SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1995 Commission file number: 1-10434
The Reader's Digest Association, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1726769
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Pleasantville, New York 10570
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code: (914) 238-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Class A Nonvoting Common Stock New York Stock Exchange
par value $.01 per share
Class B Voting Common Stock New York Stock Exchange
par value $.01 per share
Securities registered pursuant to Section 12(g) of the Act:
None
______________
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has 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) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of registrant's voting stock held by
non-affiliates of registrant, at September 18, 1995, was
approximately $286,715,629, based on the closing price of
registrant's Class B Voting Stock on the New York Stock Exchange-
- -Composite Transactions on such date.
As of September 18, 1995, 86,392,259 shares of the registrant's
Class A Nonvoting Common Stock and 21,716,057 shares of the
registrant's Class B Voting Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders of registrant for the fiscal year
ended June 30, 1995. Certain information therein is incorporated
by reference into Part I and Part II hereof.
Proxy Statement for the Annual Meeting of Stockholders of
registrant to be held on November 10, 1995. Certain information
therein is incorporated by reference into Part III hereof.
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS 1
Reader's Digest Magazine 1
Circulation 1
Advertising 2
Editorial 2
Production and Fulfillment 3
Licensed Editions 3
Books and Home Entertainment Products 4
Condensed Books 4
Series Books 4
General Books 4
Music 5
Video 5
Reader's Digest Young Families, Inc. 6
Production and Fulfillment 6
Direct Marketing Operations and Sweepstakes 7
Management Information Systems and List Enhancement 8
Special Interest Magazines 8
Other Businesses; Special Markets 9
Competition and Trademarks 10
Employees 10
Executive Officers of the Company 10
Additional Corporate Officers 12
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 14
HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 14
TABLE OF CONTENTS
(Continued)
Page
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE 15
REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 15
SIGNATURES 19
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND 20
SCHEDULES
"Reader's Digest" is a registered trademark of The Reader's Digest
Association, Inc.
PART I
ITEM 1.BUSINESS
The Reader's Digest Association, Inc. ("RDA" and, together
with its subsidiaries, the "Company") is a preeminent global
leader in publishing and direct marketing, creating and
delivering products, including magazines, books, recorded music
collections, home videos and other products, that inform, enrich,
entertain and inspire.
RDA is a Delaware corporation that was originally
incorporated in New York in 1926 and was reincorporated in
Delaware in 1951. The mailing address of its principal executive
offices is Pleasantville, New York 10570 and its telephone
number is (914) 238-1000.
The Company's operations are reported in four business
segments: (1) Reader's Digest magazine, (2) books and home
entertainment products, (3) special interest magazines and (4)
other businesses. For financial information by business segment,
see Note 15 to the Company's consolidated financial statements
appearing in the Company's 1995 Annual Report to Stockholders,
which note is incorporated herein by reference.
The Company's businesses are organized in four operating
groups. The organization of the Company's three geographic groups-
- -Reader's Digest Europe, Reader's Digest U.S.A. and Reader's
Digest Pacific--recognizes the distinct business needs and
strategies appropriate in different markets throughout the world.
The Company's fourth operating group--Special Markets--operates
the Company's school and youth group fundraising business and
focuses on developing new products and entering new marketing
channels. (Reported geographic results for the Special Markets
Group are included in the United States segment and reported
business segment results are included in the Other Businesses
segment.) For financial information by geographic area, see Note
15 to the Company's consolidated financial statements appearing
in the Company's 1995 Annual Report to Stockholders.
Reader's Digest Magazine
Reader's Digest magazine is a monthly, general interest
magazine consisting of original articles and previously published
articles in condensed form, a condensed version of a previously
published or soon-to-be published full-length book, monthly humor
columns, such as "Laughter, The Best Medicine(r)," "Life In These
United States(r)," "Humor In Uniform(r)," "Campus Comedy(r)" and "All
In A Day's Work(r)," and other regular features, including "Heroes
For Today(r)," "It Pays To Enrich Your Word Power(r)," "News From The
World Of Medicine(r)" and "The Verbal Edge(tm)." DeWitt and Lila
Wallace founded Reader's Digest magazine in 1922. Today,
Reader's Digest has a worldwide circulation of approximately 27
million and an estimated 100 million readers each month,
generating revenues of $732.9 million in fiscal 1995, as compared
with $689.1 million in fiscal 1994 and $720.0 million in fiscal
1993. Reader's Digest is published in 47 editions and 18
languages. The Company began publication of a Polish edition in
May 1995 and over the next few years plans to launch several new
editions of Reader's Digest, with principal emphasis on Asia and
Latin America. The Company announced in September 1995 that it
will publish a new edition in Thailand beginning in April 1996.
Circulation
Based on the most recent audit report issued by the Audit
Bureau of Circulation, Inc. ("ABC"), a not-for-profit
organization that monitors circulation in the United States and
Canada, the Company has determined that the United States edition
of Reader's Digest has the largest circulation of any United
States magazine, other than one that is automatically distributed
to all members of the American Association of Retired Persons.
Approximately 94% of the United States circulation of Reader's
Digest consists of subscriptions. The balance consists of single
copy sales at newsstands and in supermarkets and similar
establishments.
Reader's Digest is truly a global magazine. Most of its
international editions have the largest paid circulation both in
the individual countries and in the regions in which they are
published. For most international editions of Reader's Digest,
subscriptions comprise about 90% of circulation. The balance is
attributable to newsstand and other retail sales.
The Company maintains its circulation rate base through
annual subscription renewals and new subscriptions. The global
circulation rate base for Reader's Digest of 26,923,810 includes
a circulation rate base of 15,000,000 for the United States--
English language edition. In the United States, the Company
sells approximately five million new subscriptions each year in
order to maintain its circulation rate base. New subscriptions
are sold primarily by direct mail, with extensive use of
sweepstakes entries and, in some cases, premium merchandise
offers. The largest percentage of subscriptions is sold between
July and December of each year. Subscriptions to Reader's Digest
may be canceled at any time and the unused subscription price is
refunded.
Worldwide revenues from circulation accounted for $571.7
million, or 78% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1995.
Advertising
In fiscal 1995, Reader's Digest carried 1,033 advertising
pages in its United States--English language edition and 13,082
advertising pages in its other editions. The estimated gross
advertising revenues for the United States--English edition were
$169.3 million and for the other editions were $126.3 million in
fiscal 1995. (Figures for the United States--English language
edition are as reported by Publishers Information Bureau, Inc.
("PIB") and for the other editions are based on data contained in
the LNA/Rome Report of Expenditures in International Media.
Gross advertising revenues are computed from basic one-time rates
and the number of advertising pages carried and, therefore,
exceed actual advertising revenues as included in the Company's
financial statements. Actual advertising revenues reflect lower
rates for multiple insertion, volume discounts and cash
discounts.)
The United States and the larger international editions of
Reader's Digest offer advertisers different regional editions,
major market editions and demographic editions. These editions,
containing the same editorial material, permit advertisers to
concentrate their advertising in specific markets or to target
specific audiences. Reader's Digest sells advertising in both
the United States and international editions principally through
an internal advertising sales force. The Company sells
advertisements in multiple editions worldwide, and offers
advertisers discounts for placing advertisements in more than one
edition.
Worldwide revenues from advertising accounted for $161.3
million, or 22% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1995.
Editorial
Reader's Digest is a reader-driven, family magazine.
Editorial content is, therefore, crucial to the loyal subscriber
base that constitutes the cornerstone of the Company's
operations. The editorial goal of Reader's Digest is to inform,
enrich, entertain and inspire. The articles, book section and
features included in Reader's Digest cover a broad range of
contemporary issues and reflect an awareness of traditional
values.
A substantial portion of the selections in Reader's Digest
are original articles written by staff writers or free-lance
writers. The balance is selected from existing published
sources. All material is condensed by Reader's Digest editors.
The Company employs a professional staff to research and fact-
check all published pieces.
Each international edition has a local editorial staff
responsible for the editorial content of the edition. The mix of
locally generated editorial material, material taken from the
United States edition and material taken from other international
editions varies greatly among editions. In general, the
Company's larger international editions, for example, those in
Canada, France, Germany and the United Kingdom, carry more
original or locally adapted material than do smaller editions.
Production and Fulfillment
All editions of Reader's Digest are printed by independent
third parties. The United States edition is currently printed by
one printer at its location in New York State. In September
1994, the Company signed a new 10-year printing agreement with
another printer, commencing in late 1996, to produce the United
States edition at its Pennsylvania location. The Company
believes that generally there is an adequate supply of
alternative printing services available to the Company at
competitive prices, should the need arise. The Company has
developed plans to minimize recovery time in the event of a
disaster at an existing printing facility.
The principal raw materials used in the publication of
Reader's Digest are coated and uncoated paper. The Company has
supply contracts with a number of global suppliers of paper and
believes that those supply contracts provide an adequate supply
of paper for its needs and that, in any event, alternative
sources are available at competitive prices. Paper prices are
affected by a variety of factors, including demand, capacity,
pulp supply, and by general economic conditions.
Subscription copies of the United States edition of Reader's
Digest are delivered through the United States Postal Service as
second class mail. Subscription copies of international editions
are also delivered through the postal service in each country.
For additional information about postal rates and service, see
"Direct Marketing Operations and Sweepstakes."
Newsstand and other retail distribution is accomplished
through a distribution network. The Company has contracted in
each country with a magazine distributor for the distribution of
Reader's Digest.
Licensed Editions
Three international editions--the Korean and the two Indian
editions--are not produced by subsidiaries of the Company, but
rather are published by third parties to whom the Company has
licensed the right to publish Reader's Digest and use the
Company's trademarks (subject to Company approval of editorial
content). The Reader's Digest Fund for the Blind, Inc., a New
York not-for-profit corporation, publishes a large-type edition
of Reader's Digest, pursuant to a royalty-free license. The
Company also licenses, royalty-free, the right to publish a
braille edition and a recorded edition of Reader's Digest.
Revenues from licensed editions are not material.
Books and Home Entertainment Products
The Company publishes and markets, principally by direct
mail, Reader's Digest Condensed Books, series books, general
books, recorded music collections and series and home video
products. See "Direct Marketing Operations and Sweepstakes."
Condensed Books
Reader's Digest Condensed Books is a continuing series of
condensed versions of current popular fiction and, to a limited
extent, nonfiction. Condensation reduces the length of an
existing text, while retaining the author's style, integrity and
purpose. Today, 15 editions of Condensed Books, published in 12
languages, are marketed in 23 countries. In fiscal 1995,
Condensed Books generated worldwide revenues of $392.1 million,
as compared with $363.9 million in fiscal 1994 and $352.3 million
in fiscal 1993.
International editions of Condensed Books generally include
some material from the United States edition or from other
international editions, translated and edited as appropriate, and
some condensations of locally published works. Each local
editorial staff determines whether existing Condensed Books
selections are appropriate for their local market.
The Company publishes six volumes of Condensed Books a year
in the United States. Some of the Company's international
subsidiaries also publish six volumes a year, while others
publish five. Condensed Books are marketed as an open-ended
series.
Series Books
The Company markets two types of series books: reading
series and illustrated series. These book series may be open-
ended continuing series, or may consist of a limited number of
volumes. Series books are published in nine languages and
marketed in 18 countries. In fiscal 1995, series books generated
worldwide revenues of $236.6 million, as compared with $214.9
million in fiscal 1994 and $228.8 million in fiscal 1993.
Series marketed in the United States include Today's Best
Nonfiction(r), which consists of five volumes per year each
generally containing condensed versions of four contemporary
works of nonfiction and World's Best Reading, consisting of full-
length editions of classic works of literature, of which six
volumes are published each year. Today's Best Nonfiction is
published in 12 countries in three languages and World's Best
Reading is published in 12 countries in four languages. The
Company recently introduced in selected European markets the
Enhanced Reading Series, featuring condensations of existing
books enhanced with additional information and photographs.
Illustrated series, which are marketed in the United States
and several other countries, include The Reader's Digest American
Medical Association Home Medical Library, People and Places of
the World, and Successful Gardening. In addition, the Vie
Sauvage illustrated series is marketed in 10 countries outside of
the United States. Illustrated series are generally closed
ended.
General Books
The Company's general books consist primarily of reference
books, cookbooks, "how-to" and "do-it-yourself" books, songbooks,
and books on subjects such as history, travel, religion, health,
nature and the home. General books are published in 12 languages
and are marketed in 31 countries. In fiscal 1995, general books
generated worldwide revenues of $816.5 million, as compared with
$755.2 million in fiscal 1994 and $826.4 million in fiscal 1993.
New general books are generally original Reader's Digest
books, but may also be books acquired from other publishers.
During the development period for an original Reader's Digest
book, the Company conducts extensive research and prepares an
appropriate marketing strategy for the book.
Although most sales of a general book will result from the
initial bulk promotional mailing, substantial additional sales
occur through subsequent promotions, catalog sales and the use of
sales inserts in mailings for other Reader's Digest products.
The Company also distributes a small portion of its books for
retail sale in stores, through third-party distributors.
The Company is pursuing the use of electronic media and new
technologies, such as CD-ROM and computer on-line services. In
September 1994, the Company announced an agreement with Microsoft
Corporation to produce original multimedia software for home
computer users based on editorial content of the Company's best-
selling books. The CD-ROM will be marketed by both companies and
will carry both the Reader's Digestr and the Microsoftr Home
brand names. Under the agreement, the Company has global direct
mail rights and Microsoft Corporation has worldwide retail rights
to the product.
In March 1995, the Company entered into a worldwide
agreement with Dove Audio, Inc. ("Dove Audio") for direct
marketing rights to Dove Audio's library of audio books, which
currently numbers more than 800 titles. The agreement also
provides that the Company may authorize Dove Audio to create new
titles under the Reader's Digest brand using the content of the
Company's books.
In July 1995, the Company and Meredith Corporation
("Meredith) entered into an agreement forming a strategic
alliance that grants the Company certain exclusive direct
marketing rights with respect to books and other products, such
as music tapes and CDs, CD-ROMs and videotapes, published under
Meredith's Better Homes and Gardens(r) and Ladies' Home Journal(r)
trademarks. The agreement covers all such products bearing
Meredith's brands and any other products created by Meredith or
by the Company. The agreement also gives the Company direct
access to Meredith's 60-million-name consumer database. The term
of the strategic alliance will be approximately 16-1/2 years,
with a five-year renewal option. The Company will pay Meredith
royalties based on product sales and the use of Meredith's
database.
Music
The Company publishes recorded music packages, which it
sells by direct mail on cassettes and compact discs. The music
packages are generally collections of previously recorded
material by a variety of artists, although they may include
selections from the Company's 16,000-selection library. The
collections span a broad range of musical styles. In certain
markets, the Company also sells music series, which are marketed
in the same manner as Condensed Books and series books. The
marketing strategy for music packages is similar to that for
general books. The Company markets music products in 21
countries, offering different music products in the various
international markets because of diverse tastes. In fiscal 1995,
music products generated worldwide revenues of $435.9 million, as
compared with $392.4 million in fiscal 1994 and $399.9 million in
fiscal 1993.
Video
The Company's home video products are in genres similar to
its general books. Several original video products have won
awards of excellence, including three Emmy awards, and have
appeared on the Disney Channel and the Discovery Channel. The
Company continues to expand its video operations in the United
States and in international markets and is presently marketing
video products in the United States and 17 other countries. Most
of the Company's original video programs have been licensed to
cable television networks. The Company has also begun to sell
its home video products through retail establishments. In fiscal
1995, home video products generated worldwide revenues of $218.7
million, as compared with $173.9 million in fiscal 1994 and
$150.6 million in fiscal 1993.
Reader's Digest Young Families, Inc.
Reader's Digest Young Families, Inc., a wholly owned
subsidiary of the Company, creates and markets children's books
and home entertainment products. The subsidiary brings together
in one stand-alone operation the business of Joshua Morris
Publishing, Inc., a book publisher and packager acquired in 1991,
and the publishing imprint of Reader's Digest Kids(r). Reader's
Digest Young Families publishes books in 29 languages and is
introducing more than 45 titles for the fall 1995 season.
Beginning in fiscal 1996, Reader's Digest Young Families will be
operated as part of the Special Markets Group and its financial
results will be reported as part of the Special Markets Group.
In October 1994, Reader's Digest Young Families obtained
direct marketing rights from Children's Television Workshop to
create new books featuring Sesame Street licensed characters from
the popular children's television program. In addition, Reader's
Digest Young Families acquired from Western Publishing Company,
Inc. the direct marketing rights for four children's book series,
including the Sesame Street Book Club and Berenstain Bears Book
Club.
Production and Fulfillment
The various editions of Condensed Books are printed and
bound by third-party contractors. In September 1994, the Company
entered into a seven-year exclusive agreement for printing
Condensed Books distributed in the United States and Canada. The
Company solicits bids for the printing and binding of each
general book or book series. Production and manufacture of music
and video products is typically accomplished through third
parties.
The principal raw material necessary for the publication of
Condensed Books, series books and general books is paper. The
Company has a number of paper supply arrangements relating to
paper for Condensed Books. Paper for series books and general
books is purchased for each printing. The Company believes that
existing contractual and other available sources of paper provide
an adequate supply at competitive prices. Third parties arrange
for the acquisition of some of the necessary raw materials for
the manufacture of music and video products.
Fulfillment, warehousing, customer service and payment
processing are conducted principally by independent contractors.
Most of the Company's products are packaged and delivered to the
Postal Service directly by the printer or supplier. For
information about postal rates and service, see "Direct Marketing
Operations and Sweepstakes."
In all of the Company's direct marketing sales, a customer
may return any book or home entertainment product to the Company
either prior to payment or after payment for a refund. The
Company believes that its returned goods policy is essential to
its reputation and also elicits a greater number of orders, many
of which are not returned because of the generally high
satisfaction rate of consumers with the Company's products.
Nonetheless, this policy and a "first book free" policy for
Condensed Books and series books result in a significant amount
of returned goods.
Sales of the Company's books and home entertainment products
are seasonal to some extent. In the direct marketing industry as
a whole, the winter months have traditionally had higher consumer
response than other times of the year. Sales are also higher
during the pre-Christmas season than in spring and summer.
Direct Marketing Operations and Sweepstakes
The sale of magazine subscriptions, Condensed Books, series
books, general books, music and video products, as well as
certain other products, is accomplished principally through
direct marketing solicitations to households on the Company's
customer lists, usually accompanied by sweepstakes entries and,
in some cases, premium merchandise offers. For many years the
Company has been acknowledged as a pioneer and innovator in the
direct mail industry. As part of its growth strategy, the
Company has begun to pursue increased distribution of its
products through direct response channels other than direct mail,
such as catalogs, clubs and direct response television.
To promote the sale of its products in the United States,
the Company offers in its promotional mailings participation in
an annual sweepstakes, whose prizes totaled $13.4 million for the
1995 edition and will total about $13.7 million for 1996.
Generally, each of the Company's international subsidiaries
sponsors its own sweepstakes, the mechanics of which vary from
jurisdiction to jurisdiction, depending upon local law.
From time to time, the Company is involved in proceedings
concerning its direct marketing promotions. Also from time to
time, more restrictive laws or regulations governing sweepstakes
or direct marketing are considered in some jurisdictions,
principally in Europe. The Company does not believe that such
proceedings and proposed laws and regulations will have a
material adverse effect on the Company's direct marketing
business.
The Company is subject to postal rate increases, which
affect its product deliveries, promotional mailings and billings.
Postage is one of the Company's largest expenses in its
promotional and billing activities. In the past, the Company has
had sufficient advance notice of most increases in postal rates
so that the higher rates could be factored into the Company's
pricing strategies and operating plans. Because increased prices
(or increased delivery charges paid by customers) may have a
negative effect on sales, the Company may strategically determine
from time to time the extent, if any, to which these cost
increases are passed on to its customers.
The Company relies on postal delivery service in the
jurisdictions in which it operates for timely delivery of its
products and promotional mailings. In the United States,
delivery service is generally satisfactory. Some international
jurisdictions, however, experience periodic work stoppages in
postal delivery service or less than adequate postal efficiency,
although these problems have not had a significant impact on the
Company.
In some states in the United States and in some foreign
jurisdictions, some or all of the Company's products are subject
to sales tax or value added tax. Tax, like delivery, is
generally stated separately on bills where permitted by
applicable law. Nonetheless, tax increases or imposition of new
taxes increases the total cost to the customer and thus may have
a negative effect on sales. Moreover, in jurisdictions where
applicable tax must be included in the purchase price, the
Company may be unable to fully recover from customers the amount
of any tax increase or new tax.
Management Information Systems and List Enhancement
The size and quality of the Company's computerized customer
list in each country in which it operates contribute
significantly to its business and the Company is constantly
striving to improve its lists. The Company believes that its
United States list of about 50 million households, over half the
total number of households in the country, is one of the largest
direct response lists in the United States. The Company's
international lists include a comparable number of households, in
the aggregate. Unlike many publishers, the Company does not rent
or sell its lists to third parties, although the Company's
special interest magazines do rent their subscription lists. As
part of the Company's marketing strategy to expand and enhance
its customer lists, the Company may from time to time engage in
limited exchanges of information from its customer lists.
The Company is making and will continue to make significant
investments in management information systems in order to improve
its operating efficiencies, increase the level of service
provided to its customer base and facilitate globalization of the
Company.
List management activity is limited in some international
subsidiaries because local jurisdictions, particularly in Europe,
have data protection laws or regulations prohibiting or limiting
the exchange of such information. Certain jurisdictions also
prohibit the retention of information, other than certain basic
facts, about noncurrent customers. Although data protection laws
may hinder the Company's list enhancement capacity, the Company
believes that current laws and regulations do not prevent the
Company from engaging in activities necessary to its business.
Special Interest Magazines
The Company publishes several special interest magazines
that it deems consistent with its image, editorial philosophy and
market expertise. Travel Holiday(r) magazine is a practical travel
magazine aimed at middle income travelers. The Family Handyman(r)
magazine provides instructions and guidance for "do-it-yourself"
home improvement projects. New Choices for Retirement Living(r)
magazine is aimed at active, mature readers and provides
information on entertainment, travel, health and leisure time
activities. American Health(r) magazine provides helpful
information on medicine, nutrition, psychology and fitness.
These magazines are sold by subscription. The Family Handyman
and American Health are also sold on newsstands. In addition,
Travel Holiday is distributed to members of a travel club, which
also provides its members with various other benefits, such as
travel insurance. Like most magazines, the Company's special
interest magazines are highly dependent on advertising revenue.
Each of these magazines publishes 10 issues per year. The
Company also publishes Moneywise magazine, a magazine devoted to
helping families manage their finances, in the United Kingdom.
The following table sets forth the circulation rate base of
each of the Company's United States special interest magazines at
June 30, 1995, as well as the number of advertising pages carried
and the advertising revenues (before deducting discounts and
commissions) for the fiscal years then ended. Circulation rate
base data is as reported to ABC and advertising data is as
reported by PIB.
Number of Gross
Circulation Advertising Advertising
Rate Base Pages Carried Revenues<F1>
The Family Handyman 1,000,000 500 $17,234,390
American Health 800,000 465 $13,611,041
Travel Holiday 600,000 531 $15,025,664
New Choices for
Retirement Living 600,000 448 $14,100,365
____________
<F1> Gross advertising revenues are computed from basic one-
time rates and the number of advertising pages carried and,
therefore, exceed actual advertising revenues as included in
the Company's financial statements. Actual advertising
revenues reflect lower rates for multiple insertion, volume
discounts and cash discounts.
Moneywise had a circulation rate base of 132,500 as of the
end of fiscal 1995.
Of total revenues of $95.6 million for the Company's special
interest magazines in fiscal 1995, 61% was generated by
circulation revenues and 39% by advertising revenues.
The U.S. magazines are promoted to the Company's U.S.
customer list and the Company's other products are promoted to
each magazine's customer list, as appropriate. This strategy
helps to expand the Company's customer base for all of its
products.
The Company is working with software developers and computer
on-line services to adapt its special interest magazines to new
technologies. For example, The Family Handyman is available
through The CompuServe Information Service and Travel Holiday is
available through America Online and the Electronic Newsstand on
the Internet. The Company plans to launch a site on the World
Wide Web in fiscal 1996.
Other Businesses; Special Markets
The Company's wholly owned subsidiary, QSP, Inc. ("QSP") and
a Canadian affiliate, are in the business of assisting schools
and youth groups in the United States and Canada in their
fundraising efforts. QSP's staff helps schools and youth groups
prepare fundraising campaigns in which participants sell magazine
subscriptions, music and video products, books, food and gifts.
QSP derives its revenue from a portion of the proceeds of each
sale. Several hundred publishers (including the Company) make
magazine subscriptions available to QSP at a substantial
discount. QSP also obtains discounted music products from a
large music publisher. Processing of magazine subscription
orders and payments is performed for QSP by an independent
contractor. In August 1995, a Canadian subsidiary of the Company
acquired the remaining 50% of the Company's Canadian affiliate
from another large Canadian publisher.
In some markets, the Company also sells other products by
direct response marketing, principally language courses
(consisting of written materials and cassettes) and globes.
Revenues from these activities are not material to the Company's
business.
The foregoing other businesses are operated as part of the
Company's Special Markets Group. Beginning in fiscal 1996,
Reader's Digest Young Families will also be operated as part of
that group and its financial results, which in fiscal 1995 are
reported in the United States geographic and Books and Home
Entertainment Products business segments, will be reported with
the Special Markets Group in the United States geographic and
Other Businesses business segments.
Competition and Trademarks
Although Reader's Digest magazine is a unique and well-
established institution in the magazine publishing industry, it
competes with other magazines for subscribers and with magazines
and all other media, including radio and television, for
advertising. The Company believes that the extensive and
longstanding international operations of Reader's Digest provide
the Company with a significant advantage over competitors seeking
to establish a global publication.
The Company owns numerous trademarks that it uses in its
business worldwide. Its two most important trademarks are
"Reader's Digest" and the "Pegasus" logo. The Company believes
that the name recognition, reputation and image that it has
developed in each of its markets significantly enhance customer
response to the Company's direct marketing sales promotions.
Accordingly, trademarks are important to the Company's business
and the Company aggressively defends its trademarks.
The Company believes that its name, image and reputation, as
well as the quality of its customer lists, provide a significant
competitive advantage over many other direct marketers. However,
the Company's books and home entertainment products business is
in competition with companies selling similar products at retail
as well as by direct marketing. Because tests show that
consumers' responses to direct marketing promotions can be
adversely affected by the overall volume of direct marketing
promotions, the Company is also in competition with all other
direct marketers, regardless of whether the products being
offered are similar to the Company's products.
Each of the Company's special interest magazines is in
competition with other magazines of the same genre for readers
and advertising. Nearly all of the Company's products compete
with other products and services that utilize leisure activity
time or disposable income.
Employees
As of June 30, 1995, the Company employed approximately
6,200 persons worldwide. Approximately 2,000 were employed in
the United States and 4,200 were employed by the Company's
international subsidiaries. The Company's relationship with its
employees is generally satisfactory.
Executive Officers of the Company
The following paragraphs set forth the name, age and offices
with the Company of each
present executive officer of the Company, the period during which
each executive officer has served as such and each executive
officer's business experience during the past five years:
Name and Age Positions and Offices With the
Company
James P. Schadt (57) Mr. Schadt is Chairman and Chief
Executive Officer of the Company.
He became Chairman on August 1, 1995
and became Chief Executive Officer
on August 1, 1994. He joined the
Company as President and Chief
Operating Officer and was elected to
the Board of Directors of the
Company in September 1991. He
served as President of the Company
until September 8, 1995. He was a
member of the board of directors of
Cadbury Schweppes plc of London and
Chief Executive Officer of its
worldwide beverage business, Cadbury
Beverages, Inc., from 1986 through
July 1991.
Kenneth A. Gordon (58) Mr. Gordon was elected President and
Chief Operating Officer of the
Company and a member of the Board of
Directors on September 8, 1995. He
has been President, Reader's Digest
U.S.A. since July 1993. Mr. Gordon
was an Executive Vice President of
the Company from April 1995 to
September 1995, a Senior Vice
President from January 1994 to April
1995 and a Vice President prior
thereto. In addition, Mr. Gordon
was President, International Group
from October 1989 to June 1993. He
joined the Company in 1960.
Joseph M. Grecky (56) Mr. Grecky has been Senior Vice
President, Human Resources since
January 1994. He had been Vice
President, Human Resources since he
joined the Company in 1987.
Heikki K. Helenius (53) Mr. Helenius has been President,
Reader's Digest Europe and Vice
President of the Company since July
1993. He was Vice President,
International Group from January
1992 to June 1993 and was Managing
Director of the Company's Finnish
subsidiary prior thereto. Mr.
Helenius joined the Company in 1972.
Melvin R. Laird (73) Mr. Laird has been a member of the
Board of Directors of the Company
since 1990. He has served as Senior
Counsellor since 1974 and was
elected to the additional position
of Vice President in 1989. Mr.
Laird joined the Company in 1974.
Barbara J. Morgan (50) Mrs. Morgan has been Senior Vice
President and Editor-in-Chief, Books
and Home Entertainment since April
1995. She was Vice President and
Editor-in-Chief, Condensed Books
from August 1987 to April 1995. She
joined the Company in 1973.
Name and Age Positions and Offices With the
Company
Martin J. Pearson (48) Mr. Pearson, who joined the Company
in August 1973, has been President,
Reader's Digest Pacific and Vice
President of the Company since July
1993. He was Managing Director of
Reader's Digest Australia from
January 1990 to June 1993 and was
its Marketing Director prior
thereto.
Jack A. Smith (47) Mr. Smith has been Vice President,
Corporate Planning, Research and
Development since April 1995. He
joined the Company as Vice
President, Corporate Planning and
Development in June 1991 and was a
partner in the Consulting Services
Division at Marketing Corporation of
America prior thereto.
Paul A. Soden (51) Mr. Soden has been Senior Vice
President and General Counsel since
he joined the Company in February
1995. He became Secretary of the
Company in September 1995. Prior
thereto, he was Vice President,
General Counsel and Secretary for
Sterling Winthrop, Inc.
(pharmaceutical and consumer
products).
Kenneth Y. Tomlinson (51) Mr. Tomlinson, who joined the
Company in 1968, has been Editor-in-
Chief, Reader's Digest magazine
since December 1990. In addition,
he has been a Senior Vice President
of the Company since April 1995 and
was a Vice President prior thereto.
William H. Willis (44) Mr. Willis has been President,
Special Markets Group and Vice
President of the Company since he
joined the Company in January 1994.
He was previously Executive Vice
President, Marketing and Sales of
Ogden Services Corporation (facility
management services).
Stephen R. Wilson (48) Mr. Wilson joined the Company as
Executive Vice President and Chief
Financial Officer in April 1995. He
was Executive Vice President and
Chief Financial Officer of RJR
Nabisco Holdings Corp. (tobacco and
food products) and its wholly owned
subsidiary, RJR Nabisco, Inc. from
May 1993 to April 1995, and was
Senior Vice President, Corporate
Development prior thereto.
Additional Corporate Officers
Connie K. Beck Vice President and Associate General Counsel
Gregory G. Coleman Vice President and Publisher, U.S. Reader's Digest
and Special Interest Magazines
Peter J.C. Davenport Senior Vice President, Global Direct Marketing
Thomas M. Kenney Vice President and President, U.S. Magazine
Publishing
Bruce G. Koe Vice President, Global Operations
Milan Kofol Vice President and Treasurer
Marcia M. Lefkowitz Vice President, Marketing, Reader's Digest U.S.A.
Kenneth A. Nelson Vice President, Global Management Information
Systems
George S. Scimone Vice President and Controller
Pursuant to the By-Laws of the Company, officers serve at
the pleasure of the Board of Directors. Officers of the Company
are elected annually to serve until their respective successors
are elected and qualified.
ITEM 2. PROPERTIES
The Company's headquarters and principal operating
facilities are situated on approximately 120 acres in Westchester
County, New York, much of which the Company acquired in 1940.
The site includes five principal buildings aggregating
approximately 697,000 square feet that house executive,
administrative, editorial and operational offices, and data
processing and other facilities. In New York City, the Company
leases approximately 181,000 square feet of office space in a
total of four buildings, portions of which are used as editorial
offices for its books and home entertainment products business,
as advertising sales offices for Reader's Digest magazine and as
offices for the Company's special interest magazines. The
Company leases space for an editorial bureau, advertising sales
offices and other purposes in various cities in the United
States.
The Company leases approximately 10,000 square feet of
warehouse space in Brewster, New York. QSP leases approximately
163,000 square feet in Conyers, Georgia, 4,000 square feet in
Danbury, CT, 20,000 square feet in Stone Mountain, Georgia and
21,000 square feet in Ridgefield, Connecticut. Reader's Digest
Young Families leases approximately 36,000 square feet of office
space in Westport, Connecticut.
The Company owns approximately 1,613,900 square feet and
leases approximately 756,000 square feet of space outside the
United States that is utilized by the Company's international
operating subsidiaries principally as headquarters,
administrative and editorial offices and warehouse space. The
foregoing properties owned by the Company include 263,000 square
feet of space in Swindon, United Kingdom, in a building owned by
the Company on land leased by the Company through 2076.
The Company believes that its current facilities, together
with expansions and upgrading of facilities presently underway or
planned, are adequate to meet its present and reasonably
foreseeable needs. The Company also believes that adequate space
will be available to replace any leased facilities for which the
leases expire in the near future.
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are defendants in several
lawsuits and claims arising in the regular course of business.
Based on the opinions of management and counsel for such matters,
recoveries, if any, by plaintiffs and claimants would not
materially affect the financial position of the Company or its
results of operations.
On December 21, 1993, the Roman Catholic Bishop of San Diego
and the Chino Unified School District commenced a lawsuit in the
U.S. District Court for the Southern District of California
against a subsidiary of the Company, QSP, Inc., and the Company,
alleging violation of the federal antitrust laws and seeking
treble damages in an unspecified amount and certain injunctive
relief. The complaint alleges that QSP, Inc. is unlawfully
monopolizing a claimed school and youth group magazine fund
raising market. The suit was certified as a class action on July
1, 1994. Extensive depositions and discovery have taken place
and are expected to conclude before the end of 1995. While the
final outcome of this lawsuit cannot be determined with
certainty, management believes that the final outcome will not
have a material adverse effect on the Company's results of
operations or financial position and the Company intends to
defend this action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year ended June
30, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information contained under the caption "Selected
Quarterly Financial Data and Dividend and Market Information" in
the Company's 1995 Annual Report to Stockholders is incorporated
herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Selected
Quarterly Financial Data and Dividend and Market Information" and
"Selected Financial Data" in the Company's 1995 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The information contained under the caption "Management's
Discussion and Analysis" in the Company's 1995 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements appearing on
pages 26 through 35 of the Company's 1995 Annual Report to
Stockholders, together with the report thereon of KPMG Peat
Marwick LLP appearing on page 37, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors of the Company under
the caption "Election of Directors" in the Proxy Statement for
the Annual Meeting of Stockholders of the Company to be held on
November 10, 1995 is incorporated herein by reference.
Information with respect to executive officers of the Company
appears under the caption "Executive Officers of the Company" in
Item 1 of Part I hereof and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation under the
captions "Executive Compensation," "Report of the Compensation &
Nominating Committee" and "Performance Graph" in the Proxy
Statement for the Annual Meeting of Stockholders of the Company
to be held on November 10, 1995 is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information with respect to security ownership of certain
beneficial owners and management under the caption "Equity
Security Ownership" in the Proxy Statement for the Annual Meeting
of Stockholders of the Company to be held on November 10, 1995 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and
related transactions under the caption "Executive Compensation--
Miscellaneous" in the Proxy Statement for the Annual Meeting of
Stockholders of the Company to be held on November 10, 1995 is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements
See the Index to Consolidated Financial Statements on
page 20 of this Report.
(2) Financial Statement Schedules
All schedules have been omitted since the information
required to be submitted has been included in the
Consolidated Financial Statements or Notes thereto or has
been omitted as not applicable or not required.
(3) Exhibits
3.1.1 Restated Certificate of Incorporation of The Reader's
Digest Association, Inc. filed with the State of Delaware on
February 7, 1990 filed as Exhibit 3.1.1 to the registrant's
Form 10-K for the year ended June 30, 1993, is incorporated
herein by reference.
3.1.2 Certificate of Amendment of the Certificate of
Incorporation of The Reader's Digest Association, Inc. filed
with the State of Delaware on February 22, 1991 filed as
Exhibit 3.1.2 to the registrant's Form 10-K for the year
ended June 30, 1993, is incorporated herein by reference.
3.2 Amended and Restated By-Laws of The Reader's Digest
Association, Inc., effective February 22, 1991 filed as
Exhibit 3.2 to the registrant's Form 10-K for the year ended
June 30, 1993, is incorporated herein by reference.
10.1 The Reader's Digest Association, Inc. Management Incentive
Compensation Plan (Amendment and Restatement as of July 1,
1994) filed as Exhibit 10.1 to the registrant's Form 10-K
for the year ended June 30, 1994, is incorporated herein by
reference.*
10.2 The Reader's Digest Association, Inc. 1989 Key Employee Long
Term Incentive Plan filed as Exhibit 10.2 to the
Registration Statement on Form S-1 (Registration No. 33-
32566) filed by registrant on December 19, 1989, is
incorporated herein by reference.*
10.3 The Reader's Digest Association, Inc. 1994 Key Employee Long
Term Incentive Plan filed as Exhibit 10.17 to the
registrant's Form 10-Q for the quarter ended March 31, 1994,
is incorporated herein by reference.*
10.4 The Reader's Digest Association, Inc. Deferred Compensation
Plan (Amendment and Restatement as of July 8, 1994) filed as
Exhibit 10.4 to the registrant's Form 10-K for the year
ended June 30, 1994, is incorporated herein by reference.*
10.5 The Reader's Digest Association, Inc. Severance Plan for
Senior Management (Amendment and Restatement as of July 8,
1994) filed as Exhibit 10.5 to the registrant's Form 10-K
for the year ended June 30, 1994, is incorporated herein by
reference.*
10.6 The Reader's Digest Association, Inc. Income Continuation
Plan for Senior Management (amended and restated) filed as
Exhibit 10.5 to the registrant's Form 10-K for the year
ended June 30, 1993, is incorporated herein by reference.*
10.7 Excess Benefit Retirement Plan of The Reader's Digest
Association, Inc. (Amendment and Restatement as of July 1,
1994) filed as Exhibit 10.7 to the registrant's Form 10-K
for the year ended June 30, 1994, is incorporated herein by
reference.*
10.8 Supplemental Retirement Agreement dated as of May 15, 1985
between the registrant and George V. Grune filed as Exhibit
10.12 to the Registration Statement on Form S-1
(Registration No. 33-32566) filed by registrant on December
19, 1989, is incorporated herein by reference.*
*Denotes a management contract or compensatory plan.
10.9 Supplemental Retirement Benefit Agreement dated as of August
22, 1988 between the registrant and George V. Grune filed as
Exhibit 10.7 to the Registration Statement on Form S-1
(Registration No. 33-32566) filed by registrant on December
19, 1989, is incorporated herein by reference.*
10.10 Supplemental Retirement Benefit Agreement dated as of
August 25, 1988 between the registrant and Kenneth A. Gordon
filed as Exhibit 10.10 to the Registration Statement on Form
S-1 (Registration No. 33-32566) filed by registrant on
December 19, 1989, is incorporated herein by reference.*
10.11 Supplemental Retirement Benefit Agreement dated as of
December 12, 1989 between the registrant and Thomas M.
Kenney filed as Exhibit 10.21 to the registrant's Form 10-K
for the year ended June 30, 1991, is incorporated herein by
reference.*
10.12 Supplemental Retirement Benefit Agreement dated as of
August 16, 1990 between the registrant and Anthony W.
Ruggiero filed as Exhibit 10.22 to the registrant's Form 10-
K for the year ended June 30, 1991, is incorporated herein
by reference.*
10.13 Supplemental Retirement Benefit Agreement dated as of
September 13, 1991 between the registrant and James P.
Schadt filed as Exhibit 10.16 to the registrant's Form 10-K
for the year ended June 30, 1993, is incorporated herein by
reference.*
10.14 Supplemental Retirement Benefit Agreement dated as of
August 25, 1988 between the registrant and Joseph M.
Grecky.*
10.15 Supplemental Retirement Benefit Agreement dated as of
June 8, 1994 between the registrant and Martin J. Pearson.*
10.16 Supplemental Retirement Benefit Agreement dated as of
August 23, 1988 between the registrant and Kenneth Y.
Tomlinson.*
10.17 The Reader's Digest 1992 Executive Retirement Plan
(Amendment and Restatement as of September 8, 1995).*
10.18 The Reader's Digest Association, Inc. Deferred
Compensation Plan for Non--Employee Directors filed as
Exhibit 10.20 to the registrant's Form 10-K for the year
ended June 30, 1990, is incorporated herein by reference.*
10.19 Resolution of the Board of Directors of the registrant
adopted January 10, 1986 relating to compensation for former
members of the Board of Directors.*
10.20 Agreement dated July 10, 1992 between the registrant
and George V. Grune filed as Exhibit 10.15 to the
registrant's Form 10-K for the year ended June 30, 1992, is
incorporated herein by reference.*
10.21 Agreement dated as of February 17, 1995 between the
registrant and an executive officer filed as Exhibit 10.17
to the registrant's Form 10-Q for the quarter ended March
31, 1995, is incorporated by reference.*
*Denotes a management contract or compensatory plan.
13 Financial Review appearing at pages 20 through 36 of the
registrant's 1995 Annual Report to Stockholders, together
with the report thereon of KPMG Peat Marwick LLP appearing
on page 37 (furnished for the information of the Securities
and Exchange Commission only and not to be deemed filed as
part of this Annual Report on Form 10-K, except for the
portions thereof that are specifically incorporated herein
by reference).
21 Subsidiaries of the registrant.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three months
ended June 30, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE READER'S DIGEST ASSOCIATION, INC.
By: James P. Schadt
(James P. Schadt)
Chairman and Chief Executive Officer
Date: September 26, 1995
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
James P. Schadt Chairman and Chief September 26, 1995
(James P. Schadt) Executive Officer and
a Director
Kenneth A. Gordon President and Chief September 26, 1995
(Kenneth A. Gordon) Operating Officer and
a Director
Melvin R. Laird Vice President and September 26, 1995
(Melvin R. Laird) Senior Counsellor and
a Director
Stephen R. Wilson Executive Vice September 26, 1995
(Stephen R. Wilson) President and
Chief Financial
Officer
George S. Scimone Vice President and September 26, 1995
(George S. Scimone) Controller
William G. Bowen Director September 26, 1995
(William G. Bowen)
Lynne V. Cheney Director September 26, 1995
(Lynne V. Cheney)
M. Christine DeVita Director September 26, 1995
(M. Christine DeVita)
James E. Preston Director September 26, 1995
(James E. Preston)
Robert G. Schwartz Director September 26, 1995
(Robert G. Schwartz)
Walter V. Shipley Director September 26, 1995
(Walter V. Shipley)
C.J. Silas Director September 26, 1995
(C.J. Silas)
THE READER'S DIGEST ASSOCIATION, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Page
Report of KPMG Peat Marwick LLP, Independent Auditors *
Financial Statements:
Consolidated Statements of Income--For the Years Ended June
30, 1995, 1994 and 1993 *
Consolidated Balance Sheets--June 30, 1995 and 1994 *
Consolidated Statements of Cash Flows--For the Years Ended
June 30, 1995, 1994 and 1993 *
Consolidated Statements of Changes in Stockholders' Equity--
For the Years Ended June 30, 1995, 1994 and 1993 *
Notes to Consolidated Financial Statements *
____________
*Incorporated by reference to the Company's 1995 Annual
Report to Stockholders. See Item 8 of the Annual Report on Form
10-K.
Exhibit 10.14
[LOGO]
THE READER'S DIGEST ASSOCIATION, INC.
SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT
Joseph M. Grecky of 13 Pelham Lane, Ridgefield, CT (hereinafter
referred to as the "Employee") and The Reader's Digest
Association, Inc., a Delaware corporation with its headquarters
at New Castle, New York (hereinafter referred to as the
"Company") hereby agree as follows:
1. Subject to fulfillment of the terms and conditions set
forth in this Agreement, the Company shall pay the Employee, a
supplemental retirement benefit of $51,000 per year for 15 years
commencing at his normal retirement date. If he retires early,
the Employee may elect to commence benefit payments at that
earlier date which in no event shall be prior to attainment of
age 55. In the event of such election for earlier payment, the
Employee's supplemental retirement benefit will be reduced at the
rate of 3% for each year by which the payment commencement date
precedes his normal retirement age.
2. The Employee agrees to fund his supplemental retirement
benefit through the voluntary and irrevocable reduction in future
earned compensation or by other payment in the amount of $21,405
to be made in five or, if the employee elects, fewer annual
installments computed to be of equivalent value.
In the event that the Employee has elected to fund his
benefit by reduction of future bonus payments and any such bonus
is not paid or is insufficient to meet that year's payment
schedule contemplated by this Agreement, the Employee shall be
permitted to make or complete his annual payment amount by
entering into a salary reduction agreement with the Company or by
otherwise contributing the necessary funds to the Company not
later than December 31 of that year or by such other date as the
Company in its sole discretion shall determine. The method of
funding his benefit is reflected on Schedule A attached to this
Agreement and made a part hereof.
3. Upon the completion of all installments described in
paragraph 2 above, and provided the Employee is not in violation
of the provisions of paragraph 4 below, or has not been
discharged for cause as provided in paragraph 5 below, the
Employee shall be fully vested in his supplemental retirement
benefit.
4. The Employee agrees that he will at no time disclose
directly or indirectly any secret or other confidential
information of the Company to any competitor or to any person not
expressly authorized by the Company to receive such information.
5. If the Employee's employment with the Company is
involuntarily terminated for cause, or if the Employee is in
violation of the provision of paragraph 4 above, the Employee
shall forfeit all the rights and benefits of this Agreement and
shall receive within 90 days of the event constituting such
forfeiture, the total amount deferred or paid theretofore under
this Agreement with interest compounded annually at the rate of
8%.
For the purposes of this Agreement, cause shall mean a
discharge from employment occurring by reason of the Employee's
embezzlement, proven dishonesty, fraud, conviction of felonious
or other charge involving moral turpitude, improper communication
of confidential information obtained in the course of employment
with the Company, willful failure or refusal to perform the
Employee's duties and responsibilities, or conspiracy against the
Company.
6. If the Employee shall die after having commenced the
payments required in paragraph 2 above but before he has received
any installments of his supplemental income benefit under
paragraph 1 above, his beneficiary shall become immediately
vested in a survivor's income benefit as described in Schedule A
attached hereto and the Company shall pay the benefit to his
beneficiary in such manner as the beneficiary, with the Company's
consent, shall elect.
7. If the Employee fails to complete all payment
installments required under paragraph 2 above, whether because of
his disability, departure from the Company or for any other
reason, excluding only death in active service, the Company shall
pay him, not later than March 31 of the year following the year
in which such failure to complete payment occurred, the total
amounts deferred or paid theretofore under this Agreement with
interest compounded annually at 8%.
8. If the Employee shall die after the benefits described
in paragraph 1 have commenced but before all annual installments
have been made, the unpaid balance shall be paid to his
beneficiary in such manner as the beneficiary, with the Company's
consent, may elect.
9. Upon application by the Employee to the Compensation
Committee of the Company's Board of Directors, and provided the
Employee is then fully vested in his supplemental retirement
benefit, the Committee may, in its sole discretion, allow
distribution to the Employee of all or part of the benefit, which
shall not in any event exceed the then projected value of the
benefit, prior to the agreed upon commencement date for benefits
under paragraph 1 above. Any amount so distributed shall be
limited to that which is necessary to relieve the hardship or
meet the financial emergency which triggered the application.
Any distribution made under this paragraph shall cause a
reduction in equivalent value to the benefits thereafter payable
under this Agreement and a revised Schedule A shall be prepared
and attached hereto.
10. The Company may own a policy or policies of permanent
cash value life insurance on the life of the Employee, and the
Company shall be the sole owner and beneficiary of any such
policies. The Employee agrees to cooperate with the Company in
the application process for any such insurance. If the Company
shall acquire an insurance policy or any other asset in
connection with its obligation under this Agreement, it is
expressly understood and agreed that neither the Employee nor any
beneficiary or successor to the interest of the Employee shall
have any right to, or claim against, such policy or other asset.
Such policy or asset shall not be deemed to be held under any
trust for the benefit of the Employee, his beneficiaries,
successors or assigns, or to be held in any way as collateral
security for the fulfillment of the obligations of the Company
under this Agreement but shall be and remain a general, unpledged
asset of the Company.
11. The Employee shall have the right to designate in
writing his beneficiary or beneficiaries under this Agreement.
Such designation shall not be effective unless filed with the
Company. The Employee shall have the right to change his
beneficiary and to name successive or contingent beneficiaries.
If there is no effective designation of a beneficiary on file at
the time of the Employee's death, any death benefit payable
hereunder shall be paid to the Employee's spouse, if any, and if
none, to his children, if any, in equal shares, and if none, to
his personal representatives. For all purposes of this
Agreement, such person shall be treated as the beneficiary
hereunder.
12. It is expressly agreed that nothing contained in this
Agreement shall be construed as giving an Employee the right to
be retained in the employ of the Company, or as restricting the
right of the Company or the Employee to terminate the employment
relationship for any reason.
13. This Agreement shall bind and run to the benefit of the
successors and assigns of the Company, including any corporation
or other form of business organization with which it may merge or
consolidate, or to which it may transfer substantially all of its
assets.
14. The rights of the Employee under this Agreement shall
not be anticipated, alienated, assigned, hypothecated, or
otherwise transferred in any manner.
15. The validity, construction, interpretation and
administration of this Agreement shall be determined solely in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, said Employee has hereunto signed his
name and the Company has caused this instrument to be executed in
its name and on its behalf by its duly authorized officer as of
the 25 day of August, 1988.
Witnesseth:
Virginia C. Bress Joseph M. Grecky
Virginia C. Bress Joseph M. Grecky
Employee
Virginia C. Bress George V. Grune
Virginia C. Bress George V. Grune
For The Reader's Digest Association, Inc.
EXHIBIT 10.15
[LOGO]
SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT
Martin J. Pearson of Greenwich, CT (hereinafter referred to as
the "Employee") and The Reader's Digest Association, Inc., a
Delaware corporation with its headquarters at New Castle, New
York (hereinafter referred to as the "Company") hereby agree as
follows:
1. Subject to fulfillment of the terms and conditions set
forth in this Agreement, the Company shall pay the Employee, a
supplemental retirement benefit of $51,500 per year for 15 years
commencing at his or her normal retirement date. If he or she
retires early, the Employee may elect to commence benefit
payments at that earlier date which in no event shall be prior to
attainment of age 55. In the event of such election for earlier
payment, the Employee's supplemental retirement benefit will be
reduced at the rate of 3% for each year by which the payment
commencement date precedes his or her normal retirement age.
2. The Employee agrees to fund his or her supplemental
retirement benefit through the voluntary and irrevocable
reduction in future earned compensation or by other payment in
the amount of $20,200 to be made in five or, if the employee
elects, fewer annual installments computed to be of equivalent
value.
In the event that the Employee has elected to fund his
or her benefit by reduction of future bonus payments and any such
bonus is not paid or is insufficient to meet that year's payment
schedule contemplated by this Agreement, the Employee shall be
permitted to make or complete his or her annual payment amount by
entering into a salary reduction agreement with the Company or by
otherwise contributing the necessary funds to the Company not
later than December 31 of that year or by such other date as the
Company in its sole discretion shall determine. The method of
funding his or her benefit is reflected on Schedule A attached to
this Agreement and made a part hereof.
3. Upon the completion of five years of service from the
date of the contract, and provided the Employee is not in
violation of the provisions of paragraph 4 below, or has not been
discharged for cause as provided in paragraph 5 below, the
Employee shall be fully vested in his supplemental retirement
benefit.
4. The Employee agrees that he or she will at no time
disclose directly or indirectly any secret or other confidential
information of the Company to any competitor or to any person not
expressly authorized by the Company to receive such information.
5. If the Employee's employment with the Company is
involuntarily terminated for cause, or if the Employee is in
violation of the provision of paragraph 4 above, the Employee
shall forfeit all the rights and benefits of this Agreement and
shall receive within 90 days of the event constituting such
forfeiture, the total amount deferred or paid theretofore under
this Agreement with interest compounded annually at the rate of
8%.
For the purposes of this Agreement, cause shall mean a
discharge from employment occurring by reason of the Employee's
embezzlement, proven dishonesty, fraud, conviction of felonious
or other charge involving moral turpitude, improper communication
of confidential information obtained in the course of employment
with the Company, willful failure or refusal to perform the
Employee's duties and responsibilities, or conspiracy against the
Company.
6. If the Employee shall die after having commenced the
payments required in paragraph 2 above but before he has received
any installments of his supplemental income benefit under
paragraph 1 above, his beneficiary shall become immediately
vested in a survivor's income benefit as described in Schedule A
attached hereto and the Company shall pay the benefit to his
beneficiary in such manner as the beneficiary, with the Company's
consent, shall elect.
7. If the Employee fails to complete all payment
installments required under paragraph 2 above, whether because of
his disability, departure from the Company or for any other
reason, excluding only death in active service, the Company shall
pay him, not later than March 31 of the year following the year
in which such failure to complete payment occurred, the total
amounts deferred or paid theretofore under this Agreement with
interest compounded annually at 8%.
8. If the Employee shall die after the benefits described
in paragraph 1 have commenced but before all annual installments
have been made, the unpaid balance shall be paid to his
beneficiary in such manner as the beneficiary, with the Company's
consent, may elect.
9. Upon application by the Employee to the Compensation
Committee of the Company's Board of Directors, and provided the
Employee is then fully vested in his supplemental retirement
benefit, the Committee may, in its sole discretion, allow
distribution to the Employee of all or part of the benefit, which
shall not in any event exceed the then projected value of the
benefit, prior to the agreed upon commencement date for benefits
under paragraph 1 above. Any amount so distributed shall be
limited to that which is necessary to relieve the hardship or
meet the financial emergency which triggered the application.
Any distribution made under this paragraph shall cause a
reduction in equivalent value to the benefits thereafter payable
under this Agreement and a revised Schedule A shall be prepared
and attached hereto.
10. The Company may own a policy or policies of permanent
cash value life insurance on the life of the Employee, and the
Company shall be the sole owner and beneficiary of any such
policies. The Employee agrees to cooperate with the Company in
the application process for any such insurance. If the Company
shall acquire an insurance policy or any other asset in
connection with its obligation under this Agreement, it is
expressly understood and agreed that neither the Employee nor any
beneficiary or successor to the interest of the Employee shall
have any right to, or claim against, such policy or other asset.
Such policy or asset shall not be deemed to be held under any
trust for the benefit of the Employee, his beneficiaries,
successors or assigns, or to be held in any pay as collateral
security for the fulfillment of the obligations of the Company
under this Agreement but shall be and remain a general, unpledged
asset of the Company.
11. The Employee shall have the right to designate in
writing his or her beneficiary or beneficiaries under this
Agreement. Such designation shall not be effective unless filed
with the Company. The Employee shall have the right to change
his or her beneficiary and to name successive or contingent
beneficiaries. If there is no effective designation of a
beneficiary on file at the time of the Employee's death, any
death benefit payable hereunder shall be paid to the Employee's
spouse, if any, and if none, to his children, if any, in equal
shares, and if none, to his personal representatives. For all
purposes of this Agreement, such person shall be treated as the
beneficiary hereunder.
12. It is expressly agreed that nothing contained in this
Agreement shall be construed as giving an Employee the right to
be retained in the employ of the Company, or as restricting the
right of the Company or the Employee to terminate the employment
relationship for any reason.
13. This Agreement shall bind and run to the benefit of the
successors and assigns of the Company, including any corporation
or other form of business organization with which it may merge or
consolidate, or to which it may transfer substantially all of its
assets.
14. The rights of the Employee under this Agreement shall
not be anticipated, alienated, assigned, hypothecated, or
otherwise transferred in any manner.
15. The validity, construction, interpretation and
administration of this Agreement shall be determined solely in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, said Employee has hereunto signed his or
her name and the Company has caused this instrument to be
executed in its name and on its behalf by its duly authorized
officer as of the 8 day of June, 1994.
Witnesseth:
Lucy Lupetin Martin J. Pearson
Lucy Lupetin Martin J. Pearson
Employee
Lucy Lupetin Bill Coplin
Lucy Lupetin Bill Coplin
For The Reader's Digest Association, Inc.
Exhibit 10.16
[LOGO]
THE READER'S DIGEST ASSOCIATION, INC.
SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT
Kenneth Y. Tomlinson of 11 Apple Tree Close, Chappaqua, NY 10514
(hereinafter referred to as the "Employee") and The Reader's
Digest Association, Inc., a Delaware corporation with its
headquarters at New Castle, New York (hereinafter referred to as
the "Company") hereby agree as follows:
1. Subject to fulfillment of the terms and conditions set
forth in this Agreement, the Company shall pay the Employee, a
supplemental retirement benefit of $73,000 per year for 15 years
commencing at his normal retirement date. If he retires early,
the Employee may elect to commence benefit payments at that
earlier date which in no event shall be prior to attainment of
age 55. In the event of such election for earlier payment, the
Employee's supplemental retirement benefit will be reduced at the
rate of 3% for each year by which the payment commencement date
precedes his normal retirement age.
2. The Employee agrees to fund his supplemental retirement
benefit through the voluntary and irrevocable reduction in future
earned compensation or by other payment in the amount of $62,595
(1x) to be made in five or, if the employee elects, fewer annual
installments computed to be of equivalent value.
In the event that the Employee has elected to fund his
benefit by reduction of future bonus payments and any such bonus
is not paid or is insufficient to meet that year's payment
schedule contemplated by this Agreement, the Employee shall be
permitted to make or complete his annual payment amount by
entering into a salary reduction agreement with the Company or by
otherwise contributing the necessary funds to the Company not
later than December 31 of that year or by such other date as the
Company in its sole discretion shall determine. The method of
funding his benefit is reflected on Schedule A attached to this
Agreement and made a part hereof.
3. Upon the completion of all installments described in
paragraph 2 above, and provided the Employee is not in violation
of the provisions of paragraph 4 below, or has not been
discharged for cause as provided in paragraph 5 below, the
Employee shall be fully vested in his supplemental retirement
benefit.
4. The Employee agrees that he will at no time disclose
directly or indirectly any secret or other confidential
information of the Company to any competitor or to any person not
expressly authorized by the Company to receive such information.
5. If the Employee's employment with the Company is
involuntarily terminated for cause, or if the Employee is in
violation of the provision of paragraph 4 above, the Employee
shall forfeit all the rights and benefits of this Agreement and
shall receive within 90 days of the event constituting such
forfeiture, the total amount deferred or paid theretofore under
this Agreement with interest compounded annually at the rate of
8%.
For the purposes of this Agreement, cause shall mean a
discharge from employment occurring by reason of the Employee's
embezzlement, proven dishonesty, fraud, conviction of felonious
or other charge involving moral turpitude, improper communication
of confidential information obtained in the course of employment
with the Company, willful failure or refusal to perform the
Employee's duties and responsibilities, or conspiracy against the
Company.
6. If the Employee shall die after having commenced the
payments required in paragraph 2 above but before he has received
any installments of his supplemental income benefit under
paragraph 1 above, his beneficiary shall become immediately
vested in a survivor's income benefit as described in Schedule A
attached hereto and the Company shall pay the benefit to his
beneficiary in such manner as the beneficiary, with the Company's
consent, shall elect.
7. If the Employee fails to complete all payment
installments required under paragraph 2 above, whether because of
his disability, departure from the Company or for any other
reason, excluding only death in active service, the Company shall
pay him, not later than March 31 of the year following the year
in which such failure to complete payment occurred, the total
amounts deferred or paid theretofore under this Agreement with
interest compounded annually at 8%.
8. If the Employee shall die after the benefits described
in paragraph 1 have commenced but before all annual installments
have been made, the unpaid balance shall be paid to his
beneficiary in such manner as the beneficiary, with the Company's
consent, may elect.
9. Upon application by the Employee to the Compensation
Committee of the Company's Board of Directors, and provided the
Employee is then fully vested in his supplemental retirement
benefit, the Committee may, in its sole discretion, allow
distribution to the Employee of all or part of the benefit, which
shall not in any event exceed the then projected value of the
benefit, prior to the agreed upon commencement date for benefits
under paragraph 1 above. Any amount so distributed shall be
limited to that which is necessary to relieve the hardship or
meet the financial emergency which triggered the application.
Any distribution made under this paragraph shall cause a
reduction in equivalent value to the benefits thereafter payable
under this Agreement and a revised Schedule A shall be prepared
and attached hereto.
10. The Company may own a policy or policies of permanent
cash value life insurance on the life of the Employee, and the
Company shall be the sole owner and beneficiary of any such
policies. The Employee agrees to cooperate with the Company in
the application process for any such insurance. If the Company
shall acquire an insurance policy or any other asset in
connection with its obligation under this Agreement, it is
expressly understood and agreed that neither the Employee nor any
beneficiary or successor to the interest of the Employee shall
have any right to, or claim against, such policy or other asset.
Such policy or asset shall not be deemed to be held under any
trust for the benefit of the Employee, his beneficiaries,
successors or assigns, or to be held in any way as collateral
security for the fulfillment of the obligations of the Company
under this Agreement but shall be and remain a general, unpledged
asset of the Company.
11. The Employee shall have the right to designate in
writing his beneficiary or beneficiaries under this Agreement.
Such designation shall not be effective unless filed with the
Company. The Employee shall have the right to change his
beneficiary and to name successive or contingent beneficiaries.
If there is no effective designation of a beneficiary on file at
the time of the Employee's death, any death benefit payable
hereunder shall be paid to the Employee's spouse, if any, and if
none, to his children, if any, in equal shares, and if none, to
his personal representatives. For all purposes of this
Agreement, such person shall be treated as the beneficiary
hereunder.
12. It is expressly agreed that nothing contained in this
Agreement shall be construed as giving an Employee the right to
be retained in the employ of the Company, or as restricting the
right of the Company or the Employee to terminate the employment
relationship for any reason.
13. This Agreement shall bind and run to the benefit of the
successors and assigns of the Company, including any corporation
or other form of business organization with which it may merge or
consolidate, or to which it may transfer substantially all of its
assets.
14. The rights of the Employee under this Agreement shall
not be anticipated, alienated, assigned, hypothecated, or
otherwise transferred in any manner.
15. The validity, construction, interpretation and
administration of this Agreement shall be determined solely in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, said Employee has hereunto signed his
name and the Company has caused this instrument to be executed in
its name and on its behalf by its duly authorized officer as of
the 23 day of August, 1988.
Witnesseth:
Katherine G. Pasquale Kenneth Y. Tomlinson
Katherine G. Pasquale Kenneth Y. Tomlinson
Employee
Virginia Bress Joseph M. Grecky
Virginia Bress Joseph M. Grecky
For The Reader's Digest Association, Inc.
Exhibit 10.17
THE READER'S DIGEST EXECUTIVE RETIREMENT PLAN
(Effective As of July 1, 1992)
(As amended by Amendment No. 1, effective July 8, 1994
and Amendment No. 2, effective July 1, 1995)
TABLE OF CONTENTS
ITEM ARTICLE PAGE
DEFINITIONS 1 1
ELIGIBILITY AND PARTICIPATION 2 4
TERMINATION OF EMPLOYMENT 3 5
AMOUNT OF RETIREMENT INCOME BENEFIT 4 5
MODES AND TIME OF BENEFIT PAYMENT 5 7
DEATH BENEFIT 6 8
MEDICAL BENEFITS 7 8
GENERAL PROVISIONS 8 9
The Reader's Digest Executive Retirement Plan
Effective as of July 1, 1992, The Reader's Digest
Executive Retirement Plan has been adopted by the Board of
Directors of The Reader's Digest Association, Inc. to read
as follows:
ARTICLE 1
Definitions
The following words and phrases as used herein shall
have the following meanings, unless a different meaning is
plainly required by the context:
BENEFICIARY: The person or persons (including a trust
or estate) who are entitled to receive
any benefits under the Plan by reason of
the death of a Participant.
BOARD: The Board of
Directors of The Reader's Digest
Association, Inc.
COMPANY: The Reader's
Digest Association, Inc. or any
successor corporation by merger,
purchase, consolidation or otherwise.
COMPENSATION The compensation committee appointed by
COMMITTEE: the Board.
EARLY RETIREMENT The first day of any month coincident
DATE: with or subsequent to
a Participant's (i) attainment of age
fifty-five (55) and (ii)
completion of Periods of Service plus
attainment of an age
which, when added together, equal or
exceed sixty-five (65).
EMPLOYER: The Company and
any subsidiary of the Company which,
with the approval of the Board and
subject to such conditions as the Board
may impose, adopts this Plan, and any
successor or successors of any of them.
For purposes of this Plan, a subsidiary
shall include any corporation at least
fifty-one percent (51%) of the voting
stock of which is owned by the Company
or its stockholders or by one or more
corporations fifty-one percent (51%) of
the voting stock of which is owned by
the Company or its stockholders.
ENHANCED The enhanced retirement benefits
RETIREMENT payable to Participants and their joint
BENEFITS: or contingent annuitants and
Beneficiaries in accordance with the
applicable provisions of this Plan.
EXCESS PLAN: The Excess Benefit Retirement Plan of
The Reader's Digest Association, Inc.,
effective January 1, 1976 as may be
amended and restated from time to time.
EXCESS PLAN The benefit under the Excess Plan
BENEFIT: expressed as a single life
annuity for the life of the Participant
calculated as of the Participant's benefit
commencement date under the Plan.
MANAGEMENT Any compensation award under The
INCENTIVE BONUS: Reader's Digest Plan, effective as of
July 1, 1989 as may be amended and
restated from time to time.
NORMAL The first day of the month coincident
RETIREMENT DATE: with or next following
a Participant's 65th birthday.
PLAN: The Reader's Digest Executive Retirement
Plan, effective July 1, 1992 as may be
amended and restated from time to time.
PARTICIPANT: An individual who participates in the
Plan in accordance with the terms
herein.
POSTPONED The first day of the month coincident
RETIREMENT DATE: with or next following a Participant's
termination of employment after his Normal
Retirement Date.
PROFIT SHARING The Reader's Digest Employees Profit-
PLAN: Sharing Plan, effective January
1, 1963 and as restated as of July 1, 1992
and as may be further amended and restated
from time to time.
PROFIT SHARING Beginning with the fiscal year
PLAN BENEFIT: commencing on July 1, 1989 and for each
fiscal year thereafter, the sum of (1) the
amount of employer contributions under the
Profit Sharing Plan allocated to the
Participant which exceeds 6% of the
sum of the Participant's (i) annual base
salary and (ii) Management Incentive Bonus
and (2) the amount in (1)
above multiplied by 8% per year for each
year prior to the Participant's benefit
commencement date under the Plan,
expressed as a single life annuity for the
life of the Participant based on an 8%
interest rate and the PBGC mortality tables
for healthy males calculated as of the
Participant's benefit commencement date under
the Plan.
RETIREMENT INCOME The retirement benefits payable to
BENEFIT: Participants and their
joint or contingent annuitants and
Beneficiaries in accordance with
the applicable provisions of this Plan.
RETIREMENT PLAN: The Reader's Digest Association, Inc.
Retirement Plan or QSP, Inc. Retirement
Plan, as restated as of July 1, 1992 and
as such plans may be further amended and
restated from time to time.
RETIREMENT PLAN The benefit payable to the Participant
BENEFIT: under the Retirement Plan
expressed as a single life annuity for
the life of the Participant calculated
as of the Participant's benefit
commencement date under the Plan.
RETIREMENT SALARY: The average annual regular or basic
salary of a Participant and Management
Incentive Bonus including all amounts
contributed by the Employer on behalf of
the Participant under a cafeteria plan
as described in Section 125 of the
Internal Revenue Code of 1986, as
amended (the "Code"), but excluding
severance pay, bonuses which are not
Management Incentive Bonuses,
contributions made under any other
deferred compensation plan on behalf of
a Participant or other extra
compensation, during the three
consecutive years in the last ten years
of employment which are counted under
the Retirement Plan (or fewer, if
applicable) which provides the highest
such average. For purposes of this
definition, the Management Incentive
Bonus shall be determined by reference
to amounts payable with respect to the
same period for which the annual regular
or basic salary is determined.
SERP AGREEMENT: The Supplemental Retirement Benefit
Agreements as pertaining to individual
Participants.
SERP AGREEMENT The retirement benefit payable in the
BENEFIT: form of a 15 year certain annuity
calculated as of the Participant's benefit
commencement date specified in
the SERP Agreement, reduced by the
annual benefit which would be payable in the
form of a 15 year certain annuity calculated
as of the Participant's benefit commencement
date under the Plan and
which is attributable solely to
employee contributions using
an annual interest assumption of 8%.
SPOUSE: The spouse of a
Participant who is legally married to
the Participant on the earlier of (i)
the date of the Participant's death, or
(ii) the Participant's benefit
commencement date.
All terms not defined herein shall have the same
meanings as set forth in the Retirement Plan.
ARTICLE 2
Eligibility and Participation
Section 2.1 Unless otherwise determined by the Board
or the Compensation Committee, eligibility to participate in
the Plan shall be determined from time to time by the Senior
Vice President, Human Resources, with the approval of the
Chief Executive Officer, in their discretion, but shall be
limited to senior officers, senior management and other key
employees of an Employer. Each Employee who has been
designated to participate in the Plan shall commence
participation on the date of his designation.
Section 2.2 When an Employee first becomes a
Participant in the Plan, the Senior Vice President, Human
Resources may notify him promptly of that fact and of his
rights hereunder.
Section 2.3 Participants eligible for Enhanced
Retirement Benefits shall be those Participants in positions
at salary grade level 21 and higher designated from time to
time by the Senior Vice President, Human Resources and
approved by the Chief Executive Officer.
ARTICLE 3
Termination of Employment
Section 3.1 If a Participant's employment with the
Employer is terminated prior to his Early Retirement Date
other than by reason of death, no benefits shall be provided
hereunder.
Section 3.2 If a Participant's employment with the
Employer is terminated on or after his Normal Retirement
Date, he shall be entitled to the benefits under the Plan.
If a Participant's employment with the Employer is
terminated on or after his Early Retirement Date but before
his Normal Retirement Date, he shall be entitled to the
benefits under the Plan only with the consent of the
Compensation Committee.
Section 3.3 If a Participant's employment with the
Employer is terminated by reason of death, his Spouse shall
be entitled to the benefits under Article 6.
ARTICLE 4
Amount of Retirement Income Benefit
Section 4.1 Normal Retirement Benefit. A
Participant's annual rate of Retirement Income Benefit in
the form of a single life annuity for the life of the
Participant commencing on his Normal Retirement Date shall
be equal to (1) (i) three percent (3%) of his Retirement
Salary multiplied by his years or fractions of years of
Credited Service for the first fifteen (15) years plus (ii)
one percent (1%) multiplied by his years or fractions of
years of Credited Service for each of the next twenty (20)
years, less (2) the sum of such Participant's (i) Retirement
Plan Benefit, (ii) Excess Plan Benefit, (iii) SERP Agreement
Benefit and (iv) Profit Sharing Plan Benefit.
Section 4.2 Early Retirement Benefit. A Participant
who retires before his Normal Retirement Date but on or
after his Early Retirement Date and who is otherwise
entitled to a benefit under the Plan may elect with the
consent of the Compensation Committee to receive the
Retirement Income Benefit described in this Article prior to
his Normal Retirement Date. The amounts under Section
4.1(1) shall be reduced by .4167 percent (.004167) for each
month by which the Participant's benefits commencement date
under this Plan precedes the Participant's attainment of age
62.
Section 4.3 Postponed Retirement Benefit. Any
Participant who continues in the employ of the Employer
after Normal Retirement Date shall not be entitled to
receive his Retirement Income Benefit until he actually
retires. A Participant who continues in the employ of the
Employer beyond the Normal Retirement Date shall have his
Retirement Income Benefit determined by counting all years
or fractions of years of Credited Service and for purposes
of determining the Retirement Salary of such Participant all
periods of employment with the Employer shall be taken into
account.
Section 4.4 Enhanced Retirement Benefit. For
purposes of Articles 4 and 5, a Participant first employed
by an Employer or an Affiliate after he attains age 45 shall
be entitled to an additional year of Credited Service for
each completed year of Period of Service beginning after
five full years of Credited Service but only to the extent
the Participant's age at the date of hire by the Employer or
Affiliate exceeds 45. For purposes of determining
eligibility for retirement at an Early Retirement Date, a
Participant first employed by an Employer or an Affiliate
after he attains age 45 shall be entitled to an additional
year of Periods of Service for each completed full year of
Period of Service beginning after five full years of Periods
of Service but only to the extent the Participant's age at
the date of hire by the Employer or Affiliate exceeds 45.
ARTICLE 5
Modes and Time of Benefit Payment
Section 5.1 If a Participant or Beneficiary is
entitled to a benefit hereunder, the Compensation Committee
shall in its sole discretion determine to pay to such
Participant a series of payments in one of the forms of
payment permitted under Article 6 of the Retirement Plan
(excluding any lump sum payment option, except as described
herein), with the payments under the selected form having an
aggregate value actuarially equivalent to such amount
payable under Article 4 of this Plan, based on the actuarial
equivalent factors as defined in the Retirement Plan. The
Compensation Committee shall in its sole discretion
determine when such payments shall commence; provided,
however, that in no event shall benefits hereunder commence
later than one year after the Participant terminates
employment with the Employer after attainment of Normal
Retirement Date or Postponed Retirement Date.
Notwithstanding the foregoing, the Compensation Committee
may, in its sole discretion, accelerate the remaining unpaid
portion of such payments into one or more payments having in
the aggregate an equivalent actuarial value, based on the
PBGC mortality tables for healthy males and one hundred
twenty (120) percent of the PBGC immediate interest rate
then in effect. If a Participant who is receiving a
Retirement Income Benefit or who has previously received a
Retirement Income Benefit shall return to the employ of the
Employer as an Employee and such employment is substantial,
the Retirement Income Benefit shall cease for as long as he
continues to be so employed. Upon a subsequent termination
of employment with the Employer, the Retirement Income
Benefit of such Employee shall be recomputed based on his
Retirement Salary and years or fraction of years of Credited
Service prior and subsequent to his re-employment date and
reduced by the Retirement Income Benefit previously received
by him. In determining such previously received benefit,
equivalent actuarial value shall be based on the PBGC
mortality tables for healthy males and one hundred twenty
(120) percent of the PBGC immediate interest rate then in
effect. For purposes of this Article, an Employee's
employment with the Employer shall be substantial if he
renders forty (40) or more Hours of Service (except for
Hours of Service credited as a result of back pay) in a
calendar month.
ARTICLE 6
Death Benefit
Section 6.1 In the event of a married Participant's
death while in the employ of the Employer prior to his
benefit commencement date under the Plan after attainment of
age fifty-five (55) and the completion of a five-year Period
of Service (without regard to any break-in-service rules
applicable under the Retirement Plan), his Spouse shall
receive, commencing on the first working day of the month
following the Participant's death, the benefit under the
Plan in the form and amount such Spouse would otherwise have
received under the 50% qualified joint and survivor annuity
form if the Participant had terminated employment with the
Employer on the day before his death and had been entitled
to benefits under the Plan at the time of termination in the
form of a 50% qualified joint and survivor annuity.
Section 6.2 In the event of a Participant's death
after benefits under the Plan have commenced, his
Beneficiary shall receive any amounts provided under the
form of payment under which the Participant was receiving
such benefits at the time of his death.
ARTICLE 7
Medical Benefits
Section 7.1 If any Participant terminates employment
with the Employer on or after his Early Retirement Date,
such Participant and his Spouse with the consent of the
Compensation Committee shall be eligible to receive the
benefits provided under The Reader's Digest Association,
Inc. Medical and Dental Expense Plan for Retirees and
Disabled Individuals (the "Retiree Health Plan") as if the
Participant had met the eligibility requirements under such
plan, provided that the Participant or Spouse makes the
contributions required under such plan.
Section 7.2 If a married Participant dies while in
the employ of the Employer prior to his benefit commencement
date under the Plan after attaining age fifty-five (55) and
the completion of a five-year Period of Service (without
regard to any break-in-service rules applicable under the
Retirement Plan), his Spouse shall be eligible to receive
the benefits provided under the Retiree Health Plan as if
the Participant had retired prior to his death having
satisfied the eligibility requirements of such plan,
provided that such Spouse makes the contributions required
under such plan.
Section 7.3 If a married Participant dies following
the Participant's retirement from the Employer after
attaining his Early Retirement Date, his Spouse shall be
eligible to receive the benefits provided under the Retiree
Health Plan as if the Participant had retired prior to his
death having satisfied the eligibility requirements of such
plan, provided that such Spouse makes the contributions
required under such plan.
ARTICLE 8
General Provisions
Section 8.1 The Employer shall only have a
contractual obligation to make payments to the Participant
or Beneficiary, as applicable, referred to herein when due,
and the amounts of such payments shall not be held in trust
for the Participant or Beneficiary, as applicable, but shall
be paid from the general assets of the Employer. This Plan
is intended to constitute an unfunded plan and no assets
shall be segregated or earmarked in respect of any amount
due hereunder.
Section 8.2 Nothing contained herein shall confer
any right on a Participant to be continued in the employ of
the Company or any other Employer, or as a limitation of the
right of the Company or Employer to discharge any
Participant with or without cause, nor shall anything herein
affect the right of the Participant to participate in and
receive benefits under and in accordance with any pension,
profit sharing, incentive compensation or other benefit plan
or program of any Employer. Nothing herein shall be
construed as a contract of employment between the Employer
and any Participant.
Section 8.3 This Plan shall be binding upon any
successor to or purchaser of substantially all the assets of
the Company or an Employer with respect to such Employer's
Employees. The Board reserves the right at any time and
from time to time to modify, amend or terminate in whole or
in part any or all of the provisions of the Plan. Upon any
such termination of this Plan, the Company may in its sole
discretion accelerate payment of all benefits that are in
pay status on the date of termination and benefits to which
a Participant or Beneficiary, as applicable, would be
entitled under the terms of the Plan then in effect based on
events which occur prior to the date of termination of the
Plan. In no event, however, shall any modification,
amendment or plan termination by the Board deprive any
Participant or Beneficiary, as applicable, of any amount
which is payable to such person under the Plan by reason of
the Participant's attainment of age 65 or death prior to
such modification, termination or amendment.
Section 8.4 No right or interest of a Participant or
Beneficiary, as applicable, under this Plan shall be subject
to voluntary or involuntary alienation, assignment or
transfer of any kind.
Section 8.5 The administration of this Plan and the
interpretation thereof, including the authority to decide
all questions that arise thereunder, shall be the
responsibility of the Compensation Committee or such other
person or entity as the Company shall designate. The
decisions and interpretations of such administrator of the
Plan shall be final and binding upon each Employer that
shall have adopted this Plan, Employees of such Employers,
each Participant and his Beneficiary, and other interested
parties.
Section 8.6 The Company shall have the right to
deduct from any payment to be made pursuant to this Plan any
Federal, state, local or other taxes required by law to be
withheld.
Section 8.7 If any payment to be made under this
Plan is to be made on account of a Participant who was
employed by an Employer that shall have adopted this Plan,
other than the Company, the cost of such benefit payment
shall be borne by the Employer of the Employee.
Section 8.8 This Plan shall be construed, regulated
and administered for all purposes according to the laws of
the State of New York and the United States.
Section 8.9 No member of the Board, no Employee and
no member of the Compensation Committee (nor the
Compensation Committee itself) shall be liable for any act
or action hereunder, including acts of omission or
commission, by any other member or Employee or by any agent
to whom duties in connection with the administration of the
Plan have been delegated or, except in circumstances
involving bad faith, gross negligence or fraud, for anything
done or omitted to be done by himself.
Section 8.10 Wherever any words are used in this Plan
in the masculine gender they shall be construed as though
they were also used in the feminine gender in all cases
where they would so apply, and wherever any words are used
herein in the singular form they shall be construed as
though they were also used in the plural form in all cases
where they would so apply.
Section 8.11 In the event any provision of this Plan,
if challenged, would be declared invalid, illegal or
unenforceable, such provision shall be construed and
enforced as if it had been more narrowly drawn so as not to
be illegal, invalid or unenforceable and the validity,
legality and enforceability of the remaining provisions
shall not be affected or impaired thereby.
Exhibit 10.19
RESOLVED, that is shall be the policy of the
Company that outside members in good standing of the Board
of Directors retiring or resigning for personal reasons
after January 10, 1986 with five or more years of service on
the Board shall be entitled to annual payment for life of
the Director's retainer at the time of retirement or
resignation; provided, however, that such annual payment
will not be adjusted upon any subsequent adjustment to
Directors' retainers.
EXHIBIT 21
SUBSIDIARIES OF
THE READER'S DIGEST ASSOCIATION, INC.
Argentina
Reader's Digest Argentina S.A.
Australia
The Reader's Digest Association Pty. Limited
Reader's Digest (Australia) Pty. Ltd.
Austria
Verlag Das Beste GmbH
Belgium
N.V. Reader's Digest S.A.
Reader's Digest World Services, S.A.
Canada
The Reader's Digest Association (Canada) Ltd.
Quality Service Plan, Inc. Canada
Reader's Digest Magazines Limited (25% ownership)
Reader's Digest Foundation of Canada
Chile
Reader's Digest Chile, Limitada
Czech Republic
Reader's Digest Vyber s.r.o.
Denmark
Forlaget Det Beste A/S
England
The Reader's Digest Association Limited
Berkeley Magazine Ltd.
Money Magazine Limited
Ninecolt Limited
Reader's Digest (Family Insurance Services) Limited
The Reader's Digest Association (Ireland) Limited
David & Charles plc
Reader's Union Limited
Reader's Digest European Systems Ltd.
Reader's Digest New Country Development Europe Limited
Reader's Digest Pension Trustees Ltd.
Reader's Digest Charitable Trust
Victoria House Publishing, Ltd.
Finland
Oy Valitut Palat - Reader's Digest Ab
France
Selection du Reader's Digest S.A.
Germany
Verlag Das Beste GmbH
Optimail/Direcktwerbeservice GmbH
Pegasus Buch-und Zeitschriftenvertriebsgesellschaft.mbH
Hong Kong
Reader's Digest Association Far East Limited
Asian Qualiproducts Services Limited
Reader's Digest Asia Limited
Reader's Digest (East Asia) Limited
Pegasus Publishing Company Limited
R. D. Properties, Ltd.
Reader's Digest (Malaysia) Sdn. Bhd
Hungary
Reader's Digest KFT
Italy
Selezione Dal Reader's Digest S.p.A.
Mexico
Caribe Condor, S.A. de C.V.
Reader's Digest Mexico, S.A. de C.V.
Netherlands
Uitgeversmaatschappij The Reader's Digest N.V.
Distrimedia Services B.V.
New Zealand
The Reader's Digest Association (New Zealand) Limited
Norway
Det Beste A/S
Philippines
Reader's Digest (Philippines) Inc.
Poland
Reader's Digest Przeglad Sp.z o.o.
Portugal
Seleccoes do Reader's Digest (Portugal) S.A.
Russia
Publishing House Reader's Digest
South Africa
The Reader's Digest Association South Africa Pty. Limited
Reader's Digest Investments (Pty.) Limited
AA The Motorists Publications (Pty.) Limited
Spain
Reader's Digest Selecciones, S.A.
Sweden
Reader's Digest Aktiebolag
Switzerland
Das Beste aus Reader's Digest AG
Thailand
Reader's Digest (Thailand) Limited
United States*
Ardee Music Publishing, Inc.
Joshua Morris Publishing, Inc.
QSP, Inc.
VideOvation, Inc.
QSP Distribution Services, Inc.
Family Reading Program Corp.
Gift USA, Inc.
Pegasus Sales, Inc.
Pleasantville Music Publishing, Inc.
Reader's Digest Entertainment, Inc.
Reader's Digest Latinoamerica, S.A.
R.D. Manufacturing Corporation
RD Publications, Inc.
Travel Publications, Inc.
Home Service Publications, Inc.
Retirement Living Publishing Company, Inc.
RD Member Services, Inc.
Reader's Digest Sales and Services, Inc.
Reader's Digest Sub Six, Inc.
Reader's Digest Sub Seven, Inc.
Reader's Digest Young Families, Inc.
SMDDMS, Inc.
The Reader's Digest Association (Russia) Incorporated
W. A. Publications, Inc.
_____________________
* All are Delaware corporations except W.A. Publications, Inc.,
a New York corporation.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
To The Board of Directors of The Reader's Digest Association, Inc.:
We consent to incorporation by reference in the registration
statements (Registration Nos. 33-37434 and 33-56883) on Form S-8
of The Reader's Digest Association, Inc. and subsidiaries of our
reports dated September 6, 1995, relating to the consolidated
balance sheets of The Reader's Digest Association, Inc. and
subsidiaries as of June 30, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year
period ended June 30, 1995, which reports appear in or are
incorporated by reference in the June 30, 1995 Annual Report on
Form 10-K of The Reader's Digest Association, Inc.
As discussed in the Notes to Consolidated Financial Statements,
the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits," and the
American Institute of Certified Public Accountants' Statement of
Position No. 93-7, "Reporting on Advertising Costs," effective
July 1, 1993, and the provisions of Financial Accounting
Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," effective June 30, 1994. As discussed in the Notes
to Consolidated Financial Statements, the Company adopted the
provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and
No. 109, "Accounting for Income Taxes," effective July 1, 1992.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
New York, New York
September 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Registrant's
Consolidated Statements of Income and Consolidated Balance Sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 214,600
<SECURITIES> 93,000
<RECEIVABLES> 624,200
<ALLOWANCES> 227,800
<INVENTORY> 188,600
<CURRENT-ASSETS> 1,215,100
<PP&E> 592,300
<DEPRECIATION> 335,700
<TOTAL-ASSETS> 1,958,700
<CURRENT-LIABILITIES> 1,072,100
<BONDS> 0
<COMMON> 700
0
28,800
<OTHER-SE> 611,300
<TOTAL-LIABILITY-AND-EQUITY> 1,958,700
<SALES> 3,068,500
<TOTAL-REVENUES> 3,068,500
<CGS> 1,194,300
<TOTAL-COSTS> 1,194,300
<OTHER-EXPENSES> 1,482,300
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,300
<INCOME-PRETAX> 422,500
<INCOME-TAX> 158,500
<INCOME-CONTINUING> 264,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 264,000
<EPS-PRIMARY> 2.35
<EPS-DILUTED> 2.35
</TABLE>
The Reader's Digest Association, Inc. and Subsidiaries
Financial Highlights
In millions, except per share data 1995 1994 % Change
Revenues $3,068.5 $2,806.4 9%
Operating Profit $391.9 $393.7 ---
Net Income $264.0 $246.3 7%
Earnings Per Share $2.35 $2.11 11%
Dividends Per Common Share $1.55 $1.35 15%
Cash and Cash Equivalents, Short-
Term Investments and Marketable $532.1 $766.9 (31)%
Securities
Total Assets $1,958.7 $2,049.4 (4)%
Stockholders' Equity $640.8 $791.0 (19)%
The Reader's Digest Association, Inc. and Subsidiaries
Business Segment Financial Information
Years ended June 30,
In millions 1995 1994 1993
Revenues
Reader's Digest Magazine $732.9 $689.1 $ 720.0
Books and Home Entertainment 2,099.8 1,900.3 1,958.1
Products
Special Interest Magazines 95.6 90.6 84.1
Other Businesses 143.9 129.6 110.4
Intersegment (3.7) (3.2) (4.0)
$3,068.5 $2,806.4 $2,868.6
Operating profit
Reader's Digest Magazine $ 78.3 $ 78.6 $ 97.3
Books and Home Entertainment 339.3 310.8 307.2
Products
Special Interest Magazines (0.8) (3.2) (9.2)
Other Businesses 31.1 26.6 20.5
Effect of promotion accounting --- 113.9 ---
changes, net
Other operating items --- (76.0) ---
Corporate Expense (56.0) (57.0) (63.1)
$391.9 $393.7 $ 352.7
Identifiable assets
Reader's Digest Magazine $365.0 $348.4 $ 275.6
Books and Home Entertainment 973.7 928.9 828.3
Products
Special Interest Magazines 88.6 80.1 78.5
Other Businesses 51.0 39.2 31.6
Corporate 480.4 652.8 658.4
$1,958.7 $2,049.4 $1,872.4
Depreciation and amortization
Reader's Digest Magazine $ 11.6 $ 11.2 $ 10.4
Books and Home Entertainment 27.8 23.7 24.4
Products
Special Interest Magazines 2.4 4.1 6.7
All other 2.9 3.2 3.6
$ 44.7 $ 42.2 $ 45.1
Capital expenditures
Reader's Digest Magazine $ 13.6 $ 12.1 $ 12.8
Books and Home Entertainment 32.9 26.7 30.1
Products
All other 3.8 3.4 5.1
$ 50.3 $ 42.2 $ 48.0
Intersegment sales are included in the company's Other
Businesses segment. Corporate assets consist primarily of cash
and cash equivalents, short-term investments, marketable
securities, and other long-term investments.
The Reader's Digest Association, Inc. and Subsidiaries
Geographic Financial Information
Years ended June 30,
In millions 1995 1994 1993
Revenues
United States $1,196.9 $1,117.8 $1,157.3
Europe 1,455.8 1,301.0 1,322.5
Other Markets 424.9 396.8 398.9
Interarea (9.1) (9.2) (10.1)
$3,068.5 $2,806.4 $2,868.6
Revenues interarea
United States $ 4.3 $ 4.6 $ 5.2
Europe 3.2 3.5 3.5
Other Markets 1.6 1.1 1.4
$ 9.1 $ 9.2 $ 10.1
Operating profit
United States $151.7 $135.1 $115.5
Europe 225.5 231.3 231.7
Other Markets 70.7 46.4 68.6
Effect of promotion accounting --- 113.9 ---
changes, net
Other operating items --- (76.0) ---
Corporate Expense (56.0) (57.0) (63.1)
$391.9 $393.7 $352.7
Identifiable assets
United States $587.6 $525.3 $497.4
Europe 669.4 660.7 532.0
Other Markets 221.3 210.6 184.6
Corporate 480.4 652.8 658.4
$1,958.7 $2,049.4 $1,872.4
Operating profit in the United States, Europe and Other Markets
for 1995 excludes the effect of intercompany royalties;
operating profit has been restated to exclude intercompany
royalties for 1994 and 1993. Corporate assets consist primarily
of cash and cash equivalents, short-term investments, marketable
securities and other long-term investments.
The Reader's Digest Association, Inc. and Subsidiaries
Management's Discussion & Analysis
(Dollars in millions, except per share data)
Results of Operations
Revenues/Operating Profit
1995 v. 1994 Worldwide revenues in 1995 increased 9%, to
$3,068.5, compared with the prior year, of which
approximately 4% was attributable to the favorable effect of
changes in foreign currency exchange rates, 3% to higher
prices and sales of a higher priced product mix and 2% to an
increase in volume. The segments that were the primary
contributors to this 9% increase were Books and Home
Entertainment Products and Reader's Digest Magazine,
representing approximately 7% and 2% respectively.
Worldwide operating profit was $391.9 in 1995 and $393.7
in 1994. However, as a result of the changes in accounting
practices in 1994, worldwide operating profit in 1995 is not
comparable to that of 1994. Adjusting 1994 results to
reflect the accounting practices of 1995 and to exclude the
other operating items of $76.0 (comparable basis), worldwide
operating profit in 1995 increased 10% compared with 1994.
This 10% increase was primarily due to higher revenues as
operating profit margins in 1995 were consistent with those
in 1994. Results were favorably influenced by the effect of
changes in foreign currency exchange rates and unfavorably
affected by lower response rates to promotional mailings in
Europe and higher paper and postage costs.
Paper and postage costs are a significant component of the
company's operating expenses. The company estimates that
additional expense of approximately $50.0 may be incurred in
1996 as a result of higher paper and postage costs. Paper
prices increased significantly from the prior year and this
trend may continue over the next few years. Additionally,
the U.S. Postal Service implemented a rate increase across
most classes of mail in January 1995. The company
continually evaluates ways to reduce postage costs, such as
increasing the use of bar coding, better packaging and
improving the sorting of mail. The higher paper and postage
costs will be absorbed through a combination of prudent
pricing and productivity improvements.
1994 v. 1993 Worldwide revenues decreased in 1994 to
$2,806.4, or by 2%, compared with 1993, due to the
unfavorable effect of changes in foreign currency exchange
rates. Excluding the effect of these changes, worldwide
revenues increased 3% as a result of higher sales in Books
and Home Entertainment Products. Worldwide operating profit
increased in 1994 to $393.7, or by 12%, compared with 1993.
Worldwide operating profit in 1994 includes the one-time
effect of changes in accounting for promotion costs, net and
other operating items. Excluding the combined effect of
these items, worldwide operating profit increased 1% as the
impact of sales of a more profitable product mix was almost
entirely offset by the unfavorable effect of changes in
foreign currency exchange rates.
Geographic Areas
United States
1995 v. 1994 Revenues in the United States increased in
1995 to $1,196.9, or by 7%, compared with 1994. Operating
profit increased 12% to $151.7. On a comparable basis,
operating profit increased 13%. The increases in revenues
and operating profit were principally due to higher and more
profitable unit sales of Books and Home Entertainment
Products as a result of a variety of factors, including the
appeal of products offered and the number and timing of
promotional mailings. Notably, Condensed Books shipments
increased 10% over the prior year and video unit sales rose
30%. For Reader's Digest Magazine, advertising revenues
increased as a result of an increase in advertising pages of
more than 20% compared with the prior year. However, the
impact on profits of these higher advertising revenues was
more than offset by increased promotion costs.
1994 v. 1993 Revenues decreased 3% in 1994 primarily due
to planned lower levels of activity in the Books and Home
Entertainment Products business and a decrease in Reader's
Digest Magazine advertising revenue. Better targeting of
mailings and promotional activity led to higher response
rates, fewer returns of products and better payment
performance. Operating profit in 1994 increased 17%
primarily due to reduced promotional expenses, which more
than offset the decline in revenues in the Books and Home
Entertainment Products business.
Europe
1995 v. 1994 Revenues in Europe in 1995 increased 12%,
to $1,455.8, compared with 1994, due to the favorable effect
of changes in foreign currency exchange rates. Excluding
this effect, revenues increased only slightly as the impact
of higher prices and a higher priced product mix were offset
by lower unit sales of Books and Home Entertainment
Products. These lower unit sales were primarily due to a
decline in customer response rates to mailing programs in
certain markets, including the three largest markets:
Germany, the United Kingdom and France. The company
attributes this weakness principally to increases in the
number of product offerings over the past few years, which
led to customer list fatigue and reduced order rates.
Operating profit decreased 2% in 1995 to $225.5. On a
comparable basis, operating profit decreased 3% as a result
of higher promotion costs and would have declined 14% if not
for the favorable effect of changes in foreign currency
exchange rates.
1994 v. 1993 Revenues decreased 2% in 1994 due to the
effect of changes in foreign currency exchange rates.
Excluding this effect, revenues increased 9%. Operating
profit in 1994 of $231.3 was about the same as the prior
year. Excluding the effect of changes in foreign currency
exchange rates, operating profit increased 12%. The
increases in revenues and operating profit came primarily
from higher sales of Books and Home Entertainment Products.
Other Markets
1995 v. 1994 Revenues for Other Markets increased in
1995 to $424.9, or by 7%, compared with the prior year,
principally due to higher sales of Books and Home
Entertainment Products. Operating profit increased 52% in
1995 to $70.7. On a comparable basis, operating profit
increased 57%. This increase was primarily attributable to
improved results in Mexico, which absorbed costs in 1994
associated with a change in marketing approach, and
increased sales of Books and Home Entertainment Products in
other locations.
1994 v. 1993 Revenues of $396.8 in 1994 were about the
same as the prior year. Operating profit decreased 32% in
1994 compared with the prior year, primarily due to
increased costs associated with the marketing change in
Mexico.
[GRAPH -- Revenues by Geographic Areas]
Other Income, Net
1995 v. 1994 Other income, net decreased in 1995 to
$30.6 compared with $69.5 in 1994. This decrease was caused
by lower gains on the sales of certain investments ($8.9 in
1995 compared with $42.6 in 1994).
1994 v. 1993 Other income, net increased slightly to
$69.5 in 1994 compared with $67.3 in 1993. This increase
was principally due to increased gains on the sales of
certain investments ($42.6 in 1994 compared with $29.4 in
1993), partially offset by decreased interest income ($42.9
in 1994 compared with $51.7 in 1993).
Income Taxes
The effective income tax rate for the company declined to
37.5% in 1995 from 41.3% in 1994 due to the effect of other
operating items in 1994 and effective global tax planning.
Earnings per Share
1995 v. 1994 Earnings per share was $2.35 in 1995. On a
comparable basis, earnings per share increased 4% over 1994.
This increase is attributable to the reduction in
outstanding shares due to the company's share repurchase
program and a lower effective income tax rate.
1994 v. 1993 Earnings per share before the cumulative
effect of changes in accounting principles increased in 1994
to $2.34, or by 8%, compared with the prior year. Excluding
the effect of promotion accounting changes, net and other
operating items, earnings per share before the cumulative
effect of changes in accounting principles increased 4%.
This increase exceeded comparable operating profit growth
due to higher gains on the sales of certain investments and
the reduction in outstanding shares under the company's
share repurchase program.
Foreign Exchange
The effect of changes in foreign currency exchange rates
increased 1995 earnings per share by approximately $0.11
compared with 1994. The increase in 1995 reflects the impact
of the weakening U.S. dollar against certain key currencies.
The decline in value of the Mexican peso did not have a
significant impact on the results of the company. The
effect of changes in foreign currency exchange rates
decreased 1994 earnings per share by $0.20 compared with
1993.
In the second half of 1995, the company purchased foreign
currency options to hedge its foreign currency exposure.
These hedges were implemented at exchange rates and in
amounts designed to minimize any unfavorable effect of
currency fluctuations on 1996 earnings per share. As
certain of these options are required to be reported at fair
value, the company may experience some impact on quarterly
results from currency fluctuations.
[GRAPH -- Operating Profit by Geographic Area]
Business Segments
Reader's Digest Magazine
1995 v. 1994 Revenues for Reader's Digest Magazine
increased in 1995 to $732.9, or by 6%, due equally to
higher advertising revenue and the favorable effect of
changes in foreign currency exchange rates. The increase in
advertising revenue of $26.0 was attributable to an increase
in advertising pages as the worldwide advertising
environment improved. About 25% of this effect was offset
by a decline in effective advertising rates caused by a
change in the mix of advertising pages sold. Circulation
revenues were about even in 1995 compared with the prior
year as the effects of higher pricing were almost entirely
offset by fewer paid subscriptions. Average circulation
levels, on a global basis, declined slightly in 1995
principally as a result of the reduction in the U.S.
circulation rate base to 15 million from 16.25 million
effective January 1, 1994.
Operating profit in 1995 of $78.3 decreased slightly
compared with 1994. On a comparable basis, operating profit
decreased 5%. In addition to higher paper and postage costs
in the second half of 1995, operating profit was affected
principally by higher promotion costs attributable to the
company's investment in the magazine's role as the front
door to the rest of the company.
1994 v. 1993 Revenues decreased in 1994 to $689.1, or by
4%, compared with the prior year. This decrease was
primarily caused by a decline in advertising revenues of
$25.9 due to a decrease in advertising pages in a difficult
global advertising environment. Approximately 33% of the
decrease in advertising pages was offset by higher effective
advertising rates. The remaining decrease in magazine
revenues was offset by increased subscription pricing.
Average circulation levels, on a global basis, declined
slightly in 1994 as a result of the reduction in the U.S.
circulation rate base to 15 million from 16.25 million
effective January 1, 1994.
Operating profit decreased in 1994 to $78.6, or 19%,
compared with 1993 due to lower advertising revenues and an
increase in promotion costs.
Books and Home Entertainment Products
1995 v. 1994 Revenues for Books and Home Entertainment
Products increased in 1995 to $2,099.8, or by 10%, compared
with the prior year, of which 5% was attributable to the
favorable effect of changes in foreign currency exchange
rates, 4% to higher prices and sales of a higher priced
product mix and 1% to an increase in unit sales. Higher
unit sales in the United States and Other Markets were
offset by lower sales in Europe. Revenues increased for all
product lines. Notably, video revenues increased 26%
compared with the prior year as unit sales increased in each
of the company's three geographic areas. Sales of Books and
Home Entertainment Products were influenced by a variety of
factors, including the appeal of products offered and the
number and timing of promotional mailings.
Operating profit increased in 1995 to $339.3, or by 9%,
over 1994. On a comparable basis, operating profit
increased 11%. This increase is almost equally attributable
to increased revenues and the favorable effect of changes in
foreign currency exchange rates.
1994 v. 1993 Revenues decreased in 1994 to $1,900.3, or
by 3%, compared with the prior year, due to the unfavorable
effect of changes in foreign currency exchange rates.
Excluding this effect, revenues increased 4% due to higher
prices and sales of a higher priced product mix. U.S.
revenues declined in 1994 due to the company's strategy to
optimize its U.S. profitability through lower levels of
activity to form a solid customer base for future growth.
This decline was offset by higher international revenues.
Operating profit increased in 1994 to $310.8, or by 1%,
compared with the prior year. Excluding the effect of
changes in foreign currency exchange rates, operating profit
increased 11% as a result of higher U.S. profits caused by
decreased promotional spending related to lower activity and
higher international profits due to higher revenues.
Special Interest Magazines
1995 v. 1994 Revenues for Special Interest Magazines
increased in 1995 to $95.6, or by 5%, compared with the
prior year, of which 3% is attributable to an increase in
advertising revenue and 2% to an increase in circulation
revenue. The increase in advertising revenue was primarily
due to higher effective advertising rates. The increase in
circulation revenue was caused equally by higher
subscription pricing and an increase in the number of paid
subscriptions.
Special Interest Magazines operating loss decreased in
1995 to $0.8 compared with $3.2 in the prior year. This
improvement was due to lower amortization expense.
1994 v. 1993 Revenues increased in 1994 to $90.6, or by
8%, compared with the prior year. About 75% of this
increase was attributable to increased advertising revenues
due to higher advertising rates. The remaining 25% of the
increase was attributable to higher subscription pricing.
Circulation levels were approximately the same. This
segment generated a lower operating loss of $3.2 in 1994
compared with $9.2 in the prior year. This improvement
relates to stronger performance in all titles and a decrease
in amortization expense.
Other Businesses
1995 v. 1994 Revenues for Other Businesses, net of
intersegment sales, increased in 1995 to $140.2, or by 11%,
compared with the prior year, primarily due to higher sales
at QSP. Operating profit increased 17% in 1995, to $31.1,
compared with 1994. On a comparable basis, operating profit
increased 14% primarily because of increased revenues.
1994 v. 1993 Revenues increased in 1994 to $126.4, or by
19%, due to higher sales at QSP. Operating profit increased
to $26.6, or by 30%, attributable to increased revenues.
Corporate Expense
Corporate Expense in 1995 of $56.0 was slightly lower
compared with $57.0 in the prior year. Corporate Expense
declined from $63.1 in 1993 to $57.0 in 1994, or by 10%, due
to lower compensation costs and outside consulting fees.
Forward-Looking Information
The company believes that, as a result of rising paper and
postage costs, weakness in European response rates and
increased investment spending for long-term growth, earnings
per share in 1996 will increase less than the 10-15% growth
rate achieved in the recent past.
The company estimates that additional expense of
approximately $50.0 may be incurred in 1996 as a result of
higher paper and postage costs. The company plans to offset
part of these increases through prudent pricing and
productivity improvements, including by continuing to
regionalize and consolidate certain purchasing and printing
operations and reducing less profitable promotional
mailings.
The company is taking actions to restore growth in Europe
by reducing the number of promotional mailings, increasing
the variety of promotions and curtailing price increases.
Initial benefits from these actions are not expected to be
realized until the end of 1996 and in 1997.
The company expects that it will make additional
investments to expand its customer base, enter new markets,
improve its information systems and enter into strategic
alliances and make small acquisitions in order to achieve
sustainable long-term growth. The financial impact of these
additional investments could approach $20.0 in 1996.
The company seeks to maximize total long-term return to
shareholders and is confident in its ability to achieve 10-
15% earnings per share growth over the long term.
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and
marketable securities decreased $234.8 to $532.1 at June 30,
1995 compared with $766.9 at June 30, 1994. This decrease
was primarily due to the repurchase of 6.4 million shares of
Class A nonvoting common stock ($280.2) and dividend
payments ($175.5) exceeding cash provided by operations
($240.4).
The fiscal 1995 full-year dividend payment increased to
$1.55 per share, or 15%. The company increased its
quarterly dividend on common stock to $0.40 per share, or
14%, during fiscal 1995 and is currently paying dividends at
an annualized rate of $1.60 per share.
In March 1995, the company announced its fourth share
repurchase program to acquire up to an additional five
million shares of Class A nonvoting common stock and
completed its third program, announced in March 1994, to
repurchase five million shares of Class A nonvoting common
stock.
Capital expenditures in 1995 amounted to $50.3 and were
primarily for management information systems equipment and
improvements to existing facilities.
The company believes that its liquidity, capital resources
and cash flow are sufficient to fund normal capital
expenditures, working capital requirements, the payment of
dividends and the company's share repurchase program. The
company also believes its liquidity, capital resources and
cash flow are sufficient to finance present plans to expand
existing product lines in existing markets, to identify and
develop new products and markets, and to enter into
strategic alliances and make small acquisitions.
New Accounting Standards
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which must be adopted
by 1997. This statement establishes accounting standards
for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The
company is currently assessing the effect of this statement.
[GRAPH -- Cash Provided by Operations]
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Statements of Income
Years ended June 30,
In millions, except per share data 1995 1994 1993
Revenues $3,068.5 $2,806.4 $2,868.6
Cost of sales, fulfillment and 1,194.3 1,080.2 1,111.2
distribution expense
Promotion, selling and 1,482.3 1,370.4 1,404.7
administrative expense
Effect of promotion accounting --- (113.9) ---
changes, net
Other operating items --- 76.0 ---
Operating profit 391.9 393.7 352.7
Other income, net 30.6 69.5 67.3
Income before provision for income
taxes and cumulative effect of 422.5 463.2 420.0
changes in accounting principles
Provision for income taxes 158.5 191.1 161.7
Income before cumulative effect of 264.0 272.1 258.3
changes in accounting principles
Cumulative effect of changes in --- (25.8) (51.0)
accounting principles
Net income $ 264.0 $246.3 $207.3
Earnings per share:
Before cumulative effect of $ 2.35 $ 2.34 $ 2.16
changes in accounting principles
Cumulative effect of changes in --- (0.23) (0.42)
accounting principles
Earnings per share $ 2.35 $ 2.11 $ 1.74
Average common shares outstanding 112.0 115.7 118.7
See accompanying notes to consolidated financial statements.
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30,
In millions 1995 1994
Assets
Current assets:
Cash and cash equivalents $214.6 $ 183.2
Short-term investments 93.0 211.5
Receivables, net 396.4 392.8
Inventories 188.6 167.3
Prepaid expenses and other current assets 322.5 242.4
Total current assets 1,215.1 1,197.2
Marketable securities 224.5 372.2
Other long-term investments 43.1 51.3
Property, plant and equipment, net 256.6 241.8
Intangible assets, net 77.6 69.7
Other noncurrent assets 141.8 117.2
Total assets $1,958.7 $2,049.4
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 224.8 $ 205.5
Accrued expenses 358.7 346.7
Income taxes payable 79.0 84.4
Unearned revenue 391.7 388.8
Other current liabilities 17.9 14.5
Total current liabilities 1,072.1 1,039.9
Postretirement and postemployment benefits 133.5 122.1
other than pensions
Other noncurrent liabilities 112.3 96.4
Total liabilities 1,317.9 1,258.4
Stockholders' equity:
Capital stock 29.5 29.6
Paid-in capital 118.3 90.3
Retained earnings 1,093.5 1,005.0
Foreign currency translation adjustment (0.3) (22.1)
Net unrealized gains on certain investments 5.1 11.9
Treasury stock, at cost (605.3) (323.7)
Total stockholders' equity 640.8 791.0
Total liabilities and stockholders' equity $1,958.7 $2,049.4
See accompanying notes to consolidated financial statements.
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years ended June 30,
In millions 1995 1994 1993
Cash flows from operating
activities
Net income $ 264.0 $246.3 $ 207.3
Depreciation and amortization 44.7 42.2 45.1
Gain on marketable securities and (8.9) (42.6) (29.4)
investments
Cumulative effect of changes in - 25.8 51.0
accounting principles
Changes in assets and liabilities:
Accounts receivable, net 6.8 (3.6) (15.9)
Inventories (15.7) 6.2 (33.0)
Unearned revenue (5.4) 10.9 8.6
Accounts payable and accrued 12.5 120.6 55.0
expenses
Other, net (57.6) (90.7) (38.2)
Net change in cash due to operating 240.4 315.1 250.5
activities
Cash flows from investing
activities
Proceeds from maturities and sales
of marketable securities
and short-term investments 405.8 275.4 128.7
Purchases of marketable securities
and short-term (144.2) (277.0) (134.9)
investments
Capital expenditures (50.3) (42.2) (48.0)
Proceeds from other long-term 4.3 19.6 9.2
investments, net
Proceeds from sales of property, 1.9 3.1 4.0
plant and equipment
Net change in cash due to investing 217.5 (21.1) (41.0)
activities
Cash flows from financing
activities
Dividends paid (175.5) (157.7) (138.0)
Common stock repurchased (280.2) (150.3) (166.2)
Other, net 15.4 2.8 7.2
Net change in cash due to financing (440.3) (305.2) (297.0)
activities
Effect of exchange rate changes on 13.8 10.9 (21.7)
cash
Net change in cash and cash 31.4 (0.3) (109.2)
equivalents
Cash and cash equivalents at 183.2 183.5 292.7
beginning of year
Cash and cash equivalents at end of $ 214.6 $183.2 $ 183.5
year
Supplemental information
Cash paid for interest $ 1.4 $ 2.3 $ 2.7
Cash paid for income taxes $ 168.8 $157.0 $ 168.1
See accompanying notes to consolidated financial statements.
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
In millions, except per share data
Capital Stock Foreign Net
Unamortized Currency Unrealized
Preferred Common Restricted Paid-In Retained Translation Gains on Treasury
Stock Stock Stock Capital Earnings Adjustment Investments Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, $28.8 $1.4 $(1.7) $56.4 $ 847.1 $18.0 $ -- $(15.1) $934.9
1992
Net income -- -- -- -- 207.3 -- -- -- 207.3
Translation -- -- -- -- -- (53.9) -- -- (53.9)
adjustment
Common stock -- -- -- -- -- -- -- (166.2) (166.2)
repurchased
Common stock issued
under
various plans -- -- 0.6 20.9 -- -- -- 0.6 22.1
Dividends on common
stock
($1.15 per share) -- -- -- -- (136.7) -- -- -- (136.7)
Dividends on -- -- -- -- (1.3) -- -- -- (1.3)
preferred stock
Balance at June 30, $28.8 $1.4 $(1.1) $77.3 $916.4 $(35.9) $ -- $(180.7) $806.2
1993
Net income -- -- -- -- 246.3 -- -- -- 246.3
Translation -- -- -- -- -- 13.8 -- -- 13.8
adjustment
Common stock -- -- -- -- -- -- -- (150.3) (150.3)
repurchased
Common stock issued
under
various plans -- -- 0.5 13.0 -- -- -- 7.3 20.8
Dividends on common
stock
($1.35 per share) -- -- -- -- (156.4) -- -- -- (156.4)
Dividends on -- -- -- -- (1.3) -- -- -- (1.3)
preferred stock
Net unrealized gains
on certain -- -- -- -- -- -- 11.9 -- 11.9
investments, net of
tax
Balance at June 30, $28.8 $1.4 $(0.6) $90.3 $1,005.0 $(22.1) $11.9 $(323.7) $791.0
1994
Net income -- -- -- -- 264.0 -- -- -- 264.0
Translation -- -- -- -- -- 21.8 -- -- 21.8
adjustment
Common stock -- -- -- -- -- -- -- (280.2) (280.2)
repurchased
Common stock issued
under various plans -- -- (0.1) 28.0 -- -- -- (1.4) 26.5
Dividends on common
stock
($1.55 per share) -- -- -- -- (174.2) -- -- -- (174.2)
Dividends on -- -- -- -- (1.3) -- -- -- (1.3)
preferred stock
Net unrealized gains
on certain -- -- -- -- -- -- (6.8) -- (6.8)
investments, net of
tax
Balance at June 30, $28.8 $1.4 $(0.7) $118.3 $1,093.5 $(0.3) $5.1 $(605.3) $640.8
1995
</TABLE>
See accompanying notes to consolidated financial statements.
The Reader's Digest Association, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
In millions except share and per share data
One Summary of Significant
Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the
accounts of The Reader's Digest Association, Inc. and its U.S.
and international subsidiaries (the company). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Changes in Accounting Principles
As of June 30, 1994, the company adopted Statement of
Financial Accounting Standards No. (SFAS) 115, "Accounting for
Certain Investments in Debt and Equity Securities." This
adoption had no effect on the company's consolidated statement
of income for 1994.
In 1994, the company adopted Statement of Position No. (SOP)
93-7, "Reporting on Advertising Costs," retroactive to July 1,
1993. Concurrently, the company changed its accounting for
premiums and product development costs. The impact of the
product development and premium accounting changes on prior
years was not significant. As a result of the promotion,
premiums and product development accounting changes, 1994
results reflect a one-time increase in operating profit of
$113.9.
In the first quarter of 1994, the company adopted SFAS 112,
"Employers' Accounting for Postemployment Benefits." The
cumulative effect of the change resulted in a non-cash, after-
tax charge of $25.8, or $0.23 per share.
In the fourth quarter of 1993, the company adopted SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions," and SFAS 109, "Accounting for Income Taxes,"
retroactive to July 1, 1992. The cumulative effect of these
changes resulted in a non-cash, after-tax charge of $53.3, or
$0.44 per share for SFAS 106 and a benefit of $2.3 or $0.02
per share for SFAS 109.
Foreign Currency Translation
Revenues and expenses denominated in foreign currencies are
translated at average monthly exchange rates prevailing during
the year. The assets and liabilities of international
subsidiaries are translated into U.S. dollars at the rates of
exchange in effect at the balance sheet date. The resulting
translation adjustment is reflected as a separate component of
stockholders' equity.
Cash and Cash Equivalents
The company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents.
Accounts Receivable
Accounts receivable are reflected net of allowances for
returns and bad debts of $227.8, $209.5 and $198.4 at June 30,
1995, 1994 and 1993, respectively. Additions to the
allowances amounted to $427.1, $433.4 and $486.5 and amounts
written off amounted to $408.8, $422.3 and $461.7 during the
years ended June 30, 1995, 1994 and 1993, respectively.
Inventories
Inventories are stated at the lower of cost or market,
primarily determined on the first-in, first-out (FIFO) basis.
The majority of U.S. inventory is determined on the last-in,
first-out basis.
Short-Term Investments and Marketable Securities
Short-term investments and marketable securities are composed
primarily of government and corporate fixed income securities.
These securities are classified as available-for-sale and
carried at fair value, based on quoted market prices. The net
unrealized gains or losses on these investments are reported
as a separate component of stockholders' equity, net of tax.
While it is the company's intent to hold such securities until
maturity, management will occasionally sell particular
securities for cash flow purposes. The specific
identification method is used to compute the realized gains
and losses on debt and equity securities.
Derivative Financial Instruments
Premiums on option contracts which qualify for hedge
accounting are deferred and amortized into income
systematically over the life of the contract. Gains and losses
on other derivatives are recognized in income based on current
market values.
Depreciation and Amortization
The cost of buildings and equipment is depreciated using the
straight-line method over useful lives up to 50 years for
buildings and up to 20 years for equipment. Leasehold
improvements are amortized using the straight-line method over
the term of the lease or the life of the improvement,
whichever is shorter.
Intangible Assets
Intangible assets are composed of distribution rights,
contracts, subscription lists and other intangible assets as
well as the excess of costs over the fair value of net assets
of several businesses acquired. The excess of costs over fair
value of businesses acquired is amortized, on a straight-line
basis, over varying periods, not in excess of 40 years. Other
acquired intangibles are amortized, on a straight-line basis,
over their estimated useful lives, not in excess of 15 years.
The company continually evaluates the recoverability of its
intangible assets to determine whether current events or
circumstances warrant adjustments to the carrying value. Such
evaluation may be based on projected income and cash flows
from operations of related businesses as well as other
economic and market variables.
Revenues
Sales of Books and Home Entertainment Products, less
provisions for returns, are recorded at the time of shipment.
Sales of magazine subscriptions are recorded as unearned
revenue at the gross subscription price at the time the orders
are received. Proportionate shares of the gross subscription
price are recognized as revenues when the subscriptions are
fulfilled.
Promotion Costs
Costs of direct-response advertising are deferred and
amortized over the expected revenue stream, generally one to
12 months. Direct-response advertising consists primarily of
promotion costs incurred in connection with the procurement of
magazine subscriptions and the sale of books and other
products.
Promotion costs of $1,107.0 and $1,003.3 were incurred for
the fiscal years ended June 30, 1995 and 1994, respectively.
Deferred promotion costs, included in Prepaid expenses and
other current assets amounted to $154.8 and $124.8 at June
30,1995 and 1994, respectively.
Income Taxes
Deferred income taxes, net of appropriate valuation
allowances, are recognized for the tax consequences of
temporary differences by applying enacted statutory tax rates
applicable to future years, to differences between the
financial statement carrying amounts and the tax bases of
existing assets and liabilities.
Deferred federal income taxes have not been provided on
undistributed earnings of foreign subsidiaries as any federal
taxes payable would be substantially offset by foreign tax
credits.
Earnings Per Share
Earnings per share is computed by dividing net income, less
preferred stock dividend requirements, by the weighted average
number of common shares and common share equivalents
outstanding during the year.
Reclassifications
Certain items in the prior years' financial statements have
been reclassified to conform with the current year's
presentation.
Two Other Operating
Items
In the fourth quarter of 1994, the company recorded aggregate
charges of $76.0 for certain other operating items. These
charges relate to losses on lease terminations and provisions
for certain claims against the company.
Three Other Income, Net
1995 1994 1993
Interest income $ 40.1 $ 42.9 $ 51.7
Interest expense (3.3) (2.3) (4.6)
Gains on the sales
of certain 8.9 42.6 29.4
investments
Loss on foreign
exchange (10.3) (5.7) (1.4)
Other, net (4.8) (8.0) (7.8)
$ 30.6 $ 69.5 $ 67.3
Four Inventories
1995 1994
Raw materials $32.4 $17.4
Work-in-progress 24.7 23.7
Finished goods 131.5 126.2
$188.6 $167.3
Inventories would have been $12.6 and $9.8 higher than the
amounts reported at June 30, 1995 and 1994, respectively, had
the FIFO method of inventory been used in the U.S.
Five Financial
Instruments
Marketable Debt and Equity Securities
Unrealized Unrealized
1995 Cost Gains Losses Fair Value
Debt
securities maturing
within: $92.7 $0.3 $ --- $93.0
1 year
1 to 10 years 213.8 0.5 (4.6) 209.7
Equity 2.9 11.9 --- 14.8
securities
$309.4 $12.7 $(4.6) $317.5
Unrealized Unrealized
1994 Cost Gains Losses Fair Value
Debt
securities maturing
within: $210.3 $1.2 $ --- $211.5
1 year
1 to 10 years 350.8 0.6 (14.1) 337.3
Equity 3.3 31.6 --- 34.9
securities
$564.4 $33.4 $(14.1) $583.7
Investments for which quoted market prices were not available
are carried at cost, which approximates fair value. Estimates
of fair value were provided by external sources.
Proceeds from sales and maturities were $405.8 and $275.4 in
1995 and 1994 including realized gains of $8.7 and $27.4,
respectively.
Derivative Financial Instruments
The company is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value on its foreign
subsidiaries' income. The company purchases foreign currency
option and forward contracts to minimize the effect of
fluctuating foreign currencies on its earnings, generally over
periods ranging up to 12 months. Option contracts that relate
to certain transactions qualify for hedge accounting.
Premiums on such option contracts are amortized over the term
of the contract and any gains at maturity are included in
Other income. The carrying value of these instruments is
included in other assets. Derivatives that do not qualify for
hedge accounting are recorded at fair value. To minimize the
concentration of credit risk, the company enters into
derivative transactions with a portfolio of financial
institutions. The company may be exposed to credit losses in
the event of nonperformance by the financial institutions that
are counterparties to these instruments; however, the credit
ratings of such institutions are monitored regularly, and
therefore, the company does not foresee losses resulting from
any nonperformance.
Notional/Principal Carrying
1995 Amounts Value Fair Value Maturity
Forward Contracts
Assets $ 10.8 $ 10.8 $ 10.8 1995-1996
Liabilities $ 10.9 $ 10.9 $ 10.9 1995-1996
Option Contracts
Assets $ 298.6 $ 7.1 $ 7.2 1995-1996
Notional/Principal Carrying
1994 Amounts Value Fair Value Maturity
Forward Contracts
Assets $ 10.0 $ 10.0 $ 10.0 1994-1995
Liabilities $ 10.8 $ 10.8 $ 10.8 1994-1995
Option Contracts
Assets $ 310.0 $ 5.7 $ 5.7 1994-1995
Amortization on option contracts amounted to $1.4 for the year
ended June 30, 1995. Expense related to option contracts
amounted to $7.9 and $3.7 during the years ended June 30, 1995
and 1994, respectively. Losses on forward contracts amounted
to $1.8 and $2.1 during the years ended June 30, 1995 and
1994, respectively. At June 30, 1995, unamortized premiums on
option contracts amounted to $1.3.
Six Property, Plant and
Equipment
1995 1994
Land $ 18.8 $ 18.4
Buildings and building 226.7 207.3
improvements
Printing and fulfillment 147.5 150.9
equipment
Furniture, fixtures and 174.1 150.0
equipment
Leasehold improvements 25.2 22.6
592.3 549.2
Accumulated depreciation
and amortization (335.7) (307.4)
$ 256.6 $ 241.8
Seven Intangible Assets
1995 1994
Distribution rights,
contracts, subscription $69.4 $62.0
lists and other
Excess of cost over
fair value of net
assets of businesses 83.7 79.1
acquired
153.1 141.1
Accumulated (75.5) (71.4)
amortization
$77.6 $69.7
Eight Pension Plans
The company and certain of its U.S. and international
subsidiaries have pension plans covering substantially all
permanent employees. The plans' benefits are based primarily
on years of credited service and participants' compensation.
The plans' assets consist principally of fixed income and
equity securities.
The company's funding policy for its U.S. pension plans is to
meet the minimum requirements of the Employee Retirement
Income Security Act of 1974. Additional amounts may be
approved by the company's Board of Directors from time to
time. The company's funding policy for its international
pension plans is to meet local statutory requirements.
Assumptions used to determine pension costs and projected
benefit obligations are as follows:
U.S. Plans
1995 1994 1993
Discount rate 7.7% 8.0% 8.5%
Compensation 5.2% 5.5% 6.0%
increase rate
Long-term rate of
return on plan 9.5% 9.5% 10.0%
assets
International Plans
1995 1994 1993
Discount rate 5-15% 4-14% 4-15%
Compensation 4-13% 2-12% 2-13%
increase rate
Long-term rate of 6-16% 5-16% 5-16%
return on plan
assets
Components of the company's consolidated net periodic pension
cost are as follows:
1995 1994 1993
Service cost $ 18.8 $ 16.9 $ 15.9
Interest cost 40.1 36.6 35.4
Actual return on (103.3) (11.2) (60.6)
plan assets
Net amortization 54.9 (36.5) 14.3
and deferral
$ 10.5 $ 5.8 $ 5.0
The actuarial present value of benefit obligations and the
funded status of the U.S. and international plans are as
follows:
1995 1994
Over- Under- Over- Under-
funded funded funded funded
Plan assets at
fair value $ 627.0 $ 4.2 $ 532.6 $ 4.8
Projected benefit
obligation (497.3) (72.4) (455.3) (33.7)
Plan assets in
excess of
(less than)
projected
benefit obligation 129.7 (68.2) 77.3 (28.9)
Unrecognized net
gain (72.0) (1.8) (19.0) (0.6)
Unrecognized net
(asset) (33.2) 0.3 (37.8) 0.4
liability
Unrecognized prior
service cost 8.5 8.9 5.8 8.3
Additional
minimum liability --- (4.0) --- (3.8)
Prepaid (accrued)
pension cost $ 33.0 $ (64.8) $ 26.3 $(24.6)
Accumulated
benefit obligation $424.8 $ 62.5 $385.2 $ 25.7
Vested benefit
obligation $414.8 $ 57.7 $375.9 $ 21.3
Nine Postretirement and
Postemployment
Benefits
The company provides medical and dental benefits to U.S.
retired employees and their dependents. Substantially all of
the company's U.S. employees become eligible for these
benefits when they meet minimum age and service requirements.
The company also provides benefits such as disability,
severance and health insurance to former or inactive employees
prior to retirement based upon the employee's length of
service. The company has the right to modify or terminate
these unfunded benefits.
Costs, before taxes, for postretirement benefits included in
the company's consolidated statements of income are as
follows:
1995 1994
Service cost $ $ 3.6
3.0
Interest cost 6.8 7.3
Amortization (0.3) ---
of net gain
$ 9.5 $ 10.9
Components of the postretirement benefits liability recognized
in the company's consolidated balance sheets are as follows:
1995 1994
Retirees (including $ 52.9 $ 53.1
covered
dependents)
Fully eligible 12.0 14.4
active
participants
Other active 31.5 30.9
participants
Unrecognized net 10.3 2.2
gain
$ 106.7 $ 100.6
The health care inflation assumption used to determine the
postretirement benefits liability was 13.0% for 1995 and 14.0%
for 1994, decreasing to 8.0% by the year 2000 with respect to
medical benefits and 11.0% for 1995 and 11.5% for 1994,
decreasing to 8.0% by the year 2001 with respect to dental
benefits. Increasing the assumed health care cost rates by
one percentage point in each year would increase the
accumulated postretirement benefits liability as of June 30,
1995 by approximately $14.5 and increase the related interest
and service costs before taxes for 1995 by approximately $1.8.
A discount rate of 7.7% for 1995 and 8.0% for 1994 was used in
determining the accumulated postretirement benefits liability.
Ten Employee
Compensation Plans
The 1989 and 1994 Key Employee Long Term Incentive Plans
(Plans) provide that the Compensation & Nominating Committee
of the Board of Directors (the Committee) may grant stock
options, stock appreciation rights, restricted stock,
performance units and other awards to eligible employees. The
Committee may grant certain stock-based awards up to a maximum
of 5,420,000 and 6,000,000 underlying Class A shares of
nonvoting common stock (Class A) under the Plans,
respectively. No awards may be granted with respect to Class
B voting common stock (Class B). Changes in outstanding
options are as follows:
Shares Range of
Subject to Option Price
Options Per Share
Outstanding at 2,616,400 $20.00 to $46.63
June 30, 1992
Granted 1,035,000 $48.00 to $55.13
Exercised (274,050) $20.00 to $46.63
Canceled (73,000) $20.00 to $48.00
Outstanding at 3,304,350 $20.00 to $55.13
June 30, 1993
Granted 1,749,000 $41.06 to $41.50
Exercised (121,992) $20.00 to $29.44
Canceled (178,425) $20.00 to $48.00
Outstanding at 4,752,933 $20.00 to $55.13
June 30, 1994
Granted 1,271,000 $42.50 to $48.13
Exercised (343,030) $20.00 to $48.00
Canceled (126,475) $20.00 to $48.00
Outstanding at 5,554,428 $20.00 to $55.13
June 30, 1995
Options
exercisable at 2,260,078 $20.00 to $55.13
June 30, 1995
Options available
for grant at 4,014,725
June 30, 1995
In 1995 the company granted 9,000 restricted Class A shares
with a value of $0.4 to an executive officer at no cost. No
grants were made in 1994 or 1993. The market value of shares
awarded is recorded as unamortized restricted stock which is
included in capital stock. Restricted stock is amortized over
the term of the restriction period. Amortization of restricted
stock amounted to $0.3, $0.5 and $0.6 for the years ended June
30, 1995, 1994 and 1993, respectively.
The company's 1995 financial statements reflect an accrual
for an anticipated contribution to its profit-sharing plan
related to 1995 and the issuance of 274,812 Class B shares
with a value of $11.2 in fulfillment of its 1994 contribution
obligation. The company contributed 329,144 and 201,241 Class
B shares with a value of $12.6 and $10.6 in 1994 and 1993,
respectively, to its profit-sharing plan in fulfillment of its
1993 and 1992 contribution obligations.
Eleven Income Taxes
United States and International income before income taxes and
cumulative effect of changes in accounting principles are as
follows:
1995 1994 1993
United States $215.5 $231.9 $187.6
International 207.0 231.3 232.4
$422.5 $463.2 $420.0
Components of the company's provision for income taxes are as
follows:
1995 1994 1993
Current
Federal $ 57.8 $ 54.0 $ 84.5
State and local 15.2 14.1 18.9
International 92.3 98.3 105.4
$ 165.3 $ 166.4 $208.8
Deferred
Federal 1.7 8.6 (37.7)
State and local 0.3 0.5 (6.4)
International (8.8) 15.6 (3.0)
$ (6.8) $ 24.7 $(47.1)
$ 158.5 $ 191.1 $161.7
The differences between the effective income tax rate and the
statutory U.S. federal income tax rate are as follows:
1995 1994 1993
U.S. statutory tax 35.0 % 35.0 % 34.0 %
rate
International (0.6) 0.7 1.1
operations
State taxes, net 2.4 2.0 2.0
Other operating --- 2.8 ---
items
Other, net 0.7 0.8 1.4
Effective tax rate 37.5 % 41.3 % 38.5 %
The major components of deferred tax assets and liabilities
are as follows:
1995 1994
Assets
Deferred compensation and
other employee benefits $ 85.5 $ 78.2
Accounts receivable and 47.7 48.6
other allowances
Other, net 27.6 21.8
$160.8 $ 148.6
Liabilities
Deferred promotion costs 14.0 27.9
Deferred compensation and
other employee benefits 5.8 4.6
Other, net 12.4 17.4
$32.2 $ 49.9
$128.6 $ 98.7
The balance sheet classification of the deferred tax assets
and liabilities is as follows:
1995 1994
Prepaid expenses and 47.5 28.9
other current assets
Other noncurrent assets 97.4 69.8
Other current 3.5 --
liabilities
Other noncurrent 12.8 --
liabilities
$128.6 $ 98.7
Twelve Accrued Expenses
1995 1994
Compensation and other
employee benefits $98.9 $114.8
Royalties and copyrights 46.5 41.3
payable
Taxes, other than federal
and
international income taxes 39.5 31.2
Other, principally operating
expenses 173.8 159.4
$358.7 $346.7
Thirteen Capital Stock
1995 1994
First Preferred Stock, par
value $1.00 per share;
authorized 40,000 shares; $ 3.0 $ 3.0
issued and outstanding
29,720 shares
Second Preferred Stock, par
value $1.00 per share;
authorized 120,000 shares; 10.3 10.3
issued and outstanding
103,720 shares
Third Subordinated Preferred
Stock, par value $1.00 per
share; authorized 230,000 15.5 15.5
shares; issued and
outstanding 155,022 shares
Preference stock, par value
$0.01 per share; authorized
25,000,000 shares; issued -- --
and outstanding none
Class A nonvoting common
stock, par value $0.01 per
share; authorized 1.2 1.2
200,000,000 shares; issued
119,437,472 shares
Class B voting common stock,
par value $0.01 per share;
authorized 25,000,000
shares; issued 21,515,159 0.2 0.2
shares in 1995 and
21,386,907 shares in 1994
Unamortized restricted stock (0.7) (0.6)
$ 29.5 $ 29.6
Common stock in treasury, at
cost; 32,739,849 and
26,861,116 Class A shares in
1995 and 1994, respectively; $ (605.3) $ (323.7)
146,560 Class B shares in
1994
All shares of preferred stock have a preference in liquidation
of $100.00 per share. The difference between the aggregate
par value and liquidation preference liquidation has been
appropriated from retained earnings. Further, all preferred
stock is redeemable at any time at the option of the company
at $105.00 per share plus accrued dividends. The terms of the
First Preferred Stock and the Second Preferred Stock provide
for annual cumulative dividends of $4.00 per share. The terms
of the Third Subordinated Preferred Stock provide for annual
cumulative dividends of $5.00 per share.
In 1995, the company announced a new stock repurchase
program to acquire up to 5,000,000 shares of Class A nonvoting
common stock in open market transactions. The new program
began upon the completion of the prior programs, which
together provided for the repurchase of up to 11,000,000
shares of Class A nonvoting common stock. The company has
repurchased a total of 13,666,700 shares of which 2,666,700
are related to the new program.
Fourteen Commitments and
Contingencies
The company is a defendant in several lawsuits and claims
arising in the regular course of business. Based on the
opinions of management and counsel for the company in such
matters, recoveries, if any, by plaintiffs and claimants would
not materially affect the financial position of the company or
its results of operations.
On December 21, 1993, the Roman Catholic Bishop of San Diego
and the Chino Unified School District commenced a lawsuit in
the U.S. District Court for the Southern District of
California against a subsidiary of the company, QSP, Inc., and
the company, alleging violation of the federal antitrust laws
and seeking treble damages in an unspecified amount and
certain injunctive relief. The complaint alleges that QSP,
Inc. is unlawfully monopolizing a claimed school and youth
group magazine fund-raising market. The suit was certified as
a class action on July 1, 1994. Extensive deposition and
discovery have taken place and are expected to conclude before
the end of 1995. While the final outcome of this lawsuit
cannot be determined with certainty, management believes that
it will not have a material adverse effect on the company's
results of operations or financial position. The company
intends to defend this action vigorously.
The company and its subsidiaries occupy certain facilities
under lease arrangements and lease certain equipment. Rentals
amounted to $31.7, $33.0 and $32.1 in 1995, 1994 and 1993,
respectively, and sublease income amounted to $7.1, $7.0 and
$6.5 in 1995, 1994 and 1993, respectively.
Future minimum rental commitments, net of sublease income,
for non-cancelable operating leases are as follows:
Minimum Minimum
Rental Sublease
Payments Income Net
1996 $25.4 $5.7 $19.7
1997 23.1 5.6 17.5
1998 18.0 5.1 12.9
1999 8.3 0.9 7.4
2000 6.6 0.9 5.7
Later years 34.3 0.6 33.7
Fifteen Segments
Segment information is located on pages 21 and 22 of this
annual report.
The Reader's Digest Association, Inc. and Subsidiaries
Dividend and Market Information (Unaudited)
In millions, except per share data
<TABLE>
<CAPTION>
Income (Loss) Before
Cumulative Effect of Stock Price Range
Accounting Changes Net Income (Loss) High - Low
Operating
Income Dividends
Revenues (Loss) Amount Per Share Amount Per Share Per Share Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1995
First Quarter $710.8 $101.6 $ 67.3 $0.59 $ 67.3 $0.59 $0.35 $44 3/8-39 7/8 $41 3/4-37 3/8
Second Quarter 855.6 160.9 105.1 0.93 105.1 0.93 0.40 $49 3/8-43 1/4 $46-40 1/4
Third Quarter 793.0 98.7 66.0 0.59 66.0 0.59 0.40 $49 1/4-45 $45 1/2-41 3/8
Fourth Quarter 709.1 30.7 25.6 0.23 25.6 0.23 0.40 $48 5/8-38 1/4 $45-36 3/4
$3,068.5 $391.9 $264.0 $2.35 $264.0 $2.35 $1.55 $49 3/8-38 1/4 $46-36 3/4
1994
First Quarter $637.2 $158.6 $118.3 $1.01 $ 92.5 $0.78 $0.30 $43 3/4 -36 1/8 $39 7/8-35 7/8
Second Quarter 802.2 170.8 117.9 1.01 117.9 1.01 0.35 $46-37 3/8 $44 1/2-37 3/4
Third Quarter 709.2 99.5 69.6 0.61 69.6 0.61 0.35 $47 3/4-39 7/8 $44 3/8-37 3/8
Fourth Quarter 657.8 (35.2) (33.7) (0.29) (33.7) (0.29) 0.35 $44 1/8-40 1/8 $40 3/4-37
$2,806.4 $393.7 $272.1 $2.34 $246.3 $2.11 $1.35 $47 3/4-36 1/8 $44 1/2-35 7/8
1993
First Quarter $680.0 $ 88.1 $67.6 $0.56 $ 16.6 $0.14 $0.25 $55 3/8-46 $53 1/2-45 3/8
Second Quarter 806.7 103.0 70.4 0.59 70.4 0.59 0.30 $56 3/8-50 1/4 $54-48 3/8
Third Quarter 737.6 136.0 94.5 0.79 94.5 0.79 0.30 $55 7/8-46 3/8 $53 1/2-44
Fourth Quarter 644.3 25.6 25.8 0.22 25.8 0.22 0.30 $47-39 5/8 $44 3/4-37
$2,868.6 $352.7 $258.3 $2.16 $207.3 $1.74 $1.15 $56 3/8-39 5/8 $54-37
</TABLE>
Cash dividends on common stock are declared and paid share and share
alike, on the Class A and Class B shares. The company's Class A and
Class B common stock are listed on the New York Stock Exchange under
the symbols RDA and RDB, respectively. As of June 30, 1995, there
were approximately 3900 holders of record of the company's Class A
common stock and 250 holders of record of the company's Class B common
stock.
Independent Auditor's Report
The Stockholders and Board of Directors
The Reader's Digest Association, Inc.
We have audited the accompanying consolidated balance sheets of
The Reader's Digest Association, Inc. and subsidiaries as of June
30, 1995 and 1994, and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended June 30, 1995. These
consolidated financial statements are the responsibility of the
company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of The Reader's Digest Association, Inc. and
subsidiaries at June 30, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the
three-year period ended June 30, 1995, in conformity with
generally accepted accounting principles.
As discussed in the Notes to Consolidated Financial Statements,
the company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits," and the
American Institute of Certified Public Accountants' Statement of
Position No. 93-7, "Reporting on Advertising Costs," effective
July 1, 1993 and the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No.
115, "Accounting for Certain Investments in Debt and Equity
Securities," effective June 30, 1994. As discussed in the Notes
to Consolidated Financial Statements, the company adopted the
provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and
No. 109, "Accounting for Income Taxes," effective July 1, 1992.
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
September 6, 1995
Report of Management
The company has prepared the accompanying financial statements
and other related financial information contained in this annual
report in conformity with generally accepted accounting
principles, applying certain estimates and judgments as required.
The company maintains a system of internal accounting controls
designed to provide reasonable assurance, at reasonable cost,
that transactions and events are recorded properly and that
assets are safeguarded. The internal control system is supported
by written policies and procedures and by the careful selection,
training and supervision of qualified personnel, and is monitored
by an internal audit function.
The company's financial statements have been audited by KPMG Peat
Marwick LLP, independent auditors, as stated in their report,
which is presented herein.
The Audit Committee of the Board of Directors, composed only of
outside directors, meets periodically with management, internal
auditors and the independent auditors to review accounting,
auditing, financial reporting and other related matters. The
internal auditors and independent auditors have full and
unrestricted access to the Audit Committee.
JAMES P. SCHADT
James P. Schadt
Chairman and Chief Executive Officer
STEPHEN R. WILSON
Stephen R. Wilson
Executive Vice President and
Chief Financial Officer
The Reader's Digest Association, Inc. and Subsidiaries
Selected Financial Data
<TABLE>
<CAPTION>
In millions, except per share 1995 1994 1993 1992 1991
data
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues $3,068.5 $ 2,806.4 $ 2,868.6 $ 2,614.0 $ 2,345.1
Operating profit $391.9 $393.7* $352.7 $ 330.2 $ 292.0
Net income $264.0 $246.3* $207.3 $ 234.4 $ 209.1
Earnings per share before
cumulative effect of
accounting changes / $2.35 $2.34* $2.16 $ 1.95 $ 1.74
extraordinary items
Cumulative effect of -- (0.23) (0.42) -- --
accounting changes/
extraordinary items
Earnings per share $2.35 $2.11 $1.74 $ 1.95 $ 1.74
Dividends per common share $1.55 $1.35 $1.15 $ 0.80 $ 0.57
Balance Sheet Data
Cash and cash equivalents,
short-term investments and $532.1 $ 766.9 $ 723.4 $ 804.0 $ 649.7
marketable securities
Total assets $1,958.7 $ 2,049.4 $ 1,872.4 $ 1,932.3 $ 1,605.3
Stockholders' equity $640.8 $ 791.0 $ 806.3 $ 934.9 $ 759.6
Average common shares 112.0 115.7 118.7 119.8 119.4
outstanding
Book value per share $5.66 $6.70 $6.65 $7.56 $6.12
1990 1989 1988 1987 1986 1985
<C> <C> <C> <C> <C> <C>
$ 2,009.7 $ 1,832.0 $ 1,712.0 $ 1,420.1 $ 1,254.8 $ 1,216.6
$ 240.1 $ 206.7 $ 213.3 $ 149.8 $ 97.7 $ 57.0
$ 176.0 $ 151.5 $ 142.3 $ 94.7 $ 73.1 $ 51.6
$ 1.48 $ 1.28 $ 1.19 $ 0.72 $ 0.52 $ 0.24
-- -- -- 0.06 0.07 0.17
$ 1.48 $1.28 $ 1.19 $ 0.78 $ 0.59 $ 0.41
$ 0.38 $0.28 $ 0.22 $ 0.17 $ 0.10 $ 0.10
$ 588.4 $ 505.1 $ 411.7 $ 370.2 $ 258.1 $ 180.1
$ 1,434.3 $ 1,173.7 $ 1,054.2 $ 881.4 $ 706.5 $ 603.3
$ 634.1 $ 449.2 $ 345.4 $ 238.4 $ 171.9 $ 103.5
118.3 117.8 118.1 119.2 121.2 122.0
$ 5.07 $ 3.57 $ 2.69 $ 1.77 $ 1.18 $ 0.61
</TABLE>
*Includes the effect of promotion accounting changes, net (pre-tax
benefit of $113.9, or $0.60 per share, net of tax) and other
operating items (aggregate pre-tax charge of $76.0, or $0.51 per
share, net of tax).
