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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2000 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.
incorporation or organization) Employer
Identification
No.)
Pleasantville, New York 10570
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (914) 238-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Class A Nonvoting Common Stock
par value $.01 per share New York Stock Exchange
Class B Voting Common Stock
par value $.01 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
--------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of registrant's voting stock held by non-affiliates
of registrant, at August 31, 2000, was approximately $197,622,764, based on the
closing price of registrant's Class B Voting Stock on the New York Stock
Exchange--Composite Transactions on such date.
As of August 31, 2000, 90,520,731 shares of the registrant's Class A Nonvoting
Common Stock and 12,432,164 shares of the registrant's Class B Voting Common
Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders of The Reader's Digest Association, Inc. for
the fiscal year ended June 30, 2000. Certain information therein is
incorporated by reference into Part I and Part II hereof.
Proxy Statement for the Annual Meeting of Stockholders of The Reader's Digest
Association, Inc. to be held on November 10, 2000. Certain information
therein is incorporated by reference into Part III hereof.
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS.................................................... 1
Strategic Initiatives............................................. 1
Operating Segments................................................ 2
Global Books and Home Entertainment............................... 2
Select Editions................................................ 2
Series Books................................................... 2
General Books.................................................. 2
Music.......................................................... 3
Video.......................................................... 3
Other Books and Gift Items..................................... 3
Production and Fulfillment..................................... 4
U.S. Magazines.................................................... 4
Circulation and Advertising.................................... 5
QSP............................................................ 6
Editorial...................................................... 6
Production and Fulfillment..................................... 6
International Magazines........................................... 7
Circulation and Advertising.................................... 8
Editorial...................................................... 8
Production and Fulfillment..................................... 8
Other Businesses.................................................. 8
Merchandise Catalogs and Online Shopping Operations............ 8
Financial Services............................................. 9
Other Developing Businesses.................................... 9
Direct Marketing Operations....................................... 10
Information Technology and Customer List Enhancement.............. 11
Competition and Trademarks........................................ 11
Employees......................................................... 12
Executive Officers................................................ 12
ITEM 2. PROPERTIES.................................................. 15
ITEM 3. LEGAL PROCEEDINGS........................................... 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 16
ITEM 6. SELECTED FINANCIAL DATA..................................... 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.......................... 16
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................. 17
TABLE OF CONTENTS
(Continued)
Page
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE...................... 17
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 18
ITEM 11.EXECUTIVE COMPENSATION...................................... 18
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.............................................. 18
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 18
PART IV
ITEM 14.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K................................................. 19
SIGNATURES.......................................................... 23
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.......................... 24
Unless the context otherwise requires, references in this Annual Report on
Form 10-K to "Reader's Digest," "we," "us" and "our" are to The Reader's
Digest Association, Inc. and its subsidiaries.
"Reader's Digest" and the Pegasus logo are registered trademarks of
The Reader's Digest Association, Inc.
PART I
ITEM 1. BUSINESS
We are a preeminent global leader in publishing and direct marketing, and
we create and deliver products that inform, enrich, entertain and inspire,
including magazines, books, recorded music collections, home videos.
We are a Delaware corporation, originally incorporated in New York in 1926
and then reincorporated in Delaware in 1951. The mailing address of our
principal executive offices is Pleasantville, New York 10570 and our telephone
number is (914) 238-1000.
We are best known for publishing our flagship Reader's Digest magazine.
Reader's Digest is a monthly, general interest magazine consisting of original
articles, previously published articles in condensed form, and a condensed
version of a previously published or soon-to-be published full-length book.
Reader's Digest also contains monthly humor columns such as "Laughter, The Best
Medicine(R)," "Life's Like That(R)," "Humor In Uniform(R)," and "All In A Day's
Work(R)," and other regular features, including "Heroes For Today(R)," "It Pays
To Enrich Your Word Power(R)," "News From The World Of Medicine(R)," "Tales Out
of School(R)," "Virtual Hilarity(R)," "Personal Glimpses(R)," and "Campus
Comedy(R)." The international editions of Reader's Digest include similar
features.
DeWitt and Lila Acheson Wallace founded Reader's Digest magazine in 1922.
Today, Reader's Digest has a worldwide circulation of about 24 million and over
100 million readers each month. Reader's Digest is published in 48 editions and
19 languages.
Currently, our largest business unit is Global Books and Home
Entertainment, which publishes and markets Reader's Digest Select Editions,
series books, general books, recorded music collections and series, and home
video products and series. Global Books and Home Entertainment also sells books
and gift items by display marketing products on-site at schools and businesses
through Books Are Fun, Ltd., which was acquired on October 1, 1999.
Strategic Initiatives
The key elements of our long-term growth strategy include:
- expanding our presence in five areas of intense consumer
interest--health, home, family, finance and faith;
- selling non-publishing products and services in those areas;
- continuing our geographic expansion;
- developing new marketing channels;
- broadening our customer base to include more younger customers and more
products for older customers; and
- integrating the Internet into all of our businesses.
To implement this strategy, we expect to invest in internal growth opportunities
in our core businesses. We also expect to make acquisitions and form alliances
that leverage our core strengths.
<PAGE>
Operating Segments
We have four operating segments: Global Books and Home Entertainment, U.S.
Magazines, International Magazines and Other Businesses. Financial information
about each of our operating segments is included in Note 13 to our consolidated
financial statements, which are incorporated by reference into this report.
Global Books and Home Entertainment
Our Global Books and Home Entertainment operations publish Reader's Digest
Select Editions, series books, general books, recorded music collections and
series, and home video products and series. We market these products principally
by direct mail. Global Books and Home Entertainment also sells books and gift
items by display marketing products on-site at schools and businesses through
Books Are Fun. For more information about how we market our products, please
refer to the section of this report captioned "Direct Marketing Operations."
Select Editions
Reader's Digest Select Editions, which were formerly called "Condensed
Books" in many markets, are a continuing series of condensed versions of current
popular fiction. A condensed work reduces the length of an existing text, while
retaining the author's style, integrity and purpose. Today, we publish Select
Editions in 15 languages, and market them in 28 countries. We generally publish
six volumes of Select Editions a year. Some of our international subsidiaries
publish four or five volumes a year. Select Editions generated worldwide
revenues of $266.0 million in fiscal 2000, $254.1 million in fiscal 1999 and
$260.4 million in fiscal 1998.
International editions of Select Editions generally include some material
from the U.S. edition or from other international editions, translated and
edited as appropriate. International editions also include some condensed
versions of locally published works. Each local editorial staff determines
whether existing Select Editions selections are appropriate for their local
market.
Series Books
We market two types of series books--reading series and illustrated
series. These book series may be either open-ended and continuing or
closed-ended, consisting of a limited number of volumes. We publish reading
series books in four languages and market them in 11 countries. Our reading
series include The World's Best Reading, which consists of full-length editions
of classic works of literature. We publish six or seven volumes of The World's
Best Reading each year in seven countries and two languages. We publish
illustrated series, which are generally closed-ended, in seven languages and
market them in 15 countries. Series books generated worldwide revenues of $121.5
million in fiscal 2000, $125.5 million in fiscal 1999 and $162.1 million in
fiscal 1998.
General Books
Our general books consist primarily of reference books, cookbooks,
"how-to" and "do-it-yourself" books and children's books, some of which we
publish in series. We also publish books on subjects such as history, travel,
religion, health, nature and the home. We publish general books in 19 languages
and market them in 36 countries. General books generated worldwide revenues of
$444.0 million in fiscal 2000, $507.4 million in fiscal 1999 and $606.0 million
in fiscal 1998.
New general books are usually original Reader's Digest books, but may also
be books acquired from other publishers. During the development period for an
original Reader's Digest book, we conduct extensive research and prepare an
appropriate marketing strategy for the book.
We sell most copies of a general book through initial bulk promotional
mailings. We also sell substantial additional copies through subsequent
promotions, through catalog sales and through the use of sales inserts in
mailings for other Reader's Digest products. We also distribute our general
books for retail sale in stores through independent distributors.
Music
Our music collections, released on compact discs and cassettes in 31
countries, span a broad range of musical styles, ranging from classical to pop,
and from jazz to local folk. We offer both international and local repertoires,
which reflect our customers' taste and expectations. In most markets we also
sell music series, in various musical genres. Music products generated worldwide
revenues of $277.6 million in fiscal 2000, $345.5 million in fiscal 1999 and
$377.5 million in fiscal 1998.
We license existing recordings from major record companies and sponsor our
own recordings with the world's most renowned orchestras and with international
and local artists. Our music vault now consists of approximately 20,000
selections, used in our music collections around the world. We also license our
selections to third parties for retail sales or for movie synchronization. Our
focus in recent years has been acquiring more rights to master recordings. In
2000, we acquired a complete catalog, entitled Discover, comprising over 200
compact discs of high quality classical recordings.
We are a member of the Recording Industry Association of America in the
United States, and we have been recognized with 51 gold, platinum and
multi-platinum certificates. In several other countries we are a member of the
International Federation of the Phonographic Industry.
Video
Our single sales home video products and series reflect the core interests
of our global customers - travel, natural history, history, science, and
emerging areas of interest - health and computers. We market video products
through direct response channels in the United States and 23 other countries. In
some countries we also sell our home video products through retail outlets.
While we are ensuring continued growth in our more established markets, we are
supporting the dynamic potential of video operations in Latin America and
Eastern Europe. Home video products generated worldwide revenues of $158.9 in
fiscal 2000, $193.1 million in fiscal 1999 and $215.8 million in fiscal 1998.
We are working with award-winning production companies in the United
States, Europe and Australia to create original programs with very high
editorial and production standards. Several original programs have won awards of
excellence, including five Emmy awards. In May 1999, we entered into a
multi-year agreement with CBS Productions to develop television movies and
mini-series based on the personal dramas chronicled in Reader's Digest. Most of
our original programs have been licensed to broadcasters worldwide through a
major international distributor. We are keeping pace with new technological
developments--including creating of a Global Video Digital Library--that will
allow us to deliver even better quality, multi-dimensional programs to our
customers.
Other Books and Gift Items
On October 1, 1999, we purchased 100% of the stock of Books Are Fun. Books
Are Fun sells premium-quality books and gift items at discount prices by display
marketing those products on-site at schools and businesses in all 50 states of
the United States and across Canada using book fairs and similar displays. Books
Are Fun's book categories include best-selling novels, cookbooks, children's
books, education, sports, hobby, nature, travel and self-help titles. Non-book
categories include music, videos and gift items. Books Are Fun representatives
serve approximately 60,000 schools, 12,000 large corporations and institutions,
9,000 day-care centers and 20,000 small businesses.
Production and Fulfillment
We hire independent contractors to print and bind the various editions of
Select Editions. We have an exclusive agreement with a printing company for
printing English-language Select Editions distributed in the United States and
Canada. That agreement expires in 2005. Beginning in fiscal 2001, all other U.S.
book products are printed by a single independent contractor. We usually hire
independent contractors to produce and manufacture our music and video products.
Paper is the principal raw material necessary for production of our Select
Editions, series books and general books. We have an exclusive agreement with a
major supplier to supply paper for Select Editions. The agreement expires in
2002. We purchase paper for series books and general books for each printing. We
believe that our existing contractual arrangements and other available sources
of paper provide us with an adequate supply of paper at competitive prices. We
use independent contractors to arrange for us to acquire some of the necessary
raw materials to manufacture music and video products.
We hire independent contractors to handle our fulfillment, warehousing,
customer service and payment processing. In September 1999, we entered into an
agreement with a single independent contractor to handle fulfillment processing
for our U.S. Books and Home Entertainment and U.S. Magazine operations. That
agreement expires in 2006. The printers or suppliers of our products generally
package and deliver those products directly to the postal service. For
information about postal rates and postal services, please refer to the section
of this report captioned "Direct Marketing Operations."
It is our direct marketing policy that a customer may return any book or
home entertainment product to us for a refund, either before or after payment.
We believe that our returned goods policy is essential to our reputation and
that it elicits a greater number of orders. Many of those orders are not
returned because a high number of consumers are satisfied with our products.
Sales of books and home entertainment products are seasonal. In the direct
marketing industry as a whole, more consumers respond in the winter months than
during the rest of the year. Also, sales are typically higher during the
pre-Christmas season than in spring and summer.
U.S. Magazines
Our U.S. Magazines operations publish Reader's Digest and several special
interest magazines in the United States. These magazines are sold primarily
through direct marketing. In addition, U.S. Magazines sells its magazines and
other magazines and products through youth fundraising campaigns of our QSP,
Inc. subsidiary.
U.S. Magazines publishes Reader's Digest in several editions, including an
English-language edition, a Spanish language edition and the Reader's Digest
Large Edition for Easier Reading. We license independent contractors to publish
a braille edition and a recorded edition in the United States.
We publish several special interest magazines that we believe are
consistent with our image, editorial philosophy and market expertise. The Family
Handyman(R) magazine provides instructions and guidance for "do-it-yourself"
home improvement projects. New Choices: Living Even Better After 50(R) magazine
is aimed at active, mature readers and provides information on entertainment,
travel, health and leisure time activities. Walking(R) magazine provides
information on health and fitness for walking enthusiasts. American
Woodworker(R) magazine and its consumer trade show operations provide
information, instruction and guidance for professional and serious amateur
woodworkers. Prior to August 1999, we also published American Health for
Women(R) magazine, which provided helpful information on medicine, nutrition,
psychology and fitness as those issues relate to women. In August 1999, we sold
the American Health magazine trademark, subscriber list and other circulation
assets.
We promote our U.S. special interest magazines to our U.S. Reader's Digest
customer list. We also promote other products to each magazine's customer list,
as appropriate. This strategy helps us to expand the customer base for all of
our products.
We also publish other limited-edition special interest publications in the
United States, such as Reader's Digest Christmas, which we have published
annually since 1997 and Reader's Digest Your Family, which debuted as a special
edition in May 1999.
Circulation and Advertising
The following table shows circulation and advertising information for U.S.
Magazines operations for fiscal 2000.
<TABLE>
<CAPTION>
June 30,2000 Advertising
Issues Circulation Pages
Magazine Title Per Year Rate Base Carried
<S> <C> <C> <C>
Reader's Digest--U.S.--English edition ... 12 12,500,000 1,131
Reader's Digest Large Edition for
Easier Reading ........................ 12 463,000 153
The Family Handyman ..................... 10 1,100,000 707
American Health for Women ............... 3 1,000,000 131
New Choices: Living Even Better After 50 10 600,000 494
Walking ................................. 7 650,000 435
Selecciones ............................. 12 210,000 247
American Woodworker ..................... 7 325,000 384
</TABLE>
Approximately 68% of total U.S. fiscal 2000 revenues for Reader's Digest
was generated by circulation revenues and 32% by advertising revenues.
Approximately 58% of total U.S. fiscal 2000 revenues for the special interest
magazines were generated by circulation revenues and 42% by advertising
revenues.
We have determined that the U.S.--English edition of Reader's Digest has
the largest paid circulation of any U.S. magazine, other than those
automatically distributed to all members of the American Association of Retired
Persons. Our determination is based on the most recent audit report issued by
the Audit Bureau of Circulation, Inc., a not-for-profit organization that
monitors circulation in the United States and Canada. Approximately 94% of the
U.S. paid circulation of Reader's Digest consists of subscriptions. The balance
consists of single copy sales at newsstands and in supermarkets and similar
retail establishments. We sell our special interest magazines by subscription
and at newsstands.
We maintain the circulation rate base for Reader's Digest through annual
subscription renewals and new subscriptions. The circulation rate base for the
U.S.--English edition of Reader's Digest was reduced from 15 million to 13.3
million copies per issue for the January-June 1999 issues and to 12.5 million
with the July 1999 issue. Each year, we sell approximately 4.3 million new
subscriptions in the United States to maintain the current circulation rate
base. We sell new subscriptions primarily by direct mail. We sell the largest
percentage of subscriptions between July and December of each year. Subscribers
to Reader's Digest may cancel their subscriptions at any time and we will refund
the unused subscription price. For additional information regarding direct
marketing of subscriptions, please refer to the section of this report captioned
"Direct Marketing Operations."
The U.S. editions of Reader's Digest offer advertisers different regional
editions, major market editions and demographic editions. These editions, which
usually contain the same editorial material, permit advertisers to concentrate
their advertising in specific markets or to target specific audiences. Reader's
Digest sells advertising in the United States principally through an internal
advertising sales force. We sell advertisements in multiple Reader's Digest
editions worldwide, and offer discounts for placing advertisements in more than
one edition.
Like most other magazines, our special interest magazines are highly
dependent on advertising revenues.
QSP
We also market and sell subscriptions to Reader's Digest and the special
interest magazines in the United States through QSP. QSP helps schools and youth
groups prepare fundraising campaigns in which participants sell magazine
subscriptions, music and video products, books, food and gifts. QSP derives its
revenues from the sale of products through fundraising organizations. A
substantial majority of QSP's sales occur during the first half of our fiscal
year, which includes the fall school semester.
In May 2000, QSP completed its acquisition of the almost 200 sales
representatives of World's Finest Chocolate, Inc., a leading chocolate sales
fundraiser, who joined the 300 sales representatives of QSP. QSP also entered
into a long-term licensing agreement with World's Finest Chocolate providing for
a long-term commitment to purchase World's Finest Chocolate products and the
exclusive right to sell those products for fundraising purposes. QSP and World's
Finest Chocolate expect to combine the product lines that they offer for sale by
their fundraising clients.
In March 2000, QSP entered into an alliance agreement with Schoolpop,
Inc., an online fundraiser that enables online shoppers to contribute funds to
schools. Through the alliance, QSP will introduce and build awareness of
Schoolpop, Inc.'s online fundraising programs among school and youth
organizations and QSP's magazine subscription services and fundraising services
and World's Finest Chocolate products will be promoted online through Schoolpop.
QSP also acquired a nine percent equity interest in Schoolpop, Inc.
Editorial
Reader's Digest is a reader-driven, family magazine. Its editorial content
is, therefore, crucial to the loyal subscriber base that constitutes the
cornerstone of our operations. The editorial mission of Reader's Digest is to
inform, enrich, entertain and inspire. The articles, book section and features
included in Reader's Digest cover a broad range of contemporary issues and
reflect an awareness of traditional values.
A substantial portion of the selections in Reader's Digest are original
articles written by staff writers or free-lance writers. The balance is selected
from existing published sources. All material is condensed by Reader's Digest
editors. We employ a professional staff to research and fact-check all published
pieces.
Production and Fulfillment
We hire independent contractors to print all U.S. editions of Reader's
Digest and our special interest magazines. We have an exclusive contract with a
U.S. printer to print the U.S. editions of Reader's Digest. The contract will
expire in 2007. We believe that generally, there is an adequate supply of
alternative printing services available to us at competitive prices, should the
need arise. Nevertheless, significant short-term disruption could occur. We have
contingency plans to minimize recovery time should our current contract printers
be unable to meet our production requirements.
<PAGE>
Lightweight coated and uncoated paper are the principal raw materials used
in the production of Reader's Digest and special interest magazines. We have
exclusive supply contracts with a number of global and regional suppliers of
paper. Our principal contract expires in 2002. We believe those supply contracts
provide an adequate supply of paper for our needs and that, in any event,
alternative sources are available at competitive prices. A variety of factors
affect paper prices, including demand, capacity, pulp supply, and general
economic conditions.
In September 1999, we entered into an agreement with a single independent
contractor to handle our fulfillment processing. That agreement expires in 2006.
The same contractor also handles these matters for our U.S. Books and Home
Entertainment operations.
We deliver subscription copies of the U.S. edition of Reader's Digest and
the special interest magazines through the United States Postal Service as
"periodicals" class mail. For additional information about postal rates and
service, please refer to the section of this report captioned "Direct Marketing
Operations."
A distribution network handles newsstand and other retail distribution.
Several hundred other publishers make magazine subscriptions available to
QSP at competitive, discounted prices. QSP also obtains discounted music
products from a large music publisher. QSP engages an independent contractor to
handle processing of magazine and music orders. A subsidiary of QSP handles
processing of video, book, gift and food orders.
International Magazines
Our International Magazines operations publish Reader's Digest in 47
editions and 19 languages outside the United States. We license independent
contractors to publish Reader's Digest in India, Italy, Korea and South Africa.
International Magazines also publishes Moneywise, a magazine devoted to helping
families manage their finances, in the United Kingdom. In August 1999, we
acquired Benchmark, Ltd., a publisher of monthly investment guides distributed
in Hong Kong, Taiwan and Singapore. In June 2000, we acquired Rena, publisher of
the leading Czech do-it-yourself and gardening monthly magazine.
Circulation and Advertising
Reader's Digest is truly a global magazine. Many of its international
editions have the largest paid circulation for monthly magazines both in the
individual countries and in the regions in which they are published. For most
international editions of Reader's Digest, subscriptions comprise almost 93% of
circulation. The balance is attributable to newsstand and other retail sales.
Approximately 82% of total international fiscal 2000 revenues for Reader's
Digest were generated by circulation revenues and 18% by advertising revenues.
The following table shows circulation and advertising information for
International Magazines operations for fiscal 2000.
June 30,2000 Advertising
Issues Circulation Pages
Magazine Title Per Year Rate Base Carried
Reader's Digest 12 11,225,633 12,460
Moneywise 12 104,000 712
We maintain the circulation rate base for Reader's Digest through annual
subscription renewals and new subscriptions. Each year, we sell approximately
three million new international Reader's Digest subscriptions to maintain the
international circulation rate base. We sell new subscriptions primarily by
direct mail. We sell the largest percentage of subscriptions between July and
January of each year. Subscribers to Reader's Digest may cancel their
subscriptions at any time and we will refund the unused subscription price. For
additional information regarding direct marketing of subscriptions, please refer
to the section of this report captioned "Direct Marketing Operations."
The larger international editions of Reader's Digest offer advertisers
different regional editions, major market editions and demographic editions.
These editions, which usually contain the same editorial material, permit
advertisers to concentrate their advertising in specific markets or to target
specific audiences. Reader's Digest sells international advertising principally
through an internal advertising sales force. We sell advertisements in multiple
Reader's Digest editions worldwide, and offer discounts for placing
advertisements in more than one edition.
Editorial
The international editions of Reader's Digest contain content and follow
editorial procedures similar to the U.S. editions. Each international edition
has a local editorial staff responsible for the editorial content of the
edition. The mix of locally generated editorial material, material taken from
the U.S. edition and material taken from other international editions varies
greatly among editions. In general, our larger international editions, for
example, those in Canada, France, Germany and the United Kingdom, carry more
original or locally adapted material than do smaller editions.
Production and Fulfillment
We hire independent contractors to print all international editions of
Reader's Digest and to provide fulfillment services. Issues relating to
available printing capacity and paper supplies are similar to those in the
United States.
Subscription copies of international editions of Reader's Digest are
delivered through the postal service in each country of publication. We have
also contracted in each country with a newsstand magazine distributor for the
distribution of Reader's Digest. For additional information about postal rates
and service, please refer to the section of this report captioned "Direct
Marketing Operations."
Other Businesses
Merchandise Catalogs and Online Shopping Operations
Our gifts.com, Inc. subsidiary comprises the Good Catalog Company
division, a catalog marketer of home, garden and gift-related products, and the
gifts.com division, an online gift shopping service. We own an 80.1% interest in
gifts.com, Inc. and Domain.com, Inc., an affiliate of StarTek, Inc., owns a
19.9% interest. We created the gifts.com online shopping service in fall 1999.
The gifts.com Web site features over 500 different products, including leading
brands and non-branded specialty items, as well as a specialty gifts catalog. In
July 2000, gifts.com, Inc. signed an agreement with Altura International, a
leading architect, manager and developer of custom online shopping malls, and
its subsidiary and flagship shopping portal, CatalogCity.com, to develop custom
online gift stores for leading Web sites.
Good Catalog Company offers over 2,000 different products through five
different catalog titles, which have a total circulation of over 20 million.
Merchandise ranges from home furnishing and decorative accents to garden,
health, fitness, sports and electronic goods, as wells as children's toys, games
and crafts.
Financial Services
Insurance. In August 1999, we formed an exclusive alliance with member
companies of Torchmark Corporation, which market life and health insurance
products to our customers in the United States. The products are marketed and
sold by Torchmark Corporation member companies through direct mail,
telemarketing, and advertising in our magazines. There is also an Internet
marketing component. Torchmark Corporation member companies underwrite policies
and provide customer and claims services.
In January 2000, we formed an alliance with American International Group,
Inc. under which they will offer a range of personal insurance products,
including automobile, homeowners and personal liability insurance to our U.S.
customers.
In February 2000, we formed an alliance with American International Group,
Inc. to develop a program under which its member companies will market a range
of life, accident and health and general insurance products and services to our
customers in 26 other countries outside the United States. American
International Group, Inc. member companies will administer the products and
provide customer and claims services and marketing support for all products.
Credit Card. In August 1999, we signed an agreement with First USA, a
subsidiary of Bank One Corporation, to market a Reader's Digest-branded credit
card to our customers. Under the agreement, First USA launched a Reader's Digest
Platinum MasterCard in April 2000. FirstUSA administers the credit cards.
Other Developing Businesses
Readersdigesthealth.com. As part of our global Internet health strategy,
in 2000, we launched readersdigesthealth.com, a Web site intended to provide
users who want to actively manage their health with high-quality health
information, advice and products. The site draws content from our health-related
editorial products and from other health-related content sources. In July 1999,
we entered into an alliance agreement with an affiliate of WebMD Corporation
that provides for WebMD to develop, host and maintain the
readersdigesthealth.com Web site and for content from each party to appear on
the other's Web site. Also under the agreement, WebMD will provide Reader's
Digest magazine to the subscribers to its healthcare professional services,
purchasing a minimum of 3,000,000 copies over the five-year period after launch
of the site. WebMD will also purchase advertising in our magazines to promote
the WebMD Web site. Each issue of the U.S. edition of Reader's Digest will
include WebMD advertorial pages, including an "Ask WebMD" column and a calendar
of online events that will occur on both the WebMD site and the
readersdigesthealth.com site.
YOURxPLAN. In April 2000, we entered into an agreement with
Merck-Medco Managed Care, L.L.C., a subsidiary of Merck & Co., Inc. to offer
YOURxPLAN, a discount prescription drug service. Under the agreement, we are
primarily responsible for marketing the service and Merck-Medco administers
the program, handles product sourcing, fulfillment, customer service and
clinical oversight. The arrangement includes both revenue and cost sharing.
Membership Clubs. 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. The
agreement also permits us to acquire additional equity in BrandDirect Marketing,
Inc. through the exercise of warrants and other rights. The agreement provides
for joint development and marketing of Reader's Digest-branded membership clubs
in which consumers pay an annual membership fee for a wide range of membership
benefits. We intend to build clubs around our core affinities and to sell our
products and services through those clubs in the United States and
internationally.
Direct Marketing Operations
We sell magazine subscriptions, Select Editions, series books, general
books, music and video products, as well as certain other products, principally
through direct mail solicitations to households on our customer lists. Our
products and product offers are usually accompanied by sweepstakes entries and,
in some cases, premium merchandise offers. For many years, we have been
acknowledged as a pioneer and innovator in the direct mail industry.
As part of our growth strategy and our strategy to decrease our reliance
on sweepstakes marketing, we are increasing distribution of our products through
direct-response channels other than direct mail. These other distribution
channels include direct-response television, telemarketing, the Internet,
catalogs and clubs. We are also continuing to conduct tests of non-sweepstakes
promotional mailing packages in the United States. The initial results of these
tests have been encouraging.
We are adapting the editorial content and the marketing methods of our
magazines and books and home entertainment products to new technologies. Our Web
site--www.readersdigest.com--links our 34 local and international Web sites and
our 11 online stores, for shopping and information about our products. In 2000,
readersdigest.com had over 8.1 million visitors from around the world.
To promote the sale of our products in the United States, we usually offer
a sweepstakes in our promotional mailings. Prizes totaled about $10 million for
the 2000 edition of the sweepstakes. Generally, each of our international
subsidiaries sponsors its own sweepstakes. The mechanics of the sweepstakes vary
from jurisdiction to jurisdiction, depending upon local law.
From time to time, we are involved in legal, regulatory and investigative
proceedings concerning our sweepstakes and other direct marketing practices.
Also from time to time, jurisdictions in which we do business consider more
restrictive laws or regulations governing sweepstakes or direct marketing.
Although some of these proceedings may have negatively affected our direct
marketing business, we do not believe that these proceedings and proposed laws
and regulations will have a material adverse effect on our direct marketing
business.
We are subject to postal rate increases, which affect our product
deliveries, promotional mailings and billings. Postage is one of the largest
expenses in our promotional and billing activities. In the past, we have had
sufficient advance notice of most increases in postal rates so that we could
factor the higher rates into our pricing strategies and operating plans. Higher
postal rates or other delivery charges usually increase the total cost to the
customer, which may have a negative effect on sales. As a result, we may
strategically determine the extent, if any, to which we will pass these cost
increases on to our customers.
We rely on postal delivery service for timely delivery of our products and
promotional mailings. In the United States and most international markets,
delivery service is generally satisfactory. Some international jurisdictions,
however, experience periodic work stoppages in postal delivery service or less
than adequate postal efficiency.
In some states in the United States and in some international
jurisdictions, some or all of our products are subject to sales tax or value
added tax. Taxes, like delivery costs, are generally stated separately on bills,
where permitted by applicable law. Higher taxes increase the total cost to the
customer, which may have a negative effect on sales. In jurisdictions where
applicable tax must be included in the purchase price, we may be unable to fully
recover from customers the amount of any tax increase or new tax.
Information Technology and Customer List Enhancement
The size and quality of our computerized customer list of current and
prospective customers in each country where we operate contributes significantly
to our business. We are constantly striving to improve our customer lists. We
believe that our U.S. list of over 54 million households--over half the total
number of households in the country--is one of the largest direct response lists
in the United States. Our international lists include a total of approximately
49 million households.
We continue to make significant investments in our database list
management and related information technology to improve our operating
efficiencies, to increase the level of service we provide to our customer base
and to facilitate globalization of our operations.
Some international jurisdictions, particularly in Europe, have data
protection laws or regulations prohibiting or limiting the exchange of
information of the type that we maintain. Some jurisdictions also prohibit the
retention of information, other than certain basic facts, about noncurrent
customers. Although these regulations may hinder our ability to collect, retain
and use customer information, we believe that current laws and regulations do
not prevent us from engaging in activities necessary to operate our current
businesses.
Competition and Trademarks
Although Reader's Digest is a unique and well-established institution in
the magazine publishing industry, it competes with other magazines for
subscribers and with magazines and all other media, including television, radio
and the Internet, for advertising. We believe that the extensive and
longstanding international operations of Reader's Digest provide us with a
significant advantage over competitors seeking to establish a global
publication.
We own numerous trademarks that we use in our business worldwide. Our two
most important trademarks are "Reader's Digest" and the "Pegasus" logo. We
believe that the name recognition, reputation and image that we have developed
in each of our markets significantly enhance customer response to our direct
marketing sales promotions. For these reasons, trademarks are important to our
business and we aggressively defend our trademarks.
We believe that our company name, image and reputation, as well as the
quality of our customer lists, provide a significant competitive advantage over
many other direct marketers. However, our books and home entertainment business
competes with companies selling similar products at retail as well as by direct
marketing through various channels, including the Internet. Because tests show
that consumers' responses to direct marketing promotions can be adversely
affected by the overall volume of direct marketing promotions, we also compete
with all other direct marketers, regardless of whether their products are
similar to our products.
Each of our special interest magazines competes with other magazines of
the same genre for readers and advertising. Nearly all of our products compete
with other products and services that utilize leisure activity time or
disposable income.
Employees
As of June 30, 2000, we employed about 5,000 people worldwide. We employed
about 2,400 in the United States and about 2,600 in our international
subsidiaries. Our relationship with our employees is generally satisfactory.
Executive Officers
The following is some information about our executive officers.
Name and Age Positions With Reader's Digest and Recent
Business Experience
Thomas O. Ryder (56) Mr. Ryder has been Chairman of the Board and
Chief Executive Officer and a Director of
Reader's Digest since April 1998. Mr. Ryder was
President, American Express Travel Related
Services International, a division of American
Express Company (travel, financial and network
services), from October 1995 to April 1998.
Before October 1995, he served as President,
Establishment Services - Worldwide of American
Express Travel Related Services.
M. John Bohane (64) Mr. Bohane has been a Senior Vice President of
Reader's Digest and President, Global Books and
Home Entertainment since July 1998. Before July
1998, he was Senior Vice President of Reader's
Digest and President, International Operations, a
position he held since rejoining Reader's Digest
in September 1997. He first joined Reader's
Digest in 1964 and served in a number of
executive capacities, including President, Direct
Marketing, until leaving Reader's Digest in July
1991.
Michael A. Brizel (43) Mr. Brizel has been Vice President and General
Counsel of Reader's Digest since July 1998.
Before July 1998, he was Vice President, Legal
U.S. and Associate General Counsel, a position he
held since September 1996. Before September
1996, he was Associate General Counsel of
Reader's Digest. Mr. Brizel joined Reader's
Digest in July 1989.
Elizabeth G. Chambers (37) Ms. Chambers has been Senior Vice President,
Strategy and Business Redesign since
November 1999. Before November 1999, she was Vice
President, Business Redesign of Reader's Digest, a
position she held since joining Reader's Digest in
August 1998. Before August 1998, she was a partner
at the management consulting firm of McKinsey &
Company.
<PAGE>
Name and Age Positions With Reader's Digest and Recent
Business Experience
Gregory G. Coleman (46) Mr. Coleman has been a Senior Vice President and
President, U.S. Magazine Publishing of Reader's
Digest since July 1998. Before July 1998, he was
Senior Vice President, Worldwide Publisher,
Reader's Digest Magazine, a position he held
since October 1997. Mr. Coleman also served as
Vice President and General Manager, U.S.
Magazines and Publisher, U.S. Reader's Digest
from December 1995 until October 1997, and Vice
President, Publisher, U.S. Reader's Digest prior
to December 1995.
Peter J.C. Davenport (60) Mr. Davenport has been Senior Vice President,
Global Marketing and Publishing since October
1999. Before October 1999, he was Senior Vice
President, Global Direct Marketing, except for
the period March to September 1997 when he
temporarily retired. Mr. Davenport first joined
the Company in 1958.
Clifford H.R. DuPree (50) Mr. DuPree has been Vice President,
Corporate Secretary and Associate General Counsel of
Reader's Digest since July 1998. He joined Reader's
Digest in May 1992 as Associate General Counsel,
became Assistant Secretary in March 1995 and Vice
President in September 1996.
Thomas D. Gardner (42) Mr. Gardner has been Senior Vice President, U.S.
New Business Development of Reader' s Digest
since July 1998. He was Vice President,
Marketing, Reader's Digest U.S.A. from November
1995 to July 1998, Vice President, Business
Development before November 1995. Mr. Gardner
joined Reader's Digest in February 1992.
Robert J. Krefting (56) Mr. Krefting has been Senior Vice President and
President, International Magazine Publishing of
Reader's Digest since July 1998. Before joining
Reader's Digest, Mr. Krefting was sole proprietor
of Holly Hill Publishing, a management services
corporation serving the publishing and venture
capital industries.
Albert L. Perruzza (53) Mr. Perruzza has been Senior Vice President,
Global Operations since October 1999. Before
October 1999, he was Vice President, Database
Management Operations, a position he held since
August 1998. Mr. Perruzza served as Vice
President, Customer Service Operations before
August 1998. Mr. Perruzza first joined Reader's
Digest in 1972.
Robert E. Raymond (44) Mr. Raymond was appointed Vice President,
Strategic Acquisitions & Alliances of Reader's
Digest in June 1999. Before June 1999, he was
Vice President and General Manager, Music, Video,
Special Channels, a position he held since April
1998. Mr. Raymond also served as Vice President
Marketing, Video/New Business from December 1997
until April 1998 and Director of Marketing,
Video/New Business before December 1997. Mr.
Raymond joined Reader's Digest in 1993.
<PAGE>
Name and Age Positions With Reader's Digest and Recent
Business Experience
Gary S. Rich (39) Mr. Rich has been Senior Vice President, Human
Resources of Reader's Digest since August 1998.
Before joining Reader's Digest, he was Senior
Vice President, Global Human Resources for A.C.
Nielsen Corporation (provider of market research,
information and analysis to the consumer products
and services industries), a position he held from
June 1996 to July 1998. Before June 1996, Mr.
Rich was Vice President, Human Resources-Europe,
Middle East and Africa, at American Express
Company (travel, financial and network services).
Eric W. Schrier (48) Mr. Schrier has been Senior Vice President and
Editor-in-Chief of Reader's Digest since January
2000. Before joining Reader's Digest, he was
President and Chief Executive Officer of Time
Inc. Health.
George S. Scimone (53) Mr. Scimone has been Senior Vice President and
Chief Financial Officer of Reader's Digest since
July 1998. Mr. Scimone served as Vice President
and Chief Financial Officer from September 1997
to July 1998, as Vice President and President,
Reader's Digest U.S.A. from November 1996 to
September 1997 and as Vice President and
Corporate Controller before November 1996. Prior
to joining Reader's Digest, Mr. Scimone was
Business Chief Financial Officer, Electrical
Distribution and Control of General Electric
Company (appliances, aircraft engines, and other
electrical products and services).
Our By-Laws state that officers serve at the pleasure of our board of
directors. We elect our officers annually and they serve until their successors
are elected and qualified.
<PAGE>
ITEM 2. PROPERTIES
Our headquarters and principal operating facilities are situated on
approximately 120 acres in Westchester County, New York. We acquired much of
this property in 1940. The table below shows our headquarters and other
properties that we own or lease.
Location Area (sq. ft.) Principal uses
Westchester County, NY 703,000 owned Executive, administrative,
editorial and operational offices;
data processing; other facilities
New York, NY 153,180 leased Books and home entertainment
products editorial offices; Reader's
Digest magazine advertising sales
offices; special interest magazines
offices
Various U.S. cities 220,669 leased Editorial offices, advertising sales
offices; other facilities
Conyers, GA 163,375 leased QSP fulfillment facilities
International 589,138 owned Headquarters, administrative and
678,258 leased editorial offices; warehouse
facilities
We believe that our current facilities, together with expansions and
upgrades of facilities presently underway or planned, are adequate to meet our
present and reasonably foreseeable needs. We also believe that adequate space
will be available to replace any leased facilities whose leases expire in the
near future.
ITEM 3. LEGAL PROCEEDINGS
We and our subsidiaries are defendants in various lawsuits and claims
arising in the regular course of business. Based on the opinions of management
and counsel for these matters, we believe that recoveries, if any, by plaintiffs
and claimants would not materially affect our financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of our security holders during the
fourth quarter of the fiscal year ended June 30, 2000.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained under the caption "Selected Quarterly Financial
Data and Dividend and Market Information" in our 2000 Annual Report to
Stockholders is incorporated into this Item by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Selected Quarterly Financial
Data and Dividend and Market Information" and "Selected Financial Data" in our
2000 Annual Report to Stockholders is incorporated into this Item by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information contained under the caption "Management's Discussion and
Analysis" in our 2000 Annual Report to Stockholders is incorporated into this
Item by reference.
This report contains or incorporates by reference "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 effects of potentially more restrictive privacy and other
governmental regulation relating to our marketing methods;
- the effects of modified and varied promotions;
- our ability to identify customer trends;
- our ability to continue to create a broadly appealing mix of new
products;
- our ability to attract and retain new and younger magazine subscribers
and product customers in view of the maturing of an important
portion of our U.S. customer base;
- our ability to attract and retain subscribers and customers in an
economically efficient manner;
- the effects of selective adjustments in pricing;
- our ability to expand and more effectively utilize our customer
database;
- our ability to expand into new international markets and to introduce
new product lines into new and existing markets;
- our ability to expand into new channels of distribution;
- our ability to negotiate and implement productive acquisitions,
strategic alliances and joint ventures;
- our ability to integrate newly acquired and newly formed businesses
successfully;
- the strength of relationships of newly acquired and newly formed
businesses with their employees, suppliers and customers;
- the accuracy of the basis of forecasts relating to newly acquired and
newly formed businesses;
- our ability to contain and reduce costs, especially through global
efficiencies;
- the cost and effectiveness of our re-engineering of business processes
and operations;
- the accuracy of our management's assessment of the current status of
our business;
- the evolution of our organizational and structural capabilities;
- our ability to respond to competitive pressures within and outside the
direct marketing industry, including the Internet;
- the effects of worldwide paper and postage costs;
- the effects of possible postal disruptions on deliveries;
- the effects of foreign currency fluctuations;
- the accuracy of our management's assessment of the future effective tax
rate and the effect of initiatives to reduce the rate;
- the effects of the transition to the euro;
- the effects and pace of our stock repurchase program; and
- the effects of general economic conditions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information contained under the caption "Management's Discussion and
Analysis" in the section entitled "Currency Risk Management" in our 2000 Annual
Report to Stockholders is incorporated into this Item by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our Consolidated Financial Statements appearing on pages 55 through 101 of
our 2000 Annual Report to Stockholders, together with the report of KPMG LLP
appearing on page 102, are incorporated into this Item by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to our directors under the caption "Proposal 1:
Election of Directors" in the Proxy Statement for our Annual Meeting of
Stockholders to be held on November 10, 2000 is incorporated into this Item by
reference. Information with respect to our executive officers appears under the
caption "Executive Officers" in Item 1 of Part I of this report and is
incorporated into this Item by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation under the captions
"Executive Compensation," "Report of the Compensation and Nominating Committee"
and "Performance Graph" in the Proxy Statement for our Annual Meeting of
Stockholders to be held on November 10, 2000 is incorporated into this Item by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial
owners and management under the caption "Equity Security Ownership" in the Proxy
Statement for our Annual Meeting of Stockholders to be held on November 10, 2000
is incorporated into this Item by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 Financial Statements
An index of our Consolidated Financial Statements appears on page 24 of
this report.
2 Financial Statement Schedules
All schedules have been omitted since the information required to be
submitted has been included in the Consolidated Financial Statements or
Notes thereto or has been omitted as not applicable or not required.
3 Exhibits
3.1.1 Restated Certificate of Incorporation of The Reader's Digest Association,
Inc. filed with the State of Delaware on February 7, 1990 filed as Exhibit
3.1.1 to our Annual Report on Form 10-K for the year ended June 30, 1993,
is incorporated herein by reference.
3.1.2 Certificate of Amendment of the Certificate of Incorporation of The
Reader's Digest Association, Inc. filed with the State of Delaware on
February 22, 1991 filed as Exhibit 3.1.2 to our Annual Report on Form 10-K
for the year ended June 30, 1993, is incorporated herein by reference.
3.1.2 Certificate of Amendment of the Certificate of Incorporation of The
Reader's Digest Association, Inc. filed with the State of Delaware on
November 19, 1999 filed as Exhibit 10.29 to our Quarterly Report on Form
10-Q for the quarter ended March 31, 2000, is incorporated herein by
reference.
3.2 Amended and Restated By-Laws of The Reader's Digest Association, Inc.,
effective February 22, 1991 filed as Exhibit 3.2 to our Annual Report on
Form 10-K for the year ended June 30, 1993, is incorporated herein by
reference.
10.1 The Reader's Digest Association, Inc. Management Incentive Compensation
Plan (Amendment and Restatement as of July 1, 1994) filed as Exhibit 10.1
to our Annual Report on Form 10-K for the year ended June 30, 1994, is
incorporated herein by reference.*
10.2 The Reader's Digest Association, Inc. 1989 Key Employee Long Term
Incentive Plan filed as Exhibit 10.2 to our Registration Statement on
Form S-1 (Registration No. 33-32566) filed on December 19, 1989, is
incorporated herein by reference.*
10.3 The Reader's Digest Association, Inc. Deferred Compensation Plan
(Amendment and Restatement as of July 8, 1994) filed as Exhibit 10.4 to
our Annual Report on Form 10-K for the year ended June 30, 1994, is
incorporated herein by reference.*
10.4 The Reader's Digest Association, Inc. Income Continuation Plan for Senior
Management (amended and restated) filed as Exhibit 10.5 to our Annual
Report on Form 10-K for the year ended June 30, 1993, is incorporated
herein by reference.*
10.5 Excess Benefit Retirement Plan of The Reader's Digest Association, Inc.
(Amendment and Restatement as of July 1, 1994) filed as Exhibit 10.7 to
our Annual Report on Form 10-K for the year ended June 30, 1994, is
incorporated herein by reference.*
*Denotes a management contract or compensatory plan.
<PAGE>
10.6 The Reader's Digest 1992 Executive Retirement Plan (Amendment and
Restatement as of October 10, 1996), filed as Exhibit 10.12 to our Annual
Report on Form 10-K for the year ended June 30, 1997, is incorporated
herein by reference.*
10.7 The Reader's Digest Association, Inc. Executive Cash Balance Retirement
Plan.*
10.8 The Reader's Digest Association, Inc. Executive Financial Counseling Plan,
amended and restated as of July 1, 1998 filed as Exhibit 10.10 to our
Annual Report on Form 10-K for the year ended June 30, 1998, is
incorporated herein by reference.*
10.9 Amendment No. 1 to The Reader's Digest Association, Inc. Management
Incentive Compensation Plan (effective as of April 11, 1996) filed as
Exhibit 10.1.1 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996, is incorporated herein by reference.*
10.10 Competitive Advance and Revolving Credit Facility Agreement dated as of
November 12, 1996 between the registrant, the Borrowing Subsidiaries, The
Chase Manhattan Bank and J.P. Morgan Securities Inc., filed as Exhibit
10.23 to our Quarterly Report on Form 10-Q for the quarter ended December
31, 1996, is incorporated herein by reference.
10.11 First Amendment dated as of September 17, 1997 to the Competitive
Advance and Revolving Credit Facility Agreement dated as of November
12, 1996 among The Reader's Digest Association, Inc., the Borrowing
Subsidiaries, The Chase Manhattan Bank and J.P. Morgan Securities Inc.,
filed as Exhibit 10.29 to our Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, is incorporated herein by reference.
10.12 The Reader's Digest Association, Inc. Director Compensation Program, filed
as Exhibit 10.31 to our Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998, is incorporated herein by reference.*
10.13 The Reader's Digest Association, Inc. Deferred Compensation Plan for
Directors, amended and restated as of March 13, 1998, filed as Exhibit
10.31 to our Quarterly Report on Form 10-Q for the quarter ended March 31,
1998, is incorporated herein by reference.*
10.14 Employment Agreement dated as of April 28, 1998 between The Reader's
Digest Association, Inc. and Thomas O. Ryder, filed as Exhibit 10.33 to
our Quarterly Report on Form 10-Q for the quarter ended March 31, 1998, is
incorporated herein by reference.*
10.15 The Reader's Digest Association, Inc. 1994 Key Employee Long Term
Incentive Plan, as amended and restated effective as of August 13, 1999
filed as Exhibit 10.17 to our Annual Report on Form 10-K for the year
ended June 30, 1999, is incorporated herein by reference.*
10.16 Second Amendment dated as of June 2, 1998 to the Competitive Advance
and Revolving Credit Facility Agreement dated as of November 12, 1996
among The Reader's Digest Association, Inc., the Borrowing
Subsidiaries, The Chase Manhattan Bank and J.P. Morgan Securities Inc.,
filed as Exhibit 10.27 to our Annual Report on Form 10-K for the year
ended June 30, 1998, is incorporated herein by reference.
10.17 Third Amendment dated as of September 2, 1999 to the Competitive
Advance and Revolving Credit Facility Agreement dated as of November
12, 1996 among The Reader's Digest Association, Inc., the Borrowing
Subsidiaries, The Chase Manhattan Bank and J.P. Morgan Securities Inc.,
filed as Exhibit 10.19 to our Annual Report on Form 10-K for the year
ended June 30, 1999, is incorporated herein by reference.*
*Denotes a management contract or compensatory plan.
<PAGE>
10.18 Termination Agreement dated as of April 10, 1997 between The Reader's
Digest Association, Inc. and George S. Scimone, filed as Exhibit 10.28 to
our Annual Report on Form 10-K for the year ended June 30, 1998, is
incorporated herein by reference.*
10.19 Termination Agreement dated as of April 10, 1998 between The Reader's
Digest Association, Inc. and Gregory G. Coleman, filed as Exhibit 10.29 to
our Annual Report on Form 10-K for the year ended June 30, 1998, is
incorporated herein by reference.*
10.20 Termination Agreement dated as of September 8, 1997 between The Reader's
Digest Association, Inc. and M. John Bohane, filed as Exhibit 10.30 to our
Annual Report on Form 10-K for the year ended June 30, 1998, is
incorporated herein by reference.*
10.21 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, filed as Exhibit 10.30 to our Quarterly
Report on Form 10-Q for the quarter ended March 31, 2000, is
incorporated herein by reference *
10.22 Termination Agreement dated as of September 8, 1997 between The
Reader's Digest Association, Inc. and Peter J.C. Davenport.*
10.23 Supplemental Retirement Benefit Agreement dated as of November 15, 1991
between The Reader's Digest Association, Inc. and Gregory G. Coleman,
filed as Exhibit 10.32 to our Annual Report on Form 10-K for the year
ended June 30, 1998, is incorporated herein by reference.*
10.24 Supplemental Retirement Benefit Agreement dated as of August 25, 1988
between The Reader's Digest Association, Inc. and M. John Bohane, filed
as Exhibit 10.11 to our Registration Statement on Form S-1
(Registration No. 33-32566) filed on December 19, 1989, is incorporated
herein by reference.*
10.25 Supplemental Retirement Agreement dated as of August 25, 1988 between
The Reader's Digest Association, Inc. and Peter J.C. Davenport.*
10.26 The Reader's Digest Association, Inc. Senior Management Incentive Plan,
filed as Exhibit 10.27 to our Annual Report on Form 10-K for the year
ended June 30, 1999, is incorporated herein by reference.*
10.27 Stock Purchase Agreement dated August 25, 1999 by and among The
Reader's Digest Association, Inc., Books Are Fun, Ltd. and the other
parties listed therein filed as Exhibit 10.28 to our Annual Report on
Form 10-K for the year ended June 30, 1999, is incorporated herein by
reference.
13 Financial information appearing at pages 55 through 101 of our 2000 Annual
Report to Stockholders, together with the report thereon of KPMG LLP
appearing on page 102 (furnished for the information of the Securities and
Exchange Commission only and not to be deemed filed as part of this Annual
Report on Form 10-K, except for the portions thereof that are specifically
incorporated herein by reference).
21 Subsidiaries of The Reader's Digest Association, Inc.
23 Consent of KPMG LLP.
27 Financial Data Schedule.
*Denotes a management contract or compensatory plan.
(b) Reports on Form 8-K
During the three months ended June 30, 2000, we did not file any
Current Reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
The Reader's Digest Association, Inc.
By: /s/THOMAS O. RYDER
(Thomas O. Ryder)
Chairman and Chief Executive Officer
Date: September 22, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/THOMAS O. RYDER Chairman and Chief September 22, 2000
(Thomas O. Ryder) Executive Officer and a
Director
/s/GEORGE S. SCIMONE Senior Vice President September 22, 2000
(George S. Scimone) and Chief Financial
Officer
/s/DORVIN D. LIVELY Vice President and September 22, 2000
(Dorvin D. Lively) Corporate
Controller (chief
accounting officer)
Director September 22, 2000
(Lynne V. Cheney)
/s/M. CHRISTINE DEVITA Director September 22, 2000
(M. Christine DeVita)
/s/JAMES E. PRESTON Director September 22, 2000
(James E. Preston)
/s/LAWRENCE R. RICCIARDI Director September 22, 2000
(Lawrence R. Ricciardi)
/s/C.J. SILAS Director September 22, 2000
(C.J. Silas)
/s/WILLIAM J. WHITE Director September 22, 2000
(William J. White)
/s/ED ZSCHAU Director September 22, 2000
(Ed Zschau)
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THE READER'S DIGEST ASSOCIATION, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Management's Discussion and Analysis.................................... *
Financial Statements:
Consolidated Statements of Income--For the Years Ended June 30,
2000, 1999 and 1998............................................ *
Consolidated Balance Sheets--June 30, 2000 and 1999............... *
Consolidated Statements of Cash Flows--For the Years Ended June 30,
2000, 1999 and 1998........................................ *
Consolidated Statements of Changes in Stockholders' Equity--For
the Years Ended June 30, 2000, 1999 and 1998................... *
Notes to Consolidated Financial Statements.............................. *
Independent Auditors' Report............................................ *
Report of Management.................................................... *
Selected Financial Data................................................. *
Selected Quarterly Financial Data and Dividend and Market Information
(Unaudited)............................................................. *
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*This financial information is incorporated by reference to our 2000
Annual Report to Stockholders. For additional information, please refer to Item
8 of this report.
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SUBSIDIARIES OF
THE READER'S DIGEST ASSOCIATION, INC.
Argentina
Reader's Digest Argentina S.A.
Australia
The Reader's Digest Association Pty. Limited
Reader's Digest (Australia) Pty. Ltd.
Austria
Verlag Das Beste GmbH
Belgium
N.V. Reader's Digest S.A.
Reader's Digest World Services, S.A.
Brazil
Reader's Digest Brasil Ltda.
Canada
The Reader's Digest Association (Canada) Ltd.
Quality Service Programs, Inc.
Chile
Reader's Digest Chile Limitada
Colombia
Reader's Digest Colombia S.A.
Czech Republic
Reader's Digest Vyber s.r.o.
Rena s.r.o.
Denmark
Forlaget Det Beste A/S
England
The Reader's Digest Association Limited
RD Publications Ltd.
Money Magazine Limited
Reader's Digest Financial Services (Family Insurance Services) Limited
The Reader's Digest Association (Ireland) Limited
Reader's Digest Holdings Limited
Reader's Digest Children's Publishing Limited (formerly Victoria House
Publishing, Ltd.)
Reader's Digest European Systems Ltd.
Reader's Digest Central & Eastern Europe Limited
Finland
Oy Valitut Palat - Reader's Digest Ab
France
Selection du Reader's Digest S.A.
Selection du Reader's Digest Assurances SARL
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Germany
Verlag Das Beste GmbH
Optimail/Direcktwerbeservice GmbH
Pegasus Buch-und Zeitschriften - Vertriebsgesellschaft.mbH
Hong Kong
Reader's Digest Association Far East Limited
Asian Qualiproducts Services, Limited
Reader's Digest Asia, Ltd.
Reader's Digest (East Asia) Limited
Reader's Digest Global Advertising Ltd.
Reader's Digest (Malaysia) Sdn. Bhd
R.D. Properties, Ltd.
Hungary
Reader's Digest Kiado KFT
Italy
Selezione dal Reader's Digest S.p.A.
Japan
The Reader's Digest Ltd.
Mexico
Caribe Condor S.A. de C.V.
Reader's Digest Mexico, S.A. de C.V.
Corporativo Reader's Digest de R.L. de CV
Netherlands
Uitgeversmaatschappij The Reader's Digest N.V.
Distrimedia Services B.V.
Reader's Digest European Shared Services
New Zealand
The Reader's Digest Association (New Zealand) Limited
Norway
Det Beste A/S
Peru
Reader's Digest Peru, S.A.
Philippines
Reader's Digest (Philippines) Inc.
Poland
Reader's Digest Przeglad Sp.z o.o.
Portugal
Seleccoes do Reader's Digest (Portugal) S.A.
Euroseleccoes - Publicacoes E Artigos Promocionais, Lda.
Russia
Joint Stock Company "Publishing House Reader's Digest"
Spain
Reader's Digest Selecciones S.A.
Sweden
Reader's Digest Aktiebolag
Switzerland
Das Beste aus Reader's Digest AG
Thailand
Reader's Digest (Thailand) Limited
United States*
Ardee Music Publishing, Inc.
Books Are Fun, Ltd.
gifts.com, Inc.
Pegasus Finance Corp.
Pegasus Investment, Inc.
Pegasus Sales, Inc.
Pleasantville Music Publishing, Inc.
QSP, Inc.
Reader's Digest Sub Eight, Inc.
VideOvation, Inc.
QSP Distribution Services, Inc.
QSP Products and Programs, Inc.
QSP Sales, Inc.
Family Reading Program Corp.
R.D. Manufacturing Corporation
Pegasus Asia Investments Inc.
RD Publications, Inc.
RD Large Edition, Inc.
RD Walking, Inc.
Travel Publications, Inc.
RD Member Services Inc.
Home Service Publications, Inc.
Retirement Living Publishing Company, Inc.
RD Trade Shows, Inc.
Reader's Digest Children's Publishing, Inc.
Reader's Digest Entertainment, Inc.
Reader's Digest Latinoamerica, S.A.
Reader's Digest Sales and Services, Inc.
Reader's Digest Sub Nine, Inc.
Reader's Digest Sub Ten, Inc.
Reader's Digest Young Families, Inc.
SMDDMS, Inc.
The Reader's Digest Association (Russia) Incorporated
W.A. Publications, Inc.
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* All are Delaware corporations except W.A. Publications, Inc., a New York
corporation.
