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, 1998Commission 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
par value $.01 per share New York Stock Exchange
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 August 31, 1998, was
approximately $113,194,989 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 August 31, 1998, 85,462,667 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
Proxy Statement for the Annual Meeting of Stockholders of
registrant to be held on November 13, 1998. 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 3
Circulation 3
Advertising 4
Editorial 4
Production and Fulfillment 4
Books and Home Entertainment Products 5
Condensed Books 5
Series Books 5
General Books 6
Music 6
Television and Video 6
Production and Fulfillment 7
Direct Marketing Operations 7
Management Information Systems and Customer List 8
Enhancement
Special Interest Magazines 9
QSP, Inc. 9
Competition and Trademarks 10
Employees 10
Executive Officers of the Company 10
ITEM 2. PROPERTIES 12
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 13
HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 13
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION 13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 14
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE 14
REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION 14
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 14
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 15
SIGNATURES 19
FINANCIAL INFORMATION 20
CORPORATE AND SHAREHOLDER INFORMATION 48
"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. (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.
The Company 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.
In response to a decline in recent years in the Company's
financial performance, on August 11, 1997, the Board of Directors
of the Company asked George V. Grune to return as Chairman and
Chief Executive Officer. Mr. Grune had served as Chief Executive
Officer of the Company from 1984 to 1994 and retired as its
Chairman in 1995.
After reassuming his position, Mr. Grune rebuilt the
Company's management team with strong experience in direct mail
marketing at the Company. In addition, in September 1997, the
Company reorganized its businesses into two operating groups,
Reader's Digest U.S.A. and Reader's Digest International. The
Company's businesses had been organized in four operating groups
- --Reader's Digest Europe, Reader's Digest U.S.A. and Reader's
Digest Pacific, and a fourth operating group that operated the
Company's school and youth group fundraising business and focused
on developing new products and entering new marketing channels.
Mr. Grune implemented a strategy of stabilizing and
strengthening the Company's core business by investment and
expansion. This strategy involved: refocusing on disciplined
direct marketing; refocusing on core product offerings; enhancing
utilization of the Company's worldwide customer databases;
revitalizing growth through investment in new products, new
markets and new direct marketing channels; and enhancing global
efficiency.
Simultaneously with Mr. Grune's return to the Company, the
Board of Directors designated a Search Committee to find a new
Chief Executive Officer. On April 28, 1998, that search
culminated with the election of Thomas O. Ryder as Chairman and
Chief Executive Officer.
Strategic Initiatives
The Company is undertaking a three-phase strategy to build
on its fundamental strengths and create growth opportunities over
the next three years.
In July 1998, the Company announced as the first step in
this strategy a global reorganization that includes the following
key elements:
The organization of operations into four business groups
(Global Books and Home Entertainment, United States Magazine
Publishing, International Magazine Publishing and QSP, Inc.) to
make greater use of global scale.
The restructuring of editorial organizations to ensure
editorial quality and integrity worldwide.
The establishment of new reporting relationships to sharpen
focus and accountability.
The reassignment of certain executives as well as the hiring
of new people with key skill sets.
The second phase of the strategy, announced in September
1998, targets the restructuring of costs and the raising of
capital. The main components of the restructuring are:
The elimination or rationalization of unproductive
businesses.
Cost reductions and re-engineering.
Leveraging the asset base of the Company.
The elimination or rationalization of unproductive
businesses, which is expected to be completed within the next 18
months, will generally involve the following actions:
The sale or joint venturing of proprietary publishing
operations in Scandinavia, Finland, Benelux, Italy and South
Africa.
The elimination or redirection of certain product lines,
including adult and children's retail book publishing, the
Today's Best Nonfiction (registered trademark) book series,
and video or music businesses in selected international markets.
Cost reduction and re-engineering activities will involve
the following:
A 20-25% reduction in the number of individual promotional
mailings globally, including the elimination of related product
development and overhead costs. The Company anticipates that
this will increase response rates on continuing mailings.
A 10-20% reduction in the circulation rate base for Reader's
Digest magazine in the United States to improve the efficiency of
promotional spending. This action is also expected to reduce
circulation and advertising revenue in the short term.
The outsourcing of support functions in areas where it is
cost-effective and the consolidation of suppliers and combination
of purchasing efforts for greater negotiating leverage.
Implementation of the second phase of the strategy is
expected to reduce the Company's annual expense base, excluding
other operating items, by $300.0 million to $350.0 million and
reduce annual revenues by approximately $200.0 million by the end
of fiscal 2001. As a result, the Company believes that annual
operating profit will increase by $100.0 million to $150.0
million in three years. The Company expects to record charges to
other operating items in a range of $30.0 million to $50.0
million in fiscal 1999 related to these actions as components of
the plan are finalized.
Leveraging the asset base of the Company will include the
following actions:
The sale of important works from the art collection.
The sale of international real estate holdings including its
U.K. Canary Wharf facility.
An expected reduction in the quarterly dividend for the
second quarter of 1999 from $0.225 per share to $0.05 per share.
The actions to leverage the asset base of the Company are
expected to convert approximately $200.0 million of under-
productive assets to cash in the next year and improve annual pre-
tax cash flow by $150.0 million to $200.0 million by fiscal 2001.
The announcement of the second phase of the strategy also
focused on broadening the Company's customer base to include more
younger customers and more products for older customers.
The third phase of the strategy is expected to be announced
in January 1999 and will focus on plans to grow the business.
This will include investing in internal opportunities, as well as
targeting acquisitions that leverage the Company's core
strengths, expanding geographically, introducing new products and
engaging in at least one completely new business.
The following is a discussion of the operations of the
Company based upon the four business segments through which the
Company reports its results of operations: (1) Reader's Digest
magazine, (2) books and home entertainment products, (3) special
interest magazines and (4) other businesses. Financial
information by business segment and by geographic area appears at
Note 12 to the Company's consolidated financial statements in the
Financial Information section of this report.
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" (registered trademark),
"Life In These United States" (registered trademark),
"Humor In Uniform" (registered trademark), and "All In A Day's
Work(registered trademark)," and other regular features, including
"Heroes For Today (registered trademark)," "It Pays To Enrich Your
Word Power (registered trademark)," "News From The
World Of Medicine (registered mark)," "Tales Out of School (registered
trademark)," "Virtual Hilarity (registered trademark),"
"Personal Glimpses," and "Campus Comedy." DeWitt and Lila
Wallace founded Reader's Digest magazine in 1922. Today,
Reader's Digest has a worldwide circulation of about 28 million
and over 100 million readers each month, generating revenues of
$712.3 million in fiscal 1998, as compared with $729.2 million in
fiscal 1997 and $739.8 million in fiscal 1996. Reader's Digest
is published in 48 editions and 19 languages, including a Slovak
language edition that began publication in July 1997. In
addition, a Korean edition, an Indian edition, a braille edition
and a recorded edition are published by third parties pursuant to
licenses.
In September 1997, the Company introduced the Reader's
Digest Large Edition for Easier Reading in the United States,
offering most of the articles from Reader's Digest and all of the
humor departments. Unlike the Company's previous Large Type
Edition, the new edition is complete with advertising and greatly
enhanced color graphics.
In May 1998, Reader's Digest magazine launched a major
redesign of its editions worldwide, taking the familiar table of
contents off the cover and replacing it with bold photography and
enhanced graphics. The redesign is intended to better serve the
readers of Reader's Digest magazine by making it easier to read
and more contemporary.
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 English
language edition of Reader's Digest has the largest paid
circulation of any United States magazine, other than those
automatically distributed to all members of the American
Association of Retired Persons. Approximately 95% of the United
States paid 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. Many of its
international editions have the largest paid circulation for
monthly magazines 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 27.8 million
includes a circulation rate base of 15 million 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. 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. In September 1998,
the Company announced its intention to reduce the circulation
rate base for the United States--English language edition of
Reader's Digest by 10-20%. See "Strategic Intitiatives."
Worldwide revenues from circulation accounted for $549.4
million, or 77% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1998.
Advertising
In fiscal 1998, Reader's Digest carried 12,715 advertising
pages: 1,050 advertising pages in its United States--English
language edition and 11,665 advertising pages in its other
editions. 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, usually 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 $162.9
million, or 23% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1998.
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 mission 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 printed exclusively
by one printer in Pennsylvania under a 10-year contract that
commenced in fiscal 1997 and there are also exclusive printing
arrangements in other countries. 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, although significant short-term disruption could
occur in certain markets. The Company has developed plans to
minimize recovery time in the event of a disaster with current
contract parties.
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
"periodicals" 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."
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.
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 and series. See "Direct Marketing Operations."
Condensed Books
Reader's Digest Condensed Books (called "Select Editions" in
certain markets) is a continuing series of condensed versions of
current popular fiction. Condensation reduces the length of an
existing text, while retaining the author's style, integrity and
purpose. Today, Condensed Books are published in 13 languages,
and are marketed in 24 countries. In fiscal 1998, Condensed
Books generated worldwide revenues of $261.9 million, as compared
with $305.0 million in fiscal 1997 and $370.4 million in fiscal
1996.
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 four or five.
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 be closed-ended, consisting of a
limited number of volumes. Series books are published in eight
languages and marketed in 16 countries. In fiscal 1998, series
books generated worldwide revenues of $162.1 million, as compared
with $209.5 million in fiscal 1997 and $264.3 million in fiscal
1996.
In fiscal 1998, reading series included Today's Best
Nonfictionr, which consists of five volumes per year each
generally containing condensed versions of four contemporary
works of nonfiction and The 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 7 countries in three languages and The World's Best
Reading is published in four countries in three languages. The
Company announced in September 1998 that it will discontinue the
Today's Best Nonfiction series. See "Strategic Intitiatives."
The Company markets illustrated series, which are generally
closed-ended, in 16 countries and publishes in nine languages.
General Books
The Company's general books consist primarily of reference
books, cookbooks, "how-to" and "do-it-yourself" books, children's
books and books on subjects such as history, travel, religion,
health, nature and the home. General books are published in 18
languages and are marketed in 40 countries. In fiscal 1998,
general books generated worldwide revenues of $608.5 million, as
compared with $675.9 million in fiscal 1997 and $753.5 million in
fiscal 1996.
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 its books for retail sale in stores,
through third-party distributors.
Music
The Company publishes recorded music packages on cassettes
and compact discs, which it sells principally by direct mail.
The music packages are generally collections of previously
recorded and newly commissioned material by a variety of artists,
although they may include selections from the Company's almost
18,000-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 37 countries, offering different music products in
the various international markets because of diverse tastes. In
fiscal 1998, music products generated worldwide revenues of
$377.6 million, as compared with $404.2 million in fiscal 1997
and $460.1 million in fiscal 1996.
In the United States, the Company became a member of the
Recording Industry Association of America in fiscal 1998, and was
recognized with 47 gold, platinum and multi-platinum
certificates.
Television and Video
The Company's television and home video products are in
genres similar to its general books. Several original programs
have won awards of excellence, including five 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 principally by direct mail in the United
States and 32 other countries. Most of the Company's original
programs have been licensed to cable television networks. The
Company also sells its home video products through retail
establishments. In fiscal 1998, home video products generated
worldwide revenues of $215.8 million, as compared with $243.5
million in fiscal 1997 and $241.3 million in fiscal 1996.
Production and Fulfillment
The various editions of Condensed Books are printed and
bound by third-party contractors. The Company is a party to an
exclusive agreement through 2002 for printing English language
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."
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. 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
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 mail 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 direct response
television, telemarketing and the Internet, as well as expanded
direct marketing channels, such as catalogs and clubs.
The Company is adapting the editorial content and the
marketing methods of its magazines and books and home
entertainment products to new technologies, such as computer on-
line services. In 1997, the Company launched Reader's Digest
World, a World Wide Web site (www.readersdigest.com) that links
the Company's 13 local and international Web sites, for shopping
and information about the Company's products. In 1998, Reader's
Digest World had over 2 million visitors from seventy different
countries around the world.
To promote the sale of its products in the United States,
the Company usually offers a sweepstakes in its promotional
mailings. Prizes totaled about $8 million for the 1998 edition
of the sweepstakes. 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 legal,
regulatory and investigative proceedings concerning its
sweepstakes and other direct marketing practices. Also from time
to time, more restrictive laws or regulations governing
sweepstakes or direct marketing are considered in jurisdictions
in which the Company does business. 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 and most
international markets, delivery service is generally
satisfactory. Some international jurisdictions, however,
experience periodic work stoppages in postal delivery service or
less than adequate postal efficiency.
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 Customer List Enhancement
The size and quality of the Company's computerized customer
list of current and prospective customers 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 over 60 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
approximately 50 million households, in the aggregate.
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
in effect from time to time 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. The Family Handymanr magazine provides
instructions and guidance for "do-it-yourself" home improvement
projects. New Choices: Living Even Better After 50r magazine is
aimed at active, mature readers and provides information on
entertainment, travel, health and leisure time activities.
American Health for Womenr magazine provides helpful information
on medicine, nutrition, psychology and fitness as those issues
relate to women. Walkingr magazine provides information on
health and fitness for walking enthusiasts. These magazines are
sold by subscription and on the newsstand. Like most magazines,
the Company's special interest magazines are highly dependent on
advertising revenue. Each of these magazines publishes 10 issues
per year, except Walking, which publishes six times 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, 1998, as well as the number of advertising pages carried
for the fiscal year ended June 30, 1998. Circulation rate base
data is as reported to ABC.
Number of
Circulation Advertising
Rate Base Pages
Carried
The Family Handyman 1,100,000 608
American Health for Women 1,000,000 535
New Choices: Living Even Better 600,000 483
After 50
Walking. 650,000 364
Moneywise had a circulation rate base of 101,700 as of the
end of fiscal 1998 and carried 522 pages of advertising.
Of total revenues of $97.0 million for the Company's special
interest magazines in fiscal 1998, 59% was generated by
circulation revenues and 41% 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.
QSP, Inc.
The Company's wholly owned subsidiaries, QSP, Inc. in the
United States and Quality Service Plan, Inc. in Canada ("QSP"),
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 competitive, discounted prices.
QSP also obtains discounted music products from a large music
publisher. Processing of magazine and music orders is performed
for QSP by an independent contractor. Processing of video, book,
gift and food orders is performed by QSP Distribution Services,
Inc., a wholly owned subsidiary of QSP, Inc. located in Conyers,
Georgia.
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 television, radio and the
Internet, 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, 1998, the Company employed approximately
5,500 persons worldwide; approximately 2,100 were employed in the
United States and 3,400 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
Thomas O. Ryder (54) Mr. Ryder has been Chairman of the Board
and Chief Executive Officer of the Company
since April 28, 1998. Mr. Ryder was
President, American Express Travel Related
Services International, a division of
American Express Company, from October
1995 to April 1998. Prior thereto, he
served as President, Establishment
Services - Worldwide of American Express
Travel Related Services.
Melvin R. Laird (76) Mr. Laird has been a member of the Board
of Directors of the Company since 1990.
He has served as Senior Counsellor for
national and international affairs since
1974 and was elected to the additional
position of Vice President in 1989. Mr.
Laird joined the Company in 1974.
Thomas A. Belli (51) Mr. Belli has been President of QSP, Inc.
since November 1997, a position he also
held prior to July 1995. He first joined
the Company in August 1977.
M. John Bohane (62) Mr. Bohane has been Senior Vice President
of the Company and President, Global Books
and Home Entertainment since July 27,
1998. Prior thereto, he was Senior Vice
President of the Company and President
International Operations, a position he
held since rejoining the Company on
September 8, 1997. He first joined the
Company in 1964 and served in a number of
executive capacities, including President,
Direct Marketing, until leaving the
Company in July, 1991. Mr. Bohane served
as President and Chief Executive Officer
of Newfield Publications from April, 1994
to July, 1995 and as Vice President of
Corporate Database Marketing of Time-
Warner, Inc., from April, 1992 to
December, 1993.
Michael A. Brizel (41) Mr. Brizel was appointed Vice President
and General Counsel on July 27, 1998.
Prior thereto, he was Vice President,
Legal U.S. and Associate General Counsel,
a position he held since September 1996.
Prior thereto, he was Associate General
Counsel of the Company. Mr. Brizel joined
the Company in July 1989.
Elizabeth G. Chambers (35) Ms. Chambers has been Vice President,
Business Redesign since August 10, 1998.
Prior to joining the company, she was a
partner at the management consulting firm
of McKinsey & Company, a position she held
from June 1995 to August 1998 and an
associate from October 1989 to June 1995.
Gregory G. Coleman (44) Mr. Coleman has been Senior Vice President
and President, U.S. Magazine Publishing
since July 27, 1998. Prior thereto, he
was Senior Vice President, Worldwide
Publisher, Reader's Digest Magazine, a
position he held since October 1997. Mr.
Coleman also served as Vice President and
General Manager, U.S. Magazines and
Publisher, U.S. Reader's Digest from
December 1995 until October 1997, Vice
President, Publisher, U.S. Reader's Digest
from November 1991 until December 1995.
Clifford H.R. DuPree (48) Mr. DuPree was appointed Vice President,
Corporate Secretary and Associate General
Counsel on July 27, 1998. He joined the
company in May 1992 as Associate General
Counsel, became Assistant Secretary in
March 1995 and Vice President in September
1996.
Thomas D. Gardner (40) Mr. Gardner has been Senior Vice
President, Business Planning and
Development since July 27, 1998. He was
Vice President, Marketing, Reader's Digest
U.S.A. from November 1995 to July 1998,
Vice President, Business Development from
April 1995 to November 1995, and a
Director of Marketing prior thereto. Mr.
Gardner joined the Company in February
1992.
Robert J. Krefting (54) Mr. Krefting has been Senior Vice
President and President, International
Magazine Publishing since July 27, 1998.
Prior to joining the Company, Mr. Krefting
was sole proprietor of Holly Hill
Publishing, a management services
corporation serving the publishing and
venture capital industries, from January
1993 to July 1998.
Gary S. Rich (37) Mr. Rich has been Senior Vice President,
Human Resources, since August 3, 1998.
Prior to joining the Company, he was
Senior Vice President, Global Human
Resources for A.C. Nielsen Corporation, a
position he held from June 1996 to July
1998. Prior thereto, Mr. Rich was Vice
President, Human Resources--Europe, Middle
East and Africa at American Express
Company (travel, financial and network
services).
George S. Scimone (51) Mr. Scimone was appointed Senior Vice
President and Chief Financial Officer of
the Company on July 27, 1998. Prior
thereto, Mr. Scimone served as Vice
President and Chief Financial Officer from
September 1997, Vice President and
President, Reader's Digest U.S.A. from
November 1996 and Vice President and
Corporate Controller from September 1995.
Prior to joining the Company, Mr. Scimone
was Business Chief Financial Officer,
Electrical Distribution and Control of
General Electric Company.
Christopher P. Willcox (51) Mr. Willcox has been Senior Vice President
and Editor-in-Chief of Reader's Digest
magazine since March 1996. He served as
Worldwide Executive Editor from June 1994
to March 1996 and Executive Editor,
International from October 1991 to June
1994. He joined the Company in 1988.
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 703,000 square feet that house executive,
administrative, editorial and operational offices, and data
processing and other facilities. In New York City, the Company
leases approximately 167,000 square feet of office space in a
total of two 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 totaling approximately 51,000 square feet
for an editorial bureau, advertising sales offices and other
purposes in various cities in the United States. QSP leases
approximately 163,000 square feet in Conyers, Georgia.
The Company owns approximately 1,459,100 square feet and
leases approximately 467,300 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 207,000 square
feet of space in Swindon, England, 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 various
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.
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, 1998.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The information required under this Item is contained under
the caption "Selected Quarterly Financial Data and Dividend and
Market Information" in the section entitled "Financial
Information."
ITEM 6.SELECTED FINANCIAL DATA
The information required under this Item is contained under
the caption "Selected Quarterly Financial Data and Dividend and
Market Information" and "Selected Financial Data" in the section
entitled "Financial Information."
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The information required under this Item is contained under
the caption "Management's Discussion and Analysis" in the section
entitled "Financial Information."
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required under this Item is contained in the
section entitled "Financial Information."
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 "Proposal 1: Election of Directors" in the Proxy
Statement for the Annual Meeting of Stockholders of the Company
to be held on November 13, 1998 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
and Nominating Committee" and "Performance Graph" in the Proxy
Statement for the Annual Meeting of Stockholders of the Company
to be held on November 13, 1998 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 13, 1998 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
The information required by this Item is contained in the
section entitled "Financial Information."
(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. 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.*
10.4 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.*
10.5 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.*
10.6 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.*
10.7 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.*
10.8 Supplemental Retirement Benefit Agreement dated as of June
8, 1994 between the registrant and Martin J. Pearson filed
as Exhibit 10.15 to the registrant's Form 10-K for the year
ended June 30, 1995 is incorporated herein by reference.*
10.9 The Reader's Digest 1992 Executive Retirement Plan
(Amendment and Restatement as of October 10, 1996) filed as
Exhibit 10.12 to the registrant's Form 10-K for the year
ended June 30, 1997, is incorporated herein by reference.*
10.10 The Reader's Digest Association, Inc. Executive
Financial Counseling Plan, amended and restated as of July
1, 1998.*
10.11 Amendment No. 1 to The Reader's Digest Association,
Inc. Management Incentive Compensation
Plan (effective as of April 11, 1996) filed as Exhibit
10.1.1 to the registrant's Form 10-Q for the quarter ended
March 31, 1996, is incorporated herein by reference.*
10.12 Termination Agreement dated as of
April 1, 1996 between the registrant and James P. Schadt,
filed as Exhibit 10.23 to the registrant's Form 10-Q for the
quarter ended March 31, 1996, is incorporated herein by
reference.*
10.13 Termination Agreement dated as of
April 1, 1996 between the registrant and Paul A. Soden,
filed as Exhibit 10.25 to the registrant's Form 10-Q for the
quarter ended March 31, 1996, is incorporated herein by
reference.*
10.14 Termination Agreement dated as of
April 1, 1996 between the registrant and Stephen R. Wilson,
filed as Exhibit 10.26 to the registrant's Form 10-Q for the
quarter ended March 31, 1996, is incorporated herein by
reference.*
10.15 Termination Agreement dated as of
April 1, 1996 between the registrant and Martin J. Pearson,
filed as Exhibit 10.24 to the registrant's Form 10-Q for the
quarter ended December 31, 1996, is incorporated herein by
reference.*
10.16 Agreement dated June 18, 1997
between the registrant and James P. Schadt filed as Exhibit
10.24 to the registrant's Form 10-K for the year ended June
30, 1997, is incorporated by reference.*
10.17 Agreement dated as of August 1,
1997 between the registrant and Martin J. Pearson filed as
Exhibit 10.25 to the registrant's Form 10-K for the year
ended June 30, 1997, is incorporated by reference.
10.18 Agreement dated August 10, 1997 between the registrant
and James P. Schadt filed as Exhibit 10.26 to the
registrant's Form 10-K for the year ended June 30, 1997, is
incorporated by reference.*
10.19 US$400,000,000 Competitive Advance and Revolving Credit
Facility Agreement dated as of November 12, 1996 between the
registrant, the Borrowing Subsidiaries, The Chase Manhattan
Bank and J.P. Morgan Securities Inc., filed as Exhibit 10.23
to the registrant's Form 10-Q for the quarter ended December
31, 1996, is incorporated herein by reference.
10.20 Agreement dated as of August 11, 1997 between the
registrant and George V. Grune, filed as Exhibit 10.28 to
the registrant's Form 10-Q for the quarter ended September
30, 1997, is incorporated herein by reference.*
10.21 First Amendment dated as of September 17, 1997 to the
$400,000,000 Competitive Advance and Revolving Credit
Facility Agreement dated as of November 12, 1996 among the
registrant, the Borrowing Subsidiaries, The Chase Manhattan
Bank and J.P. Morgan Securities Inc., filed as Exhibit 10.29
to the registrant's Form 10-Q for the quarter ended
September 30, 1997, is incorporated herein by reference.
10.22 The Reader's Digest Association, Inc. Director
Compensation Program, filed as Exhibit 10.31 to the
registrant's Form 10-Q for the quarter ended March 31, 1998,
is incorporated herein by reference.*
10.23 The Reader's Digest Association, Inc. Deferred
Compensation Plan for Directors, amended and restated as of
March 13, 1998, filed as Exhibit 10.31 to the registrant's
Form 10-Q for the quarter ended March 31, 1998, is
incorporated herein by reference.*
10.24 Employment Agreement dated as of April 28, 1998 between
the registrant and Thomas O. Ryder, filed as Exhibit 10.33
to the registrant's Form 10-Q for the quarter ended March
31, 1998, is incorporated herein by reference.*
10.25 First Amendment Agreement dated as of April 28, 1998
between the registrant and George V. Grune, filed as Exhibit
10.34 to the registrant's Form 10-Q for the quarter ended
March 31, 1998, is incorporated herein by reference.*
10.26 The Reader's Digest Association, Inc. 1994 Key Employee
Long Term Incentive Plan, as amended and restated effective
as of April 28, 1998, filed as Exhibit 10.35 to the
registrant's Form 10-Q for the quarter ended March 31, 1998,
is incorporated herein by reference.*
10.27 Second Amendment dated as of June 2, 1998 to the
$400,000,000 Competitive Advance and Revolving Credit
Facility Agreement dated as of November 12, 1996 among the
registrant, the Borrowing Subsidiaries, The Chase Manhattan
Bank and J.P. Morgan Securities Inc.
10.28 Termination Agreement dated as of April 10, 1997
between the registrant and George S. Scimone.*
10.29 Termination Agreement dated as of April 10, 1998
between the registrant and Gregory G. Coleman.*
10.30 Termination Agreement dated as of September 8, 1997
between the registrant and M. John Bohane.*
10.31 Termination Agreement dated as of September 8, 1997
between the registrant and Marcia M. Lefkowitz.*
10.32 Supplemental Retirement Benefit Agreement dated as of
November 15, 1991 between the registrant and Gregory G.
Coleman.*
10.33 Supplemental Retirement Benefit Agreement dated as of
August 17, 1998 between the registrant and Marcia M.
Lefkowitz.*
10.34 Agreement dated as of November 14, 1997 between the
registrant and Thomas A. Belli.*
10.35 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.*
10.36 Supplemental Retirement Benefit Agreement dated as of
August 25, 1988 between the registrant and M. John Bohane
filed as Exhibit 10.11 to the Registration Statement on Form
S-1 (Registration No. 33-32566) filed by registrant on
December 19, 1989, is incorporated herein by reference.*
10.37 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.*
13 Financial information contained in the section "Financial
Information."
21 Subsidiaries of the registrant.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the three months ended June 30, 1998, the Company
filed the following report on Form 8-K:
Form 8-K dated April 28, 1998, which included a copy of a
press release relating to senior management changes.
*Denotes a management contract or compensatory plan.
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: Thomas O. Ryder
(Thomas O. Ryder)
Chairman and Chief Executive Officer
Date: September 24, 1998
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
Thomas O. Ryder Chairman and Chief September 24, 1998
(Thomas O. Ryder) Executive Officer and
a Director
Melvin R. Laird Vice President and September 24, 1998
(Melvin R. Laird) Senior Counsellor and
a Director
George S. Scimone Senior Vice President September 24, 1998
(George S. Scimone) and Chief
Financial Officer
(chief accounting
officer)
Lynne V. Cheney Director September 24, 1998
(Lynne V. Cheney)
M. Christine DeVita Director September 24, 1998
(M. Christine DeVita)
George V. Grune Director September 24, 1998
(George V. Grune)
James E. Preston Director September 24, 1998
(James E. Preston)
Lawrence R. Ricciardi Director September 24, 1998
(Lawrence R. Ricciardi)
Robert G. Schwartz Director September 24, 1998
(Robert G. Schwartz)
C.J. Silas Director September 24, 1998
(C.J. Silas)
William J. White Director September 24, 1998
(William J. White)
THE READER'S DIGEST ASSOCIATION, INC.
FINANCIAL INFORMATION
Page
Business Segment Financial Information 21
Geographic Financial Information 22
Management's Discussion and Analysis 23
Financial Statements:
Consolidated Statements of Income--For the Years Ended June 31
30, 1998, 1997and 1996
Consolidated Balance Sheets--June 30, 1998 and 1997 32
Consolidated Statements of Cash Flows--For the Years Ended 33
June 30, 1998, 1997 and 1996
Consolidated Statements of Changes in Stockholders' Equity-- 34
For the Years Ended June 30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements 35
Independent Auditors' Report 45
Report of Management 45
Selected Financial Data 46
Selected Quarterly Financial Data and Dividend and Market 46
Information (Unaudited)
Management Information 47
Corporate and Shareholder Information 48
<TABLE>
<CAPTION>
The Reader's Digest Association, Inc. and Subsidiaries
BUSINESS SEGMENT FINANCIAL INFORMATION
Years ended June 30,
In millions 1998 1997 1996
<S> <C> <C> <C>
Revenues
Reader's Digest Magazine $ 712.3 $ 729.2 $ 739.8
Books and Home Entertainment Products 1,635.0 1,850.5 2,099.4
Special Interest Magazines 97.0 81.9 91.9
Other Businesses 193.1 181.0 170.6
Intersegment (3.7) (3.6) (3.6)
$ 2,633.7 $ 2,839.0 $ 3,098.1
Operating profit F1
Reader's Digest Magazine $ 16.7 $ 42.7 $ 11.2
Books and Home Entertainment Products 37.9 175.6 192.0
Special Interest Magazines 1.7 0.4 (21.1)
Other Businesses 19.9 22.5 (9.9)
Corporate Expense (46.0) (48.4) (62.9)
$ 30.2 $ 192.8 $ 109.3
Identifiable assets
Reader's Digest Magazine $ 380.4 $ 410.4 $ 358.3
Books and Home Entertainment Products 853.6 881.8 981.1
Special Interest Magazines 75.0 76.4 66.4
Other Businesses 70.8 75.1 76.9
Corporate 184.2 200.1 421.4
$ 1,564.0 $ 1,643.8 $ 1,904.1
Depreciation and amortization
Reader's Digest Magazine $ 10.5 $ 11.2 $ 11.8
Books and Home Entertainment Products 27.2 27.8 30.4
Special Interest Magazines 3.3 2.0 1.6
All other 5.2 5.7 5.0
$ 46.2 $ 46.7 $ 48.8
Capital expenditures
Reader's Digest Magazine $ 9.2 $ 22.9 $ 14.7
Books and Home Entertainment Products 20.3 75.9 36.8
All other 4.6 11.8 8.1
$ 34.1 $ 110.6 $ 59.6
</TABLE>
F1 Operating profit for 1998, 1997 and 1996 reflects the
allocation of other operating items of $70.0, $35.0 and $235.0,
respectively, to the business segment financial information as
follows (refer to note TWO in Notes to Consolidated Financial
Statements for further information): Reader's Digest Magazine
$7.7, $5.6 and $37.6, Books and Home Entertainment Products
$45.6, $25.5 and $130.1, Special Interest Magazines $1.0, $---
and $21.4, Other Businesses $4.5, $0.5 and $42.1, and Corporate
Expense $11.2, $3.4 and $3.8, respectively.
<TABLE>
<CAPTION>
The Reader's Digest Association, Inc. and Subsidiaries
GEOGRAPHIC FINANCIAL INFORMATION
Years ended June 30,
In millions 1998 1997 1996
<S> <C> <C> <C>
Revenues
United States $ 1,181.4 $ 1,236.4 $1,278.9
Europe 1,035.3 1,172.2 1,379.7
Pacific and Other Markets 424.1 439.8 445.6
Interarea (7.1) (9.4) (6.1)
$ 2,633.7 $ 2,839.0 $3,098.1
Revenues interarea
United States $ 2.7 $ 2.9 $ 3.2
Europe 3.5 5.3 2.4
Pacific and Other Markets 0.9 1.2 0.5
$ 7.1 $ 9.4 $ 6.1
Operating profit F1
United States $ 47.3 $ 133.8 $ 16.6
Europe 11.1 94.1 110.0
Pacific and Other Markets 17.8 13.3 45.6
Corporate Expense (46.0) (48.4) (62.9)
$ 30.2 $ 192.8 $ 109.3
Identifiable assets
United States $ 642.8 $ 661.0 $ 664.9
Europe 510.9 542.2 563.4
Pacific and Other Markets 226.1 240.5 254.4
Corporate 184.2 200.1 421.4
$ 1,564.0 $ 1,643.8 $1,904.1
</TABLE>
F1 Operating profit for 1998, 1997 and 1996 reflects the
allocation of other operating items of $70.0, $35.0 and $235.0,
respectively, to the geographic financial information as follows
(refer to note TWO in Notes to Consolidated Financial Statements
for further information): United States $36.7, $15.3 and
$151.0, Europe $22.1, $7.4 and $63.5, Pacific and Other Markets
$---, $8.9 and $16.7, and Corporate Expense $11.2, $3.4 and
$3.8, respectively.
The Reader's Digest Association, Inc. and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
Dollars in million, except per share data
Management's discussion and analysis as it pertains to geographic
and business segment information has been written excluding the
effect of the 1998 first quarter charges of $70.0, the 1997
fourth quarter charges of $35.0 and the 1996 third quarter
charges of $245.0 (referred to as the operating charges) in order
to analyze the results on a comparable basis. In addition, in
1996 reported results included $10.0 of savings recognized as a
result of the finalization of the company's lease termination
program in the United Kingdom.
The 1998 first quarter charges were composed primarily of
severance costs of $39.5 associated with workforce reductions in
Europe, the United States, and at the corporate level; and other
costs associated with the discontinuation of certain businesses
and the realignment of business processes and operations.
Businesses that were discontinued include a children's book club
in the United States, and the company's investment in a World
Wide Web navigation service. The realignment of business
processes and operations also related to certain vendor contracts
in the United States and Europe.
Results of Operations
1998 v. 1997 Worldwide revenues for 1998 decreased to $2,633.7,
or by 7%, compared with $2,839.0 for 1997. Excluding the
adverse effect of changes in foreign currency exchange rates,
revenues decreased 3%. This decline was because of lower unit
sales, lower-priced product offerings and sales of a lower-
priced product mix within Books and Home Entertainment
Products. The decrease in unit sales was predominantly a
result of lower mail quantities, fewer profitably promotable
customers and lower customer response to promotional mailings
primarily in most developed markets. Revenues declined
principally in the United States, Germany, Canada and other
developed markets. This decrease was largely offset by growth
in developing markets in Eastern Europe and Latin America.
The company reported worldwide operating profit of $30.2 in
1998, compared with $192.8 in 1997. The 1998 and 1997 results
reflect operating charges of $70.0 ($51.8 after tax, or $0.49
per share) and $35.0 ($22.2 after tax, or $0.21 per share),
respectively. Excluding the effect of the operating charges,
worldwide operating profit decreased by 56% in 1998 compared
with 1997. These operating results reflect lower revenues in
most developed markets, significant declines in operating
results in the United States and Germany and higher
proportionate product costs and promotional spending, slightly
offset by the benefits of cost-containment initiatives in most
developed markets.
The company reported net income of $17.9, or $0.16 per share
in 1998, compared with net income of $133.5, or $1.24 per share
in 1997. Excluding the effect of the operating charges, basic
and diluted earnings per share decreased 56% to $0.64 in 1998,
compared with $1.45 in 1997.
1997 v. 1996 Worldwide revenues for 1997 decreased to $2,839.0,
or by 8%, compared with $3,098.1 for 1996. Excluding the adverse
effect of changes in foreign currency exchange rates, revenues
decreased 7%. Revenues declined in all geographic areas,
particularly in the company's European operations. The decrease
in revenues was principally because of lower unit sales and, to a
lesser extent, lower-priced product offerings and sales of a
lower-priced product mix in Books and Home Entertainment
Products. External factors, including weak European economies
and increased competitive pressures globally, affected revenues.
Tactical implementation of many simultaneous strategic
initiatives, including varying the quantity and frequency of
promotional mailings, moderating product pricing and introducing
greater promotion variety and less aggressive sweepstakes, also
contributed to lower worldwide revenues in 1997.
Worldwide operating profit increased to $192.8 in 1997, compared
with $109.3 in 1996. The 1997 and 1996 results reflect operating
charges of $35.0 ($22.2 after tax, or $0.21 per share) and $245.0
($169.8 after tax, or $1.57 per share), respectively. Excluding
the effect of the operating charges, worldwide operating profit
decreased by 36% in 1997, compared with 1996. These operating
results reflect the impact of lower revenues and higher inventory
write-offs as a result of lower customer response to third and
fourth quarter 1997 promotional mailings, partially offset by the
benefits of cost-containment initiatives.
The company reported net income of $133.5, or $1.24 per share in
1997, compared with $80.6, or $0.73 per share in 1996. Excluding
the effect of the operating charges, basic and diluted earnings
per share decreased 37% to $1.45 in 1997, compared with $2.30 in
1996, which includes the benefit of $0.09 per share from the
savings recognized as a result of the finalization of the
company's lease termination program in the United Kingdom.
Other Income, Net
1998 v. 1997 Other income, net for 1998
decreased to $11.3, compared with $17.4 in the prior year.
This decrease was primarily because of lower gains on foreign
exchange transactions and hedging activity ($1.3 in 1998,
compared with $8.5 in 1997), lower interest income ($6.9 in
1998, compared with $11.4 in 1997), and higher interest expense
($9.4 in 1998, compared with $7.0 in 1997), which were
partially offset by gains on the sales of certain assets ($10.2
in 1998, compared with $1.4 in 1997).
1997 v. 1996 Other income, net for 1997 decreased to $17.4,
compared with $28.4 in 1996. This decrease was primarily because
of lower interest income ($11.4 in 1997, compared with $21.5 in
1996), lower gains on the sales of certain investments ($7.0 in
1997, compared with $15.8 in 1996), and higher interest expense
($7.0 in 1997, compared with $2.4 in 1996), which were partially
offset by higher gains on foreign exchange transactions and
hedging activity ($8.5 in 1997, compared with a loss of $6.1 in
1996).
Income Taxes
1998 v. 1997 The reported tax rate for 1998
was 56.9%, compared with a reported rate of 36.5% for 1997.
Excluding the effect of the operating charges, the overall
effective tax rate was 37.5% and 36.5% in 1998 and 1997,
respectively. The higher effective tax rate in 1998 was
primarily because of a reduced amount of foreign tax credits
available.
1997 v. 1996 The reported tax rate for 1997 was 36.5%, compared
with a reported rate of 41.5% for 1996. Excluding the effect of
the operating charges, the overall effective tax rate was 36.5%
and 35.5% in 1997 and 1996, respectively. The lower effective
rate in 1996 was primarily attributable to favorable settlements
relating to prior years.
Geographic Areas
<TABLE>
<CAPTION>
Operating Profit by Geographic Area
Other
As operating As
1998 reported items adjusted
<S> <C> <C> <C>
United States $ 47.3 $ 36.7 $ 84.0
Europe 11.1 22.1 33.2
Pacific and Other Markets 17.8 --- 17.8
Corporate Expense (46.0) 11.2 (34.8)
$ 30.2 $ 70.0 $ 100.2
1997
United States $ 133.8 $ 15.3 $ 149.1
Europe 94.1 7.4 101.5
Pacific and Other Markets 13.3 8.9 22.2
Corporate Expense (48.4) 3.4 (45.0)
$ 192.8 $ 35.0 $ 227.8
</TABLE>
United States
1998 v. 1997 Revenues in the United States
decreased from $1,236.4 in 1997 to $1,181.4, or by 4%, in 1998.
Revenues declined across all product lines within Books and
Home Entertainment Products, but most significantly as a result
of lower unit sales in general books and, to a lesser extent,
video products. These declines were moderately offset by
increased revenues in Special Interest Magazines and at QSP,
the company's youth fund-raising organization. The decrease in
general books revenues was primarily a result of lower customer
response to promotional mailings, lower mail quantities, and
fewer profitably promotable customers in 1998. Video revenues
declined primarily because of lower mail quantities, lower
customer response to promotional mailings and, to a lesser
extent, a lower-priced mix of products sold in 1998. The
increase in Special Interest Magazines was primarily a result
of the acquisition of Walking magazine in the third quarter of
1997. QSP revenues increased primarily resulting from growth
in magazine subscription sales. Operating profit decreased 44%
to $84.0 in 1998 compared with $149.1 in 1997, because of the
revenue decrease, higher promotional spending in order to
acquire and renew subscribers to Reader's Digest Magazine and
higher inventory reserve levels as a result of the lower
customer response rates, slightly offset by lower paper costs.
1997 v. 1996 Revenues in the United States
decreased from $1,278.9 in 1996 to $1,236.4, or by 3%, in 1997.
This decrease was primarily attributable to lower unit sales in
Books and Home Entertainment Products. Revenues were also
adversely affected by the absence of revenues resulting from the
sale of Travel Holiday magazine in the third quarter of 1996.
Within Books and Home Entertainment Products, lower unit sales
were principally caused by declines in Condensed Books and music
products. The decrease in Condensed Books and music products
sales was caused by lower customer response to promotional
mailings. Operating profit decreased 11% to $149.1 in 1997
compared with $167.6 in 1996 because of lower revenues and lower
customer response to promotional mailings, partially offset by
lower paper costs and the benefit of cost-containment
initiatives.
Europe
1998 v. 1997 Revenues in Europe decreased from
$1,172.2 in 1997 to $1,035.3, or by 12%, in 1998. Excluding
the adverse effect of changes in foreign currency exchange
rates, revenues decreased 3%. The revenue decrease was
primarily because of lower Books and Home Entertainment
Products revenues resulting from lower-priced product offerings
and sales of a lower-priced product mix in most product lines,
as well as lower unit sales of series books and Condensed
Books. Lower average prices were a result of the reduction of
prices in certain markets coupled with a lower-priced mix of
products offered in 1998, principally in music and video
products. Product expansion in Eastern European markets,
principally in general books, music and video products, was
more than offset by lower sales in most other markets,
including major markets. This was particularly evident in
Germany, where sales and operating profit have declined more
significantly than in other markets. Lower unit sales were a
result of a reduction in shipments caused by fewer customers
carried into 1998 for series books and Condensed Books, lower
mail quantities, fewer profitably promotable customers, and
lower customer response to promotional mailings. Operating
profit decreased 67% to $33.2 in 1998, compared with $101.5 in
1997, as a result of lower revenues and higher proportionate
product costs and promotional spending, slightly offset by the
benefits of cost-containment initiatives in most developed
markets.
1997 v. 1996 Revenues in Europe decreased from $1,379.7 in 1996
to $1,172.2, or by 15%, in 1997. Excluding the adverse effect of
changes in foreign currency exchange rates, revenues decreased
12%. The decrease in revenues was primarily attributable to
lower unit sales and, to a lesser extent, lower-priced product
offerings and sales of a lower-priced product mix within Books
and Home Entertainment Products. Revenues declined in all
product lines within Books and Home Entertainment Products,
except for video products. Operating profit decreased from
$173.5 in 1996 to $101.5, or by 41%, in 1997. Results in 1997
were unfavorably affected by the continuing general weakness in
European economies, increased competitive pressures and the
company's ongoing actions to restore long-term growth in this
region. These actions included the selective modification of the
number of promotional mailings and mail quantity in a given
mailing, variation of promotional formats and moderation of
product prices. The impact of these items was partially offset
by the benefit of lower product returns and bad debts and the
implementation of cost-containment initiatives.
Pacific and Other Markets
1998 v. 1997 Revenues in Pacific and Other Markets decreased from
$439.8 in 1997 to $424.1, or by 4%, in 1998. Excluding the
adverse effect of changes in foreign currency exchange rates,
revenues increased 4%. Revenues increased primarily as a result
of higher unit sales of Books and Home Entertainment Products, as
well as higher circulation revenues for Reader's Digest Magazine.
Within Books and Home Entertainment Products, higher unit sales
of general books and, to a lesser extent, music products were
moderately offset by lower unit sales of Condensed Books and
video products. Higher revenues in Latin America, reflecting
product expansion and increased circulation levels, primarily in
Brazil, were largely offset by significant revenue declines in
Canada and, to a lesser extent, in Australia because of lower
mail quantities and lower customer response to promotional
mailings in 1998. In addition, revenues declined in Canada
because of the effects of a postal strike in November 1997 and
severe ice storms that forced closure of the business and
adversely affected postal service during the critical January
mailing period. Operating profit decreased 20% to $17.8 in 1998,
compared with $22.2 in 1997, primarily because of the declines in
Canada and the negative impact of currency devaluation in the Far
East. Excluding the devaluation, operating profit increased 20%,
principally as a result of improved performance in Mexico and
Brazil.
1997 v. 1996 Revenues in Pacific and Other Markets decreased
from $445.6 in 1996 to $439.8, or by 1%, in 1997. This decrease
was caused by lower Books and Home Entertainment Products
revenues; however, increased Reader's Digest Magazine circulation
revenues in new countries offset almost three-quarters of this
decline. Within Books and Home Entertainment Products, the
decline in revenues resulted from lower-priced product offerings
and sales of a lower-priced product mix, as well as lower unit
sales in 1997, primarily in Condensed Books and general books.
Higher revenues in Latin America, reflecting product expansion in
Brazil and Argentina, were offset primarily by significant
revenue declines in South Africa and in Australia. In South
Africa, substantially lower mail quantities and customer response
rates and the country's economic climate reduced unit sales. In
Australia, lower customer response to promotional mailings,
including the effect of promotional mailing variations and
increased competitive pressures reduced unit sales. Operating
profit decreased 64% in 1997 to $22.2, primarily because of
higher proportionate promotional spending, continuing investments
in new country expansion, and higher inventory write-offs as a
result of the lower customer response rates.
Business Segments
<TABLE>
<CAPTION>
Operating Profit by Business Segment
Other
As operating As
1998 reported items adjusted
<S> <C> <C> <C>
Reader's Digest Magazine $ 16.7 $ 7.7 $ 24.4
Books and Home Entertainment Products 37.9 45.6 83.5
Special Interest Magazines 1.7 1.0 2.7
Other Businesses 19.9 4.5 24.4
Corporate Expense (46.0) 11.2 (34.8)
$ 30.2 $ 70.0 $100.2
1997
Reader's Digest Magazine $ 42.7 $ 5.6 $48.3
Books and Home Entertainment Products 175.6 25.5 201.1
Special Interest Magazines 0.4 --- 0.4
Other Businesses 22.5 0.5 23.0
Corporate Expense (48.4) 3.4 (45.0)
$192.8 $ 35.0 $227.8
</TABLE>
Reader's Digest Magazine
1998 v. 1997 Revenues for Reader's Digest Magazine decreased from
$729.2 in 1997 to $712.3, or by 2%, in 1998. Excluding the
adverse effect of changes in foreign currency exchange rates,
revenues increased 2%. The increase in revenues was attributable
to higher circulation revenues, slightly offset by lower
advertising revenues. Increased circulation levels, primarily in
Russia and Brazil, were moderately offset by circulation declines
in several major markets, particularly in Germany. In addition,
slightly higher circulation revenues in the United States were
attributable to a higher-priced mix of subscriptions, largely
offset by a lower number of subscriptions sold in 1998. A
decline in the number of advertising pages sold in the United
States and Germany was slightly offset by a higher number of
pages sold in Pacific and Other Markets. The decrease in
advertising pages was slightly offset by a higher average rate
per page, primarily in Europe. Operating profit for Reader's
Digest Magazine decreased 50% to $24.4 in 1998, compared with
$48.3 in 1997. The decrease reflected significantly higher
promotional spending in the United States and other major markets
to acquire and renew subscribers, partially offset by the
benefits of cost-containment initiatives in most developed
markets. Consistent with industry practice, the company
periodically evaluates the financial implications of the
circulation rate base of Reader's Digest Magazine worldwide. In
order to increase the efficiency of its promotional spending, the
company announced in September 1998 that it will reduce the rate
base for Reader's Digest Magazine in the United States by 10% to
20%.
1997 v. 1996 Revenues for Reader's Digest Magazine decreased
from $739.8 in 1996 to $729.2, or by 1%, in 1997. Excluding the
adverse effect of changes in foreign currency exchange rates,
circulation revenues were about even year-over-year and
advertising revenues increased slightly from the prior year.
Increased circulation levels in Latin America, Eastern Europe and
Thailand were offset by lower paid copies in several European
countries and the United States. The increase in advertising
revenues was attributable to a higher number of advertising pages
sold in Pacific and Other Markets and the United States, offset
by a lower number of pages in Europe and, to a lesser extent, a
higher average price per page in the United States offset by a
lower average price per page in Pacific and Other Markets.
Operating profit for Reader's Digest Magazine decreased in 1997
to $48.3 compared with $48.8 in 1996. The decrease reflects
lower revenues, increased promotional spending and investments in
new countries, partially offset by lower paper costs and the
benefit of cost-containment initiatives.
Books and Home Entertainment Products
1998 v. 1997 Revenues for Books and Home Entertainment Products
decreased from $1,850.5 in 1997 to $1,635.0, or by 12%, in 1998.
Excluding the adverse effect of changes in foreign currency
exchange rates, revenues decreased 7%. This decrease was
principally attributable to the company's United States and
European operations. The lower revenues were predominantly a
result of significantly lower unit sales in series books,
Condensed Books and general books and, to a lesser extent, lower-
priced product offerings and sales of a lower-priced product mix
in all product lines, principally in music and video products.
The decline in series books and Condensed Books revenues was
caused by a combination of a reduction in shipments caused by
fewer customers carried into 1998, lower mail quantities and
fewer profitably promotable customers, as well as lower customer
response to promotional mailings in developed markets. In
addition, in the United States, the frequency of Condensed Books
shipments, a reduced number of series mailings and the scaling
back of a book series also contributed to lower revenues.
General books revenue declines, most notably in the United States
but also in most other developed markets, were offset by growth
in Eastern Europe and Latin America, principally in Russia and
Brazil. The substantial decrease in general books sales in the
United States was primarily a result of lower customer response
to promotional mailings, lower mail quantities and fewer
profitably promotable customers in 1998. Operating profit for
Books and Home Entertainment Products decreased 58% to $83.5 in
1998, compared with $201.1 in 1997. These operating results were
affected by lower revenues, higher proportionate product costs in
part because of higher inventory reserve levels in the United
States and higher proportionate promotional spending.
1997 v. 1996 Revenues for Books and Home Entertainment Products
decreased from $2,099.4 in 1996 to $1,850.5, or by 12%, in 1997,
principally attributable to the company's European operations.
Excluding the adverse effect of changes in foreign currency
exchange rates, revenues decreased 10%. Most product lines
reported significantly lower revenues, primarily because of lower
unit sales and, to a lesser extent, lower-priced product
offerings and sales of a lower-priced product mix. External
factors, including weak European economies and increased
competitive pressures globally, affected revenues. Tactical
implementation of many simultaneous strategic initiatives,
including varying the quantity and frequency of promotional
mailings, moderating product pricing and introducing greater
promotion variety and less aggressive sweepstakes, contributed to
lower revenues in 1997. Operating profit for Books and Home
Entertainment Products decreased in 1997 to $201.1 compared with
$322.1 in 1996. These operating results were affected by the
impact of the company's strategic actions to restore long-term
growth in Europe, lower than anticipated responses to promotional
mailings in Pacific and Other Markets, higher inventory write-
offs as a result of lower customer response to promotional
mailings in the third and fourth quarter of 1997, and lower
customer response to Condensed Books promotional mailings.
Special Interest Magazines
1998 v. 1997 Revenues for Special Interest Magazines increased
from $81.9 in 1997 to $97.0, or by 18%, in 1998. This increase
was primarily attributable to the acquisition of Walking magazine
in the third quarter of 1997. Excluding Walking, revenues
increased 5%, principally resulting from a higher number of
advertising pages sold and, to a lesser extent, higher
circulation levels in 1998. Operating profit for Special
Interest Magazines improved to $2.7 in 1998, compared with $0.4
in 1997, primarily as a result of the higher revenues, which were
partially offset by increased promotional spending associated
with Walking.
1997 v. 1996 Revenues for Special Interest Magazines decreased
from $91.9 in 1996 to $81.9, or by 11%, in 1997. This decrease
was primarily attributable to the absence of revenues resulting
from the sale of Travel Holiday magazine in the third quarter of
1996. Excluding prior year revenues from Travel Holiday,
revenues increased 8% in 1997 compared with 1996. The
acquisition of Walking magazine in the third quarter of 1997
accounted for 3% of the increase in revenues. Revenues also
increased almost equally because of higher circulation levels and
advertising pages sold in 1997. Operating performance improved
in 1997 compared with 1996 primarily reflecting the increases in
circulation and advertising revenues.
Other Businesses
1998 v. 1997 Revenues for Other Businesses, net of intersegment
sales, increased in 1998 to $189.4, or by 7%, compared with the
prior year, primarily as a result of growth in magazine
subscription sales at QSP in the United States. Operating profit
improved primarily because of the disposal of the company's
investment in a World Wide Web navigation service, largely offset
by higher inventory reserve levels in the merchandise catalog
business in the United Kingdom and higher promotional costs at
QSP.
1997 v. 1996 Revenues for Other Businesses, net of intersegment
sales, increased in 1997 to $177.4, or by 6%, compared with the
prior year, primarily because of growth in the merchandise
catalog business in the United Kingdom, higher sales at
QSP in the United States and the introduction of a merchandise
catalog business in the United States. Operating profit
decreased because of costs associated with the company's
investment in a World Wide Web navigation service in 1997 and
higher proportionate promotional costs associated with the launch
of the catalog business in the United States, which were
partially offset by increased profits at QSP.
Corporate Expense
Corporate Expense in 1998 declined 23% to $34.8 compared with
$45.0 in 1997, primarily as a result of the benefit of cost-
containment initiatives and, to a lesser extent, savings in
employee benefits costs. Corporate Expense in 1997 decreased 24%
to $45.0 compared with $59.1 in 1996 principally because of lower
recruiting and relocation expenses and the benefit of cost-
containment initiatives.
Fourth Quarter Results
Worldwide revenues for the fourth quarter of 1998 decreased to
$624.3, or by 2%, compared with $636.1 in the fourth quarter of
1997. Excluding the adverse effect of changes in foreign
currency exchange rates, revenues increased 2%. Growth in
revenues in Eastern Europe and Latin America was largely offset
by declines in the United States and other developed markets.
The increase in revenues was attributable primarily to higher
unit sales in Condensed Books and series books within Books and
Home Entertainment Products. The company reported worldwide
operating profit of $5.6 in the fourth quarter of 1998, compared
with an operating loss of $37.9 in the fourth quarter of 1997.
Excluding the effect of the operating charges, the operating loss
was $2.9 in the fourth quarter of 1997. The operating loss in
1997 primarily reflects higher levels of inventory write-offs
than in 1998 as a result of lower than anticipated customer
response to promotional mailings that occurred in the third and
fourth quarter of 1997. Operating performance improved in the
fourth quarter of 1998 compared with the fourth quarter of 1997
primarily as a result of the lower levels of inventory write-
offs, moderately offset by higher promotional spending to acquire
and renew subscribers to Reader's Digest Magazine.
The company reported net income of $5.4, or $0.05 per share in
the fourth quarter of 1998, compared with a net loss of $22.8, or
$0.22 per share in the fourth quarter of 1997. Excluding the
effect of the operating charges, the loss per share was $0.01 in
the fourth quarter of 1997.
Currency Risk Management
The company is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value of its foreign
subsidiaries' income. The company purchases foreign currency
option contracts to minimize the effect of fluctuating foreign
currencies on its earnings and specifically identifiable
anticipated transactions. In addition, the company enters into
forward contracts to minimize the effect of fluctuating foreign
currency exchange rates on certain foreign currency denominated
assets and liabilities. The company's primary foreign currency
market exposures include the British pound, the German mark and
the French franc. In addition, the company anticipates that its
operations in Russia will be negatively affected by the
devaluation of the ruble. This may have a material adverse
effect on the company's results of operations for fiscal 1999.
At June 30, 1998, the company estimated that the results of a
uniform 10% weakening in the value of the dollar relative to the
currencies in which the options and forwards are denominated
would result in a net decrease in the fair value of these
instruments of approximately $4.0. This estimate, however,
includes changes in the fair value of forward contracts which
would be substantially offset by the related impact on the assets
and liabilities being hedged. This calculation assumes that each
exchange rate would change in the same direction relative to the
U.S. dollar. Changes in exchange rates not only affect the
dollar value of the fair value, but also impact the underlying
foreign subsidiaries' income. The company's sensitivity analysis
as described above does not factor in a potential change in sales
levels, local currency prices, or amounts of options or forwards
to cover these changes. Additional information concerning
derivative financial instruments is available in notes ONE and
FIVE in Notes to Consolidated Financial Statements.
Forward-Looking Information
Strategic Initiatives
The company is undertaking a three-phase strategy to build on its
fundamental strengths and create growth opportunities over the
next three years.
In July 1998, the company announced as the first step in this
strategy a global reorganization that includes the following key
elements:
The organization of operations into four business groups
(Global Books and Home Entertainment, United States Magazine
Publishing, International Magazine Publishing and QSP, Inc.) to
make greater use of global scale.
The restructuring of editorial organizations to ensure
editorial quality and integrity worldwide.
The establishment of new reporting relationships to sharpen
focus and accountability.
The reassignment of certain executives as well as the hiring
of new people with key skill sets.
The second phase of the strategy, announced in September 1998,
targets the restructuring of costs and the raising of capital.
The main components of the restructuring are:
The elimination or rationalization of unproductive
businesses.
Cost reductions and re-engineering.
Leveraging the asset base of the company.
The elimination or rationalization of unproductive businesses,
which is expected to be completed within the next 18 months, will
generally involve the following actions:
The sale or joint venturing of proprietary publishing
operations in Scandinavia, Finland, Benelux, Italy and South
Africa.
The elimination or redirection of certain product lines,
including adult and children's retail book publishing, the
Today's Best Nonfiction book series, and video or music
businesses in selected international markets.
Cost reduction and re-engineering activities will involve the
following:
A 20-25% reduction in the number of individual promotional
mailings globally, including the elimination of related product
development and overhead costs. The company anticipates that
this will increase response rates on continuing mailings.
A 10-20% reduction in the circulation rate base for Reader's
Digest Magazine in the United States to improve the efficiency of
promotional spending. This action is also expected to reduce
circulation and advertising revenue in the short term.
The outsourcing of support functions in areas where it is
cost-effective and the consolidation of suppliers and combination
of purchasing efforts for greater negotiating leverage.
Implementation of the second phase of the strategy is expected
to reduce the company's annual expense base, excluding other
operating items, by $300.0 to $350.0 and reduce annual revenues
by approximately $200.0 by the end of fiscal 2001. As a result,
the company believes that annual operating profit will increase
by $100.0 to $150.0 in three years. The company expects to
record charges to other operating items in a range of $30.0 to
$50.0 in fiscal 1999 related to these actions as components of
the plan are finalized.
Leveraging the asset base of the company will include the
following actions:
The sale of important works from the art collection.
The sale of international real estate holdings including its
U.K. Canary Wharf facility.
An expected reduction in the quarterly dividend for the
second quarter of 1999 from $0.225 per share to $0.05 per share.
The actions to leverage the asset base of the company are
expected to convert approximately $200.0 of under-productive
assets to cash in the next year and improve annual pre-tax cash
flow by $150.0 to $200.0 by fiscal 2001.
The announcement of the second phase of the strategy also
focused on broadening the company's customer base to include more
younger customers and more products for older customers.
The third phase of the strategy is expected to be announced in
January 1999 and will focus on plans to grow the business. This
will include investing in internal opportunities, as well as
targeting acquisitions that leverage the company's core
strengths, expanding geographically, introducing new products and
engaging in at least one completely new business.
Fiscal 1999 Results
The company anticipates that its operations in Russia will be
negatively affected by the devaluation of the ruble. This may
have a material adverse effect on the company's results of
operations for fiscal 1999.
Notwithstanding the events in Russia, results for fiscal 1999
are expected to show a modest improvement over fiscal 1998 before
the effects of the above-mentioned actions and other operating
items; however, as the strategy is executed worldwide, results
are expected to show additional improvement in 1999 and more
significant benefits are anticipated over the next two to three
years.
Impact of the Year 2000 Issue
The year 2000 issue is the result of computer programs which were
written using only two digits, rather than four, to represent a
year. Date-sensitive software or hardware may not be able to
distinguish between 1900 and 2000 and programs that perform
arithmetic operations, comparisons or sorting of date fields may
begin yielding incorrect results. This could potentially cause a
system failure or miscalculations that could disrupt operations.
The Company's State of Readiness. The company has developed a
remediation plan for its year 2000 issue that involves three
overlapping phases:
1) Inventory - This phase includes the creation of an inventory
of three functional areas:
a) Applications and information
technology (IT) equipment - These include all mainframe,
network and desktop hardware and software, including custom
and packaged applications, and IT embedded systems.
b) Non-information technology (non-IT)
embedded systems - These include non-IT equipment and
machinery. Non-IT embedded systems, such as security, fire
prevention and climate control systems typically include
embedded technology, such as microcontrollers.
c) Vendor relationships - These
include significant third party vendors and suppliers of
goods and services, as well as vendor and supplier
interfaces.
The United States and developed international markets have
substantially completed the inventory phase and plan to be
fully completed by December 1998.
2) Analysis - This phase includes the evaluation of the
inventoried items for year 2000 compliance, the determination
of the remediation method and resources required and the
development of an implementation plan. A significant portion
of the analysis phase is complete in the United States and
developed international markets. The United States and major
developed international markets expect to complete the
analysis phase for non-IT embedded systems by December 1998.
All other components of the analysis phase for the United
States and developed international markets are expected to be
completed by March 1999.
3) Implementation - This phase includes executing the
implementation plan for all applicable hardware and software,
interfaces and systems. This involves testing the changes,
beginning to utilize the changed procedures in actual
operations, testing in a year 2000-simulated environment and
vendor interface testing. Subsequent to implementation, the
company will conduct live testing on January 1 and 2, 2000,
before business commences on January 3, 2000. The
implementation phase, including testing for certain critical
applications, has commenced in the United States and major
developed international markets, and is expected to be
completed by June 1999 for applications and IT equipment and
non-IT embedded systems. All other components of the
implementation phase for the United States and developed
international markets are expected to be completed by
September 1999.
The company's operations in developing international markets,
including operations in Latin America, Eastern Europe and the Far
East, are in the preliminary stages of assessing exposure with
respect to their local year 2000 issues.
The company's remediation plan for its year 2000 issue is an
ongoing process and the estimated completion dates above are
subject to change.
The Risk of the Company's Year 2000 Issue. Overall, at this
time the company believes that its systems will be year 2000
compliant in a timely manner for several reasons. Several
significant marketing and fulfillment systems are already
compliant. In addition, the company extensively utilizes certain
shared applications that should be remediated once and then
deployed to all appropriate markets. Also, comprehensive testing
of all critical systems is planned to be conducted in a simulated
year 2000 environment. Additionally, critical fulfillment
systems in the United States and several developed international
markets use a one-digit field to denote the year, therefore the
date fields for these systems are updated every 10 years and the
year 2000 is not an issue requiring separate attention.
The company believes that the risk of developing international
markets' not being year 2000 compliant on a timely basis is low
primarily because the majority of their custom applications are
shared systems that were developed in the United States and
Canada and are currently year 2000 compliant, or are expected to
be by December 31, 1998. In addition, since most of the
equipment in these locations is relatively new there is less
likelihood that the equipment is not currently year 2000
compliant.
The company believes that the area of greatest risk to the
company surrounding the year 2000 issue relates to significant
suppliers' failing to remediate their year 2000 issues in a
timely manner. The company has relationships with certain
significant suppliers in most of the locations in which it
operates. These relationships may be material to some local
operations and, in the aggregate, may be material to the company.
The company relies on suppliers to deliver a broad range of goods
and services worldwide, including book and magazine printing
services, supplies of promotional materials and paper, warehouse
facilities, lettershops which assemble promotional mailings,
customer service facilities, postal delivery services, banking
services, telecommunications and electricity. The company is
conducting formal communications with its significant suppliers
in all locations to determine the extent to which it may be
affected by those third parties' plans to remediate their own
year 2000 issue in a timely manner. The level of preparedness of
significant suppliers can vary greatly from country to country.
If a number of significant suppliers are not year 2000 compliant,
this could have a material adverse effect on the company's
results of operations, financial position or cash flow.
The Company's Contingency Plans. The company is developing its
country-by-country contingency plans and expects to have them
completed by June 1999. To mitigate the effects of the company's
or significant suppliers' potential failure to remediate the year
2000 issue in a timely manner, the company would take appropriate
actions. Such actions may include having arrangements for
alternate suppliers, re-running processes if errors occur, using
manual intervention to ensure the continuation of operations
where necessary, and scheduling activity in December 1999 that
would normally occur at the beginning of January 2000. If it
becomes necessary for the company to take these corrective
actions, it is uncertain, until the contingency plans are
finalized, whether this would result in significant delays in
business operations or have a material adverse effect on the
company's results of operations, financial position or cash flow.
Costs to Address the Company's Year 2000 Issue. The total cost
of the company's remediation plan is estimated at approximately
$13.0 to $18.0 and is being funded through operating cash flows.
To manage the cash flow effects of these incremental costs, the
company has deferred certain IT development costs and system
enhancements. Of the total cost, approximately $2.0 is
attributable to new hardware and software that will be
capitalized. The remainder will be expensed as incurred. To
date, approximately $4.0 of the total cost of the remediation
plan has been spent, the majority of which was expensed.
Impact of the Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European
Union are scheduled to establish fixed conversion rates between
their existing sovereign currencies ("legacy currencies") and a
single currency called the euro. The legacy currencies are
scheduled to remain legal tender as denominations of the euro
during the transition period from January 1, 1999 to January 1,
2002. Beginning January 1, 2002, euro-denominated bills and
coins will be introduced and by July 1, 2002, legacy currencies
will no longer be legal tender.
The company has initiated an
internal analysis regarding the business and systems issues
related to the euro conversion and is in the process of
developing a strategic plan to ensure that all necessary
modifications are made on a timely basis. As the first step, to
accommodate the introduction of the euro on January 1, 1999, the
company's operations in markets that are adopting the euro plan
to be able to accept payments and pay suppliers in euros at that
time, as well as have the ability to indicate the euro equivalent
of pricing on invoices. During the transition period, the
company will be monitoring customer and competitor reaction to
the euro and will update the strategic plan as needed.
The company believes that the
conversion to the euro will not have a significant impact on the
marketing strategy for the company's European operations. The
euro is not expected to have a significant competitive impact,
including the resulting need to synchronize prices between
markets, primarily because, for the most part, the editorial
content of the company's publishing products varies, the products
are published in local languages and they are sold principally
through direct mail rather than retail channels. These factors
result in products that tend to be unique to each market that do
not easily lend themselves to price comparisons across borders.
The estimated costs to convert all affected systems to the euro
will not be finalized until the company has developed a strategic
plan; therefore it is uncertain whether the costs of conversion
will have a material adverse effect on the company's results of
operations, financial position or cash flow.
*****
The statements contained in this report, if not historical, are
forward-looking statements, which involve risks and uncertainties
that could cause actual results to differ materially from the
financial results described in the forward-looking statements.
These risks and uncertainties include: the effect of potentially
more restrictive privacy and other governmental regulation
relating to the company's marketing methods; the effect of
modified and varied promotions; the ability to identify customer
trends; the ability to continue to create a broadly appealing mix
of new products; the ability to attract and retain new and
younger magazine subscribers and product customers in view of the
maturing of an important portion of the U.S. customer base; the
ability to attract and retain subscribers and customers in an
economically efficient manner; the effect of selective
adjustments in pricing; the ability to expand and more
effectively utilize the company's customer database; the ability
to expand into new international markets and to introduce new
product lines into new and existing markets; the ability to
expand into new channels of distribution; the ability to
negotiate and implement productive strategic alliances and joint
ventures; the ability to contain and reduce costs, especially
through global efficiencies; the cost and effectiveness of the re-
engineering of business processes and operations; 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; the ability of the company to respond to
competitive pressures within and outside the direct marketing
industry; the effect of worldwide paper and postage costs; the
effect of postal disruptions on deliveries; the effect of foreign
currency fluctuations; the effect of the year 2000 issue; the
effect of the transition to the euro; and general economic
conditions, particularly those in Russia.
Liquidity and Capital Resources
Cash and cash equivalents, short-term investments and marketable
securities increased $23.7 to $126.1 at June 30, 1998, compared
with $102.4 at June 30, 1997. This increase was primarily a
result of cash provided by operations ($93.9), net proceeds from
other long-term investments ($45.7) and proceeds from sales of
property, plant and equipment ($25.0), partially offset by
dividend payments ($97.1) and capital expenditures ($34.1).
In 1998, the company reduced its quarterly dividend on common
stock to $0.225 per share. The 1998 full-year dividend payment
decreased to $0.90 per share, or by 50% compared with 1997. On
September 16, 1998, the company announced an expected reduction
in its quarterly dividend for the second quarter of 1999 to $0.05
per share.
Capital expenditures in 1998 amounted to $34.1 and were
primarily for information technology.
The company is a party to a Competitive Advance and Revolving
Credit Facility Agreement amended as of June 2, 1998, with a
syndicate of domestic and foreign banks (the credit agreement).
The credit agreement, which expires in November 2001, permits
competitive advance and revolving credit borrowings of up to
$300.0 by the company and its designated subsidiaries. Interest
rates can be based on several pricing options that can vary based
upon operating results of the company. The proceeds of the
borrowings may be used for general corporate purposes, including
acquisitions, share repurchases and commercial paper backup. The
credit agreement contains certain restrictions on incurrence of
debt, liens and guarantees of indebtedness. The company must
also comply with certain financial covenants, including a minimum
level of consolidated tangible net worth. At June 30, 1998,
there were no borrowings outstanding under the credit agreement.
Various international subsidiaries of the company have available
lines of credit totaling $62.6. At June 30, 1998, loans in the
amount of $8.5 were outstanding under international lines of
credit at a weighted average interest rate of 7.9%.
The company believes that its liquidity, capital resources,
cash flow and borrowing capacity are sufficient to fund normal
capital expenditures, working capital requirements, the payment
of dividends and implementation of the company's strategic
initiatives.
The Reader's Digest Association, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended June 30,
In millions, except per share data 1998 1997 1996
<S> <C> <C> <C>
Revenues $ 2,633.7 $ 2,839.0 $ 3,098.1
Product, distribution and editorial
expenses 989.0 1,026.7 1,079.8
Promotion, marketing and administrative
expenses 1,544.5 1,584.5 1,674.0
Other operating items 70.0 35.0 235.0
Operating profit 30.2 192.8 109.3
Other income, net 11.3 17.4 28.4
Income before provision for income taxes 41.5 210.2 137.7
Provision for income taxes 23.6 76.7 57.1
Net income $ 17.9 $ 133.5 $ 80.6
Basic and diluted earnings per share $0.16 $1.24 $0.73
Average common shares outstanding 106.5 106.7 107.9
</TABLE>
See accompanying notes to consolidated financial statements.
The Reader's Digest Association, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
In millions 1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 122.8 $ 69.1
Receivables, net 376.4 398.3
Inventories 162.2 167.8
Prepaid expenses and other current assets 311.2 290.6
Total current assets 972.6 925.8
Property, plant and equipment, net 285.4 314.8
Intangible assets, net 41.8 59.1
Other noncurrent assets 264.2 344.1
Total assets $ 1,564.0 $ 1,643.8
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 172.1 $ 193.0
Accrued expenses 377.4 373.6
Income taxes payable 21.0 22.1
Unearned revenue 355.4 356.5
Other current liabilities 90.0 67.9
Total current liabilities 1,015.9 1,013.1
Postretirement and postemployment benefits other
than pensions 157.6 153.3
Other noncurrent liabilities 131.9 131.4
Total liabilities 1,305.4 1,297.8
Stockholders' equity:
Capital stock 16.6 29.0
Paid-in capital 144.8 141.8
Retained earnings 845.0 924.2
Foreign currency translation adjustment (49.8) (33.4)
Net unrealized losses on certain investments --- (0.3)
Treasury stock, at cost (698.0) (715.3)
Total stockholders' equity 258.6 346.0
Total liabilities and stockholders' equity $ 1,564.0 $ 1,643.8
</TABLE>
See accompanying notes to consolidated financial statements.
The Reader's Digest Association, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended June 30,
In millions 1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 17.9 $ 133.5 $ 80.6
Depreciation and amortization 46.2 46.7 48.8
Gains on the sales of certain investments (5.2) (7.0) (15.8)
Gains on the sales of certain assets (10.2) (1.4) (2.1)
Changes in assets and liabilities:
Receivables, net 10.9 (33.3) (15.8)
Inventories (1.9) 20.2 (25.7)
Unearned revenue 7.6 7.7 5.3
Accounts payable and accrued expenses 9.3 (36.2) 142.5
Other, net 19.3 (32.9) (105.6)
Net change in cash due to operating
actitities 93.9 97.3 112.2
Cash flows from investing activities
Proceeds from maturities and sales of
marketable securities and short-term
investments 32.5 107.3 393.1
Purchases of marketable securities and short-
term investments (2.3) (23.1) (194.3)
Capital expenditures (34.1) (110.6) (59.6)
Proceeds from other long-term investments,
net 45.7 2.1 13.3
Proceeds from sales of property, plant and
equipment 25.0 5.5 5.1
Other, net --- (13.6) (7.2)
Net change in cash due to investing
activities 66.8 (32.4) 150.4
Cash flows from financing activities
Dividends paid (97.1) (193.3) (190.1)
Common stock repurchased --- (66.3) (62.9)
Other, net (5.6) 13.5 37.8
Net change in cash due to financing
activities (102.7) (246.1) (215.2)
Effect of exchange rate changes on cash (4.3) (7.8) (3.9)
Net change in cash and cash equivalents 53.7 (189.0) 43.5
Cash and cash equivalents at beginning of
year 69.1 258.1 214.6
Cash and cash equivalents at end of year $122.8 $ 69.1 $ 258.1
Supplemental information
Cash paid for interest $ 5.4 $ 5.3 $ 2.0
Cash paid for income taxes $ 20.5 $ 72.2 $ 158.5
</TABLE>
See accompanying notes to consolidated financial statements.
The Reader's Digest Association, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Years ended June 30,
In millions, except per share data 1998 1997 1996
<S> <C> <C> <C>
Capital stock
Preferred stock
Balance at beginning and end of year $ 28.8 $ 28.8 $ 28.8
Common stock
Balance at beginning and end of year 1.4 1.4 1.4
Unamortized restricted stock
Balance at beginning of year (1.2) (1.8) (0.7)
Common stock issued under various plans (12.4) 0.6 (1.1)
Balance at end of year (13.6) (1.2) (1.8)
Paid-in capital
Balance at beginning of year 141.8 138.3 118.3
Common stock issued under various plans 3.0 3.5 20.0
Balance at end of year 144.8 141.8 138.3
Retained earnings
Balance at beginning of year 924.2 984.0 1,093.5
Net income 17.9 133.5 80.6
Dividends on common stock ($0.90, $1.80
and $1.75 per share in 1998, 1997 and
1996, respectively) (95.8) (192.0) (188.8)
Dividends on preferred stock (1.3) (1.3) (1.3)
Balance at end of year 845.0 924.2 984.0
Foreign currency translation adjustment
Balance at beginning of year (33.4) (14.2) (0.3)
Translation adjustment (16.4) (19.2) (13.9)
Balance at end of year (49.8) (33.4) (14.2)
Net unrealized (losses) gains on investments
Balance at beginning of year (0.3) (1.3) 5.1
Net unrealized gains (losses), net of tax 0.3 1.0 (6.4)
Balance at end of year --- (0.3) (1.3)
Treasury stock
Balance at beginning of year (715.3) (656.3) (605.3)
Common stock repurchased --- (66.3) (62.9)
Common stock issued under various plans 17.3 7.3 11.9
Balance at end of year (698.0) (715.3) (656.3)
Total stockholders' equity $ 258.6 $ 346.0 $ 478.9
</TABLE>
See accompanying notes to consolidated financial statements.
The Reader's Digest Association, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in millions, except 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.
Certain prior year amounts have been reclassified to conform to
the current year presentation.
Use of Estimates
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported
amounts in these financial statements. Actual results could
differ from those estimates.
New Accounting Standards
In 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities."
This statement, which is effective for fiscal years beginning
after June 15, 1999, requires that entities recognize all
derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. This statement is
not expected to have a material impact on the company's results
of operations, financial position or cash flow.
In 1998, the FASB issued SFAS No.
132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." The company adopted this statement
effective June 30, 1998, and modified disclosures relating to its
pension plans and postretirement benefits accordingly. This
adoption had no effect on the company's results of operations,
financial position or cash flow.
In 1998, the Accounting Standards
Executive Committee of the AICPA issued Statement of Position 98-
1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." This statement, which is effective
for fiscal years beginning after December 15, 1998, requires that
entities capitalize certain internal-use software costs once
certain criteria are met. This statement is not expected to have
a material impact on the company's results of operations,
financial position or cash flow.
In 1997, the FASB issued SFAS No.
130, "Reporting Comprehensive Income," and SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related
Information." These statements, which are effective for fiscal
years beginning after December 15, 1997, expand or modify
disclosures and will have no impact on the company's results of
operations, financial position or cash flow.
In the second quarter of 1998, the
company adopted SFAS No. 128, "Earnings Per Share," for all
periods presented. Diluted earnings per share is the same as
basic earnings per share for all periods presented because the
dilutive impact of potential common shares is not material.
In 1997, the company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." This statement requires that certain assets be
reviewed for impairment and, if impaired, remeasured at fair
value, whenever events or circumstances indicate that the
carrying amount of the asset may not be recoverable. This
adoption did not have a material effect on the company's results
of operations, financial position or cash flow.
In 1997, the company adopted the fair value disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation." As permitted by this statement, the company did
not change the method of accounting for its stock options and
other stock-based employee compensation awards.
Cash and Cash Equivalents
The company considers all highly liquid debt instruments with
original maturities of three months or less to be cash
equivalents.
Receivables, net
Receivables, net are reflected net of allowances for returns and
bad debts of $173.0, $166.2, $193.1 and $227.8 at June 30, 1998,
1997, 1996 and 1995, respectively. Additions to the allowances
amounted to $505.0, $548.7 and $627.8 and amounts written off
amounted to $498.2, $575.6 and $662.5 during the years ended June
30, 1998, 1997 and 1996, 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 valued on the last-in, first-out basis.
Derivative Financial Instruments
The company is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value of its foreign
subsidiaries' income. The company purchases foreign currency
option contracts to minimize the effect of fluctuating foreign
currencies on its earnings and specifically identifiable
anticipated transactions, generally over periods ranging up to 12
months. In addition, the company enters into forward contracts
to minimize the effect of fluctuating foreign currency exchange
rates on certain foreign currency denominated assets and
liabilities, generally over periods ranging up to 12 months. The
company, as a matter of policy, does not speculate in financial
markets and, therefore, does not hold financial instruments for
trading purposes.
Foreign currency option contracts that reduce the company's
exposure to the effects of fluctuating foreign currencies on its
earnings do not meet the criteria for hedge accounting; however,
option contracts that are designated as hedges and that reduce
the company's exposure to the effects of fluctuating foreign
currencies on specifically identifiable anticipated transactions,
where it is probable that the transactions will occur, meet the
criteria for hedge accounting. Forward contracts meet the
criteria for hedge accounting as they are designated as, and are
effective as, hedges of specifically identified foreign currency
denominated assets and liabilities.
Premiums on option contracts that qualify for hedge accounting
are amortized over the term of the contract and any gains at
maturity are included in other income, net. If an option
contract is terminated before its maturity, the unamortized
premium associated with the contract is written off and included
in other income, net. Option contracts that do not qualify for
hedge accounting are recorded at fair market value, and changes
in market value on such instruments are included in other income,
net. The carrying value of option contracts is included in
prepaid expenses and other current assets. Forward contracts are
reflected in the company's balance sheet at market value and
included in prepaid expenses and other current assets and other
current liabilities, and changes in market value on these
instruments are included in other income, net. In the event that
the underlying foreign currency denominated asset or liability is
extinguished or terminated prior to the forward contract's
maturity, the company's policy is to enter into a separate
forward contract to offset any changes in market value from that
date until the maturity of the original contract.
Depreciation and Amortization
Property, plant and equipment are stated at cost, except for
property, plant and equipment that have been impaired, for which
the carrying amount is reduced to the estimated fair market
value. Buildings and equipment are depreciated using the
straight-line method over useful lives up to 50 years for
buildings and up to five years for other 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, net
Intangible assets, net 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 the 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 ten 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 on an undiscounted basis as well
as other economic and market variables.
Stock-Based Compensation
Compensation cost is recognized for stock-based compensation
using the intrinsic value method. Under this method,
compensation cost is the excess, if any, of the quoted market
price of the stock at the grant date over the amount an employee
must pay to acquire the stock. The company's policy is to grant
stock options at fair market value at the date of grant.
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 matched with the
expected revenue stream, generally over a period of 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 $927.0, $942.9 and $972.5 were incurred for
the years ended June 30, 1998, 1997 and 1996, respectively.
Prepaid promotion costs, included in prepaid expenses and other
current assets, amounted to $44.3 at June 30, 1998 and 1997.
Deferred promotion costs, included in other noncurrent assets,
amounted to $102.8 and $119.6 at June 30, 1998 and 1997,
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 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.
Basic and Diluted Earnings Per Share
Basic earnings per share is computed by dividing net income, less
preferred stock dividend requirements, by the weighted average
number of common shares outstanding during the year. Diluted
earnings per share is computed by dividing net income, less
preferred stock dividend requirements, by the weighted average
number of common shares outstanding during the year, assuming
exercise and conversion of stock options. A weighted average
number of common shares of 106.7, 106.7 and 108.1 for the years
ended June 30, 1998, 1997 and 1996, respectively was used for the
computation of diluted earnings per share.
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.
The U.S. dollar is used as the functional currency for
subsidiaries operating in highly inflationary economies, for
which both translation adjustments and gains and losses on
foreign currency transactions are included in other income, net.
TWO Other Operating Items
In the first quarter of 1998, the company recorded charges of
$70.0 ($51.8 after tax, or $0.49 per share) composed primarily of
severance costs associated with workforce reductions in Europe,
the United States and at the corporate level, which are
anticipated to be completed by the end of 1999; and other costs
associated with the discontinuation of certain businesses and the
realignment of business processes and operations. Businesses
that were discontinued include a children's book club in the
United States and the company's investment in a World Wide Web
navigation service. The realignment of business processes and
operations also relates to certain vendor contracts in the United
States and Europe.
In the fourth quarter of 1997, the company recorded charges of
$35.0 ($22.2 after tax, or $0.21 per share), relating primarily
to the realignment of the organization and operations. The
realignment of the organization and operations covers the
separation of employee positions from the worldwide workforce by
the end of 1999 primarily through involuntary severance programs.
Also included in other items in the table which follows, are a
contract termination relating to the discontinuance of a
distributor relationship and the discontinuance of individual
products in certain business units.
In the fourth quarter of 1996, the company finalized its lease
termination program in the United Kingdom at a savings of $10.0
below the provision that was originally established as part of
other operating items, originally recorded in 1994, relating to
losses on lease terminations and provisions for certain claims
against the company.
In the third quarter of 1996, the company recorded total charges
of $245.0 ($169.8 after tax, or $1.57 per share), composed of
$204.0 related primarily to the streamlining of the company's
organizational structure and the strategic repositioning of
certain businesses and $41.0 for various claims against the
company.
The charges related to the streamlining included the separation
of approximately 1,300 employees from the worldwide workforce
through a combination of voluntary and involuntary severance
programs. Also associated with the streamlining and included in
other items in the table which follows, are asset write-downs,
contract terminations and the outsourcing of certain functions
where it was cost-beneficial to the company.
The strategic repositioning related primarily to the Special
Interest Magazines in the United States and a publishing and book
club business in the United Kingdom. As a result of this
repositioning, Travel Holiday magazine was sold in 1996, and the
publishing and book club business was sold in 1997.
Balances remaining of the $70.0, $35.0 and $204.0 charges at
June 30, 1998, are:
<TABLE>
<CAPTION>
Balance at Balance at
June 30, 1998 1998 June 30,
1997 Charges Activity 1998
<S> <C> <C> <C> <C>
Employee retirement and
severance benefits $ 56.7 $ 39.5 $ (36.6) $ 59.6
Other items 23.6 23.1 (22.5) 24.2
Business repositioning 0.7 7.4 (4.2) 3.9
$ 81.0 $ 70.0 $ (63.3) $ 87.7
</TABLE>
THREE Other Income, Net
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Interest income $ 6.9 $ 11.4 $ 21.5
Interest expense (9.4) (7.0 (2.4)
Gains on the sales of certain investments 5.2 7.0 15.8
Gains on the sales of certain assets 10.2 1.4 2.1
Gains (losses) on foreign exchange 1.3 8.5 (6.1)
Other, net (2.9) (3.9) (2.5)
$ 11.3 $ 17.4 $ 28.4
</TABLE>
FOUR Supplemental Balance Sheet Information
<TABLE>
<CAPTION>
Inventories
1998 1997
<S> <C> <C>
Raw materials $ 21.8 $ 17.4
Work-in-progress 24.7 26.5
Finished goods 115.7 123.9
$ 162.2 $167.8
</TABLE>
Inventories would have been $10.8 and $12.0 higher than the
amounts reported at June 30, 1998 and 1997, respectively, had the
FIFO method of inventory been used for U.S. inventory.
<TABLE>
<CAPTION>
Property, Plant and Equipment
1998 1997
<S> <C> <C>
Land $ 12.5 $ 14.0
Buildings and building improvements 303.2 303.4
Furniture, fixtures and equipment 290.4 316.2
Leasehold improvements 16.3 21.9
622.4 655.5
Accumulated depreciation and amortization (337.0) (340.7)
$285.4 $314.8
</TABLE>
<TABLE>
<CAPTION>
Intangible Assets
1998 1997
<S> <C> <C>
Distribution rights, contracts, subscription
lists and other $ 56.3 $ 71.9
Excess of cost over fair value of net assets
of businesses acquired 77.2 75.5
133.5 147.4
Accumulated amortization (91.7) (88.3)
$ 41.8 $ 59.1
Accrued Expenses
1998 1997
Compensation and other
employee benefits $ 93.0 $ 85.3
Royalties and copyrights payable 32.3 33.1
Taxes, other than income taxes 15.8 19.1
Other, principally operating expenses F1 236.3 236.1
$ 377.4 $ 373.6
</TABLE>
F1 Includes $87.7 and $81.0 relating primarily to the remaining
reserve balances associated with other operating
items at June 30, 1998 and 1997, respectively.
Refer to Note TWO for further explanation.
FIVE Derivative Financial Instruments
The company is a party to financial instruments with off-balance
sheet risk. These financial instruments are used in the normal
course of business to manage the company's exposure to
fluctuations in foreign exchange rates.
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 company
mitigates this risk through specific minimum credit standards and
diversification of financial institutions with which it enters
into these derivative transactions.
The company's derivative financial instruments also involve
elements of market risk as a result of potential changes in
foreign currency exchange rates. The market risk associated with
the option contracts is limited to the carrying value of these
contracts in the company's consolidated balance sheet. Forward
contracts outstanding at the end of the year are effective hedges
of existing foreign currency exposures. Therefore, the impact of
potential changes in future foreign currency exchange rates on
these instruments would generally offset the related impact on
the assets and liabilities being hedged.
<TABLE>
<CAPTION>
Notional/
Principal Carrying Fair
1998 Amounts Value Value Maturity
<S> <C> <C> <C> <C>
Forward Contracts
Assets $ 62.3 $ 62.1 $ 62.1 1999
Liabilities $ 62.3 $ 62.4 $ 62.4 1999
Option Contracts
Assets $ 59.1 $ 1.8 $ 1.8 1999
Notional/
Principal Carrying Fair
1997 Amounts Value Value Maturity
Forward Contracts
Assets $ 28.0 $ 28.0 $ 28.0 1998
Liabilities $ 28.0 $ 27.9 $ 27.9 1998
Option Contracts
Assets $ 181.5 $ 10.5 $ 12.1 1998
</TABLE>
SIX Pension Plans and Postretirement Benefits
The company adopted SFAS No. 132 effective June 30, 1998, and has
modified its disclosures relating to its pension plans and
postretirement benefits accordingly.
Assumptions used to determine pension costs and projected
benefit obligations are as follows:
<TABLE>
<CAPTION>
U.S. Plans
1998 1997 1996
<S> <C> <C> <C>
Discount rate 7.0% 7.8% 7.8%
Compensation increase rate 5.0% 5.3% 5.3%
Long-term rate of return on plan assets 9.5% 9.5% 9.5%
International Plans
1998 1997 1996
Discount rate 4-15% 4-15% 4-15%
Compensation increase rate 3-10% 3-13% 3-13%
Long-term rate of return on plan assets 5-16% 5-16% 5-16%
</TABLE>
Components of the company's consolidated net periodic pension
(benefit) cost are as follows:
<TABLE>
<CAPTION>
Pension Benefits
1998 1997 1996
<S> <C> <C> <C>
Service cost $ 18.2 $ 19.4 $ 20.9
Interest cost 45.7 46.1 44.4
Expected return on plan assets (60.7) (54.6) (50.0)
Amortization (3.2) (2.8) (2.8)
Recognized actuarial gain (3.4) (0.1) (0.1)
Special items --- --- 2.5
$ (3.4 $ 8.0 $ 14.9
</TABLE>
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 has
the right to modify or terminate these unfunded benefits.
A discount rate of 7.0% for 1998, and 7.8% for 1997 and 1996 was
used in determining the accumulated postretirement benefits
liability.
Components of the company's costs for postretirement benefits
are as follows:
Other Benefits
1998 1997 1996
Service cost $ 1.6 $ 2.5 $ 2.9
Interest cost 5.5 7.1 6.1
Recognized actuarial gain (2.2) (0.7) (1.1)
Special items --- --- 3.4
$ 4.9 $ 8.9 $11.3
Amortization in the pension benefits table above reflects both
amortization of prior service cost and amortization of the
transitional asset. Special items in both tables above reflect
the net increase in 1996 pension expense and postretirement
benefits costs resulting from voluntary early retirement and
involuntary severance programs.
During 1998, in accordance with Internal Revenue Code section
401(h), the company transferred $4.7 of excess pension assets to
fund postretirement benefits. The reconciliation of beginning and
ending balances of benefit obligations and fair value of plan
assets, and the funded status of the plans are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at
beginning of year $ 620.7 $ 607.6 $ 99.1 $ 97.7
Service cost 18.2 19.4 1.6 2.5
Interest cost 45.7 46.1 5.5 7.1
Actuarial (gain) or loss 55.2 1.3 (19.4) (3.7)
Exchange rate changes (5.5) (7.4) --- ---
Other items 6.5 (1.5) --- ---
Benefits paid (43.6) (44.8) (5.0) (4.5)
Benefit obligation at
end of year $ 697.2 $ 620.7 $ 81.8 $ 99.1
Change in plan assets:
Fair value of plan assets at
beginning of year $ 830.3 $ 720.1 $ --- $ ---
Actual return on plan assets 154.0 151.7 --- ---
Employer contribution 8.8 8.9 0.3 4.5
IRC section 401(h) transfer (4.7) --- 4.7 ---
Exchange rate changes (7.5) (1.6) --- ---
Other items (1.2) (4.0) --- ---
Benefits paid (43.6) (44.8) (5.0) (4.5)
Fair value of plan assets at
end of year $ 936.1 $ 830.3 $ --- $ ---
Funded status $ 238.9 $ 209.6 $ (81.8) $ (99.1)
Unrecognized actuarial gain (265.2) (233.1) (37.5) (20.3)
Unrecognized transition asset (16.9) (21.9) --- ---
Unrecognized prior service cost 12.9 13.3 --- ---
Additional minimum liability --- (2.4) --- ---
Net amount recognized $ (30.3) $ (34.5) $(119.3) $ (119.4)
Amounts recognized in the balance
sheet are as follows:
Pension Benefits Other Benefits
1998 1997 1998 1997
Prepaid benefit cost $ 34.2 $ 26.8 $ --- $ ---
Accrued benefit liability (64.9) (62.0) (119.3) (119.4)
Intangible assets, net 0.4 0.7 --- ---
Net amount recognized $ (30.3) $ (34.5)$ (119.3) $ (119.4)
</TABLE>
The projected benefit obligation, accumulated benefit obligation
and fair value of plan assets for the pension plans with
accumulated benefit obligations in excess of plan assets were
$90.2, $83.7 and $2.4, respectively, as of June 30, 1998, and
$78.9, $70.7 and $2.5, respectively, as of June 30, 1997. The
projected benefit obligation and fair value of plan assets for
the pension plans with projected benefit obligations in excess of
plan assets were $100.7 and $11.9, respectively, as of June 30,
1998, and $91.1 and $11.6, respectively, as of June 30, 1997.
The health care inflation assumption used to determine the
postretirement benefits liability was 8.0% for 1998, decreasing
gradually to 5.5% by the year 2004 and remaining at that level
thereafter. For 1997, the health care inflation assumption used
to determine the postretirement benefits liability was 11.0% with
respect to medical benefits and 10.0% with respect to dental
benefits decreasing to 8.0% by the year 2001. Assumed health
care cost trend rates have a significant effect on the amounts
reported for postretirement benefits. A one-percentage-point
increase in assumed health care cost trend rates would increase
the total of the service and interest cost components and the
postretirement benefit obligation by $1.1 and $9.9, respectively.
A one-percentage-point decrease in assumed health care cost trend
rates would decrease the total of the service and interest cost
components and the postretirement benefit obligation by $0.9 and
$8.8, respectively.
SEVEN Employee Compensation Plans
The 1989 and the 1994 Key Employee Long Term Incentive Plans (the
plans) provide that the Compensation and 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
10,800,000 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).
Under the plans, options have been granted with exercise prices
not less than 100% of the fair market value of the company's
common stock at the time of the grant, with an exercise term as
determined by the committee, not to exceed ten years. The
options have vesting terms as determined by the committee, but
generally become exercisable over three or four years.
On October 9, 1997, options and stock appreciation rights
related to 2.1 million shares of Class A stock were granted to
over 800 eligible employees pursuant to the plans (October
grant). The October grant was never distributed. The exercise
price of the October grant was $27.03 per share, the fair market
value of the company's common stock at October 9, 1997. These
options provided for vesting ratably over four years and could be
exercised over a period of ten years from the date of grant. On
November 18, 1997, the October grant was canceled and options and
stock appreciation rights related to 2.1 million shares of Class
A stock were reissued to eligible employees at a price of $21.47
per share, the fair market value of the company's stock at
November 18, 1997 (November grant). This reissuance was in
connection with a significant revision of the company's executive
compensation structure, involving the elimination of long-term
cash performance awards, the reduction of annual cash bonuses and
the greater reliance on equity incentive awards. The other terms
of the November grant were not changed from the terms of the
October grant.
The company has adopted the disclosure provisions of SFAS
No. 123, and as permitted by this statement has continued to
measure compensation cost as the excess of the quoted market
price of the company's stock at the grant date over the amount
the employee must pay for the stock. Accordingly, no
compensation expense is recognized for stock-based compensation
other than in the case of restricted stock awards, stock
appreciation rights and phantom stock options.
SFAS No. 123 requires disclosure of pro forma net income and
earnings per share as if the fair value-based method had been
applied in measuring compensation cost for stock-based awards
granted in 1998, 1997 and 1996.
Management believes that 1998, 1997 and 1996 pro forma amounts
are not representative of the effects of stock-based awards on
future pro forma net income and earnings per share because these
pro forma amounts exclude the pro forma compensation expense
related to unvested stock options granted before 1996. In
addition, certain options vest over several years, and awards in
future years may occur whose terms and conditions may vary.
Reported and pro forma net income and earnings per share amounts
are set forth below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C> <C>
Net income As reported $ 17.9 $ 133.5 $ 80.6
Pro forma $ 10.5 $ 129.1 $ 78.6
Earnings per share
As reported $0.16 $1.24 $0.73
Pro forma $0.09 $1.20 $0.72
</TABLE>
The weighted average fair value of options granted in 1998, 1997
and 1996 is $8.38, $9.32 and $14.80, respectively. The weighted
average fair value of options granted in 1998 includes the value
of the November grant less the value of the October grant as of
the date that the November grant was issued. The fair values of
the options granted were estimated on the date of their grant
using the Black-Scholes option-pricing model based on the
following weighted average assumptions:
1998 1997 1996
Risk-free interest rate 5.5% 6.3% 6.4%
Expected life 3.7 years 5.1 years 7.8 years
Expected volatility 29.4% 23.5% 24.4%
Expected dividend yield 1.0% 3.7% 3.0%
The following table summarizes information about stock options
outstanding at June 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
(Options in thousands)
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Options Life (yrs.) Price Options Price
<S> <C> <C> <C> <C> <C>
$20.00 - $29.44 3,208 8.24 $ 23.57 889 $ 25.98
$35.56 - $39.81 110 8.31 $ 38.44 16 $ 38.57
$40.31 - $43.56 2,398 6.96 $ 41.40 1,300 $ 41.45
$45.06 - $48.13 2,950 5.84 $ 47.13 1,932 $ 47.19
$50.94 - $55.12 116 7.04 $ 51.39 35 $ 52.46
8,782 7.07 $ 36.90 4,172 $ 40.89
</TABLE>
Changes in outstanding options are as follows:
<TABLE>
<CAPTION>
Shares Weighted
Subject to Average
(Options in thousands) Options Exercise
Price
<S> <C> <C>
Outstanding at June 30, 1995 5,554 $ 42.09
Granted 1,303 $ 47.20
Exercised (400) $ 31.11
Canceled (423) $ 44.62
Outstanding at June 30, 1996 6,034 $ 43.76
Granted 1,722 $ 41.04
Exercised (130) $ 25.67
Canceled (733) $ 44.53
Outstanding at June 30, 1997 6,893 $ 43.35
Granted 4,880 $ 24.76
Exercised (26) $ 20.13
Canceled (2,965) $ 32.05
Outstanding at
June 30, 1998 8,782 $ 36.90
Options exercisable at
June 30, 1998 4,172 $ 40.89
Options available for grant at June 30, 1998 4,482
</TABLE>
Under the 1989 Employee Stock Purchase Plan (the ESPP), the
company is authorized to issue up to 1,650,000 Class A shares
principally to its full-time employees in the United States,
nearly all of whom are eligible to participate. Under the terms
of the ESPP, employees can choose every six months to have up to
ten percent of their annual base earnings withheld to purchase
Class A shares. The purchase price of the shares is 85% of the
lower of the fair market value of the Class A stock on the first
or last day of the six-month purchase period. Approximately 50%
of eligible employees have participated in the plan in the last
three years. In addition, several international subsidiaries of
the company have employee stock purchase plans (together with the
ESPP, the ESPP plans) under which the company is authorized to
issue up to 300,000 Class A shares to its full-time employees.
The terms of the plans in most locations are essentially the same
as the ESPP, except for one location, where the terms are based
upon a three- or five-year withholding period, and the purchase
price of the shares is 85% of the value of the Class A stock on
the first day of the purchase period. Under the ESPP plans,
employees purchased 251,700 shares in 1998, 239,026 shares in
1997 and 194,162 shares in 1996.
The weighted average fair value of these purchase rights granted
in 1998, 1997 and 1996 is $8.21, $13.13 and $11.72, respectively.
The fair values of the purchase rights were estimated on the date
of their grant using the Black-Scholes option-pricing model based
on the following weighted average assumptions:
1998 1997 1996
Risk-free interest rate 6.5% 5.4% 5.3%
Expected life 1.0 years 1.0 years 0.8 years
Expected volatility 34.0% 29.5% 16.8%
Expected dividend yield 3.5% 4.3% 3.6%
In 1998 the company granted 596,700 restricted Class A shares
with a value of $15.7 to over 100 employees at no cost. In 1996
the company granted 51,347 performance-based restricted Class A
shares with a value of $2.4 to an executive officer at no cost.
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 $2.3, $0.6 and $1.3
for the years ended June 30, 1998, 1997 and 1996, respectively.
The company granted 212,000 and 12,200 stock appreciation rights
to officers in 1998 and 1996, respectively. The company also
issued 6,000 and 8,000 phantom stock options to non-employee
members of the Board of Directors in 1998 and 1997, respectively.
The company contributed $5.0, $5.0 and $5.3 to its profit-
sharing plan for fiscal 1998, 1997 and 1996, respectively.
Effective with the beginning of fiscal 1999, the company has
amended the restated Employees Profit-Sharing Plan to include a
401(k) Savings Plan component (401(k) plan). The 401(k) plan
provides for employees to make pre-tax contributions to specified
investment options. At the discretion of the Board of Directors,
the company can make matching contributions to the 401(k) plan.
The matching contributions vest ratably over a five-year period.
EIGHT Income Taxes
United States and International income before provision for
income taxes are as follows:
1998 1997 1996
United States $ 8.1 $ 162.5 $ 59.7
International 33.4 47.7 78.0
$ 41.5 $ 210.2 $137.7
Components of the company's (benefit) provision for income taxes
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current
Federal $ (3.8) $ 10.0 $ 40.1
State and local 1.1 3.2 16.1
International 17.4 22.0 75.8
$ 14.7 $ 35.2 $ 132.0
Deferred
Federal $ 2.2 $ 28.5 $ (44.8)
State and local 1.0 6.7 (8.7)
International 5.7 6.3 (21.4)
$ 8.9 $ 41.5 $ (74.9)
$ 23.6 $ 76.7 $ 57.1
</TABLE>
The differences between the effective income tax rate and the
statutory U.S. federal income tax rate are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
U.S. statutory tax rate 35.0% 35.0% 35.0%
International operations 2.1 (0.9) (1.1)
State taxes, net 1.2 2.6 2.1
Other operating items 19.4 --- 6.0
Other, net (0.8) (0.2) (0.5)
Effective tax rate 56.9% 36.5% 41.5%
</TABLE>
The major components of the deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Assets:
Deferred compensation and other
employee benefits $ 81.8 $ 92.8
Accounts receivable and other
allowances 38.2 30.7
Other, net 112.3 123.4
$232.3 $246.9
Liabilities:
Deferred promotion costs $ 3.2 $ 4.8
Deferred compensation and other
employee benefits 7.3 7.0
Other, net 47.0 57.4
$ 57.5 $ 69.2
$174.8 $177.7
</TABLE>
The balance sheet classification of the deferred tax assets and
liabilities is as follows:
1998 1997
Prepaid expenses and other current assets $ 67.9 $ 67.9
Other noncurrent assets 121.7 122.1
Other current liabilities 3.7 2.5
Other noncurrent liabilities 11.1 9.8
$174.8 $177.7
Net operating loss carryforwards totaling $135.7 and $138.8 at
June 30, 1998 and 1997, respectively, the majority of which may
be carried forward indefinitely, are available to reduce future
tax of certain foreign subsidiaries in a number of jurisdictions.
NINE Debt
The company is a party to a Competitive Advance and Revolving
Credit Facility Agreement amended as of June 2, 1998, with a
syndicate of domestic and foreign banks (the credit agreement).
The credit agreement, which expires in November 2001, permits
competitive advance and revolving credit borrowings of up to
$300.0 by the company and its designated subsidiaries. Interest
rates can be based on several pricing options that can vary based
upon operating results of the company. The proceeds of the
borrowings may be used for general corporate purposes, including
acquisitions, share repurchases and commercial paper backup. The
credit agreement contains certain restrictions on incurrence of
debt, liens and guarantees of indebtedness. The company must
also comply with certain financial covenants, including a minimum
level of consolidated tangible net worth. Borrowings may be
denominated in U.S. dollars and various foreign currencies. The
credit agreement obligates the company to pay a facility fee
ranging between .2% and .375% of the total commitment, whether
used or unused, dependent on levels of earnings of the company,
as well as a utilization fee of .05% of loans outstanding and
administrative fees. Fees are payable quarterly in arrears. The
amendment to the credit agreement provided for a reduction of the
minimum required level of consolidated tangible net worth, a
reduction of credit available from $400.0 to $300.0 and an
increase in borrowing costs. At June 30, 1998 and 1997, there
were no borrowings outstanding under the credit agreement.
International lines of credit totaled $62.6 and $93.8 at June
30, 1998 and 1997, respectively, of which $8.5 and $21.4 were
outstanding at a weighted average interest rate of 7.9% and 7.5%,
respectively. These lines of credit expire at various dates
throughout 1999. Borrowings under these lines of credit are
included in other current liabilities. Because of the short
maturity of borrowings under the lines of credit, the carrying
amounts approximate fair value at June 30, 1998 and 1997.
In 1998, the company entered into an agreement with Morgan
Guaranty Trust Company of New York for an uncommitted line of
credit of $50.0 (the Morgan line of credit) to be used for
general corporate purposes. The Morgan line of credit lapsed on
June 30, 1998. The loans under the Morgan line of credit were
payable on demand and bore a floating interest rate based on the
cost of funds of the bank plus a margin. The company was also
party to an agreement with The Chase Manhattan Bank for a line of
credit of $75.0 (the Chase line of credit) for a term of one year
to be used for general corporate purposes. The Chase line of
credit lapsed on April 30, 1998. The loans under the Chase line
of credit were payable on demand and bore a floating interest
rate based on the cost of funds of the bank plus a margin. At
June 30, 1997, there were no borrowings outstanding under the
Chase line of credit.
TEN Capital Stock
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
First Preferred Stock, par value $1.00 per share;
authorized 40,000 shares; issued and
outstanding 29,720 shares $ 3.0 $ 3.0
Second Preferred Stock, par value $1.00 per share;
authorized 120,000 shares; issued and outstanding
103,720 shares 10.3 10.3
Third Subordinated Preferred Stock, par value $1.00 per
share; authorized 230,000 shares; issued and
outstanding 155,022 shares 15.5 15.5
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 200,000,000 shares; issued
119,428,472 shares 1.2 1.2
Class B voting common stock, par value $0.01 per share;
authorized 25,000,000 shares; issued and outstanding
21,716,057 shares 0.2 0.2
Unamortized restricted stock (13.6) (1.2)
$16.6 $29.0
Common stock in treasury, at cost; 33,982,205 and
34,826,886 Class A shares in 1998 and 1997,
respectively $(698.0) $(715.3)
</TABLE>
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 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 1997, the company announced its fifth stock repurchase
program, to acquire up to 5,000,000 shares of Class A nonvoting
common stock in open market transactions. This program began
upon the completion of the prior programs, which together
provided for the repurchase of up to 16,000,000 shares of Class A
nonvoting common stock. The company has repurchased a total of
16,768,000 shares of which 768,000 are related to the fifth
program.
ELEVEN 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.
During the third quarter of 1996, the company's QSP, Inc.
subsidiary and the company reached an agreement with the
plaintiffs to settle an antitrust class action lawsuit commenced
in December 1993 by the Roman Catholic Bishop of San Diego and
the Chino Unified School District. The agreement provided for
QSP, Inc. and the company to deliver up to $40.0 in retail value
of company products, coupons for discounts on QSP, Inc. programs
and cash.
The company and its subsidiaries occupy certain facilities under
lease arrangements and lease certain equipment. Rental expense
amounted to $25.6, $31.7 and $32.4 in 1998, 1997 and 1996,
respectively, and sublease income amounted to $6.0, $7.0 and $6.9
in 1998, 1997 and 1996, respectively.
Future minimum rental commitments, net of sublease income, for
noncancelable operating leases are as follows:
Minimum Minimum
Rental Sublease
Payments Income Net
1999 $ 12.7 $ 0.7 $ 12.0
2000 $ 10.5 $ 0.7 $ 9.8
2001 $ 8.2 $ 0.7 $ 7.5
2002 $ 6.0 $ 0.4 $ 5.6
2003 $ 6.0 $ 0.4 $ 5.6
Later years $ 24.7 $ 0.4 $ 24.3
TWELVE Segments
Segment information is located on pages 21 and 22 of this annual
report.
The company's operations consist of the following business
segments: Reader's Digest Magazine, Books and Home Entertainment
Products, Special Interest Magazines and Other Businesses. The
Books and Home Entertainment Products segment includes Condensed
Books, known as Select Editions in certain markets, series and
general books, recorded music and videos. The Special Interest
Magazine segment includes The Family Handyman, American Health
for Women, New Choices: Living Even Better After 50 and Walking
in the United States and Moneywise in the United Kingdom. Other
Businesses includes QSP, Inc., the company's youth fund-raising
organization and merchandise catalogs in selected countries.
The company's geographic areas are composed of the United
States, Europe, and Pacific and Other Markets, which includes
Asia, Australia, Canada, Latin America, New Zealand and South
Africa.
Identifiable assets by segment are those assets that are used in
the operation of that business. Corporate assets consist
primarily of cash and cash equivalents and prepaid expenses and
other current assets at June 30, 1998. At June 30, 1997 and
1996, corporate assets consisted primarily of cash and cash
equivalents, prepaid expenses and other current assets and other
noncurrent assets.
Intersegment sales are included in the company's Other
Businesses segment. Intersegment sales are accounted for with a
markup ranging between five and 10%, dependent upon the type of
product or service sold.
THIRTEEN Subsequent Events (Unaudited)
In the first quarter of fiscal 1999 the company announced its
intention to enter into a sale leaseback agreement for its
principal operating office in the United Kingdom. The company
anticipates that this transaction will be finalized in the second
quarter of fiscal 1999.
In connection with the new long-term strategy announced in
September 1998, the company expects to record additional charges
to other operating items in fiscal 1999 for the elimination of
unproductive businesses, cost reductions and re-engineering as
components of the plan are finalized.
INDEPENDENT AUDITORS' 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, 1998 and 1997, 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, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of
the years in the three-year period ended June 30, 1998, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
New York, New York
August 18, 1998
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 directors who are not employed by the company,
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.
THOMAS O. RYDER
Thomas O. Ryder
Chairman and Chief Executive Officer
GEORGE S. SCIMONE
George S. Scimone
Senior Vice President and
Chief Financial Officer
The Reader's Digest Association, Inc. and Subsidiaries
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
In millions, except per share data 1998 F1 1997 F2 1996 F3 1995 1994 F4
<S> <C> <C> <C> <C> <C>
Income Statement Data
Revenues $2,633.7 $2,839.0 $3,098.1 $3,068.5 $2,806.4
Operating profit $ 30.2 $ 192.8 $ 109.3 $ 391.9 $ 393.7
Net income 17.9 $ 133.5 $ 80.6 $ 264.0 $ 246.3
Basic and diluted earnings per share
before cumulative effect of accounting
changes/extraordinary items $0.16 $1.24 $0.73 $2.35 $2.34
Cumulative effect of accounting
changes/extraordinary items --- --- --- --- (0.23)
Basic and diluted earnings per share $0.16 $1.24 $0.73 $2.35 $2.11
Dividends per common share $0.90 $1.80 $1.75 $1.55 $1.35
Balance Sheet Data
Cash and cash equivalents, short-term
investments and marketable securities $ 126.1 $ 102.4 $ 374.2 $ 532.1 $ 766.9
Total assets $1,564.0 $1,643.8 $1,904.1 $1,958.7 $2,049.4
Stockholders' equity $ 258.6 $ 346.0 $ 478.9 $ 640.8 $ 791.0
Average common shares outstanding 106.5 106.7 107.9 112.0 115.7
Book value per common share $2.14 $2.98 $4.18 $5.66 $6.70
</TABLE>
F1 Results for 1998 include the effect of first quarter
charges (aggregate pre-tax charges of $70.0, or $0.49
per share).
F2 Results for 1997 include the effect of fourth quarter
charges (aggregate pre-tax charges of $35.0, or
$0.21 per share).
F3 Results for 1996 include the effects of third quarter
charges (aggregate pre-tax charges of $245.0, or
$1.57 per share) and fourth quarter savings on the
finalization of the company's lease termination program
in the United Kingdom ($10.0, or $0.09 per share).
F4 Results for 1994 include the effects of promotion
accounting changes, net (pre- tax benefit of $113.9, or
$0.60 per share) and other operating items (aggregate
pre-tax charge of $76.0, or $0.51 per share).
SELECTED QUARTERLY FINANCIAL DATA and
DIVIDEND AND MARKET INFORMATION (Unaudited)
<TABLE>
<CAPTION>
High-Low
Operating Net (Loss) Income
In millions, except (Loss) Dividends
per share data Revenues Profit Amount Per Share F1 Per Share F2 Class A Class B
<S> <C> <C> <C> <C> <C> <C> <C>
1998
First Quarter F3 $ 561.4 $ (83.5) $(56.4) $(0.53) $0.225 $30-9/16 - 24-1/2 $29-1/4 - 23-15/16
Second Quarter 812.5 86.4 54.3 0.51 0.225 $31-1/2 - 20-7/8 $30 - 21-5/8
Third Quarter 635.5 21.7 14.6 0.13 0.225 $27-1/2 - 22-3/8 $27-7/8 - 23-1/2
Fourth Quarter 624.3 5.6 5.4 0.05 0.225 $29-3/16 - 24-1/2 $29-1/8 - 23-15/16
$2,633.7 $ 30.2 $ 17.9 $ 0.16 $0.90 $31-1/2 - 20-7/8 $30 - 21-5/8
1997
First Quarter $ 644.0 $ 46.6 $ 34.6 $ 0.32 $0.45 $43-3/4 - 38-1/4 $40-1/4 - 36
Second Quarter 874.6 132.6 84.1 0.78 0.45 $41-1/4 - 34 $38-1/8 - 32-3/4
Third Quarter 684.3 51.5 37.6 0.35 0.45 $41 - 28-3/4 $37-1/4 - 26
Fourth Quarter F4 636.1 (37.9) (22.8) (0.22) 0.45 $30 - 22-1/8 $28 - 21-7/8
$2,839.0 $ 192.8 $133.5 $ 1.24 $1.80 $43-3/4 - 22-1/8 $40-1/4 - 21-7/8
</TABLE>
The company's Class A and Class B stock are listed on the New
York Stock Exchange under the symbols RDA and RDB,
respectively. As of June 30, 1998, there
were approximately 2,193 holders of record of the company's
Class A stock and 308 holders of record of the company's Class
B stock.
F1 Basic and diluted.
F2 Cash dividends on common stock are declared and paid share
and share alike, on Class A and Class B stock.
F3 Results for 1998 include the effect of first quarter
charges (aggregate pre-tax charges of $70.0, or $0.49 per
share).
F4 Results for 1997 include the effect of fourth quarter
charges (aggregate pre-tax charges of $35.0, or $0.21 per
share).
MANAGEMENT INFORMATION
BOARD OF DIRECTORS
THOMAS O. RYDER
Chairman and Chief Executive Officer
The Reader's Digest Association, Inc.
Director since 1998
LYNNE V. CHENEY(1)(2)
Senior Fello
American Enterprise Institute
for Public Policy
Director since 1993
M. CHRISTINE DEVITA(1)(3)
President
DeWitt Wallace-Reader's Digest Fund
Lila Wallace-Reader's Digest Fund
Director since 1993
GEORGE V. GRUNE
DeWitt Wallace-Reader's Digest Fund
Lila Wallace-Reader's Digest Fund
Director from 1977 to 1995 and since August 1997
MELVIN R. LAIRD(3)
Vice President and Senior Counsellor
The Reader's Digest Association, Inc.
Director since 1990
JAMES E. PRESTON(1)(3)
Chairman
Avon Products, Inc.
Director since 1994
LAWRENCE R. RICCIARDI
Senior Vice President
and General Counsel
International Business Machines Corp.
Director since 1998
ROBERT G. SCHWARTZ(2)(3)
Retired Chairman, President and
Chief Executive Officer
Metropolitan Life Insurance Company
Director since 1989
C.J. SILAS (2)
Retired Chairman and
Chief Executive Officer
Phillips Petroleum Company
Director since 1992
WILLIAM J. WHITE (1)
Professor Northwestern University
Retired Chairman
Bell & Howell Company
Director since 1996
(1) Audit Committee
(2) Compensation and Nominating Committee
(3) Finance Committee
CORPORATE MANAGEMENT
THOMAS O. RYDER
Chairman and Chief Executive Officer
THOMAS A. BELLI
President, QSP, Inc.
M. JOHN BOHANE
Senior Vice President and President
Global Books and Home Entertainment
MICHAEL A. BRIZEL
Vice President and General Counsel
ELIZABETH G. CHAMBERS
Vice President, Business Redesign
GREGORY G. COLEMAN
Senior Vice President and President,
U.S. Magazine Publishing
PETER J.C. DAVENPORT
Senior Vice President, Global Marketing
CLIFFORD H.R. DUPREE
Vice President and Corporate Secretary
THOMAS D. GARDNER
Senior Vice President
Business Planning and Development
ROBERT J. KREFTING
Senior Vice President and President,
International Magazine Publishing
MELVIN R. LAIRD
Vice President and Senior Counsellor
WILLIAM H. MAGILL
Vice President, Investor Relations
BONNIE M. MONAHAN
Vice President and Treasurer
GARY S. RICH
Senior Vice President,
Human Resources
GEORGE S. SCIMONE
Senior Vice President and
Chief Financial officer
CHRISTOPHER P. WILLCOX
Senior Vice President and Editor-in-Chief
Reader's Digest Magazine
CORPORATE AND SHAREHOLDER INFORMATION
STOCK LISTINGS
Class A Nonvoting Common Stock
Listed: New York Stock
Exchange
Symbol: RDA
Class B Voting Common Stock
Listed: New York Stock
Exchange
Symbol: RDB
TRANSFER AGENT AND REGISTRAR
FOR RDA AND RDB
Chase Mellon Shareholder
Services, LLC
85 Challenger Road
Ridgefield Park, New Jersey 07660
Shareholder Inquiries: 800-230-2771
ANNUAL MEETING OF SHAREHOLDERS
The Annual Meeting of shareholders will be held
Friday, November 13, 1998, at 10:00 a.m. at the Reader's
Digest Corporate Headquarters, DeWitt Wallace Auditorium,
Reader's Digest Road, Chappaqua, New York.
Holders of Class B Voting Common Stock of record at the
close of business on September 23, 1998, will be entitled to
vote at the meeting.
SHAREHOLDER REPORTS
Copies of the company's annual report on Form 10-K and proxy
statement filed with the Securities and Exchange
Commission are available upon request.
SHAREHOLDER INFORMATION SERVICE
Individual shareholders can access timely information
about The Reader's Digest Association, Inc. by calling our Shareholder
Information Service, which provides a recorded summary of the most
current financial results and other general investor information.
Callers can also use this service to request printed information
by fax or mail. To access this service, please call toll-free
800-3133-RDA (800-313-3732) anytime day or night.
DIRECT STOCK PURCHASE INVESTOR SERVICES PROGRAM
This program offers a convenient way to buy Reader's
Digest common stock, containing many features such
as dividend reinvestment, optional cash investment and
custodial service for stock certificates. For a complete
informational package, contact:
The Chase Manhattan Bank
P. O. Box 750
Pittsburgh, PA 15230
800-242-4653
INVESTOR RELATIONS
Securities analysts, institutional investors and other investment
professionals should direct their inquiries to:
William H. Magill
Vice President, Investor Relations
Telephone: 914- 244-7683
E-mail: [email protected]
MEDIA RELATIONS
Editors and reporters in the print, electronic and other
media should direct their questions to:
Stephen J. Morello
Vice President, Public Relations
and Corporate Communications
Telephone: 914-244-7717
E-mail: [email protected]
PRODUCT CATALOGS
For more information on our products, including free
catalogs, please call 800-846-2100 or write to Customer
Service at The Reader's Digest Association, Inc.
(copyright) 1998 The Reader's Digest Association, Inc. Reader's Digest,
The Digest, the Pegasus logo, Today's Best Nonfiction and QSP are
registered trademarks of The Reader's Digest Association, Inc.
The Family Handyman, New Choices: Living Even Better After 50 ,
Walking and American Health For Women are registered trademarks
of RD Publications, Inc.
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.
Brazil
Reader's Digest Brasil Ltda.
Canada
The Reader's Digest Association (Canada) Ltd.
Quality Service Plan, Inc. Canada
Chile
Reader's Digest Chile Limitada
Colombia
Reader's Digest Colombia S.A.
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
Reader's Digest (Family Insurance Services) Limited
The Reader's Digest Association (Ireland) Limited
Victoria House Publishing, Ltd.
Reader's Digest European Systems Ltd.
Reader's Digest Central & Eastern Europe Limited
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 Zeitschriften -
Vertriebsgesellschaft.mbH
Hong Kong
Reader's Digest Association Far East Limited
Asian Qualiproducts Services, Limited
Reader's Digest Asia, Ltd.
Reader's Digest (East Asia) Limited
Reader's Digest Global Advertising Ltd.
Reader's Digest (Malaysia) Sdn. Bhd
R.D. Properties, Ltd.
Hungary
Reader's Digest Kiado KFT
Italy
Selezione Dal Reader's Digest S.p.A.
Japan
The Reader's Digest Ltd.
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
Peru
Reader's Digest Peru, S.A.
Philippines
Reader's Digest (Philippines) Inc.
Poland
Reader's Digest Przeglad Sp.z o.o.
Portugal
Seleccoes do Reader's Digest (Portugal) S.A.
Euroseleccoes - Publicacoes E Artigos Promocionais, Lda.
Russia
Joint Stock Company "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 (50%
ownership)
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.
Pegasus Investment, Inc.
Pegasus Sales, Inc.
Pleasantville Music Publishing, Inc.
QSP, Inc.
Reader's Digest Sub Eight, Inc. (formerly Gift USA,
Inc.)
VideOvation, Inc.
QSP Distribution Services, Inc.
Family Reading Program Corp.
R.D. Manufacturing Corporation
RD Publications, Inc.
RD Large Edition, Inc.
RD Walking, Inc.
Travel Publications, Inc.
RD Member Services Inc.
Home Service Publications, Inc.
Retirement Living Publishing Company, Inc.
Reader's Digest Children's Publishing, Inc. (formerly
Joshua Morris Publishing, Inc.)
Reader's Digest Entertainment, Inc.
Reader's Digest Latinoamerica, S.A.
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, 33-56883 and 333-57789)
on Form S-8 of The Reader's Digest Association, Inc. and
subsidiaries of our report dated August 18, 1998, relating to the
consolidated balance sheets of The Reader's Digest Association,
Inc. and subsidiaries as of June 30, 1998 and 1997, 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, 1998, which report appears in
the June 30, 1998 Annual Report on Form 10-K of The Reader's
Digest Association, Inc.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Registrant's Consolidated Statement of Income and Consolidated
Balance Sheet for the twelve-month period ended June 30, 1998, and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 122,800
<SECURITIES> 2,300
<RECEIVABLES> 549,400
<ALLOWANCES> 173,000
<INVENTORY> 162,200
<CURRENT-ASSETS> 972,600
<PP&E> 622,400
<DEPRECIATION> 337,000
<TOTAL-ASSETS> 1,564,000
<CURRENT-LIABILITIES> 1,015,900
<BONDS> 0
<COMMON> (12,200)
0
28,800
<OTHER-SE> 242,000
<TOTAL-LIABILITY-AND-EQUITY> 1,564,000
<SALES> 2,633,700
<TOTAL-REVENUES> 2,633,700
<CGS> 2,603,500
<TOTAL-COSTS> 2,603,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,400
<INCOME-PRETAX> 41,500
<INCOME-TAX> 23,600
<INCOME-CONTINUING> 17,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,900
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
</TABLE>
Exhibit 10.10
The Reader's Digest Association, Inc.
EXECUTIVE FINANCIAL COUNSELING PLAN
(As amended by Amendment No. 1)
ARTICLE I
Purpose
1.1 The purpose of the Plan is to reimburse Eligible Executives
of the Company and its Designated Subsidiaries for certain
expenses incurred by them for Financial Counseling.
ARTICLE II
Definitions
2.1 "Authorized Vendor" shall mean:
(a) any accounting, tax, investment and legal vendor selected
by the Company to be available to provide Financial
Counseling to Eligible Executives under the Plan; and
(b) with respect to a particular Eligible Executive, any
accounting, tax, investment or legal vendor who has been
providing Financial Counseling to that Eligible Executive
for at least the immediately preceding two years and who
is approved by the Senior Vice President, Human Resources
of the Company to provide Financial Counseling to the
Eligible Executive under the Plan.
2.2 "Company" shall mean The Reader's Digest Association, Inc..
2.3 "Designated Subsidiary" shall mean a subsidiary of the
Company, 80 per cent or more of the voting power of the
capital stock of which is owned, directly or indirectly by
the Company, that is designated in writing by the Senior Vice
President, Human Resources of the Company, with the approval
of the Chief Executive Officer of the Company.
2.4 "Eligible Executive" shall mean each employee of the Company
or any Designated Subsidiary at Salary Grade Level 18 (or its
equivalent) or above.
2.5 "Eligible Senior Executive" shall mean each employee of the
Company or any Designated Subsidiary at Salary Grade Level 21
(or its equivalent) or above.
2.6 "Financial Counseling" shall mean the following services:
(a) financial planning (including cash flow analysis and
capital planning);
(b) income tax planning (which shall include income tax
preparation and audit support services for Eligible
Senior Executives but shall not include such services for
Eligible Executives);
(c) estate planning (not including preparation of wills,
trust agreements and similar documentation);
(d) insurance planning; and
(e) retirement planning.
Financial Counseling shall not include brokerage or
promoter's fees.
2.7 "Retirement" shall mean termination of employment by an
employee who is at least 55 years of age after at least five
years of employment by the Company or a Designated
Subsidiary.
2.8 "Total Disability" shall mean "Total Disability" as defined
in The Reader's Digest Association, Inc. Long Term Disability
Plan.
ARTICLE III
Reimbursement for Financial Counseling
3.1 Maximum Regular Annual Allowance for Eligible Executives.
The Company and the Designated Subsidiaries shall reimburse
each Eligible Executive (not including Eligible Senior
Executives) for Financial Counseling expenses incurred from
any Authorized Vendor up to the following limits:
(a) $7,500 for each of the first two 12-month periods that
the Eligible Executive participates in the Plan by
incurring Financial Counseling expenses that are
submitted for reimbursement under the Plan or by such
other activity approved by the Senior Vice President,
Human Resources; and
(b) $5,000 for each subsequent 12-month period.
3.2 Maximum Regular Annual Allowance for Eligible Senior
Executives. The Company and the Designated Subsidiaries
shall reimburse each Eligible Senior Executive for Financial
Counseling expenses incurred from any Authorized Vendor up to
the following limits:
(a) $8,000 for each 12-month period that the Eligible Senior
Executive participates in the Plan by incurring Financial
Counseling expenses that are submitted for reimbursement
under the Plan or by such other activity approved by the
Senior Vice President, Human Resources.
3.3 Maximum Allowance for Death, Disability or Retirement. If
the employment of an Eligible Executive with the Company and
all Designated Subsidiaries terminates by reason of death,
Total Disability or Retirement, the Company and the
Designated Subsidiaries shall, notwithstanding such
termination of employment, provide reimbursement for
Financial Counseling expenses incurred from any Authorized
Vendor up to $7,500 for each of the first two 12-month
periods following such termination of employment. In case of
the Eligible Executive's death, reimbursement shall be
provided to the estate or the surviving spouse of the
decedent.
3.4 Maximum Allowance for Severance Termination. If the
employment of an Eligible Executive with the Company and all
Designated Subsidiaries terminates by reason an event that
would entitle the Eligible Executive to benefits under The
Reader's Digest Association, Inc. Severance Plan for Senior
Management (if the Eligible Executive were a participant in
that plan), the Company and the Designated Subsidiaries
shall, notwithstanding such termination of employment,
provide reimbursement for Financial Counseling expenses
incurred from any Authorized Vendor up to $5,000 for the 12-
month period following such termination of employment.
3.5 Request for Reimbursement. The Company shall not be required
to make any reimbursement under the Plan unless the Eligible
Executive (or the Eligible Executive's representative, if
appropriate) submits to the Director Employee Benefits within
180 days after the Financial Counseling expenses are
incurred, a dated, detailed itemized statement from the
Authorized Vendor and a written confirmation by the Eligible
Executive (or the Eligible Executive's representative, if
appropriate) of the accuracy of the statement.
ARTICLE IV
General
4.1 Disclaimer. Neither the Company nor any Designated
Subsidiary makes any recommendation as to the use of any
Authorized Vendor to provide Financial Counseling to an
Eligible Executive and the decision of any Eligible Executive
to use any Authorized Vendor for Financial Counseling or
other services is an individual one. By acceptance and
receipt of reimbursement for Financial Counseling expenses
under the Plan, each Eligible Executive hereby, for the
himself and his heirs, executors, administrators and other
representatives, forever releases and discharges the Company
and its subsidiaries and affiliates and their respective
stockholders, directors, officers, employees and
representatives from any and all claims, demands, liabilities
and losses arising out of or in connection with Financial
Counseling or other services available from any Authorized
Vendor.
4.2 No Employment Contract. Nothing contained in the Plan shall
be construed as a contract of employment between the Company
and any Eligible Executive, or as a right of any Eligible
Executive to continue in the employ of the Company, or as a
limitation of the right of the Company to discharge any
Eligible Executive, with or without cause. No Eligible
Executive shall have any rights or remedies against the
Company arising out of the Plan or his participation therein,
his employment or the termination of his employment with the
Company.
4.3 Unfunded Plan. The Plan shall be administered as an unfunded
plan designed primarily for the purpose of providing benefits
to a select group of members of senior management or highly
compensated employees of the Company. Payments under the
Plan shall at all times be made solely from the general
assets of the Company. No assets shall be segregated or
earmarked in respect of any amount due hereunder. The Plan
and the amounts due hereunder shall not constitute a trust.
4.4 Non-Alienation. An Eligible Executive may not assign,
anticipate, transfer, pledge, hypothecate or alienate in any
manner any interest arising under the Plan, nor shall any
such interest be subject to attachment, bankruptcy
proceedings or to any other legal processes or to the
interference or control of creditors or others.
4.5 Administration and Interpretation. Except as otherwise
provided in the Plan, the Senior Vice President, Human
Resources shall be responsible for interpreting and
administering the Plan. It is intended that any decisions of
the Senior Vice President, Human Resources regarding any
aspect of the Plan, including but not limited to the
interpretation, application or administration of this Plan,
shall be final and binding on all Eligible Executives or
interested parties. The administrator may correct any
defect, supply any omission or reconcile any inconsistency in
the Plan in the manner and to the extent that the
administrator shall deem necessary to carry the Plan into
effect. The Plan and actions taken in connection therewith
shall be governed and construed in accordance with the laws
of the State of New York (regardless of the law that might
otherwise govern under applicable New York principles of
conflict of laws) except to the extent the Employee
Retirement Income Security Act of 1974 shall apply.
4.6 Gender. In the construction of the Plan, the masculine shall
include the feminine and the singular the plural, and vice
versa, in all cases where such meaning would be appropriate.
4.7 Unenforceability. In the event any provision of the 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.
4.8 Amendment or Termination. Notwithstanding any other
provision of the Plan, the Board of Directors or the
Compensation & Nominating Committee of the Board of Directors
of the Company (or any successor thereto) may at any time,
and from time to time, amend, in whole or in part, any or all
of the provisions of the Plan, or suspend or terminate the
Plan entirely, retroactively or otherwise; provided, however,
that, unless otherwise required by law, any such amendment,
suspension or termination may not, without the Eligible
Executive's consent, adversely affect the rights of an
Eligible Executive with respect to reimbursable expenses for
Financial Counseling incurred prior to such amendment,
suspension or termination.
4.9 Effective Date. The Plan was originally adopted effective
October 16, 1995. Amendment No. 1 to the Plan was adopted on
December 19, 1996, effective as of July 1, 1996.
CONFORMED COPY
SECOND AMENDMENT dated as of June 2,
1998 (this "Amendment"), among THE READER'S
DIGEST ASSOCIATION, INC., a Delaware
corporation (the "Company"), the BORROWING
SUBSIDIARIES party to the Credit Agreement
referred to below ("Borrowing Subsidiaries"),
the undersigned financial institutions party
to the Credit Agreement (the "Lenders"), THE
CHASE MANHATTAN BANK, as administrative agent
for the Lenders (in such capacity, the
"Administrative Agent") and J.P. Morgan
Securities Inc., as syndication agent (in
such capacity, the "Syndication Agent").
A. Reference is made to the Credit Agreement
dated as of November 12, 1996, as amended on September 17,
1997 (the "Credit Agreement") among the Company, the
Borrowing Subsidiaries, the Lenders, the Administrative
Agent and the Syndication Agent. Capitalized terms used but
not otherwise defined herein have the meanings assigned to
them in the Credit Agreement.
B. The Company has requested that the Lenders
amend certain provisions of the Credit Agreement. The
Lenders are willing to do so, subject to the terms and
conditions of this Amendment.
Accordingly, in consideration of the mutual
agreements herein contained and other good and valuable
consideration, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1.01. Amendment to Preamble. The
Preamble to the Credit Agreement is hereby amended by (a)
deleting the reference to "$400,000,000" therein and
replacing it with "$300,000,000" and (b) deleting the
reference to "$40,000,000" therein and replacing it with
"$30,000,000".
SECTION 1.02. Amendment to Section 1.01.
Section 1.01 of the Credit Agreement is hereby amended by:
(a) amending the definition of "Eligible Currency"
by adding the following to the end thereof:
",including the Euro after its adoption by
members of the European Union"; and
(b) inserting in appropriate alphabetical order
the following definitions (which shall apply as of the
Effective Date (as defined in Section 3 herein)):
(i) "'Applicable Rate' means, for any day,
with respect to any Eurocurrency Standby Loan, or
with respect to the facility fees payable
hereunder, as the case may be, the applicable rate
per annum set forth below under the caption
"Eurodollar Spread" or "Facility Fee Rate", as the
case may be, based upon EBITDA, as set forth
below:
Category Four-quarter Facility Fee Eurodollar
EBITDA ($MM) Rate Spread
1 Greater than .200% .300%
300
2 Less than or .225% .400%
equal to 300
but greater
than 200
3 Less than or .250% .500%
equal to 200
but greater
than 100
4 Less than or .375% .875%
equal to 100
Except as set forth below, EBITDA used on any date
to determine the Applicable Rate shall be that for
the period of four fiscal quarters ending at the
fiscal quarter end next preceding the Financial
Statement Delivery Date occurring on or most
recently prior to such date; provided that if any
Financial Statement Delivery Date shall have
occurred and the financial statements required to
have been delivered under Section 5.01(a) or
Section 5.01(b) by such date have not yet been
delivered, the Applicable Rate shall, until such
financial statements shall have been delivered, be
determined by reference to Category 4."
(ii) "'Consolidated Net Income' shall mean
the net income of the Borrower and its
Subsidiaries determined on a consolidated basis in
accordance with GAAP."
(iii) "'EBITDA' means, for any period, the
consolidated net income of the Company and its
consolidated Subsidiaries for such period plus, to
the extent deducted in computing such consolidated
net income for such period, the sum (without
duplication) of (a) income tax expense, (b)
Interest Expense, (c) depreciation and
amortization, (d) non-recurring restructuring
charges, (e) extraordinary losses and (f) the
cumulative effect of changes in accounting
principles, minus, to the extent added in
computing such consolidated net income for such
period the sum (without duplication) of, (a)
consolidated interest income, (b) extraordinary
gains and (c) the cumulative effect of changes in
accounting principles."
(iv) "'Financial Statement Delivery Date'
means the 90th day following the end of each
fiscal year of the Company, and the 45th day
following the end of each of the first three
fiscal quarters in each fiscal year of the
Company."
(v) "'Interest Expense' means, for any
period, the interest expense of the Company and
its consolidated Subsidiaries for such period
determined on a consolidated basis in accordance
with GAAP, including (i) the amortization of debt
discounts to the extent included in interest
expense in accordance with GAAP, (ii) the
amortization of all fees (including fees with
respect to interest rate protection agreements or
other interest rate hedging agreements) payable in
connection with the incurrence of indebtedness to
the extent included in interest expense in
accordance with GAAP and (iii) the portion of any
rents payable under capital leases allocable to
interest expense in accordance with GAAP."
SECTION 1.03. Amendment to Section 2.05(a).
Section 2.05(a) is hereby amended by deleting the reference
to "$40,000,000" therein and replacing it with
"$30,000,000".
SECTION 1.04. Amendment to Section 2.07(a).
Section 2.07(a) of the Credit Agreement is hereby amended by
deleting the phrase "at a rate of %.055 per annum on the
amount of the Commitment of such Lender" in the first
sentence thereof and replacing it with "which shall accrue
at the Applicable Rate on the daily amount of the Commitment
of such Lender".
SECTION 1.05. Amendment to Section 2.09(a).
Section 2.09(a) of the Credit Agreement is hereby amended by
(a) deleting the phrase ".095% per annum" in each of the
first and third clauses thereof and replacing it with "the
Applicable Rate" and (b) deleting clause (iv) of such
Section and replacing it with "(iv) in the case of each
Swingline Loan, a per annum money market rate quoted by the
Swingline Lender plus the Eurodollar Spread plus the
Facility Fee Rate (as set forth in the definition of
"Applicable Rate") plus 0.50% per annum (computed on the
basis of the actual number of days elapsed over a year of
360 days)."
SECTION 1.06. Amendment to Section 4.04(b).
Section 4.04(b) of the Credit Agreement is hereby amended by
deleting the reference to "June 30, 1996" and replacing it
with "March 31, 1998".
SECTION 1.07. Amendment to Article IV.
Article IV of the Credit Agreement is hereby amended by
adding the following new Section 4.13:
"SECTION 4.13. Year 2000 Compliance. The cost to
the Company and its Subsidiaries of (a) any
reprogramming required to permit the proper
functioning, in and following the year 2000, of (x) the
Company's and its Subsidiaries' computer systems and
(y) equipment containing embedded microchips (including
systems and equipment supplied by others or with which
the Company's and its Subsidiaries' systems interface),
(b) the testing of all such systems and equipment, as
so reprogrammed, and (c) the probable consequences of
year 2000 systems remediation issues to the Company and
its Subsidiaries (including, without limitation,
reprogramming errors and the failure of others' systems
or equipment) are not reasonably expected to result in
a Default or a Material Adverse Effect. Except for
such of the reprogramming referred to in the preceding
sentence as may be necessary, the computer and
management information systems of the Company and its
Subsidiaries are and, with ordinary course upgrading
and maintenance, will continue for the term of this
Agreement to be, sufficient to permit each of the
Company and its Subsidiaries to conduct its business
without the occurrence of a Material Adverse Effect."
SECTION 1.08. Amendment to Section 6.02.
Section 6.02 of the Credit Agreement is hereby amended by
adding the following after the last sentence thereof:
"Notwithstanding any of the above, nothing in this
Section 6.02 shall be deemed to prohibit the Company or
its Subsidiaries from entering into a sale and
leaseback transaction with respect to its Canary Wharf
facilities at 11 Westferry Circus, London, England.
The Company agrees that any proceeds from such a sale
and leaseback transaction will be promptly applied to
prepay any amounts outstanding under this Agreement."
SECTION 1.09. Amendment to Section 6.06(e).
Section 6.06(e) of the Credit Agreement is hereby amended to
read in its entirety as follows:
"(e) in an aggregate principal amount outstanding
at any time for all Subsidiaries that, when
aggregated with the amount of debt secured by
Liens permitted pursuant to Section 6.01(m) and
the aggregate book value or sale price of the
assets sold in sale and leaseback transactions
permitted pursuant to Section 6.02 (but not
including the sale and leaseback transaction
described in the last sentence of Section 6.02)
does not exceed $40,000,000."
SECTION 1.10. Amendment to Section 6.07.
Section 6.07 of the Credit Agreement is hereby amended by
deleting such Section in its entirety and by substituting,
as of the Effective Date, the following:
"Consolidated Tangible Net Worth. The Company
will not permit Consolidated Tangible Net Worth at any
time to be less than the amount set forth below for the
time period set forth below:
Until and on 06/30/98: $175,000,000
After 06/30/98 until $150,000,000
12/31/98:
On and after 12/31/98 until
3/31/99: $175,000,000
On and after 03/31/99 until
and on 6/30/99: $175,000,000 plus 25% of
cumulative Consolidated Net
Income from 01/01/99
After 06/30/99 until
12/31/99: $165,000,000
On and after 12/31/99: $175,000,000 plus 25% of
cumulative Consolidated Net
Income from 01/01/99.
SECTION 1.11. Amendment to Schedule 2.01.
Schedule 2.01 to the Credit Agreement is hereby amended by
deleting it in its entirety and replacing it with the new
Schedule 2.01 attached hereto.
SECTION 2. Representations, Warranties and
Agreements. The Company, as to itself and each of its
Subsidiaries, and each Borrowing Subsidiary, as to itself,
hereby represents and warrants to and agrees with each
Lender, the Administrative Agent and the Syndication Agent
that:
(a) The representations and warranties set forth
in Article IV of the Credit Agreement, as amended
hereby, are true and correct in all material respects
on and as of the date hereof with the same effect as if
made on and as of such date, except to the extent such
representations and warranties expressly relate to an
earlier date.
(b) The execution and delivery of this Amendment
and the performance by the Company and each Borrowing
Subsidiary of the Credit Agreement, as amended by this
Amendment, (i) have been duly authorized by all
requisite action and (ii) will not (I) violate (x) any
provision of law, statute, rule or regulation, or of
the certificate of incorporation, by-laws or other
constitutive documents of the Company or any of its
Subsidiaries, (y) any order of any Governmental
Authority or (z) any provision of any indenture, any
agreement for borrowed money, or any other material
agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which any of them or
any of their property is or may be bound, (II) be in
conflict with, result in a breach of or constitute
(alone or with notice or lapse of time or both) a
default under any such indenture, agreement for
borrowed money or other material agreement or
instrument or (III) result in the creation or
imposition of any Lien upon or with respect to any
property or assets now owned or hereafter acquired by
the Company or any of its Subsidiaries.
(c) This Amendment has been duly executed and
delivered by the Company. Each of this Amendment and
the Credit Agreement as amended hereby constitutes a
legal, valid and binding obligation of the Company and
each Borrowing Subsidiary, enforceable against the
Company and each Borrowing Subsidiary in accordance
with its terms, except as enforceability may be limited
by (i) any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and (ii)
general principles of equity.
(d) As of the Effective Date, after giving effect
to this Amendment, no Event of Default or Default has
occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This
Amendment shall become effective as of the date first above
written (the "Effective Date") upon satisfaction of the
following conditions:
(a) The Administrative Agent shall have received
duly executed counterparts hereof which, when taken
together, bear the authorized signatures of the Company
and the Required Lenders.
(b) The Administrative Agent shall have received
such other documents, instruments, certificates and
opinions as it or its counsel shall have reasonably
requested.
(c) The Administrative Agent shall have received
payment for all fees and expenses in connection with
this Amendment, including the reasonable fees, charges
and disbursements of Cravath, Swaine & Moore, counsel
for the Administrative Agent.
SECTION 4. Credit Agreement. Except as
specifically stated herein, the Credit Agreement shall
continue in full force and effect in accordance with the
provisions thereof. As used therein, the terms "Agreement",
"herein", "hereunder", "hereto", "hereof" and words similar
import shall, unless the context otherwise requires, refer
to the Credit Agreement as modified hereby.
SECTION 5. Applicable Law. THIS AMENDMENT SHALL
BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK.
SECTION 6. Counterparts. This Amendment may be
executed in counterparts (and by different parties hereto on
different counterparts), each of which shall constitute an
original but all of which, when taken together, shall
constitute a single instrument.
SECTION 7. Expenses. The Company agrees to
reimburse the Administrative Agent for its out-of-pocket
expenses in connection with this Amendment, including the
reasonable fees, charges and disbursements of Cravath,
Swaine & Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused
this Amendment to be duly executed by their respective
authorized officers as of the date first above written.
THE READER'S DIGEST
ASSOCIATION, INC.
by
/s/ Craig T. Monaghan
Name: Craig T. Monaghan
Title: Vice President &
Treasurer
THE CHASE MANHATTAN BANK,
individually and as
Administrative Agent
by
/s/ Carol A. Ulmer
Name: Carol A. Ulmer
Title: Vice President
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
by
/s/ Diana H. Imhof
Name: Diana H. Imhof
Title: Vice President
BARCLAYS BANK PLC
by
/s/ Terance Bullock
Name: Terance Bullock
Title: Vice President
CITIBANK, N.A.
by
/s/ Theodore J. Beck
Name: Theodore J. Beck
Title: Attorney-In-Fact
COMMERZBANK AG, New York
and/or Grand Cayman Branches
by
/s/ A. Oliver Welsch-Lehmann
Name:A. Oliver Welsch-Lehmann
Title: Assistant Treasurer
by
/s/ Subash R. Viswanathan
Name: Subash R. Viswanathan
Title: Vice President
MELLON BANK, N.A.
by
/s/ David McGowan
Name: David McGowan
Title: Vice President
ISTITUTO BANCARIO SAN PAOLO DI
TORINO
by
/s/ Gerard M. McKenna
Name: Gerard M. McKenna
Title: Vice President
by
/s/ W. Jones
Name: W. Jones
Title: Vice President
NATIONAL WESTMINSTER BANK PLC, NEW YORK BRANCH
by
/s/ Anne Marie Torre
Name: Anne Marie Torre
Title: Vice President
NATIONAL WESTMINSTER BANK PLC, NASSAU BRANCH
by
/s/ Anne Marie Torre
Name: Anne Marie Torre
Title: Vice President
THE SUMITOMO BANK, LIMITED, NEW YORK BRANCH
by
/s/ John C. Kissinger
Name: John C. Kissinger
Title: Joint General Manager
SVENSKA HANDELSBANKEN
by
/s/ Geoffrey Walker
Name: Geoffrey Walker
Title: Senior Vice President
by
/s/ Karl Forsman
Name: Karl Forsman
Title: Vice President
BANQUE NATIONALE DE PARIS
by
/s/ Nuala Marley
Name: Nuala Marley
Title: Vice President
BANQUE NATIONALE DE PARIS
by
/s/ Brian M. Foster
Name: Brian M. Foster Title: Vice President
UNION BANK OF SWITZERLAND, NEW YORK BRANCH
by
/s/ Jennifer Hanf
Name: Jennifer Hanf
Title: Assistant Treasurer
by
/s/ Eduardo Salazar
Name: Eduardo Salazar
Title: Director
ABN AMRO BANK N.V.
by
/s/ Frances O'R. Logan
Name: Frances O'R. Logan
Title: Group Vice President
by
/s/ David Carrington
Name: David Carrington
Title: Vice President
THE FUJI BANK, LIMITED, NEW YORK BRANCH
by
/s/ Raymond Ventura
Name: Raymond Ventura
Title: Vice President & Manager
ING BANK N.V.
by
/s/ M.P. van Achterberg
Name: M.P. van Achterberg
Title: Company Lawyer
by
/s/ J.R. Kuperus
Name: J.R. Kuperus
Title: Company Lawyer
CIBC INC.
by
/s/ Cynthia McCahill
Name: Cynthia McCahill
Title: Executive Director
CIBC Oppenheimer Corp.,
as Agent
Guarantor
THE READER'S DIGEST ASSOCIATION, INC.
by
/s/ Craig T. Monaghan
Name: Craig T. Monaghan
Title: Vice President &
Treasurer
J. P. MORGAN SECURITIES INC., as Syndication Agent
by
/s/ Jeffrey Hwang
Name: Jeffrey Hwang
Title: Vice President
Exhibit 10.28
[RDA Letterhead]
April 10, 1997
Mr. George S. Scimone
Vice President and
President Reader's Digest USA
The Reader's Digest Association, Inc.
Pleasantville, NY 10570-7000
Dear George:
This letter serves to confirm those payments and benefits that you
will receive, subject to and in accordance with the terms and
conditions of this Agreement in connection with a termination of your
employment with the Company.
1. Termination of Employment
1.1 The Company may terminate your employment at any time, with or
without stated reason. You shall receive the benefits provided
hereunder upon the termination of your employment by you for
"Good Reason," as defined in Section 1.2, or the termination of
your employment by the Company, unless such termination is for
"Cause," as defined in Section 3.1 of the Severance Plan. Any
termination by you shall be communicated by written Notice of
Termination indicating the termination provision in this
Agreement relied upon, if any, and the Date of Termination;
provided that the Date of Termination shall in no event be
earlier than 10 business days after the date on which such
Notice of Termination is effective pursuant to Section 15
hereof.
1.2 For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following without your express written
consent:
1.2.1 the assignment to you without your
written consent of any duties materially inconsistent with
your then current position, duties, responsibilities and
status with the Company, or a material change or a
substantial diminution in your then current authority,
reporting responsibilities, titles or offices, or removal
from or failure to re-elect you to any such position or
office except in the event of a termination of your
employment for Cause, death, total disability (as defined
in The Reader's Digest Association, Inc. Retirement Plan)
or mandatory retirement;
1.2.2 a reduction by the Company in your
annual base salary as in effect on the date of this
Agreement or as the same may be increased from time to
time, unless such reduction is part of and consistent with
a good faith management-wide or Company-wide cost cutting
program, and then only if the percentage of your reduction
is no greater than that of the other management personnel;
1.2.3 a relocation without your written
consent to an office located anywhere other than within 50
miles of your primary residence, except for required travel
on Company business to an extent substantially consistent
with your then current business travel obligations;
1.2.4 the failure by the Company to
continue in effect any compensation plan or other fringe
benefit provided by the Company in which you participate on
the date of this Agreement that, by itself or in the
aggregate, is material to your total compensation from the
Company, unless there shall have been instituted a
replacement or substitute plan or fringe benefit providing
comparable benefits or unless such failure is part of and
consistent with a good faith benefit discontinuance
applicable to all of the management personnel of the
Company and then only if the scope of the discontinuance
with respect to you is no greater than that of the other
management personnel; or
1.2.5 the failure of the Company to
obtain a satisfactory agreement from any successor to the
Company to assume and agree to perform this Agreement. The
Company shall use its best efforts to require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of
the businesses or assets of the Company to expressly assume
and agree to perform this Agreement.
1.3 Any termination of your employment by you for "Good Reason"
shall be made within 180 days after the occurrence of the "Good
Reason."
2. Compensation Upon Termination
2.1 If your employment shall be terminated and you are entitled to
benefits under Section 1 of this Agreement then, except as
provided in Section 2.2 and 2.3, you shall receive the following
benefits for each year of the Severance Period (as defined
below):
2.1.1 the Company shall pay to you as
severance pay a total amount equal to the sum of
(a) your highest annual base salary in effect any time
during the 12-month period prior to the Date of
Termination plus
(b) the higher of the following:
(i) the highest amount paid to you under The Reader's
Digest Association, Inc. Management Incentive
Compensation Plan (the "Annual Incentive Plan")
during the three plan years most recently ended
prior to the Date of Termination; or
(ii) the originally approved target amount of the
highest award, if any, under the Annual Incentive
Plan outstanding on the Date of Termination, as
such target amount may have been increased prior
to the Date of Termination.
Any compensation received by you or granted to you in
lieu of an amount paid under the Annual Incentive Plan
for any one-year period (whether in the form of
restricted stock or otherwise) shall be deemed to be
an amount paid to you under the Annual Incentive Plan
for purposes of this Section. Any compensation
receivable by you in lieu of an amount payable under
the Annual Incentive Plan for any period shall be
deemed to be an additional target amount for purposes
of this Section. The amount of any non-cash
compensation received or receivable shall be the
greater of the fair market value of such compensation
on the date of award or the cash amount that would
have been received by you in lieu of such non-cash
compensation.
The aggregate amount of severance payable under this
Section shall be paid in equal installments on a bi-weekly
basis, commencing upon the Date of Termination.
2.1.2 the Company shall maintain in full
force and effect, for your continued benefit for the
Severance Period, all welfare benefit plans and programs or
arrangements in which you participated immediately prior to
the Date of Termination, provided that your continued
participation is possible under the general terms and
conditions of such welfare plans and programs. In the
event that your participation in any such plan or program
is barred, the Company shall provide you with benefits
substantially similar to those which you would have been
entitled to receive under such welfare plans and programs
had your participation not been barred.
2.2 If your employment is terminated by you for "Good Reason" or if
your employment is terminated by the Company other than for
"Cause," then the Severance Period shall be the period of two
years immediately following the Date of Termination.
2.3 If your employment is terminated for Cause, the Company shall
pay you your base salary through the Date of Termination, and
the Company shall have no further obligations to you under this
Agreement.
3. Long-Term Incentive Plan Benefits
3.1 You shall have the right to exercise your outstanding stock
options and stock appreciation rights under the 1989 and 1994
Key Employee Long-Term Incentive Plans (the "Long Term Incentive
Plans") to the extent they are exercisable or would become
exercisable during the Severance Period as if your employment
with the Company continued during the Severance Period. Such
stock options and stock appreciation rights shall continue to
vest during the Severance Period as if your employment with the
Company continued during the Severance Period and, upon
completion of the Severance Period, shall vest and be
exercisable as if your employment terminated at that time by
reason of either (a) an involuntary termination without cause or
a mutual agreement (within the terms of the particular award) or
(b) retirement (within the terms of the particular award), if
applicable.
3.2 Your outstanding performance units, restricted stock and awards
(other than stock options and stock appreciation rights) under
the Long Term Incentive Plans shall continue to be outstanding
and payable during the Severance Period as if your employment
with the Company continued during the Severance Period and, if
applicable, shall vest upon completion of the Severance Period
in accordance with the terms of the award as if your employment
terminated at that time by reason of either (a) an involuntary
termination without cause or a mutual agreement (within the
terms of the particular award) or (b) retirement (within the
terms of the particular award), if applicable. Any such award
that is based on a period of employment shall be payable on a
prorated basis as if your employment had continued during the
Severance Period.
3.2.1 If any such award is subject to
specific performance goals and your employment is
terminated by you for "Good Reason" or your employment is
terminated by the Company other than for "Cause," then the
award shall be payable to the extent such performance goals
are attained.
3.3 If any benefits due under Section 3 cannot be paid under the
existing or amended terms of an applicable plan or award
agreement, the Company shall pay you the value of such benefits
at the time they would otherwise be payable if they were payable
under such terms.
4. Retirement Plan Benefits
4.1 The Company shall pay to you an amount equal to the difference
between your monthly retirement benefit payable under The
Reader's Digest Association, Inc. Retirement Plan (the
"Retirement Plan"), the Excess Benefit Retirement Plan of The
Reader's Digest Association, Inc. (the "Excess Benefit
Retirement Plan") and The Reader's Digest Executive Retirement
Plan (the "Executive Retirement Plan") and the amount that would
have been payable if your age and aggregate periods of service
under those plans included the Severance Period. In addition,
the Severance Period shall be considered to be additional
Credited Service for all purposes (including vesting) under the
Executive Retirement Plan. Any amount payable under this
Section 4.1 shall be payable at the same time and in the same
form as such payments would have been made under the Retirement
Plan.
4.2 Upon completion of the Severance Period, if you are not vested
under the Retirement Plan, the Excess Retirement Plan or the
Executive Retirement Plan, you will receive a lump sum payment
in the amount of the equivalent actuarial value (as determined
under the Retirement Plan) of pension credits that would have
been earned through the end of the Severance Period, without
regard to vesting, with any such payment to be made within 90
days of the end of the Severance Period.
5. Your participation in The Reader's Digest Employees Profit-
Sharing Plan and the Profit -Sharing Benefit Restoration Plan of
The Reader's Digest Association, Inc. (the "Profit-Sharing
Plans") ceases upon your termination of employment with the
Company. However, you shall receive cash payments equal to the
amounts that would have been contributed to your account had
your employment with the Company continued for the Severance
Period, with payments to be made to you by the Company at the
time any contributions have been made for participants in the
Profit-Sharing Plans. In addition, the Severance Period shall
be considered to be additional Credited Service for purposes of
your vesting in any amounts previously contributed to your
account under the Profit-Sharing Plans.
6. Any benefits payable under this Agreement shall be reduced by
the amount of any benefits paid under The Reader's Digest
Association, Inc. Severance Plan for Senior Management or The
Reader's Digest Association, Inc. Income Continuation Plan for
Senior Management.
7. The payment of any amounts or benefits under this Agreement is
expressly conditioned on the receipt by the Company from you of
a duly executed General Waiver and Release of Claims in the form
specified under the Severance Plan, the repayment by you of any
outstanding advances or loans due the Company and the return by
you of all Company property.
8. Any reference to a specific plan in this Agreement shall be
deemed to include any similar plan or program of the Company
then in effect that is the predecessor of, the successor to, or
the replacement for, such specific plan.
9. The Company may withhold from any benefits payable under this
Agreement all federal, state, local or other applicable taxes as
shall be required pursuant to any law or governmental regulation
or ruling.
10. In case of your death while any amounts are still payable to you
under this Agreement, the Company shall pay all such amounts to
your designated beneficiary or, if none has been designated, to
your estate as if your employment had continued until the end of
the Severance Period.
11. The Company shall indemnify you and hold you harmless from any
and all liabilities, losses, costs or damages, including defense
costs and expenses (including, without limitation, fees and
disbursements of counsel incurred by you in any action or
proceeding between the parties to this Agreement or between you
and any third party or otherwise) in connection with all claims,
suits or proceeding relating to or arising from a breach or
alleged breach of this Agreement by the Company.
12. You acknowledge that (i) prior to executing this Agreement, you
had an opportunity to consult with an attorney of your choosing
and review this Agreement with such counsel, (ii) you are
executing this Agreement knowingly and voluntarily and (iii) you
understand all of the terms set forth herein.
13. In the event the Company terminates your employment for Cause
and you dispute the Company's right to do so or you claim that
you are entitled to terminate your employment for Good Reason
and the Company disputes your right to do so, a mediator
acceptable to you and the Company will be appointed within 10
days to assist in reaching a mutually satisfactory resolution,
but will have no authority to issue a binding decision. Such
mediation must be concluded within 60 days of the date of
termination or claim to termination for Good Reason. You agree
that you will not institute any legal proceeding relating to the
matter until the conclusion of such mediation. Should such
mediation fail to reach an acceptable conclusion and you are
successful in any litigation or settlement that issues from such
dispute, you shall be entitled to receive from the Company all
of the expenses incurred by you in connection with any such
dispute, including reasonable attorney's fees.
14. Acts Detrimental to the Company
14.1 You agree that you will not do any of the following during the
Severance Period:
14.1.1 commit any criminal act against the Company or any act
that would constitute "Cause;"
14.1.2 disclose any information likely to be regarded as
confidential and relating to the Company's business;
14.1.3 solicit the Company's employees to work for a
competitor of the Company; or
14.1.4 perform any act detrimental to the Company or its
employees, including, but not limited to, disparaging the
Company, its senior management or its products.
14.2 You agree that any breach or threatened breach of Section 14.1
shall entitle the Company to apply for and to obtain injunctive
relief, which shall be in addition to any and all other rights
and remedies available to the company at law or in equity.
14.3 All of your rights and benefits under this Agreement shall cease
upon any breach by you of Section 14.1 of this Agreement.
15. Miscellaneous
15.1 Notices and other communications provided for herein shall be in
writing and shall be effective upon delivery addressed as
follows:
if to the Company:
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: Senior Vice President, Human Resources
with a copy to
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: General Counsel
or if to you, at the address set forth above,
or to such other address as to which either party shall give
notice in accordance with the foregoing.
15.2 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement may not be
assigned by either party without the consent of the other party.
15.3 Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
15.4 This Agreement constitutes the entire understanding of the
parties hereto with respect to the subject matter hereof and
supersedes any prior agreements, written or oral, with respect
thereto.
15.5 This Agreement may be amended or modified only by a written
agreement duly executed by both of the parties hereto.
15.6 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York applicable to
contracts executed in and to be wholly performed within that
State.
Very truly yours,
The Reader's Digest Association,
Inc.
By GLENDA K. BURKHART
Name: Glenda K. Burkhart
Title: Senior Vice President,
Strategic Planning and Human Resources
Agreed to and accepted as of April 29, 1997:
By: GEORGE S. SCIMONE
Name: George S. Scimone
Exhibit 10.29
[RDA Letterhead]
April 10, 1998
Mr. Gregory G. Coleman
Senior Vice President and Worldwide Publisher
The Reader's Digest Association, Inc.
Pleasantville, NY 10570-7000
Dear Greg:
This letter serves to confirm those payments and benefits that you
will receive, subject to and in accordance with the terms and
conditions of this Agreement in connection with a termination of your
employment with the Company.
1. Termination of Employment
1.1 The Company may terminate your employment at any time, with or
without stated reason. You shall receive the benefits provided
hereunder upon the termination of your employment by you for
"Good Reason," as defined in Section 1.2, or the termination of
your employment by the Company, unless such termination is for
"Cause," as defined in Section 3.1 of the Severance Plan. Any
termination by you shall be communicated by written Notice of
Termination indicating the termination provision in this
Agreement relied upon, if any, and the Date of Termination;
provided that the Date of Termination shall in no event be
earlier than 10 business days after the date on which such
Notice of Termination is effective pursuant to Section 15
hereof.
1.2 For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following without your express written
consent:
1.2.1 the assignment to you without your
written consent of any duties materially inconsistent with
your then current position, duties, responsibilities and
status with the Company, or a material change or a
substantial diminution in your then current authority,
reporting responsibilities, titles or offices, or removal
from or failure to re-elect you to any such position or
office except in the event of a termination of your
employment for Cause, death, total disability (as defined
in The Reader's Digest Association, Inc. Retirement Plan)
or mandatory retirement;
1.2.2 a reduction by the Company in your
annual base salary as in effect on the date of this
Agreement or as the same may be increased from time to
time, unless such reduction is part of and consistent with
a good faith management-wide or Company-wide cost cutting
program, and then only if the percentage of your reduction
is no greater than that of the other management personnel;
1.2.3 a relocation without your written
consent to an office located anywhere other than within 50
miles of your primary residence, except for required travel
on Company business to an extent substantially consistent
with your then current business travel obligations;
1.2.4 the failure by the Company to
continue in effect any compensation plan or other fringe
benefit provided by the Company in which you participate on
the date of this Agreement that, by itself or in the
aggregate, is material to your total compensation from the
Company, unless there shall have been instituted a
replacement or substitute plan or fringe benefit providing
comparable benefits or unless such failure is part of and
consistent with a good faith benefit discontinuance
applicable to all of the management personnel of the
Company and then only if the scope of the discontinuance
with respect to you is no greater than that of the other
management personnel; or
1.2.5 the failure of the Company to
obtain a satisfactory agreement from any successor to the
Company to assume and agree to perform this Agreement. The
Company shall use its best efforts to require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of
the businesses or assets of the Company to expressly assume
and agree to perform this Agreement.
1.3 Any termination of your employment by you for "Good Reason"
shall be made within 180 days after the occurrence of the "Good
Reason."
2. Compensation Upon Termination
2.1 If your employment shall be terminated and you are entitled to
benefits under Section 1 of this Agreement then, except as
provided in Section 2.2 and 2.3, you shall receive the following
benefits for each year of the Severance Period (as defined
below):
2.1.1 the Company shall pay to you as
severance pay a total amount equal to the sum of
(a) your highest annual base salary in effect any time
during the 12-month period prior to the Date of
Termination plus
(b) the higher of the following:
(i) the highest amount paid to you under The Reader's
Digest Association, Inc. Management Incentive
Compensation Plan (the "Annual Incentive Plan")
during the three plan years most recently ended
prior to the Date of Termination; or
(ii) the originally approved target amount of the
highest award, if any, under the Annual Incentive
Plan outstanding on the Date of Termination, as
such target amount may have been increased prior
to the Date of Termination.
Any compensation received by you or granted to you in
lieu of an amount paid under the Annual Incentive Plan
for any one-year period (whether in the form of
restricted stock or otherwise) shall be deemed to be
an amount paid to you under the Annual Incentive Plan
for purposes of this Section. Any compensation
receivable by you in lieu of an amount payable under
the Annual Incentive Plan for any period shall be
deemed to be an additional target amount for purposes
of this Section. The amount of any non-cash
compensation received or receivable shall be the
greater of the fair market value of such compensation
on the date of award or the cash amount that would
have been received by you in lieu of such non-cash
compensation.
The aggregate amount of severance payable under this
Section shall be paid in equal installments on a bi-weekly
basis, commencing upon the Date of Termination.
2.1.2 the Company shall maintain in full
force and effect, for your continued benefit for the
Severance Period, all welfare benefit plans and programs or
arrangements in which you participated immediately prior to
the Date of Termination, provided that your continued
participation is possible under the general terms and
conditions of such welfare plans and programs. In the
event that your participation in any such plan or program
is barred, the Company shall provide you with benefits
substantially similar to those which you would have been
entitled to receive under such welfare plans and programs
had your participation not been barred.
2.2 If your employment is terminated by you for "Good Reason" or if
your employment is terminated by the Company other than for
"Cause," then the Severance Period shall be the period of two
years immediately following the Date of Termination.
2.3 If your employment is terminated for Cause, the Company shall
pay you your base salary through the Date of Termination, and
the Company shall have no further obligations to you under this
Agreement.
3. Long-Term Incentive Plan Benefits
3.1 You shall have the right to exercise your outstanding stock
options and stock appreciation rights under the 1989 and 1994
Key Employee Long-Term Incentive Plans (the "Long Term Incentive
Plans") to the extent they are exercisable or would become
exercisable during the Severance Period as if your employment
with the Company continued during the Severance Period. Such
stock options and stock appreciation rights shall continue to
vest during the Severance Period as if your employment with the
Company continued during the Severance Period and, upon
completion of the Severance Period, shall vest and be
exercisable as if your employment terminated at that time by
reason of either (a) an involuntary termination without cause or
a mutual agreement (within the terms of the particular award) or
(b) retirement (within the terms of the particular award), if
applicable.
3.2 Your outstanding performance units, restricted stock and awards
(other than stock options and stock appreciation rights) under
the Long Term Incentive Plans shall continue to be outstanding
and payable during the Severance Period as if your employment
with the Company continued during the Severance Period and, if
applicable, shall vest upon completion of the Severance Period
in accordance with the terms of the award as if your employment
terminated at that time by reason of either (a) an involuntary
termination without cause or a mutual agreement (within the
terms of the particular award) or (b) retirement (within the
terms of the particular award), if applicable. Any such award
that is based on a period of employment shall be payable on a
prorated basis as if your employment had continued during the
Severance Period.
3.2.1 If any such award is subject to
specific performance goals and your employment is
terminated by you for "Good Reason" or your employment is
terminated by the Company other than for "Cause," then the
award shall be payable to the extent such performance goals
are attained.
3.3 If any benefits due under Section 3 cannot be paid under the
existing or amended terms of an applicable plan or award
agreement, the Company shall pay you the value of such benefits
at the time they would otherwise be payable if they were payable
under such terms.
4. Retirement Plan Benefits
4.1 The Company shall pay to you an amount equal to the difference
between your monthly retirement benefit payable under The
Reader's Digest Association, Inc. Retirement Plan (the
"Retirement Plan"), the Excess Benefit Retirement Plan of The
Reader's Digest Association, Inc. (the "Excess Benefit
Retirement Plan") and The Reader's Digest Executive Retirement
Plan (the "Executive Retirement Plan") and the amount that would
have been payable if your age and aggregate periods of service
under those plans included the Severance Period. In addition,
the Severance Period shall be considered to be additional
Credited Service for all purposes (including vesting) under the
Executive Retirement Plan. Any amount payable under this
Section 4.1 shall be payable at the same time and in the same
form as such payments would have been made under the Retirement
Plan.
4.2 Upon completion of the Severance Period, if you are not vested
under the Retirement Plan, the Excess Retirement Plan or the
Executive Retirement Plan, you will receive a lump sum payment
in the amount of the equivalent actuarial value (as determined
under the Retirement Plan) of pension credits that would have
been earned through the end of the Severance Period, without
regard to vesting, with any such payment to be made within 90
days of the end of the Severance Period.
5. Your participation in The Reader's Digest Employees Profit-
Sharing Plan and the Profit -Sharing Benefit Restoration Plan of
The Reader's Digest Association, Inc. (the "Profit-Sharing
Plans") ceases upon your termination of employment with the
Company. However, you shall receive cash payments equal to the
amounts that would have been contributed to your account had
your employment with the Company continued for the Severance
Period, with payments to be made to you by the Company at the
time any contributions have been made for participants in the
Profit-Sharing Plans. In addition, the Severance Period shall
be considered to be additional Credited Service for purposes of
your vesting in any amounts previously contributed to your
account under the Profit-Sharing Plans.
6. Any benefits payable under this Agreement shall be reduced by
the amount of any benefits paid under The Reader's Digest
Association, Inc. Severance Plan for Senior Management or The
Reader's Digest Association, Inc. Income Continuation Plan for
Senior Management.
7. The payment of any amounts or benefits under this Agreement is
expressly conditioned on the receipt by the Company from you of
a duly executed General Waiver and Release of Claims in the form
specified under the Severance Plan, the repayment by you of any
outstanding advances or loans due the Company and the return by
you of all Company property.
8. Any reference to a specific plan in this Agreement shall be
deemed to include any similar plan or program of the Company
then in effect that is the predecessor of, the successor to, or
the replacement for, such specific plan.
9. The Company may withhold from any benefits payable under this
Agreement all federal, state, local or other applicable taxes as
shall be required pursuant to any law or governmental regulation
or ruling.
10. In case of your death while any amounts are still payable to you
under this Agreement, the Company shall pay all such amounts to
your designated beneficiary or, if none has been designated, to
your estate as if your employment had continued until the end of
the Severance Period.
11. The Company shall indemnify you and hold you harmless from any
and all liabilities, losses, costs or damages, including defense
costs and expenses (including, without limitation, fees and
disbursements of counsel incurred by you in any action or
proceeding between the parties to this Agreement or between you
and any third party or otherwise) in connection with all claims,
suits or proceeding relating to or arising from a breach or
alleged breach of this Agreement by the Company.
12. You acknowledge that (i) prior to executing this Agreement, you
had an opportunity to consult with an attorney of your choosing
and review this Agreement with such counsel, (ii) you are
executing this Agreement knowingly and voluntarily and (iii) you
understand all of the terms set forth herein.
13. In the event the Company terminates your employment for Cause
and you dispute the Company's right to do so or you claim that
you are entitled to terminate your employment for Good Reason
and the Company disputes your right to do so, a mediator
acceptable to you and the Company will be appointed within 10
days to assist in reaching a mutually satisfactory resolution,
but will have no authority to issue a binding decision. Such
mediation must be concluded within 60 days of the date of
termination or claim to termination for Good Reason. You agree
that you will not institute any legal proceeding relating to the
matter until the conclusion of such mediation. Should such
mediation fail to reach an acceptable conclusion and you are
successful in any litigation or settlement that issues from such
dispute, you shall be entitled to receive from the Company all
of the expenses incurred by you in connection with any such
dispute, including reasonable attorney's fees.
14. Acts Detrimental to the Company
14.1 You agree that you will not do any of the following during the
Severance Period:
14.1.1 commit any criminal act against the Company or any act
that would constitute "Cause;"
14.1.2 disclose any information likely to be regarded as
confidential and relating to the Company's business;
14.1.3 solicit the Company's employees to work for a
competitor of the Company; or
14.1.4 perform any act detrimental to the Company or its
employees, including, but not limited to, disparaging the
Company, its senior management or its products.
14.2 You agree that any breach or threatened breach of Section 14.1
shall entitle the Company to apply for and to obtain injunctive
relief, which shall be in addition to any and all other rights
and remedies available to the company at law or in equity.
14.3 All of your rights and benefits under this Agreement shall cease
upon any breach by you of Section 14.1 of this Agreement.
15. Miscellaneous
15.1 Notices and other communications provided for herein shall be in
writing and shall be effective upon delivery addressed as
follows:
if to the Company:
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: Senior Vice President, Human Resources
with a copy to
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: General Counsel
or if to you, at the address set forth above,
or to such other address as to which either party shall give
notice in accordance with the foregoing.
15.2 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement may not be
assigned by either party without the consent of the other party.
15.3 Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition
or unenforceability without invalidating the remaining
provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
15.4 This Agreement constitutes the entire understanding of the
parties hereto with respect to the subject matter hereof and
supersedes any prior agreements, written or oral, with respect
thereto.
15.5 This Agreement may be amended or modified only by a written
agreement duly executed by both of the parties hereto.
15.6 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York applicable to
contracts executed in and to be wholly performed within that
State.
Very truly yours,
The Reader's Digest Association,
Inc.
By GEORGE V. GRUNE
Name: George V. Grune
Title: Chairman and Chief
Executive Officer
Agreed to and accepted as of April 24, 1998:
By: GREGORY G. COLEMAN
Name: Gregory G. Coleman
Exhibit 10.30
[RDA Letterhead]
September 8, 1997
Mr. M. John Bohane
155 Michigan Road
New Canaan, CT 06840
Dear John:
This letter serves to confirm those payments and benefits that
you will receive, subject to and in accordance with the terms and
conditions of this Agreement in connection with a termination of
your employment with the Company.
1. Termination of Employment
1.1 The Company may terminate your employment at any time, with
or without stated reason. You shall receive the benefits
provided hereunder upon the termination of your employment
by you for "Good Reason," as defined in Section 1.2, or the
termination of your employment by the Company, unless such
termination is for "Cause," as defined in Section 3.1 of the
Severance Plan. Any termination by you shall be
communicated by written Notice of Termination indicating the
termination provision in this Agreement relied upon, if any,
and the Date of Termination; provided that the Date of
Termination shall in no event be earlier than 10 business
days after the date on which such Notice of Termination is
effective pursuant to Section 15 hereof.
1.2 For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following without your express
written consent:
1.2.1the assignment to you without your written consent of
any duties materially inconsistent with your then
current position, duties, responsibilities and status
with the Company, or a material change or a
substantial diminution in your then current authority,
reporting responsibilities, titles or offices, or
removal from or failure to re-elect you to any such
position or office except in the event of a
termination of your employment for Cause, death, total
disability (as defined in The Reader's Digest
Association, Inc. Retirement Plan) or mandatory
retirement;
1.2.2a reduction by the Company in your annual base salary
as in effect on the date of this Agreement or as the
same may be increased from time to time, unless such
reduction is part of and consistent with a good faith
management-wide or Company-wide cost cutting program,
and then only if the percentage of your reduction is
no greater than that of the other management
personnel;
1.2.3a relocation without your written consent to an office
located anywhere other than within 50 miles of your
primary residence, except for required travel on
Company business to an extent substantially consistent
with your then current business travel obligations;
1.2.4the failure by the Company to continue in effect any
compensation plan or other fringe benefit provided by
the Company in which you participate on the date of
this Agreement that, by itself or in the aggregate, is
material to your total compensation from the Company,
unless there shall have been instituted a replacement
or substitute plan or fringe benefit providing
comparable benefits or unless such failure is part of
and consistent with a good faith benefit
discontinuance applicable to all of the management
personnel of the Company and then only if the scope of
the discontinuance with respect to you is no greater
than that of the other management personnel; or
1.2.5the failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume
and agree to perform this Agreement. The Company
shall use its best efforts to require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially
all of the businesses or assets of the Company to
expressly assume and agree to perform this Agreement.
1.3 Any termination of your employment by you for "Good Reason"
shall be made within 180 days after the occurrence of the
"Good Reason."
2. Compensation Upon Termination
2.1 If your employment shall be terminated and you are entitled
to benefits under Section 1 of this Agreement then, except
as provided in Section 2.2 and 2.3, you shall receive the
following benefits for each year of the Severance Period (as
defined below):
2.1.1the Company shall pay to you as severance pay a total
amount equal to the sum of
(a) your highest annual base salary in effect any time
during the 12-month period prior to the Date of
Termination plus
(b) the higher of the following:
(i) the highest amount paid to you under The
Reader's Digest Association, Inc. Management
Incentive Compensation Plan (the "Annual
Incentive Plan") during the three plan years
most recently ended prior to the Date of
Termination; or
(ii) the originally approved target amount of the
highest award, if any, under the Annual
Incentive Plan outstanding on the Date of
Termination, as such target amount may have
been increased prior to the Date of
Termination.
Any compensation received by you or granted to you
in lieu of an amount paid under the Annual
Incentive Plan for any one-year period (whether in
the form of restricted stock or otherwise) shall
be deemed to be an amount paid to you under the
Annual Incentive Plan for purposes of this
Section. Any compensation receivable by you in
lieu of an amount payable under the Annual
Incentive Plan for any period shall be deemed to
be an additional target amount for purposes of
this Section. The amount of any non-cash
compensation received or receivable shall be the
greater of the fair market value of such
compensation on the date of award or the cash
amount that would have been received by you in
lieu of such non-cash compensation.
The aggregate amount of severance payable under this
Section shall be paid in equal installments on a bi-
weekly basis, commencing upon the Date of Termination.
2.1.2the Company shall maintain in full force and effect,
for your continued benefit for the Severance Period,
all welfare benefit plans and programs or arrangements
in which you participated immediately prior to the
Date of Termination, provided that your continued
participation is possible under the general terms and
conditions of such welfare plans and programs. In the
event that your participation in any such plan or
program is barred, the Company shall provide you with
benefits substantially similar to those which you
would have been entitled to receive under such welfare
plans and programs had your participation not been
barred.
2.2 If your employment is terminated by you for "Good Reason" or
if your employment is terminated by the Company other than
for "Cause," then the Severance Period shall be the period
of two years immediately following the Date of Termination.
2.3 If your employment is terminated for Cause, the Company
shall pay you your base salary through the Date of
Termination, and the Company shall have no further
obligations to you under this Agreement.
3. Long-Term Incentive Plan Benefits
3.1 You shall have the right to exercise your outstanding stock
options and stock appreciation rights under the 1989 and
1994 Key Employee Long-Term Incentive Plans (the "Long Term
Incentive Plans") to the extent they are exercisable or
would become exercisable during the Severance Period as if
your employment with the Company continued during the
Severance Period. Such stock options and stock appreciation
rights shall continue to vest during the Severance Period as
if your employment with the Company continued during the
Severance Period and, upon completion of the Severance
Period, shall vest and be exercisable as if your employment
terminated at that time by reason of either (a) an
involuntary termination without cause or a mutual agreement
(within the terms of the particular award) or (b) retirement
(within the terms of the particular award), if applicable.
3.2 Your outstanding performance units, restricted stock and
awards (other than stock options and stock appreciation
rights) under the Long Term Incentive Plans shall continue
to be outstanding and payable during the Severance Period as
if your employment with the Company continued during the
Severance Period and, if applicable, shall vest upon
completion of the Severance Period in accordance with the
terms of the award as if your employment terminated at that
time by reason of either (a) an involuntary termination
without cause or a mutual agreement (within the terms of the
particular award) or (b) retirement (within the terms of the
particular award), if applicable. Any such award that is
based on a period of employment shall be payable on a
prorated basis as if your employment had continued during
the Severance Period.
3.2.1If any such award is subject to specific performance
goals and your employment is terminated by you for
"Good Reason" or your employment is terminated by the
Company other than for "Cause," then the award shall
be payable to the extent such performance goals are
attained.
3.3 If any benefits due under Section 3 cannot be paid under the
existing or amended terms of an applicable plan or award
agreement, the Company shall pay you the value of such
benefits at the time they would otherwise be payable if they
were payable under such terms.
4. Retirement Plan Benefits
4.1 The Company shall pay to you an amount equal to the
difference between your monthly retirement benefit payable
under The Reader's Digest Association, Inc. Retirement Plan
(the "Retirement Plan"), the Excess Benefit Retirement Plan
of The Reader's Digest Association, Inc. (the "Excess
Benefit Retirement Plan") and The Reader's Digest Executive
Retirement Plan (the "Executive Retirement Plan") and the
amount that would have been payable if your age and
aggregate periods of service under those plans included the
Severance Period. In addition, the Severance Period shall
be considered to be additional Credited Service for all
purposes (including vesting) under the Executive Retirement
Plan. Any amount payable under this Section 4.1 shall be
payable at the same time and in the same form as such
payments would have been made under the Retirement Plan.
4.2 Upon completion of the Severance Period, if you are not
vested under the Retirement Plan, the Excess Retirement Plan
or the Executive Retirement Plan, you will receive a lump
sum payment in the amount of the equivalent actuarial value
(as determined under the Retirement Plan) of pension credits
that would have been earned through the end of the Severance
Period, without regard to vesting, with any such payment to
be made within 90 days of the end of the Severance Period.
5. Your participation in The Reader's Digest Employees Profit-
Sharing Plan and the Profit Sharing Benefit Restoration Plan
of The Reader's Digest Association, Inc. (the "Profit
Sharing Plans") ceases upon your termination of employment
with the Company. However, you shall receive cash payments
equal to the amounts that would have been computed to your
account had your employment with the Company continued for
the Severance Period, with payments to be made to you by the
Company at the time any contributions have been made for
participants in the Profit-Sharing Plans. In addition, the
Severance Period shall be considered to be additional
Credited Service for purposes of your vesting in any amounts
previously contributed to your account under the Profit
Sharing Plans.
6. Any benefits payable under this Agreement shall be reduced
by the amount of any benefits paid under The Reader's Digest
Association, Inc. Severance Plan for Senior Management or
The Reader's Digest Association, Inc. Income Continuation
Plan for Senior Management.
7. The payment of any amounts or benefits under this Agreement
is expressly conditioned on the receipt by the Company from
you of a duly executed General Waiver and Release of Claims
in the form specified under the Severance Plan, the
repayment by you of any outstanding advances or loans due
the Company and the return by you of all Company property.
8. Any reference to a specific plan in this Agreement shall be
deemed to include any similar plan or program of the Company
then in effect that is the predecessor of, the successor to,
or the replacement for, such specific plan.
9. The Company may withhold from any benefits payable under
this Agreement all federal, state, local or other applicable
taxes as shall be required pursuant to any law or
governmental regulation or ruling.
10. In case of your death while any amounts are still payable to
you under this Agreement, the Company shall pay all such
amounts to your designated beneficiary or, if none has been
designated, to your estate as if your employment had
continued until the end of the Severance Period.
11. The Company shall indemnify you and hold you harmless from
any and all liabilities, losses, costs or damages, including
defense costs and expenses (including, without limitation,
fees and disbursements of counsel incurred by you in any
action or proceeding between the parties to this Agreement
or between you and any third party or otherwise) in
connection with all claims, suits or proceeding relating to
or arising from a breach or alleged breach of this Agreement
by the Company.
12. You acknowledge that (i) prior to executing this Agreement,
you had an opportunity to consult with an attorney of your
choosing and review this Agreement with such counsel, (ii)
you are executing this Agreement knowingly and voluntarily
and (iii) you understand all of the terms set forth herein.
13. In the event the Company terminates your employment for
Cause and you dispute the Company's right to do so or you
claim that you are entitled to terminate your employment for
Good Reason and the Company disputes your right to do so, a
mediator acceptable to you and the Company will be appointed
within 10 days to assist in reaching a mutually satisfactory
resolution, but will have no authority to issue a binding
decision. Such mediation must be concluded within 60 days
of the date of termination or claim to termination for Good
Reason. You agree that you will not institute any legal
proceeding relating to the matter until the conclusion of
such mediation. Should such mediation fail to reach an
acceptable conclusion and you are successful in any
litigation or settlement that issues from such dispute, you
shall be entitled to receive from the Company all of the
expenses incurred by you in connection with any such
dispute, including reasonable attorney's fees.
14. Acts Detrimental to the Company
14.1 You agree that you will not do any of the following during
the Severance Period:
14.1.1 commit any criminal act against the Company or any
act that would constitute "Cause";
14.1.2 disclose any information likely to be regarded as
confidential and relating to the Company's business;
14.1.3 solicit the Company's employees to work for a
competitor of the Company; or
14.1.4 perform any act detrimental to the Company or its
employees, including, but not limited to, disparaging
the Company, its senior management or its products.
14.2 You agree that any breach or threatened breach of Section
14.1 shall entitle the Company to apply for and to obtain
injunctive relief, which shall be in addition to any and all
other rights and remedies available to the company at law or
in equity.
14.3 All of your rights and benefits under this Agreement shall
cease upon any breach by you of Section 14.1 of this
Agreement.
15. Miscellaneous
15.1 Notices and other communications provided for herein shall
be in writing and shall be effective upon delivery addressed
as follows:
if to the Company:
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: Senior Vice President, Human Resources
with a copy to
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: General Counsel
or if to you, at the address set forth above,
or to such other address as to which either party shall give
notice in accordance with the foregoing.
15.2 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective
successors and assigns; provided, however, that this
Agreement may not be assigned by either party without the
consent of the other party.
15.3 Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other
jurisdiction.
15.4 This Agreement constitutes the entire understanding of the
parties hereto with respect to the subject matter hereof and
supersedes any prior agreements, written or oral, with
respect thereto.
15.5 This Agreement may be amended or modified only by a written
agreement duly executed by both of the parties hereto.
15.6 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York applicable
to contracts executed in and to be wholly performed within
that State.
Very truly yours,
The Reader's Digest Association,
Inc.
By:GEORGE G. GRUNE
George V. Grune
Chairman and Chief Executive
Officer
Agreed to and accepted as of March 23, 1998
By: M. JOHN BOHANE
M. John Bohane
Exhibit 10.31
[RDA letterhead]
September 8, 1997
Marcia M. Lefkowitz
2 Whippoorwill Lake Road
Chappaqua, New York 10514
Dear Marcia:
This letter serves to confirm those payments and benefits that
you will receive, subject to and in accordance with the terms and
conditions of this Agreement in connection with a termination of
your employment with the Company.
1. Termination of Employment
1.1 The Company may terminate your employment at any time, with
or without stated reason. You shall receive the benefits
provided hereunder upon the termination of your employment
by you for "Good Reason," as defined in Section 1.2, or the
termination of your employment by the Company, unless such
termination is for "Cause," as defined in Section 3.1 of the
Severance Plan. In addition, if you terminate employment
for any reason after September 1, 2000 you will also be
entitled to the benefits hereunder. Any termination by you
shall be communicated by written Notice of Termination
indicating the termination provision in this Agreement
relied upon, if any, and the Date of Termination; provided
that the Date of Termination shall in no event be earlier
than 10 business days after the date on which such Notice of
Termination is effective pursuant to Section 15 hereof.
1.2 For purposes of this Agreement, "Good Reason" shall mean the
occurrence of any of the following without your express
written consent:
1.2.1the assignment to you without your written consent of
any duties materially inconsistent with your then
current position, duties, responsibilities and status
with the Company, or a material change or a
substantial diminution in your then current authority,
reporting responsibilities, titles or offices, or
removal from or failure to re-elect you to any such
position or office except in the event of a
termination of your employment for Cause, death, total
disability (as defined in The Reader's Digest
Association, Inc. Retirement Plan) or mandatory
retirement;
1.2.2a reduction by the Company in your annual base salary
as in effect on the date of this Agreement or as the
same may be increased from time to time, unless such
reduction is part of and consistent with a good faith
management-wide or Company-wide cost cutting program,
and then only if the percentage of your reduction is
no greater than that of the other management
personnel;
1.2.3a relocation without your written consent to an office
located anywhere other than within 50 miles of your
primary residence, except for required travel on
Company business to an extent substantially consistent
with your then current business travel obligations;
1.2.4the failure by the Company to continue in effect any
compensation plan or other fringe benefit provided by
the Company in which you participate on the date of
this Agreement that, by itself or in the aggregate, is
material to your total compensation from the Company,
unless there shall have been instituted a replacement
or substitute plan or fringe benefit providing
comparable benefits or unless such failure is part of
and consistent with a good faith benefit
discontinuance applicable to all of the management
personnel of the Company and then only if the scope of
the discontinuance with respect to you is no greater
than that of the other management personnel; or
1.2.5the failure of the Company to obtain a satisfactory
agreement from any successor to the Company to assume
and agree to perform this Agreement. The Company
shall use its best efforts to require any successor
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially
all of the businesses or assets of the Company to
expressly assume and agree to perform this Agreement.
1.3 Any termination of your employment by you for "Good Reason"
shall be made within 180 days after the occurrence of the
"Good Reason."
2. Compensation Upon Termination
2.1 If your employment shall be terminated and you are entitled
to benefits under Section 1 of this Agreement then, except
as provided in Section 2.2 and 2.3, you shall receive the
following benefits for each year of the Severance Period (as
defined below):
2.1.1the Company shall pay to you as severance pay a total
amount equal to the sum of
(a) your highest annual base salary in effect any time
during the 12-month period prior to the Date of
Termination plus
(b) the higher of the following:
(i) the highest amount paid to you under The
Reader's Digest Association, Inc. Management
Incentive Compensation Plan (the "Annual
Incentive Plan") during the three plan years
most recently ended prior to the Date of
Termination; or
(ii) the originally approved target amount of the
highest award, if any, under the Annual
Incentive Plan outstanding on the Date of
Termination, as such target amount may have
been increased prior to the Date of
Termination.
Any compensation received by you or granted to you
in lieu of an amount paid under the Annual
Incentive Plan for any one-year period (whether in
the form of restricted stock or otherwise) shall
be deemed to be an amount paid to you under the
Annual Incentive Plan for purposes of this
Section. Any compensation receivable by you in
lieu of an amount payable under the Annual
Incentive Plan for any period shall be deemed to
be an additional target amount for purposes of
this Section. The amount of any non-cash
compensation received or receivable shall be the
greater of the fair market value of such
compensation on the date of award or the cash
amount that would have been received by you in
lieu of such non-cash compensation.
The aggregate amount of severance payable under this
Section shall be paid in equal installments on a bi-
weekly basis, commencing upon the Date of Termination.
2.1.2the Company shall maintain in full force and effect,
for your continued benefit for the Severance Period,
all welfare benefit plans and programs or arrangements
in which you participated immediately prior to the
Date of Termination, provided that your continued
participation is possible under the general terms and
conditions of such welfare plans and programs. In the
event that your participation in any such plan or
program is barred, the Company shall provide you with
benefits substantially similar to those which you
would have been entitled to receive under such welfare
plans and programs had your participation not been
barred.
2.2 If your employment is terminated by you for "Good Reason" or
if your employment is terminated by the Company other than
for "Cause," then the Severance Period shall be the period
of two years immediately following the Date of Termination.
2.3 If your employment is terminated for Cause, the Company
shall pay you your base salary through the Date of
Termination, and the Company shall have no further
obligations to you under this Agreement.
3. Long-Term Incentive Plan Benefits
3.1 You shall have the right to exercise your outstanding stock
options and stock appreciation rights under the 1989 and
1994 Key Employee Long-Term Incentive Plans (the "Long Term
Incentive Plans") to the extent they are exercisable or
would become exercisable during the Severance Period as if
your employment with the Company continued during the
Severance Period. Such stock options and stock appreciation
rights shall continue to vest during the Severance Period as
if your employment with the Company continued during the
Severance Period and, upon completion of the Severance
Period, shall vest and be exercisable as if your employment
terminated at that time by reason of either (a) an
involuntary termination without cause or a mutual agreement
(within the terms of the particular award) or (b) retirement
(within the terms of the particular award), if applicable.
3.2 Your outstanding performance units, restricted stock and
awards (other than stock options and stock appreciation
rights) under the Long Term Incentive Plans shall continue
to be outstanding and payable during the Severance Period as
if your employment with the Company continued during the
Severance Period and, if applicable, shall vest upon
completion of the Severance Period in accordance with the
terms of the award as if your employment terminated at that
time by reason of either (a) an involuntary termination
without cause or a mutual agreement (within the terms of the
particular award) or (b) retirement (within the terms of the
particular award), if applicable. Any such award that is
based on a period of employment shall be payable on a
prorated basis as if your employment had continued during
the Severance Period.
3.2.1If any such award is subject to specific performance
goals and your employment is terminated by you for
"Good Reason" or your employment is terminated by the
Company other than for "Cause," then the award shall
be payable to the extent such performance goals are
attained.
3.3 If any benefits due under Section 3 cannot be paid under the
existing or amended terms of an applicable plan or award
agreement, the Company shall pay you the value of such
benefits at the time they would otherwise be payable if they
were payable under such terms.
4. Retirement Plan Benefits
4.1 The Company shall pay to you an amount equal to the
difference between your monthly retirement benefit payable
under The Reader's Digest Association, Inc. Retirement Plan
(the "Retirement Plan"), the Excess Benefit Retirement Plan
of The Reader's Digest Association, Inc. (the "Excess
Benefit Retirement Plan") and The Reader's Digest Executive
Retirement Plan (the "Executive Retirement Plan") and the
amount that would have been payable if your age and
aggregate periods of service under those plans included the
Severance Period. In addition, the Severance Period shall
be considered to be additional Credited Service for all
purposes (including vesting) under the Executive Retirement
Plan. Any amount payable under this Section 4.1 shall be
payable at the same time and in the same form as such
payments would have been made under the Retirement Plan.
4.2 Upon completion of the Severance Period, if you are not
vested under the Retirement Plan, the Excess Retirement Plan
or the Executive Retirement Plan, you will receive a lump
sum payment in the amount of the equivalent actuarial value
(as determined under the Retirement Plan) of pension credits
that would have been earned through the end of the Severance
Period, without regard to vesting, with any such payment to
be made within 90 days of the end of the Severance Period.
5. Your participation in The Reader's Digest Employees Profit-
Sharing Plan and the Profit Sharing Benefit Restoration Plan
of The Reader's Digest Association, Inc. (the "Profit
Sharing Plans") ceases upon your termination of employment
with the Company. However, you shall receive cash payments
equal to the amounts that would have been computed to your
account had your employment with the Company continued for
the Severance Period, with payments to be made to you by the
Company at the time any contributions have been made for
participants in the Profit-Sharing Plans. In addition, the
Severance Period shall be considered to be additional
Credited Service for purposes of your vesting in any amounts
previously contributed to your account under the Profit
Sharing Plans.
6. Any benefits payable under this Agreement shall be reduced
by the amount of any benefits paid under The Reader's Digest
Association, Inc. Severance Plan for Senior Management or
The Reader's Digest Association, Inc. Income Continuation
Plan for Senior Management.
7. The payment of any amounts or benefits under this Agreement
is expressly conditioned on the receipt by the Company from
you of a duly executed General Waiver and Release of Claims
in the form specified under the Severance Plan, the
repayment by you of any outstanding advances or loans due
the Company and the return by you of all Company property.
8. Any reference to a specific plan in this Agreement shall be
deemed to include any similar plan or program of the Company
then in effect that is the predecessor of, the successor to,
or the replacement for, such specific plan.
9. The Company may withhold from any benefits payable under
this Agreement all federal, state, local or other applicable
taxes as shall be required pursuant to any law or
governmental regulation or ruling.
10. In case of your death while any amounts are still payable to
you under this Agreement, the Company shall pay all such
amounts to your designated beneficiary or, if none has been
designated, to your estate as if your employment had
continued until the end of the Severance Period.
11. The Company shall indemnify you and hold you harmless from
any and all liabilities, losses, costs or damages, including
defense costs and expenses (including, without limitation,
fees and disbursements of counsel incurred by you in any
action or proceeding between the parties to this Agreement
or between you and any third party or otherwise) in
connection with all claims, suits or proceeding relating to
or arising from a breach or alleged breach of this Agreement
by the Company.
12. You acknowledge that (i) prior to executing this Agreement,
you had an opportunity to consult with an attorney of your
choosing and review this Agreement with such counsel, (ii)
you are executing this Agreement knowingly and voluntarily
and (iii) you understand all of the terms set forth herein.
13. In the event the Company terminates your employment for
Cause and you dispute the Company's right to do so or you
claim that you are entitled to terminate your employment for
Good Reason and the Company disputes your right to do so, a
mediator acceptable to you and the Company will be appointed
within 10 days to assist in reaching a mutually satisfactory
resolution, but will have no authority to issue a binding
decision. Such mediation must be concluded within 60 days
of the date of termination or claim to termination for Good
Reason. You agree that you will not institute any legal
proceeding relating to the matter until the conclusion of
such mediation. Should such mediation fail to reach an
acceptable conclusion and you are successful in any
litigation or settlement that issues from such dispute, you
shall be entitled to receive from the Company all of the
expenses incurred by you in connection with any such
dispute, including reasonable attorney's fees.
14. Acts Detrimental to the Company
14.1 You agree that you will not do any of the following during
the Severance Period:
14.1.1 commit any criminal act against the Company or any
act that would constitute "Cause";
14.1.2 disclose any information likely to be regarded as
confidential and relating to the Company's business;
14.1.3 solicit the Company's employees to work for a
competitor of the Company; or
14.1.4 perform any act detrimental to the Company or its
employees, including, but not limited to, disparaging
the Company, its senior management or its products.
14.2 You agree that any breach or threatened breach of Section
14.1 shall entitle the Company to apply for and to obtain
injunctive relief, which shall be in addition to any and all
other rights and remedies available to the company at law or
in equity.
14.3 All of your rights and benefits under this Agreement shall
cease upon any breach by you of Section 14.1 of this
Agreement.
15. Miscellaneous
15.1 Notices and other communications provided for herein shall
be in writing and shall be effective upon delivery addressed
as follows:
if to the Company:
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: Senior Vice President, Human Resources
with a copy to
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Attention: General Counsel
or if to you, at the address set forth above,
or to such other address as to which either party shall give
notice in accordance with the foregoing.
15.2 This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective
successors and assigns; provided, however, that this
Agreement may not be assigned by either party without the
consent of the other party.
15.3 Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such
prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other
jurisdiction.
15.4 This Agreement constitutes the entire understanding of the
parties hereto with respect to the subject matter hereof and
supersedes any prior agreements, written or oral, with
respect thereto.
15.5 This Agreement may be amended or modified only by a written
agreement duly executed by both of the parties hereto.
15.6 This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York applicable
to contracts executed in and to be wholly performed within
that State.
Very truly yours,
The Reader's Digest Association,
Inc.
By: GEORGE V. GRUNE
George V. Grune
Chairman and Chief Executive
Officer
Agreed to and accepted as of December 5, 1997
By: MARCIA M. LEFKOWTIZ
Marcia M. Lefkowitz
Exhibit 10.32
[LOGO]
SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT
Gregory G. Coleman of Hunntigton, NY (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 $75,926 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 $12,505 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 15 day of November, 1991.
Witnesseth:
Michele Daly Gregory G. Coleman
Michele Daly Gregory G. Coleman
Employee
Michele Daly Bill Coplin
Michele Daly Bill Coplin
For The Reader's Digest Association, Inc.
Exhibit 10.33
[LOGO]
SUPPLEMENTAL RETIREMENT BENEFIT AGREEMENT
Marcia Lefkowitz of Chappaqua, NY (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 $56,700 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 $16,569 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 17 day of August, 1988.
Witnesseth:
Gregory A. Buttistello Marcia Lefkowitz
Gregory A. Buttistello Marcia Lefkowitz
Employee
Gregory A. Buttistello Joseph M. Grecky
Gregory A. Buttistello Joseph M. Grecky
For The Reader's Digest Association, Inc.
Exhibit 10.34
EMPLOYMENT,
NONCOMPETITION, CONFIDENTIALITY
AND CONSULTING AGREEMENT
This Employment, Noncompetition, Confidentiality and
Consulting Agreement (this "Agreement") is entered into on the
14th day of November, 1997, between The Reader's Digest
Association, Inc., and Thomas A. Belli (the "Employee").
WITNESSETH:
WHEREAS, the Employee is currently a consultant to The
Reader's Digest Association, Inc. and has been previously
employed by The Reader's Digest Association, Inc. in a number of
positions, including President of QSP, Inc., a wholly-owned
subsidiary of The Reader's Digest Association, Inc.; and
WHEREAS, The Reader's Digest Association, Inc. and the
Employee desire that the Employee be re-employed as the President
of QSP, Inc. and desire to set forth certain terms of the
Employee's employment with the Company (as that term is
hereinafter defined in Section 1 below); and
WHEREAS, in order to protect the business interests of
the Company, The Reader's Digest Association, Inc. desires the
Employee to undertake certain obligations not to compete with the
Company during and following the Employee's employment with the
Company; and
WHEREAS, in order to further protect the Company's
business interests, The Reader's Digest Association, Inc. desires
the Employee to undertake certain other obligations, including to
preserve and protect the Company's Confidential/Proprietary
Information, as defined in this Agreement; and
WHEREAS, The Reader's Digest Association, Inc. and the
Employee wish to provide for the terms and conditions of a
consulting arrangement, under which the Employee will provide
consulting services to the Company following termination of the
Employee's employment with the Company; and
WHEREAS, nothing contained in this Agreement is
intended to change the Company's employment at-will policy
whereby the Company may at any time change the Employee's job
title, duties, compensation, and other terms and conditions of
employment and either the Employee or the Company may terminate
the Employee's employment with the Company at any time and for
any reason.
NOW, THEREFORE, in consideration of the premises and
the mutual covenants and agreements contained herein, The
Reader's Digest Association, Inc. and the Employee agree as
follows:
1. Definitions. For all purposes of this Agreement,
the following terms shall have the definitions set forth below:
"Affiliate" shall mean, with respect to The Reader's
Digest Association, Inc., any other person or entity that,
directly or indirectly, is controlled by, controls, or is under
common control with The Reader's Digest Association, Inc.
"Business" shall mean any and all aspects of the
business being conducted, planned to be conducted or contemplated
to be conducted by QSP, Inc., QSP Distribution Services, Inc.,
and Quality Services Products, Inc. in the Territory described
below, including but not limited to the sale or promotion of
products or services, the procurement of products or services,
the fulfillment of orders for products or services, the provision
of services, including fund-raising activities, and the
distribution of products.
"Company" shall mean The Reader's Digest Association,
Inc., and all of its parents, divisions, subsidiaries, and
Affiliates, and shall also include QSP, Inc., QSP Distribution
Services, Inc., and Quality Services Products, Inc.
"Customers" shall mean all persons (including sponsors
and contact persons and their successors), schools, classes,
clubs, organizations, associations, groups of persons and
entities of any type which are as of the date of his Agreement,
were at any time during the two-year period immediately preceding
the date of this Agreement, were at any time during the
Noncompetition Period, and/or were at any time during the two-
year period immediately preceding the application or enforcement
of this Agreement, customers of QSP, Inc. or Quality Services
Products, Inc., or were solicited or serviced for fund raising
purposes by sales representatives or agents of QSP, Inc. or
Quality Services Products, Inc. for the benefit, in whole or in
part, of QSP, Inc. or Quality Services Products, Inc. during any
such periods of time.
"Noncompetition Period" shall mean any time during
which the Employee is an employee of the Company and a period of
three years after the termination of the Employee's employment
with the Company, regardless of whether termination of the
employment relationship is with or without cause, or voluntary or
involuntary. If, during such three-year period, the Employee
engages in a violation of any provision of this Agreement, the
Noncompetition Period shall continue to run for a three-year
period beginning from the date of the last violation.
"Territory" shall mean (i) the town of Ridgefield,
Connecticut, (ii) Fairfield County, Connecticut, (iii) the town
of New Castle, New York, (iv) Westchester County, New York, (v)
the area within a 75-mile radius of QSP, Inc.'s Ridgefield,
Connecticut offices, (vi) the area within a 75-mile radius of The
Reader's Digest Association, Inc.'s New Castle, New York's
offices, (viii) each and every county in the United States where
QSP, Inc.'s sales representatives do Business as of the date of
this Agreement, did Business at any time during the two-year
period immediately preceding the date of this Agreement, did
Business during the Noncompetition Period, and/or did Business
during the two-year period immediately preceding the application
or enforcement of this Agreement; and (vii) each and every county
and district in Canada where Quality Services Products, Inc.'s
sales representatives do Business as of the date of this
Agreement, did Business at any time during the two-year period
immediately preceding the date of this Agreement, did Business
during the Noncompetition Period, and/or did
Business during the two-year period immediately preceding the
application or enforcement of this Agreement.
2. Employment Terms
a. Position. Subject to the Employee's ability
to document his identity and authorization to work pursuant to
the Immigration Reform and Control Act, and a negative result on
the Employee's drug test, the Employee shall be employed as the
President of QSP, Inc. The Employee shall perform the duties,
undertake the responsibilities and exercise the authority
customarily performed, undertaken and exercised by persons
employed in a similar capacity, subject to the provisions herein
and as otherwise determined by the President, Reader's Digest
USA. The Employee shall report directly to President, Reader's
Digest USA or as otherwise determined by the Chief Executive
Officer of RDA. The Employee acknowledges that his employment
with the Company is at will, and the Company reserves the right
to terminate the Employee at any time, with or without cause.
The Employee further acknowledges and agrees that the Employee
must adhere to the following during his employment:
regular and open communication with the President, Reader's
Digest USA (or successor thereto); regular attendance at staff
meetings;
Employee to promote to all QSP employees the close alliance
of QSP and RDA;
general strategy and budget must be agreed to by President,
Reader's Digest USA (or successor thereto) and adhered to
beginning with FY'98 profit and revenue targets already agreed
upon;
QSP's Operations, Information Systems, Finance, Human
Resources and Public Relations departments and personnel will
have oversight by Readers' Digest functions. Any changes of
senior level personnel at QSP in these organizations will require
the approval and support of the Reader's Digest function head as
well as the President, Reader's Digest USA (or successor thereto)
or her designee;
All organization changes must be approved by President,
Reader's Digest USA (or successor thereto) or her designee;
Any recommended changes in policy, procedure, organization
structure or major personnel changes must be approved by
President, Reader's Digest USA (or successor thereto) or her
designee;
Annual compensation plans (salary, bonus, options) as well
as any "special arrangements" to employees or schools require
written approval of President, Reader's Digest USA (or successor
thereto) or her designee;
Full support and cooperation in QSP's move to Pleasantville
expected to occur in the very near future.
b. Obligations. The Employee agrees to devote
his full business time and attention to the business and affairs
of QSP, Inc. (together with QSP Distribution Services, Inc., and
Quality Services Products, Inc.). The foregoing, however, shall
not preclude the Employee from serving on charitable boards or
committees or managing personal investments, so long as such
activities do not interfere with the performance of the
Employee's responsibilities hereunder.
c. Base Salary. The Company agrees to pay or
cause to be paid to the Employee commencing upon the Employee's
hire date a base salary at the rate of $250,000 per year
(hereinafter referred to as the "Base Salary"), as may be
adjusted from time-to-time in accordance with the Company's
policy, payable on a bi-weekly basis. The parties agree that
upon commencement of payment to the Employee of his base salary
hereunder, all payments due to the Employee under Section 3 of
the Agreement between the Employee and The Reader's Digest
Association, Inc. dated February 18, 1994 (the "1994 Agreement")
shall cease and the Employee hereby waives all claims with
respect thereto.
d. Employee Benefits. The Employee shall be
entitled to participate in all employee benefit plans, policies
and programs maintained by The Reader's Digest Association, Inc.
and made available to executives in salary grade 18 and as may be
in effect and amended or terminated from time-to-time (except as
specifically provided herein). The Employee's participation in
such plans, policies and programs shall be on the same basis and
terms as are applicable to executives of the Company in salary
grade 18 generally. With respect to the Employee's prior
employment with the Company, the Employee will be treated in
accordance with the terms of each applicable benefit plan. The
Employee will be eligible to receive an annual bonus with a
target equivalent to that of an employee in grade level 18
participating in the Company's Management Incentive Compensation
Plan (whether as a participant in that Plan or otherwise, at the
Company's discretion), based on goals established by the Company
(the target for fiscal year ending June 30, 1998 is $90,000). In
addition, the Company shall recommend to the Compensation and
Nominating Committee of the Board of Directors of The Reader's
Digest Association, Inc. that the Employee receive a grant of
10,000 stock options under the Company's Key Employee Long Term
Incentive Plan as soon as practical following employment on such
terms as the Company shall determine in its sole discretion.
e. Payment Upon Execution. In addition to the
consideration provided in Section 3.b., below, and the other
consideration set forth in this Agreement, The Reader's Digest
Association, Inc. shall pay the Employee, within 15 days
following execution of this Agreement by all parties, the sum of
One Hundred Thousand Dollars ($100,000.00).
f. The Employee represents and warrants that the
execution and performance of this Agreement will not violate or
conflict with any agreement or arrangement to which the Employee
is a party or with any other of Employee's obligations.
3. Consulting Arrangement and Waiver of Severance
Pay. Upon termination of the Employee's employment with the
Company for any reason other than cause as hereinafter defined in
Section 3.f., the Company shall, for a three-year period, engage
and retain the Employee as a consultant and the Employee agrees
to serve as a consultant for such three-year period on the
following terms and conditions:
a. The Employee shall provide consulting
services to the Company from time to time at the request of the
Company with respect to such matters relating to the Business as
the Company shall from time to time determine. Such consulting
services shall not generally require more than one hundred hours
per three-month period. The Employee may, during the course of
his or her consulting arrangement, engage or be interested in any
activity that is not in violation of Section 4 of this Agreement.
b. As compensation for such consulting services,
the Employee shall be paid, on no less frequently than a monthly
basis, the same amount of salary per month as the Company paid
the Employee in the last full month immediately preceding the
termination of the Employee's employment with the Company, except
as provided in Section 3.e., below. The Employee shall be
reimbursed for all reasonable and necessary expenses incurred in
the course of providing such consulting services, in accordance
with and subject to the Company's policies with respect to
reimbursement of expenses and upon presentation of expense
vouchers in such detail as the Company may from time to time
require in accordance with such policies; provided that such
expenses were expressly authorized in writing by the Company
prior to being incurred by the Employee. It is expressly
understood and agreed that during any period in which the
Employee is serving as a consultant, he or she shall not be an
employee of the Company or treated or regarded as an employee of
the Company. It is further understood and agreed that, when
serving as a consultant, the Employee shall have no authority to
bind the Company and the Employee shall not hold himself out as
having such authority. At any time during which the Employee
serves as a consultant, he shall be an independent contractor.
During the three-year period referred to in this section, the
Employee shall not be entitled to any employee benefits under any
employee benefit plans or programs of the Company -- except:
(i) the Company will pay the premiums on
behalf of the Employee for continuation coverage required to be
offered pursuant to Section 602 of ERISA (commonly referred to as
"COBRA") under the Company's medical and dental plan(s) and up to
an additional 18 months for any period subsequent to such initial
continuation period that the Employee is permitted under the
terms of such plan(s) to continue participation; and
(ii) such benefits that are generally
available to former employees of the Company, but only if the
Employee fulfills all eligibility and participation requirements
of such plans or programs.
It is understood by the Employee that he may not be eligible to
participate in the existing medical and dental plans(s) after his
employment with the Company has terminated, and it is further
understood by the Employee that the Company is not obligated to
amend any such plan(s) and is not guaranteeing that he will be
eligible to participate in such plan(s) as a former employee.
c. The Employee shall have no obligation to
serve as a consultant during any periods of time in the three-
year period when the Employee is engaged or interested on a full-
time basis in any activity that is not in violation of Section 4
of this Agreement. During such periods, however, the Company
shall continue to pay the compensation set forth in Section 3.b.,
above, except as provided in Section 3.e., below.
d. The monthly payments set forth in Section
3.b., above, shall continue to be paid to the Employee or his
estate in the event of the Employee's disability or death, except
as provided in Section 3.e., below.
e. The Company shall have no obligation to make
any payments or further payments under this Section 3 if the
Employee, during the Noncompetition Period, engages in any acts
or omissions constituting (i) proven embezzlement, dishonesty or
fraud; (ii) conviction of or plea of nolo contendere to a crime
involving the property, business relationships or employees of
the Company or involving moral turpitude; (iii) material breach
or violation of the Employee's obligations under this Agreement;
(iv) material breach of any fiduciary duty owed to the Company;
(v) material violation of The Reader's Digest Code of Conduct or
any violation of those sections of The Reader's Digest Code of
Conduct relating to insider trading; (vi) material breach of The
Reader's Digest Proprietary Information Policy; or (vii)
conspiracy against the Company. Neither the Employee's
obligations under this Agreement nor the length of the
Noncompetition Period shall be affected by any of the acts or
omissions described in this Section 3.e. or by the Company's
exercise of its rights under this Section 3.e.
f. For purposes of this Agreement, "cause" shall
mean any of the following: The Employee's (i) proven
embezzlement, dishonesty or fraud; (ii) conviction of or plea of
nolo contendere to a crime involving the property, business
relationships or employees of the Company or involving moral
turpitude; (iii) material breach or violation of the Employee's
obligations under this Agreement; (iv) willful failure or refusal
to perform the Employee's duties and responsibilities; (v)
material breach of the Employee's fiduciary duty to the Company;
(vi) material violation of The Reader's Digest Code of Conduct or
any violation of those sections of the Reader's Digest Code of
Conduct relating to insider trading; (vii) material breach of the
Reader's Digest Proprietary Information Policy; (viii) conspiracy
against the Company; or (ix) inability to perform the Employee's
job duties as a result of alcoholism or drug abuse, consistent
with applicable law. The Company shall have no obligation to
engage the Employee as a consultant or to make any payments under
Section 3.b., above, if the Employee's employment is terminated
for cause. Neither the Employee's obligations under this
Agreement nor the length of the Noncompetition Period shall be
affected by a termination for cause or by the Company's exercise
of its rights under this Agreement in the event of a termination
for cause.
g. The Employee hereby waives all rights, and
forever releases and discharges the Company from any and all
claims, to any severance payments or other benefits under (i) The
Reader's Digest Association, Inc. Severance Plan for Senior
Management, (ii) the Severance Pay Policy available to employees
of The Reader's Digest Association, Inc., and (iii) any and all
other salary continuation or severance pay plans or programs of
any nature or kind. This waiver and release shall not apply to
the Supplemental Retirement Benefit Agreement ("SRB Agreement")
between the Employee and The Reader's Digest Association, Inc.
dated August 17, 1988, as amended August 10, 1992.
4. Agreement Not to Compete. During the
Noncompetition Period and within the Territory, the employee
shall not, directly or indirectly, whether paid or unpaid, engage
or be interested -- whether as owner, investor (other than as a
holder of less than 2% by value of the outstanding equity
securities of any publicly traded company), partner, lender,
officer, director, proprietor, consultant, advisor, employee,
agent, sales representative, participant, or otherwise -- in any
activity or enterprise that is competitive with the Business.
Without limiting the foregoing, assistance in the preparation or
prosecution of any claim against the Company by present or former
customers, employees, officers, consultants, and/or suppliers
shall be deemed to be an "activity or enterprise that is
competitive with the Business."
5. Agreement Not to Solicit Customers. The Employee
acknowledges that QSP, Inc.'s and Quality Services Products,
Inc.'s relationships with Customers constitute the goodwill of
the Business and that such relationships have been developed over
a long period of time at substantial expense and with substantial
effort on the part of QSP, Inc. and Quality Services Products,
Inc. During the Noncompetition Period, the Employee shall not,
directly or indirectly, or through any business, activity or
enterprise in which the Employee is engaged or interested --
whether as owner, investor, partner, lender, officer, director,
proprietor, consultant, advisor, employee, agent, sales
representative, participant or otherwise -- (i) solicit or
otherwise communicate with any Customer for any purpose that is
competitive with the Business (except on behalf of the Company
during the Employee's employment or consulting arrangement with
the Company); (ii) induce or influence any Customer, supplier or
other person that has a business relationship with QSP, Inc. or
Quality Services Products, Inc. or any sales representative that
has an employment relationship with or represents QSP, Inc. or
Quality Services Products, Inc. to discontinue or reduce the
extent of such relationship; or (iii) assist or cause any other
person or entity to engage in any of the actions in which the
Employee is prohibited from engaging under this Section.
6. Agreement Not to Disparage the Company. The
Employee shall not, at any time during the Noncompetition Period
and at any time thereafter, directly or indirectly commit any act
that may tend to deprive the Company of its goodwill or disparage
the Company or its products, services, business practices,
employees, officers, directors, consultants, sales
representatives or accounts, or any person or entity that has a
business relationship with the Company or the Company's
relationships with any such person or entity.
7. Agreement Not to Employ or Engage Employees or
Sales Representatives. During the Noncompetition Period, the
Employee shall not, directly or indirectly or through any
business, activity or enterprise in which the Employee is engaged
or interested -- whether as owner, investor, partner, lender,
officer, director, consultant, advisor, employee, agent, sales
representative, participant or otherwise -- employ or engage or
otherwise solicit or contact for the purpose of employing or
engaging any person who is then or was at any time within the
Noncompetition Period an employee, consultant, sales
representative or agent of the Company.
8. Records of the Company. The Employee acknowledges
that all the records, documents, accounts, sales literature,
manuals (training, personnel, employment, or otherwise),
pamphlets, and other written materials relating to the Business
(collectively, the "Records") are the sole and exclusive property
of the Company and are of great value to the Company. The
Employee shall not, upon termination of employment with the
Company, directly or indirectly remove or copy any such Records.
Upon termination of the Employee's employment with the Company,
whether voluntary or involuntary, the Employee agrees to
surrender to the Company all Records and copies thereof within
seven days following the termination of employment. The Employee
also agrees not to retain any such Records, including any copies
thereof, unless expressly approved in writing by the Vice
President, Human Resources, of The Reader's Digest Association,
Inc. Upon termination of the Employee's employment with the
Company, whether voluntary or involuntary, the Employee agrees to
participate in an exit interview, at which time the Employee may
be asked whether, and if requested the Employee agrees to certify
under oath that, the Employee has surrendered to the Company all
Records and has complied with all of the other provisions of this
Agreement.
9. Confidential/Proprietary Information.
a. The Employee acknowledges that all
information, knowledge and data, whether in a tangible or
intangible form, concerning (i) Customers, the identity and size
of Customers, (ii) the identity of other employees of the Company
and sales representatives employed by or representing QSP, Inc.
and Quality Services Products, Inc., (iii) sales and marketing
information of the Company, (iv) the Company's arrangements,
contracts and relationships with its suppliers, distributors,
facilitators and fulfillment houses, (v) costs, purchase and
pricing information of the Company, (vi) business, financial,
public relations or technical information, (vii) any matter that
gives the Company an advantage over its competitors or over
persons outside the Company seeking to learn more about the
Company's business or operations, (viii) the business plans,
strategic plans, practices, concepts, ideas, research,
techniques, methods,
and procedures of the Company, (ix) the know-how developed, used,
and contemplated for use in connection with the Business and (x)
actual or potential claims or suits by or against the Company
(collectively, "Confidential/Proprietary Information") belongs to
the Company, is confidential and/or proprietary, has been
obtained by the company at great cost and over a long period of
time and is of great value to the Company. The term
Confidential/Proprietary Information shall not include any
information, knowledge or data that is or becomes common
knowledge within the industry (other than through a violation or
breach of this Agreement or violation or breach of any other
obligation of confidentiality by any person or entity) or is
obtained by the Employee from third parties who obtained such
information (other than through a violation or breach of any
agreement or other obligation of confidentiality). The fact that
Confidential/Proprietary Information has been disclosed to a
limited number of outsiders by the Company shall not deprive the
information, knowledge or data of its proprietary or confidential
status. The Employee acknowledges that he has or will become
privy to such Confidential/Proprietary Information by virtue of
his employment with the Company.
b. For as long as the Employee is in possession
of any Confidential/Proprietary Information (including during and
after the Noncompetition Period), the Employee shall hold and
maintain in strict confidence, and shall not directly or
indirectly use, divulge, furnish or make accessible to any person
or entity not expressly authorized by the Company to receive such
information, any Confidential/Proprietary Information.
c. In the event the Employee or anyone on the
Employee's behalf are served with or subject to a legal demand,
legal obligation, court order or request for disclosure of any
Confidential/Proprietary Information, the Employee shall provide
The Reader's Digest Association, Inc. with notice as soon as
practicable and use his best efforts (at the Company's expense)
to oppose and/or adjourn any such disclosure and to afford the
Company the opportunity to oppose such disclosure lawfully.
d. The Employee agrees that the terms of this
Agreement are confidential and may not be disclosed to any third
party other then his legal and financial advisors and immediate
family (spouse and children) who shall in turn agree not to
disclose the terms to any third party.
10. Enforcement.
a. The Employee acknowledges that any breach of
Sections 1 through 9 of this Agreement would result in immediate
and irreparable injury to the Company for which the Company will
not have any adequate remedy at law. The Company shall be
entitled, in addition to all other remedies, to a temporary and
permanent injunction and/or decree for specific performance of
the terms of Sections 1 through 9 of this Agreement, without the
necessity of showing any actual damages, posting a bond or
furnishing other security.
b. The Employee hereby consents to the
jurisdiction over his or her person in the State of Connecticut
and agrees that service of a summons and complaint by mail to the
address listed in Section 13 shall be, or shall be deemed to be,
effective service over his or her person, to the extent permitted
by law. In addition, the Employee agrees that the courts located
in the state of Connecticut shall be the exclusive forum for any
dispute or claim arising under or in connection with this
Agreement.
c. In any action in which the Company obtains a
preliminary or permanent injunction or any other relief, the
Company shall be entitled to a judgment or award for
reimbursement of its legal costs, including but not limited to
reasonable attorneys' fees.
d. The Company has the right, exercisable at any
time in its sole discretion, to seek enforcement of the
provisions of this agreement for a period of time less than the
Noncompetition Period and in areas less than the full Territory,
to seek enforcement as to some but not all matters protected by
this Agreement, and to seek partial enforcement of any matter
protected by this Agreement.
11. Severability. If any clause or provision of this
Agreement, or portion thereof, shall be held by any court or
other tribunal of competent jurisdiction to be illegal, invalid
or unenforceable, the remainder of such clause or provision shall
not be affected thereby and shall be given full effect, without
regard to the invalid portion. It is the intention of the
parties that, if any court or other tribunal of competent
jurisdiction construes any clause or provision of this Agreement,
or any portion thereof, to be illegal, invalid or unenforceable,
such court or tribunal shall, only to the extent necessary to
ensure the legality, validity, or enforceability thereof, either
strike or delete such clause or provision or portion thereof or
reduce the duration, area, or other aspect of such provision,
and, in its reduced form, such provision shall then be
enforceable and shall be enforced.
12. Miscellaneous.
a. All of the WHEREAS recitals set forth at the
beginning of this Agreement are integral parts of this Agreement
and are incorporated into this Agreement by reference.
b. The Employee acknowledges that he is not relying
on any representations, statements, promises, or other writings
in entering into this Agreement, which sets forth the parties'
final and entire agreement and supersedes any and all prior and
contemporaneous understandings, obligations, agreements and
representations with respect to the subject matter hereof, except
for the SRB Agreement and the 1994 Agreement (as amended hereby),
which continue in full force and effect.
c. This Agreement shall inure to the benefit of and
be binding upon the Company, its successors and assigns, and upon
the Employee, the Employee's heirs, administrators and legal
representatives, but no right or obligation hereunder may be
assigned or delegated, except by the Company to an entity that
succeeds to or acquires any of the Company's assets, whether by
purchase, merger, consolidation or otherwise. QSP, Inc. shall be
deemed a third party beneficiary of this Agreement entitled to
enforce the terms of this Agreement as if a party hereto.
d. No failure or delay by either party in exercising
any right, option, power, or privilege hereunder shall operate as
a waiver thereof, nor shall any single or partial exercise
thereof preclude any other or further exercise thereof or the
exercise of any other right, option, power or privilege.
e. This Agreement may be amended, modified, waived or
terminated only by a writing signed by The Reader's Digest
Association, Inc. and the Employee.
f. This Agreement shall be governed by the internal
laws of the State of Connecticut, and no other state's or
country's laws shall apply, even if they would otherwise govern
as a result of the application of the rules of Connecticut or any
other state or country governing choice of laws.
g. Neither party to this Agreement shall be deemed to
have drafted any clause or provision of this Agreement for
purposes of construing any clause or provision of this Agreement.
The titles and headings of this Agreement and all sections of
this Agreement are for purposes of convenience only, form no part
of this Agreement, and shall not be used in interpreting this
Agreement.
h. By the Employee's signature below, the Employee
acknowledges that he has had the opportunity to retain counsel
of the Employee's own choosing in connection with his
consideration of this Agreement, has had adequate opportunity and
time to consider the terms of this Agreement, is fully aware of
and fully understands all of the provisions of this Agreement and
enters into this Agreement freely, voluntarily and without duress
or coercion, physical or otherwise.
i. The Employee shall disclose the existence of this
Agreement to any person or entity that he seeks to have an
interest in or become employed or retained by or affiliated or
associated with during the Noncompetition Period. The Employee
also agrees to promptly notify The Reader's Digest Association,
Inc. in writing of the names, telephone numbers and addresses of
each and every person and entity with whom he interviews or is in
contact for purposes of future employment, retention,
association, affiliation or ownership, if such person or entity
engages in a business that in any manner competes with the
Business. The Employee further agrees to notify promptly The
Reader's Digest Association Inc. in writing of the name,
telephone number and address of any person or entity that he
plans or has agreed to become employed by, perform work for,
provide services to, become associated or affiliated with, or
have an interest in during the Noncompetition Period, regardless
of whether such entity or person engages in a business that is
competitive with the Business.
13. Notices. All notices and communications under this
Agreement shall be deemed to be given, and service shall be or
shall be deemed to be effective, when received (a) personally by
hand or (b) by Federal Express or its equivalent, addressed as
follows:
if to the Company:
Vice President, Human Resources
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, New York 10570
with a required copy to:
General Counsel
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, New York 10570
if to the Employee:
Thomas A. Belli
4 Taunton Hill Road
Newtown, Connecticut 06470
or to such other address(es) as any party may furnish to the
other in writing in accordance with this Section.
IN WITNESS WHEREOF, The Reader's Digest Association,
Inc. and the Employee have executed this Agreement on the date
first set forth above.
THE READER'S DIGEST ASSOCIATION,
INC.
By: MARCIA M. LEFKOWITZ
Marcia M. Lefkowitz
Date: November 14, 1997
By: THOMAS A. BELLI
Thomas A. Belli
conf\belli97
