FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number: 1-10434
THE READER'S DIGEST ASSOCIATION, INC.
(Exact name of registrant as specified in its charter)
Delaware 13-1726769
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
Pleasantville, New York 10570-7000
(Address of principal executive offices) (Zip Code)
(914) 238-1000
(Registrant's telephone number, including area code)
----------------------------------------------
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 [ ]
As of April 28, 2000, the following shares of the registrant's common stock were
outstanding:
Class A Nonvoting Common Stock, $0.01 par value: 92,814,123 shares
Class B Voting Common Stock, $0.01 par value: 12,432,164 shares
Page 1 of 22 pages.
<PAGE>
THE READER'S DIGEST ASSOCIATION, INC. AND SUBSIDIARIES
Index to Form 10-Q
(unaudited)
March 31, 2000
Page No.
================================================================================
Part I - Financial Information:
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Condensed Financial Statements:
Consolidated Condensed Statements of Income
for the three-month and nine-month periods ended March 31, 2000 and 1999 3
Consolidated Condensed Balance Sheets
as of March 31, 2000 and June 30, 1999 4
Consolidated Condensed Statements of Cash Flows
for the nine-month periods ended March 31, 2000 and 1999 5
Notes to Consolidated Condensed Financial Statements 6
Management's Discussion and Analysis
of Financial Condition and Results of Operations 11
Part II - Other Information 20
================================================================================
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Condensed Statements of Income
Three-month and nine-month periods ended March 31, 2000 and 1999
(In millions, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three-month period ended Nine-month period ended
March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Revenues $ 620.4 $ 605.0 $ 1,983.6 $ 2,001.7
Product, distribution and editorial 218.4 228.9 708.5 755.5
expenses
Promotion, marketing and
administrative expenses 361.6 341.8 1,049.7 1,096.4
Other operating items 9.3 -- 9.3 31.0
----- ----- ------- -------
Operating profit 31.1 34.3 216.1 118.8
Other income, net 4.5 5.8 14.0 69.0
----- ----- ------- -------
Income before provision for
income taxes 35.6 40.1 230.1 187.8
Provision for income taxes 10.5 15.1 79.6 73.8
----- ----- ------- -------
Income before cumulative effect of
change in accounting principles 25.1 25.0 150.5 114.0
Cumulative effect of change in
accounting principles for pension
assets (net of tax provision
of $15.2) -- -- -- 25.3
----- ----- ------- -------
Net income $ 25.1 $ 25.0 $ 150.5 $ 139.3
===== ===== ======= =======
Basic earnings per share:
Weighted-average common shares
outstanding 106.2 107.3 106.7 107.2
Before cumulative effect of
change in accounting principles $ 0.23 $ 0.23 $ 1.40 $ 1.05
Cumulative effect of change in
accounting principles -- -- -- 0.24
----- ----- ------- -------
Basic earnings per share $ 0.23 $ 0.23 $ 1.40 $ 1.29
===== ===== ======= =======
Diluted earnings per share:
Adjusted weighted-average common
shares outstanding 107.4 108.3 107.7 107.7
Before cumulative effect of
change in accounting principles $ 0.23 $ 0.23 $ 1.39 $ 1.05
Cumulative effect of change in
accounting principles -- -- -- 0.24
----- ----- ------- -------
Diluted earnings per share $ 0.23 $ 0.23 $ 1.39 $ 1.29
===== ===== ======= =======
Dividends per common share $ 0.05 $ 0.05 $ 0.15 $ 0.325
===== ===== ======= =======
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
As of March 31, 2000 and June 30, 1999
(In millions)
(unaudited)
March 31, June 30,
2000 1999
Assets
Cash and cash equivalents $ 157.8 $ 413.4
Receivables, net 322.3 319.9
Inventories, net 145.6 94.9
Prepaid expenses and other current assets 339.3 318.3
-------- --------
Total current assets 965.0 1,146.5
Marketable securities 406.5 20.9
Property, plant and equipment, net 143.9 148.4
Intangible assets, net 400.8 68.5
Other noncurrent assets 273.3 326.2
-------- --------
Total assets $ 2,189.5 $ 1,710.5
======== ========
Liabilities and stockholders' equity
Accounts payable $ 154.7 $ 130.7
Accrued expenses 339.3 352.2
Income taxes payable 71.6 56.0
Unearned revenue 365.8 336.5
Other current liabilities 131.7 110.9
-------- --------
Total current liabilities 1,063.1 986.3
Postretirement and postemployment
benefits other than pensions 147.9 146.9
Other noncurrent liabilities 251.1 195.8
-------- --------
Total liabilities 1,462.1 1,329.0
Capital stock 28.5 24.8
Paid-in capital 222.4 146.2
Retained earnings 1,088.9 955.4
Accumulated other comprehensive income (loss) 189.4 (56.6)
Treasury stock, at cost (801.8) (688.3)
-------- --------
Total stockholders' equity 727.4 381.5
-------- --------
Total liabilities and stockholders' equity $ 2,189.5 $ 1,710.5
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Nine-month periods ended March 31, 2000 and 1999
(In millions)
(unaudited)
Nine-month period ended
March 31,
2000 1999
Cash flows from operating activities
Net income $ 150.5 $ 139.3
Cumulative effect of change in accounting
principles -- (25.3)
Depreciation, amortization and asset impairments 37.1 46.0
Minority interest (2.6) --
Gains on the sales of businesses, certain assets
and certain investments (8.1) (75.2)
Other, net of the effects of acquisitions and
dispositions 37.0 81.9
-------- --------
Net change in cash from operating activities 213.9 166.7
-------- --------
Cash flows from investing activities
Proceeds from maturities and sales of short-term
investments and marketable securities 23.2 3.8
Proceeds from sales of businesses and other
long-term investments, net 12.4 0.3
Proceeds from sales of property, plant and
equipment 2.7 170.1
Purchases of investments and marketable securities (53.0) (1.7)
Payments for business acquisitions (393.9) (32.7)
Capital expenditures (14.1) (17.8)
-------- --------
Net change in cash from investing activities (422.7) 122.0
-------- --------
Cash flows from financing activities
Short-term borrowings, net 6.5 (12.4)
Dividends paid (17.0) (35.8)
Common stock repurchased (45.5) --
Other, net 14.5 13.1
-------- --------
Net change in cash from financing activities (41.5) (35.1)
-------- --------
Effect of exchange rate changes on cash (5.3) (6.2)
-------- --------
Net change in cash and cash equivalents (255.6) 247.4
Cash and cash equivalents at beginning of period 413.4 122.8
-------- --------
Cash and cash equivalents at end of period $ 157.8 $ 370.2
======== ========
See accompanying Notes to Consolidated Condensed Financial Statements.
<PAGE>
The Reader's Digest Association, Inc. and Subsidiaries
Notes to Consolidated Condensed Financial Statements
(Dollars in millions, except per share data)
(unaudited)
Unless indicated otherwise, references in Notes to Consolidated Condensed
Financial Statements to "we", "us" and "our" are to The Reader's Digest
Association, Inc. and Subsidiaries. All references to 2000 and 1999, unless
specifically identified, are to fiscal 2000 and fiscal 1999, respectively.
(1) Basis of Presentation and Use of Estimates
The accompanying consolidated condensed financial statements include the
accounts of The Reader's Digest Association, Inc. and its United States and
international subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. These statements and
accompanying notes have not been audited but, in the opinion of management, have
been prepared in conformity with generally accepted accounting principles
applying certain assumptions and estimates, including all adjustments considered
necessary to present such information fairly. Although these estimates are based
on management's knowledge of current events and actions that we may undertake in
the future, actual results may ultimately differ from those estimates.
We report on a fiscal year beginning July 1. The three-month periods ended March
31, 2000 and 1999 are the third fiscal quarters of 2000 and 1999, respectively.
Operating results for any interim period are not necessarily indicative of the
results for an entire year due to the seasonality of our business.
Certain prior year amounts have been restated to conform to the current year
presentation. Revenues have been reclassified to reflect certain publisher
remittances as a component of product, distribution and editorial expenses.
(2) 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 period. Diluted earnings per share is computed in the
same manner, except that the weighted-average number of common shares
outstanding is adjusted to assume the exercise and conversion of certain stock
options. The preferred stock dividend requirements were $0.3 for each of the
three-month periods ended March 31, 2000 and 1999, and $1.0 for each of the
nine-month periods ended March 31, 2000 and 1999.
(3) Inventories
March 31 June 30,
2000 1999
Raw materials $ 11.3 $ 12.7
Work-in-progress 18.0 20.2
Finished goods 116.3 62.0
Total inventories $ 145.6 $ 94.9
<PAGE>
(4) Revenues and Operating Profit (Loss) by Operating Segments
In the first quarter of 2000, we modified our segment reporting information to
include an "Other Businesses" segment. Other Businesses includes the activities
of gifts.com, Inc., financial services, Internet and other developing
businesses. Reportable segments are based on our method of internal reporting.
Prior period revenue and operating profit (loss) segment information has been
restated to present the four reportable segments indicated below. The accounting
policies of the segments are the same as those described in Note One to our
consolidated financial statements included in our 1999 Annual Report to
Stockholders. The restatement did not materially affect our segment disclosure
included in Note Twelve to our consolidated financial statements included in our
1999 Annual Report to Stockholders.
Three-month period ended Nine-month period ended
March 31, March 31,
2000 1999 2000 1999
Revenues
Global Books and Home
Entertainment $ 401.3 $ 374.3 $ 1,202.6 $ 1,203.5
U.S. Magazines 136.8 147.9 521.7 538.6
International Magazines 73.0 76.1 224.0 240.0
Other Businesses 9.3 6.7 35.3 19.6
-------- -------- ---------- ----------
Total revenues $ 620.4 $ 605.0 $ 1,983.6 $ 2,001.7
======== ======== ========== ==========
Three-month period ended Nine-month period ended
March 31, March 31,
2000 1999 2000 1999
Operating Profit (Loss)
Global Books and Home
Entertainment $ 46.7 $ 27.0 $ 173.9 $ 82.6
U.S. Magazines 7.8 15.4 85.1 82.4
International Magazines (2.0) (6.7) 2.2 (14.6)
Other Businesses (12.1) (1.4) (35.8) (0.6)
------- ------- -------- --------
Segment operating profit 40.4 34.3 225.4 149.8
Other operating items (9.3) -- (9.3) (31.0)
------- ------- -------- --------
Total operating profit $ 31.1 $ 34.3 $ 216.1 $ 118.8
======= ======= ======== ========
(5) Comprehensive Income
Accumulated other comprehensive income (loss) as reported in the Consolidated
Condensed Balance Sheets as of March 31, 2000 and June 30, 1999, represents
unrealized gains/losses on certain investments and foreign currency translation
adjustments. The components of comprehensive income, net of related tax, for the
three- month and nine-month periods ended March 31, 2000 and 1999 were as
follows:
<TABLE>
<CAPTION>
Three-month period ended Nine-month period ended
March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net income $ 25.1 $ 25.0 $ 150.5 $ 139.3
Change in other comprehensive income (loss):
Foreign currency translation
adjustments (7.8) (14.8) (9.4) (2.3)
Net unrealized gains on certain
investments, net of deferred
taxes of $45.1 and $137.5,
respectively 101.4 -- 255.4 --
-------- ------- -------- --------
Total comprehensive income $ 118.7 $ 10.2 $ 396.5 $ 137.0
======== ======= ======== ========
</TABLE>
Net unrealized gains on certain investments, net of deferred taxes, principally
represent our investments in the voting common shares of LookSmart, Ltd., and
Healtheon/WebMD Corporation. These securities are accounted for and classified
as available for sale securities and are included in marketable securities in
the Consolidated Condensed Balance Sheet at fair value based on quoted market
prices.
As of March 31, 2000, the market value of those shares totaled $396.0 for
LookSmart, Ltd., and $9.9 for Healtheon/WebMD Corporation. As of April 28, 2000,
the market value of those shares totaled $216.0 for LookSmart, Ltd., and $9.1
for Healtheon/WebMD Corporation.
(6) Other Operating Items
In the third quarter of 2000, we recorded other operating items of $9.3 ($6.2
after tax, or $0.06 per share) comprised of:
- - Charges of $9.7 ($6.4 after tax or $0.06 per share) primarily for severance
costs associated with the outsourcing of customer service in certain
countries and centralization of certain accounting functions and costs
related to the discontinuance of certain unproductive activities.
- - Adjustments to remaining accrual balances from charges originally recorded in
1999, 1998 and 1996. This resulted in a benefit of $4.0 ($2.7 after tax or
$0.02 per share).
- - Asset impairments of $3.6 ($2.5 after tax or $0.02 per share) related
principally to property, plant and equipment in the United Kingdom.
In the second quarter of 1999, we recorded other operating items of $31.0 ($21.5
after tax or $0.20 per share). The other operating items and impairment losses
recorded in the second quarter of 1999 comprised charges of $66.0 ($43.7 after
tax or $0.41 per share) primarily for: (i) severance costs associated with
re-engineering activities, (ii) costs related to the discontinuation of certain
unproductive businesses and (iii) asset impairments. These charges were
partially offset by adjustments to accrual balances from prior year charges,
resulting in a benefit of $35.0 ($22.2 after tax or $0.21 per share).
As described in Note Two to our consolidated financial statements included in
our 1999 Annual Report to Stockholders, we recorded charges of $37.9, $70.0 and
$35.0 in the years ended June 30, 1999, 1998 and 1997, respectively. Other
operating items in 1999, net of reversals of $55.6 for adjustments to prior year
accruals, related primarily to the streamlining of our organizational structure
and the strategic repositioning of certain businesses. Other operating items in
1998 consisted primarily of severance costs associated with workforce
reductions. Other operating items in 1997 related primarily to the realignment
of our organizational structure and operations.
The current activity and reserve balances remaining at March 31, 2000,
associated with other operating items, excluding asset impairment activity,
were:
<TABLE>
<CAPTION>
Balance at Current Balance
June 30, 1999 Activity Remaining
<S> <C> <C> <C>
Employee retirement and severance benefits $ 48.0 $ (17.0) $ 31.0
Contract terminations 15.0 (8.6) 6.4
Totals $ 63.0 $ (25.6) $ 37.4
</TABLE>
<PAGE>
(7) Debt
As described in Note Nine to our consolidated financial statements included in
our 1999 Annual Report to Stockholders, we are a party to a Competitive Advance
and Revolving Credit Facility Agreement (the Credit Agreement), which provides
for borrowings of up to $300.0. The Credit Agreement was amended as of September
2, 1999. Prior to the amendment, the Credit Agreement included a covenant to
maintain a minimum level of consolidated tangible net worth. The amendment
provides borrowing flexibility by replacing this covenant with covenants to
maintain minimum levels of consolidated assets and net worth and a maximum level
of leverage. At March 31, 2000, no borrowings were outstanding under the Credit
Agreement.
(8) Share Exchange
In September 1999, we executed a share exchange with the DeWitt Wallace-Reader's
Digest Fund and the Lila Wallace-Reader's Digest Fund (the Funds). Under the
terms of the exchange, the Funds exchanged approximately 9.3 million shares of
Class B voting common stock for approximately 8.0 million shares of Class A
nonvoting common stock, at an exchange ratio of 0.865 Class A shares for each
Class B share. As a result, we exchanged Class A treasury shares at a cost of
$164.9 and a market value of $239.9, for Class B shares, resulting in additional
paid-in capital of $75.0.
(9) Change in Accounting for Pension Assets
Effective July 1, 1998, we changed our method for calculating the market-related
value of pension plan assets. This method is used in determining the
return-on-asset component of annual pension expense and the cumulative net
unrecognized gain (loss) subject to amortization. We believe that the new method
is more widely used in practice and preferable because it results in pension
plan asset values that more closely approximate fair value, while still
mitigating the effect of annual market value fluctuations. In addition, the new
method facilitates the global management of our pension plans as it results in a
consistent methodology for all plans. This change resulted in a non-cash benefit
in the first quarter of 1999 of $40.5 ($25.3 after tax or $0.24 per share). This
benefit represented the cumulative effect of the change related to years prior
to 1999.
(10) Acquisition of Books Are Fun, Ltd.
On October 1, 1999, we purchased 100% of the outstanding common stock of Books
Are Fun, Ltd. Books Are Fun, Ltd. sells books and gift items by display
marketing those products on-site at schools and corporate businesses. The total
purchase price of $393.2 was financed through a combination of internal funds
and bank borrowings of $120.0 and was repaid during the second quarter of 2000.
The acquisition was accounted for using the purchase method of accounting and
generated $346.0 in purchased goodwill. The goodwill is being amortized using
the straight-line method over a period of 20 years. The results of Books Are
Fun, Ltd. have been consolidated since October 1, 1999, and are included in our
financial results for the three-month and nine-month periods ended March 31,
2000.
<PAGE>
The following presents pro forma information as though the acquisition took
place at the beginning of each period presented.
<TABLE>
<CAPTION>
Three-month period ended Nine-month period ended
March 31, March 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Pro forma information:
Revenues $ 620.4 $ 636.1 $ 2,014.5 $ 2,143.7
Income before extraordinary
items $ 25.1 $ 20.0 $ 144.9 $ 108.2
Net income $ 25.1 $ 20.0 $ 144.9 $ 133.5
Earnings per share:
Basic $ 0.23 $ 0.18 $ 1.35 $ 1.24
Diluted $ 0.23 $ 0.18 $ 1.34 $ 1.23
</TABLE>
These unaudited pro forma results have been prepared for comparative purposes
only and include certain adjustments, such as additional amortization expense as
a result of goodwill, increased interest expense from the acquisition debt and
lower interest income from reduced cash on hand. The results are not intended to
be indicative of past or future results of operations had the acquisition took
place at the beginning of each period.
(11) Sale of American Health
In August 1999, we sold American Health magazine, which resulted in a gain of
$6.5 ($4.1 after tax or $0.04 per share) recorded in other income, net.
(12) Commitments
In February 2000, we announced our plans to enter into a long-term licensing
agreement with World's Finest Chocolate, Inc. Under the terms of the agreement,
QSP, Inc. will have a long-term commitment to purchase World's Finest Chocolate,
Inc. products and the exclusive right to sell those products for fundraising
purposes. The purchase commitment will be based on annual minimum tonnage
amounts.
In October 1999, we entered into an agreement with BrandDirect Marketing Inc.,
an affinity membership-based direct marketing company, to acquire an 18% equity
interest in BrandDirect Marketing Inc. and to develop and market Reader's
Digest-branded membership clubs. As prescribed by the agreement, we have paid
$25.0 in October 1999 and are scheduled to make another payment of $25.0 in July
2000 for a total investment of $50.0. The agreement also permits us to acquire
additional equity in BrandDirect Marketing Inc. through the exercise of warrants
and other rights. This investment is being accounted for using the cost method
and is included in other noncurrent assets in the Consolidated Condensed Balance
Sheet.
(13) Share Repurchase Plan
In January 2000, we announced plans to repurchase up to 5 million shares or
about 5 percent of our outstanding Class A nonvoting common stock. As of March
31, 2000, we have purchased approximately 1.3 million shares totaling $45.5.
<PAGE>
The Reader's Digest Association, Inc. and Subsidiaries
Management's Discussion and Analysis
of Financial Condition and Results of Operations
(Dollars in millions, except per share data)
(unaudited)
Unless indicated otherwise, references in Management's Discussion and Analysis
to "we" and "our" are to The Reader's Digest Association, Inc. and Subsidiaries.
All references to 2000 and 1999, unless specifically identified, are to fiscal
2000 and fiscal 1999, respectively.
Management's Discussion and Analysis of operating profit has been written
excluding the net effect of:
- - Third quarter 2000 other operating items of $9 ($6 after tax or $0.06 per
share).
- - Second quarter 1999 other operating items of $31 ($21 after tax or $0.20 per
share).
The other operating items recorded in the third quarter of 2000 comprised
charges of $13, primarily for: (i) severance costs associated with the
outsourcing of customer service in certain countries and the centralization of
certain accounting operations of $6, (ii) costs related to the discontinuation
of certain activities of $3 and (iii) asset impairments of $4. These charges
were partially offset by adjustments to accrual balances from prior year
charges, resulting in a benefit of $4.
The other operating items recorded in the second quarter of 1999 comprised
charges of $66, primarily for: (i) severance costs associated with
re-engineering activities, (ii) costs related to the discontinuation of certain
unproductive businesses and (iii) asset impairments. These charges were
partially offset by adjustments to accrual balances from prior year charges,
resulting in a benefit of $35.
THREE-MONTH PERIOD ENDED MARCH 31, 2000, COMPARED WITH THREE-MONTH PERIOD ENDED
MARCH 31, 1999
Results of Operations: Company-Wide
Revenues and Operating Profit
Revenues for the third quarter of 2000 increased 3% to $620, compared with $605
in the third quarter of 1999. Excluding the adverse effect of changes in foreign
currency exchange rates, revenues increased 6%. The revenue increase was
primarily attributable to the addition of Books Are Fun, Ltd., which was
acquired during the second quarter of 2000 and provided $45 in additional
revenues. We also experienced revenue growth because of our other new businesses
(insurance alliances and gifts.com, Inc.) and in certain international markets
for Global Books and Home Entertainment products and Reader's Digest magazine.
Partially offsetting these increases were:
- - Revenue declines for certain Global Books and Home Entertainment products
from the elimination of marginally profitable activities. These declines
were experienced in the United States for video products and in Finland,
Germany and Benelux for music products.
- - Declines in sales of Reader's Digest magazine in certain markets,
primarily because of previously planned reductions in the circulation
levels.
- - Lower revenues from the sale of the subscription list of American Health
magazine during the first quarter of 2000.
<PAGE>
Operating profit for the third quarter of 2000 increased 18% to $40, compared
with $34 in the third quarter of 1999. The increase in operating profit, mostly
in the United States, was principally from overhead cost reduction initiatives
in Global Books and Home Entertainment. Contributing to Global Books and Home
Entertainment's profit improvement were higher sales of Select Editions products
sold globally and a higher-priced mix of sales of general books and music
products in Brazil and Poland.
Partially offsetting these increases in operating profit were marketing and
start-up costs related to gifts.com, Inc. and other new businesses, along with
operating profit declines experienced by U.S. Magazines.
Other Income, Net
Other income, net decreased in the third quarter of 2000 to $5, compared with $6
in the third quarter of 1999.
Income Taxes
For the third quarter of 2000, the reported tax rate was 29.5%, compared with
37.7% for the third quarter of 1999. Excluding the items affecting the
comparability of reported results in the third quarter of 2000, the overall
effective tax rate were 34.5% for the third quarter of 2000 and 37.5% for the
prior year period. The lower overall effective rate for 2000 is a result of tax
initiatives in certain international markets, as well as the deductibility of
goodwill associated with the sale of American Health magazine.
Net Income and Earnings Per Share
Net income was $25 or $0.23 per share on both a basic and diluted-earnings basis
for the third quarter of 2000 and 1999. Excluding the items in 2000 affecting
the comparability of reported results, basic and diluted earnings per share was
$0.29 in the third quarter of 2000.
Results of Operations: Operating Segments
Global Books and Home Entertainment
Revenues for Global Books and Home Entertainment increased 7% in the third
quarter of 2000 to $401, compared with $374 in the third quarter of 1999.
Excluding the adverse effect of changes in foreign currency exchange rates,
revenues increased 12%. The primary reasons for the increase in revenues were:
- - The addition of Books Are Fun, Ltd., which was acquired in the second
quarter of 2000, and provided $45 in revenue for the third quarter of 2000.
- - Revenue growth in France, Brazil, Mexico and Australia, principally as a
result of growth in Select Editions product sales and increased pricing
and higher unit sales of general books products.
- - Growth in the United States from higher sales of Young Families products
primarily because of increased promotions.
Partially offsetting these increases were revenue declines resulting principally
from the continued strategic reduction in the number of mailings and mail
quantities sent to marginal customers and the elimination of marginally
profitable activities. These declines were most notably in the United States for
video products and Germany, Finland and Benelux for music products.
Operating profit for Global Books and Home Entertainment increased significantly
in the third quarter of 2000 to $47, compared with $27 in the third quarter of
1999. The increase was primarily the result of improved profitability in the
United States, Brazil, Australia and Poland.
In the United States, benefits were realized primarily from re-engineering
efforts to reduce overhead costs. In Brazil, results improved principally from
the successful performance of music products and a higher-priced mix of music
and Select Editions products. Higher prices and increases in sales of general
books products in Australia, along with the closing of a retail business
improved profits in that country. Profits increased in Poland because of
higher-priced and increased sales of music products and the elimination of an
unprofitable music club.
U.S. Magazines
Revenues for U.S. Magazines decreased 8% in the third quarter of 2000 to $137,
compared with $148 in the third quarter of 1999. The decrease in revenues was
primarily attributable to:
- - The absence of American Health magazine, whose subscription list was sold
during the first quarter of 2000. The last issue for that magazine was
published in October 1999.
- - Lower subscription revenues from Reader's Digest magazine, mostly
resulting from the planned reduction in the circulation rate base.
Partially offsetting these decreases was higher advertising revenues from
Reader's Digest magazine, resulting from an increase in the number of
advertising pages sold at a slightly higher rate per page.
Operating profit for U.S. Magazines decreased in the third quarter of 2000 to
$8, compared with $15 in the third quarter of 1999. The decrease mostly reflects
reduced profit from increased investment spending in new marketing channels for
Reader's Digest magazine and higher circulation promotion costs for certain
special interest magazines.
International Magazines
Revenues for International Magazines decreased 4% in the third quarter of 2000
to $73, compared with $76 in the third quarter of 1999. Excluding the adverse
effect of changes in foreign currency exchange rates, revenues increased 1%.
Revenues increased primarily because of subscription and advertising price
increases in many markets, especially Germany, Mexico and Hong Kong. These
increases were partially offset by previously planned circulation rate base
reductions experienced in most markets.
Operating losses declined in the third quarter of 2000 to $(2) from an operating
loss of $(7) in the third quarter of 1999, primarily as a result of subscription
price increases in many markets and the closure of unprofitable operations in
Chile, Colombia and Peru. These profit improvements were partially offset by
increased marketing investments in international markets.
Other Businesses
Revenues from Other Businesses increased 39% in the third quarter of 2000 to $9,
compared with $7 in the third quarter of 1999, primarily as a result of revenue
from insurance alliances and gifts.com, Inc.
Operating losses from Other Businesses amounted to $(12) in the third quarter of
2000, compared with a loss in the third quarter of 1999 of $(1). These losses
were primarily attributable to marketing and start-up costs for a number of
ventures, principally gifts.com, Inc. Partially offsetting these losses were
profits from insurance alliances during the quarter.
<PAGE>
NINE-MONTH PERIOD ENDED MARCH 31, 2000, COMPARED WITH NINE-MONTH PERIOD ENDED
MARCH 31, 1999
Results of Operations: Company-Wide
Revenues and Operating Profit
Revenues for the nine-month period ended March 31, 2000 decreased 1% to $1,984,
compared with $2,002 for the prior year period. Excluding the adverse effect of
changes in foreign currency exchange rates, revenues increased 2%. The primary
reasons for the increase in revenues were:
- - The addition of Books Are Fun, Ltd., which was acquired as of October 1,
1999 and provided $143 in additional revenues to Global Books and Home
Entertainment.
- - Additional revenues from Other Businesses, primarily because of increased
activity from gifts.com, Inc. and insurance alliances.
Offsetting a portion of these increases were lower revenues from Global Books
and Home Entertainment, principally because of the strategic reduction in the
number of mailings and mail quantities within mailings in the first half of the
year. These reductions were primarily for general books, music and video
products. Also, planned reductions in the circulation rate base of Reader's
Digest magazine sold in the United States and international markets reduced
sales volumes.
Operating profit for the nine-month period ended March 31, 2000 increased
significantly to $225, compared with $150 for the prior year period. Profit
increases were realized in virtually all countries, especially in the United
States and to a lesser extent in Germany, Brazil, France, Poland, Australia and
the United Kingdom. The increase in operating profit in the United States was
primarily the result of re-engineering efforts, particularly the strategic
reduction of promotional mailings, which lowered product and promotion costs.
Additionally, overhead costs were lower on a company-wide basis, primarily
because of initiatives to re-engineer critical processes and eliminate
marginally profitable activities.
International Magazines also contributed to the increase in operating profit,
primarily from subscription price increases, lower promotion costs from the
strategic reduction in promotional mailings and the closing or sale of
marginally profitable operations. A portion of the operating profit increase was
offset by marketing and start-up costs for new business ventures, principally
gifts.com, Inc.
Other Income, Net
Other income, net decreased for the nine-month period ended March 31, 2000 to
$14, compared with $69 for the prior year period. Items that affected the
comparability of other income, net during the nine-month period ended March 31,
2000 included:
- - A gain from the sale of American Health magazine of $6 ($4 after tax or
$0.04 per share).
- - A net increase in interest income of $5 because of higher cash and cash
equivalents balances compared with the prior year.
Items that affected the comparability of other income, net during the nine-month
period ended March 31, 1999 included:
- - A gain from the sale of important works of art from our fine art
collection of $85 ($53 after tax or $0.50 per share).
- - Foreign exchange losses, principally from the devaluation of the Russian
ruble.
- - A loss from the sale of our operations in South Africa of $8 ($6 after tax
or $0.06 per share).
Income Taxes
For the nine-month period ended March 31, 2000, the reported tax rate was 34.6%,
compared with 39.3% for the nine-month period ended March 31, 1999. Excluding
the items affecting the comparability of reported results for the nine-month
period ended March 31, 2000 and 1999, the overall effective tax rate was 34.5%
for 2000 and 37.5% for 1999. The lower overall effective rate for 2000 is a
result of tax initiatives in certain international markets, as well as the
deductibility of goodwill associated with the sale of American Health magazine.
Change in Accounting Principles
In the first quarter of 1999, we adopted a preferred method for calculating the
market-related value of pension plan assets. This method is used in determining
the return-on-asset component of annual pension expense and the cumulative net
unrecognized gain (loss) subject to amortization. The cumulative effect of
adopting this change, for years prior to 1999, was a non-cash benefit of $40
($25 after tax or $0.24 per share).
Net Income and Earnings Per Share
Net income was $150 or $1.39 per share on a diluted-earnings basis ($1.40 per
share for basic earnings per share) for the nine-month period ended March 31,
2000. For the prior year period, net income was $139 or $1.29 for diluted and
basic earnings per share. Excluding other operating items in 2000 affecting the
comparability of reported results, diluted earnings per share was $1.45 ($1.46
per share for basic earnings per share) for the nine-month period ended March
31, 2000. Excluding the cumulative effect of change in accounting principles for
pension assets in the first quarter of 1999 and other operating items in 1999
affecting the comparability of reported results, basic and diluted earnings per
share were $1.25 for the nine-month period ended March 31, 1999.
Results of Operations: Operating Segments
Global Books and Home Entertainment
Revenues for Global Books and Home Entertainment were $1,203 for the nine-month
periods ended March 31, 2000 and 1999. Excluding the adverse effect of changes
in foreign currency exchange rates, revenues increased 4% for the nine-month
period ended March 31, 2000. Revenue growth of $143 from the addition of Books
Are Fun, Ltd. in the second quarter of 2000 and other revenue gains in some
international markets were partially offset by certain revenue declines. We
experienced significant revenue growth in Brazil, Mexico, Poland and France.
Improved payment performance, along with a higher-priced product mix of Select
Editions and general books products in these four countries, increased revenues
for Global Books and Home Entertainment products.
The declines in revenues were primarily attributable to the strategic reduction
in the number of mailings to marginal customers and the elimination of
marginally profitable activities. These actions, which took place principally in
the first half of the fiscal year in the United States, resulted in lower sales
of general books, music and video products. In our European markets, including
Finland, Benelux, Germany, Switzerland and the United Kingdom, these efforts
resulted in lower sales of music and general books products. The closing of
unprofitable operations in Chile, Colombia and Peru and the sale of our South
African operations in 1999 also contributed to the revenue decline.
Operating profit for Global Books and Home Entertainment increased significantly
for the nine-month period ended March 31, 2000 to $174, compared with $83 for
the prior year period. Profit increases were realized in virtually all
countries, especially in the United States and to a lesser extent in Germany,
Poland, France, Australia, the United Kingdom and Brazil. Operating profit in
most countries improved due to substantial reductions in overhead, product, and
promotion costs from re-engineering efforts. In some countries, these
improvements were partially offset by the effect of lower sales volumes from
fewer mailings to marginal customers.
<PAGE>
Operating profit in the United States increased primarily because of the
addition of Books Are Fun, Ltd., and reduced costs from re-engineering efforts.
In Germany, improved operating profit was primarily from re-engineering efforts
to reduce product and promotion costs. Contributing to the profit improvement in
Poland, France, Australia and the United Kingdom, were re-engineering efforts,
which reduced product costs and promotional mailings to marginally profitable
customers. In addition, Poland and France benefited from higher overall response
rates to Select Editions and general books products. Brazil realized an increase
in operating profit from higher average prices for Select Editions and general
books products.
In Russia, we scaled back our operations in response to the economic crisis in
that country in August 1999. As a result, an operating loss was realized for the
nine-months ended March 31, 1999. In the current year period, we have realized a
profit in Russia, principally from revenue growth in the third quarter of 2000.
U.S. Magazines
Revenues for U.S. Magazines decreased 3% for the nine-month period ended March
31, 2000 to $522, compared with $539 for the prior year period. The decrease in
revenues was attributable to:
- - Lower subscription revenues from Reader's Digest magazine, resulting from
the planned reduction in the circulation rate base to 12.5 million, which
was effective on July 1, 1999, compared with a base of 15.0 million for
the period from July 1 to December 31, 1998, and 13.3 million for the
period from January 1 to June 30, 1999.
- - Slightly lower advertising revenues from Reader's Digest magazine,
resulting from a reduction in advertising pages sold at a slightly lower
rate per page.
- - Lower revenues for American Health magazine, whose subscription list was
sold during the first quarter of 2000. The last issue for that magazine
was published in October 1999.
Partially offsetting these decreases were higher average selling prices across
all QSP, Inc. product lines and an increase in sales of QSP, Inc. gift products.
In addition, revenues increased from the sale of three additional issues of
American Woodworker magazine, which was acquired in the second quarter of fiscal
1999.
Operating profit for U.S. Magazines increased 3% for the nine-month period ended
March 31, 2000 to $85, compared with $82 for the prior year period. The increase
mostly reflects improved margins of QSP, Inc., and lower promotion and product
costs for Reader's Digest magazine, primarily attributable to the circulation
rate base reduction.
International Magazines
Revenues for International Magazines decreased 7% for the nine-month period
ended March 31, 2000 to $224, compared with $240 for the prior year period.
Excluding the adverse effect of changes in foreign currency exchange rates,
revenues decreased 1%. Revenues declined principally as a result of our
strategic reduction of the circulation rate base for Reader's Digest magazine in
most markets to improve profitability.
Revenues declined in part because operations in Russia were sharply reduced
after the second quarter of 1999 in response to the economic crisis in that
country, and as a result, there were significantly fewer subscribers in the
nine-month period ended March 31, 2000. The closing of unprofitable operations
in Chile, Colombia and Peru and the sale of our South African operations in 1999
also contributed to the decline in revenues. These declines in revenues were
partially offset by subscription price increases and increases in circulation
rates, particularly in Mexico and Brazil.
Operating profit improved to $2 for the nine-month period ended March 31, 2000
from an operating loss of $(15) for the prior year period, primarily as a result
of subscription price increases in many markets and lower promotion costs from
the strategic reduction in promotional mailings. In addition, operating profit
improved from the closing or sale of unprofitable operations.
<PAGE>
Other Businesses
Revenues from Other Businesses increased 80% for the nine-month period ended
March 31, 2000 to $35, compared with $20 for the prior year period, primarily as
a result of revenue increases from gifts.com, Inc. and insurance alliances.
Operating losses from Other Businesses amounted to $(36) for the nine-month
period ended March 31, 2000, compared with losses for the prior year period of
$(1). These losses were primarily attributable to the marketing and start-up
costs for a number of ventures, principally gifts.com, Inc. Profits from
insurance alliances during the period partially offset these losses.
Forward-Looking Information
Fiscal 2000 Results
We continue to expect significant full-year operating profit growth in fiscal
year 2000. Our outlook reflects the positive effects of Books Are Fun, Ltd. and
our financial services partnerships, partially offset by the effects of
significant investment spending as a percentage of operating profit. As a result
of revenue declines more modest than previously expected for the year and the
acquisition of Books Are Fun, Ltd. in October 1999, we believe that revenues for
the full fiscal year 2000 may be slightly higher than full fiscal year 1999.
Liquidity and Capital Resources
Activity for the nine-month
period ended March 31, 2000
Cash and cash equivalents at June 30, 1999 $ 413.4
Net change in cash from:
Operating activities 213.9
Investing activities (422.7)
Financing activities (41.5)
Effect of exchange rate changes on cash and cash
equivalents (5.3)
Net change in cash and cash equivalents (255.6)
--------
Cash and cash equivalents at March 31, 2000 $ 157.8
========
Cash and cash equivalents decreased 62% to $158 at March 31, 2000, compared with
$413 at June 30, 1999. The decrease consisted principally of the acquisition of
Books Are Fun, Ltd. for $393, investments in new initiatives of $53 (primarily
BrandDirect Marketing, Inc. and schoolpop.com) and common stock repurchases
totaling $46. Offsetting these investments of cash were positive cash flows from
operating activities.
As described in Note Nine to our consolidated financial statements included in
our 1999 Annual Report to Stockholders, we are a party to a Competitive Advance
and Revolving Credit Facility Agreement (the Credit Agreement). The Credit
Agreement was amended as of September 2, 1999. Prior to the amendment, the
Credit Agreement included a covenant to maintain a minimum level of consolidated
tangible net worth. The amendment provides borrowing flexibility by replacing
this covenant with covenants to maintain minimum levels of consolidated assets
and net worth and a maximum level of leverage. At March 31, 2000, no borrowings
were outstanding under the Credit Agreement.
In January 2000, we announced plans to repurchase up to 5 million shares or
about 5 percent of our outstanding Class A nonvoting common stock. As of March
31, 2000, we have purchased approximately 1.3 million shares totaling $46.
<PAGE>
In September 1999, we executed a share exchange with the DeWitt Wallace-Reader's
Digest Fund and the Lila Wallace-Reader's Digest Fund (the Funds). Under the
terms of the exchange, the Funds exchanged approximately 9.3 million shares of
our Class B voting common stock for approximately 8.0 million shares of our
Class A nonvoting common stock, at an exchange ratio of 0.865 Class A shares for
each Class B share. As a result, we exchanged Class A treasury shares at a cost
of $165 and a market value of $240, for Class B shares, resulting in additional
paid-in capital of $75.
We believe that our liquidity, capital resources, cash flow and borrowing
capacity are sufficient to fund normal capital expenditures, working capital
requirements, the payment of dividends, the execution of our share repurchase
program and the implementation of our strategic initiatives.
Currency Risk Management
In the normal course of business, we are exposed to the effects of foreign
exchange rate fluctuations on the U.S. dollar value of our foreign subsidiaries'
results of operations and financial condition. We purchase foreign currency
option and forward contracts to minimize the effect of fluctuating foreign
currency exchange rates on our earnings and specifically identifiable
anticipated transactions. In addition, we enter into forward contracts to
minimize the effect of fluctuating foreign currency exchange rates on certain
foreign currency denominated assets and liabilities.
At March 31, 2000, our primary foreign currency market exposures included the
euro and the British pound. We estimate that the results of a uniform 10%
weakening and 10% strengthening in the value of the U.S. dollar relative to the
currencies in which the option and forward contracts are denominated, with all
other variables held constant, would have the following effect:
Effect of a 10% Effect of a 10%
Weakening Strengthening
of the U.S. Dollar of the U.S. Dollar
Option Contracts $ (4.9) $ 8.1
Forward Contracts $ (12.0) $ 9.8
These estimates represent changes to the fair value of the option and forward
contracts on a stand-alone basis. Such changes would be substantially offset by
the related impact on the assets, liabilities and operating profits being
hedged. Also, 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 U.S. dollar value of the fair value, but also affect the
underlying foreign subsidiaries' income. Our sensitivity analysis as described
above does not consider potential changes in local sales levels, local currency
prices, or amounts of option or forward contracts to cover these changes.
Impact of the Euro Conversion
On January 1, 1999, 11 of the 15 member countries of the European Union
established 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 December 31, 2001. 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.
We performed an internal analysis regarding the business and systems issues
related to the euro conversion and developed a strategic plan to ensure that all
necessary modifications are made on a timely basis. Our operations in markets
that have adopted the euro are able to accept payments and pay suppliers in
euros, and are able to indicate the euro equivalent of pricing on invoices.
During the transition period, we will continue to monitor customer and
competitor reaction to the euro and will update the strategic plan as needed.
<PAGE>
During the transition period, we believe that the conversion to the euro will
not have a significant impact on the marketing strategy of our European
operations. We do not anticipate the need to synchronize prices between markets,
primarily because the editorial content of our publishing products varies. In
addition, products are published in local languages and are sold principally
through direct mail rather than retail channels. These factors result in
products that tend to be unique to each market and do not easily lend themselves
to price comparisons across borders. The estimated costs to convert all affected
systems to the euro are not expected to have a material adverse effect on our
results of operations, financial position or cash flow.
This report 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. Some of these risks and uncertainties include factors relating to
the:
- - effect of potentially more restrictive privacy and other governmental
regulation relating to our marketing methods;
- - effect of modified and varied promotions;
- - ability to identify customer trends;
- - ability to continue to create a broadly appealing mix of new products;
- - 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;
- - ability to attract and retain subscribers and customers in an economically
efficient manner;
- - effect of selective adjustments in pricing;
- - ability to expand and more effectively utilize our customer database;
- - ability to expand into new international markets and to introduce new
product lines into new and existing markets;
- - ability to expand into new channels of distribution;
- - ability to negotiate and implement productive acquisitions, strategic
alliances and joint ventures;
- - ability to integrate newly acquired and newly formed businesses
successfully;
- - strength of relationships of newly acquired and newly formed businesses
with their employees, suppliers and customers;
- - accuracy of the basis of forecasts relating to newly acquired and newly
formed businesses;
- - ability to contain and reduce costs, especially through global
efficiencies;
- - cost and effectiveness of reengineering of business processes and
operations;
- - accuracy of management's assessment of the current status of our
business;
- - evolution of our organizational and structural capabilities;
- - ability we have to respond to competitive pressures within and outside the
direct marketing industry, including the Internet;
- - effect of worldwide paper and postage costs;
- - effect of postal disruptions on deliveries;
- - effect of foreign currency fluctuations;
- - accuracy of management's assessment of the future effective tax rate and
the effect of initiatives to reduce the rate;
- - effect of the transition to the euro;
- - effect and pace of our stock repurchase program; and
- - general economic conditions.
<PAGE>
PART II. OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
10.29 Certificate of Amendment of the Certificate of Incorporation of
The Reader's Digest Association, Inc. filed with the State of
Delaware on November 19, 1999.
10.30 Termination Agreement dated as of September 1, 1996 between The
Reader's Digest Association, Inc. and Christopher P. Willcox, as
amended on February 24, 2000.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
During the three months ended March 31, 2000, The Reader's
Digest Association, Inc. has not filed any reports on Form 8-K.
<PAGE>
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 thereunto duly authorized.
The Reader's Digest Association, Inc.
(Registrant)
Date: May 8, 2000 By: /s/GEORGE S. SCIMONE
George S. Scimone
Senior Vice President and
Chief Financial Officer
(and authorized signatory)
<PAGE>
EXHIBIT INDEX
Exhibit Page
10.29 Certificate of Amendment of the Certificate of Incorporation of
The Reader's Digest Association, Inc. filed with the State of
Delaware on November 19, 1999.
10.30 Termination Agreement dated as of September 1, 1996 between The
Reader's Digest Association, Inc. and Christopher P. Willcox, as
amended on February 24, 2000.
27 Financial Data Schedule
EXHIBIT 10.29
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
THE READER'S DIGEST ASSOCIATION, INC.
The undersigned, being the Chairman of the Board of Directors and Chief
Executive Officer of The Reader's Digest Association, Inc., a Delaware
corporation,
DOES HEREBY CERTIFY:
FIRST: That resolutions of the Board of Directors of this
Corporation were duly adopted setting forth proposed amendments to
the Restated Certificate of Incorporation of this Corporation (the
"Restated Certificate") declaring said amendments to be advisable
and submitting the amendments to the stockholders of the Corporation
for their consideration. The resolutions setting forth the proposed
amendments are as follows:
RESOLVED, that subparagraph (2) of paragraph (b) of Article V
of the Restated Certificate be, and it hereby is, amended and
restated in its entirety to read as follows:
(a) To provide for the issuance, from time to time, of
the shares of stock of the Corporation, whether now or
hereafter authorized, for such consideration and on such terms
and conditions as it may lawfully fix from time to time; and
all shares so issued, the full consideration for which has
been paid, shall be deemed fully paid and nonassessable;
provided, however, that (i) authorized but unissued shares of
the capital stock of the Corporation having any voting rights
in addition to those prescribed by law shall only be issued if
such issuance is approved by vote of the holders of shares of
Class B Voting Common Stock and (ii) issued shares of capital
stock of the Corporation having any voting rights in addition
to those prescribed by law which are owned by the Corporation
shall only be sold, assigned, transferred or otherwise
disposed of by the Corporation if such sale, assignment,
transfer or other disposition is approved by vote of the
holders of shares of Class B Voting Common Stock, except that
no such approval shall be required in the case of either
clause (i) or (ii) for (A) the issuance or sale, assignment,
transfer or other disposition of shares of Class B Voting
Common Stock to the holders of shares of Class B Voting Common
Stock in payment of a dividend or other distribution declared
by the Board of Directors upon the common stock of the
Corporation that is payable in common stock of the
Corporation, or (B) the issuance or sale, assignment, transfer
or other disposition of Preference Stock having only the
voting rights described in paragraph (k)(B)(ii) of Article IV.
SECOND: That thereafter, pursuant to resolution of its Board
of Directors, the officers of the Corporation submitted the proposed
amendments to a vote of the stockholders entitled to vote thereon at
the annual meeting of stockholders of the Corporation.
THIRD: That the amendments were duly adopted in accordance with
the provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Chairman of the Board of Directors and Chief
Executive Officer of the Corporation has executed this certificate on this 17th
day of November, 1999.
By: /s/THOMAS O. RYDER
Name: Thomas O. Ryder
Title: Chairman of the Board of Directors
and Chief Executive Officer
ATTEST:
/s/CLIFFORD H.R. DUPREE
Clifford H.R. DuPree
Secretary
EXHIBIT 10.30
[RDA Letterhead]
April 1, 1996
Mr. Christopher P. Willcox
Senior Vice President and Editor-in-Chief, Reader's Digest Magazine
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570-7000
Dear Chris:
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
<PAGE>
(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 /s/GLENDA K. BURKHART
Name: Glenda K. Burkhart
Title Senior Vice President,
Strategic Planning and Human
Resources
Agreed to and accepted as of September 10, 1996:
/s/CHRISTOPHER P. WILLCOX
Name: Christopher P. Willcox
<PAGE>
February 24, 2000
Mr. Christopher P. Willcox
Senior Vice President and Editor-in-Chief, Reader's Digest Magazine
The Reader's Digest Association, Inc.
Reader's Digest Road
Pleasantville, NY 10570
Dear Chris:
This letter agreement amends the terms of the agreement dated as of September 1,
1996 between you and The Reader's Digest Association, Inc. (the "Company"),
which was subsequently "amended" by a letter dated July 10, 1997, which
"amendment" the Company advised you it deemed ineffective by letter dated
September 30, 1997 (collectively, the "Termination Agreement"). This letter
agreement also resolves any and all disputes between you and the Company
regarding the compensation and benefits you will be eligible to receive upon the
termination of your employment, recognizing that you and the Company want to
resolve all such matters on an amicable basis, and that certain disputes have
arisen between you and the Company regarding the amount and types of
compensation and benefits due to you upon the termination of your employment.
You and the Company hereby agree that the Termination Agreement is hereby
amended as follows:
1. Sections 1, 2.2, 4.2, 5, 7 and 13 of the Termination Agreement are deleted in
their entirety and the remaining Sections and section references are
renumbered accordingly.
2. Section 1.1 (formerly Section 2.1) is amended to read in its entirety as
follows:
1.1 If your employment shall be terminated, except a termination by the
Company for "Cause" (as defined below), you shall receive the following
benefits for each year of the Severance Period (as defined below):
3. Section 1.1.1 (formerly Section 2.1.1) of the Termination Agreement is
amended to read in its entirety as follows:
1.1.1 Your employment with the Company shall terminate effective on June 30,
2000 (the "Date of Termination"). Between the date hereof and the Date
of Termination (the "Remaining Employment Period"), you shall perform
such duties as the Editor-In-Chief or the Chief Executive Officer of
the Company or their designees request, at the Company's corporate
headquarters, or at other location(s) mutually agreed upon by you and
the Company. During the Remaining Employment Period, unless you are
terminated for "Cause" (as defined below), you shall continue to
receive your base salary and shall continue to be eligible to
participate in all employee benefits generally made available to
employees of the Company, under the same terms and conditions as
previously made available to you (e.g., subject to employee
contributions and other eligibility requirements). You will continue to
receive financial counseling services during the Remaining Employment
Period, but such services shall cease as of June 30, 2000.
4. Section 1.1.2 (formerly Section 2.1.2) of the Termination Agreement is
amended to read in its entirety as follows:
1.1.2 During the period of 18 months following the Date of Termination,
namely July 1, 2000 through December 31, 2001 (the "Severance Period"),
you shall receive $852,000 payable in bi-weekly payments. During the
Severance Period, you shall continue to receive medical and dental
benefits (but not welfare benefits, including but not limited to
disability benefits or life insurance benefits) under the same
conditions as previously made available to you (e.g., subject to
employee contributions and other eligibility requirements). You shall
also receive outplacement counseling services during the Severance
Period commensurate with your position, at a provider mutually agreed
to by you and the Company, following consultation with you. At the
commencement of the Severance Period, you will be paid for four weeks
of unused vacation pay in the amount of $25,108.
5. A new Section 1.1.3 is added to the Termination Agreement to read in its
entirety as follows:
1.1.3 "Cause" shall mean your embezzlement, proven dishonesty or fraud
related to the business of the Company, conviction of felonious or
other charge involving moral turpitude, improper communication of
confidential information obtained in the course of employment, material
violation of Company rules, including but not limited to a material
violation of the Company's Proprietary and Confidential Information
Policy or a material violation of the Company's Ethical, Legal and
Business Conduct Policies or action that would have constituted a
material violation of such Policies if the participant had continued to
be employed by the Company.
6. Section 2.1 (formerly Section 3.1) of the Termination Agreement is amended
to read in its entirety as follows:
2.1 You shall receive an award of $280,800 under The Reader's Digest
Association, Inc. Management Incentive Compensation Plan ("MIP") for
Fiscal Year 2000 which amount shall be payable at the time awards are
generally paid to eligible employees of Company, but in any event, by
no later than September 30, 2000.
7. Section 2.2 (formerly Section 3.2) of the Termination Agreement is amended to
read in its entirety as follows:
2.2 The outstanding stock options that have been granted to you under The
Reader's Digest Association, Inc. 1989 Key Employee Long Term Incentive
Plan and The Reader's Digest Association, Inc. 1994 Key Employee Long
Term Incentive Plan (jointly referred to hereinafter as the "Key
Employee Long Term Incentive Plans") shall continue to vest and remain
exercisable during the Severance Period as if your employment with the
Company continued during the Severance Period, and shall vest upon the
completion of the Severance Period as if your employment terminated at
the end of the Severance Period by reason of your retirement from the
Company. A chart illustrating the vesting of your stock options and
restricted stock awards received under the Key Employee Long Term
Incentive Plans in accordance with this Section 2.2 is attached hereto
as Exhibit A.
8. Section 2.3 (formerly Section 3.3) of the Termination Agreement is amended to
read in its entirety as follows:
2.3 The 6,700 shares of Restricted Stock granted to you on April 9, 1998
under the 1994 Key Employee Long Term Incentive Plan shall vest,
subject to and in accordance with their terms on April 9, 2000.
9. A new Section 2.4 is added to the Termination Agreement to read in its
entirety as follows:
2.4 All Performance Shares granted to you under the 1994 Key Employee Long
Term Incentive Plan for the 1999-2000, 1999-2001 and 2000-2002
Performance Cycles shall be forfeited by you and canceled by the
Company effective immediately and you understand that you shall not
receive any future grants under the 1994 Key Employee Long Term
Incentive Plan.
10.Section 3.1 (formerly Section 4.1) of the Termination Agreement is amended to
read in its entirety as follows:
3.1 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 3.1 shall be payable in
accordance with your election of any annuity form then available under
the Retirement Plan, the Excess Benefit Retirement Plan or the
Executive Retirement Plan, as the case may be. The Executive Retirement
Plan benefit is the result of a calculated target benefit of $132,828,
offset by the annuity amounts that would be payable if benefits
commenced at the same date from the Retirement Plan and Excess Benefit
Retirement Plan. The Executive Retirement Plan calculation includes
earnings through June 30, 2000 (including the Fiscal Year 2000 MIP
payment of $280,800), and service credited through December 31, 2001.
Based on current interest rates and plan provisions, these offsets are
estimated to be $49,572 and the resulting Executive Retirement Plan
benefit to be $83,256. In any case, the sum of the annuities that you
will be eligible to commence receiving on January 1, 2002 cannot be
less than the target benefit of $132,828, before reduction for any
survivorship form.
11. New Sections 3.2 and 3.3 are added to the Termination Agreement to read in
their entirety as follows:
3.2 As of July 1, 2000, you may choose to receive a lump sum payment of
the value of your Cash Balance Account under the Retirement Plan and
Excess Plan, determined in accordance with the terms of the Retirement
Plan (illustrated below in Alternative 1). In the alternative, you may
elect to continue earning interest credits only on your Cash Balance
Account during the Severance Period and receive the lump sum payment
on or about January 1, 2002, determined in accordance with the terms
of the Retirement Plan (illustrated below in Alternative 2). The
estimated amounts to be received, based on a current interest rate of
6.62%, are the following:
Alternative1 1 Alternative 2
Value of Cash Balance Account as of 12/31/99 $ 496,271 $ 496,271
Base Credits for 1/1/00 to 6/30/00 16,320 16,320
Interest Credits for 1/1/00 to 6/30/00 16,883 16,883
Lump sum payment as of 7/1/00 $ 529,474 $ 529,474
Interest credits for 7/1/00 to 12/31/01 N/A 55,120
Lump sum payment as of 1/1/02 N/A $ 584,594
3.3 Commencing on January 1, 2002, you shall be eligible for the retiree
medical and dental coverage that is available generally to employees of
the Company (for you and your spouse) under the terms of the Reader's
Digest Healthcare Program (as in effect from time to time), including
any payment requirement. To the extent that such coverage is not
available to you under the terms of the Reader's Digest Healthcare
Program because you did not retire under the terms of the Retirement
Plan as a normal or early retiree, equivalent coverage shall be
provided to you and your spouse by the Company at no greater cost to
you and your spouse than under the Reader's Digest Healthcare Program.
12.As of the date on which this letter agreement is signed by the Company, the
Company shall provide you with a signed letter of reference on Company
letterhead that is essentially identical to Exhibit B attached hereto.
13.You must sign the General Waiver and Release of Claims form in the form
attached to this letter agreement (the "General Waiver and Release"), you
must repay any outstanding advances or loans due the Company and you must
return all Company property as a condition to receipt of the payments and
benefits hereunder. You acknowledge and agree that you have at least 21 days
to review the General Waiver and Release, that you have been advised to
consult an attorney with respect to the Termination Agreement as amended by
this letter agreement and the General Waiver and Release, that you understand
the Termination Agreement as amended by this letter agreement and the General
Waiver and Release, are executing this letter agreement and the General
Waiver and Release voluntarily, and further understand that you have 7 days
to revoke the General Waiver and Release by transmitting a written revocation
of same to the undersigned prior to the expiration of the 7-day period.
Except as amended by this letter agreement, all other terms in the Termination
Agreement shall remain in full force and effect. This letter agreement shall not
otherwise modify or serve to amend the terms of any benefit plans or awards
and/or grants or benefits due thereunder. In the event of any future litigation
or other contested proceeding between you and the Company, solely related to
this Letter Agreement and underlying Termination Agreement, the prevailing
party, as determined by the trier of fact, shall be entitled to recover its
reasonable attorneys' fees and costs, as well as any damages available under
applicable law.
This letter agreement shall become effective (subject to and in accordance with
its terms) after you and the Company have signed below. Please signify your
agreement with the above by signing on the line below and returning the original
to me for our files, together with a fully executed General Waiver and Release
of Claims.
Sincerely,
/s/GARY S. RICH
Gary S. Rich
Senior Vice President, Human Resources
Date: March 1, 2000
Accepted and Agreed to by:
/s/CHRISTOPHER P. WILLCOX
Christopher P. Willcox
Date: February 24, 2000
May 8, 2000
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-1005
Re: The Reader's Digest Association, Inc.
Commission File No. 1-10434
Central Index Key 0000858558
Ladies and Gentlemen:
Filed herewith by direct electronic transmission is the Quarterly
Report on Form 10-Q of The Reader's Digest Association, Inc. (the "Company") for
the fiscal quarter ended March 31, 2000.
Very truly yours,
CLIFFORD H.R. DUPREE
Clifford H.R. DuPree
Enclosures
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Registrant's Consolidated Condensed Statement of Income and Consolidated
Condensed Balance Sheet for the nine-month period ended March 31, 2000
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> $US
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Jun-30-2000
<PERIOD-END> Mar-31-2000
<EXCHANGE-RATE> 1
<CASH> 157,800
<SECURITIES> 406,500
<RECEIVABLES> 503,600
<ALLOWANCES> 181,300
<INVENTORY> 145,600
<CURRENT-ASSETS> 965,000
<PP&E> 422,800
<DEPRECIATION> 278,900
<TOTAL-ASSETS> 2,189,500
<CURRENT-LIABILITIES> 1,063,100
<BONDS> 0
0
28,800
<COMMON> (300)
<OTHER-SE> 698,800
<TOTAL-LIABILITY-AND-EQUITY> 2,189,500
<SALES> 1,983,600
<TOTAL-REVENUES> 1,983,600
<CGS> 1,767,500
<TOTAL-COSTS> 1,767,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 373,200
<INTEREST-EXPENSE> 3,800
<INCOME-PRETAX> 230,100
<INCOME-TAX> 79,600
<INCOME-CONTINUING> 150,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 150,500
<EPS-BASIC> 1.40
<EPS-DILUTED> 1.39
</TABLE>
