,490 were held in treasury including 15,849,192 held by the Reed Elsevier Group plc employee benefit trust. For the purposes of calculating earnings per share, the effective date of the share consolidation is deemed to be January 18, 2008 being the date on which the special distribution was paid.
On January 30, 2008 the sale of Harcourt Assessment and the remaining Harcourt International businesses, first announced in May 2007, completed following receipt of regulatory clearance in the United States. Proceeds received on disposalissued by the Reed Elsevier combined businesses were £330 million.and used to repay loans maturing within one to two years.
 
As at December 31, 2008 short term bank loans, overdrafts and commercial paper in the combined businesses were backed up by $3,000 million of committed bank facilities maturing in May 2010, of which $38 million (£26 million) was drawn. On February 20, 2008 Reed Elsevier approved a plan17, 2009 these facilities were reduced to divest Reed Business Information. In the year to December 31, 2007 Reed Business Information reported revenues of £906$2,500 million operating profits of £89(£1,728 million) and new $2,000 million (£1,382 million) committed bank facilities, forward starting in May 2010 and adjusted operating profits of £119 million.maturing in May 2012, were put in place.


F-64F-68

20.19.  Post balance sheet eventsContingent liabilities — (continued)(Continued)
 
On February 20, 2008 Reed Elsevier entered into a definitive merger agreement with ChoicePoint, Inc to acquire the company for cash. Taking into account ChoicePoint’s estimated net debt of $0.6 billion, the total value of the transaction is $4.1 billion. The ChoicePoint board will convene a meeting of ChoicePoint shareholders to approve the merger and is unanimous in its recommendation of the merger. The merger is subject to customary regulatory approvals and is expected to be completed later in the year. In 2007 ChoicePoint reported revenues of £491 million, operating income (before goodwill and asset writedowns) of £112 million and earnings before interest, tax, depreciation and amortisation of £144 million.


F-65

THIS PAGE INTENTIONALLY BLANK
 


F-66

 
REED ELSEVIER NV
CONSOLIDATED FINANCIAL STATEMENTS
 


F-67F-69

 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the members of the Supervisory and Executive Boards and the shareholders of Reed Elsevier NV:
 
We have audited the accompanying consolidated balance sheets of Reed Elsevier NV (“the Company”) as of December 31, 20072008 and 2006,2007, and the related consolidated statements of income, cash flow, recognised income and expense and reconciliation of shareholders’ equity for each of the three years in the period ended December 31, 2007.2008. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 20072008 and 2006,2007, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2007,2008, in conformity with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and IFRS as issued by the International Accounting Standards Board.
 
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2007,2008, based on the criteria established inInternal Control—Control — Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 20, 200818, 2009 (see Item 19 — Exhibit 15.6) expressed an unqualified opinion on the Company’s internal control over financial reporting.
 
DELOITTE ACCOUNTANTS B.V.
Amsterdam, The Netherlands
February 20, 2008
DELOITTE ACCOUNTANTS B.V.
Amsterdam, The Netherlands
February 18, 2009


F-68F-70

REED ELSEVIER NV
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note €m €m €m  Note €m €m €m 
Administrative expenses  3  (3)  (3)  (3)  4   (3)  (3)�� (3)
Share of results of joint ventures  11  803   455   339   12   239   803   455 
              
Operating profit     800   452   336       236   800   452 
Finance income  6  73   7   2   7   77   73   7 
              
Profit before tax     873   459   338       313   873   459 
Taxation  7  (18)  (1)  —   8   (19)  (18)  (1)
              
Profit attributable to ordinary shareholders     855   458   338       294   855   458 
              
 
                           
 Note 2007 2006 2005 Note 2008 2007 2006 
Earnings per ordinary share (EPS)
                            
Basic earnings per share                            
From continuing operations of the combined business  9 €0.84 €0.56 €0.37
From discontinued operations of the combined business  9 €0.26 €0.03 €0.06
From continuing operations of the combined businesses  10  €0.43  €0.84  €0.56 
From discontinued operations of the combined businesses  10  €0.01  €0.26  €0.03 
             
From total operations of the combined businesses  9 €1.10 €0.59 €0.43  10  €0.44  €1.10  €0.59 
             
Diluted earnings per share                            
From continuing operations of the combined business  9 €0.83 €0.56 €0.36
From discontinued operations of the combined business  9 €0.26 €0.03 €0.07
From continuing operations of the combined businesses  10  €0.43  €0.83  €0.56 
From discontinued operations of the combined businesses  10  €0.01  €0.26  €0.03 
             
From total operations of the combined businesses  9 €1.09 €0.59 €0.43  10  €0.44  €1.09  €0.59 
             
 
The accompanying notes on pages F-73F-75 to F-81F-83 are an integral part of these group financial statements


F-69F-71

REED ELSEVIER NV
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note €m €m €m  Note €m €m €m 
Cash flows from operating activities
                               
Cash used by operations  10  (2)  (3)  (5)  11   (2)  (2)  (3)
Interest received     71   12   1       78   71   12 
Tax (paid)/received     (18)  (1)  2 
Tax paid      (17)  (18)  (1)
              
Net cash from/(used in) operating activities     51   8   (2)
Net cash from operating activities      59   51   8 
              
                               
Cash flows from investing activities
                               
Dividends received from joint ventures     1,410   1,111   189       1,200   1,410   1,111 
                               
Cash flows from financing activities
                               
Equity dividends paid  8  (310)  (272)  (245)  9   (1,569)  (310)  (272)
Proceeds on issue of ordinary shares     124   68   18       27   124   68 
Purchase of treasury shares     (176)  (156)  —       (25)  (176)  (156)
(Increase)/decrease in net funding balances due from joint ventures  10  (1,238)  (612)  16 
Decrease/(increase) in net funding balances due from joint ventures  11   311   (1,238)  (612)
              
Net cash used in financing activities     (1,600)  (972)  (211)      (1,256)  (1,600)  (972)
              
Movement in cash and cash equivalents     (139)  147   (24)      3   (139)  147 
              
 
The accompanying notes on pages F-73F-75 to F-81F-83 are an integral part of these consolidated financial statements


F-70F-72

REED ELSEVIER NV

CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 20072008
 
                      
   2007
 2006
    2008
 2007
 
 Note €m €m  Note €m €m 
Non-current assets
                       
Investments in joint ventures  11  2,075   1,386   12   551   2,075 
Current assets
                       
Amounts due from joint ventures     5   3       4   5 
Cash and cash equivalents     9   148       12   9 
          
     14   151       16   14 
          
Total assets     2,089   1,537       567   2,089 
          
Current liabilities
                       
Payables  12  9   8   13   10   9 
Taxation     64   64       66   64 
          
Total liabilities     73   72       76   73 
          
Net assets     2,016   1,465       491   2,016 
          
Capital and reserves
                       
Share capital issued  13  49   48   14   49   49 
Paid-in surplus  14  1,685   1,562   15   1,712   1,685 
Shares held in treasury (including in joint ventures)  15  (459)  (282)  16   (477)  (459)
Translation reserve  16  (159)  (70)  17   (138)  (159)
Other reserves  17  900   207   18   (655)  900 
          
Total equity     2,016   1,465       491   2,016 
          
 
The accompanying notes on pages F-73F-75 to F-81F-83 are an integral part of these consolidated financial statements


F-71F-73

REED ELSEVIER NV

CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 €m €m €m  €m €m €m 
Profit attributable to ordinary shareholders  855   458   338   294   855   458 
Share of joint ventures’ net (expense)/income recognised directly in equity  (45)  (50)  138 
Share of joint ventures’ net expense recognised directly in equity  (250)  (45)  (50)
Share of joint ventures’ cumulative exchange differences on disposal of foreign operations  103   —   —   27   103   — 
Shares of joint ventures’ cumulative fair value movements on disposal of available for sale investments  (5)  —   —   —   (5)  — 
Share of joint ventures’ transfer to net profit from hedge reserve  (15)  (4)  (14)  (9)  (15)  (4)
              
Total recognised income and expense for the year  893   404   462   62   893   404 
              
Share of joint ventures’ transition adjustment on adoption of IAS 39  —   —   8 
       
 
REED ELSEVIER NV
CONSOLIDATED RECONCILIATION OF SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 20072008
 
                              
   2007
 2006
 2005
    2008
 2007
 2006
 
 Note €m €m €m  Note €m €m €m 
Total recognised net income     893   404   462       62   893   404 
Equity dividends declared  8  (310)  (272)  (245)  9   (1,569)  (310)  (272)
Issue of ordinary shares, net of expenses     124   68   18       27   124   68 
Increase in shares held in treasury (including in joint ventures)  15  (230)  (210)  (20)  16   (59)  (230)  (210)
Increase in share based remuneration reserve     34   36   42       29   34   36 
Equalisation adjustments     40   1   —       (15)  40   1 
              
Net increase in shareholders’ equity     551   27   257 
Net (decrease)/increase in shareholders’ equity      (1,525)  551   27 
Shareholders’ equity at January 1     1,465   1,438   1,173       2,016   1,465   1,438 
Share of joint ventures’ transition adjustment on adoption of IAS39     —   —   8 
              
Shareholders’ equity at December 31     2,016   1,465   1,438       491   2,016   1,465 
              
 
The accompanying notes on pages F-73F-75 to F-81F-83 are an integral part of these consolidated financial statements


F-72F-74

REED ELSEVIER NV

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
1.  Basis of financial statements
 
These consolidated financial statements report the consolidated income statement, cash flow and financial position of Reed Elsevier NV and are presented using the equity method. The consolidated financial statements have been prepared under the historical cost convention.
 
Unless otherwise indicated, all amounts shown in the consolidated financial statements are stated in euros (“€”). Certain disclosures required to comply with Dutch statutory reporting requirements have been omitted.
 
The Reed Elsevier combined financial statements on pages F-3 to F-50F-54 form an integral part of the notes to Reed Elsevier NV’s consolidated financial statements.
 
As a consequence of the merger of the company’s businesses with those of Reed Elsevier PLC, the shareholders of Reed Elsevier NV and Reed Elsevier PLC can be regarded as having the interests of a single economic group, enjoying substantially equivalent ordinary dividend and capital rights in the earnings and net assets of the Reed Elsevier combined businesses.
 
2.  Accounting policies
 
Basis of Preparation
 
These consolidated financial statements, which have been prepared under the historic cost convention, report the statements of income, cash flow and financial position of Reed Elsevier NV, and have been prepared in accordance with accounting policies that are in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU).
 
Unless otherwise indicated, all amounts shown in the financial statements are in euros (“€”).
 
The basis of the merger of the businesses of Reed Elsevier PLC and Reed Elsevier NV is set out on page 10.11.
 
Reed Elsevier NV’s consolidated financial statements are presented incorporating Reed Elsevier NV’s investments in the Reed Elsevier combined businesses accounted for using the equity method, as adjusted for the effects of the equalisation arrangement between Reed Elsevier NV and Reed Elsevier PLC. The arrangement lays down the distribution of dividends and net assets in such a way that Reed Elsevier NV’s share in the profit and net assets of the Reed Elsevier combined businesses equals 50%, with all settlements accruing to shareholders from the equalisation arrangements taken directly to reserves.
 
Because the dividend paid to shareholders by Reed Elsevier NV is, other than in special circumstances, equivalent to the Reed Elsevier PLC dividend plus the UK tax credit received by certain Reed Elsevier PLC shareholders, Reed Elsevier NV normally distributes a higher proportion of the combined profit attributable than Reed Elsevier PLC. Reed Elsevier PLC’s share in this difference in dividend distributions is settled with Reed Elsevier NV and is credited directly to consolidated reserves under equalisation. Reed Elsevier NV can pay a nominal dividend on its R-sharesR shares held by a subsidiary of Reed Elsevier PLC that is lower than the dividend on the ordinary shares. Equally, Reed Elsevier NV has the possibility to receive dividends directly from Dutch affiliates. Reed Elsevier PLC is compensated by direct dividend payments by Reed Elsevier Group plc. The settlements flowing from these arrangements are also taken directly to consolidated reserves under equalisation.
 
Combined financial statements
 
The accounting policies adopted in the preparation of the combined financial statements are set out on pages F-10 to F-15.
 
Basis of valuation of assets and liabilities
 
Reed Elsevier NV’s 50% economic interest in the net assets of the combined businesses has been shown on the consolidated balance sheet as investments in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier NV. Joint ventures are accounted for using the equity method.
 
Cash and cash equivalents are stated at fair value. Other assets and liabilities are stated at historical cost, less provision, if appropriate, for any impairment in value.
 
Foreign exchange translation
 
Transactions in foreign currencies are recorded at the rate of exchange prevailing on the date of the transaction. At each balance sheet date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rate prevailing on the balance sheet date. Exchange differences arising are recorded in the income statement. The gains or losses relating to the retranslation of Reed Elsevier NV’s 50% interest in the net assets of the combined businesses are classified as equity and transferred to the translation reserve.


F-73F-75

2.  Accounting policies — (continued)– (Continued)
 
When foreign operations are disposed of, the related cumulative translation differences are recognised within the income statement in the period.
 
Taxation
 
The tax expense represents the sum of the tax payable on the current year taxable profits, adjustments in respect of prior year taxable profits and the movements on deferred tax that are recognised in the income statement. Tax arising in joint ventures is included in the share of results of joint ventures.
 
The tax payable on current year taxable profits is calculated using the applicable tax rate that has been enacted, or substantively enacted, by the balance sheet date.
 
Deferred tax is the tax arising on differences between the carrying amounts of assets and liabilities in the financial statements and their corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that, based on current forecasts, it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
 
Deferred tax is calculated using tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Full provision is made for deferred tax which would become payable on the distribution of retained profits from foreign subsidiaries, associates or joint ventures.
 
Movements in deferred tax are charged or credited in the income statement, except when they relate to items charged or credited directly to equity, in which case the deferred tax is also recognised in equity.
 
Critical judgements and key sources of estimation uncertainty
Critical judgments in the preparation of the combined financial statements are set out on page F-14.
Standards, amendments and interpretations not yet effective
 
Recently issued standards, amendments and interpretations when adoptedand their impact on future accounting policies and reporting have been considered on page F-14 and F-15 of the combined financial statements and are not expected to have a significant impact on the consolidated financial statements.
 
3.  Basis of preparation
The consolidated financial statements of Reed Elsevier NV reflect the 50% economic interest that its shareholders have under the equalisation arrangements in the Reed Elsevier combined businesses, accounted for on an equity basis.
The Reed Elsevier combined financial statements are presented in pounds sterling, which is the functional currency of Reed Elsevier Group plc, a UK registered company which owns the publishing and information businesses of Reed Elsevier. The following analysis presents how the consolidated financial statements of Reed Elsevier NV, presented in euros, are derived from the Reed Elsevier combined financial statements.
                 
Reed Elsevier NV consolidated profit attributable to ordinary shareholders
 Note  2008  2007  2006 
 
Reed Elsevier combined businesses net profit attributable to parent company shareholders in pounds sterling      £476m   £1,200m  £623m 
Reed Elsevier combined businesses net profit attributable to parent company shareholders in pounds sterling translated into euros at average exchange rates      €600m   €1,752m  €916m 
Impact of exchange translation differences  (i)  €(13)m   €(43)m   — 
                 
Reed Elsevier combined businesses net profit attributable to parent company shareholders in euros      €587m   €1,709m  €916m 
Reed Elsevier NV’s 50% share of combined net profit attributable to ordinary shareholders      €294m   €855m  €458m 
                 
(i) The combined financial statements include gains on disposal of discontinued operations which, due to their individual significance, are translated using exchange rates prevailing on the date of the transaction rather than the average exchange rates for the year. The gains on disposal also include cumulative currency translation losses since adoption of IFRS previously taken to reserves. Consequently, the gains expressed in euros, are €13 million (2007: €43 million, 2006: nil) lower than the amounts derived by translating the gains expressed in sterling at average euro:sterling exchange rates (2008: €1.26 to £1.00; 2007: €1.46 to £1.00; 2006: €1.47 to £1.00).


F-76

3.  Basis of preparation – (Continued)
         
Reed Elsevier NV consolidated total equity
 2008  2007 
 
Reed Elsevier combined shareholders’ equity in pounds sterling £953m  £2,965m 
Reed Elsevier combined shareholders’ equity in pounds sterling translated into euros at year end exchange rates (2008: €1.03 to £1.00; 2007: €1.36 to £1.00) €982m  €4,032m 
Reed Elsevier NV’s 50% share of combined equity €491m  €2,016m 
         
4.  Administrative expenses
 
Administrative expenses are stated after the gross remuneration for present and former directors of Reed Elsevier NV in respect of services rendered to Reed Elsevier NV and the combined businesses. Fees for members of the Supervisory Board of Reed Elsevier NV of €0.2 million (2006:(2007: €0.2 million; 2005:2006: €0.2 million) are included in gross remuneration. Insofar as gross remuneration is related to services rendered to Reed Elsevier Group plc group and Elsevier Reed Finance BV group, it is borne by these groups. Reed Elsevier NV has no employees (2006:(2007: nil; 2005:2006: nil).
 
4.5.  Auditors’ remuneration
 
Audit fees payable by Reed Elsevier NV were €47,000 (2006: €46,000; 2005:€48,000 (2007: €47,000; 2006: €46,000). Further information on the audit and non-audit fees paid by the Reed Elsevier combined businesses to Deloitte Accountants B.V. and its associates is set out in note 6 to the combined financial statements.
 
5.6.  Related party transactions
 
All transactions with joint ventures, which are related parties of Reed Elsevier NV, are reflected in these financial statements. Key management personnel are also related parties and comprise the executive directorsmembers of the Executive Board of Reed Elsevier NV. The remuneration of executive directorsmembers of the Executive Board of Reed Elsevier NV is disclosed in note 35 to the combined financial statements.
 
6.7.  Finance income
 
       
  2007
 2006
 2005
  €m €m €m
 
Finance income from joint ventures 73 7 2
       
             
  2008
  2007
  2006
 
  €m  €m  €m 
 
Finance income from joint ventures  77   73   7 
             
 
7.8.  Taxation
 
A reconciliation of the notional tax charge based on the applicable rate of tax to the actual total tax expense is set out below.
 


F-74

7.  Taxation — (continued)
       
  2007
 2006
 2005
  €m €m €m
 
Profit before tax 873 459 338
       
Tax at applicable rate 25.5% (2006: 29.6%; 2005: 31.5%) 223 136 106
Tax on share of results of joint ventures (205) (135) (106)
       
Tax expense 18 1 —
       
8.  Equity dividends
             
  2007
 2006
 2005
 2007
 2006
 2005
Dividends declared in the year € € € €m €m €m
 
Ordinary shares            
Final for prior financial year € 0.304 € 0.267 € 0.240 225 197 177
Interim for financial year € 0.114 € 0.102 € 0.092 85 75 68
R-shares — — — — — —
   ��         
Total € 0.418 € 0.369 € 0.332 310 272 245
             
The directors of Reed Elsevier NV have proposed a final dividend of €0.311 (2006: €0.304; 2005: €0.267). The cost of funding the proposed final dividend is expected to be €195 million. No liability has been recognised at the balance sheet date.
        
  2007
 2006
 2005
Dividends paid and proposed relating to the financial year € € €
 
Ordinary shares       
Interim (paid) €0.114 € 0.102 € 0.092
Final (proposed) €0.311 € 0.304 € 0.267
R-Shares  — — —
        
Total €0.425 € 0.406 € 0.359
        
             
  2008
  2007
  2006
 
  €m  €m  €m 
 
Profit before tax  313   873   459 
             
Tax at applicable rate 25.5% (2007: 25.5%; 2006: 29.6%)  80   223   136 
Tax on share of results of joint ventures  (61)  (205)  (135)
             
Tax expense  19   18   1 
             
 
9.  Earnings per ordinary share (“EPS”)Equity dividends
 
        
  2007
  Weighted
    
  average
    
  number of
    
  shares
 Earnings
 EPS
  (millions) €m €
 
Basic EPS
       
From continuing operations of the combined businesses  774.9 651 €0.84
From discontinued operations of the combined businesses  774.9 204 €0.26
        
From total operations of the combined businesses  774.9 855 €1.10
        
Diluted EPS
       
From continuing operations of the combined businesses  784.1 651 €0.83
From discontinued operations of the combined businesses  784.1 204 €0.26
        
From total operations of the combined businesses  784.1 855 €1.09
        
On January 18, 2008 the company paid a special distribution of €1.767 per ordinary share from the net proceeds of the disposal of Harcourt Education. The distribution of €1,299 million was recognised when paid.
The special distribution was accompanied by a consolidation of ordinary share capital on the basis of 58 new ordinary shares of €0.07 for every 67 existing ordinary shares of €0.06, reflecting the ratio of the aggregate special distribution (including that paid by Reed Elsevier PLC) to the combined market capitalisation of Reed Elsevier NV and Reed Elsevier PLC (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) as at December 12, 2007, the date of the announcement of the special distribution. The existing R shares of €0.60 were consolidated on a similar basis into new R shares of €0.70.
 

F-75F-77

9.  Equity dividends — (Continued)
             
  2008
 2007
 2006
 2008
 2007
 2006
Ordinary dividends declared in the year € € € €m €m €m
 
Ordinary shares            
Final for prior financial year €0.311 €0.304 €0.267 198 225 197
Interim for financial year €0.114 €0.114 €0.102 72 85 75
R shares — — — — — —
             
Total €0.425 €0.418 €0.369 270 310 272
             
The directors of Reed Elsevier NV have proposed a final dividend of €0.290 (2007: €0.311; 2006: €0.304). The cost of funding the proposed final dividend is expected to be €181 million. No liability has been recognised at the balance sheet date.
          
  2008
 2007
 2006
Ordinary dividends paid and proposed relating to the financial year € € €
 
Ordinary shares         
Interim (paid) €0.114 €0.114 €0.102
Final (proposed) €0.290 €0.311 €0.304
R shares  —  —  —
          
Total €0.404 €0.425 €0.406
          
10.  Earnings per ordinary share (“EPS”)
             
  2008 
  Weighted
       
  average
       
  number of
       
  shares
  Earnings
  EPS
 
  (millions)  €m  € 
 
Basic EPS
            
From continuing operations of the combined businesses  669.0   289  €0.43 
From discontinued operations of the combined businesses  669.0   5  €0.01 
             
From total operations of the combined businesses  669.0   294  €0.44 
             
Diluted EPS
            
From continuing operations of the combined businesses  674.9   289  €0.43 
From discontinued operations of the combined businesses  674.9   5  €0.01 
             
From total operations of the combined businesses  674.9   294  €0.44 
             
             
  2007 
  Weighted
       
  average
       
  number of
       
  shares
  Earnings
  EPS
 
  (millions)  €m  € 
 
Basic EPS
            
From continuing operations of the combined businesses  774.9   651  €0.84 
From discontinued operations of the combined businesses  774.9   204  €0.26 
             
From total operations of the combined businesses  774.9   855  €1.10 
             
Diluted EPS
            
From continuing operations of the combined businesses  784.1   651  €0.83 
From discontinued operations of the combined businesses  784.1   204  €0.26 
             
From total operations of the combined businesses  784.1   855  €1.09 
             

F-78

10.  Earnings per ordinary share (“EPS”) – (continued)
 
             
  2006 
  Weighted
       
  average
       
  number of
       
  shares
  Earnings
  EPS
 
  (millions)  €m  € 
 
Basic EPS
            
From continuing operations of the combined businesses  772.1   434  €0.56 
From discontinued operations of the combined businesses  772.1   24  €0.03 
             
From total operations of the combined businesses  772.1   458  €0.59 
             
Diluted EPS
            
From continuing operations of the combined businesses  781.7   434  €0.56 
From discontinued operations of the combined businesses  781.7   24  €0.03 
             
From total operations of the combined businesses  781.7   458  €0.59 
             
          
  2005
  Weighted
    
  average
    
  number of
    
  shares
 Earnings
 EPS
  (millions) €m €
 
Basic EPS
         
From continuing operations of the combined businesses  783.1  288 €0.37
From discontinued operations of the combined businesses  783.1  50 €0.06
          
From total operations of the combined businesses  783.1  338 €0.43
          
Diluted EPS
         
From continuing operations of the combined businesses  789.9  288 €0.36
From discontinued operations of the combined businesses  789.9  50 €0.07
          
From total operations of the combined businesses  789.9  338 €0.43
          
 
The diluted EPS figures are calculated after taking account of the effect of potential additional ordinary shares arising from share options and conditional shares.
 
The weighted average number of shares takes into account R shares and is after deducting shares held in treasury. Movements in the number of shares in issue net of treasury shares for the year ended December 31, 20072008 are shown below:
 
                              
 Year Ended December 31, Year Ended December 31, 
     2007
 2006
 2005
     2008
 2007
 2006
 
     Shares in
 Shares in
 Shares in
     Shares in
 Shares in
 Shares in
 
     issue net of
 issue net of
 issue net of
     issue net of
 issue net of
 issue net of
 
 Shares in
 Treasury
 treasury
 treasury
 treasury
 Shares in
 Treasury
 treasury
 treasury
 treasury
 
 issue
 shares
 shares
 shares
 shares
 issue
 shares
 shares
 shares
 shares
 
 (millions) (millions) (millions) (millions) (millions) (millions) (millions) (millions) (millions) (millions) 
Number of ordinary shares
                              
At January 1 748.6 (22.6) 726.0 736.3 736.4  760.3   (35.4)  724.9   726.0   736.3 
Share consolidation  (102.1)  4.7   (97.4)  —   —��
Issue of ordinary shares 11.7 — 11.7 6.8 1.9  2.4   —   2.4   11.7   6.8 
Share repurchases — (11.9) (11.9) (13.4) —  —   (2.1)  (2.1)  (11.9)  (13.4)
Net purchase of shares by employee benefit trust — (0.9) (0.9) (3.7) (2.0)  —   (2.4)  (2.4)  (0.9)  (3.7)
                     
At December 31 760.3 (35.4) 724.9 726.0 736.3  660.6   (35.2)  625.4   724.9   726.0 
                     
Weighted average number of equivalent ordinary shares during the year     774.9 772.1 783.1          669.0   774.9   772.1 
             

F-76

9.  Earnings per ordinary share (“EPS”) – (continued)
 
The average number of equivalent ordinary shares takes into account the “R”R shares in the company held by a subsidiary of Reed Elsevier PLC, which represents a 5.8% interest in the company’s share capital.
 
The weighted average number of shares used in the calculation of diluted EPS is after deducting shares held in treasury and is derived as follows:
 
                  
 2007
 2006
 2005
 2008
 2007
 2006
 
 (millions) (millions) (millions) (millions) (millions) (millions) 
Weighted average number of shares — Basic 774.9 772.1 783.1  669.0   774.9   772.1 
Weighted average number of dilutive shares under options 9.2 9.6 6.8  5.9   9.2   9.6 
             
Weighted average number of shares — Diluted 784.1 781.7 789.9  674.9   784.1   781.7 
             

F-79

10.  Cash flow statement
11.  Cash flow statement
 
Reconciliation of administrative expenses to cash used by operations
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 €m €m €m  €m €m €m 
Administrative expenses  (3)  (3)  (3)  (3)  (3)  (3)
Net movement in payables  1   —   (2)  1   1   — 
              
Cash used by operations  (2)  (3)  (5)  (2)  (2)  (3)
              
 
Reconciliation of net funding balances due from joint ventures
 
                      
 2007
 2006
 2005
  2008
 2007
 2006
 
 €m €m €m  €m €m €m 
At January 1  626  14  30   1,864   626   14 
Cash flow  1,238  612  (16)  (311)  1,238   612 
              
At December 31  1,864  626  14   1,553   1,864   626 
              
 
11.  Investments in joint ventures
12.  Investments in joint ventures
 
                
 2007
 2006
  2008
 2007
 
 €m €m  €m €m 
Share of results of joint ventures  803   455   239   803 
Share of joint ventures’:                
Net expense recognised directly in equity ��(45)  (50)  (250)  (45)
Cumulative exchange differences on disposal of foreign operations  103   —   27   103 
Cumulative fair value movements on disposal of available for sale investments  (5)  —   —   (5)
Transfer to net profit from hedge reserve  (15)  (4)  (9)  (15)
Purchases of treasury shares by employee benefit trust  (54)  (54)  (34)  (54)
Increase in share based remuneration reserve  34   36   29   34 
Equalisation adjustments  40   1   (15)  40 
Dividends received from joint ventures  (1,410)  (1,111)  (1,200)  (1,410)
Increase in net funding balances due from joint ventures  1,238   612 
(Decrease)/increase in net funding balances due from joint ventures  (311)  1,238 
          
Net movement in the year  689   (115)  (1,524)  689 
At January 1  1,386   1,501   2,075   1,386 
          
At December 31  2,075   1,386   551   2,075 
          


F-77

11.  Investments in joint ventures – (continued)
 
Summarised information showing total amounts in respect of joint ventures and Reed Elsevier NV’sNV shareholders’ 50% share is set out below:
 
                                          
 Total joint ventures Reed Elsevier NV share Total joint ventures Reed Elsevier NV share 
 2007
 2006
 2005
 2007
 2006
 2005
 2008
 2007
 2006
 2008
 2007
 2006
 
 €m €m €m €m €m €m €m €m €m €m €m €m 
Revenue  6,693  6,628  6,227  3,347  3,314  3,114  6,721   6,693   6,628   3,361   3,347   3,314 
Net profit for the year  1,713  919  677  803  455  339  592   1,713   919   239   803   455 
                         
 
                 
  Total joint ventures  Reed Elsevier NV share 
  2007
  2006
  2007
  2006
 
  €m  €m  €m  €m 
 
Total assets  13,298   12,713   6,635   6,209 
Total liabilities  (9,251)  (9,764)  (6,424)  (5,449)
                 
Net assets  4,047   2,949   211   760 
                 
Attributable to:                
Joint ventures  4,032   2,929   211   760 
Minority interests  15   20   —   — 
                 
   4,047   2,949   211   760 
                 
Net funding balances due from joint ventures          1,864   626 
                 
Total          2,075   1,386 
                 
Reed Elsevier NV’s share of joint ventures’ net profit attributable to parent company shareholders for the year excludes the net profit that arose directly in Reed Elsevier NV of €55 million (2007: €52 million, 2006: €3 million).


F-80

12.  Investments in joint ventures – (continued)
                 
  Total joint ventures  Reed Elsevier NV shareholders’ share 
  2008
  2007
  2008
  2007
 
  €m  €m  €m  €m 
 
Total assets  13,251   13,298   6,610   6,635 
Total liabilities  (12,241)  (9,251)  (7,612)  (6,424)
                 
Net assets/(liabilities)  1,010   4,047   (1,002)  211 
                 
Attributable to:                
Joint ventures  981   4,032   (1,002)  211 
Minority interests  29   15   —   — 
                 
   1,010   4,047   (1,002)  211 
                 
Net funding balances due from joint ventures          1,553   1,864 
                 
Total          551   2,075 
                 
 
The above amounts exclude assets and liabilities held directly by Reed Elsevier NV and include the counterparty balances of amounts owed to and by other Reed Elsevier businesses. Included within Reed Elsevier NV’s share of assets and liabilities are cash and cash equivalents of €1,669€181 million (2006: €239(2007: €1,669 million) and borrowings of €3,336 million (2007: €2,242 million (2006: €2,232 million). respectively.
 
12.  Payables
13.  Payables
 
Included within payables are employee convertible debenture loans of €8€10 million (2006:(2007: €8 million) with a weighted average interest rate of 5.28% (2007: 4.99% (2006: 4.68%). Depending on the conversion terms, the surrender of €227 or €200 par value debenture loans qualifies for the acquisition of 50 Reed Elsevier NV ordinary shares.
 
13.  Share capital
14.  Share capital
 
Authorised
 
       
  No. of shares €m
 
Ordinary shares of €0.06 each  2,100,000,000  126
Unclassified shares of €0.60 each  30,000,000  18
       
Total     144
       
         
  No. of shares  €m 
 
Ordinary shares of €0.07 each  1,800,000,000   126 
R shares of €0.70 each  26,000,000   18 
         
Total      144 
         
 
On January 7, 2008 the existing ordinary shares of €0.06 each were consolidated into new ordinary shares of €0.07 each on the basis of 58 new ordinary shares for every 67 existing ordinary shares. The existingR-Shares R shares of €0.60 were consolidated on a similar basis into newR-Shares R shares of €0.70.


F-78

13.  Share capital – (continued)
 
Issued and fully paid
                
    Ordinary
   Ordinary
  
  R-shares
 shares
 R-shares
 shares
 Total
  Number Number €m €m €m
 
At January 1, 2005  4,679,249  740,090,600  3  44  47
Issue of ordinary shares  —  1,714,630  —  —  —
                
At January 1, 2006  4,679,249  741,805,230  3  44  47
Issue of ordinary shares  —  6,791,894  —  1  1
                
At January 1, 2007  4,679,249  748,597,124  3  45  48
Issue of ordinary shares  —  11,653,240  —  1  1
                
At December 31, 2007  4,679,249  760,250,364  3  46  49
                
                     
     Ordinary
     Ordinary
    
  R shares
  shares
  R shares
  shares
  Total
 
  Number  Number  €m  €m  €m 
 
At January 1, 2006  4,679,249   741,805,230   3   44   47 
Issue of ordinary shares  —   6,791,894   —   1   1 
                     
At January 1, 2007  4,679,249   748,597,124   3   45   48 
Issue of ordinary shares  —   11,653,240   —   1   1 
                     
At January 1, 2008  4,679,249   760,250,364   3   46   49 
Share consolidation  (628,529)  (102,123,146)  —   —   — 
Issue of ordinary shares  —   2,502,244   —   —   — 
                     
At December 31, 2008  4,050,720   660,629,462   3   46   49 
                     

F-81

14.  Share capital – (continued)
 
The issue of ordinary shares relates to the exercise of share options. Details of share option and conditional share schemes are set out in note 9 to the Reed Elsevier combined financial statements.
 
Details of issued shares held in treasury are provided in note 15.16.
 
At December 31, 2007 4,523,094 R-shares2008 3,915,541 R shares were held by a subsidiary of Reed Elsevier PLC. The R-sharesR shares are convertible at the election of the holders into ten ordinary shares each. They have otherwise the same rights as the ordinary shares, except that Reed Elsevier NV may pay a lower dividend on the R-shares.R shares.
 
14.  Paid-in surplus
15.  Paid-in surplus
 
                     
 2007
 2006
 2005
 2008
 2007
 2006
 
 €m €m €m €m €m €m 
At January 1  1,562  1,495  1,477  1,685   1,562   1,495 
Issue of ordinary shares  123  67  18  27   123   67 
             
At December 31  1,685  1,562  1,495  1,712   1,685   1,562 
             
 
Within paid-in surplus, an amount of €1,535 million (2007: €1,508 million (2006:million; 2006: €1,385 million; 2005: €1,318 million) is free of tax.
 
15.  Shares held in treasury
16.  Shares held in treasury
 
                      
 2007
 2006
 2005
 2008
 2007
 2006
 
 €m €m €m €m €m €m 
At January 1  282   68  47  459   282   68 
Share repurchases  176   156  —  25   176   156 
Share of joint ventures’ employee benefit trust purchases  54   54  20  34   54   54 
Share of joint ventures’ settlement of share awards by employee benefit trust  (36)  —  —  (5)  (36)  — 
Exchange translation differences  (17)  4  1  (36)  (17)  4 
             
At December 31  459   282  68  477   459   282 
             
 
Share repurchases in 2007 include €21 million in respect of the repurchase of 156,155R-sharesR shares from a subsidiary of Reed Elsevier PLC.
 
Details of shares held in treasury are provided in note 32 to the Reed Elsevier combined financial statements.
17.  Translation reserve
             
  2008
  2007
  2006
 
  €m  €m  €m 
 
At January 1  (159)  (70)  76 
Share of joint ventures’ exchange differences on translation of foreign operations  (6)  (192)  (146)
Share of joint ventures’ cumulative exchange differences on disposal of foreign operations  27   103   — 
             
At December 31  (138)  (159)  (70)
             


F-79F-82

16.  Translation reserve
18.  Other reserves
 
                        
 2007
 2006
 2005
  2008
 2007
 2006
 
 €m €m €m  €m €m €m 
At January 1  (70)  76   (98)  900   207   (112)
Share of joint ventures’ exchange differences on translation of foreign operations  (192)  (146)  174 
Share of joint ventures’ cumulative exchange differences on disposal of foreign operations  103   —   — 
Profit attributable to ordinary shareholders  294   855   458 
Share of joint ventures’:            
Actuarial (losses)/gains on defined benefit pension schemes  (219)  165   102 
Fair value movements on available for sale investments  (6)  —   2 
Cumulative fair value movements on disposal of available for sale investments  —   (5)  — 
Fair value movements on cash flow hedges  (153)  2   40 
Tax recognised directly in equity  98   (37)  (44)
Increase in share based remuneration reserve  29   34   36 
Settlement of share awards by employee benefit trust  (5)  (36)  — 
Transfer to net profit from hedge reserve  (9)  (15)  (4)
Equalisation adjustments  (15)  40   1 
Equity dividends declared  (1,569)  (310)  (272)
              
At December 31  (159)  (70)  76   (655)  900   207 
              
 
17.  Other reserves
             
  2007
  2006
  2005
 
  €m  €m  €m 
 
At January 1  207   (112)  (206)
Share of joint ventures’ transition adjustment on adoption of IAS39  —   —   8 
             
At January 1 as restated  207   (112)  (198)
Profit attributable to ordinary shareholders  855   458   338 
Share of joint ventures’:            
Actuarial gains/(losses) on defined benefit pension schemes  165   102   (27)
Fair value movements on available for sale investments  —   2   2 
Cumulative fair value movements on disposal of available for sale investments  (5)  —   — 
Fair value movements on cash flow hedges  2   40   (8)
Tax recognised directly in equity  (37)  (44)  (2)
Increase in share based remuneration reserve  34   36   42 
Settlement of share awards by employee benefit trust  (36)  —   — 
Transfer to net profit from hedge reserve  (15)  (4)  (14)
Equalisation adjustments  40   1   — 
Equity dividends declared  (310)  (272)  (245)
             
At December 31  900   207   (112)
             
18.  Contingent liabilities
19.  Contingent liabilities
 
There are contingent liabilities in respect of borrowings of joint ventures guaranteed by Reed Elsevier NV as follows:
 
       
  2007
 2006
  €m €m
 
Fully and unconditionally guaranteed jointly and severally with Reed Elsevier PLC  3,745  3,858
       
         
  2008
  2007
 
  €m  €m 
 
Fully and unconditionally guaranteed jointly and severally with Reed Elsevier PLC  5,917   3,745 
         
 
Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 20 to the Reed Elsevier combined financial statements.
20.  Post balance sheet events
 
19.  Post balance sheet events
OnIn January 18,2009, term debt of $1,500 million (€1,068 million) and €50 million due in more than five years from December 31, 2008 the company paid a special distribution of €1.767 per ordinary share from the net proceeds of the disposal of Harcourt Education. The distribution, announced on December 12, 2007 of €1,299 million was recognised when paid in January 2008.
The special distribution was accompanied by a consolidation of ordinary share capital on the basis of 58 new ordinary shares of €0.07 for every 67 existing ordinary shares of €0.06, being the ratio of the aggregate special distribution (including that paid by Reed Elsevier PLC) to the combined market capitalisation of Reed Elsevier NV (excluding the 5.8% indirect equity interest in Reed Elsevier NV held by Reed Elsevier PLC) and Reed Elsevier PLC as at the date of the announcement of the special distribution. The existing R-Shares of €0.60 were consolidated on a similar basis into new R-Shares of €0.70.


F-80

19.  Post balance sheet events – (continued)
Following the share consolidation, effective January 7, 2008 there were 658,127,218 ordinary shares of €0.07 in issue, of which 30,584,845 were held in treasury including 8,682,054 held by the Reed Elsevier Group plc employee benefit trust. Additionally, post share consolidation there were 4,050,720 R-Shares of €0.70 in issue, of which 135,179 were held in treasury. For the purposes of calculating earnings per share, the effective date of the share consolidation is deemed to be January 18, 2008 being the date on which the special distribution was paid.
On January 30, 2008 the sale of Harcourt Assessment and the remaining Harcourt International businesses, first announced in May 2007, completed following receipt of regulatory clearance in the United States. Proceeds received on disposalissued by the Reed Elsevier combined businesses were €449 million.and used to repay loans maturing within one to two years.
 
As at December 31, 2008 short term bank loans, overdrafts and commercial paper in the combined businesses were backed up by $3,000 million of committed bank facilities maturing in May 2010, of which $38 million (€27 million) was drawn. On February 20, 2008 Reed Elsevier approved a plan17, 2009 these facilities were reduced to divest Reed Business Information. In the year to December 31, 2007 Reed Business Information reported revenues of €1,323$2,500m (€1,780 million) and new $2,000 million operating profits of €130 million(€1,424 million) committed bank facilities, forward starting in May 2010 and adjusted operating profits of €174 million.
On February 20, 2008 Reed Elsevier entered into a definitive merger agreement with ChoicePoint, Inc to acquire the company for cash. Taking into account ChoicePoint’s estimated net debt of $0.6 billion, the total value of the transaction is $4.1 billion. The ChoicePoint board will convene a meeting of ChoicePoint shareholders to approve the merger and is unanimousmaturing in its recommendation of the merger. The merger is subject to customary regulatory approvals and is expected to be completed laterMay 2012, were put in the year. In 2007 ChoicePoint reported revenues of €717 million, operating income (before goodwill and asset writedowns) of €164 million and earnings before interest, tax, depreciation and amortisation of €210 million.place.


F-81F-83

 
GLOSSARY OF TERMS
 
Terms used in Annual Report onForm 20-F
US equivalent or brief description
 
AccrualsAccrued expenses
 
Adjusted operating cash flowCash generated from operations plus dividends from joint ventures less net capital expenditure on property, plant and equipment and internally developed intangible assets, and excluding payments in relation to exceptional restructuring and acquisition related costs
Adjusted operating marginAdjusted operating profit expressed as a percentage of revenue. This is a key financial measure used by management to evaluate performance and allocate resources
Adjusted operating profitOperating profit before amortisation of acquired intangible assets and goodwill impairment, exceptional restructuring and acquisition integrationrelated costs and grossed up to exclude the equity share of taxes in joint ventures. This is a key financial measure used by management to evaluate performance and allocate resources and is presented in accordance with IAS14: Segment Reporting
 
AllottedIssued
 
AssociateAn entity in which Reed Elsevier has a participating interest and, in the opinion of the directors, can exercise significant influence on its management
 
Bank borrowingsPayable to banks
 
Called up share capitalIssued share capital
 
Capital allowancesTax term equivalent to US tax depreciation allowances
 
Capital and reservesShareholders’ equity
Cash flow conversionAdjusted operating cash flow expressed as a percentage of adjusted operating profit
 
Combined businessesReed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures
 
Current instalments of loansLong term debt due within one year
 
EPSEarnings per ordinary share
 
Finance leaseCapital lease
 
Free cash flowOperating cash flow excluding the effects of interest, tax and dividends
 
InvestmentsNon-current investments
 
FreeholdOwnership with absolute rights in perpetuity
 
Interest receivableInterest income
 
Interest payableInterest expense
 
Net borrowingsGross borrowings, less related derivative financial instrument assets and cash and cash equivalents
 
Net cash acquiredCash less debt acquired with a business
 
PrepaymentsPrepaid expenses
 
ProfitIncome
 
Profit attributableNet income
 
Reed ElsevierReed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures
 
Share based remunerationStock based compensation
 
Shareholders’ equityShareholders’ funds
 
Share premium accountPremiums paid in excess of par value of ordinary shares
 
RevenueSales
 
Underlying growthThe year on year growth calculated excluding the effects of acquisitions, disposals and the impact of currency translationtranslation. This is a key financial measure as it provides an assessment of year on year organic growth without distortion for part year contributions and the impact of changes in foreign exchange rates


F-82F-84

 
ITEM 19: EXHIBITS
 
Exhibits filed as part of this annual report
 
     
 1.1 Memorandum and Articles of Association of Reed Elsevier PLC (incorporated by reference from Exhibit 1.1 to the 2002 Annual Report onForm 20-F filed with the SEC on March 10, 2003)
 1.2 Articles of Association of Reed Elsevier NV
 1.3 Governing Agreement, dated April 15, 1999 between Reed International P.L.C. and Elsevier NV (incorporated by reference from Exhibit 3.3 to the 2000 Annual Report onForm 20-F filed with the SEC on March 13, 2001)
 1.4 RHBV Agreement, dated December 23, 1992 among Elsevier NV and Reed Holding B.V. (incorporated by reference from Exhibit 1.4 to the 2002 Annual Report onForm 20-F filed with the SEC on March 10, 2003)
 2.1 Deposit Agreement, dated as of October 27, 2003 among Reed Elsevier PLC, The Bank of New York and all holders from time to time of American Depositary Receipts (incorporated by reference from Exhibit (a)(1) to Amendment No. 1 to the Registration Statement onForm F-6 filed by Reed Elsevier PLC with the SEC on October 17, 2003)
 2.2 Deposit Agreement, dated as of October 27, 2003 among Reed Elsevier NV, The Bank of New York and all holders from time to time of American Depositary Receipts (incorporated by reference from Exhibit (a)(1) to Amendment No. 1 to the Registration Statement onForm F-6 filed by Reed Elsevier NV with the SEC on October 17, 2003)
 4.1 Agreement and Plan of Merger, dated October 27, 2000 among Reed Elsevier Inc., REH Mergersub Inc. and Harcourt General, Inc. (incorporated by reference from Exhibit 10.11 to the Registration Statement onForm F-3 filed with the SEC on November 29, 2000 (the “2000Form F-3 Registration Statement”)
 4.2 Sale and Purchase Agreement, dated October 27, 2000 between Reed Elsevier Inc. and The Thomson Corporation (incorporated by reference from Exhibit 10.13 to the 2000Form F-3 Registration Statement)
 4.3 Reed Elsevier Group plc Share Option Scheme (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.4 Reed Elsevier Group plc Long Term Incentive Share Option Scheme (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.5 Reed Elsevier Group plc Bonus Investment Plan (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.6 Reed Elsevier Group plc Bonus Investment Plan (2002) (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.7 Reed Elsevier Group plc Executive Share Option Schemes (No. 2) (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.8 Reed Elsevier Group plc Executive UK and Overseas Share Option Schemes (incorporated by reference from Exhibit 10.6 to the 2000Form F-3 Registration Statement)
 4.9 Reed Elsevier Group plc Retention Share Plan (as amended on March 13, 2006) (incorporated by reference from exhibit 4.9 on the 2006 Annual Report onForm 20-F filed with the SEC on March 22, 2007)
 4.10 Reed Elsevier US Salary Investment Plan (incorporated by reference from Exhibit 4.10 to the Registration Statement onForm S-8 filed with the SEC on October 2, 2000)
 4.11 Reed Elsevier Group plc Long Term Incentive Share Option Scheme (as restated for awards granted on or after April 19, 2006) (incorporated by reference from exhibit 4.11 on the 2006 Annual Report onForm 20-F filed with the SEC on March 22, 2007)
 4.12 Sale and Purchase Agreement, dated July 16, 2007 between Reed Elsevier Group plc, HMRH Acquisition Co., Houghton Mifflin Riverdeep Group plc and Education Media and Publishing Group Limited
 4.13 Sale and Purchase Agreement, dated May 4, 2007 between Reed Elsevier Group plc and Pearson plc
 4.14 Agreement and plan of merger by and among ChoicePoint Inc., Reed Elsevier Group plc and Deuce Acquisition Inc., dated February 20, 2008
 8  List of significant subsidiaries, associates, joint ventures and business units
 12.1 Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier PLC
 12.2 Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier PLC
 12.3 Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier NV
 12.4 Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier NV
     
 1.1 Articles of Association of Reed Elsevier PLC
 1.2 Articles of Association of Reed Elsevier NV (incorporated by reference from Exhibit 1.2 to the 2007 Annual Report onForm 20-F filed with the SEC on March 20, 2008)
 1.3 Governing Agreement, dated April 15, 1999 between Reed International P.L.C. and Elsevier NV (incorporated by reference from Exhibit 3.3 to the 2000 Annual Report onForm 20-F filed with the SEC on March 13, 2001)
 1.4 RHBV Agreement, dated December 23, 1992 among Elsevier NV and Reed Holding B.V. (incorporated by reference from Exhibit 1.4 to the 2002 Annual Report onForm 20-F filed with the SEC on March 10, 2003)
 2.1 Deposit Agreement, dated as of October 27, 2003 among Reed Elsevier PLC, The Bank of New York and all holders from time to time of American Depositary Receipts (incorporated by reference from Exhibit(a)(1) to Amendment No. 1 to the Registration Statement onForm F-6 filed by Reed Elsevier PLC with the SEC on October 17, 2003)
 2.2 Deposit Agreement, dated as of October 27, 2003 among Reed Elsevier NV, The Bank of New York and all holders from time to time of American Depositary Receipts (incorporated by reference from Exhibit(a)(1) to Amendment No. 1 to the Registration Statement onForm F-6 filed by Reed Elsevier NV with the SEC on October 17, 2003)
 4.1 Agreement and Plan of Merger, dated October 27, 2000 among Reed Elsevier Inc., REH Mergersub Inc. and Harcourt General, Inc. (incorporated by reference from Exhibit 10.11 to the Registration Statement onForm F-3 filed with the SEC on November 29, 2000 (the “2000Form F-3 Registration Statement”)
 4.2 Sale and Purchase Agreement, dated October 27, 2000 between Reed Elsevier Inc. and The Thomson Corporation (incorporated by reference from Exhibit 10.13 to the 2000Form F-3 Registration Statement)
 4.3 Reed Elsevier Group plc Share Option Scheme (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.4 Reed Elsevier Group plc Long Term Incentive Share Option Scheme (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.5 Reed Elsevier Group plc Bonus Investment Plan (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.6 Reed Elsevier Group plc Bonus Investment Plan (2002) (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.7 Reed Elsevier Group plc Executive Share Option Schemes (No. 2) (incorporated by reference from Exhibit 4.3 to the 2003 Annual Report onForm 20-F filed with the SEC on March 15, 2004)
 4.8 Reed Elsevier Group plc Executive UK and Overseas Share Option Schemes (incorporated by reference from Exhibit 10.6 to the 2000Form F-3 Registration Statement)
 4.9 Reed Elsevier Group plc Retention Share Plan (as amended on March 13, 2006) (incorporated by reference from exhibit 4.9 on the 2006 Annual Report onForm 20-F filed with the SEC on March 22, 2007)
 4.10 Reed Elsevier US Salary Investment Plan (incorporated by reference from Exhibit 4.10 to the Registration Statement onForm S-8 filed with the SEC on October 2, 2000)
 4.11 Reed Elsevier Group plc Long Term Incentive Share Option Scheme (as restated for awards granted on or after April 19, 2006) (incorporated by reference from exhibit 4.11 to the 2006 Annual Report onForm 20-F filed with the SEC on March 22, 2007)
 4.12 Sale and Purchase Agreement, dated July 16, 2007 between Reed Elsevier Group plc, HMRH Acquisition Co., Houghton Mifflin Riverdeep Group plc and Education Media and Publishing Group Limited (incorporated by reference from exhibit 4.12 to the 2007 Annual Report onForm 20-F filed with the SEC on March 20, 2008)
 4.13 Sale and Purchase Agreement, dated May 4, 2007 between Reed Elsevier Group plc and Pearson plc (incorporated by reference from exhibit 4.13 to the 2007 Annual Report onForm 20-F filed with the SEC on March 20, 2008)
 4.14 Agreement and plan of merger by and among ChoicePoint Inc., Reed Elsevier Group plc and Deuce Acquisition Inc., dated February 20, 2008 (incorporated by reference from exhibit 4.14 to the 2007 Annual Report onForm 20-F filed with the SEC on March 20, 2008)
 8  List of significant subsidiaries, associates, joint ventures and business units
 12.1 Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier PLC
 12.2 Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier PLC


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 13.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier PLC
 13.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier PLC
 13.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier NV
 13.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier NV
 15.1 Independent Registered Public Accounting Firm’s Consent — Reed Elsevier Combined Financial Statements
 15.2 Independent Registered Public Accounting Firm’s Consent — Reed Elsevier PLC Consolidated Financial Statements
 15.3 Independent Registered Public Accounting Firm’s Consent — Reed Elsevier NV Consolidated Financial Statements
 15.4 Report of Independent Registered Public Accounting Firm on internal control over financial reporting — Reed Elsevier combined businesses
 15.5 Report of Independent Registered Public Accounting Firm on internal control over financial reporting — Reed Elsevier PLC
 15.6 Report of Independent Registered Public Accounting Firm on internal control over financial reporting — Reed Elsevier NV
     
 12.3 Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier NV
 12.4 Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier NV
 13.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier PLC
 13.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier PLC
 13.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier NV
 13.4 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier NV
 15.1 Independent Registered Public Accounting Firm’s Consent — Reed Elsevier Combined Financial Statements
 15.2 Independent Registered Public Accounting Firm’s Consent — Reed Elsevier PLC Consolidated Financial Statements
 15.3 Independent Registered Public Accounting Firm’s Consent — Reed Elsevier NV Consolidated Financial Statements
 15.4 Report of Independent Registered Public Accounting Firm on internal control over financial reporting — Reed Elsevier combined businesses
 15.5 Report of Independent Registered Public Accounting Firm on internal control over financial reporting — Reed Elsevier PLC
 15.6 Report of Independent Registered Public Accounting Firm on internal control over financial reporting — Reed Elsevier NV
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The total amount of long term debt securities of Reed Elsevier authorised under any single instrument does not exceed 10% of the combined total assets of Reed Elsevier. The Registrants hereby agree to furnish to the Commission, upon its request, a copy of any instrument defining the rights of holders of long term debt of Reed Elsevier or any of the combined businesses for which consolidated or unconsolidated financial statements are required to be filed.

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SIGNATURES
 
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, each of the Registrants certifies that it meets all of the requirements for filing onForm 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorised, on March 20, 2008.13, 2009.
 
   
REED ELSEVIER PLC
Registrant		 REED ELSEVIER NV
Registrant
   
   
   
By: /s/ SIR CRISPIN DAVIS

Sir Crispin Davis
Chief Executive Officer		 By: /s/ SIR CRISPIN DAVIS

Sir Crispin Davis
Chairman of the Executive Board &
Chief Executive Officer
   
   
   
By: /s/ M H ARMOUR

M H Armour
Chief Financial Officer		 By: /s/ M H ARMOUR
M H Armour
Member, Executive Board &
Chief Financial Officer
   
   
   
Dated: March 20, 200813, 2009 Dated: March 20, 200813, 2009


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(Bowne Bug)
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