As filed with the Securities and Exchange Commission on March 10, 2003 | |||
SECURITIES AND EXCHANGE COMMISSION |
FORM 20-F |
(Mark One) | |
| [ ] | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 | or |
| [ X ] | ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | For the fiscal year ended December 31, 2002 | or |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | For the transition period from to | Commission file number: 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) |
| 25 Victoria Street | Sara Burgerhartstraat 25 |
| London SW1H 0EX | 1055 KV Amsterdam |
| England | The Netherlands |
| (Address of principal executive offices) | (Address of principal executive offices) |
Securities registered or to be registered pursuant to section 12(b) of the Act: | |
| Title of each class | Name of exchange on which registered |
| Reed Elsevier PLC: | |
| American Depositary Shares (each representing four Reed Elsevier PLC ordinary shares) | New York Stock Exchange |
| Ordinary shares of 12.5p each | |
| (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 each | |
| (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, 2002:
|
| Title of each class | |
| Reed Elsevier PLC: | Number of outstanding shares |
| Ordinary shares of 12.5p each | 1,268,374,499 |
| Reed Elsevier NV: | |
| Ordinary shares of €0.06 each | 738,355,094 |
| R-shares of €0.60 each (held by a subsidiary of Reed Elsevier PLC) | 4,679,249 |
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 | [ X ] | No | [ ] |
Indicate by check mark which financial statement item the registrants have elected to follow: |
| Item 17 | [ ] | Item 18 | [ X ] |
* The registrants have responded to Item 18 in lieu of responding to this Item. |
Reed Elsevier PLC (formerly Reed International P.L.C.) and Reed Elsevier NV (formerly Elsevier NV) conduct their business through two jointly owned companies, Reed Elsevier Group plc (formerly Reed Elsevier 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, which Reed Elsevier NV adopted in 1999 as its primary currency for the presentation of financial information and the declaration of dividends. For a discussion of the effects of the introduction of the euro on Reed Elsevier’s combined results of operations and combined financial position, see “Item 5: Operating and Financial Review and Prospects”. The rates used in the preparation of the financial statements for the 2002 financial year were $1.50 per £1.00 and $0.9434 per €1.00 for profit and loss account items (the average prevailing exchange rate during the year) and $1.60 per £1.00 and $1.0463 per €1.00 for balance sheet items (the rate prevailing at December 31, 2002). € amounts for periods prior to the 1999 financial year have been stated using the relevant Dutch guilder amounts, translated at the Official Conversion Rate of Dfl2.20371 per €1.00 which was fixed at January 1, 1999. For a discussion of the effects of currency fluctuations on Reed Elsevier’s combined results of operations and combined financial position, see “Item 5: Operating and Financial Review and Prospects”. Noon Buying Rates are not used in the preparation of the financial statements included in this annual report except where indicated for certain convenience translations. At December 31, 2002, the Noon Buying Rates were $1.6095 per £1.00 and $1.0485 per €1.00; at February 18, 2003, the Noon Buying Rates were $1.5921 per £1.00 and $1.0708 per €1.00. |
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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; |
• | business plans; |
• | 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: |
• | general 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; |
• | customer acceptance of our products and services; |
• | uncertainties as to whether our strategies and business plans will produce the expected returns; |
• | demand for our products and services; |
• | significant failures or interruptions of our electronic delivery platforms; |
• | our ability to maintain high quality management; |
• | changes in law and legal interpretation affecting our intellectual property rights; |
• | legislative, fiscal and regulatory developments and political risks; |
• | requirements or actions of anti-trust authorities; |
• | changes in the seasonal and cyclical nature of the markets for our products and services; |
• | changes in public funding and spending by schools, academic institutions and states; |
• | disruption to our business or markets arising from acts of terrorism or war; 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 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” on page F-78 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. |
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REED ELSEVIER 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, London and Deloitte & Touche, Amsterdam. Combined Profit and Loss Account Data |
| Year ended December 31,(1) | ||||||
| 1998 | 1999 | 2000 | 2001 | 2002 | 2002(2) | |
| (in millions) | ||||||
| Amounts in accordance with UK and Dutch GAAP: | ||||||
| Turnover | ||||||
| Continuing operations | £3,163 | £3,390 | £3,768 | £4,560 | £5,020 | $8,080 |
| Discontinued operations(4) | 28 | — | — | — | — | — |
| £3,191 | £3,390 | £3,768 | £4,560 | £5,020 | $8,080 | |
| Adjusted operating profit (including joint ventures)(3) | ||||||
| Continuing operations | £813 | £792 | £793 | £990 | £1,133 | $1,824 |
| Discontinued operations(4) | — | — | — | — | — | — |
| Amortisation of goodwill and intangible assets (including joint ventures) | (332) | (373) | (468) | (501) | (527) | (848) |
| Exceptional items charged to operating income(5) | (79) | (239) | (115) | (98) | (99) | (160) |
| Operating profit (including joint ventures) | 402 | 180 | 210 | 391 | 507 | 816 |
| Non operating exceptional items(5) | 682 | 7 | 85 | 26 | (12) | (19) |
| Profit on ordinary activities before interest | 1,084 | 187 | 295 | 417 | 495 | 797 |
| Net interest expense | (40) | (82) | (103) | (142) | (206) | (332) |
| Profit on ordinary activities before taxation | 1,044 | 105 | 192 | 275 | 289 | 465 |
| Tax on profit on ordinary activities | (271) | (167) | (159) | (148) | (107) | (172) |
| Minority interests | (1) | (1) | — | (1) | (1) | (2) |
| Profit/(loss) attributable to parent companies’ shareholders | £772 | £(63) | £33 | £126 | £181 | $291 |
| Adjusted amounts:(3) | ||||||
| Adjusted operating profit | £813 | £792 | £793 | £990 | £1,133 | $1,824 |
| Adjusted profit before tax | 773 | 710 | 690 | 848 | 927 | 1,492 |
| Adjusted profit attributable to parent companies’ shareholders | 571 | 527 | 511 | 624 | 682 | 1,098 |
| Amounts in accordance with US GAAP: | ||||||
| Continuing operations | ||||||
| Amortisation of goodwill and intangible assets (including joint ventures) | (809) | (456) | (546) | (575) | (304) | (489) |
| Operating income | 13 | 109 | 236 | 313 | 729 | 1,173 |
| Taxes | (194) | (100) | (74) | (191) | (157) | (253) |
| Net (loss)/income from continuing operations | (122) | (73) | 60 | (20) | 365 | 587 |
| Discontinued operations | ||||||
| Net (loss) from trading operations | (1) | — | — | — | — | — |
| Gain on sales net of provisions | 521 | — | — | — | — | — |
| Net income from discontinued operations | 520 | — | — | — | — | — |
| Net income/(loss) | £398 | £(73) | £60 | £(20) | £365 | $587 |
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Combined Balance Sheet Data |
| As at December 31,(1) | ||||||
| 1998 | 1999 | 2000 | 2001 | 2002 | 2002(2) | |
| (in millions) | ||||||
| Amounts in accordance with UK and Dutch GAAP: | ||||||
| Total assets | £5,760 | £5,272 | £7,470 | £9,838 | £8,752 | $14,086 |
| Long term obligations less current portion | (520) | (377) | (623) | (2,108) | (1,935) | (3,114) |
| Net borrowings | (962) | (1,066) | (433) | (3,229) | (2,732) | (4,397) |
| Combined shareholders’ funds(6) | 2,130 | 1,855 | 3,041 | 2,917 | 2,659 | 4,280 |
| Amounts in accordance with US GAAP: | ||||||
| Total assets | £6,443 | £5,896 | £8,162 | £11,137 | £10,187 | $16,396 |
| Long term obligations less current portion | (1,122) | (772) | (1,724) | (3,659) | (3,294) | (5,302) |
| Combined shareholders’ funds(6) | 2,833 | 2,423 | 3,707 | 3,467 | 3,344 | 5,382 |
(1) | The combined financial statements are prepared in accordance with accounting policies that are in conformity with UK and Dutch GAAP, which differ in certain significant respects from US GAAP. The principal differences between UK and Dutch GAAP and US GAAP which are relevant to Reed Elsevier are set out in note 29 to the combined financial statements. | |
(2) | Noon buying rates as at December 31, 2002 have been used to provide a convenience translation into US dollars. | |
(3) | UK and Dutch GAAP allow the presentation of alternative earnings measures. Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are presented as additional performance measures. Adjusted figures are reconciled to the reported figures for the three years ended December 31, 2002 in note 12 to the combined financial statements. US GAAP does not permit the presentation of alternative earnings measures. | |
(4) | Discontinued operations are presented in accordance with UK and Dutch GAAP, and comprise IPC Magazines and the consumer book publishing operations which were the final elements of the consumer segment sold in 1998. | |
(5) | Exceptional items are significant items within Reed Elsevier’s ordinary activities which, under UK and Dutch GAAP, need to be disclosed separately by virtue of their size or incidence. The items do not qualify as extraordinary under US GAAP and are considered a part of operating results. | |
Exceptional items charged to operating profit, under UK and Dutch GAAP, are: | ||
(i) | in 2002 £42 million in respect of reorganisation costs related to employee severance, principally in the Business and Legal segments; and £57 million in respect of acquisition related costs arising on the integration and rationalisation of the Scientific, Technical & Medical business and the US Schools and Testing businesses of Harcourt General, Inc (“Harcourt”) and other recent acquisitions; | |
(ii) | in 2001 £35 million in respect of reorganisation costs related to headcount reduction, principally in the Business division; and £63 million in respect of acquisition related costs arising on the integration of Harcourt and other recent acquisitions, and costs relating to the financing of the Harcourt tender offer; | |
(iii) | in 2000 £77 million in respect of a major programme of reorganisation across Reed Elsevier businesses, commenced in 1999; and £38 million in respect of acquisition related costs; | |
(iv) | in 1999 £161 million in respect of a major programme of reorganisation across Reed Elsevier businesses, the costs of which include employee severance, surplus leasehold property obligations and fixed asset write offs; and £78 million in respect of Year 2000 compliance and acquisition related costs; and | |
(v) | in 1998 £79 million in respect of Year 2000 compliance and acquisition related costs. | |
Non operating exceptional items in 2002 arise primarily from the sale and closure of businesses in the Business segment, partly offset by a net gain on disposal of fixed asset investments, comprising a £21m profit on sale of investments acquired on the acquisition of Harcourt less a £17m loss on other fixed asset investments; in 2001 from the net profit on disposal of OAG Worldwide, Cahners Travel Group, Bowker and certain training businesses in the Netherlands; in 2000 from the net profit on disposal of Springhouse, KG Saur and REZsolutions, Inc.; in 1999 from the disposal of fixed asset investments; and in 1998 from the net profit on disposal of IPC Magazines. | ||
For further details see note 8 to the combined financial statements. | ||
(6) | On December 5, 2000, following a joint international offering, Reed Elsevier PLC issued 113,700,000 new 12.5p ordinary shares at 625p each and Reed Elsevier NV issued 66,255,000 new €0.06 ordinary shares at €14.50 each. The purpose of the offering was to finance the proposed acquisition by Reed Elsevier of the Scientific, Technical & Medical business and the US Schools Education and Testing businesses of Harcourt. | |
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REED ELSEVIER PLC 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, London. |
| Year ended December 31,(1) | ||||||
| 1998 | 1999 | 2000 | 2001 | 2002 | 2002(2) | |
| (in millions, except per share amounts) | ||||||
| Amounts in accordance with UK GAAP: | ||||||
| Share of adjusted profit before tax(3) | £409 | £376 | £365 | £449 | £490 | $789 |
| Share of amortisation of goodwill and intangible assets | (176) | (197) | (248) | (265) | (279) | (449) |
| Share of exceptional items before tax(4) | 319 | (122) | (15) | (38) | (58) | (94) |
| Reed Elsevier NV’s share of UK tax credit on distributed earnings | (12) | (6) | (6) | (6) | (7) | (11) |
| Profit on ordinary activities before tax | 540 | 51 | 96 | 140 | 146 | 235 |
| Tax on profit on ordinary activities | (144) | (90) | (85) | (79) | (57) | (92) |
| Profit/(loss) attributable to ordinary shareholders | £396 | £(39) | £11 | £61 | £89 | $143 |
| Basic earnings/(loss) per Reed Elsevier PLC ordinary share | 34.7p | (3.4p) | 1.0p | 4.8p | 7.0p | 11.3¢ |
| Diluted earnings/(loss) per Reed Elsevier PLC ordinary share | 34.6p | (3.4p) | 1.0p | 4.8p | 7.0p | 11.3¢ |
| Gross dividends per Reed Elsevier PLC ordinary share(5) | 17.3p | 11.1p | 11.1p | 11.7p | 12.2p | 19.6¢ |
| Total assets | £1,292 | £1,090 | £1,745 | £1,683 | £1,556 | $2,505 |
| Long term obligations | (36) | (36) | (36) | (36) | (36) | (58) |
| Shareholders’ funds(6) | 1,127 | 981 | 1,609 | 1,543 | 1,407 | 2,265 |
| Adjusted amounts:(3) | ||||||
| Adjusted profit before tax | 409 | 376 | 365 | 449 | 490 | 789 |
| Adjusted profit attributable to ordinary shareholders | 302 | 279 | 270 | 330 | 361 | 581 |
| Adjusted earnings per Reed Elsevier PLC ordinary share | 26.4p | 24.4p | 23.3p | 26.1p | 28.5p | 45.9¢ |
| Amounts in accordance with US GAAP: | ||||||
| Net income/(loss) | £191 | £(47) | £27 | £(16) | £186 | $299 |
| Basic earnings/(loss) per Reed Elsevier PLC ordinary share | 16.7p | (4.1p) | 2.3p | (1.3p) | 14.7p | 23.7¢ |
| Diluted earnings/(loss) per Reed Elsevier PLC ordinary share | 16.7p | (4.1p) | 2.3p | (1.3p) | 14.7p | 23.7¢ |
| Total assets | £1,544 | £1,328 | £2,009 | £1,880 | £1,815 | $2,921 |
| Long term obligations | (36) | (36) | (36) | (36) | (36) | (58) |
| Shareholders’ funds(6) | 1,499 | 1,282 | 1,961 | 1,834 | 1,768 | 2,847 |
(1) | The consolidated financial statements of Reed Elsevier PLC are prepared in accordance with accounting policies that are in conformity with UK GAAP, which differs in certain significant respects from US GAAP. The principal differences between UK GAAP and US GAAP which are relevant to Reed Elsevier PLC are set out in note 22 to the Reed Elsevier PLC financial statements. | |
(2) | Noon buying rates as at December 31, 2002 have been used to provide a convenience translation into US dollars | |
(3) | UK GAAP allows the presentation of alternative earnings measures. Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are presented as additional performance measures. Adjusted figures are reconciled to the reported figures for the three years ended December 31, 2002 in note 11 to the Reed Elsevier PLC consolidated financial statements. US GAAP does not permit the presentation of alternative earnings measures. | |
(4) | Share of exceptional items before tax includes Reed Elsevier PLC’s share of Reed Elsevier’s exceptional items: | |
(i) | in 2002 exceptional charges relate to reorganisation costs, principally employee severance in the Business and Legal segments, and acquisition related costs arising on the integration and rationalisation of Harcourt and other recent acquisitions. Basic earnings per Reed Elsevier PLC ordinary share include 4.2p (loss) in respect of these items. Exceptional net losses, amounting to 0.5p per Reed Elsevier PLC ordinary share, arose in 2002 in respect of disposals of businesses and fixed asset investments; | |
(ii) | in 2001 exceptional charges relate to reorganisation costs, principally headcount reduction in the Business division, acquisition related costs arising on the integration of Harcourt and other recent acquisitions, and costs relating to the financing of the Harcourt tender offer. Basic earnings per Reed Elsevier PLC ordinary share include 4.1p (loss) in respect of these items. Exceptional gains, amounting to 1.1p per Reed Elsevier PLC ordinary share, arose in 2001 primarily in respect of the disposal of OAG Worldwide, Cahners Travel Group, Bowker and certain training businesses in the Netherlands; | |
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(iii) | in 2000 exceptional charges principally relate to the costs of a major programme of reorganisation across Reed Elsevier businesses, commenced in 1999. Basic earnings per Reed Elsevier PLC ordinary share include 5.3p (loss) in respect of these items. Exceptional gains, amounting to 3.9p per Reed Elsevier PLC ordinary share, arose in 2000 in respect of the disposal of Springhouse, KG Saur and REZsolutions; | |
(iv) | in 1999 exceptional items relate to the costs of a major programme of reorganisation across Reed Elsevier businesses and to Year 2000 compliance and acquisition related costs. Reorganisation costs include employee severance, surplus leasehold property obligations and fixed asset write-offs. Basic earnings per Reed Elsevier PLC ordinary share include 11.0p (loss) in respect of these items; and | |
(v) | in 1998 exceptional items principally relate to the gain on disposal of IPC Magazines. Basic earnings per Reed Elsevier PLC ordinary share under, respectively, US GAAP and UK GAAP includes 24.1p and 27.4p in respect of this item. Additionally, basic earnings per Reed Elsevier PLC ordinary share includes 12.3p loss under US GAAP in respect of a non-recurring incremental charge for amortisation of goodwill and intangible assets arising on a re-evaluation of the estimated useful lives of these assets under US GAAP. | |
(5) | The amount of gross dividends per Reed Elsevier PLC ordinary share shown includes the UK tax credit available to certain Reed Elsevier PLC shareholders, including beneficial owners of Reed Elsevier PLC ADSs who are residents of the US for the purposes of the UK Tax Treaty, but 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”. | |
(6) | On December 5, 2000, Reed Elsevier PLC issued 113,700,000 new 12.5p ordinary shares at 625p each following a joint international offering by Reed Elsevier PLC and Reed Elsevier NV. The purpose of the offering was to finance the proposed acquisition by Reed Elsevier of the Scientific, Technical & Medical business and the US Schools Education and Testing businesses of Harcourt. The nominal value of the shares issued was £14.2 million and the net proceeds were £694 million.
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REED ELSEVIER NV All of the selected financial data for Reed Elsevier NV set out below has been extracted or derived from the financial statements of Reed Elsevier NV, which have been audited by Deloitte & Touche, Amsterdam. |
| Year ended December 31,(1) | ||||||
| 1998 | 1999 | 2000 | 2001 | 2002 | 2002(2) | |
| (in millions, except per share amounts) | ||||||
| Amounts in accordance with Dutch GAAP: | ||||||
| Share of adjusted profit before tax(3) | €575 | €540 | €566 | €683 | €737 | $773 |
| Share of amortisation of goodwill and intangible assets | (247) | (284) | (384) | (403) | (419) | (439) |
| Share of exceptional items before tax(4) | 449 | (176) | (25) | (59) | (88) | (92) |
| Taxation | (203) | (128) | (130) | (120) | (86) | (91) |
| Profit/(loss) attributable to ordinary shareholders | €574 | €(48) | €27 | €101 | €144 | $151 |
| Basic earnings/(loss) per Reed Elsevier NV ordinary share | €0.81 | €(0.07) | €0.04 | €0.13 | €0.18 | 0.19¢ |
| Diluted earnings/(loss) per Reed Elsevier NV ordinary share | 0.81 | (0.07) | 0.03 | 0.13 | 0.18 | 0.19¢ |
| Gross dividends per Reed Elsevier NV ordinary share | 0.39 | 0.27 | 0.28 | 0.30 | 0.30 | 0.31¢ |
| Total assets | 1,736 | 1,639 | 2,650 | 2,625 | 2,266 | $2,376 |
| Long term borrowings, less current portion | (11) | (8) | (6) | (5) | (6) | (6) |
| Shareholders’ funds(5) | 1,512 | 1,493 | 2,448 | 2,392 | 2,034 | 2,133 |
| Adjusted amounts:(3) | ||||||
| Adjusted profit before tax | 575 | 540 | 566 | 683 | 737 | 773 |
| Adjusted profit attributable | 425 | 401 | 419 | 503 | 542 | 568 |
| Adjusted earnings per Reed Elsevier NV ordinary share | 0.60 | 0.57 | 0.59 | 0.64 | 0.69 | 0.72¢ |
| Amounts in accordance with US GAAP: | ||||||
| Net income/(loss) | €326 | €(46) | €58 | €(5) | €303 | $318 |
| Basic earnings/(loss) per Reed Elsevier NV ordinary share | 0.46 | (0.06) | 0.08 | (0.01) | 0.39 | 0.41¢ |
| Diluted earnings/(loss) per Reed Elsevier NV ordinary share | 0.46 | (0.06) | 0.08 | (0.01) | 0.39 | 0.41¢ |
| Total assets | 2,057 | 1,997 | 3,046 | 2,919 | 2,634 | $2,762 |
| Long term borrowings, less current portion | (11) | (8) | (6) | (5) | (6) | (6) |
| Shareholders’ funds(5) | 2,012 | 1,951 | 2,984 | 2,843 | 2,558 | 2,682 |
(1) | The financial statements of Reed Elsevier NV are prepared in accordance with accounting policies that are in conformity with Dutch GAAP, which differs in certain significant respects from US GAAP. The principal differences between Dutch GAAP and US GAAP which are relevant to Reed Elsevier NV are set out in note 15 to the Reed Elsevier NV financial statements. | |
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(2) | Noon buying rates as at December 31, 2002 have been used to provide a convenience translation into US dollars. | |
(3) | Dutch GAAP allows the presentation of alternative earnings measures. Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are provided as additional performance measures. Adjusted figures are reconciled to the reported figures for the three years ended December 31, 2002 in note 5 to the Reed Elsevier NV financial statements. US GAAP does not permit the presentation of alternative earnings measures. | |
(4) | Share of exceptional items before tax includes Reed Elsevier NV’s share of Reed Elsevier’s exceptional items: | |
(i) | in 2002 exceptional charges relate to reorganisation costs, principally employee severance in the Business and Legal segments, and acquisition related costs arising on the integration and rationalisation of Harcourt and other recent acquisitions. Basic earnings per Reed Elsevier NV ordinary share include €0.10 (loss) in respect of these items. Exceptional net losses, amounting to €0.01 per Reed Elsevier NV ordinary share, arose in 2002 in respect of disposals of businesses and fixed asset investments; | |
(ii) | in 2001 exceptional charges relate to reorganisation costs, principally headcount reduction in the Business division, acquisition related costs arising on the integration of Harcourt and other recent acquisitions, and costs relating to the financing of the tender offer. Basic earnings per Reed Elsevier NV ordinary share include €0.10 (loss) in respect of these items. Exceptional gains, amounting to €0.03 per Reed Elsevier NV ordinary share, arose primarily in respect of the disposal of OAG Worldwide, Cahners Travel Group, Bowker and certain training businesses in the Netherlands; | |
(iii) | in 2000 exceptional charges principally relate to the costs of a major programme of reorganisation across Reed Elsevier businesses, commenced in 1999. Basic earnings per Reed Elsevier NV ordinary share include €0.13 (loss) in respect of these items. Exceptional gains, amounting to €0.10 per Reed Elsevier NV ordinary share, arose in 2000 in respect of the disposal of Springhouse, KG Saur and REZsolutions; | |
(iv) | in 1999 exceptional items relate to the costs of a major programme of reorganisation across Reed Elsevier businesses, and to Year 2000 compliance and acquisition related costs. Reorganisation costs include employee severance, surplus leasehold property obligations and fixed asset write-offs. Basic earnings per Reed Elsevier NV ordinary share include €0.26 (loss) in respect of these items; and | |
(v) | in 1998 exceptional items principally relate to the gain on disposal of IPC Magazines. Basic earnings per Reed Elsevier NV ordinary share under, respectively, Dutch GAAP and US GAAP includes €0.55 and €0.62 in respect of this item. Additionally, basic earnings per Reed Elsevier NV ordinary share includes €0.28 loss under US GAAP in respect of a non- recurring incremental charge for amortisation of goodwill and intangible assets arising on a re-evaluation of the estimated useful lives of these assets under US GAAP. | |
(5) | On April 12, 2001, the company issued 629,298 R–shares to Reed Holding BV, a wholly owned subsidiary of Reed Elsevier PLC, for €91.3 million before capital taxes, so as to maintain Reed Elsevier PLC’s 5.8% indirect equity interest in Reed Elsevier NV. On December 5, 2000, the company issued 66,255,000 new ordinary shares at €14.50 each following a joint international offering by Reed Elsevier PLC and Reed Elsevier NV. The purpose of the offering was to finance the proposed acquisition by Reed Elsevier of the Scientific, Technical & Medical business and the US Schools Education and Testing businesses of Harcourt. The nominal value of the shares issued was €4.0 million and the net proceeds were €933 million.
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EXCHANGE RATES The following table illustrates, for the periods and dates indicated, certain information concerning the Noon Buying Rate for pounds sterling expressed in US dollars per £1.00. Noon Buying Rates have not been used in the preparation of the Reed Elsevier combined financial statements or the Reed Elsevier PLC financial statements. US dollars per £1.00 – Noon Buying Rates |
| Period | ||||
| Year ended December 31, | End | Average(1) | High | Low |
| 1998 | 1.66 | 1.66 | 1.71 | 1.61 |
| 1999 | 1.62 | 1.62 | 1.68 | 1.55 |
| 2000 | 1.49 | 1.52 | 1.65 | 1.40 |
| 2001 | 1.45 | 1.44 | 1.50 | 1.37 |
| 2002 | 1.61 | 1.50 | 1.61 | 1.41 |
| Month | High | Low | ||
| February 2003 (through February 18, 2003) | 1.65 | 1.59 | ||
| January 2003 | 1.65 | 1.60 | ||
| December 2002 | 1.61 | 1.56 | ||
| November 2002 | 1.59 | 1.54 | ||
| October 2002 | 1.57 | 1.54 | ||
| September 2002 | 1.57 | 1.53 | ||
| August 2002 | 1.57 | 1.52 | ||
(1) | The average of the Noon Buying Rates on the last day of each month during the relevant period. | |
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The following table illustrates, for the periods and dates indicated, certain information concerning the Noon Buying Rate for the euro expressed in US dollars per €1.00. Noon Buying Rates have not been used in the preparation of the Reed Elsevier NV financial statements. US dollars per €1.00(1) – Noon Buying Rates |
| Period | ||||
| Year ended December 31, | End | Average(2) | High | Low |
| 1998 | 1.17 | 1.10 | 1.21 | 1.06 |
| 1999 | 1.01 | 1.07 | 1.18 | 1.00 |
| 2000 | 0.94 | 0.92 | 1.03 | 0.83 |
| 2001 | 0.89 | 0.90 | 0.95 | 0.84 |
| 2002 | 1.05 | 0.95 | 1.05 | 0.86 |
| Month | High | Low | ||
| February 2003 (through February 18, 2003) | 1.09 | 1.07 | ||
| January 2003 | 1.09 | 1.04 | ||
| December 2002 | 1.05 | 0.99 | ||
| November 2002 | 1.01 | 0.99 | ||
| October 2002 | 0.99 | 0.97 | ||
| September 2002 | 1.00 | 0.97 | ||
| August 2002 | 0.99 | 0.96 | ||
(1) | € rates for periods prior to the 1999 financial year have been stated using the relevant Dutch guilder rates, translated at the Official Conversion Rate of Dfl2.20371 per €1.00, which was fixed as at January 1, 1999. | |
(2) | The average of the Noon Buying Rates on the last day of each month during the relevant period. | |
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The key 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. 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 science and medical, business to business, legal and education 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 will, in the future, make some of our products wholly or partially obsolete. 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 which will affect the acceptability of products, services and prices to our customers. 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, CD-ROMs, 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. More specifically, in the United States the Digital Millennium Copyright Act is under legal challenge and, in the European Union, national legislation by the member states implementing the EU Copyright Directive has not been adopted. 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 by law in the European Union, there is no equivalent legal protection in the United States. 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 could significantly affect our reported results 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 profits of those businesses. Changes in tax laws or their application 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. Tax laws that apply to Reed Elsevier businesses may be amended by the relevant authorities, for example as a result of changes in fiscal circumstances or priorities. Such amendments, or their application to Reed Elsevier businesses, may adversely affect our reported results. 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:
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9 |
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| • | the acceptance of our electronic products and platforms by our customers; and |
| • | competition from comparable and new technologies |
In addition, as a consequence of our electronic product and platform initiatives, an increasing proportion of our revenues are now internet based and, consequently, we are becoming more dependent on the successful performance and operation of the internet and our systems. Changes in government funding of, or spending by, schools, academic institutions and states may adversely affect demand for the products and services of our education and science and medical businesses. The customers of our education business in the United States are state boards of education and local school districts which rely on various sources of governmental funding, primarily from state and local governments, to purchase products and services offered by our education business. The principal customers for the information products and services offered by our science and medical 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 decrease in governmental funding for schools or decrease in budgets of academic institutions or changes in the spending patterns of schools or academic institutions could negatively impact our businesses. A significant portion of our revenue is derived from advertising and exhibitions. Approximately 14% of our revenue in 2002 was derived from advertising and 8% from exhibitions. In particular, the Business segment is highly dependent on advertising and exhibitions revenues. In 2002, 41% of Business segment revenues were derived from advertising and 31% 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, as has been the case in 2002. Our results could be adversely affected by a prolonged reduction of advertising revenues that would likely result upon a continuing 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 due to international security concerns or acts of terrorism or war. Our businesses may be adversely affected if their electronic delivery platforms experience a significant failure or interruption. Our businesses are increasingly dependent on electronic platforms, 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 experience a significant failure, interruption or security breach. |
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The other principal acquisitions in the three years ended December 31, 2002 have been: | |
| • | CMD Group, an international supplier of information to the construction industry, in May 2000 for $300 million (£199 million); and |
| • | Miller Freeman Europe, a European trade exhibition organiser, in July 2000 for £360 million. |
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12 |
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The following table shows our turnover by business segment and on the basis of geographic origin and markets, and our operating profit and adjusted operating profit, which is stated before the amortisation of goodwill and intangible assets and exceptional items, by business segment and on the basis of its geographic origin, in each of the three years ended December 31, 2002: |
| Turnover | ||||||||||||
| 2000 | 2001 | 2002 | ||||||||||
| (in millions, except percentages) | ||||||||||||
| Business Segment | ||||||||||||
| Science & Medical | £693 | 19% | £1,024 | 22% | £1,295 | 26% | ||||||
| Legal | 1,201 | 32 | 1,330 | 29 | 1,349 | 27 | ||||||
| Education | 202 | 5 | 579 | 13 | 993 | 20 | ||||||
| Business | 1,672 | 44 | 1,627 | 36 | 1,383 | 27 | ||||||
| Total | £3,768 | 100% | £4,560 | 100% | £5,020 | 100% | ||||||
| Geographic Origin(3)(4) | ||||||||||||
| North America | £2,098 | 56% | £2,695 | 59% | £3,158 | 63% | ||||||
| United Kingdom | 734 | 19 | 795 | 17 | 782 | 16 | ||||||
| The Netherlands | 399 | 11 | 416 | 9 | 419 | 8 | ||||||
| Rest of Europe | 356 | 9 | 445 | 10 | 456 | 9 | ||||||
| Rest of world | 181 | 5 | 209 | 5 | 205 | 4 | ||||||
| Total | £3,768 | 100% | £4,560 | 100% | £5,020 | 100% | ||||||
| Geographic Market(3)(4) | ||||||||||||
| North America | £2,152 | 57% | £2,765 | 61% | £3,209 | 64% | ||||||
| United Kingdom | 521 | 14 | 557 | 12 | 551 | 11 | ||||||
| The Netherlands | 234 | 6 | 224 | 5 | 209 | 4 | ||||||
| Rest of Europe | 478 | 13 | 587 | 13 | 638 | 13 | ||||||
| Rest of world | 383 | 10 | 427 | 9 | 413 | 8 | ||||||
| Total | £3,768 | 100% | £4,560 | 100% | £5,020 | 100% | ||||||
| Operating Profit | Adjusted Operating Profit(1)(2) | |||||||||||
| 2000 | 2001 | 2002 | 2000 | 2001 | 2002 | |||||||
| (in millions, except percentages) | ||||||||||||
| Business Segment | ||||||||||||
| Science & Medical | £140 | 67% | 210 | 54% | £294 | 58% | £252 | 32% | £344 | 35% | £429 | 38% |
| Legal | (8) | (4) | 59 | 15 | 61 | 12 | 237 | 30 | 267 | 27 | 287 | 25 |
| Education | 19 | 9 | 95 | 24 | 102 | 20 | 40 | 5 | 132 | 13 | 183 | 16 |
| Business | 59 | 28 | 27 | 7 | 50 | 10 | 264 | 33 | 247 | 25 | 234 | 21 |
| Total | £210 | 100% | £391 | 100% | £507 | 100% | £793 | 100% | £990 | 100% | £1,133 | 100% |
| Geographic Origin(3)(4) | ||||||||||||
| North America | £(89) | (42)% | £47 | 12% | £142 | 28% | £335 | 42% | £482 | 49% | £616 | 54% |
| United Kingdom | 109 | 52 | 154 | 39 | 129 | 25 | 191 | 24 | 207 | 21 | 190 | 17 |
| The Netherlands | 127 | 60 | 129 | 33 | 153 | 30 | 136 | 17 | 163 | 16 | 169 | 15 |
| Rest of Europe | 57 | 27 | 51 | 13 | 55 | 11 | 102 | 13 | 108 | 11 | 119 | 11 |
| Rest of world | 6 | 3 | 10 | 3 | 28 | 6 | 29 | 4 | 30 | 3 | 39 | 3 |
| Total | £210 | 100% | £391 | 100% | £507 | 100% | £793 | 100% | £990 | 100% | £1,133 | 100% |
(1) | UK and Dutch GAAP allow the presentation of alternative earnings measures. Adjusted operating profit is shown before the amortisation of goodwill and intangible assets and exceptional items. Reed Elsevier businesses focus on adjusted operating profits as an additional performance measure; see note 1 to the combined financial statements. Total adjusted operating profit is reconciled to operating profit in note 12 to the combined financial statements. US GAAP does not permit the presentation of alternative earnings measures. | |
(2) | Exceptional items are significant items within Reed Elsevier’s ordinary activities which, under UK and Dutch GAAP, need to be disclosed separately due to their size or incidence. Net exceptional items charged to operating profit totalled £99 million (loss) in the year ended December 31, 2002, £98 million (loss) in the year ended December 31, 2001, and £115 million (loss) in the year ended December 31, 2000. See “Item 5: Operating and Financial Review and Prospects” and note 8 to the combined financial statements for a further description of these items. | |
(3) | The analysis by geographic origin attributes turnover and adjusted operating profit to the territory where the product originates. The analysis by geographic market attributes turnover on the basis of the destination where the product is delivered. | |
(4) | Our geographic markets are North America, the United Kingdom, the Netherlands, the Rest of Europe (excluding the United Kingdom and the Netherlands) and the Rest of the world (other than North America, the United Kingdom, the Netherlands and the Rest of Europe). | |
Our businesses compete for circulation and marketing expenditures in scientific and medical, legal, education and business sectors. The bases of competition include, for readers and users of the information, the quality and variety of the editorial content, 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.
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13 SCIENCE & MEDICAL |
| Year ended December 31, | |||||
| 2000 | 2001 | % change at constant rates(1) | 2002 | % change at constant rates(2) | |
| (in millions, except percentages) | |||||
| Turnover | |||||
| Elsevier | |||||
| Science & Technology | £592 | £664 | +12% | £746 | +14% |
| Health Sciences | 101 | 360 | +248% | 549 | +57% |
| £693 | £1,024 | +44% | £1,295 | +29% | |
| Operating profit | £140 | £210 | + 48% | £294 | + 40% |
| Adjusted operating profit(3) | £252 | £344 | +34% | £429 | +26% |
| Adjusted operating margin(3) | 36.4% | 33.6% | –2.8pts | 33.1% | – 0.5pts |
(1) | Represents percentage change over 2000 at constant rates of exchange, which have been calculated using the average exchange rates for the 2000 financial year; see page 25 for percentage changes at actual rates of exchange. | |
(2) | Represents percentage change over 2001 at constant rates of exchange, which have been calculated using the average exchange rates for the 2001 financial year; see page 25 for percentage changes at actual rates of exchange. | |
(3) | UK and Dutch GAAP allow the presentation of alternative earnings measures. Adjusted operating profit is presented as an additional performance measure and is shown before amortisation of goodwill and intangible assets and exceptional items. US GAAP does not permit the presentation of alternative earnings measures. | |
The Science & Medical segment of Reed Elsevier, now branded Elsevier, comprises worldwide scientific, technical and medical publishing and communications businesses. Elsevier is an international publisher of scientific, technical and medical information with headquarters in Amsterdam and operations located around the globe, including London, Oxford, Edinburgh, Paris, New York, Philadelphia, St. Louis, San Diego, Singapore and Tokyo. The Science & Medical strategy is to be the leading provider of high quality scientific, technical and medical information to the academic, research and healthcare communities. Elsevier is managed as three divisions: Science & Technology, Health Sciences, and Operations. On July 12, 2001, Reed Elsevier acquired Harcourt’s scientific, technical and medical businesses and its US Schools kindergarten to 12th Grade Education and Assessment businesses in a $4.5 billion transaction. Harcourt had two principal scientific, technical and medical businesses, Academic Press and Harcourt Health Sciences, and brought high quality scientific and technical journals and books and a leading global position in medical publishing. Science & Technology Through a number of imprints including Elsevier, Pergamon, Academic Press and North Holland, Elsevier supplies scientific and technical information through journals, books, CD-ROMs and the internet to libraries, scientists and professionals serving a wide range of research fields including the life sciences, social sciences, engineering, chemistry, physical sciences, econometrics, statistics, geology, computer sciences, management and psychology. Among Elsevier’s well known scientific journals are Cell, Brain Research, Neuroscience and Biochimica et Biophysica Acta in the life sciences; Tetrahedron and Journal of Chromatography in chemistry; Physics Letters and Solid State Communications in the physical sciences; Journal of Financial Economics in economics; and Artificial Intelligence in the computer sciences field. Journals acquired with Academic Press include the Journal of Molecular Biology, Molecular Therapy and Developmental Biology in life sciences and the Journal of Computational Physics and the Journal of Sound and Vibration in the physical sciences. The Science & Technology division also includes ScienceDirect, a full text online scientific research service. ScienceDirect now covers 72% of our scientific journal subscription revenues, up from 66% in 2001 and 45% in 2000. Usage continues to grow with the number of articles downloaded up 70% to 86 million in 2002. 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, including the International Encyclopedia of Social & Behavioural Sciences. In addition, Elsevier publishes conference proceedings, letters, journals for rapid communications, handbooks, bulletins, magazines, dictionaries, newsletters, and sponsored publications. 14 Elsevier offers secondary databases, available electronically online or on CD-ROM. These include: EMBASE, covering pharmaceutical and biomedical sciences; Compendex, covering all the engineering disciplines; Geobase, focusing on geoscience and related areas; Beilstein Database, providing online access to chemical structures with linked descriptions of the properties, reactions, preparations, citations and links to the pharmaceutical research tools of MDL Information Systems; and Elsevier BIOBASE, a biological science database. Elsevier also maintains specialized databases such as World Textiles and FLUIDEX. Competition within the science and technology publishing fields is generally on a journal by journal basis. Competing leading journals are typically published by 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. Journals are generally sold directly to libraries, with subscription agents facilitating the administrative process. Electronic products, such as ScienceDirect and BioMedNet Reviews, are sold through our large 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, and wholesalers. Health Sciences Health Sciences comprises imprints such as W.B. Saunders, Mosby, Churchill Livingstone, Elsevier and Excerpta Medica Communications. Its principal geographic markets are the United States, the United Kingdom, Canada and France, while other important markets include Italy, Spain, Australia and Asia. Elsevier publishes international titles such as The Lancet and Gray’s Anatomy, and local books and journals such as the Encyclopédie Médico-Chirurgicale and the book series Les Conférences d’Enseignement for the French market and Potter and Perry’s Fundamentals of Nursing for the Australian and New Zealand markets. Other Elsevier medical journals include The Journal of the American College of Cardiology, The American Heart Journal, Gastroenterology and Annals of Emergency Medicine. Well known reference works include Heart Disease, Infectious Disease, Cecil’s Textbook of Medicine, The Johns Hopkins Hospital Harriet Lane Handbook, and Nelson’s Textbook of Pediatrics. Elsevier is also one of the leaders in medical and nursing student textbooks in the United States and United Kingdom. Its position in the United States was further strengthened in 2002 by the acquisition of Hanley & Belfus (“H&B”). Based in Philadelphia, H&B publishes text and reference books, test review books, peer-reviewed journals and a continuity series for the medical community. Elsevier’s medical student texts include Dorland’s Medical Dictionary, Guyton’s Textbook of Physiology, Davison’s Principles and Practice of Medicine, and Rang’s Pharmacology. Mosby is a US based publisher of nursing student textbooks, with titles such as Mosby’s Medical, Nursing and Allied Health Dictionary, Mosby’s Nursing Drug Reference, Medical-Surgical Nursing, and Wong’s Essentials of Pediatric Nursing. MDConsult is a widely used web database providing web access to major medical reference works, databases, clinical journals, drug information, practice guidelines, education programmes, expert commentaries and medical news for serving physicians and other healthcare professionals. Excerpta Medica Communications (“EMC”) publishes customised information for healthcare professionals, medical societies and pharmaceutical companies worldwide. EMC also works closely with pharmaceutical companies to provide worldwide marketing and communications platforms for new drugs. The medical publishing field is fragmented with competition generally on a title by title basis. There is regional competition from a number of information publishers and service providers in the United States, such as Wolters Kluwer’s Adis Press, Springhouse and Lippincott Williams & Wilkins divisions, The Thomson Corporation, McGraw Hill, Marcel Dekker, the American Medical Association, the Massachusetts Medical Society (New England Journal of Medicine), CoMed Communications Inc, Advanstar Communications, and IMS (Cognizant). Journal sales to libraries are generally facilitated by subscription agents and journal sales to individuals are through direct mail and through societies. Electronic products, such as MDConsult, are sold mainly through our dedicated sales force. Book sales are made through book stores, both traditional and on-line, and wholesalers. In addition, our sales force markets our text books to medical and nursing schools to increase sales to students through bookshops. Operations Much of the pre-press production of the journals is outsourced to suppliers based mainly in Asia. An electronic production system, Computer Aided Production, is used to deliver the full text of journal articles in whichever format the 15 customer requires; via ScienceDirect, on CD-ROM or in print. In 2002 the Harcourt journals were migrated onto this production process. Book production is increasingly outsourced to Asia. Printing is primarily sourced through a variety of unaffiliated printers located in the United Kingdom, the Netherlands, the United States, China and Hong Kong. Distribution of hard copy journals is mainly outsourced. Most book distribution is handled in-house from facilities in the United States and the United Kingdom. |
LEGAL
| Year ended December 31, | |||||
| 2000 | 2001 | % change at constant rates(1) | 2002 | % change at constant rates(2) | |
| (in millions, except percentages) | |||||
| Turnover | |||||
| LexisNexis | |||||
| North America | £947 | £1,041 | +6% | £1,056 | +6% |
| International | 254 | 289 | +10% | 293 | +3% |
| £1,201 | £1,330 | +7% | £1,349 | +5% | |
| Operating profit | £(8) | £59 | +853% | £61 | –4% |
| Adjusted operating profit(3) | £237 | £267 | +9% | £287 | +10% |
| Adjusted operating margin(3) | 19.7% | 20.1% | +0.4pts | 21.3% | +1.2pts |
(1) | Represents percentage change over 2000 at constant rates of exchange, which have been calculated using the average exchange rates for the 2000 financial year; see page 25 for percentage changes at actual rates of exchange. | |
(2) | Represents percentage change over 2001 at constant rates of exchange, which have been calculated using the average exchange rates for the 2001 financial year; see page 25 for percentage changes at actual rates of exchange. | |
(3) | UK and Dutch GAAP allow the presentation of alternative earnings measures. Adjusted operating profit is presented as an additional performance measure and is shown before amortisation of goodwill and intangible assets and exceptional items. US GAAP does not permit the presentation of alternative earnings measures. | |
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The Legal segment of Reed Elsevier, now branded LexisNexis, provides legal, tax, regulatory, and business information to professional, business and government customers throughout the world. The LexisNexis strategy is to be the leading preferred global supplier of information services and information based solutions to legal and business professionals. The Legal segment is reported as LexisNexis North America and LexisNexis International. In 2002, LexisNexis North America contributed approximately 78% of the total turnover of the Legal segment, with LexisNexis International accounting for 22%. LexisNexis North America North American Legal Markets develops, markets and sells legal information products in electronic and hard copy formats to legal firms and practitioners, law schools and state and local governments in the United States and Canada. During 2002 we acquired Quicklaw Inc., a Canadian online legal information service and legal publisher, and Anderson Publishing Co. of Ohio, the publisher of Page’s Ohio Revised Code Annotated and secondary analytical information. Matthew Bender, an international publisher of legal analysis and case law, offers publications in print and electronic formats to subscribers in approximately 160 countries. Its publications include California Forms of Pleading and Practice, Collier on Bankruptcy, Immigration Law and Procedure, Moore’s Federal Practice, Nimmer on Copyright and Rabkin & Johnson’s Current Legal Forms. Michie offers more than 600 practice-enhancing titles, 400 custom legal publications and the annotated codes of 37 states and territories. In addition, Michie is the publisher of the United States Code Service and United States Supreme Court Reports, Lawyers’ Edition. 16 Shepard’s Citations Service, is a US legal citation service and provider of federal and state jurisdictional and citator services delivered online or in print or CD-ROM formats. “Shepardizing”TM is a common process for US lawyers and involves checking the continuing authority of a case or statutory reference in the light of subsequent legal changes. CCH and Tax Analysts materials are offered by LexisNexis under licence from third parties. Martindale-Hubbell is a publisher of a database of biographical information on the legal profession in North America and internationally. Its flagship products, the Martindale-Hubbell Law Directory and martindale.com, are typically utilised as marketing vehicles by law firms, and provides access to the qualifications and credentials of over one million lawyers and law firms worldwide. The Martindale-Hubbell Law Directory is available in print, CD-ROM and online via LexisNexis. In addition, Martindale-Hubbell offers a suite of web services, in combination with professional listings on its lawyers.com site, which is aimed at smaller law firms targeting consumers and small businesses. US Corporate and Federal Markets develops, markets and sells LexisNexis products and services to corporations, federal government agencies, and academic institutions, and also manages news, business, financial and public records content acquisition and enhancements. The risk management applications of US Corporate and Federal Markets are designed to assist customers in managing risk through fraud detection and prevention, identity verification, pre-employment screening and due diligence. In US legal markets, LexisNexis North America’s principal competitor is West (The Thomson Corporation). The principal competitors in the corporate and government markets are West and Dialog (The Thomson Corporation) and Factiva (a Reuters/Dow Jones joint venture). LexisNexis International LexisNexis Europe and Africa includes LexisNexis Butterworths Tolley in the United Kingdom; LexisNexis France, known as Editions du Juris-Classeur; LexisNexis ARD Orac, formerly known as Verlag ARD Orac; minority interests in Giuffré Editore in Italy and Stämpfli Verlag in Switzerland; LexisNexis Poland, formerly known as Wydawnictwo Prawnicze; and LexisNexis Butterworths South Africa, formerly known as Butterworths South Africa. LexisNexis Butterworths Tolley is a UK professional publisher, providing legal, tax and business news information. An increasing amount of its information is now available online, through the web based LexisNexis Butterworths Direct service which provides a resource for legal and tax information in the United Kingdom. LexisNexis Butterworths Tolley’s principal publications are Halsbury’s Laws of England, The Encyclopaedia of Forms and Precedents, Simon’s Taxes and Butterworths Company Law Service. LexisNexis Butterworths Direct provides access, via a single gateway, to a range of UK, Commonwealth and US legal materials. The principal competitors in the United Kingdom are Sweet & Maxwell and Westlaw (The Thomson Corporation) in legal markets; CCH and Croner (Wolters Kluwer) in tax and regulatory markets; and Factiva (a Reuters/Dow Jones joint venture) in corporate markets. Founded in 1907 as Editions du Juris-Classeur, LexisNexis France is a provider of information to lawyers, notaries and Courts in France. LexisNexis France’s principal publications are JurisClasseur and Le Semaine Juridique. Under the brands Infolib and Légisoft, LexisNexis France also provides practice management, production and computation software tools for lawyers, notaries and accountants. The major competitors of LexisNexis France are Editions Francis Lefebvre, Editions Législatives, Dalloz (Vivendi) and Lamy (Wolters Kluwer). LexisNexis Butterworths South Africa is a professional publisher in the African region, and provides the legal, tax, corporate and university markets with a range of products and services, including printed publications, CD-ROMs, online services and seminars. LexisNexis Poland publishes academic textbooks designed for students at faculties of law, as well as those attending higher schools of economics, management and business. LexisNexis ARD Orac is based in Vienna and publishes a range of tax and regulatory information across print and online media. LexisNexis ARD Orac has a subsidiary business, Nakladatelstvi Orac, in the Czech Republic, and a 50% interest in HVG-Orac in Hungary. LexisNexis Asia Pacific publishes legal, tax and regulatory materials in Australia, New Zealand, South East Asia and India. LexisNexis Latin America comprises legal publishers in Argentina and Chile. 17 EDUCATION |
| Year ended December 31, | |||||
| 2000 | 2001(1) | % change at constant rates(2) | 2002 | % change at constant rates(3) | |
| (in millions, except percentages) | |||||
| Turnover | |||||
| Harcourt Education | |||||
| US Schools and Testing | £— | £440 | — | £846 | +100% |
| International | 202 | 139 | –1% | 147 | +8% |
| £202 | £579 | +177% | £993 | +78% | |
| Operating profit | £19 | £95 | +385% | £102 | +13% |
| Adjusted operating profit(4) | £40 | £132 | +218% | £183 | +45% |
| Adjusted operating margin(4) | 19.8% | 22.8% | +3.0pts | 18.4% | –4.4pts |
(1) | The division of Harcourt Education turnover between the US Schools and Testing and International businesses for 2001 has been restated to reflect the transfer in 2002 of management responsibilities and integration of activities in relation to certain US and international supplemental businesses. | |
(2) | Represents percentage change over 2000 at constant rates of exchange, which have been calculated using the average exchange rates for the 2000 financial year; see page 25 for percentage changes at actual rates of exchange. | |
(3) | Represents percentage change over 2001 at constant rates of exchange, which have been calculated using the average exchange rates for the 2001 financial year; see page 25 for percentage changes at actual rates of exchange. | |
(4) | UK and Dutch GAAP allow the presentation of alternative earnings measures. Adjusted operating profit is presented as an additional performance measure and is shown before amortisation of goodwill and intangible assets and exceptional items. US GAAP does not permit the presentation of alternative earnings measures. | |
The Education segment of Reed Elsevier, now branded Harcourt Education, comprises: the Harcourt Education US Schools and Testing businesses, which provide print and multimedia teaching materials and assessments, principally for kindergarten to 12th grade students in the United States; and Harcourt Education International, which provides educational content to students, teachers and libraries, principally in the United States, the United Kingdom, Australia, New Zealand and South Africa. In 2002, the Harcourt Education US Schools and Testing businesses contributed approximately 85% of the total turnover of the Education segment, with Harcourt Education International accounting for 15%. Our Education strategy is to deliver superior classroom based learning programmes through the provision of print and electronic instructional materials, testing and assessment services and professional development programmes for teachers. In 2002, approximately 89% of Education turnover was derived from North America, 8% from Europe and the remaining 3% from the rest of the world. Harcourt Education US Schools and Testing Businesses Harcourt School Publishers is a publisher of print and technology-enabled instructional materials for students in kindergarten to 6th grade. It publishes educational material covering seven principal disciplines: reading, mathematics, social studies, science, language arts, health and art. Its programmes include Trophies, Harcourt Language, Harcourt Math, Harcourt Brace Social Studies, Horizons, Harcourt Science and Your Health. Harcourt School Publishers also offers supplemental materials, interactive programmes and products to support its basal programmes directly to the teacher, parent, and the home- school market through its internet site. Holt, Rinehart and Winston offers educational textbooks and related instructional materials, including print-based products, CD-ROMs, videos and internet based support and reference materials to US middle and secondary schools. It publishes educational material covering, in particular, literature and language arts, the largest middle and secondary school disciplines, and science, mathematics and social studies. Its programmes include Elements of Literature, Elements of Language, Elements of Writing and Holt Science and Technology. Harcourt Supplemental Publishers is a publisher of supplemental US kindergarten to 12th grade and adult education materials, including skills based programmes, remedial learning, test preparation, professional development materials and general equivalency diploma preparation. Harcourt Supplemental Publishers provides materials for users with special 18 Harcourt Trade Publishers, a US publishing business, includes the Harvest imprint. Harcourt Trade authors have won the Nobel Prize for Literature three times in the last seven years and Harcourt Trade books have won several prestigious awards and recognitions including the National Book Award, Edgar Award, Man Booker Prize, and numerous New York Times’ “Best Book of the Year” citations. Publications in 2002 included Odd Girl Out by Rachel Simmons, Life of Pi by Yann Martel, The Crimson Petal and the White by Michael Faber, and Baudolino by Umberto Eco. Classroom Connect is an online professional development company for the schools market. Classroom Connect’s portal services are designed to provide kindergarten to 12th grade teachers with online courses and programmes. The principal warehouse and distribution facilities of the Harcourt Education US Schools businesses are in Bellmawr, New Jersey, Lewisville, Texas, and Troy, Missouri. Unaffiliated printers perform printing and binding for Harcourt Education. The major customers of Harcourt Education US Schools’ kindergarten to 12th grade businesses are state boards of education and local district and school boards. In the United States, 21 states periodically purchase educational programmes through an adoption process. This process entails state education committees approving a short-list of education materials from which the school districts can purchase. We seek to keep our products on the approved list within each adoption state and market these products directly to the school districts. The 29 states without an adoption process, known as open territories, allow individual school districts to purchase any educational programmes. In the open territories, we actively market our products to individual school districts. The principal competitors of the Harcourt Education US Schools businesses are Pearson, McGraw Hill and Houghton- Mifflin. Harcourt Testing, through Harcourt Educational Measurement and The Psychological Corporation, is a provider of educational and clinical testing and performance measurement. Harcourt Educational Measurement provides a range of achievement, aptitude and guidance educational testing services for measuring kindergarten to 12th grade student progress through developing and offering achievement and diagnostic tests for students throughout the United States. Harcourt Educational Measurement’s principal products are its norm-referenced and criterion-referenced tests, and include the Stanford Achievement Test Series. The Psychological Corporation provides practising and research psychologists with psychological, speech and occupational therapy assessment tests for many aspects of human behaviour, intelligence and development. Its products include the Wechsler Intelligence Scales, the Bayley Scales of Infant Development, the Beck Anxiety Inventory, and Clinical Evaluation of Language Fundamentals. The principal competitors of Harcourt Educational Measurement are CTB (McGraw Hill), Riverside (Houghton- Mifflin) and, in scoring, NCS (Pearson). Competition for The Psychological Corporation is more fragmented, with the principal competitors being NCS (Pearson), American Guidance Services, Riverside (Houghton-Mifflin) and Pro-Ed. Harcourt Education International The UK Schools business is a provider of textbooks and related instructional materials to the UK primary and secondary schools market through the Heinemann, Ginn and Rigby imprints. Global Library publishes reference materials for school libraries. Greenwood-Heinemann publishes monograph and reference lists and teachers’ professional resources. Rigby-Heinemann is a publisher of primary and secondary school books in Australia. In South Africa, Heinemann is a publisher of school books and, in New Zealand, Reed Publishing publishes both textbooks and consumer books for the local market. Printing and binding are performed by unaffiliated printers in printing centres both in the country of origin and around the world. Harcourt Education International has its own warehouse and distribution facilities in its principal territories. Harcourt Education International’s principal UK competitors are Longman (Pearson), Oxford University Press, Nelson Thornes (Wolters Kluwer) and Cambridge University Press. University presses are considered to be competitors in the academic market. In Australia, the principal commercial competitors include Nelson, Macmillan, AWL and Jacaranda. In the Global Library market, the principal competitors are Scholastic/Grollier, Wayland (WH Smith) and Watts (Lagardere). 19 BUSINESS |
| Year ended December 31, | |||||
| 2000 | 2001 | % change at constant rates(1) | 2002 | % change at constant rates(2) | |
| (in millions, except percentages) | |||||
| Turnover | |||||
| Reed Business Information | |||||
| US | £665 | £593 | –15% | £438 | –23% |
| UK | 270 | 260 | –4% | 241 | –7% |
| Continental Europe | 278 | 263 | –7% | 256 | –4% |
| Reed Exhibitions | 358 | 446 | +23% | 425 | –4% |
| Other | 101 | 65 | 23 | ||
| £1,672 | £1,627 | –5% | £1,383 | –14% | |
| Operating profit | £59 | £27 | –48% | £50 | +75% |
| Adjusted operating profit(3) | £264 | £247 | –8% | £234 | –4% |
| Adjusted operating margin(3) | 15.8% | 15.2% | –0.6pts | 16.9% | +1.7pts |
(1) | Represents percentage change over 2000 at constant rates of exchange, which have been calculated using the average exchange rates for the 2000 financial year; see page 25 for percentage changes at actual rates of exchange. | |
(2) | Represents percentage change over 2001 at constant rates of exchange, which have been calculated using the average exchange rates for the 2001 financial year; see page 25 for percentage changes at actual rates of exchange. | |
(3) | UK and Dutch GAAP allow the presentation of alternative earnings measures. Adjusted operating profit is presented as an additional performance measure and is shown before amortisation of goodwill and intangible assets and exceptional items. US GAAP does not permit the presentation of alternative earnings measures. | |
The Business segment comprises business magazine and information companies operating principally in the United States, the United Kingdom and Europe, and a worldwide exhibitions business. Our operations were rebranded as Reed Business in 2002, comprising Reed Exhibitions (formerly Reed Exhibition Companies) for our exhibitions business, and Reed Business Information for each national publishing operation. The Business strategy is to deliver superior information and communication products, allowing our customers to develop competitive advantage. The Business segment is highly dependent on advertising revenues. In 2002, 41% of Business segment revenues were derived from advertising, and advertising revenues decreased 20% compared to 2001, partly due to the disposal of certain advertising based businesses in 2001. 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 2002. In response to these market conditions, we have continued our strategy of upgrading product quality and of improving the effectiveness of our sales and marketing operations. We have also reduced headcount and negotiated new agreements with key suppliers. There has been no significant acquisition or divestment activity in 2002, although various peripheral operations have been sold or closed. CMD Group (now renamed Reed Construction Data), an international supplier of information to the construction industry, and Miller Freeman Europe (now integrated within Reed Exhibitions), a European trade exhibition organiser, were acquired in 2000. A programme of disposal of non core titles, shows and businesses was undertaken in 2000 and 2001 and, in 2001, included the sale of the travel publishing businesses, OAG Worldwide and Cahners Travel Group, and the Bowker bibliographic business. Business magazines and information 20
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In 2002, approximately 59% of total turnover from Reed Business Information businesses came from advertising, 21% from subscription sales, 6% from circulation sales, 4% from training and 10% from other sources including sales of software applications. In 2002, approximately 45% of Reed Business Information businesses’ turnover came from the United States, 21% from the United Kingdom, 30% from Continental Europe and 4% from the rest of the world. Reed Business Information US (“RBI US”) is a publisher of business information, with over 100 trade magazines. Amongst the RBI US titles are Variety, Broadcasting & Cable, Multichannel News, Publishers Weekly, EDN, Design News and Interior Design. RBI US also publishes product tabloids which provide information, primarily on new products, to managers and professionals in the industrial, processing, medical, scientific and high technology fields. Other products and services include websites, direct mail, product news tabloids, newspapers, newsletters and custom published supplements. The CMD Group, the construction market data business acquired in 2000, was renamed Reed Construction Data (“RCD”), to align with the overall branding. RCD provides national coverage of construction project information, both through subscription newsletters, CD-ROM and the online service Connect, launched in 2002. RBI US operates circulation management and fulfilment facilities in Colorado and the Caribbean island of St Kitts which identify, qualify and maintain subscriber lists for substantially all of its titles. Much of the editorial pre-press production is performed in-house. Paper and printing services are purchased on a coordinated basis with other Reed Elsevier businesses in the United States. Distribution of magazines is primarily through the US postal service, supplemented by news-stand sales through unaffiliated wholesalers. Reed Elsevier’s US business to business titles compete on an individual basis with the publications of a number of publishers, including Penton Media, Advanstar, VNU, Primedia, Hanley Wood, McGraw Hill and CMP Media (United Business Media). Reed Business Information UK (“RBI UK”), the UK based business magazine and directory publisher, has a portfolio of over 100 business magazines, directories, market access products and online services. Its business magazines include Computer Weekly, Farmers Weekly, Estates Gazette, Flight International, New Scientist, Caterer & Hotelkeeper, Doctor, Commercial Motor and Community Care. Its directories include Kelly’s, Kompass and The Bankers’ Almanac, and it also has online services which include Estates Gazette Interactive, Air Transport Intelligence, Planet Science, ICIS-LOR and totaljobs.com. Internet revenues now account for 14% of total RBI UK turnover as totaljobs.com, EGi, ATi, Bankersalmanac.com, and other online subscription services, continue to gain new customers and achieved renewal levels of 89% in 2002. During 2002, RBI UK launched a number of new print products and customer events, including the ‘0-19’ childcare supplement in the social services market, Russian and US editions of New Scientist and the Airline Business Awards. Quadrant Subscription Services, an international subscription fulfillment bureau, added 420,000 Newsweek subscribers to its portfolio of external clients in 2002. 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 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 NL (“RBI NL”), is a Dutch 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 markets which include agriculture, catering, construction, engineering, food, fashion, horticulture, transportation, tourism and travel. Its principal titles include Elsevier, a current affairs weekly, Beleggers Belangen and FEM in business and management, and Boerderij and Buiten in agriculture. Its titles are predominantly subscription-based and revenue is principally divided between subscriptions and advertising. RBI NL’s online activities include zibb.nl, a Dutch language business information portal. Printing and production is contracted out to third parties and distribution is mainly through the Dutch postal system. RBI NL competes with a number of companies on a title by title basis in individual market sectors, the largest competitors being Wolters Kluwer and VNU. Reed Business Information International (“RBI International”) comprises the operations in the rest of Europe and in Australia and Asia Pacific. These were brought together under RBI International at the end of 2002. Major publications within this business include Strategies and Editions Prat in France, Artzliche Praxis in Germany and Australian Doctor in Australia. Exhibitions |
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Exhibitions’ turnover came from North America, 44% from Continental Europe, 9% from the United Kingdom and the remaining 15% from the rest of the world. As some events are held other than annually, turnover in any single year may be affected by the cycle of non-annual exhibitions. Reed Exhibitions is an international event organizer, with over 440 events in 34 countries, attracting over 94,000 exhibitors and more than 4 million visitors annually. Reed Exhibitions’ events are concentrated in a number of industry sectors of which the most important are: marketing and business services; publishing; IT/communications; manufacturing; aerospace; leisure; electronics; hospitality; travel; entertainment; and retail. Reed Exhibitions’ principal events are JCK International Jewellery Shows, Professional Golfers Association (PGA) Merchandise Show, PGA International Golf Show and Canadian Machine Tool Show, National Hardware Show, National Manufacturing Week in North America; Pakex, World Travel Market and London Book Fair in the United Kingdom; Batimat, MIDEM, MIPTV, MIPIM, Salon Nautique and Maison et Objet in France; AIMEX and Australian Gift Fairs in Australia; International Jewellery Tokyo in Japan; Asian Aerospace and Thai Metalex in South-East Asia; and the Travel series of international events. The exhibition industry has historically been extremely fragmented. Within domestic markets, competition comes primarily from industry focused trade associations and convention centre and exhibition hall owners. The main US competitor is VNU, although a number of hall owners who produce exhibitions are increasingly seeking international presence. 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, South America, the Pacific Rim 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 and investments on their behalf. EPSA is responsible for the exploitation of tangible and intangible property rights whilst ERSA is responsible for insurance activities relating to risk retention. During the year, net additional loans were made to Reed Elsevier Group plc businesses in the United States of $319 million and in Europe of €56 million to finance acquisitions and other investments. EFSA continued to diversify its sources of funding in 2002 with an additional $250 million of term debt raised through bilateral term loans and private placements. EFSA continued to advise Reed Elsevier Group plc businesses on the treasury implications of the introduction of the euro and all euro transfer programmes progressed according to plan, with no major issues arising following the conversion in January 2002. EFSA also organised bank tenders in several European and Asian countries and implemented cash-pooling arrangements. EFSA provided specialist advice concerning the management of interest exposures and also advised Reed Elsevier Group plc companies in Europe on the establishment of collection mechanisms for payments arising from internet services. The volume of foreign exchange dealt by EFSA during 2002 amounted to approximately $1.3 billion equivalent. The average balance of cash under management, on behalf of Reed Elsevier Group plc and its parent companies, was approximately $0.4 billion. At the end of 2002, 90% (2001: 91%) of ERF’s gross assets were held in US dollars and 10% (2001: 9%) in euros, including $7.1 billion (2001: $6.8 billion) and €0.8 billion (2001: €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 $0.6 billion and short term debt of $1.5 billion backed by committed bank facilities. Term debt is derived from a Swiss domestic public bond issue, bilateral term loans and private placements. Short term debt is primarily derived from euro and US commercial paper programmes. |
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Reed Elsevier does not own any physical property which is considered material to Reed Elsevier taken as a whole. None of the real property owned or leased by Reed Elsevier is presently subject to liabilities relating to environmental regulations which are considered material to Reed Elsevier taken as a whole. |
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Turnover by source for continuing operations |
| 2000 | 2001 | 2002 | ||||
| (in millions, except percentages) | ||||||
| Subscriptions | £1,457 | 39% | £1,766 | 39% | £1,932 | 38% |
| Circulation & copy | 627 | 17 | 1,110 | 24 | 1,519 | 30 |
| Advertising | 923 | 24 | 847 | 19 | 720 | 14 |
| Exhibition fees | 363 | 10 | 451 | 10 | 432 | 9 |
| Other | 398 | 10 | 386 | 8 | 417 | 9 |
| Total | £3,768 | 100% | £4,560 | 100% | £5,020 | 100% |
The proportionate increase in circulation and copy sales largely reflects the acquisition in July 2001 of the Harcourt STM and Education and Testing businesses. The proportionate reduction in advertising revenue principally reflects the disposal of certain advertising based businesses in 2001 combined with the acquisition of the Harcourt businesses. |
Turnover by geographic market for continuing operations(1) |
| 2000 | 2001 | 2002 | ||||
| (in millions, except percentages) | ||||||
| North America | £2,152 | 57% | £2,765 | 61% | £3,209 | 64% |
| United Kingdom | 521 | 14 | 557 | 12 | 551 | 11 |
| The Netherlands | 234 | 6 | 224 | 5 | 209 | 4 |
| Rest of Europe | 478 | 13 | 587 | 13 | 638 | 13 |
| Rest of world | 383 | 10 | 427 | 9 | 413 | 8 |
| Total | £3,768 | 100% | £4,560 | 100% | £5,020 | 100% |
(1) | Reed Elsevier’s geographic markets are North America, the United Kingdom, the Netherlands, the Rest of Europe (excluding the United Kingdom and the Netherlands) and the Rest of the world (other than North America, the United Kingdom, the Netherlands and the Rest of Europe). |
The increase in the relative importance of North America and decline in the relative importance of other regions to Reed Elsevier largely reflects the impact of the acquisition of the Harcourt STM and Education and Testing businesses in July 2001. 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 labour costs, which includes all employment costs of employees as well as of temporary or contracted staff. Labour costs represented 43%, 44% and 42% of Reed Elsevier’s total costs, before amortisation of goodwill and intangible assets and exceptional items, in 2002, 2001 and 2000, respectively. Acquired goodwill and intangible assets are capitalised and amortised systematically over their estimated useful lives up to a maximum of 40 years, subject to annual impairment review. For the majority of acquired goodwill and intangible assets, the maximum estimated useful life is 20 years, which is the rebuttable presumption under UK and Dutch GAAP. In view of the longevity of the goodwill and intangible assets relating to the Harcourt publishing businesses acquired in July 2001, and of certain previously acquired goodwill and intangible assets within science and medical publishing, similar in nature to the Harcourt assets, this presumption has been rebutted in respect of these assets and a maximum estimated useful life of 40 years |
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determined. The longevity of these assets is evidenced by their long established and well regarded brands and imprints, and their characteristically stable market positions. The following table shows turnover, operating profit and adjusted operating profit, which is stated before the amortisation of goodwill and intangible assets and exceptional items, for each of Reed Elsevier’s business segments, in each of the three years ended December 31, 2002, together with the percentage change in 2002 and 2001 at both actual and constant exchange rates: |
| Turnover Year ended December 31, | ||||||||||
| 2000 | 2001 | % change | 2002 | % change | ||||||
| Actual rates | Constant | Actual rates | Constant | |||||||
| Business Segment | (in millions, except percentages) | |||||||||
| Science & Medical | £693 | 19% | £1,024 | 22% | +48% | +44% | £1,295 | 26% | +26% | +29% |
| Legal | 1,201 | 32 | 1,330 | 29 | +11 | +7 | 1,349 | 27 | +1 | +5 |
| Education | 202 | 5 | 579 | 13 | +187 | +177 | 993 | 20 | +72 | +78 |
| Business | 1,672 | 44 | 1,627 | 36 | –2 | –5 | 1,383 | 27 | –15 | –14 |
| Total | £3,768 | 100% | £4,560 | 100% | +21% | +18% | £5,020 | 100% | +10% | +13% |
| Operating Profit Year ended December 31, | ||||||||||
| 2000 | 2001 | % change | 2002 | % change | ||||||
| Actual rates | Constant | Actual rates | Constant | |||||||
| Business Segment | (in millions, except percentages) | |||||||||
| Science & Medical | £140 | 67% | £210 | 54% | +50% | +48% | £294 | 58% | +40% | +40% |
| Legal | (8) | (4) | 59 | 15 | +838 | +853 | 61 | 12 | +3 | –4 |
| Education | 19 | 9 | 95 | 24 | +400 | +385 | 102 | 20 | +7 | +13 |
| Business | 59 | 28 | 27 | 7 | –54 | –48 | 50 | 10 | +85 | +75 |
| Total | £210 | 100% | £391 | 100% | +86% | +84% | £507 | 100% | +30% | +29% |
| Adjusted Operating Profit(3)(4) Year ended December 31, | ||||||||||
| 2000 | 2001 | % change | 2002 | % change | ||||||
| Actual rates | Constant | Actual rates | Constant | |||||||
| Business Segment | (in millions, except percentages) | |||||||||
| Science & Medical | £252 | 32% | £344 | 35% | +37% | +34% | £429 | 38% | +25% | +26% |
| Legal | 237 | 30 | 267 | 27 | +13 | +9 | 287 | 25 | +7 | +10 |
| Education | 40 | 5 | 132 | 13 | +230 | +218 | 183 | 16 | +39 | +45 |
| Business | 264 | 33 | 247 | 25 | –6 | –8 | 234 | 21 | –5 | –4 |
| Total | £793 | 100% | £990 | 100% | +25% | +22% | £1,133 | 100% | +14% | +17% |
(1) | Represents percentage change over 2000 at constant rates of exchange, which have been calculated using the average exchange rates for the 2000 financial year. |
| (2) | Represents percentage change over 2001 at constant rates of exchange, which have been calculated using the average exchange rates for the 2001 financial year. |
| (3) | UK and Dutch GAAP allow the presentation of alternative earnings measures. Adjusted operating profit is shown before the amortisation of goodwill and intangible assets and exceptional items. Reed Elsevier businesses focus on adjusted profit as an additional performance measure; see note 1 to the combined financial statements. Total adjusted operating profit is reconciled to operating profit in note 12 to the combined financial statements. US GAAP does not permit the presentation of alternative earnings measures. |
| (4) | Exceptional items are significant items within Reed Elsevier’s ordinary activities which, under UK and Dutch GAAP, need to be disclosed separately due to their size or incidence. Net exceptional items charged to operating profit totalled £99 million in the year ended December 31, 2002, £98 million in the year ended December 31, 2001, and £115 million in the year ended December 31, 2000. See note 8 to the combined financial statements for a further description of these items. |
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In the following commentary adjusted figures are stated before amortisation of goodwill and intangible assets and exceptional items. Percentage movements at constant exchange rates are calculated using the average exchange rates for the previous financial year. Percentage movements at actual exchange rates are shown in the table on page 25. Adjusted profit measures are used by Reed Elsevier as additional performance measures. The effect of currency movements on the 2002 results is described separately below (see “Effect of Currency Translation”). References to “underlying” performance are calculated based on adjusted figures and excluding the effects of acquisitions, disposals and the impact of currency translation. References to the proforma performance of the acquired Harcourt businesses are calculated on the basis of Reed Elsevier’s accounting policies and as if the acquisition had taken place on January 1, 2000. Results of Operations for the Year Ended December 31, 2002 Turnover increased by 10% to £5,020m, and by 13% at constant currency rates. This included a £1,269m full year contribution from the acquired Harcourt businesses. Underlying revenue growth, including the Harcourt acquired businesses on a proforma basis, was 1%, or 4% before taking into account the decline in Business division revenues. The acquired Harcourt businesses saw proforma revenue growth of 4% over 2001 at constant exchange rates, with 6% in Science & Medical and 2% in Education. Adjusted operating profits, excluding the amortisation of goodwill and intangible assets and exceptional items, were up 14% at £1,133m, and up 17% at constant exchange rates. This included a £277m full year contribution from the acquired Harcourt businesses. Underlying adjusted operating profit growth, including the Harcourt acquired businesses on a proforma basis, was 8%, or 9% excluding the Business division. The acquired Harcourt businesses saw proforma adjusted operating profit growth of approximately 10% at constant exchange rates, with 14% in Science & Medical and 6% in Education. Adjusted operating margins improved by 0.9 percentage points to 22.6%. Dilution of the margin from the lower margin of the acquired businesses and the impact of disposals was more than offset by an underlying improvement of 1.5 percentage points reflecting the cost actions taken and the benefits of the Harcourt integration. The amortisation charge for goodwill and intangible assets amounted to £527m, up £26m on the prior year, including a full year’s amortisation of the acquired Harcourt assets partly offset by currency translation effects. The average remaining useful life of goodwill and intangible assets at December 31, 2002 was 25 years. Exceptional items showed a pre-tax charge of £111m, comprising, £57m of Harcourt and other acquisition integration and related costs, £42m in respect of restructuring actions taken principally in response to the global economic slowdown, and a £12m net loss on disposal of businesses and fixed asset investments. During 2002, over 1,500 positions were eliminated through restructuring, most particularly within the Business division. Additionally, over 400 positions were eliminated in the year in the Harcourt integration process. After a tax credit of £122m arising on the exceptional costs and in respect of prior year disposals, exceptional items showed a post-tax credit of £11m compared with a net post-tax exceptional credit of £9m in 2001. Net interest expense, at £206m, was £64m higher than in the prior year, reflecting a full year’s financing cost for the Harcourt acquisition, in part offset by the benefit of the 2001 free cash flow, lower interest rates and currency translation. Net interest cover on an adjusted basis was 5.5 times. Net interest cover is calculated as the number of times adjusted operating profit is greater than the net interest expense. Adjusted profits before tax, before the amortisation of goodwill and intangible assets and exceptional items, at £927m, were up 9%. At constant exchange rates, adjusted profits before tax were up 11%. The slightly lower growth at reported rates reflects currency translation effects from the year on year US dollar weakness. Dilution from acquisitions other than Harcourt and from disposals made in 2001 was 3% reflecting the investment at Classroom Connect and Courtlink and the loss of contribution from the travel publishing and other businesses sold. This was offset by the effect of including a full twelve months of the acquired Harcourt businesses. The effective tax rate on adjusted earnings was unchanged at 26.3%. The adjusted profit attributable to shareholders of £682m was up 9% and 11% at constant exchange rates. In 2002, the US GAAP net income was £365 million, compared with a net loss of £20 million in 2001. The movement reflects the factors discussed above, together with year on year changes in the adjustments to reflect differences between UK and Dutch GAAP and US GAAP. The most significant difference relates to the amortisation of goodwill and intangible assets, particularly following the full adoption of SFAS142 under US GAAP in 2002, which contributed £223m to the higher net |
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income under US GAAP compared with UK and Dutch GAAP. Other significant differences relate to deferred taxation, pensions and derivative instruments. Science & Medical In Science & Technology, this was driven by strong subscription renewals, both for print journals and ScienceDirect, and increasing online sales, including newly introduced backfiles and subject collections. In Health Sciences, underlying revenue growth was driven by new publishing and increased demand from the healthcare professions. Adjusted operating margins, at 33.1%, were 0.5 percentage points lower than in the prior year, reflecting the inclusion of the lower margin Harcourt STM business for a full year. The underlying margin improvement, including Harcourt on a proforma basis, was 1.5 percentage points, including in the Health Sciences business as action was taken to improve the efficiency of the acquired business. Operating profit, including the amortisation of goodwill and intangible assets and exceptional items, in the Science & Medical businesses increased by £84 million to £294 million at reported rates. This reflected growth in adjusted operating profit including the full year contribution from the Harcourt STM businesses. Legal In US Legal markets, turnover increased by 4% at constant exchange rates. Online revenue increased, with continued strong growth in online usage and increasing penetration of the small law firm market. Print and CD-ROM sales were flat as the market continues to move online. The legal directories business again performed well with strong renewals and expanded web services. In US Corporate and Federal Markets, revenues increased with strong growth in risk solutions services more than compensating for the impact of the economic slowdown on the corporate business information market. The LexisNexis International businesses outside North America saw turnover and adjusted operating profits up 3% and 4% respectively at constant exchange rates. Online sales increased in all major markets, partly offset by the migration from print and CD-ROM product. Underlying sales growth of 3% was held back by weakness in demand from corporate customers and in Latin America. Underlying operating profits grew more slowly at 1% reflecting investment in new online services and expansion of the business in Germany. Operating profits, including the amortisation of goodwill and intangible assets and exceptional items, in the Legal business were £61 million in 2002 compared to £59 million in 2001. The broadly flat performance reflected growth in adjusted operating profit, offset by a higher level of exceptional charges due to restructuring actions taken. Education The Harcourt US kindergarten to 12th grade schools business delivered revenues marginally ahead of the prior year despite a weaker market, which saw a weaker adoptions cycle in 2002 compared with 2001, compounded by more cautious spending by US states, with budgets under pressure. Adjusted operating profits were up 4% at constant exchange rates before other acquisitions driven by greater cost efficiency across the supply chain and operating infrastructure, as well as from integration of the supplemental publishing businesses. Adjusted operating margins were lower at 18.4% due to the effect of including the acquired Harcourt businesses for a full year with their seasonally low first half margin. Underlying margins, including Harcourt on a proforma basis, improved by 0.5 percentage points despite the low revenue growth, due to the greater cost efficiency. The Harcourt Testing businesses saw underlying revenues 8% ahead, driven by increased revenue from new and existing state contracts and new educational and clinical assessment publishing. Adjusted operating margins increased through significant process improvements following relocation of the business to new facilities in the prior year, and underlying operating profits were 25% higher. |
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The Harcourt Education International business saw flat revenues, before acquisitions, against the prior year. Increased revenues from new publishing in the UK secondary schools market was offset by a weaker UK primary schools market, and lower academic publishing sales. Global Library revenues increased due to an expanded sales and marketing organisation. Underlying operating profits in the Harcourt International business were 10% lower, due to the flat sales and investment in new publishing and sales and marketing. Operating profits, including the amortisation of goodwill and intangible assets and exceptional items, in the Education businesses were £102 million compared to £95 million in 2001. The increase reflected adjusted operating profit growth, including the full year contribution from Harcourt, offset by higher amortisation of goodwill and intangible assets. Business In the United States, Reed Business Information saw revenues, excluding disposals, 12% lower than the prior year at constant exchange rates. Magazine advertising markets in general remained depressed, although the rate of decline slowed considerably across the year. Improvement in some markets, most notably Entertainment, and growth in Construction data subscription services was more than offset by declines in Manufacturing, Electronics and Telecoms. Despite the revenue decline, underlying operating profits have risen by 15% reflecting the significant action taken to reduce costs, both as a response to the current market environment and as part of a longer term drive to improve US margins. In the United Kingdom, Reed Business Information revenues, excluding disposals, were 6% lower at constant exchange rates with reductions in display and recruitment advertising, particularly in the Technology and Air Transport sectors. The Agricultural titles recovered from the low point last year during the foot and mouth crisis and the Social Services sector performed strongly. Online revenues grew with the continuing increases in subscription services and online directories revenues. Cost actions restricted the decline in underlying profits to 4%, representing a small improvement in adjusted operating margin. In Continental Europe, Reed Business Information saw revenues, excluding acquisitions and disposals, down 2% at constant exchange rates, whilst underlying operating profits were 6% ahead. Market share gains and the resilience of subscription income mitigated to a large extent the decline in advertising markets. Performance in individual sectors was mixed, with the Hospitality, Regulatory and Human Resources sectors in the Netherlands performing particularly well, whereas there were significant declines in Management titles and Training serving the SME market. The operations in Belgium were closed with the pan European Electronics titles relocated to France. Adjusted operating margins improved through continuing action to reduce costs. At Reed Exhibitions, underlying revenues were 1% lower, excluding acquisitions and disposals, whereas underlying operating profits were held to the level of the prior year with some benefit from the cycling of non-annual shows and through tight cost management. Growth in Asia Pacific and in the majority of the North American shows was offset by weakness in the US manufacturing sector and in Europe particularly in the international shows. Operating profits, including the amortisation of goodwill and intangible assets and exceptional items, in the Business segment were £50 million compared to £27 million in 2001. The increase reflects lower adjusted operating profits, offset by reduced acquisition related exceptional items and lower amortisation of goodwill and intangible assets particularly following the sale of the travel publishing businesses in 2001. |
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Results of Operations for the Year Ended December 31, 2001 Turnover increased by 21% to £4,560 million, including the contribution from the Harcourt businesses acquired in July 2001. Underlying revenue growth was 3%, or 6% before taking into account the decline in Business division revenues. The Harcourt businesses saw revenue growth of 8% on a proforma calendar year basis at constant exchange rates. Excluding the amortisation of goodwill and intangible assets and exceptional items, adjusted operating profits were up 25% at £990 million, including the part year contribution of Harcourt. Underlying adjusted operating profit growth was 5%, or 10% excluding the Business division. Additionally the Harcourt businesses saw proforma adjusted operating profit growth of 8% at constant exchange rates. Adjusted operating margins improved by 0.7 percentage points to 21.7% reflecting the pick up in revenue growth across most businesses, coupled with the levelling off of investment spend and the cost savings programmes. Acquisitions and disposals were broadly neutral to the overall margin. The amortisation charge for goodwill and intangible assets amounted to £501 million, up £33 million, principally reflecting the mid year acquisition of the Harcourt businesses. The goodwill and intangible assets of these businesses are being amortised over periods up to 40 years. The useful lives of the goodwill and intangible assets relating to previously acquired science and medical publishing businesses were reassessed and extended to conform with those of the Harcourt assets with which they were integrated. This has had the effect of reducing the annual amortisation charge by £20 million. Exceptional items showed a pre-tax charge of £72 million, comprising £63 million of Harcourt and other acquisition integration and related costs, and £35 million in respect of restructuring actions taken particularly in the Business division in response to the global economic downturn, less £26 million gain on sale of businesses. After a tax credit of £81 million which arose on restructuring and disposals, exceptional items showed a post-tax gain of £9 million. This compared with a net post-tax charge on exceptional items in 2000 of £10 million. Net interest expense, at £142 million, was £39 million higher than in the previous year principally due to the financing of the Harcourt acquisition, less the benefit of the share placing in December 2000. Net interest cover was 7.0 times. Adjusted profit before tax at £848 million was up 23%, or 20% at constant exchange rates. Approximately 9% of this growth at constant exchange rates arose from the financial benefits of the share proceeds received in December 2000 ahead of the Harcourt acquisition and 8% from the contribution post financing of the Harcourt acquisition. Dilution from disposals was 2%. The total tax charge for the year was high as a proportion of profits before tax principally due to non-tax deductible amortisation. The effective tax rate on adjusted earnings was slightly higher in 2001 at 26.3% (2000: 25.9%). The adjusted profit attributable to shareholders of £624 million compared to £511 million in 2000, 20% higher at constant exchange rates. In 2001 the US GAAP net loss was £20 million, compared with a net profit of £60 million in 2000. The movement reflected the factors discussed above, together with year on year changes in the adjustments to reflect differences between UK and Dutch GAAP and US GAAP. These differences include the adoption of a new US accounting standard in relation to derivative instruments which reduced US GAAP net income in 2001 by £56 million. Other significant differences relate to deferred taxation and the amortisation of goodwill and intangible assets; see note 29 to the combined financial statements. Science & Medical Underlying adjusted operating margins improved by 2 percentage points reflecting turnover growth and increasing operating efficiency. Additional investments in new product, sales and marketing were more than offset by cost savings particularly in production following prior year rationalisation. The overall adjusted margin, at 34%, decreased by 2.8 percentage points due to the inclusion of the lower margin Harcourt STM business. On a proforma calendar year basis, the Harcourt STM business saw revenue and adjusted operating profit growth of 3% and 5% respectively in 2001 over 2000 at constant exchange rates. Operating profit, including the amortisation of goodwill and intangible assets and exceptional items, in the Science & Medical business increased by £70 million to £210 million in 2001 at reported rates. This reflected growth in adjusted operating profit including the contribution of the Harcourt STM business, offset by higher exceptional charges relating to the integration of the Harcourt STM business and higher amortisation of goodwill and intangible assets. |
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Legal In North American Legal Markets, online revenues grew by 10% at constant exchange rates in part offset by lower print and CD-ROM sales as business migrates online. This compares with online revenue growth of 5% in 2000 at constant exchange rates and reflects the performance of the new and upgraded products and the impact of the expanded sales force. In US Corporate and Federal Markets, turnover increased by 5% at constant exchange rates, with the upgraded nexis.com service continuing to show improved performance. Weakness in second half transactional volumes driven by the economic downturn was more than offset by strong demand in government and academic markets. The Martindale-Hubbell legal directories business had another good year with strong renewals and revenue growth from sales of lawyer home pages to the law market and listings on the lawyers.com website. LexisNexis International businesses outside the United States reported turnover and adjusted operating profits up 10% and 3% respectively at constant exchange rates, or 5% and 2% excluding acquisitions, with a solid sales performance coupled with further investment in online services. Good sales growth in Europe and Asia Pacific was in part held back by the weaker market conditions in Argentina. Online sales continued to increase in the United Kingdom and new online product was launched in France. Operating profits, including the amortisation of goodwill and intangible assets and exceptional items, in the Legal business were £59 million in 2001 compared to an operating loss of £8 million in 2000 at reported rates. The improved performance reflected growth in adjusted operating profit and a lower level of exceptional items charged to operating profit offset by higher amortisation of goodwill and intangible assets. Education The Harcourt US kindergarten to 12th grade business had proforma revenue growth of 11% at constant exchange rates. It won the highest overall share of 2001 state adoption revenues in both elementary and secondary schools. Particular successes in elementary schools were achieved in California maths and science, Florida social studies and Texas language arts. In secondary schools, the literature and language arts programmes, Elements of Literature and Elements of Language, were successful, as was the science programme, particularly in California. Strong performances were also achieved in open states with the reading, science and maths programmes. The Harcourt Testing businesses saw proforma turnover growth of 22% in 2001 at constant exchange rates partly due to one off incremental requirements on existing state testing contracts. The business moved into new and expanded facilities in the year, and scoring capacity is being added to position it to capture new opportunities in the testing market. The Harcourt Education International business saw underlying turnover and adjusted operating profit growth of 8% and 10% respectively, with particularly strong performances from the Rigby US supplemental business and in UK secondary schools driven by strong publishing to meet changes in the curriculum. The Global Library business also performed well, particularly in the United States. Rigby has now been integrated with the Harcourt Steck-Vaughn supplemental business to form one unified US supplemental unit. Operating profit, including the amortisation of goodwill and intangible assets and exceptional items, in the Education business was £95 million in 2001 compared to £19 million in 2000, an increase of £76 million at reported rates. The increase reflected the part year impact of the Harcourt businesses and the adjusted operating profit growth in Harcourt Education International, offset by higher amortisation of goodwill and intangible assets following the Harcourt acquisition. Business |
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In the United States, Reed Business Information saw underlying turnover 13% lower, impacted by the slowdown in the US economy and the hiatus caused by the September 11 events, with ad pages in Manufacturing, Electronics and TV/Telecommunications most affected. Market share gains were however made in many sectors reflecting the investments made in product, sales and marketing. Underlying operating margins were held, due to the cost actions taken, despite the decrease in turnover. In the United Kingdom, Reed Business Information underlying turnover was 3% lower. Increased revenue from Property, Social Services and Science titles and in online services, mitigated to some extent the decline in revenues from IT and other advertising markets. Overall market share was increased. Underlying adjusted operating profits were 10% lower reflecting a combination of reduced turnover and increased funding for the growing online services, in particular totaljobs.com. In Continental Europe, Reed Business Information saw underlying turnover up 4% driven by increased revenue from subscriptions/circulation particularly in Regulatory, Human Resources and Healthcare, whilst advertising revenues decreased in the second half of the year reflecting the economic slowdown. Underlying adjusted operating profits were 16% lower as investment was made in upgrading product, new online initiatives and sales and marketing, as well as additional costs associated with systems changes. Reed Exhibitions’ turnover and adjusted operating profits grew by 9% and 6% respectively at constant exchange rates excluding acquisitions and disposals, despite the tough economic environment. This was driven by increased revenues from annual shows, particularly in Europe at the international MIDEM shows and in Asia Pacific, and some benefit from the phasing of non annual shows. Turnover in the United States was impacted by the cancellation of a number of shows immediately following September 11, although the profit impact was mitigated by insurance recoveries. The Miller Freeman Europe shows, acquired in July 2000 and not included in the underlying growth figures, had an excellent year. During the year a significant number of disposals were made of non core titles, shows and businesses. These included the travel publishing businesses, OAG Worldwide and Cahners Travel Group, the Bowker bibliographic business, Cahners’ automotive and metals titles, Reed Business Information’s retail and hobby electronics titles, Reed Business Information Continental Europe’s consumer encyclopedia and certain training businesses, and minor exhibitions. This substantially completes the disposal programme started in 2000 and, with the acquisitions also made, represents a major reshaping of the Business division. We have exited sectors which were non core, lower growth or where we did not have leading positions, to focus on sectors with more sustainable growth and quality. Operating profit, including the amortisation of goodwill and intangible assets and exceptional items, in the Business segment reduced by £32 million to £27 million in 2001, at reported rates. This reflected the reduction in adjusted operating profits and the restructuring costs incurred in response to the global economic downturn. Critical Accounting Policies 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. 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. Goodwill and intangible assets Publishing businesses generally have modest requirements for physical property, plant and equipment. The principal assets acquired through acquisitions are intangible assets, such as publishing rights and titles, databases and exhibition rights, and goodwill. The total cost of acquired intangible assets as at December 31, 2002 was £4.3 billion, on which accumulated amortisation of £1.3 billion had been charged. The total cost of goodwill as at December 31, 2002 was £4.5 billion, on which accumulated amortisation of £1.7 billion had been charged. Reed Elsevier’s accounting policy is that, on acquisition of a subsidiary, associate, joint venture or business, the purchase consideration is allocated between the net tangible and intangible assets other than goodwill on a fair value basis, with any |
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excess purchase consideration representing goodwill. The valuation of intangible assets other than goodwill 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 goodwill and intangible assets are capitalised and amortised systematically over their estimated useful lives up to a maximum of 40 years, subject to annual impairment review. Appropriate amortisation periods are selected based on assessments of the longevity of the brands and imprints, the market positions of the acquired businesses and the technological and competitive risks that they face. The carrying amounts of goodwill and intangible assets are regularly reviewed, at least twice a year. The carrying amounts of goodwill and intangible assets arising on all significant acquisitions, on all acquisitions made in the previous financial year, and on all acquisitions for which there are indications of possible impairment are compared with estimated values in use based on latest management cash flow forecasts. Key areas of judgment in estimating the values in use of businesses are the forecast long term growth rates and the appropriate discount rates to be applied to forecast cash flows. Based on the latest value in use calculations, no goodwill or intangible assets were impaired as at December 31, 2002. Taxation and deferred tax The Reed Elsevier combined businesses seek to organise their affairs in a tax efficient manner, taking account of the jurisdictions in which they operate. The tax payable on a number of disposals made in recent years has not been finally determined. 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 prudent provision for tax risks until a high degree of confidence exists that the tax treatment will be accepted by the tax authorities. Reed Elsevier’s policy in respect of deferred taxation is to provide in full for timing differences using the liability method. Deferred tax assets are only recognised to the extent that they are considered recoverable in the short term. Under UK GAAP, deferred tax assets are normally only considered recoverable if their recoverability is reasonably assured against taxable profits arising in the short term. This assessment of the recoverability is judgmental. Management assesses the recoverability of deferred tax assets by considering the forecast level of taxable profits in jurisdictions where such assets have arisen. Forecasts are made of taxable profits, taking into account any unresolved tax risks. Only to the extent that the forecast level of taxable profits supports the amount of deferred tax benefits are deferred tax benefits recognised. Effect of Currency Translation The currency profile of Reed Elsevier’s adjusted profit before tax for 2002, taking account of the currencies of the interest on its borrowings and cash over that period, is set forth below: Adjusted profit before tax in each currency as a percentage of total adjusted profit before tax |
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| US Dollars | Sterling | Euro | Other | Total |
| 44% | 21% | 30% | 5% | 100% |
Currency translation differences decreased Reed Elsevier’s turnover by £135 million and decreased adjusted profit before tax by £14 million in 2002 compared to 2001. To help protect Reed Elsevier PLC’s and Reed Elsevier NV’s shareholders’ funds from the effect of currency movements, Reed Elsevier will, if deemed appropriate, hedge the foreign exchange translation exposure 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. |
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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 turnover and operating costs, to the extent that such turnover and costs are not denominated in their operating currencies. Individual businesses are encouraged to hedge their exposures at market rates with the centralised treasury department within ERF. To minimise hedging costs, these exposures are matched whenever possible with offsetting exposures existing in other individual businesses. When opportunities for such matching of exposures internally do not exist, exposures may instead be hedged externally with third parties. Hedging of foreign exchange transaction exposure is the only hedging activity undertaken by the individual businesses. For further details see note 24 to the combined financial statements. European Economic and Monetary Union The implications for Reed Elsevier businesses have been low relative to many other multinational European companies. This is because Reed Elsevier’s businesses principally price in the local currency of the country in which they operate and have limited cross border trade, with the significant exception of the Science & Medical business, which already published global prices. As a result, the most significant issue arising was the timing of euro based marketing and invoicing and the transfer to euro denominated business and financial systems. In this respect, during 2002, Reed Elsevier’s businesses were able to accommodate the euro without significant difficulty. Recently Issued Accounting Pronouncements SFAS148: Accounting for Stock-Based Compensation — Transition and Disclosure was issued in December 2002 and is effective for financial years ending after December 15, 2002. SFAS148 amends the requirements of SFAS123: Accounting for Stock-Based Compensation by providing alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS148 also amends the disclosure requirements of SFAS123 to require prominent disclosure of the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Reed Elsevier has elected to continue to apply the accounting provisions of APB25: Accounting for Stock Issued to Employees, but has adopted the disclosure requirements of SFAS148. FIN45: Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others was issued in November 2002. FIN45 requires additional disclosures related to obligations under certain guarantees that have been issued. The disclosure requirements of FIN45 are effective for financial years ending after December 15, 2002. The initial recognition and measurement requirements of FIN45 are effective prospectively for guarantees issued or modified after December 31, 2002. The impact of adoption of the recognition and measurement requirements is being assessed but the requirements are not expected to have a material impact on the results or financial position of Reed Elsevier and no additional disclosures are considered necessary as at December 31, 2002. FIN46: Consolidation of Variable Interest Entities — an interpretation of ARB No. 51 was issued in January 2003 and is effective for financial years beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN46 clarifies the application of Accounting Research Bulletin No. 51: Consolidated Financial Statements to certain entities in which equity investors do not have a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN46 requires disclosure in the 2003 financial year regarding ownership interests in variable interest entities. In June 2002, the European Parliament and Council of the European Union (“EU”) issued a Regulation that will require all EU listed companies to prepare their consolidated accounts in accordance with International Financial Reporting Standards (“IFRS”). The Regulation is effective for financial years beginning after January 1, 2005. The impact of adopting IFRS, many of which are in the process of being developed or revised, in 2005 is being assessed. |
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| Total | Less than 1 year | 1–3 years | 3–5 years | After 5 years | |
| (in millions) | |||||
| Short term debt(1) | £1,279 | £1,279 | £— | £— | £— |
| Long term debt (including finance leases) | 2,023 | 88 | 121 | 791 | 1,023 |
| Operating leases | 910 | 103 | 94 | 159 | 554 |
| Total | £4,212 | £1,470 | £215 | £950 | £1,577 |
(1) | Short term debt is supported by committed facilities and by centrally managed cash and short term investments and primarily comprises commercial paper. |
Provisions at December 31, 2002 included £63 million in respect of surplus property relating to lease obligations for various periods up to 2012. The amount provided represents estimated sub-lease shortfalls. Provisions at December 31, 2002, also included £32 million in respect of lease guarantees given by Harcourt General, Inc in favour of a former subsidiary, GC Companies, Inc. for certain property leases for various periods up to 2016. At December 31, 2002, there were contingent liabilities amounting to £3 million in respect of borrowings of former subsidiaries and £118 million in respect of lease guarantees, in excess of provided amounts. |
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Treasury Policies Financial instruments are used to finance the Reed Elsevier business and to hedge transactions. Reed Elsevier’s businesses do not enter into speculative transactions. The main risks faced by Reed Elsevier are liquidity risk, interest rate risk and foreign currency risk. The boards of the parent companies, Reed Elsevier PLC and Reed Elsevier NV, 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 and remained broadly unchanged during 2002. Funding During 2002 and 2001, Harcourt General public notes, with a nominal value of $110 million and $97 million respectively, were repurchased in the open market. Reed Elsevier may, from time to time, continue to repurchase outstanding debt in the open market, depending on market conditions. After taking account of the maturity of committed bank facilities that back short term borrowings at December 31, 2002, 15% of debt after utilising available cash resources matures in December of the first year, nil in the second year, 19% in the third year, 29% in the fourth and fifth years, 23% in five to ten years, and 14% beyond ten years. At December 31, 2002, Reed Elsevier had access to $3,500 million (2001: $3,500 million) of committed bank facilities, of which $101 million was drawn. These facilities principally provide back up for short term debt but also security of funding for future acquisition spend in the event that commercial paper markets are not available. Of the total committed facilities, $2,860 million expires in December of 2003 (2001: $360 million within one year), $nil (2001: $2,500 million) within one to two years, and $640 million (2001: $640 million) within two to three years. Arrangements are in process to put in place appropriate facilities to replace those expiring in December 2003. Interest Rate Exposure Management At December 31, 2002, approximately 95% of Reed Elsevier’s net debt was denominated in US dollars on which approximately 80% of forecast net interest expense was fixed or capped for the next three years. This fixed or capped percentage reduces thereafter over time, with all interest rate derivatives and approximately two thirds of fixed rate term debt having matured by the end of 2009 and 2011 respectively. At December 31, 2002, fixed rate term debt (not swapped back to floating rate) amounted to $1.6 billion and had a weighted average life remaining of 14.3 years (2001: 19.7 years) and a weighted average interest coupon of 7.0%. Interest rate derivatives in place at December 31, 2002, which fix or cap the interest cost on an additional $2.1 billion (2001: $2.0 billion) of variable rate US dollar debt, have a weighted average maturity of 2.2 years (2001: 2.6 years) and a weighted average interest rate of 5.9%. Foreign Currency Exposure Management Current 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 commercial situation 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. At the year-end, the amount of outstanding foreign exchange cover in respect of future transactions was £0.7 billion. |
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Trends and uncertainties and events which can affect the turnover, 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, cost control and the impact of our cost reduction programmes on operational efficiency, the levels of US state and federal funding for education, and the impact of the global economy on the level of advertising demand. Trends, uncertainties and events which could have a material impact on Reed Elsevier’s turnover, operating profit and liquidity and capital resources are discussed in further detail in “Item 3: Key Information” under “Risk Factors”; in “Item 4: Information on Reed Elsevier”; and in “Item 5: Operating and Financial Review and Prospects” under “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 The directors of each of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV at February 18, 2003 were: |
| Name (Age) | Reed Elsevier PLC | Reed Elsevier NV | Reed Elsevier Group plc | Elsevier Reed Finance BV |
| Gerard van de Aast (45) | Executive Director | Member of the Executive Board | Executive Director | |
| Mark Armour (48) | Executive Director and Chief Financial Officer | Member of the Executive Board and Chief Financial Officer | Executive Director and Chief Financial Officer | Member of the Supervisory Board |
| Jacques Billy (32) | Member of the Management Board | |||
| Willem Boellaard (72) | Managing Director | |||
| Dien de Boer-Kruyt (58) | Member of the Supervisory Board(4) | Member of the Supervisory Board | ||
| John Brock (54) | Non-executive Director(1)(4) | Member of the Supervisory Board(1)(4) | Non-executive Director(1)(2)(5) | |
| Crispin Davis (53) | Executive Director and Chief Executive Officer(3) | Chairman of the Executive Board and Chief Executive Officer(3) | Executive Director and Chief Executive Officer(5) | |
| Derk Haank (49) | Executive Director | Member of the Executive Board | Executive Director | |
| Roelof Nelissen (71) | Non-executive Director(1)(4) | Member of the Supervisory Board(1)(4) | Non-executive Director(1)(2) | Chairman of the Supervisory Board |
| Steven Perrick (54) | Non-executive Director(1)(3)(4) | Member of the Supervisory Board(1)(3)(4) | Non-executive Director(1) | Member of the Supervisory Board |
| Andrew Prozes (57) | Executive Director | Member of the Executive Board | Executive Director | |
| Lord Sharman (60) | Non-executive Director(1)(4) | Member of the Supervisory Board(1)(4) | Non-executive Director(1)(5) | |
| Rolf Stomberg (62) | Non-executive Director(1)(3)(4)(6) | Member of the Supervisory Board(1)(3)(4)(6) | Non-executive Director(1)(2)(6) | |
| Morris Tabaksblat (65) | Non-executive Chairman(3)(4) | Chairman of the Supervisory Board(3)(4) | Non-executive Chairman(5) |
(1) | Member of the Audit Committee. |
(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) | Member of the Strategy Committee of the board of Reed Elsevier Group plc. |
(6) | Senior independent non-executive director. |
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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. Gerard van de Aast is Chief Executive Officer of the Business division, Reed Business. Appointed a director of Reed Elsevier Group plc and Reed Elsevier PLC in December 2000 and director of Reed Elsevier NV in April 2001. 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. Was Deputy Chief Financial Officer of Reed Elsevier from 1995 to 1996. Prior to joining Reed Elsevier was a partner in Price Waterhouse. Jacques Billy was appointed a member of the Management Board of Elsevier Reed Finance BV on February 15, 2002. He is Managing Director of Elsevier Finance SA, having joined that company as Finance Manager in 1999. Willem Boellaard was appointed a member of the Management Board of Elsevier Reed Finance BV in December 1998. He joined Reed Elsevier PLC in 1990. Dien de Boer-Kruyt was appointed a member of the Supervisory Board of Reed Elsevier NV and of Elsevier Reed Finance BV in 2000. She is Chairman of the Supervisory Board of C/Tac, and a member of the Supervisory Boards of Imtech NV and Sara Lee/DE, a subsidiary of Sara Lee Corporation. John Brock was appointed a non-executive director of Reed Elsevier Group plc and Reed Elsevier PLC, and member of the Supervisory Board of Reed Elsevier NV, in April 1999. Chief Executive Officer of Interbrew SA from 2003, and was Chief Operating Officer of Cadbury Schweppes plc until 2002. Crispin Davis was appointed Chief Executive Officer of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV in September 1999. Chief Executive Officer of Aegis Group plc from 1994 to 1999. From 1990 to 1993 he was at Guinness Group plc, where he held the position of Group Managing Director of United Distillers. Derk Haank is Chief Executive Officer of the Science & Medical division, Elsevier. Appointed a director of Reed Elsevier Group plc and Reed Elsevier PLC in November 1999 and director of Reed Elsevier NV in April 2000. Joined Reed Elsevier NV in 1986. Was appointed Group Chief Executive of Elsevier Business Information in 1996 and Chief Executive of Reed Elsevier’s Science division in 1998. Roelof Nelissen was a non-executive director of Reed Elsevier Group plc from 1993 to 1998 and re-elected in April 1999. Member of the Supervisory Board of Reed Elsevier NV since 1990 and a non-executive director of Reed Elsevier PLC since April 1999. Appointed Chairman of the Supervisory Board of Elsevier Reed Finance BV in April 1999. A member of the Supervisory Board of Daimler Chrysler Nederland BV and International Flavors and Fragrances (Nederland) BV. Was Chairman of the Managing Board of ABN AMRO Holding NV and ABN AMRO Bank NV until 1992. Steven Perrick was appointed a non-executive director of Reed Elsevier Group plc, a non-executive director of Reed Elsevier PLC and a member of the Supervisory Board of Reed Elsevier NV in 1998. Appointed a member of the Supervisory Board of Elsevier Reed Finance BV in April 2001. Was a lawyer with De Brauw Blackstone Westbroek until 1999, when he became a partner at Freshfields Bruckhaus Deringer in the Netherlands. Andrew Prozes is Chief Executive Officer of the Legal division, LexisNexis. Appointed a director of Reed Elsevier Group plc and Reed Elsevier PLC in July 2000 and director of Reed Elsevier NV in April 2001. Prior to joining Reed Elsevier was an Executive Vice President with the West Group, part of the Thomson Corporation, and Group President of Southam Inc. 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 Aegis Group plc since 2000 and a non-executive director of BG International plc. Joined KPMG in 1966 where he was elected 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. Became a member of the House of Lords in October 1999. Rolf Stomberg was appointed a non-executive director of Reed Elsevier Group plc and Reed Elsevier PLC in January 1999 and a member of the Supervisory Board of Reed Elsevier NV in April 1999. Chairman of Management Consulting Group PLC and a non-executive director of Cordiant Communications Group PLC, Smith & Nephew PLC and serves on the boards of companies in Sweden, The Netherlands and Germany. Morris Tabaksblat was appointed a member of the Supervisory Board of Reed Elsevier NV in April 1998 and a non- executive director of Reed Elsevier Group plc in June 1998. Chairman of Reed Elsevier Group plc and Reed Elsevier PLC and Chairman of the Supervisory Board of Reed Elsevier NV since 1999. Chairman of the Supervisory Board of AEGON NV and of TNT Post Group NV, and a member of the International Advisory Board of Renault Nissan. Was Chairman of Unilever NV from 1994 until his retirement in 1999 and Chairman of the European Round Table of Industrialists until 2001. |
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The executive officers of Reed Elsevier Group plc, other than directors, at February 18, 2003 were: Jean-Luc Augustin: Director of Human Resources. A member of the Reed Elsevier management committee. Joined Reed Elsevier in 2000. Previously Mr Augustin was with Novartis, where he was Vice President Human Resources in the Pharmaceutical Division. Nick Baker: Chief Strategy Officer. A member of the Reed Elsevier management committee. He has been with Reed Elsevier since 1986 and within Corporate Strategy since 1997. 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. Keith McGarr: Chief Technology Officer. A member of the Reed Elsevier management committee. Joined the company in 2000. Previously Mr McGarr was with Federal Express Corporation where he was responsible for IT network-based and distributed services and the design of network architecture. Patrick Tierney: Chief Executive Officer of the Education division, Harcourt Education. A member of the Reed Elsevier management committee. Joined Reed Elsevier in January 2003. Mr Tierney will be proposed for election to the boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc at the Annual General Meetings in April 2003. Previously, Mr Tierney was with The Thomson Corporation, a US based provider of business information, where he held various senior roles, most recently as the chief executive officer of Thomson Financial. Remuneration Committee The Committee is chaired by Rolf Stomberg and throughout 2002 consisted wholly of independent non-executive directors: John Brock, Roelof Nelissen and Rolf Stomberg. The Committee has appointed Towers Perrin, an external consultancy which has wide experience of executive remuneration in multinational companies, to advise in developing its performance-related remuneration policy. Towers Perrin also provides actuarial and other Human Resources consultancy services direct to some Reed Elsevier companies. In addition to Towers Perrin, the following provided material advice or services to the Committee during the year: Jean- Luc Augustin, Human Resources Director; Christopher Thomas, Director, Compensation and Benefits; and Crispin Davis, Chief Executive Officer. Compliance with the best practice provisions In relation to disclosure of directors’ remuneration, Reed Elsevier PLC, a UK company listed on the London Stock Exchange, has complied with Schedule B of the Combined Code. Remuneration policy In determining its policy on senior executive remuneration, including that of the directors, the Committee’s principal objectives are to attract, retain and motivate people of the highest calibre and experience needed to shape and execute the strategy and deliver shareholder value in the context of an ever more competitive and increasingly global employment market. The Committee also has regard to, and balances as far as is practicable, the following objectives: |
(i) | to ensure that it maintains a competitive package of pay and benefits, commensurate with comparable packages available within other leading multinational companies operating in global markets; |
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(ii) | to provide a consistent approach towards senior executives, including the directors, irrespective of geographical location; |
(iii) | to ensure that it encourages enhanced performance by directors and fairly recognises the contribution of individual directors to the attainment of the results of Reed Elsevier, whilst also encouraging a team approach which will work towards achieving the long term strategic objectives of Reed Elsevier; and |
(iv) | to link reward to individual directors’ performance and company performance so as to align the interests of the directors with the shareholders of the parent companies.
|
In order to meet the above objectives, the remuneration of executive directors comprises a balance between “fixed” remuneration and “variable performance-related” incentives. The policy is that target performance-related incentives for executive directors should equate to approximately 70% of total remuneration. Remuneration consists of the following elements: |
— | Base salary, which is based on comparable positions in leading multinational businesses of similar size and complexity. Salaries are reviewed annually by the Committee. |
— | A variable annual cash bonus, based on achievement of stretching revenue, profit and cash driven targets and individual performance-related targets. Targets are set at the beginning of the year by the Committee. Effective from January 2003 the Committee has adopted a policy of common levels for both annual and longer term incentives for executive directors, reflecting the global nature of the role of each director. As a consequence, from 2003 the annual bonus payable to a director will be 72% of basic salary at target and 90% at maximum. |
— | A bonus investment plan, introduced in 2002, under which directors and other senior executives are able to have up to one half of their annual bonus paid in Reed Elsevier PLC/Reed Elsevier NV shares. Subject to remaining in employment, at the end of a three year period, the participants will be awarded an equivalent number of Reed Elsevier PLC/Reed Elsevier NV shares. |
— | Share options, where the directors and other senior executives are granted options annually over shares in Reed Elsevier PLC and Reed Elsevier NV at the market price at the date of grant. The Committee approves the grant of any option and sets performance conditions attaching to options. |
— | A longer term incentive arrangement (“LTIP”) under which a one-off grant of options of between 10 and 20 times salary was made during 2000 to 40 senior executives. The options were granted at market value at the date of grant, and are exercisable after five years, subject to the achievement of performance conditions. |
— | Post-retirement benefits, which comprise only pensions, where different retirement schemes apply depending on local competitive market practice, length of service and age of the director. The only element of remuneration that is pensionable is base salary.
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At the forthcoming Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV authority will be sought to implement a new longer term incentive compensation structure for directors and other executives. Subject to approval by shareholders, the new structure will be available for use with effect from 2004. The first part of the proposal relates to a new share option scheme for approximately 1,300 participants, to replace the present scheme which was introduced in 1993. This scheme would grant options annually over shares in Reed Elsevier PLC and Reed Elsevier NV at market value, with the level of shares capable of being granted determined by earnings per share growth in the three years prior to grant. The second part of the proposal relates to a new LTIP for approximately 40 senior executives, including directors, who can most directly affect the performance of Reed Elsevier. Awards under the LTIP would consist of a conditional award of shares and the grant of ten year options at market value, split approximately equally based on implied values. Participation would be dependent on individual performance and the accumulation of a shareholding in Reed Elsevier PLC and/or Reed Elsevier NV in accordance with company guidelines. The exercise of LTIP awards would be subject to the achievement of demanding earnings per share targets. |
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Total shareholder return For the three year period since January 1, 2000, the total shareholder return for Reed Elsevier PLC was 43%, significantly outperforming the FTSE 100 which saw a negative return of 35%. For Reed Elsevier NV, the total shareholder return in the same three year period was 22%, also significantly outperforming the AEX Index which saw a negative return of 43%.
|
|
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Source : FTSE International |
Source: Datastream |
The total shareholder return set out above is calculated on the basis of the average share price in the 30 trading days prior to the respective year ends and on the assumption that dividends were reinvested. Service contracts |
(i) | M H Armour was appointed a director in July 1996. His service contract, which is dated October 7, 1996, is subject to English law and provides for a notice period of twenty-four months, which reflects the normal practice at the time of his appointment. |
(ii) | C H L Davis was appointed a director in September 1999. His service contract, which is dated July 19, 1999, is subject to English law and provides for a notice period of twelve months. |
(iii) | D J Haank was appointed a director in November 1999. His service contract, which is dated November 15, 1999, is subject to Dutch law and provides for six months’ notice and, in the event of termination without cause by the company, eighteen months’ salary and employer’s pension contributions would be payable by way of liquidated damages.
|
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| (iv) | A Prozes was appointed a director in August 2000. His service contract, which is dated July 5, 2000, is subject to New York law and provides that, in the event of termination without cause by the company, twelve months’ base salary would be payable. |
| (v) | G J A van de Aast was appointed a director in December 2000. His service contract, which is dated November 15, 2000, is subject to English law and provides for a notice period of twelve months. |
The notice periods in respect of individual directors have been reviewed by the Committee. The Committee believes that as a general rule for future contracts, the notice period should be twelve months, and that the directors should, subject to practice within the country in which the director is based, be required to mitigate their damages in the event of termination. The Committee will, however, have regard to local market conditions so as to ensure that the terms offered are appropriate to recruit and retain key executives operating in a global business. External appointments Remuneration of non-executive directors The non-executive directors do not have contracts of service. Emoluments of the directors (a) Aggregate emoluments |
| Year ended December 31, | ||
| 2002 | 2001 | |
| (in thousands) | ||
| Salaries and fees | £3,009 | £2,790 |
| Benefits | 91 | 75 |
| Annual performance-related bonuses | 1,453 | 1,056 |
| Pension contributions | 267 | 218 |
| Pension to former director | 231 | 241 |
| Total | £5,051 | £4,380 |
No compensation payments have been made for loss of office or termination in 2002 (2001: £nil). (b) Individual emoluments of executive directors |
| 2002 | |||||
| Salary | Benefits | Bonuses | Total | 2001 | |
| M H Armour | £444,000 | £23,127 | £222,000 | £689,127 | £598,423 |
| C H L Davis | 891,000 | 30,043 | 445,500 | 1,366,543 | 1,145,657 |
| D J Haank | 368,158 | 11,001 | 184,081 | 563,240 | 487,562 |
| A Prozes | 593,333 | 10,287 | 427,200 | 1,030,820 | 944,564 |
| G J A van de Aast | 348,000 | 16,674 | 174,000 | 538,674 | 394,286 |
| Total | 2,644,491 | 91,132 | 1,452,781 | £4,188,404 | £3,570,492 |
Benefits include the provision of a company car, medical insurance and life assurance. C H L Davis was the highest paid director in 2002. He had no gains on the exercise of share options. |
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(c) Pensions The policy for executive directors based in the United Kingdom is to provide pension benefits at a normal retirement age of 60, equivalent to two thirds of base salary in the 12 months prior to retirement, provided they have completed 20 years’ service with Reed Elsevier or at an accrual rate of 1/30th of pensionable salary per annum if employment is for less than 20 years. The target pension for C H L Davis at normal retirement age of 60 is 45% of base salary in the 12 months prior to retirement. In 1989, the Inland Revenue introduced a cap on the amount of pension that can be provided from an approved pension scheme. M H Armour’s, G J A van de Aast’s and C H L Davis’s pension benefits will be provided from a combination of the Reed Elsevier Pension Scheme and the company’s unapproved, unfunded pension arrangements. D J Haank is a member of the Dutch pension scheme, and his pension at normal retirement age of 60 will be up to 70% of his final annual salary. The target pension for A Prozes, a US based director, is $300,000 per annum, which becomes payable on retirement only if he completes a minimum of seven years’ service. This pension has no associated contingent benefits for a spouse or dependents, and will be reduced in amount by the value of any other retirement benefits payable by the company or any former employer, other than those attributable to employee contributions. The pension arrangements for all the directors include life assurance cover whilst in employment, an entitlement to a pension in the event of ill health or disability and, except in the case of A Prozes, a spouse’s and/or dependents’ pension on death. The increase in the transfer value of the directors’ pensions, after deduction of contributions, is shown below: |
| Transfer value of accrued pension January 1, 2002 | Transfer value of accrued pension December 31, 2002 | Increase in transfer value during the period, less directors’ contributions | Accrued annual pension as at December 31, 2002 | Increase in accrued annual pension during the period | Transfer value of increase after deduction of directors’ contributions | |
| M H Armour | £1,038,761 | £1,036,652 | £(5,012) | £117,136 | £21,486 | £181,377 |
| C H L Davis | 1,233,292 | 1,779,585 | 543,391 | 140,015 | 50,904 | 636,158 |
| D J Haank | 1,366,599 | 1,353,976 | (12,623) | 146,814 | 25,982 | 239,619 |
| A Prozes | — | — | — | — | — | — |
| G J A van de Aast | 113,891 | 191,063 | 74,270 | 24,185 | 12,432 | 94,659 |
The transfer value increase in respect of individual directors represents a liability in respect of directors’ pensions entitlement, and is not an amount paid or payable to the director. The movement in transfer values during the year includes a restatement of the transfer values based on the methodologies prescribed by the UK Directors’ Remuneration Report Regulations 2002. (d) Individual emoluments of non-executive directors |
| 2002 | 2001 | |
| J F Brock | £35,849 | £35,404 |
| R J Nelissen | 35,849 | 35,404 |
| S Perrick | 35,849 | 35,404 |
| Lord Sharman (from January 1, 2002) | 35,849 | — |
| R W H Stomberg | 35,849 | 35,404 |
| M Tabaksblat | 176,101 | 173,913 |
| D G C Webster (until April 9, 2002) | 8,962 | 35,404 |
| £364,308 | £350,933 | |
G J de Boer-Kruyt, a member of the supervisory board of Reed Elsevier NV, received emoluments of £13,522 during the year (2001: £13,354). Compensation of executive officers |
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REED ELSEVIER REED ELSEVIER GROUP PLC 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: |
| — | Strategy — comprising the Chairman, Chief Executive Officer and two non-executive directors |
| — | Audit — comprising five non-executive directors, the majority of whom are independent |
| — | Remuneration — comprising three 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 take-over 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 Take-overs 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 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 |
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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). At the 2003 Annual General Meeting resolutions will be submitted proposing the appointment of Patrick Tierney as an executive director, and Mark Elliott, Cees van Lede and David Reid as non-executive directors. The Reed Elsevier PLC board has also established the following committees: |
| — | Audit — comprising five non-executive directors, the majority of whom are independent |
| — | 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, the majority 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 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 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). At the 2003 Annual General Meeting resolutions will be submitted proposing the appointment of Patrick Tierney as a member of the executive board and Mark Elliott, Cees van Lede and David Reid as members of the supervisory board. The Reed Elsevier NV supervisory board has also established the following committees: |
| — | Audit — comprising five members of the Reed Elsevier NV supervisory board, the majority of whom are independent |
| — | 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, the majority of whom are independent |
Each director on the Reed Elsevier NV executive and supervisory 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 |
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Reed Elsevier’s average number of employees in the year ended December 31, 2002 was 36,800 (2001: 34,600, 2000: 28,900). Approximately 6,100 were located in the UK (2001: 6,100, 2000: 5,700), 21,300 in North America (2001: 18,900, 2000: 14,800), 2,800 in the Netherlands (2001: 3,000, 2000: 3,000), 3,800 in the rest of Europe (2001: 3,700, 2000: 3,000) and 2,800 in the rest of the world (2001: 2,900, 2000: 2,400). The average number of employees in the business segments in the year ended December 31, 2002 was 6,400 in Science & Medical (2001: 5,200, 2000: 3,700), 13,300 in Legal (2001: 12,700, 2000: 11,200), 5,800 in Education (2001: 3,400, 2000: 1,500) and 11,300 in Business (2001: 13,300, 2000: 12,500). At December 31, 2002, the number of employees was approximately 36,100, which comprised 6,400 in the Science & Medical segment, 13,300 in Legal, 5,600 in Education and 10,800 in Business. 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. Codes of Conduct applicable to employees within Reed Elsevier have been adopted throughout its businesses. |
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REED ELSEVIER PLC |
| January 1, 2002 | Granted during the year | Option price | Exercised during the year | Market price at exercise date | December 31, 2002 | Exercisable | Exercisable | |
| M H Armour — Executive Scheme | 59,600(i) | 400.75p | 20,000(ii) | 633.50p | 39,600 | Apr 26, 1998 | Apr 26, 2005 | |
| 30,000(i) | 585.25 | 30,000 | Apr 23, 1999 | Apr 23, 2006 | ||||
| 52,000 | 565.75 | 52,000 | Apr 21, 2000 | Apr 21, 2007 | ||||
| 66,900 | 523.00 | 66,900 | Aug 17, 2001 | Aug 17, 2008 | ||||
| 33,600 | 537.50 | 33,600 | Feb 21, 2003 | Apr 19, 2009 | ||||
| 88,202 | 436.50 | 88,202 | May 2, 2003 | May 2, 2010 | ||||
| 62,974 | 659.00 | 62,974 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 74,000 | 600.00 | 74,000 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 882,016 | 436.50 | 882,016 | Jan 1, 2005 | Dec 31, 2005 | |||
| — SAYE Scheme | 3,924 | 430.00 | 3,924 | Aug 1, 2004 | Jan 31, 2005 | |||
| Total | 1,279,216 | 74,000 | 20,000 | 1,333,216 | ||||
| C H L Davis — Executive Scheme | 160,599 | 467.00p | 160,599 | Feb 21, 2003 | Sept 1, 2009 | |||
| 80,300 | 467.00 | 80,300 | Sept 1, 2003 | Sept 1, 2009 | ||||
| 80,300 | 467.00 | 80,300 | Sept 1, 2004 | Sept 1, 2009 | ||||
| 171,821 | 436.50 | 171,821 | May 2, 2003 | May 2, 2010 | ||||
| 122,914 | 659.00 | 122,914 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 148,500 | 600.00 | 148,500 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 1,718,213 | 436.50 | 1,718,213 | Jan 1, 2005 | Dec 31, 2005 | |||
| — Nil cost options | 535,332 | Nil | 535,332 | Sept 2, 2002 | Sept 2, 2003 | |||
| — SAYE Scheme | 5,019 | 336.20 | 5,019 | Aug 1, 2005 | Jan 31, 2006 | |||
| Total | 2,874,498 | 148,500 | 3,022,998 | |||||
| D J Haank — Executive Scheme | 18,498(i) | 677.25p | 18,498 | Apr 19, 1999 | Apr 19, 2004 | |||
| 18,497(i) | 537.50 | 18,497 | Apr 19, 1999 | Apr 19, 2009 | ||||
| 51,368 | 436.50 | 51,368 | May 2, 2003 | May 2, 2010 | ||||
| 51,110 | 659.00 | 51,110 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 59,843 | 600.00 | 59,843 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 513,680 | 436.50 | 513,680 | Jan 1, 2005 | Dec 31, 2005 | |||
| Total | 653,153 | 59,843 | 712,996 | |||||
| A Prozes — Executive Scheme | 188,281 | 566.00p | 188,281 | Aug 9, 2003 | Aug 9, 2010 | |||
| 83,785 | 659.00 | 83,785 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 103,722 | 600.00 | 103,722 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 941,406 | 566.00 | 941,406 | Jan 1, 2005 | Dec 31, 2005 | |||
| — Nil cost options | 20,168 | Nil | 20,168(ii) | 570.00p | – | |||
| 20,170 | Nil | 20,170 | Aug 9, 2003 | Aug 9, 2004 | ||||
| Total | 1,253,810 | 103,722 | 20,168 | 1,337,364 | ||||
| G J A van de Aast — Executive Scheme | 50,940 | 638.00p | 50,940 | Dec 1, 2003 | Dec 1, 2010 | |||
| 49,317 | 659.00 | 49,317 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 58,000 | 600.00 | 58,000 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 509,404 | 638.00 | 509,404 | Jan 1, 2005 | Dec 31, 2005 | |||
| Total | 609,661 | 58,000 | 667,661 | |||||
| (i) | Option granted prior to appointment as a director |
| (ii) | Retained an interest in all of the shares |
No options lapsed unexercised during the year. The middle market price of a Reed Elsevier PLC ordinary share during the year was in the range 487.5p to 695.5p, and at December 31, 2002 was 532p. |
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Between January 1, 2003 and February 18, 2003, there were no changes to the options held by directors over ordinary shares in Reed Elsevier PLC. Share option schemes REED ELSEVIER NV
|
| January 1, 2002 | Granted during the year | Option price | Exercised during the year | Market price at exercise date | December 31, 2002 | Exercisable | Exercisable | |
| M H Armour — Executive Scheme | 20,244 | €13.55 | 20,244 | Feb 21, 2003 | Apr 19, 2009 | |||
| 61,726 | 10.73 | 61,726 | May 2, 2003 | May 2, 2010 | ||||
| 44,882 | 14.75 | 44,882 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 51,926 | 13.94 | 51,926 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 617,256 | 10.73 | 617,256 | Jan 1, 2005 | Dec 31, 2005 | |||
| Total | 744,108 | 51,926 | 796,034 | |||||
| C H L Davis — Executive Scheme | 95,774 | €12.00 | 95,774 | Feb 21, 2003 | Sept 1, 2009 | |||
| 47,888 | 12.00 | 47,888 | Sept 1, 2003 | Sept 1, 2009 | ||||
| 47,888 | 12.00 | 47,888 | Sept 1, 2004 | Sept 1, 2009 | ||||
| 120,245 | 10.73 | 120,245 | May 2, 2003 | May 2, 2010 | ||||
| 87,601 | 14.75 | 87,601 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 104,204 | 13.94 | 104,204 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 1,202,446 | 10.73 | 1,202,446 | Jan 1, 2005 | Dec 31, 2005 | |||
| — Nil cost options | 319,250 | Nil | 319,250 | Sept 2, 2002 | Sept 2, 2003 | |||
| Total | 1,921,092 | 104,204 | 2,025,296 | |||||
| D J Haank — Executive Scheme | 30,000(i) | €14.11 | 30,000(ii) | €15.93 | — | |||
| 30,000(i) | 15.25 | 30,000 | Mar 24, 1998 | Mar 24, 2003 | ||||
| 10,926(i) | 17.07 | 10,926 | Apr 19, 1999 | Apr 19, 2004 | ||||
| 10,925(i) | 13.55 | 10,925 | Apr 19, 1999 | Apr 19, 2009 | ||||
| 35,949 | 10.73 | 35,949 | May 2, 2003 | May 2, 2010 | ||||
| 36,426 | 14.75 | 36,426 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 41,993 | 13.94 | 41,993 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 359,485 | 10.73 | 359,485 | Jan 1, 2005 | Dec 31, 2005 | |||
| — Convertible Debentures | 3,920(iii) | 17.48 | — | |||||
| Total | 517,631 | 41,993 | 30,000 | 525,704 | ||||
| A Prozes — Executive Scheme | 131,062 | €13.60 | 131,062 | Aug 9, 2003 | Aug 9, 2010 | |||
| 59,714 | 14.75 | 59,714 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 72,783 | 13.94 | 72,783 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 655,310 | 13.60 | 655,310 | Jan 1, 2005 | Dec 31, 2005 | |||
| — Nil cost options | 14,040 | Nil | 14,040(iv) | €12.57 | — | |||
| 14,040 | Nil | 14,040 | Aug 9, 2003 | Aug 9, 2004 | ||||
| Total | 874,166 | 72,783 | 14,040 | 932,909 | ||||
| G J A van de Aast — Executive Scheme | 35,866 | €14.87 | 35,866 | Dec 1, 2003 | Dec 1, 2010 | |||
| 35,148 | 14.75 | 35,148 | Feb 23, 2004 | Feb 23, 2011 | ||||
| 40,699 | 13.94 | 40,699 | Feb 22, 2005 | Feb 22, 2012 | ||||
| — LTIP | 358,658 | 14.87 | 358,658 | Jan 1, 2005 | Dec 31, 2005 | |||
| Total | 429,672 | 40,699 | 470,371 | |||||
49 |
(i) | Option granted prior to appointment as a director |
| (ii) | Retained an interest in 3,000 shares |
| (iii) | Options lapsed unexercised during the year |
| (iv) | Retained an interest in all of the shares |
The market price of a Reed Elsevier NV ordinary share during the year was in the range €10.86 to €16.01 and at December 31, 2002 was €11.65. The aggregate notional pre-tax gain made by the directors on the exercise of Reed Elsevier PLC and Reed Elsevier NV share options during the year was £306,843. Between January 1, 2003 and February 18, 2003, there were no changes to the options held by directors over ordinary shares in Reed Elsevier NV. Share option schemes In addition, Reed Elsevier NV has arrangements in place (together with the Reed Elsevier NV Executive Option Arrangements, the “Reed Elsevier NV Share Option Arrangements”), which are open to Dutch employees of the businesses within Reed Elsevier, under which interest bearing debentures of Reed Elsevier NV may be purchased for cash for periods of ten years, during which time they may be converted on a prescribed basis into Reed Elsevier NV ordinary shares. REED ELSEVIER
|
| Reed Elsevier PLC ordinary shares | Reed Elsevier NV ordinary shares | |||
| January 1, 2002 | December 31, 2002 | January 1, 2002 | December 31, 2002 | |
| M H Armour | 2,500 | 22,500 | 2,500 | 2,500 |
| J F Brock | 3,000 | 3,000 | — | — |
| C H L Davis | 74,071 | 115,571 | 51,953 | 81,553 |
| D J Haank | — | — | 28,880 | 31,880 |
| R J Nelissen | — | — | 5,000 | 5,000 |
| S Perrick | — | — | 972 | 4,000 |
| A Prozes | 43,329 | 63,497 | 30,360 | 44,400 |
| Lord Sharman | — | — | — | — |
| R W H Stomberg | — | — | — | — |
| M Tabaksblat | — | — | 8,000 | 8,000 |
| G J A van de Aast | — | — | 7,500 | 12,500 |
G J de Boer-Kruyt held no shares in Reed Elsevier PLC or Reed Elsevier NV as at January 1 or December 31, 2002. Any ordinary shares required to fulfil entitlements under nil cost share option grants are provided by the Employee Benefit Trust (“EBT”) from market purchases. As a beneficiary under the EBT, each executive director is deemed to be interested in all the shares held by the EBT which, at December 31, 2002, amounted to 2,840,047 Reed Elsevier PLC ordinary shares and 1,554,381 Reed Elsevier NV ordinary shares. There have been no changes in the interests of the directors in the issued share capital of Reed Elsevier PLC or Reed Elsevier NV since December 31, 2002. Shares and options held by executive officers |
50 |
Reed Elsevier PLC ordinary shares | Reed Elsevier PLC ordinary shares subject to options | Reed Elsevier NV ordinary shares(1)(2) | Reed Elsevier NV ordinary shares subject to options | |
| Executive officers (other than directors) as a group | 45,307 | 1,393,932 | 17,971 | 990,642 |
| (1) | The Reed Elsevier NV ordinary shares may be issued in registered or bearer form. |
| (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 424p to 700p per share and between the date hereof and 2012. The options over Reed Elsevier NV ordinary shares included in the above table are exercisable at prices ranging from €11.93 to €15.66 per share and between the date hereof and 2012. Share option schemes During 1999 the directors introduced share option schemes (the “Reed Elsevier Group plc Executive Share Option Schemes (No. 2)”) under which options over only existing Reed Elsevier PLC ordinary shares and/or Reed Elsevier NV ordinary shares may be granted to employees. Apart from the fact that options over new issue shares may not be issued under these schemes, the terms and conditions of these schemes are identical to the Reed Elsevier Group plc Executive Schemes. At February 18, 2003, the total number of Reed Elsevier PLC ordinary shares subject to outstanding options under the Reed Elsevier PLC Overseas Executive Scheme, the Reed Elsevier Group plc Schemes and the Reed Elsevier Group plc Executive Share Option Schemes (No. 2) amounted to 36,480,462 shares, and the options for such shares were exercisable at option prices ranging between 321.75p to 700p per share and were exercisable between the date hereof and 2012. At February 18, 2003, the total number of Reed Elsevier NV ordinary shares subject to outstanding options under the Reed Elsevier NV Share Option Arrangements, the Reed Elsevier Group plc Schemes and the Reed Elsevier Group plc Executive Share Option Schemes (No. 2) amounted to 23,338,406 shares, and the options for such shares were exercisable at option prices ranging between €10.45 to €17.07 per share between the date hereof and 2012. At February 18, 2003, the total number of Reed Elsevier PLC ordinary shares and Reed Elsevier NV ordinary shares subject to outstanding options under the Reed Elsevier Group plc Senior Executive Long Term Incentive Scheme were 12,899,138 and 9,030,024, respectively. The option prices were between 436.5p to 700p and €10.73 to €15.66, respectively. At February 18, 2003, the total number of Reed Elsevier PLC ordinary shares and Reed Elsevier NV ordinary shares subject to outstanding nil cost options were 555,502 and 333,290, respectively. Reed Elsevier Group plc SAYE Share Option Scheme On joining the Reed Elsevier Group plc 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 contributions may be reduced if applications exceed the number of Reed Elsevier PLC ordinary shares and/or Reed Elsevier NV ordinary shares available for the grant of options on that occasion. The number of Reed Elsevier PLC ordinary shares and/or Reed Elsevier NV 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. |
51 |
All UK employees of Reed Elsevier Group plc and participating companies under its control in employment on a predetermined date prior to the date of invitation are entitled to participate in the Reed Elsevier Group plc 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. Options under the Reed Elsevier Group plc 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 voluntary winding-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). Options under the Reed Elsevier Group plc SAYE Scheme are not transferable and may be exercised only by the persons to whom they are granted or their personal representatives. 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 option and/or the exercise price may be adjusted with the approval of the UK Inland Revenue, subject to the independent auditors of Reed Elsevier Group plc confirming in writing that such adjustment is, in their opinion, fair and reasonable. No more than 168 million new Reed Elsevier PLC ordinary shares, being approximately 15% of Reed Elsevier PLC’s current issued share capital, may be issued under the Reed Elsevier Group plc SAYE Scheme. No option may be granted under the scheme if it would cause the number of Reed Elsevier PLC ordinary shares issued or issuable in any 10 year period under the scheme and any other share option scheme adopted by Reed Elsevier PLC or Reed Elsevier Group plc 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 Reed Elsevier Group plc SAYE scheme 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. Options may also be granted under the Reed Elsevier Group plc SAYE Scheme over existing Reed Elsevier PLC ordinary shares or Reed Elsevier NV ordinary shares. Reed Elsevier Group plc Executive UK and Overseas Share Option Schemes Reed Elsevier Group plc UK Executive Scheme: The Reed Elsevier Group plc UK Executive Scheme provides for the grant of options over Reed Elsevier PLC ordinary shares and/or Reed Elsevier NV ordinary shares to the UK 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 Reed Elsevier Group plc UK Executive Scheme. Options granted under the Reed Elsevier Group plc UK Executive Scheme 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 Reed Elsevier PLC ordinary shares, the closing middle market price for the relevant share on The London Stock Exchange at the date of grant, (ii) in the case of an 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 Reed Elsevier Group plc UK Executive Scheme 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 Reed Elsevier Group plc UK Executive Scheme within 42 days after the announcement of the combined results of Reed Elsevier for any period. No option may be granted under the Reed Elsevier Group plc UK Executive Scheme more than 10 years after the approval of the scheme. Options granted under the Reed Elsevier Group plc UK Executive Scheme 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 from 1999 onwards are subject to performance criteria. In order for an option to become exercisable, the compound growth in the average of the Reed Elsevier PLC and Reed Elsevier NV |
52 |
adjusted EPS (before amortisation of goodwill and intangible assets, exceptional items and UK tax credit equalisation) in the three years immediately preceding vesting, must exceed the compound growth in the average of the UK and Dutch retail price indices during the same period by a minimum of 6%. 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. Options granted under the Reed Elsevier Group plc UK Executive Scheme are not transferable and may be exercised only by the persons to whom they are granted or their personal representatives. 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 option and/or the exercise price may be adjusted with the approval of the UK Inland Revenue, subject to the independent auditors of Reed Elsevier Group plc confirming in writing that such adjustment is, in their opinion, fair and reasonable. The limits described above on the number of Reed Elsevier PLC ordinary shares and Reed Elsevier NV ordinary shares which may be issued under the Reed Elsevier Group plc SAYE Scheme also apply to the Reed Elsevier Group plc UK and Overseas Executive Scheme. In addition, no option may be granted under the scheme if it would cause the number of Reed Elsevier PLC ordinary shares issued or issuable in any 10 year period under the scheme or any other executive share option scheme adopted by Reed Elsevier PLC or Reed Elsevier Group plc to exceed in aggregate 5% of the issued share capital of Reed Elsevier PLC from time to time. Equivalent limits to those above apply to the number of Reed Elsevier NV ordinary shares which may be issued or issuable under the scheme. Options may also be granted under the Reed Elsevier Group plc UK Executive Scheme over existing Reed Elsevier PLC ordinary shares or Reed Elsevier NV ordinary shares. Reed Elsevier Group plc Overseas Executive Scheme: The Reed Elsevier Group plc Overseas Executive Scheme provides for options to be granted to non-UK employees of Reed Elsevier Group plc and participating companies under its control. The terms and conditions of the Reed Elsevier Group plc Overseas Executive Scheme are substantially similar to those of the Reed Elsevier Group plc UK Executive Scheme. Reed Elsevier Group plc Senior Executive Long Term Incentive Scheme The terms of the LTIP permitted a one off grant of options to be made to executive directors and a limited number of key executives during 2000. Grants were made to key executives responsible for reshaping the business, executing the strategy for growth announced in February 2000 and producing a sustainable improvement in shareholder value. All grants under the LTIP were approved by the Remuneration Committee, and the grant to any one individual ranged from 10 to a maximum value of 20 times salary. Participants in the LTIP are required to build up a significant personal shareholding in Reed Elsevier PLC and/or Reed Elsevier NV. At executive director level, the requirement is that they should own shares equivalent to 1 1/2 times salary, to be acquired over a reasonable period. An option under the LTIP may only be exercised during the period January 1, 2005 and December 31, 2005, and then only if the performance targets noted below have been satisfied. These targets were chosen at the inception of the LTIP in 2000 in order to provide an appropriate balance between operational focus and producing a sustainable improvement in shareholder value over a five year period. The first performance condition requires the achievement of 20% per annum compound total shareholder return (“TSR”) over three years from a base point of 436.5p for a Reed Elsevier PLC share and €10.73 for a Reed Elsevier NV share, being the respective share prices on May 2, 2000. In the event that the required TSR is not achieved in the first test period of January 1, 2003 to December 31, 2003, the TSR test and performance period will be extended by 1 year and, in the event of TSR not being achieved during such extended period, the TSR test and performance period will be extended by a further six months to June 30, 2005. The TSR growth requirement over any such extended performance period will be correspondingly increased by 20% per annum. The second performance condition requires executive directors to achieve individual performance targets. If the required TSR and individual performance targets are not achieved, the entire option will lapse. |
53 |
| Identity of Person or Group(1) | Number of Reed Elsevier PLC ordinary shares owned | % of Class |
| T Rowe Price Associates, Inc | 52,034,364 | 4.10 |
| Prudential plc | 44,799,836 | 3.53 |
| Legal & General Investment Management Ltd | 44,174,343 | 3.48 |
| Oechsle International Advisors, LLC | 42,907,149 | 3.38 |
| Barclays PLC | 39,600,622 | 3.12 |
| FMR Corporation | 38,112,708 | 3.00 |
| Directors and Officers | 249,875 | — |
(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, 2002, there were 29,349 ordinary shareholders with registered addresses in the United Kingdom, representing 99.73% 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
|
| Identity of Person or Group(1) | Number of Reed Elsevier NV ordinary shares owned | % of Class | |
| ING Group | 48,674,962 | 6.2 | |
| Directors and Officers(2) | 207,804 | — | |
| (1) | Under Dutch law, individuals or corporate bodies acquiring shares which result in such individual or corporate bodies holding more than 5% of the issued share capital of Reed Elsevier NV are required to notify Reed Elsevier NV thereof. Similarly notification requirements exist if a shareholder disposes of shares such that his interest reduces to below 5%. |
| (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 Reed Elsevier NV that they hold more than 5% of the issued share capital of Reed Elsevier NV pursuant to the Dutch law 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 one or more corporations or 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. |
| REED ELSEVIER PLC | None required to be reported. |
| REED ELSEVIER NV | None required to be reported. |
54 |
FINANCIAL STATEMENTS LEGAL PROCEEDINGS Reed Elsevier Inc. (“REI”) has been named as one of several defendants in an action captioned Electronic Database Copyright Infringement Litigation, M.D.L. Docket No. 1379, a federal multidistrict litigation which consolidates three lawsuits, filed against REI in August and September, 2000, alleging copyright infringement in federal district courts: The Authors Guild, Inc. v. The Dialog Corporation et al., Laney et ano. v. Dow Jones & Company, Inc., et al., and Posner et al. v. Gale Group Inc. These suits were brought by or on behalf of freelance authors who allege that the defendants have infringed plaintiffs’ copyright by making plaintiffs’ works available on databases operated by the defendants. The plaintiffs are seeking to be certified as class representatives of all similarly-situated freelance authors. The action was stayed pending disposition by The United States Supreme Court of New York Times Company et al. v. Tasini et al., No. 00-201, in which REI was a petitioner. On June 25, 2001, the Supreme Court ruled against the petitioners, including REI, in the Tasini case holding that the publisher of a print collective work did not have a statutory right to republish an article originally contributed to a print work in an electronic database without the author’s permission. No proceedings relating to the class certification motions, or other proceedings of substance, have yet occurred. REI has indemnity agreements from each of the content providers that supplied articles to the relevant databases. REI could be adversely affected in the event the plaintiffs are successful in their claims and full recovery were not available under the indemnities. Plaintiffs in each action seek actual damages, statutory damages and injunctive relief. The Laney plaintiff also seeks an accounting for profits received. REI believes it has strong substantive defences to these actions and will vigorously pursue them. It will also vigorously contest the motions for class certification. The parties, together with certain of the defendants’ content providers, are engaged in non-binding mediation. McDonnell v. Reed Elsevier Inc. is a purported class action brought in Florida state court alleging that LexisNexis overcharged certain subscribers for computer assisted legal research services. The complaint was filed in July 2001 and a motion for class certification was filed in October 2001. In January 2002, the court ruled that the issue of class standing would be resolved first, discovery would be permitted only on that issue, and consideration of all other issues would be deferred. The issue of class standing remains pending and discovery has not yet commenced. In December 2002, the plaintiffs filed an amended complaint seeking to add additional class representatives and modifying the plaintiffs’ causes of action so that it now comprises claims of breach of contract and fraud and a request for an accounting. The plaintiffs have not specified the amount of their alleged damages. This matter remains in a very preliminary stage, but REI believes that it has strong substantive defences to this action and will vigorously pursue them. |
55 |
REED ELSEVIER PLC 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 American Depositary Shares on the New York Stock Exchange, as derived from the New York Stock Exchange Composite Tape, and reported by Datastream International Ltd:
|
| Pence per ordinary share | US dollars per ADS | |||
| Calendar Periods | High | Low | High | Low |
| 1998 | 716 | 428 | 48.25 | 28.50 |
| 1999 | 630 | 344 | 39.63 | 22.75 |
| 2000 | 700 | 391 | 43.13 | 24.50 |
| 2001 | 700 | 493 | 42.63 | 28.25 |
| 2002 | 696 | 488 | 41.00 | 31.35 |
| 2001 | ||||
| First Quarter | 700 | 590 | 42.63 | 34.00 |
| Second Quarter | 693 | 593 | 39.50 | 34.20 |
| Third Quarter | 652 | 493 | 38.43 | 28.25 |
| Fourth Quarter | 609 | 520 | 35.45 | 30.55 |
| 2002 | ||||
| First Quarter | 682 | 562 | 39.75 | 32.40 |
| Second Quarter | 696 | 603 | 41.00 | 36.85 |
| Third Quarter | 638 | 494 | 39.73 | 31.78 |
| Fourth Quarter | 600 | 488 | 38.85 | 31.35 |
| Month | ||||
| February 2003 (through February 18, 2003) | 490 | 435 | 32.61 | 28.80 |
| January 2003 | 552 | 457 | 36.15 | 30.80 |
| December 2002 | 565 | 523 | 35.98 | 33.86 |
| November 2002 | 600 | 557 | 38.85 | 35.25 |
| October 2002 | 570 | 488 | 36.30 | 31.35 |
| September 2002 | 582 | 533 | 36.60 | 33.70 |
| August 2002 | 618 | 509 | 38.59 | 32.29 |
56 |
REED ELSEVIER NV 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 N.V.as derived from the Officiële Prijscourant of Euronext Amsterdam N.V and the high and low last reported sales prices in US dollars for the Reed Elsevier NV American Depositary Shares on the New York Stock Exchange, as derived from the New York Stock Exchange Composite Tape, and reported by Datastream International Ltd. From January 4, 1999, all market quotations on the Amsterdam Stock Exchange have been presented in euro. Quotations prior to January 4, 1999, have, for the convenience of the reader, been translated into euro at the Official Conversion Rate of Dfl2.20371 per €1.00.
|
| € per ordinary share | US dollars per ADS | ||||
| Calendar Periods | High | Low | High | Low | |
| 1998 | 17.74 | 10.48 | 38.25 | 24.75 | |
| 1999 | 15.25 | 8.95 | 33.63 | 18.63 | |
| 2000 | 16.07 | 9.30 | 29.94 | 18.00 | |
| 2001 | 15.66 | 10.92 | 29.44 | 20.15 | |
| 2002 | 16.01 | 10.86 | 28.60 | 21.70 | |
| 2001 | |||||
| First Quarter | 15.66 | 13.45 | 29.44 | 23.56 | |
| Second Quarter | 15.44 | 13.84 | 27.50 | 24.10 | |
| Third Quarter | 15.14 | 10.92 | 26.48 | 20.15 | |
| Fourth Quarter | 14.04 | 11.66 | 24.86 | 21.50 | |
| 2002 | |||||
| First Quarter | 15.42 | 12.91 | 27.40 | 23.05 | |
| Second Quarter | 16.01 | 13.42 | 28.60 | 25.83 | |
| Third Quarter | 14.04 | 10.86 | 27.80 | 22.21 | |
| Fourth Quarter | 13.29 | 10.90 | 26.74 | 21.70 | |
| Month | |||||
| February 2003 (through February 18, 2003) | 10.52 | 9.24 | 22.65 | 20.12 | |
| January 2003 | 12.03 | 9.80 | 25.08 | 21.45 | |
| December 2002 | 12.46 | 11.38 | 25.12 | 23.33 | |
| November 2002 | 13.29 | 12.32 | 26.74 | 24.90 | |
| October 2002 | 12.87 | 10.90 | 25.20 | 21.70 | |
| September 2002 | 13.00 | 11.96 | 25.71 | 23.41 | |
| August 2002 | 13.69 | 11.57 | 26.97 | 22.71 | |
57 |
| — | The company is now permitted to communicate with its shareholders electronically. |
| — | The provisions relating to the conversion of shares into stock have been deleted, since they have never been used and are now redundant. |
| — | Amendments have been made to reflect current best practice provisions in relation to the conduct and proceedings of general meetings. These include more detailed provisions on the mechanics for dealing with general meetings held in more than one place, for the interruption or adjournment of meetings and the ability to impose security measures. |
| — | Amendments have been made to reflect current best practice in relation to the requirement for a shareholder to provide information regarding beneficial ownership of shares held in the company, in compliance with section 212 of the UK Companies Act 1985 (“the Act”). These amendments provide clearer guidelines on compliance procedures under the Act in relation to the company’s powers where a shareholder is in default of a section 212 notice. Such powers include the ability to place restrictions on the allotment and transfer of shares and payment of dividends. |
| — | The article dealing with proceedings of the board has been updated to take account of electronic communication and to make provision for directors absent from the UK. |
| — | Amendments have been made as a consequence of the provisions of the UK Trustee Act 2000, and the removal of the requirement to pay a nominal cash dividend on scrip dividends. |
REED ELSEVIER NV Changes to articles of association since March 2001 |
| — | The articles of association now provide that the English language will be the official language for the company’s Annual and Interim Report and Accounts. |
| — | The requirement for a minimum and maximum number of executive and supervisory board members has been removed. |
| — | The company’s bearer shares have been de-materialised with the cancellation of the CF-certificates. |
58 |
| Financial Instrument | Fair Value December 31, 2002 | Fair Value Change | Fair Value December 31, 2001 | Fair Value Change | ||
| +100 basis points | –100 basis points | +100 basis points | –100 basis points | |||
| (in millions) | (in millions) | |||||
| Long term debt (including current portion) | £(2,139) | £81 | £(93) | £(2,219) | £87 | £(99) |
| Short term debt | (1,278) | 1 | (1) | (1,440) | 2 | (1) |
| Interest rate swaps | (73) | 22 | (25) | (43) | 24 | (26) |
| Interest rate options | (65) | 14 | (14) | (47) | 18 | (19) |
| Forward rate agreements | (1) | 1 | (1) | — | 1 | (1) |
A 100 basis point change in interest rates would not result in a material change to the fair value of other financial instruments such as foreign exchange forwards, cash, investments or other financial assets and liabilities. At December 31, 2002, the substantial majority of 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 a decrease in net interest expense of £3 million (2001: £4 million), based on the composition of financial instruments including cash, short term investments, bank loans and commercial paper borrowings at December 31, 2002. A 100 basis points rise in interest rates would increase net interest expense by £3 million (2001: £4 million). (b) Foreign Currency Exchange Rate Risks |
| Financial Instrument | Fair Value December 31, 2002 | Fair Value Change | Fair Value December 31, 2001 | Fair Value Change | ||
| +10% | –10% | +10% | –10% | |||
| (in millions) | (in millions) | |||||
| Long term debt (including current portion) | £(2,139) | £(236) | £193 | £(2,219) | £(245) | £200 |
| Short term debt | (1,278) | (141) | 117 | (1,440) | (159) | 132 |
| Cash and short term investments | 569 | 33 | (26) | 434 | 34 | (27) |
| Interest rate swaps | (73) | (8) | 7 | (43) | (5) | 4 |
| Interest rate options | (65) | (7) | 6 | (48) | (5) | 4 |
| Forward foreign currency contracts | 8 | (13) | 12 | (2) | (23) | 19 |
| Other financial assets | 98 | 8 | (7) | 181 | 17 | (14) |
| Other financial liabilities | (89) | (10) | 8 | (184) | (20) | 17 |
A 10% change in foreign currency exchange rates would not result in a material change to the fair value of other financial instruments such as forward rate agreements. 63 Evaluation of Disclosure Controls and Procedures Internal Controls An outline of the internal control structure is set out below. Parent companies The Reed Elsevier PLC and Reed Elsevier NV Audit Committees meet on a regular basis to review the systems of internal control of Reed Elsevier Group plc and Elsevier Reed Finance BV. Operating companies The boards of Reed Elsevier Group plc and Elsevier Reed Finance BV have implemented an ongoing process for identifying, evaluating and managing the significant risks faced by their respective businesses. This process has been in place throughout the year ended December 31, 2002, and up to the date of the approvals of this annual report. Reed Elsevier Group plc Each business group 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. The major strategic risks facing the Reed Elsevier Group plc businesses are considered by the Strategy Committee. 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 with executive management. The Audit Committee also receives regular reports from both internal and external auditors on internal control matters. In addition, each Business Group is required, at the end of the financial year, to review the 64 Elsevier Reed Finance BV 65 The Registrants have responded to Item 18 in lieu of responding to this Item. 66 Financial Statements filed as part of this annual report |
| DELOITTE & TOUCHE Chartered Accountants & Registered Auditors London, England February 19, 2003 | DELOITTE & TOUCHE Accountants Amsterdam, The Netherlands February 19, 2003 |
F – 3 REED ELSEVIER |
| 2002 | 2001 | 2000 | |||||
| Note | £m | £m | £m | ||||
| Turnover | |||||||
| Including share of turnover of joint ventures | 5,094 | 4,627 | 3,836 | ||||
| Less: share of turnover of joint ventures | (74) | (67) | (68) | ||||
| 3 | 5,020 | 4,560 | 3,768 | ||||
| Continuing operations before acquisitions | 5,001 | 4,560 | 3,768 | ||||
| Acquisitions | 19 | — | — | ||||
| Cost of sales | 4 | (1,794) | (1,611) | (1,332) | |||
| Gross profit | 3,226 | 2,949 | 2,436 | ||||
| Operating expenses | 4 | (2,736) | (2,570) | (2,239) | |||
| Before amortisation and exceptional items | (2,113) | (1,974) | (1,659) | ||||
| Amortisation of goodwill and intangible assets | (524) | (498) | (465) | ||||
| Exceptional items | 8 | (99) | (98) | (115) | |||
| Operating profit (before joint ventures) | 490 | 379 | 197 | ||||
| Continuing operations before acquisitions | 504 | 379 | 197 | ||||
| Acquisitions | (14) | — | — | ||||
| Share of operating profit of joint ventures | 17 | 12 | 13 | ||||
| Operating profit including joint ventures | 3, 7 | 507 | 391 | 210 | |||
| Non operating exceptional items | |||||||
| Net (loss)/profit on disposal of businesses and fixed asset investments | 8 | (12) | 26 | 85 | |||
| Profit on ordinary activities before interest | 495 | 417 | 295 | ||||
| Net interest expense | 9 | (206) | (142) | (103) | |||
| Profit on ordinary activities before taxation | 289 | 275 | 192 | ||||
| Tax on profit on ordinary activities | 10 | (107) | (148) | (159) | |||
| Profit on ordinary activities after taxation | 182 | 127 | 33 | ||||
| Minority interests | (1) | (1) | — | ||||
| Profit attributable to parent companies’ shareholders | 28 | 181 | 126 | 33 | |||
| Equity dividends paid and proposed | 11 | (282) | (269) | (245) | |||
| Retained loss taken to combined reserves | (101) | (143) | (212) | ||||
| 2002 | 2001 | 2000 | |||||
| Note | £m | £m | £m | ||||
| Adjusted Figures | |||||||
| Adjusted operating profit | 3, 12 | 1,133 | 990 | 793 | |||
| Adjusted profit before tax | 12 | 927 | 848 | 690 | |||
| Adjusted profit attributable to parent companies’ shareholders | 12 | 682 | 624 | 511 | |||
| Note | 2002 £m | 2001 £m | 2000 £m | |
| Net cash inflow from operating activities before exceptional items | 13 | 1,154 | 1,163 | 907 |
| Payments relating to exceptional items charged to operating profit | 8 | (119) | (97) | (94) |
| Net cash inflow from operating activities | 1,035 | 1,066 | 813 | |
| Dividends received from joint ventures | 17 | 13 | 12 | 6 |
| Interest and similar income received | 25 | 113 | 20 | |
| Interest and similar charges paid | (230) | (227) | (124) | |
| Returns on investments and servicing of finance | (205) | (114) | (104) | |
| Taxation before exceptional items | (154) | (178) | (141) | |
| Exceptional items | 20 | 141 | 31 | |
| Taxation | (134) | (37) | (110) | |
| Purchase of tangible fixed assets | (163) | (175) | (141) | |
| Purchase of fixed asset investments | (9) | (59) | (53) | |
| Proceeds from sale of tangible fixed assets | 6 | 6 | 3 | |
| Exceptional proceeds from disposal of fixed asset investments | 8 | 118 | — | — |
| Capital expenditure and financial investment | (48) | (228) | (191) | |
| Acquisitions | 13 | (184) | (2,236) | (861) |
| Exceptional net (costs)/proceeds from disposal of businesses | 8 | (12) | 96 | 153 |
| Acquisitions and disposals | (196) | (2,140) | (708) | |
| Equity dividends paid to shareholders of the parent companies | (273) | (255) | (196) | |
| Cash inflow/(outflow) before changes in short term investments and financing | 192 | (1,696) | (490) | |
| (Increase)/decrease in short term investments | 13 | (55) | 1,169 | (1,137) |
| Financing | 13 | (65) | 537 | 1,634 |
| Increase in cash | 13 | 72 | 10 | 7 |
| Short term investments include deposits of under one year if the maturity or notice period exceeds 24 hours, commercial paper investments and interest bearing securities that can be realised without significant loss at short notice. |
| 2002 | 2001 | 2000 | ||
| Note | £m | £m | £m | |
| Adjusted figures | ||||
| Adjusted operating cash flow | 12 | 1,010 | 1,006 | 775 |
| Adjusted operating cash flow conversion | 89% | 102% | 98% | |
Reed Elsevier businesses focus on adjusted operating cash flow as a key cash flow measure. Adjusted operating cash flow is measured after dividends from joint ventures, tangible fixed asset spend and proceeds from the sale of tangible fixed assets but before exceptional payments and proceeds, and is reconciled to the reported figures in note 12 to the combined financial statements. Adjusted operating cash flow conversion expresses adjusted operating cash flow as a percentage of adjusted operating profit. The accompanying notes on pages F-8 to F-42 are an integral part of these combined financial statements F – 5 |
| Note | 2002 £m | 2001 £m | |||
| Fixed assets | |||||
| Goodwill and intangible assets | 15 | 5,814 | 6,723 | ||
| Tangible fixed assets | 16 | 484 | 489 | ||
| Investments | 17 | 140 | 241 | ||
| Investments in joint ventures: | |||||
| Share of gross assets | 132 | 121 | |||
| Share of gross liabilities | (70) | (55) | |||
| Share of net assets | 62 | 66 | |||
| Other investments | 78 | 175 | |||
| 6,438 | 7,453 | ||||
| Current assets | |||||
| Inventories and pre-publication costs | 18 | 500 | 488 | ||
| Debtors – amounts falling due within one year | 19 | 923 | 999 | ||
| Debtors – amounts falling due after more than one year | 20 | 321 | 463 | ||
| Cash and short term investments | 21 | 570 | 435 | ||
| 2,314 | 2,385 | ||||
| Creditors: amounts falling due within one year | 22 | (3,629) | (4,134) | ||
| Net current liabilities | (1,315) | (1,749) | |||
| Total assets less current liabilities | 5,123 | 5,704 | |||
| Creditors: amounts falling due after more than one year | 23 | (2,270) | (2,502) | ||
| Provisions for liabilities and charges | 26 | (187) | (280) | ||
| Minority interests | (7) | (5) | |||
| Net assets | 2,659 | 2,917 | |||
| Capital and reserves | |||||
| Combined share capitals | 187 | 184 | |||
| Combined share premium accounts | 1,708 | 1,629 | |||
| Combined reserves | 764 | 1,104 | |||
| Combined shareholders’ funds | 28 | 2,659 | 2,917 | ||
The accompanying notes on pages F-8 to F-42 are an integral part of these combined financial statements F – 6 |
REED ELSEVIER |
| 2002 | 2001 | 2000 | |
| £m | £m | £m | |
| Profit attributable to parent companies’ shareholders | 181 | 126 | 33 |
| Exchange translation differences | (187) | (3) | 113 |
| Total recognised gains and losses for the year | (6) | 123 | 146 |
COMBINED SHAREHOLDERS’ FUNDS RECONCILIATION
|
| 2002 £m | 2001 £m | 2000 £m | |
| Profit attributable to parent companies’ shareholders | 181 | 126 | 33 |
| Equity dividends paid and proposed | (282) | (269) | (245) |
| Issue of ordinary shares, net of expenses | 30 | 22 | 1,285 |
| Exchange translation differences | (187) | (3) | 113 |
| Net (decrease)/increase in combined shareholders’ funds | (258) | (124) | 1,186 |
| Combined shareholders’ funds at January 1, | 2,917 | 3,041 | 1,855 |
| Combined shareholders’ funds at December 31, | 2,659 | 2,917 | 3,041 |
The accompanying notes on pages F-8 to F-42 are an integral part of these combined financial statements |
|
F – 7 |
|
2. Accounting policies – (continued) Intangible assets comprise publishing rights and titles, databases, exhibition rights and other intangible assets, which are stated at fair value on acquisition and are not subsequently revalued. Tangible fixed assets 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. Plant, equipment and computer systems are depreciated on a straight line basis at rates from 5%–33%. Investments Inventories and pre-publication costs Finance leases Operating leases Financial instruments Currency swap agreements are valued at exchange rates ruling at the balance sheet date with net gains and losses being included within short term investments or borrowings. Interest payable and receivable arising from the swap is accounted for on an accruals basis over the life of the swap. Finance costs associated with debt issuances are charged to the profit and loss account over the life of the related borrowings. Use of estimates
|
F – 9 |
3. Segment analysis Analysis by business segment |
| 2002 £m | 2001 £m | 2000 £m | |
| Turnover | |||
| Science & Medical | 1,295 | 1,024 | 693 |
| Legal | 1,349 | 1,330 | 1,201 |
| Education | 993 | 579 | 202 |
| Business | 1,383 | 1,627 | 1,672 |
| Total | 5,020 | 4,560 | 3,768 |
| Operating profit | |||
| Science & Medical | 294 | 210 | 140 |
| Legal | 61 | 59 | (8) |
| Education | 102 | 95 | 19 |
| Business | 50 | 27 | 59 |
| Total | 507 | 391 | 210 |
| Adjusted operating profit | |||
| Science & Medical | 429 | 344 | 252 |
| Legal | 287 | 267 | 237 |
| Education | 183 | 132 | 40 |
| Business | 234 | 247 | 264 |
| Total | 1,133 | 990 | 793 |
| Depreciation | |||
| Science & Medical | 27 | 23 | 17 |
| Legal | 62 | 62 | 60 |
| Education | 13 | 7 | 3 |
| Business | 34 | 40 | 38 |
| Total | 136 | 132 | 118 |
| Amortisation | |||
| Science & Medical | 101 | 106 | 98 |
| Legal | 197 | 191 | 168 |
| Education | 71 | 35 | 14 |
| Business | 158 | 169 | 188 |
| Total (including share of joint ventures) | 527 | 501 | 468 |
| Total assets | |||
| Science & Medical | 2,054 | 2,276 | 769 |
| Legal | 2,553 | 2,891 | 2,888 |
| Education | 1,969 | 2,268 | 197 |
| Business | 1,445 | 1,724 | 1,980 |
| Total | 8,021 | 9,159 | 5,834 |
The analysis of total assets excludes corporate assets of £731m (2001: £679m; 2000: £1,636m). Corporate assets are principally cash balances and short term investments of which the principal amounts are £19m in North America, £234m in the United Kingdom, and £158m in the Netherlands, and deferred taxation assets of £161m (2001: £244m; 2000: £42m). Adjusted operating profit is presented as an additional performance measure and is shown after share of operating profit of joint ventures and before amortisation of goodwill and intangible assets and exceptional items; see notes 1 and 12. Turnover is analysed before the £74m (2001: £67m; 2000: £68m) share of joint ventures’ turnover, of which £17m (2001: £17m; 2000: £21m) relates to the Legal segment, principally to Giuffrè, and £57m (2001: £50m; 2000: £47m) relates to the Business segment, principally to exhibition joint ventures. Share of operating profit in joint ventures of £17m (2001: £12m; 2000: £13m) comprises £5m (2001: £3m; 2000: £4m) relating to the Legal segment and £12m (2001: £9m; 2000: £9m) relating to the Business segment.
|
F – 10
|
3. Segment analysis – (continued) |
| 2002 £m | 2001 £m | 2000 £m | |
| Capital expenditure | |||
| Science & Medical | 36 | 35 | 26 |
| Legal | 84 | 89 | 72 |
| Education | 20 | 14 | 3 |
| Business | 39 | 40 | 43 |
| Total | 179 | 178 | 144 |
| Capital employed | |||
| Science & Medical | 1,372 | 1,506 | 286 |
| Legal | 2,197 | 2,512 | 2,443 |
| Education | 1,756 | 1,921 | 144 |
| Business | 839 | 1,075 | 1,205 |
| Total | 6,164 | 7,014 | 4,078 |
| Reconciliation of capital employed to combined shareholders’ funds | |||
| Capital employed | 6,164 | 7,014 | 4,078 |
| Taxation | (528) | (634) | (427) |
| Dividends and net interest | (238) | (229) | (170) |
| Net borrowings | (2,732) | (3,229) | (433) |
| Minority interests | (7) | (5) | (7) |
| Combined shareholders’ funds | 2,659 | 2,917 | 3,041 |
|
F – 11 |
|
3. Segment analysis – (continued) Analysis by geographical origin |
| 2002 £m | 2001 £m | 2000 £m | |
| Turnover | |||
| North America | 3,158 | 2,695 | 2,098 |
| United Kingdom | 782 | 795 | 734 |
| The Netherlands | 419 | 416 | 399 |
| Rest of Europe | 456 | 445 | 356 |
| Rest of world | 205 | 209 | 181 |
| Total | 5,020 | 4,560 | 3,768 |
| Operating profit | |||
| North America | 142 | 47 | (89) |
| United Kingdom | 129 | 154 | 109 |
| The Netherlands | 153 | 129 | 127 |
| Rest of Europe | 55 | 51 | 57 |
| Rest of world | 28 | 10 | 6 |
| Total | 507 | 391 | 210 |
| Adjusted operating profit | |||
| North America | 616 | 482 | 335 |
| United Kingdom | 190 | 207 | 191 |
| The Netherlands | 169 | 163 | 136 |
| Rest of Europe | 119 | 108 | 102 |
| Rest of world | 39 | 30 | 29 |
| Total | 1,133 | 990 | 793 |
| Total assets | |||
| North America | 6,350 | 7,552 | 4,071 |
| United Kingdom | 1,092 | 1,016 | 1,520 |
| The Netherlands | 351 | 327 | 927 |
| Rest of Europe | 839 | 818 | 820 |
| Rest of world | 120 | 125 | 132 |
| Total | 8,752 | 9,838 | 7,470 |
| Capital employed | |||
| North America | 5,190 | 6,021 | 3,128 |
| United Kingdom | 500 | 553 | 476 |
| The Netherlands | (22) | (53) | (62) |
| Rest of Europe | 475 | 460 | 506 |
| Rest of world | 21 | 33 | 30 |
| Total | 6,164 | 7,014 | 4,078 |
Analysis by geographical market | |||
| Turnover | |||
| North America | 3,209 | 2,765 | 2,152 |
| United Kingdom | 551 | 557 | 521 |
| The Netherlands | 209 | 224 | 234 |
| Rest of Europe | 638 | 587 | 478 |
| Rest of world | 413 | 427 | 383 |
| Total | 5,020 | 4,560 | 3,768 |
| |||
F – 12 | |||
| |||
4. Cost of sales and operating expenses |
| 2002 | ||||
Before | Amortisation of goodwill | Exceptional items | Total | |
£m | £m | £m | £m | |
| Cost of sales | ||||
| Continuing operations | 1,786 | — | — | 1,786 |
| Acquisitions | 8 | — | — | 8 |
| Total | 1,794 | — | — | 1,794 |
| Distribution and selling costs | ||||
| Continuing operations | 1,115 | — | — | 1,115 |
| Acquisitions | 2 | — | — | 2 |
| 1,117 | — | — | 1,117 | |
| Administrative expenses | ||||
| Continuing operations | 992 | 507 | 97 | 1,596 |
| Acquisitions | 4 | 17 | 2 | 23 |
| 996 | 524 | 99 | 1,619 | |
| Operating expenses | ||||
| Continuing operations | 2,107 | 507 | 97 | 2,711 |
| Acquisitions | 6 | 17 | 2 | 25 |
| Total | 2,113 | 524 | 99 | 2,736 |
| 2001 | ||||
Before | Amortisation of goodwill | Exceptional items | Total | |
| £m | £m | £m | £m | |
| Cost of sales | ||||
| Continuing operations | 1,611 | — | — | 1,611 |
| Acquisitions | — | — | — | — |
| Total | 1,611 | — | — | 1,611 |
| Distribution and selling costs | ||||
| Continuing operations | 1,028 | — | — | 1,028 |
| Acquisitions | — | — | — | — |
| 1,028 | — | — | 1,028 | |
| Administrative expenses | ||||
| Continuing operations | 946 | 498 | 98 | 1,542 |
| Acquisitions | — | — | — | — |
| 946 | 498 | 98 | 1,542 | |
| Operating expenses | ||||
| Continuing operations | 1,974 | 498 | 98 | 2,570 |
| Acquisitions | — | — | — | — |
| Total | 1,974 | 498 | 98 | 2,570 |
| ||||
F – 13 | ||||
| ||||
4. Cost of sales and operating expenses – (continued) |
| 2000 | ||||
Before | Amortisation of goodwill | Exceptional items | Total | |
| £m | £m | £m | £m | |
| Cost of sales | ||||
| Continuing operations | 1,332 | — | — | 1,332 |
| Acquisitions | — | — | — | — |
| Total | 1,332 | — | — | 1,332 |
| Distribution and selling costs | ||||
| Continuing operations | 884 | — | — | 884 |
| Acquisitions | — | — | — | — |
| 884 | — | — | 884 | |
| Administrative expenses | ||||
| Continuing operations | 775 | 465 | 115 | 1,355 |
| Acquisitions | — | — | — | — |
| 775 | 465 | 115 | 1,355 | |
| Operating expenses | ||||
| Continuing operations | 1,659 | 465 | 115 | 2,239 |
| Acquisitions | — | — | — | — |
| Total | 1,659 | 465 | 115 | 2,239 |
5. Personnel |
| Number of people employed | At December 31, | Average during the year | |||
| 2002 | 2001 | 2002 | 2001 | 2000 | |
| Business segment | |||||
| Science & Medical | 6,400 | 6,200 | 6,400 | 5,200 | 3,700 |
| Legal | 13,300 | 13,300 | 13,300 | 12,700 | 11,200 |
| Education | 5,600 | 5,600 | 5,800 | 3,400 | 1,500 |
| Business | 10,800 | 11,900 | 11,300 | 13,300 | 12,500 |
| Total | 36,100 | 37,000 | 36,800 | 34,600 | 28,900 |
| Geographical location | |||||
| North America | 20,700 | 21,400 | 21,300 | 18,900 | 14,800 |
| United Kingdom | 6,000 | 6,200 | 6,100 | 6,100 | 5,700 |
| The Netherlands | 2,800 | 2,900 | 2,800 | 3,000 | 3,000 |
| Rest of Europe | 3,800 | 3,800 | 3,800 | 3,700 | 3,000 |
| Rest of world | 2,800 | 2,700 | 2,800 | 2,900 | 2,400 |
| Total | 36,100 | 37,000 | 36,800 | 34,600 | 28,900 |
F – 14 |
6. 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 two largest schemes, which cover the majority of employees, are in the UK and US. The main UK scheme was subject to a valuation by Watson Wyatt Partners as at April 5, 2000. The scheme is valued formally every three years, the next valuation being as at April 5, 2003. The main US scheme is valued annually and was subject to a valuation by Towers Perrin as at January 1, 2002. The principal valuation assumptions for the main UK scheme were: |
| Actuarial method | Projected unit method |
| Annual rate of return on investments | 6.6% |
| Annual increase in total pensionable remuneration | 5.0% |
| Annual increase in present and future pensions in payment | 3.0% |
The principal valuation assumptions used for the US scheme were a rate of return on investments of 8%, increase in pensionable remuneration of 4.5%, and increase in present and future pensions in payment of 3%. The actuarial values placed on scheme assets as at their last valuation date were sufficient to cover 121% and 103% of the benefits that had accrued to members of the main UK and US schemes, respectively. Actuarial surpluses are spread as a level amount over the average remaining service lives of current employees. The market values of the schemes’ assets at the valuation dates, excluding assets held in respect of members’ additional voluntary contributions, were £1,723m and £216m in respect of the UK and US schemes, respectively. Assessments for accounting purposes in respect of other funded schemes, including the Netherlands scheme, have been carried out by external qualified actuaries using prospective benefit methods. The principal actuarial assumptions adopted in the assessments of these other schemes are that, over the long term, investment returns will marginally exceed the annual increase in pensionable remuneration and in present and future pensions. The actuarial value of assets of the schemes approximated to the aggregate benefits that had accrued to members, after allowing for expected future increases in pensionable remuneration and pensions in course of payment. The assets of the Netherlands scheme as at December 31, 2002 were sufficient to cover 109% of the actuarial value placed on the benefits that had accrued to the members of the scheme at that date. The liabilities in respect of unfunded schemes have been determined by actuaries and provided for within creditors. At December 31, 2002, these amounted to £52m (2001: £49m). The net pension charge was £59m (2001: £39m; 2000: £35m). Pension contributions made in the year amounted to £47m (2001: £39m; 2000: £36m). The net SSAP24 charge on the main UK scheme comprises a regular cost of £27m (2001: £24m; 2000: £23m), offset by amortisation of the net actuarial surplus of £24m (2001: £24m; 2000: £24m). Based on the advice of the scheme actuaries at the time of the last formal valuation in 2000, and with the agreement of the scheme trustees, no employer contributions are currently being made to the main UK Scheme. A prepayment of £125m (2001: £128m; 2000: £128m) is included in debtors falling due after more than one year, representing the excess of the pension credit to the profit and loss account since 1988 over the amounts funded to the main UK scheme. Pension costs are accounted for in accordance with the UK accounting standard, SSAP24. A new UK financial reporting standard, FRS17: Retirement Benefits, will, with effect from the 2005 financial year, introduce new accounting policies in respect of pension arrangements. FRS17 also requires additional information to be disclosed in the intervening period based on methodologies set out in the standard which are different from those used by the scheme actuaries in determining funding arrangements. The assumed rates of return on scheme assets, the fair value of those assets and the present value of the scheme liabilities based on the methodologies and presentation prescribed by FRS17 were as follows: |
| Main UK Scheme | Aggregate of Schemes | |||
| 2002 | Assumed rate of return on assets | £m | Assumed rate of return on assets | £m |
| Equities | 9.0% | 825 | 9.0% | 1,068 |
| Bonds | 4.5% | 487 | 4.9% | 670 |
| Other | 3.8% | 45 | 3.8% | 53 |
| Total fair value of assets | 1,357 | 1,791 | ||
| Present value of scheme liabilities | (1,305) | (1,928) | ||
| Net surplus/(deficit) | 52 | (137) | ||
| Related deferred tax | (16) | 50 | ||
| Net pension asset/(liability) | 36 | (87) | ||
F – 15
|
6. Pension schemes – (continued) |
| Main UK Scheme | Aggregate of Schemes | |||
| 2001 | Assumed rate of return on assets | £m | Assumed rate of return on assets | £m |
| Equities | 7.2% | 991 | 7.7% | 1,267 |
| Bonds | 5.0% | 502 | 5.5% | 721 |
| Other | 4.0% | 73 | 4.0% | 81 |
| Total fair value of assets | 1,566 | 2.069 | ||
| Present value of scheme liabilities | (1,316) | (1,872) | ||
| Net surplus | 250 | 197 | ||
| Related deferred tax | (75) | (57) | ||
| Net pension asset | 175 | 140 | ||
At December 31, 2002, the aggregate net deficit in respect of the defined benefit schemes under FRS17 comprised £66m (2001: net surplus £263m) in respect of funded schemes and liabilities of £71m (2001: £66m) in respect of unfunded schemes, of which £52m (2001: £49m) is provided for within creditors under SSAP24. The movement in the net surplus/(deficit) during the year was as follows: |
| Main UK Scheme | Aggregate of Schemes | |||
| £m | £m | |||
| Net surplus in schemes at beginning of the year | 250 | 197 | ||
| Movement in the year: | ||||
| Total operating charge | (34) | (75) | ||
| Contributions | — | 22 | ||
| Other finance income | 25 | 30 | ||
| Actuarial loss | (189) | (322) | ||
| Exchange translation differences | — | 11 | ||
| Net surplus/(deficit) in schemes at end of the year | 52 | (137) | ||
The principal assumptions made in valuing pension scheme liabilities for the purposes of FRS17 were: |
| Main UK Scheme | Aggregate of Schemes | |||
| 2002 | 2001 | 2002 | 2001 | |
| Inflation | 2.3% | 2.5% | 2.5% | 2.5% |
| Rate of increase in salaries | 4.3% | 4.5% | 4.2% | 4.4% |
| Rate of increase in pensions in payment | 2.3% | 2.5% | 2.5% | 2.5% |
| Discount rate | 5.7% | 5.5% | 5.9% | 5.9% |
The combined profit and loss reserves as at December 31, 2002 of £764m (2001: £1,104m) would have been £623m (2001: £1,154m), had the accounting requirements of FRS17 applied in the 2002 and 2001 financial years. |
F – 16 |
6. Pension schemes – (continued) The operating charge, the amount credited to other finance income and the amount recognised in the statement of total recognised gains and losses in the 2002 financial year based on the methodologies and presentation prescribed by FRS17 would have been as follows: |
| Main UK Scheme | Aggregate of Schemes | |
| £m | £m | |
| Charged to operating profit | ||
| Current service cost | (34) | (75) |
| Past service cost | — | — |
| Total operating charge | (34) | (75) |
| Credited to other finance income | ||
| Expected return on pension scheme assets | 97 | 137 |
| Interest on pension scheme liabilities | (72) | (107) |
| Net return | 25 | 30 |
| Amounts recognised in the statement of total recognised gains and losses | ||
| Actual return less expected return on pension scheme assets | (254) | (352) |
| Experience losses arising on the scheme liabilities | (21) | (13) |
| Changes in assumptions underlying the present value of the scheme liabilities | 86 | 43 |
| Actuarial loss | (189) | (322) |
The difference between the expected and actual return on scheme assets represented 19% and 20% of scheme assets of the main UK scheme and of the aggregate of schemes respectively. The experience losses arising on the scheme liabilities represented 2% and 1% of the present value of scheme liabilities of the main UK scheme and of the aggregate of schemes respectively. The total actuarial loss arising in 2002 under FRS17, that would have been recognised in the statement of total recognised gains and losses, represents 14% and 17% of the present value of the scheme liabilities of the main UK scheme and of the aggregate of schemes respectively. 7. Operating profit Operating profit is stated after the following: |
| 2002 £m | 2001 £m | 2000 £m | |
| Hire of plant and machinery | 12 | 7 | 12 |
| Other operating lease rentals | 87 | 87 | 71 |
| Depreciation (including £6m (2001: £4m; 2000: £4m) in respect of assets held under finance leases) | 136 | 132 | 118 |
| Amortisation of goodwill and intangible assets | 524 | 498 | 465 |
| Amortisation of goodwill and intangible assets in joint ventures | 3 | 3 | 3 |
| Total amortisation | 527 | 501 | 468 |
| Staff costs | |||
| Wages and salaries | 1,277 | 1,207 | 979 |
| Social security costs | 127 | 119 | 100 |
| Pensions (see note 6) | 59 | 39 | 35 |
| Total staff costs | 1,463 | 1,365 | 1,114 |
| Auditors’ remuneration | |||
| For audit services | 2.3 | 2.5 | 1.9 |
| For non audit services | 3.6 | 3.4 | 2.6 |
Auditors’ remuneration for non audit services comprises £0.7m (2001: £1.3m; 2000: £1.0m) for audit related services, £1.4m (2001: £1.4m; 2000: £0.7m) for due diligence and other acquisition related services, £0.7m (2001: £0.6m; 2000: £0.6m) for tax compliance and advisory work, and £0.8m (2001: £0.1m; 2000: £0.3m) for other services. Included in auditors’ remuneration for non audit services is £0.7m (2001: £1.0m; 2000: £1.5m) paid to Deloitte & Touche and its associates in the UK. F – 17 |
7. Operating profit – (continued) Information on directors’ remuneration, share options, longer term incentive plans, pension contributions and entitlements is given in Item 6: Directors, Senior Management and Employees. 8. Exceptional items |
| 2002 £m | 2001 £m | 2000 £m | |
| Reorganisation costs (i) | (42) | (35) | (77) |
| Acquisition related costs (ii) | (57) | (63) | (38) |
| Charged to operating profit | (99) | (98) | (115) |
| Net (loss)/profit on disposal of businesses and fixed asset investments (iii) | (12) | 26 | 85 |
| Exceptional charge before tax | (111) | (72) | (30) |
| Net tax credit (iv) | 122 | 81 | 20 |
| Total exceptional credit/(charge) | 11 | 9 | (10) |
(i) | Reorganisation costs in 2002 relate to employee severances, including the elimination of over 1,500 positions, principally in the Business and Legal segments. Reorganisation costs in 2001 related to headcount reduction, principally in the Business division, and comprise employee severance. Reorganisation costs in 2000 related to the major programme of reorganisation commenced in 1999 and comprised employee severance, surplus leasehold property obligations and fixed asset write offs. |
(ii) | Acquisition related costs in 2002 relate to employee severance and property rationalisation costs arising on the integration and rationalisation of Harcourt and other recent acquisitions. Acquisition related costs in 2001 include employee severance and property rationalisation costs arising on the integration of Harcourt and other recent acquisitions, and £9m of exceptional costs relating to the financing of the tender offer. Acquisition related costs in 2000 included £27m in respect of the integration of Miller Freeman Europe, CMD Group and Riskwise International, together with £11m of exceptional costs incurred in respect of the tender offer for Harcourt. |
(iii) | The net loss on disposal of businesses and fixed asset investments relates to the sale and closure of businesses in the Business segment, partly offset by a net gain on disposal of fixed asset investments, comprising a £21m profit on sale of investments acquired on the acquisition of Harcourt General, Inc, less a £17m loss on other fixed asset investments. The net profit on disposal of businesses in 2001 related primarily to the disposals of OAG Worldwide, Cahners Travel Group, Bowker and certain training businesses in the Netherlands and in 2000 related primarily to Springhouse, KG Saur and REZsolutions, Inc. |
(iv) | The net tax credit in 2002 arises principally in respect of prior year disposals. The net tax credit in 2001 includes taxes recoverable in respect of disposals and prior period reorganisation costs. |
Cash flows in respect of exceptional items were as follows: |
| 2002 £m | 2001 £m | 2000 £m | |
| Reorganisation costs | (56) | (41) | (76) |
| Acquisition related costs | (63) | (51) | (9) |
| Other | — | (5) | (9) |
| Exceptional operating cash outflow | (119) | (97) | (94) |
| Net proceeds from disposal of businesses and fixed asset investments | 106 | 96 | 153 |
| Exceptional cash (outflow)/inflow before tax | (13) | (1) | 59 |
| Exceptional tax cash inflow | 20 | 141 | 31 |
| Total exceptional cash inflow | 7 | 140 | 90 |
Cash flows in respect of acquisition related costs in 2000 are stated net of proceeds of £26m from a property disposal. F – 18 |
9. Net interest expense |
| 2002 £m | 2001 £m | 2000 £m | |
| Interest receivable and similar income | 24 | 107 | 26 |
| Interest payable and similar charges | |||
| Promissory notes and bank loans | (76) | (102) | (83) |
| Other loans | (152) | (90) | (45) |
| Other interest and similar charges | (2) | (57) | (1) |
| Total | (206) | (142) | (103) |
| Interest cover (times) | 5.5 | 7.0 | 7.7 |
Interest cover is calculated as the number of times adjusted operating profit is greater than the net interest expense. 10. Tax on profit on ordinary activities |
| 2002 £m | 2001 £m | 2000 £m | |
| Current tax | |||
| United Kingdom | (6) | 62 | 60 |
| The Netherlands | 62 | 79 | 54 |
| Rest of world | (14) | 81 | 46 |
| Total current tax | 42 | 222 | 160 |
| Deferred tax | |||
| Origination and reversal of timing differences | 58 | 25 | (5) |
| Changes in recoverable amounts of deferred tax assets | — | (104) | — |
| Sub-total | 100 | 143 | 155 |
| Share of tax attributable to joint ventures | 7 | 5 | 4 |
| Total | 107 | 148 | 159 |
The tax charge for the year as a proportion of profit before tax was increased due to non tax-deductible amortisation and reduced by exceptional tax credits arising on prior year disposals. The current tax charge in 2001 was high as a proportion of profit before tax principally due to non tax-deductible amortisation and, in 2000, the non-recognition of potential deferred tax assets. A reconciliation of the notional current tax charge based on average standard rates of tax (weighted in proportion to accounting profits) to the actual current tax charge is set out below: |
| 2002 £m | 2001 £m | 2000 £m | |
| Profit on ordinary activities before tax | 289 | 275 | 192 |
| Tax at average standard rates | 79 | 62 | 49 |
| Net impact of amortisation of goodwill and intangible assets | 109 | 119 | 102 |
| Prior year disposals | (100) | — | — |
| Permanent differences and other items | 12 | 66 | 4 |
| Reversal of timing differences | (58) | (25) | 5 |
| Current tax charge | 42 | 222 | 160 |
11. Equity dividends paid and proposed |
| 2002 £m | 2001 £m | 2000 £m | |
| Reed Elsevier PLC | 143 | 132 | 123 |
| Reed Elsevier NV | 139 | 137 | 122 |
| Total | 282 | 269 | 245 |
Dividends comprise a total dividend for Reed Elsevier PLC of 11.2p (2001: 10.5p; 2000: 10.0p) per ordinary share and a total dividend for Reed Elsevier NV of €0.30 (2001: €0.30; 2000: €0.28) per ordinary share. |
F – 19 |
11. Equity dividends paid and proposed – (continued) 12. Adjusted figures The adjusted figures are stated before the amortisation of goodwill and intangible assets, exceptional items and related tax effects, and are derived as follows: |
| 2002 £m | 2001 £m | 2000 £m | |
| Operating profit including joint ventures | 507 | 391 | 210 |
| Adjustments: | |||
| Amortisation of goodwill and intangible assets | 527 | 501 | 468 |
| Reorganisation costs | 42 | 35 | 77 |
| Acquisition related costs | 57 | 63 | 38 |
| Adjusted operating profit | 1,133 | 990 | 793 |
| Profit before tax | 289 | 275 | 192 |
| Adjustments: | |||
| Amortisation of goodwill and intangible assets | 527 | 501 | 468 |
| Reorganisation costs | 42 | 35 | 77 |
| Acquisition related costs | 57 | 63 | 38 |
| Net loss/(profit) on disposal of businesses and fixed asset investments | 12 | (26) | (85) |
| Adjusted profit before tax | 927 | 848 | 690 |
| Profit attributable to parent companies’ shareholders | 181 | 126 | 33 |
| Adjustments: | |||
| Amortisation of goodwill and intangible assets | 512 | 507 | 468 |
| Reorganisation costs | 32 | 3 | 53 |
| Acquisition related costs | 43 | 33 | 33 |
| Net profit on disposal of businesses and fixed asset investments | (86) | (45) | (76) |
| Adjusted profit attributable to parent companies’ shareholders | 682 | 624 | 511 |
| Net cash inflow from operating activities | 1,035 | 1,066 | 813 |
| Dividends received from joint ventures | 13 | 12 | 6 |
| Purchase of tangible fixed assets | (163) | (175) | (141) |
| Proceeds from sale of tangible fixed assets | 6 | 6 | 3 |
| Payments in relation to exceptional items charged to operating profit | 119 | 97 | 94 |
| Adjusted operating cash flow | 1,010 | 1,006 | 775 |
|
F – 20 |
|
13. Cash flow statement |
| 2002 £m | 2001 £m | 2000 £m | |
| Reconciliation of operating profit to net cash inflow from operating activities | |||
| Operating profit (before joint ventures) | 490 | 379 | 197 |
| Exceptional charges to operating profit (see note 8) | 99 | 98 | 115 |
| Operating profit before exceptional items | 589 | 477 | 312 |
| Amortisation of goodwill and intangible assets | 524 | 498 | 465 |
| Depreciation | 136 | 132 | 118 |
| Net SSAP24 pension credit (see note 6) | — | — | (1) |
| Total non cash items | 660 | 630 | 582 |
| Increase in inventories and pre-publication costs | (51) | (48) | (3) |
| (Increase)/decrease in debtors | (12) | 156 | (110) |
| (Decrease)/increase in creditors | (32) | (52) | 126 |
| Movement in working capital | (95) | 56 | 13 |
| Net cash inflow from operating activities before exceptional items | 1,154 | 1,163 | 907 |
| Payments relating to exceptional items charged to operating profit (see note 8) | (119) | (97) | (94) |
| Net cash inflow from operating activities | 1,035 | 1,066 | 813 |
| 2002 £m | 2001 £m | 2000 £m | |
| Acquisitions | |||
| Purchase of businesses (see note 14) | (90) | (3,222) | (848) |
| Net proceeds from on-sale of Harcourt Higher Education and Corporate & Professional Services businesses | — | 1,185 | — |
| Payment of Harcourt change of control and other non operating liabilities assumed | (76) | (156) | — |
| Deferred consideration of prior year acquisitions | (18) | (43) | (13) |
| Total | (184) | (2,236) | (861) |
| 2002 £m | 2001 £m | 2000 £m | |
| Financing | |||
| Net movement in promissory notes and bank loans | (74) | (454) | 304 |
| Repayment of other loans | (173) | (84) | (155) |
| Issuance of other loans | 162 | 1,069 | 202 |
| Repayment of finance leases | (10) | (5) | (4) |
| (95) | 526 | 347 | |
| Issue of ordinary shares | 30 | 11 | 1,287 |
| Total | (65) | 537 | 1,634 |
The issuance of other loans in 2002 relates to term debt raised by a subsidiary of Elsevier Reed Finance BV. The issuance of other loans in 2001 related primarily to global notes issued by a wholly owned US subsidiary of Reed Elsevier Group plc, comprising US$550m 6.125% notes due in 2006, €500m 5.750% notes due in 2008, and US$550m 6.750% notes due in 2011. The issuance of other loans in 2000 related to a US$300m Swiss Domestic Bond. The repayment of other loans in 2002 relates to US$150m of Public Notes which matured in the year and the repurchase of Public Notes with a nominal value of US$110m. The repayment of other loans in 2001 related primarily to the repurchase of Public Notes with a nominal value of US$97m. The repayment of other loans in 2000 related primarily to US$100m of Private Placements and US$150m of Medium Term Notes which matured in the year. The repayment of other loans in 1999 related primarily to a US$200m Eurobond, Dfl125m Private Placements and US$20m of Medium Term Notes which matured in the year. |
|
F – 21 |
|
13. Cash flow statement – (continued) |
| Cash £m | Short term investments £m | Borrowings £m | Total £m | |
| Reconciliation of net borrowings | ||||
| Net borrowings at December 31, 2000 | 85 | 1,509 | (2,027) | (433) |
| Increase in cash | 10 | — | — | 10 |
| Decrease in short term investments | — | (1,169) | — | (1,169) |
| Increase in borrowings | — | — | (526) | (526) |
| Change in net borrowings resulting from cash flows | 10 | (1,169) | (526) | (1,685) |
| Borrowings in acquired businesses | — | — | (1,042) | (1,042) |
| Inception of finance leases | — | — | (3) | (3) |
| Exchange translation differences | 1 | (1) | (66) | (66) |
| Net borrowing at December 31, 2001 | 96 | 339 | (3,664) | (3,229) |
| Increase in cash | 72 | — | — | 72 |
| Increase in short term investments | — | 55 | — | 55 |
| Decrease in borrowings | — | — | 95 | 95 |
| Change in net borrowings resulting from cash flows | 72 | 55 | 95 | 222 |
| Borrowings in acquired businesses | — | — | — | — |
| Inception of finance leases | — | — | (16) | (16) |
| Exchange translation differences | 1 | 7 | 283 | 291 |
| Net borrowings at December 31, 2002 | 169 | 401 | (3,302) | (2,732) |
Net borrowings comprise cash and short term investments, loan capital, finance leases, promissory notes and bank and other loans and are analysed further in notes 21 to 24 and 29. The borrowings in acquired businesses in 2001 principally comprised the public term debt with a nominal value totalling US$842m and other borrowings assumed of Harcourt General, Inc. |
|
F – 22 |
|
14. Acquisitions The most significant were MBO Verlag and QuickLaw Inc., in the Legal segment. The net assets of the businesses acquired are incorporated at the fair value to the combined businesses. The fair values of the consideration given and the assets and liabilities acquired are summarised below: |
Book value | Fair value adjustments £m | Fair value £m | |
| Goodwill | — | 37 | 37 |
| Intangible fixed assets | — | 64 | 64 |
| Tangible fixed assets | 2 | — | 2 |
| Current assets | 22 | (13) | 9 |
| Current liabilities | (12) | (1) | (13) |
| Net assets acquired | 12 | 87 | 99 |
| Consideration (after taking account of £4m net cash acquired) | 99 | ||
| Less: deferred to future years | (9) | ||
| Net cash flow | 90 | ||
The fair value adjustments in relation to the acquisitions made in 2002 relate principally to the valuation of intangible assets and the restatement of current assets to conform with Reed Elsevier accounting policies in relation to cost capitalisation. Goodwill represents the excess of the consideration over the net tangible and intangible assets other than goodwill acquired. The businesses acquired in 2002 contributed £19m to turnover, £5m to adjusted operating profit, before the amortisation of goodwill and intangible assets and exceptional items, and £3m to net cash inflow from operating activities for the part year under Reed Elsevier ownership. Acquisitions in 2001 On July 12, 2001, Reed Elsevier plc acquired, through a US subsidiary, Reed Elsevier Inc., the whole of the common stock and Series A cumulative convertible stock of Harcourt General, Inc for $4.45 billion. On July 13, 2001, Reed Elsevier Inc. sold the Harcourt Higher Education business and the Corporate & Professional Services businesses (other than educational and clinical testing) to The Thomson Corporation for $2.06 billion before estimated tax payable of $0.5 billion. Following the on-sale, Reed Elsevier Inc., acquired Harcourt’s Science, Technical & Medical (“STM”) business and its Schools Education and Testing businesses. The acquisition resulted in goodwill of approximately £1.3bn, which reflected the excess of the consideration paid over the fair value of the net tangible and intangible assets other than goodwill acquired. |
|
F – 23 |
|
14. Acquisitions – (continued) |
| 2001 £m | 2000 £m | |
| Turnover | ||
| STM | 481 | 451 |
| Education and Testing | 769 | 656 |
| 1,250 | 1,107 | |
| Adjusted operating profit | ||
| STM | 107 | 103 |
| Education and Testing | 153 | 129 |
| 260 | 232 | |
Acquisitions in 2000 15. Goodwill and intangible assets |
| Goodwill £m | Intangible assets £m | Total £m | |
| Cost | |||
| At January 1, 2002 | 4,835 | 4,573 | 9,408 |
| Acquisitions | 37 | 64 | 101 |
| Disposal of businesses | (2) | (12) | (14) |
| Exchange translation differences | (343) | (314) | (657) |
| At December 31, 2002 | 4,527 | 4,311 | 8,838 |
| Accumulated amortisation | |||
| At January 1, 2002 | 1,478 | 1,207 | 2,685 |
| Disposal of businesses | (2) | (12) | (14) |
| Charge for the year | 342 | 182 | 524 |
| Exchange translation differences | (101) | (70) | (171) |
| At December 31, 2002 | 1,717 | 1,307 | 3,024 |
| Net book amount | |||
| At January 1, 2002 | 3,357 | 3,366 | 6,723 |
| At December 31, 2002 | 2,810 | 3,004 | 5,814 |
At December 31, 2002, the weighted average remaining estimated useful life of goodwill and intangible assets was 25 years (2001: 26 years). |
|
F – 24 |
|
16. Tangible fixed assets |
| Land and buildings £m | Computer systems, plant and equipment £m | Total £m | |
| Cost | |||
| At January 1, 2002 | 213 | 969 | 1,182 |
| Acquisitions | — | 2 | 2 |
| Capital expenditure | 5 | 174 | 179 |
| Disposals | — | (67) | (67) |
| Exchange translation differences | (12) | (60) | (72) |
| At December 31, 2002 | 206 | 1,018 | 1,224 |
| Accumulated depreciation | |||
| At January 1, 2002 | 75 | 618 | 693 |
| Disposals | — | (45) | (45) |
| Charge for the year | 8 | 128 | 136 |
| Exchange translation differences | (6) | (38) | (44) |
| At December 31, 2002 | 77 | 663 | 740 |
| Net book amount | |||
| At January 1, 2002 | 138 | 351 | 489 |
| At December 31, 2002 | 129 | 355 | 484 |
At December 31, 2002 and 2001, all assets were included at cost. No depreciation was provided on freehold land. The net book amount of tangible fixed assets includes £24m (2001: £16m) in respect of assets held under finance leases. 17. Fixed asset investments |
| Investments in joint ventures £m | Other investments £m | Total £m | |
| At January 1, 2002 | 66 | 175 | 241 |
| Share of attributable profit | 13 | — | 13 |
| Amortisation of goodwill and intangible assets | (3) | — | (3) |
| Dividends received from joint ventures | (13) | — | (13) |
| Additions | — | 9 | 9 |
| Transfers/disposals | (2) | (83) | (85) |
| Provided | — | (14) | (14) |
| Exchange translation differences | 1 | (9) | (8) |
| At December 31, 2002 | 62 | 78 | 140 |
The principal joint venture at December 31, 2002 is Giuffrè (an Italian legal publisher in which Reed Elsevier has a 40% shareholding). The cost and net book amount of goodwill and intangible assets in joint ventures were £36m and £21m respectively (2001: £37m and £24m). At December 31, 2002, the Reed Elsevier Group plc Employee Benefit Trust (“EBT”) held 2,840,047 (2001: 2,416,207) Reed Elsevier PLC ordinary shares and 1,554,381 (2001: 1,412,194) Reed Elsevier NV ordinary shares at a book amount of £19m. The aggregate market value at December 31, 2002 was £27m (2001: £25m). The EBT purchases Reed Elsevier PLC and Reed Elsevier NV shares which, at the Trustee’s discretion, can be used in respect of the exercise of executive share options. Details of these share option schemes is set out in Item 6: Directors, Senior Management and Employees; Share Ownership. |
|
F – 25 |
|
18. Inventories and pre-publication costs |
| 2002 £m | 2001 £m | |
| Raw materials | 15 | 18 |
| Pre-publication costs | 306 | 283 |
| Finished goods | 179 | 187 |
| Total | 500 | 488 |
19. Debtors — amounts falling due within one year
| 2002 £m | 2001 £m | |
| Trade debtors | 743 | 760 |
| Amounts owed by joint ventures | — | 2 |
| Other debtors | 73 | 98 |
| Prepayments and accrued income | 107 | 139 |
| Total | 923 | 999 |
20. Debtors — amounts falling due after more than one year |
| 2002 £m | 2001 £m | |
| Trade debtors | 9 | 5 |
| Pension prepayment (see note 6) | 125 | 128 |
| Prepayments, accrued income and other debtors | 26 | 86 |
| Deferred taxation assets (see note 26) | 161 | 244 |
| Total | 321 | 463 |
21. Cash and short term investments |
| 2002 £m | 2001 £m | |
| Cash at bank and in hand | 169 | 96 |
| Short term investments | 401 | 339 |
| Total | 570 | 435 |
| Short term investments include deposits of under one year if the maturity or notice period exceeds 24 hours, commercial paper investments and interest bearing securities that can be realised without significant loss at short notice. |
22. Creditors: amounts falling due within one year
| 2002 £m | 2001 £m | |
| Borrowings | ||
| Promissory notes and bank loans | 1,279 | 1,443 |
| Other loans | 80 | 108 |
| Obligations under finance leases (see note 25) | 8 | 5 |
| 1,367 | 1,556 | |
| Trade creditors | 251 | 246 |
| Other creditors | 165 | 330 |
| Taxation | 328 | 429 |
| Proposed dividends | 205 | 190 |
| Accruals and deferred income | 1,313 | 1,383 |
| Total | 3,629 | 4,134 |
|
F – 26 |
|
23. Creditors: amounts falling due after more than one year |
| 2002 £m | 2001 £m | |
| Borrowings | ||
| Loans repayable: | ||
| Within one to two years | 2 | 91 |
| Within two to five years | 903 | 506 |
| After five years | 1,016 | 1,500 |
| Obligations under finance leases (see note 25) | 14 | 11 |
| 1,935 | 2,108 | |
| Other creditors | 15 | 21 |
| Taxation | 269 | 331 |
| Accruals and deferred income | 51 | 42 |
| Total | 2,270 | 2,502 |
24. Financial instruments For the purpose of the disclosures which follow in this note, short term debtors and creditors have been excluded, as permitted under FRS13: Derivatives and Other Financial Instruments. Currency and interest rate profile of financial liabilities The currency and interest rate profile of the aggregate financial liabilities of £3,391m (2001: £3,848m), after taking account of interest rate and currency derivatives, is set out below: |
| Fixed rate financial liabilities | ||||
| Floating rate financial liabilities £m | Fixed rate financial liabilities £m | Weighted average interest rate | Weighted average duration (years) | |
| 2002 | ||||
| US dollar | 478 | 2,307 | 6.5% | 7.6 |
| Sterling | 19 | — | — | — |
| Euro | 363 | 143 | 5.6% | 4.3 |
| Other currencies | 81 | — | — | — |
| Total | 941 | 2,450 | 6.4% | 7.4 |
| Fixed rate financial liabilities | ||||
| Floating rate financial liabilities £m | Fixed rate financial liabilities £m | Weighted average interest rate | Weighted average duration (years) | |
| 2001 | ||||
| US dollar | 629 | 2,703 | 6.8% | 10.7 |
| Sterling | 22 | — | — | — |
| Euro | 268 | 138 | 5.6% | 5.2 |
| Other currencies | 88 | — | — | — |
| Total | 1,007 | 2,841 | 6.8% | 10.5 |
Included within fixed rate financial liabilities as at December 31, 2002 are £78m (2001: £105m) of US dollar term debt and £281m (2001: £397m) of interest rate swaps and FRAs denominated principally in US dollars that mature within one year. |
|
F – 27 |
|
24. Financial instruments – (continued) |
| 2002 | 2001 | |||
| Floating rate financial assets £m | Non interest bearing financial assets £m | Floating rate financial assets £m | Non interest bearing financial assets £m | |
| US dollar | 81 | 67 | 87 | 147 |
| Sterling | 207 | 17 | 74 | 24 |
| Euro | 246 | 7 | 244 | 6 |
| Other currencies | 36 | 7 | 30 | 4 |
| Total | 570 | 98 | 435 | 181 |
At December 31, 2002, there were interest rate floors in place with a principal amount totalling £150m (2001: £nil) denominated in sterling that mature within one year. Floating rate interest rates payable on US commercial paper are based on US dollar commercial paper rates. Other financial assets and liabilities bear interest by reference to LIBOR or other national LIBOR equivalent interest rates. Included within non interest bearing financial assets are £78m (2001: £175m) of investments denominated principally in sterling and US dollars which have no maturity date. Forward starting interest rate derivatives At December 31, 2002, forward rate agreements totalling £780m (2001: £276m) were in place. These comprised a succession of agreements to fix the interest expense on short term US dollar borrowings commencing in 2003 for progressive periods of up to three months, at a weighted average interest rate of 3.4%. Maturity profile of financial liabilities |
| 2002 | 2001 | |
| £m | £m | |
| Repayable: | ||
| Within one year | 1,367 | 1,598 |
| Within one to two years | 35 | 149 |
| Within two to five years | 944 | 557 |
| After five years | 1,045 | 1,544 |
| Total | 3,391 | 3,848 |
Financial liabilities repayable within one year include US commercial paper and euro commercial paper. Short term borrowings are supported by committed facilities and by centrally managed cash and short term investments. As at December 31, 2002, a total of £2,188m (2001: £2,413m) of committed facilities were available, of which £63m (2001: £418m) was drawn and is included in financial liabilities repayable within one year. Of the total committed facilities, £1,788m (2001: £248m) matures within one year, £nil (2001: £1,724m) within one to two years, and £400m (2001: £441m) within two to three years. Included within the 2000 amount is £3,154m of committed facilities arranged in anticipation of the Harcourt acquisition. Secured borrowings under finance leases were £22m (2001: £16m). |
|
F – 28 |
|
24. Financial instruments – (continued) Fair values of financial assets and liabilities |
| 2002 | 2001 | |||||
| Notional amount £m | Book value £m | Fair value £m | Notional amount £m | Book value £m | Fair value £m | |
| Primary financial instruments held or issued to finance operations | ||||||
| Investments | 78 | 78 | 175 | 175 | ||
| Cash | 169 | 169 | 96 | 96 | ||
| Short term investments | 401 | 400 | 339 | 338 | ||
| Other financial assets | 20 | 20 | 6 | 6 | ||
| Short term borrowings and current portion of long term borrowings | (1,367) | (1,374) | (1,556) | (1,555) | ||
| Long term borrowings | (1,935) | (2,043) | (2,108) | (2,104) | ||
| Other financial liabilities | (18) | (18) | (22) | (22) | ||
| Provisions | (71) | (71) | (162) | (162) | ||
| (2,723) | (2,839) | (3,232) | (3,228) | |||
| Derivative financial instruments held to manage interest rate and currency exposure | ||||||
| Interest rate swaps | 729 | (9) | (73) | 1,233 | (9) | (43) |
| Interest rate options | 686 | (4) | (65) | 690 | (4) | (48) |
| Interest rate floors | 150 | — | — | 275 | — | 1 |
| Forward rate agreements | 968 | — | (1) | 276 | — | — |
| Forward foreign exchange contracts | 246 | — | 8 | 917 | — | (2) |
| 2,779 | (13) | (131) | 3,391 | (13) | (92) | |
| Total financial instruments | 2,779 | (2,736) | (2,970) | 3,391 | (3,245) | (3,320) |
The amounts shown as the book value of derivative financial instruments represent accruals or deferred income arising from these financial instruments. The fair value of long term debt has been based on current market rates offered to Reed Elsevier for debt of the same remaining maturities. The fair values for interest rate swaps, interest rate options and forward rate agreements represent the replacement cost calculated using market rates of interest at December 31, 2002 and 2001. The fair values of all other items have been calculated by discounting expected future cash flows at market rates. |
|
F – 29 |
|
24. Financial instruments – (continued) |
| Unrecognised | Deferred | |||
| Gains £m | Losses £m | Gains £m | Losses £m | |
| On hedges at January 1, 2002 | 3 | (82) | 28 | (22) |
| Arising in previous years included in 2002 profit and loss account | (3) | 36 | (15) | 14 |
| Arising in previous years not included in 2002 profit and loss account | — | (46) | 13 | (8) |
| Arising in 2002 not included in 2002 profit and loss account | 8 | (80) | 45 | (7) |
| On hedges at December 31, 2002 | 8 | (126) | 58 | (15) |
| Of which: | ||||
| Expected to be included in 2003 profit and loss account | 8 | (49) | 30 | (8) |
| Expected to be included in 2004 profit and loss account or later | — | (77) | 28 | (7) |
25. Obligations under leases
Future finance lease obligations are:
| 2002 £m | 2001 £m | |
| Repayable: | ||
| Within one year | 9 | 7 |
| Within one to two years | 6 | 3 |
| Within two to five years | 3 | 2 |
| After five years | 7 | 9 |
| Less: interest charges allocated to future periods | (3) | (5) |
| Total | 22 | 16 |
| Obligations falling due within one year (see note 22) | 8 | 5 |
| Obligations falling due after more than one year (see note 23) | 14 | 11 |
| Total | 22 | 16 |
Annual commitments under operating leases are:
| 2002 £m | 2001 £m | |
| On leases expiring: | ||
| Within one year | 7 | 19 |
| Within two to five years | 37 | 41 |
| After five years | 59 | 63 |
| Total | 103 | 123 |
Of the above annual commitments, £99m relates to land and buildings (2001: £119m) and £4m to other leases (2001: £4m). |
|
F – 30 |
|
26. Provisions for liabilities and charges |
| Deferred taxation liabilities £m | Surplus property £m | Lease guarantees £m | Total £m | |
| At January 1, 2002 | 118 | 76 | 86 | 280 |
| Transfers | (50) | — | — | (50) |
| Provided | 34 | — | — | 34 |
| Utilised | (3) | (5) | (49) | (57) |
| Exchange translation differences | (7) | (8) | (5) | (20) |
| At December 31, 2002 | 92 | 63 | 32 | 187 |
The surplus property provision relates to lease obligations for various periods up to 2012 and represents estimated sub- lease shortfalls. The provision for lease guarantees represents amounts provided in respect of guarantees given by Harcourt General, Inc in favour of a former subsidiary, GC Companies, Inc. for certain property leases for various periods up to 2016. The net provision for deferred taxation comprises: |
| 2002 £m | 2001 £m | |
| Deferred taxation liabilities | ||
| Excess of tax allowances over related amortisation | 46 | 41 |
| Pension prepayment | 35 | 38 |
| Short term timing differences | 11 | 39 |
| 92 | 118 | |
| Deferred taxation assets (see note 20) | ||
| Excess of amortisation over related tax allowances | (8) | (6) |
| Short term timing differences | (151) | (201) |
| Tax losses carried forward | (2) | (37) |
| (161) | (244) | |
| Total | (69) | (126) |
| Net provision at January 1, | (126) | 37 |
| Acquisitions | — | 8 |
| Transfers | (12) | (96) |
| Deferred tax charge/(credit) in profit and loss account (see note 10) | 58 | (79) |
| Exchange translation differences | 11 | 4 |
| Net provision at December 31, | (69) | (126) |
27. Contingent liabilities |
|
F – 31 |
|
28. Combined shareholders’ funds |
| Combined share capitals £m | Combined share premium accounts £m | Combined reserves £m | Total £m | |
| At December 31, 1999 | 168 | 341 | 1,346 | 1,855 |
| Loss attributable to parent companies’ shareholders | — | — | 33 | 33 |
| Equity dividends paid and proposed | — | — | (245) | (245) |
| Issue of ordinary shares, less capital redemptions | 17 | 1,268 | — | 1,285 |
| Exchange translation differences | — | 12 | 101 | 113 |
| At December 31, 2000 | 185 | 1,621 | 1,235 | 3,041 |
| Profit attributable to parent companies’ shareholders | — | — | 126 | 126 |
| Equity dividends paid and proposed | — | — | (269) | (269) |
| Issue of ordinary shares, net of expenses and less capital redemptions | — | 22 | — | 22 |
| Exchange translation differences | (1) | (14) | 12 | (3) |
| At December 31, 2001 | 184 | 1,629 | 1,104 | 2,917 |
| Profit attributable to parent companies’ shareholders | — | — | 181 | 181 |
| Equity dividends paid and proposed | — | — | (282) | (282) |
| Issue of ordinary shares, net of expenses | 1 | 29 | — | 30 |
| Exchange translation differences | 2 | 50 | (239) | (187) |
| At December 31, 2002 | 187 | 1,708 | 764 | 2,659 |
Combined share capital excludes the shares of Reed Elsevier NV held by Reed Elsevier PLC. Combined reserves include a £4m (2001: £4m) capital redemption reserve following the redemption of non equity shares in Reed Elsevier PLC in 1999. 29. US accounting information Goodwill and intangible assets Under US GAAP, acquired goodwill and intangible assets are accounted for in accordance with SFAS141: Business Combinations and SFAS142: Goodwill and Other Intangible Assets. In accordance with these SFAS, goodwill and intangible assets with indefinite lives are not amortised and are subject to annual impairment review, with effect from January 1, 2002, except in respect of acquisitions made after July 1, 2001, for which the effective date under the transitional provisions was July 1, 2001. Other intangible assets are amortised over periods up to 40 years, also subject to impairment review. The gross cost under US GAAP, as at December 31, 2002, of goodwill is £4,553m (2001: £4,860m) and of intangible assets is £5,264m (2001: £5,583m). Accumulated amortisation under US GAAP, as at December 31, 2002, of goodwill is £1,328m (2001: £1,414m) and of intangible assets is £1,352m (2001: £1,131m). Deferred taxation Pensions F – 32 |
29. US accounting information – (continued) Stock based compensation Also under US GAAP, SFAS123: Accounting for Stock Based Compensation establishes a fair value based method of computing compensation cost. It encourages the application of this method in the profit and loss account but, where APB25 is applied, the proforma effect on net income must be disclosed. The disclosure only provisions of SFAS123, as amended by SFAS148: Accounting for Stock Based Compensation — Transition and Disclosure, have been adopted. The following table illustrates the effect on net income under US GAAP if the combined businesses had applied the fair value recognition provisions of SFAS123 to stock based compensation. |
| 2002 £m | 2001 £m | 2000 £m | |
| Net income/(loss) under US GAAP as reported | 365 | (20) | 60 |
| Less: additional stock compensation expense determined under SFAS123 compared to APB25 | (36) | (22) | (23) |
| Proforma net income under US GAAP | 329 | (42) | 37 |
Further disclosures regarding share option schemes, and the per share disclosures required by SFAS123, are presented in notes 19 and 22 of the Reed Elsevier PLC consolidated financial statements and in notes 12 and 15 of the Reed Elsevier NV financial statements. Derivative instruments Equity dividends Available for sale investments Acquisition accounting Employee Benefit Trust shares |
|
F – 33 |
|
29. US accounting information – (continued) Adjusted earnings Short term obligations expected to be refinanced Recently issued accounting pronouncements SFAS148: Accounting for Stock-Based Compensation — Transition and Disclosure was issued in December 2002 and is effective for financial years ending after December 15, 2002. SFAS148 amends the requirements of SFAS123: Accounting for Stock-Based Compensation by providing alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. SFAS148 also amends the disclosure requirements of SFAS123 to require prominent disclosure of the method of accounting for stock-based employee compensation and the effect of the method used on reported results. Reed Elsevier has elected to continue to apply the accounting provisions of APB25: Accounting for Stock Issued to Employees, but has adopted the disclosure requirements of SFAS148. FIN45: Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others was issued in November 2002. FIN45 requires additional disclosures related to obligations under certain guarantees that have been issued. The disclosure requirements of FIN45 are effective for financial years ending after December 15, 2002. The initial recognition and measurement requirements of FIN45 are effective prospectively for guarantees issued or modified after December 31, 2002. The impact of adoption of the recognition and measurement requirements is being assessed but the requirements are not expected to have a material impact on the results or financial position of Reed Elsevier and no additional disclosures are considered necessary as at December 31, 2002. FIN46: Consolidation of Variable Interest Entities — an interpretation of ARB No. 51 was issued in January 2003 and is effective for financial years beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. FIN46 clarifies the application of Accounting Research Bulletin No. 51: Consolidated Financial Statements to certain entities in which equity investors do not have a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN46 requires disclosure in the 2003 financial year regarding ownership interests in variable interest entities. In June 2002, the European Parliament and Council of the European Union (“EU”) issued a Regulation that will require all EU listed companies to prepare their consolidated accounts in accordance with International Financial Reporting Standards (“IFRS”). The Regulation is effective for financial years beginning after January 1, 2005. The impact of adopting IFRS, many of which are in the process of being developed or revised, in 2005 is being assessed. |
|
F – 34 |
|
29. US accounting information – (continued) |
| 2002 £m | 2001 £m | 2000 £m | |
| Net income under UK and Dutch GAAP | 181 | 126 | 33 |
| US GAAP adjustments: | |||
| Goodwill and intangible assets | 223 | (74) | (78) |
| Deferred taxation | (50) | (43) | 85 |
| Pensions | 56 | 46 | 22 |
| Stock based compensation | — | (15) | — |
| Derivative instruments | (45) | (56) | — |
| Other items | — | (4) | (2) |
| Net income/(loss) under US GAAP | 365 | (20) | 60 |
| Analysed: | |||
| Continuing operations | 365 | (20) | 60 |
Effects on combined shareholders’ funds of material differences between UK and Dutch GAAP and US GAAP |
| 2002 £m | 2001 £m | |
| Combined shareholders’ funds under UK and Dutch GAAP | 2,659 | 2,917 |
| US GAAP adjustments: | ||
| Goodwill and intangible assets | 1,302 | 1,151 |
| Deferred taxation | (838) | (860) |
| Pensions | 151 | 132 |
| Derivative instruments | (117) | (79) |
| Available for sale investments | 3 | 36 |
| Equity dividends | 205 | 190 |
| Other items | (21) | (20) |
| Combined shareholders’ funds under US GAAP | 3,344 | 3,467 |
Cash Flow Information Under US GAAP, the following amounts would be reported: |
| 2002 £m | 2001 £m | 2000 £m | |
| Net cash provided by operating activities (including joint ventures) | 709 | 927 | 605 |
| Net cash used in investing activities | (244) | (2,368) | (899) |
| Net cash (used)/provided in financing activities | (338) | 282 | 1,531 |
| Net increase/(decrease) in cash and cash equivalents | 127 | (1,159) | 1,237 |
| Reconciliation of cash and cash equivalents: | |||
| Cash under UK and Dutch GAAP | 169 | 96 | 85 |
| Current asset investments with original maturity within 3 months | 401 | 339 | 1,509 |
| Cash and cash equivalents under US GAAP | 570 | 435 | 1,594 |
|
F – 35 |
|
29. US accounting information – (continued) Under US GAAP, the following amounts would be reported: |
| 2002 £m | 2001 £m | 2000 £m | ||||
| Net income/(loss) under US GAAP | 365 | (20) | 60 | |||
| Other comprehensive income (net of tax): | ||||||
| Available for sale investments | (34) | 35 | — | |||
| Pensions | (25) | — | — | |||
| Derivative instruments | 7 | (20) | — | |||
| Cumulative transition adjustment as at January 1, 2001 | — | (86) | — | |||
| Amounts taken to net income during the year | 7 | 66 | — | |||
| Exchange translation differences | (194) | 1 | 122 | |||
| Comprehensive income/(loss) under US GAAP | 119 | (4) | 182 | |||
Goodwill and intangible assets |
| 2002 £m | 2001 £m | 2000 £m | |
| Net income under US GAAP | |||
| Reported net income | 365 | (20) | 60 |
| Goodwill amortisation | — | 311 | 264 |
| Equity method amortisation | — | 4 | 4 |
| Net income (excluding amortisation of goodwill) | 365 | 295 | 328 |
As described in note 14, during the year a number of acquisitions were made for total consideration amounting to £99m, after taking account of net cash acquired of £4m. Under UK and Dutch GAAP the goodwill arising on the acquisitions was £37m and the intangible assets acquired, principally databases and other publishing content, have been attributed a fair value of £64m. These acquired intangible assets are being amortised under US GAAP and have a weighted average life of 13 years. No significant residual value has been assumed for any of these intangible assets. The movements on the carrying value of goodwill under US GAAP can be analysed as follows: |
| Science & Medical £m | Legal £m | Education £m | Business £m | Total £m | |
| Net book amount | |||||
| At December 31, 2000 | 231 | 1,333 | 70 | 686 | 2,320 |
| Acquisitions | 578 | 72 | 753 | 25 | 1,428 |
| Sale of businesses | — | (1) | — | (24) | (25) |
| Amortisation | (79) | (114) | (12) | (106) | (311) |
| Exchange translation differences | 1 | 34 | (5) | 4 | 34 |
| At December 31, 2001 | 731 | 1,324 | 806 | 585 | 3,446 |
| Acquisitions | 4 | 20 | 1 | 12 | 37 |
| Exchange translation differences | (65) | (116) | (74) | (3) | (258) |
| At December 31, 2002 | 670 | 1,228 | 733 | 594 | 3,225 |
At December 31, 2002, the carrying value of intangible assets other than goodwill not subject to amortisation under US GAAP, principally trade names, trade marks, imprints and titles, was £1,028m (2001: £1,137m). |
|
F – 36 |
|
29. US accounting information – (continued) |
| 2002 £m | 2001 £m | |
| Cost | 4,236 | 4,446 |
| Accumulated amortisation | (1,352) | (1,131) |
| Net book amount | 2,884 | 3,315 |
The amortisation charge for intangible assets under US GAAP for the year ended December 31, 2002 was £303m (2001: £564m). The future annual amortisation charge under US GAAP in respect of the intangible assets reflected in the balance sheet as at December 31, 2002 is estimated to be in the range of £250m to £300m for each of the five financial years ending December 31, 2007. Pensions – UK Scheme The most significant scheme is the main UK scheme which covers the majority of UK employees. The main UK pension scheme is much more significant than the other Reed Elsevier pension schemes because it includes substantial numbers of pensioners and deferred pensioners retained when the manufacturing businesses of Reed Elsevier PLC were divested in the late 1980s and the consumer publishing businesses in the mid 1990s. The scheme is funded to cover future pension liabilities, including expected future earnings and pension increases, in respect of service up to the balance sheet date. The net pension credits in respect of this scheme calculated in accordance with SFAS87 were as follows: |
| 2002 £m | 2001 £m | 2000 £m | |
| Service costs — benefits earned during the year | 35 | 31 | 36 |
| Interest cost on projected benefit obligations | 72 | 73 | 67 |
| Expected return on plan assets | (117) | (107) | (103) |
| Net amortisation and deferral | (43) | (40) | (15) |
| Net periodic pension credit | (53) | (43) | (15) |
The following table sets forth the funded status under SFAS87 of the main UK scheme: |
| 2002 £m | 2001 £m | 2000 £m | |
| Projected benefit obligation | (1,305) | (1,335) | (1,259) |
| Plan assets at fair value | 1,357 | 1,566 | 1,747 |
| Excess of plan assets | 52 | 231 | 488 |
| Unrecognised net loss/(gain) | 239 | 8 | (272) |
| Unrecognised net transition asset | (18) | (26) | (34) |
| Unrecognised prior service cost | 20 | 27 | 15 |
| Prepaid pension cost | 293 | 240 | 197 |
|
F – 37 |
|
29. US accounting information – (continued) |
| 2002 £m | 2001 £m | 2000 £m | |
| Projected benefit obligation | |||
| Balance at January 1, | 1,335 | 1,259 | 1,301 |
| Service cost | 35 | 31 | 36 |
| Interest cost | 72 | 73 | 67 |
| Prior service cost | — | — | 4 |
| Plan amendments | — | 20 | — |
| Actuarial gain | (85) | (2) | (91) |
| Contributions | 5 | 4 | — |
| Disbursements | (57) | (50) | (58) |
| Balance at December 31, | 1,305 | 1,335 | 1,259 |
| 2002 £m | 2001 £m | 2000 £m | |
| Fair value of assets | |||
| Balance at January 1, | 1,566 | 1,747 | 1,776 |
| Actual return | (157) | (135) | 25 |
| Contributions | 5 | 4 | 4 |
| Disbursements | (57) | (50) | (58) |
| Balance at December 31, | 1,357 | 1,566 | 1,747 |
| 2002 £m | 2001 £m | 2000 £m | |
| Prepaid pension cost | |||
| Balance at January 1, | 240 | 197 | 182 |
| Net periodic credit | 53 | 43 | 15 |
| Balance at December 31, | 293 | 240 | 197 |
The principal assumptions for US GAAP purposes were: |
| At December 31, | |||
| 2002 | 2001 | 2000 | |
| Discount rate | 5.70% | 5.50% | 5.90% |
| Salary increases | 4.30% | 4.50% | 4.70% |
| Investment return | 7.30% | 6.30% | 6.20% |
| Pension increases | 2.30% | 2.50% | 2.70% |
Plan assets are invested primarily in equities, index-linked securities and liquid assets. Pensions– US Schemes |
| 2002 £m | 2001 £m | 2000 £m | |
| Service costs — benefits earned during the year | 28 | 23 | 18 |
| Interest cost on projected benefit obligations | 21 | 19 | 15 |
| Expected return on plan assets | (25) | (21) | (16) |
| Net amortisation and deferral | (2) | (1) | (1) |
| Recognised net actuarial loss | — | — | (1) |
| Net periodic pension cost | 22 | 20 | 15 |
|
F – 38 |
|
29. US accounting information – (continued) |
| 2002 £m | 2001 £m | 2000 £m | |
| Projected benefit obligation | (303) | (323) | (202) |
| Plan assets at fair value | 215 | 266 | 184 |
| Deficit of plan assets | (88) | (57) | (18) |
| Unrecognised net actuarial loss/(gain) | 80 | 34 | (20) |
| Unrecognised prior service (credit)/cost | (19) | 1 | (8) |
| Net amount recognised | (27) | (22) | (46) |
The net amount recognised can be analysed as follows: |
| 2002 £m | 2001 £m | 2000 £m | |
| Accrued pension cost | (27) | (22) | (51) |
| Additional minimum liability | (44) | (7) | — |
| Intangible asset | 5 | 7 | 5 |
| Accumulated other comprehensive income | 39 | — | — |
| Net amount recognised | (27) | (22) | (46) |
| 2002 £m | 2001 £m | 2000 £m | |
| Projected benefit obligation | |||
| Balance at January 1, | 323 | 202 | 159 |
| Service cost | 28 | 23 | 18 |
| Interest cost | 21 | 19 | 15 |
| Plan amendments | (22) | 9 | 1 |
| Actuarial loss | 3 | 20 | 13 |
| Business combinations | — | 85 | (7) |
| Disbursements | (19) | (14) | (11) |
| Settlements and curtailments | — | (24) | — |
| Exchange translation adjustments | (31) | 3 | 14 |
| Balance at December 31, | 303 | 323 | 202 |
| 2002 £m | 2001 £m | 2000 £m | |
| Fair value of assets | |||
| Balance at January 1, | 266 | 184 | 175 |
| Actual return | (24) | (12) | 1 |
| Contributions | 13 | 37 | 12 |
| Business combinations | — | 87 | (8) |
| Disbursements | (17) | (13) | (11) |
| Settlements and curtailments | — | (22) | — |
| Exchange translation adjustments | (23) | 5 | 15 |
| Balance at December 31, | 215 | 266 | 184 |
F – 39 |
29. US accounting information – (continued) |
| 2002 £m | 2001 £m | 2000 £m | |
| Accrued pension cost | |||
| Balance at January 1, | (22) | (46) | (41) |
| Additional obligations | — | — | — |
| Net periodic cost | (22) | (20) | (15) |
| Contributions | 13 | 37 | 12 |
| Disbursements | 2 | 1 | — |
| Business combinations | — | 4 | — |
| Settlements and curtailments | — | 2 | — |
| Exchange translation adjustments | 2 | — | (2) |
| Balance at December 31, | (27) | (22) | (46) |
The principal assumptions were: |
| At December 31, | |||
| 2002 | 2001 | 2000 | |
| Discount rate | 6.75% | 7.25% | 7.50% |
| Salary increases | 4.50% | 4.50% | 4.50% |
| Investment return | 8.50% | 8.75% | 9.00% |
Plan assets are invested primarily in listed stocks and US bonds. |
| Borrowings | 2002 £m | 2001 £m |
| Bank loans, overdrafts and commercial paper | ||
| Drawn under facilities expiring in year to December 31, | ||
| 2003 | — | 345 |
| 2004 | — | 96 |
| 2005 | 80 | — |
| Commercial paper | 1,199 | 1,002 |
| Total | 1,279 | 1,443 |
| Currency | Year end interest rates % | 2002 £m | 2001 £m | |
| Other loans and finance leases | ||||
| Public Notes 2002 | US dollar | 8.25 | — | 104 |
| Private Placement 2003 | US dollar | 8.50 | 78 | 86 |
| Public Notes 2005 | US dollar | 7.00 | 94 | 104 |
| Loan Notes 2005 | Sterling | 3.74 | 18 | 18 |
| Public Notes 2006 | US dollar | 6.13 | 343 | 379 |
| Term Loan 2006 | Euro | 3.98 | 29 | — |
| Term Loan 2007 | Euro | 3.95 | 105 | — |
| Term Loan 2007 | US dollar | 2.42 | 31 | — |
| Swiss Domestic Bond 2007 | US dollar | 2.45 | 187 | 207 |
| Public Notes 2007 | US dollar | 6.70 | 91 | 110 |
| Public Notes 2008 | US dollar | 5.75 | 274 | 304 |
| Public Notes 2011 | US dollar | 6.75 | 343 | 379 |
| Public Notes 2022 | US dollar | 8.88 | 40 | 45 |
| Private Placement 2023 | US dollar | 6.63 | 94 | 104 |
| Public Debentures 2025 | US dollar | 7.50 | 94 | 104 |
| Public Notes 2027 | US dollar | 7.20 | 120 | 132 |
| Public Notes 2097 | US dollar | 7.30 | 32 | 95 |
| Subordinated Debentures 2011 | US dollar | 6.50 | 24 | 29 |
| Finance leases | Various | Various | 22 | 16 |
| Miscellaneous | Euro | Various | 4 | 5 |
| Total | 2,023 | 2,221 | ||
|
F – 40 |
|
29. US accounting information – (continued) |
Bank loans, | Other loans and finance leases £m | Total £m | |
| Analysis by year of repayment | |||
| Within one year | 1,279 | 88 | 1,367 |
| Within one to two years | — | 7 | 7 |
| Within two to three years | — | 114 | 114 |
| Within three to four years | — | 375 | 375 |
| Within four to five years | — | 416 | 416 |
| Thereafter | — | 1,023 | 1,023 |
| — | 1,935 | 1,935 | |
| Total | 1,279 | 2,023 | 3,302 |
| Expiring within 1 year £m | Expiring after 1 year £m | Total £m | |
| Bank facilities at December 31, 2002 | |||
| Overdraft | 146 | — | 146 |
| Uncommitted lines of credit | 180 | — | 180 |
| Committed facilities | 1,788 | 400 | 2,188 |
Of the £400m committed facilities expiring after one year, £63m was utilised by way of letters of credit which support short term borrowings. The committed facilities are subject to covenants which restrict gross borrowings and secured borrowings by reference to Reed Elsevier’s combined earnings before exceptional items, interest, tax, depreciation and amortisation. There is also a covenant restricting the ability to dispose of a substantial proportion of assets (except for full consideration) if such disposal materially and adversely affects the Reed Elsevier’s combined net assets or combined attributable profit. Arrangements are in process to put in place appropriate facilities to replace the committed facilities expiring in 2003. |
| 2002 | 2001 | |
| Short term loans, overdrafts and commercial paper | ||
| Weighted average interest rate during year | 3.7% | 5.5% |
| Year end weighted average interest rate | 2.4% | 3.0% |
The weighted average interest rate for the year was computed by dividing actual interest expense for the year by the average month-end amounts outstanding for short term bank loans and commercial paper. Finance leases Operating leases |
| £m | |
| Within one year | 96 |
| Within one to two years | 94 |
| Within two to three years | 83 |
| Within three to four years | 76 |
| Within four to five years | 70 |
| Thereafter | 484 |
| Total | 903 |
|
F – 41 |
|
29. US accounting information – (continued) Accruals and deferred income |
|
F – 42 |
|
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS |
Balance | Cost and expenses | Other movements(1) | Deductions | Balance at end of year | |
| £m | £m | £m | £m | £m | |
| Year ended December 31, 2000 | |||||
| Allowance for doubtful receivables | 46 | 18 | 2 | (19) | 47 |
| Year ended December 31, 2001 | |||||
| Allowance for doubtful receivables | 47 | 21 | 29 | (15) | 82 |
| Year ended December 31, 2002 | |||||
| Allowance for doubtful receivables | 82 | 27 | 4 | (37) | 76 |
| Year ended December 31, 2000 | |||||
| Provisions against inventories | 42 | 6 | — | (5) | 43 |
| Year ended December 31, 2001 | |||||
| Provisions against inventories | 43 | 6 | 59 | (7) | 101 |
| Year ended December 31, 2002 | |||||
| Provisions against inventories | 101 | 13 | 2 | (20) | 96 |
(1) Other movements in 2001 include the acquisition of Harcourt and exchange rate movements. |
|
F – 43 |
|
REED ELSEVIER PLC |
|
F – 44 |
|
|
F – 45 |
|
REED ELSEVIER PLC |
| 2002 | 2001 | 2000 | |||||
| Note | £m | £m | £m | ||||
| Turnover | |||||||
| Including share of turnover of joint ventures | 2,656 | 2,412 | 1,994 | ||||
| Less: share of turnover of joint ventures | (2,656) | (2,412) | (1,994) | ||||
| — | — | — | |||||
| Administrative expenses | (1) | (1) | (1) | ||||
| Operating loss (before joint ventures) | 5 | (1) | (1) | (1) | |||
| Share of operating profit of joint ventures | |||||||
| Before amortisation and exceptional items | 3 | 593 | 519 | 414 | |||
| Amortisation of goodwill and intangible assets | (279) | (265) | (248) | ||||
| Exceptional items | (52) | (52) | (60) | ||||
| 262 | 202 | 106 | |||||
| Operating profit including joint ventures | 261 | 201 | 105 | ||||
| Share of non operating exceptional items of joint ventures | (6) | 14 | 45 | ||||
| (6) | 14 | 45 | |||||
| Net interest income/(expense) | |||||||
| Group | 8 | 3 | 12 | 5 | |||
| Share of net interest of joint ventures | (112) | (87) | (59) | ||||
| (109) | (75) | (54) | |||||
| Profit on ordinary activities before taxation | 146 | 140 | 96 | ||||
| Tax on profit on ordinary activities | 9 | (57) | (79) | (85) | |||
| UK corporation tax | (1) | (3) | (2) | ||||
| Share of tax of joint ventures | (56) | (76) | (83) | ||||
| Profit attributable to ordinary shareholders | 89 | 61 | 11 | ||||
| Equity dividends paid and proposed | 10 | (143) | (132) | (123) | |||
| Retained loss taken to reserves | (54) | (71) | (112) | ||||
| 2002 | 2001 | 2000 | |||||
| Note | £m | £m | £m | ||||
| Adjusted figures | |||||||
| Adjusted profit before tax | 11 | 490 | 449 | 365 | |||
| Adjusted profit attributable to ordinary shareholders | 11 | 361 | 330 | 270 | |||
Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are presented as additional performance measures, and are reconciled to the reported figures in note 11 to the financial statements. |
| 2002 | 2001 | 2000 | ||
| Note | pence | pence | pence | |
| Earnings per ordinary share (“EPS”) | ||||
| Basic EPS | 12 | 7.0 | 4.8 | 1.0 |
| Diluted EPS | 12 | 7.0 | 4.8 | 1.0 |
| EPS based on 52.9% economic interest in the Reed Elsevier combined businesses | 12 | 7.6 | 5.3 | 1.5 |
| Adjusted EPS | 12 | 28.5 | 26.1 | 23.3 |
The above amounts derive from continuing activities. The accompanying notes on pages F-50 to F-62 are an integral part of these consolidated financial statements |
|
F – 46 |
|
| 2002 | 2001 | 2000 | ||
| Note | £m | £m | £m | |
| Net cash outflow from operating activities | 13 | — | (3) | (1) |
| Dividends received from Reed Elsevier Group plc | 135 | 127 | 97 | |
| Interest received | 3 | 13 | 4 | |
| Returns on investments and servicing of finance | 3 | 13 | 4 | |
| Taxation | (1) | (3) | (1) | |
| Fixed asset investments | 13 | — | (406) | — |
| Acquisitions and disposals | — | (406) | — | |
| Equity dividends paid | (135) | (126) | (98) | |
| Cash inflow/(outflow) before changes in short term investments and financing | 2 | (398) | 1 | |
| Decrease/(increase) in short term investments | 13 | — | 431 | (431) |
| Issue of ordinary shares | 16 | 10 | 709 | |
| Increase in net funding balances to Reed Elsevier Group plc group | 13 | (18) | (43) | (279) |
| Financing | (2) | (33) | 430 | |
| Change in net cash | — | — | — | |
| 2002 | 2001 | ||
| Note | £m | £m | |
| Fixed assets | |||
| Investment in joint ventures: | 14 | ||
| Share of gross assets | 4,666 | 5,241 | |
| Share of gross liabilities | (3,683) | (4,113) | |
| Share of net assets | 983 | 1,128 | |
| Current assets | |||
| Debtors | 15 | 573 | 555 |
| 573 | 555 | ||
| Creditors: amounts falling due within one year | 16 | (113) | (104) |
| Net current assets | 460 | 451 | |
| Total assets less current liabilities | 1,443 | 1,579 | |
| Creditors: amounts falling due after more than one year | 17 | (36) | (36) |
| Net assets | 1,407 | 1,543 | |
| Capital and reserves | |||
| Called up share capital | 18 | 159 | 158 |
| Share premium account | 20 | 951 | 936 |
| Capital redemption reserve | 20 | 4 | 4 |
| Profit and loss reserve | 20 | 293 | 445 |
| Shareholders’ funds | 1,407 | 1,543 | |
| 2002 | 2001 | 2000 | |
| £m | £m | £m | |
| Profit attributable to ordinary shareholders | 89 | 61 | 11 |
| Exchange translation differences | (98) | (2) | 60 |
| Total recognised gains and losses for the year | (9) | 59 | 71 |
Recognised gains and losses include losses of £3m (2001: gains of £65m; 2000: gains of £75m) in respect of joint ventures. RECONCILIATION OF SHAREHOLDERS’ FUNDS |
| Consolidated | |||
| 2002 | 2001 | 2000 | |
| £m | £m | £m | |
| Profit attributable to ordinary shareholders | 89 | 61 | 11 |
| Equity dividends paid and proposed | (143) | (132) | (123) |
| Issue of ordinary shares, net of expenses | 16 | 10 | 708 |
| Exchange translation differences | (98) | (2) | 60 |
| Equalisation adjustments | — | (3) | (28) |
| Net (decrease)/increase in shareholders’ funds | (136) | (66) | 628 |
| Shareholders’ funds at January 1, | 1,543 | 1,609 | 981 |
| Shareholders’ funds at December 31, | 1,407 | 1,543 | 1,609 |
The accompanying notes on pages F-50 to F-62 are an integral part of these consolidated financial statements F – 49 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of financial statements 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 Determination of profit The accounting policies adopted in the preparation of the combined financial statements are set out in note 2 to the Reed Elsevier combined financial statements. Basis of valuation of assets and liabilities Foreign exchange translation Taxation F – 50 3. Income from interests in joint ventures |
| 2002 £m | 2001 £m | 2000 £m | |
| Share of operating profit before amortisation and exceptional items (based on 52.9% economic interest in the Reed Elsevier combined businesses) | 599 | 524 | 419 |
| Effect of tax credit equalisation on distributed earnings (see note 4) | (7) | (6) | (6) |
| Items consolidated within Reed Elsevier PLC group | 1 | 1 | 1 |
| 593 | 519 | 414 | |
Segmental analysis of the Reed Elsevier combined results is shown in the Reed Elsevier combined financial statements. 4. Effect of tax credit equalisation on distributed earnings 5. Operating loss 6. Auditors’ remuneration 7. Directors’ emoluments 8. Net interest |
| 2002 £m | 2001 £m | 2000 £m | |
| Interest receivable and similar income | |||
| On short term investments | — | 11 | 2 |
| On loans to Reed Elsevier Group plc group | 3 | 1 | 3 |
| Net interest income | 3 | 12 | 5 |
F – 51 9. Tax on profit on ordinary activities |
| 2002 £m | 2001 £m | 2000 £m | |
| UK corporation tax | 1 | 3 | 2 |
| Share of tax arising in joint ventures: | |||
| Before amortisation and exceptional items | 128 | 116 | 94 |
| On amortisation and exceptional items | (72) | (40) | (11) |
| Total | 57 | 79 | 85 |
UK corporation tax has been provided at 30% (2001: 30%; 2000: 30%). The share of tax arising in joint ventures as a proportion of the share of profit before tax is increased due to non tax-deductible amortisation and, in 2002 and 2001, reduced due to exceptional tax credits. In 2000 the share of tax arising in joint ventures is high as a proportion of the share of profit before tax principally due also to the non-recognition of potential deferred tax assets. |
10. Dividends
| 2002 £m | 2001 £m | 2000 £m | |
| Interim | 41 | 38 | 35 |
| Final (2002 proposed) | 102 | 94 | 88 |
| Total | 143 | 132 | 123 |
| 2002 pence | 2001 pence | 2000 pence | |
| Ordinary shares of 12.5 pence each | |||
| Interim | 3.2 | 3.1 | 3.1 |
| Final (2002 proposed) | 8.0 | 7.4 | 6.9 |
| Total | 11.2 | 10.5 | 10.0 |
F – 52 11. Adjusted figures
|
| 2002 £m | 2001 £m | 2000 £m | |
| Profit before tax | 146 | 140 | 96 |
| Effect of tax credit equalisation on distributed earnings | 7 | 6 | 6 |
| Profit before tax based on 52.9% economic interest in the Reed Elsevier combined businesses | 153 | 146 | 102 |
| Adjustments: | |||
| Amortisation of goodwill and intangible assets | 279 | 265 | 248 |
| Exceptional items | 58 | 38 | 15 |
| Adjusted profit before tax | 490 | 449 | 365 |
| Profit attributable to ordinary shareholders | 89 | 61 | 11 |
| Effect of tax credit equalisation on distributed earnings | 7 | 6 | 6 |
| Profit attributable to ordinary shareholders based on 52.9% economic interest in the Reed Elsevier combined businesses | 96 | 67 | 17 |
| Adjustments: | |||
| Amortisation of goodwill and intangible assets | 271 | 268 | 248 |
| Exceptional items | (6) | (5) | 5 |
| Adjusted profit attributable to ordinary shareholders | 361 | 330 | 270 |
| 2002 pence | 2001 pence | 2000 pence | |
| Basic earnings per ordinary share | 7.0 | 4.8 | 1.0 |
| Effect of tax credit equalisation on distributed earnings | 0.6 | 0.5 | 0.5 |
| Earnings per share based on 52.9% economic interest in the Reed Elsevier combined businesses | 7.6 | 5.3 | 1.5 |
| Adjustments: | |||
| Amortisation of goodwill and intangible assets | 21.4 | 21.2 | 21.4 |
| Exceptional items | (0.5) | (0.4) | 0.4 |
| Adjusted earnings per ordinary share | 28.5 | 26.1 | 23.3 |
F – 53 |
12. Earnings per ordinary share (EPS)
|
| 2002 | |||
| Earnings £m | Weighted average number of shares (millions) | EPS pence | |
| Basic EPS | 89 | 1,264.7 | 7.0 |
| Diluted EPS | 89 | 1,270.8 | 7.0 |
| EPS based on 52.9% economic interest in the Reed Elsevier combined businesses | 96 | 1,264.7 | 7.6 |
| Adjusted EPS (see note 11) | 361 | 1,264.7 | 28.5 |
| 2001 | |||
| Earnings £m | Weighted average number of shares (millions) | EPS pence | |
| Basic EPS | 61 | 1,262.6 | 4.8 |
| Diluted EPS | 61 | 1,273.3 | 4.8 |
| EPS based on 52.9% economic interest in the Reed Elsevier combined businesses | 67 | 1,262.6 | 5.3 |
| Adjusted EPS (see note 11) | 330 | 1,262.6 | 26.1 |
| 2000 | |||
| Earnings £m | Weighted average number of shares (millions) | EPS pence | |
| Basic EPS | 11 | 1,156.4 | 1.0 |
| Diluted EPS | 11 | 1,161.2 | 1.0 |
| EPS based on 52.9% economic interest in the Reed Elsevier combined businesses | 17 | 1,156.4 | 1.5 |
| Adjusted EPS (see note 11) | 270 | 1,156.4 | 23.3 |
The diluted EPS figures are calculated after taking account of the effect of share options.
13. Cash flow statement
Reconciliation of operating loss to net cash outflow from operating activities | 2002 £m | 2001 £m | 2000 £m |
| Operating loss | (1) | (1) | (1) |
| Net movement in debtors and creditors | 1 | (2) | — |
| Net cash outflow from operating activities | — | (3) | (1) |
| Short term investments £m | Net funding balances to Reed Elsevier Group plc group | Total £m | |
| Reconciliation of net funding balances | |||
| At December 31, 1999 | — | 197 | 197 |
| Cash flow | 431 | 279 | 710 |
| At December 31, 2000 | 431 | 476 | 907 |
| Cash flow | (431) | 43 | (388) |
| At December 31, 2001 | — | 519 | 519 |
| Cash flow | — | 18 | 18 |
| At December 31, 2002 | — | 537 | 537 |
F – 54 13. Cash flow statement – (continued) On July 11, 2001, Reed Elsevier PLC took up its rights in a rights issue by Elsevier Reed Finance BV and subscribed for 32 R-shares in the company at a cost of £347m. 14. Fixed asset investments |
| 2002 £m | 2001 £m | |
| Investment in joint ventures | ||
| Share of operating profit | 262 | 202 |
| Share of non operating exceptional items | (6) | 14 |
| Share of net interest payable | (112) | (87) |
| Share of profit before tax | 144 | 129 |
| Share of taxation | (56) | (76) |
| Share of profit after tax | 88 | 53 |
| Dividends received | (135) | (127) |
| Fixed asset investments (see note 13) | — | 406 |
| Exchange translation differences | (98) | (2) |
| Equalisation adjustments | — | (3) |
| Net movement in the year | (145) | 327 |
| At January 1, | 1,128 | 801 |
| At December 31, | 983 | 1,128 |
The investment in joint ventures comprises the group’s share at the following amounts of:
| 2002 £m | 2001 £m | |
| Fixed assets | 3,406 | 3,943 |
| Current assets | 1,260 | 1,298 |
| Creditors: amounts falling due within one year | (2,380) | (2,638) |
| Creditors: amounts falling due after more than one year | (1,201) | (1,324) |
| Provisions | (99) | (148) |
| Minority interests | (3) | (3) |
| Total | 983 | 1,128 |
Included within share of current assets and creditors are cash and short term investments of £302m (2001: £230m) and borrowings of £1,747m (2001: £1,938m) respectively. 15. Debtors |
| 2002 £m | 2001 £m | |
| Amounts owed by Reed Elsevier Group plc group | 573 | 555 |
Amounts falling due after more than one year are £40m (2001: £40m). These amounts are denominated in sterling and earn interest at a fixed rate of 9.8% (2001: 9.8%) for a duration of five years (2001: six years). At December 31, 2002, these amounts had a fair value of £49m (2001: £49m). F – 55 16. Creditors: amounts falling due within one year |
| 2002 £m | 2001 £m | |
| Other creditors | 1 | — |
| Proposed dividend | 102 | 94 |
| Taxation | 10 | 10 |
| Total | 113 | 104 |
17. Creditors: amounts falling due after more than one year
| 2002 £m | 2001 £m | |
| Amounts owed to Reed Elsevier Group plc group | 36 | 36 |
These amounts are denominated in sterling and earn interest at a fixed rate of 10.5% (2001: 10.5%) for a duration of three years (2001: four years). At December 31, 2002, these amounts had a fair value of £42m (2001: £43m). 18. Called up share capital |
| Authorised | Issued and fully paid | ||
| 2002 £m | 2002 £m | 2001 £m | |
| Ordinary shares of 12.5p each | 159 | 159 | 158 |
| Unclassified shares of 12.5p each | 25 | — | — |
| Total | 184 | 159 | 158 |
Details of shares issued under share option schemes are set out in note 19. The authorised share capital consists of 1,471.5m ordinary shares of 12.5p each. As at December 31, 2002, the issued share capital was 1,268.4m (2001: 1,264.9m) ordinary shares. 19. Share option schemes Transactions during the three years ended December 31, 2002 were:
|
| Number of ordinary shares | Exercise price (pence) | |
| Outstanding at December 31, 1999 | 3,778,738 | |
| Granted | 2,542,410 | 336.2 |
| Exercised | (824,500) | 320.6-499.2 |
| Lapsed | (1,121,753) | |
| Outstanding at December 31, 2000 | 4,374,895 | |
| Granted | 873,282 | 500.0 |
| Exercised | (621,699) | 320.6-500.0 |
| Lapsed | (594,475) | |
| Outstanding at December 31, 2001 | 4,032,003 | |
| Granted | 858,783 | 543.2 |
| Exercised | (701,962) | 336.2-500.0 |
| Lapsed | (579,985) | |
| Outstanding at December 31, 2002 | 3,608,839 | |
F – 56 19. Share option schemes – (continued) Reed Elsevier Group plc operates an Executive Share Option Scheme and options are granted to selected full time employees of Reed Elsevier. Options granted over Reed Elsevier PLC ordinary shares are normally exercisable after three years and may be exercised up to ten years from the date of grant at a price equivalent to the market value of the Reed Elsevier PLC ordinary shares at the time of grant. Transactions during the three years ended December 31, 2002 were:
|
| Number of ordinary shares | Exercise price (pence) | |
| Outstanding at December 31, 1999 | 23,740,973 | |
| Granted | 3,401,931 | 436.5-700.0 |
| Exercised | (2,295,145) | 188.7-585.2 |
| Lapsed | (1,122,384) | |
| Outstanding at December 31, 2000 | 23,725,375 | |
| Granted | 9,488,809 | 519.0-693.0 |
| Exercised | (1,804,764) | 208.75-611.0 |
| Lapsed | (793,334) | |
| Outstanding at December 31, 2001 | 30,616,086 | |
| Granted | 8,772,673 | 533.0-693.0 |
| Exercised | (2,795,419) | 321.75-659.0 |
| Lapsed | (2,312,137) | |
| Outstanding at December 31, 2002 | 34,281,203 | |
The above outstanding options may, upon exercise, be met by the issue of new Reed Elsevier PLC ordinary shares. Options outstanding at December 31, 2002 were exercisable by 2012. 4,360,350 options had vested at December 31, 2002. In addition to the above, 12,899,138 options were outstanding at December 31, 2002 under the Reed Elsevier Group plc Senior Executive Long Term Incentive Scheme at prices ranging between 436.5p and 700p. Subject to the achievement of total shareholder return targets, such options are exercisable from January 1, 2005 and the options will be met by the issue of new Reed Elsevier PLC ordinary shares. Excluded from the above are options granted until 1999 under the Reed Elsevier Group plc Executive Share Option Schemes (No. 2) which, upon exercise, will be met by the Reed Elsevier Employee Benefit Trust (“EBT”) from shares purchased in the market. At December 31, 2002, there were 2,281,592 such options outstanding at exercise prices ranging between 424p and 677.25p. The EBT will also be used to satisfy nil cost options granted to certain senior executives. At December 31, 2002, there were 555,502 such options outstanding. F – 57 20. Reserves |
| Share premium account £m | Capital redemption reserve £m | Profit and loss reserve | Total £m | |
| At December 31, 1999 | 233 | 4 | 601 | 838 |
| Profit attributable to ordinary shareholders | — | — | 11 | 11 |
| Equity dividends paid and proposed | — | — | (123) | (123) |
| Issue of ordinary shares, net of expenses | 693 | — | — | 693 |
| Exchange translation differences | — | — | 60 | 60 |
| Equalisation adjustments | — | — | (28) | (28) |
| At December 31, 2000 | 926 | 4 | 521 | 1,451 |
| Profit attributable to ordinary shareholders | — | — | 61 | 61 |
| Equity dividends paid and proposed | — | — | (132) | (132) |
| Issue of ordinary shares, net of expenses | 10 | — | — | 10 |
| Exchange translation differences | — | — | (2) | (2) |
| Equalisation adjustments | — | — | (3) | (3) |
| At December 31, 2001 | 936 | 4 | 445 | 1,385 |
| Profit attributable to ordinary shareholders | — | — | 89 | 89 |
| Equity dividends paid and proposed | — | — | (143) | (143) |
| Issue of ordinary shares, net of expenses | 15 | — | — | 15 |
| Exchange translation differences | — | — | (98) | (98) |
| At December 31, 2002 | 951 | 4 | 293 | 1,248 |
Reed Elsevier PLC’s share of the revenue reserves of the Reed Elsevier combined businesses is £402m (2001: £582m). 21. Contingent liabilities
|
| 2002 £m | 2001 £m | |
| Guaranteed jointly and severally with Reed Elsevier NV | 2,934 | 3,086 |
Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 24 to the Reed Elsevier combined financial statements. F – 58 22. US accounting information Impact of US GAAP adjustments to combined financial statements Equity dividends Exceptional items Stock based compensation The disclosure only provisions of SFAS123 have been adopted. The following table illustrates the proforma effect on net income and earnings per share under US GAAP if the combined businesses had applied the fair value recognition provisions of SFAS123 to stock based compensation and Reed Elsevier PLC had recorded its share of the resulting charge. |
| 2002 £m | 2001 £m | 2000 £m | |
| Net income/(loss) under US GAAP as reported | 186 | (16) | 27 |
| Less: share of additional stock compensation expense determined under SFAS123 compared to APB25 | (19) | (11) | (12) |
| Proforma net income/(loss) under US GAAP | 167 | (27) | 15 |
| Earnings per share under US GAAP | |||
Basic — as reported (pence) | 14.7p | (1.3)p | 2.3p |
Basic — proforma (pence) | 13.2p | (2.1)p | 1.3p |
Diluted — as reported (pence) | 14.6p | (1.3)p | 2.3p |
Diluted — proforma (pence) | 13.1p | (2.1)p | 1.3p |
Additional disclosures regarding share options granted over Reed Elsevier PLC ordinary shares, and the method and assumptions used to determine fair values, are set out under share option schemes below. F – 59 22. US accounting information – (continued)
|
| 2002 £m | 2001 £m | 2000 £m | |
| Net income under UK GAAP | 89 | 61 | 11 |
| Impact of US GAAP adjustments to combined financial statements | 97 | (77) | 16 |
| Net income/(loss) under US GAAP | 186 | (16) | 27 |
| Basic earnings/(loss) per ordinary share under US GAAP (pence) | 14.7p | (1.3)p | 2.3p |
| Diluted earnings/(loss) per ordinary share under US GAAP (pence) | 14.6p | (1.3)p | 2.3p |
The basic and diluted earnings/(loss) per ordinary share under US GAAP includes a 52.9% share of the exceptional items, as follows:
|
| (i) | for 2002, 3.1p loss in respect of reorganisation costs related to employee severance, principally in the Business and Legal segments, and acquisition related costs arising on the integration and rationalisation of Harcourt and other recent acquisitions, and 3.6p gain in respect of the disposal of businesses and fixed asset investments; |
| (ii) | for 2001, 1.5p loss in respect of reorganisation costs, principally headcount reduction in the Business division, and acquisition related costs arising from the integration of Harcourt and other recent acquisitions, and 1.9p gain primarily in respect of the disposal of OAG Worldwide, Cahners Travel Group, Bowker and certain training businesses in the Netherlands; and |
(iii)
| for 2000, 3.9p loss principally in respect of the costs of a major programme of reorganisation across the Reed Elsevier businesses commenced in 1999 and 3.5p gain in respect of businesses disposed in 2000.
|
| Effects on shareholders’ funds of material differences between UK and US GAAP | |
| 2002 £m | 2001 £m | |
| Shareholders’ funds under UK GAAP | 1,407 | 1,543 |
| Impact of US GAAP adjustments to combined financial statements | 259 | 197 |
| Equity dividends not declared in the period | 102 | 94 |
| Shareholders’ funds under US GAAP | 1,768 | 1,834 |
Comprehensive Income Information F – 60 |
22. US accounting information – (continued) The tables set out below provide additional information regarding share options granted over Reed Elsevier PLC ordinary shares under the savings related share option scheme, the Executive Share Option Scheme and the Reed Elsevier Group plc Senior Executive Long Term Incentive Scheme which may be met from the issue of ordinary shares for the three years ended December 31, 2002. Movement in options outstanding |
| 2002 | 2001 | 2000 | ||||
| Number of ordinary shares | Weighted average exercise price (pence) | Number of ordinary shares | Weighted average exercise price (pence) | Number of ordinary shares | Weighted average exercise price (pence) | |
| Outstanding at January 1, | 47,998,993 | 497 | 42,471,136 | 466 | 27,519,711 | 462 |
| Granted | 9,600,847 | 595 | 10,371,430 | 606 | 20,336,549 | 464 |
| Exercised | (3,497,381) | 471 | (2,406,463) | 474 | (3,019,245) | 437 |
| Lapsed | (3,313,279) | 496 | (2,437,110) | 448 | (2,365,879) | 443 |
| Outstanding at December 31, | 50,789,180 | 517 | 47,998,993 | 497 | 42,471,136 | 466 |
| Exercisable at December 31, | 4,397,692 | 529 | 5,895,494 | 532 | 6,050,304 | 492 |
Options granted during year | ||||||
| 2002 | 2001 | 2000 | ||||
| Weighted average exercise price (pence) | Weighted average fair value (pence) | Weighted average exercise price (pence) | Weighted average fair value (pence) | Weighted average exercise price (pence) | Weighted average fair value (pence) | |
| Options whose exercise price is less than the market price of ordinary shares on date of grant | 543 | 144 | 500 | 156 | 336 | 118 |
| Options whose exercise price equals the market price of ordinary shares on date of grant | 600 | 142 | 616 | 179 | 482 | 184 |
The number of ordinary shares under options granted in 2002 included above where the exercise price is less than the market price on date of grant was 858,783 (2001: 873,282; 2000: 2,542,410). The fair value of each option grant is estimated on the date of grant using the Black Scholes option pricing model with the following assumptions for grants made in the year: |
| 2002 | 2001 | 2000 | |
| Expected life (years) | 3.1 | 3.3 | 4.3 |
| Expected dividend yield | 1.79% | 1.86% | 1.90% |
| Expected volatility | 32.08% | 38.64% | 44.11% |
| Risk free interest rate | 4.37% | 5.05% | 5.50% |
|
F – 61 |
|
22. US accounting information – (continued) |
| Options outstanding | Options exercisable | ||||
| Range of exercise prices (pence) | Number of ordinary shares | Weighted average remaining period to vesting (years) | Weighted average exercise price (pence) | Number of ordinary shares | Weighted average exercise price (pence) |
| 301-350 | 1,751,495 | 1.1 | 336 | 80,000 | 322 |
| 401-450 | 19,961,682 | 1.6 | 429 | 1,163,792 | 404 |
| 451-500 | 2,153,763 | 0.9 | 477 | — | — |
| 501-550 | 5,214,175 | 2.1 | 529 | 101,900 | 523 |
| 551-600 | 13,293,235 | 1.8 | 589 | 2,350,100 | 575 |
| 601-650 | 2,510,686 | 1.7 | 626 | 701,900 | 611 |
| 651-700 | 5,904,144 | 1.3 | 663 | — | — |
| 50,789,180 | 1.6 | 517 | 4,397,692 | 529 | |
The majority of options are subject to performance conditions that must be met before they can vest. The weighted average remaining period to vesting is presented on the basis that these performance conditions are met. |
|
F – 62 |
|
|
F – 63 |
|
REED ELSEVIER NV |
| Note | 2002 €m | 2001 €m | 2000 €m | |
| Turnover | ||||
| Including share of turnover of joint ventures | 3,991 | 3,671 | 3,091 | |
| Less: share of turnover of joint ventures | (3,991) | (3,671) | (3,091) | |
| — | — | — | ||
| Administrative expenses | (3) | (3) | (3) | |
| Operating loss (before joint ventures) | 3 | (3) | (3) | (3) |
| Share of operating profit of joint ventures | ||||
| Before amortisation and exceptional items | 904 | 800 | 654 | |
| Amortisation of goodwill and intangible assets | (419) | (403) | (384) | |
| Exceptional items | (79) | (79) | (95) | |
| 406 | 318 | 175 | ||
| Operating profit including joint ventures | 403 | 315 | 172 | |
| Share of non operating exceptional items of joint ventures | (9) | 20 | 70 | |
| (9) | 20 | 70 | ||
| Net interest income/(expense) | ||||
| Group | 4 | 7 | 63 | 7 |
| Share of net interest of joint ventures | (171) | (177) | (92) | |
| (164) | (114) | (85) | ||
| Profit on ordinary activities before taxation | 230 | 221 | 157 | |
| Tax on profit on ordinary activities | (86) | (120) | (130) | |
| Profit attributable to ordinary shareholders | 144 | 101 | 27 | |
| Equity dividends paid and proposed | (221) | (221) | (200) | |
| Retained loss taken to reserves | (77) | (120) | (173) | |
| 2002 | 2001 | 2000 | ||
| Note | €m | €m | €m | |
| Adjusted figures | ||||
| Adjusted profit before tax | 5 | 737 | 683 | 566 |
| Adjusted profit attributable to ordinary shareholders | 5 | 542 | 503 | 419 |
Adjusted figures, which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects, are presented as additional performance measures, and are reconciled to the reported figures in note 5 to the financial statements. |
| Note | 2002 € | 2001 € | 2000 € | |
| Earnings per share (“EPS”) | ||||
| Basic EPS | 5 | 0.18 | 0.13 | 0.04 |
| Diluted EPS | 0.18 | 0.13 | 0.03 | |
| Adjusted EPS | 5 | 0.69 | 0.64 | 0.59 |
The above amounts derive from continuing activities. |
| 2002 | 2001 | 2000 | ||
| Weighted average number of ordinary share equivalents (in millions) | 11 | |||
| Basic | 783 | 780 | 715 | |
| Diluted | 787 | 786 | 716 | |
The diluted weighted average number of shares takes account of the effect of share options. The accompanying notes on pages F-68 to F-76 are an integral part of these financial statements. |
|
F – 65 |
|
REED ELSEVIER NV |
| Note | 2002 €m | 2001 €m | 2000 €m | |
| Net cash outflow from operating activities | — | (3) | (2) | |
| Dividends received from joint ventures | 150 | 100 | 623 | |
| Interest received | 6 | 62 | 4 | |
| Returns on investments and servicing of finance | 6 | 62 | 4 | |
| Taxation | (3) | 17 | 4 | |
| Investment in joint venture | 6 | — | (916) | (533) |
| Acquisitions and disposals | — | (916) | (533) | |
| Equity dividends paid | (222) | (204) | (160) | |
| Cash outflow before changes in short term investments and financing | (69) | (944) | (64) | |
| Decrease/(increase) in short term investments | 10 | 946 | (952) | |
| Issue of shares, net of expenses | 22 | 92 | 956 | |
| Net repayment of debenture loans | (1) | (1) | (2) | |
| Decrease/(increase) in funding balances to joint ventures | 38 | (93) | 62 | |
| Financing | 59 | (2) | 1,016 | |
| Change in net cash | — | — | — | |
Short term investments include deposits of under one year if the maturity or notice period exceeds 24 hours, commercial paper investments and interest bearing securities that can be realised without significant loss at short notice. The accompanying notes on pages F-68 to F-76 are an integral part of these financial statements. |
|
F – 66 |
|
REED ELSEVIER NV |
| Note | 2002 €m | 2001 €m | |
| Fixed assets | 6 | 2,195 | 2,506 |
| Current assets | |||
| Debtors | 7 | 56 | 94 |
| Short term investments | 15 | 25 | |
| 71 | 119 | ||
| Creditors: amounts falling due within one year | 8 | (167) | (169) |
| Net current liabilities | (96) | (50) | |
| Total assets less current liabilities | 2,099 | 2,456 | |
| Creditors: amounts falling due after more than one year | 9 | (6) | (5) |
| Provisions | 10 | (59) | (59) |
| Net assets | 2,034 | 2,392 | |
| Share capital issued | 47 | 47 | |
| Paid-in surplus | 1,460 | 1,438 | |
| Legal reserves | 78 | 387 | |
| Other reserves | 449 | 520 | |
| Shareholders’ funds | 11 | 2,034 | 2,392 |
RECONCILIATION OF SHAREHOLDERS’ FUNDS |
| 2002 €m | 2001 €m | 2000 €m | |
| Profit attributable to ordinary shareholders | 144 | 101 | 27 |
| Equity dividends paid and proposed | (221) | (221) | (200) |
| Issue of shares, net of expenses | 22 | 110 | 947 |
| Exchange translation differences | (303) | 42 | 75 |
| Equalisation adjustments | — | (88) | 106 |
| Net (decrease)/increase in shareholders’ funds | (358) | (56) | 955 |
| Shareholders’ funds at January 1, | 2,392 | 2,448 | 1,493 |
| Shareholders’ funds at December 31, | 2,034 | 2,392 | 2,448 |
The accompanying notes on pages F-68 to F-76 are an integral part of these financial statements. |
|
F – 67 |
|
3. Operating loss 4. Net interest |
| 2002 €m | 2001 €m | 2000 €m | |
| Interest on receivables from joint ventures | 3 | 6 | 2 |
| Other interest | 4 | 57 | 5 |
| Net interest income | 7 | 63 | 7 |
5. Adjusted figures |
| 2002 €m | 2001 €m | 2000 €m | |
| Profit before tax | 230 | 221 | 157 |
| Adjustments: | |||
| Amortisation of goodwill and intangible assets | 419 | 403 | 384 |
| Exceptional items | 88 | 59 | 25 |
| Adjusted profit before tax | 737 | 683 | 566 |
| Profit attributable to ordinary shareholders | 144 | 101 | 27 |
| Adjustments: | |||
| Amortisation of goodwill and intangible assets | 407 | 408 | 384 |
| Exceptional items | (9) | (6) | 8 |
| Adjusted profit attributable to ordinary shareholders | 542 | 503 | 419 |
| 2002 € | 2001 € | 2000 € | |
| Earnings per ordinary share | 0.18 | 0.13 | 0.04 |
| Adjustments: | |||
| Amortisation of goodwill and intangible assets | 0.52 | 0.52 | 0.54 |
| Exceptional items | (0.01) | (0.01) | 0.01 |
| Adjusted earnings per ordinary share | 0.69 | 0.64 | 0.59 |
|
F – 69 |
|
6. Fixed assets |
| 2002 €m | 2001 €m | |
| Investments in joint ventures | ||
| At January 1, | 2,506 | 1,674 |
| Investment in joint venture | — | 916 |
| Share in profits | 142 | 62 |
| Dividends received | (150) | (100) |
| Currency translation | (303) | 42 |
| Equalisation (see note 11) | — | (88) |
| At December 31, | 2,195 | 2,506 |
The investment in joint ventures comprises the group’s share at the following amounts of: |
| 2002 €m | 2001 €m | |
| Fixed assets | 4,925 | 6,112 |
| Current assets | 1,699 | 1,837 |
| Creditors: amounts falling due within one year | (2,609) | (3,221) |
| Creditors: amounts falling due after more than one year | (1,731) | (2,047) |
| Provisions | (84) | (171) |
| Minority interests | (5) | (4) |
| Total | 2,195 | 2,506 |
The investments in joint ventures are: — Reed Elsevier Group plc, London In addition, Reed Elsevier NV holds €0.14m par value in shares with special dividend rights in Reed Elsevier Overseas BV and Reed Elsevier Nederland BV, both with registered offices in Amsterdam. These shares are included in the amount shown under investments in joint ventures above. They enable Reed Elsevier NV to receive dividends from companies within the same tax jurisdiction. On July 11, 2001, Reed Elsevier NV took up its rights in a rights issue by Elsevier Reed Finance BV and subscribed for 51 E-shares in the company at a cost of €916m. 7. Debtors |
| 2002 €m | 2001 €m | |
| Joint ventures | 50 | 88 |
| Other accounts receivable | 6 | 6 |
| Total | 56 | 94 |
The accounts receivable from joint ventures bear interest. 8. Creditors: amounts falling due within one year |
| 2002 €m | 2001 €m | |
| Proposed dividend | 156 | 157 |
| Taxation | 10 | 11 |
| Accounts payable and other debts | 1 | 1 |
| Total | 167 | 169 |
|
F – 70 |
|
9. Creditors: amounts falling due after more than one year |
| 2002 €m | 2001 €m | |
| Debenture loans | 6 | 5 |
Debenture loans consist of four convertible personnel debenture loans with a weighted average interest rate of 5.4%. Depending on the conversion terms, the surrender of €227 or €200 par value debenture loans qualifies for the acquisition of 20–50 Reed Elsevier NV ordinary shares. 10. Provisions |
| 2002 €m | 2001 €m | |
| Deferred taxation | 58 | 58 |
| Pension | 1 | 1 |
| Total | 59 | 59 |
11. Shareholders’ funds |
| Share capital issued €m | Paid-in surplus €m | Legal reserves €m | Other reserves €m | Total €m | |
| At December 31, 1999 | 43 | 385 | 847 | 218 | 1,493 |
| Profit attributable to ordinary shareholders | — | — | 27 | — | 27 |
| Equity dividends paid and proposed | — | — | — | (200) | (200) |
| Issue of shares, net of expenses | 4 | 943 | — | — | 947 |
| Dividends from joint ventures | — | — | (623) | 623 | — |
| Exchange translation differences | — | — | 75 | — | 75 |
| Equalisation adjustments | — | — | 106 | — | 106 |
| At December 31, 2000 | 47 | 1,328 | 432 | 641 | 2,448 |
| Profit attributable to ordinary shareholders | — | — | 101 | — | 101 |
| Equity dividends paid and proposed | — | — | — | (221) | (221) |
| Issue of shares, net of expenses | — | 110 | — | — | 110 |
| Dividends from joint ventures | — | — | (100) | 100 | — |
| Exchange translation differences | — | — | 42 | — | 42 |
| Equalisation adjustments | — | — | (88) | — | (88) |
| At December 31, 2001 | 47 | 1,438 | 387 | 520 | 2,392 |
| Profit attributable to ordinary shareholders | — | — | 144 | — | 144 |
| Equity dividends paid and proposed | — | — | — | (221) | (221) |
| Issue of shares, net of expenses | — | 22 | — | — | 22 |
| Dividends from joint ventures | — | — | (150) | 150 | — |
| Exchange translation differences | — | — | (303) | — | (303) |
| Balance as at December 31, 2002. | 47 | 1,460 | 78 | 449 | 2,034 |
During 1999, the ordinary shares of Dfl 0.10 par value were redenominated as ordinary shares of €0.06 par value. This resulted in an increase in share capital of €11m which was transferred from the paid-in surplus account. The authorised share capital consists of 2,100m ordinary shares and 30m registered R-shares. As at December 31, 2002, the issued share capital consisted of 738,355,094 (2001: 736,575,369; 2000: 735,717,794) ordinary shares of €0.06 par value and 4,679,249 (2001: 4,679,249; 2000: 4,049,951) R-shares of €0.60 par value. The R-shares are held by a subsidiary company of Reed Elsevier PLC. The R-shares are convertible at the election of the holder 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. On April 12, 2001, Reed Elsevier NV issued 629,298 R-shares to Reed Holding BV, a wholly owned subsidiary of Reed Elsevier PLC, for €91.3m before capital taxes, so as to maintain Reed Elsevier PLC’s 5.8% indirect equity interest in Reed Elsevier NV. Within paid-in surplus, an amount of €1,283m (2001: €1,261m; 2000: €1,151m) is free of tax. Details of shares issued under share option schemes are set out in note 12. |
|
F – 71 |
|
12. Share option schemes Transactions during the three years ended December 31, 2002 were: |
| Number of ordinary shares | Exercise price € | |
| Outstanding at December 31, 1999 | 10,243,067 | |
| Granted | 2,396,765 | 10.73-15.66 |
| Exercised | (301,498) | 10.45-15.70 |
| Lapsed | (548,789) | |
| Outstanding at December 31, 2000 | 11,789,545 | |
| Granted | 6,758,464 | 11.65-15.43 |
| Exercised | (661,415) | 10.45-13.55 |
| Lapsed | (470,024) | |
| Outstanding at December 31, 2001 | 17,416,570 | |
| Granted | 6,144,157 | 11.97-16.00 |
| Exercised | (1,136,046) | 10.45-14.75 |
| Lapsed | (1,401,347) | |
| Outstanding at December 31, 2002 | 21,023,334 | |
The above outstanding options may, upon exercise, be met by the issue of new Reed Elsevier NV ordinary shares. Options outstanding at December 31, 2002 were exercisable by 2012. 579,240 options had vested at December 31, 2002. In addition to the above, 9,030,024 options were outstanding at December 31, 2002 under the Reed Elsevier Group plc Senior Executive Long Term Incentive Scheme at prices ranging between €10.73 and €15.66. Subject to the achievement of total shareholder return targets, such options are exercisable from January 1, 2005 and the options will be met by the issue of new Reed Elsevier NV ordinary shares. Options over Reed Elsevier NV ordinary shares were granted until 1999 to senior executives based in the Netherlands under the Reed Elsevier NV share option scheme. The options are exercisable immediately after granting during a period of five to ten years, after which the options will lapse. The strike price of the options is the market price of the Reed Elsevier NV ordinary shares at the time the option is granted, except in the case of five year options granted during 1999, where the strike price was 26% above the market price of a Reed Elsevier NV ordinary share at the time the option was granted. Transactions during the three years ended December 31, 2002 were: |
| Number of ordinary shares | Exercise price € | |
| Outstanding at December 31, 1999 | 2,522,579 | |
| Granted | — | |
| Exercised | (562,866) | 11.93-14.11 |
| Lapsed | (64,710) | |
| Outstanding at December 31, 2000 | 1,895,003 | |
| Granted | — | |
| Exercised | (177,000) | 11.93-14.11 |
| Outstanding at December 31, 2001 | 1,718,003 | |
| Granted | — | |
| Exercised | (632,078) | 14.11 |
| Outstanding at December 31, 2002 | 1,085,925 | |
The above outstanding options may, upon exercise, be met by the issue of new Reed Elsevier NV ordinary shares. Options outstanding at December 31, 2002 were exercisable by 2009. All options had vested at December 31, 2002. Excluded from the above are options granted until 1999 under the Reed Elsevier Group plc Executive Share Option Schemes (No. 2) which, upon exercise, will be met by the Reed Elsevier Employee Benefit Trust (“EBT”) from shares purchased in the market. At December 31, 2002, there were 1,229,147 such options outstanding at exercise prices ranging between €10.45 and €15.70. The EBT will also be used to satisfy nil cost options granted to certain senior executives. At December 31, 2002, there were 333,290 such options outstanding. |
|
F – 72 |
|
13. Contingent liabilities |
| 2002 €m | 2001 €m | |
| Guaranteed jointly and severally with Reed Elsevier PLC | 4,493 | 5,061 |
Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 24 to the Reed Elsevier combined financial statements. 14. Proposal for allocation of profit |
| 2002 €m | 2001 €m | 2000 €m | |
| Interim dividend on ordinary shares | 65 | 64 | 60 |
| Final dividend on ordinary shares | 156 | 157 | 140 |
| Dividend on R-shares | — | — | — |
| Retained loss | (77) | (120) | (173) |
| 144 | 101 | 27 | |
15. US accounting information Impact of US GAAP adjustments to combined financial statements Equity dividends Exceptional items Stock based compensation The disclosure only provisions of SFAS123 have been adopted. The following table illustrates the proforma effect on net income and earnings per share under US GAAP if the combined businesses had applied the fair value recognition provisions of SFAS123 to stock based compensation and Reed Elsevier NV had recorded its share of the resulting charge. |
|
F – 73 |
|
15. US accounting information – (continued) |
| 2002 €m | 2001 €m | 2000 €m | |
| Net income/(loss) under US GAAP as reported | 303 | (5) | 58 |
| Less: share of additional stock compensation expense determined under SFAS123 compared to APB25 | (28) | (17) | (19) |
| Proforma net income/(loss) under US GAAP | 275 | (22) | 39 |
| Earnings per share under US GAAP | |||
Basic — as reported (€) | 0.39 | (0.01) | 0.08 |
Basic — proforma (€) | 0.35 | (0.03) | 0.05 |
Diluted — as reported (€) | 0.39 | (0.01) | 0.08 |
Diluted — proforma (€) | 0.35 | (0.03) | 0.05 |
Additional disclosures regarding share options granted over Reed Elsevier NV ordinary shares, and the method and assumptions used to determine fair values, are set out under share options schemes below. Effects on net income of material differences between Dutch and US GAAP |
| 2002 €m | 2001 €m | 2000 €m | |
| Net income under Dutch GAAP | 144 | 101 | 27 |
| Impact of US GAAP adjustments to combined financial statements | 159 | (106) | 31 |
| Net income/(loss) under US GAAP | 303 | (5) | 58 |
| Basic earnings/(loss) per share under US GAAP (€) | 0.39 | (0.01) | 0.08 |
| Diluted earnings/(loss) per share under US GAAP (€) | 0.39 | (0.01) | 0.08 |
The basic and diluted earnings/(loss) per share under US GAAP includes a 50% share of the exceptional items, as follows: | |
| (i) | for 2002, €0.08 loss in respect of reorganisation costs related to employee severance, principally in the Business and Legal segments, and acquisition related costs arising on the integration and rationalisation of Harcourt and other recent acquisitions, and €0.09 gain in respect of the disposal of businesses and fixed asset investments; |
| (ii) | for 2001, €0.04 loss in respect of reorganisation costs, principally headcount reduction in the Business division, and acquisition related costs arising from the integration of Harcourt and other recent acquisitions, and €0.05 gain primarily in respect of the disposal of OAG Worldwide, Cahners Travel Group, Bowker and certain training businesses in the Netherlands; and |
| (iii) | for 2000, €0.10 loss principally in respect of the costs of a major programme of reorganisation across the Reed Elsevier businesses commenced in 1999 and €0.09 gain in respect of businesses disposed in 2000. |
Effects on shareholders’ funds of material differences between Dutch and US GAAP | |
| 2002 €m | 2001 €m | |
| Shareholders’ funds under Dutch GAAP | 2,034 | 2,392 |
| Impact of US GAAP adjustments to combined financial statements | 368 | 294 |
| Equity dividends not declared in the period | 156 | 157 |
| Shareholders’ funds under US GAAP | 2,558 | 2,843 |
Comprehensive Income Information |
|
F – 74 |
|
15. US accounting information – (continued) The tables set out below provide additional information regarding share options granted over Reed Elsevier NV ordinary shares under the Executive Share Option Scheme and the Reed Elsevier Group plc Senior Executive Long Term Incentive Scheme which may be met from the issue of new ordinary shares for the three years ended December 31, 2002. Movement in options outstanding |
| 2002 | 2001 | 2000 | ||||
| Number of ordinary shares | Weighted average exercise price (€) | Number of ordinary shares | Weighted average exercise price (€) | Number of ordinary shares | Weighted average exercise price (€) | |
| Outstanding at January 1, | 28,480,754 | 12.27 | 23,743,865 | 11.79 | 12,765,646 | 11.88 |
| Granted | 6,174,766 | 13.90 | 6,762,537 | 13.82 | 12,474,969 | 11.64 |
| Exercised | (1,771,766) | 12.44 | (831,544) | 11.28 | (859,364) | 11.79 |
| Lapsed | (1,744,471) | 12.56 | (1,194,104) | 12.13 | (637,386) | 12.88 |
| Outstanding at December 31, | 31,139,283 | 12.58 | 28,480,754 | 12.27 | 23,743,865 | 11.79 |
| Exercisable at December 31, | 1,665,165 | 15.21 | 2,493,293 | 15.01 | 1,895,003 | 14.40 |
Options granted during year
| 2002 | 2001 | 2000 | ||||
| Weighted average exercise price (€) | Weighted average fair value (€) | Weighted average exercise price (€) | Weighted average fair value (€) | Weighted average exercise price (€) | Weighted average fair value (€) | |
| Options whose exercise price equals the market price of ordinary shares on date of grant | 13.90 | 2.56 | 13.82 | 3.27 | 11.64 | 3.65 |
The fair value of each option grant is estimated on the date of grant using the Black Scholes option pricing model with the following assumptions for grants made in the year:
|
| 2002 | 2001 | 2000 | |
| Expected life (years) | 3.0 | 3.2 | 4.3 |
| Expected dividend yield | 2.19% | 2.20% | 2.30% |
| Expected volatility | 24.86% | 30.64% | 35.66% |
| Risk free interest rate | 4.21% | 5.11% | 5.30% |
|
F – 75 |
|
15. US accounting information – (continued) |
| Options outstanding | Options exercisable | ||||
| Range of exercise prices (€) | Number of ordinary shares | Weighted average remaining period to vesting (years) | Weighted average exercise price (€) | Number of ordinary shares | Weighted average exercise price (€) |
| 10.01-11.00 | 12,565,717 | 1.7 | 10.61 | — | — |
| 11.01-12.00 | 2,717,695 | 1.9 | 11.54 | — | — |
| 12.01-13.00 | 455,178 | 1.5 | 13.39 | 229,800 | 12.50 |
| 13.01-14.00 | 8,842,447 | 2.0 | 13.81 | 132,724 | 13.55 |
| 14.01-15.00 | 4,677,347 | 1.4 | 14.77 | — | — |
| 15.01-16.00 | 1,591,863 | 0.9 | 15.50 | 1,015,240 | 15.51 |
| 16.01-17.00 | 1,635 | 2.3 | 16.00 | — | — |
| 17.01-18.00 | 287,401 | — | 17.07 | 287,401 | 17.07 |
| 31,139,283 | 1.7 | 12.58 | 1,665,165 | 15.21 | |
The majority of options are subject to performance conditions that must be met before they can vest. The weighted average remaining period to vesting is presented on the basis that these performance conditions are met. F – 76
|
| |
Terms used in Annual Report on Form 20-F | US equivalent or brief description |
| Accruals | Accrued expenses |
| Adjusted figures | Additional performance measures which exclude the amortisation of goodwill and intangible assets, exceptional items and related tax effects |
| Allotted | Issued |
| Associate | An entity in which Reed Elsevier has a participating interest and, in the opinion of the directors, can exercise significant influence on its management |
| Bank borrowings | Payable to banks |
| Called up share capital | Issued share capital |
| Capital allowances | Tax term equivalent to US tax depreciation allowances |
| Capital and reserves | Shareholders’ equity |
| Combined businesses | Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures |
| Creditors | Liabilities/payables |
| Current instalments of loans | Long term debt due within one year |
| Debtors | Receivables and prepaid expenses |
| Finance lease | Capital lease |
| Fixed asset investments | Non-current investments |
| Freehold | Ownership with absolute rights in perpetuity |
| Interest payable | Interest expense |
| Interest receivable | Interest income |
| Loans | Long term debt |
| Net cash acquired | Cash less debt acquired with a business |
| Prepayments | Prepaid expenses |
Profit | Income |
| Profit and loss account | Income statement/statement of income |
| Profit attributable | Net income |
| Reed Elsevier | Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures |
| Shareholders’ funds | Shareholders’ equity |
| Share premium account | Premiums paid in excess of par value of ordinary shares |
| Short term investments | Redeemable securities and short term deposits |
| Tangible fixed assets | Property, plant and equipment |
| Turnover/revenues | Sales |
| Underlying growth | The year on year growth calculated based on adjusted figures and excluding the effects of acquisitions, disposals and the impact of currency translation |
F – 77 |
| Exhibits filed as part of this annual report | |
| 1.1 | Memorandum and Articles of Association of Reed Elsevier PLC |
| 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 on Form 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. |
| 2.1 | Indenture, dated as of May 9, 1995, among Reed Elsevier Capital, Reed International P.L.C., Elsevier NV and The Chase Manhattan Bank (incorporated by reference from Exhibit 4(a) to the Registration Statement on Form F-3 filed with the SEC on April 1, 1997) |
| 2.2 | First Supplemental Indenture, dated as of March 6, 1998, among Reed Elsevier Capital, Reed International P.L.C., Elsevier NV, Elsevier I BV and The Chase Manhattan Bank (incorporated by reference from Exhibit 4(b) to Amendment No.1 to the Registration Statement on Form F-3 filed with the SEC on April 16, 2001 (the “2001 Form F-3 Registration Statement”)) |
| 2.3 | Second Supplemental Indenture, dated as of June 3, 1998, among Reed Elsevier Capital, Reed International P.L.C., Elsevier NV, Elsevier I BV and The Chase Manhattan Bank (incorporated by reference from Exhibit 4(c) to the 2001 Form F-3 Registration Statement) |
| 2.4 | Third Supplemental Indenture, dated as of February 21, 2001, among Reed Elsevier Capital, Reed International P.L.C., Elsevier NV and The Chase Manhattan Bank (incorporated by reference from Exhibit 4(d) to the 2001 Form F-3 Registration Statement) |
| 2.5 | Fourth Supplemental Indenture, dated as of July 31, 2001, among Reed Elsevier Capital, Reed International P.L.C., Elsevier NV and The Chase Manhattan Bank |
| 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 on Form F-3 filed with the SEC on November 29, 2000 (the “2000 Form 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 2000 Form F-3 Registration Statement) |
| 4.3 | Reed International P.L.C. UK Executive Share Option Scheme (incorporated by reference from Exhibit 10.4 to the 2000 Form F-3 Registration Statement) |
| 4.4 | Reed International P.L.C. Overseas Executive Share Option Scheme (incorporated by reference from Exhibit 10.5 to the 2000 Form F-3 Registration Statement) |
| 4.5 | Reed Elsevier plc Executive UK and Overseas Share Option Schemes (incorporated by reference from Exhibit 10.6 to the 2000 Form F-3 Registration Statement) |
| 4.6 | Reed Elsevier plc Senior Executive Long Term Incentive Scheme (incorporated by reference from Exhibit 10.7 to the 2000 Form F-3 Registration Statement) |
| 4.7 | Reed Elsevier US Salary Investment Plan (incorporated by reference from Exhibit 4.10 to the Registration Statement on Form S-8 filed with the SEC on October 2, 2000) |
| 4.8 | Deposit Agreement, dated as of May 30, 1990, among Reed International P.L.C., Citibank N.A. and all holders from time to time of American Depositary Receipts issued thereunder (incorporated by reference from Exhibit (a)(1) to Amendment No.1 to the Registration Statement on Form F-6 filed by Reed International P.L.C. with the SEC on August 25, 1994 |
| 4.9 | Amendment No. 1 to Deposit Agreement, dated as of August 26, 1994, among Reed International P.L.C., Citibank N.A. and all holders from time to time of American Depositary Receipts issued thereunder (incorporated by reference from Exhibit (a)(2) to Amendment No. 2 to the Registration Statement on Form F-6 filed by Reed International P.L.C. with the SEC on September 19, 1994) |
| 4.10 | Deposit Agreement, dated as of April 15, 1991, among Elsevier NV, Citibank N.A. and all holders from time to time of American Depositary Receipts issued thereunder (incorporated by reference from Exhibit (a)(1) to Amendment No.2 to the Registration Statement on Form F-6 filed by Elsevier NV with the SEC on August 25, 1994 (“Amendment No.2 to the 1994 Elsevier Registration Statement on Form F-6”) |
F – 78 |
| 4.11 | Amendment No.1 to Deposit Agreement, dated as of January 1, 1993, among Elsevier NV, Citibank N.A. and all holders from time to time of American Depositary Receipts issued thereunder (incorporated by reference from Exhibit (a)(2) to Amendment No.2 to the 1994 Elsevier Registration Statement on Form F-6) |
| 4.12 | Amendment No.2 to Deposit Agreement, dated as of August 26, 1994, among Elsevier NV, Citibank N.A. and all holders from time to time of American Depositary Receipts issued thereunder (incorporated by reference from Exhibit (a)(3) to Amendment No. 3 to the Registration Statement on Form F-6 filed by Elsevier NV with the SEC on September 19, 1994) |
| 8. | List of significant subsidiaries, associates, joint ventures and business units |
| 10.1 | Independent Auditors’ Consent — Reed Elsevier Combined Financial Statements |
| 10.2 | Independent Auditors’ Consent — Reed Elsevier PLC Consolidated Financial Statements |
| 10.3 | Independent Auditors’ Consent — Reed Elsevier NV Financial Statements |
| 99.1 | 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 |
| 99.2 | 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 |
| 99.3 | 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 |
| 99.4 | 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 |
| The total amount of long term debt securities of Reed Elsevier authorised under any single instrument other than the indentures listed above 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. | |
F – 79 |
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| 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 on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereto duly authorised, on March 10, 2003. | |
| REED ELSEVIER PLC Registrant | REED ELSEVIER NV Registrant |
| By: /s/ C H L DAVIS | By: /s/ C H L DAVIS |
| C H L Davis Chief Executive Officer | C H L Davis Member, Executive Board & Chief Executive Officer |
| By: /s/ M H ARMOUR | By: /s/ M H ARMOUR |
| M H Armour Chief Financial Officer | M H Armour Member, Executive Board & Chief Financial Officer |
| Dated: March 10, 2003 | Dated: March 10, 2003 |
S – 1
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SECTION 302 CERTIFICATION | ||
| I, C H L Davis, certify that: | ||
| 1. | I have reviewed this annual report on Form 20-F of Reed Elsevier PLC; | |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us and others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and | |
| (c) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; | |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): | |
| (a) | all significant deficiencies in the design or operation of internal controls and procedures which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; | |
| 6. | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. | |
/s/ C H L DAVIS | ||
| C H L Davis Chief Executive Officer Reed Elsevier PLC | ||
| Dated: March 10, 2003 | ||
S – 2
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SECTION 302 CERTIFICATION
| ||
| I, M H Armour, certify that: | ||
| 1. | I have reviewed this annual report on Form 20-F of Reed Elsevier PLC; | |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us and others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and | |
| (c) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; | |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): | |
| (a) | all significant deficiencies in the design or operation of internal controls and procedures which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; | |
| 6. | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. | |
/s/ M H ARMOUR | ||
| M H Armour Chief Financial Officer Reed Elsevier PLC | ||
| Dated: March 10, 2003 | ||
S – 3
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SECTION 302 CERTIFICATION
| ||
| I, C H L Davis, certify that: | ||
| 1. | I have reviewed this annual report on Form 20-F of Reed Elsevier NV; | |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us and others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and | |
| (c) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; | |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): | |
| (a) | all significant deficiencies in the design or operation of internal controls and procedures which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; | |
| 6. | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. | |
/s/ C H L DAVIS | ||
C H L Davis | ||
Dated: March 10, 2003 | ||
S – 4
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SECTION 302 CERTIFICATION
| ||
| I, M H Armour, certify that: | ||
| 1. | I have reviewed this annual report on Form 20-F of Reed Elsevier NV; | |
| 2. | Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; | |
| 4. | The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: | |
| (a) | designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us and others within those entities, particularly during the period in which this report is being prepared; | |
| (b) | evaluated the effectiveness of the registrant’s disclosure controls and procedures within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and | |
| (c) | presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; | |
| 5. | The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function): | |
| (a) | all significant deficiencies in the design or operation of internal controls and procedures which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and | |
| (b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; | |
| 6. | The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. | |
/s/ M H ARMOUR | ||
M H Armour | ||
S – 5
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