SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): April 23, 1997
THE READER'S DIGEST ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-10434 13-1726769
(State or other juris- (Commission File (I.R.S. Employer
diction of incorporation Number) Identification No.)
or organization)
Pleasantville, New York 10570-7000
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(914) 238-1000
ITEM 5. Other Events.
Filed herewith as Exhibit I is a copy of the company's
quarterly earnings news release for the third fiscal quarter
ended March 31, 1997, which was issued today.
Filed herewith as Exhibit II is a copy of the company's
news release announcing the company's $400 million investment
program, which was also issued today.
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
THE READER'S DIGEST ASSOCIATION, INC.
(Registrant)
Date: April 23, 1997
/s/Stephen R. Wilson
Stephen R. Wilson
Executive Vice President and Chief
Financial Officer
READER'S DIGEST REPORTS LOWER THIRD QUARTER RESULTS
PLEASANTVILLE, NY, April 23, 1997 -- The Reader's Digest
Association, Inc. (NYSE: RDA, RDB) today reported results for
the fiscal 1997 third quarter consistent with the company's March
31 earnings advisory. These results reflect continued weak
responses to many promotional mailings in most markets.
Continuing weakness of European economies has also contributed to
the recovery there taking longer than previously expected.
Millions of 3Q 1997 3Q 1996 Percent
dollars, ended ended Change
except EPS March 31 March 31
As As
reported adjusted*
Revenues $684.3 $747.5 -8%
Operating $51.5 $74.5 -31%
profit
Net income $37.6 $55.8 -33%
Earnings per $0.35 $0.51 -31%
share
*1996 results have been adjusted in this table to exclude third
quarter pre-tax charges of $245 million, or $1.57 per share,
primarily to streamline the organization and accelerate
investment in customer and revenue growth initiatives. Full
income statements of reported results are attached in Table 1 of
3.
Separately today, the company announced an investment plan to
increase its competitiveness in order to produce customer-driven
revenue growth and increased shareholder value.
The company also said that full-year fiscal 1997 earnings per
share are expected to be around $1.70, excluding any fourth
quarter charges associated with the investment plan. It expects
to record non-recurring charges in the fourth quarter of fiscal
1997 totaling up to $100 million.
GEOGRAPHIC AREA RESULTS
[Unless otherwise noted, all comparisons are against the third
quarter a year ago]
United States -- Revenues from U.S. operations were $308.8
million, a decrease of 2 percent compared with last year.
Excluding prior year revenues from Travel Holiday magazine, which
was sold in the third quarter of fiscal 1996, revenues were about
the same as a year ago. Revenues from books and home
entertainment products declined slightly from last year due to
increases in general books being more than offset by declines in
Condensed Books and video. The decline in Condensed Books is a
result of lower membership and reduced responses to the January
mailings. Operating profit increased primarily because of the
benefit of cost-containment initiatives.
Europe -- Revenues from European operations decreased 16 percent
to $276.6 million. Excluding the effect of changes in foreign
currency, the decrease was about 12 percent. Operating profit
decreased significantly, reflecting lower than anticipated
responses to promotional mailings particularly in books and home
entertainment products, and the continuing general weakness in
European economies. Results include the impact of the company's
ongoing actions to restore long-term growth in this region --
including the strategy for selective reduction of the number of
promotional mailings and mail quantity in a given mailing,
variation of promotional formats, moderation of product prices
and investment in new selling channels. These actions are
essential to the company's long-term strategic efforts to
strengthen and expand its European customer base, improve
customer response rates and reduce product returns and bad debts.
Pacific and Other Markets -- Revenues from the company's Pacific
and Other Markets (which includes Asia, Australia, Canada, Latin
America, Mexico, New Zealand and South Africa) were $98.9
million, a decrease of 3 percent compared with $102.1 million
last year. Improved revenues in Latin America, which reflect
product expansion in Brazil and Argentina, were offset
primarily by significant revenue declines in Australia and South
Africa. Operating results decreased significantly, primarily
because of lower than expected revenues, proportionately higher
promotional costs, and continuing investments in new country
expansion.
BUSINESS SEGMENT RESULTS
[Unless otherwise noted, all comparisons are against
the third quarter a year ago]
Reader's Digest magazine revenues were $178.3 million compared
with $181.0 million last year. Higher circulation revenues in
the Pacific and Other Markets were offset by decreases in Europe
and the United States. These results reflect lower circulation
levels in several countries, partially offset by growth in Latin
America, Eastern Europe and Thailand. Higher advertising
revenues in the United States were more than offset by lower
advertising revenues in Europe, largely because of circulation
declines in certain markets and the decline of print
advertising's share of the overall European advertising market.
Lower revenues, increased promotion spending and investments in
new countries reduced operating profit significantly.
Revenues from Books and Home Entertainment Products (Condensed
Books, series and general books, audio books, recorded music,
video and other products) were $461.1 million, a decrease of 11
percent, and operating profit decreased significantly. These
results primarily reflect the reduced revenues in Europe from
moderated pricing, the reduction of promotional mail quantities,
and lower customer response rates to varied promotional formats.
In addition, operating results in Pacific and Other Markets were
adversely affected by lower responses to promotional mailings.
Revenues from Special Interest Magazines (The Family Handyman,
American Health for Women and New Choices: Living Even Better
After 50 in the United States and Moneywise in the United
Kingdom) were $17.8 million, a 22 percent decrease. Excluding
prior year revenues from Travel Holiday magazine,
which was sold in the third quarter
of fiscal 1996, revenues increased 11 percent because of higher
circulation and advertising revenues. Excluding prior year
results from Travel Holiday magazine, operating performance
improved over last year due to higher revenues.
On March 28, the company acquired Walking magazine to
enhance its position in the fast-growing special interest
magazine category. The magazine will be renamed Reader's Digest
Walking to extend the brand name beyond the Reader's Digest
flagship publication. With the additional 600,000-plus
circulation, combined circulation of the company's special
interest publications increased 25 percent to more than 3.1
million.
The Reader's Digest Association, Inc. is the preeminent global
publisher and direct marketer of distinctive products that
inform, enrich, entertain and inspire people of all ages and all
cultures around the world. Worldwide revenues were $3.1 billion
for the fiscal year ended June 30, 1996.
Global headquarters is in Pleasantville, New York.
Statements contained in this news release, if not
historical, are forward-looking statements, which involve risks
and uncertainties that could cause actual results to differ
materially from the results described in the forward-looking
statements. Such risks and uncertainties include the level and
rate of progress in the company's program to stabilize and
restore growth in its operations, the effect of worldwide paper
and postage costs, and the ability of the company to achieve
earnings per share growth through internal investment, strategic
alliances, joint ventures and other methods. The success of the
company's program is in turn dependent on factors such as the
effectiveness of the company's marketing strategies to stabilize
and grow its customer base and improve customer response rates,
especially the impact of modified and varied promotional formats
on customer responses, as well as the appeal of the company's mix
of products, the accuracy of management's assessment of the
current status of the company's business, the evolution of the
company's organizational and structural capabilities, and general
economic conditions. A further discussion of factors that could
affect the company's results is included in the company's reports
filed with the Securities and Exchange Commission.
<TABLE>
Consolidated Condensed Statements of Income
Three Month Periods ended March 31, 1997 and 1996(a)
(In millions, except per share data) Three-Month period ended March 31,
(unaudited) 1997 1996 Percentage
Change
<C> <S> <S> <S>
Revenues $684.3 $747.5 (8%)
Product, distribution and editorial
expense 237.5 258.2 (8%)
Promotion, marketing and administrative
expense 395.3 414.8 (5%)
Other operating items - 245.0 N/M
Operating profit (loss) 51.5 (170.5) N/M
Other income, net 7.7 8.5 (10%)
Income (loss) before income taxes 59.2 (162.0) N/M
Provision (benefit) for income taxes 21.6 (48.0) N/M
Net Income (loss) $37.6 ($114.0) N/M
Earnings (loss) per share $0.35 ($1.06) N/M
Dividends per common share $0.45 $0.45 --
Average common shares outstanding 106.2 107.9
N/M - Not Meaningful
(a) The company reports on a fiscal year beginning July 1. The three-month
periods ended March 31, 1997 and 1996 are the third fiscal quarters of fiscal
year 1997 and fiscal year 1996, respectively. Operating results for any
interim period are not necessarily indicative of the results for an entire year.
</TABLE>
<TABLE>
Consolidated Condenses Statements of Income
Nine Month Periods ended March 31, 1997 and 1996(a)
(In millions, except per share data) Nine Month Period ended March 31,
(unaudited) 1997 1996 Percentage
Change
<C> <S> <S> <S>
Revenues $2,202.9 $2,396.6 (8%)
Product, distribution and editorial
expense 756.6 821.5 (8%)
Promotion, marketing and administrative
expense 1,215.6 1,274.4 (5%)
Other operating items -- 245.0 N/M
Operating profit 230.7 55.7 N/M
Other income, net 15.4 16.4 (6%)
Income before income taxes 246.1 72.1 N/M
Provision for income taxes 89.8 37.4 N/M
Net income $156.3 $34.7 N/M
Earnings per share $1.45 $0.31 N/M
Dividends per common share $1.35 $1.30 4%
Average common shares outstanding 106.8 107.9
N/M - Not meaningful
(a) The company reports on a fiscal year beginning July 1. The nine-month
periods ended March 31, 1997 and 1996 are the first three quarters of
fiscal year 1997 and fiscal year 1996, respectively. Operating results
for any interim period are not necessarily indicative of the results for
an entire year.
</TABLE>
<TABLE>
Revenues by Business Segments and Geographic Areas
Three and Nine Month Periods ended March 31, 1997 and 1996
(In millions) Three-month period ended Nine-month period ended
(unaudited) March 31, March 31,
1997 1996 Percentage 1997 1996 Percentage
Change Change
<C> <S> <S> <S> <S> <S> <S>
Business Segments
Reader's Digest
Magazine $178.3 $181.0 (1%) $540.8 $548.7 (1%)
Books and Home
Entertainment
Products 461.1 520.2 (11%) 1,449.3 1,628.6 (11%)
Special Interest
Magazines 17.8 22.8 (22%) 55.5 68.6 (19%)
Other Business
Net of Intersegment
Sales 27.1 23.5 15% 157.3 150.7 4%
Total Revenues $684.3 $747.5 (8%) $2,202.9 $2,396.6 (8%)
GEOGRAPHIC AREAS
United States $308.8 $316.7 (2%) $974.6 $1,008.7 (3%)
Europe 276.6 328.7 (16%) 906.2 1,057.3 (14%)
Pacific and
Other Markets 98.9 102.1 (3%) 322.1 330.6 (3%)
Total Revenues $684.3 $747.5 (8%) $2,202.9 $2,396.6 (8%)
</TABLE>
Reader's Digest Launches $400 Million Investment Program
PLEASANTVILLE, NY -- April 23, 1997 -- The Reader's Digest
Association, Inc. (NYSE: RDA, RDB) today launched a program to
invest up to $400 million over four years in more aggressive
publishing and promotion initiatives. These initiatives are
expected to produce customer-driven revenue growth and increased
shareholder value.
The investment initiatives are intended to increase the total size
and lifetime value of the company's global customer list by
capturing a larger share of the growing markets for its products.
The company said that the long-term goals of the investment
program are: customer growth in the low single digits, revenue
growth in the high single digits, and operating profit growth and
operating margins in a sustainable 10 percent range.
Spending will target returns greater than the company's cost of
capital and will be allocated among a range of research-based
projects, many of which have already been successfully tested and
found to have quick paybacks. The company said it will monitor
and adjust its investments by closely controlling cash and by
tracking paybacks against established measures. These investments
will accelerate the company's aggressiveness in:
Identifying consumer interests and developing related new
products
Retaining existing customers
Generating new and younger customers
Converting new customers into multi-product, long-term buyers
Increasing innovative promotion programs
Selective price reductions
Expanding to other direct marketing selling channels
Upgrading infrastructure
Geographic expansion
"This increase in marketing investment is solidly focused on
fulfilling the multi-media needs of the consumer, and will
enable us to speed better products to the market at more
competitive prices and with a richer variety of promotions,"
said James P. Schadt, chairman and chief executive officer.
"With this investment, we expect earnings next year to
decline as we begin to stabilize and build our customer base,
produce top-line growth, and maximize the value of our
powerful global franchise."
The Reader's Digest Association, Inc. is the preeminent global
publisher and direct marketer of distinctive products that inform,
enrich, entertain, and inspire people of all ages and all cultures
around the world. Worldwide revenues were $3.1 billion for the
fiscal year ended June 30, l996. Global headquarters is in
Pleasantville, NY.
Statements contained in this news release, if not historical, are
forward-looking statements, which involve risks and uncertainties
that could cause actual results to differ materially from the
results described in the forward-looking statements. Such risks
and uncertainties include the level and rate of progress in the
company's program to stabilize and restore growth in its
operations, the effect of worldwide paper and postage costs, and
the ability of the company to achieve earnings per share growth
through internal investment, strategic alliances, joint ventures
and other methods. The success of the company's program is in
turn dependent on factors such as the effectiveness of the
company's marketing strategies to stabilize and grow its customer
base and improve customer response rates, especially the impact of
modified and varied promotional formats on customer responses, as
well as the appeal of the company's mix of products, the accuracy
of management's assessment of the current status of the company's
business, the evolution of the company's organizational and
structural capabilities, and general economic conditions. A
further discussion of factors that could affect the company's
results is included in the company's reports filed with the
Securities and Exchange Commissions.
