20-F 1 u10507e20vf.htm FORM 20-F e20vf
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As filed with the Securities and Exchange Commission on March 9, 2011
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 20-F
 
     
(Mark One)
   
o
  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) or 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
Or  
þ
  ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
Or  
o
  TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from          to  
Or  
o
  SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file number: 1-3334
 
     
REED ELSEVIER PLC
  REED ELSEVIER NV
(Exact name of Registrant as specified in its charter)
  (Exact name of Registrant as specified in its charter)
England
  The Netherlands
(Jurisdiction of incorporation or organisation)
  (Jurisdiction of incorporation or organisation)
1-3 Strand, London, WC2N 5JR, England
  Radarweg 29, 1043 NX, Amsterdam, The Netherlands
(Address of principal executive offices)
  (Address of principal executive offices)
Stephen Cowden
  Jans van der Woude
Company Secretary
  Company Secretary
Reed Elsevier PLC
  Reed Elsevier NV
1-3 Strand, London, WC2N 5JR, England
  Radarweg 29, 1043 NX, Amsterdam, The Netherlands
011 44 20 7930 7077
  011 31 20 485 2222
steve.cowden@reedelsevier.com
  j.vanderwoude@reedelsevier.com
(Name, telephone, e-mail and/or facsimile number and address of
  (Name, telephone, e-mail and/or facsimile number and address of
Company Contact Person)
  Company Contact Person)
 
Securities registered or to be registered pursuant to Section 12(b) of the Act:
     
    Name of exchange on which
Title of each class
  registered
 
Reed Elsevier PLC:
   
American Depositary Shares
(each representing four Reed Elsevier PLC ordinary shares)
  New York Stock Exchange
Ordinary shares of 14 51/116p 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 €0.07 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, 2010:
 
Reed Elsevier PLC: Number of outstanding shares
     
Ordinary shares of 14 51/116p each
  1,249,286,224
Reed Elsevier NV:
   
Ordinary shares of €0.07 each
  723,877,017
R shares of €0.70 each (held by a subsidiary of Reed Elsevier PLC)
  4,303,179
 
 
Indicate by check mark if the registrants are well-known seasoned issuers, as defined in Rule 405 of the Securities Act.
 
Yes          þ            No          o
 
If this report is an annual or transition report, indicate by check mark if the registrants are not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
Yes          o            No          þ
 
Indicate by check mark whether the registrants (1) have filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) have been subject to such filing requirements for the past 90 days:
 
Yes          þ            No          o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
Yes          o            No          o
 
Indicate by check mark whether the registrants are large accelerated filers, accelerated filers, or non-accelerated filers. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer þ Accelerated filer o Non-accelerated filer o
 
Indicate by check mark which basis of accounting the registrants have used to prepare the financial statements included in this filing.
 
     o  US GAAP       þ  International Financial Reporting Standards as issued by the International Accounting Standards Board       o  Other
 
If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrants have elected to follow:
 
Item 17      o            Item 18      o
 
If this is an annual report, indicate by check mark whether the registrants are shell companies (as defined in Rule 12b-2 of the Exchange Act):
 
Yes          o            No          þ
 


Table of Contents

 
TABLE OF CONTENTS
 
         
        Page
 
  1
  2
   
ITEM 1:
  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS   N/A
ITEM 2:
  OFFER STATISTICS AND EXPECTED TIMETABLE   N/A
  KEY INFORMATION   3
      Selected financial data   3
      Risk factors   7
  INFORMATION ON REED ELSEVIER   11
      History and development   11
      Business overview   13
      Government Regulation   23
      Organisational structure   23
      Property, plants and equipment   23
ITEM 4A:
  UNRESOLVED STAFF COMMENTS   N/A
  OPERATING AND FINANCIAL REVIEW AND PROSPECTS   24
      Operating results — Reed Elsevier   24
      Liquidity and capital resources — Reed Elsevier   32
      Contractual Obligations   33
      Off-Balance Sheet Arrangements   33
      Short term borrowings   35
      Operating results — Reed Elsevier PLC and Reed Elsevier NV   35
      Trend information   37
  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES   38
      Directors   38
      Senior management   40
      Compensation   40
      Board practices   54
      Employees   56
      Share ownership   57
  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS   64
      Major shareholders   64
      Related party transactions   64
  FINANCIAL INFORMATION   65
  THE OFFER AND LISTING   66
      Trading markets   66
  ADDITIONAL INFORMATION   68
      Memorandum and articles of association   68
      Material contracts   73
      Exchange controls   73
      Taxation   73
      Documents on display   75
  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   76
  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES   78


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        Page
 
   
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
  CONTROLS AND PROCEDURES   79
  AUDIT COMMITTEE FINANCIAL EXPERT   82
  CODES OF ETHICS   82
  PRINCIPAL ACCOUNTANT FEES AND SERVICES   82
  EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES   82
  PURCHASES OF EQUITY SECURITIES BY THE ISSUERS AND AFFILIATED PURCHASERS   83
  CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT   83
  CORPORATE GOVERNANCE   83
   
  FINANCIAL STATEMENTS*   84
  FINANCIAL STATEMENTS   F-1
  EXHIBITS   S-1
 EX-8
 EX-12.1
 EX-12.2
 EX-12.3
 EX-12.4
 EX-13.1
 EX-13.2
 EX-13.3
 EX-13.4
 EX-15.1
 EX-15.2
 EX-15.3
 EX-15.4
 EX-15.5
 EX-15.6
 
*  The registrants have responded to Item 18 in lieu of responding to this Item.


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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.


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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;
 
  •   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;
 
  •   competitive factors in the industries in which we operate;
 
  •   demand for our products and services;
 
  •   exchange rate fluctuations;
 
  •   legislative, fiscal and regulatory developments and political risks;
 
  •   changes in law and legal interpretation affecting our intellectual property rights and internet communications;
 
  •   the availability of third party content and data;
 
  •   requirements or actions of anti-trust authorities;
 
  •   breaches of our data security systems or other unauthorised access to our databases;
 
  •   our ability to maintain high quality management;
 
  •   the impact of technological change, including the impact of electronic or other distribution formats, on our businesses;
 
  •   uncertainties as to whether our strategies, business plans and acquisitions will produce the expected returns;
 
  •   significant failures or interruptions of our electronic delivery platforms;
 
  •   failure of third parties to whom we have outsourced business activities;
 
  •   changes in the market values of defined benefit pension scheme assets and in the market related assumptions used to value scheme liabilities;
 
  •   downgrades to the credit ratings of our long term debt;
 
  •   disruption to our business or markets arising from natural disasters, international security or public health concerns and acts of terrorism or war; and
 
  •   other risks referenced from time to time in the filings of Reed Elsevier PLC and Reed Elsevier NV with the Securities and Exchange Commission (the “SEC”).
 
The terms “estimate”, “project”, “plan”, “intend”, “expect”, ““should be”, “will be”, “believe” 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 S-1 of this annual report).
 
You should not place undue reliance on these forward looking statements, which speak only as of the date of this annual report. We undertake no obligation to publicly update or release any revisions to these forward looking statements to reflect events or circumstances after the date of this annual report or to reflect the occurrence of unanticipated events.


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PART I
 
ITEM 3: KEY INFORMATION
 
SELECTED FINANCIAL DATA
 
REED ELSEVIER
 
The selected combined financial data for Reed Elsevier should be read in conjunction with, and is qualified by, the combined financial statements included in this annual report. In addition, as separate legal entities, Reed Elsevier PLC and Reed Elsevier NV prepare separate consolidated financial statements which reflect their respective shareholders’ economic interests in Reed Elsevier accounted for on an equity basis.
 
All of the selected financial data for Reed Elsevier set out below has been extracted or derived from the audited combined financial statements.
 
Combined Income Statement Data(1)
 
                                                 
    For the year ended December 31,
    2010(2)   2010   2009   2008   2007   2006
            (in millions)        
 
Amounts in accordance with IFRS:
                                               
Revenue — continuing operations
  $ 9,446       £6,055       £6,071       £5,334       £4,584       £4,509  
Operating profit — continuing operations(3)
    1,700       1,090       787       901       888       837  
Net finance costs
    (431 )     (276 )     (291 )     (192 )     (139 )     (158 )
Disposals and other non operating items(4)
    (72 )     (46 )     (61 )     (92 )     63       (1 )
Profit before tax — continuing operations
    1,197       768       435       617       812       678  
Taxation(5)
    (186 )     (120 )     (40 )     (155 )     82       (86 )
Net profit from continuing operations
    1,011       648       395       462       894       592  
Net profit from discontinued operations(6)
                      18       309       33  
Non-controlling interests
    (9 )     (6 )     (4 )     (4 )     (3 )     (2 )
Profit attributable to parent companies’ shareholders
    1,002       642       391       476       1,200       623  
 
Combined Statement of Financial Position Data(1)
 
                                                 
    As at December 31,
    2010(2)   2010   2009   2008   2007   2006
    (in millions)
 
Amounts in accordance with IFRS:
                                               
Total assets
  $ 17,406     £ 11,158       £11,334       £12,866       £9,778       £8,532  
Long term borrowings
    (5,906 )     (3,786 )     (4,028 )     (5,694 )     (2,002 )     (2,085 )
Net assets
    3,073       1,970       1,759       981       2,976       1,979  
Non-controlling interests
    (42 )     (27 )     (27 )     (28 )     (11 )     (13 )
Combined shareholders’ equity
    3,031       1,943       1,732       953       2,965       1,966  
 
 
(1) The combined financial statements are prepared in accordance with accounting policies that are in conformity with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) and as adopted by the European Union (“EU”). The figures for 2007 and 2006 have been extracted or derived from the combined financial statements for the years ended December 31, 2007 and 2006, not included herein.
 
(2) Noon buying rates as at December 31, 2010 have been used to provide a convenience translation into US dollars, see “— Exchange Rates” on page 6. At December 31, 2010 the noon buying rate was $1.56 per £1.00. This compares to the average exchange rate for the year ended December 31, 2010 of $1.55 to £1.00 applied in the translation of the combined income statement for the year.
 
(3) Operating profit — continuing operations, is stated after charging £349 million in respect of amortisation of acquired intangible assets (2009: £368 million; 2008: £281 million; 2007: £221 million; 2006: £211 million); nil in respect of impairment of acquired intangible assets and goodwill (2009: £177 million; 2008: £9 million; 2007: nil; 2006: nil); £57 million in respect of exceptional restructuring costs (2009: £182 million; 2008: £152 million; 2007: nil; 2006: nil); £50 million in respect of acquisition related costs (2009: £48 million; 2008: £27 million; 2007: £20 million; 2006: £23 million); and £9 million in respect of taxation in joint ventures (2009: £8 million; 2008: £9 million; 2007: £8 million; 2006: £10 million). Impairment charges in 2009 relate principally to Reed Business Information’s US and International businesses. Exceptional restructuring costs in 2010 relate only to the restructuring of the Reed Business Information business and in 2009 and 2008 relate to the exceptional restructuring programmes across Reed Elsevier.
 
(4) Disposals and other non operating items comprise a £54 million loss on disposal and closures of businesses and other assets (2009: £69 million loss; 2008: £86 million loss; 2007: £65 million gain; 2006: £2 million loss) and a £8 million gain relating to the revaluation of held for trading investments (2009: £8 million gain; 2008: £6 million loss; 2007: £2 million loss; 2006: £1 million gain).


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(5) Taxation in 2010 includes credits of £7 million (2009: £34 million) in respect of prior year disposals. Taxation in continuing operations in 2007 includes credits of £223 million in respect of previously unrecognised deferred tax assets and capital losses that were realised as a result of the disposal of discontinued operations. Taxation in continuing operations in 2006 includes credits of £65 million in respect of prior period disposals.
 
(6) Net profit from discontinued operations in 2008 includes the gain of £67 million on disposal of the educational assessment business and in 2007 the gain of £611 million on disposal of the US K-12 Schools and International educational businesses. Taxes on the completed disposals in 2008 were £49 million and in 2007 £380 million.
 
REED ELSEVIER PLC
 
The selected financial data for Reed Elsevier PLC should be read in conjunction with, and is qualified by, the consolidated financial statements of Reed Elsevier PLC included in this annual report. The results and financial position of Reed Elsevier PLC reflect the 52.9% economic interest of Reed Elsevier PLC’s shareholders in Reed Elsevier, after taking account of results arising in Reed Elsevier PLC and its subsidiaries. These interests have been accounted for on an equity basis.
 
All of the selected consolidated financial data for Reed Elsevier PLC set out below has been extracted or derived from the audited financial statements of Reed Elsevier PLC.
 
                                                 
    For the year ended December 31,
    2010(3)   2010   2009   2008   2007   2006
    (in millions, except per share amounts)
 
Amounts in accordance with IFRS:(1)
                                               
Profit before tax(2)
  $ 512       £328       £201       £247       £643       £328  
Taxation
    (2 )     (1)       (6)       (6)       (19)       (8)  
Profit attributable to ordinary shareholders
    510       327       195       241       624       320  
Earnings per Reed Elsevier PLC ordinary share from total operations of the combined businesses
    42.6 ¢     27.3 p     17.2 p     22.1 p     49.7 p     25.6 p
Earnings per Reed Elsevier PLC ordinary share from continuing operations of the combined businesses
    42.6 ¢     27.3 p     17.2 p     21.2 p     36.6 p     24.1 p
Dividends per Reed Elsevier PLC ordinary share(4)
    31.8 ¢     20.4 p     20.4 p     100.9 p     16.3 p     14.8 p
Total assets
  $ 1,618       £1,037       £927       £515       £1,584       £1,090  
Total equity/Net assets
    1,604       1,028       916       504       1,568       1,040  
Weighted average number of shares(5)
    1,199.1       1,199.1       1,131.4       1,089.5       1,256.5       1,251.9  
 
 
(1) The consolidated financial statements of Reed Elsevier PLC are prepared in accordance with accounting policies that are in conformity with IFRS as issued by the IASB and as adopted by the EU. The figures for 2007 and 2006 have been extracted or derived from the consolidated financial statements for the years ended December 31, 2007 and 2006, not included herein.
 
(2) Profit before tax includes Reed Elsevier PLC’s share of the post-tax earnings of joint ventures, being both the continuing and discontinued operations of the Reed Elsevier combined businesses. Profit before tax in 2008 includes Reed Elsevier PLC’s £10 million share of joint ventures’ post-tax gain on disposal of the educational assessment business and in 2007 the £122 million share of joint ventures’ post-tax net gain on disposal of the US K-12 Schools and International educational businesses.
 
(3) Noon buying rates as at December 31, 2010 have been used to provide a convenience translation into US dollars, see “— Exchange Rates” on page 6. At December 31, 2010 the noon buying rate was $1.56 per £1.00. This compares to the average exchange rate for the year ended December 31, 2010 of $1.55 to £1.00 applied in the translation of the combined income statement for the year.
 
(4) The amount of dividends per Reed Elsevier PLC ordinary share shown excludes the UK tax credit available to certain Reed Elsevier PLC shareholders, including beneficial owners of Reed Elsevier PLC ADSs who are residents of the United States for the purposes of the UK Tax Treaty, and do not include any deduction on account of UK withholding taxes, currently at the rate of 15% of the sum of the dividend and the related tax credit in most cases; see “Item 10: Additional Information — Taxation”.
 
Dividends declared in the year, in amounts per ordinary share, comprise a 2009 final dividend of 15.0p and 2010 interim dividend of 5.4p giving a total of 20.4p. The directors of Reed Elsevier PLC have proposed a 2010 final dividend of 15.0p (2009: 15.0p; 2008: 15.0p; 2007: 13.6p; 2006: 11.8p), giving a total ordinary dividend in respect of the financial year of 20.4p (2009: 20.4p; 2008: 20.3p; 2007: 18.1p; 2006: 15.9p). Dividends in 2008 included a special distribution of 82.0p per ordinary paid from the net proceeds of the sale of the Education division.
 
Dividends per Reed Elsevier PLC ordinary share in respect of the financial year ended December 31, 2010 translated into cents at the noon buying rate on December 31, 2010 were 31.8 cents. See “— Exchange Rates” on page 6.
 
(5) Weighted average number of shares excludes shares held in treasury and shares held by the Reed Elsevier Group plc Employee Benefit Trust. On January 7, 2008 the existing ordinary shares were consolidated into new ordinary shares on the basis of 58 new ordinary shares for every 67 existing ordinary shares. For the purposes of calculating earnings per share, the effective date of the share consolidation is deemed to be January 18, 2008, being the date on which the accompanying special distribution was paid. On July 30, 2009 Reed Elsevier PLC announced a share placing for 109,198,190 new ordinary shares, representing approximately 9.9% of the company’s share capital prior to the placing. The shares were fully subscribed at a price of 405p per share, raising £435 million, net of issue costs. This share placing was announced in conjunction with a similar share placing by Reed Elsevier NV.


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REED ELSEVIER NV
 
The selected financial data for Reed Elsevier NV should be read in conjunction with, and is qualified by, the consolidated financial statements of Reed Elsevier NV included in this annual report. The results and financial position of Reed Elsevier NV reflect the 50% economic interest of Reed Elsevier NV’s shareholders in Reed Elsevier. These interests are accounted for on an equity basis.
 
All of the selected financial data for Reed Elsevier NV set out below has been extracted or derived from the audited consolidated financial statements of Reed Elsevier NV.
 
                                                 
    For the year ended December 31,
    2010(3)   2010   2009   2008   2007   2006
    (in millions, except per share amounts)
 
Amounts in accordance with IFRS:(1)
                                               
Profit before tax(2)
  $ 508       €379       € 217       € 313       € 873       € 459  
Taxation
    (4 )     (3 )     2       (19 )     (18 )     (1 )
Profit attributable to ordinary shareholders
    504       376       219       294       855       458  
Earnings per Reed Elsevier NV ordinary share from total operations of the combined businesses
    68.3¢       €0.51       € 0.32       € 0.44       € 1.10       € 0.59  
Earnings per Reed Elsevier NV ordinary share from continuing operations of the combined businesses
    68.3¢       €0.51       € 0.32       € 0.43       € 0.84       € 0.56  
Dividends per Reed Elsevier NV ordinary share(4)
    53.9¢       €0.402       €0.397       €2.192       €0.418       €0.369  
Total assets
  $ 1,612       €1,203       €1,036       €567       €2,089       €1,537  
Total equity/Net assets
    1,524       1,137       970       491       2,016       1,465  
Weighted average number of shares(5)
    734.5       734.5       693.9       669.0       774.9       772.1  
 
 
(1) The consolidated financial statements of Reed Elsevier NV are prepared in accordance with accounting policies that are in conformity with IFRS as issued by the IASB and as adopted by the EU. The figures for 2007 and 2006 have been extracted or derived from the consolidated financial statements for the years ended December 31, 2007 and 2006, not included herein.
 
(2) Profit before tax includes Reed Elsevier NV’s share of post-tax earnings of joint ventures, being both the continuing and discontinued operations of the Reed Elsevier combined businesses. Profit before tax in 2008 includes Reed Elsevier NV’s €5 million share of joint ventures’ post-tax gain on disposal of the educational assessment business and in 2007 the €147 million share of joint ventures’ post-tax gains on disposal of the US K-12 Schools and International educational businesses.
 
(3) Noon buying rates as at December 31, 2010 have been used to provide a convenience translation into US dollars, see “— Exchange Rates” on page 6. At December 31, 2010 the Noon Buying Rate was $1.34 per €1.00. This compares to the average exchange rate for the year ended December 31, 2010 of $1.33 to €1.00 applied in the translation of the combined income statement for the year.
 
(4) Dividends declared in the year, in amounts per ordinary share, comprise a 2009 final dividend of €0.293 and 2010 interim dividend of €0.109 giving a total of €0.402. The directors of Reed Elsevier NV have proposed a 2010 final dividend of €0.303 (2009: €0.293; 2008: €0.290; 2007: €0.311; 2006: €0.304), giving a total ordinary dividend in respect of the financial year of €0.412 (2009: €0.400; 2008: €0.404; 2007: €0.425; 2006: €0.406). Dividends in 2008 included a special distribution of €1.767 per ordinary share paid from the net proceeds of the sale of the Education division.
 
Dividends per Reed Elsevier NV ordinary share in respect of the financial year ended December 31, 2010 translated into cents at the noon buying rate on December 31, 2010 were 55.2 cents. See “— Exchange Rates” on page 6.
 
(5) Weighted average number of shares excludes shares held in treasury and shares held by the Reed Elsevier Group plc Employee Benefit Trust and takes into account the R shares in the company held by a subsidiary of Reed Elsevier PLC, which represents a 5.8% interest in Reed Elsevier NV. On January 7, 2008 the existing ordinary shares were consolidated into new ordinary shares on the basis of 58 new ordinary shares for every 67 existing ordinary shares. For the purposes of calculating earnings per share, the effective date of the share consolidation is deemed to be January 18, 2008, being the date on which the accompanying special distribution was paid. On July 30, 2009 Reed Elsevier NV announced a share placing for 63,030,989 ordinary shares, representing approximately 9.9% of the company’s share capital prior to the placing. The shares were fully subscribed at a price of €7.08 per share, raising €441 million, net of issue costs. Correspondingly Reed Elsevier NV also issued 252,459 new R shares and transferred 135,179 existing R shares held in treasury to a subsidiary of Reed Elsevier PLC at a price of €73.00 per share for total proceeds of €29 million. The share placing was announced in conjunction with a similar share placing by Reed Elsevier PLC.


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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 16, 2011 was £1.00 = $1.61 and €1.00 = $1.36.
 
US dollars per £1.00 — Noon Buying Rates
 
                                 
    Period
Year ended December 31,
  End   Average(1)   High   Low
 
2010
    1.56       1.55       1.64       1.43  
2009
    1.62       1.57       1.70       1.37  
2008
    1.45       1.85       2.03       1.44  
2007
    2.00       2.00       2.11       1.92  
2006
    1.96       1.85       1.98       1.73  
 
                 
Month
  High   Low
 
February 2011 (through February 16, 2011)
    1.62       1.60  
January 2011
    1.60       1.54  
December 2010
    1.59       1.54  
November 2010
    1.63       1.56  
October 2010
    1.60       1.57  
September 2010
    1.59       1.53  
August 2010
    1.60       1.54  
 
US dollars per €1.00 — Noon Buying Rates
 
                                 
    Period
Year ended December 31,
  End   Average(1)   High   Low
 
2010
    1.34       1.33       1.45       1.20  
2009
    1.44       1.40       1.51       1.25  
2008
    1.41       1.47       1.60       1.24  
2007
    1.47       1.37       1.49       1.29  
2006
    1.32       1.26       1.33       1.18  
 
                 
Month
  High   Low
 
February 2011 (through February 16, 2011)
    1.38       1.35  
January 2011
    1.37       1.29  
December 2010
    1.34       1.31  
November 2010
    1.42       1.30  
October 2010
    1.41       1.37  
September 2010
    1.36       1.27  
August 2010
    1.33       1.27  
 
 
(1) The average of the Noon Buying Rates on the last day of each month during the relevant period.
 
Noon Buying Rates have not been used in the preparation of the Reed Elsevier combined financial statements, the Reed Elsevier PLC consolidated financial statements or the Reed Elsevier NV consolidated financial statements but have been used for certain convenience translations where indicated.


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RISK FACTORS
 
The key material risks to our business are included below. Additional risks not presently known to us or that we currently deem immaterial may also impair our business.
 
We operate in a highly competitive environment that is subject to rapid change.
 
Our businesses operate in highly competitive markets. These markets continue to change in response to technological innovations, changing legislation, regulatory changes, the entrance of competitors into certain product areas, and other factors. We cannot predict with certainty the changes that may occur and the effect of those changes on the competitiveness of our businesses. In particular, the means of delivering our products and services, and the products and services themselves, may be subject to rapid technological and other changes. We cannot predict whether technological innovations, changing legislation or other factors will, in the future, make some of our products wholly or partially obsolete or less profitable.
 
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 value placed on them. We cannot predict whether there will be changes in the future, either in the market demand or from the actions of competitors, which will affect the acceptability of products, services and prices to our customers.
 
Fluctuations in exchange rates may affect our reported results.
 
Our financial statements are expressed in pounds sterling and euros and are, therefore, subject to movements in exchange rates on the translation of the financial information of businesses whose operational currencies are other than our reporting currencies. The United States is our most important market and, accordingly, significant fluctuations in US dollar/sterling and US dollar/euro exchange rates can significantly affect our reported results and financial position from year to year. In addition, in some of our businesses we incur costs in currencies other than those in which revenues are earned. The relative movements between the exchange rates in the currencies in which costs are incurred and the currencies in which revenues are earned can significantly affect the results of those businesses.
 
Current and future economic, political and market forces, and dislocations beyond our control may adversely affect demand for our products and services.
 
The demand for our products and services may be impacted by factors that are beyond our control, including macroeconomic, political and market conditions, the availability of short-term and long-term funding and capital and the level of volatility of interest rates, currency exchange rates and inflation. The United States and other major economies have recently undergone a period of severe economic turbulence, and the future global economic environment may be less favourable than in prior years. Any one or more of these factors may contribute to reduced activity by our customers, may result in a reduction of demand for our products and services, and may adversely affect suppliers and third parties to whom we have outsourced business activities. Further disruption to global credit markets, which has significantly contributed to the recent economic turbulence described above, could have further disruptive consequences for global economic growth and customer demand.
 
Changes in tax laws or uncertainty over their application and interpretation may adversely affect our reported results.
 
Our businesses operate 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. However, tax laws that apply to Reed Elsevier businesses may be amended or interpreted differently by the relevant authorities which could adversely affect our reported results. In addition, disputes arise from time to time with tax authorities regarding the application of tax laws to our businesses.
 
Changes in regulation on information collection and use could adversely affect our revenues and our costs.
 
Legal regulation relating to internet communications, data protection, e-commerce, direct marketing, credit scoring and digital advertising and use of public records is becoming more prevalent. Existing and proposed legislation and regulations, including changes in the manner in which such legislation and regulations are interpreted by courts, in the United States, the European Union and other jurisdictions may impose limits on our collection and use of certain kinds of information about individuals and our ability to communicate such information effectively with our customers. For example, the background screening report businesses offered by LexisNexis Risk Solutions are governed by the US Fair Credit Reporting Act of 1970 and analogous state laws requiring that consumers be provided the contents of background reports and allowed to have any inaccuracies in the reports corrected. It further provides for statutory penalties and attorney fees for non-compliance. We are unable to predict in what form laws and regulations will be adopted or modified or how they will be construed by the courts, or the extent to which any such laws or interpretation changes might adversely affect our business.


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Changes in provision of third party information to us could adversely affect our businesses.
 
A number of our businesses rely extensively upon content and data from external sources to maintain our databases. Data is obtained from public records, governmental authorities, customers and other information companies, including competitors. In the case of public records, including social security number data which are obtained from public authorities, our access is governed by law. We also obtain the credit header data in our databases from consumer credit reporting agencies. The disruption or loss of data sources in the future, because of changes in the law or because data suppliers decide not to supply them, could adversely affect our business if we were unable to arrange for substitute sources in a timely manner or at all.
 
Our business, operations and reputation could be adversely affected by a failure to comply with FTC Settlement Orders.
 
Through our LexisNexis Risk Solutions business, we are party to two consent orders (the “FTC Settlement Orders”) embodying settlements with the US Federal Trade Commission (“FTC”) that resolved FTC investigations into our compliance with federal laws governing consumer information security and related issues, including certain fraudulent data access incidents. We also entered into an Assurance of Voluntary Compliance and Discontinuance (“AVC”) with the Attorneys General of 43 states and the District of Columbia in connection with one such FTC investigation. On October 14, 2009, after an investigation by the FTC into an unauthorised data access incident that occurred in August 2008, a Supplemental Order was entered into containing certain additional administrative and reporting obligations. A Second Supplemental Order was entered on September 3, 2010, synchronizing the dates for the separate security assessments required under each of the two FTC Settlement Orders, allowing the company to undergo a single biennial assessment process, although two Assessment Reports will still be issued. The FTC Settlement Orders and the AVC require us to institute and maintain information security, verification, credentialing, audit and compliance, and reporting and record retention programmes and to obtain an assessment from a qualified, independent third party every two years for twenty years (with the FTC having the right to extend such twenty-year period by up to two additional biennial assessment periods) to ensure that our performance under these information security programmes complies with the FTC Settlement Orders. A failure to comply with the FTC Settlement Orders and the AVC could result in civil penalties and adversely affect our business, operations and reputation.
 
Breaches of our data security systems or other unauthorised access to our databases could adversely affect our business and operations.
 
Our businesses provide customers with access to database information such as caselaw, treatises, journals, and publications as well as other data. Our LexisNexis Risk Solutions business also provides authorised customers with access to public records and other information on US individuals made available in accordance with applicable privacy laws and regulations. There are persons who try to breach our data security systems or gain other unauthorised access to our databases in order to misappropriate such information for potentially fraudulent purposes and we have previously disclosed incidents of such unauthorised access. Because the techniques used by such persons change frequently, we may be unable to anticipate or protect against the threat of breaches of data security or other unauthorised access. Breaches of our data security systems or other unauthorised access to our databases could damage our reputation and expose us to a risk of loss or litigation and possible liability, as well as increase the likelihood of more extensive governmental regulation of these activities in a way that could adversely affect this aspect of our business.
 
Changes in government funding of, or spending by, academic institutions may adversely affect demand for the products and services of our science and medical businesses.
 
The principal customers for the information products and services offered by our science and medical publishing business are academic institutions, which fund purchases of these products and services from limited budgets that may be sensitive to changes in private and governmental sources of funding. Accordingly any decreases in budgets of academic institutions or changes in the spending patterns of academic institutions could negatively impact our businesses.
 
Our intellectual property rights may not be adequately protected under current laws in some jurisdictions, which may adversely affect our results and our ability to grow.
 
Our products and services are largely comprised of intellectual property content delivered through a variety of media, including journals, books, CDs, and online, including the internet. We rely on trademark, copyright, patent and other intellectual property laws to establish and protect our proprietary rights in these products and services. However, we cannot assure you that our proprietary rights will not be challenged, limited, invalidated or circumvented. Despite trademark and copyright protection and similar intellectual property protection laws, third parties may be able to copy, infringe or otherwise profit from our proprietary rights without our authorisation. These unauthorised activities may be facilitated by the internet.
 
In addition, whilst there is now certain internet-specific copyright legislation in the United States and in the European Union, there remains significant uncertainty as to the date from which these will be enforced and the form copyright law regulating digital content may ultimately take. In several jurisdictions, including the United States, Australia and the European Union, copyright laws are increasingly coming under legal review. These factors create additional challenges for us in protecting our proprietary rights to content delivered through the internet and electronic platforms. Moreover, whilst non-


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copyrightable databases are protected in many circumstances by law in the European Union, there is no equivalent legal protection in the United States.
 
We may be unable to implement and execute our strategic and business plans if we cannot maintain high quality management.
 
The implementation and execution of our strategic and business plans depend on the availability of high quality management resources across all our businesses. We cannot predict that in the future such resources will be available.
 
We cannot assure you whether our substantial investment in electronic product and platform initiatives will produce satisfactory, long term returns.
 
We are investing significant amounts to develop and promote electronic products and platforms. The provision of electronic products and services is very competitive and we may experience difficulties developing this aspect of our business due to a variety of factors, many of which are beyond our control. These factors may include competition from comparable and new technologies and changes in regulation.
 
Our businesses may be adversely affected if their electronic delivery platforms, networks or distribution systems experience a significant failure or interruption.
 
Our businesses are increasingly dependent on electronic platforms and distribution systems, primarily the internet, for delivery of their products and services. Our businesses could be adversely affected if their electronic delivery platforms and networks experience a significant failure or interruption.
 
Our businesses may be adversely affected by the failure of third parties to whom we have outsourced business activities.
 
We engage in outsourcing and offshoring activities such as IT, production and development engineering. The failure of third parties to whom we have outsourced business functions could adversely affect our business performance, reputation and financial condition.
 
Our scientific, technical and medical primary publications 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 debate in government, academic and library communities, which are the principal customers for our STM publications, regarding whether such publications should be free and funded instead through fees charged to authors and from governmental and other subsidies or made freely available after a period following publication. If these methods of STM publishing are widely adopted or mandated, it could adversely affect our revenue from our paid subscription publications.
 
A significant portion of our revenue is derived from advertising and exhibitions and spending by companies on advertising and other marketing activities has historically been cyclical.
 
Approximately 8% of our revenue in 2010 was derived from advertising and 11% from exhibitions. In Reed Business Information, 41% of revenue was derived from advertising in 2010. Total advertising revenues for our businesses in 2010 were £491 million compared with £585 million in the prior year.
 
Traditionally, spending by companies on advertising and other marketing activities has been cyclical with companies spending significantly less on advertising in times of economic slowdown or turbulence. In addition, there has been a structural shift of advertising and lead generation to Google and other search engines.
 
The exhibitions business is similarly affected by cyclical pressures on spending by companies. Additionally, participation and attendance at exhibitions is affected by the availability of exhibition venues and the propensity of exhibitors and attendees to travel. Our results could be adversely affected if the availability of venues or the demand from exhibitors and attendees were reduced, for example due to international security or public health concerns or acts of terrorism or war.
 
Changes in the market values of defined benefit pension scheme assets and in the assumptions used to value defined benefit pension scheme obligations may adversely affect our businesses.
 
We operate a number of pension schemes around the world, the largest schemes being of the defined benefit type in the United Kingdom, the United States and the Netherlands. The assets and obligations associated with defined benefit pension schemes are particularly sensitive to changes in the market values of assets and the market related assumptions used to value scheme liabilities. In particular, a decrease in the discount rate used to value scheme liabilities, an increase in life expectancy of scheme members, an increase in the rate of inflation or a decline in the market value of investments held by the defined benefit pension schemes (absent any change in their expected long term rate of return) may adversely affect the reported results and financial position of the combined businesses.


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Our impairment analysis of goodwill and indefinite lived intangible assets incorporates various assumptions which are highly judgemental. If these assumptions are not realised, we may be required to recognise a charge in the future for impairment.
 
As at December 31, 2010 goodwill on the combined statement of financial position amounted to £4,441 million and intangible assets with an indefinite life amounted to £368 million. We conduct an impairment test at least annually, which involves a comparison of the carrying value of goodwill and indefinite lived intangible assets by cash generating unit with estimated values in use based on latest management cash flow projections. The assumptions used in the estimation of value in use are, by their very nature, highly judgemental, and include profit growth of the business over a five year forecast period, the long term growth rate of the business thereafter, and related discount rates. There is no guarantee that our businesses will be able to achieve the forecasted results which have been included in the impairment tests and impairment charges may be required in future periods if we are unable to meet these assumptions.
 
Our borrowing costs and access to capital may be adversely affected if the credit ratings assigned to our debt are downgraded.
 
Our outstanding debt instruments are, and any of our future debt instruments may be, publicly rated by independent rating agencies such as Moody’s Investors Service Inc., Standard & Poor’s Rating Services and Fitch Ratings. A rating is based upon information furnished by us or obtained by the relevant rating agency from its own sources and is subject to revision, suspension or withdrawal by the rating agency at any time. Rating agencies may review the assigned ratings due to developments that are beyond our control. Factors cited as a basis for a ratings downgrade or an assignment of a negative outlook could include the macroeconomic environment and the level of our indebtedness as a consequence of an acquisition or debt offering. If the ratings of our debt are downgraded in the future, our borrowing costs and access to capital may be adversely affected.


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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, other than in special circumstances, to recommend equivalent gross dividends (including, with respect to the dividend on Reed Elsevier PLC ordinary shares, the associated UK tax credit), based on the equalisation ratio. A Reed Elsevier PLC ordinary share pays dividends in sterling and is subject to UK tax law with respect to dividend and capital rights. A Reed Elsevier NV ordinary share pays dividends in euros and is subject to Dutch tax law with respect to dividend and capital rights.
 
The principal assets of Reed Elsevier PLC comprise its 50% interest in Reed Elsevier Group plc, its 39% interest in Elsevier Reed Finance BV, its indirect equity interest in Reed Elsevier NV and certain amounts receivable from subsidiaries of Reed Elsevier Group plc. The principal assets of Reed Elsevier NV comprise its 50% interest in Reed Elsevier Group plc, its 61% interest in Elsevier Reed Finance BV and certain amounts receivable from subsidiaries of Reed Elsevier Group plc and Elsevier Reed Finance BV. Reed Elsevier NV also owns shares, carrying special dividend rights, in Reed Elsevier Overseas BV, a Dutch registered subsidiary of Reed Elsevier Group plc. These shares enable Reed Elsevier NV to receive dividends from companies within its tax jurisdiction, thereby mitigating Reed Elsevier’s potential tax costs.
 
 
Material acquisitions and disposals
 
Total acquisition expenditure for continuing operations in the three years ended December 31, 2010 was £2,185 million, after taking into account borrowings and cash acquired. During 2010 a number of small acquisitions were made for a total consideration of £43 million. During 2009 a number of small acquisitions were made for a total consideration of £11 million. During 2008 a number of acquisitions were made for a total consideration of £2,131 million, the most significant of which was ChoicePoint, Inc., a leading provider of risk information and analytics, for £1,931 million in September. Goodwill, including the gross up in respect of deferred tax liabilities established on acquisitions in relation to intangible assets, and intangible assets acquired as part of the ChoicePoint acquisition were £1,162 million and £1,471 million respectively.
 
 
Restructuring
 
In February 2008 we announced a major restructuring plan to further consolidate and streamline operational activities and back office support. In 2009, having identified further restructuring and consolidation opportunities, we announced an expansion of this programme and a major restructuring in RBI. We expect these restructuring costs to result in significant cost savings in future years. Restructuring costs incurred in 2010 were £57 million (2009: £182 million; 2008: £152 million).
 
 
Capital expenditure
 
Capital expenditure on property, plant, equipment and internally developed intangible assets principally relates to investment in systems infrastructure to support electronic publishing activities, computer equipment and office facilities. Total such capital expenditure, which is financed from operating cash flows, amounted to £311 million in 2010 (2009: £242 million; 2008: £172 million) for continuing operations of the combined businesses. In 2010 there has been an increased investment in


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new product and related infrastructure, particularly in LexisNexis. Further information on capital expenditure is given in notes 17 and 19 to the combined financial statements.
 
 
Principal Executive Offices
 
The principal executive offices of Reed Elsevier PLC are located at 1-3 Strand, London WC2N 5JR, England. Tel: +44 20 7930 7077. The principal executive offices of Reed Elsevier NV are located at Radarweg 29, 1043 NX Amsterdam, the Netherlands. Tel: +31 20 485 2434. The principal executive office located in the United States is at 125 Park Avenue, 23rd Floor, New York, New York, 10017. Tel +1 212 309 5498. Our internet address is www.reedelsevier.com. The information on our website is not incorporated by reference into this report.


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BUSINESS OVERVIEW
 
We are one of the world’s leading providers of professional information solutions in the science, medical, legal, risk and business sectors. Our principal operations are in North America and Europe. For the year ended December 31, 2010 we had total revenue from continuing operations of approximately £6.1 billion and an average of approximately 31,000 employees. As at December 31, 2010 we had approximately 30,200 employees. In 2010, North America represented our largest single geographic market, based on revenue by destination, contributing 55% of our total revenue from continuing operations.
 
Our businesses provide products and services organised in 2010 as four business divisions: Elsevier serves the science and medical sector; LexisNexis, the legal, insurance, and other professional sectors; Reed Exhibitions, the exhibitions and conferences sector; and Reed Business Information, the business information and trade magazines sector.
 
Revenue is derived principally from subscriptions, circulation and transactional sales, advertising sales and exhibition fees. In 2010, 45% of Reed Elsevier’s revenue from continuing operations was derived from subscriptions; 29% from circulation and transactional sales; 11% from exhibition fees; 8% from advertising sales; and 7% from other sources. An increasing proportion of revenue is derived from electronic information products, principally internet based, and in 2010, 61% of our revenue was derived from such sources, including 81% of LexisNexis revenue, 61% of Elsevier revenue, 2% of Reed Exhibitions revenue and 46% of Reed Business Information revenue.
 
Subscription sales are defined as revenue derived from the periodic distribution or update of a product or from the provision of access to online services, which is often prepaid. Circulation and transactional sales include all other revenue from the distribution of a product and transactional sales of online services, usually on cash or credit terms. The level of publishing related advertising sales and exhibition fees has historically been tied closely to the economic and business investment cycle with changes in the profit performance of advertisers, business confidence and other economic factors having a high correlation with changes in the size of the market. Subscription sales and circulation and transactional sales have tended to be more stable than advertising sales through economic cycles.
 
Revenue is recognised for the various categories as follows: subscriptions — on periodic despatch of subscribed product or rateably over the period of the subscription where performance is not measurable by despatch; circulation and transactional — on despatch or occurrence of the transaction; advertising — on publication or period of online display; and exhibitions — on occurrence of the exhibition. Where sales consist of two or more independent components whose value can be reliably measured, revenue is recognised on each component as it is completed by performance, based on attribution of relative value.
 
Certain of our businesses are seasonal in nature. In Elsevier, a significant proportion of annual revenue is derived from calendar year based journal subscriptions, with the substantial majority of annual cash inflow from these arising in the fourth quarter of each financial year. The majority of medical publishing and sales arise in the second half of the year. This, together with the phasing of other subscription receipts and exhibition deposits, results in significant cash flow seasonality whereby the substantial majority of annual operating cash inflows normally arise in the second half of the year.
 
Our businesses compete for subscription, circulation and transaction, and marketing expenditures in scientific and medical, legal, risk and business sectors. The bases of competition include, for readers and users of the information, the quality and variety of the editorial content and data, the quality of the software to derive added value from the information, the timeliness and the price of the products and, for advertisers, the quality and the size of the audiences targeted.
 
                                                 
    Revenue from continuing operations(1)
 
    Year ended December 31,  
    2010     2009     2008  
    (in millions, except percentages)  
 
Elsevier
  £ 2,026       34 %   £ 1,985       33 %   £ 1,700       32 %
LexisNexis
    2,618       43       2,557       42       1,940       36  
Reed Exhibitions
    693       11       638       11       707       13  
Reed Business Information
    718       12       891       14       987       19  
                                                 
Total
  £ 6,055       100 %   £ 6,071       100 %   £ 5,334       100 %
                                                 
 
 
(1) Following announcement in February 2007 of the planned sale of the Education division, the division is presented in the financial statements as a discontinued operation and is excluded from the above analysis.


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ELSEVIER
                         
    Year ended December 31,  
    2010     2009     2008  
    (in millions)  
 
Revenue
                       
Elsevier
                       
Science & Technology
  £ 1,015     £ 985     £ 848  
Health Sciences
    1,011       1,000       852  
                         
    £ 2,026     £ 1,985     £ 1,700  
                         
 
Elsevier is a leading provider of scientific and medical information and serves scientists, health professionals and students worldwide. Its objective is to help its customers advance science and improve healthcare by providing world class information and innovative solutions that enable customers to make critical decisions, enhance productivity and improve outcomes.
 
Elsevier is a global business with principal operations in Amsterdam, Beijing, Boston, Chennai, Delhi, London, Madrid, Milan, Munich, New York, Oxford, Paris, Philadelphia, Rio de Janeiro, St. Louis, San Diego, Singapore and Tokyo. Elsevier has 6,700 employees.
 
Elsevier is organised around two market-facing businesses: Science & Technology, which serves the scientific and technology communities, and Health Sciences, which serves the health community. Both of these businesses are supported by a global shared services organisation which provides integrated editorial systems and production services, product platforms, distribution, and other support functions.
 
Science & Technology
 
Science & Technology is a leading scientific information provider. It delivers a wide array of information and workflow tools that help researchers generate valuable insights in the advancement of scientific discovery and improve the productivity of research. Its customers are scientists, academic institutions, research leaders and administrators, corporations and governments which rely on Elsevier to: provide high quality content; review, publish, disseminate and preserve research findings; and create innovative tools to help focus research strategies and improve their effectiveness.
 
The Science &Technology division contributed 50% of the total Elsevier revenue in 2010. Of this revenue, 77% came from research (journals), 10% from reference education (books) and 13% from databases and tools. Approximately 32% of Science & Technology revenue in 2010 was derived from North America, 36% from Europe and the remaining 32% from the rest of the world.
 
Elsevier publishes over 200,000 new science & technology research articles each year through some 1,150 journals, many of which are the foremost publications in their field and a primary point of reference for new research. The vast majority of customers receive these journals through ScienceDirect, a database of scientific and medical research, providing access to over 10 million scientific and medical journal articles, used by over 11 million researchers each year.
 
Elsevier also publishes over 700 new science & technology book titles annually, supporting bibliographic data, indexes and abstracts, and review and reference works. 14,000 online books are available on ScienceDirect, with over 600 online books added each year.
 
Other major products include Scopus and Reaxys. Scopus is the largest abstract and citation database of research literature in the world, with abstracts and bibliographic information on more than 40 million scientific research articles from 18,000 peer reviewed journals and over 5,000 publishers. Scopus also has data on more than 23 million patents. Reaxys is a leading solution for synthetic chemists that integrates chemical reaction and compound data searching with synthesis planning.
 
A major challenge facing researchers and institutions is the ever growing amount of research and related information but the limited time to identify and analyse what is most relevant. To address this challenge, Elsevier has been developing a suite of new products that significantly improve the speed at which researchers are able to find the most relevant information and analyse this information using the most innovative applications. In 2010, SciVerse Hub beta was launched providing a single search interface for accessing ScienceDirect, Scopus and scientific web content. In November 2010, SciVerse Application Marketplace & Developer Network was launched in beta enabling researchers and third party developers to build customised applications on top of Elsevier’s information and combine this with other data and analytics held by the customer.
 
Elsevier is continuing to develop the SciVal suite of products that help academic and government institutions evaluate their research performance, determine research strategies and increase institutional efficiencies. Leveraging bibliometric data, such as citations from Scopus, SciVal Spotlight helps institutions and governments to identify their distinctive research strengths, evaluate performance and increase the focus of their R&D investments. SciVal Funding assists researchers and institutions in identifying grants that are most relevant in their research areas. In support of this strategy, Collexis was acquired in 2010, a leading developer of semantic technology, which increases the efficiency and effectiveness of the evaluation of grant applications by funding agencies.


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Health Sciences
 
Health Sciences is a leading medical information provider. Through its medical journals, books, major reference works, databases and online information tools, Elsevier provides critical information and analysis on which its customers rely to base their decisions, to improve medical outcomes and enhance the efficiency of healthcare. Health Sciences serves medical researchers, doctors, nurses, allied health professionals and students, as well as hospitals, research institutions, health insurers, managed healthcare organisations and pharmaceutical companies.
 
Health Sciences contributed approximately 50% of the total Elsevier revenue in 2010. This revenue came from five sectors: global medical research; clinical reference/clinical decision support; nursing/health professional education; global pharma promotion; and international (other), each of which contribute approximately 20% to revenue. Approximately 54% of Health Sciences revenue by destination in 2010 was derived from North America, 27% from Europe and the remaining 19% from the rest of the world.
 
Elsevier publishes over 700 health sciences journals, including on behalf of learned societies, and, in 2010, over 1,700 new health sciences book titles and clinical reference works were published both in print and through ScienceDirect and other electronic platforms such as MDConsult. MDConsult is a leading online clinical information service with more than 2,200 institutional customers. Flagship titles include market leading medical journals such as The Lancet, and major medical reference works such as Gray’s Anatomy, Nelson’s Pediatrics and Netter’s Atlas of Human Anatomy. In addition to its local language publishing in many countries across the world, Health Sciences leverages its content and solutions into new markets through local language versioning.
 
Elsevier is a leader in medical education and training resources, particularly to the nursing and allied health professions. From core textbooks to virtual clinical patient care, Health Sciences supports students, teaching faculties and healthcare organisations in education and practice. A strong focus is on the further development of innovative electronic services: the Evolve portal provides a rich resource to support faculty and students and now has 2.4 million registered users; Evolve Reach (Health Education Systems Inc.) provides online review and testing tools for students of nursing and the allied health professionals; Evolve Teach provides online resources and solutions to support faculty.
 
A growing area of focus is clinical decision support, providing online information and analytics to deliver patient-specific solutions at the point of care to improve patient outcomes. Gold Standard provides critical information on drug interactions to assist effective treatment; CPM Resource Center provides a data driven framework to support nurses in undertaking procedures; Nursing Consult provides nursing care guidelines in trauma and disease management; MEDai uses patient data and analytics to help identify areas for improvement in clinical practice within hospitals and lower costs for the payers of healthcare through preventative interventions.
 
Elsevier also provides marketing services to the pharmaceutical industry through advertising and sponsored communications to the specialist community it serves. In 2010, the standalone medical agency communications business Excerpta Medica was divested as part of a restructuring of this business focusing more on the services which leverage Health Sciences’ core information and distribution platforms.
 
Shared services
 
The shared service functions provide production, information technology, customer service, fulfilment and distribution for both the Science & Technology and Health Sciences divisions. Much of the pre-press production for journals and books is outsourced.
 
Market Opportunities
 
The science and medical information markets have good long term demand growth characteristics. The importance of research and development to economic performance and competitive positioning is well understood by governments, academic institutions and corporations. This is reflected in the long term growth in R&D spend and in the number of researchers worldwide, leading to greater research output and publishing. Additionally there is growing demand for tools that allow research to better target and improve the spend and efficiency of the research process.
 
In health, market growth is also supported by demographic trends, with ageing populations that require more healthcare, rising prosperity in developing economies with increasing expectations of better healthcare provision, and the increasing focus on improving medical outcomes and efficiency.
 
Given that a majority of global R&D and healthcare is funded directly or indirectly by governments, spending is influenced by governmental budgetary considerations. The commitment to R&D and health provision does however generally remain high, even in more difficult budgetary environments.
 
Strategic Priorities
 
Elsevier’s strategic goal is to make valued contributions to the communities it serves in advancing science, improving medical outcomes and enhancing productivity. To achieve this, Elsevier is focused on: building world-class content; deepening its customer engagement to identify how better to help them achieve their desired outcomes more efficiently and effectively;


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delivering tools which link, analyse and illuminate content and data to help customers make critical decisions and improve their productivity; increasing its investment in high-growth markets and disciplines; and continuously improving organisational efficiency.
 
In Science & Technology, priorities are to continually enhance the quality and relevance of research and reference content and expand data sets, while adding greater functionality and utility to the newly launched SciVerse, ScienceDirect, Scopus and new tools to assist researcher productivity. The SciVal suite of performance and planning tools will continue to be expanded to help academic and government institutions target their research spend and improve research efficiency and economic outcomes. In Health Sciences, priorities are similar, particularly with regard to medical research, focusing on the quality and relevance of content and the functionality of electronic platforms and services.
 
Additionally, Health Sciences continues to build out clinical decision support services to meet customer demand for tools that deliver better medical outcomes and lowers costs for payers, physicians and hospitals. Elsevier is also focused on increasing growth in emerging markets through expansion of local publishing and versioning of content and electronic services.
 
Business Model, Distribution Channels and Competition
 
Science and medical research is principally disseminated on a paid subscription basis to the research facilities of academic institutions, government and corporations, and, in the case of medical and healthcare journals, also to individual practitioners and medical society members. Advertising and promotional revenues are derived from pharmaceutical and other companies. Electronic products, such as ScienceDirect, Scopus and MDConsult, are generally sold direct to customers through a dedicated sales force that has offices around the world. Subscription agents facilitate the sales and administrative process for print journals. Books are sold through traditional and online book stores, wholesalers and, particularly in medical and healthcare markets, directly to end users. Competition within science and medical publishing is generally on a title by title and product by product basis. Competing journals, books and databases are typically published by learned societies and other professional publishers. Workflow tools face similar competition as well as from software companies and internal solutions developed by customers.
 
Major brands
 
Elsevier’s major brands include: Cell, a premier life sciences journal in cell biology; and The Lancet, one of the leading medical journals since 1823. Many other journals are major brands in their fields, including: Scopus, a scientific abstract and citation database; SciVal, a suite of funding intelligence and research performance tools for academic institutions; Reaxys®, a web-based chemical reaction workflow solution for industrial chemists; pharmapendium, access to history of drug development through unique online platform; MDConsult, an online clinical information service, including reference works, journals and drug information; Mosby’s Nursing Consult, online evidence-based content to inform nursing clinical decisions at the point of care; Evolve, integrated, online resources that complement Elsevier’s nursing textbook content; and MEDai, a clinical decision support tool to identify areas for improvement in medical practice.
 
LEXISNEXIS
 
                         
    Year ended December 31,  
    2010     2009     2008  
    (in millions)  
 
Revenue
                       
LexisNexis
                       
Risk Solutions
  £ 927     £ 865     £ 378  
US Legal
    1,121       1,126       1,017  
International
    570       566       545  
                         
    £ 2,618     £ 2,557     £ 1,940  
                         
 
In 2010, LexisNexis comprised the two market facing businesses: Risk Solutions and Legal & Professional supported by shared service functions. The risk business provides data and analytics that enable its customers to evaluate and manage risks associated with transactions and improve performance. It is focused on six industry/sector groups: insurance, government, screening, receivables management, financial services and corporate. The legal & professional business provides content and analytical tools that inform decisions and increase productivity of legal and other professionals in the legal, corporate, government, accounting and academic markets.
 
With effect from January 1, 2011, LexisNexis has been split into two separate businesses, Risk Solutions and Legal & Professional.


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Risk Solutions
 
LexisNexis Risk Solutions is a leading provider of workflow solutions that combine proprietary, public and third-party information, analytics and advanced technology. These solutions assist customers in evaluating, predicting and managing risk and improving operational effectiveness, predominantly in the US.
 
LexisNexis Risk Solutions is headquartered in Alpharetta, Georgia and has principal operations in Georgia, Florida, Connecticut and Ohio, and has 4,400 employees.
 
In 2010, approximately 84% of Risk Solution’s revenue came from circulation and transactional sales, including online services, 12% from subscription sales, including online services, and the remaining 4% from other sources.
 
LexisNexis Risk Solutions is organised around market facing industry/sector groups: insurance, government, screening, and business services (including the receivables management, financial services and corporate groups), of which insurance is the most significant. These groups are supported by a shared infrastructure providing technology operations, data management, and other support functions including compliance and marketing. A number of transactional support activities, including some financial processes, are provided from a shared services organisation managed by the LexisNexis Legal & Professional business. The Legal & Professional business also distributes Risk Solutions products into legal markets in the US and internationally.
 
Insurance Solutions provides the most comprehensive combination of data, analytics and software to property and casualty (P&C) personal and commercial insurance carriers in the US to improve critical aspects of their business, from customer acquisition and underwriting to policy servicing, claims handling and performance management. Information solutions, including the US’s most comprehensive personal loss history database C.L.U.E., help insurers assess risks and provide important inputs to underwriting policy. Recently introduced products include Data Pre-Fill, which provides accurate information directly into the insurance workflow on customers, potential customers and their auto ownership, and Current Carrier, which identifies current or previous insurance as well as any lapses in coverage. In 2010, the Insurance Exchange was launched enabling the sharing of customer application data among participating insurance agents, brokers and carriers. The exchange is directed at improving the efficiency and transparency of the independent agent-based distribution system for insurance products.
 
Government solutions provides investigative solutions to US federal, state and local law enforcement and government agencies to help solve cases and identify and locate individuals. Additionally, Government solutions helps mitigate risks of fraud, waste and abuse in government programmes.
 
Screening Solutions focuses on employment-related, resident and volunteer screening, with the largest segment being pre-employment screening services offered across a number of industries including retail, recruitment, banking, and professional services. Receivables Management Solutions helps debt recovery professionals in the segmentation, management and collection of consumer and business debt. Financial Services provides financial institutions with risk management, identity verification, fraud detection, credit risk management, and compliance solutions. These include “know your customer” and anti-money laundering products. The Corporate group provides risk and identity management solutions for customers in retail, telecommunications and utilities. The Risk Solutions business also provides identity verification and risk related information to the legal industry.
 
During 2010, a particular focus has been on developing a pipeline of new solutions for select adjacent markets, sectors and geographies.
 
The identity verification and risk evaluation solutions provided by Risk Solutions utilise a comprehensive database of public records and proprietary information, which is the largest database of its kind in the US market today. LexisNexis Accurint is the flagship identity verification product, powered by the powerful High Performance Cluster Computing (HPCC) technology. This technology enables Risk Solutions to provide its customers with highly relevant search results swiftly and to create new, low-cost solutions quickly and efficiently.
 
Market Opportunities
 
The risk solutions business operates in markets with strong long term underlying growth drivers: insurance underwriting transactions; insurance, healthcare and entitlement fraud; credit defaults and financial fraud; regulatory compliance and due diligence requirements surrounding customer enrolment and employment; and security considerations.
 
In the insurance segment, growth is supported by increasing transactional activity in the auto and property insurance markets and the increasing adoption by insurance carriers of more sophisticated data and analytics in the prospecting, underwriting and claims evaluation processes, to determine appropriate risk pricing, increase competitiveness and improve operating cost efficiency. Transactional activity is driven by the levels of insurance quoting as consumers seek better policy terms, stimulated by increasing competition between insurance companies and rising levels of internet quoting and policy binding.
 
In screening, demand is driven mainly by employer hiring activity and, in receivables management, by levels of consumer debt defaults and the prospects of recovering those debts; both of these markets are linked to employment levels in the US. A number of factors support demand for risk solutions in the financial services market, including new credit originations, fraud


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losses and regulatory compliance requirements. Growth in government markets is driven by the increasing use of data and analytics to combat criminal activity and fraud, and to address security issues. The level and timing of demand in this market is influenced by government funding considerations.
 
Strategic Priorities
 
Risk Solutions’ strategic goal is to make businesses and government more effective, through a better understanding of the risks associated with individuals, other businesses and transactions and by providing the tools to help manage those risks. To achieve this, Risk Solutions is focused on: expanding the range of products across the insurance carrier workflow; leveraging our advanced technology capabilities; delivering innovative new products and expanding the range of risk management solutions across adjacent markets; and completing the multi-year process of integrating the ChoicePoint businesses acquired in September 2008.
 
Business Model, Distribution Channels and Competition
 
Risk Solutions products are predominantly sold on a transactional basis directly to insurance carriers, other corporations and government entities. Risk Solutions and Verisk sell data and analytics to insurance carriers but largely address different activities. Risk Solutions’ principal competitors include Thomson Reuters and First Data Corporation in a number of segments that utilise public records. Major competitors in pre-employment screening are Altegrity and Symphony Technology Group.
 
Major brands
 
LexisNexis’ Risk Solutions major brands include: C.L.U.E.®, a comprehensive US personal insurance claims database; LexisNexis®Data Prefill, a tool to automate the insurance application process providing critical information insurers need to quote and underwrite a policy; LexisNexis® Insurance Exchange, a platform for sharing of customer application data designed to improve and enhance flow of application data and documents; Accurint® for Collections, a US solution to help locate debtors quickly and accurately; Accurint® LE Plus, an integrated suite of tools for US law enforcement investigators; LexisNexis® Identity Management, a range of solutions to help clients verify that an identity exists and authenticate individuals; LexisNexis® Anti-Money Laundering Solutions, content and information for anti-money laundering compliance, risk mitigation and enhanced due diligence; LexisNexis® Employment Screening, a US provider of pre-employment screening solutions; and LexisNexis® Resident Screening, a comprehensive US multi-family housing screening and collections service.
 
Legal & Professional
 
LexisNexis Legal & Professional is a leading provider of content and information solutions for legal and other corporate markets. Serving customers in more than 100 countries, LexisNexis provides resources and services that inform decisions and increase productivity.
 
LexisNexis Legal & Professional is headquartered in New York and has principal operations in Ohio and New Jersey in the United States, in London and Paris in Europe, Canada, and in several other countries in Africa and Asia Pacific. It has 10,300 employees worldwide.
 
In 2010, approximately 67% of LexisNexis Legal & Professional’s revenue came from subscription sales, including online services, 9% from transactional sales, including online services, 6% from advertising, including directory listings, and the remaining 18% from other sources.
 
LexisNexis Legal & Professional is organised through market facing businesses, the most significant of which are Research & Litigation Solutions and Marketing & Business Solutions in the US and LexisNexis Europe, Middle East, Africa & Australasia and LexisNexis Asia (together reported as International) outside the US. These are supported by global shared services organisations providing platform and product development, operational and distribution services, and other support functions.
 
LexisNexis is a leading provider of legal and business information and analysis to law firms, corporations and government throughout the US. Electronic information solutions and innovative workflow tools, developed through close collaboration with customers, help law firms and other legal and business professionals make better informed decisions in the practice of law and in managing their businesses.
 
In Research & Litigation solutions, the flagship product for legal research is Lexis.com, which provides federal and state statutes and case law, together with analysis and expert commentaries from sources such as Matthew Bender and Michie and the leading citation service Shepard’s, which advises on the continuing relevance of case law precedents. Through its suite of litigation services, LexisNexis additionally provides lawyers with tools for electronic discovery, evidence management, case analysis, court docket tracking, e-filing, expert witness identification and legal document preparation. LexisNexis also partners with law schools to provide services to students as part of their training. In October 2010, LexisNexis launched Lexis Advance for Solos, which is a legal research tool built specifically for the US solo attorney market and is the first product to be launched on the new LexisNexis research platform. Both the product and the platform are version 1.0 and over the next few years LexisNexis will be introducing products of increasing sophistication and depth for specific customer segments and to perform specific functions across the legal markets. Earlier in the year, LexisNexis introduced Lexis for Microsoft Office, which enables


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lawyers to conduct their Lexis searches within Microsoft applications such as Word and Outlook. Other product introductions included LexisNexis Verdict & Settlement Analyzer, which provides data and analytics on previous settlements.
 
In the business of law, Marketing & Business solutions provides law firms with practice management solutions, including time and billing systems, case management, cost recovery and document management services. LexisNexis assists law firms in their client development through Lawyers.com, showcasing the qualifications and credentials of more than one million lawyers and law firms in the US and internationally, and providing law firms with website development, search engine optimisation and other web marketing services.
 
LexisNexis also provides its legal and information services to US government, corporate and academic customers, including news and business information and public records. In addition to research and litigation services, capabilities for these customers include specialist products for corporate counsel focused on regulatory compliance, intellectual property management, and management of external counsel.
 
In International markets outside the United States, LexisNexis serves legal, corporate, government and academic markets in Europe, Canada, Africa and Asia Pacific with local and international legal, tax, regulatory and business information. The most significant businesses are in the UK, France, Australia and Canada.
 
LexisNexis is focused across all its geographies on leveraging best in class content and its market leading international online product platform to deliver innovative electronic information services and workflow tools to help legal and business professionals make better informed decisions more efficiently. Penetration of online information services is growing and electronic revenues now account for over 50% of LexisNexis total revenues outside the US.
 
In the UK, LexisNexis is a leading legal information provider in its market. It delivers a wide array of content and services, comprising an unrivalled collection of primary and secondary legislation, case law, expert commentary, and forms and precedents. Its extensive portfolio includes Halsbury’s Laws of England, Simon’s Taxes and Butterworths Company Law Service delivered through the UK’s flagship online product LexisLibrary and in print. Other electronic products include Lexis Legal Intelligence, a resource on legal practice for lawyers, and media monitoring and reputation management tools for the corporate market such as the NexisDirect research tool. Additionally, LexisNexis provides law firms with practice management solutions.
 
In 2010, LexisNexis continued to build its UK legal practical guidance service LexisPSL, and now has ten practice areas including company commercial, dispute resolution and employment. LexisPSL provides practical guidance on the application of law to complement and integrate with LexisNexis authoritative legal content and commentaries and legal forms and precedents.
 
In France, LexisNexis is a provider of information to lawyers, notaries and courts with JurisClasseur and La Semaine Juridique being the principal publications, delivered through lexisnexis.fr and in print. These content sources are, as in the UK, being combined with new content and innovative workflow tools to develop practical guidance and practice management solutions. During 2010, LexisNexis divested its legal publishing business in Germany as the investment required to build profitable scale was not considered to have adequate prospective returns. The news and business activities in Germany were retained.
 
Market Opportunities
 
Longer term growth in legal and regulatory markets worldwide is driven by increasing levels of legislation, regulation, regulatory complexity and litigation, and an increasing number of lawyers. Additional market opportunities are presented by the increasing demand for online information solutions and practice management tools that improve the quality and productivity of research, deliver better legal outcomes, and improve business performance. Notwithstanding this, legal activity and legal information markets are also influenced by economic conditions and corporate activity, as has been seen most recently with the dampening impact on demand of the recent global recession and the somewhat subdued environment that has followed in North America and in Europe.
 
Strategic Priorities
 
LexisNexis Legal & Professional’s strategic goal is to enable better legal outcomes and be the leading provider of productivity enhancing information and information-based workflow solutions in its markets. To achieve this LexisNexis is focused on: building world class content; developing next generation product platforms, tools and infrastructure to deliver best-in-class outcomes for legal and business professionals with greater speed and efficiency; building client development and practice management tools enabling customers to be more successful in their markets; international expansion and growth of online products and solutions; increasing LexisNexis’ presence in emerging markets; and improving operational efficiency.
 
In the US, the focus is on the continuing development of the next generation of legal research and practice solutions and a major upgrade in operations infrastructure and customer service and support platforms to provide an integrated and superior customer experience across US legal research, litigation services, practice management and client development. Progressive product introductions over the next few years will combine advanced technology with enriched content and sophisticated analytics and applications to enable LexisNexis’ customers to make better legal decisions and drive better outcomes for their


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organisations and clients. A further priority is to complete the transformation of the client development business from a legal directory business into a web marketing services company.
 
Outside the US, LexisNexis is focused on growing online services and developing further high quality actionable content and workflow tools, including the development of practical guidance and practice management applications. Additionally, LexisNexis is focusing on the expansion of its activities in emerging markets.
 
Business Model, Distribution Channels and Competition
 
LexisNexis Legal & Professional products and services are generally sold directly to law firms and to corporate, government and academic customers on a paid subscription basis, with subscriptions with law firms often under multi-year contracts. Principal competitors for LexisNexis in US legal markets are West (Thomson Reuters), CCH (Wolters Kluwer) and BNA, and Bloomberg and Factiva (News Corporation) in news and business information. Competitors in litigation solutions also include software companies. Major international competitors include Thomson Reuters, Wolters Kluwer and Factiva.
 
Major brands
 
LexisNexis’ Legal & Professional major brands include: Lexis®, legal, news and public records content for legal professionals; Matthew Bender®, critical legal analysis, checklists, forms, and practice guides authored by industry experts covering 50 major practice areas; CaseMap®, software allowing litigators to assess and analyse case information; Lexis® for Microsoft® Office, an integration of LexisNexis content, open Web search and Microsoft Office; LexisNexis® Verdict & Settlement Analyzer®, an early case assessment tool for researching and evaluating the risk and opportunity associated with a case; lawyers.comSM, website for consumers seeking legal information and counsel; Lexis®Library, LexisNexis UK flagship legal online product; Lexis®PSL, LexisNexis UK legal practical guidance service; and JurisClasseur, an authoritative online legal resource in France.
 
REED EXHIBITIONS
 
                         
    Year ended December 31,  
    2010     2009     2008  
    (in millions)  
 
Revenue
  £ 693     £ 638     £ 707  
                         
 
Reed Exhibitions’ portfolio of exhibitions and conferences serves 44 industry sectors across the Americas, Europe, the Middle East and Asia Pacific. In 2010 Reed Exhibitions brought together over six million event participants from around the world, generating billions of dollars in business for its customers.
 
Reed Exhibitions is a global business headquartered in London and has principal offices in Paris, Vienna, Norwalk Connecticut, Abu Dhabi, Beijing, Tokyo, Sydney and São Paulo. Reed Exhibitions has 2,600 employees worldwide.
 
Over 70% of Reed Exhibitions’ revenue is derived from exhibitor participation fees, with the balance primarily comprising of conference fees, advertising in exhibition guides, sponsorship fees and admission charges. In 2010, approximately 19% of Reed Exhibitions’ revenue came from North America, 48% from Continental Europe, 6% from the United Kingdom and the remaining 27% from the rest of the world.
 
Reed Exhibitions organises market-leading events that are relevant to industry needs, where participants from around the world come together to do business, network and learn. Its exhibitions and conferences encompass a wide range of sectors, including: broadcasting, TV, music & entertainment; building & construction; electronics & electrical engineering; alternative energy, oil & gas; engineering, manufacturing & processing; gifts; interior design; IT & telecoms; jewellery; life sciences & pharmaceuticals; marketing; property & real estate; sports & recreation; and travel.
 
Well represented in the developed world, increasingly Reed Exhibitions is investing in the developing economies. Reed Exhibitions expanded in 2010 through new launches in the beauty and healthcare sectors in China; environment, construction and machinery in Brazil; and security in the UAE.
 
Market Opportunities
 
Growth in the exhibitions market is correlated to business to business marketing spend, historically driven by levels of corporate profitability, which itself has followed overall growth in GDP, and business investment. Emerging markets and growth industries provide additional opportunities. As some events are held other than annually, growth in any one year is affected by the cycle of non-annual exhibitions.
 
Strategic Priorities
 
Reed Exhibitions’ strategic goal is to provide market leading events in growth sectors that enable businesses to target and reach new customers quickly and cost effectively and to provide a platform for industry participants to do business, network and


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learn. To achieve this, Reed Exhibitions is focused on: developing the portfolio through a combination of new launches, strategic partnerships and selective acquisitions in high growth sectors and geographies; and further developing websites, analytics and other online tools to enhance the exhibition experience and add to customer return on investment in event participation.
 
Business Model, Distribution Channels and Competition
 
The substantial majority of Reed Exhibitions’ revenues are from sales of exhibition space. The balance includes conference fees, advertising in exhibition guides, sponsorship fees and, for some shows, admission charges. Exhibition space is sold directly or through local agents where applicable. Reed Exhibitions often works in collaboration with trade associations, which use the events to promote access for members to domestic and export markets, and with governments, for whom events can provide important support to stimulate foreign investment and promote regional and national enterprise.
 
Reed Exhibitions operates in a fragmented industry, holding less than a 10% global market share. Other international exhibition organisers include UBM, DMG World Media (DMGT), Informa IIR and Messe Frankfurt. Competition also comes from industry trade associations and convention centres and exhibition hall owners.
 
Major brands
 
Reed Exhibitions’ major brands include: Mipcom, a leading entertainment market; World Travel Market, a global event for the travel market; Brasil Offshore, an international offshore oil and gas trade show; Batimat, a leading construction exhibition; JCK Las Vegas, a North American jewellery industry trade event; World Future Energy Summit, a platform for sustainable future energy solutions; Nepcon China, one of the largest and longest standing electronic manufacturing trade events in China; In-cosmetics, an international exhibition for personal care ingredients; Gifts & Home, a leading business gifts & home fair in China; and Pollutec, an international exhibition of environmental equipment, technology and services.
 
REED BUSINESS INFORMATION
 
             
    Year ended December 31,
    2010   2009   2008
    (in millions)
 
Revenue
  £718   £891   £987
             
 
Reed Business Information (RBI) provides data services, information and marketing solutions to business professionals in the UK, the US, Continental Europe, Asia and Australia. It produces industry critical data services and lead generation tools, and over 100 online community and job sites. It publishes over 100 business magazines with market leading positions in many sectors.
 
Approximately 26% of RBI revenue in 2010 came from North America, 22% from the United Kingdom, 41% from Continental Europe and 11% from the rest of the world.
 
RBI is a global business headquartered in London and has principal operations in Sutton in the UK, Amsterdam and Doetinchem in the Netherlands, Boston, Los Angeles and Norcross, Georgia in the US as well as Paris, Milan, Madrid, Bilbao, Sydney and Shanghai. RBI has 5,300 employees worldwide.
 
RBI’s data services enable businesses and professionals to enhance productivity through quicker and easier access to insightful and comprehensive industry information. Online marketing solutions, business to business magazines, online lead generation services and community websites provide effective marketing channels for advertisers to reach target audiences and for industry professionals to access valued information.
 
In 2010, RBI was significantly restructured and refocused, to reflect the reduction in revenues caused by recession, the accelerated migration of customer marketing spend to web media, and the continued growth and opportunity in data services. During the year, the sale and closure of the US controlled circulation magazines and certain other titles were completed, together with the sale of RBI Germany and clusters of titles in the Netherlands, UK, Italy, Spain, France, Ireland and Asia.
 
The business was redefined and is now managed by key asset group — data services, online marketing solutions, leading brands, and other magazine brands/websites — and specific strategies and action plans have been developed for each group.
 
RBI’s market-leading data services include ICIS, a global information and pricing service for the petrochemicals and energy sector; Bankers Almanac, a leading provider of reference data on the banking industry; XpertHR, an online service providing HR data, regulatory guidance, best practices and tools for HR professionals; and Reed Construction Data, a provider of online construction data to the North American construction industry. In 2010, RBI entered into an agreement to increase its interest in CBI China, the market leading petrochemical and energy information service in China, and now has majority ownership. This transaction was completed in January 2011 and has brought ICIS unrivalled coverage of the important and growing Chinese and Asian chemicals and energy markets, considerably strengthening its global position.


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The major online marketing solutions include: totaljobs.com, a major UK online recruitment site; and Hotfrog, a global online business directory. Premier publishing brands include Variety in the US, New Scientist in the UK and the Elsevier magazine in the Netherlands.
 
Market Opportunities
 
The growing need for authoritative industry data and information is driving demand for online subscription data services and providing new opportunities. Business to business marketing spend has historically been driven by levels of corporate profitability, which itself has followed GDP growth, and business investment.
 
Strategic Priorities
 
RBI’s strategic goal is to help business professionals achieve better outcomes with information and decision support in its individual markets. Its areas of strategic focus are: further growing the data services businesses; capturing the economic recovery in the major online marketing solutions businesses; restructuring the business magazines and advertising driven portfolio, to develop online services in key markets and support print franchises through brand extensions and redesign; and to realign the cost base with revenue expectations and drive further organisational effectiveness.
 
Business Model, Distribution Channels and Competition
 
Across the RBI portfolio, user and subscription revenues now account for 59% of the total business with the remaining 41% derived from print and online advertising and lead generation. RBI electronic revenue streams now account for 46% of total revenue.
 
Data services are typically sold directly on a subscription or transactional basis. Business magazines are distributed on a paid or controlled circulation basis. Advertising and lead generation revenues are sold directly or through agents.
 
RBI’s data services and titles compete with a number of publishers on a service and title by title basis including: UBM, McGraw Hill, Wolters Kluwer and Incisive as well as many niche and privately owned competitors. RBI competes for online advertising with other business to business websites as well as Monster, Google and other search engines.
 
Major Brands
 
RBI’s major brands include: ICIS, a global provider of news and pricing data to the chemical and energy industries; BankersAlmanac.com, a supplier of banking intelligence to the global financial industry; XpertHR, an HR legal compliance and good practice toolkit; Reed Construction Data, construction data, building product information, cost data, market analysis and advertising channels to construction industry professionals; totaljobs.com, a UK generalist website attracting over 3.7 million jobseekers and carrying over 125,000 jobs every month; Hotfrog, a leading online user generated business directory with versions in 32 countries; emedia, a specialist in demand generation from permission-based audiences; Variety, the premier source of entertainment business news and analysis since 1905; Elsevier, a news and opinion magazine in the Netherlands; and New Scientist, a leading science and technology media brand.
 
ELSEVIER REED FINANCE BV
 
Elsevier Reed Finance BV, the Dutch parent company of the Elsevier Reed Finance BV group (“ERF”), is directly owned by Reed Elsevier PLC and Reed Elsevier NV. ERF provides treasury, finance, intellectual property and reinsurance 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 Reed Elsevier combined businesses. It is responsible for all aspects of treasury advice and support for Reed Elsevier Group plc’s businesses operating in Continental Europe, Latin America, the Pacific Rim, India, China and certain other territories, and undertakes foreign exchange and derivatives dealing services for the whole of Reed Elsevier. EFSA also arranges or directly provides Reed Elsevier Group plc businesses with financing for acquisitions, product development and other general requirements and manages cash pools, investments and debt programmes on their behalf.
 
EPSA actively manages intellectual property assets including trademarks such as The Lancet and databases such as Reaxys and PharmaPendium. In 2010 it continued to strengthen its position as a centre of excellence in the management and development of intellectual property assets.
 
ERSA is responsible for reinsurance activities for Reed Elsevier.
 
In 2010, EFSA was active in renegotiating the terms of Reed Elsevier’s $2 billion revolving credit facility which is available to EFSA. It negotiated and advised Reed Elsevier Group plc companies on a number of banking and cash management arrangements in Continental Europe, in particular in the Netherlands and France, as well as Asia and continued to advise on treasury matters, including interest, foreign currency and certain other financial exposures.
 
The average balance of cash under management by EFSA in 2010, on behalf of Reed Elsevier Group plc and its parent companies, was approximately $0.8 billion (2009: $0.4 billion).


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At December 31, 2010, 84% (2009: 92%) of ERF’s gross assets were held in US dollars and 15% (2009: 7%) in euros, including $8.7 billion (2009: $10.0 billion) and €0.6 billion (2009: €0.6 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 $2.2 billion and short term debt of $0.3 billion backed by committed bank facilities. Sources of long term debt include Swiss domestic public bonds, bilateral term loans, private placements and syndicated bank facilities. Short term debt is primarily derived from euro and US commercial paper programmes.
 
GOVERNMENT REGULATION
 
Certain of our businesses provide authorised customers with products and services such as access to public records and other information on US individuals. Our businesses that provide such products and services are subject to applicable privacy laws and US federal and state regulation. Our compliance obligations vary from regulator to regulator, and include, among other things, strict data security programs, submissions of regulatory reports, providing consumers with the contents of background reports and correcting inaccuracies in background reports. We are also subject to the terms of consent decrees and other settlements with certain regulators in the U.S. See “Item 8: Financial Information — Legal Proceedings” on page 65.
 
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 S-1.
 
PROPERTY, PLANTS AND EQUIPMENT
 
We own or lease over 280 properties around the world, the majority of leased space being in the United States. The table below identifies the principal owned and leased properties which we use in our business.
 
             
            Floor space
Location
 
Business segment(s)
  Principal use(s)   (square feet)
 
Owned properties
           
Alpharetta, Georgia
  LexisNexis   Office and data centre   406,000
Miamisburg, Ohio
  LexisNexis   Office   403,638
Linn, Missouri
  Elsevier   Warehouse   236,105
Albany, New York
  LexisNexis   Office   194,780
Oak Brook, Illinois
  Reed Business Information and LexisNexis   Office   181,659
Colorado Springs, Colorado
  LexisNexis   Office   181,197
Binghamton, New York
  LexisNexis   Office and warehouse   162,000
             
Leased properties
           
New York, New York
  Reed Business Information and Elsevier   Office   451,800
Amsterdam, Netherlands
  Reed Business Information and Elsevier   Office   426,036
Miamisburg, Ohio
  LexisNexis and Elsevier   Office and data centre   213,802
Sutton, England
  Reed Business Information   Office   191,960
 
 
 
All of the above properties are substantially occupied by Reed Elsevier businesses with the exception of the New York property, where Reed Elsevier occupies less than half of the floor space.
 
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 and has no major encumbrances.


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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, 2010 which have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).
 
The following discussion should be read in conjunction with, and is qualified by reference to, the combined financial statements.
 
Reed Elsevier derives its revenue principally from subscriptions, circulation and transactional sales, advertising sales and exhibition fees.
 
Revenue by source for continuing operations(1)
Year ended December 31,
 
                                                 
    2010     2009     2008  
    (in millions, except percentages)  
 
Subscriptions
  £ 2,709       45 %   £ 2,711       45 %   £ 2,381       45 %
Circulation/transactions
    1,760       29       1,708       28       1,142       21  
Exhibitions
    675       11       626       10       702       13  
Advertising
    491       8       585       10       737       14  
Other
    420       7       441       7       372       7  
                                                 
Total
  £ 6,055       100 %   £ 6,071       100 %   £ 5,334       100 %
                                                 
 
Revenue by geographic market for continuing operations(1)
Year ended December 31,
 
                                                 
    2010     2009     2008  
    (in millions, except percentages)  
 
North America
  £ 3,303       55 %   £ 3,310       55 %   £ 2,624       49 %
United Kingdom
    490       8       513       8       580       11  
The Netherlands
    204       3       243       4       234       4  
Rest of Europe
    1,131       19       1,132       19       1,136       22  
Rest of world
    927       15       873       14       760       14  
                                                 
Total
  £ 6,055       100 %   £ 6,071       100 %   £ 5,334       100 %
                                                 
 
 
(1) Following announcement in February 2007 of the planned sale of the Education division, the division is presented in the financial statements as a discontinued operation and is excluded from the above analysis.
 
The cost profile of individual businesses within Reed Elsevier varies widely and costs are controlled on an individual business unit basis. The most significant cost item for Reed Elsevier as a whole is staff costs, which in 2010 for continuing operations represented 40% of Reed Elsevier’s total cost of sales and operating expenses before amortisation and impairment of acquired intangible assets and goodwill (2009: 39%; 2008: 40%).
 
The following tables show revenue, operating profit and adjusted operating profit for each of Reed Elsevier’s continuing business segments in each of the three years ended December 31, 2010 together with the percentage change in 2010 and 2009 at both actual and constant exchange rates. Adjusted operating profit is a measure included on the basis that it is a key financial measure used by management to evaluate performance and allocate resources to the business segments, as reported under IFRS 8: Operating Segments in note 3 to the combined financial statements. Adjusted operating profit represents operating profit before amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, and is grossed up to exclude the equity share of taxes in joint ventures. Exceptional restructuring costs in 2010 relate only to the restructuring of the Reed Business Information business and in 2009 and 2008 relate to the exceptional


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restructuring programmes across Reed Elsevier. Exceptional restructuring costs principally comprise severance, outsourcing migration and associated property costs. A reconciliation of operating profit to adjusted operating profit is included below.
 
                                                                                 
    Revenue from continuing operations(5)
 
    Year ended December 31,  
    2010     2009     % change     2008     % change  
                            actual
    constant
                actual
    constant
 
                            rates     rates(1)                 rates     rates(2)  
    (in millions, except percentages)  
 
Elsevier
  £ 2,026       34 %   £ 1,985       33 %     +2 %     +2     £ 1,700       32 %     +17 %     +4 %
LexisNexis
    2,618       43       2,557       42       +2       +1       1,940       36       +32       +14  
Reed Exhibitions
    693       11       638       11       +9       +9       707       13       -10       -21  
Reed Business Information
    718       12       891       14       -19       -20       987       19       -10       -18  
                                                                                 
Total
  £ 6,055       100 %   £ 6,071       100 %     0 %     -1 %   £ 5,334       100 %     +14 %     0 %
                                                                                 
 
                                                                                 
    Operating Profit from continuing operations(5)
 
    Year ended December 31,  
    2010     2009     % change     2008     % change  
                            actual
    constant
                actual
    constant
 
                            rates     rates(1)                 rates     rates(2)  
    (in millions, except percentages)  
 
Elsevier
    £647       59 %     £563       69 %     +15 %     +14 %   £ 443       49 %     +27 %     +14 %
LexisNexis
    324       30       337       41       -4       -6       291       32       +16       +2  
Reed Exhibitions
    127       11       79       10       +61       +61       123       13       -36       -46  
Reed Business Information
                (163 )     (20 )     +100       +99       55       6       -397       -355  
                                                                                 
Subtotal
    £1,098       100 %     £816       100 %                   £ 912       100 %                
Corporate costs
    (34 )             (35 )                             (50 )                        
Unallocated net pension credit(4)
    26               6                               39                          
                                                                                 
Total
    £1,090               £787               +39 %     +37 %   £ 901               -13 %     -22 %
                                                                                 
 
                                                                                 
    Adjusted Operating Profit from continuing operations(3)(5)
 
    Year ended December 31,  
    2010     2009     % change     2008     % change  
                            actual
    constant
                actual
    constant
 
                            rates     rates(1)                 rates     rates(2)  
    (in millions, except percentages)  
 
Elsevier
    £724       46 %     £693       43 %     +4 %     +4 %     £568       41 %     +22 %     +9 %
LexisNexis
    592       38       665       42       -11       -12       513       37       +30       +13  
Reed Exhibitions
    158       10       152       10       +4       +4       183       13       -17       -28  
Reed Business Information
    89       6       89       5       0       0       126       9       -29       -35  
                                                                                 
Subtotal
    £1,563       100 %     £1,599       100 %                     £1,390       100 %                
Corporate costs
    (34 )             (35 )                             (50 )                        
Unallocated net pension credit(4)
    26               6                               39                          
                                                                                 
Total
    £1,555               £1,570               -1 %     -2 %     £1,379               +14 %     +1 %
                                                                                 


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Adjusted operating profit for Reed Elsevier is a non-GAAP measure included on the basis that it is a key financial measure used by management to evaluate performance and allocate resources, and is derived from operating profit as follows:
 
                         
    2010     2009     2008  
    (in millions)  
 
Operating profit — continuing operations
    £1,090       £787       £901  
Adjustments:
                       
Amortisation of acquired intangible assets
    349       368       281  
Impairment of acquired intangible assets and goodwill
          177       9  
Exceptional restructuring costs
    57       182       152  
Acquisition related costs
    50       48       27  
Reclassification of tax in joint ventures
    9       8       9  
                         
Adjusted operating profit from continuing operations
    £1,555       £1,570       £1,379  
                         
 
 
(1) Represents percentage change in 2010 over 2009 at constant rates of exchange, which have been calculated using the average and hedge exchange rates for the 2009 financial year. These rates were used in the preparation of the 2009 combined financial statements.
 
(2) Represents percentage change in 2009 over 2008 at constant rates of exchange, which have been calculated using the average and hedge exchange rates for the 2008 financial year. These rates were used in the preparation of the 2008 combined financial statements.
 
(3) Adjusted operating profit represents operating profit before the amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, and is grossed up to exclude the equity share of taxes in joint ventures, and is reconciled to operating profit above.
 
(4) The unallocated net pension credit of £26 million (2009: £6 million; 2008: £39 million) comprises the expected return on pension scheme assets of £217 million (2009: £189 million; 2008: £219 million) less interest on pension scheme liabilities of £191 million (2009: £183 million; 2008: £180 million).
 
(5) Following announcement in February 2007 of the planned sale of the Education division, the division is presented as a discontinued operation and is excluded from the above analysis.
 
In the commentary below, percentage movements are at actual exchange rates unless otherwise stated. Percentage movements at constant exchange rates are calculated using the average and hedge exchange rates for the previous financial year. Percentage movements at both actual rates and constant rates are shown in tables on page 25. The effect of currency movements on the 2010 results is further described separately below (see “— Effect of Currency Translation” on pages 31 and 32). References to operating profit relate to operating profit including joint ventures. References to underlying performance are calculated to exclude the results of all acquisitions and disposals made in the current and prior year and the impact of currency. Adjusted operating margin and underlying growth are defined in the glossary on pages F-84 and F-85.
 
Results of Operations for the Year Ended December 31, 2010
Compared to the Year Ended December 31, 2009
 
General — continuing operations
 
Revenue was £6,055 million (2009: £6,071 million), flat on the prior year and down 1% at constant exchange rates. Underlying revenues, before acquisitions and disposals, were 2% higher.
 
Operating profits of £1,090 million were up 39%, or up 37% at constant exchange rates, compared with £787 million in 2009. The significant increase principally reflects no intangible asset and goodwill impairment and lower exceptional restructuring charges.
 
The amortisation charge in respect of acquired intangible assets, including the share of amortisation in joint ventures, was £349 million (2009: £368 million), down £19 million as a result of disposals and prior year impairments. Charges for impairment of acquired intangible assets and goodwill were nil (2009: £177 million, principally relating to the RBI US business).
 
Exceptional restructuring costs, which in 2010 relate only to the restructuring of RBI, amounted to £57 million (2009: £182 million relating to major restructuring programmes across Reed Elsevier announced in February 2008 and 2009) and included severance and vacant property costs. Acquisition related costs amounted to £50 million (2009: £48 million) principally in respect of the integration within LexisNexis of the ChoicePoint business acquired in September 2008.
 
Excluding amortisation and impairment of acquired intangible assets and goodwill of £349 million (2009: £545 million), exceptional restructuring costs of £57 million (2009: £182 million), acquisition related costs of £50 million (2009: £48 million), and tax charges in respect of joint ventures of £9 million (2009: £8 million), operating profits would have been down 1% at £1,555 million (2009: £1,570 million), or down 2% at constant exchange rates, and down 1% on an underlying basis.
 
Operating margin, including amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, and the equity share of taxes in joint ventures was 18.0% (2009: 13.0%). Excluding these items, the adjusted margin would have been 25.7%, 0.2 percentage points lower than the prior year and, excluding cost reduction from asset disposals and closures, which had a 0.5 percentage points benefit to this margin, costs increased by 3% on an underlying basis. Increased spending on new product development, infrastructure, and sales & marketing, particularly in the legal businesses, has been offset by cost actions across the business, including incremental savings from the earlier exceptional restructuring programmes.


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Disposals and other non operating losses of £46 million (2009: £61 million) principally relate to asset sales and related closures in RBI’s US businesses.
 
Net finance costs were £276 million (2009: £291 million), with the benefit of cash flow and the July 2009 share placings being partly offset by the impact of higher coupon term debt issued in 2009 to repay certain of the ChoicePoint acquisition facility loans.
 
Profit before tax, including amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, disposals and other non operating items, was £768 million (2009: £435 million).
 
The tax charge was higher at £120 million (2009: £40 million) reflecting the increase in profit before tax and prior year tax credits on disposals. The application of tax law and practice is subject to some uncertainty and provisions are held in respect of this. Issues are raised during the course of regular tax audits and discussions with the Internal Revenue Service including on the deductibility of interest in the US on cross-border financing are ongoing. Although the outcome of open items cannot be predicted, no material impact on results is expected from such issues.
 
Profit attributable to shareholders was £642 million, up from £391 million in 2009, reflecting the higher profit before tax partly offset by the higher tax charge.
 
Elsevier
 
Elsevier saw growth in a constrained customer budget environment. Revenues and adjusted operating profits increased by 2% and 4% respectively at constant currencies, with the improvement in adjusted operating margin reflecting increased cost efficiency.
 
Science & Technology saw 3% revenue growth at constant currencies. ScienceDirect and other journal subscription revenues developed as expected in a difficult academic budget environment. Content quantity, quality and usage continued to grow, reflecting the growth in research activity worldwide. The Scopus abstract and indexing database performed well with a significant increase in subscriptions. New content sets and product features were added and Scopus saw a 30% increase in customer searches. Other specialist databases also grew well as the development of new features and content continued. In reference and education, in a smaller frontlist publishing year, electronic sales grew and print revenue decline stabilised.
 
In Health Sciences, revenues were flat at constant currencies, or up 1% underlying before taking account of small acquisitions and disposals. Modest growth was seen in medical research journal subscriptions revenues, reflecting the same academic budget pressures seen in Science & Technology. Subscriptions to integrated online solutions and other electronic product sales grew well in nursing and health professional education, clinical reference and in the majority of clinical decision support. Growth was tempered by constrained budgets, pending US healthcare reform and moderating enrolment, as career schools adjust to expected legislation affecting student funding. Pharma promotion and other advertising revenues were lower, with continuing weakness in Europe. Emerging markets grew well due to the continued expansion of local publishing to meet the increasing demand for medical education and clinical reference products.
 
Underlying cost growth, excluding amortisation of intangible assets, exceptional restructuring and acquisition related costs was 1%, with increased spend on new product development, sales and marketing offset by additional cost savings in offshore production, procurement and the streamlining of operations and support services.
 
Operating profit of Elsevier, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, was £647 million (2009: £563 million), a 14% increase at constant exchange rates, reflecting in particular that there were no exceptional restructuring costs in 2010.
 
LexisNexis
 
LexisNexis returned to revenue growth, driven by growth in the risk business. Subscription revenues in the legal business continued to reflect the lower levels of law firm activity and employment. Adjusted operating margin was lower due to the weaker revenues and increased spending in the legal business on new product development, related infrastructure and sales & marketing.
 
LexisNexis revenues increased by 1% and adjusted operating profits declined 12% at constant currencies, both before and after small acquisitions and disposals.
 
The adjusted operating margin declined 3.4% due to the revenue decline in the legal businesses combined with increases in spend on new legal product development, related infrastructure, sales & marketing, and restructuring costs. This was in part mitigated by continuing cost actions, including further outsourcing of production and engineering activities, supply chain management and operational streamlining in the legal businesses and the further integration within risk solutions. Underlying cost growth, excluding amortisation of intangible assets, exceptional restructuring and acquisition related costs was 6%.
 
LexisNexis Risk Solutions grew revenues 6% at constant currencies, with the insurance segment continuing to grow and the more cyclical markets, most notably employment screening, returning to growth. The insurance solutions business saw revenue growth of 8% driven by high transactional activity in the auto and property insurance markets and increasing sales of data and analytics products. The transactional activity growth reflects increasing levels of insurance quoting as consumers seek better policy terms stimulated by sustained promotion by insurance companies and the growth of internet quoting and policy binding. The more cyclical businesses returned to growth as the US economy recovered. The employment screening business


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grew 12%, compared to a decline of 22% in the prior year, as major retailers and other employers increased hiring activity. Business services saw growth in the financial services segment with increasing demand for anti-money laundering and fraud prevention products. Demand growth in government markets for identity verification and authentication information and analytics was however held back by longer sales cycles reflecting the uncertainty over government budgets.
 
The LexisNexis Legal & Professional business saw a revenue decline of 2% at constant currencies reflecting the impact on renewals and print product of the low levels of law firm activity and employment. Corporate, government and academic markets were lower. US revenues declined 2% at constant currencies, or 1% underlying before the net effect of small disposals and acquisitions. This compares to a decline of 6% in the prior year. The decline was largely driven by the continued contraction in corporate, government and academic markets which saw revenues 5% lower in a challenging budgetary environment for customers, impacting in particular sales of the news & business information databases to corporate customers, which were down 13%. US law firm revenues were up 2% or down 2% before last year’s change in revenue allocation in Martindale-Hubbell. Law firm subscription, print and transactional revenues remained under pressure as contract renewals reflected the lower levels of law firm activity and lawyer employment than was the case when they were last agreed, typically two to three years ago. Aside from this late cycle impact on renewals, 2010 saw legal markets in the US stabilise and growth was seen in new sales. Growth continued in litigation solutions, practice management and other services for law firms. In December 2010, LexisNexis acquired StateNet, a publisher of information on the progress of prospective legislation through the US legislative process. Outside the US, International revenues declined 2% at constant currencies. Online legal solutions saw revenues up 6% as a result of demand for technology enabled content and new workflow tools. Market penetration of these services continues to increase across all geographies. Print sales declined, particularly in the UK as law firms cut back on spending and place increasing reliance on online services. Electronic revenues now account for more than 50% of the International business.
 
Operating profit of LexisNexis, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, was £324 million (2009: £337 million), a 6% decrease at constant exchange rates, largely reflecting the decrease in adjusted operating profits partially offset by no exceptional restructuring costs in 2010 other than in respect of acquisition integration.
 
Reed Exhibitions
 
Reed Exhibitions saw revenue growth with the net cycling in of biennial exhibitions and a significantly moderated decline in annual show revenues.
 
Revenues and adjusted operating profits were up 9% and 4% respectively at constant currencies, or 8% and 4% before acquisitions.
 
Underlying revenues, excluding the effect of biennial show cycling, declined by 3% compared with a 6% decline in the first half, with stable performance or modest growth in all major markets in the second half as conditions progressively improved. The 2010 shows have seen growing attendances at the majority of annual events and exhibitor numbers up 4% in the top 50 annual shows. In the largest market, Europe, underlying revenues excluding cycling were lower by 4% compared with a 16% decline in the prior year. The US also saw moderated declines with revenues down by 5% compared to 15% in 2009. By contrast, the shows in China, Russia, the Middle East and Brazil grew although some of these are joint ventures and are therefore not included in the revenues. Reed Exhibitions now operates nearly 100 shows in emerging markets with approximately 40 shows in each of Brazil and China.
 
The decline in adjusted operating margin primarily reflects the revenue decline in annual shows and increased spend, including on the development of websites, analytics and other innovative online tools to increase the effectiveness and efficiency of events for both exhibitors and attendees, partly mitigated through cost savings.
 
Operating profit of Reed Exhibitions, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, was £127 million (2009: £79 million), a 61% increase at constant exchange rates, largely reflecting the increase in adjusted operating profits and no impairment charges and exceptional restructuring costs in 2010.
 
Reed Business Information
 
Reed Business Information saw growth in data services and online marketing solutions and moderated declines in advertising markets. The portfolio was reshaped through disposals and closures and costs were reduced.
 
Revenues were down 20% and adjusted operating profits flat at constant currencies. Excluding portfolio changes, underlying revenues were down 2% and adjusted operating profits increased by 4%.
 
In 2010, Reed Business Information (RBI) was significantly restructured and refocused. The sale and closure of the US controlled circulation magazines and certain other titles were completed, together with the sale of RBI Germany and clusters of magazine titles in the Netherlands, UK, Italy, Spain, France, Ireland and Asia. The business was redefined by asset groups, and clear and distinct value creation plans were developed for each group.
 
The major data services businesses, which account for approximately 20% of RBI revenues, were up 4% with growth in ICIS, Bankers Almanac and XpertHR, tempered by weakness in RCD serving the US construction markets. The major online marketing solutions businesses, accounting for approximately 12% of RBI revenues, were up 10%, with a recovery in Totaljobs online recruitment services and continuing growth in the Hotfrog web search business. Business magazines and related services,


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accounting for approximately 68% of RBI revenues, saw underlying revenues 6% lower driven by print advertising declines which more than offset online growth.
 
The 2.4% increase in adjusted operating margin reflects the significant restructuring of the business, with the disposal or closure of unprofitable assets and excluding amortisation of intangible assets, exceptional restructuring and acquisition related costs a 3% reduction in costs of the continuing business, with consolidation of operations, procurement savings and tight cost control.
 
Operating profit of Reed Business Information, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, was nil (2009: £163 million loss), largely reflecting no impairment charges in 2010.
 
Results of Operations for the Year Ended December 31, 2009
Compared to the Year Ended December 31, 2008
 
General — continuing operations
 
Revenue increased by 14% to £6,071 million including a full year contribution from the ChoicePoint business acquired in September 2008. At constant exchange rates, revenue was flat compared with 2008, or 6% lower excluding acquisitions and disposals.
 
Operating profits of £787 million were down 13%, or down 22% at constant exchange rates, compared with £901 million in 2008. The decrease in operating profit principally reflects intangible asset and goodwill impairment charges relating to RBI and increased restructuring and acquisition integration spend, partly offset by currency translation effects. Operating profit is stated after amortisation of acquired intangible assets of £368 million (2008: £281 million), impairment of acquired intangible assets and goodwill of £177 million (2008: £9 million), exceptional restructuring costs in respect of a restructuring programme announced in February 2008 and 2009 of £182 million (2008: £152 million), acquisition related costs principally relating to the integration of ChoicePoint into LexisNexis of £48 million (2008: £27 million) and includes tax charges in respect of joint ventures of £8 million (2008: £9 million). Excluding these items, operating profits would have been up 14% at £1,570 million (2008: £1,379 million), or up 1% at constant exchange rates, and down 9% on an underlying basis.
 
Operating margin, including amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, was 13.0% (2008: 16.9%). Excluding amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, and the equity share of taxes in joint ventures, the margin would have been 25.9%, the same as compared to 2008. An underlying decline in adjusted operating margin of 0.8 percentage points was largely offset by the growth in profitability and margin in ChoicePoint.
 
The amortisation charge for acquired intangible assets, including the share of amortisation for joint ventures, of £368 million was up £87 million on the prior year principally as a result of ChoicePoint and other 2008 acquisitions, and currency translation effects.
 
The impairment charge for acquired intangible assets and goodwill of £177 million (2008: £9 million) principally relates to RBI and certain minor exhibitions businesses.
 
Net finance costs, at £291 million, were £99 million higher than in the prior year reflecting a full year’s funding of the ChoicePoint acquisition and currency translation effects, less the benefit of the July 2009 share placing and cash flow.
 
Profit before tax was £435 million, compared with £617 million in 2008, a decrease of 29%. The decrease in profit before tax reflects the lower operating profits and higher net finance costs.
 
The tax charge of £40 million compares with £155 million in the prior year, a decrease of 74%. The decrease reflects the lower profit before tax, geographic mix effects, tax credits on prior period disposals and the full year deferred tax credit on amortisation of the deferred tax liability established on acquisition of ChoicePoint in relation to its intangible assets.
 
The profit attributable to shareholders of £391 million was down 18% compared to £476 million in 2008, reflecting the lower reported profit before tax partly mitigated by lower tax costs and currency translation effects.
 
Elsevier
 
Revenue and adjusted operating profits were up 17% and up 22% respectively compared to 2008. At constant exchange rates, revenue and adjusted operating profits were up 4% and 9% respectively, and the same on an underlying basis.
 
The Science & Technology business saw underlying revenue growth of 5%, driven by the level of ScienceDirect subscription renewals entering the year. Also contributing to revenue growth was an increase in subscriptions to the Scopus abstract and indexing database. Growth in e-books and other online transactional sales were offset by lower print book sales reflecting tighter customer budgets and channel destocking.
 
The Health Sciences business saw underlying revenue growth of 3%, driven by growth in medical research, nursing and health professional education and clinical decision support which was in part tempered by continuing weakness in pharma promotion markets. Pharma promotion and other advertising revenues, which accounted for approximately 20% of Health Sciences’ revenues, were down 7% reflecting fewer blockbuster drug launches and a reduction to the marketing budgets of pharmaceutical companies. Excluding pharma promotion and other advertising, revenues were 5% ahead at constant currencies. Growth in medical research revenues were a result of increasing online subscriptions to medical content. The nursing and


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health professionals education growth was achieved through the increasing demand for healthcare professionals, new publishing, and the further development and increasing penetration of online resources. Double-digit growth was also seen in clinical decision support with growing demand for online workflow solutions that combine content with predictive analytics. In clinical reference, growth in MDConsult and other online reference products was offset by lower book sales.
 
Significant progress was made during the year in improving cost efficiency including: the streamlining of business processes in shared services; the continued ramp up of journal and book production operations in Chennai; the further outsourcing of IT development and back office activities, including application management and financial transaction processing; the consolidation of activities, including technology operation and real estate; and more effective leveraging of global procurement.
 
Operating profit of Elsevier, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, increased by £120 million to £563 million (a 14% increase at constant exchange rates), largely reflecting the increase in adjusted operating profit described above.
 
LexisNexis
 
Revenue and adjusted operating profits were up 32% and up 30% respectively compared to 2008, including the first full year contribution from ChoicePoint. At constant exchange rates, revenue and adjusted operating profits were up 14% and 13% respectively, or down 4% and 15% on an underlying basis, excluding ChoicePoint and minor acquisitions and disposals.
 
The US Legal business saw revenues decline 6%, or 4% before change in revenue allocation in Martindale-Hubbell, largely driven by weakness in corporate, government and academic markets and cutbacks by law firms on directory spend. Revenues from the core law firm business remained flat despite the impact of the economic downturn on the legal industry. In recognition of Martindale-Hubbell’s transformation into a web marketing services company, all listing revenues in 2009 have been attributed to the online listings and recognised rateably over the listing period. Print directories are no longer provided except as separately ordered by customers. The change in timing of revenue recognition has a one time adverse effect in 2009.
 
The LexisNexis International business saw revenues decline 3% or 1% underlying before taking account of the sale in the prior year of the Latin America business. The pressures on the legal services industry internationally mirrored those seen in the US particularly in the UK with the impact mostly on print product sales as customers increasingly rely on the online service. With less penetration of online services in international markets than in the US, online revenues grew 9%, largely offset by a decline in print sales.
 
The Risk Solutions business saw underlying revenues, before ChoicePoint, decline 2% reflecting the slowdown in transactional activity in the US economy, largely offset by growth in government markets. Including ChoicePoint, Risk Solutions’ revenues grew by 95% at constant currencies. ChoicePoint revenues were up 1% on a stand alone basis with adjusted operating profits up 44% taking into account the cost synergies on integration of the ChoicePoint business within LexisNexis. Revenue growth was 10% on a stand alone basis in the insurance segments driven by high transactional activity in the auto and property insurance markets and by increasing sales of more powerful data and analytics products. The 1% stand alone revenue growth is after a 13% decline in the non insurance businesses, principally in pre-employment screening, reflecting the economic downturn. Cost actions in the screening business limited the profit impact of this decline.
 
The adjusted operating margin was down 40 basis points in 2009 compared with 2008 reflecting the underlying revenue decline and increases in spending on new product development, sales and marketing and operational support, largely mitigated by the further restructuring and cost actions and the increasing profitability of ChoicePoint.
 
Operating profit of LexisNexis, including amortisation of acquired intangible assets, exceptional restructuring and acquisition related costs, increased by £46 million to £337 million (a 2% increase at constant exchange rates), reflecting the increase in adjusted operating profit described above, partially offset by increased amortisation of intangible assets and acquisition integration charges following the acquisition of ChoicePoint in September 2008.
 
Reed Exhibitions
 
Revenues and adjusted operating profits were down 10% and 17% respectively compared to 2008. At constant exchange rates, revenue and adjusted operating profits were down 21% and 28% respectively, or 22% and 31% on an underlying basis. Adjusted for biennial show cycling, underlying revenues and adjusted operating profits were 13% and 18% lower respectively.
 
Cost savings were made through management streamlining, operational efficiencies and headcount reductions across the business.
 
Sales of exhibition space and ancillary services were lower across all major geographies. There was also a decline in paying delegates at the small number of shows which charge significant fees for participation. Across the regions, annual show revenues were 14% lower in the US, 13% in Japan, and 17% in Europe. Attendances at shows have however remained resilient.
 
Adjusted operating margin decreased by 2.1 percentage points reflecting the revenue decline mitigated in part by cost savings made through management streamlining, operational efficiencies and headcount reductions across the business.


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Operating profit of Reed Exhibitions, including amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition related costs, decreased by £44 million to £79 million (a decrease of 46% at constant exchange rates) reflecting the decrease in adjusted operating profit described above and impairment charges.
 
Reed Business Information
 
Revenue and adjusted operating profits were down 10% and 29% respectively compared to 2008. At constant exchange rates, revenues and adjusted operating profits were 18% and 35% lower, or 18% and 34% before acquisitions and disposals.
 
Overall advertising revenues (47% of RBI revenues) were down 29%, with online advertising revenues down 14% and print advertising revenues down 37%. Print subscription and other revenues declined 10%. In contrast, data services revenues (17% of RBI revenues) grew 10%.
 
The controlled circulation magazines and certain other print titles in the US, accounting for 47% of US revenues, are being sold, restructured in anticipation of sale or closed. Variety and the entertainment group, RCD (Reed Construction Data), and the BuyerZone lead generation business are being retained. These businesses saw revenues decline 16%.
 
Adjusted operating margin decreased by 2.8 percentage points reflecting the revenue decline mitigated in part by cost savings.
 
Including amortisation and impairment of acquired intangibles and goodwill, exceptional restructuring and acquisition related costs, RBI reported an operating loss of £163 million compared with operating profit of £55 million in 2008.
 
Critical Accounting Policies
 
The accounting policies of the Reed Elsevier combined businesses under IFRS as issued by the International Accounting Standards Board and as adopted by the European Union are described in note 2 to the combined financial statements. The most critical accounting policies and estimates used in determining the financial condition and results of the combined businesses, and those requiring the most subjective or complex judgments, relate to the valuation of goodwill and intangible assets, pensions, share based remuneration, litigation, taxation and property provisioning.
 
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.
 
Effect of Currency Translation
 
The combined financial statements are expressed in sterling and are therefore subject to the impact of movements in exchange rates on the translation of the financial information of individual businesses whose operational currencies are other 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 United States and the Euro Zone, its most important markets outside the United Kingdom.
 
The currency profile of Reed Elsevier’s revenue, operating profit and adjusted operating profit from continuing operations for 2010 is set forth below.
 
Revenue, operating profit and adjusted operating profit in each currency as a percentage of total revenue,
operating profit and adjusted operating profit respectively
 
                                         
    US Dollars     Sterling     Euro     Other     Total  
 
Revenue
    52%       15%       24%       9%       100%  
Operating profit
    36%       19%       36%       9%       100%  
Adjusted operating profit
    46%       16%       31%       7%       100%  
                                         
 
Individual businesses within Reed Elsevier Group plc and ERF are subject to foreign exchange transaction exposures caused by the effect of exchange rate movements on their revenue and operating costs, to the extent that such revenue and costs are not denominated in their functional currencies. Individual businesses are required to hedge their exposures at market rates with the centralised treasury department within ERF. Hedging of foreign exchange transaction exposure is the only hedging activity undertaken by the individual businesses. For further details see note 20 to the combined financial statements.
 
Currency differences increased Reed Elsevier’s revenue from continuing operations by £52 million in 2010 compared to 2009. Excluding amortisation of acquired intangible assets, currency differences increased operating profits from continuing operations by £13 million in 2010 compared to 2009. Acquired intangible assets and goodwill are predominantly denominated in US dollars and, after charging amortisation, currency differences increased operating profits from continuing operations by £12 million in 2010 compared to 2009. Borrowings are predominantly denominated in US dollars and, after charging net finance costs, currency differences increased profit before tax from continuing operations by £11 million in 2010 compared to 2009.


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To help protect Reed Elsevier PLC’s and Reed Elsevier NV’s shareholders’ equity from the effect of currency movements, Reed Elsevier will, as deemed appropriate, hedge foreign exchange translation exposures by borrowing in those currencies where significant translation exposure exists or sell forward surplus cash flow in anticipation of dividend or capital repatriation. 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 functional currency of individual businesses provides a structural hedge for the assets in those markets and for the income realised from those assets.
 
Recently Issued Accounting Pronouncements
 
Recently Issued Accounting Pronouncements are set out in note 2 to the combined financial statements.
 
LIQUIDITY AND CAPITAL RESOURCES — REED ELSEVIER
 
Cash Flow
 
Reed Elsevier’s cash generated from operations in 2010 amounted to £1,649 million (2009: £1,604 million; 2008: £1,452 million). Included in these net cash inflows are cash outflows relating to exceptional restructuring and acquisition related costs charged to operating profit of £150 million (2009: £169 million; 2008: £99 million). Reed Elsevier generates significant cash inflows as its principal businesses do not generally require major fixed or working capital investments. A substantial proportion of revenue is received through subscription and similar advanced receipts, principally for scientific and medical journals and exhibition fees. At December 31, 2010 subscriptions and other revenues in advance totalled £1,308 million (2009: £1,220 million; 2008: £1,375 million).
 
Reed Elsevier’s cash outflow on the purchase of property, plant and equipment in 2010 was £83 million (2009: £78 million; 2008: £57 million), while proceeds from the sale of property, plant and equipment amounted to £7 million (2009: £4 million; 2008: £5 million). The cash outflow on internally developed intangible assets in 2010 was £228 million (2009: £164 million; 2008: £115 million), principally relating to investment in software and systems development.
 
During 2010, Reed Elsevier paid a total of £43 million (2009: £11 million; 2008: £2,131 million, including £1,931 million to acquire ChoicePoint) for acquisitions after taking account of net cash acquired of nil (2009: £3 million; 2008: £51 million) and of which £5 million (2009: £2 million; 2008: £19 million) is deferred to future years. In addition, £7 million (2009: £56 million; 2008: £19 million) of payments were made in respect of ChoicePoint change of control and other non operating liabilities assumed on acquisition and £5 million (2009: £29 million; 2008: £30 million) of deferred payments were made in respect of acquisitions made in prior years. Net proceeds from sale of equity investments and businesses were £6 million proceeds (2009: £2 million costs, 2008: £8 million proceeds). During 2010, Reed Elsevier paid in total £9 million (2009: £120 million; 2008: £215 million) for tax, net of repayments from prior years.
 
During 2010, Reed Elsevier paid ordinary dividends totalling £483  million to the shareholders of the parent companies (2009: £457 million; 2008: £418 million). In 2008, the special distribution paid to shareholders in January 2008 from the net proceeds of the Education Division disposal amounted to £2,013 million (including £27 million paid to the employee benefit trust). No share repurchases were made by Reed Elsevier PLC and Reed Elsevier NV in 2010 (2009: nil; 2008: £40 million) and no payments (2009: nil; 2008: £54 million) were made by the Reed Elsevier Group plc Employee Benefit Trust to purchase Reed Elsevier PLC and Reed Elsevier NV shares to meet commitments under the Reed Elsevier share option and conditional share schemes. Dividend payments and share repurchases are funded by the operating cash flow of the business after capital spend. Proceeds, net of expenses, from share placings by the parent companies in July 2009 were £829 million.
 
Net borrowings, a key indebtedness measure used in assessing Reed Elsevier’s financial position, at December 31, 2010 were £3,455 million (2009: £3,931 million; 2008: £5,726 million), comprising gross borrowings of £4,302 million, less £105 million of related derivative financial instrument assets and cash and cash equivalents of £742 million. The decrease of £476 million from the prior year includes currency translation effects that increased net borrowings by £77 million on the largely US dollar denominated net debt. Excluding currency translation effects, net borrowings reduced by £553 million reflecting positive free cash flow.
 
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.


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Contractual Obligations
 
The contractual obligations of Reed Elsevier relating to debt finance and operating leases at December 31, 2010 analysed by when payments are due, are summarised below.
 
                                         
          Less than
                After
 
    Total     1 year     1-3 years     3-5 years     5 years  
    (in millions)  
 
Short term debt(1)(2)
  £ 516     £ 516     £     £     £  
Long term debt (including finance leases)(2)
    5,179       237       1,450       1,277       2,215  
Operating leases
    642       128       189       117       208  
                                         
Total
  £ 6,337     £ 881     £ 1,639     £ 1,394     £ 2,423  
                                         
 
 
(1) Short term debt is supported by committed facilities and by the central management of cash and cash equivalents, and primarily comprises commercial paper. At December 31, 2010 Reed Elsevier had access to a $2,000 million committed bank facility maturing in June 2013, which was undrawn.
 
(2) Short and long term debt obligations comprise undiscounted principal and interest cash flows. Interest cash flows are calculated by reference to the contractual payment dates and the fixed interest rates (for fixed rate debt) or the relevant forecast interest rates (for floating rate debt).
 
Information on retirement benefit obligations is set out in note 8 to the combined financial statements.
 
Off-Balance Sheet Arrangements
 
At December 31, 2010 Reed Elsevier had outstanding guarantees in respect of property leases. The maximum amount guaranteed as at December 31, 2010 is £19 million for certain property leases up to 2024, of which an amount of £9 million is held as a provision. These guarantees, which would crystallise in the event that existing lessees default on payment of their lease commitments, are unrelated to the ongoing business.
 
Save as disclosed above and under contractual obligations, Reed Elsevier has no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on the combined businesses’ financial condition, results of operations, liquidity, capital expenditure or capital resources.
 
Treasury Policies
 
The boards of Reed Elsevier PLC and Reed Elsevier NV have requested that Reed Elsevier Group plc and Elsevier Reed Finance BV have due regard to the best interests of Reed Elsevier PLC and Reed Elsevier NV shareholders in the formulation of treasury policies. Financial instruments are used to finance the Reed Elsevier businesses and to hedge transactions. Reed Elsevier’s businesses do not enter into speculative transactions. The main treasury risks faced by Reed Elsevier are liquidity risk, interest rate risk, foreign currency risk and credit risk. The boards of the parent companies agree overall policy guidelines for managing each of these risks and the boards of Reed Elsevier Group plc and Elsevier Finance SA agree policies (in line with parent company guidelines) for their respective business and treasury centres. These policies are summarised below.
 
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 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.
 
After taking into account interest rate and currency derivatives, at December 31, 2010 interest expense was fixed on an average of £3.0 billion of forecast debt for the next 12 months. This fixed rate debt reduces to £2.0 billion by the end of 2013 and reduces further thereafter with all but £0.4 billion of fixed rate term debt (not swapped to floating rate) having matured by the end of 2019.
 
At December 31, 2010, fixed rate term debt (not swapped to floating rate) amounted to £2.5 billion (2009: £2.7 billion) and had a weighted average life remaining of 6.4 years (2009: 6.9 years) and a weighted average interest rate of 6.4% (2008: 6.4%). Interest rate derivatives in place at December 31, 2010, which fix the interest cost on an additional £0.6 billion (2009: £0.8 billion) of variable rate debt, have a weighted average maturity of 1.1 years (2009: 1.7 years) and a weighted average interest rate of 4.2% (2000: 4.2%).
 
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.


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Currency exposures on transactions denominated in a foreign currency are required to be hedged using forward contracts. In addition, recurring transactions and future investment exposures may be hedged, in advance of becoming contractual. The precise policy differs according to the specific circumstances of the individual businesses. Highly predictable future cash flows may be covered for transactions expected to occur during the next 12 months (50 months for Elsevier science and medical subscription businesses) within limits defined according to the period before the transaction is expected to become contractual. Cover takes the form of foreign exchange forward contracts.
 
As at December 31, 2010, the amount of outstanding foreign exchange cover against future transactions was £1.1 billion (2009: £1.0 billion).
 
Credit risk
 
Reed Elsevier has a credit exposure for the full principal amount of cash and cash equivalents held with individual counterparties. In addition, it has a credit risk from the potential non performance by counterparties to financial instruments; this credit risk normally being restricted to the amounts of any hedge gain and not the full principal amount being hedged. Credit risks are controlled by monitoring the credit quality of counterparties, principally licensed commercial banks and investment banks with strong long term credit ratings, and the amounts outstanding with each of them.
 
Reed Elsevier has treasury policies in place which do not allow concentrations of risk with individual counterparties and do not allow significant treasury exposures with counterparties which are rated lower than A/A2 by Standard & Poor’s, Moody’s or Fitch. At December 31, 2010, cash and cash equivalents totalled £742 million, of which 97% was held with banks rated A+/A1 or better. Further information on credit risk is set out on page F-43.
 
Capital and liquidity management
 
The capital structure is managed to support Reed Elsevier’s objective of maximising long-term shareholder value through appropriate security of funding, ready access to debt and capital markets, cost effective borrowing and flexibility to fund business and acquisition opportunities whilst maintaining appropriate leverage to optimise the cost of capital.
 
Over the long term Reed Elsevier targets cash flow conversion (the proportion of adjusted operating profits converted into cash) and credit metrics to reflect this aim and that are consistent with a solid investment grade credit rating. Levels of net debt should not exceed those consistent with such a rating other than for relatively short periods of time, for instance following an acquisition. The principal metrics utilised are free cash flow (after interest, tax and dividends) to net debt, net debt to adjusted ebitda (adjusted earnings before interest, taxation, depreciation and amortisation) and adjusted ebitda to net interest and these metrics are monitored and reported to senior management and board representatives on a quarterly basis. Adjusted ebitda is derived from net profit as follows:
 
         
    2010  
    (in millions)  
 
Net profit for the year
  £ 648  
Adjustments:
       
Taxation
    120  
Disposals and other non operating items
    46  
Net finance costs
    276  
Amortisation of acquired intangible assets
    349  
Depreciation and other amortisation
    237  
Exceptional restructuring costs
    57  
Acquisition related costs
    50  
Reclassification of tax in joint ventures
    9  
         
Adjusted ebitda
  £ 1,792  
         
 
Cash flow conversion of 90% or higher and a net debt to adjusted ebitda target, over the long term, in the range of 2x to 3x on a pensions and lease adjusted basis are consistent with the rating target. The cash flow conversion in 2010 was 98% and as at December 31, 2010 net debt to adjusted ebitda was 2.5x (2009: 2.9x) on a pensions and lease adjusted basis.
 
Reed Elsevier’s use of cash over the longer term reflects these objectives through a progressive dividend policy, selective acquisitions and, from time to time when conditions suggest, share repurchases whilst retaining the balance sheet strength to maintain access to the most cost effective sources of borrowing and to support Reed Elsevier’s strategic ambition in evolving publishing and information markets. Reed Elsevier’s balance sheet was strengthened in 2010 by the repayment of debt out of free cash flow.
 
The balance of long term debt, short term debt and committed bank facilities is managed to provide security of funding, taking into account the cash generation of the business and the uncertain size and timing of acquisition spend. Reed Elsevier maintains a range of borrowing facilities and debt programmes from a variety of sources to fund its requirements at short notice


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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. From time to time, Reed Elsevier may repurchase outstanding debt in the open market depending on market conditions.
 
There were no changes to Reed Elsevier’s long term approach to capital management during the year.
 
Short term borrowings
 
The main treasury centres within Reed Elsevier operate commercial paper programmes to provide flexibility for funding operational requirements of the combined businesses on a daily basis, at short notice and at competitive rates. Commercial paper is issued under both US and Euro programmes, guaranteed by Reed Elsevier PLC and Reed Elsevier NV. In addition, short term borrowing facilities are established with local banks to support the daily requirements of businesses operating in certain countries where there may be restrictions on borrowing from affiliates or from lenders in a foreign jurisdiction. Other loans comprise term loans with an original maturity of greater than one year and which mature within 12 months of the reporting date. These short term borrowings were backed up at December 31, 2010 by a $2,000 million committed bank facility maturing in June 2013 which was undrawn. The short term borrowing programmes are run in conjunction with term debt programmes which comprise the majority of Reed Elsevier’s debt and provide the combined businesses with security of funding.
 
The average amount and the average interest rate during the year have been calculated by taking the average of the amounts outstanding at each month end (translated to sterling at the respective month end rate) and the average of the interest rate applicable at each month end. Commercial paper issuance reached a maximum level of £688 million in March 2010 as a result of trading flows and other loans reached a maximum of £358 million in August 2010 as the maturity of the $550 million term debt issue expiring in August 2011 fell below 12 months. $350 million of this term debt issue was bought back in December 2010 resulting in a balance of £130 million at December 31, 2010.
 
                 
        2010
        Weighted
    2010
  average interest
Short term borrowings as at December 31, 2010
  £m   rate %
 
Commercial paper
    346       0.6  
Short term loans and overdrafts
    33       8.6  
Finance leases
    7       5.1  
Other loans
    130       6.7  
                 
Total short term borrowings
    516          
                 
 
                 
        2010
        Weighted
    2010
  average interest
Average short term borrowings during the year ended December 31, 2010
  £m   rate %
 
Commercial paper
    437       0.5  
Short term loans and overdrafts
    33       7.9  
Finance leases
    7       5.3  
Other loans
    197       4.6  
 
         
    2010
Maximum month end short term borrowings
  £m
 
Commercial paper
    688  
Short term loans and overdrafts
    37  
Finance leases
    10  
Other loans
    358  
 
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, 2010. 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% indirect interest in Reed Elsevier NV. Both parent companies equity account for their respective share in the Reed Elsevier combined businesses.


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Results of Operations for the Year Ended December 31, 2010
Compared to the Year Ended December 31, 2009
 
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 27.3p and €0.51 respectively in 2010, compared to 17.2p and €0.32 in 2009. The increase principally reflects lower exceptional restructuring charges and none of the intangible asset and goodwill impairment charges seen in 2009, offset in part by the dilutive effect of the July 2009 equity placings.
 
Dividends to Reed Elsevier PLC and Reed Elsevier NV shareholders are, other than in special circumstances, equalised at the gross level, including the benefit of the UK attributable tax credit of 10% received by certain Reed Elsevier PLC shareholders. The exchange rate used for each dividend calculation — as defined in the Reed Elsevier merger agreement — is the spot euro/sterling exchange rate, averaged over a period of five business days commencing with the tenth business day before the announcement of the proposed dividend.
 
Ordinary dividends declared in the year, in amounts per ordinary share, comprise: a 2009 final dividend of 15.0p and 2010 interim dividend of 5.4p giving a total of 20.4p (2009: 20.4p) for Reed Elsevier PLC; and a 2009 final dividend of €0.293 and 2010 interim dividend of €0.109 giving a total of €0.402 (2009: €0.397) for Reed Elsevier NV.
 
The board of Reed Elsevier PLC has proposed a 2010 final dividend of 15.0p, giving a total dividend of 20.4p in respect of the financial year, unchanged on the prior year. The boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, have proposed a 2010 final dividend of €0.303, which results in a total dividend of €0.412 in respect of the financial year, up 3% on 2009. The difference in growth rates in the equalised dividends reflects changes in the euro:sterling exchange rate since prior year dividend announcement dates.
 
No shares were repurchased in the year by either Reed Elsevier PLC or Reed Elsevier NV.
 
Results of Operations for the Year Ended December 31, 2009
Compared to the Year Ended December 31, 2008
 
The earnings per share of Reed Elsevier PLC and Reed Elsevier NV were 17.2p and €0.32 respectively in 2009, compared to 22.1p and €0.44 in 2008. The decline principally reflects the intangible asset and goodwill impairment changes in RBI, higher exceptional restructuring and acquisition integration costs, and the dilutive effect of the equity placing. The earnings per share reflect the interests of the respective shareholders of Reed Elsevier PLC and Reed Elsevier NV in the results of the continuing and discontinued operations of the combined businesses.
 
Ordinary dividends declared in the year, in amounts per ordinary share, comprise: a 2008 final dividend of 15.0p and 2009 interim dividend of 5.4p giving a total of 20.4p (2008: 18.9p) for Reed Elsevier PLC; and a 2008 final dividend of €0.290 and 2009 interim dividend of €0.107 giving a total of €0.397 (2008: €0.425) for Reed Elsevier NV.
 
The board of Reed Elsevier PLC proposed a 2009 final dividend of 15.0p, giving a total dividend of 20.4p in respect of the financial year, up 0.5% on 2008. The boards of Reed Elsevier NV, in accordance with the dividend equalisation arrangements, proposed a 2009 final dividend of €0.293, which resulted in a total dividend of €0.400 in respect of the financial year, down 1% on 2008. The difference in growth rates in the equalised dividends reflects changes in the euro:sterling exchange rate since prior year dividend announcement dates.
 
In July 2009, Reed Elsevier PLC placed 109.2 million ordinary shares at 405p per share for proceeds, net of issue costs, of £435 million and Reed Elsevier NV Placed 63.0 million ordinary shares at €7.08 per share for net proceeds of €441 million. The number of ordinary shares issued represented 9.9% of the issued share capital of the respective parent companies prior to the placing.
 
No shares were repurchased in the year by either Reed Elsevier PLC or Reed Elsevier NV.


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


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ITEM 6: DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
 
DIRECTORS
 
The directors of each of Reed Elsevier PLC, Reed Elsevier NV, Reed Elsevier Group plc and Elsevier Reed Finance BV at February 16, 2011 were:
 
                 
            Reed Elsevier
  Elsevier Reed
Name (Age)
  Reed Elsevier PLC   Reed Elsevier NV   Group plc   Finance BV
 
Mark Armour (56)
  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 (40)
        Member of the Management Board
Rudolf van den Brink (63)
        Chairman of the Supervisory Board
Mark Elliott (61)
  Non-executive Director(3)(4)   Member of the Supervisory Board(3)(4)   Non-executive Director(2)  
Erik Engstrom (47)
  Executive Director and Chief Executive Officer   Chairman of the Executive Board and Chief Executive Officer   Executive Director and Chief Executive Officer  
Anthony Habgood (64)
  Non-executive Chairman(3)(4)   Chairman of the Supervisory Board(3)(4)   Non-executive Chairman(2)  
Lisa Hook (52)
  Non-executive Director(1)(4)   Member of the Supervisory Board(1)(4)   Non-executive Director(1)  
Gerben de Jong (66)
        Member of the Management Board
Marike van Lier Lels (51)
    Member of the Supervisory Board(4)     Member of the Supervisory Board
Robert Polet (55)
  Non-executive Director(4)   Member of the Supervisory Board(4)   Non-executive Director(2)  
David Reid (64)
  Non-executive Director(1)(3)(4)(5)   Member of the Supervisory Board(1)(3)(4)(5)   Non-executive Director(1)(2)(5)  
Lord Sharman (67)
  Non-executive Director(1)(3)(4)   Member of the Supervisory Board(1)(3)(4)   Non-executive Director(1)  
Ben van der Veer (59)
  Non-executive Director(1)(3)(4)   Member of the Supervisory Board(1)(3)(4)   Non-executive Director(1)  
Jans van der Woude (47)
        Member of the Management Board
 
 
(1) Member of the Audit Committees of the boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc.
 
(2) Member of the Remuneration Committee of the board of Reed Elsevier Group plc.
 
(3) Member of the joint Nominations Committee of the boards of Reed Elsevier PLC and Reed Elsevier NV.
 
(4) Member of the joint Corporate Governance Committee of the boards of Reed Elsevier PLC and Reed Elsevier NV.
 
(5) Senior independent non-executive director, as defined by the Combined Code on Corporate Governance 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.
 
Mark Armour (British) Chief Financial Officer since 1996. Non-executive director of SABMiller plc. Prior to joining Reed Elsevier as Deputy Chief Financial Officer in 1995, was a partner in Price Waterhouse. Holds an MA in Engineering from Cambridge University and qualified as a Chartered Accountant.
 
Jacques Billy (French) member of the Management Board of Elsevier Reed Finance BV since 2002. He is Managing Director of Elsevier Finance SA, having joined that company as Finance Manager in 1999.
 
Rudolf van den Brink (Dutch) Chairman of the Supervisory Board of Elsevier Reed Finance BV since 2006. A former member of the managing board of ABN AMRO Bank NV and of the advisory board of Deloitte & Touche in the Netherlands. A member of the supervisory board of Akzo Nobel NV.


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Mark Elliott (American) Appointed 2003. Chairman of the Remuneration Committee. Chairman of QinetiQ Group plc and a non-executive director of G4S plc. Until his retirement in 2008, was general manager IBM Global Solutions, having held a number of positions with IBM, including managing director of IBM Europe, Middle East and Africa.
 
Erik Engstrom (Swedish) Chief Executive Officer since 2009. Joined Reed Elsevier as Chief Executive Officer of Elsevier in 2004. Prior to joining Reed Elsevier was a partner at General Atlantic Partners. Before that was president and chief operating officer of Random House Inc and, before its merger with Random House, president and chief executive officer of Bantam Doubleday Dell, North America. Began his career as a consultant with McKinsey. Served as a non-executive director of Eniro AB and Svenska Cellulosa Aktiebolaget SCA. Holds a BSc from Stockholm School of Economics, an MSc from the Royal Institute of Technology in Stockholm, and gained an MBA from Harvard Business School as a Fulbright Scholar.
 
Anthony Habgood (British) Appointed Chairman 2009. Chairman of Whitbread plc. Was chairman of Bunzl plc and of Mölnlycke Healthcare Limited and served as chief executive of Bunzl plc, chief executive of Tootal Group plc and a director of The Boston Consulting Group Inc. He has also been a non-executive director of Geest plc; Marks and Spencer plc; National Westminster Bank plc; Powergen plc; and SVG Capital plc. Holds an MA in Economics from Cambridge University and an MS in Industrial Administration from Carnegie Mellon University. He is a visiting Fellow at Oxford University.
 
Lisa Hook (American) Appointed 2006. President and chief executive officer of Neustar Inc. A director of The Ocean Foundation. Was president and chief executive officer at Sun Rocket Inc. Before that was president of AOL Broadband, Premium and Developer Services. Prior to joining AOL, was a founding partner at Brera Capital Partners LLC. Previously was chief operating officer of Time Warner Telecommunications. Has served as senior advisor to the Federal Communications Commission Chairman and a senior counsel to Viacom Cable.
 
Gerben de Jong (Dutch) member of the Management Board of Elsevier Reed Finance BV since 2007. Previously held senior finance positions in Royal Philips Electronics NV Group.
 
Marike van Lier Lels (Dutch) Appointed January 2010. Member of the supervisory boards of KPN NV, USG People NV, TKH Group NV and Maersk BV. A member of the audit committee of the Algemene Rekenkamer and of various Dutch governmental advisory boards. Was executive vice president and chief operating officer of the Schiphol Group. Prior to joining Schiphol Group, was a member of the executive board of Deutsche Post Euro Express and held various senior positions with Nedlloyd.
 
Robert Polet (Dutch) Appointed 2007. President and chief executive officer of Gucci Group until March 1, 2011. Non-executive director of Wilderness Holdings Limited. Spent 26 years at Unilever working in a variety of marketing and senior executive positions throughout the world including president of Unilever’s Worldwide Ice Cream and Frozen Foods division.
 
David Reid (British) Appointed 2003. Senior independent non-executive director. Non-executive chairman of Tesco PLC, having previously been executive deputy chairman until December 2003, and finance director from 1985 to 1997. Chairman of Kwik-Fit and previously a non-executive director of De Vere PLC, Legal & General Group plc and Westbury PLC.
 
Lord Sharman of Redlynch OBE (British) Appointed 2002. Served as Chairman of the Audit Committee until August 2010. Non-executive chairman of Aviva PLC and a non-executive director of BG Group plc. Member of the House of Lords since 1999. Was chairman of KPMG Worldwide until 1999, having joined KPMG in 1966. Previous non-executive directorships include: chairman of Aegis Group plc; deputy chairman of G4S plc; Young & Co’s Brewery plc; AEA Technology plc; and member of the supervisory board of ABN AMRO Holding NV.
 
Ben van der Veer (Dutch) Appointed 2009. Chairman of the Audit Committee from August 2010. Member of the supervisory boards of AEGON NV, TomTom NV, Siemens Nederland NV and Koninklijke FrieslandCampina NV. Was chairman of the executive board of KPMG in the Netherlands and a member of the management committee of the KPMG International board until his retirement in 2008, having joined KPMG in 1976.
 
Jans van der Woude (Dutch) member of the Management Board of Elsevier Reed Finance BV since 2009. Is Company Secretary and Legal Counsel of Reed Elsevier NV. Prior to joining Reed Elsevier in 2009 was Legal Advisor to Corporate Express NV. Before that was Corporate Legal Director of TNT NV, having previously been General Counsel at Getronics NV.
 
Adrian Hennah (British) (53) will be proposed for election as a member of the Supervisory Board of Reed Elsevier NV and as a non-executive director of Reed Elsevier PLC at the respective 2011 Annual General Meetings. Subject to shareholders approving his appointment, he will also be appointed a non-executive director of Reed Elsevier Group plc, and a member of the Audit Committees and of the Corporate Governance Committee. He is chief financial officer of Smith & Nephew plc and before that was chief financial officer of Invensys plc, having previously held various senior finance and management positions within GlaxoSmithKline for 18 years.


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SENIOR MANAGEMENT
 
The executive officers of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc, other than directors, at February 16, 2011 were:
 
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.
 
Ian Fraser:  Global Human Resources Director of Reed Elsevier Group plc. Joined Reed Elsevier in 2005. Prior to joining Reed Elsevier, he was Human Resources Director at BHP Billiton plc and, before that, held senior positions in human resources at Charter plc and Woolworths plc.
 
Jans van der Woude:  Company Secretary and Legal Counsel of Reed Elsevier NV. A Dutch lawyer.
 
COMPENSATION
 
REMUNERATION COMMITTEE
 
Remuneration Committee Terms of Reference and Constitution
 
The Remuneration Committee’s (“the Committee”) remit and its duties are in relation to:
 
  •   Executive Directors:
 
  —  to establish the remuneration policy for the executive directors and determine the remuneration in all its forms (including pensions and share plan participation), the terms of the service contracts and all other terms and conditions of employment of the executive directors of Reed Elsevier Group plc; and
 
  —  approve any compensation or termination payments made to executive directors.
 
  •   Senior Management
 
  —  on the advice of the Chief Executive Officer, to approve the remuneration policy of other senior leaders and of the Company Secretary; and
 
  —  to monitor the level and structure of remuneration for this group of executives.
 
  •   Reed Elsevier Chairman
 
  —  on the advice of the Senior Independent Director, to determine the remuneration of the Reed Elsevier Chairman.
 
  •   General
 
  —  to review the ongoing appropriateness and relevance of the remuneration policy, in particular the performance-related elements and their compatibility with risk policies and systems;
 
  —  to establish and amend the rules of all share-based incentive plans including the formulation of suitable performance conditions for share-based awards and options, and where necessary, to submit them for approval by shareholders;
 
  —  to maintain an open and ongoing dialogue with institutional investors on major remuneration policy issues; and
 
  —  to discharge it’s duties with due regard to any published corporate governance guidelines, codes or recommendations regarding the remuneration of directors of listed companies and formation and operation of share schemes which the Committee considers relevant or appropriate including, but not limited to, the UK and Dutch Corporate Governance Codes.
 
A copy of the terms of reference of the Committee can be found on the Reed Elsevier website www.reedelsevier.com. The information on our website is not incorporated by reference into this report.
 
Throughout 2010, the Committee consisted of the following independent non-executive directors, as defined by the UK Corporate Governance Code (“the UK Code”) and the Dutch Corporate Governance Code (“the Dutch Code”): Mark Elliott (Committee Chairman), David Reid and Robert Polet; and the Chairman of Reed Elsevier Group plc. The Company Secretary of Reed Elsevier Group plc, Stephen Cowden, also attends the meetings in his capacity as secretary to the Committee. At the invitation of the Committee Chairman, the CEO of Reed Elsevier Group plc attends appropriate parts of the meetings.
 
Ian Fraser, Global Human Resources Director, provided material advice to the Committee during the year.
 
Towers Watson acted as external advisors to the Committee throughout 2010 and also provided market data and data analysis. Towers Watson also provided actuarial and other human resources consultancy services directly to some Reed Elsevier companies.


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The individual consultants involved in advising the Committee do not provide advice to the executive directors or act on their behalf.
 
EXECUTIVE DIRECTORS
 
Remuneration philosophy and policy
 
The context for Reed Elsevier’s remuneration policy and practices is set by the needs of a group of global businesses, each of which operates internationally by line of business. Furthermore, Reed Elsevier PLC and Reed Elsevier NV’s respective stock market listings in London and Amsterdam combined with the majority of its employees being based in the US provides a particular set of challenges in the design and operation of remuneration policy.
 
Our remuneration philosophy
 
Reed Elsevier’s guiding remuneration philosophy for senior executives is based on the following precepts:
 
  •   Performance-related compensation with demanding performance standards.
 
  •   Creation of shareholder value.
 
  •   Competitive remuneration opportunity to attract and retain the best executive talent from anywhere in the world.
 
  •   A balanced mix of remuneration between fixed and variable elements, and annual and longer term performance.
 
  •   Aligning the interests of executive directors with shareholders and other stakeholders.
 
Our remuneration policy
 
In line with this guiding philosophy our remuneration policy is described below.
 
  •   Reed Elsevier aims to provide a total remuneration package that is able to attract and retain the best executive talent from anywhere in the world, at an appropriate level of cost.
 
  •   In reaching decisions on executive remuneration, the Committee takes into account the remuneration arrangements and levels of increase applicable to senior management and Reed Elsevier employees generally.
 
  •   The Committee considers the social, governance, and environmental implications of its decisions, particularly when setting and assessing performance objectives and targets, and seeks to ensure that incentives are consistent with the appropriate management of risk.
 
  •   Total targeted remuneration of senior executives will be competitive with that of executives in similar positions in comparable companies, which includes global sector peers and companies of similar scale and international complexity.
 
  •   Competitiveness is assessed in terms of total remuneration (i.e. salary, annual and multi-year incentives and benefits).
 
  •   The intention is to provide total remuneration that reflects sustained individual and business performance; i.e. median performance will be rewarded by total remuneration that is positioned around the median of relevant market data and upper quartile performance by upper quartile total remuneration.
 
  •   The Committee will consider all available discretion to claw back any payouts made on the basis of materially misstated data. With effect from 2009, the rules of all incentive plans were amended to provide for specific provisions in this regard.
 
  •   The Committee considers it important to encourage personal investment and ongoing holding of Reed Elsevier PLC and/or Reed Elsevier NV securities among the senior executive population. Executive directors and other senior executives are subject to minimum shareholding requirements.
 
How the performance measures in the incentives link to our business strategy
 
Our annual incentive plan is focused on operational excellence as measured by the financial measures of revenue, profit and cash generation. In addition, a significant portion of the annual bonus is dependent upon the achievement of annual key performance objectives (KPOs) that create a platform for sustainable future performance. These KPOs align with Reed Elsevier’s strategic plans and range from the delivery of specific projects and the achievement of customer metrics or efficiency targets to corporate and social responsibility objectives.


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The Committee believes that one of the main drivers of long-term shareholder value is sustained growth in profitability, underpinned by appropriate capital discipline. Therefore growth in EPS and targeted ROIC are both utilised in our multi-year incentives.
 
The balance between fixed and performance related pay
 
We aim to provide each executive director with an annual total remuneration package comprising fixed and variable pay with the majority of an executive director’s total remuneration package linked to performance. At target performance, incentive pay makes up approximately 70% of the annual total remuneration package, with the annual incentive representing around 20% and the multi-year incentive 50% of the total package. The fixed pay element is around 30% (salary of around 20% and 10% pension and other benefits). The core components of the total remuneration package are described in detail in the remainder of this report.
 
Our approach to market positioning and benchmarking
 
The market competitiveness of total remuneration (i.e. salary, annual and multi-year incentives and benefits) is assessed against a range of relevant comparator groups as follows:
 
  •   Global peers operating in businesses similar to those of Reed Elsevier (including Thomson Reuters, WPP, Pearson, John Wiley, Wolters Kluwer, Dun & Bradstreet, Experian, McGraw-Hill, UBM, DMGT, Informa, Lagardère and FICO).
 
  •   Companies listed on the London Stock Exchange (cross-industry but excluding those in the financial services sector) of a similar size (measured by aggregate market capitalisation) and international scope.
 
  •   Companies listed on the New York Stock Exchange (cross-industry but excluding those in the financial services sector) of a similar size (measured by aggregate market capitalisation) and international scope.
 
  •   Companies listed on the Amsterdam Stock Exchange, cross-industry and of a similar size (measured by aggregate market capitalisation) and international scope.
 
The composition of the respective comparator groups is subject to minor changes year on year reflecting changes in the size, international scope and listing status of specific companies during the year.
 
The competitiveness of our remuneration packages is assessed by the Committee as part of the annual review cycle for pay and performance, in line with the process set out below.
 
  •   First, the overall competitiveness of the total remuneration packages is assessed. The appropriate positioning of an individual’s total remuneration against the market is determined based on the Committee’s judgement of individual performance and potential.
 
  •   The Committee then considers market data and benchmarks for the different elements of the package including salary, total annual cash and total remuneration. While relevant benchmark information are meaningful input to the process, they inform rather than drive the outcome of the review.
 
  •   If it is determined that a total remuneration competitive gap exists, the Committee believes that this should be addressed via a review of performance-linked compensation elements in the first instance.
 
  •   Benefits, including medical and retirement benefits, are positioned to reflect local country practice.
 
The total remuneration package
 
Each element of the remuneration package for executive directors is designed to achieve specific objectives, as described in this section. In aggregate, they create a unified and balanced reward mix and competitive employment proposition. The value of the reward package is only maximised through the integrated delivery of annual and longer term performance. Reward for the delivery of business results is connected with reward for value flowing to shareholders. The incentive arrangements are structured in such a way that reward cannot be maximised through inappropriate short term risk-taking.


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The table below summarises the component parts of the remuneration package provided to the executive directors during 2010. This includes the bonuses earned for performance during 2010, payouts received from and awards granted under the multi-year incentives during the year.
 
                 
Component
      Erik Engstrom   Mark Armour   Andrew Prozes
 
Base salary
      £1,000,000   £613,440   $1,215,180
Retirement benefit
      UK defined benefit plan   UK defined benefit plan   Retired December 31, 2010
Other benefits
      Company car or cash
allowance and private
medical benefit
  Company car or cash
allowance and private
medical benefit
  Company car and private
medical benefit
Annual incentive
      £999,000   £612,827   $1,146,332
(earned for 2010 and
payable in March 2011)
               
Multi-year incentives
granted
  REGP   643,086 PLC and 422,310 NV ordinary shares   394,495 PLC and 259,062 NV ordinary shares  
    LTIP      
    ESOS      
    BIP   70,189 NV ADRs   65,054 PLC and 42,512 NV ordinary shares   88,687 PLC and 58,545 NV ordinary shares
Multi-year incentives
  LTIP      
vested (2007-09 cycle)
               
    ESOS      
    BIP      
Shareholding requirement       300% of salary   200% of salary   200% of salary
 
Policy in relation to the individual remuneration elements is described in greater detail in the remainder of this section.
 
Base Salary
 
Salary reflects the role and the sustained value of the executive in terms of skills, experience and contribution in the context of the relevant market.
 
Salaries for executive directors are reviewed annually in the context of the competitiveness of total remuneration and Reed Elsevier’s guidelines for wages and salaries agreed for the whole of Reed Elsevier for the forthcoming financial year. Any increases typically take effect on January 1.
 
No increases in the base salary of executive directors have been given since January 1, 2008, except for Erik Engstrom who received a promotional increase in November 2009 following his appointment as CEO of Reed Elsevier Group plc. The Committee decided to award a salary increase of 2.5% to each executive director which increased base salaries with effect from January 1, 2011 to £1,025,000 for Erik Engstrom and £628,776 for Mark Armour. This level of increase is within the guidelines agreed for all employees in respect of 2011 increases.
 
In respect of salaries for the broader employee population, Reed Elsevier uses the same factors to determine the levels of increase across all employee populations globally: i.e. relevant pay market, skills, experience and contribution. Reed Elsevier operates across many diverse countries in terms of their remuneration structures and practices. Any increases awarded to different employee groups in different geographies reflect this diversity and range of practices. An increase of approximately 2.5% on average will be awarded across the senior management population globally for 2011. This level of increase is in line with increases provided to the wider employee population.
 
Annual Incentive
 
The annual incentive plan (AIP) provides focus on the delivery of stretching annual financial targets and the achievement of annual objectives and milestones that create a platform for sustainable future performance.
 
For 2011, executive directors have a target bonus opportunity of 100% of salary that is weighted as follows across four elements (unchanged from 2010):
 
         
Measure
  Weighting
 
— Revenue
    30%  
— Profit*
    30%  
— Cash Flow Conversion Rate
    10%  
— Key Performance Objectives (KPOs)
    30%  
 
 
* The Profit measure for the executive directors is Adjusted Profit After Tax for the Reed Elsevier combined businesses.
 
The target bonus opportunity for the financial measures is payable for the achievement of highly stretching financial targets. The four elements are measured separately, such that there could be a payout on one element and not on others.


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For 2011, the Committee decided to retain the incentive slope and payout range used in 2010 under which a small bonus starts to accrue for achieving 94% of target against each individual financial performance measure. The level of out-performance required to achieve the maximum bonus (150% of target and unchanged) will also be retained.
 
The KPOs are individual to each executive director. Each executive director is set up to six KPOs to reflect critical business priorities for which they are accountable. The KPO component for the executive directors and other senior executives will contain at least one KPO relating to the achievement of specific sustainability objectives and targets contained within Reed Elsevier’s corporate responsibility agenda.
 
Against each objective, measurable milestone targets are set for the year. All financial targets and KPOs are approved by the Committee and are subject to formal assessment at the end of each year. The Chairman of Reed Elsevier presents his assessment of performance against KPOs for the CEO of Reed Elsevier Group plc to the Committee while the CEO of Reed Elsevier Group plc presents his assessment of KPO performance for the CFO of Reed Elsevier Group plc. The Committee then discusses and agrees the final KPO score for each executive director.
 
AIP Payments for 2010
 
In assessing the level of bonus payments for 2010, the Committee noted the following performances:
 
                 
    % change over 2009 at constant
 
    exchange rates  
    Underlying
    Total adjusted
 
    revenue growth     PAT/OP  
 
Reed Elsevier
    +2 %     -1 %
LexisNexis
    +1 %     -12 %
 
Reed Elsevier has made significant progress in 2010 as our markets strengthened and we saw the benefit of the actions which management has taken in the business. Underlying revenues were 2% higher in constant currencies with the return to growth reflecting improved performance in our more cyclical markets, together with a sustained commitment to new product development and a focus on sales & marketing initiatives. Firm action on costs and further innovations in our operational processes has meant that total costs at constant exchange rates declined 1% and adjusted operating margins at 25.7% were just 0.2 percentage points lower than in 2009, despite the increased spending on new product development and sales & marketing. Adjusted operating profits were 1% lower at £1,555 million. Adjusted operating cash flow continued to be strong at £1,519 million with an excellent 98% conversion of adjusted operating profits into cash. The post tax return on capital employed improved to 10.6%, 0.2 percentage points higher reflecting the strong cash generation and increased capital efficiency.
 
LexisNexis returned to overall revenue growth, with strong growth in the risk business. Subscription revenues in the legal business continued to reflect lower levels of law firm activity and employment. Adjusted operating margin was lower due to the weaker revenues and increased spending in the legal business on new product development, related infrastructure and sales & marketing. The increased spend on supporting these important developments has in part been mitigated by continuing cost efficiencies, including further outsourcing of production and engineering activities, supply chain management and operational streamlining.
 
For Erik Engstrom and Mark Armour the sum of the individual scores achieved against the four AIP components exceeded target AIP. However, as Reed Elsevier’s adjusted PAT did not exceed 2009 adjusted PAT, the overall bonus was capped at just below target.
 
The following bonuses will be paid to executive directors who served during 2010:
 
                 
    2010
    % of
 
    annual bonus
    2010 base
 
    (to be paid in March 2011)     salary earnings  
 
Erik Engstrom
    £999,000       99.9  
Mark Armour
    £612,827       99.9  
Andrew Prozes
  $ 1,146,332       93.9  
 
Multi-Year Incentives
 
The multi-year incentives comprise the REGP, BIP, ESOS and LTIP.
 
The purpose of the multi-year incentives is to provide focus on the delivery of the medium to longer term strategy and holding executives accountable for the delivery of that strategy while driving value creation through sustained financial performance, capital discipline and the delivery of returns for shareholders. In addition, the multi-year incentives are structured so as to encourage personal investment and ongoing shareholding in Reed Elsevier PLC and Reed Elsevier NV securities among the senior executive population in order to promote alignment with shareholders and to provide focus on the share price.


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Awards under the multi-year incentives take the form of restricted shares and options which typically vest over a period of three years except for the REGP under which awards vest over five years. The vesting of all awards made to executive directors under these plans is subject to meeting a number of stretching performance targets based on internal financial metrics and total shareholder return. Additionally, in the case of ESOS, a financial pre-grant performance condition applies which determines the annual size of the available grant pool for all participants in the plan.
 
Reed Elsevier Growth Plan (REGP)
 
The key features of the REGP are summarised below.
 
         
Feature
 
Detail
 
Frequency of award
    One-off arrangement
      Awards were made on May 26, 2010
Eligibility
    CEO and CFO of Reed Elsevier Group plc
      As a condition of participation, the executive directors were required to hold Reed Elsevier securities on the date of grant to the value of 300% of salary in the case of the CEO and 200% of salary in the case of the CFO. Any personal shares invested under the BIP did not count towards this holding requirement
      The executive directors are required to maintain shareholdings at the respective levels throughout the life of the plan (i.e. for five years)
Performance period
    Five years split into an initial period of three years followed by a further two years
      Opportunity to receive partial payout after three years
Performance conditions
    Relative TSR measured against three comparator groups, Adjusted EPS and ROIC (see section entitled ‘Performance measures and targets’ below)
      The performance metrics have equal weighting, with 1/3rd of the award vesting based on performance against the respective metric (additive measurement)
Vesting scale
    Performance hurdle and scaled vesting
Cap
    The number of shares vesting is capped at 150% of the number comprised in the initial performance share award
Dividend equivalents
    Dividend equivalents accrue during the performance period and are paid out in cash when the shares are released, to the extent that the underlying securities vest
Other provisions
    On a change of control, awards vest on a pro-rated basis and subject to performance based on an assessment of progress against targets at the time the change of control occurs
      Claw-back applies
      Awards under the plan are satisfied with shares purchased in the market
 
Performance measures and targets
 
Total Shareholder Return (TSR)
 
The vesting of one third of the REGP award is subject to Reed Elsevier’s TSR performance compared against three comparator groups (the TSR tranche).
 
As Reed Elsevier accesses equity capital markets through three exchanges — London, Amsterdam and New York — in three separate currency zones, three distinct comparator groups are used — a Sterling Comparator Group, a Euro Comparator Group and a US Dollar Comparator Group. The TSR performance of Reed Elsevier PLC ordinary shares (based on the London listing) is measured against the Sterling Comparator Group; the TSR performance of Reed Elsevier NV ordinary shares (based on the Amsterdam listing) is measured against the Euro Comparator Group; and the TSR performance of Reed Elsevier PLC ADRs and Reed Elsevier NV ADRs (based on the New York listing) is measured against the US Dollar Comparator Group. The averaging period applied for TSR measurement purposes is six months prior to the start of the financial year in which the award was made and the final six months of the last financial year of the performance period.
 
TSR performance is measured separately against each comparator group and the proportion of the TSR tranche that vests is the sum of the payouts achieved against the three comparator groups.
 
                 
    3-year period: 2010-2012
  5-year period: 2010-2014
    vesting percentage of
  vesting percentage of
TSR ranking within the relevant
  each third of the TSR
  each third of the TSR
TSR comparator group
  tranche   tranche
 
Below Median
    0 %     0 %
Median
    30 %     30 %
Upper quartile
    100 %     100 %
 
Vesting is on a straight line basis for ranking between the median and the upper quartile.


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TSR comparators groups
 
The constituents of each comparator group were selected on the following basis:
 
  •   Companies included in the relevant market index as at December 31, 2009 and nearest in size to Reed Elsevier in terms of market capitalisation.
 
  •   The relevant market indices are: (1) FTSE100 for the Sterling Comparator Group; (2) Euronext100 and the DAX30 for the Euro Comparator Group; and (3) the S&P500 for the US Dollar Comparator Group.
 
  •   The following companies were excluded for this purpose:
 
  •   companies with mainly domestic revenues (as they do not reflect the global nature of Reed Elsevier’s customer base);
 
  •   those engaged in extractive industries (as they are exposed to commodity cycles); and
 
  •   financial services companies (as they have a different risk/reward profile).
 
  •   Relevant listed global peers operating in businesses similar to those of Reed Elsevier not otherwise included were added to the relevant comparator group.
 
Set out below are the comparators included in each currency group applicable to awards made in 2010 under the REGP.
 
         
STERLING COMPARATOR GROUP*
  EURO COMPARATOR GROUP*   US DOLLAR COMPARATOR GROUP*
 
AGGREKO
  ACCOR   3M
ASTRAZENECA
  ADIDAS   ADOBE SYSTEMS
AUTONOMY CORP. 
  AHOLD   AGILENT TECHS.
BAE SYSTEMS
  AIR LIQUIDE   AIR PRDS. & CHEMS.
BRITISH AIRWAYS
  AKZO NOBEL   AMAZON.COM
BRITISH AMERICAN TOBACCO
  ALSTOM   ANALOG DEVICES
BUNZL
  ASML HOLDING   APPLIED MATS.
BURBERRY GROUP
  BASF   AVON PRODUCTS
COBHAM
  BMW   BAXTER INTL.
COMPASS GROUP
  CARREFOUR   BECTON DICKINSON
DMGT
  CHRISTIAN DIOR   CATERPILLAR
DIAGEO
  DAIMLER   COLGATE-PALMOLIVE
EXPERIAN
  DEUTSCHE POST   CORNING
GLAXOSMITHKLINE
  EADS   CUMMINS
INTERCONTINENTAL HOTELS
  ESSILOR INTL.   DEERE
IMPERIAL TOBACCO GROUP
  HEINEKEN   DOW CHEMICAL
INFORMA
  HERMES INTL.   DUN & BRADSTREET
INMARSAT
  K + S   E. I. DU PONT DE NEMOURS
INTERNATIONAL POWER
  LAFARGE   EBAY
INTERTEK GROUP
  LAGARDÈRE GROUPE   EMERSON ELECTRIC
INVENSYS
  LINDE   FICO
JOHNSON MATTHEY
  LVMH   FORD MOTOR
KINGFISHER
  MAN   GENZYME
NATIONAL GRID
  METRO   H.J. HEINZ
PEARSON
  MICHELIN   ILLINOIS TOOL WORKS
RECKITT BENCKISER GROUP
  PERNOD-RICARD   JOHN WILEY
REXAM
  PHILIPS ELTN. KONINKLIJKE   JOHNSON CONTROLS
ROLLS-ROYCE GROUP
  PORTUGAL TELECOM SGPS   JUNIPER NETWORKS
SABMILLER
  PPR   LIFE TECHNOLOGIES
SAGE GROUP
  RENAULT   MCDONALDS
SHIRE
  SAINT-GOBAIN   MCGRAW-HILL
SMITH & NEPHEW
  SAP   MICRON TECHNOLOGY
SMITHS GROUP
  SCHNEIDER ELECTRIC   MOTOROLA
THOMAS COOK GROUP
  SUEZ ENVIRONNEMENT   NEWS CORP
TUI TRAVEL
  THALES   NIKE
UNILEVER (LSE)
  THYSSENKRUPP   NVIDIA
UNITED BUSINESS MEDIA
  TNT   PACCAR
VODAFONE
  UNILEVER (AEX)   PPG INDUSTRIES
WOLSELEY
  VALLOUREC   SPECTRA ENERGY
WPP
  VEOLIA ENVIRONNEMENT   TEXAS INSTS.
    VOLKSWAGEN   THOMSON REUTERS (NYSE)
    WOLTERS KLUWER   UNITED TECHNOLOGIES
        YUM! BRANDS
 
 
* Reflects the composition of the comparator group as at the date of grant.


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Return on invested capital (ROIC)
 
The vesting of one third of the REGP award is subject to the percentage return on invested capital of Reed Elsevier PLC and Reed Elsevier NV (the ROIC tranche) as follows:
 
         
        Vesting percentage
3 years: 2010-2012
  2 years: 2013-2014   of ROIC tranche
 
ROIC in 2012,
subject to actual
exceeding 2009
ROIC calculated on
the same basis
  ROIC in 2014    
 
 
Below 10.2%
  Below 10.7%   0%
10.2%
  10.7%   60%
11.2% or above
  12.7% or above   100%
 
Vesting is on a straight-line basis for performance between the minimum and maximum levels.
 
For the purposes of the plan, the following definitions apply:
 
  •   Invested capital = arithmetic average of the opening and closing capital employed for the Reed Elsevier combined businesses for the financial year with all cumulative amortisation and impairment charges for acquired intangible assets and goodwill added back. In addition, any exceptional restructuring and acquisition integration charges (net of tax) are capitalised for these purposes and changes in exchange rates and movements in pension deficits are excluded.
 
  •   Return = adjusted operating profit for the Reed Elsevier combined businesses before amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition integration charges. In addition, it is grossed up to exclude the equity share of taxes in joint ventures and further adjusted to exclude net pension financing credit movement, after applying the effective rate of tax used for adjusted earnings calculations and using exchange rates to match those used in the calculation of invested capital.
 
In order to ensure that the performance score achieved is a fair reflection of underlying business performance, the Committee retains discretion to determine the treatment of major disposals and acquisitions that require board approval. Any significant adjustments made to the final performance score will be disclosed to shareholders.
 
Adjusted earnings per share (EPS)
 
The vesting of one third of the REGP award is subject to performance against growth in adjusted earnings per share measured at constant currencies (Adjusted EPS) (the EPS tranche) as follows:
 
         
        Vesting percentage of
3 years: 2010-2012
  2 years: 2013-2014   EPS tranche
 
Average Adjusted EPS
growth in years 2011
and 2012 (subject to
average Adjusted EPS
growth over the whole
three-year period
being positive)
  Average Adjusted EPS
growth over
the two-year period
   
 
 
Below 5% p.a.
  Below 7% p.a.   0%
5% p.a.
  7% p.a.   60%
9% p.a. or above
  13% p.a. or above   100%
 
Vesting is on a straight-line basis for performance between the minimum and maximum levels.
 
For the purposes of the plan, the following definitions apply:
 
  •   Earnings = adjusted reported earnings measured at constant currencies. Adjustments include amortisation and impairment of acquired intangible assets and goodwill, exceptional restructuring and acquisition integration charges, gains/losses on business disposals and related tax effects. The Committee retains discretion to adjust for changes in the net pension financing credit.
 
  •   Number of shares = weighted average number of shares in issue excluding shares held in treasury.
 
In 2010, a multi-year incentive award was granted to senior leaders below the board and its metrics and targets mirror those of the REGP.


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Executive Share Option Scheme (ESOS)
 
The key features of the ESOS are summarised below.
 
         
Feature
 
Detail
 
Frequency of award
    Annual
Eligibility
    Broadest multi-year incentive operated by Reed Elsevier
      Annual awards are made to approximately 1,000 employees across some 20+ countries including the executive directors
Vesting period
    Three years from the date of grant
      Options are exercisable between three and ten years from the date of grant or on cessation of employment, if earlier (for defined categories of approved leavers)
Performance conditions
    Pre-grant performance condition of Adjusted EPS growth which determines the size of the annual grant pool available for grants to all participants (see below)
      Post-grant performance hurdle of Adjusted EPS growth applicable to the vesting of awards to executive directors
Cap
    Maximum annual award (in terms of the aggregate market value of the shares under option at the date of grant) of three times salary per executive director
Other provisions
    On a change of control, awards vest subject to performance based on an assessment of progress against targets at the time the change of control occurs; participants may exchange their awards for awards in the acquiring company, if available
      Claw-back applies
      Awards under the plan are satisfied with newly issued shares
 
The size of the total grant pool available for all participants in a given year is determined based on growth in Adjusted EPS over the three years prior to grant as follows:
 
         
Average Adjusted EPS growth p.a.
  % of the 2003 grant pool
 
over the three-years prior to grant
  available for distribution  
 
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 %
 
Adjusted EPS growth for the three years ended December 31, 2010 was less than 6% p.a. which means that the available grant pool for ESOS awards in 2011 is 50% of the 2003 pool.
 
For 2010, no ESOS awards were made to executive directors. The Committee intends to resume grants under ESOS in 2011 to Erik Engstrom and Mark Armour, in accordance with the terms of the plan approved by shareholders in 2003. The grants will be made within the limits and be subject to such conditions as previously approved by shareholders. This means that the grants will be made within the confines of the available grant pool and the vesting of the awards will be subject to an Adjusted EPS growth hurdle of 6% p.a. In determining the individual levels of grant, the Committee has had regard to the financial performance of Reed Elsevier and grant levels will be set at 50% of the maximum individual grant level.
 
Due to significant exceptional restructuring charges taken in 2008 and 2009, the Committee increased the approved Adjusted EPS growth hurdle of 6% to 8% for the 2008-10 and 2009-11 cycles of ESOS during which restructuring benefits were realised. Prior to the date of this report, the Committee determined that the 2008-10 cycle of ESOS lapsed for executive directors as the performance hurdle on vesting was not achieved. The 2009-11 cycle of ESOS will be performance-tested in early 2012.
 
Bonus Investment Plan (BIP)
 
The bonus investment plan is a voluntary plan aimed at encouraging personal investment in, and ongoing holding of, Reed Elsevier shares to promote greater alignment with shareholders and support the retention of key talent. A new bonus investment plan was approved by shareholders at the 2010 Annual General Meetings of Reed Elsevier PLC and Reed Elsevier NV which replaced the bonus investment plan implemented in 2003.
 
Under the new BIP, participants may invest their own funds to purchase Reed Elsevier securities or allocate securities already owned outright for investment under the plan up to a specified maximum. In return, the participant is granted an equivalent number of matching awards which vest over three years subject to performance (i.e. a maximum match of 1 for 1 can be earned on the personal investment). It is a condition of vesting that the underlying personal investment is retained throughout


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the vesting period. Dividend equivalents accrue on the matching shares during the vesting period and are paid out in cash at the end to the extent that the matching award vests. The table below summarises the key features of the BIP.
 
         
Feature
 
Detail
 
Frequency of award
    Annual grants of matching awards
      Ten-year life of the plan
      First matching awards were made in May 2010
Eligibility
    Approx. 150 senior executives including executive directors
      Participation is voluntary
Performance period
    Three financial years
Performance conditions
    Adjusted EPS growth and ROIC (see below)
      50% of the award is subject to Adjusted EPS growth and 50% subject to ROIC (additive measurement)
Vesting scale
    Performance hurdle and scaled vesting
Personal investment
    Up to 100% of the target bonus opportunity net of tax
Other provisions
    On a change of control, awards vest on a pro-rated basis and subject to performance based on an assessment of progress against targets at the time the change of control occurs, unless the Committee determines that awards should not vest and instead be exchanged for equivalent awards over shares in the acquiring company (i.e. rollover applies)
      Claw-back applies
      Awards under the plan are satisfied with shares purchased in the market
 
The following targets and vesting scale apply to the first grant of matching awards made under the plan in 2010:
 
                 
    Average growth in adjusted EPS (%) in years
   
    2 and 3 of the performance period subject to
   
    average EPS growth being positive over the
  ROIC (%) in 2012 subject to actual
Match earned on personal investment
 
whole 3-year period
 
exceeding 2009 ROIC
0%
    below 4 % p.a.     below 10.2 %
50%
   
4
% p.a.    
10.2
%
75%
   
6.5
% p.a.    
10.7
%
100%
   
9
% p.a. or above    
11.2
% or above
 
Straight-line vesting applies to performance between the points.
 
For awards to be granted in 2011, the following targets and vesting scale apply:
 
                 
    Average growth in adjusted EPS (%) over the
  ROIC (%) in the third year of the
Match earned on personal investment
 
3-year performance period
 
performance period
0%
    below 4 % p.a.     below 10.4 %
50%
   
4
% p.a.    
10.4
%
75%
   
6.5
% p.a.    
10.9
%
100%
   
9
% p.a. or above    
11.4
% or above
 
As set out on pages 57 to 59, on December 31, 2010, the executive directors had no matching awards outstanding under the previous BIP. The 2007-09 cycle of BIP lapsed during 2010 as the performance hurdle of 6% p.a. Adjusted EPS growth was not met. The BIP matching awards granted under performance cycles 2008-10 and 2009-11 lapsed in June 2010 as a result of the executive directors withdrawing their personal investments from these cycles. On December 31, 2010, the executive directors still held the securities withdrawn from both cycles.
 
Long-Term Incentive Plan (LTIP)
 
No awards under LTIP were given to executive directors in 2010.
 
Awards under this plan were in the form of restricted shares, with half of the award being over shares in Reed Elsevier PLC and the other half over shares in Reed Elsevier NV. A three-year performance period applies and awards vest based on Adjusted EPS growth and Reed Elsevier’s TSR performance compared to a group of industry peers.
 
The 2007-09 cycle of the LTIP lapsed during 2010 as the hurdle of 8% Adjusted EPS growth was not met. The 2008-10 cycle of LTIP lapsed as the performance hurdle of 10% Adjusted EPS growth was not met. The 2009-11 cycle of LTIP, as


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disclosed on pages 57 to 59, vests for achieving Adjusted EPS growth of 12% and median TSR. Depending on performance, the vesting may be higher or lower based on the following matrix:
 
                                 
    TSR ranking  
Adjusted EPS
                    Upper
 
2008 & 2009 awards
  Below median     Median     62.5th percentile     quartile and above  
 
Below 10%
    0 %     0 %     0 %     0 %
10%
    28 %     35 %     42 %     49 %
12%
    80 %     100 %     120 %     140 %
14% and above
    108 %     135 %     162 %     189 %
 
To the extent that the underlying shares vest, dividend equivalents are paid on the vested shares in cash at the end of the performance period.
 
The Committee has full discretion to alter awards granted to participants based on its assessment as to whether the Adjusted EPS and TSR performance fairly reflects the progress of the business having regard to underlying revenue growth, cash generation, return on capital employed and any significant changes in currency and inflation, as well as individual performance.
 
The TSR comparator group for the 2008-10 cycle comprised: ChoicePoint, DMGT, Dun & Bradstreet, Emap, FICO, Informa, John Wiley, Lagardère Groupe, McGraw-Hill, Pearson, Taylor Nelson Sofres, Thomson Reuters, UBM, Wolters Kluwer and WPP Group. The TSR comparator group for the 2009 LTIP award comprises: DMGT, Dun & Bradstreet, Experian, FICO, Informa, John Wiley, Lagardère Groupe, McGraw-Hill, Pearson, Thomson Reuters, UBM, Wolters Kluwer and WPP Group. This reflects the composition of the comparator group on the date of grant. Mergers and acquisitions that impact the comparator groups during the three-year performance cycle will be dealt with on a fair and consistent basis in accordance with the following approach. Companies which are taken over within six months after the start of a performance period are excluded from the comparator group. For those that are subject to a transaction more than six months into a performance period, any transaction-related share price premium is eliminated and the TSR prior to the transaction is indexed forward using the daily average share price movement for the remaining companies in the peer group.
 
The averaging period applied for TSR measurement purposes is six months prior to the start of the financial year in which the award is made and the final six months of the third financial year of the performance period. Reed Elsevier’s TSR is taken as a simple average of the TSR of Reed Elsevier PLC and Reed Elsevier NV. The TSR of each comparator company is calculated in the currency of its primary listing.
 
In the event of a change of control, the performance test applied under the LTIP would be based on an assessment by the Committee of progress against the Adjusted EPS growth and TSR targets at the time the change of control occurs (subject to any rollover that may apply).
 
Shareholding requirement
 
The Committee believes that one of the aspects that creates closer alignment between senior management and shareholders is to require executives to build up and maintain a significant personal stake in Reed Elsevier. The shareholding requirements applicable to the executive directors are set out in the table below and as described on page 45 were pre-requisites to participate in the REGP. Shareholding requirements also apply to selected senior executives below the board.
 
On December 31, 2010, the executive directors’ shareholdings were (valued at the mid-market closing prices of Reed Elsevier securities):
 
         
    Shareholding requirement
(in % of December 31, 2010 annualised base salary)
  Actual shareholding as at
December 31, 2010
(in % of December 31, 2010
annualised base salary)
         
Erik Engstrom
  300%   361%
Mark Armour
  200%   396%
Andrew Prozes*
  200%   216%
 
 
* The formal shareholding requirement ceased on retirement
 
Other employee share plans
 
UK-based executive directors are eligible to participate in the HMRC approved all-employee UK Savings-Related Share Option Scheme (SAYE). During 2010, US-based executive directors were eligible to participate in the all-employee US-based Employee Stock Investment Plan (EMSIP). Under the EMSIP, employees are able to purchase Reed Elsevier PLC and Reed Elsevier NV securities at the prevailing market price, with commissions and charges being met by Reed Elsevier.


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Retirement benefits
 
Retirement benefit provisions are set in the context of the total remuneration for each executive director, taking account of age and service and against the background of evolving legislation and practice in Reed Elsevier’s major countries of operation. Base salary is the only pensionable element of remuneration.
 
Erik Engstrom and Mark Armour are provided with UK defined benefit pension arrangements under which they accrue a pension of 1/30th of salary for every year of service (up to a maximum of two thirds of salary). The pension is provided through a combination of:
 
  •   the main UK Reed Elsevier Pension Scheme for salary restricted to a cap, determined annually on the same basis as the pre-April 2006 Inland Revenue earnings cap, and
 
  •   Reed Elsevier’s unapproved pension arrangement for salary above the cap.
 
Prior to November 1, 2007, Erik Engstrom was not a member of any company pension scheme and Reed Elsevier made annual contributions of 19.5% of his salary to his personal pension plan. From November 1, 2007 contributions to his designated retirement account ceased and he became a member of the UK defined benefit pension arrangement.
 
Andrew Prozes, who retired on December 31, 2010, will be entitled to an annual pension of $613,572 in accordance with the terms of his employment agreement. In view of the split of LexisNexis into two standalone businesses of Risk Solutions and Legal & Professional with effect from January 1, 2011, his retirement date was brought forward by one month from his 65th birthday. In order to fall outside the penalty tax provisions of Section 409A of the US Internal Revenue Code, payment of the pension will commence six months after the retirement date at which point payment of the retirement benefit relating to the six months ending June 30, 2011 will be made in a single sum plus interest at the applicable federal rate.
 
The pension arrangements for all directors (UK and non-UK) include life assurance cover while in employment, an entitlement to a pension in the event of ill health or disability and 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 in the table below. Transfer values for the UK directors have been calculated in accordance with the guidance note GN11 published by the UK Institute of Actuaries and Faculty of Actuaries. The transfer values at December 31, 2010 have been calculated using the transfer value basis adopted by the trustees of the pension scheme from October 1, 2008.
 
The transfer value in respect of individual directors represents a liability in respect of directors’ pensions entitlement, and is not an amount paid or payable to the director.
 
Transfer values of accrued pension benefits
 
                                                                         
                                    Transfer
                                    value at
                                    December 31,
                                    2010 of
                                Increase in
  increase
                    Increase in
          accrued
  in accrued
            Transfer
  Transfer
  transfer
      Increase in
  annual
  pension
            value
  Value
  value during
  Accrued
  accrued
  pension
  during the
            of accrued
  of accrued
  the year
  annual
  annual
  during the
  year (net
    Age at
      pension
  pension
  (net of
  pension
  pension
  year
  of inflation
    December 31,
  Director’s
  December 31,
  December 31,
  director’s
  December 31,
  during
  (net of
  and director’s
    2010   contributions   2009   2010   contributions)   2010   the year   inflation)   contributions)
 
Erik Engstrom
    47       £6,180       £624,769       £1,366,389       £735,440       £105,575       £56,448       £55,269       £709,128  
Mark Armour
    56       £6,180       £5,170,768       £5,643,891       £466,943       £325,426       £20,450       £13,139       £221,696  
Andrew Prozes
    64             $6,719,734       $7,894,300       $1,174,566       $613,572       $98,373       $98,373       $1,265,670  
 
Service contracts
 
Executive directors are employed under service contracts that provide for a maximum of one year’s notice. The contracts neither specify a pre-determined level of severance payment nor contain specific provisions in respect of change in control.
 
The Committee believes that as a general rule, notice periods should be 12 months and that the executive directors should, subject to any legal constraints within their base country, be required to mitigate their damages in the event of termination. The Committee will, however, note local market conditions so as to ensure that the terms offered are appropriate to attract and retain top executives operating in global businesses.
 
The contractual terms of the executive directors (and for approximately 100 other senior executives) include certain covenants. These were reviewed during the year within the context of the implementation of the REGP and the new BIP and revised, where appropriate. The covenants are as follows:
 
  •   non-competition restrictions apply which prevent the executive from working in a capacity which competes with any Reed Elsevier business which he/she was involved with during the preceding 12 months; from recruiting Reed Elsevier employees and from soliciting Reed Elsevier customers and suppliers for a period of 12 months after leaving employment;


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  •   in the event of the executive resigning, he/she will immediately lose all rights to any outstanding awards under the multi-year incentives including any vested but unexercised options; and
 
  •   in the event of a breach of the covenants, any gains made or payouts received, in the period starting six months prior and ending 12 months after leaving employment, on the vesting or exercise of awards from the multi-year incentives may be repayable.
 
Each of the executive directors has/had a service contract, as summarised below:
 
                 
        Expiry date
       
        (subject to
       
    Contract Date   notice period)   Notice period   Subject to:
 
Erik Engstrom(i)
  June 25, 2004   June 14, 2025   12 months   English law
Mark Armour(i)
  October 7, 1996   July 29, 2014   12 months   English law
Andrew Prozes(ii)
  July 5, 2000   Retired effective December 31, 2010    *   New York law
 
 
(i) Employed by Reed Elsevier Group plc
 
(ii) Employed by Reed Elsevier Inc.
 
The terms of his contract provided for a payment of one year’s base salary on termination without cause. Since Andrew Prozes retired by mutual agreement on December 31, 2010 no additional payments are due under the terms of his contract. The terms agreed in respect of his retirement are set out below.
 
Andrew Prozes’ retirement arrangements
 
The following terms applied to Andrew Prozes who retired on December 31, 2010:
 
  •   he is eligible for an annual bonus under the AIP for financial year 2010. Any bonus due will be paid by no later than March 15, 2011 and will be subject to performance against his KPOs and LexisNexis financial performance for 2010 in the same way as the bonuses payable to the other executive directors;
 
  •   no termination payments were due since he retired;
 
  •   in accordance with the terms of his contract, he will be entitled to fully subsidised retiree medical benefits for life which are also available to his surviving spouse;
 
  •   he received no grants under ESOS and did not participate in the REGP implemented during 2010;
 
  •   the covenants relating to non-competition, non-solicitation and confidentiality remain in place for 12 months post-retirement;
 
  •   all unvested share-based awards were treated in accordance with the rules of the plans, and outstanding options remain exercisable for three years from retirement; and
 
  •   his LTIP shareholding requirement ceased on retirement.
 
Policy on external appointments
 
The Committee believes that the experience gained by allowing executive directors to serve as non-executive directors on the boards of other organisations is of benefit to Reed Elsevier. Accordingly, executive directors may, subject to the approval of the Chairman and the Chief Executive Officer, serve as non-executive directors on the boards of up to two non-associated companies (of which only one may be to the board of a major company) and they may retain remuneration arising from such appointments.
 
  •   Andrew Prozes is a non-executive director of the Cott Corporation and received a fee of $130,000 (£83,871) during 2010 ($127,285 (£81,073) during 2009).
 
  •   Mark Armour joined the board of SABMiller plc as a non-executive director on May 1, 2010 and received a fee of £59,610 (pro-rata since appointment) for 2010.
 
NON-EXECUTIVE DIRECTORS
 
Policy on non-executive directors’ fees
 
Reed Elsevier seeks to recruit non-executive directors with the experience to contribute to the boards of a dual-listed global business and with a balance of personal skills that will make a major contribution to the boards and their committee structures. With the exception of Dien de Boer-Kruyt, who retired during 2010, and Marike van Lier Lels who served/serves only on the Supervisory Board of Reed Elsevier NV, non-executive directors, including the Chairman, are appointed to the boards of Reed Elsevier Group plc, Reed Elsevier PLC and the Supervisory Board of Reed Elsevier NV. Non-executive directors’ fees reflect the directors’ membership of the three boards.


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The primary source for comparative market data is the practice of FTSE 50 companies, although reference is also made to AEX and US listed companies.
 
Non-executive directors, including the Chairman, serve under letters of appointment and are not entitled to notice of, or payments following, retirement from the board.
 
Fee levels
 
Non-executive directors receive an annual fee in respect of their memberships of the boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc. The fee paid to Dien de Boer-Kruyt until her retirement and Marike van Lier Lels, who served/serves only on the Supervisory Board of Reed Elsevier NV, reflects their time commitment to that company and to other companies within the Reed Elsevier combined businesses. Non-executive directors are reimbursed for expenses incurred in attending meetings. They do not receive any performance related bonuses, pension provision, share options or other forms of benefit except the Chairman of Reed Elsevier Group plc, who is in receipt of private medical benefit. Fees may be reviewed annually, although in practice they have changed on a less frequent basis.
 
The chairmanship of the Audit and Remuneration Committees attracts an additional fee of £15,000/€20,000. The Chairman of Reed Elsevier Group plc chairs the Nominations Committee and does not receive a separate fee for his role as chairman of that committee. In addition, it is the intention to introduce a separate fee for the senior independent director of £20,000 p.a. subject to obtaining relevant approval at the 2011 Annual General Meeting of Reed Elsevier NV. Subject to approval being granted, this fee is proposed to apply retroactively from January 1, 2011. In addition, at the Annual General Meeting of Reed Elsevier NV a proposal will be made to set the maximum amount of annual remuneration of the Supervisory Board of Reed Elsevier NV at €600,000.
 
The total annual fee payable to Marike van Lier Lels is €48,000.
 
Directors’ emoluments and fees
 
(a)   Aggregate emoluments
 
The emoluments of the directors of Reed Elsevier PLC and Reed Elsevier NV (including any entitlement to fees or emoluments from either Reed Elsevier Group plc or Elsevier Reed Finance BV) were as follows:
 
                 
    2010
    2009
 
    £     £  
    (In thousands)  
 
Salaries and fees
    3,324       4,016  
Benefits
    97       360  
Annual performance-related bonuses
    2,351       2,294  
Payments for loss of office
    499 *     1,124  
Pension contributions
    43       32  
Payments to former directors
          284  
Pension in respect of former directors
    1,179       1,034  
                 
Total
    7,493       9,144  
                 
 
 
* Ian Smith’s employment ended on November 10, 2009 under the arrangements described on page 52 of the 2009 Annual Report on Form 20-F filed with the SEC on March 18, 2010. In accordance with the terms agreed on termination, he received a further five instalments of his previous base salary and benefits during 2010. Payments ceased in November 2010 and there are no further obligations.
 
(b)   Individual emoluments of executive directors
 
                                         
                      Total
    Total
 
    Salary
    Benefits
    Bonus
    2010
    2009
 
    £     £     £     £     £  
 
Erik Engstrom
    1,000,000       29,108       999,000       2,028,108       1,851,374  
Mark Armour
    613,440       22,475       612,827       1,248,742       1,227,550  
Andrew Prozes
    787,002       45,481 *     739,569       1,572,052       1,452,698  
                                         
Total
    2,400,442       97,064       2,351,396       4,848,902       4,531,622  
                                         
 
 
* Includes a cash payment of £24,123 in respect of accrued but untaken holiday at the date of retirement.


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Conditional shares awarded in 2010 under the multi-year incentives are set out by executive director on pages 57 to 59. Vesting is subject to performance conditions relating to growth in EPS, ROIC and TSR and other conditions, including shareholding requirements, as described on previous pages. The maximum number of conditional shares that can vest under the Reed Elsevier Growth Plan is 150% of the grant award if performance conditions are met over a five-year period. The maximum number of conditional shares that can vest under the Bonus Investment Plan is equivalent to the grant award.
 
During 2010, the 2007-09 cycle of awards made under ESOS, BIP and LTIP lapsed for the executive directors as a result of performance conditions not being met. The executive directors made no notional pre-tax gains during 2010 on any multi-year incentives (2009: £8,303,637) except for Andrew Prozes who made a gain of £595 on the exercise of vested options during the year. Details are show on pages 57 to 59.
 
Erik Engstrom was the highest paid director in 2010.
 
(c)   Individual fees of non-executive directors
 
                 
    2010
    2009
 
    £     £  
 
Dien de Boer-Kruyt (until April 19, 2010)
    13,675       42,857  
Mark Elliott
    70,000       70,000  
Anthony Habgood (from June 1, 2009)
    500,000 *     291,667  
Lisa Hook
    55,000       55,000  
Marike van Lier Lels (from January 13, 2010)
    39,744        
Robert Polet
    55,000       55,000  
David Reid
    55,000       55,000  
Lord Sharman
    63,750       70,000  
Ben van der Veer (from September 3, 2009)
    71,225       22,321  
                 
Total
    923,394       661,845  
                 
 
 
* Excludes private medical insurance benefit of £1,244
 
Compensation of executive officers
 
The aggregate compensation paid during 2010 (and relating to 2010) to those who were executive officers (other than directors) of Reed Elsevier Group plc as at February 16, 2011 as a group, for services in such capacities for the year ended December 31, 2010 was £1,674,243 which included contributions made to the pension plans in respect of such officers of £47,767.
 
BOARD PRACTICES
 
REED ELSEVIER
 
The boards of directors of Reed Elsevier PLC and Reed Elsevier NV manage their respective shareholdings in Reed Elsevier Group plc and Elsevier Reed Finance BV. The boards of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc are harmonised. Subject to shareholders of Reed Elsevier PLC and Reed Elsevier NV re-electing retiring directors at their respective Annual General Meetings in 2011, all the directors of Reed Elsevier Group plc will also be directors of Reed Elsevier PLC and of Reed Elsevier NV. For a complete description of the board membership positions and executive officer positions within Reed Elsevier, see “— Directors” and “Senior Management” on pages 38 and 40. Details of the Audit Committees of Reed Elsevier Group plc, Reed Elsevier PLC and Reed Elsevier NV are given under “Item 15: Controls and Procedures” and details of the Remuneration Committee are given under “— Remuneration Committee” on page 40.
 
REED ELSEVIER GROUP PLC
 
The Reed Elsevier Group plc board currently consists of two executive directors and seven non-executive directors. A person may only be appointed or proposed or recommended for appointment to the board if that person has been nominated for that appointment by the joint Nominations Committee of Reed Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier Group plc board, prior to appointment to the Reed Elsevier Group plc board.
 
Decisions of the board of directors of Reed Elsevier Group plc require a simple majority, and the quorum required for meetings of the board of Reed Elsevier Group plc is any two directors.
 
The Reed Elsevier Group plc board has established the following committees:
 
  —  Audit — currently comprising four independent non-executive directors


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  —  Remuneration — currently comprising three independent non-executive directors and the Chairman of Reed Elsevier Group plc
 
Arrangements established at the time of the merger of Reed Elsevier PLC’s and Reed Elsevier NV’s businesses provide that, if any person (together with persons acting in concert with him) acquires shares, or control of the voting rights attaching to shares, carrying more than 50% of the votes ordinarily exercisable at a general meeting of Reed Elsevier PLC or Reed Elsevier NV and has not made a comparable takeover offer for the other party, the other party may by notice suspend or modify the operation of certain provisions of the merger arrangements, such as (i) the right of the party in which control has been acquired (the “Acquired Party”) to appoint or remove directors of Reed Elsevier PLC, Reed Elsevier NV and Reed Elsevier Group plc and (ii) the Standstill Obligations (defined below) in relation to the Acquired Party. Such a notice will cease to apply if the person acquiring control makes a comparable offer for all the equity securities of the other within a specified period or if the person (and persons acting in concert with him) ceases to have control of the other.
 
In the event of a change of control of one parent company and not the other (where there has been no comparable offer for the other), the parent company which has not suffered the change in control will effectively have the sole right to remove and appoint directors of Reed Elsevier Group plc. Also, a director removed from the board of a parent company which has suffered a change in control will not have to resign from the board of the other parent company or Reed Elsevier Group plc.
 
The Articles of Association of Reed Elsevier Group plc contain certain restrictions on the transfer of shares in Reed Elsevier Group plc. In addition, pursuant to arrangements established at the time of the merger, neither Reed Elsevier PLC nor Reed Elsevier NV may acquire or dispose of any interest in the share capital of the other or otherwise take any action to acquire the other without the prior approval of the other (the “Standstill Obligations”). The Panel on Takeovers and Mergers in the United Kingdom (the “Panel”) has stated that in the event of a change of statutory control of either Reed Elsevier PLC or Reed Elsevier NV, the person or persons acquiring such control will be required to make an offer to acquire the share capital of Reed Elsevier Group plc (but not Elsevier Reed Finance BV) held by the other, in accordance with the requirements of the City Code on Take-overs and Mergers in the United Kingdom. This requirement would not apply if the person acquiring statutory control of either Reed Elsevier PLC or Reed Elsevier NV made an offer for the other on terms which are considered by the Panel to be appropriate.
 
REED ELSEVIER PLC
 
The Reed Elsevier PLC board currently consists of two executive directors and seven non-executive directors. A person may only be appointed or proposed or recommended for appointment to the board if that person has been nominated for that appointment by the joint Nominations Committee of Reed Elsevier PLC and Reed Elsevier NV. Persons nominated by the joint Nominations Committee will be required to be approved by the Reed Elsevier PLC board, prior to the appointment to the Reed Elsevier PLC board. A copy of the terms of reference of the Nominations Committee is available on request and can be viewed on the Reed Elsevier website, www.reedelsevier.com. The information on our website is not incorporated by reference into this report. The joint Nominations Committee currently comprises five non-executive directors.
 
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 — currently comprising four independent non-executive directors; and
 
  —  Corporate Governance — a joint committee of Reed Elsevier PLC and Reed Elsevier NV, comprising all non-executive directors of Reed Elsevier PLC and members of the supervisory board of Reed Elsevier NV.
 
Reed Elsevier Group plc has established a Remuneration Committee, which is responsible for recommending to the boards the remuneration for the executive directors of Reed Elsevier PLC, Reed Elsevier Group plc and Reed Elsevier NV.
 
Under the Articles of Association of Reed Elsevier PLC, one third of the directors shall retire from office and, if they wish, make themselves available for re-appointment by shareholders at the Annual General Meeting. Notwithstanding these provisions in the Articles of Association, all directors will seek reappointment at the Annual General Meeting to be held in April 2011, in accordance with the recommendations of the UK Corporate Governance Code issued in May 2010 by the UK Financial Reporting Council.
 
REED ELSEVIER NV
 
Reed Elsevier NV has a two-tier board structure currently comprising two executive directors (the “Executive Board”) and eight non-executive directors (the “Supervisory Board” and, together with the Executive Board, the “Combined Board”, all together referred to as the “Boards”). Members of the Boards shall be appointed by the General Shareholders’ Meeting upon a proposal of the Combined Board based on a nomination for appointment by the joint Nominations Committee of Reed Elsevier NV and Reed Elsevier PLC. The Articles of Association of Reed Elsevier NV provide that a resolution of the General


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Shareholders’ Meeting to appoint a member of the Boards other than in accordance with a proposal of the Combined Board can only be taken by a majority of at least two-thirds of the votes cast if less than one-half of Reed Elsevier NV’s issued capital is represented at the meeting. The joint Nominations Committee comprises five members of the Supervisory Board.
 
The General Shareholders’ Meeting of Reed Elsevier NV shareholders may also, by ordinary resolution, resolve to suspend or dismiss each member from the Boards of Reed Elsevier NV. In addition, each member of the Executive Board can at any time be suspended by the Supervisory Board. 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 established the following committees:
 
  —  Audit — currently comprising four members of the Reed Elsevier NV Supervisory Board; and
 
  —  Corporate Governance — a joint committee of Reed Elsevier NV and Reed Elsevier PLC, comprising all members of the Supervisory Board and non-executive directors of each company.
 
  —  Nominations — a joint committee of Reed Elsevier NV and Reed Elsevier PLC, currently comprising five members of the Supervisory Board and chaired by the Chairman of the Supervisory Board.
 
Reed Elsevier Group plc has established a Remuneration Committee, which is responsible for recommending to the boards the remuneration for the executive directors of Reed Elsevier NV, Reed Elsevier Group plc and Reed Elsevier PLC.
 
Under the Articles of Association of Reed Elsevier NV, each member of the Reed Elsevier NV Supervisory Board is appointed for a three-year term, with the possibility of reappointment and shall retire periodically in accordance with a rotation plan drawn up by the Combined Board. Notwithstanding these provisions in the Articles of Association, all members of the Boards will seek re-appointment at the Annual General Meeting of Shareholders to be held in April 2011, to align the arrangements regarding appointment for the boards of Reed Elsevier NV and Reed Elsevier PLC. Annual re-appointment shall not affect the term of their three-year appointment. A schedule with the anticipated dates of retirement of members of the Supervisory Board is published on the Reed Elsevier website, www.reedelsevier.com. As a general rule, members of the Supervisory Board serve for two three-year terms. The Nominations Committee may recommend that individual members of the Supervisory Board serve up to one additional three-year term.
 
ELSEVIER REED FINANCE BV
 
Elsevier Reed Finance BV has a two-tier board structure comprising a Management Board, currently consisting of three members, and a Supervisory Board, currently consisting of four members. 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 members of the Supervisory Board during periods when a notice of suspension as mentioned in the governing agreement between Reed Elsevier PLC and Reed Elsevier NV is in force. These provisions intend to neutralise the influence of a party which has acquired control over either Reed Elsevier PLC or Reed Elsevier NV without having also acquired control in the other.
 
EMPLOYEES
 
Employee numbers are disclosed in note 7 to the combined financial statements.
 
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
 
Share-based awards in Reed Elsevier PLC and Reed Elsevier NV
 
Details of vested options, including options vested during the year, (in italics) and unvested options and restricted shares held by directors in Reed Elsevier PLC (“PLC”) and Reed Elsevier NV (“NV”) as at December 31, 2010 are shown in the tables in this section. The vesting of outstanding unvested awards is subject to performance conditions in accordance with the provisions of the respective plan rules. For disclosure purposes, any PLC and NV ADRs awarded to directors under the BIP have been converted into ordinary share equivalents. As at February 16, 2011 there have been no changes in the options or restricted shares held by executive directors in office at December 31, 2010 other than those relating to the 2008-10 cycles of ESOS and LTIP as sign-posted in the tables. The market price at the date of award of grants made under the REGP, ESOS, BIP and LTIP and gains made on the exercise of options are based on the middle market price of the respective security.
 
Erik Engstrom
 
                                                                                     
              No. of
    No. of
          No. of
          Gross
    No. of
             
              options
    options
          options
    Market
    gains
    options
             
              held on
    granted
          exercised
    price per
    made on
    held on
    Unvested
    Options
 
    Year of
    Option
  Jan 1,
    during
    Option
    during
    share at
    exercise
    Dec 31,
    options
    exercisable
 
Options
  grant     over:   2010     2010     price     2010     exercise     £/€     2010     vesting on:     until:  
 
                                                                                     
ESOS
    2004     PLC ord     63,460             £ 4.780                               63,460               Aug 23, 2014  
                                                                                     
            NV ord     43,866             10.30                               43,866               Aug 23, 2014  
                                                                                     
      2005     PLC ord     154,517             £ 5.335                               154,517               Feb 17, 2015  
                                                                                     
            NV ord     105,412             11.31                               105,412               Feb 17, 2015  
                                                                                     
      2006     PLC ord     178,895             £ 5.305                               178,895               Mar 13, 2016  
                                                                                     
            NV ord     120,198             11.47                               120,198               Mar 13, 2016  
                                                                                     
      2007     PLC ord     130,060             £ 6.445                                             Lapsed  
                                                                                     
            NV ord     85,897             14.51                                             Lapsed  
                                                                                     
      2008     PLC ord     143,000             £ 6.275                               143,000               Lapsed*  
                                                                                     
            NV ord     94,000             12.21                               94,000               Lapsed*  
                                                                                     
      2009     PLC ord     146,923             £ 5.420                               146,923       Feb 19, 2012       Feb 19, 2019  
                                                                                     
            NV ord     95,399             9.415                               95,399       Feb 19, 2012       Feb 19, 2019  
                                                                                     
LTIP
    2004     PLC ord     325,163               £4.78                               325,163               Aug 23, 2014  
                                                                                     
            NV ord     224,766             10.30                               224,766               Aug 23, 2014  
                                                                                     
                                                                                     
Total PLC ords
                1,142,018                                               1,011,958                  
                                                                                     
Total NV ords
                769,538                                               683,641                  
                                                                                     
 
 
* Lapsed prior to the date of this report
 
                                                                                     
              No. of
                                  No. of
             
              unvested
    No. of
          No. of
          Notional
    unvested
             
              shares
    shares
    Market
    shares
    Market
    gross
    shares
             
              held on
    awarded
    price per
    vested
    price per
    gains at
    held on
             
    Year of
    Type of
  Jan 1,
    during
    share at
    during
    share at
    vesting
    Dec 31,
          Date of
 
Shares
  grant     security   2010     2010     award     2010     vesting     £/€     2010           vesting  
 
BIP
    2007     NV ord     27,572             13.49                                             Lapsed  
      2008     NV ord     30,318             12.44                                             Lapsed  
      2009     NV ord     57,216             8.201                                             Lapsed  
      2010     NV ord             140,378     8.310                               140,378               Q1 2013  
LTIP
    2007     PLC ord     61,453             £ 6.445                                             Lapsed  
            NV ord     40,586             14.51                                             Lapsed  
      2008     PLC ord     68,500             £ 6.275                               68,500               Lapsed*  
            NV ord     45,000             12.21                               45,000               Lapsed*  
      2009     PLC ord     103,902             £ 5.420                               103,902               Feb 19, 2012  
            NV ord     67,465             9.415                               67,465               Feb 19, 2012  
REGP
    2010     PLC ord             643,086     £ 4.665                               643,086               50% Q1 2013