REED ELSEVIER PLC (Form: 20-F, Received: 03/16/2004 09:31:19)

Share of gross assets

Share of gross liabilities

Share of net assets

Other investments

As filed with the Securities and Exchange Commission on March 15, 2004

SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549

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, 2003
	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
(Exact name of Registrant as specified in its charter)
England
(Jurisdiction of incorporation or organisation)
1-3 Strand
London WC2N 5JR
England
(Address of principal executive offices)

REED ELSEVIER NV
(Exact name of Registrant as specified in its charter)
The Netherlands
(Jurisdiction of incorporation or organisation)
Sara Burgerhartstraat 25
1055 KV Amsterdam
The Netherlands
(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, 2003:

Title of each class
Reed Elsevier PLC:	Number of outstanding shares
Ordinary shares of 12.5p each	1,271,111,509
Reed Elsevier NV:
Ordinary shares of €0.06 each	738,760,906
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 ]

[ ]

Indicate by check mark which financial statement item the registrants have elected to follow:

Item 17

[ ]

Item 18

[ X ]

TABLE OF CONTENTS

			Page

GENERAL			1
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS			2
PART I
	ITEM 1:	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	N/A
	ITEM 2:	OFFER STATISTICS AND EXPECTED TIMETABLE	N/A
	ITEM 3:	KEY INFORMATION	3
		Selected financial data	3
		Risk factors	9
	ITEM 4:	INFORMATION ON REED ELSEVIER	11
		History and development	11
		Business overview	12
		Organisational structure	20
		Property, plants and equipment	21
	ITEM 5:	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	22
		Operating results — Reed Elsevier	22
		Liquidity and capital resources — Reed Elsevier	33
		Operating results — Reed Elsevier PLC and Reed Elsevier NV	35
		Trend information	36
	ITEM 6:	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	37
		Directors	37
		Senior management	39
		Compensation	39
		Board practices	44
		Employees	46
		Share ownership	47
	ITEM 7:	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	55
		Major shareholders	55
		Related party transactions	55
	ITEM 8:	FINANCIAL INFORMATION	56
	ITEM 9:	THE OFFER AND LISTING	57
		Trading markets	57
	ITEM 10:	ADDITIONAL INFORMATION	59
		Memorandum and articles of association	59
		Material contracts	60
		Exchange controls	60
		Taxation	60
		Documents on display	62
	ITEM 11:	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	63
	ITEM 12:	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	N/A
PART II
	ITEM 13:	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	N/A
	ITEM 14:	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	N/A
	ITEM 15:	CONTROLS AND PROCEDURES	65
	ITEM 16A:	AUDIT COMMITTEE FINANCIAL EXPERT	67
	ITEM 16B :	CODES OF ETHICS	67
	ITEM 16C:	PRINCIPAL ACCOUNTANT FEES AND SERVICES	67
PART III
	ITEM 17:	FINANCIAL STATEMENTS*	68
	ITEM 18:	FINANCIAL STATEMENTS	F-1
	ITEM 19:	EXHIBITS	F-80

* The registrants have responded to Item 18 in lieu of responding to this Item.

THIS PAGE INTENTIONALLY BLANK

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GENERAL
Reed Elsevier PLC and Reed Elsevier NV conduct their business through two jointly owned companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier PLC and Reed Elsevier NV have retained their separate legal and national identities. Reed Elsevier is not a legal entity but a collective reference to the separate legal entities of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures. The businesses of all of the entities comprising Reed Elsevier are collectively referred to in this annual report as “Reed Elsevier”, and the financial statements of the combined businesses are referred to as the “combined financial statements”. In this annual report, references to “we”, “our”, or “us” are to all of the entities comprising Reed Elsevier.

In this annual report, references to US dollars, $ and ¢ are to US currency; references to sterling, £, pence or p are to UK currency; references to euro and € are to the currency of the European Economic and Monetary Union, which Reed Elsevier NV adopted in 1999 as its primary currency for the presentation of financial information and the declaration of dividends.

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SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

This document contains or incorporates by reference a number of forward looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act 1934, as amended, with respect to:

•	financial condition;
•	results of operations;
•	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;
•	demand for our products and services;
•	uncertainties as to whether our strategies and business plans will produce the expected returns;
•	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 and internet communications;
•	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-80 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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P ART I

ITEM 3: KEY INFORMATION

SELECTED FINANCIAL DATA

REED ELSEVIER
The selected combined financial data for Reed Elsevier should be read in conjunction with, and is qualified by, the combined financial statements included in this annual report. In addition, as separate legal entities, Reed Elsevier PLC and Reed Elsevier NV prepare separate financial statements which reflect their respective shareholders’ economic interest in Reed Elsevier accounted for on a gross equity basis.

All of the selected financial data for Reed Elsevier set out below has been extracted or derived from the combined financial statements which have been audited by Deloitte & Touche LLP, London and Deloitte Accountants, Amsterdam.

Combined Profit and Loss Account Data

	Year ended December 31,

	2003 ⁽²⁾	2003	2002	2001	2000	1999

	(in millions)
Amounts in accordance with UK GAAP: ⁽¹⁾
Turnover ⁽³⁾	$8,767	£4,925	£5,020	£4,560	£3,768	£3,390
Operating profit (including joint ventures) ⁽³⁾	1,177	661	507	391	210	180
Amortisation of goodwill and intangible assets (including joint ventures) charged to operating profit ⁽⁴⁾	(792)	(445)	(527)	(501)	(468)	(373)
Exceptional items charged to operating profit ⁽⁵⁾	(128)	(72)	(99)	(98)	(115)	(239)
Non operating exceptional items ⁽⁵⁾	46	26	(12)	26	85	7
Profit on ordinary activities before interest	1,223	687	495	417	295	187
Net interest expense	(299)	(168)	(206)	(142)	(103)	(82)
Profit on ordinary activities before taxation	924	519	289	275	192	105
Tax on profit on ordinary activities ⁽⁶⁾	(326)	(183)	(107)	(148)	(159)	(167)
Minority interests	(3)	(2)	(1)	(1)	—	(1)
Profit/(loss) attributable to parent companies’ shareholders	$595	£334	£181	£126	£33	£(63)
Amounts in accordance with US GAAP:
Amortisation of goodwill and intangible assets (including joint ventures)	$(529)	£(297)	£(303)	£(564)	£(546)	£(456)
Operating income	1,657	931	729	313	236	109
Taxes	(397)	(223)	(157)	(191)	(74)	(100)
Net income/(loss)	958	538	365	(20)	60	(73)

Combined Balance Sheet Data

	As at December 31,

	2003 ⁽²⁾	2003	2002	2001	2000	1999

	(in millions)
Amounts in accordance with UK GAAP: ⁽¹⁾
Total assets	$14,584	£8,193	£8,733	£9,820	£7,470	£5,272
Long term obligations less current portion	(2,104)	(1,812)	(1,935)	(2,108)	(623)	(377)
Net borrowings	(4,222)	(2,372)	(2,732)	(3,229)	(433)	(1,066)
Combined shareholders’ funds ⁽⁷⁾	4,333	2,434	2,640	2,899	3,041	1,855
Amounts in accordance with US GAAP:
Total assets	$17,325	£9,733	£10,187	£11,137	£8,162	£5,896
Long term obligations less current portion	(5,329)	(2,994)	(3,294)	(3,659)	(1,724)	(772)
Combined shareholders’ funds ⁽⁷⁾	5,880	3,303	3,344	3,467	3,707	2,423


(1)	The combined financial statements are prepared in accordance with accounting policies that are in conformity with UK generally accepted accounting principles (“UK GAAP”), which differ in certain significant respects from US GAAP. Prior to 2003, the financial statements were presented in accordance with both UK and Dutch GAAP. Following changes to Dutch GAAP effective for the 2003 financial year in respect of the presentation of dividends and pension accounting, UK and Dutch GAAP have diverged such that the Reed Elsevier accounting policies no longer accord with Dutch GAAP. Under Article 362.1 of Book 2 Title 9 of the Netherlands Civil Code, UK GAAP may be adopted by Dutch companies with international operations for the preparation of financial statements and, accordingly, UK GAAP has been so adopted ensuring consistency with the prior year of the accounting policies applied in the combined financial statements. The principal differences between UK 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, 2003 have been used to provide a convenience translation into US dollars, see “—Exchange Rates” on page 8. At December 31, 2003, the noon buying rate was $1.78 per £1.00.
(3)	All turnover and operating profit (including joint ventures) is derived from continuing operations.
(4)	Amortisation of goodwill and intangible assets charged to operating profit includes amortisation of goodwill and intangible assets in joint ventures. See note 7 to the combined financial statements.
(5)	Exceptional items are significant items within Reed Elsevier’s ordinary activities which, under UK GAAP, need to be disclosed separately by virtue of their size or incidence. These items do not qualify as extraordinary under US GAAP.
	Exceptional items charged to operating profit, under UK GAAP, are:
	(i)	in 2003 £23 million in respect of reorganisation costs related to employee severances, principally in the Legal and Business segments; and £49 million in respect of acquisition related costs, including employee severance and property rationalisation costs, arising on the further integration and rationalisation of the Scientific, Technical & Medical business and the US Schools and Assessment businesses (“Harcourt STM and Education and Assessment businesses”) of Harcourt General, Inc. (“Harcourt”) and on other recent acquisitions;
	(ii)	in 2002 £42 million in respect of reorganisation costs related to employee severance, principally in the Legal and Business segments; and £57 million in respect of acquisition related costs arising on the integration and rationalisation of Harcourt and other recent acquisitions;
	(iii)	in 2001 £35 million in respect of reorganisation costs related to headcount reduction, principally in the Business segment; 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;
	(iv)	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; and
	(v)	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.
	Non operating exceptional items under UK GAAP in 2003 arise principally from the profit on the sale of LexisNexis Document Solutions offset by losses on other disposals and on fixed asset investments; 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 £21 million profit on sale of investments acquired on the acquisition of Harcourt less a £17 million 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.; and in 1999 from the disposal of fixed asset investments.
	For further details see note 8 to the combined financial statements.
(6)	Included in tax on profit on ordinary activities are credits for exceptional tax items of £84 million in 2003; £122 million in 2002; £81 million in 2001; £20 million in 2000; and £15 million in 1999. Exceptional tax items credited to tax on profit on ordinary activities include, in 2003 and 2002, a net tax credit arising principally in respect of prior year disposals and tax relief related to restructuring and acquisition integration costs; in 2001, taxes recoverable in respect of disposals and prior period reorganisation costs; in 2000, taxes recoverable in respect of disposals; and in 1999, taxes arising on business consolidation in the programme of reorganisation. For further details see note 8 to the combined financial statements.
(7)	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 Harcourt STM and Education and Assessment businesses.

REED ELSEVIER PLC
The selected financial data for Reed Elsevier PLC should be read in conjunction with, and is qualified by, the consolidated financial statements of Reed Elsevier PLC included in this annual report. The results and financial position of Reed Elsevier PLC reflect the 52.9% economic interest of Reed Elsevier PLC’s shareholders in Reed Elsevier, after taking account of results arising in Reed Elsevier PLC and its subsidiaries. These interests have been accounted for on a gross equity basis.

All of the selected consolidated financial data for Reed Elsevier PLC set out below has been extracted or derived from the financial statements of Reed Elsevier PLC, which have been audited by Deloitte & Touche LLP, London.

	Year ended December 31,

	2003 ⁽²⁾	2003	2002	2001	2000	1999

	(in millions, except per share amounts)
Amounts in accordance with UK GAAP: ⁽¹⁾
Profit on ordinary activities before tax	$475	£267	£146	£140	£96	£51
Share of amortisation of goodwill and intangible assets charged to profit on ordinary activities before tax	(418)	(235)	(279)	(265)	(248)	(197)
Share of exceptional items charged to profit on ordinary activities before tax ⁽³⁾	(43)	(24)	(58)	(38)	(15)	(122)
Tax on profit on ordinary activities ⁽⁴⁾	(174)	(98)	(57)	(79)	(85)	(90)
Profit/(loss) attributable to ordinary shareholders	301	169	89	61	11	(39)
Basic earnings/(loss) per Reed Elsevier PLC ordinary share	23.9¢	13.4p	7.0p	4.8p	1.0p	(3.4)p
Diluted earnings/(loss) per Reed Elsevier PLC ordinary share	23.9¢	13.4p	7.0p	4.8p	1.0p	(3.4)p
Dividends per Reed Elsevier PLC ordinary share ⁽⁵⁾	21.4¢	12.0p	11.2p	10.5p	10.0p	10.0p
Total assets	$2,569	£1,443	£1,546	£1,674	£1,745	£1,090
Long term obligations	(64)	(36)	(36)	(36)	(36)	(36)
Shareholders’ funds ⁽⁶⁾	2,293	1,288	1,397	1,534	1,609	981
Weighted average number of shares		1,263.7	1,264.7	1,262.6	1,156.4	1,145.1
Amounts in accordance with US GAAP:
Net income/(loss)	$495	£278	£186	£(16)	£27	£(47)
Basic earnings/(loss) per Reed Elsevier PLC ordinary share	39.2¢	22.0p	14.7p	(1.3)p	2.3p	(4.1)p
Diluted earnings/(loss) per Reed Elsevier PLC ordinary share	39.2¢	22.0p	14.7p	(1.3)p	2.3p	(4.1)p
Total assets	$3,192	£1,793	£1,815	£1,880	£2,009	£1,328
Long term obligations	(64)	(36)	(36)	(36)	(36)	(36)
Shareholders’ funds ⁽⁶⁾	3,111	1,748	1,768	1,834	1,961	1,282


(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, 2003 have been used to provide a convenience translation into US dollars, see “—Exchange Rates” on page 8. At December 31, 2003 the noon buying rate was $1.78 per £1.00.
(3)	Share of exceptional items before tax includes Reed Elsevier PLC’s share of Reed Elsevier’s exceptional items:
	(i)	in 2003 exceptional operating charges of £38 million relate to reorganisation costs, principally employee severance in the Legal and Business segments and acquisition related costs, including employee severance and property rationalisation costs, arising on the further integration and rationalisation of Harcourt and on other recent acquisitions. Non operating exceptional net gains, amounting to £14 million, arose in respect of disposals of businesses and on fixed asset investments;
	(ii)	in 2002 exceptional operating charges of £52 million 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. Non operating exceptional net losses, amounting to £6 million, arose in 2002 in respect of disposals of businesses and fixed asset investments;
	(iii)	in 2001 exceptional operating charges of £52 million 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. Non operating exceptional gains, amounting to £14 million, arose in 2001 primarily in respect of the disposal of OAG Worldwide, Cahners Travel Group, Bowker and certain training businesses in the Netherlands;
	(iv)	in 2000 exceptional operating charges of £61 million principally relate to the costs of a major programme of reorganisation across Reed Elsevier businesses, commenced in 1999. Non operating exceptional gains, amounting to £45 million, arose in 2000 in respect of the disposal of Springhouse, KG Saur and REZsolutions; and
	(v)	in 1999 exceptional items of £126 million 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.
(4)	Included in tax on profit on ordinary activities are Reed Elsevier PLC’s share of Reed Elsevier’s credits for exceptional tax items of £44 million in 2003; £64 million in 2002; £43 million in 2001; £10 million in 2000 and £7 million in 1999. Share of exceptional tax items credited to tax on profit on ordinary activities include, in 2003 and 2002, a net tax credit arising principally in respect of prior year disposals and tax relief related to restructuring and acquisition integration costs; in 2001, taxes recoverable in respect of disposals and prior period reorganisation costs; in 2000, taxes recoverable in respect of disposals; and, in 1999, taxes arising on business consolidation in the programme of reorganisation.

(5)	The amount of dividends per Reed Elsevier PLC ordinary share shown excludes the UK tax credit available to certain Reed Elsevier PLC shareholders, including beneficial owners of Reed Elsevier PLC ADSs who are residents of the United States for the purposes of the UK Tax Treaty, and do not include any deduction on account of UK withholding taxes, currently at the rate of 15% of the sum of the dividend and the related tax credit in most cases; see “Item 10: Additional Information — Taxation”.
	Dividends per Reed Elsevier PLC ordinary share, translated into cents at the noon buying rate on December 31, 2002, 2001 and 1999 respectively, were: 18.0 cents in 2002; 15.2 cents in 2001; 14.9 cents in 2000; and 16.2 cents in 1999. See “— Exchange Rates” on page 8.
(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 Harcourt STM and Education and Assessment businesses. The nominal value of the shares issued was £14.2 million and the net proceeds were £694 million.

REED ELSEVIER NV
The selected financial data for Reed Elsevier NV should be read in conjunction with, and is qualified by, the financial statements of Reed Elsevier NV included in this annual report. The results and financial position of Reed Elsevier NV reflect the 50% economic interest of Reed Elsevier NV’s shareholders in Reed Elsevier. These interests are accounted for on a gross equity basis.

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 Accountants, Amsterdam.

	Year ended December 31,

	2003 ⁽²⁾	2003	2002	2001	2000	1999

	(in millions, except per share amounts)
Amounts in accordance with UK GAAP: ⁽¹⁾
Profit on ordinary activities before tax	$474	€376	€230	€221	€157	€80
Share of amortisation of goodwill and intangible assets charged to profit on ordinary activities before tax	(407)	(323)	(419)	(403)	(384)	(284)
Share of exceptional items charged to profit on ordinary activities before tax ⁽³⁾	(43)	(34)	(88)	(59)	(25)	(176)
Tax on profit on ordinary activities ⁽⁴⁾	(169)	(134)	(86)	(120)	(130)	(128)
Profit/(loss) attributable to ordinary shareholders	305	242	144	101	27	(48)
Basic earnings/(loss) per Reed Elsevier NV ordinary share	39.1¢	0.31	0.18	0.13	0.04	(0.07)
Diluted earnings/(loss) per Reed Elsevier NV ordinary share	39.1¢	0.31	0.18	0.13	0.03	(0.07)
Dividends per Reed Elsevier NV ordinary share ⁽⁵⁾	37.8¢	0.30	0.30	0.30	0.28	0.27
Total assets	$2,478	€1,967	€2,251	€2,610	€2,650	€1,639
Long term borrowings, less current portion	(9)	(7)	(6)	(5)	(6)	(8)
Shareholders’ funds ⁽⁶⁾	2,177	1,728	2,019	2,377	2,448	1,493
Weighted average number of shares		783.9	783.2	780.2	714.7	708.1
Amounts in accordance with US GAAP:
Net income/(loss)	$505	€401	€303	€(5)	€58	€(46)
Basic earnings/(loss) per Reed Elsevier NV ordinary share	64.3¢	0.51	0.39	(0.01)	0.08	(0.06)
Diluted earnings/(loss) per Reed Elsevier NV ordinary share	64.3¢	0.51	0.39	(0.01)	0.08	(0.06)
Total assets	3,052	2,422	2,634	2,919	3,046	1,997
Long term borrowings, less current portion	(9)	(7)	(6)	(5)	(6)	(8)
Shareholders’ funds ⁽⁶⁾	2,955	2,345	2,558	2,843	2,984	1,951

(1)

The financial statements of Reed Elsevier NV are prepared in accordance with accounting policies that are in conformity with UK GAAP, which differs in certain significant respects from US GAAP. Prior to 2003, Reed Elsevier NV presented statutory financial statements prepared in accordance with Dutch GAAP, and the combined financial statements which form part of Reed Elsevier NV’s statutory financial statements were prepared in accordance with both UK and Dutch GAAP. Following changes to Dutch GAAP effective for the 2003 financial year in respect of the presentation of dividends and pension accounting, UK GAAP and Dutch GAAP have diverged. As permitted by Article 362.1 of Book 2 Title 9 of the Netherlands Civil Code, Reed Elsevier NV has therefore determined to prepare its financial statements in accordance with UK GAAP, thereby ensuring consistency with the prior year of the accounting policies applied within the Reed Elsevier combined financial statements, and with the accounting policies of Reed Elsevier PLC. The principal differences between UK GAAP and US GAAP which are relevant to Reed Elsevier NV are set out in note 21 to the Reed Elsevier NV financial statements.

(2)

Noon buying rates as at December 31, 2003 have been used to provide a convenience translation into US dollars, see “— Exchange Rates” on page 8. At December 31, 2003 the Noon Buying Rate was $1.26 per €1.00.

(3)	Share of exceptional items before tax includes Reed Elsevier NV’s share of Reed Elsevier’s exceptional items:
	(i)	in 2003 exceptional operating charges of €53 million relate to reorganisation costs, principally employee severance in the Legal and Business segments and acquisition related costs, including employee severance and property rationalisation costs, arising on the further integration and rationalisation of Harcourt and on other recent acquisitions. Non operating exceptional net gains, amounting to €19 million, arose in respect of disposals of businesses and on fixed asset investments;
	(ii)	in 2002 exceptional operating charges of €79 million 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. Non operating exceptional net losses, amounting to €9 million, arose in 2002 in respect of disposals of businesses and fixed asset investments;
	(iii)	in 2001 exceptional operating charges of €79 million 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. Non operating exceptional gains, amounting to €20 million, arose primarily in respect of the disposal of OAG Worldwide, Cahners Travel Group, Bowker and certain training businesses in the Netherlands;
	(iv)	in 2000 exceptional operating charges of €94 million principally relate to the costs of a major programme of reorganisation across Reed Elsevier businesses, commenced in 1999. Non operating exceptional gains, amounting to €70 million, arose in 2000 in respect of the disposal of Springhouse, KG Saur and REZsolutions; and
	(v)	in 1999 exceptional operating items of €182 million 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.
(4)	Included in tax on profit on ordinary activities are Reed Elsevier NV’s share of Reed Elsevier’s credits for exceptional tax items of €61 million in 2003; €97 million in 2002; €65 million in 2001; €17 million in 2000 and €11 million in 1999. Share of exceptional tax items credited to tax on profit on ordinary activities include, in 2003 and 2002, a net tax credit arising principally in respect of prior year disposals and tax relief related to restructuring and acquisition integration costs; in 2001, taxes recoverable in respect of disposals and prior period reorganisation costs; in 2000, taxes recoverable in respect of disposals; and, in 1999, taxes arising on business consolidation in the programme of reorganisation.
(5)	Dividends per Reed Elsevier NV ordinary share, translated into cents at the noon buying rate on December 31, 2002, 2001, 2000 and 1999 respectively, were: 31.5 cents in 2002; 26.7 cents in 2001; 26.3 cents in 2000; and 27.3 cents in 1999. See “— Exchange Rates” on page 8.
(6)	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 €91.3 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, Reed Elsevier NV 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 Harcourt STM and Education and Assessment businesses. The nominal value of the shares issued was €4.0 million and the net proceeds were €933 million.

EXCHANGE RATES
For a discussion of the impact of currency fluctuations on Reed Elsevier’s combined results of operations and combined financial position, see “Item 5: Operating and Financial Review and Prospects”.

The following tables illustrate, for the periods and dates indicated, certain information concerning the Noon Buying Rate for pounds sterling expressed in US dollars per £1.00 and for the euro expressed in US dollars per €1.00. The exchange rate on February 18, 2004 was £1.00 = $1.90 and €1.00 = $1.28.

US dollars per £1.00 – Noon Buying Rates

	Period

Year ended December 31,	End	Average ⁽¹⁾	High	Low

2003	1.78	1.64	1.78	1.55
2002	1.61	1.50	1.61	1.41
2001	1.45	1.44	1.50	1.37
2000	1.49	1.52	1.65	1.40
1999	1.62	1.62	1.68	1.55

Month	High	Low

February 2004 (through February 18, 2004)	1.90	1.82
January 2004	1.85	1.78
December 2003	1.78	1.72
November 2003	1.72	1.67
October 2003	1.70	1.66
September 2003	1.66	1.57
August 2003	1.62	1.57

US dollars per €1.00 – Noon Buying Rates

	Period

Year ended December 31,	End	Average ⁽¹⁾	High	Low

2003	1.26	1.13	1.26	1.04
2002	1.05	0.95	1.05	0.86
2001	0.89	0.90	0.95	0.84
2000	0.94	0.92	1.03	0.83
1999	1.01	1.07	1.18	1.00

Month			High	Low

February 2004 (through February 18, 2004)			1.28	1.24
January 2004			1.29	1.24
December 2003			1.26	1.20
November 2003			1.20	1.14
October 2003			1.18	1.16
September 2003			1.17	1.08
August 2003			1.14	1.09


(1)	The average of the Noon Buying Rates on the last day of each month during the relevant period.

Noon Buying Rates have not been used in the preparation of the Reed Elsevier combined financial statements, the Reed Elsevier PLC financial statements or the Reed Elsevier NV financial statements but have been used for certain convenience translations where indicated.

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RISK FACTORS

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, either in the market demand or from the actions of competitors, 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, CDs, and online, including the internet. We rely on trademark, copyright, patent and other intellectual property laws to establish and protect our proprietary rights in these products and services. However, we cannot assure you that our proprietary rights will not be challenged, limited, invalidated or circumvented. Despite trademark and copyright protection and similar intellectual property protection laws, third parties may be able to copy, infringe or otherwise profit from our proprietary rights without our authorisation. These unauthorised activities may be facilitated by the internet.

In addition, whilst there is now certain internet-specific copyright legislation in the United States and in the European Union, there remains significant uncertainty as to the date from which these will be enforced and the form copyright law regulating digital content may ultimately take. In the United States, copyright laws are increasingly coming under legal challenge and, in the European Union, national legislation by the member states implementing the EU Copyright Directive has not yet been adopted. These factors create additional challenges for us in protecting our proprietary rights to content delivered through the internet and electronic platforms. Moreover, whilst non-copyrightable databases are protected in many circumstances by law in the European Union, there is no equivalent legal protection in the United States.

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 results 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:

•	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 electronic delivery systems.

Changes in regulation on information collection and use could adversely affect our revenues and our costs.

Legal regulation relating to internet communications, data protection, e-commerce, direct marketing and digital advertising and use of public records is becoming more prevalent. Existing and proposed legislation and regulations, including changes in the manner in which such legislation and regulations are interpreted by courts, in the United States, the European Union and other jurisdictions may impose limits on our collection and use of certain kinds of information about individuals and our ability to communicate such information effectively with our customers. We are unable to predict in what form laws and regulations will be adopted or how they will be construed by the courts, or the extent to which any changes might adversely affect our business.

Our businesses may be adversely affected if their electronic delivery platforms or distribution systems experience a significant failure or interruption.

Our businesses are increasingly dependent on electronic platforms and distribution systems, primarily the internet, for delivery of their products and services. Although plans and procedures are in place to reduce such risks, our businesses could be adversely affected if their electronic delivery platforms experience a significant failure, interruption or security breach.

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.

Our scientific, technical and medical primary journals could be adversely affected by changes in the market.

Our scientific, technical and medical (STM) primary publications, like those of most of our competitors, are published on a paid subscription basis. There has been recent debate in the academic and library communities, which are the principal customers for our STM publications, regarding whether such publications should be free to subscribers and funded instead through fees charged to authors and from governmental and other subsidies. While the viability of this method of STM publishing and its suitability to the review and dissemination of scientific, technical and medical research are unproven, if widely adopted it could adversely affect our paid subscription STM publications.

A significant portion of our revenue is derived from advertising and exhibitions and spending by companies on advertising and other marketing activities has historically been cyclical.

Approximately 13% of our revenue in 2003 was derived from advertising and 9% from exhibitions. In particular, the Business segment is highly dependent on advertising and exhibitions revenues. In 2003, 38% of Business segment revenues were derived from advertising and 32% from exhibitions.

Traditionally, spending by companies on advertising and other marketing activities has been cyclical with companies spending significantly less on advertising in times of economic slowdown or recession. Our results could be adversely affected by a reduction of advertising revenues following economic slowdown or recession.

The exhibitions business is similarly affected by cyclical pressures on spending by companies. Additionally, participation and attendance at exhibitions is affected by the availability of exhibition venues and the propensity of exhibitors and attendees to travel. Our results could be adversely affected if the availability of venues or the demand from exhibitors and attendees were reduced, for example due to international security concerns or acts of terrorism or war.

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ITEM 4: INFORMATION ON REED ELSEVIER

HISTORY AND DEVELOPMENT

Corporate structure
Reed Elsevier came into existence in January 1993, when Reed Elsevier PLC and Reed Elsevier NV contributed their businesses to two jointly owned companies, Reed Elsevier Group plc, a UK registered company which owns the publishing and information businesses, and Elsevier Reed Finance BV, a Dutch registered company which owns the financing activities. Reed Elsevier PLC and Reed Elsevier NV have retained their separate legal and national identities and are publicly held companies. Reed Elsevier PLC’s securities are listed in London and New York, and Reed Elsevier NV’s securities are listed in Amsterdam and New York.

Equalisation arrangements
Reed Elsevier PLC and Reed Elsevier NV each hold a 50% interest in Reed Elsevier Group plc. Reed Elsevier PLC holds a 39% interest in Elsevier Reed Finance BV, with Reed Elsevier NV holding a 61% interest. Reed Elsevier PLC additionally holds a 5.8% indirect equity interest in Reed Elsevier NV, reflecting the arrangements entered into between the two companies at the time of the merger, which determined the equalisation ratio whereby one Reed Elsevier NV ordinary share is, in broad terms, intended to confer equivalent economic interests to 1.538 Reed Elsevier PLC ordinary shares. The equalisation ratio is subject to change to reflect share splits and similar events that affect the number of outstanding ordinary shares of either Reed Elsevier PLC or Reed Elsevier NV.

Under the equalisation arrangements, Reed Elsevier PLC shareholders have a 52.9% economic interest in Reed Elsevier, and Reed Elsevier NV shareholders (other than Reed Elsevier PLC) have a 47.1% economic interest in Reed Elsevier. Holders of ordinary shares in Reed Elsevier PLC and Reed Elsevier NV enjoy substantially equivalent dividend and capital rights with respect to their ordinary shares.

The boards of both Reed Elsevier PLC and Reed Elsevier NV have agreed, except in exceptional circumstances, to recommend equivalent gross dividends (including, with respect to the dividend on Reed Elsevier PLC ordinary shares, the associated UK tax credit), based on the equalisation ratio. A Reed Elsevier PLC ordinary share pays dividends in sterling and is subject to UK tax law with respect to dividend and capital rights. A Reed Elsevier NV ordinary share pays dividends in euros and is subject to Dutch tax law with respect to dividend and capital rights.

The principal assets of Reed Elsevier PLC comprise its 50% interest in Reed Elsevier Group plc, its 39% interest in Elsevier Reed Finance BV, its indirect equity interest in Reed Elsevier NV and certain amounts receivable from subsidiaries of Reed Elsevier Group plc. The principal assets of Reed Elsevier NV comprise its 50% interest in Reed Elsevier Group plc, its 61% interest in Elsevier Reed Finance BV and certain amounts receivable from subsidiaries of Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier NV also owns shares, carrying special dividend rights, in certain of the Dutch subsidiaries of Reed Elsevier Group plc. These shares enable Reed Elsevier NV to receive dividends from companies within its tax jurisdiction, thereby mitigating Reed Elsevier’s potential tax costs.

Material acquisitions and disposals
Reed Elsevier has made strategic acquisitions in the science & medical, legal, education and business sectors to enhance existing activities. Total acquisition expenditure in the three years ended December 31, 2003 was approximately £3.6 billion, after taking into account borrowings and net cash acquired.

During 2003 a number of acquisitions were made for a total consideration amounting to £226 million. The most significant acquisitions were the Holtzbrinck STM business in Germany and, in the United States, Applied Discovery Inc., and the public records business of Dolan Media Company. Disposals during 2003 related principally to LexisNexis Document Solutions and realised net proceeds of £96 million.

The most significant acquisition within the past three years has been that of Harcourt in July 2001 for $4.45 billion (£3.2 billion). Reed Elsevier acquired the entire share capital of Harcourt following a successful tender offer of $59 per share of common stock or share equivalent. Certain businesses — the Harcourt Higher Education business and the Corporate & Professional Services businesses other than educational and clinical testing — were immediately on-sold to The Thomson Corporation for $2.06 billion, on which taxes of approximately $0.5 billion were payable over 12 months. Reed Elsevier retained the Harcourt STM and Education and Assessment businesses. Harcourt debt on completion of these transactions was approximately $1.5 billion.

In addition, Reed Elsevier has made a number of smaller acquisitions.

During 2000, we initiated a programme of disposal of non-core businesses. This was substantially completed in 2001, with the sale of the travel publishing businesses, OAG Worldwide and Cahners Travel Group, the Bowker bibliographic business, certain Reed Business Information training businesses, and a number of non-core titles and exhibitions. Total proceeds of this disposal programme were approximately £300 million.

Capital expenditure
Capital expenditure principally relates to computer equipment, office facilities and, increasingly, investment in systems infrastructure to support electronic publishing activities. Total capital expenditure amounted to £168 million, £179 million and £178 million in 2003, 2002 and 2001, respectively.

Principal Executive Offices
The principal executive offices of Reed Elsevier PLC are located at 1-3 Strand, London WC2N 5JR, England. Tel: +44 20 7930 7077. The principal executive offices of Reed Elsevier NV are located at Sara Burgerhartstraat 25, 1055 KV Amsterdam, the Netherlands. Tel: +31 20 485 2434. The principal executive office located in the US is at 125 Park Avenue, 23rd Floor, New York, New York, 10017. Tel +1 212 309 5498. Our internet address is www.reedelsevier.com . The information on our website is not incorporated by reference into this report.

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BUSINESS OVERVIEW

We are one of the world’s leading publishers and information providers. Our activities include science and medical, legal, education and business publishing. Our principal operations are in North America and Europe. For the year ended December 31, 2003, we had total turnover of approximately £4.9 billion and an average of approximately 35,600 employees. As at December 31, 2003, we had approximately 35,000 employees. In 2003, North America represented our largest single geographic market, based on turnover by destination, contributing 60% of our total turnover.

Turnover is derived principally from subscriptions, circulation and copy sales, advertising sales and exhibition fees. In 2003, 39% of Reed Elsevier’s turnover was derived from subscriptions; 31% from circulation and copy sales; 13% from advertising sales; 9% from exhibition fees; and 8% from other sources.

Subscription sales are defined as turnover derived from the periodic distribution or update of a product or from the provision of access to online services, which is often prepaid. Circulation and copy sales include all other turnover from the distribution of a product and transactional sales of online services, usually on cash or credit terms. The level of publishing- related advertising sales and exhibition fees has historically been tied closely to the economic cycle with changes in the profit performance of advertisers, business confidence and other economic factors having a high correlation with changes in the size of the market. Subscription sales and circulation and copy sales have tended to be more stable than advertising sales through economic cycles. In 2003, 30% of our turnover was derived from electronic information products, principally internet-based, including 58% of the Legal division turnover, 41% of the Science & Medical division turnover and 8% of the Business division turnover.

Sales are recognised for the various revenue sources as follows: subscriptions — over the period of the subscription; circulation — on despatch; advertising — on publication or period of online display; exhibitions — on exhibition date; educational testing contracts — on performance against delivery milestones.

Certain of our businesses are seasonal in nature. In the Science & Medical division, a significant proportion of annual revenue is derived from calendar year based journal subscriptions, with the substantial majority of annual cash inflow from these arising in the fourth quarter of each financial year. In Education, the US Schools and Assessment businesses have a significant cash outflow in the first half of each year as product is produced and expenses incurred ahead of the main sales period in June through September, and after which there is substantial cash inflow. This, together with the phasing of other subscription receipts and exhibition deposits, results in significant cash flow seasonality whereby the substantial majority of annual operating cash inflows normally arises in the second half of the year.

Our businesses compete for subscription, 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.

Our businesses provide products and services that are organised to serve four business segments: Science & Medical; Legal; Education; and Business.

	Turnover Year ended December 31,

	2003		2002		2001

	(in millions, except percentages)
Science & Medical	£1,381	28%	£1,295	26%	£1,024	22%
Legal	1,318	27	1,349	27	1,330	29
Education	898	18	993	20	579	13
Business	1,328	27	1,383	27	1,627	36

Total	£4,925	100%	£5,020	100%	£4,560	100%

SCIENCE & MEDICAL

	Year ended December 31,

	2003	2002	2001

	(in millions)
Turnover
Elsevier
Science & Technology	£789	£746	£664
Health Sciences	592	549	360

	£1,381	£1,295	£1,024

Elsevier, the Science & Medical segment of Reed Elsevier, comprises international scientific, technical and medical publishing and communications businesses. Elsevier is headquartered in Amsterdam and its principal operations are located in London, Oxford, Paris, Munich, New York, Philadelphia, St. Louis, San Francisco, Singapore, Tokyo and Delhi.

Elsevier is managed as two customer-facing divisions: Science & Technology and Health Sciences, supported by the Operations division.

In 2003, Elsevier continued to invest in the web based information service ScienceDirect , most particularly in new navigation services, and in web platforms to support the launch of new online products.

Science & Technology
The Science & Technology division of Elsevier contributed 57% of the total turnover of Science & Medical in 2003. Of this turnover, 77% came from journals, 8% from books and the rest mainly from databases and software. Approximately 40% of Science & Technology turnover in 2003 was derived from North America, 32% from Europe and the remaining 28% from the rest of the world.

Through a number of imprints, including Elsevier, Academic Press and Butterworth Heinemann , Elsevier supplies scientific and technical information through journals, books and the internet to libraries, scientists and professionals serving a wide range of research fields including the life sciences, social sciences, materials, engineering, chemistry, physics, economics, mathematics, earth sciences, computer sciences, management and psychology. Among Elsevier’s well known scientific journals are Cell, Brain Research, Neuroscience, Biochimica et Biophysica Acta, Journal of Molecular Biology, Molecular Therapy and Developmental Biology in the life sciences; Tetrahedron and Journal of Chromatography in chemistry; Physics Letters, Solid State Communications, Journal of Computational Physics and Journal of Sound and Vibration in physics; Journal of Financial Economics in economics; and Artificial Intelligence in the computer sciences field.

Science & Technology’s flagship electronic product, ScienceDirect, is a full text online scientific research service. ScienceDirect now holds over 5 million scientific research articles that can be searched, accessed and linked. 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. In 2002, Elsevier launched a programme to make reference works available electronically through ScienceDirect and as at December 31, 2003 15 reference works were available.

Elsevier offers secondary databases, available electronically, online or on CD. These include: EMBASE , covering pharmaceutical and biomedical sciences; Compendex , covering the engineering disciplines; Geobase , focusing on geoscience and related areas; and Beilstein Database , providing online access to chemical structures with linked descriptions of the properties, reactions, preparations and citations.

Elsevier offers software solutions provided by its two software businesses, MDL Information Systems (“MDL”) and Endeavor Information Systems (“Endeavor”). MDL provides research tools and software solutions to the life sciences industry and, through Endeavor, Elsevier provides integrated collection management solutions for libraries.

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 , are sold through our dedicated sales force which has offices around the world including Amsterdam, New York, Rio de Janeiro, Singapore and Tokyo. Books are sold through book stores, both traditional and online, and wholesalers.

Health Sciences
The Health Sciences division of Elsevier operates an international network of nursing, health professions and medical publishing and communications businesses under the Saunders, Mosby, Churchill Livingstone, Elsevier and Excerpta Medica Communications imprints and brands. Its principal geographic markets are the United States, the United Kingdom, Germany and France, while other important markets include Italy, Spain, Canada, Australia and Japan.

The division contributed approximately 43% of Science & Medical turnover in 2003. Of this turnover, 45% came from journals, 48% from books and the remainder mainly from the pharmaceutical communication business. Approximately 60% of Health Sciences turnover in 2003 was derived from North America, 25% from Europe and the remaining 15% from the rest of the world.

Elsevier publishes international medical titles such as The Lancet and Gray’s Anatomy . Other medical books and journals include The Journal of the American College of Cardiology, Gastroenterology, The Journal of Allergy and Clinical Immunology , The European Heart Journal, Encyclopédie Médico-Chirurgicale , the book series Les Conférences d’Enseignement and Potter and Perry’s Fundamentals of Nursing . Elsevier also publishes a number of journals for learned societies. As an extension of its medical reference works programme, in 2003 Elsevier launched electronic editions of a number of reference titles. These are online versions whose functionality includes continuous updates, search facilities and medical, literature and drug updates. Amongst the electronic editions launched were versions of Bolgnia’s Dermatology and Nelson Textbook of Pediatrics.

Elsevier publishes textbooks for students and practising professionals in the medical, nursing and health professions in the United States, United Kingdom, Canada and Australia. Elsevier’s medical textbooks include Goldman: Cecil’s Textbook of Medicine, Guyton’s Textbook of Physiology, Cotran: Robbins Pathologic Basis of Disease , and Rang’s Pharmacology . Elsevier’s nursing titles include Mosby’s Medical, Nursing and Allied Health Dictionary, Mosby’s Nursing Drug Reference, Medical-Surgical Nursing and Wong’s Essentials of Pediatric Nursing . In the health professions markets, Elsevier publishes Chabner’s Language of Medicine, Merrill’s Atlas of Radiographic Positions & Radiologic Procedures, Ettinger’s Textbook of Veterinary Internal Medicine and Roberson’s Art and Science of Operative Dentistry.

Elsevier offers a suite of electronic products serving both students and practising professionals across health science markets. Health Sciences’ flagship electronic product, MDConsult , provides web access to major medical reference works, databases, clinical journals, drug information, practice guidelines, education programmes, expert commentaries and medical news for medical students, physicians and other healthcare professionals. During 2003, Elsevier launched Evolve , for the educational market, an interactive learning environment that works in coordination with Elsevier’s primary texts and includes tools and functionality to enhance the learning experience and course administration.

Excerpta Medica Communications (“EMC”) publishes customised information for healthcare professionals, medical societies and pharmaceutical companies internationally. EMC also works closely with pharmaceutical companies to provide international marketing and communications platforms for new drugs.

The medical publishing field is fragmented with competition generally on a title by title basis. In the United States, Elsevier faces regional competition from a number of information publishers and service providers, such as Wolters Kluwer’s Ovid, Adis Press, Springhouse and Lippincott Williams & Wilkins divisions, The Thomson Corporation, McGraw Hill, Pearson, John Wiley & Sons, Taylor & Francis, the American Medical Association and the Massachusetts Medical Society (New England Journal of Medicine).

Books are sold by book stores and wholesalers, and directly, generally through our dedicated sales force. Journals are generally sold directly to libraries, with subscription agents facilitating the administrative process, and to individuals, through direct mail and through societies. Electronic products, such as MDConsult , are generally sold directly through our dedicated sales force.

Operations
The Operations division provides book and journal production, information technology, fulfilment and distribution services for both the Science & Technology and Health Sciences divisions.

Much of the pre-press production for journals and books is outsourced. An electronic production system manages the production process from author submission to delivery of the full text of journal articles in whichever format the customer requires, via ScienceDirect , MDConsult , learned society websites, on CD or in print.

Printing is primarily sourced through a variety of unaffiliated printers located in the United Kingdom, the Netherlands, the United States, China, Hong Kong and South America. Distribution of hard copy journals is mainly outsourced. Book distribution in the United States is handled in-house. In Europe, book distribution was outsourced during 2003 to a third party service provider based in the United Kingdom.

LEGAL

	Year ended December 31,

	2003	2002	2001

	(in millions)
Turnover
LexisNexis
North America	£992	£1,056	£1,041
International	326	293	289

	£1,318	£1,349	£1,330

LexisNexis, the Legal segment of Reed Elsevier, provides legal, tax, regulatory, and business information to professional, business and government customers internationally. The Legal segment comprises LexisNexis North America and LexisNexis International. In 2003, LexisNexis North America contributed approximately 75% of the total turnover of the Legal segment, with LexisNexis International accounting for 25%.

During 2003, LexisNexis continued to invest in new content and improved online functionalities for its core products as well as expanding into contiguous markets through investment in new development and acquisitions. Further progress has been made in expanding coverage of annotated codes for individual states and in case law summaries. The first development phase of the global online delivery platform has been completed with the launch of services on the new platform in France.

The acquisitions of Applied Discovery Inc. and the public records business of Dolan, made in the second half of the year in the United States, have expanded LexisNexis’ position in contiguous markets. Applied Discovery Inc is a provider of electronic discovery services. The public records business of Dolan Media, including electronic information on court judgements and liens, has expanded LexisNexis’ position in the risk management market.

LexisNexis North America
LexisNexis North America operates principally in the United States and comprises North American Legal Markets and US Corporate and Federal Markets. In 2003, approximately 69% of LexisNexis North America’s turnover came from subscription sales, including online services, 10% from transactional sales, including online services, 10% from advertising (including directory listings), 4% from circulation and copy sales and the remaining 7% from other sources.

North American Legal Markets develops, markets and sells LexisNexis information products and services in electronic and print formats to legal firms and practitioners, law schools and state and local governments in the United States and Canada.

Matthew Bender, an international publisher of legal analysis and case law, offers publications in print and electronic formats to subscribers in approximately 147 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 38 US states and territories. In addition, Michie is the publisher of the United States Code Service and United States Supreme Court Reports, Lawyers’ Edition.

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 formats. “Shepardizing” ^TM is a common process for US lawyers and involves checking the continuing authority of a case or statutory reference in light of subsequent legal changes.

CCH and Tax Analysts materials are offered as online products by LexisNexis under licence from third parties.

Martindale-Hubbell is a publisher of biographical information on the legal profession in North America and internationally. Its flagship product, the Martindale-Hubbell Law Directory, including the martindale.com databases, is typically utilised as a marketing vehicle 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 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 corporate and government markets are West and Dialog (The Thomson Corporation), Factiva (a Reuters/Dow Jones joint venture) and Choicepoint.

LexisNexis International
The LexisNexis International division comprises LexisNexis Europe and Africa, headquartered in London; LexisNexis Asia Pacific, headquartered in Singapore; and LexisNexis Latin America, headquartered in Buenos Aires. In 2003, approximately 61% of LexisNexis International’s turnover was derived from subscriptions, 31% from circulation and copy sales, 1% from advertising and 7% from other sources. In the same year, approximately 44% of turnover came from the UK, 32% from Continental Europe and 24% from the rest of the world.

LexisNexis Europe and Africa includes LexisNexis UK, formerly known as Butterworths Tolley; LexisNexis Juris- Classeur, formerly LexisNexis France; LexisNexis Deutschland in Germany; Verlag LexisNexis ARD Orac in Austria; LexisNexis Benelux; LexisNexis Poland; LexisNexis Butterworths South Africa; as well as minority interests in Giuffré Editore in Italy and Stãmpfli Verlag in Switzerland.

LexisNexis UK is a professional publisher, providing legal, tax and business information via online, print and CD media. The web-based LexisNexis UK Online service provides a resource for legal, tax, regulatory and business information, including access to a range of UK, US, Australian, New Zealand, South African and other legal materials, via a single gateway. LexisNexis UK’s principal publications are Halsbury’s Laws of England, The Encyclopaedia of Forms and Precedents, Simon’s Taxes and Butterworths Company Law Service . The principal competitors in the United Kingdom are Sweet & Maxwell and West (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.

LexisNexis Juris-Classeur, is a provider of information to lawyers, notaries and courts in France. LexisNexis Juris- Classeur’s principal publications are JurisClasseur and La Semaine Juridique . Under the brands Infolib and Légisoft , LexisNexis Juris-Classeur also provides practice management, production and computation software tools for lawyers, notaries and accountants. The major competitors of LexisNexis Juris-Classeur are Editions Francis Lefebvre, Editions Législatives, Dalloz (Lagardere) and Lamy (Wolters Kluwer).

EDUCATION

Year ended December 31,

2003 2002 2001

(in millions)

Turnover

Harcourt Education

US Schools and Assessment £745 £846 £440

International 153 147 139

£898 £993 £579

Harcourt Education, the Education segment of Reed Elsevier, comprises: the Harcourt Education US Schools and Assessment businesses, which provide print and multimedia teaching and assessment materials, 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 Kingdom, the United States, Australia, New Zealand and South Africa. In 2003, the Harcourt Education US Schools and Assessment businesses contributed approximately 83% of the total turnover of the Education segment, with Harcourt Education International accounting for 17%.

In 2003, approximately 87% of Education turnover was derived from North America, 8% from Europe and the remaining 5% from the rest of the world.

Harcourt Education US Schools and Assessment businesses
Harcourt Education US Schools and Assessment businesses provide textbooks and related instructional materials to US schools, and comprise Harcourt School Publishers; Holt, Rinehart and Winston; Harcourt Achieve (formerly Harcourt Supplemental Publishers); and Harcourt Trade Publishers.

Harcourt School Publishers, based in Orlando, Florida, 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, based in Austin, Texas, offers educational textbooks and related instructional materials, including print-based products, CDs, videos and internet-based support and reference materials to middle and secondary schools. It publishes educational material covering, in particular, literature and language arts, science, mathematics and social studies. Its programmes include Elements of Literature, Elements of Language, Elements of Writing and Holt Science and Technology.

16

Harcourt Achieve, based in Austin, Texas, is a publisher of supplemental 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 Achieve provides materials for users with special educational needs and for whom English is a second language. Programmes within Harcourt Achieve include Rigby Literacy, Pair-It and Power Up! .

Harcourt Trade Publishers, based in San Diego, California, includes the Harvest imprint. Harcourt Trade authors have won the Nobel Prize for Literature three times in the last eight 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.

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 Assessment, based in San Antonio, Texas, is a provider of educational and clinical testing and performance measurement.

In educational testing, Harcourt Assessment provides a range of educational achievement, aptitude and guidance testing services for measuring kindergarten to 12th grade student progress. Principal products are norm-referenced and criterion- referenced tests, and include the Stanford Achievement Test Series .

In clinical testing, Harcourt Assessment provides practising and research psychologists with psychological, speech and occupational therapy assessment tests for many aspects of human behaviour, intelligence and development. 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 Assessment in educational testing are CTB (McGraw Hill), Riverside (Houghton- Mifflin) and, in scoring, NCS (Pearson). Competition in clinical testing is fragmented, with the principal competitors being NCS (Pearson), American Guidance Services, Riverside (Houghton-Mifflin) and Pro-Ed.

Harcourt Education International
Harcourt Education International comprises the UK Schools publishing business; Global Library based in the United States, United Kingdom and Australia; Greenwood-Heinemann based in the United States; Rigby-Heinemann in Australia; Heinemann in South Africa and Reed Publishing in New Zealand. In 2003, approximately 39% of turnover was derived from the United Kingdom, 36% from the United States, 10% from Australia and the remaining 15% from the rest of the world.

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. In Australia, the principal commercial competitors include Nelson, Macmillan, AWL and Jacaranda. In the international Library market, the principal competitors are Scholastic/Grollier, Wayland (WH Smith) and Watts (Lagardere).

BUSINESS

	Year ended December 31,

	2003	2002	2001

	(in millions)
Turnover
Reed Business Information
US	£365	£438	£593
UK	234	241	260
Continental Europe	277	256	263
Reed Exhibitions	420	425	446
Other	32	23	65

	£1,328	£1,383	£1,627

Reed Business, the Business segment of Reed Elsevier, comprises Reed Business Information, the business magazine and information businesses operating principally in the United States, the United Kingdom and Europe, and Reed Exhibitions, an international exhibitions business.

Reed Business Information
Reed Business Information contributed approximately 66% of the turnover of the Business segment in 2003. In the United States, business to business magazines are primarily distributed on a “controlled circulation” basis, whereby the product is delivered without charge to qualified buyers within a targeted industry group based upon circulation lists developed and maintained by the publisher. Magazines distributed on a “controlled circulation” basis are therefore dependent on advertising for their revenues. In the United Kingdom, business magazines are distributed both on a “controlled circulation” basis and a “paid circulation” basis, but in both cases are dependent on advertising for a significant proportion of their revenues. In the Netherlands, a higher proportion of publications is sold by “paid circulation”.

In 2003, approximately 56% of Reed Business Information turnover came from advertising, 22% from subscription sales, 7% from circulation sales, 4% from training and 11% from other sources including sales of software applications. In 2003, approximately 42% of Reed Business Information turnover came from the United States, 23% from the United Kingdom, 34% from Continental Europe and 1% from the rest of the world.

Reed Business Information US (“RBI US”) is a publisher of business information, with over 90 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. Through its Reed Construction Data business, RBI US provides national coverage of construction project information, through subscription newsletters, CD and the online service Connect. Other products and services include websites, direct mail, newspapers, newsletters and custom published supplements.

RBI US operates circulation management and fulfilment facilities in Colorado and the Caribbean island of St Kitts, through which it identifies, qualifies and maintains subscriber lists for substantially all of its titles. Paper and printing services are purchased on a coordinated basis with other Reed Elsevier businesses in the United States. Distribution of magazines is conducted primarily through the US postal service, supplemented by news-stand sales through unaffiliated wholesalers.

Reed Elsevier’s US business 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”), a 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 print and online directories include Kelly’s/kellysearch.com, Kompass and The Bankers’ Almanac/Bankersalmanac.com . Further online services include Estates Gazette Interactive, Air Transport Intelligence, Planet Science, ICIS-LOR and totaljobs.com .

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 Netherlands (“RBI NL”), is a business magazine and information publisher, publishing over 160 titles. Through trade journals, product news tabloids, directories, documentary systems, databases, newspapers, and websites, RBI NL serves 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 in agriculture. Its titles are predominantly subscription based and revenue is principally divided between subscriptions and advertising.

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 comprises the operations in the rest of Europe and in Australia and Asia Pacific. Major publications within this business include Stratégies and Editions Prat in France, Ärtzliche Praxis in Germany and Australian Doctor in Australia.

Reed Exhibitions
Reed Exhibitions organises trade exhibitions and conferences internationally, with over 430 events in 34 countries, attracting over 85,000 exhibitors and more than 4.5 million visitors annually. The business contributed approximately 32% of the turnover of the Business segment in 2003. Over 74% of Reed Exhibitions’ turnover is derived from exhibition participation fees, with the balance attributable to conference fees, advertising in exhibition guides, sponsorship fees and admission charges. In 2003, approximately 29% of Reed Exhibitions’ turnover came from North America, 45% from Continental Europe, 9% from the United Kingdom and the remaining 17% 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’ events are concentrated primarily in the following industries: IT/communications; manufacturing; aerospace/defence; leisure; electronics; food and hospitality; travel; sports and recreation entertainment; healthcare and pharmaceuticals; and retail.

Reed Exhibitions’ principal events include JCK International Jewellery Shows, Professional Golfers Association (PGA) Merchandise Show, Canadian Machine Tool Show and National Manufacturing Week in North America; World Travel Market and London Book Fair in the United Kingdom; Batimat, MIDEM, MIPTV, MIPcom, 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. The main US competitor is VNU. Outside the United States, competition comes primarily from industry focused trade associations and convention centre and exhibition hall owners who are also increasingly seeking an international presence.

ELSEVIER REED FINANCE BV
Elsevier Reed Finance BV, the Dutch resident parent company of the Elsevier Reed Finance BV group (“ERF”), is directly owned by Reed Elsevier PLC and Reed Elsevier NV. ERF provides treasury, finance and insurance services to the Reed Elsevier Group plc businesses through its subsidiaries in Switzerland: Elsevier Finance SA (“EFSA”), Elsevier Properties SA (“EPSA”) and Elsevier Risks SA (“ERSA”). These three Swiss companies are organised under one Swiss holding company, which is in turn owned by Elsevier Reed Finance BV.

EFSA is the principal treasury centre for the combined businesses. It is responsible for all aspects of treasury advice and support for Reed Elsevier Group plc’s businesses operating in Continental Europe, 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.

At the end of 2003, 88% (2002: 90%) of ERF’s gross assets were held in US dollars and 12% (2002: 10%) in euros, including $7.2 billion (2002: $7.1 billion) and €0.7 billion (2002: €0.8 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 $0.8 billion and short term debt of $1.3 billion backed by committed bank facilities. These committed facilities were renegotiated in 2003. 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.

EFSA continued to diversify its sources of funding in 2003 with an additional $149 million of term debt raised through bilateral term loans and private placements and the launch of a 10 year $185 million private placement, the proceeds of which were drawn down in 2004.

In 2003, EFSA organised bank tenders and implemented cash-pooling arrangements in several European and Asian countries. EFSA also provided specialist advice concerning the management of interest exposures and advised Reed Elsevier Group plc companies in Europe on the further development of their collection and payment mechanisms.

The average balance of cash under management, on behalf of Reed Elsevier Group plc and its parent companies, was approximately $0.3 billion.

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ORGANISATIONAL STRUCTURE

A description of the corporate structure is included under “— History and Development” on page 11. A list of significant subsidiaries, associates, joint ventures and business units is included as an exhibit, see “Item 19: Exhibits” on page F-80.

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PROPERTY, PLANTS AND EQUIPMENT

We own or lease over 300 properties around the world, the majority being in the United States. The table below identifies the principal owned and leased properties which we use in our business.

Location	Business segment(s)	Principal use(s)	Floor space (square feet)
Owned properties
Troy, Missouri	Education	Office and warehouse	575,000
Miamisburgh, Ohio	Legal and Science & Medical	Office and data center	403,638
Bellmawr, New Jersey	Education	Office and warehouse	380,000
Linn, Missouri	Science & Medical	Warehouse	206,659
Leased properties
San Antonio, Texas	Education	Office and warehouse	559,258
New York, New York	Business and Science & Medical	Office	429,300
Lewisville, Texas	Education	Office and warehouse	434,898
Orlando, Florida	Education	Office	372,468
Sutton, England	Business	Office	191,960

All of the above properties are substantially fully occupied by Reed Elsevier businesses, or sublet. None of the leases for the leased properties listed above will expire during 2004.

In Amsterdam, Netherlands, a leased property of approximately 254,000 square feet is being completed for occupancy in 2004, for use primarily as offices for businesses in the Science & Medical and Business segments. These businesses are currently located in a number of smaller leased properties in Amsterdam.

In Springfield, Ohio, a data center and office of approximately 60,000 square feet for use by the Legal and Science & Medical segments, which we will own, is under construction with an estimated cost to completion, including plant and equipment, of $40 million.

None of the real property owned or leased by Reed Elsevier which is considered material to Reed Elsevier taken as a whole is presently subject to liabilities relating to environmental regulations.

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ITEM 5: OPERATING AND FINANCIAL REVIEW AND PROSPECTS

OPERATING RESULTS — REED ELSEVIER

The following discussion is based on the combined financial statements of Reed Elsevier for the three years ended December 31, 2003, which have been prepared in accordance with UK GAAP. UK GAAP differs in certain significant respects from US GAAP as set out in note 29 to the combined financial statements.

Prior to 2003, the combined financial statements were presented in accordance with both UK and Dutch GAAP. Following changes to Dutch GAAP effective for the 2003 financial year in respect of the presentation of dividends and pension accounting, UK and Dutch GAAP have diverged such that the Reed Elsevier accounting policies no longer accord with Dutch GAAP. Under Article 362.1 of Book 2 Title 9 of the Netherlands Civil Code, UK GAAP may be adopted by Dutch companies with international operations for the preparation of financial statements and, accordingly, UK GAAP has been so adopted ensuring consistency with the prior year of the accounting policies applied in the combined financial statements.

The following discussion should be read in conjunction with, and is qualified by reference to, the combined financial statements.

Reed Elsevier derives its turnover principally from subscriptions, circulation and copy sales, advertising sales and exhibition fees.

Turnover by source for continuing operations
Year ended December 31,

	2003		2002		2001

	(in millions, except percentages)
Subscriptions	£1,944	39%	£1,932	38%	£1,766	39%
Circulation & copy	1,523	31	1,519	30	1,110	24
Advertising	662	13	720	14	847	19
Exhibition fees	429	9	432	9	451	10
Other	367	8	417	9	386	8

Total	£4,925	100%	£5,020	100%	£4,560	100%

The proportionate increase in circulation and copy sales in 2002 reflects the acquisition in July 2001 of the Harcourt STM and Education and Assessment businesses. The proportionate reduction in advertising revenue in 2002 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⁾
Year ended December 31,

	2003		2002		2001

	(in millions, except percentages)
North America	£2,921	60%	£3,152	63%	£2,765	61%
United Kingdom	551	11	545	11	557	12
The Netherlands	207	4	207	4	224	5
Rest of Europe	695	14	611	12	587	13
Rest of world	551	11	505	10	427	9

Total	£4,925	100%	£5,020	100%	£4,560	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 cost profile of individual businesses within Reed Elsevier varies widely and costs are controlled on an individual business unit basis. The most significant cost item for Reed Elsevier as a whole is staff costs, which represented 39%, 37% and 38% of Reed Elsevier’s total cost of sales and operating expenses before amortisation of goodwill and intangible assets and exceptional items in 2003, 2002 and 2001, respectively.

The following tables show turnover, operating profit (including joint ventures) and adjusted operating profit for each of Reed Elsevier’s business segments in each of the three years ended December 31, 2003, together with the percentage change in 2003 and 2002 at both actual and constant exchange rates. Adjusted operating profit is included on the basis that it is a key financial measure used by management to evaluate performance and allocate resources to the business segments, as reported under SFAS 131 in note 3 to the combined financial statements. Adjusted operating profit represents operating profit before amortisation of goodwill and intangible assets and exceptional items. A reconciliation of adjusted operating profit to operating profit is included below. For further details see note 3 to the combined financial statements. Exceptional items are significant items within Reed Elsevier’s ordinary activities which, under UK GAAP, need to be disclosed separately by virtue of their size or incidence; see note 8 to the combined financial statements for a further description of these items.

	Turnover Year ended December 31,

	2003		2002		% change		2001		% change

					actual rates	constant rates ⁽¹⁾			actual rates	constant rates ⁽²⁾

	(in millions, except percentages)
Science & Medical	£1,381	28%	£1,295	26%	+7%	+8%	£1,024	22%	+26%	+29%
Legal	1,318	27	1,349	27	–2	+3	1,330	29	+1	+5
Education	898	18	993	20	–10	–3	579	13	+72	+78
Business	1,328	27	1,383	27	–4	–4	1,627	36	–15	–14

Total	£4,925	100%	£5,020	100%	–2%	+1%	£4,560	100%	+10%	+13%

	Operating Profit Year ended December 31,

	2003		2002		% change		2001		% change

					actual rates	constant rates ⁽¹⁾			actual rates	constant rates ⁽²⁾

	(in millions, except percentages)
Science & Medical	£375	57%	£294	58%	+28%	+25%	£210	54%	+40%	+40%
Legal	95	14	61	12	+56	+52	59	15	+3	–4
Education	91	14	102	20	–11	–3	95	24	+7	+13
Business	100	15	50	10	+100	+92	27	7	+85	+75

Total	£661	100%	£507	100%	+30%	+29%	£391	100%	+30%	+29%

	Adjusted Operating Profit ⁽³⁾ Year ended December 31,

	2003		2002		% change		2001		% change

					actual rates	constant rates ⁽¹⁾			actual rates	constant rates ⁽²⁾


	(in millions, except percentages)
Science & Medical	£467	40%	£429	38%	+9%	+8%	£344	35%	+25%	+26%
Legal	301	25	287	25	+5	+10	267	27	+7	+10
Education	174	15	183	16	–5	+2	132	13	+39	+45
Business	236	20	234	21	—	—	247	25	–5	–4

Total	£1,178	100%	£1,133	100%	+4%	+6%	£990	100%	+14%	+17%

Adjusted operating profit is derived from operating profit as follows:

	2003 £m	2002 £m	2001 £m

Operating profit including joint ventures	661	507	391
Adjustments:
Amortisation of goodwill and intangible assets (including joint ventures)	445	527	501
Exceptional items:
Reorganisation costs	23	42	35
Acquisition integration and related costs	49	57	63

Adjusted operating profit	1,178	1,133	990

(1)	Represents percentage change over 2002 at constant rates of exchange, which have been calculated using the average exchange rates for the 2002 financial year. These rates were used in the preparation of the 2002 financial statements.

(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. These rates were used in the preparation of the 2001 financial statements.

(3)	Adjusted operating profit represents operating profit before the amortisation of goodwill and intangible assets and exceptional items, and is reconciled to operating profit above. For further details see note 3 to the combined financial statements.

In the commentary below, percentage movements are at actual exchange rates unless otherwise stated. Percentage movements at constant exchange rates are calculated using the average exchange rates for the previous financial year. Percentage movements at both actual rates and constant rates are shown in tables on page 23. The effect of currency movements on the 2003 results is further described separately below (see “— Effect of Currency Translation”). References to operating profit relate to operating profit including joint ventures. References to underlying performance are calculated to exclude 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, 2003
Compared to the Year Ended December 31, 2002
General
Turnover decreased by 2% to £4,925 million. At constant exchange rates, turnover was 1% higher, or flat excluding acquisitions and disposals.

Operating profits of £661 million were up 30%, or 29% at constant exchange rates, compared with £507 million in 2002. Operating profit is after amortisation of goodwill and intangible assets, including joint ventures, of £445 million (2002: £527 million) and operating exceptional items of £72 million (2002: £99 million). Excluding these items, operating profits would have been up 4% at £1,178 million (2002: £1,133 million), or 6% at constant exchange rates, and 5% on an underlying basis. The increase in operating profits principally reflects improved operating performance, lower goodwill and intangible asset amortisation and a reduction in exceptional charges.

Operating margins, including amortisation of goodwill and intangible assets and operating exceptional items, were 13.4%. Excluding amortisation of goodwill and intangible assets and operating exceptional items, the margin would have been 23.9%, up 1.3 percentage points, reflecting the continued management of costs.

The amortisation charge for intangible assets and goodwill, including in joint ventures, amounted to £445 million, down £82 million on the prior year as a result of translation effects and some past acquisitions becoming fully amortised.

Exceptional items showed a pre-tax charge of £46 million, comprising £49 million of Harcourt and other acquisition integration and related costs, £23 million in respect of restructuring actions taken in response to the effect of the protracted global economic slowdown, less a £26 million net gain on disposal of businesses and fixed asset investments. During 2003, approximately 1,500 positions were eliminated through restructuring, particularly in the Legal and Business divisions, and on the further integration and rationalisation of Harcourt. After a tax credit of £84 million principally arising on the exceptional items and in respect of prior year disposals, exceptional items showed a net post-tax gain of £38 million. This compares with a net post-tax exceptional gain of £11 million in 2002.

Net interest expense, at £168 million, was £38 million lower than in the prior year, reflecting the benefit of 2002 cash flow, lower interest rates and currency translation effects.

Profit before tax was £519 million, compared with £289 million in 2002, an increase of 79%, or 75% at constant exchange rates. The increase in profit before tax principally reflects the increased operating profits, as well as reduced net interest expense.

The effective tax rate on earnings was 35.3% (2002: 37.0%). Excluding amortisation of goodwill and intangible assets, exceptional items and related tax effects, the effective tax rate would have been 26%, little changed from 2002.

The attributable profit of £334 million was up 85%, or 73% at constant exchange rates, compared to £181 million in 2002, the increase reflecting the factors described above.

In 2003, the US GAAP net income was £538 million, compared with £365 million in 2002. The increase in US GAAP net income in 2003 compared to 2002 primarily reflects the improved operating performance described above, excluding amortisation of goodwill and intangible assets which did not significantly change under US GAAP, together with the effects of changes in the fair value of financial instruments.

Science & Medical
Revenues and adjusted operating profits increased by 7% and 9% respectively. At constant exchange rates, revenues and adjusted operating profits both grew by 8%. On an underlying basis, excluding the Holtzbrinck STM business acquired at the beginning of the year and other small acquisitions and disposals, revenues and adjusted operating profits were up 5% and 8% respectively. Both the Science & Technology and Health Sciences divisions saw underlying revenue growth of 5%.

In Science & Technology, growth was driven by subscription renewals and online sales including recently introduced back files and subject collections. Usage of ScienceDirect more than doubled to 175 million article downloads during the year, reflecting the increase in access and utility that this web based service provides. Electronic only subscriptions grew by 55% at constant exchange rates and now account for 23% of journal subscriptions by value.

In Health Sciences, growth was driven by the book publishing programme with successful new titles and editions coupled with increased demand from the healthcare professions. Electronic revenues continue to grow, albeit from a much smaller base than in Science & Technology, from the expansion of online services in addition to migration from print subscriptions. Demand from the pharmaceutical industry for projects and conferences was however weaker compared to 2002, leading to consolidation of these activities. The International business saw revenues up in the year through more versioning and distribution of international content in local markets and the acquisition of the Holtzbrinck STM publishing business, adding German language medical publishing and distribution channels for other international content.

Continued action on costs, including further benefits of integration of the Harcourt STM business, improved the adjusted operating margin, before exceptional items and the amortisation of goodwill and intangible assets, by 0.7 percentage points.

Operating profit, including amortisation of goodwill and intangible assets and exceptional operating items, in the Science & Medical segment, increased by £81 million to £375 million. This reflects the increase in adjusted operating profit, the decrease in amortisation of goodwill and intangible assets as a result of translation effects and some past acquisitions becoming fully amortised, and the decrease in exceptional acquisition integration and related costs, primarily relating to Harcourt.

Legal
Revenues decreased by 2% and adjusted operating profits increased by 5%. At constant exchange rates, revenues and adjusted operating profits grew by 3% and 10% respectively, or 3% and 8% respectively on an underlying basis. LexisNexis North America saw underlying revenue growth at 2% held back by the late cycle impact of the economic slowdown, particularly in corporate markets. Outside the US, underlying revenue growth was 4% which, while seeing similar weakness in UK corporate information markets, saw growth in Asia-Pacific. Adjusted operating margins improved by 1.5 percentage points to 22.8% as a result of the continued action to improve efficiency.

In US legal markets, revenues grew by 3% at constant exchange rates. Online revenue growth was 7% at constant exchange rates, with growth in national law firms and the small law firm market. Print and CD sales were marginally lower as the market continues to move online. The legal directories business again contributed well with renewals and expanded web services. In US Corporate and Federal Markets, underlying revenues were flat. Growth in the risk solutions business was offset by declines in corporate and academic information markets reflecting the difficult budgetary environment. Continued action on the cost base delivered underlying adjusted operating profit growth in LexisNexis North America of 10%.

The LexisNexis International businesses outside North America saw underlying revenues up 4% and adjusted operating profits up 2% at constant exchange rates. Growth in online sales of legal, tax and regulatory product across all major markets was in part offset by print migration and by weakness in demand in the United Kingdom for corporate news and business information. Underlying adjusted operating margins were broadly maintained, despite increased investment in new online services and expansion of the business in Germany, as a result of continued cost actions, most particularly in rationalisation of editorial and production processes within Europe.

Operating profit, including amortisation of goodwill and intangible assets and exceptional operating items, in the Legal segment, increased by £34 million to £95 million. This reflects the increase in adjusted operating profit, the decrease in amortisation of goodwill and intangible assets principally as a result of translation effects, and the decrease in exceptional charges incurred in relation to restructuring actions.

Education
Revenues were 10% lower than in the prior year whilst adjusted operating profits were 3% lower. At constant exchange rates, revenue and adjusted operating profits were 3% lower and 2% higher, respectively. On an underlying basis revenues fell by 2% and adjusted operating profits were 3% ahead. Excluding the impact of the loss of the California state testing contract announced in 2002, underlying revenue growth would have been
1-2%. Despite lower revenues, adjusted operating margins improved by 1.0 percentage point to 19.4% as cost savings were realised from rationalisation of editorial and production processes and further integration.

The Harcourt US K-12 schools business saw underlying revenues 2% lower with a trough in the US state textbook adoption cycle exacerbated by schools funding pressures. Revenues were also held back by weakness in the supplemental business ahead of new publishing that addresses federally funded programmes, although this was more than offset by growth in backlist sales and sales to open territories in both elementary and secondary schools markets. Underlying adjusted operating profits were up 2%, reflecting the cost savings achieved through supply chain rationalisation and further integration of the supplemental businesses.

The Harcourt Assessment businesses saw underlying revenues down 5%, reflecting the loss of the California state testing contract. Without this, underlying revenue growth would have been over 15%. This has been primarily driven by new publishing in the clinical testing market. Underlying adjusted operating profits were up 10% due to the growth in higher margin product and the actions taken to improve operational efficiency.

The Harcourt Education International businesses saw revenues 5% ahead and adjusted operating profits 1% ahead, both at constant exchange rates, with growth in academic publishing and the global library business partially offset by a reduction in the UK schools market due to shortfalls in governmental funding.

Operating profit, including amortisation of goodwill and intangible assets and exceptional operating items, in the Education segment, decreased by £11 million to £91 million. This principally reflects the decrease in adjusted operating profit, with the decrease in amortisation of goodwill and intangible assets being broadly offset by an increase in exceptional acquisition integration and related costs.

Business
Revenues and adjusted operating profits were 4% lower and flat respectively, both at reported and at constant exchange rates. Underlying revenues and adjusted operating profit were 5% and 2% lower. The underlying magazine and information publishing businesses saw a revenue decline of 5% due to the advertising market weakness, and the exhibitions business revenues were 6% lower, or 3% before taking account of the net cycling out of non-annual shows. Adjusted operating margin was 0.9 percentage points ahead at 17.8% reflecting the actions taken on costs to mitigate the impact of lower revenues.

In the United States, Reed Business Information saw revenues 6% lower than in the prior year at constant exchange rates. Growth in the entertainment sector was more than offset by declines in the manufacturing, electronics and construction sectors. Significant focus on improving yields and building share could not compensate for the volume decline. Despite the revenue decline, underlying adjusted operating profits rose by 23% reflecting the significant actions taken to reduce costs.

In the United Kingdom, Reed Business Information revenues were down 3%, both at reported and at constant exchange rates. Whilst display and recruitment advertising markets saw lower revenues, growth was achieved in online sales. Adjusted operating profits were similar to the prior year, with operating margins improved through cost management. In Continental Europe, Reed Business Information saw underlying revenues down 5% due to the decline in advertising markets partially offset by market share gains and improving yields. Economic conditions in the Netherlands remain weak, with only the healthcare and regulatory titles showing growth. Cost actions taken throughout the year resulted in adjusted operating profits at constant exchange rates 5% higher despite the revenue decline.

At Reed Exhibitions, revenues and adjusted operating profits were lower by 3% and 9% respectively at constant exchange rates. Underlying revenues were 6% lower, or 3% lower before the effect of the net cycling out of non-annual shows. Growth in Asia-Pacific and the majority of North American shows was offset by weakness in the US manufacturing sector and in Europe, particularly in the international shows. Underlying adjusted operating profits were 14% lower, or 3% lower before the cycling out of non-annual shows.

Operating profit, including amortisation of goodwill and intangible assets and exceptional operating items, in the Business segment, increased by £50 million to £100 million. This principally reflects the decrease in amortisation of goodwill and intangible assets as a result of translation effects and some past acquisitions becoming fully amortised, and the decrease in exceptional charges related to restructuring actions.

Results of Operations for the Year Ended December 31, 2002
Compared to the Year Ended December 31, 2001
General
Turnover increased by 10% to £5,020 million, and by 13% at constant exchange rates. This included a £1,269 million 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.

Operating profits of £507 million were up 30%, or 29% at constant exchange rates, compared with £391 million in 2001. Operating profit is after charging amortisation of goodwill and intangible assets of £527 million (2001: £501 million) and operating exceptional items of £99 million (2001: £98 million). Excluding these items, our operating profit would have been up 14% at £1,133 million (2001: £990 million), or 17% at constant exchange rates and 8% on an underlying basis including the Harcourt acquired businesses on a pro forma basis. This included a £277 million full year contribution from the acquired Harcourt businesses, which represents pro forma growth of approximately 10% on the prior year, comprising 14% in Science & Medical and 6% in Education.

Operating margins, including amortisation of goodwill and intangible assets and operating exceptional items, were 10.1%. Excluding amortisation of goodwill and intangible assets and operating exceptional items, the margin would have been up 0.9 percentage points at 22.6%. Dilution of this margin from 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 of £527 million, up £26 million on the prior year, includes 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 £111 million, comprising £57 million of Harcourt and other acquisition integration and related costs, £42 million in respect of restructuring actions taken principally in response to the global economic slowdown, and a £12 million 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 £122 million arising on the exceptional costs and in respect of prior year disposals, exceptional items showed a net post-tax credit of £11 million compared with a net post-tax exceptional credit of £9 million in 2001.

Net interest expense, at £206 million, was £64 million 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 cash flow, lower interest rates and currency translation.

Profit before tax was £289 million, up 5% compared with £275 million in 2001. At constant exchange rates, profits before tax were up 2%, after charging amortisation of goodwill and intangible assets of £527 million (2001: £501 million) and exceptional items of £111 million (2001: £72 million). The increase in profit before tax reflected higher underlying operating profits, less the full year effect of financing and goodwill and intangible asset amortisation of the Harcourt businesses acquired in July 2001, as well as dilution from other 2001 acquisitions and disposals. The higher growth at reported rates principally reflects currency translation effects on US dollar denominated interest and amortisation costs.

The effective tax rate on earnings was 37.0% (2001: 53.8%). Excluding amortisation of goodwill and intangible assets, exceptional items and related tax effects, the effective tax rate would have been 26.3%, unchanged from 2001.

The attributable profit of £181 million increased 44%, or 36% at constant exchange rates, against attributable profit of £126 million in 2001, reflecting the factors discussed above and an increase in exceptional tax credits.

In 2002, the US GAAP net income was £365 million, compared with a net loss of £20 million in 2001. The increase in US GAAP net income in 2002 compared to 2001 reflects the factors relating to the increase in UK GAAP net income described above, other than in respect of amortisation of goodwill and intangible assets. The increase in net income under US GAAP also reflects a £271 million reduction in amortisation of goodwill and intangible assets in 2002, compared to 2001, primarily as a result of the cessation of amortisation of goodwill and indefinite lived intangible assets following full adoption of SFAS142.

Science & Medical
Turnover and adjusted operating profits increased by 26% and 25% respectively, or 29% and 26% respectively at constant exchange rates. On an underlying basis turnover and adjusted operating profits increased by 6% and 11% respectively, including the Harcourt STM business on a proforma basis. Both the Science & Technology and Health Sciences divisions saw underlying revenue growth of 6%.

In Science & Technology, growth 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
Turnover and adjusted operating profits increased by 1% and 7% respectively, or 5% and 10% respectively at constant exchange rates. On an underlying basis, turnover and adjusted operating profits increased by 4% and 11% respectively. LexisNexis North America saw underlying revenue growth of 4%, despite the pressure in some markets from the economic slowdown, particularly in the corporate sector. Outside the United States, International sales growth was 3%, held back by the difficult conditions in the corporate sector and Latin America. Adjusted operating margins were up 1.2 percentage points to 21.3%, with good operational gearing and improving cost efficiency in part offset by additional investment in new online services and development in Courtlink, the electronic court access and filing company acquired in 2001.

In US Legal Markets, underlying turnover increased by 4%. Online revenue increased, with continued strong growth in usage and increasing penetration of the small law firm market. Print and CD 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. Underlying adjusted operating profit growth at LexisNexis North America was 15%, reflecting the progress on cost efficiency.

The LexisNexis International businesses outside North America saw turnover and adjusted operating profits up 1% and 3%, or 3% and 4% respectively at constant exchange rates. Online sales increased in all major markets, partly offset by the migration from print and CD product. Underlying turnover growth of 3% was held back by weakness in demand from corporate customers and in Latin America. Underlying adjusted 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
Turnover and adjusted operating profits increased substantially with a full year contribution from the acquired Harcourt businesses. Underlying growth in revenues and adjusted operating profits was 2% and 4% respectively including the acquired Harcourt businesses on a proforma basis.

Harcourt Education US Schools (formerly 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.

Harcourt Assessment (formerly 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 adjusted operating profits were 25% higher.

The Harcourt Education International business saw flat revenues, before acquisitions, against the prior year at constant exchange rates. 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 adjusted 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
Turnover and adjusted operating profits were down 15% and 5% respectively, or 14% and 4% respectively at constant exchange rates, compared to 2001 reflecting the sale of the travel publishing businesses and other non-core businesses in 2001. Underlying revenues were 6% lower than in the prior year reflecting persistent weak advertising markets worldwide, although the rate of decline year on year slowed significantly in the second half. The US business was most affected, whilst, in Europe, subscription revenues to an extent mitigated the advertising decline. The Exhibitions business, although affected by late economic cycle pressures in its markets, saw revenues only slightly lower than the prior year. Underlying adjusted operating profits increased by 2% as a result of the cost actions taken across the businesses.

In the United States, Reed Business Information saw underlying revenues 12% lower than the prior year. 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 adjusted operating profits have risen by 15% reflecting the significant action taken to reduce costs, both as a response to the then current market environment and as part of a longer term drive to improve US margins.

In the United Kingdom, Reed Business Information underlying revenues were 6% lower 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 adjusted profits to 4%, representing a small improvement in adjusted operating margin.

In Continental Europe, Reed Business Information saw underlying revenues down 2%, whilst underlying adjusted 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 whereas underlying adjusted 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.

Critical Accounting Policies
Introduction
The accounting policies of the Reed Elsevier businesses under UK GAAP are described in note 2 to the combined financial statements. UK GAAP differs from US GAAP in certain significant respects. The principal differences that affect net income and combined shareholders’ funds are explained in note 29 to the combined financial statements. The most critical accounting policies in determining the financial condition and results of the combined businesses, and those requiring the most subjective or complex judgments, relate to the valuation and amortisation of goodwill and intangible assets, taxation, deferred taxation and pensions. These critical accounting policies and estimates are discussed further below.

Revenue recognition policies, while an area of management focus, are generally straightforward in application as the timing of product or service delivery and customer acceptance for the various revenue types can be readily determined. Allowances for product returns are deducted from revenue based on historical return rates.

Pre-publication costs incurred in the origination of content are capitalised and amortised over their estimated useful lives based on historical sales profiles. Annual reviews are carried out to assess the recoverability of carrying amounts.

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
We target acquisitions and alliances that accelerate our strategic development and meet our financial criteria. Over recent years we have significantly re-shaped our business portfolio. We have spent £3.6 billion on acquisitions in the last three years, including the £3.1 billion acquisition in 2001 of the Harcourt STM and Education and Assessment businesses.

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, 2003 was £4.1 billion, on which accumulated amortisation of £1.4 billion had been charged. The total cost of goodwill as at December 31, 2003 was £4.2 billion, on which accumulated amortisation of £1.8 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 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. Under UK GAAP, the acquired goodwill and intangible assets are capitalised and amortised systematically over their estimated useful lives up to a maximum of 40 years, subject to at least annual impairment review. Under US GAAP, goodwill and intangible assets with indefinite lives are not amortised and are subject to at least annual impairment review, and intangible assets with definite lives are amortised over periods up to 40 years and are subject to at least 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 assets 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 any acquisitions for which there are indications of possible impairment are compared with estimated values in use based on latest management cash flow projections. 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, 2003.

Taxation and deferred tax
We operate in over 100 locations worldwide. Many significant businesses have been sold over the last six years, including most of the consumer publishing businesses and the travel publishing businesses. At the same time, major acquisitions have been made to accelerate strategic development, notably the Matthew Bender legal publishing business in 1998 and the Harcourt STM and Education and Assessment businesses in 2001. In these circumstances, complex tax issues arise requiring management to use its judgement to make various tax determinations.

The Reed Elsevier combined businesses seek to organise their affairs in a tax efficient manner, taking account of the jurisdictions in which they operate. Additionally, 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 provide 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. 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 in the short term supports the amount of deferred tax benefits are deferred tax benefits recognised.

Retirement Benefits
We operate a number of pension schemes around the world, the most significant of which are defined benefit plans. Pension costs are accounted for in accordance with the UK accounting standard SSAP24: Accounting for Pension Costs and are assessed in accordance with the advice of qualified actuaries. Defined benefit pension plan assets and liabilities are based on the results of the latest actuarial valuation. The expected costs of pensions in respect of defined benefit schemes are charged to the profit and loss account so as to spread the cost over the service lives of employees in the schemes. Actuarial surpluses and deficits are allocated over the average expected remaining service lives of employees. For defined contribution schemes, the profit and loss account charge represents contributions made.

Under US GAAP, pensions are accounted for under SFAS87: Employers’ Accounting for Pensions. The objectives and principles are broadly in line with SSAP24 but SFAS87 is more prescriptive in the application of actuarial methods and assumptions to be applied in the calculation of pension assets. Plan assets are valued for US GAAP by reference to market- related values at the date of the financial statements. Liabilities are assessed using the rate of return obtainable on fixed or inflation-linked bonds.

Under both UK and US GAAP, accounting for these pension schemes involves judgment about uncertain events, including, the life expectancy of the members, salary and pension increases, inflation, the return on scheme assets and the rate at which the future pension payments are discounted. We use estimates for all of these factors in determining the pension cost and liabilities incorporated in our combined financial statements. These best estimates of future developments are made in conjunction with the independent actuaries. Each scheme is subject to a periodic review by the independent actuaries. The presentation of the combined financial statements of Reed Elsevier could be materially affected if management used different assumptions or if different conditions occurred in future periods.

Effect of Currency Translation
The combined financial statements on pages F-2 to F-41 are expressed in sterling and are therefore subject to the impact of movements in exchange rates on the translation of the financial information of individual businesses whose operational currencies are other than sterling. The principal exposures in relation to the results reported in sterling are to the US dollar and the euro, reflecting Reed Elsevier’s business exposure to the US and the Euro Zone, its most important markets outside the United Kingdom.

The currency profile of Reed Elsevier’s turnover, operating profit and profit before tax for 2003, taking account of the currencies of the interest on its borrowings and cash over that period, is set forth below: Turnover, operating profit and profit before tax in each currency as a percentage of total turnover, operating profit and profit before tax respectively
	US Dollars	Sterling	Euro	Other	Total
Turnover	56%	17%	20%	7%	100%
Operating profit	33%	25%	36%	6%	100%
Profit before tax	17%	33%	43%	7%	100%

Currency translation differences decreased Reed Elsevier’s turnover by £139 million in 2003 compared to 2002. Excluding amortisation of goodwill and intangible assets currency translation differences would have decreased operating profits by £18 million in 2003 compared to 2002. Goodwill and intangible assets are predominantly denominated in US dollars and, after charging amortisation of goodwill and intangible assets, currency translation differences increased operating profits by £5 million in 2003 compared to 2002. Borrowings are predominantly denominated in US dollars and, after charging net interest expense, currency translation differences increased profit before tax by £14 million in 2003 compared to 2002.

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.

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 23 to the combined financial statements.

Recently Issued Accounting Pronouncements
SFAS 132R: Employers’ Disclosures about Pensions and Other Post Retirement Benefits was revised in December 2003 and is effective for fiscal years ending after December 15, 2003 except for disclosure of information about foreign plans, which is effective for fiscal years ending after June 15, 2004. SFAS 132R revises employers’ disclosures about pension plans and other post retirement benefit plans. Reed Elsevier has included the additional disclosures required by SFAS 132R for the year ended December 31, 2003 in note 29 to the combined financial statements.

SFAS149: Amendment of Statement 133 on Derivative Instruments and Hedging Activities was issued in April 2003 and is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The statement requires contracts with comparable characteristics to be accounted for similarly and clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative as discussed in SFAS133. It also clarifies when special reporting in the statement of cash flows is required if a derivative contains a financing component. The effect of SFAS149 on the combined businesses’ financial position and results under US GAAP is not material.

SFAS150: Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity was issued in May 2003 and is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 14, 2003. SFAS150 requires that certain financial instruments, previously accounted for as equity, be classed as liabilities. These requirements have no material effect on the financial position and results of the combined businesses under US GAAP.

FIN 46R: Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 was issued in December 2003. FIN 46R requires that certain investments, previously accounted for on the equity basis, be consolidated to show the assets, liabilities and results of operations of that entity. FIN 46R deferred the effective date for public companies to the end of the first reporting period ending after March 15, 2004, except that all public companies must, at a minimum, apply the provisions of FIN 46R to entities that were previously considered “special-purpose entities” prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003. The adoption of FIN 46R had no impact on the financial position, cash flows or results of operations of the combined business under US GAAP as at December 31, 2003 under the transitional arrangements and is not expected to have any material impact on full adoption in the 2004 combined financial statements.

EITF 00-21: Accounting for Revenue Arrangements with Multiple Element Deliverables was finalised in November 2003. It provides guidance on how to account for arrangements that may involve multiple revenue-generating activities. The requirements of EITF 00-21 are applicable to financial periods beginning after June 15 , 2003 and will therefore first apply to Reed Elsevier for any arrangements entered into from January 1, 2004. The effect of EITF 00-21 on the US GAAP financial position and results is not expected to be material to the combined businesses.

Following the issuance of UITF38: Accounting for ESOP Trusts in December 2003 by the Urgent Issues Task Force of the UK Accounting Standards Board, shares held in the parent companies by the Reed Elsevier Group plc Employee Benefit Trust, previously included within other fixed asset investments, are now presented as shares held in treasury and deducted within combined shareholders’ funds. Prior year comparatives have been restated accordingly.

International Accounting Standards – Under a Regulation adopted by the European Parliament in 2002, the Reed Elsevier combined financial statements will be prepared under International Accounting Standards (“IAS”) with effect from the 2005 financial year. Impact assessments have been carried out during 2003 to identify the changes of accounting policy that will be necessary to comply with IAS and implementation plans have been prepared to modify accounting systems and procedures as necessary. The key changes arising on adoption of IAS are expected to relate to the accounting for goodwill and intangible assets, share based payments, pensions, deferred taxation and financial instruments. Final IAS have yet to be issued and endorsed in respect of many of these and other accounting policy areas, and developments will be monitored closely.

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LIQUIDITY AND CAPITAL RESOURCES — REED ELSEVIER

Cash Flow
Reed Elsevier’s net cash inflow from operating activities in 2003, 2002 and 2001 amounted to, respectively, £1,065 million, £1,035 million and £1,066 million. Included in these net cash inflows are cash outflows relating to exceptional items charged to operating profit of £98 million, £119 million and £97 million in 2003, 2002 and 2001 respectively. Reed Elsevier generates significant cash flows as its principal businesses do not generally require major fixed or working capital investments. A substantial proportion of revenues are received through subscription and similar advanced receipts, principally for scientific and medical journals and exhibition fees. At December 31, 2003 subscriptions and other revenues in advance totalled £870 million (2002: £788 million).

Reed Elsevier’s cash outflow on the purchase of tangible fixed assets in 2003, 2002 and 2001 was £155 million, £163 million and £175 million respectively, while proceeds from the sale of tangible fixed assets amounted to £6 million, £6 million and £3 million respectively. Capital expenditure principally relates to computer equipment, office facilities and, increasingly, investment in systems infrastructure to support electronic publishing activities.

During 2003, Reed Elsevier paid a total of £261 million for acquisitions, after taking account of net cash acquired of £9 million, £12 million of deferred payments in respect of acquisitions made in prior years and £23 million in respect of change of control and other non operating liabilities assumed on the acquisition of Harcourt. These payments were financed by net cash inflow from operating activities, available cash resources and commercial paper borrowings. Exceptional net inflows of £34 million were received in 2003 and included £96 million proceeds from sale of fixed asset investments and businesses and £36 million of reduced tax payments, less amounts paid in respect of reorganisation costs and acquisition integration and related costs.

During 2002, Reed Elsevier paid a total of £188 million for acquisitions, after taking account of net cash acquired of £4 million, £18 million of deferred payments in respect of acquisitions made in prior years, and £76 million in respect of change of control and other non operating liabilities assumed on the acquisition of Harcourt. These payments were financed by net cash inflow from operating activities, available cash resources and commercial paper borrowings. Exceptional net inflows of £7 million were received in 2002 and included £106 million proceeds from sale of fixed asset investments and businesses and £20 million of reduced tax payments, less amounts paid in respect of reorganisation costs and acquisition integration and related costs.

Net borrowings at December 31, 2003 were £2,372 million, a reduction of £360 million from the prior year end, which reflects net cash inflows from operating activities less acquisition spend, equity dividends paid, servicing of finance, taxation cash outflows, and favourable exchange translation effects from a weaker US dollar.

The directors of Reed Elsevier PLC and Reed Elsevier NV, having made appropriate enquiries, consider that adequate resources exist for the combined businesses to continue in operational existence for the foreseeable future.

Contractual Obligations
The contractual obligations of Reed Elsevier relating to debt finance and operating leases at December 31, 2003, analysed by when payments are due, are summarised below:

	Total	Less than 1 year	1-3 years	3-5 years	After 5 years

	(in millions)
Short term debt ⁽¹⁾	£1,180	£1,180	£—	£—	£—
Long term debt (including finance leases)	1,830	18	432	726	654
Operating leases	836	106	182	147	401

Total	£3,846	£1,304	£614	£873	£1,055

(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, 2003 included £75 million in respect of estimated sub lease shortfalls and guarantees given by Harcourt in favour of a former subsidiary for certain property leases for various periods up to 2016.

Off-Balance Sheet Arrangements
At December 31, 2003 Reed Elsevier had outstanding guarantees in respect of property lease guarantees given by Harcourt General, Inc in favour of a former subsidiary. The maximum amount guaranteed as at December 31, 2003 is £103 million for certain property leases up to 2016, of which an amount of £26 million is held as provision against these lease guarantees. These guarantees are unrelated to the ongoing business.

Save as disclosed above, Reed Elsevier has no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on the combined business’s financial condition, changes in financial condition, results of operation, liquidity, capital expenditure or capital resources.

Treasury Policies
The boards of Reed Elsevier PLC and Reed Elsevier NV have requested that Reed Elsevier Group plc and Elsevier Reed Finance BV have due regard to the best interests of Reed Elsevier PLC and Reed Elsevier NV shareholders in the formulation of treasury policies.

Financial instruments are used to finance the Reed Elsevier 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 2003.

Funding
Reed Elsevier develops and maintains a range of borrowing facilities and debt programmes to fund its requirements at short notice and at competitive rates. The significance of Reed Elsevier Group plc’s US operations means that the majority of debt is denominated in US dollars and is raised in the US debt markets. A mixture of short term and long term debt is utilised and Reed Elsevier maintains a maturity profile to facilitate refinancing. Reed Elsevier’s policy is that no more than $1,000 million of long term debt should mature in any 12-month period. In addition, minimum levels of net debt with maturities over three years and five years are specified, depending on the level of the total borrowings.

During 2003, Elsevier Finance SA raised $149 million of term debt through bilateral term loans and launched a 10 year $185 million private placement, the proceeds of which were drawn down in 2004. Also during 2003, Harcourt term debt with a nominal value of $39 million was redeemed at par. During 2002, Harcourt term debt with a nominal value of $110 million was 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.

In May 2003, Reed Elsevier established a new committed bank facility for US$3,000 million provided by a syndicate of banks. At the same time, it cancelled existing committed bank facilities which, in the main, had less than one year to expiry. At December 31, 2003, Reed Elsevier had access to $3,000 million (2002: $3,500 million) of committed bank facilities, of which $91 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, $750 million expires within one year (2002: $2,860 million), $nil within two to three years (2002: $640 million), and $2,250 million within four to five years (2002: $nil).

After taking account of the maturity of committed bank facilities that back short term borrowings at December 31, 2003, nil% of debt after utilising available cash resources matures in the first, second and third years, 72% in the fourth and fifth years, 14% in five to ten years, and 14% beyond ten years.

Interest Rate Exposure Management
Reed Elsevier’s interest rate exposure management policy is aimed at reducing the exposure of the combined businesses to changes in interest rates. The proportion of interest expense that is fixed on net debt is determined by reference to the level of net interest cover. Reed Elsevier uses fixed rate term debt, interest rate swaps, forward rate agreements and a range of interest rate options to manage the exposure. Interest rate derivatives are used only to hedge an underlying risk and no net market positions are held.

At December 31, 2003, $4,126 million of Reed Elsevier’s net debt was denominated in US dollars on which approximately 75% of forecast net interest expense was fixed or capped for the next 12 months. This fixed or capped percentage reduces to approximately 60% by the end of the third year and reduces thereafter with all the interest rate derivatives which fix or cap interest expense and approximately three quarters of fixed rate term debt having matured by the end of 2009 and 2011 respectively.

At December 31, 2003, fixed rate US dollar term debt (not swapped back to floating rate) amounted to $1.2 billion and had a weighted average life remaining of 13.0 years (2002: 14.3 years) and a weighted average interest coupon of 6.9%. Interest rate derivatives in place at December 31, 2003, which fix or cap the interest cost on an additional $2.0 billion (2002: $2.1 billion) of variable rate US dollar debt, have a weighted average maturity of 1.9 years (2002: 2.2 years) and a weighted average interest rate of 6.0%.

Foreign Currency Exposure Management
Translation exposures arise on the earnings and net assets of business operations in countries other than those of each parent company. These exposures are hedged, to a significant extent, by a policy of denominating borrowings in currencies where significant translation exposures exist, most notably US dollars.

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 $1.2 billion.

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OPERATING RESULTS — REED ELSEVIER PLC AND REED ELSEVIER NV

The following discussion is based on the financial statements of Reed Elsevier PLC and Reed Elsevier NV for the three years ended December 31, 2003. The results of Reed Elsevier PLC reflect its shareholders’ 52.9% economic interest in the Reed Elsevier combined businesses. The results of Reed Elsevier NV reflect its shareholders’ 50% economic interest in the Reed Elsevier combined businesses. The respective economic interests of the Reed Elsevier PLC and Reed Elsevier NV shareholders take account of Reed Elsevier PLC’s 5.8% interest in Reed Elsevier NV. Both parent companies gross equity account for their respective share in the Reed Elsevier combined businesses. The financial statements of Reed Elsevier PLC and Reed Elsevier NV have been prepared in accordance with UK GAAP, which differs in certain respects from US GAAP as set out in note 22 to the Reed Elsevier PLC financial statements and note 21 to the Reed Elsevier NV financial statements.

Prior to 2003, Reed Elsevier NV presented statutory financial statements prepared in accordance with Dutch GAAP, and the combined financial statements which form part of Reed Elsevier NV’s statutory financial statements were prepared in accordance with both UK and Dutch GAAP. Following changes to Dutch GAAP effective for the 2003 financial year in respect of the presentation of dividends and pension accounting, UK GAAP and Dutch GAAP have diverged. As permitted by Article 362.1 of Book 2 Title 9 of the Netherlands Civil Code, Reed Elsevier NV has therefore determined to prepare its financial statements in accordance with UK GAAP, thereby ensuring consistency with the prior year of the accounting policies applied within the Reed Elsevier combined financial statements, and with the accounting policies of Reed Elsevier PLC.

Result of Operations for the Year Ended December 31, 2003
Compared to the Year End December 31, 2002
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 13.4p and €0.31 respectively in 2003, compared to 7.0p and €0.18 in 2002. The increases in earnings per share reflect the respective shares of Reed Elsevier PLC and Reed Elsevier NV in the improved results of the combined businesses, which showed improved operating profits and lower net interest expense, partly offset by higher taxation (see “—Operating Results — Reed Elsevier”).

Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation — as defined in the Reed Elsevier merger agreement — is the spot euro/sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend.

The board of Reed Elsevier PLC has proposed a final dividend of 8.7p, giving a total dividend of 12.0p for the year, up 7% from 2002. The boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, have proposed a final dividend of €0.22, resulting in a total dividend of €0.30 for the year, the same as in 2002. The difference in percentage growth is attributable to the strengthening of the euro relative to sterling since the prior year dividend declaration dates.

Result of Operations for the Year Ended December 31, 2002
Compared to the Year End December 31, 2001
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 7.0p and €0.18 respectively, compared to 4.8p and €0.13 in 2001. The increases in earnings per share reflect the respective shares of Reed Elsevier PLC and Reed Elsevier NV in the improved results of the combined businesses, which showed higher operating profits in part due to the full year contribution from the acquired Harcourt businesses, higher net interest expense reflecting a full year’s financing cost for the Harcourt acquisition, and lower taxation (see “—Operating Results — Reed Elsevier”).

The board of Reed Elsevier PLC paid a final dividend of 8.0p in 2002, giving a total dividend of 11.2p for the year, up 7% on 2001. The boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements described above, paid a final dividend of €0.21 in 2002, resulting in a total dividend of €0.30 for the year, the same as in 2001. The difference in percentage growth is attributable to the strengthening of the euro relative to sterling since the prior year dividend declaration dates.

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TREND INFORMATION

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 academic library funding and US state and federal funding for education, and the impact of economic conditions on corporate budgets and 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 — Risk Factors”; “Item 4: Information on Reed Elsevier”; and “Item 5: Operating and Financial Review and Prospects; Operating Results — Reed Elsevier; Liquidity and Capital Resources — Reed Elsevier; Operating Results — Reed Elsevier PLC and Reed Elsevier NV”.

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ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS

The directors of each of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV at February 18, 2004 were:

Name (Age)	Reed Elsevier PLC	Reed Elsevier NV	Reed Elsevier Group plc	Elsevier Reed Finance BV

Gerard van de Aast (46)	Executive Director	Member of the Executive Board	Executive Director
Mark Armour (49)	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 (33)				Member of the Management Board
Willem Boellaard (73)				Managing Director
Dien de Boer-Kruyt (59)		Member of the Supervisory Board ⁽⁴⁾		Member of the Supervisory Board
John Brock (55)	Non-executive Director ⁽¹⁾⁽⁴⁾	Member of the Supervisory Board ⁽¹⁾⁽⁴⁾	Non-executive Director ⁽¹⁾
Crispin Davis (54)	Executive Director and Chief Executive Officer ⁽³⁾	Chairman of the Executive Board and Chief Executive Officer ⁽³⁾	Executive Director and Chief Executive Officer ⁽⁵⁾
Mark Elliott (54)	Non-executive Director ⁽⁴⁾	Member of the Supervisory Board ⁽⁴⁾	Non-executive Director ⁽²⁾⁽⁵⁾
Roelof Nelissen (72)				Chairman of the Supervisory Board
Cees van Lede (61)	Non-executive Director ⁽³⁾⁽⁴⁾	Member of the Supervisory Board ⁽³⁾⁽⁴⁾	Non-executive Director ⁽²⁾
Andrew Prozes (58)	Executive Director	Member of the Executive Board	Executive Director
David Reid (57)	Non-executive Director ⁽¹⁾⁽⁴⁾	Member of the Supervisory Board ^{(1 )(4)}	Non-executive Director ⁽¹⁾⁽⁵⁾
Lord Sharman (61)	Non-executive Director ^(1)(3)(4)	Member of the Supervisory Board ^{(1 )(3)(4)}	Non-executive Director ⁽¹⁾
Rolf Stomberg (63)	Non-executive Director ^(3)(4)(6)	Member of the Supervisory Board ^{(3 )(4)(6)}	Non-executive Director ⁽²⁾⁽⁶⁾
Morris Tabaksblat (66)	Non-executive Chairman ⁽³⁾⁽⁴⁾	Chairman of the Supervisory Board ^{(3 )(4)}	Non-executive Chairman ⁽⁵⁾
Patrick Tierney (58)	Executive Director	Member of the Executive Board	Executive Director

(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, as defined by The Combined Code: Principles of Good Governance and Code of Best Practice in the United Kingdom.

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. He 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 Allianz Nederland Group NV, 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. Non-executive director of GlaxoSmithKline plc since July 2003. Chief Executive Officer of Aegis Group plc from 1994 to 1999. From 1990 to 1993 he was at Guinness Group plc, where he was an executive director and held the position of Group Managing Director of United Distillers. Prior to that Mr Davis spent 20 years at Proctor & Gamble, latterly as President, North American Food Division.

Mark Elliott was appointed a non-executive director of Reed Elsevier Group plc, Reed Elsevier PLC and a member of the Supervisory Board of Reed Elsevier NV in April 2003. General Manager IBM, Global ISV Solutions.

Cees van Lede was appointed a non-executive director of Reed Elsevier Group plc, Reed Elsevier PLC and a member of the Supervisory Board of Reed Elsevier NV in April 2003. Chairman of the Supervisory Board of the Dutch Central Bank, a member of the board of Scania AB, Air Liquide and Sara Lee Corporation and a member of the Supervisory Boards of Akzo Nobel, Philips Electronics, Heineken and KLM. He was chairman of the board of management of Akzo Nobel until his retirement in May 2003.

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.

David Reid was appointed a non-executive director of Reed Elsevier Group plc, Reed Elsevier PLC and a member of the Supervisory Board of Reed Elsevier NV in April 2003. Executive deputy chairman of Tesco PLC until December 2003, and finance director from 1985 to 1997. Will become non-executive chairman of Tesco in April 2004.

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 of Securicor plc since May 2003, a member of the Supervisory Board of ABN-AMRO since April 2003 and a non-executive director of BG Group 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 Smith & Nephew PLC. Serves on the boards of Scania AB, TNT Post Groep NV, Deutsche BP AG and Hoyer GmbH.

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 Groep NV. Was Chairman of Unilever NV from 1994 until his retirement in 1999 and a member and former Chairman of the European Round Table of Industrialists (until 2001).

Patrick Tierney is Chief Executive Officer of the Education division, Harcourt Education. Joined Reed Elsevier in January 2003 and appointed a director of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV in April 2003. Prior to joining Reed Elsevier, Mr Tierney was with The Thomson Corporation, a US based provider of business information, where he was chief executive officer of Thomson Financial.

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SENIOR MANAGEMENT

The executive officers of Reed Elsevier Group plc, other than directors, at February 18, 2004 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.

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COMPENSATION

Remuneration Committee
The Remuneration Committee is responsible for recommending to the boards the remuneration (in all its forms), and the terms of the service contracts and all other terms and conditions of employment of the executive directors, and for providing advice to the Chief Executive Officer on major policy issues affecting the remuneration of executives at a senior level below the board. A copy of the terms of reference of the Committee is available on request and can be viewed on the Reed Elsevier website at www.reedelsevier.com.

Throughout 2003 the Committee consisted wholly of independent non-executive directors. The current members are Rolf Stomberg (Chairman of the Committee), Mark Elliott (appointed in April 2003) and Cees van Lede (appointed in April 2003). John Brock and Roelof Nelissen were members of the Committee until April 2003. At the invitation of the Chairman, the Chief Executive Officer attends meetings of the Committee, except when his own remuneration is under consideration.

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
The Committee has complied during the year with Schedule A of the Principles of Good Governance and Code of Best Practice, issued by the UK Financial Services Authority.

Remuneration policy
The remuneration policy is set out below:
The principal objectives of the remuneration policy are to attract, retain and motivate people of the highest calibre and experience needed to shape and execute 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 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;
(ii)	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;
(iii)	to deliver upper quartile total remuneration for clearly superior levels of performance;
(iv)	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

(v)	to provide a consistent approach towards senior executives, including the directors, irrespective of geographical location.

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 the predominant proportion of reward potential should be linked to performance, and the package composition for 2004 shows that for superior performance some 70% of the total remuneration would be performance related. Effective from January 2003 the Committee adopted a policy of common levels, irrespective of geographical location, for both annual and longer term incentives for executive directors, reflecting the global nature of the role of each director.

Executive directors 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 to take into account both market movement and individual performance.
•	A variable annual cash bonus, based on achievement of three financial performance measures (revenue, profit and cash flow) and individual key performance objectives. Targets are set at the beginning of the year by the Committee and are aligned with the annual budget and strategic business objectives. For 2004, no bonus will become payable in respect of an individual financial performance measure unless 94% of the set target for that measure is achieved. Up to 90% of salary may be earned for the achievement of highly stretching targets set by the Committee. For exceptional performance beyond these stretching targets, the Committee has the discretion to award up to 110% of salary. The Committee has also applied the foregoing criteria in assessing the 2003 bonuses.
•	A bonus investment plan, under which directors and other senior executives were able to invest up to one half of their 2002 annual performance related bonus in Reed Elsevier PLC/Reed Elsevier NV shares. 38 senior executives participated in the bonus investment arrangements in respect of their 2002 bonus. Subject to continuing to hold the shares and remaining in employment, at the end of a three year period, the participants are awarded an equivalent number of Reed Elsevier PLC/Reed Elsevier NV shares at nil cost. Following approval of the 2003 Reed Elsevier Group plc Bonus Investment Plan (the “2003 Bonus Investment Plan”) by shareholders of Reed Elsevier PLC and Reed Elsevier NV in April 2003, the Committee has agreed to award options under the 2003 Bonus Investment Plan to directors and selected key employees in respect of the 2003 bonus. Awards under the 2003 Bonus Investment Plan will be made annually, and will be subject to a performance condition requiring the achievement of compound growth in the average of the Reed Elsevier PLC and Reed Elsevier NV earnings per ordinary share (“EPS”) before amortisation of goodwill and intangible assets, exceptional items, related tax effects and UK tax credit equalisation measured at constant exchange rates (“adjusted EPS”) of 6% per annum compound during the three year vesting period.
•	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. Following approval of the Reed Elsevier Group plc Share Option Scheme (the “Share Option Scheme”) by shareholders of Reed Elsevier PLC and Reed Elsevier NV in April 2003, the Remuneration Committee has agreed to award options under the Share Option Scheme to directors and selected employees from 2004. The size of the annual grant pool will be determined by reference to the compound annual growth in adjusted EPS over the three years prior to grant, with individual grant size determined by the Committee based on individual performance. At compound growth of between 8% and 10% per annum, the pool of options available will be broadly comparable to the level of options granted under the previous scheme. At executive director level the grants are expected to be up to 3 times salary. For executive directors, option grants will be subject to a performance condition requiring the achievement of 6% per annum compound growth in adjusted EPS, at constant exchange rates, during the three years following the grant. There will be no re-testing of the 3 year EPS performance period.
•	Long term incentive plan. Following approval of the Reed Elsevier Group plc Long Term Incentive Share Option Scheme (the “2003 LTIS”) by shareholders of Reed Elsevier PLC and Reed Elsevier NV in April 2003, the Committee has decided to make the first awards under the 2003 LTIS to directors and a small number of key senior executives (approximately 40) during 2004. This award covers the period 2004 to 2006 during which time no further awards under the 2003 LTIS will be made to participants. The Rules require that approximately 50% of the total implied value of grants under the 2003 LTIS will take the form of nil cost conditional shares and 50% will take the form of conventional market value options. On the basis of the current implied values, this will result in a grant of 2.5 times salary in conditional shares and 5.5 times salary in conventional share options. Grants will vest subject to the achievement of compound annual adjusted EPS growth, at constant exchange rates, achieved over a three- year performance period from 2004 to 2006, of between 8% and 12%. At 8% compound annual adjusted growth 25% of the award will vest; at 10% compound annual adjusted growth 100% of the award will best; and at 12% compound annual adjusted growth 125% of the award would vest. Awards will vest on a straight-line basis between each of these points. There will be no re-testing of the three year performance period. Acceptance of an award under the 2003 LTIS by any individual will automatically terminate any award under the previous Reed Elsevier Group plc Senior Executive Long Term Incentive Plan (the “2000 LTIP”). Participants in the 2003 LTIS 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 three year period.
•	Post-retirement 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.

The Committee considers that a successful remuneration policy needs to be sufficiently flexible to take account of future changes in Reed Elsevier’s business environment and in remuneration practice. Consequently, the above policy will apply in 2004 but may require to be amended.

Service contracts
As a condition of receiving an award under the 2003 LTIS, each executive director will be required to enter into a new service contract. The new contract will have a notice period of 12 months and will contain strengthened covenants that will apply for 12 months after leaving employment, preventing a director from working with specified competitors, recruiting Reed Elsevier employees and soliciting Reed Elsevier clients.

Each of the executive directors has a service contract, the notice periods of which are described below:

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.

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 since June 10, 2003 his service contract has provided for a notice period of twelve months, when Mr Armour agreed to a reduction in his notice period from twenty-four months. Mr Armour did not receive any compensation in return for agreeing to this change in his notice period.

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.

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.

P Tierney was appointed a director on 8 April 2003. His service contract, which is dated November 19, 2002, is subject to New York law and provides that, in the event of termination without cause by the company, twelve months’ base salary will be payable.

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
Executive directors may, subject to the approval of the Chairman and the Chief Executive Officer, serve as non-executive directors on the boards of up to two non-associated companies (of which only one may be to the board of a major company). The Committee believes that Reed Elsevier can benefit from the broader experience gained by executive directors in such appointments. Directors may retain remuneration arising from such non-executive directorships. During the year CHL Davis was appointed a non-executive director of GlaxoSmithKline plc and received a fee of £28,848 during the year from that company in such capacity.

Remuneration of non-executive directors
The remuneration of the non-executive directors is determined by the boards of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV, with the aid of external professional advice from Towers Perrin. Non-executive directors receive an annual fee and are reimbursed expenses incurred in attending meetings. They do not receive any performance related bonuses, pension provisions, share options or other forms of benefit.

During 2003 the boards initiated a review of the fees paid to the non-executive directors compared against the fees paid to non-executive directors of other leading multinational companies operating in global markets. With effect from May 1, 2003 the fees paid to the non-executive directors (other than the Chairman) who serve on the boards of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV were reviewed for the first time since 1999 and were increased to £45,000. The respective Chairmen of the Remuneration Committee and Audit Committee also receive an additional fee of £7,000 in respect of those additional duties.

The non-executive directors serve under letters of appointment, and do not have contracts of service.

Emoluments of the directors
The emoluments of the directors of Reed Elsevier PLC and Reed Elsevier NV (including any entitlement to fees or emoluments from either Reed Elsevier Group plc or Elsevier Reed Finance BV) were as follows:

(a) Aggregate emoluments

	2003	2002

	(in thousands)

Salaries and fees	£3,473	£3,022
Benefits	93	91
Annual performance-related bonuses	2,254	1,453
Pension contributions	243	267
Pension to former director	213	231
Payment to former director	95	—

Total	£6,371	£5,064

No compensation payments have been made for loss of office or termination in 2002 and 2003.

Details of share options exercised by the directors over shares in Reed Elsevier PLC and Reed Elsevier NV during the year are shown on pages 47, 48 and 49.

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 £5,201,190 (2002: £306,843).

(b) Individual emoluments of executive directors

	2003

	Salary	Benefits	Bonuses	Total	2002

G J A van de Aast	£369,000	£17,492	£294,517	£681,009	£538,674
M H Armour	471,000	23,466	362,764	857,230	689,127
C H L Davis	945,000	27,035	746,344	1,718,379	1,366,543
A Prozes	582,822	8,353	431,055	1,022,230	1,030,820
P Tierney (from April 8, 2003)	423,333	9,434	419,632	852,399	—
D J Haank (until June 18, 2003)	200,217	6,914	—	207,131	563,240

Total	£2,991,372	£92,694	£2,254,312	£5,338,378	£4,188,404

Benefits include the provision of a company car, medical insurance and life assurance.

C H L Davis was the highest paid director in 2003, including gains of £4,960,150 on the exercise of nil cost options awarded on his appointment as Chief Executive Officer in 1999. Mr Davis invested the entire after tax gain arising from the exercise of his options in Reed Elsevier PLC/Reed Elsevier NV shares.

D J Haank served as a director until June 18, 2003 and remained an employee until August 31, 2003. During the period June 18 to August 31, 2003 he received emoluments of £87,759, comprising salary (£84,839) and other benefits (£2,920). In accordance with the terms of the share options in force at the time of their grant in 1999, Mr Haank has retained his entitlement to options over 18,497 Reed Elsevier PLC shares and 10,925 Reed Elsevier NV shares, as detailed in the schedules on pages 47 and 49. All other options granted to Mr Haank lapsed on termination of his employment.

(c) Pensions
The Committee reviews the pension arrangements for the executive directors to ensure that the benefits provided are consistent with those provided by other multinational companies in its principal countries of operation.

Executive directors based in the United Kingdom are provided with 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.

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 dependants, 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 target pension for P Tierney, a US based director, after completion of five years’ pensionable service is $440,000 per annum, inclusive of any other retirement benefits from any former employer. In the event of termination of employment before completion of five years’ pensionable service, the pension payable will be reduced proportionately, subject to a minimum pension of $220,000 per annum in the event of termination of employment for reasons other than resignation or dismissal for cause.

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 dependants’ pension on death.

The increase in the transfer value of the directors’ pensions, after deduction of contributions, is shown below:

	Age December 31, 2003	Directors’ contributions	Transfer value of accrued pension December 31, 2002	Transfer value of accrued pension December 31, 2003	Increase in transfer value during the period (net of directors’ contributions)	Accrued annual pension December 31, 2003	Increase in accrued annual pension during the period	Increase in accrued annual pension during the period (net of inflation)	Transfer value of increase in accrued annual pension during the period (net of inflation and directors’ contributions)

G J A van de Aast	46	£2,957	£191,063	£333,533	£139,513	£37,945	£13,760	£13,058	£111,824
M H Armour	49	2,957	1,036,652	1,378,566	338,957	139,956	22,820	19,432	188,446
C H L Davis	54	2,957	1,779,585	2,748,864	966,322	193,038	53,023	48,963	694,279
A Prozes	57	—	—	—	—	—	—	—	—
P Tierney	58	—	—	1,325,718	1,325,718	126,298	126,298	126,298	1,325,718
D J Haank (resigned June 18, 2003)	50	11,201	1,484,705	1,925,916	430,010	181,007	20,017	15,348	152,104

Transfer values have been calculated in accordance with the guidance note “GN11” published by the UK Institute of Actuaries and Faculty of Actuaries.

The transfer value of individual directors represents a liability in respect of directors’ pensions entitlement, and is not an amount paid or payable to the director.

(d) Individual emoluments of non-executive directors

	2003	2002

G J de Boer Kruyt	£15,758	£13,522
J F Brock	43,448	35,849
M W Elliott (from April 8, 2003)	36,742	—
C J A van Lede (from April 8, 2003)	36,897	—
R J Nelissen (until April 8, 2003)	10,172 ⁽ⁱ⁾	35,849
S Perrick (until April 8, 2003)	10,172	35,849
D E Reid (from April 8, 2003)	36,742	—
Lord Sharman	48,544	35,849
R W H Stomberg	49,655	35,849
M Tabaksblat	193,103	176,101
D C Webster (until April 9, 2002)	—	8,962

Total	£481,233	£377,830

(i)	R J Nelissen has served as chairman of the supervisory board of Elsevier Reed Finance BV throughout the year. During the period April 9 to December 31, 2003 he received fees of £7,758 in such capacity.

Compensation of executive officers
The aggregate compensation paid to all executive officers (other than directors) of Reed Elsevier Group plc (five persons) as a group, for services in such capacities for the year ended December 31, 2003, was £1,687,665 which included contributions made to the pension plans in respect of such officers of £17,186.

Messrs. Prozes, Tierney and McGarr, together with certain other senior US-based executives and managers, participate in a bonus deferral plan that affords participants the ability to defer payment of all or part of the annual incentive bonuses otherwise payable to them, provided that such deferral is elected before the amount of such bonus is determined. Deferral can be for a stated term or until termination of employment. The deferred funds are credited with income based on the performance of specified reference investment funds or indices. Deferred funds may be drawn at any time subject to a 10% forfeiture, or without forfeiture in the event of severe financial hardship resulting from illness or accident to the participant or a beneficiary, loss of principal residence due to casualty or other circumstances beyond the control of the participant determined to constitute severe financial hardship by the Committee that administers the plan.

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BOARD PRACTICES

REED ELSEVIER
The boards of directors of Reed Elsevier PLC and Reed Elsevier NV manage their respective shareholdings in Reed Elsevier Group plc and Elsevier Reed Finance BV. The boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc are harmonised. Subject to approval by the respective shareholders, all the directors of Reed Elsevier Group plc are also directors of Reed Elsevier PLC and of Reed Elsevier NV. For a complete description of the board membership positions and executive officer positions within Reed Elsevier, see “Directors”. Details of the Audit Committees of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV are given under “Item 15: Controls and Procedures”.

REED ELSEVIER GROUP PLC
The Reed Elsevier Group plc board currently consists of five executive directors and seven independent non-executive directors. A person may only be appointed or proposed or recommended for appointment to the board if that person has been nominated for that appointment by the joint Nominations Committee of Reed Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier Group plc board, prior to appointment to the Reed Elsevier Group plc board.

Decisions of the board of directors of Reed Elsevier Group plc require a simple majority, and the quorum required for meetings of the board of Reed Elsevier Group plc is any two directors.

The Reed Elsevier Group plc board has established the following committees:

—

Strategy — comprising the Chairman, Chief Executive Officer and two non-executive directors

—

Audit — comprising three independent non-executive directors

—

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
The Reed Elsevier PLC board currently consists of five executive directors and seven independent non-executive directors. A person may only be appointed or proposed or recommended for appointment to the board if that person has been nominated for that appointment by the joint Nominations Committee of Reed Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier PLC board, prior to the appointment to the Reed Elsevier PLC board. A copy of the terms of reference of the Nominations Committee is available on request and can be viewed on the Reed Elsevier website at www.reedelsevier.com. The joint Nominations Committee comprises four non-executive directors, all of whom are independent, plus the Chief Executive Officer.

Notwithstanding the provisions outlined above in relation to the appointment to the board, Reed Elsevier PLC shareholders retain their rights under Reed Elsevier PLC’s Articles of Association to appoint directors to the Reed Elsevier PLC board by ordinary resolution. Reed Elsevier PLC shareholders may also, by ordinary resolution, remove a director from the board of Reed Elsevier PLC, and in such circumstances that director will also be required to be removed or resign from the boards of Reed Elsevier NV and Reed Elsevier Group plc (except in circumstances where there has been a change of control of Reed Elsevier PLC and not Reed Elsevier NV).

The Reed Elsevier PLC board has also established the following committees:

—

Audit — comprising three independent non-executive directors

—

Corporate Governance — a joint committee of Reed Elsevier PLC and Reed Elsevier NV, comprising all non-executive directors and members of the supervisory board of each company, all of whom are independent

Each director on the Reed Elsevier PLC board is required to retire by rotation at least every three years, and are able then to make themselves available for re-election by shareholders at the Annual General Meeting.

REED ELSEVIER NV
Reed Elsevier NV has a two-tier board structure currently comprising five executive directors (the “executive board”) and eight independent non-executive directors (the “supervisory board” and, together with the executive board, the “combined board”). A person may only be appointed or proposed or recommended for appointment to the boards if that person has been nominated for that appointment by the joint Nominations Committee of Reed Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier NV combined board prior to appointment to the Reed Elsevier NV executive or supervisory board and by Reed Elsevier NV shareholders. The joint Nominations Committee comprises four members of the supervisory board, all of whom are independent.

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).

The Reed Elsevier NV supervisory board has also established the following committees:

—

Audit — comprising three independent members of the Reed Elsevier NV supervisory board

—

Corporate Governance — a joint committee of Reed Elsevier NV and Reed Elsevier PLC, comprising all members of the supervisory board and non-executive directors of each company, all of whom are independent

Each director on the Reed Elsevier NV 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
Elsevier Reed Finance BV has a two-tier board structure comprising a management board, consisting of two members, and a supervisory board, consisting of three non-executive directors. The members of the management board and of the supervisory board are appointed by the shareholders of Elsevier Reed Finance BV. The Articles of Association of Elsevier Reed Finance BV provide that certain material resolutions of the management board will require the approval of the supervisory board. At a meeting of the supervisory board valid resolutions can be taken with a simple majority if the majority of the members are present or represented. Pursuant to the Articles of Association of Elsevier Reed Finance BV, there are specific provisions governing the appointment and dismissal of managing directors and supervisory directors during periods when a notice of suspension as mentioned in the governing agreement between Reed Elsevier PLC and Reed Elsevier NV is in force. These provisions intend to neutralise the influence of a party which has acquired control over either Reed Elsevier PLC or Reed Elsevier NV without having also acquired control in the other. For a complete description of the board membership positions within Elsevier Reed Finance BV, see “—Directors”.

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EMPLOYEES

Reed Elsevier’s average number of employees in the year ended December 31, 2003 was 35,600 (2002: 36,800, 2001: 34,600). Approximately 5,900 were located in the UK (2002: 6,100, 2001: 6,100), 20,200 in North America (2002: 21,300, 2001: 18,900), 2,700 in the Netherlands (2002: 2,800, 2001: 3,000), 3,900 in the rest of Europe (2002: 3,800, 2001: 3,700) and 2,900 in the rest of the world (2002: 2,800, 2001: 2,900). The average number of employees in the business segments in the year ended December 31, 2003 was 6,700 in Science & Medical (2002: 6,400, 2001: 5,200), 13,100 in Legal (2002: 13,300, 2001: 12,700), 5,400 in Education (2002: 5,800, 2001: 3,400) and 10,400 in Business (2002: 11,300, 2001: 13,300). At December 31, 2003, the number of employees was approximately 35,000, which comprised 6,800 in the Science & Medical segment, 12,800 in Legal, 5,300 in Education and 10,100 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. A Code of Ethics and Business Conduct applicable to employees within Reed Elsevier has been adopted throughout its businesses.

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SHARE OWNERSHIP

REED ELSEVIER PLC
Share options
The following table sets forth the details of options held by directors over Reed Elsevier PLC ordinary shares as at December 31, 2003 under share option schemes which are described below under “Reed Elsevier — Share option schemes”:

Over shares in Reed Elsevier PLC

		January 1, 2003	Granted during the year	Option price	Exercised during the year	Market price at exercise date	December 31, 2003	Exercisable from	Exercisable until

G J A van de Aast — Executive UK 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
			81,728	451.50			81,728	Feb, 21 2006	Feb 21, 2013
	— LTIP	509,404		638.00			509,404	Jan 1, 2005	Dec 31, 2005

Total		667,661	81,728				749,389

M H Armour — Executive UK Scheme		39,600		400.75p			39,600	Apr 26, 1998	Apr 26, 2005
		30,000		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
			104,319	451.50			104,319	Feb 21, 2006	Feb 21, 2013
	— Bonus Investment Plan 2002		11,327	Nil			11,327	Mar 21, 2006	Mar 21, 2006
	— 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		1,333,216	115,646				1,448,862

C H L Davis — Executive UK 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
			209,192	451.50			209,192	Feb 21, 2006	Feb 21, 2013
	— Bonus Investment Plan 2002		22,731	Nil			22,731	Mar 21, 2006	Mar 21, 2006
	— LTIP	1,718,213		436.50			1,718,213	Jan 1, 2005	Dec 31, 2005
	— Nil cost options	535,332		Nil	535,332 ⁽ⁱ⁾	498.00p	—
	— SAYE Scheme	5,019		336.20			5,019	Aug 1, 2005	Jan 31, 2006

Total		3,022,998	231,923		535,332		2,719,589

D J Haank	— Reed Elsevier NV	18,498 ⁽ⁱⁱ⁾		677.25p			—
(resigned June 18,	Executive Option Arrangements	18,497		537.50			18,497 ⁽ⁱⁱⁱ⁾	Apr 19, 1999	Apr 19, 2009
2003)	— Executive Overseas Scheme	51,368		436.50	51,368	525.00p	—
		51,110 ⁽ⁱⁱ⁾		659.00			—
		59,843 ⁽ⁱⁱ⁾		600.00			—
			93,231 ⁽ⁱⁱ⁾	451.50			—
	— LTIP	513,680 ⁽ⁱⁱ⁾		436.50			—

Total		712,996	93,231		51,368		18,497

A Prozes — Executive Overseas 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
			132,142	451.50			132,142	Feb 21, 2006	Feb 21, 2013
	— Bonus Investment Plan 2002		20,040	Nil			20,040	Mar 21, 2006	Mar 21, 2006
	— LTIP	941,406		566.00			941,406	Jan 1, 2005	Dec 31, 2005
	— Nil cost options	20,170		Nil	20,170 ^(iv)	492.00p	—

Total		1,337,364	152,182		20,170		1,469,376

P Tierney — Executive Overseas Scheme		396,426 ^(v)		451.50p			396,426	Feb 21, 2006	Feb 21, 2013
	— LTIP	1,321,420 ^(v)		451.50			1,321,420	Jan 1, 2008	Dec 31, 2008

Total		1,717,846					1,717,846

(i)	Retained an interest in 321,200 shares

(ii)	Options lapsed unexercised during the year

(iii)

At date of resignation as a director

(iv)	Retained an interest in all of the shares

(v)	At date of appointment as a director

The middle market price of a Reed Elsevier PLC ordinary share during the year was in the range 392.00p to 552.00p and at December 31, 2003 was 467.25p.

REED ELSEVIER NV
Share options
The following table sets forth the details of options held by directors over Reed Elsevier NV ordinary shares as at December 31, 2003 under share option schemes which are described below under “Reed Elsevier — Share option schemes”:

Over shares in Reed Elsevier NV

	January 1, 2003	Granted during the year	Option price	Exercised during the year	Market price at exercise date	December 31, 2003	Exercisable from	Exercisable until

G J A van de Aast — Executive UK 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
		58,191	9.34			58,191	Feb 21, 2006	Feb 21, 2013
— Bonus Investment Plan 2002		12,057	Nil			12,057	Mar 21, 2006	Mar 21, 2006
— LTIP	358,658		14.87			358,658	Jan 1, 2005	Dec 31, 2005

Total	470,371	70,248				540,619

M H Armour — Executive UK 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
		74,276	9.34			74,276	Feb 21, 2006	Feb 21, 2013
— Bonus Investment Plan 2002		8,030	Nil			8,030	Mar 21, 2006	Mar 21, 2006
— LTIP	617,256		10.73			617,256	Jan 1, 2005	Dec 31, 2005

Total	796,034	82,306				878,340

C H L Davis — Executive UK 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
		148,946	9.34			148,946	Feb 21, 2006	Feb 21, 2013
— Bonus Investment Plan 2002		16,115	Nil			16,115	Mar 21, 2006	Mar 21, 2006
— LTIP	1,202,446		10.73			1,202,446	Jan 1, 2005	Dec 31, 2005
— Nil cost options	319,250		Nil	319,250 ⁽ⁱ⁾	€10.42	—

Total	2,025,296	165,061		319,250		1,871,107

		January 1, 2003	Granted during the year	Option price	Exercised during the year	Market price at exercise date	December 31, 2003	Exercisable from	Exercisable until

D J Haank	— Reed Elsevier NV	30,000 ⁽ⁱⁱ⁾		€15.25			—
(resigned	Executive Arrangements	10,926 ⁽ⁱⁱ⁾		17.07			—
June 18,	Option	10,925		13.55			10,925 ⁽ⁱⁱⁱ⁾	Apr 19, 1999	Apr 19, 2009
2003)	— Executive Overseas Scheme	35,949 ⁽ⁱⁱ⁾		10.73			—
		36,426 ⁽ⁱⁱ⁾		14.75			—
		41,993 ⁽ⁱⁱ⁾		13.94			—
			66,381 ⁽ⁱⁱ⁾	9.34			—
— Bonus Investment Plan 2002			14,332 ⁽ⁱⁱ⁾	Nil			—
— LTIP		359,485 ⁽ⁱⁱ⁾		10.73			—

Total		525,704	80,713				10,925

A Prozes	— Executive Overseas 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
			94,086	9.34			94,086	Feb 21, 2006	Feb 22, 2013
— Bonus Investment Plan 2002			14,552	Nil			14,552	Mar 21, 2006	Mar 21, 2006
— LTIP		655,310		13.60			655,310	Jan 1, 2005	Dec 31, 2005
— Nil cost options		14,040		Nil	14,040 ^(iv)	€9.95	—

Total		932,909	108,638		14,040		1,027,507

P Tierney	— Executive Overseas Scheme	282,258 ^(v)		€9.34			282,258	Feb 21, 2006	Feb 21, 2013
— LTIP		940,860 ^(v)		9.34			940,860	Jan 1, 2005	Dec 31, 2005

Total		1,223,118					1,223,118

(i)	Retained an interest in 191,550 shares

(ii)	Options lapsed unexercised during the year

(iii)

At date of resignation as a director

(iv)	Retained an interest in all of the shares

(v)	At date of appointment as a director

The market price of a Reed Elsevier NV ordinary share during the year was in the range €8.13 to €12.03 and at December 31, 2003 was €9.85.

There have been no changes in the options held by directors over Reed Elsevier PLC and Reed Elsevier NV ordinary shares since December 31, 2003.

REED ELSEVIER
Share option schemes
As of 31 December 2003, Reed Elsevier operated and had granted share options under a number of equity-based compensation plans as follows

(i) All-Employee Option Plans
Reed Elsevier’s All-Employee Option Plans comprise:

(a) Reed Elsevier Group plc SAYE Share Option Scheme (the “SAYE Scheme”)
Options over Reed Elsevier PLC ordinary shares have been granted under the SAYE Scheme. Shares may be acquired at not less than the higher of (i) 80% of the closing middle market price for the relevant share on The London Stock Exchange three days before invitations to apply for options are issued, and (ii) if new shares are to be subscribed, their nominal value.

All UK employees of Reed Elsevier Group plc and participating companies under its control in employment at the date of invitation are entitled to participate in the SAYE Scheme. In addition, the directors of Reed Elsevier Group plc may permit other employees of Reed Elsevier Group plc and participating companies under its control to participate.

Invitations to apply for options may normally only be issued within 42 days after the announcement of the combined results of Reed Elsevier for any period. No options may be granted more than 10 years after the approval of the scheme.

On joining the SAYE Scheme, a save as you earn contract (a “Savings Contract”) must be entered into with an appropriate savings body, under which savings of between £5 and £250 per month may be made to such savings body for a period of three or five years. A bonus is payable under the Savings Contract at the end of the savings period. The amount of the monthly contributions may be reduced if applications exceed the number of Reed Elsevier PLC ordinary shares available for the grant of options on that occasion.

The number of Reed Elsevier PLC ordinary shares over which an option may be granted is limited to that number of shares which may be acquired at the exercise price out of the repayment proceeds (including any bonus) of the Savings Contract.

Options under the SAYE Scheme may normally only be exercised for a period of six months after the bonus date under the relevant Savings Contract. However, options may be exercised earlier than the normal exercise date in certain specified circumstances, including death, reaching age 60, or on ceasing employment on account of injury, disability, redundancy, reaching contractual retirement age, or the sale of the business or subsidiary for which the participant works, or provided the option has been held for at least three years, on ceasing employment for any other reason. Exercise is allowed in the event of an amalgamation, reconstruction or take-over of the company whose shares are under option; alternatively, such options may, with the agreement of an acquiring company or a company associated with it, be exchanged for options over shares in the acquiring company or that associated company. Options may also be exercised in the event of the 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).

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.

(b) Convertible debenture stock arrangements
For many years Dutch employees of Reed Elsevier have benefited from a mixed savings and option scheme. This facility consists of an annual issue by Reed Elsevier NV of a convertible debenture loan (the “Netherlands Convertible Debenture Stock Scheme”) that is open for subscription by Dutch staff employed by Reed Elsevier companies in the Netherlands or temporarily seconded to affiliates abroad. The interest rate of the scheme is determined on the basis of the average interest for 10-year loans at the end of the year preceding the year in which the loan would be issued and be open for subscription. With effect from February 19, 2004, for new issues interest will be determined quarterly on the basis of market rates on internet savings accounts in the Netherlands. Employees can annually subscribe for one or more debentures of €200 each, up to a maximum amount equal to 20% of the equivalent of their fixed annual salary components. Interest is payable in arrears in the month of January following the subscription year. The loans have a term of 10 years. During the 10 year term of the loan employees can decide to convert their claim on the Company into shares at an exercise price equal to the price of a Reed Elsevier NV ordinary share on Euronext Amsterdam at the end of the month in which the employee has subscribed for the loan (the “exercise price”). Each debenture of €200 can be converted into 50 ordinary shares in Reed Elsevier NV against payment of 50 times the exercise price, less €200.

(ii) Executive option plans
Reed Elsevier’s executive option plans comprise:

(a) Reed Elsevier Group plc executive share option schemes
Schemes in this group comprise the Reed Elsevier Group plc Executive UK Share Option Scheme (the “Executive UK Scheme”), the Reed Elsevier Group plc Executive Overseas Share Option Scheme (the “Executive Overseas Scheme”) and the Reed Elsevier Group plc Executive Share Option Schemes (No. 2) (the “No. 2 Scheme” and, together the “Executive Schemes”).

The Executive Schemes provide for the grant of options to employees of Reed Elsevier Group plc and participating companies under its control. All directors and employees of Reed Elsevier Group plc and participating companies under its control who are contracted to work for at least 25 hours per week are eligible to be nominated for participation. The grant of options is administered by a committee of non-executive directors of Reed Elsevier Group plc. No payment is required for the grant of an option under the Executive Schemes.

Options granted under the Executive Schemes may be exercised within a period of 10 years and entitle the holder to acquire shares at a price which may not be less than the higher of (i) in the case of a Reed Elsevier PLC ordinary share, the closing middle market price for the relevant share on The London Stock Exchange at the date of grant, (ii) in the case of a Reed Elsevier NV ordinary share, the closing market price for the relevant share on Euronext, Amsterdam at the date of grant and (iii) if new shares are to be subscribed, their nominal value.

Employees may be granted options under the Executive Schemes to replace those which have been exercised. In granting such replacement options, the committee of non-executive directors must satisfy itself that the grant of such options is justified by the performance of Reed Elsevier in the previous two to three years.

Options may normally only be granted under the Executive Schemes within 42 days after the announcement of the combined results of Reed Elsevier for any period. No option may be granted under the Executive Schemes more than 10 years after the approval of the respective scheme.

Options granted under the Executive Schemes will normally be exercisable only after the expiry of three years from the date of their grant and by a person who remains a director or employee of Reed Elsevier Group plc and participating companies under its control. Options granted from 1999 to the end of 2003 are subject to performance criteria. In order for an option to become exercisable, the average compound growth of the Reed Elsevier PLC and Reed Elsevier NV adjusted EPS (before amortisation of goodwill and intangible assets, exceptional items, related tax effects and UK tax credit equalisation) at constant exchange rates in the three years immediately preceding vesting, must exceed the average compound growth 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 under the Executive UK Scheme and the Executive Overseas Scheme may be satisfied from new issues or market purchase Reed Elsevier PLC ordinary shares or Reed Elsevier NV ordinary shares.

Options under the No. 2 Scheme may be satisfied only from market purchase Reed Elsevier PLC ordinary shares or Reed Elsevier NV ordinary shares.

(b) Reed Elsevier NV executive option arrangements
Under arrangements operated by Reed Elsevier NV (the “Reed Elsevier NV Executive Option Arrangements”), options to subscribe for Reed Elsevier NV ordinary shares were granted each year until 1999 to the members of the executive board and to a small number of other senior executives based in the Netherlands. Such options give the beneficiary the right, at any time during periods of either five years or ten years following the date of the grant, to purchase Reed Elsevier NV ordinary shares. Prior to 1999 all options granted under the Reed Elsevier NV Executive Option Arrangements could be exercised within a five year period from the date of grant, and the options were granted at an exercise price equal to the market price on the date of grant. During 1999, options were granted with an exercise period of five years at an exercise price 26% above the market price at the date of grant, or with an exercise period of 10 years at an exercise price equal to the market price at the date of grant, or a combination of both.

(c) Long term incentive plan
Options over shares in Reed Elsevier PLC and Reed Elsevier NV have been granted under the Reed Elsevier Group plc Senior Executive Long Term Incentive Scheme (the “LTIP”). Implementation of the LTIP was approved by shareholders of Reed Elsevier PLC and Reed Elsevier NV at their respective Annual General Meetings in April 2000. The terms of the LTIP permitted a one off grant of options to be made to executive directors and a limited number of key employees 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 Committee, and may only be exercised during the period January 1, 2005 and December 31, 2005, and then only if 20% per annum compound total shareholder return is achieved, together with individual performance targets.

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.

(d) Bonus investment plan
During the year, directors and other senior executives were able to invest up to half of their 2002 annual performance related bonus in Reed Elsevier PLC/Reed Elsevier NV shares under the Reed Elsevier Group plc Bonus Investment Plan 2002 (the “Bonus Investment Plan 2002”). Subject to continuing to hold the shares and remaining in employment, at the end of a three year period, the participants are awarded an equivalent number of Reed Elsevier PLC/Reed Elsevier NV shares at nil cost.

Limits over option grants
No options may be granted over new issue shares under the SAYE Scheme, the Executive UK Scheme and the Executive Overseas Scheme if they would cause the number of Reed Elsevier PLC ordinary shares issued or issuable in any 10 year period to exceed in aggregate 10% of the issued share capital of Reed Elsevier PLC from time to time. The number of Reed Elsevier NV ordinary shares which may be issued or issuable under the Netherlands Convertible Debenture Scheme, the Executive UK Scheme, the Executive Overseas Scheme and the Reed Elsevier NV Executive Option arrangements will be determined by the combined board of Reed Elsevier NV, but shall not exceed the percentage limits set out above in relation to Reed Elsevier PLC ordinary shares.

Shares under option
At February 18, 2004, the total number of ordinary shares subject to outstanding options were:

	Number of outstanding options	Options over shares	Option price range

Reed Elsevier Group plc SAYE Share Option Scheme	3,515,645	Reed Elsevier PLC	336.20p-543.20p
Reed Elsevier NV Convertible Debenture Stock Scheme	1,650,150	Reed Elsevier NV	€9.23-€19.69
Reed Elsevier Group plc Executive UK and Overseas Schemes	44,976,273	Reed Elsevier PLC	400.75p-700.00p
	29,450,480	Reed Elsevier NV	€8.81-€16.00
Reed Elsevier Group plc Executive Share Option Scheme (No. 2)	2,407,064	Reed Elsevier PLC	424.00p-537.40p
	1,422,828	Reed Elsevier NV	€9.57-€13.55
Reed Elsevier NV Executive Option Arrangements	525,046	Reed Elsevier NV	€11.93-€17.07
Reed Elsevier Group plc Senior Executive Long Term Incentive Scheme	12,385,458	Reed Elsevier PLC	436.50p-700.00p
	8,670,539	Reed Elsevier NV	€10.73-€15.66
Reed Elsevier Group plc Bonus Investment Plan 2002	232,461	Reed Elsevier PLC	Nil
	108,956	Reed Elsevier NV	Nil

Options granted under the schemes are not transferable and may be exercised only by the persons to whom they are granted or their personal representatives.

New Schemes approved during the year
At the Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV in April 2003 authority was given to implement new equity-based compensation plans. The Remuneration Committee has resolved to make initial grants under the new plans during 2004.

(a) SAYE
Reed Elsevier Group plc SAYE Share Option Scheme(2003)
The Reed Elsevier Group plc SAYE Share Option Scheme (2003) is substantially the same as its predecessor, Reed Elsevier Group plc SAYE Share Option Scheme (the “SAYE Scheme”) and the Remuneration Committee have resolved to make grants under it for the year 2004.

(b) 2003 Bonus Investment Plan
Awards under the 2003 Bonus Investment Plan will be subject to a performance condition requiring the achievement of compound growth in the average of the Reed Elsevier PLC and Reed Elsevier NV adjusted EPS, at constant exchange rates, of 6% per annum compound during the three year vesting period.

(c) Reed Elsevier Group plc Share Option Scheme (the “Share Option Scheme”)
The Remuneration Committee has agreed to award options under the Share Option Scheme to directors and selected employees from 2004. The size of the annual grant pool will be determined by reference to the compound annual growth in adjusted EPS, at constant exchange rates, over the three years prior to grant, with individual grant size determined by the Committee based on individual performance. At compound growth of between 8% and 10% per annum, the pool of options available will be broadly comparable to the level of options granted under the previous scheme. At executive director level the grants are expected to be up to 3 times salary. For executive directors, option grants will be subject to a performance condition requiring the achievement of 6% per annum compound growth in adjusted EPS, at constant exchange rates, during the three years following the grant. There will be no re-testing of the 3 year EPS performance period.

(d) Reed Elsevier Group plc Long Term Incentive Share Option Scheme (the “2003 LTIS”)
The Committee has agreed to award options under the 2003 LTIS to directors and a small number of key senior executives (approximately 40) during 2004. Approximately 50% of the total implied value of a grant under the 2003 LTIS will take the form of nil cost conditional shares and 50% will take the form of conventional market value options. For executive directors, grant levels are expected to comprise conditional shares of around 2.5 times salary and conventional options of 5.5 times salary, in any three year period. Grants will vest subject to the achievement of compound annual adjusted EPS growth, at constant exchange rates, of between 8% and 12%. At 8% compound annual adjusted growth 25% of the award will vest; at 10% compound annual adjusted growth 100% of the award will vest; and at 12% compound annual adjusted growth 125% of the award would vest. Awards will vest on a straightline basis between each of these points. There will be no re-testing of the three year performance period. Acceptance of an award under the 2003 LTIS by any individual will automatically terminate any option award under the Reed Elsevier Group plc long term incentive arrangement (the “LTIP”). Participants in the 2003 LTIS 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 three year period.

In order to ensure consistent measurement and accountability, the Remuneration Committee has the discretion to amend adjusted EPS to take account of any change in accounting standards or practice, fiscal regime or capital structure. The Remuneration Committee also has full discretion to reduce or cancel awards to participants based on its assessment as to whether the adjusted EPS growth is a fair reflection of the progress of the business having regard to underlying revenue growth, cash generation, return on capital and any significant changes in inflation as well as on individual performance, even if the adjusted EPS target is met.

REED ELSEVIER
Share ownership
The interests of the directors of Reed Elsevier PLC and Reed Elsevier NV in the issued share capital of the respective companies at the beginning and end of the year are shown below:

	Reed Elsevier PLC ordinary shares		Reed Elsevier NV ordinary shares

	January 1, 2003 ⁽ⁱ⁾	December 31, 2003	January 1, 2003 ⁽ⁱ⁾	December 31, 2003

G J A van de Aast	—	—	12,500	19,684
M H Armour	22,500	31,738	2,500	22,284
G J de Boer Kruyt	—	—	—	—
J F Brock	3,000	3,000	—	—
C H L Davis	115,571	450,293	81,553	282,704
M W Elliott	—	—	—	—
C J A van Lede	—	—	11,100	11,100
A Prozes	63,497	96,525	44,400	67,774
D E Reid	—	—	—	—
Lord Sharman	—	—	—	—
R W H Stomberg	—	—	—	—
M Tabaksblat	—	—	8,000	8,000
P Tierney	—	12,000	—	8,000
D J Haank (resigned June 18, 2003)	—	— ⁽ⁱⁱ⁾	31,880	38,735 ⁽ⁱⁱ⁾
R J Nelissen (resigned April 8, 2003)	—	— ⁽ⁱⁱ⁾	5,000	5,000 ⁽ⁱⁱ⁾
S Perrick (resigned April 8, 2003)	—	— ⁽ⁱⁱ⁾	4,000	4,000 ⁽ⁱⁱ⁾

(i)	At date of appointment as a director, if later.

(ii)	At date of resignation as a director.

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 potential beneficiary under the EBT, each executive director is deemed to be interested in all the shares held by the EBT which, at December 31, 2003, amounted to 6,383,333 Reed Elsevier PLC ordinary shares and 1,327,777 Reed Elsevier NV ordinary shares.

There have been no changes in the interests of the directors in the share capital of Reed Elsevier PLC or Reed Elsevier NV since December 31, 2003.

Shares and options held by executive officers
The following table indicates the total aggregate number of Reed Elsevier PLC ordinary shares and Reed Elsevier NV ordinary shares beneficially owned and the total aggregate number of Reed Elsevier PLC ordinary shares and Reed Elsevier NV ordinary shares held by the executive officers (other than directors) of Reed Elsevier Group plc (five persons) as a group, as of February 18, 2004:

	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	74,633	1,624,431	29,934	1,148,895

(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 nil to 700p per share and between the date hereof and 2013. The options over Reed Elsevier NV ordinary shares included in the above table are exercisable at prices ranging from nil to €15.66 per share and between the date hereof and 2013.

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ITEM 7: MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

REED ELSEVIER PLC
As of February 18, 2004, Reed Elsevier PLC is aware of the following disclosable interests in the issued Reed Elsevier PLC ordinary shares:

Identity of Person or Group ⁽¹⁾	Number of Reed Elsevier PLC ordinary shares owned	% of Class

The Capital Group Companies, Inc	77,918,935	6.13
Legal & General Group plc	44,174,343	3.47
Oechsle International Advisors, LLC	42,907,149	3.37
Directors and Officers	668,190	—

(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, 2003, there were 29,390 ordinary shareholders, including the depository for Reed Elsevier PLC’s ADR programme, with a registered address in the United Kingdom, representing 99.6% of shares issued.

Reed Elsevier PLC is not aware of any arrangements the operation of which may at a subsequent date result in a change in control of Reed Elsevier PLC. The major shareholders of Reed Elsevier PLC do not have different voting rights to other ordinary shareholders.

REED ELSEVIER NV
As of February 18, 2004, Reed Elsevier NV is aware of the following disclosable interests in the issued Reed Elsevier NV ordinary shares, in addition to the 4,679,249 R-shares in Reed Elsevier NV held by a subsidiary of Reed Elsevier PLC and representing a 5.8% indirect equity interest in the total share capital of Reed Elsevier NV:

Identity of Person or Group ⁽¹⁾	Number of Reed Elsevier NV ordinary shares owned	% of Class

ING Group	43,427,688	5.8
Directors and Officers ⁽²⁾	467,281	—

(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.

RELATED PARTY TRANSACTIONS

REED ELSEVIER PLC	None required to be reported.
REED ELSEVIER NV	None required to be reported.

55

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ITEM 8: FINANCIAL INFORMATION

FINANCIAL STATEMENTS
See Item 18: Financial Statements.

DIVIDEND POLICY
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation — as defined in the Reed Elsevier merger agreement — is the spot euro/sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend. Reed Elsevier pursues a policy of modest growth in dividends. We expect to maintain over the longer term a level of dividend cover, calculated using earnings before the amortisation of goodwill and intangible assets, exceptional items and related tax effects, of at least two times.

LEGAL PROCEEDINGS
We are party to various legal proceedings, the ultimate resolutions of which are not expected to have a material adverse effect on our financial position or results of our operations other than as described below.

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’ copyrights by making plaintiffs’ works available on databases operated by the defendants. The plaintiffs are seeking to be certified as class representatives of all similarly-suited 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. recaptioned Mallah 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. REI believes that it has strong substantive defences to this action and will vigorously pursue them.

REI has been named a defendant in two putative class actions captioned Richard Fresco, et al. v. Automotive Directions, Inc., et al. and Betty D. Russell, et al. v. ChoicePoint Services, Inc. et al. brought in federal district courts in Florida and Louisiana, respectively, alleging that REI (through LexisNexis) violated certain provisions of the Driver’s Privacy Protection Act, 18 U.S.C. §§ 2721-2725 (the “DPPA”), when REI obtained and disclosed information originating from various state departments of highway safety and motor vehicles without the consent of the individuals to whom the information related. In addition, in the Russell case, REI is also alleged to have violated the Fair Credit Reporting Act, 15 U.S.C.§§ 1681, et seq. (the “FCRA”) and a related Louisiana statute through its provision of motor vehicle and drivers license records. In the Fresco case, REI is one of several named defendants. The complaints were filed in August 2003 and July 2003, respectively. No proceedings relating to the class certification motions, or other proceedings of substance, have yet occurred in the Fresco case. On January 30, 2004, the district court in the Russell case dismissed with prejudice the plaintiffs’ claims alleging that REI unlawfully obtained the records at issue. The court also dismissed for lack of standing the plaintiffs’ claims that their personal records had been unlawfully disclosed by REI. The plaintiffs subsequently filed an amended complaint omitting their former claims under the DPPA but restating their claims under the FCRA and state law. As the FCRA and state statutory claims remain, this order is not final so as to be subject to appeal at this point. REI has indemnity agreements from the entities that supplied REI with some of the information at issue in these matters. However, REI could still be adversely affected where indemnities were not obtained or where indemnities are available, in the event that the plaintiffs are successful in their claims and full recovery is not available under the indemnities. The plaintiffs in each case seek unspecified compensatory and statutory liquidated damages, attorneys’ fees and costs, and injunctive relief, and in the Russell case, plaintiffs are also seeking punitive damages. REI believes it has strong procedural and substantive defenses to these actions and will vigorously pursue them.

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ITEM 9: THE OFFER AND LISTING

TRADING MARKETS

REED ELSEVIER PLC

The Reed Elsevier PLC ordinary shares are listed on the London Stock Exchange and the New York Stock Exchange. The London Stock Exchange is the principal trading market for Reed Elsevier PLC ordinary shares. Trading on the New York Stock Exchange is in the form of American Depositary Shares (ADSs), evidenced by American Depositary Receipts (ADRs) issued by The Bank of New York, as depositary. Each ADS represents four Reed Elsevier PLC ordinary shares.

The table below sets forth, for the periods indicated, the high and low closing middle market quotations for the Reed Elsevier PLC ordinary shares on the London Stock Exchange as derived from the Daily Official List of the London Stock Exchange and the high and low last reported sales prices in US dollars for the Reed Elsevier PLC ADSs on the New York Stock Exchange, as derived from the New York Stock Exchange Composite Tape, and reported by Datastream International Ltd:

	Pence per ordinary share		US dollars per ADS

Calendar Periods	High	Low	High	Low

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
2003	552	392	37.14	26.15

2003
First Quarter	552	392	36.15	26.15
Second Quarter	550	461	37.14	30.05
Third Quarter	524	469	33.95	30.75
Fourth Quarter	499	445	34.52	31.10

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 2004 (through February 18, 2004)	478	450	36.75	34.81
January 2004	491	450	36.03	33.33
December 2003	494	445	34.52	31.79
November 2003	479	456	33.57	31.10
October 2003	499	458	33.82	31.63
September 2003	524	471	33.77	31.45
August 2003	505	469	32.85	30.75

REED ELSEVIER NV

The Reed Elsevier NV ordinary shares are quoted on Euronext Amsterdam N.V. and the New York Stock Exchange. Euronext Amsterdam N.V. is the principal trading market for Reed Elsevier NV ordinary shares. Trading on the New York Stock Exchange is in the form of ADSs, evidenced by ADRs issued by The Bank of New York, as depositary. Each ADS represents two Reed Elsevier NV ordinary shares.

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 ADSs on the New York Stock Exchange, as derived from the New York Stock Exchange Composite Tape, and reported by Datastream International Ltd.

	€ per ordinary share		US dollars per ADS

Calendar Periods	High	Low	High	Low

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
2003	12.03	8.13	26.08	18.14

2003
First Quarter	12.03	8.13	25.08	18.14
Second Quarter	11.16	9.57	26.08	21.16
Third Quarter	10.89	9.63	24.22	21.90
Fourth Quarter	10.41	9.36	25.42	22.38

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 2004 (through February 18, 2004)	10.34	9.98	26.70	25.56
January 2004	10.45	9.61	26.48	24.55
December 2003	10.41	9.36	25.42	23.31
November 2003	10.12	9.56	24.42	22.38
October 2003	10.23	9.58	24.10	22.43
September 2003	10.89	9.70	24.22	22.30
August 2003	10.41	9.63	23.55	21.90

58

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ITEM 10: ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

REED ELSEVIER PLC
A summary of Reed Elsevier PLC’s equity capital structure and related summary information concerning provisions of its Memorandum and Articles of Association and applicable English law as at March 2001 is incorporated by reference from the 2000 Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 13, 2001. Since March 2001 a number of amendments have been made to the articles of association. A summary of those changes is incorporated by reference from the 2002 Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 10, 2003. Being summaries, they do not contain all the information that may be important to you, and they are qualified in their entirety by reference to the UK Companies Act 1985 and the Reed Elsevier PLC Memorandum and Articles of Association. For more complete information, you should read Reed Elsevier PLC’s Memorandum and Articles of Association. A copy of Reed Elsevier PLC’s Memorandum and Articles of Association is incorporated by reference from the 2002 Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 10, 2003 — see “Item 19: Exhibits” on page F-80.

REED ELSEVIER NV
A summary of Reed Elsevier NV’s equity capital structure and related summary information concerning provisions of its Articles of Association and applicable Dutch law as at March 2001 is incorporated by reference from the 2000 Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 13, 2001. Since March 2001 a number of amendments have been made to the articles of association. A summary of those changes is incorporated by reference from the 2002 Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 10, 2003. Being summaries they do not contain all the information that may be important to you, and they are qualified in their entirety by reference to Dutch law and the Articles of Association of Reed Elsevier NV. For more complete information, you should read Reed Elsevier NV’s Articles of Association. A copy of Reed Elsevier NV’s Articles of Association is incorporated by reference from the 2002 Annual Report on Form 20-F filed with the Securities and Exchange Commission on March 10, 2003 — see “Item 19: Exhibits” on page F-80.

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MATERIAL CONTRACTS

Reed Elsevier has not entered into any material contract within the last two years.

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EXCHANGE CONTROLS

There are currently no UK or Dutch decrees or regulations restricting the import or export of capital or affecting the remittance of dividends or other payments to holders of, respectively, Reed Elsevier PLC ordinary shares who are non-residents of the United Kingdom and Reed Elsevier NV ordinary shares who are non-residents of the Netherlands.

There are no limitations relating only to non-residents of the United Kingdom under UK law or Reed Elsevier PLC’s Memorandum and Articles of Association or on the right to be a holder of, and to vote, Reed Elsevier PLC ordinary shares, or to non-residents of the Netherlands under Dutch law or Reed Elsevier NV’s Articles of Association on the right to be a holder of, and to vote, Reed Elsevier NV ordinary shares.

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TAXATION

The following discussion is a summary under present law of the material UK, Dutch and US federal income tax considerations relevant to the purchase, ownership and disposition of Reed Elsevier PLC ordinary shares or ADSs and Reed Elsevier NV ordinary shares or ADSs. This discussion applies to you only if you are a US holder, you hold your ordinary shares or ADSs as capital assets and you use the US dollar as your functional currency. It does not address the tax treatment of US holders subject to special rules, such as banks, dealers, insurance companies, tax-exempt entities, holders of 10% or more of Reed Elsevier PLC or Reed Elsevier NV voting shares, persons holding ordinary shares or ADSs as part of a hedging, straddle, conversion or constructive sale transaction, persons that are resident or ordinarily resident in the UK (or who have ceased to be resident since March 17, 1998) and persons that are resident in the Netherlands. The summary also does not discuss the tax laws of particular states or localities in the US.

This summary does not consider your particular circumstances. It is not a substitute for tax advice. We urge you to consult your own tax advisors about the income tax consequences to you in light of your particular circumstances of purchasing, holding and disposing of ordinary shares or ADSs.

As used in this discussion, “US holder” means a beneficial owner of ordinary shares or ADSs that is (i) a US citizen or resident, (ii) a corporation, partnership or other business entity created or organised under the laws of the United States or any constituent jurisdiction, (iii) a trust (a) that is subject to the control of a US person and the primary supervision of a US court, or (b) that has valid election in effect under US Treasury regulations to be treated as a US person or (iv) an estate the income of which is subject to US federal income taxation regardless of its source.

UK Taxation
Dividends
Under current UK taxation legislation, no tax is required to be withheld at source from dividends paid on the Reed Elsevier PLC ordinary shares or ADSs. See “US Federal Income Taxation — Dividends”.

Capital Gains
You will not be liable for UK taxation on capital gains realised on the disposal of your Reed Elsevier PLC ordinary shares or ADSs unless at the time of the disposal you carry on a trade, profession or vocation in the United Kingdom through a branch or agency and such ordinary shares or ADSs are or have been used, held or acquired for the purposes of such trade, profession, vocation, branch or agency. For companies, in relation to accounting periods commencing on or after January 1, 2003, references to “branch or agency” above should be read as references to “permanent establishment”.

UK Stamp Duty and Stamp Duty Reserve Tax
UK stamp duty reserve tax (SDRT) or UK stamp duty is payable upon the transfer or issue of Reed Elsevier PLC ordinary shares to the Depositary in exchange for Reed Elsevier PLC ADSs evidenced by ADRs. For this purpose, the current rate of stamp duty and SDRT is 1.5% applied, in each case, to the amount or value of the consideration or, in some circumstances, to the value of the ordinary shares.

Provided that the instrument of transfer is not executed in the UK and remains outside the UK, no UK stamp duty will be payable on the acquisition or subsequent transfer of Reed Elsevier PLC ADRs. Agreement to transfer Reed Elsevier PLC ADRs will not give rise to a liability to SDRT.

A transfer of Reed Elsevier PLC ordinary shares by the Depositary to an ADR holder where there is no transfer of beneficial ownership will give rise to UK stamp duty at the rate of £5 per transfer.

Purchases of Reed Elsevier PLC ordinary shares, as opposed to ADRs, will give rise to UK stamp duty or SDRT at the time of transfer or agreement to transfer, normally at the rate of 0.5% of the amount payable for the ordinary shares. SDRT and UK stamp duty are usually paid by the purchaser. If the ordinary shares are later transferred to the Depositary, additional UK stamp duty or SDRT will normally be payable as described above.

Dutch Taxation
Withholding tax
Dividends distributed to you by Reed Elsevier NV normally are subject to a withholding tax imposed by the Netherlands at a rate of 25%. Under the US-Netherlands income tax treaty, the rate of Dutch withholding tax on dividends distributed to you can be reduced from 25% to 15%. Dividends include, among other things, stock dividends unless the dividend is distributed out of recognised paid-in share premium for Dutch tax purposes.

You can claim the benefits of the reduced US-Netherlands income tax treaty withholding rate by submitting a Form IB 92 U.S.A. that includes an affidavit of a financial institution (typically the entity that holds the Reed Elsevier NV ordinary shares or ADSs for you as custodian). If Reed Elsevier NV receives the required documentation before the relevant dividend payment date, it may apply the reduced withholding rate at source. If you fail to satisfy these requirements, you can claim a refund of the excess amount withheld by filing Form IB 92 U.S.A. with the Dutch tax authorities within three years after the calendar year in which the withholding tax was levied and describing the circumstances that prevented you from claiming withholding tax relief at source.

Taxation of dividends and capital gains
You will not be subject to any Dutch taxes on dividends distributed by Reed Elsevier NV (other than the withholding tax described above) or any capital gain realised on the disposal of Reed Elsevier NV ordinary shares or ADSs provided that (i) the Reed Elsevier NV ordinary shares or ADSs are not attributable to an enterprise or an interest in an enterprise that you carry on, in whole or part through a permanent establishment or a permanent representative in the Netherlands, (ii) you do not have a substantial interest or a deemed substantial interest in Reed Elsevier NV (generally, 5% or more of either the total issued and outstanding capital or the issued and outstanding capital of any class of shares) or, if you have such an interest, it forms part of the assets of an enterprise, and (iii) if you are an individual, such dividend or capital gain from your Reed Elsevier NV ordinary shares or ADSs does not form benefits from miscellaneous activities (“ resultaat uit overige werkzaamheden ”) in the Netherlands.

US Federal Income Taxation
Holders of the ADSs generally will be treated for US federal income tax purposes as owners of the ordinary shares represented by the ADSs.

Dividends
Dividends on Reed Elsevier PLC ordinary shares or ADSs or Reed Elsevier NV ordinary shares or ADSs (including any Dutch tax withheld) will generally be included in your gross income as ordinary income from foreign sources. The dollar amount recognised on receiving a dividend in pounds sterling or euros will be based on the exchange rate in effect on the date the depositary receives the dividend, or in the case of ordinary shares on the date you receive the dividend, as the case may be, whether or not the payment is converted into US dollars at that time. Any gain or loss recognised on a subsequent conversion of pounds sterling or euros for a different amount will be US source ordinary income or loss. Dividends received will not be eligible for the dividends-received deduction available to corporations.

On March 31, 2003, representatives of the United Kingdom and United States exchanged instruments of ratification for a new income tax convention (the “New UK Treaty”). The New UK Treaty has the force and effect of law in respect of withholding taxes on dividends from May 1, 2003. Investors who qualified for benefits under the terms of the prior treaty between the United Kingdom and United States (the “Old UK Treaty”) were eligible, subject to generally applicable limitations, to receive a special US foreign tax credit equal to one-ninth of the amount of certain cash dividends that they received on the Reed Elsevier PLC ordinary shares or Reed Elsevier PLC ADSs, so long as they made an election to include in their income, as an additional notional dividend, an amount equal to the tax credit.

This foreign tax credit benefit is not available under the New UK Treaty, and thus generally is unavailable with respect to dividends paid after May 1, 2003. However, the New UK Treaty provides for an election pursuant to which persons eligible for the benefits of the Old UK Treaty may elect to apply the Old UK Treaty in its entirety, in lieu of the New UK Treaty, for an optional 12-month extension period. Thus, if an investor were to elect the application of the Old UK Treaty, that investor could obtain the special foreign tax credit benefit described above with respect to any dividends received on the Reed Elsevier PLC ordinary shares or Reed Elsevier PLC ADSs prior to May 1, 2004. Investors should consult their own tax advisers regarding their potential eligibility for this foreign tax credit benefit, as well as the advisability of and procedure for electing the application of the Old UK Treaty and for including in income the additional notional dividend described above.

If you hold Reed Elsevier NV ordinary shares or ADSs and are eligible to claim benefits under the US-Netherlands income tax treaty, you may claim a reduced rate of Dutch dividend withholding tax equal to 15%. Subject to generally applicable limitations, you can claim a deduction or a foreign tax credit only for Dutch tax withheld at the rate provided under the US-Netherlands income tax treaty.

With respect to US holders who are individuals, certain dividends received before January 1, 2009 from a qualified foreign corporation may be subject to reduced rates of taxation. A qualified foreign corporation includes a foreign corporation that is eligible for the benefits of certain comprehensive income tax treaties with the United States. United States Treasury Department guidance indicates that the United Kingdom is a country with which the United States has a treaty in force that meets these requirements, and Reed Elsevier PLC believes it is eligible for the benefits of this treaty. Additionally, the same guidance indicates that the Netherlands is also a country with which the United States has a treaty in force that meets the above requirements, and Reed Elsevier NV believes it is eligible for the benefits of this treaty. Individuals that do not meet a minimum holding period requirement during which they are not protected from the risk of loss or that elect to treat the dividend income as “investment income” pursuant to section 163(d)(4) of the US Internal Revenue Code of 1986, as amended will not be eligible for the reduced rates of taxation. In addition, the rate reduction will not apply to dividends if the recipient of a dividend is obligated to make related payments with respect to positions in substantially similar or related property. This disallowance applies even if the minimum holding period has been met. US holders should consult their own tax advisors regarding the application of these rules given their particular circumstances.

Dispositions
You will recognise capital gain or loss on the sale or other disposition of ordinary shares or ADSs in an amount equal to the difference between your basis in the ordinary shares or ADSs and the amount realised. The gain or loss will be capital gain or loss. It will be long term capital gain or loss if you have held the ordinary shares or ADSs for more than one year at the time of sale or other disposition. Long term capital gains of individuals are eligible for reduced rates of taxation. Deductions for capital losses are subject to limitations.

If you receive pounds sterling or euros on the sale or other disposition of your ordinary shares or ADSs, you will realise an amount equal to the US dollar value of the pounds sterling or euros on the date of sale or other disposition (or in the case of cash basis and electing accrual basis taxpayers, the settlement date). You will have a tax basis in the pounds sterling or the euros you receive equal to the US dollar amount received. Any gain or loss realised by a US holder on a subsequent conversion of pounds sterling or euros into US dollars will be US source ordinary income or loss.

Information Reporting and Backup Withholding
Dividends from ordinary shares or ADSs and proceeds from the sale of the ordinary shares or ADSs may be reported to the IRS, and a backup withholding tax may apply to such amounts unless the shareholder (i) is a corporation, (ii) provides an accurate taxpayer identification number (in the case of a US holder) or a properly executed IRS Form W-8BEN (in the case of other shareholders) or (iii) otherwise establishes a basis for exemption. The amount of any backup withholding tax will be allowed as a credit against the holder’s US federal income tax liability.

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DOCUMENTS ON DISPLAY

You may read and copy documents referred to in this annual report that have been filed with the SEC at the SEC’s public reference room located at 450 Fifth Street, NW, Washington, DC, 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms and their copy charges.

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ITEM 11: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reed Elsevier’s primary market risk exposures are to interest rate fluctuations and to exchange rate movements. Net interest expense is exposed to interest rate fluctuations on borrowings, cash and short term investments. Upward fluctuations in interest rates increase the interest cost of floating rate borrowings whereas downward fluctuations in interest rates decrease the interest return on floating rate cash deposits and short term investments. Fixed rate borrowings are protected against upward fluctuations in interest rates but do not benefit from downward fluctuations. In addition, Reed Elsevier companies engage in foreign currency denominated transactions and are subject to exchange rate risk on such transactions.

Reed Elsevier seeks to limit these risks by means of financial instruments, including interest rate swaps, interest rate options, forward rate agreements and forward foreign exchange contracts. Reed Elsevier only enters into financial instruments to hedge (or reduce) the underlying risks described above, and therefore has no net market risk on financial instruments held at the end of the year. Reed Elsevier does, however, have a credit risk from the potential non-performance by the counterparties to these financial instruments, which are unsecured. The amount of this credit risk is normally restricted to the amount of the hedge gain and not the principal amount being hedged. This credit risk is controlled by means of regular credit reviews of these counterparties and of the amounts outstanding with each of them. Reed Elsevier does not expect non-performance by the counterparties, which are principally licensed commercial banks and investment banks with strong long term credit ratings.

Reed Elsevier enters into interest rate swaps in order to achieve an appropriate balance between fixed and variable rate borrowings, cash and short term investments. They are used to hedge the effects of fluctuating interest rates on variable rate borrowings, cash and short term investments by allowing Reed Elsevier to fix the interest rate on a notional principal amount equal to the principal amount of the underlying floating rate cash, short term investments or borrowings being hedged. They are also used to swap fixed interest rates payable on long term borrowings for a variable rate. Such swaps may be used to swap a whole fixed rate bond for variable rate or they may be used to swap a portion of the period or a portion of the principal amount for the variable rate.

Forward swaps and forward rate agreements are entered into to hedge interest rate exposures known to arise at a future date. These exposures may include new borrowings or cash deposits and short term investments to be entered into at a future date or future rollovers of existing borrowings or cash deposits and short term investments. Interest exposure arises on future new and rollover borrowings, cash deposits and short term investments because interest rates can fluctuate between the time a decision is made to enter into such transactions and the time those transactions are actually entered into. The business purpose of forward swaps and forward rate agreements is to fix the interest cost on future borrowings or interest return on cash investments at the time it is known such a transaction will be entered into. The fixed interest rate, the floating rate index (if applicable) and the time period covered by forward swaps and forward rate agreements are known at the time the agreements are entered into. The use of forward swaps and forward rate agreements is limited to hedging activities; consequently no trading position results from their use. The impact of forward swaps and forward rate agreements is the same as interest rate swaps. Similarly, Reed Elsevier utilises forward foreign exchange contracts to hedge the effects of exchange rate movements on its foreign currency turnover and operating costs.

Interest rate options protect against fluctuating interest rates by enabling Reed Elsevier to fix the interest rate on a notional principal amount of borrowings or cash deposits and short term investments (in a similar manner to interest rate swaps and forward rate agreements) whilst at the same time allowing Reed Elsevier to improve the fixed rate if the market moves in a certain way. Reed Elsevier uses interest rate options from time to time when it expects interest rates to move in its favour but it is deemed imprudent to leave the interest rate risk completely unhedged. In such cases, Reed Elsevier may use an option to lock in at certain rates whilst at the same time maintaining some freedom to benefit if rates move in its favour.

Financial instruments are utilised to hedge (or reduce) the risks of interest rate or exchange rate movements and are not entered into unless such risks exist. Financial instruments utilised, while appropriate for hedging a particular kind of risk, are not considered specialised or high-risk and are generally available from numerous sources.

The following analysis sets out the sensitivity of the fair value of Reed Elsevier’s financial instruments to selected changes in interest rates and exchange rates. The range of changes represents Reed Elsevier’s view of the changes that are reasonably possible over a one year period.

The fair values of instruments with interest rate and foreign currency risks are calculated by discounting future cash flows to net present values. The interest rates, volatility, spot and forward exchange rates used in the calculation are market rates obtained on the valuation date. Calculated market values are compared to counterparty valuations for reasonableness.

Reed Elsevier’s use of financial instruments and its accounting policies for financial instruments are described more fully in note 2 and note 23 to the combined financial statements.

(a) Interest Rate Risk
The following sensitivity analysis assumes an immediate 100 basis point change in interest rates for all currencies and maturities from their levels at December 31, 2003 and December 31, 2002, with all other variables held constant.

Financial Instrument	Fair Value December 31, 2003	Fair Value Change		Fair Value December 31, 2002	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)	£(1,921)	£49	£(56)	£(2,139)	£81	£(93)
Short term debt	(1,179)	1	(1)	(1,278)	1	(1)
Interest rate swaps	(54)	15	(15)	(73)	22	(25)
Interest rate options	(33)	9	(9)	(65)	14	(14)
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, 2003, 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 £6 million (2002: £3 million), based on the composition of financial instruments including cash, short term investments, bank loans and commercial paper borrowings at December 31, 2003. A 100 basis points rise in interest rates would increase net interest expense by £6 million (2002: £3 million).

(b) Foreign Currency Exchange Rate Risks
The following sensitivity analysis assumes an immediate 10% change in all foreign currency exchange rates against sterling from their levels at December 31, 2003 and December 31, 2002, with all other variables held constant. A +10% change indicates a strengthening of the currency against sterling and a –10% change indicates a weakening of the currency against sterling.

Financial Instrument	Fair Value December 31, 2003	Fair Value Change		Fair Value December 31, 2002	Fair Value Change

		+10%	–10%		+10%	–10%

	(in millions )			(in millions )

Long term debt (including current portion)	£(1,921)	£(213)	£175	£(2,139)	£(236)	£193
Short term debt	(1,179)	(130)	108	(1,278)	(141)	117
Cash and short term investments	638	28	(22)	569	33	(26)
Interest rate swaps	(54)	(6)	5	(73)	(8)	7
Interest rate options	(33)	(4)	3	(65)	(7)	6
Forward foreign currency contracts	5	(1)	—	8	(13)	12
Other financial assets	64	7	(5)	98	8	(7)
Other financial liabilities	(64)	(7)	6	(89)	(10)	8

64

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PART II

ITEM 15: CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
Management, including the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV, have reviewed and evaluated the effectiveness of our disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV have concluded that our disclosure controls and procedures are effective as of the end of the period covered by this report, timely providing them with all material information required to be disclosed in this annual report.

Internal Controls over Financial Reporting
Management, including the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV, have reviewed whether or not during the period covered by the annual report, there have been any changes in internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting. Based on that review, the Chief Executive Officer and Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV have concluded that there have been no such significant changes.

An outline of the internal control structure is set out below.

Parent companies
The boards of Reed Elsevier PLC and Reed Elsevier NV exercise independent supervisory roles over the activities and systems of internal control of Reed Elsevier Group plc and Elsevier Reed Finance BV. The boards of Reed Elsevier PLC and Reed Elsevier NV have each adopted a schedule of matters which are required to be brought to them for decision. In relation to Reed Elsevier Group plc and Elsevier Reed Finance BV, the boards of Reed Elsevier PLC and Reed Elsevier NV approve the strategy and the annual budgets, and receive regular reports on their operations, including the treasury and risk management activities of the two companies. Major transactions proposed by the boards of Reed Elsevier Group plc or Elsevier Reed Finance BV require the approval of the boards of both Reed Elsevier PLC and Reed Elsevier NV.

The Reed Elsevier PLC and Reed Elsevier NV Audit Committees meet on a regular basis to review the systems of internal control of Reed Elsevier Group plc and Elsevier Reed Finance BV.

Operating companies
The board of Reed Elsevier Group plc is responsible for the system of internal control of the Reed Elsevier publishing and information businesses, while the boards of Elsevier Reed Finance BV are responsible for the system of internal control in respect of the finance group activities. The boards of Reed Elsevier Group plc and Elsevier Reed Finance BV are also responsible for reviewing the effectiveness of their system of internal control. The objective of these systems is to manage, rather than eliminate, the risk of failure to achieve business objectives. Accordingly, they can only provide reasonable, but not absolute, assurance against material misstatement or loss.

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, 2003, and up to the date of the approvals of this annual report.

Reed Elsevier Group plc
Reed Elsevier Group plc has an established framework of procedures and internal controls, which is set out in a group Policies and Procedures Manual, and with which the management of each business is required to comply. Group businesses are required to maintain systems of internal control, which are appropriate to the nature and scale of their activities and address all significant operational and financial risks that they face. The board of Reed Elsevier Group plc has adopted a schedule of matters that are required to be brought to it for decision.

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. 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 effectiveness of its internal controls and report its findings on a detailed basis to the management of Reed Elsevier Group plc. These reports are summarised and, as part of the annual review of effectiveness, submitted to the Audit Committee of Reed Elsevier Group plc. The Chairman of the Audit Committee reports to the board on any significant internal control matters arising.

Elsevier Reed Finance BV
Elsevier Reed Finance BV has established policy guidelines, which are applied for all Elsevier Reed Finance BV companies. The boards of Elsevier Reed Finance BV have adopted schedules of matters that are required to be brought to them for decision. Procedures are in place for monitoring the activities of the finance group, including a comprehensive treasury reporting system. The major risks affecting the finance group have been identified and evaluated and are subject to regular review. The controls in place to manage these risks and the level of residual risk accepted are monitored by the boards. The internal control system of the Elsevier Reed Finance BV group is reviewed each year by its external auditors.

Audit Committees
Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV have established Audit Committees which comprise only non-executive directors, all of whom are independent. The Audit Committees, which meet regularly, are chaired by Lord Sharman, the other members are John Brock and David Reid. David Reid was appointed in April 2003.

The main role and responsibilities of the Audit Committees in relation to the respective companies are set out in written terms of reference and include:

(i)	to monitor the integrity of the financial statements of the company, and any formal announcements relating to the company’s financial performance, reviewing significant financial reporting judgements contained in them;

(ii)	to review the company’s internal financial controls and the company’s internal control and risk management systems;

(iii)

to monitor and review the effectiveness of the company’s internal audit function;

(iv)	to make recommendations to the board, for it to put to the shareholders for their approval in general meetings, in relation to the appointment, re-appointment and removal of the external auditor and to approve the remuneration and terms of engagement of the external auditor;

(v)	to review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements; and

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

The Audit Committees report to the respective boards on their activities identifying any matters in respect of which they consider that action or improvement is needed and making recommendations as to the steps to be taken.

The Reed Elsevier Group plc Audit Committee fulfils this role in respect of the publishing and information operating business. The functions of an Audit Committee in respect of the financing activities are carried out by the supervisory board of Elsevier Reed Finance BV. The Reed Elsevier PLC and Reed Elsevier NV Audit Committees fulfil their roles from the perspective of the parent companies and both Committees have access to the reports to and the work of the Reed Elsevier Group plc Audit Committee and the Elsevier Reed Finance BV supervisory board in this respect.

The Audit Committees have explicit authority to investigate any matters within their terms of reference and have access to all resources and information that they may require for this purpose. The Audit Committees are entitled to obtain legal and other independent professional advice and have the authority to approve all fees payable to such advisers.

A copy of the terms of reference of each Audit Committee is published on the Reed Elsevier website at www.reedelsevier.com . The information on our website is not incorporated by reference into this report.

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ITEM 16A: AUDIT COMMITTEE FINANCIAL EXPERT

Each of Reed Elsevier PLC and Reed Elsevier NV has an Audit Committee, the members of which are identified in “Item 15: Controls and Procedures”. The members of the Board of Directors of Reed Elsevier PLC and members of the Supervisory Board of Reed Elsevier NV, respectively, have determined that each of their respective Audit Committees contains at least one Audit Committee financial expert within the meaning of the applicable rules and regulations of the US Securities and Exchange Commission (“SEC”). The Audit Committee financial experts serving on the Reed Elsevier PLC and the Reed Elsevier NV Audit Committees are Lord Sharman and David Reid.

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ITEM 16B: CODES OF ETHICS

Reed Elsevier has adopted a code of ethics (Code of Ethics and Business Conduct) that applies to all directors, officers and employees, and a separate code of ethics (Code for Senior Officers) that also applies to the Chief Executive Officer, Chief Financial Officer of Reed Elsevier PLC and Reed Elsevier NV and the Group Chief Accountant of Reed Elsevier Group plc. Both these codes of ethics are available on the Reed Elsevier website at www.reedelsevier.com . The information on our website is not incorporated by reference into this report.

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ITEM 16C: PRINCIPAL ACCOUNTANT FEES AND SERVICES

The aggregate fees billed by our principal accountants, Deloitte & Touche LLP, Deloitte Accountants, the member firms of Deloitte Touche Tohmatsu and their respective affiliates, for the two years ended December 31, 2003 were as follows:

	Year ended December 31, 2003	Year ended December 31, 2002

	(in millions)

Audit fees	£2.5	£2.3
Audit-related fees	1.4	2.1
Tax fees	0.6	0.7
All other fees	0.1	0.8

Total	£4.6	£5.9

Auditors’ remuneration for non audit services includes £1.4 million (2002: £2.1 million) for audit-related services, comprising £0.6 million (2002: £1.4 million) relating to due diligence and other transaction related services and £0.8 million (2002: £0.7 million) for other audit-related services such as royalty audits. Tax fees of £0.6 million (2002: £0.7 million) relate to tax compliance and advisory work. Other fees of £0.1 million (2002: £0.8 million) relate to other non audit services such as consultancy services.

The Audit Committees of Reed Elsevier PLC and Reed Elsevier NV have adopted policies and procedures for the pre-approval of audit and non audit services provided by the auditors. These policies and procedures are summarised below.

The terms of engagement and scope of the annual audit of the financial statements are agreed by the respective Audit Committees in advance of the engagement of the auditors in respect of the annual audit. The audit fees are approved by the Audit Committee.

The auditors are not permitted to provide non audit services that would compromise their independence or violate any laws or regulations that would affect their appointment as auditors. They are eligible for selection to provide non audit services only to the extent that their skills and experience make them a logical supplier of the services. The respective Audit Committees must pre-approve the provision of all non audit services by the auditors and will consider SEC rules and other guidelines in determining the scope of permitted services. The respective Audit Committees have pre-approved non audit services in respect of individual assignments for permitted services that meet certain criteria. Assignments outside these parameters must be specifically pre-approved by the Audit Committee in advance of commissioning the work. Aggregate non audit fees must not exceed the annual audit fee in any given year, unless approved in advance by the Audit Committee.

All of the audit and non audit services carried out in the year ended December 31, 2003 were pre-approved under the pre- approval policies and procedures summarised above.

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PART III

ITEM 17: FINANCIAL STATEMENTS

The Registrants have responded to Item 18 in lieu of responding to this Item.

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ITEM 18: FINANCIAL STATEMENTS

Financial Statements filed as part of this annual report

The following financial statements and related schedules, together with reports of independent auditors thereon, are filed as part of this annual report:

	Page

Index to Financial Statements	F-1
Reed Elsevier Combined Financial Statements	F-2
Report of Independent Auditors	F-3
Combined Profit and Loss Account for the year ended December 31, 2003	F-4
Combined Cash Flow Statement for the year ended December 31, 2003	F-5
Combined Balance Sheet as at December 31, 2003	F-6
Combined Statement of Total Recognised Gains and Losses for the year ended December 31, 2003	F-7
Combined Shareholders’ Funds Reconciliation for the year ended December 31, 2003	F-7
Notes to the Combined Financial Statements	F-8
Schedule II	F-42
Reed Elsevier PLC Consolidated Financial Statements	F-43
Report of Independent Auditors	F-44
Consolidated Profit and Loss Account for the year ended December 31, 2003	F-45
Consolidated Cash Flow Statement for the year ended December 31, 2003	F-46
Consolidated Balance Sheet as at December 31, 2003	F-47
Consolidated Statement of Total Recognised Gains and Losses for the year ended December 31, 2003	F-48
Consolidated Reconciliation of Shareholders’ Funds for the year ended December 31, 2003	F-48
Notes to the Consolidated Financial Statements	F-49
Reed Elsevier NV Group Financial Statements	F-61
Report of Independent Auditors	F-62
Group Profit and Loss Account for the year ended December 31, 2003	F-63
Group Cash Flow Statement for the year ended December 31, 2003	F-64
Group Statement of Total Recognised Gains and Losses for the year ended December 31, 2003	F-65
Group Balance Sheet as at December 31, 2003	F-65
Group Reconciliation of Shareholders’ Funds for the year ended December 31, 2003	F-66
Notes to the Group Financial Statements	F-67
Glossary of Terms	F-79

F – 1

Return to contents REED ELSEVIER COMBINED FINANCIAL STATEMENTS

F – 2

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Shareholders of Reed Elsevier PLC and to the members of the Supervisory and Executive Boards and the Shareholders of Reed Elsevier NV.

We have audited the accompanying combined balance sheets of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc, and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures (together “the combined businesses”) as at December 31, 2003 and 2002, and the related combined profit and loss accounts and statements of total recognised gains and losses, shareholders’ funds reconciliations and cash flows for the three years ended December 31, 2003. Our audits also included the financial statement schedule as at December 31, 2003, 2002 and 2001 listed in the Index. These combined financial statements and the related financial statement schedule are the responsibility of the management of Reed Elsevier PLC and Reed Elsevier NV. Our responsibility is to express an opinion on these combined financial statements and the related financial statement schedule based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such combined financial statements present fairly, in all material respects, the financial position of the combined businesses as at December 31, 2003 and 2002, and the results of their operations and their cash flows for the three years ended December 31, 2003 in conformity with accounting principles generally accepted in the United Kingdom. Also, in our opinion, such financial statement schedule, when considered in relation to the related combined financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

Accounting principles generally accepted in the United Kingdom vary in significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of net income for each of the three years ended December 31, 2003, and the determination of shareholders’ funds at December 31, 2003 and 2002, to the extent summarised in note 29 to the combined financial statements.

DELOITTE & TOUCHE LLP Chartered Accountants & Registered Auditors London, England February 18, 2004	DELOITTE ACCOUNTANTS Amsterdam, The Netherlands February 18, 2004

F – 3

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REED ELSEVIER
COMBINED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 2003

		2003	2002	2001
	Note	£m	£m	£m

Turnover
Including share of turnover of joint ventures		5,006	5,094	4,627
Less: share of turnover of joint ventures		(81)	(74)	(67)

	3	4,925	5,020	4,560
Continuing operations before acquisitions		4,845	5,020	4,560
Acquisitions		80	—	—

Cost of sales	4	(1,764)	(1,794)	(1,611)

Gross profit		3,161	3,226	2,949
Operating expenses	4	(2,516)	(2,736)	(2,570)

Before amortisation and exceptional items		(2,002)	(2,113)	(1,974)
Amortisation of goodwill and intangible assets		(442)	(524)	(498)
Exceptional items	8	(72)	(99)	(98)


Operating profit (before joint ventures)		645	490	379

Continuing operations before acquisitions			659		490		379
Acquisitions			(14)		—		—

Share of operating profit of joint ventures		16	17	12

Operating profit including joint ventures	3, 7	661	507	391
Non operating exceptional items
Net profit/(loss) on disposal of businesses and fixed asset investments	8	26	(12)	26

Profit on ordinary activities before interest		687	495	417
Net interest expense	9	(168)	(206)	(142)

Profit on ordinary activities before taxation		519	289	275
Tax on profit on ordinary activities	10	(183)	(107)	(148)

Profit on ordinary activities after taxation		336	182	127
Minority interests		(2)	(1)	(1)

Profit attributable to parent companies’ shareholders	27	334	181	126
Equity dividends paid and proposed	11	(304)	(282)	(269)

Retained profit/(loss) taken to combined reserves		30	(101)	(143)

The accompanying notes on pages F-8 to F-41 are an integral part of these combined financial statements

F – 4

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REED ELSEVIER
COMBINED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2003

	Note	2003 £m	2002 £m	2001 £m

Net cash inflow from operating activities before exceptional items	12	1,163	1,154	1,163
Payments relating to exceptional items charged to operating profit	8	(98)	(119)	(97)

Net cash inflow from operating activities		1,065	1,035	1,066

Dividends received from joint ventures	16	14	13	12

Interest and similar income received		17	25	113
Interest and similar charges paid		(194)	(230)	(227)

Returns on investments and servicing of finance		(177)	(205)	(114)

Taxation before exceptional items		(182)	(154)	(178)
Exceptional items	8	36	20	141

Taxation		(146)	(134)	(37)

Purchase of tangible fixed assets		(155)	(163)	(175)
Purchase of fixed asset investments		(7)	(5)	(59)
Proceeds from sale of tangible fixed assets		6	6	6
Exceptional proceeds from disposal of fixed asset investments	8	19	118	—

Capital expenditure and financial investment		(137)	(44)	(228)

Acquisitions	13	(258)	(184)	(2,236)
Exceptional net proceeds/(costs) from disposal of businesses	8	77	(12)	96

Acquisitions and disposals		(181)	(196)	(2,140)

Equity dividends paid to shareholders of the parent companies		(292)	(273)	(255)

Cash inflow/(outflow) before changes in short term investments and financing		146	196	(1,696)

(Increase)/decrease in short term investments	12	(165)	(55)	1,169
Financing	12	(86)	(69)	537

(Decrease)/increase in cash	12	(105)	72	10

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-8 to F-41 are an integral part of these combined financial statements

F – 5

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REED ELSEVIER
COMBINED BALANCE SHEET
AS AT DECEMBER 31, 2003

	Note	2003 £m	2002 £m

Fixed assets
Goodwill and intangible assets	14	5,153	5,814
Tangible fixed assets	15	482	484
Investments	16	101	121
Investments in joint ventures:


		5,736	6,419

Current assets
Inventories and pre-publication costs	17	526	500
Debtors - amounts falling due within one year	18	1,044	923
Debtors - amounts falling due after more than one year	19	249	321
Cash and short term investments	20	638	570

		2,457	2,314
Creditors: amounts falling due within one year	21	(3,474)	(3,629)

Net current liabilities		(1,017)	(1,315)

Total assets less current liabilities		4,719	5,104
Creditors: amounts falling due after more than one year	22	(2,105)	(2,270)
Provisions for liabilities and charges	25	(168)	(187)
Minority interests		(12)	(7)

Net assets		2,434	2,640

Capital and reserves
Combined share capitals		190	187
Combined share premium accounts		1,784	1,708
Combined shares held in treasury		(37)	(19)
Combined reserves		497	764

Combined shareholders’ funds	27	2,434	2,640

The accompanying notes on pages F-8 to F-41 are an integral part of these combined financial statements

F – 6

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REED ELSEVIER
COMBINED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED DECEMBER 31, 2003

	2003	2002	2001
	£m	£m	£m

Profit attributable to parent companies’ shareholders	334	181	126
Exchange translation differences	(232)	(187)	(3)

Total recognised gains and losses for the year	102	(6)	123

COMBINED SHAREHOLDERS’ FUNDS RECONCILIATION
FOR THE YEAR ENDED DECEMBER 31, 2003

	Note	2003 £m	2002 £m	2001 £m

Profit attributable to parent companies’ shareholders		334	181	126
Equity dividends paid and proposed		(304)	(282)	(269)
Issue of ordinary shares, net of expenses		14	30	22
Increase in shares held in treasury		(18)	(1)	(18)
Exchange translation differences		(232)	(187)	(3)

Net decrease in combined shareholders’ funds		(206)	(259)	(142)
Combined shareholders’ funds at January 1,		2,640	2,899	3,041

As originally reported			2,659		2,917		3,041
Prior year adjustment in relation to presentation of shares held in treasury	28		(19)		(18)		—


Combined shareholders’ funds at December 31,	2,434	2,640	2,899

The accompanying notes on pages F-8 to F-41 are an integral part of these combined financial statements

F – 7

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REED ELSEVIER
NOTES TO THE COMBINED FINANCIAL STATEMENTS

1. Basis of preparation
These financial statements are presented under the historical cost convention and in accordance with applicable UK Generally Accepted Accounting Principles (“GAAP”). Prior to 2003, the financial statements were presented in accordance with both UK and Dutch GAAP. Following changes to Dutch GAAP effective for the 2003 financial year in respect of the presentation of dividends and pension accounting, UK and Dutch GAAP have diverged such that the Reed Elsevier accounting policies no longer accord with Dutch GAAP. Under Article 362.1 of Book 2 Title 9 of the Netherlands Civil Code, UK GAAP may be adopted by Dutch companies with international operations for the preparation of financial statements and, accordingly, UK GAAP has been so adopted ensuring consistency with the prior year of the accounting policies applied in the combined financial statements.

The equalisation agreement between Reed Elsevier PLC and Reed Elsevier NV has the effect that their shareholders can be regarded as having the interests of a single economic group. The Reed Elsevier combined financial statements (“the combined financial statements”) represent the combined interests of both sets of shareholders and encompass the businesses of Reed Elsevier Group plc and Elsevier Reed Finance BV and their respective subsidiaries, associates and joint ventures, together with the parent companies, Reed Elsevier PLC and Reed Elsevier NV (“the combined businesses”).

2. Accounting policies
The significant accounting policies adopted are as follows:

Foreign exchange translation
The combined financial statements are presented in pounds sterling.

Balance sheet items are translated at year end exchange rates and profit and loss account and cash flow items are translated at average exchange rates. Exchange translation differences on foreign equity investments and the related foreign currency net borrowings and on differences between balance sheet and profit and loss account rates are taken to reserves.

Transactions entered into in foreign currencies are recorded at the exchange rates applicable at the time of the transaction. The results of hedging transactions for profit and loss amounts in foreign currency are accounted for in the profit and loss account to match the underlying transaction.

Turnover
Turnover represents the invoiced value of sales less anticipated returns on transactions completed by performance, excluding customer sales taxes and sales between the combined businesses.

Development spend
Development spend incurred on the launch of new products or services is expensed to the profit and loss account as incurred.

The cost of developing application infrastructure and product delivery platforms is capitalised as a tangible fixed asset and written off over the estimated useful life.

Pensions
The expected costs of pensions in respect of defined benefit pension schemes are charged to the profit and loss account so as to spread the cost over the service lives of employees in the schemes. Actuarial surpluses and deficits are allocated over the average expected remaining service lives of employees. Pension costs are assessed in accordance with the advice of qualified actuaries. For defined contribution schemes, the profit and loss account charge represents contributions payable.

Taxation
Deferred taxation is provided in full for timing differences using the liability method. No provision is made for tax which would become payable on the distribution of retained profits by foreign subsidiaries, associates or joint ventures, unless there is an intention to distribute such retained earnings giving rise to a charge. Deferred tax assets are only recognised to the extent that they are considered recoverable in the short term. Deferred taxation balances are not discounted.

Goodwill and intangible assets
On the acquisition of a subsidiary, associate, joint venture or business, the purchase consideration is allocated between the underlying net tangible and intangible assets on a fair value basis, with any excess purchase consideration representing goodwill.

F – 8

2. Accounting policies – (continued)
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 GAAP. In view of the longevity of certain of the goodwill and intangible assets relating to acquired science and medical and educational publishing businesses, this presumption has been rebutted in respect of these assets and a maximum estimated useful life of 40 years determined. The longevity of these assets is evidenced by their long established and well regarded brands and imprints, and their characteristically stable market positions.

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
Tangible fixed assets are stated in the balance sheet at cost less accumulated depreciation. No depreciation is provided on freehold land.

Freehold buildings and long leases are depreciated over their estimated useful lives up to a maximum of 50 years. Short leases are written off over the duration of the lease. Plant, equipment and computer systems are depreciated on a straight line basis at rates from 5%-33%.

Investments
Fixed asset investments in joint ventures and associates are accounted for under the gross equity and equity methods respectively. Other fixed asset investments are stated at cost, less provision, if appropriate, for any impairment in value. Short term investments are stated at the lower of cost and net realisable value.

Inventories and pre-publication costs
Inventories and pre-publication costs are stated at the lower of cost, including appropriate attributable overheads, and estimated net realisable value. Pre-publication costs, representing costs incurred in the origination of content prior to publication, are expensed systemically over the economic lives of the related products, generally up to five years.

Finance leases
Assets held under leases which confer rights and obligations similar to those attaching to owned assets are capitalised as tangible fixed assets and the corresponding liability to pay rentals is shown net of interest in the accounts as obligations under finance leases. The capitalised values of the assets are written off on a straight line basis over the shorter of the periods of the leases or the useful lives of the assets concerned. The interest element of the lease payments is allocated so as to produce a constant periodic rate of charge.

Operating leases
Operating lease rentals are charged to the profit and loss account on a straight line basis over the period of the leases.

Financial instruments
Payments and receipts on interest rate hedges are accounted for on an accruals basis over the lives of the hedges and included respectively within interest payable and interest receivable in the profit and loss account. Gains and losses on foreign exchange hedges, other than in relation to net currency borrowings hedging equity investments, are recognised in the profit and loss account on maturity of the underlying transaction. Gains and losses on net currency borrowings hedging equity investments are taken to reserves. Gains and losses arising on hedging instruments that are closed out due to the cessation of the underlying exposure are taken directly to the profit and loss account.

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
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities and assets at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Prior year adjustment
Following the issuance of UITF38: Accounting for ESOP Trusts in December 2003, shares held in the parent companies by the Reed Elsevier Group plc Employee Benefit Trust, previously included within other fixed asset investments, are now presented as shares held in treasury and deducted within combined shareholders’ funds. Prior year comparatives have been restated accordingly.

F – 9

3. Segment analysis
Reed Elsevier provide products and services that are organised to serve four business segments. Internal reporting reflects this structure. The four reportable segments are described in “Item 4: Information on Reed Elsevier — Business Overview”.

In accordance with SFAS 131: Disclosures about Segments of an Enterprise and Related Information, the segmental information includes adjusted operating profit, a key financial measure used by management to evaluate performance and allocate resource. Adjusted operating profit represents operating profit before amortisation of goodwill and intangible assets and exceptional items. A reconciliation of adjusted operating profit to operating profit is included in the information below.

Analysis by business segment

	2003 £m	2002 £m	2001 £m

Turnover
Science & Medical	1,381	1,295	1,024
Legal	1,318	1,349	1,330
Education	898	993	579
Business	1,328	1,383	1,627

Total	4,925	5,020	4,560

Operating profit
Science & Medical	375	294	210
Legal	95	61	59
Education	91	102	95
Business	100	50	27

Total	661	507	391

Adjusted operating profit
Science & Medical	467	429	344
Legal	301	287	267
Education	174	183	132
Business	236	234	247

Total	1,178	1,133	990

Depreciation
Science & Medical	30	27	23
Legal	61	62	62
Education	13	13	7
Business	30	34	40

Total	134	136	132

Amortisation
Science & Medical	72	101	106
Legal	185	197	191
Education	63	71	35
Business	125	158	169

Total (including share of joint ventures)	445	527	501

Total assets
Science & Medical	2,215	2,237	2,483
Legal	2,319	2,553	2,891
Education	1,582	1,786	2,061
Business	1,343	1,445	1,724

Total	7,459	8,021	9,159

F – 10

3. Segment analysis – (continued)

	2003 £m	2002 £m	2001 £m

Capital expenditure
Science & Medical	46	36	35
Legal	83	84	89
Education	14	20	14
Business	25	39	40

Total	168	179	178

Capital employed
Science & Medical	1,476	1,550	1,713
Legal	1,985	2,192	2,512
Education	1,390	1,569	1,714
Business	763	834	1,075

Total	5,614	6,145	7,014

Reconciliation of capital employed to combined shareholders’ funds
Capital employed	5,614	6,145	7,014
Taxation	(549)	(528)	(634)
Dividends and net interest	(247)	(238)	(229)
Net borrowings	(2,372)	(2,732)	(3,229)
Minority interests	(12)	(7)	(5)

Combined shareholders’ funds	2,434	2,640	2,917

The analysis of total assets excludes corporate assets of £734 million (2002: £731 million; 2001: £679 million). Corporate assets are principally cash balances and short term investments, of which the principal amounts are £373 million in the United Kingdom, £140 million in the Rest of Europe and £116 million in the Netherlands, and deferred taxation assets of £96 million (2002: £161 million; 2001: £244 million). Included in total assets is the cost of investment in joint ventures of £60 million (2002: £62 million; 2001: £66 million), which includes £26m (2002: £24 million; 2001: £22 million) in the Legal segment and £34 million (2002: £38 million; 2001: £44 million) relating to the Business segment.

Turnover is analysed before the £81 million (2002: £74 million; 2001: £67 million) share of joint ventures’ turnover, of which £20 million (2002: £17 million; 2001: £17 million) relates to the Legal segment, principally to Giuffrè, and £61 million (2002: £57 million; 2001: £50 million) relates to the Business segment, principally to exhibition joint ventures. Share of operating profit in joint ventures of £16 million (2002: £17 million; 2001: £12 million) comprises £5 million (2002: £5 million; 2001: £3 million) relating to the Legal segment and £11 million (2002: £12 million; 2001: £9 million) relating to the Business segment. Within prior years total assets and capital employed, goodwill of £183 million at December 31, 2002 and £207 million at December 31, 2001 arising on the Harcourt acquisition has been reclassified from the Education segment to the Science & Medical segment.

Adjusted operating profit is derived from operating profit as follows:

	2003 £m	2002 £m	2001 £m

Operating profit including joint ventures	661	507	391
Adjustments:
Amortisation of goodwill and intangible assets (including joint ventures)	445	527	501
Exceptional items:
Reorganisation costs (see note 8)	23	42	35
Acquisition related costs (see note 8)	49	57	63

Adjusted operating profit	1,178	1,133	990

F – 11

3. Segment analysis – (continued)

Analysis by geographical origin

	2003 £m	2002 £m	2001 £m

Turnover
North America	2,822	3,158	2,695
United Kingdom	823	782	795
The Netherlands	502	419	416
Rest of Europe	541	456	445
Rest of world	237	205	209

Total	4,925	5,020	4,560

Operating profit
North America	225	142	47
United Kingdom	168	129	154
The Netherlands	162	153	129
Rest of Europe	73	55	51
Rest of world	33	28	10

Total	661	507	391

Adjusted operating profit
North America	603	616	482
United Kingdom	210	190	207
The Netherlands	189	169	163
Rest of Europe	136	119	108
Rest of world	40	39	30

Total	1,178	1,133	990

Total assets
North America	5,473	6,350	7,552
United Kingdom	1,223	1,092	1,016
The Netherlands	452	351	327
Rest of Europe	903	839	818
Rest of world	141	120	125

Total	8,192	8,752	9,838

Capital employed
North America	4,639	5,190	6,021
United Kingdom	432	481	553
The Netherlands	2	(22)	(53)
Rest of Europe	516	475	460
Rest of world	25	21	33

Total	5,614	6,145	7,014

Analysis by geographical market

Turnover
North America	2,921	3,152	2,765
United Kingdom	551	545	557
The Netherlands	207	207	224
Rest of Europe	695	611	587
Rest of world	551	505	427

Total	4,925	5,020	4,560

F – 12

4. Cost of sales and operating expenses

	2003

	Before amortisation and exceptional items £m	Amortisation of goodwill and intangible assets £m	Exceptional items £m	Total £m

Cost of sales
Continuing operations	1,733	—	—	1,733
Acquisitions	31	—	—	31

Total	1,764	—	—	1,764

Distribution and selling costs
Continuing operations	1,036	—	—	1,036
Acquisitions	14	—	—	14

	1,050	—	—	1,050

Administrative expenses
Continuing operations	933	418	66	1,417
Acquisitions	19	24	6	49

	952	442	72	1,466

Operating expenses
Continuing operations	1,969	418	66	2,453
Acquisitions	33	24	6	63

Total	2,002	442	72	2,516

	2002

	Before amortisation and exceptional items £m	Amortisation of goodwill and intangible assets £m	Exceptional items £m	Total £m

Cost of sales
Continuing operations	1,794	—	—	1,794
Acquisitions	—	—	—	—

Total	1,794	—	—	1,794

Distribution and selling costs
Continuing operations	1,117	—	—	1,117
Acquisitions	—	—	—	—

	1,117	—	—	1,117

Administrative expenses
Continuing operations	996	524	99	1,619
Acquisitions	—	—	—	—

	996	524	99	1,619

Operating expenses
Continuing operations	2,113	524	99	2,736
Acquisitions	—	—	—	—

Total	2,113	524	99	2,736

F – 13

4. Cost of sales and operating expenses – (continued)

	2001

	Before amortisation and exceptional items £m	Amortisation of goodwill and intangible assets £m	Exceptional items £m	Total £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

5. Personnel

Number of people employed	At December 31,		Average during the year

	2003	2002	2003	2002	2001

Business segment
Science & Medical	6,800	6,400	6,700	6,400	5,200
Legal	12,800	13,300	13,100	13,300	12,700
Education	5,300	5,600	5,400	5,800	3,400
Business	10,100	10,800	10,400	11,300	13,300

Total	35,000	36,100	35,600	36,800	34,600

Geographical location
North America	19,600	20,700	20,200	21,300	18,900
United Kingdom	5,900	6,000	5,900	6,100	6,100
The Netherlands	2,700	2,800	2,700	2,800	3,000
Rest of Europe	3,900	3,800	3,900	3,800	3,700
Rest of world	2,900	2,800	2,900	2,800	2,900

Total	35,000	36,100	35,600	36,800	34,600

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 triennial valuation by Watson Wyatt Partners 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, 2003.

The principal valuation assumptions for the main UK scheme were:

Actuarial method	Projected unit method
Annual rate of return on investments	6.8%
Annual increase in total pensionable remuneration	4.5%
Annual increase in present and future pensions in payment	2.5%

The principal valuation assumptions used for the US scheme were a rate of return on investments of 7.75%, increase in pensionable remuneration of 4.5%, and increase in present and future pensions in payment of 3.0%, applied under the projected unit method.

The actuarial values placed on scheme assets under SSAP24 as at their last valuation date were sufficient to cover 113% and 104% 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 employees. The actuarial values of the schemes’ assets as at the valuation dates, excluding assets held in respect of members’ additional voluntary contributions, were £1,350 million and £260 million 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 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, 2003 were sufficient to cover 101% of the actuarial value placed on the benefits that had accrued to the members of the scheme as at that date.

The liabilities in respect of unfunded schemes have been determined by actuaries. As at December 31, 2003 £52 million (2002: £52 million) has been provided for within creditors.

The net pension charge was £59 million (2002: £59 million; 2001: £39 million). Pension contributions made in the year amounted to £49 million (2002: £47 million; 2001: £39 million). The net SSAP24 charge on the main UK scheme comprises a regular cost of £23 million (2002: £27 million; 2001: £24 million), less amortisation of the net actuarial surplus of £13 million (2002: £24 million; 2001: £24 million). Based on the advice of the scheme actuaries, and with the agreement of the scheme trustees, no employer contributions have been made to the main UK scheme in 2003 (2002: nil) and, with effect from January 1, 2004, employer contributions will be made at a rate of 5% of pensionable salaries until the next triennial valuation in 2006. A prepayment of £115 million (2002: £125 million; 2001: £128 million) is included in debtors falling due after more than one year, representing the excess of the net 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, requires additional information to be disclosed based on methodologies set out in the standard which are different from those used under SSAP24 and 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

2003	Assumed rate of return on assets	£m	Assumed rate of return on assets	£m


Equities	7.8%	1,050	8.0%	1,341
Bonds	4.8%	442	5.0%	639
Other	4.3%	38	4.6%	50

Total fair value of assets		1,530		2,030
Present value of scheme liabilities		(1,588)		(2,281)

Net deficit		(58)		(251)
Related deferred tax		17		84

Net pension liability		(41)		(167)

F – 15

6. Pension schemes – (continued)

	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)

At December 31, 2003, the aggregate net deficit in respect of the defined benefit schemes under FRS17 comprised £189 million (2002: £66 million) in respect of funded schemes and liabilities of £62 million (2002: £71 million) in respect of unfunded schemes, of which £52 million (2002: £52 million) is provided for within creditors under SSAP24.

At December 31, 2001, for the aggregate of schemes, the fair value of equities, bonds and assets, and the related assumed rates of return for those asset classes were £1,267 million, £721 million and £81 million and 7.7%, 5.5% and 4.0% respectively.

The movement in the net FRS17 surplus/(deficit) before taxation during the year was as follows:

	Main UK Scheme	Aggregate of Schemes
	£m	£m

Net surplus/(deficit) in schemes at beginning of the year	52	(137)
Movement in the year:
Total operating charge	(32)	(65)
Contributions	—	38
Finance income	23	17
Actuarial loss	(101)	(113)
Exchange translation differences	—	9

Net deficit in schemes at end of the year	(58)	(251)

The principal assumptions made in valuing pension scheme liabilities for the purposes of FRS17 were:

	Main UK Scheme		Aggregate of Schemes

	2003	2002	2003	2002

Inflation	2.8%	2.3%	2.9%	2.5%
Rate of increase in salaries	4.8%	4.3%	4.4%	4.2%
Rate of increase in pensions in payment	2.8%	2.3%	2.8%	2.5%
Discount rate	5.5%	5.7%	5.6%	5.9%

The combined profit and loss reserves as at December 31, 2003 of £497 million (2002: £764 million) would have been £285 million (2002: £623 million), had the accounting methodologies of FRS17 been applied in the 2003 and 2002 financial years.

F – 16

6. Pension schemes – (continued)

The operating charge, the amount credited to other finance income and the amounts recognised in the statement of total recognised gains and losses in the financial year based on the methodologies and presentation prescribed by FRS17 would have been as follows:

	Main UK Scheme	Aggregate of Schemes
2003	£m	£m

Charged to operating profit
Current service cost	(32)	(76)
Past service cost	—	11

Total operating charge	(32)	(65)

Credited to other finance income
Expected return on pension scheme assets	96	131
Interest on pension scheme liabilities	(73)	(114)

Net return	23	17

Amounts recognised in the statement of total recognised gains and losses
Actual return less expected return on pension scheme assets	125	153
Experience losses arising on the scheme liabilities	(57)	(96)
Changes in assumptions underlying the present value of the scheme liabilities	(169)	(170)

Actuarial loss	(101)	(113)

	Main UK Scheme	Aggregate of Schemes
2002	£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)

F – 17

6. Pension schemes – (continued)

The difference between the actual and expected returns on scheme assets, the experience losses arising on scheme liabilities, and the total actuarial loss that would have been recognised under FRS17 in the statement of total recognised gain and losses, expressed as a percentage of scheme assets and liabilities as appropriate, were as follows:

	Main UK Scheme		Aggregate of Schemes

	2003	2002	2003	2002

Actual return less expected return on scheme assets, as a percentage of scheme assets	8%	– 19%	8%	– 20%
Experience losses arising on scheme liabilities, as a percentage of the present value of scheme liabilities	4%	2%	4%	1%
Total actuarial loss that would have been recognised in the statement of total recognised gains and losses, as a percentage of the present value of the scheme liabilities	6%	14%	5%	17%

7. Operating profit

Operating profit is stated after the following:

	2003 £m	2002 £m	2001 £m

Hire of plant and machinery	9	12	7
Other operating lease rentals	94	87	87
Depreciation (including £7m (2002: £6 million; 2001: £4 million) in respect of assets held under finance leases)	134	136	132

Amortisation of goodwill and intangible assets	442	524	498
Amortisation of goodwill and intangible assets in joint ventures	3	3	3

Total amortisation	445	527	501

Staff costs
Wages and salaries	1,255	1,277	1,207
Social security costs	136	127	119
Pensions (see note 6)	59	59	39

Total staff costs	1,450	1,463	1,365

Auditors’ remuneration
For audit services	2.5	2.3	2.5
For non audit services	2.1	3.6	3.4

Auditors’ remuneration for non audit services comprises £0.8 million (2002: £0.7 million; 2001: £1.3 million) for audit related services, £0.6 million (2002: £1.4 million; 2001: £1.4 million) for due diligence and other transaction related services, £0.6 million (2002: £0.7 million; 2001: £0.6 million) for tax compliance and advisory work, and £0.1 million (2002: £0.8 million; 2001: £0.1 million) for other non audit services. Included in auditors’ remuneration for non audit services is £0.4 million (2002: £0.7 million; 2001: £1.0 million) paid to Deloitte & Touche LLP and its associates in the UK.

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

	2003 £m	2002 £m	2001 £m

Reorganisation costs (i)	(23)	(42)	(35)
Acquisition related costs (ii)	(49)	(57)	(63)

Charged to operating profit	(72)	(99)	(98)
Net profit/(loss) on disposal of businesses and fixed asset investments (iii)	26	(12)	26

Exceptional charge before tax	(46)	(111)	(72)
Net tax credit (iv)	84	122	81

Total exceptional credit	38	11	9

F – 18

8. Exceptional items – (continued)

(i)

Reorganisation costs in 2003 relate to employee severance, principally in the Legal and Business segments. Reorganisation costs in 2002 relate to employee severances, including the elimination of over 1,500 positions, principally in the Legal and Business segments. Reorganisation costs in 2001 related to headcount reduction, principally in the Business division, and comprise employee severance.

(ii)

Acquisition related costs in 2003 include employee severance and property rationalisation costs arising on the further integration and rationalisation of Harcourt and on other recent acquisitions. 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 £9 million of exceptional costs relating to the financing of the tender offer.

(iii)

The net profit on disposal of businesses and fixed asset investments in 2003 relates principally to a profit on sale of LexisNexis Document Solutions less losses on other disposals and on fixed asset investments. The net loss on disposal of businesses and fixed asset investments in 2002 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 £21 million profit on sale of investments acquired on the acquisition of Harcourt General, Inc, less a £17 million 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.

(iv)

The net tax credit in 2003 and 2002 arises principally in respect of prior year disposals and tax relief related to restructuring and acquisition integration costs. 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:

	2003 £m	2002 £m	2001 £m

Reorganisation costs	(51)	(56)	(41)
Acquisition related costs	(47)	(63)	(51)
Other	—	—	(5)

Exceptional operating cash outflow	(98)	(119)	(97)
Net proceeds from disposal of businesses and fixed asset investments	96	106	96

Exceptional cash outflow before tax	(2)	(13)	(1)
Exceptional tax cash inflow	36	20	141

Total exceptional cash inflow	34	7	140

9. Net interest expense

2003
£m 2002
£m 2001
£m

Interest receivable and similar income 18 24 107

Interest payable and similar charges

    Promissory notes and bank loans (46) (76) (102)

    Other loans (139) (152) (90)

    Other interest and similar charges (1) (2) (57)

Total (168) (206) (142)

F – 19

10. Tax on profit on ordinary activities

	2003 £m	2002 £m	2001 £m

Current tax
United Kingdom	2	(6)	62
The Netherlands	58	62	79
Rest of world	57	(14)	81

Total current tax	117	42	222
Deferred tax
Origination and reversal of timing differences	60	58	25
Changes in recoverable amounts of deferred tax assets	—	—	(104)

Sub-total	177	100	143
Share of tax attributable to joint ventures	6	7	5

Total	183	107	148

The tax charges as a proportion of profit before tax were increased due to non tax-deductible amortisation and, in 2003 and 2002, reduced by exceptional tax credits arising on prior year disposals.

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:

	2003 £m	2002 £m	2001 £m

Profit on ordinary activities before tax	519	289	275

Tax at average standard rates	152	79	62
Net impact of amortisation of goodwill and intangible assets	108	109	119
Prior year disposals	(76)	(100)	—
Permanent differences and other items	(7)	12	66
Origination and reversal of timing differences	(60)	(58)	(25)

Current tax charge	117	42	222

11. Equity dividends paid and proposed

	2003 £m	2002 £m	2001 £m

Reed Elsevier PLC	152	143	132
Reed Elsevier NV	152	139	137

Total	304	282	269

Dividends comprise a total dividend for Reed Elsevier PLC of 12.0p (2002: 11.2p; 2001: 10.5p) per ordinary share and a total dividend for Reed Elsevier NV of €0.30 (2002: €0.30; 2001: €0.30) per ordinary share.

Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised at the gross level inclusive of the UK tax credit of 10% received by certain Reed Elsevier PLC shareholders.

F – 20

12. Cash flow statement

	2003 £m	2002 £m	2001 £m

Reconciliation of operating profit to net cash inflow from operating activities
Operating profit (before joint ventures)	645	490	379
Exceptional charges to operating profit (see note 8)	72	99	98

Operating profit before exceptional items	717	589	477

Amortisation of goodwill and intangible assets	442	524	498
Depreciation	134	136	132

Total non cash items	576	660	630

Increase in inventories and pre-publication costs	(51)	(51)	(48)
(Increase)/decrease in debtors	(112)	(12)	156
Increase/(decrease) in creditors	33	(32)	(52)

Movement in working capital	(130)	(95)	56

Net cash inflow from operating activities before exceptional items	1,163	1,154	1,163
Payments relating to exceptional items charged to operating profit (see note 8)	(98)	(119)	(97)

Net cash inflow from operating activities	1,065	1,035	1,066

	2003 £m	2002 £m	2001 £m

Acquisitions
Purchase of businesses (see note 13)	(223)	(90)	(3,222)
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	(23)	(76)	(156)
Deferred consideration of prior year acquisitions	(12)	(18)	(43)

Total	(258)	(184)	(2,236)

	2003 £m	2002 £m	2001 £m


Financing
Net movement in promissory notes and bank loans	(46)	(74)	(454)
Repayment of other loans	(118)	(173)	(84)
Issuance of other loans	94	162	1,069
Repayment of finance leases	(12)	(10)	(5)

	(82)	(95)	526
Issue of ordinary shares	14	30	11
Purchase of treasury shares	(18)	(4)	—

Total	(86)	(69)	537

The issuance of other loans in 2003 and 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 $550 million 6.125% notes due in 2006, €500 million 5.750% notes due in 2008, and $550 million 6.750% notes due in 2011.

The repayment of other loans in 2003 relates primarily to the maturity of a $125 million Private Placement and the redemption of subordinated debentures with a nominal value of $39 million. The repayment of other loans in 2002 relates to $150 million of Public Notes which matured in the year and the repurchase of Public Notes with a nominal value of $110 million. The repayment of other loans in 2001 related primarily to the repurchase of Public Notes with a nominal value of $97 million.

F – 21

12. Cash flow statement – (continued)

	Cash £m	Short term investments £m	Borrowings £m	Total £m

Reconciliation of net borrowings
Net borrowings 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

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)


Decrease in cash	(105)	—	—	(105)
Increase in short term investments	—	165	—	165
Decrease in borrowings	—	—	82	82

Change in net borrowings resulting from cash flows	(105)	165	82	142

Borrowings in acquired businesses	—	—	(9)	(9)
Inception of finance leases	—	—	(13)	(13)
Exchange translation differences	4	4	232	240

Net borrowings at December 31, 2003	68	570	(3,010)	(2,372)

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 20 to 23 and 29.

13. Acquisitions
Acquisitions in 2003
During the year a number of acquisitions were made for a total consideration amounting to £226 million, including £3 million deferred to future years and after taking account of net cash acquired of £9 million. The most significant acquisitions were the Holtzbrinck STM business in Germany, and, in the US, Applied Discovery Inc and the public records business of Dolon Media Company.

The net assets of the businesses acquired are incorporated at their fair value to the combined businesses. The fair values of the consideration given and the assets and liabilities acquired are summarised below:

	Book value on acquisition £m	Fair value adjustments £m	Fair value £m

Goodwill	—	93	93
Intangible fixed assets	28	108	136
Tangible fixed assets	4	(1)	3
Current assets	44	—	44
Current liabilities	(42)	1	(41)
Borrowings	(9)	—	(9)

Net assets acquired	25	201	226

Consideration (after taking account of £9m net cash acquired)			226
Less: deferred to future years			(3)

Net cash flow			223

F – 22

13. Acquisitions – (continued)

The fair value adjustments in relation to the acquisitions made in 2003 relate principally to the valuation of intangible assets to conform with Reed Elsevier accounting policies. Goodwill represents the excess of the consideration over the net tangible and intangible assets acquired. The businesses acquired in 2003 contributed £80 million to turnover, a loss of £14 million to operating profit, including amortisation of goodwill and intangible assets of £24 million and exceptional items of £6 million, and £15 million to net cash inflow from operating activities for the part year under Reed Elsevier ownership.

Acquisitions in 2002
In the year ended December 31, 2002 a number of acquisitions were made for a total consideration amounting to £99 million, after taking account of net cash acquired of £4 million. The most significant were MBO Verlag and Quickshaw Inc., in the Legal segment.

Acquisitions in 2001
In the year ended December 31, 2001, a number of acquisitions were made for a total consideration amounting to £3,242 million, after taking account of borrowings of £1,042 million and net cash acquired of £4 million. The most significant of these acquisitions was that of Harcourt General, Inc.

On July 12, 2001, Reed Elsevier Group 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. Harcourt debt on completion was approximately $1.5 billion. Following the on-sale, Reed Elsevier Inc, acquired Harcourt’s Science, Technical & Medical business and its Schools Education and Assessment businesses. The acquisition resulted in goodwill of approximately £1.3 billion, which reflected the excess of the consideration paid over the fair value of the net tangible and intangible assets other than goodwill acquired.

14. Goodwill and intangible assets

	Goodwill £m	Intangible assets £m	Total £m

Cost
At January 1, 2003	4,527	4,311	8,838
Acquisitions	93	136	229
Disposal of businesses	(62)	(74)	(136)
Exchange translation differences	(308)	(282)	(590)

At December 31, 2003	4,250	4,091	8,341

Accumulated amortisation
At January 1, 2003	1,717	1,307	3,024
Disposal of businesses	(53)	(48)	(101)
Charge for the year	257	185	442
Exchange translation differences	(108)	(69)	(177)

At December 31, 2003	1,813	1,375	3,188

Net book amount
At January 1, 2003	2,810	3,004	5,814
At December 31, 2003	2,437	2,716	5,153

At December 31, 2003, the weighted average remaining estimated useful life of goodwill and intangible assets was 24 years (2002: 25 years).

F – 23

15. Tangible fixed assets

	Land and buildings £m	Computer systems, plant and equipment £m	Total £m

Cost
At January 1, 2003	206	1,018	1,224
Acquisitions	—	3	3
Capital expenditure	3	165	168
Disposals	(13)	(46)	(59)
Exchange translation differences	(11)	(55)	(66)

At December 31, 2003	185	1,085	1,270

Accumulated depreciation
At January 1, 2003	77	663	740
Disposals	(7)	(36)	(43)
Charge for the year	7	127	134
Exchange translation differences	(5)	(38)	(43)

At December 31, 2003	72	716	788

Net book amount
At January 1, 2003	129	355	484
At December 31, 2003	113	369	482

At December 31, 2003 and 2002, all assets were included at cost. No depreciation was provided on freehold land. The net book amount of tangible fixed assets includes £29 million (2002: £24 million) in respect of assets held under finance leases.

16. Fixed asset investments

	Investments in joint ventures £m	Other investments £m	Total £m

At January 1, 2003 as originally reported	62	78	140
Prior year adjustment (see note 28)	—	(19)	(19)

At January 1, 2003 as restated	62	59	121
Share of attributable profit	13	—	13
Amortisation of goodwill and intangible assets	(3)	—	(3)
Dividends received from joint ventures	(14)	—	(14)
Additions	1	6	7
Transfers/disposals	—	(14)	(14)
Provided	—	(7)	(7)
Exchange translation differences	1	(3)	(2)

At December 31, 2003	60	41	101

The principal joint venture at December 31, 2003 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 £37 million and £19 million respectively (2002: £36 million and £21 million).

F – 24

17. Inventories and pre-publication costs

	2003 £m	2002 £m

Raw materials	13	15
Pre-publication costs	322	306
Finished goods	191	179

Total	526	500

18. Debtors — amounts falling due within one year

	2003 £m	2002 £m

Trade debtors	852	743
Other debtors	85	73
Prepayments and accrued income	107	107

Total	1,044	923

19. Debtors — amounts falling due after more than one year

	2003 £m	2002 £m

Trade debtors	8	9
Pension prepayment (see note 6)	115	125
Prepayments, accrued income and other debtors	30	26
Deferred taxation assets (see note 25)	96	161

Total	249	321

20. Cash and short term investments

	2003 £m	2002 £m

Cash at bank and in hand	68	169
Short term investments	570	401

Total	638	570

21. Creditors: amounts falling due within one year

	2003 £m	2002 £m

Borrowings
Promissory notes and bank loans	1,180	1,279
Other loans	2	80
Obligations under finance leases (see note 24)	16	8

	1,198	1,367
Trade creditors	228	251
Other creditors	144	165
Taxation	323	328
Proposed dividends	226	205
Accruals and deferred income	1,355	1,313

Total	3,474	3,629

F – 25

22. Creditors: amounts falling due after more than one year

	2003 £m	2002 £m

Borrowings
Loans repayable:
Within one to two years	84	2
Within two to five years	1,067	903
After five years	654	1,016
Obligations under finance leases (see note 24)	7	14

	1,812	1,935
Other creditors	9	15
Taxation	229	269
Accruals and deferred income	55	51

Total	2,105	2,270

23. Financial instruments
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. Details of the objectives, policies and strategies pursued by Reed Elsevier in relation to financial instruments are set out in Item 5: Operating and Financial Review and Prospects; Liquidity and Capital Resources – Reed Elsevier.

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 £3,074 million (2002: £3,391 million), 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 term (years )

2003
US dollar	674	1,789	6.3%	6.0
Sterling	5	—	—	—
Euro	380	156	5.4%	2.8
Other currencies	70	—	—	—

Total	1,129	1,945	6.3%	5.8

			Fixed rate financial liabilities

	Floating rate financial liabilities £m	Fixed rate financial liabilities £m	Weighted average interest rate	Weighted average term (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

Included within fixed rate financial liabilities as at December 31, 2003 are £nil (2002: £78 million) of US dollar term debt and £421 million (2002: £281 million) of interest rate swaps and options denominated principally in US dollars that mature within one year.

F – 26

23. Financial instruments – (continued)
Currency and interest rate profile of financial assets
The currency and interest rate profile of the aggregate financial assets of £702 million (2002: £649 million), after taking account of interest rate swaps, is set out below:

	2003		2002

	Interest bearing financial assets £m	Non interest bearing financial assets £m	Interest bearing financial assets £m	Non interest bearing financial assets £m

US dollar	88	54	81	67
Sterling	326	—	207	—
Euro	192	6	246	5
Other currencies	32	4	36	7

Total	638	64	570	79

Non interest bearing financial assets reflect the prior year adjustment in respect of other investments, as described in note 28.

At December 31, 2003, there were interest rate swaps in place with a principal amount totalling £100 million (2002: £nil) and interest rate floors in place with a principal amount totalling £50 million (2002: £150 million) 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 £41 million (2002: £59 million) of investments denominated principally in sterling and US dollars which have no maturity date.

Forward starting interest rate derivatives
At December 31, 2003, agreements totalling £653 million (2002: £187 million) were in place to enter into interest rate swaps at future dates. Of these, individual swap agreements totalling £449 million (2002: £125 million) were to fix the interest expense on US dollar borrowings commencing in 2004 and 2006 for periods of up to 30 months, at a weighed average interest rate of 2.5%. A further £104 million (2002: £nil) interest rate swap agreement starting in 2004 was to swap a US dollar fixed rate debt issue, to be drawn down in 2004, to floating rate debt for a period of 10 years. Interest rate swap agreements totalling £100 million (2002: £nil) and starting in 2004 were to fix the interest income as sterling short term investments for one year, at a weighted average interest rate of 3.6%. There were no forward starting interest rate options (2002: £62 million) or interest rate floors (2002: £nil).

At December 31, 2003, forward rate agreements totalling £253 million (2002: £780 million) were in place. These comprised a succession of agreements to fix the interest expense on short term US dollar borrowings commencing in 2004 and 2006 for periods of three months only, at a weighted average interest rate of 3.2%.

Maturity profile of financial liabilities
The maturity profile of financial liabilities at December 31, comprised:

	2003	2002
	£m	£m

Repayable:
Within one year	1,198	1,367
Within one to two years	107	35
Within two to five years	1,099	944
After five years	670	1,045

Total	3,074	3,391

F – 27

23. Financial instruments – (continued)
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, 2003, a total of £1,684 million (2002: £2,188 million) of committed facilities were available, of which £51 million (2002: £63 million) was drawn and is included in financial liabilities repayable within one year. Of the total committed facilities, £421 million (2002: £1,788 million) matures within one year, £nil (2002: £400 million) within two to three years and £1,263 million (2002: £nil) within four to five years. Secured borrowings under finance leases were £23 million (2002: £22 million).

Currency exposure
The business policy is to hedge all significant transaction exposures on monetary assets and liabilities fully and consequently there are no material currency exposures that would give rise to gains and losses in the profit and loss account in the functional currencies of the operating units.

Fair values of financial assets and liabilities
The notional amount, book value and fair value of financial instruments are as follows:

	2003			2002

	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		41	41		59	59
Cash		68	68		169	169
Short term investments		570	570		401	400
Other financial assets		23	23		20	20
Short term borrowings and current portion of long term borrowings		(1,198)	(1,197)		(1,367)	(1,374)
Long term borrowings		(1,812)	(1,903)		(1,935)	(2,043)
Other financial liabilities		(13)	(13)		(18)	(18)
Provisions		(51)	(51)		(71)	(71)

		(2,372)	(2,462)		(2,742)	(2,858)

Derivative financial instruments held to manage interest rate and currency exposure
Interest rate swaps	1,405	(7)	(54)	729	(9)	(73)
Interest rate options	618	(4)	(33)	686	(4)	(65)
Interest rate floors	50	—	—	150	—	—
Forward rate agreements	253	—	—	968	—	(1)
Forward foreign exchange contracts	52	—	5	246	—	8

	2,378	(11)	(82)	2,779	(13)	(131)

Total financial instruments	2,378	(2,383)	(2,544)	2,779	(2,755)	(2,989)

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, 2003 and 2002. The fair values of all other items have been calculated by discounting expected future cash flows at market rates.

F – 28

23. Financial instruments – (continued)
Hedges
The unrecognised and deferred gains and losses on financial instruments used for hedging purposes as at December 31, 2003, and before taking into account gains and losses arising in the year and included in the profit and loss account, are derived as follows:

	Unrecognised		Deferred

	Gains £m	Losses £m	Gains £m	Losses £m

On hedges at January 1, 2003	8	(126)	58	(15)
Arising in previous years included in 2003 profit and loss account	(8)	49	(30)	8

Arising in previous years not included in 2003 profit and loss account	—	(77)	28	(7)
Arising in 2003 not included in 2003 profit and loss account	7	(1)	41	(18)

On hedges at December 31, 2003	7	(78)	69	(25)

Of which:
Expected to be included in 2004 profit and loss account	4	(35)	44	(14)
Expected to be included in 2005 profit and loss account or later	3	(43)	25	(11)

24. Obligations under leases
Future finance lease obligations are:

	2003 £m	2002 £m

Repayable:
Within one year	17	9
Within one to two years	4	6
Within two to five years	4	3
After five years	—	7
Less: interest charges allocated to future periods	(2)	(3)

Total	23	22

Obligations falling due within one year (see note 21)	16	8
Obligations falling due after more than one year (see note 22)	7	14

Total	23	22

Annual commitments under operating leases are:

	2003 £m	2002 £m

On leases expiring:
Within one year	9	7
Within two to five years	38	37
After five years	59	59

Total	106	103

Of the above annual commitments, £100 million relates to land and buildings (2002: £99 million) and £6 million to other leases (2002: £4 million).

F – 29

25. Provisions for liabilities and charges

	Deferred taxation liabilities £m	Property lease obligations £m	Total £m

At January 1, 2003	92	95	187

Transfers	(16)	—	(16)
Provided	27	—	27
Utilised	(4)	(11)	(15)
Exchange translation differences	(6)	(9)	(15)

At December 31, 2003	93	75	168

The provision for property lease obligations relates to estimated sub-lease shortfalls and guarantees given by Harcourt General, Inc in favour of a former subsidiary for certain property leases for various periods up to 2016.

Deferred taxation comprises:

	2003 £m	2002 £m

Deferred taxation liabilities
Excess of tax allowances over related amortisation	45	46
Pension prepayment	32	35
Short term timing differences	16	11

	93	92

Deferred taxation assets (see note 19)
Excess of amortisation over related tax allowances	(9)	(8)
Short term timing differences	(69)	(151)
Tax losses carried forward	(18)	(2)

	(96)	(161)

Net deferred tax asset	(3)	(69)

Net deferred tax asset at January 1,	(69)	(126)
Transfers	3	(12)
Deferred tax charge in profit and loss account (see note 10)	60	58
Exchange translation differences	3	11

Net deferred tax asset at December 31,	(3)	(69)

At December 31, 2003 there were approximately £52 million net operating loss carry forwards for US tax purposes on which the deferred tax asset of £18 million is provided. Approximately £14 million of these losses will expire in 2020 and approximately £38 million of these tax losses will expire in 2021.

26. Contingent liabilities
There are contingent liabilities amounting to £77 million (2002: £118 million) in respect of property lease guarantees, in excess of provided amounts of £26 million (2002: £32 million), given by Harcourt General, Inc in favour of a former subsidiary (see note 25).

F – 30

27. Combined shareholders’ funds

	Combined share capitals £m	Combined share premium accounts £m	Combined shares held in treasury £m	Combined reserves £m	Total £m

At January 1, 2001	185	1,621	—	1,235	3,041

As originally reported		185		1,621		—		1,235		3,041
Prior year adjustment (see note 28)		—		—		—		—		—

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
Increase in shares held in treasury	—	—	(18)	—	(18)
Exchange translation differences	(1)	(14)	—	12	(3)

At January 1, 2002	184	1,629	(18)	1,104	2,899

As originally reported		184		1,629		—		1,104		2,917
Prior year adjustment (see note 28)		—		—		(18)		—		(18)

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
Increase in shares held in treasury	—	—	(1)	—	(1)
Exchange translation differences	2	50	—	(239)	(187)

At January 1, 2003	187	1,708	(19)	764	2,640

As originally reported		187		1,708		—		764		2,659
Prior year adjustment (see note 28)		—		—		(19)		—		(19)

Profit attributable to parent companies’ shareholders	—	—	—	334	334
Equity dividends paid and proposed	—	—	—	(304)	(304)
Issue of ordinary shares, net of expenses	1	13	—	—	14
Increase in shares held in treasury	—	—	(18)	—	(18)
Exchange translation differences	2	63	—	(297)	(232)

At December 31, 2003	190	1,784	(37)	497	2,434

Combined share capital excludes the shares of Reed Elsevier NV held by Reed Elsevier PLC.

Combined reserves include a £4 million (2002: £4 million) capital redemption reserve following the redemption of non equity shares in Reed Elsevier PLC in 1999.

At December 31, 2003, shares held in treasury related to the 6,383,333 (2002: 2,840,047) Reed Elsevier PLC ordinary shares and 1,327,777 (2002: 1,554,381) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (“EBT”). The aggregate market value of these shares at December 31, 2003 was £39 million (2002: £27 million). The EBT purchases Reed Elsevier PLC and Reed Elsevier NV shares which, at the trustees’ discretion, can be used in respect of the exercise of share options.

28. Prior year adjustment
In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the Urgent Issues Task Force of the UK Accounting Standards Board, shares in Reed Elsevier PLC and Reed Elsevier NV held by the Reed Elsevier Group plc Employee Benefit Trust are now presented as shares held in treasury and deducted within combined shareholders’ funds. Previously, such shares were included within other fixed asset investments. Within the combined cash flow statement, the purchase of such shares is now presented as a financing transaction and not as a purchase of fixed asset investments. The combined balance sheet as at December 31, 2002 and the combined cash flow statement for the two years ended December 31, 2002 have been restated accordingly.

F – 31

29. US accounting information
Summary of the principal differences between UK GAAP and US GAAP
The combined financial statements are prepared in accordance with UK GAAP, which differs in certain significant respects from US GAAP. The principal differences that affect net income and combined shareholders’ funds are explained below and their effect is shown on page F-34.

Goodwill and intangible assets
Under UK GAAP, acquired goodwill and intangible assets are capitalised and amortised systematically over their estimated useful lives up to a maximum of 40 years, subject to impairment review.

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 at least 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 with definite lives are amortised over periods up to 40 years, subject to annual impairment review under SFAS144.

Under US GAAP, as at December 31, 2003, the carrying value of goodwill is £3,045 million (2002: £3,225 million), the gross cost of intangible assets is £5,000 million (2002: £5,264 million) and the accumulated amortisation of intangible assets is £1,522 million (2002: £1,352 million).

Deferred taxation
Under UK GAAP, the combined businesses provide in full for timing differences using the liability method. Under US GAAP, deferred taxation is provided on all temporary differences under the liability method subject to a valuation allowance on deferred tax assets where applicable, in accordance with SFAS109: Accounting for Income Taxes. The most significant adjustment to apply SFAS109 arises on the recognition of a deferred tax liability in respect of acquired intangible assets for which amortisation is not tax deductible. Under the timing difference approach applied under UK GAAP, no such liability would be recognised.

Pensions
Under UK GAAP, the combined businesses account for pension costs under the rules set out in SSAP24: Accounting for Pension Costs. Its objectives and principles are broadly in line with SFAS87: Employers’ Accounting for Pensions. However, SSAP24 is less prescriptive in the application of the actuarial methods and assumptions to be applied in the calculation of pension assets, liabilities and costs.

Under UK GAAP, pension plan assets and liabilities are based on the results of the latest actuarial valuation. Pension assets are valued at the discounted present value determined by expected future income. Liabilities are assessed using the expected rate of return on plan assets. Under US GAAP, plan assets are valued by reference to market-related values at the date of the financial statements. Liabilities are assessed using the rate of return obtainable on fixed or inflation-linked bonds.

Stock based compensation
Under US GAAP, the combined businesses apply the accounting requirements of APB25: Accounting for Stock Issued to Employees and related interpretations in accounting for stock based compensation. Under APB25 compensatory plans with performance criteria qualify as variable plans, for which total compensation cost must be recalculated each period based on the current share price. The total compensation cost is amortised over the vesting period. Under UK GAAP, compensation cost is determined based on a comparison of the exercise price with the share price on the date of grant.

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.

	2003 £m	2002 £m	2001 £m

Net income/(loss) under US GAAP as reported	538	365	(20)
Stock based compensation (credit)/expense determined under APB25	(7)	—	15
Stock based compensation expense determined under SFAS123	(36)	(36)	(37)

Proforma net income/(loss) under US GAAP	495	329	(42)

Further disclosures regarding share option schemes, and the per share disclosures required by SFAS123, are presented in notes 18 and 22 of the Reed Elsevier PLC consolidated financial statements and in notes 17 and 22 of the Reed Elsevier NV financial statements.

F – 32

29. US accounting information – (continued)
Derivative instruments
Under US GAAP, SFAS133: Accounting for Derivative Instruments and Hedging Activities requires all derivative instruments to be carried at fair value on the balance sheet. Changes in fair value are accounted for through the profit and loss account or comprehensive income statement, depending on the derivative’s designation and effectiveness as a hedging instrument. Certain derivative instruments used by Reed Elsevier have not been designated as qualifying hedge instruments under SFAS133 and, accordingly, a charge to net income is recorded under US GAAP for the changes in the fair value of those derivative instruments. Under UK GAAP, derivative instruments intended as hedges are recorded at appropriate historical cost amounts, with fair values shown as a disclosure item. SFAS133 was effective from January 1, 2001 resulting in a cumulative transition adjustment of £1 million loss to US GAAP net income and £86 million loss in other comprehensive income in 2001, of which £66 million was charged to US GAAP net income in 2001, £7 million in 2002 and £7 million in 2003.

Equity dividends
Under UK GAAP, dividends are provided for in the year in respect of which they are proposed by the directors. Under US GAAP, such dividends would not be provided for until they are formally declared by the directors.

Available for sale investments
Under UK GAAP, fixed asset investments (excluding investments in joint ventures) are recorded at historical cost less provision for any impairment in value. Under US GAAP, investments in equity securities with readily determinable fair values are classified as available for sale and are reported at fair value, with unrealised gains or losses reported as a separate component of shareholders’ funds.

Acquisition accounting
Under UK GAAP, severance and integration costs in relation to acquisitions are expensed as incurred and, depending on their size and incidence, these costs may be disclosed as exceptional items charged to operating profit. Under US GAAP, certain integration costs may be provided as part of purchase accounting adjustments on acquisition.

Exceptional items
Exceptional items are material items within the combined businesses’ ordinary activities which, under UK GAAP, are required to be disclosed separately due to their size or incidence. These items do not qualify as extraordinary under US GAAP.

Short term obligations expected to be refinanced
Under US GAAP, where it is expected to refinance short term obligations on a long term basis and this is supported by an ability to consummate the refinancing, such short term obligations should be excluded from current liabilities and shown as long term obligations. Under UK GAAP, such obligations can only be excluded from current liabilities where, additionally, the debt and facility are under a single agreement or course of dealing with the same lender or group of lenders. Short term obligations at December 31, 2003 of £1,182 million (2002: £1,359 million; 2001: £1,551 million) would be excluded from current liabilities under US GAAP and shown as long term obligations.

Recently issued accounting pronouncements
SFAS 132R: Employers’ Disclosures about Pensions and Other Post Retirement Benefits was revised in December 2003 and is effective for fiscal years ending after December 15, 2003 except for disclosure of information about foreign plans, which is effective for fiscal years ending after June 15, 2004. SFAS 132R revises employers’ disclosures about pension plans and other post retirement benefit plans. Reed Elsevier has included the additional disclosures required by SFAS 132R for the year ended December 31, 2003 in note 29 to the combined financial statements.

F – 33

29. US accounting information – (continued)
FIN 46R: Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 was issued in December 2003. FIN 46R requires that certain investments, previously accounted for on the equity basis, be consolidated to show the assets, liabilities and results of operations of that entity. FIN 46R deferred the effective date for public companies to the end of the first reporting period ending after March 15, 2004, except that all public companies must, at a minimum, apply the provisions of FIN 46R to entities that were previously considered “special-purpose entities” prior to the issuance of FIN 46R by the end of the first reporting period ending after December 15, 2003. The adoption of FIN 46R had no impact on the financial position, cash flows or results of operations of the combined business under US GAAP as at December 31, 2003 under the transitional arrangements and is not expected to have any material impact on full adoption in the 2004 combined financial statements.

EITF 00-21: Accounting for Revenue Arrangements with Multiple Element Deliverables was finalised in November 2003. It provides guidance on how to account for arrangements that may involve multiple revenue-generating activities. The requirements of EITF 00-21 are applicable to financial periods beginning after June 15, 2003 and will therefore first apply to Reed Elsevier for any arrangements entered into from January 1, 2004. The effect of EITF 00-21 on the US GAAP financial position and results is not expected to be material to the combined businesses.

Effects on net income of material differences between UK GAAP and US GAAP

	2003 £m	2002 £m	2001 £m

Net income under UK GAAP	334	181	126
US GAAP adjustments:
Goodwill and intangible assets	121	223	(74)
Deferred taxation	(40)	(50)	(43)
Pensions	75	56	46
Stock based compensation	7	—	(15)
Derivative instruments	41	(45)	(56)
Other items	—	—	(4)

Net income/(loss) under US GAAP	538	365	(20)

Effects on combined shareholders’ funds of material differences between UK GAAP and US GAAP

	2003 £m	2002 £m

Combined shareholders’ funds under UK GAAP	2,434	2,640
US GAAP adjustments:
Goodwill and intangible assets	1,354	1,302
Deferred taxation	(828)	(838)
Pensions	185	151
Derivative instruments	(69)	(117)
Available for sale investments	3	3
Equity dividends	226	205
Other items	(2)	(2)

Combined shareholders’ funds under US GAAP	3,303	3,344

Cash Flow Information
Cash flows under UK GAAP in respect of taxation, returns on investment, dividends received from joint ventures and servicing of finance would be included within operating activities under SFAS95. Under SFAS95 cash is aggregated for cash flow statements with cash equivalents, being short term investments with original maturities of three months or less.

Under US GAAP, the following amounts would be reported:

	2003 £m	2002 £m	2001 £m

Net cash provided by operating activities (including joint ventures)	756	709	927
Net cash used in investing activities	(318)	(240)	(2,368)
Net cash (used)/provided in financing activities	(378)	(342)	282

Net increase/(decrease) in cash and cash equivalents	60	127	(1,159)

Reconciliation of cash and cash equivalents:
Cash under UK GAAP	68	169	96
Current asset investments with original maturity within 3 months	570	401	339

Cash and cash equivalents under US GAAP	638	570	435

F – 34

29. US accounting information – (continued)
Comprehensive Income Information
SFAS130: Reporting Comprehensive Income, requires that all items that are required to be recognised as components of comprehensive income under US accounting standards are reported in a separate financial statement. Under US GAAP, comprehensive income for the year ended December 31, 2003 would be £262 million (2002: £119 million income; 2001: £4 million loss). Comprehensive income under US GAAP comprises net income for the financial year, adjustments to the fair value of available for sale investments, pensions, derivative instruments and exchange translation differences.

Under US GAAP, the following amounts would be reported:

	2003 £m	2002 £m	2001 £m

Net income/(loss) under US GAAP	538	365	(20)
Other comprehensive income (net of tax):
Available for sale investments	(1)	(34)	35
Pensions	(31)	(25)	—
Derivative instruments	7	7	(20)

Cumulative transition adjustment as at January 1, 2001	—		—		(86)
Amounts taken to net income during the year	7		7		66

Exchange translation differences	(251)	(194)	1

Comprehensive income/(loss) under US GAAP	262	119	(4)

Goodwill and intangible assets
Net income under US GAAP for each of the three years ended December 31, 2003, adjusted to exclude the amortisation of goodwill and indefinite lived intangible assets (net of tax), are as follows:

	2003 £m	2002 £m	2001 £m

Net income under US GAAP
Reported net income	538	365	(20)
Goodwill and indefinite lived intangible assets amortisation	—	—	311
Equity method amortisation	—	—	4

Net income (excluding amortisation of goodwill and indefinite lived intangible assets)	538	365	295

As described in note 13, during the year a number of acquisitions were made for total consideration amounting to £226 million, after taking account of net cash acquired of £9 million. Under UK GAAP the goodwill arising on the acquisitions was £93 million and the intangible assets acquired, principally databases and other publishing rights, have been attributed a fair value of £136 million. These acquired intangible assets are being amortised under US GAAP and have a weighted average estimated useful life of 8 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

Carrying value
At December 31, 2001	939	1,324	598	585	3,446
Acquisitions	4	20	1	12	37
Exchange translation differences	(85)	(116)	(54)	(3)	(258)

At December 31, 2002	858	1,228	545	594	3,225
Acquisitions	11	62	6	14	93
Disposals	—	(23)	—	(6)	(29)
Exchange translation differences	(77)	(113)	(53)	(2)	(245)

At December 31, 2003	792	1,154	498	601	3,045

Goodwill arising on the Harcourt acquisition with a carrying value of £208 million at December 31, 2001 has been reclassified from the Education segment to the Science & Medical segment.

F – 35

29. US accounting information – (continued)
At December 31, 2003, the carrying value of indefinite lived intangible assets other than goodwill not subject to amortisation under US GAAP, principally trade names, trade marks, imprints and titles, was £925 million (2002: £1,028 million; 2001: £1,137 million).

Intangible assets subject to amortisation under US GAAP, principally publishing rights, journal subscriber bases, databases and other publishing content, can be analysed as follows:

	2003 £m	2002 £m

Cost	4,075	4,236
Accumulated amortisation	(1,522)	(1,352)

Net book amount	2,553	2,884

The amortisation charge for intangible assets under US GAAP for the year ended December 31, 2003 was £297 million (2002: £303 million; 2001: £564 million). The future annual amortisation charge under US GAAP in respect of the intangible assets reflected in the balance sheet as at December 31, 2003 is estimated to be in the range of £230 million to £310 million for each of the five financial years ending December 31, 2008.

Pensions – UK Scheme
Reed Elsevier operates a number of pension schemes around the world. The major schemes are of a defined benefit type with assets held in separate trustee administered funds.

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 of Reed Elsevier Group plc were divested in the mid 1990s.

The scheme is funded with the objective to cover future pension liabilities, including expected future earnings and pension increases, in respect of service up to the balance sheet date.

The trustees of the main UK scheme determine their investment strategy with regard to the liability profile of the scheme. The trustees have determined the following asset allocation guidelines in place as at December 31, 2003, which they believe provide an adequate balance between maximising the return on the assets and minimising the risk of failing to meet the liabilities over the long-term:

	Range	Midpoint

Equities	43-83%	63%
Bonds	15-49%	32%
Property	0-4%	2%
Cash	0-6%	3%

Through the above asset allocation guidelines, the trustees of the main UK scheme aim to have a sufficiently diversified portfolio across the main asset classes. A statement of principles prepared by the trustees describes in more detail the trustees’ objectives and risk management considerations.

The net pension credits in respect of this scheme calculated in accordance with SFAS87 were as follows:

	2003 £m	2002 £m	2001 £m

Service costs — benefits earned during the year	32	35	31
Interest cost on projected benefit obligations	73	72	73
Expected return on plan assets	(137)	(117)	(107)
Net amortisation and deferral	(48)	(43)	(40)

Net periodic pension credit	(80)	(53)	(43)

F – 36

29. US accounting information – (continued)
The following table sets forth the funded status under SFAS87 of the main UK scheme:

	2003		2002		2001

	%	£m	%	£m	%	£m

Equities	69%	1,050	61%	825	63%	991
Bonds	29%	442	36%	487	32%	502
Other	2%	38	3%	45	5%	73

Plan assets at fair value	100%	1,530	100%	1,357	100%	1,566
Projected benefit obligation		(1,588)		(1,305)		(1,335)

Excess plan assets		(58)		52		231
Unrecognised net actuarial loss		429		239		8
Unrecognised net transitional asset		(10)		(18)		(26)
Unrecognised prior service cost		12		20		27

Prepaid pension cost		373		293		240

	2003 £m	2002 £m	2001 £m

Projected benefit obligation
Balance at January 1,	1,305	1,335	1,259
Service cost	32	35	31
Interest cost	73	72	73
Plan amendments	—	—	20
Actuarial loss/(gain)	226	(85)	(2)
Participants contributions	5	5	4
Disbursements	(53)	(57)	(50)

Balance at December 31,	1,588	1,305	1,335

Accumulated benefit obligation	1,513	1,263	1,277

	2003 £m	2002 £m	2001 £m

Fair value of assets
Balance at January 1,	1,357	1,566	1,747
Actual return	221	(157)	(135)
Contributions	5	5	4
Disbursements	(53)	(57)	(50)

Balance at December 31,	1,530	1,357	1,566

The principal assumptions for US GAAP purposes were:

	At December 31,
	2003	2002	2001

Discount rate	5.50%	5.70%	5.50%
Salary increases	4.80%	4.30%	4.50%
Pension increases	2.80%	2.30%	2.50%

Investment return	6.80%	7.30%	6.30%

The overall investment return assumption is derived as the weighted average based on the actual allocation, at December 31, of the expected returns from each of the main asset classes. The expected return for each asset class reflects a combination of historical performance analysis, the forward looking views of the financial markets (as suggested by the yields available) and the views of investment organisations. Consideration is also given to the rate of return expected to be available for reinvestment.

Reed Elsevier expects to contribute £8 million to the main UK scheme in 2004.

F – 37

29. US accounting information – (continued)
Pensions – US Schemes
The main US pension scheme covers substantially all of the US employees. The benefits are based on years of service and the employees’ compensation. The funding policy is to contribute at least the minimum legally required amount. The net pension costs in respect of the principal US schemes calculated in accordance with SFAS87 were as follows:

	2003 £m	2002 £m	2001 £m

Service costs — benefits earned during the year	29	28	23
Interest cost on projected benefit obligations	22	21	19
Expected return on plan assets	(24)	(25)	(21)
Net amortisation and deferral	(2)	(2)	(1)

Net periodic pension cost	25	22	20

The following table sets forth the funded status under SFAS87 of the principal US schemes including unfunded non- qualifying plans:

	2003 £m	2002 £m	2001 £m

Projected benefit obligation	(340)	(303)	(323)
Plan assets at fair value	244	215	266

Deficit of plan assets	(96)	(88)	(57)
Unrecognised net actuarial loss	90	80	34
Unrecognised prior service (credit)/cost	(15)	(19)	1

Net amount recognised	(21)	(27)	(22)

The net amount recognised can be analysed as follows:

	2003 £m	2002 £m	2001 £m

Accrued pension cost	(21)	(27)	(22)
Additional minimum liability	(55)	(44)	(7)
Intangible asset	4	5	7
Accumulated other comprehensive income	51	39	—

Net amount recognised	(21)	(27)	(22)

	2003 £m	2002 £m	2001 £m

Projected benefit obligation
Balance at January 1,	303	323	202
Service cost	29	28	23
Interest cost	22	21	19
Plan amendments	—	(22)	9
Actuarial loss	47	3	20
Business combinations	—	—	85
Disbursements	(24)	(19)	(14)
Settlements and curtailments	—	—	(24)
Exchange translation adjustments	(37)	(31)	3

Balance at December 31,	340	303	323

F – 38

29. US accounting information – (continued)

	2003 £m	2002 £m	2001 £m

Fair value of assets
Balance at January 1,	215	266	184
Actual return	50	(24)	(12)
Contributions	28	13	37
Business combinations	—	—	87
Disbursements	(22)	(17)	(13)
Settlements and curtailments	—	—	(22)
Exchange translation adjustments	(27)	(23)	5

Balance at December 31,	244	215	266

	2003 £m	2002 £m	2001 £m

Accrued pension cost
Balance at January 1,	(27)	(22)	(46)
Additional obligations	—	—	—
Net periodic cost	(25)	(22)	(20)
Contributions	28	13	37
Disbursements	2	2	1
Business combinations	—	—	4
Settlements and curtailments	—	—	2
Exchange translation adjustments	1	2	—

Balance at December 31,	(21)	(27)	(22)

The principal assumptions were:

	At December 31,

	2003	2002	2001

Discount rate	6.25%	6.75%	7.25%
Salary increases	4.50%	4.50%	4.50%
Investment return	8.20%	8.50%	8.75%

Plan assets are invested primarily in listed stocks and US bonds.

Borrowings	2003 £m	2002 £m

Bank loans, overdrafts and commercial paper
Drawn under facilities expiring in year to December 31,
2005	—	80
2008	85	—
Commercial paper	1,095	1,199

Total	1,180	1,279

F – 39

29. US accounting information – (continued)

	Currency	Year end interest rates %	2003 £m	2002 £m

Other loans and finance leases
8.5% Private Placement 2003	US dollar	—	—	78
Floating rate Loan Notes 2004	Sterling	3.50	1	—
7% Public Notes 2005	US dollar	7.00	84	94
Floating rate Loan Notes 2005	Sterling	—	—	18
6.125% Public Notes 2006	US dollar	1.91	309	343
Floating rate Private Placement 2006	Euro	3.05	32	29
Floating rate Term Loan 2007	Euro	2.78	113	105
Floating rate Term Loan 2007	US dollar	1.79	28	31
4.375% Swiss Domestic Bond 2007	US dollar	1.85	169	187
6.7% Public Notes 2007	US dollar	6.70	81	91
Floating rate Private Placement 2008	Euro	2.52	32	—
Floating rate Private Placement 2008	US dollar	1.75	56	—
Euro 5.75% Public Notes 2008	US dollar	2.02	247	274
6.75% Public Notes 2011	US dollar	6.75	309	343
8.875% Public Notes 2022	US dollar	8.88	36	40
6.625% Private Placement 2023	US dollar	2.88	84	94
7.5% Public Debentures 2025	US dollar	3.27	84	94
7.2% Public Notes 2027	US dollar	7.20	108	120
7.3% Public Notes 2097	US dollar	7.30	29	32
6.5% Subordinated Debentures 2011	US dollar	—	—	24
Finance Leases	Various	Various	23	22
Miscellaneous	Euro	Various	5	4

Total			1,830	2,023

Interest rates disclosed above are those on the underlying borrowings after taking account of interest rate and currency swaps which change the interest rate profile of the underlying borrowings from a fixed rate to a floating rate (see note 23).

	Bank loans, overdrafts and commercial paper £m	Other loans and finance leases £m	Total £m

Analysis by year of repayment
Within 1 year	1,180	18	1,198

Within 1 to 2 years	—	88	88
Within 2 to 3 years	—	344	344
Within 3 to 4 years	—	391	391
Within 4 to 5 years	—	335	335
Thereafter	—	654	654

	—	1,812	1,812

Total	1,180	1,830	3,010

F – 40

29. US accounting information – (continued)

	Expiring within 1 year £m	Expiring after 1 year £m	Total £m

Bank facilities at December 31, 2003
Overdraft	42	—	42
Uncommitted lines of credit	191	—	191
Committed facilities	421	1,263	1,684

Of the £1,263 million committed facilities expiring after one year, £51 million was utilised by way of letters of credit which support short term borrowings.

The committed facilities are subject to covenants which restrict net borrowings and net interest payable by reference to Reed Elsevier’s combined earnings before exceptional items, interest, tax, depreciation and amortisation. Secured borrowings above a fixed amount are also restricted. There is also a covenant restricting the ability to dispose of all or any part of Reed Elsevier’s assets (except in the ordinary course of trading or for fair market value).

	2003	2002

Short term loans, overdrafts and commercial paper
Weighted average interest rate during year	2.2%	3.7%
Year end weighted average interest rate	1.7%	2.4%

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
At December 31, 2003, tangible fixed assets included gross costs of £43 million (2002: £33 million) and accumulated depreciation of £14 million (2002: £9 million) in respect of assets held under finance leases.

Operating leases
At December 31, 2003, future minimum lease payments under operating leases that have initial or remaining lease terms in excess of one year were as follows:

	£m

Within 1 year	106
Within 1 to 2 years	95
Within 2 to 3 years	88
Within 3 to 4 years	78
Within 4 to 5 years	68
Thereafter	401

Total	836

Derivative instruments
All fair value hedges were tested for effectiveness using the short cut method, as defined by SFAS133, and were found to be effective. Consequently changes in the fair value of fair value hedges had no net impact on earnings during the year (2002: £nil).

Accruals and deferred income
Accruals and deferred income includes subscriptions and other revenues in advance of £870 million (2002: £788 million).

F – 41

REED ELSEVIER

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

	Balance at beginning of year	Cost and expenses	Other movements ⁽¹⁾	Deductions	Balance at end of year
	£m	£m	£m	£m	£m

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, 2003
Allowance for doubtful receivables	76	18	6	(12)	88

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
Year ended December 31, 2003
Provisions against inventories	96	14	(1)	(18)	91

⁽¹⁾ Other movements in 2001 include the acquisition of Harcourt and exchange rate movements.

F – 42

REED ELSEVIER PLC
CONSOLIDATED FINANCIAL STATEMENTS

F – 43

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REPORT OF INDEPENDENT AUDITORS

To the board of directors and shareholders of Reed Elsevier PLC

We have audited the accompanying consolidated balance sheets of Reed Elsevier PLC and its subsidiaries as of December 31, 2003 and 2002, and the related consolidated profit and loss accounts and statements of total recognised gains and losses, reconciliation of shareholders’ funds and cash flow statements for the three years ended December 31, 2003. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Reed Elsevier PLC and its subsidiaries at December 31, 2003 and 2002 and the results of their operations and their cash flows for the three years ended December 31, 2003, in conformity with accounting principles generally accepted in the United Kingdom.

DELOITTE & TOUCHE LLP
Chartered Accountants & Registered Auditors
London, England
February 18, 2004

F – 44

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REED ELSEVIER PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 2003

		2003	2002	2001
	Note	£m	£m	£m

Turnover
Including share of turnover of joint ventures		2,605	2,656	2,412
Less: share of turnover of joint ventures		(2,605)	(2,656)	(2,412)

		—	—	—
Administrative expenses		(1)	(1)	(1)

Operating loss (before joint ventures)	5	(1)	(1)	(1)

Share of operating profit of joint ventures		343	262	202

Before amortisation and exceptional items	3	616	593	519
Amortisation of goodwill and intangible assets		(235)	(279)	(265)
Exceptional items		(38)	(52)	(52)


Operating profit including joint ventures		342	261	201

Share of non operating exceptional items of joint ventures		14	(6)	14

		14	(6)	14

Net interest income/(expense)
Group	8	3	3	12
Share of net interest of joint ventures		(92)	(112)	(87)

		(89)	(109)	(75)

Profit on ordinary activities before taxation		267	146	140
Tax on profit on ordinary activities	9	(98)	(57)	(79)

UK corporation tax		(1)		(1)		(3)
Share of tax of joint ventures		(97)		(56)		(76)


Profit attributable to ordinary shareholders		169	89	61
Equity dividends paid and proposed	10	(152)	(143)	(132)

Retained profit/(loss) taken to reserves		17	(54)	(71)

		2003	2002	2001
	Note	pence	pence	pence

Earnings per ordinary share (“EPS”)
Basic EPS	11	13.4	7.0	4.8
Diluted EPS	11	13.4	7.0	4.8
EPS based on 52.9% economic interest in the Reed Elsevier combined businesses	11	14.0	7.6	5.3

The above amounts derive from continuing activities.

The accompanying notes on pages F-49 to F-60 are an integral part of these consolidated financial statements

F – 45

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REED ELSEVIER PLC
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2003

		2003	2002	2001
	Note	£m	£m	£m

Net cash outflow from operating activities	12	(1)	—	(3)
Dividends received from Reed Elsevier Group plc		144	135	127

Interest received		3	3	13

Returns on investments and servicing of finance		3	3	13

Taxation		(3)	(1)	(3)

Fixed asset investments		—	—	(406)

Acquisitions and disposals		—	—	(406)

Equity dividends paid		(144)	(135)	(126)

Cash (outflow)/inflow before changes in short term investments and financing		(1)	2	(398)

Decrease in short term investments	12	—	—	431

Issue of ordinary shares		12	16	10
Increase in net funding balances to Reed Elsevier Group plc group	12	(11)	(18)	(43)

Financing		1	(2)	(33)

Change in net cash		—	—	—

The accompanying notes on pages F-49 to F-60 are an integral part of these consolidated financial statements

F – 46

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REED ELSEVIER PLC
CONSOLIDATED BALANCE SHEET
AS AT DECEMBER 31, 2003

		2003	2002
	Note	£m	£m

Fixed assets
Investment in joint ventures:	13
Share of gross assets		4,370	4,656
Share of gross liabilities		(3,511)	(3,683)

Share of net assets		859	973

Current assets
Debtors	14	584	573

		584	573
Creditors: amounts falling due within one year	15	(119)	(113)

Net current assets		465	460

Total assets less current liabilities		1,324	1,433
Creditors: amounts falling due after more than one year	16	(36)	(36)

Net assets		1,288	1,397

Capital and reserves
Called up share capital	17	159	159
Share premium account	19	963	951
Shares held in treasury	19	(20)	(10)
Capital redemption reserve	19	4	4
Profit and loss reserve	19	182	293

Shareholders’ funds		1,288	1,397

The accompanying notes on pages F-49 to F-60 are an integral part of these consolidated financial statements

F – 47

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REED ELSEVIER PLC
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED DECEMBER 31, 2003

	2003	2002	2001
	£m	£m	£m

Profit attributable to ordinary shareholders	169	89	61
Exchange translation differences	(123)	(98)	(2)

Total recognised gains and losses for the year	46	(9)	59

Recognised gains and losses include gains of £53 million (2002: losses of £3 million; 2001: gains of £65 million) in respect of joint ventures.

Return to contents

CONSOLIDATED RECONCILIATION OF SHAREHOLDERS’ FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2003

		2003	2002	2001
	Note	£m	£m	£m

Profit attributable to ordinary shareholders		169	89	61
Equity dividends paid and proposed		(152)	(143)	(132)
Issue of ordinary shares, net of expenses		12	16	10
Increase in shares held in treasury		(10)	(1)	(9)
Exchange translation differences		(123)	(98)	(2)
Equalisation adjustments		(5)	—	(3)

Net decrease in shareholders’ funds		(109)	(137)	(75)
Shareholders’ funds at January 1		1,397	1,534	1,609

As originally reported			1,407		1,543		1,609
Prior year adjustment in relation to presentation of shares held in treasury	21		(10)		(9)		—


Shareholders’ funds at December 31,	1,288	1,397	1,534

The accompanying notes on pages F-49 to F-60 are an integral part of these consolidated financial statements

F – 48

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REED ELSEVIER PLC

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of financial statements
On January 1, 1993, Reed Elsevier PLC and Reed Elsevier NV contributed their businesses to two companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier Group plc, which owns all the publishing and information businesses, is incorporated in England and Elsevier Reed Finance BV, which owns the financing and treasury companies, is incorporated in the Netherlands. Reed Elsevier PLC and Reed Elsevier NV each hold a 50% interest in Reed Elsevier Group plc. Reed Elsevier PLC holds a 39% interest in Elsevier Reed Finance BV with Reed Elsevier NV holding a 61% interest. Reed Elsevier PLC additionally holds an indirect equity interest in Reed Elsevier NV, reflecting the arrangements entered into between Reed Elsevier PLC and Reed Elsevier NV at the time of the merger, which determined the equalisation ratio whereby one Reed Elsevier NV ordinary share is, in broad terms, intended to confer equivalent economic interests to 1.538 Reed Elsevier PLC ordinary shares.

Under the equalisation arrangements Reed Elsevier PLC shareholders have a 52.9% economic interest in the Reed Elsevier combined businesses and Reed Elsevier NV shareholders (other than Reed Elsevier PLC) have a 47.1% interest. Holders of ordinary shares in Reed Elsevier PLC and Reed Elsevier NV enjoy substantially equivalent dividend and capital rights with respect to their ordinary shares.

2. Accounting policies
Basis of preparation
The consolidated financial statements have been prepared under the historical cost convention in accordance with UK GAAP. These principles differ in certain significant respects from US GAAP; see note 22. Amounts in the financial statements are stated in pounds sterling (“£”). Certain disclosures required to comply with UK statutory reporting requirements have been omitted.

Prior year adjustment
Following the issuance of UITF38: Accounting for ESOP Trusts in December 2003, shares held in the parent companies by the Reed Elsevier Group plc Employee Benefit Trust, previously included within share of gross assets of joint ventures, are now presented as shares held in treasury and deducted within consolidated shareholders’ funds. Prior year comparatives have been restated accordingly.

Determination of profit
The Reed Elsevier PLC share of the Reed Elsevier combined results has been calculated on the basis of the 52.9% economic interest of the Reed Elsevier PLC shareholders in the Reed Elsevier combined businesses, after taking account of results arising in Reed Elsevier PLC and its subsidiary undertakings. Dividends paid to Reed Elsevier PLC and Reed Elsevier NV shareholders are equalised at the gross level inclusive of the UK tax credit received by certain Reed Elsevier PLC shareholders. In the financial statements, an adjustment is required to equalise the benefit of the tax credit between the two sets of shareholders in accordance with the equalisation agreement. This equalisation adjustment arises on dividends paid by Reed Elsevier PLC to its shareholders and reduces the attributable earnings of the company by 47.1% of the total amount of the tax credit.

The accounting policies adopted in the preparation of the combined financial statements are set out in note 2 to the Reed Elsevier combined financial statements.

Basis of valuation of assets and liabilities
Reed Elsevier PLC’s 52.9% economic interest in the net assets of the combined businesses has been shown on the balance sheet as interests in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier PLC and its subsidiaries. Joint ventures are accounted for using the gross equity method. In the parent company accounts, investments are stated at cost, less provision, if appropriate, for any impairment in value.

Foreign exchange translation
Profit and loss and cash flow items are translated at average exchange rates. In the consolidated balance sheet, assets and liabilities are translated at rates ruling at the balance sheet date or contracted rates where applicable. The gains or losses relating to the retranslation of Reed Elsevier PLC’s 52.9% economic interest in the net assets of the combined businesses are taken directly to reserves.

Taxation
Deferred taxation is provided in full for timing differences using the liability method. No provision is made for tax which might become payable on the distribution of retained profits by foreign subsidiaries or joint ventures unless there is an intention to distribute such retained earnings giving rise to a charge. Deferred tax assets are only recognised to the extent that they are considered recoverable in the short term. Deferred taxation balances are not discounted.

F – 49

3. Income from interests in joint ventures

	2003 £m	2002 £m	2001 £m

Share of operating profit before amortisation and exceptional items (based on 52.9% economic interest in the Reed Elsevier combined businesses)	623	599	524
Effect of tax credit equalisation on distributed earnings (see note 4)	(8)	(7)	(6)
Items consolidated within Reed Elsevier PLC group	1	1	1

Total	616	593	519

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
The tax credit equalisation adjustment arises on dividends paid by Reed Elsevier PLC to its shareholders and reduces the earnings of the company by 47.1% of the total amount of the tax credit, as set out in the accounting policies in note 2.

5. Operating loss
The operating loss comprises administrative expenses and includes £330,000 (2002: £318,000; 2001: £278,000) paid in the year to Reed Elsevier Group plc under a contract for the services of directors and administrative support. The company has no employees (2002 and 2001: nil).

6. Auditors’ remuneration
Audit fees payable for the group were £23,000 (2002: £23,000; 2001: £23,000).

7. Directors’ emoluments
Information on directors’ remuneration, share options, longer term incentive plans, pension contributions and entitlements is set out in Item 6: Directors, Senior Management and Employees and forms part of these financial statements.

8. Net interest

	2003 £m	2002 £m	2001 £m

Interest receivable and similar income
On short term investments	—	—	11
On loans to Reed Elsevier Group plc group	3	3	1

Net interest income	3	3	12


F – 50

9. Tax on profit on ordinary activities

	2003 £m	2002 £m	2001 £m

UK corporation tax	1	1	3
Share of tax arising in joint ventures	97	56	76

Total	98	57	79

UK corporation tax has been provided at 30% (2002: 30%; 2001: 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 2003 and 2002, reduced due to exceptional tax credits.

10. Dividends

	2003 £m	2002 £m	2001 £m

Interim	42	41	38
Final (2003 proposed)	110	102	94

Total	152	143	132

	2003 pence	2002 pence	2001 pence

Ordinary shares of 12.5 pence each
Interim	3.3	3.2	3.1
Final (2003 proposed)	8.7	8.0	7.4

Total	12.0	11.2	10.5


F – 51

11. Earnings per ordinary share (EPS)

	2003

	Earnings £m	Weighted average number of shares (millions)	EPS pence

Basic EPS	169	1,263.7	13.4
Diluted EPS	169	1,265.4	13.4
EPS based on 52.9% economic interest in the Reed Elsevier combined businesses	177	1,263.7	14.0

	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

	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

The diluted EPS figures are calculated after taking into account the effect of share options.

12. Cash flow statement

Reconciliation of operating loss to net cash outflow from operating activities	2003 £m	2002 £m	2001 £m

Operating loss	(1)	(1)	(1)
Net movement in debtors and creditors	—	1	(2)

Net cash outflow from operating activities	(1)	—	(3)

	Short term investments £m	Net funding balances to Reed Elsevier Group plc group £m	Total £m

Reconciliation of net funding balances
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
Cash flow	—	11	11

At December 31, 2003	—	548	548


F – 52

12. Cash flow statement – (continued)

Fixed asset investments

On April 12, 2001, Reed Holding BV, a wholly owned subsidiary of Reed Elsevier PLC, subscribed for 629,298 R-shares in Reed Elsevier NV at a cost of £59 million, so as to maintain Reed Elsevier PLC’s 5.8% indirect equity interest in Reed Elsevier NV. Reed Holding BV issued shares to Reed Elsevier PLC for an equivalent amount to fund the transaction.

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 £347 million.

13. Fixed asset investments

	2003 £m	2002 £m

Investment in joint ventures
Share of operating profit	343	262
Share of non operating exceptional items	14	(6)
Share of net interest payable	(92)	(112)

Share of profit before tax	265	144
Share of taxation	(97)	(56)

Share of profit after tax	168	88
Dividends received	(144)	(135)
Increase in shares held in treasury	(10)	(1)
Exchange translation differences	(123)	(98)
Equalisation adjustments	(5)	—

Net movement in the year	(114)	(146)

At January 1	973	1,119

As originally reported	983		1,128
Prior year adjustment (see note 21)	(10)		(9)


At December 31	859	973

The investment in joint ventures comprises the group’s share at the following amounts of:

	2003 £m	2002 £m

Fixed assets	3,034	3,396
Current assets	1,336	1,260
Creditors: amounts falling due within one year	(2,303)	(2,380)
Creditors: amounts falling due after more than one year	(1,114)	(1,201)
Provisions	(89)	(99)
Minority interests	(5)	(3)

Total	859	973

Included within share of current assets and creditors are cash and short term investments of £338 million (2002: £302 million) and borrowings of £1,592 million (2002: £1,747 million) respectively.

14. Debtors

	2003 £m	2002 £m

Amounts owed by Reed Elsevier Group plc group	584	573

Amounts falling due after more than one year are £40 million (2002: £40 million). These amounts are denominated in sterling and earn interest at a fixed rate of 9.8% (2002: 9.8%) for a remaining duration of four years (2002: five years). At December 31, 2003, these amounts had a fair value of £47 million (2002: £49 million).

F – 53

15. Creditors: amounts falling due within one year

	2003 £m	2002 £m

Other creditors	1	1
Proposed dividend	110	102
Taxation	8	10

Total	119	113

16. Creditors: amounts falling due after more than one year

	2003 £m	2002 £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% (2002: 10.5%) for a remaining duration of two years (2002: three years). At December 31, 2003, these amounts had a fair value of £40 million (2002: £42 million).

17. Called up share capital

	Authorised	Issued and fully paid

	2003 £m	2003 £m	2002 £m

Ordinary shares of 12.5p each	159	159	159
Unclassified shares of 12.5p each	25	—	—

Total	184	159	159

Details of shares issued under share option schemes are set out in note 18.

The authorised share capital consists of 1,471.5 million ordinary shares of 12.5p each. As at December 31, 2003, the issued share capital was 1,271.1 million (2002: 1,268.4 million) ordinary shares.

18. Share option schemes
Reed Elsevier Group plc operates a savings related share option scheme, which is open to all UK employees of Reed Elsevier Group plc and participating companies under its control who are in employment on a predetermined date prior to the date of invitation. The following options have been granted over Reed Elsevier PLC ordinary shares, and may be exercised at the end of the savings period at a price equivalent to not less than 80% of the market value of the Reed Elsevier PLC ordinary shares at the time of grant.

Transactions during the three years ended December 31, 2003 were:

	Number of ordinary shares	Exercise price (pence)

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
Granted	1,825,263	399.6
Exercised	(932,994)	336.2-543.2
Lapsed	(825,176)

Outstanding at December 31, 2003	3,675,932


F – 54

18. Share option schemes – (continued)
The above options may, upon exercise, be met by the issue of new Reed Elsevier PLC ordinary shares. Options outstanding at December 31, 2003 were exercisable by 2008. 97,201 options had vested at December 31, 2003.

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, 2003 were:

	Number of ordinary shares	Exercise price (pence)

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
Granted	15,004,082	431.0-540.0
Exercised	(1,804,016)	321.75-537.5
Lapsed	(2,170,047)

Outstanding at December 31, 2003	45,311,222

The above outstanding options may, upon exercise, be met by the issue of new Reed Elsevier PLC ordinary shares. Options outstanding at December 31, 2003 were exercisable by 2013. 10,809,935 options had vested at December 31, 2003. In addition to the above, 12,385,458 options were outstanding at December 31, 2003 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 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, 2003, there were 2,407,064 such options outstanding at exercise prices ranging between 424p and 537.5p. The EBT will also be used to satisfy nil cost options granted to certain senior executives. At December 31, 2003, there were 232,461 such options outstanding.

F – 55

19. Reserves

	Share premium account £m	Shares held in treasury £m	Capital redemption reserve £m	Profit and loss reserve £m	Total £m

At January 1, 2001	926	—	4	521	1,451

As originally reported	926	—	4	521	1,451
Prior year adjustment (see note 21)	—	—	—	—	—

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)
Increase in shares held in treasury	—	(9)	—	—	(9)
Equalisation adjustments	—	—	—	(3)	(3)

At January 1, 2002	936	(9)	4	445	1,376

As originally reported	936	—	4	445	1,385
Prior year adjustment (see note 21)	—	(9)	—	—	(9)

Profit attributable to ordinary shareholders	—	—	—	89	89
Equity dividends paid and proposed	—	—	—	(143)	(143)
Issue of ordinary shares, net of expenses	15	—	—	—	15
Increase in shares held in treasury	—	(1)	—	—	(1)
Exchange translation differences	—	—	—	(98)	(98)

At January 1, 2003	951	(10)	4	293	1,238

As originally reported	951	—	4	293	1,248
Prior year adjustment (see note 21)	—	(10)	—	—	(10)

Profit attributable to ordinary shareholders	—	—	—	169	169
Equity dividends paid and proposed	—	—	—	(152)	(152)
Issue of ordinary shares, net of expenses	12	—	—	—	12
Increase in shares held in treasury	—	(10)	—	—	(10)
Exchange translation differences	—	—	—	(123)	(123)
Equalisation adjustments	—	—	—	(5)	(5)

At December 31, 2003	963	(20)	4	182	1,129

Reed Elsevier PLC’s share of the revenue reserves of the Reed Elsevier combined businesses is £261 million (2002: £402 million).

Details of shares held in treasury are provided in note 27 to the combined financial statements.

20. Contingent liabilities
There are contingent liabilities in respect of borrowings of the Reed Elsevier Group plc group and Elsevier Reed Finance BV group guaranteed by Reed Elsevier PLC as follows:

	2003 £m	2002 £m

Guaranteed jointly and severally with Reed Elsevier NV	2,692	2,934

Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 23 to the Reed Elsevier combined financial statements. 21. Prior year adjustment In accordance with UITF38: Accounting for ESOP Trusts issued in 2003 by the Urgent Issues Task Force of the UK Accounting Standards Board, the Reed Elsevier combined businesses now present the shares in Reed Elsevier PLC and Reed Elsevier NV held by the Reed Elsevier Group plc Employee Benefit Trust as shares held within treasury, which are deducted within combined shareholders’ funds. Previously, such shares were included within the other fixed asset investments of the combined businesses. The consolidated balance sheet as at December 31, 2002 has been restated to reflect Reed Elsevier PLC’s share of the restatement made in the combined financial statements in relation to the presentation of shares held in treasury.

F – 56

22. US accounting information
Summary of the principal differences between UK and US GAAP
The consolidated financial statements are prepared in accordance with UK GAAP, which differs in certain significant respects from US GAAP. These differences relate principally to the following items and the effect of material differences on net income and shareholders’ funds is shown in the following tables.

Impact of US GAAP adjustments to combined financial statements
Reed Elsevier PLC accounts for its 52.9% economic interest in the Reed Elsevier combined businesses, before the effect of tax credit equalisation (see note 3), by the gross equity method in conformity with UK GAAP which is similar to the equity method in US GAAP. Using the equity method to present its net income and shareholders’ funds under US GAAP, Reed Elsevier PLC reflects its 52.9% share of the effects of differences between UK and US GAAP relating to the combined businesses as a single reconciling item. The most significant differences relate to the capitalisation and amortisation of goodwill and intangibles, pensions, deferred taxes and derivative financial instruments. A more complete explanation of the accounting policies used by the Reed Elsevier combined businesses and the differences between UK and US GAAP is given in note 29 to the Reed Elsevier combined financial statements.

Exceptional items
Exceptional items are material items within Reed Elsevier PLC’s ordinary activities which under UK GAAP are required to be disclosed separately due to their size or incidence. These items do not qualify as extraordinary under US GAAP.

Stock based compensation
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 instead of intrinsic value based methods. Where fair values are not applied, the proforma effect on net income must be disclosed.

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.

	2003 £m	2002 £m	2001 £m

Net income/(loss) under US GAAP as reported	278	186	(16)
Add: stock based compensation (credit)/expense determined under APB25	(3)	—	8
Less: stock based compensation expense determined under SFAS123	(20)	(19)	(19)

Proforma net income/(loss) under US GAAP	255	167	(27)

Earnings per share under US GAAP
Basic — as reported (pence)	22.0p	14.7p	(1.3)p
Basic — proforma (pence)	20.2p	13.2p	(2.1)p
Diluted — as reported (pence)	22.0p	14.6p	(1.3)p
Diluted — proforma (pence)	20.2p	13.1p	(2.1)p

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 – 57

22. US accounting information – (continued)

Effects on net income of material differences between UK GAAP and US GAAP

	2003 £m	2002 £m	2001 £m

Net income under UK GAAP	169	89	61
Impact of US GAAP adjustments to combined financial statements	109	97	(77)

Net income/(loss) under US GAAP	278	186	(16)

Basic earnings/(loss) per ordinary share under US GAAP (pence)	22.0p	14.7p	(1.3)p

Diluted earnings/(loss) per ordinary share under US GAAP (pence)	22.0p	14.6p	(1.3)p

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 2003, 2.0p loss in respect of reorganisation costs related to employee severance, principally in Legal and Business 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; and

(ii)

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; and

(iii)

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.

Effects on shareholders’ funds of material differences between UK and US GAAP

	2003 £m	2002 £m

Shareholders’ funds under UK GAAP	1,288	1,397
Impact of US GAAP adjustments to combined financial statements	350	269
Equity dividends not declared in the period	110	102

Shareholders’ funds under US GAAP	1,748	1,768

Comprehensive Income Information SFAS130: Reporting Comprehensive Income requires that all items that are required to be recognised as components of comprehensive income under US GAAP are reported in a separate financial statement. Under US GAAP, comprehensive income for 2003 would be £131 million (2002: £56 million; 2001: £10 million loss). Under US GAAP, comprehensive income per share for 2003 would be 10.4p (2002: 4.4p; 2001: 0.8p loss;). Comprehensive income under US GAAP comprises net income for the financial year, share of the comprehensive income items arising in the combined businesses, equalisation and exchange translation differences.

F – 58

22. US accounting information – (continued)
Share option schemes
A summary of the share option schemes operated over Reed Elsevier PLC ordinary shares is set out in note 18. Additional information is also provided under Item 6: Directors, Senior Management and Employees, including performance conditions.

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, 2003.

Movement in options outstanding

	2003		2002		2001

	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,	50,789,180	517	47,998,993	497	42,471,136	466
Granted	16,829,345	446	9,600,847	595	10,371,430	606
Exercised	(2,577,949)	443	(3,497,381)	471	(2,406,463)	474
Lapsed	(3,667,964)	481	(3,313,279)	496	(2,437,110)	448

Outstanding at December 31,	61,372,612	503	50,789,180	517	47,998,993	497

Exercisable at December 31,	10,907,136	505	4,397,692	529	5,895,494	532

Options granted during year

	2003		2002		2001

	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	400	187	543	238	500	243
Options whose exercise price equals the market price of ordinary shares on date of grant	452	115	600	142	616	179

The number of ordinary shares under options granted in 2003 included above where the exercise price is less than the market price on date of grant was 1,825,263 (2002: 858,783; 2001: 873,282).

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:

	2003	2002	2001

Expected life (years)	3.1	3.1	3.3
Expected dividend yield	1.87%	1.79%	1.86%
Expected volatility	35.18%	32.08%	38.64%
Risk free interest rate	4.79%	4.37%	5.05%

F – 59

22. US accounting information – (continued)
Options outstanding at December 31, 2003

	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	721,673	1.46	336	58,167	336
351-400	1,725,968	3.38	400	—	—
401-450	17,596,854	0.54	430	3,974,082	420
451-500	16,179,494	1.88	455	1,289,391	473
501-550	4,691,461	0.63	528	1,601,090	537
551-600	12,524,300	0.82	589	2,829,441	575
601-650	2,425,376	0.49	626	897,160	618
651-700	5,507,486	0.20	663	257,805	671

	61,372,612	1.02	503	10,907,136	505

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 – 60

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REED ELSEVIER NV
GROUP FINANCIAL STATEMENTS

F – 61

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REPORT OF INDEPENDENT AUDITORS

To the members of the supervisory and executive boards and the shareholders of Reed Elsevier NV.

We have audited the accompanying group balance sheets of Reed Elsevier NV as of December 31, 2003 and 2002, and the related group profit and loss account and statement of total recognised gains and losses, reconciliation of shareholders’ funds and cash flow statement for the three years ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

In our opinion, such group financial statements present fairly, in all material respects, the financial position of Reed Elsevier NV at December 31, 2003 and 2002 and the results of its operations and its cash flows for the three years ended December 31, 2003, in conformity with accounting principles generally accepted in the United Kingdom.

Accounting principles generally accepted in the United Kingdom vary in significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of net income for the each of the three years ended December 31, 2003, and the determination of shareholders’ funds at December 31, 2003 and 2002, to the extent summarised in note 21 to the group financial statements.

DELOITTE ACCOUNTANTS
Amsterdam, The Netherlands
February 18, 2004

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REED ELSEVIER NV
GROUP PROFIT AND LOSS ACCOUNT
FOR THE YEAR ENDED DECEMBER 31, 2003

	Note	2003 €m	2002 €m	2001 €m

Turnover
Including share of turnover of joint ventures		3,571	3,991	3,671
Less: share of turnover of joint ventures		(3,571)	(3,991)	(3,671)

		—	—	—
Administrative expenses		(3)	(3)	(3)

Operating loss (before joint ventures)	3	(3)	(3)	(3)

Share of operating profit of joint ventures		482	406	318

Before amortisation and exceptional items	4	858	904	800
Amortisation of goodwill and intangible assets		(323)	(419)	(403)
Exceptional items		(53)	(79)	(79)


Operating profit including joint ventures		479	403	315

Share of non operating exceptional items of joint ventures		19	(9)	20

		19	(9)	20

Net interest income/(expense)
Company	7	7	7	63
Share of net interest of joint ventures		(129)	(171)	(177)

		(122)	(164)	(114)

Profit on ordinary activities before taxation		376	230	221
Tax on profit on ordinary activities		(134)	(86)	(120)

Profit attributable to ordinary shareholders		242	144	101
Equity dividends paid and proposed	9	(221)	(221)	(221)

Retained profit/(loss) taken to reserves		21	(77)	(120)

	Note	2003 €	2002 €	2001 €

Group earnings per share (“EPS”)
Basic EPS	10	0.31	0.18	0.13
Diluted EPS	10	0.31	0.18	0.13

The above amounts derive from continuing activities.

Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses are presented using the gross equity method.

The accompanying notes on pages F-67 to F-78 are an integral part of these group financial statements

F – 63

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REED ELSEVIER NV
GROUP CASH FLOW STATEMENT
FOR THE YEAR ENDED DECEMBER 31, 2003

	Note	2003 €m	2002 €m	2001 €m

Net cash outflow from operating activities	11	(2)	—	(3)
Dividends received from joint ventures		200	150	100

Interest received		7	6	62

Returns on investments and servicing of finance		7	6	62

Taxation		(2)	(3)	17
Fixed asset investments		—	—	(916)

Acquisitions and disposals		—	—	(916)

Equity dividends paid		(215)	(222)	(204)

Cash outflow before changes in short term investments and financing		(12)	(69)	(944)
Decrease in short term investments		8	10	946
Issue of shares, net of expenses		3	22	92
Net issue/(repayment) of debenture loans		1	(1)	(1)
Decrease/(increase) in funding balances to joint ventures	11	—	38	(93)

Financing		4	59	(2)

Change in net cash		—	—	—

Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses are presented using the gross equity method.

The accompanying notes on pages F-67 to F-78 are an integral part of these group financial statements

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REED ELSEVIER NV
GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
FOR THE YEAR ENDED DECEMBER 31, 2003

	2003 €m	2002 €m	2001 €m

Profit attributable to ordinary shareholders	242	144	101
Exchange translation differences	(310)	(303)	42
Equalisation adjustments	—	—	(88)

Total recognised gains and losses	(68)	(159)	55

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REED ELSEVIER NV
GROUP BALANCE SHEET
AS AT DECEMBER 31, 2003

	Note	2003 €m	2002 €m

Fixed assets
Investment in joint ventures:	12
Share of gross assets		5,805	6,609
Share of gross liabilities		(3,901)	(4,429)

Share of net assets		1,904	2,180

Current assets
Debtors	13	56	56
Short term investments		7	15

		63	71
Creditors: amounts falling due within one year	14	(174)	(167)

Net current liabilities		(111)	(96)

Total assets less current liabilities		1,793	2,084
Creditors: amounts falling due after more than one year	15	(65)	(65)

Net assets		1,728	2,019

Capital and reserves
Share capital issued	17	47	47
Paid in surplus	18	1,463	1,460
Shares held in treasury	18	(27)	(15)
Reserves	18	245	527

Shareholders’ funds		1,728	2,019

Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses are presented using the gross equity method.

The accompanying notes on pages F-67 to F-78 are an integral part of these group financial statements

F – 65

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REED ELSEVIER NV
GROUP RECONCILIATION OF SHAREHOLDERS’ FUNDS
FOR THE YEAR ENDED DECEMBER 31, 2003

	Note	2003 €m	2002 €m	2001 €m

Profit attributable to ordinary shareholders		242	144	101
Equity dividends paid and proposed		(221)	(221)	(221)
Issue of shares, net of expenses		3	22	110
Increase in shares held in treasury		(13)	(1)	(14)
Exchange translation differences		(310)	(303)	42
Equalisation adjustments		8	—	(88)

Net decrease in shareholders’ funds		(291)	(359)	(70)
Shareholders’ funds at January 1	18	2,019	2,378	2,448

Before prior year adjustment			2,034		2,392		2,448
Prior year adjustment in relation to the presentation of shares held in treasury	20		(15)		(14)		—


Shareholders’ funds at December 31	1,728	2,019	2,378

Group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses are presented using the gross equity method.

The accompanying notes on pages F-67 to F-78 are an integral part of these group financial statements

F – 66

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REED ELSEVIER NV
NOTES TO THE GROUP FINANCIAL STATEMENTS

1. Basis of financial statements
These group financial statements, reflecting Reed Elsevier NV’s 50% interest in the Reed Elsevier combined businesses, report the group profit and loss account, cash flow and financial position of Reed Elsevier NV and are presented using the gross equity method. The group financial statements have been prepared under the historical cost convention and in accordance with UK GAAP. These principles differ in certain significant respects from US GAAP; see note 21. Unless otherwise indicated, all amounts shown in the group financial statements are stated in euros (“€”). Certain disclosures required to comply with Dutch statutory reporting requirements have been omitted.

The Reed Elsevier combined financial statements form an integral part of the notes to Reed Elsevier NV’s group financial statements.

As a consequence of the merger of the company’s businesses with those of Reed Elsevier PLC, the shareholders of Reed Elsevier NV and Reed Elsevier PLC can be regarded as having the interests of a single economic group, enjoying substantially equivalent ordinary dividend and capital rights in the earnings and net assets of the Reed Elsevier combined businesses.

Adoption of UK GAAP
The group financial statements have been prepared in accordance with generally accepted accounting principles in the United Kingdom (“UK GAAP”). Prior to 2003, Reed Elsevier NV presented statutory financial statements prepared in accordance with generally accepted accounting principles in the Netherlands (“Dutch GAAP”) and the combined financial statements were prepared in accordance with both UK and Dutch GAAP. Following changes to Dutch GAAP effective for the 2003 financial year in respect of the presentation of dividends and pension accounting, UK GAAP and Dutch GAAP have diverged. As permitted by Article 362.1 of Book 2 Title 9 of the Netherlands Civil Code, Reed Elsevier NV has therefore determined to prepare its financial statements in accordance with UK GAAP, thereby ensuring consistency with the prior year of the accounting policies applied within the Reed Elsevier combined financial statements, and with the accounting policies of Reed Elsevier PLC.

2. Accounting policies
Reed Elsevier NV holds a majority interest in Elsevier Reed Finance BV (61%) and is therefore prima facie required to prepare consolidated financial statements in accordance with Book 2 Title 9 of the Netherlands Civil Code. However, management believes that a better insight into the financial position and results of Reed Elsevier NV is provided by looking at the investment in the combined businesses in aggregate, as presented in the Reed Elsevier combined financial statements.

Reed Elsevier NV group financial statements are presented, as in prior years, incorporating Reed Elsevier NV’s investments in the Reed Elsevier combined businesses accounted for using the gross equity method, as adjusted for the effects of the equalisation arrangement between Reed Elsevier NV and Reed Elsevier PLC. The arrangement lays down the distribution of dividends and net assets in such a way that Reed Elsevier NV’s share in the profit and net assets of the Reed Elsevier combined businesses equals 50%, with all settlements accruing to shareholders from the equalisation arrangements taken directly to reserves.

Because the dividend paid to shareholders by Reed Elsevier NV is equivalent to the Reed Elsevier PLC dividend plus the UK tax credit received by certain Reed Elsevier PLC shareholders, Reed Elsevier NV normally distributes a higher proportion of the combined profit attributable than Reed Elsevier PLC. Reed Elsevier PLC’s share in this difference in dividend distributions is settled with Reed Elsevier NV and is credited directly to group reserves under equalisation. Reed Elsevier NV can pay a nominal dividend on its R-shares held by Reed Elsevier PLC that is lower than the dividend on the ordinary shares. Reed Elsevier PLC is compensated by direct dividend payments by Reed Elsevier Group plc. Equally, Reed Elsevier NV has the possibility to receive dividends directly from Dutch affiliates. The settlements flowing from these arrangements are also taken directly to group reserves under equalisation.

In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the UK Accounting Standards Board, shares in Reed Elsevier NV and Reed Elsevier PLC purchased by the Reed Elsevier Group plc Employee Benefit Trust, previously included within share of gross assets of joint ventures, are presented as shares held in treasury and deducted within group shareholders’ funds. Prior year comparatives have been restated accordingly.

Other than in respect of the representation of shares held in treasury, the adoption of UK GAAP had no effect on group shareholders’ funds or on the group earnings compared to the amounts that would have been reported under Dutch GAAP.

Combined financial statements
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.

These include policies in relation to goodwill and intangible assets. Such assets are amortised over their estimated useful economic lives, which due to their longevity, may be for periods in excess of five years.

F – 67

2. Accounting policies – (continued)
Basis of valuation of assets and liabilities
Reed Elsevier NV’s 50% economic interest in the net assets of the combined businesses has been shown on the group balance sheet as interests in joint ventures, net of the assets and liabilities reported as part of Reed Elsevier NV. Joint ventures are accounted for using the gross equity method.

Short term investments are stated at the lower of cost and net realisable value. Other assets and liabilities are stated at historical cost, less provision, if appropriate, for any impairment in value.

Foreign exchange translation
Group profit and loss and cash flow items are translated at average exchange rates. In the group balance sheet, assets and liabilities are translated at rates ruling at the balance sheet date or contracted rates where applicable. The gains or losses relating to the retranslation of Reed Elsevier NV’s 50% interest in the net assets of the combined businesses are taken directly to group reserves.

3. Operating loss
Operating loss is stated after the gross remuneration for present and former directors of Reed Elsevier NV in respect of services rendered to Reed Elsevier NV and the combined businesses. Fees for members of the supervisory board of Reed Elsevier NV of €0.2 million (2002: €0.1 million) are included in gross remuneration. In so far as gross remuneration is related to services rendered to Reed Elsevier Group plc and Elsevier Reed Finance BV, it is borne by these companies.

4. Income from interests in joint ventures

	2003 €m	2002 €m	2001 €m

Share of operating profit before amortisation and exceptional items	855	901	797
Administrative expenses reported within Reed Elsevier NV group	3	3	3

Total	858	904	800

5. Auditors’ remuneration
Audit fees payable for the company were €44,000 (2002: €43,000; 2001: €42,000).

6. Directors’ emoluments
Information on directors’ remuneration, share options, longer term incentive plans, pension contributions and entitlements is set out in Item 6: Directors, Senior Management and Employees and forms part of these financial statements.

7. Net interest

	2003 €m	2002 €m	2001 €m

Interest on receivables from joint ventures	3	3	6
Other interest	4	4	57

Net interest income	7	7	63


F – 68

8. Tax on profit on ordinary activities

	2003 €m	2002 €m	2001 €m

Dutch corporation tax	1	2	21
Share of tax arising in joint ventures	133	84	99

Total	134	86	120

Dutch corporation tax has been provided at 34.5% (2002: 34.5%; 2001: 35%).

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 2003 and 2002, reduced due to exceptional tax credits.

9. Dividends

	2003 €m	2002 €m	2001 €m

Ordinary shares
Interim	59	65	64
Final (2003 proposed)	162	156	157
R-shares	—	—	—

Total	221	221	221

	2003 €	2002 €	2001 €

Ordinary shares of €0.06 each
Interim	0.08	0.09	0.09
Final (2003 proposed)	0.22	0.21	0.21
R-shares of €0.60 each	—	—	—

Total	0.30	0.30	0.30

10. Earnings per ordinary share (EPS)

	2003

	Weighted average number of shares (millions)	Group earnings €m	Group EPS €

Basic EPS	783.9	242	0.31
Diluted EPS	783.9	242	0.31

	2002

	Weighted average number of shares (millions)	Group earnings €m	Group EPS €

Basic EPS	783.2	144	0.18
Diluted EPS	786.6	144	0.18

F – 69

10. Earnings per ordinary share (EPS) – (continued)

	2001

	Weighted average number of shares (millions )	Group earnings €m	Group EPS €

Basic EPS	780.4	101	0.13
Diluted EPS	785.6	101	0.13

The diluted EPS figures are calculated after taking into account the effect of share options.

11. Cash flow statement
Reconciliation of operating loss to net cash outflow from operating activities

	2003 €m	2002 €m	2001 €m

Operating loss	(3)	(3)	(3)
Net movement in debtors and creditors	1	3	—

Net cash flow from operating activities	(2)	—	(3)

Reconciliation of net funding balances with joint ventures

	€m

At January 1, 2001	(5)
Cash flow	93

At December 31, 2001	88
Cash flow	(38)

At December 31, 2002	50
Cash flow	—

At December 31, 2003	50

12. Fixed asset investments

	2003 €m	2002 €m

Gross equity accounted investments in joint ventures
Share of operating profit	482	406
Share of non operating exceptional items	19	(9)
Share of net interest payable	(129)	(171)

Share of profit before tax	372	226
Share of taxation	(133)	(84)

Share of profit after tax	239	142
Dividends received	(200)	(150)
Increase in shares held in treasury	(13)	(1)
Exchange translation differences	(310)	(303)
Equalisation adjustments	8	—

Net movement in the year	(276)	(312)
At January 1	2,180	2,492

Before prior year adjustment	2,195		2,506
Prior year adjustment (see note 20)	(15)		(14)


At December 31	1,904	2,180


F – 70

12. Fixed asset investments – (continued)
The investment in joint ventures comprises the group share at the following amounts of:

	2003 €m	2002 €m

Fixed assets	4,073	4,910
Current assets	1,732	1,699
Creditors: amounts falling due within one year	(2,343)	(2,609)
Creditors: amounts falling due after more than one year	(1,430)	(1,731)
Provisions	(120)	(84)
Minority interests	(8)	(5)

Total	1,904	2,180

Included within share of current assets and creditors are cash and short term investments of €446 million (2002: €421 million) and borrowings of €2,130 million (2002: €2,520 million) respectively.

13. Debtors

	2003 €m	2002 €m

Joint ventures	50	50
Other accounts receivable	6	6

Total	56	56

Amounts falling due after more than one year are €nil (2002: €nil).

14. Creditors: amounts falling due within one year

	2003 €m	2002 €m

Proposed dividend	162	156
Taxation	9	10
Other creditors	3	1

Total	174	167

15. Creditors: amounts falling due after more than one year

	2003 €m	2002 €m

Debenture loans	7	6
Taxation	58	58
Other creditors	—	1

Total	65	65

Debenture loans comprise four convertible personnel debenture loans with a weighted average interest rate of 5.2%. 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.

F – 71

16. Share option schemes
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 NV 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 NV ordinary shares at the time of grant.

Transactions during the three years ended December 31, 2003 were:

	Number of ordinary shares	Exercise price €

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
Granted	10,693,251	8.81-11.04
Exercised	(408,141)	9.34-11.10
Lapsed	(1,622,242)

Outstanding at December 31, 2003	29,686,202

The above outstanding options may, upon exercise, be met by the issue of new Reed Elsevier NV ordinary shares. Options outstanding at December 31, 2003 were exercisable by 2013. 8,065,918 options had vested at December 31, 2003.

In addition to the above, 8,670,539 options were outstanding at December 31, 2003 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 5 to 10 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, 2003 were:

	Number of ordinary shares	Exercise price €

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
Granted	—
Exercised	—
Lapsed	(560,879)

Outstanding at December 31, 2003	525,046

The above outstanding options may, upon exercise, be met by the issue of new Reed Elsevier NV ordinary shares. Options outstanding at December 31, 2003 were exercisable by 2009. All options had vested at December 31, 2003.

F – 72

16. Share option schemes – (continued)
Excluded from the above are options granted 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, 2003, there were 1,428,073 such options outstanding at exercise prices ranging between €9.57 and €13.55. The EBT will also be used to satisfy nil cost options granted to certain senior executives. At December 31, 2003, there were 108,956 such options outstanding.

17. Called up share capital

	Authorised		Issued and fully paid

			2003		2002

	No. of shares	€m	No. of shares	€m	No. of shares	€m

Ordinary shares €0.06	2,100,000,000	126	738,760,906	44	738,355,094	44
R-shares €0.60	30,000,000	18	4,679,249	3	4,679,249	3

Total		144		47		47

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.

F – 73

18. Group shareholders’ funds

	Share capital issued	Paid-in surplus	Shares held in treasury	Reserves	Total
	€m	€m	€m	€m	€m

At January 1, 2001	47	1,328	—	1,073	2,448

Before prior year adjustment		47		1,328		—		1,073		2,448
Prior year adjustment (see note 20)		—		—		—		—		—

Profit attributable to ordinary shareholders	—	—	—	101	101
Equity dividends paid and proposed	—	—	—	(221)	(221)
Issue of shares, net of expenses	—	110	—	—	110
Increase in shares held in treasury	—	—	(14)	—	(14)
Exchange translation differences	—	—	—	42	42
Equalisation adjustments	—	—	—	(88)	(88)

At January 1, 2002	47	1,438	(14)	907	2,378

Before prior year adjustment		47		1,438		—		907		2,392
Prior year adjustment (see note 20)		—		—		(14)		—		(14)

Profit attributable to ordinary shareholders	—	—	—	144	144
Equity dividends paid and proposed	—	—	—	(221)	(221)
Issue of shares, net of expenses	—	22	—	—	22
Increase in shares held in treasury	—	—	(1)	—	(1)
Exchange translation differences	—	—	—	(303)	(303)

At January 1, 2003	47	1,460	(15)	527	2,019

Before prior year adjustment		47		1,460		—		527		2,034
Prior year adjustment (see note 20)		—		—		(15)		—		(15)

Profit attributable to ordinary shareholders	—	—	—	242	242
Equity dividends paid and proposed	—	—	—	(221)	(221)
Issue of shares, net of expenses	—	3	—	—	3
Increase in shares held in treasury	—	—	(13)	—	(13)
Equalisation adjustments	—	—	—	8	8
Exchange translation differences	—	—	1	(311)	(310)

At December 31, 2003	47	1,463	(27 )	245	1,728

Other than in respect of the representation of shares held in treasury (see note 20), the adoption of UK GAAP by Reed Elsevier NV had no impact on group shareholders’ funds as at January 1, 2003 or on the group earnings for the year ended December 31, 2003 compared to the amounts that would have been reported under Dutch GAAP.

Within paid-in surplus, an amount of €1,286 million (2002: €1,283 million) is free of tax.

Details of shares held in treasury are provided in note 27 to the combined financial statements.

F – 74

19. Contingent liabilities
There are contingent liabilities in respect of borrowings of the Reed Elsevier Group plc group and Elsevier Reed Finance BV group guaranteed by Reed Elsevier NV as follows:

	2003 €m	2002 €m

Guaranteed jointly and severally with Reed Elsevier PLC	3,822	4,493

Financial instruments disclosures in respect of the borrowings covered by the above guarantees are given in note 23 to the Reed Elsevier combined financial statements.

20. Prior year adjustment
In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the Urgent Issues Task Force of the UK Accounting Standards Board, the Reed Elsevier combined businesses now present the shares in Reed Elsevier PLC and Reed Elsevier NV held by the Reed Elsevier Group plc Employee Benefit Trust as shares held within treasury, which are deducted within combined shareholders’ funds. Previously, such shares were included within the other fixed asset investments of the combined businesses. The group balance sheet as at December 31, 2002 has been restated to reflect Reed Elsevier NV’s share of the restatement made in the combined financial statements in relation to the presentation of shares held in treasury.

21. US accounting information
Summary of the principal differences between UK and US GAAP
The group financial statements are prepared in accordance with UK GAAP, which differs in certain significant respects from US GAAP. These differences relate principally to the following items and the effect of material differences on net income and shareholders’ funds is shown in the following tables.

Impact of US GAAP adjustments to combined financial statements
Reed Elsevier NV accounts for its 50% economic interest in the Reed Elsevier combined businesses, before the effect of tax credit equalisation, by the gross equity method in conformity with UK GAAP which is similar to the equity method in US GAAP. Using the equity method to present its net income and shareholders’ funds under US GAAP, Reed Elsevier NV reflects its 50% share of the effects of differences between UK and US GAAP relating to the combined businesses as a single reconciling item. The most significant differences relate to the capitalisation and amortisation of goodwill and intangibles, pensions, deferred taxes and derivative financial instruments. A more complete explanation of the accounting policies used by the Reed Elsevier combined businesses and the differences between UK and US GAAP is given in note 29 to the Reed Elsevier combined financial statements.

Exceptional items
Exceptional items are material items within Reed Elsevier NV’s ordinary activities which under UK GAAP are required to be disclosed separately due to their size or incidence. These items do not qualify as extraordinary under US GAAP.

F – 75

21. US accounting information – (continued)
Stock based compensation
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 instead of intrinsic value based methods. Where fair values are not applied, the proforma effect on net income must be disclosed.

	2003 €m	2002 €m	2001 €m

Net income/(loss) under US GAAP as reported	401	303	(5)
Add: stock based compensation (credit)/expense determined under APB25	(4)	—	11
Less: stock based compensation expense determined under SFAS123	(27)	(28)	(28)

Proforma net income/(loss) under US GAAP	370	275	(22)

Earnings per share under US GAAP
Basic — as reported (€)	0.51	0.39	(0.01)
Basic — proforma (€)	0.47	0.35	(0.03)
Diluted — as reported (€)	0.51	0.39	(0.01)
Diluted — proforma (€)	0.47	0.35	(0.03)

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 UK and US GAAP

	2003 €m	2002 €m	2001 €m

Net income under UK GAAP	242	144	101
Impact of US GAAP adjustments to combined financial statements	159	159	(106)

Net income/(loss) under US GAAP	401	303	(5)

Basic earnings/(loss) per share under US GAAP (€)	0.51	0.39	(0.01)

Diluted earnings/(loss) per share under US GAAP (€)	0.51	0.39	(0.01)

The basic and diluted earnings/(loss) per share under US GAAP includes a 50% share of the exceptional items, as follows:
(i)	for 2003, €0.05 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 €0.08 gain in respect of the disposal of businesses and fixed asset investments;
(ii)	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; and
(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.

F – 76

21. US accounting information – (continued)
Effects on shareholders’ funds of material differences between UK and US GAAP

	2003 €m	2002 €m

Shareholders’ funds under UK GAAP	1,728	2,019
Impact of US GAAP adjustments to combined financial statements	455	383
Equity dividends not declared in the period	162	156

Shareholders’ funds under US GAAP	2,345	2,558

Comprehensive Income Information

SFAS130: Reporting Comprehensive Income requires that all items that are required to be recognised as components of comprehensive income under US GAAP are reported in a separate financial statement. Under US GAAP, comprehensive income for 2003 would be €23 million (2002: €81 million loss; 2001: €44 million loss). Under US GAAP, comprehensive income per share for 2003 would be €0.03 (2002: €0.10 loss; 2001: €0.06 loss). Comprehensive income under US GAAP comprises net income for the financial year, share of the comprehensive income items arising in the combined businesses, equalisation and exchange translation differences.

Share option schemes
A summary of the share option schemes operated over Reed Elsevier NV ordinary shares is set out in note 16.

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, 2003.

Movement in options outstanding

	2003		2002		2001

	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,	31,139,283	12.56	28,480,754	12.27	23,743,865	11.79
Granted	10,693,251	9.35	6,174,766	13.90	6,762,537	13.82
Exercised	(408,141)	10.37	(1,771,766)	12.44	(831,544)	11.28
Lapsed	(2,542,606)	12.72	(1,744,471)	12.56	(1,194,104)	12.13

Outstanding at December 31,	38,881,787	11.69	31,139,283	12.58	28,480,754	12.27

Exercisable at December 31,	8,590,964	11.81	1,665,165	15.21	2,493,293	15.01

Options granted during year

	2003		2002		2001

	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	9.35	2.32	13.90	2.56	13.82	3.27

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:

	2003	2002	2001

Expected life (years)	2.9	3.0	3.2
Expected dividend yield	2.30%	2.19%	2.20%
Expected volatility	36.48%	24.86%	30.64%
Risk free interest rate	4.25%	4.21%	5.11%

F – 77

21. US accounting information – (continued)
Options outstanding at December 31, 2003

	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 (€ )

8.01-9.00	9,030	2.19	8.81	—	—
9.01-10.00	10,309,869	2.05	9.34	38,984	—
10.01-11.00	11,511,438	0.57	10.62	4,961,745	10.47
11.01-12.00	2,449,631	0.56	11.51	618,452	11.10
12.01-13.00	529,077	0.65	12.36	312,252	12.19
13.01-14.00	8,415,022	0.83	13.81	1,602,232	13.58
14.01-15.00	4,401,533	0.27	14.77	286,278	14.82
15.01-16.00	982,625	0.28	15.60	497,459	15.70
16.01-17.00	—	—	—	—	—
17.01-18.00	273,562	—	17.07	273,562	17.07

	38,881,787	0.98	11.69	8,590,964	11.81

F – 78

GLOSSARY OF TERMS

Terms used in Annual Report on Form 20-F	US equivalent or brief description
Accruals	Accrued expenses
Adjusted operating profit	Operating profit before amortisation of goodwill and intangible assets and exceptional items presented in accordance with SFAS131: Disclosures about Segments of an Enterprise and Related Information
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
EPS	Earnings per ordinary share
Finance lease	Capital lease
Fixed asset investments	Non-current investments
Freehold	Ownership with absolute rights in perpetuity
Gross equity method	A modified form of the equity method of accounting, which is required under UK GAAP for joint ventures. Under the gross equity method, additional information is provided on the share of turnover, gross assets and gross liabilities of joint ventures
Interest receivable	Interest income
Interest payable	Interest expense
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
Short term investments	Redeemable securities and short term deposits
Shareholders’ funds	Shareholders’ equity
Share premium account	Premiums paid in excess of par value of ordinary shares
Tangible fixed assets	Property, plant and equipment
Turnover/revenues	Sales
Underlying growth	The year on year growth calculated excluding the effects of acquisitions, disposals and the impact of currency translation

F – 79

Return to contents

ITEM 19: EXHIBITS

Exhibits filed as part of this annual report
1.1	Memorandum and Articles of Association of Reed Elsevier PLC (incorporated by reference from Exhibit 1.1 to the 2002 Annual Report on Form 20-F filed with the SEC on March 10, 2003)
1.2	Articles of Association of Reed Elsevier NV (incorporated by reference from Exhibit 1.2 to the 2002 Annual Report on Form 20-F filed with the SEC on March 10, 2003)
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. (incorporated by reference from Exhibit 1.4 to the 2002 Annual Report on Form 20-F filed with the SEC on March 10, 2003)
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 (incorporated by reference from Exhibit 2.5 to the 2002 Annual Report on Form 20-F filed with the SEC on March 10, 2003)
4.1	Agreement and Plan of Merger, dated October 27, 2000, among Reed Elsevier Inc., REH Mergersub Inc. and Harcourt General, Inc. (incorporated by reference from Exhibit 10.11 to the Registration Statement 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 Elsevier Group plc Share Option Scheme
4.4	Reed Elsevier Group plc Long Term Incentive Share Option Scheme
4.5	Reed Elsevier Group plc Bonus Investment Plan
4.6	Reed Elsevier Group plc Bonus Investment Plan (2002)
4.7	Reed Elsevier Group plc Executive Share Option Schemes (No. 2)
4.8	Reed Elsevier Group plc Executive UK and Overseas Share Option Schemes (incorporated by reference from Exhibit 10.6 to the 2000 Form F-3 Registration Statement)
4.9	Reed Elsevier Group plc Senior Executive Long Term Incentive Scheme (incorporated by reference from Exhibit 10.7 to the 2000 Form F-3 Registration Statement)
4.10	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)
4.11	Deposit Agreement, dated as of October 27, 2003, among Reed Elsevier PLC, The Bank of New York and all holders from time to time of American Depositary Receipts (incorporated by reference from Exhibit (a)(1) to Amendment No. 1 to the Registration Statement on Form F-6 filed by Reed Elsevier PLC with the SEC on October 17, 2003)
4.12	Deposit Agreement, dated as of October 27, 2003, among Reed Elsevier NV, The Bank of New York and all holders from time to time of American Depositary Receipts (incorporated by reference from Exhibit (a)(1) to Amendment No. 1 to the Registration Statement on Form F-6 filed by Reed Elsevier NV with the SEC on October 17, 2003)

F – 80

8.	List of significant subsidiaries, associates, joint ventures and business units
12.1	Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier PLC
12.2	Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier PLC
12.3	Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier NV
12.4	Certification Pursuant to Section 302 of Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier NV
13.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier PLC
13.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier PLC
13.3	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Executive Officer of Reed Elsevier NV
13.4	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by the Chief Financial Officer of Reed Elsevier NV
14.1	Independent Auditors’ Consent — Reed Elsevier Combined Financial Statements
14.2	Independent Auditors’ Consent — Reed Elsevier PLC Consolidated Financial Statements
14.3	Independent Auditors’ Consent — Reed Elsevier NV Group Financial Statements
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 – 81

SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, each of the Registrants certifies that it meets all of the requirements for filing 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 15, 2004.
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 15, 2004	Dated: March 15, 2004

S – 1

Printed by greenaways, a member of the ormolu group. E145715

EXHIBIT 4.3

REED ELSEVIER GROUP PLC

RULES OF THE REED ELSEVIER GROUP PLC
SHARE OPTION SCHEME

(Approved by the shareholders of Reed Elsevier PLC
in general meeting on 8 April 2003)

(Approved by the shareholders of Reed Elsevier NV
in general meeting on 9 April 2003)

(Approved by the Directors on 29 January 2004)

Page #

THE REED ELSEVIER GROUP PLC

SHARE OPTION SCHEME

DEFINITIONS

1.1

In these Rules the following words and expressions have the following meanings except where the context otherwise requires:-

Adoption Date means 8 April 2003;

Auditors means the auditors for the time being of the Scheme Organiser and, where the context requires, of one or both Qualifying Companies;

Board means the Board of Directors for the time being of the Scheme Organiser;

the Committee means the remuneration committee of the Board, or other duly authorised committee thereof;

Control has the meaning ascribed thereto in Section 840 of ICTA;

Constituent Company means the Scheme Organiser or any other company to which for the time being the Scheme is expressed to extend;

Date of Grant means the date on which the Committee resolves to grant an Option in accordance with the terms of Rule 4;

Dutch Share means an ordinary share in the capital of RE NV;

Eligible Employee means any employee or full time executive director of any member of the Group who is required to devote substantially the whole of his or her working time to the business of the Group;

Employment means employment with any Constituent Company or Constituent Companies;

General Offer means an offer for Shares as specified in Rule 7.1;

the Group means the Scheme Organiser and every company which is under the Control of the Scheme Organiser;

ICTA means the Income and Corporation Taxes Act 1988;

Issue or Reorganisation means any capitalisation issue or rights issue or any consolidation, sub-division or reduction or other variation of capital or reserves by a Qualifying Company;

ITEPA means the Income Tax (Earnings and Pensions) Act 2003;

Option means the right granted to a Participant on any particular Date of Grant to obtain Shares in accordance with the Rules of the Scheme;

Option Price means the price for the acquisition of a Share comprised in any Option which, subject to Rule 6, is not less than the higher of:-

(i)

if the Shares are to be subscribed, the nominal value of a Share;

(ii)

in the case of a UK Share an amount equal to the middle market quotation of a UK Share on the Date of Grant of the Option as ascertained from The Daily Official List of The London Stock Exchange or if Rule 7.6 has been applied, such amount as is the acquisition price determined under that rule of a share in the company whose shares are scheme shares under the new rights; and

(iii)

in the case of a Dutch share the closing price for a Dutch Share on the Amsterdam Stock Exchange on the Date of Grant or if Rule 7.6 has been applied, such amount as is the acquisition price determined under that rule of a share in the company whose shares are scheme shares under the new rights;

Participant means any person who has been granted an Option which has not lapsed in accordance with the provisions of Rule and includes, where the context so admits, the legal personal representatives of any such person;

Qualifying Company means each of RE PLC and RE NV;

RE NV means Reed Elsevier NV;

RE PLC means Reed Elsevier PLC;

Redundancy means dismissal by reason of redundancy within the meaning of the Employment Rights Act 1996;

Retirement means the cessation of Employment in circumstances which the Committee regards as retirement (whether at normal retirement age or at any other age);

Scheme means this Scheme, in its present form or with and subject to any amendment thereto effected in accordance with the Rules;

Scheme Organiser means Reed Elsevier Group plc registered in England No.2746616 by whatever name known from time to time;

Share means a UK Share or an Dutch Share and shareholder shall be construed accordingly;

Share Option Scheme means any share option scheme adopted by the shareholders of RE PLC, RE NV or the Scheme Organiser in General Meeting; and

UK Share means an ordinary share in the capital of RE PLC.

1.2

Words importing the singular shall include the plural and vice versa and words importing the masculine shall include the feminine.

1.3

Any reference to a statutory provision shall be deemed to include that provision as the same may from time to time hereafter be amended or re-enacted.

ELIGIBILITY

2.1

No person shall be entitled as of right to participate in the Scheme. Subject thereto, the Committee shall in its absolute discretion, subject to the Rules, decide from time to time which Eligible Employee or Employees shall have the opportunity to participate and the extent of the participation.

LIMITS ON NUMBER OF SCHEME SHARES

3.1

Options may be satisfied using:

(a)

existing issued Shares, in which case Rule shall apply; or

(b)

new Shares issued to the Participant at the time of exercise, in which case Rules and shall apply.

3.2

Where Options are to be satisfied using existing issued Shares, the Scheme Organiser shall provide (and shall procure, where appropriate, that any member of the Group which employs Participants shall provide) sufficient monies to enable sufficient Shares to satisfy all Options to be acquired.

3.3

Where Options are to be satisfied using new Shares issued by RE PLC no Option shall be granted to the extent that the result of that grant would be that the aggregate number of UK Shares that could be issued on the exercise of that Option and any other Options granted at the same time, when added to the number of UK Shares that:

(i)

could be issued on the exercise of any other subsisting share options granted during the preceding ten years under any Share Option Scheme (including Options under the Scheme);

(ii)

have been issued on the exercise of any share options granted during the preceding ten years under any Share Option Scheme (including Options under the Scheme);

(iii)

could be issued on the exercise of any other rights to acquire shares granted during the preceding ten years under any profit sharing or other employee share incentive scheme (not being a Share Option Scheme); and

(iv)

have been issued during the preceding ten years under any profit sharing or other employee share incentive scheme (not being a Share Option Scheme),

would exceed 10 per cent of the ordinary share capital of the Qualifying Company for the time being in issue,

PROVIDED THAT Shares which may be issued on exercise of options under the Reed Elsevier plc Senior Executive Long Term Incentive Scheme (approved by the shareholders of RE NV in general meeting on 26 April 2000 and by the shareholders of RE PLC in general meeting on 27 April 2000) shall not count against the equity dilution limit in this rule (as provided in rule 3.1 of the rules of that scheme).

3.4

The number of Dutch Shares which may be issued pursuant to Awards granted under the Scheme from time to time shall be agreed between the Committee and RE NV before such Awards are granted PROVIDED THAT the percentage referred to in Rule above in relation to RE PLC shall apply in relation to RE NV.

3.5

Reference in this Rule to the issue of Shares shall, for the avoidance of doubt, mean the issue and allotment (but not transfer) of Shares.

GRANT OF OPTIONS

4.1

Subject as hereinafter provided, the Committee may adopt such procedure as it thinks appropriate for granting Options to designated Eligible Employees. Immediately prior to the granting of any Options the Committee may, in its absolute discretion, enter into a deed poll recording its intention to grant Options and agreeing to be bound by the option certificates issued pursuant to Rule below. If the Committee does not enter into a deed poll, Options shall be granted under the Scheme Organiser’s seal or otherwise to take effect as a deed.

4.2

The Eligible Employee shall become entitled to the Option immediately upon grant and the Committee shall as soon as practicable thereafter send the Participant the option certificate.

4.3

Notwithstanding sub-rule of this Rule Options may only be granted within the period of 42 days after:

(a)

the release of the Qualifying Companies' interim and/or final results in any year on or after 1 January 2004; or

(b)

following the day on which the Committee resolves that exceptional circumstances exist which justify the grant of Options.

4.4

The number of Options available for grant will be restricted by reference to the underlying performance of the Group’s business. For these purposes the Committee intends to measure corporate performance by reference to the arithmetic mean of the Qualifying Companies’ earnings per share ( EPS ) growth over the three financial years prior to the grant to determine the number of Shares over which Options may be granted in any Financial Year as set out in Schedule 1.

4.5

The Committee may (and in the case of Participants who are executive directors of the Scheme Organiser or a Qualifying Company shall) impose objective conditions which must, unless otherwise stated in the rules of this Scheme, be satisfied prior to the exercise of Options. Such conditions shall consist of the conditions set out in to this Scheme.

4.6

The form for the time being of any certificate or other document shall be subject to the terms and conditions of the Scheme contained herein and shall be in such form as the Scheme Organiser may determine.

4.7

No Option shall be granted under the Scheme later than the tenth anniversary of the Adoption Date.

4.8

For the avoidance of doubt, the Committee may in its absolute discretion make more than one offer to any individual Eligible Employee to participate in the Scheme in any 42 day period referred to in Rule above.

4.9

An Option may be granted subject to such conditions of exercise for payment of income tax, employee’s national insurance contributions and employer’s national insurance contributions liability as the Board may determine (including the right to sell on the Participant’s behalf sufficient Shares to satisfy any liability to taxation of employee’s national insurance contributions or employer’s national insurance contributions) and if any condition is imposed relating to the assumption, payment or reimbursement by the Participant of employer’s national insurance contributions liability, such condition shall comply with any applicable legislation or regulations and the Board shall be entitled to waive in whole or in part the Participant’s obligation in respect of such liability.

TERMS OF OPTIONS

Non-transferability

5.1

No Option granted under the Scheme may be transferred, assigned, charged or otherwise alienated.

Period of Option and when Exercisable

5.2

Save as otherwise permitted in these rules, an Option may only be exercised if any performance conditions imposed under rule have been fulfilled or waived in accordance with these rules.

5.3

An Option shall be capable of being exercised, but subject as hereinafter provided, at any time following the earliest of:-

(a)

the date three years from the Date of Grant thereof;

(b)

the Participant ceasing to be in Employment by reason of his death, injury, disability, Redundancy or Retirement;

(c)

the Participant ceasing to be in Employment in circumstances other than those referred to in sub-rule of this Rule, if the Committee (acting fairly and reasonably) has, in its absolute discretion, resolved that such an exercise shall be permitted;

(d)

the date on which the Participant, being female, ceases to be entitled to exercise any statutory or contractual right to resume Employment after an absence due to pregnancy or confinement;

(e)

the occurrence of the circumstances mentioned in Rules , or relating to general offers, schemes of arrangement and voluntary winding up.

5.4

Where an option is exercisable earlier than the date three years from the Date of Grant by reason of rule , , or above then the Committee (acting fairly and reasonably) shall at its discretion (or as set out in the documentation applicable to that Option at that Date of Grant) determine the extent to which any Option which has not already lapsed or been exercised shall be exercisable (and the Committee (acting fairly and reasonably) may make adjustments to the performance conditions and/or scale down the number of Shares which may vest as it thinks fit).

Lapse of Option

5.5

An Option shall lapse to the extent that it has not been exercised by the earliest of:-

(a)

the tenth anniversary of the Date of Grant thereof or, if the Participant dies prior to the said tenth anniversary, the expiry of twelve months from the date of his death;

(b)

the expiry of twelve months from the date of death of a Participant;

(c)

the expiry of six months from the date on which the Participant ceases to be in Employment (A) by reason of his injury, disability, Redundancy or (B) in other circumstances where the Committee exercises its discretion under sub-rule of this Rule provided that in the event of the death within the said period of six months of a Participant who has ceased to be in Employment in the circumstances referred to in (A) or (B) of this sub-rule the Option shall not lapse, subject as provided in sub-rule or of this Rule, until the expiry of twelve months from the date of his death;

(d)

in the case of a female Participant to whom sub-rule of this Rule applies the expiry of six months from the latest date on which she could have exercised the statutory right to resume Employment after an absence due to pregnancy or confinement provided that in the event of her death within the said period of six months the Option shall not lapse, subject as provided in sub-rule (f) or (g) of this Rule until the expiry of twelve months from the date of her death;

(e)

the expiry of two years from the date on which the Participant ceases to be in Employment by reason of Retirement;

(f)

the expiry of the periods referred to in Rule and following a general offer being made or the period in Rule in the event of a scheme of arrangement;

(g)

the expiry of the period during which the Option may be treated as having been exercised pursuant to Rule , in the event of a members' voluntary winding up of any Qualifying Company;

(h)

the date on which the Participant ceases to be in Employment in any circumstances other than those referred to in sub-rules (b), (c), or (d) of this Rule unless (being female) she is entitled to exercise and subsequently does exercise the statutory right to resume Employment after an absence due to pregnancy or confinement.

Provided that the Committee (acting fairly and reasonably) may in its absolute discretion extend the periods of six months specified in sub-rules (c) and (d) above and the period of two years specified in sub rule (e) above to such longer period as it may determine, being a period which expires on or before the date which is three years and six months after the later of the Date of Grant and the date on which an Option was last exercised in whole or in part by the Participant.

Manner of Exercise of Options

5.6

Subject as hereinbefore provided an Option shall be exercised by notice in writing given by the Participant to the Scheme Organiser (and, if the Scheme Organiser determines, to the Qualifying Company whose Shares are comprised in the Option and/or, where Shares are to be transferred on exercise of an Option, to the person holding the Shares to which the Option relates), specifying that the Option is thereby exercised and the number of Shares in respect of which it is exercised and such notice shall be accompanied by the relevant option certificate(s) and payment of (or other appropriate undertaking to provide) the Option Prices of the Shares in respect of which the Option is exercised. Within 30 days after receipt by the Scheme Organiser of such notice, certificate(s) and payment (and subject to the provisions and the requirements of any applicable enactment or regulation) the Scheme Organiser shall procure that (i) the relevant Qualifying Company shall allot the Shares in respect of which the Option has been exercised to the former Participant (or his nominee if he so directs), or (ii) such Shares are transferred to him (or his nominee). Within the same period, a Share Certificate or other appropriate evidence of title shall be issued to the Participant (or his nominee). Any allotment made at a time when Shares are quoted upon a relevant stock exchange ex dividend, ex rights or ex any other distribution shall be made upon terms that the Shares so allotted are not entitled to participate in the relevant dividend, rights or other distribution but the Shares so allotted shall in all other respects rank pari passu with the other issued Shares of the same class. An Option may be exercised in whole or in part and in the event of an Option being exercised in part only, the relevant option certificate shall be cancelled and a new option certificate setting forth the date on which the Option was last exercised and the number of Shares in respect of which the Option has not been exercised shall be delivered by the Scheme Organiser to the Participant.

Listing

5.7

While any Option to subscribe for Shares remains unexercised and has not lapsed the Scheme Organiser shall procure that the relevant Qualifying Company shall keep available sufficient unissued Shares to satisfy outstanding Options. On the exercise of any Option in respect of which UK Shares are to be allotted RE PLC shall apply to The London Stock Exchange for those Shares to be admitted to The Official List, and in the case of Dutch Shares RE NV shall take all necessary steps to ensure that those Shares may be dealt in on the Amsterdam Stock Exchange.

Rights on Cessation of Employment

5.8

The rights and obligations of a Participant under the terms and conditions of his or her office or employment shall not be affected by his or her participation in the Scheme or any expectation or right which he or she believes he or she may have to participate in the Scheme. An individual who participates in the Scheme waives all and any rights to compensation or damages in consequence of the termination of his or her office or employment with any company for any reason whatsoever (including upon breach of contract by the employer) insofar as those rights arise, or may arise, from his or her ceasing to have rights under or be entitled to exercise any Option under the Scheme as a result of such termination or from the loss or diminution in value of such rights or entitlements. If necessary, the Participant’s terms of employment shall be deemed to be varied accordingly.

ISSUE OR RE-ORGANISATION

6.1

In the event of:

(i)

any Issue or Reorganisation; or

(ii)

the implementation by a Qualifying Company of a demerger or the payment by a Qualifying Company of a super dividend which would otherwise materially affect the value of an Option,

the Exercise Price, the definition of Shares and the number of Shares comprised in an Option may be adjusted in such manner as the Board may determine, provided that:

(a)

no adjustment shall take effect without the prior approval of, in respect of an Option under which Shares are to be transferred, the person holding the Shares to which the Option relates, (such approval not to be unreasonably withheld);

(b)

no adjustment shall be made pursuant to this rule which would increase the aggregate Exercise Price of any Option;

(c)

except as provided in this sub-rule no adjustment may have the effect of reducing the Exercise Price to less than the nominal value of a Share. Where an Option subsists over both issued or unissued Shares any such adjustment may only be made if the reduction of the Exercise Price of Options over both issued and unissued Shares can be made to the same extent. Any adjustment to the Exercise Price of Options over unissued Shares shall only be made if and to the extent that the Board shall be authorised to capitalise from the reserves of the Scheme Organiser a sum equal to the amount by which the nominal value of the Shares in respect of which the Option is exercisable exceeds the adjusted Exercise Price. The Board may apply such sum in paying up such amount on such Shares and so that on exercise of any Option in respect of which such reduction shall have been made the Board shall capitalise such sum (if any) and apply the same in paying up such amount as aforesaid; and

(d)

no adjustment shall be made pursuant to this rule (other than on a capitalisation issue) unless and until the auditors for the time being of the Scheme Organiser (acting as experts not arbitrators) shall have confirmed in writing to the Board that such adjustment is in their opinion fair and reasonable.

TAKEOVER

1.1

In the event of:-

(a)

a general offer being made to acquire the whole of the issued ordinary share capital of a Qualifying Company (or such part thereof as is not at the time owned by the offeror or any company controlled by the offeror and/or persons acting in concert with the offeror) and as a result of the general offer the offeror (and any such companies and/or persons as aforesaid) acquires Control of the Qualifying Company, or

(b)

a general offer being made to acquire the whole of the issued ordinary share capital of a Qualifying Company (or such part thereof as aforesaid) by any person who already owns beneficially (together with any company controlled by such person and/or persons acting in concert with him) more than fifty per cent. of the issued ordinary share capital of the Qualifying Company,

a Participant will, subject to the provisions of Rules , , Rule and Rule , be entitled to exercise any Option held by him over Shares in the relevant Qualifying Company at any time during the period of six months following, in the case of an offer within sub-rule (a) above, the date of the acquisition therein mentioned or, if the offer was conditional, the later date on which the offer becomes unconditional and, in the case of an offer within sub-rule (b) above, the date on which the offer is made or, if the offer was conditional, the later date on which the offer becomes unconditional

1.2

Forthwith upon the said offer being posted to shareholders the relevant Qualifying Company, shall use all reasonable endeavours to procure that if a Participant is allotted or transferred Shares pursuant to the exercise of Options in accordance with Rule above then insofar as such Shares were not the subject of the said general offer the party by whom the general offer was made shall offer to acquire from the Participant all those Shares upon the same terms as Shares of the same class were acquired under the general offer.

1.3

If the offeror becomes entitled under Sections 428 to 430 of the Companies Act 1985 to acquire any UK Shares (or there occurs in relation to RE NV an event entitling the offeror to acquire compulsorily Shares held by minority shareholders) the Committee shall notify each Participant thereof forthwith upon becoming aware that the offeror is so entitled and a Participant shall, subject to Rules and and Rule , be entitled to exercise all or any of the Options over Shares in that Qualifying Company which he holds at any time during the period of one month following such notification, and upon the expiry of such period all unexercised Options over such Shares will lapse,

1.4

The provisions of rules to shall not apply in the event that either:

(a)

the person obtaining Control of a Qualifying Company is the other Qualifying Company or a company under the Control of the other Qualifying Company; or

(b)

the Qualifying Company remains under the ultimate control of the Shareholders of RE PLC or RE NV immediately prior to the relevant transaction affecting the Qualifying Company.

1.5

The provisions of rules to shall apply mutatis mutandis in the event that any person (either alone or together with any person acting in concert with him) obtains Control of the Scheme Organiser PROVIDED THAT Options shall not become exercisable under this rule in the event that either:

(a)

the person obtaining Control of the Scheme Organiser is RE PLC or RE NV or a company under the Control of one or both of them; or

(b)

the Scheme Organiser remains under the ultimate control of the Shareholders of RE PLC or RE NV immediately prior to the relevant transaction affecting the Scheme Organiser.

In the event Options become exercisable under this rule , Options over Shares in both Qualifying Companies shall become exercisable.

1.6

If any company (the "acquiring company")

(a)

obtains Control of a Qualifying Company as a result of making:-

(i)

a general offer to acquire the whole of the issued share capital of that Qualifying Company which is made on a condition such that if it is satisfied the person making the offer will have Control thereof, or

(ii)

a general offer to acquire all the shares in that Qualifying Company which are of the same class as the scheme shares, or

(b)

obtains Control of a Qualifying Company in pursuance of a compromise or arrangement sanctioned by the court under Section 425 of the Companies Act 1985 (to the extent that such provision is, or is agreed with the Inland Revenue to be, applicable to the Qualifying Company), or

(c)

becomes bound or entitled to acquire Shares under Sections 428 to 430 of the Companies Act 1985 (to the extent that such provision is, or is agreed with the Inland Revenue to be, applicable to the Qualifying Company),

any Participant may at any time within the appropriate period, by agreement with the acquiring company, release his Option over Shares in that Qualifying Company (hereinafter in this Rule called "old rights") in consideration of the grant to him of rights (hereinafter in this Rule called "new rights") which are equivalent to his Option but relate to shares in a different company (whether the acquiring company itself or some other company having control of that company, and subject where the old rights were subject to a performance condition under Rules 4.5 to such performance condition (if any) as the Committee may consider appropriate. The new rights shall not be regarded for the purpose of the Scheme as equivalent to the old rights unless:-

(i)

the new rights will be exercisable in the same manner as the old rights and subject to the provisions of the Scheme as it had effect immediately before the release of the old rights; and

(ii)

the total market value, immediately before the release, of the shares which were subject to the Participant's old rights is equal to the total market value, immediately after the grant of the shares in respect of which the new rights are granted to the Participant; and

(iii)

the total amount payable by the Participant for the acquisition of shares in pursuance of the new rights is equal to the total amount that would have been payable for the acquisition of shares in pursuance of the old rights.

The new rights shall for the purposes of the Scheme be treated as having been granted at the time when the old rights were granted. The new rights shall not lapse as a result of the operation of Rule 7.1 and/or 7.3 following the event permitting the grant of such new rights. In relation to any new rights, references in Rules 1 and 5 to 11 of the Scheme to "Qualifying Company", "RE PLC" and "RE NV" shall (as appropriate) be construed as if references to the company whose shares are subject to the new rights and references to "Shares", "UK Shares" and "Dutch Shares" shall (as appropriate) be construed as if references to the shares subject to the new rights.

1.7

In the event that either:

(a)

the person obtaining Control of the Scheme Organiser or Qualifying Company is RE PLC or RE NV or a company under the control of one or both of them; or

(b)

the Scheme Organiser or Qualifying Company remains under the ultimate control of the Shareholders of RE PLC or RE NV immediately prior to the relevant transaction affecting the Scheme Organiser or Qualifying Company,

Options shall automatically be exchanged for new rights as set out in Rule .

SCHEME OF ARRANGEMENT

2.1

2.2

Any Option which becomes exercisable under this rule which is not exercised by twelve noon on the Relevant Date shall cease to be exercisable between that time and the first date on which it can be determined whether or not the Relevant Condition is satisfied. If the Relevant Condition is not satisfied, Options shall continue. If the Relevant Condition is satisfied Options shall, without prejudice to the operation of rule , lapse automatically on the date on which the scheme of arrangement is sanctioned by the court.

2.3

Where new Shares would be issued on exercise of an Option, the Committee shall endeavour to procure that, provided a Participant has conditionally exercised his Option as described in rule above prior to twelve noon on the Relevant Date, the scheme of arrangement shall be extended to such Participant as if each Share in respect of which the Option was conditionally exercised had been allotted and issued to him by that time.

2.4

Without prejudice to the operation of rule , Options in respect of UK Shares shall not without the consent of the Committee be exercisable under the foregoing provisions if the purpose and effect of the scheme of arrangement is to create a new holding company for the Scheme Organiser or RE PLC, such company having substantially the same shareholders and proportionate shareholdings as those of the Scheme Organiser or RE PLC (as the case may be) immediately prior to the scheme of arrangement.

2.5

The provisions of rules to shall apply mutatis mutandis to Options in respect of Dutch Shares in the event that RE NV is subject to a legal process under Dutch law which is considered by the Committee to be broadly equivalent to section 425 of the Companies Act 1985.

VOLUNTARY WINDING UP

3.1

If notice is duly given of a resolution for the voluntary winding-up of a Qualifying Company, an Option over shares in that Qualifying Company may, subject to rule , be exercised within two months from the date of resolution.

PERFORMANCE CONDITIONS

4.1

Options shall only be exercised pursuant to rules , and , if and to the extent that any relevant performance condition imposed under rule is met over the foreshortened period ending with the relevant event provided that any performance condition applicable to such Options may in these circumstances be modified in such manner as the Committee (acting fairly and reasonably) in its discretion considers appropriate if the Committee considers that the performance condition would be met to a greater or lesser extent at the testing date.

ADMINISTRATION AND AMENDMENT

5.1

The Scheme shall be administered under the direction of the Committee who may at any time and from time to time by resolution and without other formality amend the Rules in any respect. Provided that:-

(a)

no amendment shall operate to prejudice materially any rights already acquired by a Participant under the Scheme;

(b)

no amendment may be made except by or with the prior approval of an Ordinary Resolution of RE PLC in General Meeting (and, if appropriate, the prior approval of RE NV in General Meeting):-

(i)

to the basis of calculation of the Option Price;

(ii)

to the total number of Shares available for issue under the Scheme under Rule ;

(iii)

to the definitions of "Eligible Employee" "Employment" and "Issue or Reorganisation";

(iv)

to extend the periods specified in Rule for invitations and applications for and the grant of Options;

(v)

to, or so as to, nullify or override, any of the provisions of Rules , , , , , , or this sub-rule of this Rule.

(c)

notwithstanding the foregoing provisos any minor amendment may be made (i) to benefit the administration of the Scheme, to take account of a change in legislation or developments in the law affecting the Scheme or to obtain or maintain favourable tax, exchange control or regulatory treatment for Eligible Employees and Participants or any member of the Group or (ii) where the amendment in question has no direct bearing upon RE PLC (provided that the prior approval of the board of RE NV shall if appropriate be obtained to any amendment having direct bearing upon RE NV).

5.2

The Committee's decision on any matter concerning the Scheme shall be final and binding.

5.3

The cost of the operation of the Scheme (including but not limited to the costs relating to the issue of Shares upon the exercise of Options) shall be borne by the Scheme Organiser.

5.4

In any matter in which they are required to act hereunder the Auditors shall be deemed to be acting as experts and not as arbitrators and the Arbitration Act 1950 shall not apply hereto.

5.5

All notices under the Scheme shall be in writing and if to the Scheme Organiser, a Qualifying Company, the person holding any Shares to which an Option relates (if a company) or the Constituent Company shall be delivered to the relevant person or sent by first class post to its respective registered office for the time being, and if to a Participant, shall be delivered personally or sent by first class post to the Participant at the address which he shall give to his employer for the purpose, or failing any such address to his last known place of abode. If a notice is sent by first class post it shall be deemed to be served on the first weekday (other than a Saturday or Bank Holiday) after such posting.

5.6

The Scheme Organiser and any other member of the Group may provide money to the trustees of any trust or any other person to enable them or him to acquire Shares to be held for the purposes of the Scheme, or enter into any guarantee or indemnity for those purposes, to the extent permitted by section 153 of the Companies Act 1985.

TERMINATION

6.1

The Committee may at any time terminate the Scheme and in such event no further invitations to apply for Options will be made pursuant to Rule but the subsisting rights of Participants will not thereby be affected.

6.2

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SCHEDULE 1
GROWTH IN EPS PRE-GRANT PERFORMANCE CONDITION

This Schedule sets out the performance conditions for the grant of Options for the purposes of rule 4.4.

In this Schedule, unless the context otherwise requires, the following words and expressions shall have the following meanings, namely:

Accounts means the consolidated accounts of each Qualifying Company for a Financial Year;

Accounts Date means the date on which the Accounts are published;

Auditors means the auditors for the time being of each Qualifying Company (acting as experts not arbitrators);

Base Year means, in relation to each Qualifying Company, the Financial Year ending immediately before the start of the Prescribed Period;

Earnings per Share or EPS means, for any Financial Year of the relevant Qualifying Company, the earnings per ordinary share of a Qualifying Company (before amortisation of goodwill and intangible assets, exceptional items and related tax effects) calculated in accordance with Financial Reporting Standard No. 3 issued by the Accounting Standards Board Limited or any modification thereto provided that to ensure comparability of Financial Years of the Qualifying Company within a Prescribed Period and for the Base Year the Committee may:

(a)

adjust the figure for earnings per share as calculated in accordance with the relevant accounting standard to arrive at a figure which reflects the underlying business performance of the Group (and may, without limitation, adjust by excluding any or all extraordinary or exceptional items from the earnings per share calculation);

(b)

adjust the figure to ensure that the rates of conversion of any currency are applied on a consistent basis in respect of years falling within the Prescribed Period and for the Base Year; and

(c)

adjust the figure to ensure that the relevant accounting standards are applied on a consistent basis in respect of years falling within the Prescribed Period and for the Base Year,

provided that the Committee shall have discretion to adjust this definition of EPS to take account of any change in recognised accounting standards or practice, fiscal regime or capital structure, to ensure consistent measurement and accountability;

Financial Year means an accounting reference period as defined in accordance with section 224 of the Companies Act 1985;

Prescribed Period means the period of three consecutive Financial Years ending with the latest Financial Year for which Accounts have been published; and

Target Pool means a pool of Shares consisting of a number of UK Shares and Dutch Shares determined by the formula:

50% x A/B

(which shall be applied separately to each Qualifying Company), where:

A is the aggregate of the base annual salaries (expressed in sterling terms) of the proposed grantees of Options in any year (adjusted in such manner as the Committee thinks fit); and

B is the market value of a UK Share or Dutch Share (as the case may be) on the Date of Grant of the Option, expressed in sterling terms;

Prior to the grant of Options, the Committee shall determine the arithmetic mean of the EPS achieved by each Qualifying Company, and then calculate the percentage compound growth in such average EPS over the Prescribed Period, expressed as a per annum rate of growth.

The percentage of the Target Pool which will be available to be put under Option under the Scheme in any Financial Year shall be determined by reference to the averaged compound growth per annum in EPS determined under paragraph 2, as set out in the following table:

Average EPS growth per annum over Prescribed Period	% of Target Pool available
Less than 6%	50%
6% or more but less than 8%	75%
8% or more but less than 10%	100%
10% or more but less than 12%	125%
12% or more	150%

The pool will not be adjusted in the event of actual performance between the target threshold points.

The Committee will have discretion to increase the EPS growth performance hurdles above in order to take into account any movement in the rate of inflation.

SCHEDULE 2
GROWTH IN EPS PERFORMANCE CONDITION FOR EXERCISE

This Schedule sets out the performance conditions for the exercise of Options for the purposes of rule .

In this Schedule, unless the context otherwise requires, the following words and expressions shall have the following meanings, namely:

Accounts means the consolidated accounts of each Qualifying Company for a Financial Year;

Accounts Date means the date on which the Accounts are published;

Auditors means the auditors for the time being of each Qualifying Company (acting as experts not arbitrators);

Base Year means, in relation to each Qualifying Company, the Financial Year ending immediately before the start of the Prescribed Period;

(a)

(b)

adjust the figure to ensure that the rates of conversion of any currency are applied on a consistent basis in respect of years falling within the Prescribed Period and for the Base Year; and

(c)

adjust the figure to ensure that the relevant accounting standards are applied on a consistent basis in respect of years falling within the Prescribed Period and for the Base Year,

Financial Year means an accounting reference period as defined in accordance with section 224 of the Companies Act 1985; and

Prescribed Period in relation to any Option means the period of three consecutive Financial Years beginning with the Financial Year in which the Date of Grant of the Option occurs.

Prior to the third anniversary of the Date of Grant of any Options, the Committee shall determine the arithmetic mean of the EPS achieved by each Qualifying Company, and then calculate the percentage compound growth in such average EPS over the Prescribed Period, expressed as a per annum rate of growth.

Options shall only be exercisable if the averaged compound growth in EPS determined under paragraph 2 over the Prescribed Period is at least 6% per annum.

There will be no opportunity for retesting if the performance target is not met over the Prescribed Period.

The Committee will have discretion to increase the EPS growth performance hurdles above in order to take into account any movement in the rate of inflation.

APPENDIX 1

INLAND REVENUE APPROVED PART OF THE SCHEME

For any Eligible Employee to whom the Board wishes to grant Options under an Inland Revenue approved scheme, the following provisions relating to Options shall apply:

(A)

The Rules of the Scheme shall apply to the grant of Options under this Appendix subject to the modifications contained in the following paragraphs.

(A)

The definition of Eligible Employee shall be construed so that:

(a)

no Option may be granted under this Appendix to a director of any member of the Group unless such director is required to devote not less than 25 hours per week to the affairs of the Group; and

(b)

no Option may be granted under this Appendix to an Eligible Employee who is ineligible to participate in the Scheme by virtue of paragraph 9 of Schedule 4 to ITEPA.

(C)

In Rule a new sub-rule (c) shall be inserted as follows:

“(c)

any day on which any change to the legislation affecting Share Option Schemes approved by the Inland Revenue under ITEPA is proposed or made”

(D)

The definition of Shares (and of UK Shares and Dutch Shares ) shall be subject to the condition that they satisfy paragraphs 16 to 20 of Schedule 4 to ITEPA.

(E)

A new rule 3.5 shall be inserted as follows:

“3.5

No Executive shall be granted an Option which would, at the proposed Date of Grant, cause the aggregate of the Market Values (determined at their Date of Grant (in accordance with Part VIII Taxation of Chargeable Gains Act 1992)) of subsisting Options held by him pursuant to a grant under this Appendix and the exercise prices of subsisting options held by him under any Associated Scheme, to exceed £30,000 (or such other amount as shall be specified under paragraph 6(1) of Schedule 4 of ITEPA from time to time).”

For the purposes of this paragraph (E):

Associated Scheme means any Share Option Scheme (other than the Scheme) approved under Schedule 4 to ITEPA and established by the Scheme Organiser or an associated company of the Scheme Organiser within the meaning of section 416 of ICTA; and

Market Value means in relation to:

(a)

a UK Share on any day, the middle market quotation as ascertained from The Daily Official List of The London Stock Exchange of a UK Share on that day; and

(b)

a Dutch Share on any day, the closing price on the Amsterdam Stock Exchange on that day for a Dutch Share (subject if required to the approval of the Inland Revenue Shares Valuation Division).

(F)

Any performance condition imposed under rule must be objective.

(G)

Any Option granted under this Appendix may only be exercised by an Option Holder who is not ineligible to participate in the Scheme by virtue of paragraph 9 of Schedule 4 to ITEPA.

(H)

In rule 5.3(b) and 5.5(e), the words “or Specified Age Retirement” shall be added at the end. For the purposes of this paragraph (H), Specified Age Retirement means Retirement in circumstances where the Participant is at least age 55 (being the “specified age” for the purposes of paragraph 35A of Schedule 4 of ITEPA).

(I)

Rule 6.1(ii) shall not apply to an Option granted under this Appendix. In its place a new rule 6.2 shall be inserted as follows:

“6.2

If the Board becomes aware that the Scheme Organiser is or expected to be affected by any demerger, dividend in specie, super-dividend or other transaction, which, in the opinion of the Board, would affect the current or future value of any Options, the Committee (acting fairly and objectively and taking account of the extent to which any conditions under Rule 4.5 have been satisfied, the period of time which has elapsed since the Date of Grant and any other criteria they may consider to be relevant) may, in its absolute discretion, allow Options to be exercised (whether or not the period in which the Option may be exercised has commenced and whether or not any conditions imposed under Rule 4.5 have been satisfied). The Committee shall specify the period in which such Options shall be exercised and whether such Options shall lapse at the end of the specified period. The Committee shall notify any Participant who is affected by the discretion exercised under this rule.”

(J)

No Adjustment pursuant to rule in relation to an Option granted under this Appendix shall take effect without the prior approval of the Inland Revenue.

(K)

In addition to its powers under rule , the Board may make such amendments to this Appendix as are necessary or desirable to obtain or maintain Inland Revenue approval of this Appendix.

At a time when this Appendix is approved by the Inland Revenue, and if such approved status is to be maintained, no amendment to any key feature (as defined by paragraph 30 of Schedule 4 to ITEPA) of the rules of the Scheme or this Appendix may take effect as regards this Appendix without the prior approval of the Inland Revenue (and if such approved status is not to be maintained, the Scheme Organiser shall notify the Inland Revenue of the relevant amendment).

APPENDIX 1
SCHEME APPLICABLE TO ELSEVIER REED FINANCE BV

If the Board wishes to grant Options to employees of Elsevier Reed Finance BV ( ERF ) or of companies under the Control of ERF, it may grant Options pursuant to this Appendix, and the following provisions shall apply:

(A)

The Rules of the Scheme shall apply to the grant of Options under this Appendix subject to the modifications contained in the following paragraphs.

(B)

The definition of Group shall be construed as including ERF and every company which is under the Control of ERF;

(C)

The definition of Share Option Scheme shall be amended as follows:

“Share Option Scheme means any share option scheme adopted by the shareholders of RE PLC, RE NV, the Scheme Organiser or ERF in General Meeting;”

and

(D)

Options shall not be granted under this Appendix without the agreement of the supervisory board of ERF.

EXHIBIT 4.4

REED ELSEVIER GROUP PLC

RULES OF THE REED ELSEVIER GROUP PLC
LONG TERM INCENTIVE SHARE OPTION SCHEME

(Approved by the shareholders of Reed Elsevier PLC
in general meeting on 8 April 2003)

(Approved by the shareholders of Reed Elsevier NV
in general meeting on 9 April 2003)

(Adopted by the directors on 29 January 2004)

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THE REED ELSEVIER GROUP PLC
LONG TERM INCENTIVE SHARE OPTION SCHEME

The Long-Term Incentive Share Option Scheme has two elements:

the Share Option element. This involves the grant of options to acquire Shares at a set exercise price. The exercise of such options will be subject to achievement of a corporate performance target; and

the Conditional Share Award element. This involves the grant of rights to acquire Shares at no cost. The vesting of such grants will be subject to achievement of a corporate performance target.

DEFINITIONS

1.1

In this Scheme, unless the context otherwise requires, the following words and expressions shall have the following meanings, namely:

Adoption Date means 8 April 2003;

Award means a right to acquire Shares under the rules of this Plan, comprising either Share Option and/or Conditional Share Award elements;

Board means the Board of Directors of the Company;

the Committee means the remuneration committee of the board of directors of the Company or other duly authorised committee thereof;

Capital Reorganisation means any variation in the share capital or reserves of a Qualifying Company (including, without limitation, by way of capitalisation issue, rights issue, sub-division, consolidation, or reduction);

the Company means Reed Elsevier Group plc;

Conditional Share Award means a right granted under the Plan to call for Shares without payment;

Conditional Share Award Vesting Date means (unless the Committee specifies otherwise at its Date of Grant), the third anniversary of the Date of Grant of the Conditional Share Award (or, if later, the date of publication of the final set of accounts of the Company which are relevant to the determination of the applicable performance condition);

Control has the meaning given to that word by section 840 of the Taxes Act;

Date of Grant means the date on which an Award is granted;

Dutch Share means an ordinary share in the capital of RE NV or shares representing those shares following any Capital Reorganisation of RE NV;

Executive means any employee or executive director of any member of the Group or of RE PLC or RE NV whose terms of service require him to devote substantially the whole of his working time to the affairs of the Group;

Executive Scheme means any Share Option Scheme (other than the Scheme) under which individuals may be selected for participation at the discretion of the body administering that scheme;

Exercise Price means the price per Share payable on the exercise of an Option as determined by the Committee (subject to adjustment under rule ) but which shall not be less than:

(a)

in the case of a UK Share the closing middle market quotation for a UK Share as derived from the Daily Official List of the London Stock Exchange on the Date of Grant;

(b)

in the case of a Dutch Share the closing price for a Dutch Share on the Amsterdam Stock Exchange on the Date of Grant; and

(c)

in the case of any Option under which Shares are to be issued, the nominal value of a Share;

Grant Period means the period of 42 days commencing on any of the following:

(a)

the day immediately following the day on which the Qualifying Companies make an announcement of their results for the last preceding financial year, half year or other period (being a date on or after 1 January 2004); or

(b)

any day on which the Board resolves that exceptional circumstances exist which justify the grant of Options;

the Group means the Company and every company which is under the Control of the Company and member of the Group shall be construed accordingly;

Option means a right granted under the Scheme to subscribe for or purchase UK Shares and Dutch Shares in such proportions as the Committee shall, in its absolute discretion determine;

Option Period means the period commencing on the third anniversary of the Date of Grant and expiring on the tenth anniversary of the Date of Grant or such shorter period as the Committee shall specify at the time of grant;

Participant means any individual who holds a subsisting Award (including, where the context permits, the legal personal representatives of a deceased Participant);

Performance Period means the three year period commencing on the Date of Grant of an Award;

Qualifying Company means each of RE PLC and RE NV;

RE NV means Reed Elsevier NV;

RE PLC means Reed Elsevier PLC;

UK Share means an ordinary share in the capital of RE PLC or shares representing those shares following any Capital Reorganisation of RE PLC;

the Scheme means this Reed Elsevier Group plc Long Term Incentive Share Option Scheme as amended from time to time;

Share Option Scheme means any employee share option scheme established by the Company or RE PLC, which relates to UK Shares;

Shares means a UK Share and/or a Dutch Share and Shareholder shall be construed accordingly;

Taxes Act means the Income and Corporation Taxes Act 1988.

1.1

Where the context permits the singular shall include the plural and vice versa and the masculine shall include the feminine. Headings shall be ignored in construing the Scheme.

1.2

References to any act of Parliament shall include any statutory modification, amendment or re-enactment thereof.

GRANT OF AWARDS

2.1

Subject to sub-rule and , the Committee may grant Awards to Executives selected by the Committee in its absolute discretion during a Grant Period, provided that no less than 36 months has elapsed since the Date of Grant of the last Awards under the Scheme. For the avoidance of doubt, no Executive shall have the right or expectation to participate in the Plan in any Grant Period.

2.2

No Award shall be granted to any Executive unless he agrees to release any outstanding award granted to him under the Reed Elsevier plc Senior Executive Long Term Incentive Scheme (approved by the shareholders of RE NV in general meeting on 26 April 2000 and by the shareholders of RE PLC in general meeting on 27 April 2000).

2.3

The Committee may grant Awards to Executives selected by the Committee in its absolute discretion within the period of 36 months from the Date of Grant of the last Awards under the Scheme provided that:

(a)

such grants shall only be made to Executives who became employed by the Group in the first 24 months of such 36 month period; and

(b)

such grants shall be made over a number of Shares which shall be scaled down pro rata to such Executive’s period of service within the remainder of the 36 month period; and

(c)

the terms of any Awards so granted shall be adjusted so that the end of the Option Period or the Conditional Share Award Vesting Date shall be the same as for the Awards granted at the start of such 36 month period, and the performance condition imposed pursuant to Rule shall be measured over that foreshortened period; but

(d)

provided that any Option Price or the value of any such Award shall be determined by reference to the Share Price at the actual Date of Grant of such Awards.

2.4

Each Award shall comprise such proportions of Share Options and Conditional Share Awards as shall ensure that approximately 50% of the total expected value of the Award as at the Date of Grant shall be attributable to Share Options and approximately 50% of the total expected value of the Award as at the Date of Grant shall be attributable to Conditional Share Awards.

2.5

Save as otherwise permitted in these rules, objective conditions must be satisfied prior to the exercise of Awards. Such conditions shall consist of the conditions set out in the Schedule to this Scheme. There will be no retesting of such conditions.

2.6

The grant of an Award and/or the delivery of Shares upon exercise thereof shall be conditional on the Executive agreeing to comply with any arrangements specified by the Company for the payment of taxation and social security contributions (including without limitation the right to sell on his or her behalf sufficient Shares to satisfy any taxation or social security contributions liability on his or her part for which any member of the Group may be liable) in respect of an Award.

2.7

As soon as practicable after the Date of Grant the Committee shall procure the issue to such Executive of certificates in respect of an Award. Such certificates shall be issued under the seal of the Company or otherwise to take effect as a deed, or may refer to another document evidencing the legal enforceability of the Award.

2.8

Each Participant shall be required to acknowledge the right of the Committee to reduce or cancel Awards pursuant to its powers set out in the Schedule to this Scheme.

2.9

Any Executive to whom an Award is granted may, by notice in writing to the Company given within 30 days after the Date of Grant, renounce in whole or in part his or her rights under the Award. In such a case, the Award shall, to the extent renounced, be treated as never having been granted and (if already issued) the relevant certificate(s) shall be returned to the Company for cancellation or amendment. No consideration shall be payable by the Company for any such renunciation.

2.10

No Award shall be granted under the Plan later than the tenth anniversary of the Adoption Date.

2.11

Every Award granted hereunder shall be personal to the Participant and, except to the extent necessary to enable a personal representative to exercise the Award following the death of a Participant, neither the Award nor the benefit thereof may be transferred, assigned, charged or otherwise alienated. Any transfer of an Award otherwise than as permitted under this rule shall cause the Award to lapse.

SCHEME AND INDIVIDUAL LIMITS

3.1

No Award, or part of an Award, under which UK Shares may be issued shall be granted to the extent that the result of that grant would be that the aggregate number of UK Shares that could be issued on the exercise of that Award and any other Awards granted at the same time, when added to the number of UK Shares that:

(a)

could be issued on the exercise of any other subsisting share options granted during the preceding ten years under the Scheme or any other Share Option Scheme; and

(b)

have been issued on the exercise of any share options granted during the preceding ten years under the Scheme or any other Share Option Scheme; and

(c)

could be issued on the exercise of any other subsisting rights granted during the preceding ten years under any profit sharing or other employee share incentive scheme (not being a Share Option Scheme); and

(d)

have been issued during the preceding ten years under any profit sharing or other employee share incentive scheme (not being a Share Option Scheme),

would unless the Committee determines otherwise exceed 10 per cent. of the ordinary share capital of RE PLC for the time being in issue,

PROVIDED THAT:

(i)

Shares which may be issued on exercise of options under the Reed Elsevier plc Senior Executive Long Term Incentive Scheme (approved by the shareholders of RE NV in general meeting on 26 April 2000 and by the shareholders of RE PLC in general meeting on 27 April 2000) shall not count against the equity dilution limit in this Rule (as provided in rule 3.1 of the rules of that scheme); and

(ii)

for the avoidance of doubt where an Award is expressed to be exercisable over more than 100% of the Shares subject to the Award if certain performance conditions are met the number of Shares taken into account for the purpose of this Rule shall be the maximum number of Shares which may be issued pursuant to the Award assuming that all performance conditions are satisfied.

3.2

Notwithstanding the rules of any other Share Option Scheme, Shares which may be issued on exercise of Awards under the Scheme shall count only against the equivalent limit to that in rule above, and not against any other equity dilution limit. The rules of any such other Share Option Scheme shall be deemed to be amended accordingly.

3.3

3.4

Reference in this rule to the issue of Shares shall, for the avoidance of doubt, mean the issue and allotment (but not transfer) of Shares.

3.5

No Executive shall be granted an Award which would, at the proposed Date of Grant, cause:

(a)

the aggregate of the Exercise Prices of Options under the Scheme granted to the Executive in the three year period up to and including the Date of Grant to exceed six times such Executive’s basic salary from the Group at the Date of Grant, or

(b)

the aggregate value of the Conditional Share Awards under the Scheme granted to the Executive in the three year period up to and including the Date of Grant to exceed the aggregate implied value of the Options under the Scheme (such value being calculated by reference to the Black Scholes method of valuation) at the Date of Grant.

SPECIFIC PROVISIONS RELATING TO OPTIONS

4.1

Save as otherwise permitted in these rules, an Option may only be exercised:

(a)

during the relevant Option Period; and

(b)

if the conditions imposed under rule have been fulfilled or waived in accordance with these rules.

4.2

Notwithstanding any other provision in these rules, an Option shall lapse automatically on the earlier of:

(a)

the expiry of the Option Period; and

(b)

the Participant being declared bankrupt or entering into any general composition with or for the benefit of his creditors including a voluntary arrangement under the Insolvency Act 1986.

4.3

A Participant may exercise his Option in whole or in part by giving notice in writing to the Company in the form prescribed by the Committee specifying the number of Shares in respect of which the Option is being exercised and enclosing or arranging to provide payment in full of the aggregate Exercise Price of those Shares. For the avoidance of doubt, the Option may be exercised in different proportions in respect of UK Shares and Dutch Shares. The date of exercise shall be the date of the receipt by the Company of the notice of exercise. If the Option is exercised in respect of some only of the Shares comprised in the Option, the Company shall procure the issue of an Option certificate to the Participant in respect of the balance or call in the original Option certificate for endorsement.

SPECIFIC PROVISIONS RELATING TO CONDITIONAL SHARE AWARDS

5.1

A Conditional Share Award consists of a right to call for a number of Shares at any time within the time periods referred to in these rules. All Conditional Share Awards which have not been called for will lapse at the end of such period or at any earlier date specified in the rules or by the Committee pursuant to Rule .

5.2

The number of Shares that vest under a Conditional Share Award (the Vesting Shares ) shall be determined by the extent to which the performance conditions imposed under rule have been fulfilled or waived in accordance with these rules by the Conditional Share Award Vesting Date.

5.3

Subject to Rule , a Participant may call for the Shares subject to a Conditional Share Award (in full, to the extent then exercisable) by giving written notice to the Company, requesting the Vesting Shares to which he or she is entitled.

5.4

The date of exercise shall be the date of the receipt by the Company of the notice of exercise. For the avoidance of doubt, the Conditional Share Award may be exercised in different proportions in respect of UK Shares and Dutch Shares. If the Participant calls for some only of the Shares comprised in the Conditional Share Award, the Company shall procure the issue of a Conditional Share Award certificate to the Participant in respect of the balance or call in the original Conditional Share Award certificate for endorsement.

5.5

The Committee may make such arrangements as it deems appropriate to satisfy the entitlements of Participants under Conditional Share Awards including without limitation:

(a)

by making arrangements to transfer Vesting Shares automatically to Participants in satisfaction of their entitlements under Conditional Share Awards following the relevant Conditional Share Award Vesting Date (without the need for Participants to call for Shares), or

(b)

by requiring a call for Vesting Shares under a Conditional Share Award to be made within 3 months (or such longer period as the Committee shall determine) after the relevant Conditional Share Award Vesting Date.

EXERCISE AND LAPSE OF AWARDS - CESSATION OF EMPLOYMENT

6.1

Save as otherwise provided in these rules, an Award shall lapse automatically on the Participant ceasing to be an employee of a member of the Group.

6.2

Save as otherwise provided in these rules, where a Participant ceases to be an employee of a member of the Group by reason of:

(a)

death;

(b)

long term disability;

(c)

retirement due to ill-health;

(d)

retirement at normal retirement date; or

(e)

any other reason if the Committee so decides in its absolute discretion

then an award may be exercised either (at the Committee’s absolute discretion):

(a)

within such period after the leaving date as the Committee may at its discretion specify, in respect of that number of Shares which the Committee may at its discretion specify having regard to the Committee’s determination of the Award’s likely vesting level if the Award had continued until the maturity date; or

(b)

following maturity of the Award (when the vesting level of the Award will have been determined), subject to such reduction as the Committee shall determine to take account of the fact that the Participant was not in service for the full period between the Date of Grant and the vesting date respectively to Options and Conditional Share Award:

6.3

For the purposes of rules , , and a female Participant shall not be treated as ceasing to be an employee of a member of the Group if absent from work wholly or partly because of pregnancy or confinement until she ceases to be entitled to exercise any statutory or contractual right to return to work.

6.4

For the purposes of rules , , and following an Award rollover pursuant to rule , a Participant shall not be treated as ceasing to be employed by a member of the Group until he ceases to be employed by a company which is either (i) the Acquiring Company (as defined in rule ) or (ii) a subsidiary of the Acquiring Company (within the meaning of section 736 of the Companies Act 1985).

GENERAL OFFER

7.1

If any person (either alone or together with any person acting in concert with him) obtains Control of a Qualifying Company as a result of a general offer to acquire the whole of the share capital of that Qualifying Company (other than those shares which are already owned by him and/or any person acting in concert with him), in respect of Shares in that Qualifying Company which are under the Award (but not in respect of Shares in the other Qualifying Company which are or may be under the Award), each Participant may exercise his Awards within the period set out in rule below if and to the extent that the performance conditions imposed under rule are met over the foreshortened period ending on the date of change of Control (subject to modification if the Committee considers that the performance conditions would be met to a greater or lesser extent at the end of the Performance Period).

7.2

Following a change of Control pursuant to rule , any Award which has not been exercised in respect of Shares in the Qualifying Company which undergoes the change of Control shall, without prejudice either to the operation of rule or to the continuance of the Award in respect of Shares in the other Qualifying Company which are or may be under the Option, lapse automatically on the earlier of the following dates:

(a)

two months after the date on which the offer becomes unconditional in all respects; and

(b)

in the event that any person becomes entitled under Sections 428 to 430 of the Companies Act 1985 to acquire UK Shares (or there occurs in relation to RE NV an event entitling the offeror to acquire compulsorily Shares held by minority shareholders) one month after the date on which such person becomes so bound or entitled.

7.3

The provisions of rules and shall not apply in the event that either:

(a)

the person obtaining Control of a Qualifying Company is the other Qualifying Company or a company under the Control of the other Qualifying Company; or

(b)

the Qualifying Company remains under the ultimate control of the Shareholders of RE PLC or RE NV immediately prior to the relevant transaction affecting the Qualifying Company.

7.4

The provisions of rules and shall apply mutatis mutandis in the event that any person (either alone or together with any person acting in concert with him) obtains Control of the Company PROVIDED THAT Awards shall not become exercisable under this rule in the event that either:

(a)

the person obtaining Control of the Company is RE PLC or RE NV or a company under the control of one or both of them; or

(b)

the Company remains under the ultimate control of the Shareholders of RE PLC or RE NV immediately prior to the relevant transaction affecting the Company.

In the event Awards become exercisable under this rule , Awards over Shares in both Qualifying Companies shall become exercisable.

SCHEME OF ARRANGEMENT

8.1

If a court shall direct that a meeting of the holders of UK Shares be convened pursuant to section 425 of the Companies Act 1985 for the purposes of considering a scheme of arrangement involving the reconstruction of RE PLC or its amalgamation with any other company or companies then (unless rule applies), a Participant may exercise his Awards in respect of UK Shares under his Award (without prejudice to the continuance of the Award in respect of Dutch Shares) within the period set out below. The Award may only be exercised if and to the extent that the performance conditions imposed under rule are met over the foreshortened period ending on the Relevant Date (as defined below) (subject to modification if the Committee considers that the performance conditions would be met to a greater or lesser extent at the end of the Performance Period). The time period in which exercise may occur shall be the period between the date of the court’s direction and twelve noon on the day immediately preceding the date for which the shareholders’ meeting (the Relevant Date ) is convened conditionally on the scheme of arrangement being either approved by the shareholders’ meeting or sanctioned by the court (as determined by the Committee in its absolute discretion) (the Relevant Condition ).

8.2

Any Award which becomes exercisable under this rule which is not exercised by twelve noon on the Relevant Date shall cease to be exercisable between that time and the first date on which it can be determined whether or not the Relevant Condition is satisfied. If the Relevant Condition is not satisfied, Awards shall continue. If the Relevant Condition is satisfied Awards shall, without prejudice to the operation of rule , lapse automatically on the date on which the scheme of arrangement is sanctioned by the court.

8.3

Where new Shares would be issued on exercise of an Award, the Committee shall endeavour to procure that, provided a Participant has conditionally exercised his Award as described in rule above prior to twelve noon on the Relevant Date, the scheme of arrangement shall be extended to such Participant as if each Share in respect of which the Award was conditionally exercised had been allotted and issued to him by that time.

8.4

Without prejudice to the operation of rule , Awards in respect of UK Shares shall not without the consent of the Committee be exercisable under the foregoing provisions if the purpose and effect of the scheme of arrangement is to create a new holding company for the Company or RE PLC, such company having substantially the same shareholders and proportionate shareholdings as those of the Company or RE PLC (as the case may be) immediately prior to the scheme of arrangement.

8.5

The provisions of rules to shall apply mutatis mutandis to Awards in respect of Dutch Shares in the event that RE NV is subject to a legal process under Dutch law which is considered by the Committee to be broadly equivalent to section 425 of the Companies Act 1985.

VOLUNTARY WINDING-UP

9.1

The provisions of rules , , and shall apply mutatis mutandis in the event that notice is duly given of a resolution for a voluntary winding-up of a Qualifying Company PROVIDED THAT , for the purposes of this rule , all references in rule to a change of Control or to an offer becoming unconditional in all respects shall be treated as references to the date on which notice is given for the voluntary winding-up of a Qualifying Company.

10.

AWARD ROLLOVER

10.1

If any company (the Acquiring Company ) obtains Control of a Qualifying Company or of the Company as a result of an event referred to in rules or , each Participant, may at any time within one month of the change of Control, with the agreement of the Acquiring Company, release any Award in respect of Shares in that Qualifying Company which has not lapsed (the Old Right ) in consideration of the grant to him of a new right (the New Right ) which in the opinion of the Committee and the Acquiring Company is equivalent to the Old Right but relates to shares in a different company (whether the Acquiring Company itself or another company in its group). The operation of this rule on a change of Control of one Qualifying Company shall not affect the continuance of the Award in respect of Shares in the other Qualifying Company which are or may be subject to the Award.

10.2

Subject to rule , any performance condition imposed under rule in relation to the Old Right shall not apply to the New Right unless the Committee and the Acquiring Company consider that it should so apply (subject to such modifications as they see fit).

10.3

In the event that either:

(a)

the person obtaining Control of the Company or Qualifying Company is RE PLC or RE NV or a company under the control of one or both of them; or

(b)

the Company or Qualifying Company remains under the ultimate control of the Shareholders of RE PLC or RE NV immediately prior to the relevant transaction affecting the Company or Qualifying Company,

Awards shall automatically be exchanged for New Rights as set out in rule and the performance conditions imposed under rule shall continue to apply (subject to such modifications as the Committee sees fit).

11.

ADJUSTMENT OF AWARDS

11.1

In the event of:

(i)

any Capital Reorganisation; or

(ii)

the implementation by a Qualifying Company of a demerger or the payment by a Qualifying Company of a super-dividend which would otherwise materially affect the value of an Award

the Exercise Price of any Option, the definition of Shares and the number of Shares comprised in an Award in relation to the Shares in that Qualifying Company may be adjusted in such manner as the Committee may determine: PROVIDED THAT :

(b)

no adjustment shall take effect without the prior approval of, in respect of an Award under which Shares are to be transferred, the person holding the Shares to which the Award relates, (such approval not to be unreasonably withheld);

(c)

no adjustment shall be made pursuant to this rule which would increase the aggregate Exercise Price of any Option;

(d)

except as provided in this subparagraph (iii) no adjustment may have the effect of reducing the Exercise Price to less than the nominal value of a Share. Where an Option subsists over both issued or unissued Shares any such adjustment may only be made if the reduction of the Exercise Price of Options over both issued and unissued Shares can be made to the same extent. Any adjustment to the Exercise Price of Options over unissued Shares shall only be made if and to the extent that the Committee shall be authorised to capitalise from the reserves of the Company a sum equal to the amount by which the nominal value of the Shares in respect of which the Option is exercisable exceeds the adjusted Exercise Price. The Committee may apply such sum in paying up such amount on such Shares and so that on exercise of any Option in respect of which such reduction shall have been made the Committee shall capitalise such sum (if any) and apply the same in paying up such amount as aforesaid; and

(e)

no adjustment shall be made pursuant to this rule (other than on a capitalisation issue) unless and until the auditors for the time being of the Company (acting as experts not arbitrators) shall have confirmed in writing to the Committee that such adjustment is in their opinion fair and reasonable.

12.

ALLOTMENT OR TRANSFER OF SHARES ON EXERCISE OF AWARDS

12.1

Subject to any necessary consents, to payment being made for the Shares subject to any Option and to compliance by the Participant with the terms of the Scheme, not later than 7 days after receipt of any notice of exercise in accordance with rule or , a Qualifying Company shall either allot and issue, or procure the transfer of, Shares to the Participant (or to his nominee). The Qualifying Company shall (unless the Shares are to be issued in uncertificated form) as soon as practicable deliver to the Participant (or his nominee) a definitive share certificate or other evidence of title in respect of such Shares. Where the Shares are issued or transferred to a nominee of the Participant, the Participant shall remain the beneficial owner of the Shares.

13.

RIGHTS ATTACHING TO SHARES ALLOTTED OR TRANSFERRED PURSUANT TO AWARDS

13.1

All Shares allotted or transferred upon the exercise of an Award shall rank pari passu in all respects with the Shares in issue at the date of exercise save as regards any rights attaching to such Shares by reference to a record date prior to the date of exercise.

13.2

Any Shares acquired on exercise of Awards shall be subject to the articles of association of the relevant Qualifying Company from time to time.

14.

AVAILABILITY OF SHARES

14.1

A Qualifying Company shall at all times keep available for issue sufficient authorised but unissued Shares to permit the exercise of all unexercised Awards under which Shares may be allotted or shall otherwise procure that Shares are available for transfer in satisfaction of the exercise of Awards.

14.2

If and so long as the UK Shares are listed on the Official List of The London Stock Exchange, RE PLC will, at its expense, make application to The London Stock Exchange for admission to the Official List of UK Shares allotted on the exercise of any Award.

14.3

If and so long as Dutch Shares are listed on the Amsterdam Stock Exchange, RE NV will, at its expense, make application to the Amsterdam Stock Exchange for admission of Dutch Shares allotted on the exercise of any Award.

15.

ADMINISTRATION AND AMENDMENT

15.1

The decision of the Committee shall be final and binding in all matters relating to the Scheme and the Board may at any time discontinue the grant of further Awards or amend any of the provisions of the Scheme in any way it thinks fit: PROVIDED THAT :

(a)

the Committee shall not make any amendment that would materially prejudice the interests of existing Participants except with their prior written consent; and

(b)

no amendment to the advantage of Executives or Participants may be made to:

(i)

the definition of Executive ;

(ii)

the limitations on the numbers of Shares subject to the Scheme;

(iii)

the maximum entitlement of an Executive under the Scheme;

(iv)

the adjustment provisions of rule of the Scheme;

without the prior approval of RE PLC in general meeting (and, if appropriate the prior approval of RE NV in general meeting), except in the case of minor amendments to benefit the administration of the Scheme, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for Executives and Participants or any member of the Group; and

(c)

without prejudice to any provision of the Scheme which provides for the lapse of an Award, the Committee may not cancel an Award unless the Participant agrees in writing to such cancellation.

16.

GENERAL

16.1

Any member of the Group may provide money to the trustees of any trust or any other person to enable them or him to acquire Shares to be held for the purposes of the Scheme, or enter into any guarantee or indemnity for those purposes, to the extent not prohibited by section 151 of the Companies Act 1985.

16.2

The rights and obligations of a Participant under the terms and conditions of his office or employment shall not be affected by his participation in the Scheme or any right he may have to participate in the Scheme. An individual who participates in the Scheme waives all and any rights to compensation or damages in consequence of the termination of his office or employment with any company for any reason whatsoever insofar as those rights arise, or may arise, from his ceasing to have rights under or be entitled to exercise any Award under the Scheme as a result of such termination or from the loss or diminution in value of such rights or entitlements. If necessary, the Participant's terms of employment shall be varied accordingly.

16.3

The existence of any Award shall not affect in any way the right or power of the Company or its shareholders to make or authorise any or all adjustments, recapitalisations, reorganisations or other changes in the Company's capital structure, or any merger or consolidation of the Company, or any issue of shares, bonds, debentures, preferred or prior preference stocks ahead of or convertible into, or otherwise affecting the Shares or the rights thereof, or the dissolution or liquidation of the Company or any sale or transfer of all or any part of its assets or business, or any other corporate act or proceeding, whether of a similar character or otherwise.

16.4

Any notice or other document required to be given under or in connection with the Scheme may be delivered to a Participant or sent by post to him at his home address according to the records of his employing company or such other address as may appear to the Company to be appropriate. Notices sent by post shall be deemed to have been given on the day following the date of posting. Any notice or other document required to be given to the Company under or in connection with the Scheme may be delivered or sent by post to it at its registered office (or such other place or places as the Committee may from time to time determine and notify to Participants).

16.5

Benefits under the Scheme shall not be pensionable.

16.6

The Company, or where the Committee so directs any member of the Group, shall pay the appropriate stamp duty on behalf of Participants in respect of any transfer of Shares on the exercise of Awards.

16.7

These rules shall be governed by, and construed in accordance with, the laws of England.

16.8

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SCHEDULE 1
PERFORMANCE CONDITIONS

This Schedule sets out the performance conditions for the purposes of rule .

In this Schedule, unless the context otherwise requires, the definitions in the rules of the Scheme shall apply, and the following words and expressions shall have the following meanings:

Accounts means the consolidated accounts of each Qualifying Company for a Financial Year;

Accounts Date means the date on which the Accounts are published;

Auditors means the auditors for the time being of each Qualifying Company (acting as experts not arbitrators);

Base Year means, in relation to each Qualifying Company, the Financial Year ending immediately before the start of the Test Period;

Earnings per Share means, for any Financial Year of the relevant Qualifying Company, the earnings per ordinary share of a Qualifying Company (before amortisation of goodwill and intangible assets, exceptional items, and related tax effects) calculated in accordance with Financial Reporting Standard No. 3 issued by the Accounting Standards Board Limited or any modification thereto provided that to ensure comparability of Financial Years of the Qualifying Company within a Test Period and for the Base Year the Committee may:

(a)

(b)

adjust the figure to ensure that the rates of conversion of any currency are applied on a consistent basis in respect of years falling within the Test Period and for the Base Year; and

(c)

adjust the figure to ensure that the relevant accounting standards are applied on a consistent basis in respect of years falling within the Test Period and for the Base Year,

Financial Year means an accounting reference period as defined in accordance with section 224 of the Companies Act 1985; and

Test Period means in relation to any Award the period of three consecutive Financial Years commencing with the Financial Year starting immediately before the Date of Grant of the relevant Award.

Awards under the Scheme shall only be exercised if and to the extent that the conditions set out below are satisfied.

Shareholding Condition

Awards shall not be exercisable unless:

(a)

at the date of exercise the Participant holds Shares in the Qualifying Companies with an aggregate Share Price equal to 1.5 times the Participant’s basic salary from the Group as at the Date of Grant (in the case of a Participant who is a director of the Company or a Qualifying Company) and 1 times the Participant’s basic salary from the Group as at the Date of Grant (in the case of any other Participant), and

(b)

the Committee is satisfied that the Participant complies or has since the Date of Grant of the Award complied with the Company’s shareholding guidelines for directors and senior executives.

For the purposes of the condition in paragraph 3(a) the Share Price shall be the Share Price at the date of exercise of the Award provided that the Committee shall if it thinks fit have discretion to determine whether the condition is met by reference to the average Share Price over any period since the Date of Grant or the Share Price at any other time (including the date of acquisition of any Shares by the Participant).

EPS Condition

The EPS condition relating to the Awards under the Scheme shall be applied over the Test Period. For the purposes of this condition, the arithmetic mean of the growth in Earnings per Share achieved by each Qualifying Company shall be used.

The vesting level of any Award shall be determined on a sliding scale as follows:

Average EPS growth per annum over Test Period	Percentage of Award vesting
Less than 8%	0%
8% or more	25%
10% or more	100%
12% or more	125%

Awards will vest on a straight line basis between each of the threshold points. There will be no opportunity for retesting if the condition is not met over the Test Period.

The Committee will have the discretion to increase the EPS growth performance hurdles stated in the table at paragraph 5 above in order to take into account any movement in the rate of inflation.

Overriding Power

The Committee may in its absolute discretion at any time reduce or cancel Awards previously granted to Participants based on the Committee’s assessment of (a) whether EPS growth is a fair reflection of the progress of the Group’s business having regard to underlying revenue growth, cash generation, return on capital and any significant inflation changes, and (b) individual performance of a Participant. This power shall apply even if the EPS growth target has been or is expected to be met.

APPENDIX 1
SCHEME APPLICABLE TO ELSEVIER REED FINANCE BV

If the Board wishes to grant Awards to employees of Elsevier Reed Finance BV ( ERF ) or of companies under the Control of ERF, it may grant Awards pursuant to this Appendix, and the following provisions shall apply:

(A)

The Rules of the Scheme shall apply to the grant of Awards under this Appendix subject to the modifications contained in the following paragraphs.

(B)

The definition of Group shall be construed as including ERF and every company which is under the Control of ERF;

(C)

The definition of Share Option Scheme shall be amended as follows:

“Share Option Scheme means any employee share option scheme established by the Company or RE PLC or ERF, which relates to UK Shares;” and

(D)

Awards shall not be granted under this Appendix without the agreement of the supervisory board of ERF.

NR BONUS SHARE MATCHING PLAN

EXHIBIT 4.5

REED ELSEVIER GROUP PLC

RULES OF THE REED ELSEVIER GROUP PLC
BONUS INVESTMENT PLAN

(Approved by the shareholders of Reed Elsevier PLC
in general meeting on 8 April 2003)

(Approved by the shareholders of Reed Elsevier NV
in general meeting on 9 April 2003)

(Adopted by the directors on 29 January 2004)

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REED ELSEVIER GROUP PLC
BONUS INVESTMENT PLAN

RULES

This Bonus Investment Plan is intended to encourage Participants to remain with the Group and to align their interests with those of Qualifying Company shareholders by investing some of their own funds in the Qualifying Companies. An individual who is invited to participate in this Bonus Investment Plan may elect for part of their after-tax amount of his Bonus to be used to acquire Shares in either Qualifying Company. These shares will be deposited for a period of three years under the terms of this Plan as set out below. On joining the Plan the Participant will also become conditionally entitled to a number of additional Shares. The deposited Shares will be released to the Participant at the end of the three-year period, provided the Participant has remained an employee of the Group. The additional Shares will be released to the Participant at the end of the three-year period, provided that:

(a)

the Participant has remained an employee of the Group; and

(b)

a performance target linked to growth in earnings per share over the three year period has been met.

Shares used for the purposes of this Plan will be existing Shares only.

1.

DEFINITIONS

1.1

In these rules, unless the context otherwise requires, the following expressions shall have the following meanings respectively:

Adoption Date shall mean 8 April 2003;

Award shall mean a Basic Award and the Matching Award linked to that Basic Award;

Basic Award shall mean an award of Shares made under rule 2.1 of this Plan;

Bonus shall mean a cash bonus payable under an annual bonus scheme operated by any member of the Group;

Committee shall mean the Remuneration Committee of the Company or another appropriate committee of the board of the Company;

Company shall mean Reed Elsevier Group plc;

Control shall have the meaning given to it by section 840 of the Income and Corporation Taxes Act 1988;

Dutch Share shall mean an ordinary share in the capital of Reed Elsevier NV (or any other shares representing those shares following any reorganisation of the share capital of Reed Elsevier NV) and shall include an American Depositary Share representing a Dutch Share;

Grant Date shall mean the date on which an Award is made by the Committee under rule 2.6;

Grant Letter shall mean the notification to a Participant setting out the terms of an Award;

Gross Amount of Bonus shall mean the amount of Bonus elected by a Participant under rule 2.1 to be received as a Basic Award (prior to the deduction of tax thereon);

Group shall mean the Company and the Subsidiaries, and member of the Group shall be construed accordingly;

Matching Award shall mean a conditional award of additional Shares linked to a Basic Award, made under rule 2.3 and, subject to rules 3.1(f) and (g), released in accordance with rule 3.1(e) of the Plan;

Participant shall mean an individual participating in the Plan;

Plan shall mean the Reed Elsevier Group plc Bonus Investment Plan;

Qualifying Company shall mean each of Reed Elsevier PLC and Reed Elsevier NV;

Restricted Period in relation to a Basic Award, shall mean the period specified in rule 3.1(b);

the Secretary shall mean the Secretary of the Company, or some other person nominated by the Committee;

Share shall mean a UK Share or a Dutch Share;

Subsidiary shall mean any company which at the time qualifies as a subsidiary of the Company under section 736 of Companies Act 1985;

Trustee shall mean Hill Samuel Offshore Trust Company Limited or other trustee or trustees from time to time of the Reed Elsevier Employee Benefit Trust; and

UK Share shall mean a an ordinary share in the capital of Reed Elsevier PLC (or any other shares representing those shares following any reorganisation of the share capital of Reed Elsevier PLC) and shall include an American Depositary Share representing a UK Share;

1.1

References to any statute or statutory instrument or to any part or parts thereof include any modification, amendment or re-enactment thereof for the time being in force.

1.2

Words of the masculine gender shall include the feminine and vice versa and words in the singular shall include the plural and vice versa unless in either case the context otherwise requires or is otherwise stated.

2.

GRANT OF AWARDS

Basic Awards

2.1

Following the notification of the amount of any cash Bonus payable to the Participant, each Participant may be invited by the Committee to elect (in such proportions as the Participant selects) to receive part of the cash amount of Bonus (after deduction of income tax at the Participant’s marginal rate and employees’ social security contributions, if any) as a Basic Award provided that any such election made by a Participant:

(a)

shall be made on or before the date specified in the invitation from the Committee;

(b)

shall specify whether the Basic Award is to relate to UK Shares or Dutch Shares or both (and if so in what proportion); and

(c)

shall specify the percentage of the total after tax cash Bonus which the Participant elects to receive as a Basic Award, which must be at least 25% (or such lower proportion as the Committee may in its discretion allow) of the total Bonus payable to the Participant but not more than 50% of the total Bonus payable to the Participant.

2.2

If a Participant elects to receive a Basic Award, the Committee shall arrange to purchase on a recognised stock exchange that number of Shares which can be purchased with the after-tax cash amount available under rule 2.1. For this purpose:

(a)

the Committee shall, subject to rule , have absolute discretion as to when the Shares to comprise a Basic Award are purchased PROVIDED THAT, unless impracticable and subject to rule , all the Shares required to satisfy Basic Awards for all Participants shall be purchased on the same dealing day;

(b)

the Basic Award shall comprise the nearest whole number of Shares that can be acquired with the amount in rule above. Any sum remaining following the acquisition of the Shares shall be paid in cash to the Participant.

2.3

If a Participant makes an election under rule but (i) that election is made after the date specified in the invitation or (ii) his employer fails to provide funds to enable the Shares to comprise the Basic Award to be purchased within the deadlines specified by the Committee, the Committee shall not be required to proceed with the Award but may in its absolute discretion decide to do so, subject to rule , provided that the Shares to be comprised in the Basic Award and Matching Award shall then be purchased at the price prevailing on the dealing day on which Shares are actually purchased in respect of the Basic Award.

Matching Awards

2.4

Whenever the Committee grants a Basic Award, it shall also grant a Matching Award. The number of Shares comprised in the Matching Award shall be the nearest whole number of Shares that can be acquired (at the price at which shares comprised in the Basic Award were purchased under rule ) with the Gross Amount of Bonus used to calculate the Basic Award and shall include UK Shares and Dutch Shares in the same proportions as those comprised in the Basic Award.

2.5

Save to the extent that the Committee arranges to satisfy Awards with Shares already held by the Trustee, the Committee shall arrange to purchase on a recognised stock exchange the number of Shares required to satisfy Matching Awards. For this purpose the Committee shall have absolute discretion as to when the Shares to comprise Matching Awards are purchased. Any member of the Group may provide money for the purpose of acquiring Shares to satisfy Matching Awards (and shall if requested to do so by the Committee) before the date specified by the Committee for purchase of Shares comprised in Matching Awards. The Company shall be under no obligation to purchase the Shares comprised in a Matching Award at or around the Grant Date but shall procure that there are sufficient Shares available for transfer to satisfy a Matching Award by the end of the Restricted Period. In the event that a member of the Group fails to provide monies in respect of its employees’ Basic Awards or Matching Awards, the Committee shall be under no obligation to proceed with the Award (but the Committee shall have no power to cancel an Award once it has been made by reason of the Participant’s employer’s failure to provide funding).

Release Date

2.6

On the third anniversary of the Grant Date, or as soon as reasonably practicable thereafter, a Participant shall if relevant be notified whether or not the performance target set out in rule below has been satisfied over this three year period. If the performance target has been satisfied, or is not applicable, the Restricted Period in relation to the Basic Award shall cease and the Shares comprised in the Basic Award together with the Shares comprised in the Matching Award shall be released to the Participant as soon as reasonably practicable.

2.7

In the event that the performance target set out in rule below (if applicable) has not been satisfied on the third anniversary of the Grant Date, the Restricted Period in relation to the Basic Award shall cease and the Shares comprised in the Basic Award shall be released to the Participant as soon as reasonably practicable thereafter but the Matching Award shall lapse.

Performance Target

2.8

The performance target referred to in rules and is that set out in Schedule 1. No performance target shall apply in relation to Awards made before April 2003.

Grant Procedure

2.9

The Award shall be granted by the Committee within 28 days of the Participant’s election to receive the Award unless the making of the Award would be prohibited by law or the Model Code for Securities Transactions by Directors of Listed Companies (or the Company’s dealing rules). If at the end of the 28-day period (or such longer period as the Committee thinks fit) such prohibition remains in force, the Committee shall either:

(i)

invite the Participant to reconsider whether he wishes to elect to receive an Award or whether he wishes to receive all of his Bonus in cash; or

(ii)

if the Committee sees fit, withdraw the invitation and pay all of the Bonus in cash.

2.10

Each Award shall be evidenced by a Grant Letter which shall be signed on behalf of the Company.

2.11

No Award shall be granted under the Plan later than the tenth anniversary of the Adoption Date.

2.12

Nothing in these rules or in a Participant's contract of employment shall be construed as giving to any Participant a right to receive, or be considered for, an Award. Neither an Award nor the Shares to which it relates shall be pensionable for any purpose.

3.

TERMS OF AWARDS

3.1

The main terms of each Award (which shall be set out or referred to in the Grant Letter) shall be as follows:

(a)

Number of Shares - The Grant Letter shall state the number of Shares comprised in the Basic Award and the Matching Award and whether they comprise UK Shares or Dutch Shares.

(b)

Restricted Period - The Restricted Period in relation to a Basic Award and Matching Award shall commence on the Grant Date and shall (unless foreshortened pursuant to these rules) expire on the third anniversary thereof. During the Restricted Period, the Participant shall not sell, transfer, pledge, assign or otherwise dispose of all or any Shares comprised in the Basic Award, nor request the transfer of such Shares to himself (provided that the Committee may in its absolute discretion allow such actions or release the Shares to the Participant if it considers that exceptional circumstances apply). Any such action or attempt at such action by the Participant (with or without consent) shall result in the automatic lapse of the Matching Award.

(c)

Rights of Participant during Restricted Period – Subject to para below , t he beneficial interest in the Shares comprised in a Basic Award shall pass to the Participant on the Grant Date. During the Restricted Period, the Participant shall be entitled to receive all dividends payable in respect of the Shares comprised in a Basic Award (but not those in the Matching Award) and shall in respect thereof have the rights commonly enjoyed by a beneficial owner of Shares provided that any voting rights shall be exerciseable by a direction in writing given to the Trustee or other nominee in whose name the Shares comprised in the Basic Award are registered. The Participant shall have no corresponding rights in respect of the Shares in the Matching Award pending their release.

(d)

Registration and Custody of Shares – During the Restricted Period, the Shares comprised in a Basic Award shall be registered in the name of the Trustee or of such other nominee as may be appointed by the Committee, and the Trustee or other nominee shall be responsible for paying out dividends received in respect of those shares to Participants and issuing tax vouchers as appropriate.

(e)

Lapse of Restrictions – The Committee shall make such arrangements as it sees fit to ensure that the Shares comprised in the Basic Award and Matching Award are transferred to the Participant within 14 days following the expiry of the Restricted Period.

(f)

Termination of Employment - In the event that the Participant ceases to be an employee of a member of the Group during the Restricted Period:

(i)

by reason of death, the Shares comprised in the Basic Award and the Matching Award shall be released in full to the Participant’s personal representatives;

(ii)

by reason of injury, disability, ill-health or retirement on or after normal retirement age (or early retirement with the consent of the Board), (aa) the Basic Award shall continue in force until the end of the Restricted Period, at which time the Shares comprised therein shall be released in full, and (bb) the Matching Award shall continue (as though the Participant had remained in employment) until the end of the Restricted Period at which time the Shares comprised therein shall be released if the performance target in rule 2.8 (if applicable) has been satisfied,

PROVIDED THAT the Committee may in its absolute discretion determine that the Shares comprised in the Award shall be released as soon as practicable following the date of termination of the employment (the Termination Date ), in which case (xx) the Shares comprised in the Basic Award shall be released in full, and (yy) the number of Shares comprised in the Matching Award which are to be released shall (unless the Committee in its absolute discretion determines that a higher number shall be released) be determined by multiplying the full number of Shares comprised in the Matching Award by A/B where A is the number of days between the Grant Date and the Termination Date and B is the number of days between the Grant Date and the end of the Restricted Period; and

(iii)

for any other reason than in (i) or (ii) above, the Shares comprised in the Basic Award shall be released to the Participant (and the Shares comprised in the Matching Award shall automatically be forfeited) unless the Committee determines in its absolute discretion that the Award should be treated in accordance with (ii) above.

(g)

Change of Control - If any person:

(i)

obtains Control of a Qualifying Company as a result of making an offer to acquire Shares which is either unconditional or is made on a condition such that if it is satisfied the person making the offer will have Control of that Qualifying Company;

(ii)

becomes bound or entitled to acquire Shares under sections 428 to 430F of the Companies Act 1985 (or in relation to Reed Elsevier NV becomes entitled to acquire compulsorily Shares held by minority shareholders); or

(iii)

obtains Control of a Qualifying Company in pursuance of a compromise or arrangement sanctioned by the Court under section 425 of the Companies Act 1985 (or in relation to Reed Elsevier NV under any equivalent legislative provision in the Netherlands),

then the Shares in that Qualifying Company (but not those in the other Qualifying Company) comprised in both the Basic Award and the Matching Award (or the proceeds of sale thereof if the Committee thinks fit) shall be released within 30 days of the relevant event.

PROVIDED THAT

(aa)

Shares comprised in the Basic Award and the Matching Award shall not without the consent of the Committee be released if the purpose and effect of the change of Control or scheme of arrangement is (i) to create a new holding company for the relevant Qualifying Company, such company having substantially the same shareholders and proportionate shareholdings as those of the Qualifying Company immediately prior to the scheme of arrangement, or (ii) to give one Qualifying Company Control (directly or indirectly) of the other Qualifying Company. In that event, the Committee shall endeavour to procure that the Awards are cancelled in exchange for equivalent awards over shares in the new holding company; and

(bb)

The provisions of rule 3.1 shall apply mutatis mutandis in the event that any person (either alone or together with any person acting in concert with him) obtains Control of the Company UNLESS :

(A)

the person obtaining Control of the Company is one of the Qualifying Companies or a company under the control of one or both of them; or

(B)

the Company remains under the ultimate control of the Shareholders of one of the Qualifying Companies immediately prior to the relevant transaction affecting the Company.

If this rule 3.1(g)(bb) applies, the Shares comprised in Awards which may be released subject to the provisions of this rule 3.1(g) shall be Shares in both Qualifying Companies.

4.

ADJUSTMENTS

4.1

In the event of any capitalisation issue, rights issue or sub-division or consolidation of or other variation in the ordinary share capital of a Qualifying Company to which his Award relates the Participant shall:

(a)

in respect of his Basic Award be treated in the same manner as any other holder of Shares, save that (unless the Committee determines otherwise):

(i)

in the event of a rights issue in respect of Shares, the Trustee or other nominee holding Shares on behalf of the Participant shall be required to sell sufficient rights nil-paid (at such time during the rights issue as the Committee thinks fit) as will enable it to acquire (on behalf of the Participant) with the proceeds of sale the remainder of the Participant’s rights ent itlement PROVIDED THAT the Participant may elect to take up in a personal capacity the rights that would have been sold (and such Shares shall not be subject to this Plan) subject to the Participant providing sufficient funds to give effect to his obligation under the first part of this sub-paragraph (a);

(ii)

in the event of receipt of cash (other than dividends paid in the normal course) or securities (other than Shares) in respect of Shares (on a demerger or other reorganisation of the share capital of a Qualifying Company), the Committee shall in its absolute discretion determine whether such cash or securities shall be released to the Participant or whether the Trustee or other nominee holding Shares on behalf of the Participant shall be required to apply that cash (or the proceeds of sale of such securities), after allowing for tax thereon, in the purchase of further Shares to be held on behalf of the Participant; and

(b)

the number of Shares comprised in the Participant’s Matching Award shall be adjusted in such manner as the Committee, in its absolute discretion, thinks fit.

5.

SOURCE OF SHARES

Shares required to satisfy the rights of Participants with respect to Awards shall be purchased on a recognised stock exchange and no Shares shall be issued under the Plan.

6.

ADMINISTRATION

6.1

The rights and obligations of any Participant under the terms of his office or employment shall not be affected by his participation in the Plan, and each Participant shall be deemed to waive all and any rights to compensation or damages in consequence of the termination of his office or employment for any reason whatsoever insofar as those rights arise or may arise from his ceasing to have rights hereunder as a result of such termination or from the loss or diminution in value of such rights or entitlements. If necessary, the Participant’s terms of employment shall be varied accordingly.

6.2

All Share certificates and other communications relating to the Plan shall be sent at the Participant’s risk.

6.3

Any liability of a Participant to taxation in respect of an Award shall be for the account of the relevant Participant. By accepting an Award, a Participant agrees to comply with any arrangements specified by the Company for the payment of taxation (including, without limitation, arranging the sale of sufficient Shares to enable the Company or any member of the Group to satisfy its obligations in respect of deduction of taxation at source).

7.

GENERAL

7.1

The Company reserves the right to terminate the Plan or amend these rules at any time PROVIDED THAT no amendment shall operate to affect adversely any right already acquired by a Participant.

7.2

The Participant shall bear all dealing costs and stamp duty relating to the purchase of Shares in respect of a Basic Award under the Plan. The Company shall bear all dealing costs and stamp duty relating to the purchase and release of Shares in respect of a Matching Award under the Plan.

7.3

These rules shall be governed by and construed in accordance with English law .

SCHEDULE 1
PERFORMANCE TARGET

This Schedule sets out the performance target for the purposes of rule 2.8. For the avoidance of doubt no performance target shall apply in relation to Awards made before April 2003

1.

In this Schedule, unless the context otherwise requires, the following words and expressions shall have the following meanings, namely:

Accounts means the consolidated accounts of each Qualifying Company for a Financial Year;

Accounts Date means the date on which the Accounts are published;

Auditors means the auditors for the time being of each Qualifying Company (acting as experts not arbitrators);

Base Year means, in relation to each Qualifying Company, the Financial Year ending immediately before the start of the Prescribed Period;

Earnings per Share or EPS means, for any Financial Year of the relevant Qualifying Company, the earnings per ordinary share of a Qualifying Company (before amortisation of goodwill and intangible assets, exceptional items and related tax effects) calculated in accordance with Financial Reporting Standard No. 3 issued by the Accounting Standards Board Limited or any modification thereto provided that to ensure comparability of Financial Years of the Qualifying Company within a Prescribed Period and for the Base Year the Committee may:

(a)

adjust the figure for earnings per share as calculated in accordance with the relevant accounting standard to arrive at a figure which reflects the underlying business performance of the Group (and may, without limitation, adjust by excluding any or all extraordinary or exceptional items from the earnings per share calculation);

(b)

adjust the figure to ensure that the rates of conversion of any currency are applied on a consistent basis in respect of years falling within the Prescribed Period and for the Base Year; and

(c)

adjust the figure to ensure that the relevant accounting standards are applied on a consistent basis in respect of years falling within the Prescribed Period and for the Base Year,

provided that the Committee shall have discretion to adjust this definition of EPS to take account of any change in recognised accounting standards or practice, fiscal regime or capital structure, to ensure consistent measurement and accountability;

Financial Year means an accounting reference period as defined in accordance with section 224 of the Companies Act 1985; and

Prescribed Period in relation to any Matching Award means the period of three consecutive Financial Years beginning with the Financial Year in which the Date of Grant of that Matching Award falls.

2.

Prior to the release of Shares under any Matching Award, the Committee shall determine the arithmetic mean of the EPS achieved by each Qualifying Company, and then calculate the percentage compound growth in such average EPS over the Prescribed Period, expressed as a per annum rate of growth.

3.

The Shares under any Matching Award shall only be released if the averaged compound growth in EPS determined under paragraph 2 over the Prescribed Period is at least 6% per annum.

4.

There will be no opportunity for retesting if the performance target is not met over the Prescribed Period.

5.

The Committee will have discretion to increase the EPS growth performance hurdles above in order to take into account any movement in the rate of inflation.

APPENDIX 1

SCHEME APPLICABLE TO ELSEVIER REED FINANCE BV

If the Board wishes to grant Awards to employees of Elsevier Reed Finance BV ( ERF ) or of companies under the Control of ERF, it may grant Awards pursuant to this Appendix, and the following provisions shall apply:

(A)

The Rules of the Scheme shall apply to the grant of Awards under this Appendix subject to the modifications contained in the following paragraphs.

(B)

The definition of Group shall be construed as including ERF and every company which is under the Control of ERF; and

(C)

Awards shall not be granted under this Appendix without the agreement of the supervisory board of ERF.

Page #

EXHIBIT 4.6

REED ELSEVIER GROUP PLC

RULES OF THE REED ELSEVIER GROUP PLC

BONUS INVESTMENT PLAN (2002)

(Adopted by the directors on 3 December 2002)

REED ELSEVIER GROUP PLC
BONUS INVESTMENT PLAN

RULES

This Bonus Investment Plan is intended to encourage Participants to remain with the Group and to align their interests with those of Qualifying Company shareholders by investing some of their own funds in the Qualifying Companies. An individual who is invited to participate in this Bonus Investment Plan may elect for part of their after-tax amount of his Bonus to be used to acquire Shares in either Qualifying Company. These shares will be deposited for a period of three years under the terms of this Plan as set out below. On joining the Plan the Participant will also become conditionally entitled to a number of additional Shares. At the end of the three-year period, provided the Participant has remained an employee of the Group, the deposited Shares will be released to the Participant together with the additional Shares. Shares used for the purposes of this Plan will be existing Shares only.

DEFINITIONS

1.1

In these rules, unless the context otherwise requires, the following expressions shall have the following meanings respectively:

Award shall mean a Basic Award and the Matching Award linked to that Basic Award;

Basic Award shall mean an award of Shares made under rule 2.1 of this Plan;

Bonus shall mean a cash bonus payable under an annual bonus scheme operated by any member of the Group;

Committee shall mean the Remuneration Committee of the Company or another appropriate committee of the board of the Company;

Company shall mean Reed Elsevier Group plc;

Control shall have the meaning given to it by section 840 of the Income and Corporation Taxes Act 1988;

Dutch Share shall mean an ordinary share in the capital of Reed Elsevier NV (or any other shares representing those shares following any reorganisation of the share capital of Reed Elsevier NV) and shall include an American Depositary Share representing a Dutch Share;

Employees’ Share Scheme shall have the meaning given to it by section 743 of the Companies Act 1985 (being a scheme for encouraging or facilitating the holding of Shares by employees of the Group);

Grant Date shall mean the date on which an Award is made by the Committee under rule 2.6;

Grant Letter shall mean the notification to a Participant setting out the terms of an Award;

Gross Amount of Bonus shall mean the amount of Bonus elected by a Participant under rule 2.1 to be received as a Basic Award (prior to the deduction of tax thereon);

Group shall mean the Company and the Subsidiaries, and member of the Group shall be construed accordingly;

Matching Award shall mean a conditional award of additional Shares linked to a Basic Award, made under rule 2.3 and, subject to rules 3.1(f) and (g), released in accordance with rule 3.1(e) of the Plan;

Participant shall mean an individual participating in the Plan;

Plan shall mean the Reed Elsevier Group plc Bonus Investment Plan;

Qualifying Company shall mean each of Reed Elsevier PLC and Reed Elsevier NV;

Restricted Period in relation to a Basic Award, shall mean the period specified in rule 3.1(b);

the Secretary shall mean the Secretary of the Company, or some other person nominated by the Committee;

Share shall mean a UK Share or a Dutch Share;

Subsidiary shall mean any company which at the time qualifies as a subsidiary of the Company under section 736 of Companies Act 1985;

Trustee shall mean Hill Samuel Offshore Trust Company Limited or other trustee or trustees from time to time of the Reed Elsevier Employee Benefit Trust; and

UK Share shall mean a an ordinary share in the capital of Reed Elsevier PLC (or any other shares representing those shares following any reorganisation of the share capital of Reed Elsevier PLC) and shall include an American Depositary Share representing a UK Share;

1.1

References to any statute or statutory instrument or to any part or parts thereof include any modification, amendment or re-enactment thereof for the time being in force.

1.2

Words of the masculine gender shall include the feminine and vice versa and words in the singular shall include the plural and vice versa unless in either case the context otherwise requires or is otherwise stated.

GRANT OF AWARDS

Basic Awards

2.1

Following the notification of the amount of any cash Bonus payable to the Participant, each Participant may be invited by the Committee to elect (in such proportions as the Participant selects) to receive part of the cash amount of Bonus (after deduction of income tax at the Participant’s marginal rate and employees’ social security contributions, if any) as a Basic Award provided that any such election made by a Participant:

(a)

shall be made on or before the date specified in the invitation from the Committee;

(b)

shall specify whether the Basic Award is to relate to UK Shares or Dutch Shares or both (and if so in what proportion); and

(c)

shall specify the percentage of the total after tax cash Bonus which the Participant elects to receive as a Basic Award, which must be at least 25% (or such lower proportion as the Committee may in its discretion allow) of the total Bonus payable to the Participant but not more than 50% of the total Bonus payable to the Participant.

2.2

If a Participant elects to receive a Basic Award, the Committee shall arrange to purchase on a recognised stock exchange that number of Shares which can be purchased with the after-tax cash amount available under rule 2.1. For this purpose:

(a)

the Committee shall, subject to rule , have absolute discretion as to when the Shares to comprise a Basic Award are purchased PROVIDED THAT, unless impracticable and subject to rule , all the Shares required to satisfy Basic Awards for all Participants shall be purchased on the same dealing day;

(b)

the Basic Award shall comprise the nearest whole number of Shares that can be acquired with the amount in rule above. Any sum remaining following the acquisition of the Shares shall be paid in cash to the Participant.

2.3

If a Participant makes an election under rule but (i) that election is made after the date specified in the invitation or (ii) his employer fails to provide funds to enable the Shares to comprise the Basic Award to be purchased within the deadlines specified by the Committee, the Committee shall not be required to proceed with the Award but may in its absolute discretion decide to do so, subject to rule , provided that the Shares to be comprised in the Basic Award and Matching Award shall then be purchased at the price prevailing on the dealing day on which Shares are actually purchased in respect of the Basic Award.

Matching Awards

2.4

Whenever the Committee grants a Basic Award, it shall also grant a Matching Award. The number of Shares comprised in the Matching Award shall be the nearest whole number of Shares that can be acquired (at the price at which shares comprised in the Basic Award were purchased under rule ) with the Gross Amount of Bonus used to calculate the Basic Award and shall include UK Shares and Dutch Shares in the same proportions as those comprised in the Basic Award.

2.5

Save to the extent that the Committee arranges to satisfy Awards with Shares already held by the Trustee, the Committee shall arrange to purchase on a recognised stock exchange the number of Shares required to satisfy Matching Awards. For this purpose the Committee shall have absolute discretion as to when the Shares to comprise Matching Awards are purchased. Any member of the Group may provide money for the purpose of acquiring Shares to satisfy Matching Awards (and shall if requested to do so by the Committee) before the date specified by the Committee for purchase of Shares comprised in Matching Awards. The Company shall be under no obligation to purchase the Shares comprised in a Matching Award at or around the Grant Date but shall procure that there are sufficient Shares available for transfer to satisfy a Matching Award by the end of the Restricted Period. In the event that a member of the Group fails to provide monies in respect of its employees’ Basic Awards or Matching Awards, the Committee shall be under no obligation to proceed with the Award (but the Committee shall have no power to cancel an Award once it has been made by reason of the Participant’s employer’s failure to provide funding).

Release Date

2.6

On the third anniversary of the Grant Date, or as soon as reasonably practicable thereafter, the Restricted Period in relation to the Basic Award shall cease and the Shares comprised in the Basic Award together with the Shares comprised in the Matching Award shall be released to the Participant as soon as reasonably practicable.

Grant Procedure

2.7

The Award shall be granted by the Committee within 28 days of the Participant’s election to receive the Award unless the making of the Award would be prohibited by law or the Model Code for Securities Transactions by Directors of Listed Companies (or the Company’s dealing rules). If at the end of the 28-day period (or such longer period as the Committee thinks fit) such prohibition remains in force, the Committee shall either:

(i)

invite the Participant to reconsider whether he wishes to elect to receive an Award or whether he wishes to receive all of his Bonus in cash; or

(ii)

if the Committee sees fit, withdraw the invitation and pay all of the Bonus in cash.

2.8

Each Award shall be evidenced by a Grant Letter which shall be signed on behalf of the Company.

2.9

Nothing in these rules or in a Participant's contract of employment shall be construed as giving to any Participant a right to receive, or be considered for, an Award. Neither an Award nor the Shares to which it relates shall be pensionable for any purpose.

TERMS OF AWARDS

3.1

The main terms of each Award (which shall be set out or referred to in the Grant Letter) shall be as follows:

(a)

Number of Shares - The Grant Letter shall state the number of Shares comprised in the Basic Award and the Matching Award and whether they comprise UK Shares or Dutch Shares.

(b)

Restricted Period - The Restricted Period in relation to a Basic Award and Matching Award shall commence on the Grant Date and shall (unless foreshortened pursuant to these rules) expire on the third anniversary thereof. During the Restricted Period, the Participant shall not sell, transfer, pledge, assign or otherwise dispose of all or any Shares comprised in the Basic Award, nor request the transfer of such Shares to himself (provided that the Committee may in its absolute discretion allow such actions or release the Shares to the Participant if it considers that exceptional circumstances apply). Any such action or attempt at such action by the Participant (with or without consent) shall result in the automatic lapse of the Matching Award.

(c)

Rights of Participant during Restricted Period – Subject to para below , t he beneficial interest in the Shares comprised in a Basic Award shall pass to the Participant on the Grant Date. During the Restricted Period, the Participant shall be entitled to receive all dividends payable in respect of the Shares comprised in a Basic Award (but not those in the Matching Award) and shall in respect thereof have the rights commonly enjoyed by a beneficial owner of Shares provided that any voting rights shall be exerciseable by a direction in writing given to the Trustee or other nominee in whose name the Shares comprised in the Basic Award are registered. The Participant shall have no corresponding rights in respect of the Shares in the Matching Award pending their release.

(d)

Registration and Custody of Shares – During the Restricted Period, the Shares comprised in a Basic Award shall be registered in the name of the Trustee or of such other nominee as may be appointed by the Committee, and the Trustee or other nominee shall be responsible for paying out dividends received in respect of those shares to Participants and issuing tax vouchers as appropriate.

(e)

Lapse of Restrictions – The Committee shall make such arrangements as it sees fit to ensure that the Shares comprised in the Basic Award and Matching Award are transferred to the Participant within 14 days following the expiry of the Restricted Period.

(f)

Termination of Employment - In the event that the Participant ceases to be an employee of a member of the Group during the Restricted Period:

(i)

by reason of death, the Shares comprised in the Basic Award and the Matching Award shall be released in full to the Participant’s personal representatives;

(ii)

by reason of injury, disability, ill-health or retirement on or after normal retirement age (or early retirement with the consent of the Board), (aa) the Basic Award shall continue in force until the end of the Restricted Period, at which time the Shares comprised therein shall be released in full, and (bb) the Matching Award shall continue (as though the Participant had remained in employment) until the end of the Restricted Period at which time the Shares comprised therein shall be released,

PROVIDED THAT the Committee may in its absolute discretion determine that the Shares comprised in the Award shall be released as soon as practicable following the date of termination of the employment (the Termination Date ), in which case (xx) the Shares comprised in the Basic Award shall be released in full, and (yy) the number of Shares comprised in the Matching Award which are to be released shall (unless the Committee in its absolute discretion determines that a higher number shall be released) be determined by multiplying the full number of Shares comprised in the Matching Award by A/B where A is the number of days between the Grant Date and the Termination Date and B is the number of days between the Grant Date and the end of the Restricted Period; and

(iii)

for any other reason than in (i) or (ii) above, the Shares comprised in the Basic Award shall be released to the Participant (and the Shares comprised in the Matching Award shall automatically be forfeited) unless the Committee determines in its absolute discretion that the Award should be treated in accordance with (ii) above.

(g)

Change of Control - If any person:

(i)

obtains Control of a Qualifying Company as a result of making an offer to acquire Shares which is either unconditional or is made on a condition such that if it is satisfied the person making the offer will have Control of that Qualifying Company;

(ii)

becomes bound or entitled to acquire Shares under sections 428 to 430F of the Companies Act 1985 (or in relation to Reed Elsevier NV becomes entitled to acquire compulsorily Shares held by minority shareholders); or

(iii)

obtains Control of a Qualifying Company in pursuance of a compromise or arrangement sanctioned by the Court under section 425 of the Companies Act 1985 (or in relation to Reed Elsevier NV under any equivalent legislative provision in the Netherlands),

then the Shares in that Qualifying Company (but not those in the other Qualifying Company) comprised in both the Basic Award and the Matching Award (or the proceeds of sale thereof if the Committee thinks fit) shall be released within 30 days of the relevant event.

PROVIDED THAT

(aa)

Shares comprised in the Basic Award and the Matching Award shall not without the consent of the Committee be released if the purpose and effect of the change of Control or scheme of arrangement is (i) to create a new holding company for the relevant Qualifying Company, such company having substantially the same shareholders and proportionate shareholdings as those of the Qualifying Company immediately prior to the scheme of arrangement, or (ii) to give one Qualifying Company Control (directly or indirectly) of the other Qualifying Company. In that event, the Committee shall endeavour to procure that the Awards are cancelled in exchange for equivalent awards over shares in the new holding company; and

(bb)

The provisions of rule 3.1 shall apply mutatis mutandis in the event that any person (either alone or together with any person acting in concert with him) obtains Control of the Company UNLESS :

(A)

the person obtaining Control of the Company is one of the Qualifying Companies or a company under the control of one or both of them; or

(B)

the Company remains under the ultimate control of the Shareholders of one of the Qualifying Companies immediately prior to the relevant transaction affecting the Company.

If this rule 3.1(g)(bb) applies, the Shares comprised in Awards which may be released subject to the provisions of this rule 3.1(g) shall be Shares in both Qualifying Companies.

ADJUSTMENTS

4.1

In the event of any capitalisation issue, rights issue or sub-division or consolidation of or other variation in the ordinary share capital of a Qualifying Company to which his Award relates the Participant shall:

(a)

in respect of his Basic Award be treated in the same manner as any other holder of Shares, save that (unless the Committee determines otherwise):

(i)

in the event of a rights issue in respect of Shares, the Trustee or other nominee holding Shares on behalf of the Participant shall be required to sell sufficient rights nil-paid (at such time during the rights issue as the Committee thinks fit) as will enable it to acquire (on behalf of the Participant) with the proceeds of sale the remainder of the Participant’s rights ent itlement PROVIDED THAT the Participant may elect to take up in a personal capacity the rights that would have been sold (and such Shares shall not be subject to this Plan) subject to the Participant providing sufficient funds to give effect to his obligation under the first part of this sub-paragraph (a);

(ii)

in the event of receipt of cash (other than dividends paid in the normal course) or securities (other than Shares) in respect of Shares (on a demerger or other reorganisation of the share capital of a Qualifying Company), the Committee shall in its absolute discretion determine whether such cash or securities shall be released to the Participant or whether the Trustee or other nominee holding Shares on behalf of the Participant shall be required to apply that cash (or the proceeds of sale of such securities), after allowing for tax thereon, in the purchase of further Shares to be held on behalf of the Participant; and

(b)

the number of Shares comprised in the Participant’s Matching Award shall be adjusted in such manner as the Committee, in its absolute discretion, thinks fit.

SOURCE OF SHARES

Shares required to satisfy the rights of Participants with respect to Awards shall be purchased on a recognised stock exchange and no Shares shall be issued under the Plan.

ADMINISTRATION

6.1

The rights and obligations of any Participant under the terms of his office or employment shall not be affected by his participation in the Plan, and each Participant shall be deemed to waive all and any rights to compensation or damages in consequence of the termination of his office or employment for any reason whatsoever insofar as those rights arise or may arise from his ceasing to have rights hereunder as a result of such termination or from the loss or diminution in value of such rights or entitlements. If necessary, the Participant’s terms of employment shall be varied accordingly.

6.2

All Share certificates and other communications relating to the Plan shall be sent at the Participant’s risk.

6.3

Any liability of a Participant to taxation in respect of an Award shall be for the account of the relevant Participant. By accepting an Award, a Participant agrees to comply with any arrangements specified by the Company for the payment of taxation (including, without limitation, arranging the sale of sufficient Shares to enable the Company or any member of the Group to satisfy its obligations in respect of deduction of taxation at source).

GENERAL

7.1

The Company reserves the right to terminate the Plan or amend these rules at any time PROVIDED THAT no amendment shall operate to affect adversely any right already acquired by a Participant.

7.2

The Participant shall bear all dealing costs and stamp duty relating to the purchase of Shares in respect of a Basic Award under the Plan. The Company shall bear all dealing costs and stamp duty relating to the purchase and release of Shares in respect of a Matching Award under the Plan.

7.3

These rules shall be governed by and construed in accordance with English law .

EXHIBIT 4.7

REED ELSEVIER PLC

RULES OF

THE REED ELSEVIER PLC EXECUTIVE

SHARE OPTION SCHEMES (No. 2)

(As amended on 27 April, 2000)

THE REED ELSEVIER PLC EXECUTIVE U.K.

SHARE OPTION SCHEME (No.2)

DEFINITIONS

In these Rules

(a)

the following words and expressions have the following meanings except where the context otherwise requires:-

"Act"	the Income and Corporation Taxes Act 1988;
"Auditors"	the auditors for the time being of the Company and, where the context requires, of one or both Qualifying Companies;
"Company"	Reed Elsevier plc;
"Control"	the meaning ascribed thereto in Section 840 of the Act;
"Date of Grant"	the date on which the Directors resolve to grant an Option in accordance with the terms of Rule 3;
"Directors"	the Board of Directors for the time being of the Company or a duly constituted committee thereof;
"Eligible Employee"	any person holding Employment shall be regarded as an Eligible Employee;
"Elsevier Share"	an ordinary share of Dfl 1 in the capital of Elsevier;
"Employment"	employment with any Participating Company or Participating Companies, such employment to be "full-time" and for this purpose "full-time" shall mean required to devote not less than 25 hours per week (exclusive of meal breaks) to service as an employee (including a salaried director or other officer);
"General Offer"	an offer for Shares as specified in Rule 7(a);
"Group"	the Company and every company which is under the Control of the Company and any other company which may be treated as a Participating Company under Inland Revenue practice from time to time;
"Issue or Reorganisation"	any capitalisation issue or rights issue or any consolidation, sub-division or reduction of capital by a Qualifying Company;
"Other Option Schemes"	The Reed International U.K. and Overseas Executive Share Option Schemes (1984), the Reed Elsevier plc SAYE Share Option Scheme, the Reed Elsevier plc Executive U.K. Share Option Scheme, the Reed Elsevier plc Executive Overseas Share Option Scheme, the Reed International S.A.Y.E. Share Option Scheme and any other share option scheme adopted by the shareholders of Reed or the Company in General Meeting on or after the date of adoption of the Scheme;
"Option"	the right granted to a Participant on any particular Date of Grant to obtain Shares in accordance with the Rules of the Scheme;
"Option Price"	the price for the acquisition of a Share comprised in any Option which, subject to Rule 6, is not less than the amount equal to the middle market quotation of a Share on the Date of Grant of the Option as ascertained from The Daily Official List of The London Stock Exchange or if Rule 6(d) has been applied, such amount as is the acquisition price of a share in the company whose shares are scheme shares under the new rights;

"Participant"	any person who has been granted an Option which has not lapsed in accordance with the provisions of Rule 4(c) and includes, where the context so admits, the legal personal representatives of any such person;
"Participating Company"	any company within the Group;
"Qualifying Company"	each of Reed and Elsevier;
"Redundancy"	dismissal by reason of redundancy within the meaning of the Employment Rights Act 1996;
"Reed"	Reed International P.L.C.;
"Reed Share"	an ordinary share of 12.5p in the capital of Reed;
"Retirement"	cessation of Employment in circumstances which the Directors regard as retirement (whether at normal retirement age or at any other age);
"Schedule 9"	Schedule 9 to the Act;
"Scheme"	this Scheme, in its present form or with and subject to any amendment thereto effected in accordance with the Rules;
"Share"	a Reed Share or an Elsevier Share and "shareholder" shall be construed accordingly.

(b)

Other words or expressions, so far as not inconsistent with the context have the same meanings as in Schedule 9.

(c)

Words importing the singular shall include the plural and vice versa and words importing the masculine shall include the feminine.

(d)

Any reference to a statutory provision shall be deemed to include that provision as the same may from time to time hereafter be amended or re-enacted.

ELIGIBILITY

No person shall be entitled as of right to participate in the Scheme. Subject thereto, the Directors shall in their absolute discretion, subject to the Rules, decide from time to time which Eligible Employee or Employees shall have the opportunity to participate and the extent of the participation.

GRANT OF OPTIONS

(a)

Subject as hereinafter provided, the Directors may adopt such procedure as they think appropriate for granting Options to designated Eligible Employees. Immediately prior to the granting of any Options the Directors may, in their absolute discretion, enter into a deed poll recording their intention to grant Options and agreeing to be bound by the option certificates issued pursuant to rule (b) below. If the Directors do not enter into a deed poll, Options shall be granted under the Company's seal or otherwise to take effect as a deed.

(b)

The Eligible Employee shall become entitled to the Option immediately upon grant and the Directors shall as soon as practicable thereafter send the Participant the option certificate. The Directors shall permit the Eligible Employee to renounce the grant of the Option within 30 days of the Date of Grant.

(c)

Notwithstanding paragraph (a) of this Rule, Options may only be granted within the periods of 42 days after the release of the Qualifying Companies' interim and/or final results in any year (or within 42 days following the day on which the Directors resolve that exceptional circumstances exist which justify the grant of Options).

(d)

The form for the time being of any certificate or other document shall be subject to the terms and conditions of the Scheme contained herein and shall be in such form as the Directors may determine.

(e)

No Options may be granted under the Scheme more than 10 years after the date of adoption of the Scheme by the Directors.

(f)

For the avoidance of doubt, the Directors may in their absolute discretion make more than one offer to any individual Eligible Employee to participate in the Scheme in any 42 day period referred to in Rule 3(c) above.

(g)

On the grant of an Option the Directors may impose objective conditions which must, unless otherwise stated in the Scheme, be satisfied prior to the exercise of Options. Such conditions may be amended following the Date of Grant if:

(i)

those circumstances which prevailed at the Date of Grant and which were relevant to the conditions that were originally imposed regarding the exercise of the Option have subsequently changed;

(ii)

the Directors are satisfied that any such amended conditions would be a fairer measure of the performance of the Participant and the Directors reasonably consider that such amended conditions are no more difficult to satisfy than the original conditions; and

(iii)

shall cease to apply in circumstances in which Participants become entitled to exercise Options in accordance with Rules 4(b)(ii) (excluding Retirement), 4(b)(iii), 4(b)(iv), 4(b)(v), 6 and 7 hereof.

TERMS OF OPTIONS

(a)

Non-transferability

No Option granted under the Scheme may be transferred, assigned, charged or otherwise alienated.

(b)

Period of Option and when Exercisable

An Option shall be capable of being exercised, but subject as hereinafter provided, at any time following the earliest of:-

(i)

the date three years from the Date of Grant thereof;

(ii)

the Participant ceasing to be in Employment by reason of his death, injury, disability, Redundancy or Retirement Provided that, in the case of Retirement at normal retirement age, the Participant had been in Employment for not less than two years after the Date of Grant and the Option shall not be exercised until at least three years after the Date of Grant;

(iii)

the Participant ceasing to be in Employment by reason of the Participating Company by which he is employed ceasing to be a member of the Group or by reason of the operating division in which he is employed being disposed of by the Group;

(iv)

the Participant ceasing to be in Employment in circumstances other than those referred to in sub-paragraphs (ii) and (iii) of this paragraph, where the Directors, in their absolute discretion, resolve that such an exercise shall be permitted;

(v)

the Participant, being female, having failed to exercise within the prescribed period the statutory right to resume Employment after an absence due to pregnancy or confinement;

(vi)

the occurrence of the circumstances mentioned in Rule 6 or 7 relating to General Offers and voluntary winding up.

(c)

Lapse of Option

An Option shall lapse to the extent that it has not been exercised by the earliest of:-

(i)

the tenth anniversary of the Date of Grant thereof or, if the Participant dies prior to the said tenth anniversary, the expiry of twelve months from the date of his death;

(ii)

the expiry of twelve months from the date of death of a Participant;

(iii)

the expiry of six months from the date on which the Participant ceases to be in Employment (A) by reason of his injury, disability or Redundancy or (B) by reason of the Participating Company by which he is employed ceasing to be a member of the Group or the operating division in which he is employed being disposed of by the Group or (C) in other circumstances where the Directors exercise their discretion under sub-paragraph (b)(iv) of this Rule Provided that in the event of the death within the said period of six months of a Participant who has ceased to be in Employment in the circumstances referred to in (A), (B) or (C) of this sub-paragraph (iii) the Option shall not lapse, subject as provided in sub-paragraph (vi) or (vii) of this paragraph, until the expiry of twelve months from the date of his death;

(iv)

in the case of a female Participant to whom sub-paragraph (b)(v) of this Rule applies the expiry of six months from the latest date on which she could have exercised the statutory right to resume Employment after an absence due to pregnancy or confinement Provided that in the event of her death within the said period of six months the Option shall not lapse, subject as provided in sub-paragraph (vi) or (vii) of this paragraph until the expiry of twelve months from the date of her death;

(v)

the expiry of two years from the date on which the Participant ceases to be in Employment by reason of Retirement;

(vi)

the expiry of the periods referred to in Rule 6(a) and (c) following a General Offer being made;

(vii)

the expiry of the period during which the Option may be treated as having been exercised pursuant to Rule 7, in the event of a members' voluntary winding up of any Qualifying Company;

(viii)

the date on which the Participant ceases to be in Employment in any circumstances other than those referred to in sub-paragraphs (ii), (iii), (iv) or (v) of this paragraph (c) of this Rule unless (being female) she is entitled to exercise and subsequently does exercise the statutory right to resume Employment after an absence due to pregnancy or confinement.

Provided that the Directors may in their absolute discretion extend the periods of six months specified in sub-paragraphs (iii) and (iv) above and the period of two years specified in sub-paragraph (v) above to such longer period as they may determine, not being a period which expires after the date which is three years and six months after the later of the Date of Grant and the date on which an Option was last exercised in whole or in part by the Participant.

(d)

Restrictions on the Exercise of Options

An Option granted under the Scheme shall not be exercised if any conditions imposed under Rule 3(g) have not been fulfilled or waived in accordance with these Rules.

(e)

Manner of Exercise of Options

Subject as hereinbefore provided an Option shall be exercised by notice in writing given by the Participant to the Company (and, if the Company determines, to the Qualifying Company whose Shares are comprised in the Option and/or to the person holding the Shares to which the Option relates), specifying that the Option is thereby exercised and the number of Shares in respect of which it is exercised and such notice shall be accompanied by the relevant option certificate(s) and payment of the Option Prices of the Shares in respect of which the Option is exercised. Within 30 days after receipt by the Company of such notice, certificate(s) and payment (and subject to the provisions and the requirements of any applicable enactment or regulation) the Company shall procure that the Shares in respect of which the Option has been exercised are transferred to the Participant (or his nominee). Within the same period, a Share Certificate or other appropriate evidence of title shall be issued to the Participant (or his nominee). An Option may be exercised in whole or in part and in the event of an Option being exercised in part only, the relevant option certificate shall be cancelled and a new option certificate setting forth the date on which the Option was last exercised and the number of Shares in respect of which the Option has not been exercised shall be delivered by the Company to the Participant.

(f)

Satisfaction of Options

In no circumstances shall Shares be issued in order to satisfy outstanding Options. All Options shall be satisfied by the transfer of existing Shares.

(g)

Rights on Cessation of Employment

In no circumstances whatsoever shall any person ceasing to hold the office or employment by virtue of which he is or may be eligible to participate in the Scheme or to exercise an Option granted hereunder be entitled to any compensation for any loss of any right or benefit or prospective right or benefit under the Scheme which he might otherwise have enjoyed whether such compensation is claimed by way of damages for wrongful dismissal or other breach of contract or by way of compensation for loss of office or otherwise howsoever.

ISSUE OR REORGANISATION

(a)

In the event of any Issue or Reorganisation affecting a Qualifying Company the number of Shares in the relevant Qualifying Company subject to Options and/or the relevant Option Prices shall be adjusted in such manner as the Auditors upon reference to them by the Directors shall confirm in writing to be in their opinion fair and reasonable. Provided that no adjustment shall be made pursuant to this rule without the prior approval of the person holding the Shares to which the Option relates (such approval not to be unreasonably withheld).

(b)

Options may be adjusted following variations in the share capital of the relevant Qualifying Company other than as a result of an Issue or Reorganisation, but only with the prior approval by ordinary resolution of the members of that Qualifying Company in general meeting. Any such adjustment shall be made in accordance with Rule 5(a) above.

TAKEOVER

(a)

In the event of:-

(i)

a general offer being made to acquire the whole of the issued ordinary share capital of a Qualifying Company (or such part thereof as is not at the time owned by the offeror or any company controlled by the offeror and/or persons acting in concert with the offeror) and after the announcement of the general offer the offeror (and any such companies and/or persons as aforesaid) comes to own beneficially more than fifty per cent. of the issued ordinary share capital of the Qualifying Company, or

(ii)

a Participant will, subject to the provisions of Rule 4(c)(i) and (ii) and (d) and paragraph 6(c) below, be entitled to exercise any Option held by him over Shares in the relevant Qualifying Company at any time during the period of six months following, in the case of an offer within paragraph (i) above, the date of the acquisition therein mentioned or, if the offer was conditional, the later date on which the offer becomes unconditional and, in the case of an offer within paragraph (ii) above, the date on which the offer is made or, if the offer was conditional, the later date on which the offer becomes unconditional.

(b)

Forthwith upon the said offer being posted to shareholders the relevant Qualifying Company, shall use all reasonable endeavours to procure that if a Participant is allotted or transferred Shares pursuant to the exercise of Options in accordance with paragraph (a) above then insofar as such Shares were not the subject of the said general offer the party by whom the general offer was made shall offer to acquire from the Participant all those Shares upon the same terms as Shares of the same class were acquired under the general offer.

(c)

If the offeror becomes entitled under Sections 428 to 430 of the Companies Act 1985 to acquire any Reed Shares (or there occurs in relation to Elsevier an event entitling the offeror to acquire compulsorily Shares held by minority shareholders) the Directors shall notify each Participant thereof forthwith upon becoming aware that the offeror is so entitled and a Participant shall, subject to Rule 4(c)(i) and (ii) and (d), be entitled to exercise all or any of the Options over Shares in that Qualifying Company which he holds at any time during the period of one month following such notification, and upon the expiry of such period all unexercised Options over such Shares will lapse.

(d)

If any company (the "acquiring company")

(i)

obtains Control of a Qualifying Company as a result of making:-

(a)

(b)

a general offer to acquire all the shares in that Qualifying Company which are of the same class as the scheme shares, or

(ii)

(iii)

any Participant may at any time within the appropriate period, by agreement with the acquiring company, release his Option over Shares in that Qualifying Company (hereinafter in this Rule 6(d) called "old rights") in consideration of the grant to him of rights (hereinafter in this Rule 6(d) called new rights") which are equivalent to his Option but relate to shares in a different company (whether the acquiring company itself or some other company falling within paragraph 10(b) or (c) of Schedule 9). In this Rule 6(d) "the appropriate period" and "equivalent" have the same meaning as in paragraph 15 of Schedule 9 and accordingly the new rights shall not be regarded for the purpose of the Scheme as equivalent to the old rights unless:-

(a)

the new rights will be exercisable in the same manner as the old rights and subject to the provisions of the Scheme as it had effect immediately before the release of the old rights; and

(b)

(c)

The new rights shall for the purposes of the Scheme be treated as having been granted at the time when the old rights were granted. The new rights shall not lapse as a result of the operation of Rule 6(a) and/or (c) following the event permitting the grant of such new rights. In relation to any new rights, references in Rules 1 and 4 to 8 of the Scheme to "Qualifying Company", "Reed" and "Elsevier" shall (as appropriate) be construed as if references to the company whose shares are subject to the new rights and references to "Shares", "Reed Shares" and "Elsevier Shares" shall (as appropriate) be construed as if references to the shares subject to the new rights.

VOLUNTARY WINDING UP

If notice is duly given of a resolution for the voluntary winding-up of a Qualifying Company, an Option over shares in that Qualifying Company may be exercised within two months from the date of resolution.

ADMINISTRATION AND AMENDMENT

(a)

The Scheme shall be administered under the direction of the Directors who may at any time and from time to time by resolution and without other formality amend the Rules in any respect. Provided that:-

(i)

no amendment shall operate to prejudice materially any rights already acquired by a Participant under the Scheme;

(ii)

no amendment may be made except by or with the prior approval of an Ordinary Resolution of Reed in General Meeting (and, if either the supervisory board or the management board of Elsevier so require in accordance with clause 4.1 of the Governing Agreement between Reed and Elsevier dated 1 January 1993 (as amended or replaced from time to time), the prior approval of Elsevier in General Meeting):-

(A)

to the basis of calculation of the Option Price;

(B)

to the definitions of "Eligible Employee" "Employment" and "Issue or Reorganisation";

(C)

to extend the periods specified in Rule 3 for invitations and applications for and the grant of Options;

(D)

to, or so as to, nullify or override, any of the provisions of Rules 4, 5, 6, 7 or this paragraph (a) of this Rule.

(iii)

notwithstanding the foregoing provisos any amendment may be made (i) to comply with or take account of the provisions of any proposed or existing legislation or (ii) where the amendment in question has no direct bearing upon Reed (provided that the prior approval of the directors of Elsevier shall be obtained to any amendment having direct bearing upon Elsevier together with, if the board of Reed so require in accordance with clause 4.1 of the Governing Agreement between Reed and Elsevier dated 1 January 1993 (as amended or replaced from time to time), the prior approval of Reed in General Meeting).

(b)

The Directors' decision on any matter concerning the Scheme shall be final and binding.

(c)

The cost of the operation of the Scheme (including but not limited to the costs relating to the issue of Shares upon the exercise of Options) shall be borne by the Company.

(d)

In any matter in which they are required to act hereunder the Auditors shall be deemed to be acting as experts and not as arbitrators and the Arbitration Act 1950 shall not apply hereto.

(e)

All notices under the Scheme shall be in writing and if to the Company, a Qualifying Company, the person holding any Shares to which an Option relates (if a company) or the Participating Company shall be delivered to the relevant person or sent by first class post to its respective registered office for the time being, and if to a Participant, shall be delivered personally or sent by first class post to the Participant at the address which he shall give to his employer for the purpose, or failing any such address to his last known place of abode. If a notice is sent by first class post it shall be deemed to be served on the first weekday (other than a Saturday or Bank Holiday) after such posting.

(f)

The Company and any other member of the Group may provide money to the trustees of any trust or any other person to enable them or him to acquire Shares to be held for the purposes of the Scheme, or enter into any guarantee or indemnity for those purposes, to the extent permitted by section 153 of the Companies Act 1985.

(g)

The grant of an Option shall be conditional on the Participant agreeing to comply with any arrangements specified by the Company for the payment of taxation and any national insurance contributions (including without limitation the right to sell on the Participant’s behalf sufficient Shares to satisfy the Participant’s taxation or national insurance contribution liability) in respect of an Option.

TERMINATION

The Directors may at any time terminate the Scheme and in such event no further invitations to apply for Options will be made pursuant to Rule 3(a) but the subsisting rights of Participants will not thereby be affected.

THE REED ELSEVIER PLC EXECUTIVE OVERSEAS

SHARE OPTION SCHEME (No. 2)

OVERSEAS SCHEME

This Scheme shall incorporate all the provisions of the Reed Elsevier plc Executive UK Share Option Scheme (No. 2) set out above save that the definition of “Scheme” shall refer to the Reed Elsevier plc Executive Overseas Share Option Scheme (No. 2).

PROVISIONS IN RELATION TO PARTICIPANTS IN THE UNITED STATES OF AMERICA

Notwithstanding the foregoing, the provisions of this Scheme shall apply to a Participant who is employed or remunerated in the United States of America with the modifications set forth below:

(1)

“Eligible Employee” shall mean any person holding Employment in the United States who does not, directly or by attribution pursuant to Section 424(d) of the Internal Revenue Code of 1986, as amended (the “Code”), own shares possessing more than 10 per cent of the total combined voting power of stock of Reed or Elsevier or of any corporation which is considered a parent or a subsidiary of Reed or Elsevier within the meaning of subsections (e), (f) and (g) of Section 424 of the Code.

(2)

Options granted under the Scheme to an Eligible Employee are intended to be either incentive stock options or non-qualified stock options, as designated by the Company in each option certificate evidencing the grant of an Option hereunder. The term, “incentive stock options” means Options to purchase Shares which at the time such Options are granted under the Scheme qualify as incentive stock options within the meaning of Section 422A of the Code. The term, “non-qualified stock options”, means Options to purchase Shares which at the time such Options are granted under this Scheme do not qualify as incentive stock options.

MAIN HEADING

EXHIBIT 8

SIGNIFICANT SUBSIDIARIES, ASSOCIATES, JOINT VENTURES AND BUSINESS UNITS

Reed Elsevier PLC and Reed Elsevier NV conduct their business through two jointly owned companies, Reed Elsevier Group plc and Elsevier Reed Finance BV. Refer Item 4: Information on Reed Elsevier for background.

The following table shows the significant subsidiaries, associates, joint ventures and business units of Reed Elsevier Group plc and of Elsevier Reed Finance BV by reference to business segment and geographical location. All businesses are 100% owned unless otherwise stated.

Business

Geographical location

Reed Elsevier Group plc

United Kingdom

Holding Companies

Reed Elsevier (UK) Limited ⁽¹⁾

United Kingdom

Reed Elsevier Holdings B.V.

The Netherlands

Reed Elsevier Nederland B.V.

The Netherlands

Reed Elsevier Overseas B.V.

The Netherlands

Reed Elsevier US Holdings Inc

United States

Reed Elsevier Inc. ⁽¹⁾

United States

Reed Elsevier Capital Inc.

United States

Harcourt, Inc ⁽¹⁾

United States

HGI Investment Trust

United States

Reed Elsevier Properties Inc.

United States

Science & Medical

Elsevier Limited

United Kingdom

Elsevier B.V.

The Netherlands

Excerpta Medica Medical Communications B.V.

The Netherlands

Elsevier Inc.

United States

Excerpta Medica, Inc

United States

Academic Press ⁽²⁾

United States

Elsevier Health Sciences ⁽²⁾

United States

Mosby, Inc.

United States

MDL Information Systems, Inc.

United States

Endeavor Information Systems, Inc.

United States

Elsevier Ireland Limited

Republic of Ireland

MDL Information Systems GmbH

Germany

Legal

LexisNexis UK ⁽³⁾

United Kingdom

Eclipse Group Limited

United Kingdom

LexisNexis ⁽⁴⁾

United States

Matthew Bender and Company, Inc.

United States

Martindale-Hubbell ⁽⁴⁾

United States

RiskWise International L.L.C.

United States

Editions du Juris-Classeur SA

France

Dott. A. Giuffrè Editore Spa (40%)

Italy

Butterworths Australia ⁽⁵⁾

Australia

Education

Harcourt Education Limited

United Kingdom

Harcourt School Publishers ⁽⁶⁾

United States

Holt, Rinehart and Winston ⁽⁶⁾

United States

Harcourt Achieve Inc.

United States

Harcourt Assessment Inc.

United States

#

Business

Geographical location

Business

Reed Business Information Limited

United Kingdom

Reed Exhibitions Limited

United Kingdom

Reed Business Information B.V.

The Netherlands

Reed Business Information US ⁽⁴⁾

United States

Reed Construction Data Inc.

United States

Reed Exhibitions ⁽⁴⁾

United States

Reed Expositions France SA

France

Reed Midem Organisation SA

France

Groupe Strategies SA

France

Fiera Milano International Spa (47%)

Italy

Reed Exhibitions Japan Limited

Japan

Elsevier Reed Finance B.V.

The Netherlands

Elsevier Swiss Holdings SA

Switzerland

Elsevier Finance SA

Switzerland

Elsevier Properties SA

Switzerland

Elsevier Risks SA

Switzerland

#

(1)

Holding company, but also trades through one or more operating divisions

(2)

Division of Elsevier Inc.

(3)

Division of Reed Elsevier (UK) Limited

(4)

Division of Reed Elsevier Inc.

(5)

Division of Reed International Books Australia Pty Ltd

(6)

Division of Harcourt, Inc.

EXHIBIT 12.1

SECTION 302 CERTIFICATION

I, CHL Davis, certify that:

1. I have reviewed this annual report on Form 20-F of Reed Elsevier PLC;

2. Based on my knowledge, this 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 report;

3. Based on my knowledge, the financial statements, and other financial information included in this 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 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-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by 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 and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ CHL DAVIS

CHL Davis

Chief Executive Officer

Reed Elsevier PLC

Dated: March 15, 2004

EXHIBIT 12.2

SECTION 302 CERTIFICATION

I, MH Armour, certify that:

1. I have reviewed this annual report on Form 20-F of Reed Elsevier PLC;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ MH ARMOUR

MH Armour

Chief Financial Officer

Reed Elsevier PLC

Dated: March 15, 2004

EXHIBIT 12.3

SECTION 302 CERTIFICATION

I, CHL Davis, certify that:

1. I have reviewed this annual report on Form 20-F of Reed Elsevier NV;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ CHL DAVIS

CHL Davis

Member, Executive Board & Chief Executive Officer

Reed Elsevier NV

Dated: March 15, 2004

EXHIBIT 12.4

SECTION 302 CERTIFICATION

I, MH Armour, certify that:

1. I have reviewed this annual report on Form 20-F of Reed Elsevier NV;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ MH ARMOUR

MH Armour

Member, Executive Board & Chief Financial Officer

Reed Elsevier NV

Dated: March 15, 2004

EXHIBIT 13.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Reed Elsevier PLC (the “Company”) on Form 20-F for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, CHL Davis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ CHL DAVIS

CHL Davis

Chief Executive Officer

Reed Elsevier PLC

Dated: March 15, 2004

EXHIBIT 13.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Reed Elsevier PLC (the “Company”) on Form 20-F for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, MH Armour, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ MH ARMOUR

MH Armour

Chief Financial Officer

Reed Elsevier PLC

Dated: March 15, 2004

EXHIBIT 13.3

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Reed Elsevier NV (the “Company”) on Form 20-F for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, CHL Davis, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ CHL DAVIS

CHL Davis

Member, Executive Board & Chief Executive Officer

Reed Elsevier NV

Dated: March 15, 2004

EXHIBIT 13.4

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Reed Elsevier NV (the “Company”) on Form 20-F for the fiscal year ended December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, MH Armour, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ MH ARMOUR

MH Armour

Member, Executive Board & Chief Financial Officer

Reed Elsevier NV

Dated: March 15, 2004

EXHIBIT 14.1

INDEPENDENT AUDITORS’ CONSENT – REED ELSEVIER COMBINED FINANCIAL STATEMENTS

We consent to the incorporation by reference in Registration Statement Nos. 333-08542 and 333-12666 of Reed International P.L.C. and Elsevier NV on Form S-8 and in the Post-Effective Amendment No. 1 to Registration Statement No. 333-6710-02 and the Registration Statement No. 333-13188-01 of Reed International P.L.C. and Elsevier NV on Form F-3 of our report dated February 18, 2004, relating to the combined financial statements of Reed Elsevier, appearing in the Annual Report on Form 20-F of Reed Elsevier PLC and Reed Elsevier NV for the year ended December 31, 2003.

Deloitte & Touche LLP

Deloitte Accountants

Chartered Accountants

Amsterdam, The Netherlands

London, England

March 15, 2004

EXHIBIT 14.2

INDEPENDENT AUDITORS’ CONSENT-REED ELSEVIER PLC CONSOLIDATED FINANCIAL STATEMENTS

We consent to the incorporation by reference in Registration Statement Nos. 333-08542 and 333-12666 of Reed International P.L.C. and Elsevier NV on Form S-8 and in the Post-Effective Amendment No. 1 to Registration Statement No. 333-6710-02 and the Registration Statement No. 333-13188-01 of Reed International P.L.C. and Elsevier NV on Form F-3 of our report dated February 18, 2004, relating to the consolidated financial statements of Reed Elsevier PLC, appearing in the Annual Report on Form 20-F of Reed Elsevier PLC and Reed Elsevier NV for the year ended December 31, 2003.

Deloitte & Touche LLP

Chartered Accountants

London, England

March 15, 2004

EXHIBIT 14.3

INDEPENDENT AUDITORS’ CONSENT-REED ELSEVIER NV GROUP FINANCIAL STATEMENTS

We consent to the incorporation by reference in Registration Statement Nos. 333-08542 and 333-12666 of Reed International P.L.C. and Elsevier NV on Form S-8 and in the Post-Effective Amendment No. 1 to Registration Statement No. 333-6710-02 and the Registration Statement No. 333-13188-01 of Reed International P.L.C. and Elsevier NV on Form F-3 of our report dated February 18, 2004, relating to the group financial statements of Reed Elsevier NV, appearing in the Annual Report on Form 20-F of Reed Elsevier PLC and Reed Elsevier NV for the year ended December 31, 2003.

Deloitte Accountants

Amsterdam, The Netherlands

March 15, 2004

Business	Geographical location
*Reed Elsevier Group plc*	United Kingdom
Holding Companies
Reed Elsevier (UK) Limited ⁽¹⁾	United Kingdom
Reed Elsevier Holdings B.V.	The Netherlands
Reed Elsevier Nederland B.V.	The Netherlands
Reed Elsevier Overseas B.V.	The Netherlands
Reed Elsevier US Holdings Inc	United States
Reed Elsevier Inc. ⁽¹⁾	United States
Reed Elsevier Capital Inc.	United States
Harcourt, Inc ⁽¹⁾	United States
HGI Investment Trust	United States
Reed Elsevier Properties Inc.	United States
Science & Medical
Elsevier Limited	United Kingdom
Elsevier B.V.	The Netherlands
Excerpta Medica Medical Communications B.V.	The Netherlands
Elsevier Inc.	United States
Excerpta Medica, Inc	United States
Academic Press ⁽²⁾	United States
Elsevier Health Sciences ⁽²⁾	United States
Mosby, Inc.	United States
MDL Information Systems, Inc.	United States
Endeavor Information Systems, Inc.	United States
Elsevier Ireland Limited	Republic of Ireland
MDL Information Systems GmbH	Germany
Legal
LexisNexis UK ⁽³⁾	United Kingdom
Eclipse Group Limited	United Kingdom
LexisNexis ⁽⁴⁾	United States
Matthew Bender and Company, Inc.	United States
Martindale-Hubbell ⁽⁴⁾	United States
RiskWise International L.L.C.	United States
Editions du Juris-Classeur SA	France
Dott. A. Giuffrè Editore Spa (40%)	Italy
Butterworths Australia ⁽⁵⁾	Australia
Education
Harcourt Education Limited	United Kingdom
Harcourt School Publishers ⁽⁶⁾	United States
Holt, Rinehart and Winston ⁽⁶⁾	United States
Harcourt Achieve Inc.	United States
Harcourt Assessment Inc.	United States

Business	Geographical location
Business
Reed Business Information Limited	United Kingdom
Reed Exhibitions Limited	United Kingdom
Reed Business Information B.V.	The Netherlands
Reed Business Information US ⁽⁴⁾	United States
Reed Construction Data Inc.	United States
Reed Exhibitions ⁽⁴⁾	United States
Reed Expositions France SA	France
Reed Midem Organisation SA	France
Groupe Strategies SA	France
Fiera Milano International Spa (47%)	Italy
Reed Exhibitions Japan Limited	Japan
*Elsevier Reed Finance B.V.*	The Netherlands
Elsevier Swiss Holdings SA	Switzerland
Elsevier Finance SA	Switzerland
Elsevier Properties SA	Switzerland
Elsevier Risks SA	Switzerland