COMBINED FINANCIAL STATEMENTS > NOTES TO THE COMBINED FINANCIAL STATEMENTS Contingent liabilities 25 Prior year adjustment 27 68 REED ELSEVIER ANNUAL REPORTS & FINANCIAL STATEMENTS 2003 In accordance with UITF38: Accounting for ESOP Trusts issued in December 2003 by the Urgent Issues Task Force of the UK Accounting Standards Board, shares in Reed Elsevier PLC and Reed Elsevier NV held by the Reed Elsevier Group plc Employee Benefit Trust are now presented as shares held in treasury and deducted within combined shareholders’ funds. Previously, such shares were included within other fixed asset investments. Within the combined cash flow statement, the purchase of such shares is now presented as a financing transaction and not as a purchase of fixed asset investments. The combined balance sheet as at 31 December 2002 and the combined cash flow statement for the year ended 31 December 2002 have been restated accordingly. At 31 December 2003, shares held in treasury related to the 6,383,333 (2002: 2,840,047) Reed Elsevier PLC ordinary shares and 1,327,777 (2002: 1,554,381) Reed Elsevier NV ordinary shares held by the Reed Elsevier Group plc Employee Benefit Trust (“EBT”). The aggregate market value of these shares at 31 December 2003 was £39m/ € 55m (2002: £27m/ € 41m). The EBT purchases Reed Elsevier PLC and Reed Elsevier NV shares which, at the trustees’ discretion, can be used in respect of the exercise of share options. Combined reserves include a £4m/ € 6m (2002: £4m/ € 6m) capital redemption reserve following the redemption of non equity shares in Reed Elsevier PLC in 1999. Combined share capital excludes the shares of Reed Elsevier NV held by Reed Elsevier PLC. There are contingent liabilities amounting to £77m/ € 109m (2002: £118m/ € 181m) in respect of property lease guarantees, in excess of provided amounts of £26m/ € 37m (2002: £32m/ € 49m), given by Harcourt General, Inc in favour of a former subsidiary (see note 24). Combined Combined Combined share shares share premium held in Combined capitals accounts treasury reserves Total Note £m £m £m £m £m At 1 January 2003 as originally reported 187 1,708 – 764 2,659 Prior year adjustment 27 – – (19) – (19) At 1 January 2003 as restated 187 1,708 (19) 764 2,640 Profit attributable to parent companies’ shareholders – – – 334 334 Equity dividends paid and proposed – – – (304) (304) Issue of ordinary shares, net of expenses 1 13 – – 14 Increase in shares held in treasury – – (18) – (18) Exchange translation differences  2 63 – (297) (232) At 31 December 2003 190 1,784 (37) 497 2,434 Combined shareholders’ funds 26 Combined Combined Combined share shares share premium held in Combined capitals accounts treasury reserves Total Note € m € m € m € m € m At 1 January 2003 as originally reported 286 2,613 – 1,169 4,068 Prior year adjustment 27 – – (29) – (29) At 1 January 2003 as restated 286 2,613 (29) 1,169 4,039 Profit attributable to parent companies’ shareholders – – – 484 484 Equity dividends paid and proposed – – – (441) (441) Issue of ordinary shares, net of expenses 1 19 – – 20 Increase in shares held in treasury – – (26) – (26) Exchange translation differences  (17) (99) 2 (506) (620) At 31 December 2003 270 2,533 (53) 706 3,456