SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported: October 27, 1999
THE READER'S DIGEST ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-10434 13-1726769
(State or other juris- (Commission File (I.R.S. Employer
diction of incorporation Number) Identification No.)
or organization)
Pleasantville, New York 10570-7000
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:
(914) 238-1000
Page 1 of __ pages.
ITEM 5. Other Events.
Filed herewith as Exhibit 99.1 is a copy of the
company's news release, issued today, relating to the Company's
Earnings Release for the quarter ended September 30, 1999.
ITEM 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
(a) Financial statements of business acquired
Not applicable
(b) Pro forma financial information
Not applicable
(c) Exhibits
Number Description
99.1 Press Release of The Reader's Digest
Association, Inc. dated October 27, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
THE READER'S DIGEST ASSOCIATION, INC.
(Registrant)
Date: October 27, 1999 /s/GEORGE S. SCIMONE
George S. Scimone
Senior Vice President and
Chief Financial Officer
EXHIBIT INDEX
Exhibit No. Description
99.1 Press Release of The Reader's Digest
Association, Inc. dated October 27, 1999
Contacts: Investor Relations: William H. Magill, 914-244-7683
News Media: Stephen J. Morello, 914-244-7717
READER'S DIGEST ANNOUNCES FIRST QUARTER
EARNINGS OF $0.26 PER SHARE,
UP $0.24 OVER LAST YEAR'S PERIOD
Operating Profit Climbs 134 Percent, with Significant
Increases
for International Magazines and
Global Books and Home Entertainment
OPERATING PROFIT MARGIN MORE THAN DOUBLES
PLEASANTVILLE, NY, October 27, 1999 -- The Reader's Digest
Association, Inc. (NYSE: RDA, RDB) today announced earnings
of $0.26 per share for the fiscal 2000 first quarter ended
September 30, 1999, sharply higher from $0.02 per share a
year ago. Operating profit of $38.8 million increased 134
percent from $16.6 million in the 1999 quarter. Revenues
were down 8 percent compared with last year, on a foreign-
exchange adjusted basis, as a result of the planned strategic
reductions in unprofitable activities. Operating profit
margins more than doubled to 7 percent from 3 percent a year
ago.
The improved profitability with lower revenues was
anticipated as a result of the Company's strategic plan
initiated in July 1998. Under the plan, the Company is
eliminating the least productive of its promotional mailings
and other unprofitable business programs. The new marketing
approach has had the desired effect of producing higher
operating profits on a smaller revenue base. The Company is
using the increased profits to invest in a series of growth
initiatives.
"Reader's Digest showed tremendous vitality this quarter,
maintaining the progress we made for the full fiscal year
1999 in improving profits and increasing margins. We
continue to expect significant operating profit growth in
fiscal year 2000. Our outlook for the year reflects the
positive effects of Books Are Fun and our financial services
partnerships, offset by the negative effects of significant
investments in new business activities," said Thomas O.
Ryder, Reader's Digest chairman and chief executive officer.
"As a result of revenue declines more modest than previously
expected for the year and the acquisition of Books Are Fun in
October, we now believe that revenues for the full fiscal
year 2000 will be more or less flat compared with last year."
Ryder added: "The Company continues ahead of schedule with
the program we initiated a year ago to reduce costs by re-
engineering and eliminating unprofitable business processes.
This program is continuing to produce the desired results.
Global Books and Home Entertainment profits more than
doubled, driven largely by results in the United States and
Europe, because of reduced mail quantities and higher
response rates to fewer, more popular products."
Ryder continued, "International Magazines staged a dramatic
resurgence by aggressively following our program of reducing
unprofitable activities. As a result, we more than doubled
our magazine profits in France, Benelux, Germany, Norway and
Denmark. The profitability of our U.S. Magazine business
also increased as a result of our planned reduction in the
circulation rate base. We chose to invest these improved
results in developing new channels, such as direct response
television and non-sweepstakes direct mail."
In line with its strategic plan, the Company also recently
initiated new-business ventures designed to provide revenues
over the long term that contribute to the Company's
profitability.
"By getting into profitable new ventures, in effect we are
replacing the revenue that we strategically reduced through
the elimination of unproductive programs with new revenue
sources that have long-term potential for strong earnings
growth," Ryder said.
Recently announced initiatives included:
Acquisition of Books Are Fun, the leading display
marketer of books and gifts, a deal which provides immediate
profitability and enhances Reader's Digest access to a
distribution channel for its own products.
Investment in and partnering with BrandDirect, one of
the nation's largest operators of membership clubs, to
leverage relationships with customers and the strength of the
Reader's Digest brand through the development of Reader's
Digest-branded membership clubs.
Partnerships to create co-marketed branded financial
service products, including insurance through Torchmark
Corporation (in the United States and Canada) and American
International Group (in 26 other countries), and co-branded
and co-marketed credit cards with First USA Bank.
Start-up of gifts.com, a premium online gift-shopping
service, with its Good Catalog Company subsidiary and
StarTek, Inc. (NYSE: SRT). gifts.com will be launched
nationally on November 1.
Operating profit for the fiscal 2000 first quarter increased
significantly as a result of the strategic reduction in the
number of mailings and mail quantities within mailings, which
reduced product and promotion costs. Planned lower mail
quantities resulted in improved customer response rates in
most developed markets around the world, especially in the
United States. Additionally, overhead costs were lower,
primarily as a result of initiatives to re-engineer critical
processes and to eliminate or sell marginal businesses.
Operating profit improved dramatically in Germany because of
revenue growth resulting from continued strong product flow,
a more profitable product mix and reduced overhead costs. In
addition, the Company's operations in Russia experienced
sharply reduced losses and revenues compared with last year.
Earnings for the quarter also reflected lower foreign
exchange translation losses, principally related to business
activities in Russia, and a gain on the sale of American
Health magazine.
Results for the first fiscal quarter are summarized below:
Millions of dollars
Except earnings per Reported Reported Percent
share 1Q 2000 1Q 1999 change
Revenues $519.2 $579.7 (10)%
Operating profit $38.8 $16.6 134%
Operating profit margin 7% 3% 4 pts.
Net income $28.6 $2.5 N/M
Basic and diluted
earnings per share $0.26 $0.02 N/M
N/M - not meaningful
During the first quarter of fiscal 1999, the Company reported
a change in accounting principles related to the calculation
of the market-related value of pension plan assets, which
affects the recognition of previously unrecognized gains or
losses. Fiscal 1999 first quarter results shown in this
table are before the cumulative effect of this change in
accounting principles for pension assets of $40.5 million
before taxes or $0.24 per share.
Income statements of reported results for the first quarter
are attached in Table 1 of 2.
In the first quarter of fiscal 2000, the Company modified its
segment reporting information to include other businesses.
Other Businesses includes the activities of its catalog,
financial services, Internet and other non-core businesses.
OPERATING SEGMENT RESULTS
[The discussion below compares first quarter fiscal 2000 with
first quarter fiscal 1999. See Table 2 of 2 for operating
segment results.]
Operating profit for Global Books and Home Entertainment
increased significantly to $40.9 million in the first quarter
of fiscal 2000, up 138 percent, compared with $17.2 million
in the first quarter of fiscal 1999. Improved profitability
in the United States and Europe, particularly Germany and
Russia, accounted for most of the increase. In the United
States, operating profit improved from reductions in
promotion costs from fewer mailings and mail quantities, and
other re-engineering cost reductions as well as sharply
higher response to the Select Editions mailing. In Germany,
improved operating profit reflected continued, strong
responses to mailings, a more profitable product mix, and
reduced costs from re-engineering efforts. In Russia, the
Company scaled back operations because of the economic crisis
in that country.
Revenues decreased 15 percent in the first quarter of fiscal
2000 to $319.7 million, compared with $375.4 million in the
first quarter of fiscal 1999. Excluding the adverse effect
of changes in foreign currency exchange rates, revenues
decreased 12 percent. The revenue decline was primarily
attributable to the continued strategic reduction in the
number of mailings to marginal customers mostly in the United
States and other developed markets for general books
products. In the United Kingdom, the reduction in revenue
was due to a change in music product mix. These reductions
were partially offset by successful launches of Select
Editions products in Eastern Europe and Latin America.
Operating profit for U.S. Magazines in the first quarter of
fiscal 2000 was $3.4 million, compared with $4.3 million in
the first quarter of fiscal 1999. The decrease was primarily
the result of investment in the development of new marketing
channels for promoting U.S. Magazines, as well as lower
revenues of Reader's Digest magazine from a planned reduction
in the circulation rate base. Lower production and promotion
costs for Reader's Digest magazine offset a portion of the
decline.
Revenues decreased 5 percent in the first quarter of fiscal
2000 to $118.0 million, compared with $124.5 million in the
first quarter of fiscal 1999. The decrease in revenues was
attributable to lower subscription and advertising revenue
for Reader's Digest magazine, a decline in revenues from
American Health and slightly lower revenues at QSP.
Partially offsetting these decreases were revenues from
American Woodworker, which was acquired in the second quarter
of fiscal 1999.
Operating profit for International Magazines improved
significantly in the first quarter of fiscal 2000 to $0.8
million, compared with a loss of $4.8 million in the first
quarter of fiscal 1999, primarily as a result of subscription
price increases in many markets and lower promotion costs
from a strategic reduction in promotional mailings.
Revenues decreased 9 percent in the first quarter of fiscal
2000 to $72.6 million, compared with $79.4 million in the
first quarter of fiscal 1999. Excluding adverse effect of
changes in foreign currency exchange rates, revenue decreased
5 percent. We strategically reduced circulation levels for
Reader's Digest magazine in most markets to improve
profitability. The decline in revenue from fewer
subscriptions was partially offset by price increases in many
markets. Operations in Russia were also scaled back in
response to the economic crisis in that country last year
and, as a result, there were 70 percent fewer subscriptions
sold this year than in the first quarter of fiscal 1999.
Operating losses from Other Businesses amounted to $6.3
million in the first quarter of fiscal 2000. These losses
consist primarily of planned start-up costs for gifts.com and
costs for other new businesses being developed. These costs
offset profits from Good Catalog Company in the quarter.
The Reader's Digest Association, Inc. is a global publisher
and direct marketer of products that inform, enrich,
entertain and inspire people of all ages and all cultures
around the world. Worldwide revenues were $2.5 billion for
the fiscal year ended June 30, 1999. Global headquarters are located at
Pleasantville, New York.
This news release includes "forward-looking statements"
within the meaning of the U.S. federal securities laws.
Forward-looking statements include any statements that
address future results or occurrences. These forward-looking
statements inherently involve risks and uncertainties that
could cause actual future results and occurrences to differ
materially from the forward-looking statements. The Reader's
Digest Association, Inc.'s filings with the Securities and
Exchange Commission, including its reports on Forms 10-K, 10-
Q and 8-K, contain a discussion of the factors that could
affect future results and occurrences.
[2 Tables Follow]
Table 1 of 2
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Condensed Statements of Income
Three-month periods ended September 30, 1999 and 1998 (a)
(In millions, except per share data) September 30, Percentage
(unaudited) 1999 1998 Change
Revenues $519.2 $579.7 (10%)
Product, distribution and editorial 182.6 217.2 (16%)
expenses
Promotion, marketing and administratives 297.8 345.9 (14%)
expenses
Operating profit 38.8 16.6 134%
Other income (expense), net 7.0 (12.6) N/M
Income before provision for income taxes 45.8 4.0 N/M
Provision for income taxes 17.2 1.5 N/M
Income before cumulative effect of
change in accounting principles 28.6 2.5 N/M
Cumulative effect of change in
accounting principles for pension assets --- 25.3 N/M
net of tax provision of $15.2)
Net income $28.6 $27.8 2.9%
Weighted average common shares 107.4 107.2 ----
outstanding
Basic and diluted earnings per share:
Before cumulative effect of change in $0.26 $0.02 N/M
accounting principles
Cumulative effect of change in --- 0.24 N/M
accounting principles
Basic and diluted earnings per share $0.26 $0.26 ---
Dividends per common share $0.05 $0.225 (78%)
N/M - Not meaningful.
(a) The company reports on a fiscal year beginning July 1. The three-month
periods ended September 30, 1999 and 1998 are the first fiscal quarters
of fiscal year 2000 and fiscal year 1999, respectively. Operating
results for any interim period are not necessarily indicative of the
results for an entire year.
Table 2 of 2
The Reader's Digest Association, Inc. and Subsidiaries
Revenues and Operating Profit by Business Segments
Three-month periods ended September 30, 1999 and 1998
(In millions) September 30, Percentage
(unaudited) 1999 1998 Change
REVENUES
Global Books and Home Entertainment $319.7 $375.4 (15%)
U.S. Magazines 118.0 124.5 (5%)
International Magazines 72.6 79.4 (9%)
Other Businesses 8.9 0.4 N/M
Total Revenues $519.2 $579.7 (10%)
OPERATING PROFIT (LOSS)
Global Books and Home Entertainment $40.9 $17.2 138%
U.S. Magazines 3.4 4.3 (21%)
International Magazines 0.8 (4.8) 117%
Other Businesses (6.3) (0.1) N/M
Total Operating Profit $38.8 $16.6 134%
N/M - Not meaningful.
