READERS DIGEST ASSOCIATION INC - 10-K Annual Report

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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, 2002 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
(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 New York Stock Exchange
par value $.01 per share

Class B Voting Common Stock New York Stock Exchange
par value $.01 per share

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]

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 September 12, 2002, was approximately
$98,500,000, based on the closing price of registrant's Class B Voting Common
Stock on the New York Stock Exchange--Composite Transactions on such date.

At September 12, 2002, 88,296,559 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, 2002. 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 8, 2002. 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................................................ 1
Books and Home Entertainment...................................... 2
Select Editions................................................ 3
Series Books................................................... 3
General Books.................................................. 3
Music.......................................................... 3
Video.......................................................... 4
Books Are Fun, Ltd............................................. 4
Reader's Digest Young Families and Reader's Digest Children's
Publishing................................................... 5
Financial Services Marketing Alliances......................... 5
Gifts.com and Good Catalog Company............................. 5
Production and Fulfillment..................................... 6
Reader's Digest Magazine, Special Interest Magazines and Reiman
Media Group..................................................... 6
Circulation and Advertising.................................... 7
Reader's Digest Magazine Editorial............................. 8
rd.com......................................................... 9
Reiman Media Group............................................. 9
QSP............................................................ 11
Custom Publishing.............................................. 11
Production and Fulfillment..................................... 11
Marketing......................................................... 12
Information Technology and Customer Database Enhancement.......... 13
Competition and Trademarks........................................ 14
Employees......................................................... 14
Executive Officers................................................ 15

ITEM 2. PROPERTIES.................................................. 17

ITEM 3. LEGAL PROCEEDINGS........................................... 17

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 18

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS......................................... 19

ITEM 6. SELECTED FINANCIAL DATA..................................... 19

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.......................... 19

TABLE OF CONTENTS
(Continued)

Page

ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK................................................. 21

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 21

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND REPORTING MATTERS......................... 21

PART III

ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 22

ITEM 11.EXECUTIVE COMPENSATION...................................... 22

ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.............. 22

ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 22

ITEM 14.CONTROLS AND PROCEDURES..................................... 22

PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K................................................. 23

SIGNATURES.......................................................... 27

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.......................... 29

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.

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, and 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. DeWitt and Lila Acheson Wallace founded Reader's Digest magazine
in 1922. Today, Reader's Digest has a worldwide circulation of about 23
million and over 100 million readers each month. Reader's Digest is
published in 48 editions and 19 languages.

Strategic Initiatives

The key elements of our long-term growth strategy include:

- revitalizing the Reader's Digest magazine franchise;

- developing new marketing channels outside of sweepstakes direct mail;

- offering new products and services to attract new customers and build
deeper relationships with existing customers

- offering products beyond published products;

- continuing our geographic expansion; 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.

Operating Segments

During the fourth quarter of fiscal 2002, we modified our reporting
segments to reflect our new internal management organization. Our reporting
segments are: North America Books and Home Entertainment, U.S. Magazines,
and International Businesses. We redistributed our former New Business
Development segment primarily between our North America Books and Home
Entertainment segment and our International Businesses segment.

North America Books and Home Entertainment:

- Publishes and markets, primarily through direct marketing, Books and
Home Entertainment products in the United States and Canada;

- Includes Reader's Digest Magazines Limited (Canada), which publishes
and markets, primarily through direct marketing, Reader's Digest
magazine in Canada;

- Sells Reader's Digest magazine and other publishers' magazines and
products through youth fundraising campaigns of Quality Service
Programs Inc. in Canada;

- Sells books and gift items, including Reader's Digest Books and Home
Entertainment products, by display marketing products on-site
through independent sales representatives at schools and businesses
through Books Are Fun, Ltd. in the United States;

- Includes the operations of our financial services alliances in the
United States and Canada; and

- Includes the operations of Gifts.com, Inc. (including Good Catalog
Company), which will cease operations in fiscal 2003.

U.S. Magazines:

- Publishes and markets, primarily through direct marketing, Reader's
Digest magazine and several special interest magazines in the United
States;

- Publishes and markets, primarily through direct marketing, several
magazines and books, as well as operating complementary businesses
of Reiman Media Group, Inc., which we acquired on May 20, 2002; and

- Sells its magazines and other publishers' magazines and products
through youth fundraising campaigns of QSP, Inc. in the United
States.

International Businesses, which operates outside of the United States
and Canada:

- Publishes and markets, primarily through direct marketing, Books and
Home Entertainment products, Reader's Digest magazine in numerous
editions and languages, and several special interest magazines; and

- Includes the operations of our financial services alliances and other
new business development initiatives, including the introduction of
display marketing and youth-fundraising marketing, in some of our
international markets.

Financial information about each of our reporting segments is included
in Note 14 to our consolidated financial statements, which are incorporated
by reference into this report.

Books and Home Entertainment

Our Books and Home Entertainment products consist of Reader's Digest
Select Editions, series books, general books, recorded music collections and
series, home video products and series, and Reader's Digest Young Families
and Reader's Digest Children's Publishing products. We market these products
principally by direct mail through our North America Books and Home
Entertainment and International Businesses reporting segments. North America
Books and Home Entertainment also sells books and gift items, including
Reader's Digest books and home entertainment products, by display marketing
products on-site, through independent sales representatives, at schools and
businesses through Books Are Fun. For more information about how we market
our Books and Home Entertainment products, please refer to the section of
this report captioned "Marketing."

The principal products in Books and Home Entertainment, globally, are
books and music products. Global book products generated revenues in fiscal
2002 of $1,063.7 million, consisting of $481.1 million primarily in North
America Books and Home Entertainment and $582.6 million in International
Businesses. In fiscal 2001, global revenues for books were $1,111.5 million
($521.5 million primarily in North America Books and Home Entertainment and
$590.0 million in International Businesses) and in fiscal 2000, global
revenues for books were $1,089.1 million ($492.5 million primarily in North
America Books and Home Entertainment and $596.6 million in International
Businesses).

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 the United
States, Canada and 28 other countries. We generally publish six volumes of
Select Editions a year. Some of our international subsidiaries publish four
or five volumes a year.

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 the United States, Canada
and nine other 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 the United States, Canada and four other countries and in two
languages. We publish illustrated series, which are generally closed-ended,
in 10 languages and market them in the United States, Canada and 17 other
countries.

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, home, computers and puzzles. We publish
general books in 18 languages and market them in the United States, Canada
and 34 other countries.

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, and through
our Books Are Fun, Ltd. subsidiary.

Music

Our music collections, released on compact discs and cassettes in the
United States, Canada and 31 other 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. Global music products generated revenues in fiscal 2002 of
$223.5 million consisting of $59.0 million in North America Books and Home
Entertainment and $164.5 million in International Businesses. In fiscal
2001, global revenues for music products were $266.3 million ($79.9 million
in North America Books and Home Entertainment and $186.4 million in
International Businesses) and in fiscal 2000 global revenues of $277.5
million ($80.4 million in North America Books and Home Entertainment and
$197.1 million in International Businesses.)

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 10,000 selections, which are 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.

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, Canada and 24
other countries. In some countries, we also sell our home video products
through retail outlets. In April 2002, Reader's Digest announced that it
would exit the home video products business in the United States, except for
children's videos.

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--programs that will stand out in a
competitive marketplace. Several original programs have won awards of
excellence, including five Emmy awards and, in 2001, four Crystal Awards of
Excellence and a Cine Golden Eagle Award. Most of our original documentary
programs are being licensed to broadcasters worldwide. We are keeping pace
with new technological developments--including creating a Global Video Digital
Library--that will allow us to deliver even better quality, multi-dimensional
programs to our customers.

Books Are Fun, Ltd.

Books Are Fun, Ltd., a wholly owned subsidiary of Reader's Digest,
sells premium-quality books and gift items, including Reader's Digest books
and home entertainment products, 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 other displays. Book
categories sold by Books Are Fun 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, such as
jewelry and art. Books Are Fun's products are sold through approximately 900
independent sales agents, who serve approximately 65,000 schools, 12,000
large corporations and institutions, 14,000 day-care centers and 40,000 small
businesses. Since many individuals purchase these products for gift giving,
Books Are Fun's sales cycle is largely seasonal, reflecting substantial
volume in the second quarter of our fiscal year.

Books Are Fun purchases book titles from over 250 of the world's
leading publishers. Many of its top titles are purchased in quantities
exceeding 100,000 copies on a non-returnable basis, affording Books Are Fun
substantial purchasing power. Books Are Fun purchases gift and other
products from a variety of suppliers. All products are test-marketed by the
purchase of a modest number of units in advance of a large commitment. Books
Are Fun uses an extensive network of independent public warehousing
facilities and carriers to store and transport product.

The Books Are Fun business model is being rolled out in a number of
international markets. Commercial operations are underway in France and
Mexico and the concept is currently in market testing and early development
phases elsewhere.

Reader's Digest Young Families and Reader's Digest Children's Publishing

Our Reader's Digest Young Families subsidiary sells products for
children up to age 8, primarily through direct mail and telemarketing. The
division's products include interactive books, such as Sesame Street ABCs and
Elmo's Neighborhood, and videos, such as The Country Mouse and the City
Mouse. Young Families currently sells its products principally in the United
States. Our Reader's Digest Children's Publishing subsidiary produces books,
games and other products under the Reader's Digest Children's Publishing
imprint for children up to age 12 for retail sale as well as direct marketing
through Reader's Digest (mail, telemarketing, display marketing, company
catalogs, etc.) and other channels, including the Internet. The products
represent popular brands such as Barbie, Disney (Winnie the Pooh and classic
Disney characters), Hasbro (Tonka and Mr. Potato Head), and Fisher-Price
(Little People). The products, which have been translated into 28 languages,
are marketed in the United States, Canada, Europe, South America, Australia
and Asia.

Financial Services Marketing Alliances

Insurance. Reader's Digest and its subsidiaries have formed alliances
with several leading insurance companies under which the insurers market a
variety of insurance products to our customers in the United States and other
countries. Our alliance partners include American International Group, Inc.,
GE Financial Assurance Company, GE Capital Assurance Company, Physicians
Mutual Insurance Company, Liberty Mutual, PacifiCare Health Systems, Allianz,
AXA, Manulife Financial, and BNP Pinnacle. The products, which include life,
personal accident, auto, health, homeowners, long term care insurance and
hospital indemnity and hospital cash products, are marketed and sold through
a combination of direct mail, telemarketing, advertising in our magazines,
the Internet and other marketing channels. The insurer underwrites and
administers the products, provides customer and claims services, and covers
marketing costs. Reader's Digest provides expertise in research and test
design, database management and targeting, and promotion creation and
production.

Credit Products. Reader's Digest is actively pursuing alliances to
provide a range of credit products to our customer base. 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 in the United
States. Under the agreement, First USA launched a Reader's Digest Platinum
MasterCard in April 2000. First USA administers the credit cards.
Internationally, we are partnering to market loan products with GE Capital
Assurance Company and its subsidiaries in France and Germany and with the
Bank of Scotland in the United Kingdom and to market equity release products
with Northern Rock in the United Kingdom.

Investment Products. In June 2001, we formed an alliance with The
Vanguard Group under which Vanguard will offer its mutual funds and other
financial services, such as brokerage, financial planning, asset management
and trust services, to our customers in the United States. We are pursuing
other opportunities with investment products internationally.

Gifts.com and Good Catalog Company

Gifts.com, Inc. comprises the Good Catalog Company division, a catalog
marketer of home, garden and gift-related products, and the gifts.com
division, an online and catalog 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. In April 2002, Gifts.com, Inc. decided to shut
down its operations. The termination of operations is expected to occur in
December 2002.

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. The majority of all
other U.S. book products produced by Reader's Digest are printed by our
primary 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. Our exclusive agreement
with a major supplier to supply paper for Select Editions expired in June
2002. We are currently renegotiating this contract in order to improve paper
quality and achieve cost savings and the supplier is expected to continue to
honor current pricing through December 2002 as we negotiate. 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. We have an agreement with a single
independent contractor to handle order and payment processing for most of our
North America Books and Home Entertainment and U.S. Magazines 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 "Marketing."

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 fall and
winter months than during the rest of the year. Also, sales are typically
higher during the pre-Christmas season than in spring and summer.

Reader's Digest Magazine, Special Interest Magazines and Reiman Media Group

Reader's Digest magazine 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 in These United
States(R)," and "All In A Day's Work(R)," and other regular features, including
"Quotable Quotes(R)," "Word Power(R)," "Only in America," "Everyday Heroes,"
"That's Outrageous!(R)," and "RD Living." The international editions of
Reader's Digest include similar features.

We publish Reader's Digest in the United States and Canada and in 48
editions and 19 languages outside the United States and Canada. We license
independent contractors to publish Reader's Digest in India, Italy, Korea and
South Africa. These magazines are sold primarily through direct marketing.
In addition, we sell Reader's Digest and other publishers' magazines and
products in the United States and in Canada through youth fundraising
campaigns of our subsidiaries QSP, Inc. in the United States and Quality
Service Programs, Inc. in Canada.

We publish Reader's Digest in several editions in the United States,
including an English-language edition, a Spanish language edition entitled
Selecciones, and Reader's Digest Large Print 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. In the
United States, we publish The Family Handyman(R) and American Woodworker(R). The
Family Handyman provides instructions and guidance for "do-it-yourself" home
improvement projects. American Woodworker(R) provides information, instruction
and guidance for professional and serious amateur woodworkers. We sold
Walking(R) magazine, which provided information on health and fitness for
walking enthusiasts, and ceased publication of the magazine after the
September/October 2001 issue. We ceased publication of New Choices: The
Magazine for Your Health, Money and Travel(R), which provided information on
entertainment, travel, health and leisure-time activities, after the May/June
2002 issue.

Internationally, we publish Moneywise, a magazine devoted to helping
families manage their finances, in the United Kingdom. We also publish
Receptar, a leading Czech do-it-yourself and gardening monthly magazine and
Krizovky, a Czech entertainment puzzle magazine. We also publish The Family
Handyman in Australia. In June 2002, we sold and ceased publication of
Benchmark magazine, an investment guide distributed in the Far East.

We promote our special interest magazines to our 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 and internationally. These include a special homeowners'
edition of The Family Handyman to be used by real estate brokers in the
United States and special holiday-themed editions of Reader's Digest in
Mexico. In addition, we plan to launch in fall 2002 a new series of monthly
checkout-counter magazines to be branded as RD Specials and to consist
primarily of repurposed content from our books and magazines around the
topics of home, health and food.

Circulation and Advertising

The following table shows circulation and advertising information for
Reader's Digest and our special interest magazines for fiscal 2002.

June 30, 2002 Advertising
Issues Circulation Pages
Magazine Title Per Year Rate Base Carried

Reader's Digest--U.S.--English edition 12 12,500,000(1) 1,003
Reader's Digest--Canada--English and French
editions 12 1,326,075 1,795
Reader's Digest--Other international editions 12 9,356,281 14,996
Reader's Digest Large Print for Easier Reading 12 500,000 173
American Woodworker 7 325,000 358
The Family Handyman 10 1,100,000 513
Selecciones 12 275,000 335
Moneywise 12 85,251 725
Receptar 12 175,000 286
Krizovky 12 45,000 26
Walking(2) 7 650,000 388
New Choices: The Magazine for Your Health,
Money and Travel (3) 10 600,000 431

(1) Effective July 1, 2002, the circulation rate base is 12,000,000;
effective January 1, 2003, the circulation rate base will be
11,000,000.
(2) Ceased publication after the September/October 2001 issue.
(3) Ceased publication after the May/June 2002 issue.

The principal products in Reader's Digest magazine, special interest
magazines, QSP and Reiman Media Group are magazines. Globally, magazines
generated revenues in fiscal 2002 of $761.5 million consisting of $545.4
million primarily in U.S. Magazines and $216.1 million in International
Businesses. In fiscal 2001, global revenues for magazines were $796.4
million ($567.2 million primarily in U.S. Magazines and $229.2 million in
International Businesses) and in fiscal 2000, global revenues of $790.6
million ($537.5 million primarily in U.S. Magazines and $253.1 million in
International Businesses).

Approximately 70% of total U.S. fiscal 2002 revenues for Reader's
Digest was generated by circulation revenues and 30% by advertising
revenues. Approximately 69% of total U.S. fiscal 2002 revenues for the
special interest magazines were generated by circulation revenues and 31% 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 95% 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. In fiscal 2002, we sold
approximately 3.5 million new subscriptions in the United States and
approximately 2 million new international Reader's Digest subscriptions to
maintain the current circulation rate base. We sell new subscriptions in the
United States through a variety of direct response marketing techniques and
we sell new subscriptions in international markets primarily by direct mail.
We sell the largest percentage of subscriptions between July and January of
each fiscal year. Subscribers to Reader's Digest may cancel their
subscriptions at any time and we will refund the unused balance of the
subscription price. For additional information regarding direct marketing of
subscriptions, please refer to the section of this report captioned
"Marketing."

Many international editions of Reader's Digest 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 approximately 90% of circulation.
The balance is attributable to newsstand and other retail sales.
Approximately 83% of total international fiscal 2002 revenues for Reader's
Digest were generated by circulation revenues and 17% by advertising revenues.

The U.S. editions and 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
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.

Reader's Digest Magazine 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 freelance writers or staff writers. The balance is
selected from existing published sources and is condensed or excerpted by
Reader's Digest editors. We employ a professional staff to research and
fact-check all published pieces.

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 France, Germany, Mexico and the United
Kingdom, carry more original or locally adapted material than do smaller
editions.

rd.com (sm)

We have created our rd.com Web site to extend the experience of reading
Reader's Digest through audio, graphic, text and video enhancements,
interactive discussions and reader involvement, and additional content
relating to Reader's Digest. We are also utilizing rd.com to market our
products through e-mail and the Internet, as well as to communicate with and
service our customers online. For more information about rd.com, please
refer to the section of this report captioned "Marketing."

Reiman Media Group

On May 20, 2002, Reader's Digest acquired substantially all of the
assets and assumed substantially all of the liabilities of Reiman Holding
Company LLC and its subsidiaries for $760 million in cash. The acquired
businesses of those companies are now operated by Reader's Digest's wholly
owned subsidiary, Reiman Media Group, Inc. and its subsidiaries. Reiman is a
publisher in the United States and Canada of magazines and books that cover
topics including cooking, gardening, country lifestyle, nostalgia and
crafts. Reiman also operates several related businesses to complement its
core magazine and book publishing operations. For fiscal 2002, Reiman's
revenues were generated 62% by magazines, 23% by books and 15% by other
businesses.

Magazine Publishing. Reiman publishes 12 bi-monthly magazines. The
renewal rates for Reiman magazines have averaged approximately 70%. The
following table contains information about each of the magazines:

FY 2002 Average
Title and year of first issue Theme Circulation(1)

Light & Tasty (R)(2001) Recipes lower in fat, salt, calories or cholesterol 1,218,000
Country Discoveries(R) (2000) Exploration of country destinations and getaways 420,000
Quick Cooking(R)(1997) Quick recipes and kitchen shortcuts 3,110,000
Birds & Blooms(R)(1995) Backyard bird feeding and gardening 1,964,000
Taste of Home(R)(1993) Home-style food and recipes 4,336,000
Reminisce Extra (1993)(1) Nostalgia 327,000
Reminisce(R)(1991) Nostalgia 1,069,000
Country Extra (1990)(2) Photos and stories of country life 337,000
Country (1987) Photos and stories of country life 1,188,000
Crafting Traditions(R)(1982) Crafts themes relating to particular upcoming holidays 288,000
Farm & Ranch Living(R)(1978) Rural life 406,000
Country Woman(R)(1970) Women who love country living 1,449,000

(1) Reiman's magazines do not have a guaranteed circulation rate base and
are not audited by the Audit Bureau of Circulation. The circulation
levels of each individual magazine fluctuate throughout the year. The
overall circulation level is managed in total to maximize the
profitability of the entire portfolio, which may cause year-to-year
increases or decreases in the average circulation for individual titles.
(2) Reminisce Extra and Country Extra are essentially extensions of the
base titles that bring the publishing frequency of the base titles up
to monthly for those customers who subscribe to both, although each is
available separately.

Reiman's editorial philosophy includes the following core principles:
(1) concentration on positive aspects of people and their lifestyles; (2)
encouragement of reader involvement; (3) maintenance of low editorial costs;
and (4) emphasis on product quality. As a result, about 85-90% of the
editorial content of Reiman's magazines is contributed by readers. Reiman's
magazines do not accept on-page advertising and rely on subscriptions for
almost all revenue. "Savings Packs" of coupons are poly-bagged with some of
the magazines.

Reiman markets its magazines principally through direct mail and
cross-promotion of titles within its magazine group. Reiman markets products
to its customer database of approximately 32 million current and former
customers, combined with selective rental of outside customer lists. Through
reader involvement, Reiman seeks to identify and address customer interest in
existing and new publications. New magazine ideas and titles, also created
using reader-submitted editorial content, are test-marketed to subscribers of
existing magazines and selected outside lists. This has enabled Reiman to
more accurately measure the potential for new products and launch new
magazines at relatively low start-up costs. Reiman does not use cash-prize
sweepstakes in connection with its marketing.

Book Publishing. Reiman leverages its magazine brand equity, reader
loyalty and editorial capability by publishing and marketing books that
complement its magazines. Reiman principally markets annual editions of
books created primarily from magazine content from the prior year. In fiscal
2002, Reiman published and sold over 4.3 million books. Reiman has nine
established book annual programs that are marketed on a continuity basis,
with customers agreeing to receive future editions of the books unless they
respond to an annual prepublication notice. Annual books constitute about
90% of unit volume, of which about 60% are renewals. Reiman markets most of
its books through solo direct mail in which Reiman sends a promotion
featuring one book to names from its customer database and outside lists.
Reiman sells its books with a free trial offer during which the customer
agrees to examine the book before purchasing it. If they do not wish to
purchase the book they can return it for a full refund or credit.

Complementary Businesses. Reiman operates four businesses that
complement its core magazine and book publishing operations:

Country Store: sells a broad selection of products, including
Reiman books, calendars, collectors' items, memorabilia, small kitchen
appliances, gardening tools, and other country lifestyle products,
through a catalog that is distributed to those who request and to those
who have purchased in the past.

World Wide Country Tours: offers motorcoach and riverbarge tours
to experience the lives of people in various parts of the United States
and the world. World Wide Country Tours utilizes direct marketing
through Reiman magazines and its own stand-alone brochures to attract
potential travelers.

Reiman Advertising & Promotion: offers to subscribers Savings
Packs of coupons and promotional advertising in conjunction with
recipes and other information. Its customers are primarily food and
consumer product companies, which purchase advertising space in the
Savings Packs.

Homemaker Schools: provides cooking school demonstrations by
professional home economists in small- and medium-size communities
throughout the United States. Revenues are generated from fees paid by
local news media that sponsor individual shows and from portions of
fees that Reiman Advertising & Promotion receives from national
sponsors of the Homemaker Schools.

QSP

We also market and sell subscriptions to Reader's Digest, the Reiman
magazines, the special interest magazines and other publishers' 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 occurs during the first half of our fiscal year,
which coincides with the fall school semester. QSP currently has
approximately 440 independent sales representatives.

In May 2000, QSP entered into a licensing agreement with World's Finest
Chocolate, Inc. that provides for QSP's commitment to purchase annual minimum
amounts of World's Finest Chocolate products and the exclusive right to sell
those products for fundraising purposes through 2010. In September 2002, QSP
entered into an amendment to the licensing agreement. The amendment extends
the term of the initial agreement by ten years, reduces the annual minimum
purchase requirements, adjusts pricing favorably to QSP and permits QSP to
sell World's Finest Chocolate products through channels other than
fundraising under specified circumstances. In connection with these changes,
QSP paid $7.5 million to World's Finest Chocolate in the first quarter of
fiscal 2003 and will pay $3.0 million in the fourth quarter of fiscal 2003.

Quality Service Programs, Inc., our Canadian subsidiary, which is
included in the North America Books and Home Entertainment reporting segment,
conducts in Canada substantially similar operations to those conducted by QSP
in the United States. In June 2001, Quality Service Programs acquired
eFundraising.com Corporation, Incorporated, which uses the Internet to
enhance fundraising activities. eFundraising.com uses proprietary software
that enables e-mail messages to be sent on behalf of students about their
school or youth group's fundraising activities to family and friends. The
e-mail directs the recipients to the school or youth group's Web site, where
they may purchase magazine subscriptions and a variety of gift and food
products.

We are in the process of market testing the QSP concept in
international markets and, based on the results of those tests, will
determine an international rollout strategy during fiscal 2003.

Custom Publishing

In January 2002, we signed a five-year agreement with McMurry
Publishing, Inc. and The Ritz-Carlton Hotel Company, LLC to publish the
in-room magazine for Ritz-Carlton hotels, which will be distributed in more
than 44 properties worldwide.

Production and Fulfillment

We hire independent contractors to print all 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 is scheduled to expire in 2007. Our Reiman magazines are printed
under contracts with three printers that expire in 2004-2005. 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.

Lightweight coated and uncoated paper are the principal raw materials
used in the production of Reader's Digest and special interest magazines. We
have recently completed negotiation of a new exclusive global contract for
supply of paper for Reader's Digest magazine. The initial term of the
contract expires in 2005. 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.

We have agreements with a single independent contractor to handle order
and payment processing for Reader's Digest, the U.S. special interest
magazines and the Reiman magazines. The agreement for Reader's Digest and
the U.S. special interest magazines expires in 2006 and the agreement for the
Reiman magazines expires in 2005. The same contractor also handles these
matters for most of our North America Books and Home Entertainment operations.

We deliver subscription copies of the U.S. edition of Reader's Digest,
the special interest magazines and the Reiman magazines through the United
States Postal Service as "periodicals" class mail. Subscription copies of
international editions of Reader's Digest are delivered through the postal
service in each country of publication. For additional information about
postal rates and service, please refer to the section of this report
captioned "Marketing."

In the United States, a distribution network handles newsstand and
other retail distribution. We have also contracted in each country with a
newsstand magazine distributor for the distribution of Reader's Digest.

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, music and book orders. A substantial
portion of QSP's chocolate food products are obtained from World's Finest
Chocolate and QSP has the exclusive right to sell those products for
fundraising purposes. Three other manufacturers provide a substantial
portion of the other food and gift products offered by QSP. QSP engages an
independent contractor to handle processing of gift and food orders.

Marketing

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, as well as to customer lists rented or purchased from third parties.
Our books and home entertainment products and product offers and many
international magazine subscription offers are often 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, display marketing and other direct sales, and
catalogs. Since fiscal 2001, Reader's Digest magazine has obtained the
majority of its new subscribers in the United States from non-sweepstakes
sources. Moreover, with the recent acquisition of our Reiman operations, we
have significantly reduced our reliance on large cash prize sweepstakes
marketing. For fiscal 2002, approximately 55% of our revenues were generated
utilizing these sweepstakes and we expect that portion to decline to 45% for
fiscal 2003.

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--rd.com--will link our 27 local and international Web sites and our 11
online stores, for shopping and information about our products. In 2002,
rd.com had over 14 million visitors from around the world. We are using
rd.com and our local international Web sites to market subscriptions to our
products. We are also utilizing electronic direct marketing (eDM) to offer
magazine subscriptions through one-click e-mail.

To promote the sale of our products in the United States, we usually
offer a sweepstakes in our promotional mailings. Prizes totaled about $7
million for the 2002 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.

In March 2001, we announced a voluntary comprehensive agreement with
attorneys general for 32 states and the District of Columbia regarding
standards for direct mail sweepstakes promotions. In March 2002, we signed a
similar agreement with the attorney general of an additional state. We are
promoting consumer education and have adopted standards for promotions in the
United States similar to those agreed to by other direct marketing and
publishing companies. The agreements included establishment of a consumer
fund of approximately $6.4 million to be used at the discretion of the
attorneys general for activities including consumer education efforts. In
addition, we are including with sweepstakes promotion mailings a fact sheet
that explains in detail how our sweepstakes work and have modified the
language and packaging we use for those mailings.

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 most 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 Database Enhancement

The size and quality of our computerized customer database of current
and prospective customers in each country where we operate contributes
significantly to our business. We are constantly striving to improve our
customer databases. We believe that our U.S. database of over 70 million
households, which includes those obtained through the Reiman acquisition--over
half the total number of households in the country--is one of the largest
direct response databases in the United States. Our international databases
include a total of approximately 48 million households.

We continue to make significant investments in our database 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 businesses worldwide.
Two of our most important trademarks are "Reader's Digest" and the "Pegasus"
logo. In addition, our significant trademarks include "QSP", "Books Are Fun"
and the names of many of our magazines, features and other products. 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 names, image and reputation, as well as the
quality of our customer databases, provide a significant competitive
advantage over many other direct marketers. However, our Books and Home
Entertainment businesses, including Books Are Fun, compete with companies
selling similar products at retail as well as by direct marketing through
various channels, including display marketing and 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. Our Books and Home Entertainment
businesses compete principally on the basis of direct marketing customer
service, product popularity and price.

Reader's Digest magazine and our special interest magazines compete
with other magazines of similar respective genres for readers and advertising
and our Reiman magazines compete for readers in their respective genres. QSP
competes with other sellers of products similar to those sold by QSP, whether
through fundraising services, direct marketing or retail. Nearly all of our
products compete with other products and services that utilize leisure
activity time or disposable income.

Employees

As of June 30, 2002, we employed about 5,000 people worldwide. We
employed about 2,300 in the United States, including employees at Reiman, and
about 2,700 in our international subsidiaries. Our relationship with our
employees is generally satisfactory.

Executive Officers

The following is information about our executive officers.

Name and Age Positions With Reader's Digest and Recent
Business Experience

Thomas O. Ryder (58) 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), prior to April 1998.

Michael A. Brennan (55) Mr. Brennan has been Senior Vice President of
Reader's Digest and President, Latin America and
Asia-Pacific since March 2002. He was Vice
President and General Manager, Developing Markets
from June 1998 to March 2002 and prior to June
1998, he was Vice President, Finance,
International Operations. Mr. Brennan joined
Reader's Digest in January 1990.

Michael A. Brizel (45) Mr. Brizel has been Senior Vice President and
General Counsel of Reader's Digest since July
2002. Before July 2002, he was Vice President
and General Counsel and before July 1998, he was
Vice President, Legal U.S. and Associate General
Counsel of Reader's Digest. Mr. Brizel joined
Reader's Digest in July 1989.

Richard E. Clark (38) Mr. Clark has been Vice President, Investor
Relations and Global Communications since March
2002, having served as Vice President Investor
Relations since he joined Reader's Digest in
March 2000. Before March 2000, Mr. Clark was
Vice President, Finance and Investor Relations of
Viacom International Incorporated.

Peter J.C. Davenport (62) Mr. Davenport has been Senior Vice President,
Global Books and Home Entertainment 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 Reader's Digest in 1958.

Clifford H.R. DuPree (52) Mr. DuPree has been Vice President, Corporate
Secretary and Associate General Counsel of
Reader's Digest since July 1998. He was Vice
President, Associate General Counsel and
Assistant Secretary prior to July 1998. He
joined Reader's Digest in May 1992.

Thomas D. Gardner (44) Mr. Gardner has been Senior Vice President of
Reader's Digest and President, North America
Books and Home Entertainment since January 2001.
He was Senior Vice President, U.S. New Business
Development of Reader's Digest from July 1998 to
January 2001, and Vice President, Marketing,
Reader's Digest U.S.A. prior to July 1998. Mr.
Gardner joined Reader's Digest in February 1992.

Name and Age Positions With Reader's Digest and Recent
Business Experience

Michael S. Geltzeiler (43) Mr. Geltzeiler joined Reader's Digest as Senior
Vice President and Chief Financial Officer in
September 2001. Mr. Geltzeiler was previously
Senior Vice President and Chief Financial Officer
of ACNielsen Corporation (market research,
information and analysis), a subsidiary of VNU
NV, from March 2001 to September 2001, Senior
Vice President and Controller from August 1997 to
March 2001, and Senior Vice President and Chief
Financial Officer, Europe, Middle East & Africa
Region prior to August 1997.

Ian K. Marsh (49) Mr. Marsh joined Reader's Digest as a Senior Vice
President and as President, Europe in May 2001.
Before joining Reader's Digest, Mr. Marsh was
President and Chief Executive Officer of the
Japan Region of American Express Company from
June 1998 to May 2001 and prior to June 1998, he
was Senior Vice President & Regional General
Manager, Card, Travel and Insurance Operations,
East Asia.

Albert L. Perruzza (55) Mr. Perruzza has been Senior Vice President,
Global Operations and Business Redesign since
February 2002. Before February 2002, he was
Senior Vice President, Global Operations and
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 joined Reader's
Digest in 1972.

Robert E. Raymond (46) Mr. Raymond has been Senior Vice President,
Strategic Acquisitions and Alliances of Reader's
Digest since 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.

Gary S. Rich (41) Mr. Rich has been Senior Vice President, Human
Resources, and President, Global QSP and Books
Are Fun International since February 2002. He
was Senior Vice President, Human Resources and
Global Communications of Reader's Digest from
August 1998 to February 2002. Before joining
Reader's Digest in August 1998, he was Senior
Vice President, Global Human Resources for AC
Nielsen Corporation, 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 (50) Mr. Schrier has been Senior Vice President and
Global Editor-in-Chief of Reader's Digest since
joining Reader's Digest in January 2000 and
became President, U.S. Magazines in February
2002. Before January 2000, he was President and
Chief Executive Officer of Time Inc Health
(health publishing).

Name and Age Positions With Reader's Digest and Recent
Business Experience

Jeffrey S. Spar (37) Mr. Spar has been Senior Vice President and Chief
Information Officer of Reader's Digest since July
2002 and was Vice President and Chief Information
Officer from November 1998 to July 2002. Prior
to joining Reader's Digest in November 1998, Mr.
Spar was a Management Consultant with McKinsey &
Company.

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.

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

Greendale, WI 164,800 owned Executive, administrative, editorial
and operational offices; data
processing; other facilities

Fairfield, IA 105,393 owned Executive, administrative and
operational offices; data processing;
other facilities

New York, NY 120,590 leased Editorial offices; advertising sales
offices

Various U.S. cities 121,124 leased Editorial offices, advertising sales
offices; other facilities

Conyers, GA 163,375 leased QSP fulfillment facilities

Jefferson, GA 102,708 leased QSP fulfillment facilities

International 609,589 owned Executive, administrative and
610,110 leased editorial offices; warehouse
facilities

The real properties that we own in Westchester County, New York,
Fairfield, Iowa, and Greendale, Wisconsin are subject to mortgages securing
our borrowings under our $950 million Term Loan Agreement and $192.5 million
Amended and Restated Five-Year Revolving Credit and Advance Facility
Agreement, each dated as of May 20, 2002.

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

On April 12, 2002, we entered into an agreement with the DeWitt
Wallace-Reader's Digest Fund, Inc. and the Lila Wallace-Reader's Digest Fund,
Inc. providing for a series of actions that would result in all shares of our
Class B Voting Common Stock and Class A Nonvoting Common Stock being
recapitalized into a single class of common stock with one vote per share.
These actions include: (1) our repurchase of approximately 3.6 million
shares of Class B stock from the Funds for approximately $100.0 million in
cash; (2) the recapitalization of each remaining Class B share into 1.24
shares of common stock and the recapitalization of each Class A share into
one share of common stock; and 2) the amendment of our charter to, among
other things, reflect the reclassification of the stock, divide our board of
directors into three classes and eliminate the ability of our stockholders to
act by written consent without a meeting (the recapitalization
transactions). As previously announced, the recapitalization transactions
are subject to approval by our Class B stockholders.

Following the announcement of the recapitalization transactions,
several stockholders commenced litigation against the recapitalization
transactions, which litigation is summarized as follows:

- - On April 23, 2002, Carol Lang filed a complaint in the Delaware
Chancery Court on behalf of a purported class of holders of Class A
shares, against Reader's Digest, its directors and the Funds. The
complaint alleges, among other things, that the recapitalization
transactions are unfair to the Class A stockholders. As relief, the
complaint seeks, among other things, a preliminary and permanent
injunction against the recapitalization transactions, rescission of the
recapitalization transactions if they are completed, or an award of
damages.

- - On July 23, 2002, Levco Alternative Fund Ltd. and Purchase Associates,
L.P. filed a complaint in Delaware Chancery Court against Reader's Digest,
its directors and the Funds. The allegations and the relief sought in the
Levco action are similar to those in the Lang action.

- - On August 8, 2002, the Delaware Court of Chancery denied a motion of
the Levco and Lang plaintiffs to enjoin the recapitalization
transactions. On August 13, 2002, the Supreme Court of Delaware reversed
the decision of the Chancery Court and instructed the Chancery Court to
preliminarily enjoin the recapitalization transactions pending a trial on
the merits of the Levco and Lang actions. On August 14, 2002, the
Chancery Court entered an order to such effect.

- - On August 22, 2002, Bobby Adams and Curtis Denison each filed a
complaint in the Delaware Court of Chancery on behalf of a purported class
of Class B stockholders, against Reader's Digest, its directors and the
Funds. Each complaint alleges that the recapitalization transactions are
unfair to the Class B stockholders and seeks relief similar to that sought
in the Lang and Levco actions.

In 1996, Northeast Sort & Fulfillment Corp. (NSF) filed suit against
Reader's Digest and a subsidiary for wrongful termination of NSF's contract
to provide mail-processing services to us. In August 2001, the Supreme Court
of the State of New York, County of Westchester, granted NSF's motion for
summary judgment and ordered a trial on the issue of damages for breach of
contract. On September 13, 2002, we settled this suit. As of June 30, 2002,
our reserves for this matter were adequate based upon the settlement.

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, 2002.

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 2002 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 2002 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 2002 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 and acquire 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 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
(including the Reiman acquisition), strategic alliances and joint
ventures;

- - our ability to integrate newly acquired and newly formed businesses
(including the Reiman business) successfully;

- - the strength of relationships of newly acquired and newly formed
businesses (including the Reiman business) with their employees,
suppliers and customers;

- - the accuracy of the basis of forecasts relating to newly acquired and
newly formed businesses (including the Reiman business);

- - our ability to achieve financial savings related to restructuring
programs;

- - 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 of promotions,
products and payments;

- - the effects of foreign currency fluctuations;

- - the accuracy of our management's assessment of the future effective tax
rate and the effects of initiatives to reduce the rate;

- - the adequacy of our financial resources;

- - the effects of the terms of, and increased leverage resulting from
additional borrowings under, our credit facilities;

- - the effects of interest rate fluctuations;

- - the effects of ratings downgrades resulting from our increased leverage;

- - the effects of unforeseen economic and political changes in the markets
where we compete; and

- - the effects of weather in limiting access to consumers;

- - the economic effects of terrorist activity and subsequent related
events, especially those limiting access to consumers and otherwise
affecting the direct marketing industry; and

- - the effects and pace of our stock repurchase program.

We do not undertake to update any forward-looking statements.

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 2002
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 41 through 107
of our 2002 Annual Report to Stockholders, together with the report of KPMG
LLP appearing on page108, are incorporated into this Item by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
REPORTING MATTERS

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information with respect to our directors under the captions "Proposal
1: Election of Directors" and "Proposal 2: Employee Stock Purchase Plan" in
the Proxy Statement for our Annual Meeting of Stockholders to be held on
November 8, 2002 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 8, 2002 is incorporated into
this Item by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information with respect to securities authorized for issuance under
equity compensation plans under the caption "Equity Compensation Plan
Information" in the Proxy Statement for our Annual Meeting of Stockholders to
be held on November 8, 2002 is incorporated into this Item by reference.

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
8, 2002 is incorporated into this Item by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14. CONTROLS AND PROCEDURES

Not applicable.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1 Financial Statements
An index of our Consolidated Financial Statements appears on page 29 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.

3.1.3 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, as amended effective April 13, 2001, filed as Exhibit
10.29 to our Quarterly Report on Form 10-Q for the quarter ended March
31, 2001, 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. 1989 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.

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, filed as Exhibit 10.7 to our Annual Report on Form 10-K for the
year ended June 30, 2000, is incorporated herein by reference.*

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 Amended and Restated Five-Year Revolving Credit and Competitive Advance
Facility Agreement dated as of May 20, 2002 among The Reader's Digest
Association, Inc., as a Borrower and as the Guarantor, Books Are Fun,
Ltd., QSP, Inc. and Reiman Media Group, Inc., as Borrowing
Subsidiaries, the Lenders (as defined therein), etc., filed as Exhibit
10.2 to our Current Report on Form 8-K dated June 3, 2002, is
incorporated herein by reference.

10.11 Term Loan Agreement, dated as of May 20, 2002, among The Reader's
Digest Association, Inc., as a Borrower and as the Guarantor, Books Are
Fun, Ltd., QSP, Inc. and Reiman Media Group, Inc., as Borrowing
Subsidiaries, the Lenders (as defined therein), etc., filed as Exhibit
10.1 to our Current Report on Form 8-K dated June 3, 2002, is
incorporated herein by reference.

10.12 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.*

10.13 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.*

10.14 The Reader's Digest Association, Inc. 2001 Income Continuation Plan for
Senior Management, filed as Exhibit 10.21 to our Quarterly Report on
Form 10-Q for the quarter ended March 31, 2001, is incorporated herein
by reference.*

10.15 Termination Agreement dated as of April 23, 2001 between The Reader's
Digest Association, Inc. and Eric W. Schrier, filed as Exhibit 10.18 to
our Annual Report on Form 10-K for the year ended June 30, 2001, is
incorporated by reference.*

10.16 Termination Agreement dated as of September 8, 1997 between The
Reader's Digest Association, Inc. and Peter J.C. Davenport, filed as
Exhibit 10.22 to our Annual Report on Form 10-K for the year ended June
30, 2000, is incorporated herein by reference.*

10.17 Termination Agreement dated as of April 23, 2001 between The Reader's
Digest Association, Inc. and Thomas D. Gardner.*

*Denotes a management contract or compensatory plan.

10.18 Termination Agreement dated as of April 23, 2001 between The Reader's
Digest Association, Inc. and Robert E. Raymond.*

10.19 Supplemental Retirement Agreement dated as of August 25, 1988 between
The Reader's Digest Association, Inc. and Peter J.C. Davenport, filed
as Exhibit 10.25 to our Annual Report on Form 10-K for the year ended
June 30, 2000, is incorporated herein by reference.*

10.20 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.*

10.21 Assurance of Voluntary Compliance or Discontinuance dated February 26,
2001 by and among the State Attorneys General and the registrant, filed
as Exhibit 99.2 to our Current Report on Form 8-K dated March 9, 2001,
is incorporated herein by reference.

10.22 Recapitalization Agreement, dated as of April 12, 2002, by and among
the DeWitt Wallace-Reader's Digest Fund, Inc., the Lila
Wallace-Reader's Digest Fund, Inc. and The Reader's Digest Association,
Inc., filed as Exhibit 2.1 to our Current Report on Form 8-K dated
April 15, 2002, is incorporated herein by reference.

10.23 Terms of agreement dated as of August 14, 2001 between The Reader's
Digest Association, Inc. and Michael S. Geltzeiler.*

10.24 The Reader's Digest Association, Inc. 1994 Key Employee Long Term
Incentive Plan, amended and restated as of September 18, 2002.*

10.25 The Reader's Digest Association, Inc. 2002 Key Employee Long Term
Incentive Plan.*

10.26 The Reader's Digest Association, Inc. Director Compensation Program,
amended and restated as of September 18, 2002.*

13 Financial information appearing at pages 41 through 107 of our 2002
Annual Report to Stockholders, together with the report thereon of KPMG
LLP appearing on page 108 (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.

*Denotes a management contract or compensatory plan.

(b) Reports on Form 8-K

During the three months ended June 30, 2002, we filed the following
Current Reports on Form
8-K.

Current Report on Form 8-K dated April 15, 2002, Item 5.

Current Report on Form 8-K dated April 18, 2002, Item 5.

Current Report on Form 8-K dated April 25, 2002, Item 5.

Current Report on Form 8-K dated April 25, 2002, Item 5.

Current Report on Form 8-K dated May 21, 2002, Item 5.

Current Report on Form 8-K dated June 3, 2002, Item 5.

Current Report on Form 8-K/A dated June 11, 2002, Item 5 and Item 7.

Audited financial information of Reiman Holding Company LLC as of
December 31, 2001 and 2000, and for the years then ended:

Report of Ernst & Young LLP, Independent Auditors.
Consolidated Balance Sheets.
Consolidated Statements of Operations.
Consolidated Statements of Members' Equity.
Consolidated Statements of Cash Flows.
Notes to consolidated Financial Statements.

Unaudited interim financial information of Reiman Holding Company
LLC as of and for the three months ended, March 31, 2002:

Condensed Consolidated Balance Sheet.
Condensed Consolidated Statement of Operations.
Condensed Consolidated Statement of Cash Flows.
Notes to Condensed Consolidated Financial Statements.

Unaudited pro forma condensed combined financial information of
Reader's Digest and Reiman Holding Company LLC:

Unaudited Pro Forma Condensed Combined Statement of Income for
the Twelve Months Ended June 30, 2001.
Notes to Unaudited Pro Forma Condensed Combined Statement of
Income for the Twelve Months Ended June 30, 2001.
Unaudited Pro Forma Condensed Combined Balance Sheet as of
March 31, 2002.
Unaudited Pro Forma Condensed Combined Statement of Income for
the Nine Months Ended March 31, 2002.
Notes to Unaudited Pro Forma Condensed Combined Financial
Information as of, and for the Nine Months Ended, March 31,
2002.

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 23, 2002

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 23, 2002
Thomas O. Ryder Executive Officer and a
Director

/s/MICHAEL S. GELTZEILER Senior Vice President and September 23, 2002
Michael S. Geltzeiler Chief Financial Officer

/s/THOMAS D. BARRY Vice President and September 23, 2002
Thomas D. Barry Corporate Controller
(chief accounting officer)

/s/JONATHAN B. BULKELEY* Director September 23, 2002
Jonathan B. Bulkeley

/s/HERMAN CAIN* Director September 23, 2002
Herman Cain

/s/LYNNE V. CHENEY* Director September 23, 2002
Lynne V. Cheney

/s/M. CHRISTINE DEVITA* Director September 23, 2002
M. Christine DeVita

/s/JAMES E. PRESTON* Director September 23, 2002
James E. Preston

/s/LAWRENCE R. RICCIARDI* Director September 23, 2002
Lawrence R. Ricciardi

/s/C.J. SILAS* Director September 23, 2002
C.J. Silas

/s/ WILLIAM J. WHITE* Director September 23, 2002
William J. White

/s/ED ZSCHAU* Director September 23, 2002
Ed Zschau

*By: /s/ C.H.R. DUPREE
(C.H.R. DuPree)
Attorney in Fact

I, Thomas O. Ryder, certify that:

1. I have reviewed this annual report on Form 10-K of The Reader's Digest
Association, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

Date: September 23, 2002

/s/THOMAS O. RYDER
Thomas O. Ryder
Chairman and Chief Executive Officer

I, Michael S. Geltzeiler, certify that:

1. I have reviewed this annual report on Form 10-K of The Reader's Digest
Association, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

Date: September 23, 2002

/s/MICHAEL S. GELTZEILER
Michael S. Geltzeiler
Senior Vice President and Chief
Financial Officer

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,
2002, 2001 and 2000............................................ *

Consolidated Balance Sheets--June 30, 2002 and 2001...............
*
Consolidated Statements of Cash Flows--For the Years Ended June 30,
2002, 2001 and 2000............................................ *

Consolidated Statements of Changes in Stockholders' Equity--For
the Years Ended June 30, 2002, 2001 and 2000................... *

Notes to Consolidated Financial Statements.............................. *

Independent Auditors' Report............................................ *

Report of Management.................................................... *

Selected Financial Data................................................. *

Selected Quarterly Financial Data and Dividend and Market Information
(Unaudited)............................................................. *

*This financial information is incorporated by reference to our 2002
Annual Report to Stockholders. For additional information, please refer to
Item 8 of this report.