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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, 1994 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 (Zip Code)
offices)
Registrant's telephone number, including area code: (914) 238-1000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Class A Nonvoting Common Stock 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. [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 September 19, 1994, was
approximately $242,110,150, 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 September 19, 1994, 92,229,152 shares of the registrant's
Class A Nonvoting Common Stock and 21,515,159 shares of the
registrant's Class B Voting Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Stockholders of registrant for the fiscal year
ended June 30, 1994. Certain information therein is incorporated
by reference into Part I and Part II hereof.
Proxy Statement for the Annual Meeting of Stockholders of
registrant to be held on November 11, 1994. Certain information
therein is incorporated by reference into Part III hereof.
TABLE OF CONTENTS
Page
PART I
ITEM 1. BUSINESS 1
Reader's Digest Magazine 2
Circulation 2
Advertising 4
Editorial 6
Production and Fulfillment 7
Licensed Editions 7
Books and Home Entertainment Products 7
Condensed Books 8
Series Books 8
General Books 9
Music 10
Video 10
Reader's Digest Young Families, Inc. 11
Production and Fulfillment 11
Direct Mail Operations and Sweepstakes 12
Management Information Systems and List Enhancement 13
Special Interest Magazines 14
Other Businesses 16
Competition and Trademarks 16
Employees 17
Executive Officers of the Company 17
Additional Corporate Officers 19
ITEM 2. PROPERTIES 19
United States Properties 19
International Properties 20
General 21
ITEM 3. LEGAL PROCEEDINGS 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 22
ITEM 6. SELECTED FINANCIAL DATA 22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 22
TABLE OF CONTENTS
(Continued)
Page
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 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K 23
SIGNATURES 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES 27
"Reader's Digest" is a registered trademark of The Reader's
Digest Association, Inc.
PART I
ITEM 1. BUSINESS
The Reader's Digest Association, Inc. ("RDA" and, together
with its subsidiaries, the "Company") is a global publisher and
direct mail marketer of magazines, books, recorded music
collections, home videos and other products. DeWitt and Lila
Wallace founded Reader's Digest magazine in 1922. Today, 45
editions of Reader's Digest in 17 languages are read in virtually
every country in the world by an estimated 100 million people
each month.
The Company's operations are divided into four business
segments: (1) Reader's Digest magazine, (2) books and home
entertainment products, (3) special interest magazines and (4)
other businesses. For financial information by business segment,
see Note 16 to the Company's consolidated financial statements
appearing in the Company's 1994 Annual Report to Stockholders,
which note is incorporated herein by reference.
The sale of magazine subscriptions, Condensed Books, series
books, general books, music and video products, as well as
certain other products, is accomplished principally through
direct mail solicitations to households on the Company's customer
lists, usually accompanied by sweepstakes entries and, in some
cases, premium merchandise offers. The Company's customer lists
are maintained on computer data bases throughout the world. The
size and quality of the customer lists contribute significantly
to the Company's business. The Company's United States customer
list includes about 50 million households, and its international
lists include a comparable number of households, in the
aggregate. Approximately half of the households on the United
States list have purchased one or more products or received
services from the Company within the past two years. The Company
does not rent or sell its customer lists to third parties. The
Company's special interest magazines do rent their subscription
lists.
The Company is one of the leading magazine and book
publishers in Europe, with operations in Austria, Belgium,
Denmark, Finland, France, Germany, Hungary, Italy, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the
United Kingdom. The Company also has operations in Australia,
Canada, Hong Kong, Mexico, New Zealand and South Africa and
publishes Reader's Digest in many other countries, including
Argentina, Bolivia, Brazil, Central America, Chile, Colombia, the
Czech Republic, the Dominican Republic, Ecuador, Japan, Malaysia,
Pakistan, Paraguay, Peru, the Philippines, Puerto Rico, the
Russian Federation, Singapore, Sri Lanka, Taiwan, Thailand,
Uruguay and Venezuela. Reader's Digest is also published in
Korea and India by licensees of the Company.
Each of the Company's 16 principal international operating
subsidiaries is responsible for the full range of the Company's
businesses in its territory and separately maintains its own
customer list. Editorial content of the international editions
of Reader's Digest, Condensed Books, general books, series books
and music and video products is also the responsibility of each
subsidiary and is generally a mix of material published by the
Company in the United States and other international markets,
adapted as appropriate, and material produced locally. In this
manner, the Company's international subsidiaries are able to
respond to local markets and customer preferences in their local
languages.
The Company's businesses are organized in three operating
groups -- Reader's Digest Europe, Reader's Digest U.S.A. and
Reader's Digest Pacific. This structure recognizes the distinct
business needs and strategies appropriate in different markets
throughout the world. For financial information by geographic
area, see Note 16 to the Company's consolidated financial
statements appearing in the Company's 1994 Annual Report to
Stockholders.
RDA is a Delaware corporation that was originally
incorporated in New York in 1926 and was reincorporated in
Delaware in 1951. The mailing address of its principal executive
offices is Pleasantville, New York 10570 and its telephone
number is (914) 238-1000.
Reader's Digest Magazine
Reader's Digest magazine is a monthly, general interest
magazine consisting of original articles and previously published
articles in condensed form, a condensed version of a previously
published or soon-to-be published full-length book, monthly humor
columns, such as "Laughter, The Best Medicine(r)," "Life In These
United States(r)," "Humor In Uniform(r)," "Campus Comedy(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)" and "News From
The World Of Medicine(r)." Reader's Digest began publication in
1922. Today, Reader's Digest has a worldwide circulation of
approximately 27 million and an estimated 100 million readers
each month, generating revenues of $689,089,000 in fiscal 1994,
as compared with $720,047,000 in fiscal 1993 and $685,044,000 in
fiscal 1992. The Company began publication of a Czech language
edition in October 1993 and over the next few years plans to
launch several new editions of Reader's Digest. A Polish edition
is scheduled to start in May 1995. International editions for
many years have contained a substantial amount of local and
international editorial material in addition to selections from
the United States edition.
In September 1993, the ABC Television Network broadcast a
special program entitled "Reader's Digest: On Television," which
was developed together by ABC and Reader's Digest and showcased
the editorial power of Reader's Digest and the variety of drama,
entertainment and information that appears in its pages each
month. The Company continues to explore television to determine
the best way to proceed in this medium.
Circulation
Based on the most recent audit report issued by the Audit
Bureau of Circulation, Inc. ("ABC"), a not-for-profit
organization that monitors circulation in the United States and
Canada, the Company has determined that the United States edition
of Reader's Digest has the largest circulation of any United
States magazine, other than one that is automatically distributed
to all members of the American Association of Retired Persons.
Approximately 95% of the United States circulation of Reader's
Digest consists of subscriptions. The balance consists of single
copy sales at newsstands and in supermarkets and similar
establishments. In the United States, the newsstand price of
Reader's Digest is currently $2.25 per copy and the regular
subscription price is $22.46 per year, including delivery
charges. The Company sells one-year subscriptions to Reader's
Digest, with the subscription price payable near the beginning of
the term of the subscription.
The following table sets forth the global circulation rate
base of Reader's Digest, by edition, effective January 1994.
Circulation
Edition Rate Base
Europe:
Belgium--Flemish 86,000
Belgium--French 94,000
Czech Republic 50,000
Denmark 116,000
Finland 337,000
France 1,056,000
Germany and Austria 1,250,000
Hungary 150,000
Italy 541,000
The Netherlands 390,000
Norway 197,000
Portugal 250,000
Russia 100,000
Spain 107,000
Sweden 201,000
Switzerland--French 85,000
Switzerland--German 245,000
United Kingdom 1,600,000
Asia/Pacific:
Australia 450,000
Hong Kong and other Asia--Chinese 104,000
Hong Kong and other Asia--English 73,000
India--English 364,000
India--Hindi 18,000
Korea 123,000
Malaysia--English 54,000
New Zealand 150,000
Philippines--English 90,000
Singapore--English 60,000
Taiwan--Chinese 186,000
North America:
Canada--English 1,231,000
Canada--French 317,000
United States--English 15,000,000
United States--Spanish 130,000
Latin America:
Argentina 127,000
Brazil 56,000
Central America 35,000
Chile 41,000
Colombia 55,000
Ecuador 10,000
Mexico 620,000
Peru 33,000
Puerto Rico/Dominican Republic 60,000
Uruguay/Paraguay/Bolivia 38,000
Venezuela 33,000
Other:
South Africa 413,000
Total 26,726,000
Reader's Digest is truly a global magazine. The European
editions together have the largest paid circulation of any
magazine in Europe. The Latin American editions together have
the largest paid circulation of any magazine in Latin America.
The Asian/Pacific editions together have the largest paid
circulation of any magazine in that area of the world. In
addition, Reader's Digest has the largest paid circulation of any
monthly general interest magazine in Australia, Belgium, Canada,
Denmark, Finland, France, Germany, Italy, Mexico, the
Netherlands, New Zealand, Norway, Portugal, Sweden, Switzerland
and the United Kingdom and several markets in South America and
Asia. The global nature of Reader's Digest positions the Company
well to serve opening markets in Eastern Europe. For most
international editions of Reader's Digest, subscriptions comprise
about 90% of circulation. The balance is attributable to
newsstand and other retail sales. The Latin American editions
are distributed exclusively through retail outlets, except for
the Mexican edition, which is sold principally through
subscriptions.
The average annual subscription renewal rate for the United
States edition of Reader's Digest magazine, remained
approximately the same at 65% as of June 1994, compared with 66%
as of June 1993. The current average renewal rates for
international editions are generally equivalent to the United
States rate, but are as high as 76% in Finland, 75% in
Switzerland, 74% in Germany and Portugal, 73% in Belgium and 70%
in Australia and Korea.
The Company maintains its circulation rate base through
annual subscription renewals and new subscriptions. The
circulation rate base for the United States--English edition was
reduced from 16,250,000 to 15,000,000 effective with the January
1994 issue. In the United States, the Company sells
approximately five million new subscriptions each year in order
to maintain its circulation rate base. New subscriptions are
sold primarily by direct mail, with extensive use of sweepstakes
entries and, in some cases, premium merchandise offers. As is
customary in the industry, new subscriptions are generally
offered at a discount from both the newsstand price and the
regular subscription price of Reader's Digest. The largest
percentage of subscriptions is sold between July and December of
each year. Many of these subscriptions are purchased by current
subscribers as gifts for others as part of the Company's
Christmas promotion. The Company also conducts its largest
mailings of introductory offers to non-subscribers during this
period. The Company receives a small portion of its subscription
orders from unrelated subscription sellers. Subscriptions to
Reader's Digest may be canceled at any time. If a customer
cancels during the term of a subscription, the Company refunds
the portion of the subscription price that relates to issues not
yet shipped.
Worldwide revenues from circulation accounted for
$553,849,000, or 80% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1994.
Advertising
The following table sets forth the number of advertising
pages carried by Reader's Digest and its advertising revenues
(before deducting discounts and commissions) in the United States
and internationally for each of the last five fiscal years.
United States figures are as reported by Publishers Information
Bureau, Inc. ("PIB"), an independent organization that analyzes
and reports on monthly advertising space and revenues in general
circulation magazines and newspaper supplements. International
figures are estimated by the Company based on data contained in
the LNA/Rome Report of Expenditures in International Media, a
compilation of selected international advertising activity.
Number of Gross
Advertising Advertising
Pages Carried Revenues
1994:
United States Edition 837 $118,480,000
All International Editions 11,772 116,307,700
Total 12,609 $234,787,700
1993:
United States Edition 1,042 $138,101,000
All International Editions 12,829 120,230,500
Total 13,871 $258,331,500
1992:
United States Edition 852 $104,148,700
All International Editions 13,001 114,956,800
Total 13,853 $219,105,500
1991:
United States Edition 945 $ 99,997,400
All International Editions 13,242 107,070,900
Total 14,187 $207,068,300
1990:
United States Edition 1,120 $116,631,400
All International Editions 14,986 105,413,800
Total 16,106 $222,045,200
__________
(1) Gross advertising revenues are computed from basic one-
time rates and the number of advertising pages carried and,
therefore, exceed actual advertising revenues as included in
the Company's financial statements. Actual advertising
revenues reflect lower rates for multiple insertion, volume
discounts and cash discounts.
(2) Includes United States Spanish language edition.
Reader's Digest maintains an average ratio of editorial
pages to advertising pages of not less than 60/40, which is among
the highest in the publishing industry, based on statistics
published by Hall's Magazine Report, a trade report. In order to
maintain this ratio, Reader's Digest will add additional
editorial pages to issues which contain a greater number of
advertising pages. The Company believes that the editorial
quality of Reader's Digest is the principal factor responsible
for its high subscription base. Because Reader's Digest is
circulation-driven rather than advertising-driven, its revenue
base is less vulnerable to adverse trends in the advertising
industry than are those of many other magazines.
The United States and the larger international editions of
Reader's Digest offer advertisers different regional editions,
major market editions and demographic editions. These editions,
containing the same editorial material, permit advertisers to
concentrate their advertising in specific markets or to target
specific audiences. Reader's Digest sells advertising in both
the United States and international editions principally through
an internal advertising sales force. The Company sells
advertisements in multiple editions worldwide, and offers
advertisers discounts for placing advertisements in more than one
edition.
Worldwide revenues from advertising accounted for
$135,240,000, or 20% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1994.
Editorial
Reader's Digest is a reader-driven, family magazine.
Editorial content is, therefore, crucial to the loyal subscriber
base that constitutes the cornerstone of the Company's
operations. The editorial goal 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. Unlike many magazines, Reader's Digest offers reprints
of many articles in response to reader demand. In fiscal 1994,
the Company sold almost six million reprints.
The United States editions on average contain about 160
editorial pages, among the highest of any major magazine, as
reported by Hall's Magazine Report. The table of contents is
printed on the front cover of each issue in order to stress
editorial content. The compact size of the magazine complements
the concise editorial presentation and has, over many years,
become a principal distinguishing aspect of the appearance of
Reader's Digest.
The editorial content of the articles in Reader's Digest
continually evolves so as to retain a relevant and contemporary
flavor and cover a variety of subjects. Many of the longstanding
features in Reader's Digest magazine, such as the humor columns
and the Drama In Real Life(r) articles, are widely recognized by a
substantial portion of the reading public in the United States
and in other countries in which Reader's Digest is well
established.
Approximately half the selections in Reader's Digest are
original articles written by staff writers or free-lance writers.
The balance are selected from existing published sources. All
material is condensed by Reader's Digest editors. In the United
States, editorial staff members read approximately 600
publications each month in order to identify selections suitable
for condensation and reprinting in Reader's Digest. The Company
then obtains necessary copyrights or permissions from the authors
and publishers. Reader's Digest solicits anecdotes and humor
from its readers, to whom it pays a fee upon publication. In
fiscal 1994, the Company received more than 280,000 reader
contributions. The Company's art editors commission original
illustrations and photographs to accompany editorial selections.
The Company employs a professional staff for research and
fact-checking and believes that its research and fact-checking
standards are among the highest in the publishing industry. All
published pieces are researched and checked prior to publication,
including condensed versions of articles previously published by
others and anecdotes contributed by readers.
Each international edition has a local editorial staff
responsible for the editorial content of the edition. The mix of
locally generated editorial material, material taken from the
United States edition and material taken from other international
editions varies greatly among editions. In general, the
Company's larger international editions, for example, in Canada,
France, Germany and the United Kingdom, carry more original or
locally adapted material than do smaller editions.
Production and Fulfillment
All editions of Reader's Digest are printed by independent
third parties. The United States edition is currently printed by
one printer at its location in New York State. In September
1994, the Company signed a new 10-year printing agreement with
another printer, commencing in late 1996, to produce the United
States edition at its Pennsylvania location. The Company has had
a longstanding relationship with the current and future printers
of the United States edition and with the printers of most of the
international editions, some of whom are also publishers of other
magazines that compete with Reader's Digest. Nonetheless, the
Company believes that generally there is an adequate supply of
alternative printing services available to the Company at
competitive prices, should the need arise. The Company has
developed plans to minimize recovery time in the event of a
disaster at an existing printing facility.
The principal raw materials used in the publication of
Reader's Digest are coated and uncoated paper. The Company has
supply contracts with a number of suppliers of paper in the
United States. Each international edition separately contracts
for a supply of paper. In addition, the Company has entered into
arrangements for paper with European paper supply companies, upon
which any of the international editions may draw. These
arrangements permit Reader's Digest to qualify for volume
discounts for which each international edition alone would not be
eligible. The Company believes that its existing supply
contracts provide an adequate supply of paper for its needs and
that, in any event, alternative sources are available at
competitive prices. Paper prices are affected by a variety of
factors, including demand, capacity, pulp supply, and general
economic conditions.
Subscription copies of the United States edition of Reader's
Digest are delivered through the United States Postal Service as
second class mail. Subscription copies of international editions
are also delivered through the postal service in each country.
For additional information about postal rates and service, see
"Direct Mail Operations and Sweepstakes."
Newsstand and other retail distribution is accomplished
through a distribution network. The Company has contracted in
each country with a magazine distributor for the distribution of
Reader's Digest. The Company gives credit for unsold copies of
Reader's Digest each month, as is customary in the industry. The
United States retail circulation of Reader's Digest is
approximately 800,000 per month. Many retail buyers of Reader's
Digest subsequently become subscribers.
Licensed Editions
Three international editions--the Korean and the two Indian
editions--are not produced by subsidiaries of the Company, but
rather are published by third parties to whom the Company has
licensed the right to publish Reader's Digest and use the
Company's trademarks. The Reader's Digest Fund for the Blind,
Inc., a New York not-for-profit corporation, publishes a large-
type edition of Reader's Digest, pursuant to a royalty-free
license. The Company also licenses, royalty-free, the right to
publish a braille edition and a recorded edition of Reader's
Digest. Revenues from licensed editions are not material.
Books and Home Entertainment Products
The Company publishes and markets, principally by direct
mail, Reader's Digest Condensed Books, series books, general
books created by the Company or acquired from third parties,
recorded music collections and home video products. See "Direct
Mail Operations and Sweepstakes."
Condensed Books
Reader's Digest Condensed Books is a continuing series of
condensed versions of current popular fiction and, to a limited
extent, nonfiction. Condensation reduces the length of an
existing text, while retaining the author's style, integrity and
purpose. Condensed Books appeal especially to consumers who have
limited reading time and enjoy the convenience of direct-mail
purchasing. Also, the price of a Condensed Book is a fraction of
the total retail price of the individual titles, if purchased
separately. The Company began publishing Condensed Books in
1950. Today, 15 editions of Condensed Books published in 12
languages are marketed in 23 countries. The Company sells about
20 million copies of Condensed Books annually. In fiscal 1994,
Condensed Books generated worldwide revenues of $363,924,000, as
compared with $352,305,000 in fiscal 1993 and $340,246,000 in
fiscal 1992.
Each Condensed Books volume typically contains condensed
versions of four recently published books, which are selected and
condensed by the Company's staff of Condensed Books editors and
copy editors. Condensed Books are illustrated by free-lance
artists. Recent works which have appeared as Condensed Books in
the United States include Fatal Cure, by Robin Cook, Decider, by
Dick Francis, I'll Be Seeing You, by Mary Higgins Clark, and
Having Our Say, by Sarah and A. Elizabeth Delany with Amy Hill
Hearth. The Company publishes the condensed version
approximately three to six months after publication of the full-
length version.
International editions of Condensed Books generally include
some material from the United States edition or from other
international editions, translated and edited as appropriate, and
some condensations of locally published works. Each local
editorial staff determines whether existing Condensed Books
selections are appropriate for their local market.
Each volume of Condensed Books will usually contain a
variety of types of works. Works included may be by well-known
or less well-known authors. The Company's research indicates
that readers do not consider the relative fame of the author to
be important to their enjoyment of a particular selection. The
Company selects works that reflect the traditional values with
which the Company and Condensed Books have always been
associated.
The Company publishes six volumes of Condensed Books a year
in the United States. Some of the Company's international
subsidiaries also publish six volumes a year, while others
publish five. Condensed Books are marketed as an open-ended
series. The Company automatically ships a volume to each
established Condensed Books customer every two to three months
until a cancellation is received. New customers are solicited
primarily by direct mail, with extensive use of sweepstakes
entries and premium merchandise offers. See "Direct Mail
Operations and Sweepstakes."
Series Books
The Company also markets series books typically in the same
manner as Condensed Books, in that the first book is offered free
of charge, and subsequent books are automatically shipped until
the Company receives a cancellation. Series books are published
in two types: reading series and illustrated series. Some of
the Company's book series are open-ended continuing series, while
others consist of a limited number of volumes. The Company sells
about nine million copies of series books annually. In fiscal
1994, series books generated worldwide revenues of $214,949,000,
as compared with $228,761,000 in fiscal 1993 and $190,737,000 in
fiscal 1992.
Previously launched reading series in the United States
include World's Best Reading, consisting of full-length editions
of classic works of literature, of which six volumes are
published each year, and Great Biographies, a 15-volume series of
condensed versions of biographies of famous historical figures.
Today's Best Nonfictionr, introduced in June 1989, is published
five times per year. Each volume contains condensed versions of
four contemporary works of nonfiction. Recent selections include
D-Day: June 6, 1944, by Stephen E. Ambrose, The Fifties, by
David Halberstam, Den of Lions, by Terry Anderson, and Days of
Grace, by Arthur Ashe and Arnold Rampersad.
Illustrated series, which are marketed in the United States
and several other countries, include The Reader's Digest American
Medical Association Home Medical Library, People and Places of
the World, and Successful Gardening. In addition, the Vie
Sauvage illustrated series is marketed in seven countries outside
of the United States. Illustrated series are generally closed
ended.
Series books are published in nine languages and marketed in
18 countries. The Company's global publishing group coordinates
the development of books that are considered likely to have
global consumer appeal and that will require only limited
adaptation for use in different countries. Today's Best
Nonfiction and World's Best Reading were introduced during fiscal
1990 and 1991 by some of the Company's international operating
subsidiaries. Currently, Today's Best Nonfiction is published in
10 countries in three languages and World's Best Reading is
published in 11 countries in four languages. Additional book
series are in various stages of development or testing in the
United States and internationally.
General Books
The Company's general books consist primarily of reference
books, cookbooks, "how-to" and "do-it-yourself" books, songbooks,
and books on subjects such as history, travel, religion, health,
nature and the home. The Company's most successful books are
Book of the Road, Do-It-Yourself, You and the Law, Great World
Atlas, and the Illustrated Guide to Gardening. Many of these
titles, along with the more recent Practical Problem Solver,
reflect the Company's strategy of producing books with global
appeal--the ability to generate strong sales throughout the world
with only limited adaptation. Six of the Company's titles have
sold in excess of five million copies worldwide. In the United
States alone, the Company has had eight "million-seller" books in
the last five fiscal years. The Company sold more than 27
million copies of general books in fiscal 1994. General books
are published in 12 languages and are marketed in 31 countries.
In fiscal 1994, general books generated worldwide revenues of
$755,165,000, as compared with $826,445,000 in fiscal 1993 and
$770,533,000 in fiscal 1992.
New books are generally original Reader's Digest books but
may also be books acquired from other publishers. During the
development period for an original Reader's Digest book, the
Company conducts extensive research and prepares an appropriate
marketing strategy for each book.
The Company enjoys a reputation for producing books of
editorial accuracy and high quality within the genres in which
the Company publishes. Prepublication testing and the Company's
customer lists provide statistical data supporting the projected
market for the proposed book before substantial expenses are
incurred for the creation of the book. Moreover, the Company is
able to generate through its customer lists average sales per
title that are, based on published reports, considered high in
the publishing industry, which permits editorial expense to be
absorbed over a larger number of units.
The typical initial print order for a Reader's Digest book
in the United States is several hundred thousand copies.
Although most sales of a general book will result from the
initial bulk promotional mailing, substantial additional sales
occur through subsequent promotions, catalog sales and the use of
sales inserts in mailings for other Reader's Digest products.
The Company also distributes a small portion of its books for
retail sale in bookstores, through third-party distributors.
The Company's global publishing group coordinates the
development of books that are considered likely to have global
consumer appeal and that will require only limited adaptation for
use in different countries. International subsidiaries acquire
some of their general book titles from the Company in the United
States or from other international subsidiaries.
The Company is pursuing the use of electronic media and new
technologies, such as CD-ROM and computer on-line services. In
September 1994, the Company announced an agreement with Microsoft
Corporation to produce original multimedia software for home
computer users based on editorial content of the Company's best-
selling books. The CD-ROM will be marketed by both companies and
will carry both the Reader's Digest(r) and the Microsoft(r) Home
brand names. Under the agreement, the Company has global direct
mail rights and Microsoft Corporation has worldwide retail rights
to the product.
Music
The Company publishes recorded music packages, which it
sells by direct mail on cassettes and compact discs. The music
packages are generally collections of previously recorded
material by a variety of artists, which the Company combines in a
particular collection. The collections span a broad range of
musical styles, including classical, country, popular
contemporary, jazz, rock 'n' roll, easy listening and religious
music. All of the Company's music packages are multi-unit sets,
typically including three to four cassettes or the equivalent on
compact discs. Two of the Company's music products, consisting
of multiple cassettes or compact discs, have sold 1,500,000 sets,
the equivalent of over 10 million cassettes by music industry
standards. Several other collections have each sold in excess of
1,000,000 sets. In certain markets, the Company also sells music
series, which are marketed in the same manner as Condensed Books
and series books. The Company sold more than nine million music
sets in fiscal 1994. In fiscal 1994, music products generated
worldwide revenues of $392,370,000, as compared with $399,944,000
in fiscal 1993 and $349,148,000 in fiscal 1992.
In addition to obtaining the rights to existing recordings,
the Company also conducts recording sessions, principally of
popular contemporary, classical and light classical orchestral
and choral selections, in order to create its own library of
recordings for use in its music packages. There are currently
more than 15,000 selections in the Company's library. The
Company anticipates, however, that most of the recordings
included in its packages will continue to be obtained from third
parties under royalty agreements.
The marketing strategy for music packages is similar to that
for general books. Extensive preproduction research is conducted
to help identify saleable music products and potential purchasers
within the Company's customer lists.
The Company markets music products in 20 countries. Music
products cannot generally be adapted for use in diverse
international markets to the same extent as general books. The
cost of creating a music package, however, is less than the cost
of creating a book. The Company generally markets different
music products in each international market, although many music
concepts and series have been adapted for other markets.
The Company utilizes the services of one contractor for a
substantial portion of its supply of music products in the United
States. It believes that the same services are readily available
from other sources on competitive terms.
Video
The Company began producing home video products in 1986 and
is currently expanding its video operations. The Company's home
video products are in genres similar to its general books.
Several original video products have won awards of excellence,
including three Emmy awards, and have appeared on the Disney
Channel and the Discovery Channel. The Company sold more than
four million home video products in fiscal 1994. The Company
continues to expand its video operations in international markets
and is presently marketing video products in the United States
and 16 other countries. Most of the Company's original video
programs have been leased to cable television networks. The
Company has also begun to sell its home video products through
retail establishments. In fiscal 1994, home video products
generated worldwide revenues of $173,889,000, as compared with
$150,611,000 in fiscal 1993 and $94,105,000 in fiscal 1992.
Reader's Digest Young Families, Inc.
During fiscal 1994, the Company established Reader's Digest
Young Families, Inc., a new wholly owned subsidiary that creates
and markets children's books and home entertainment products.
The new subsidiary brings together in one stand-alone operation
the business of Joshua Morris Publishing, Inc., a book publisher
acquired in 1991, and the publishing imprint of Reader's Digest
Kids(r). Reader's Digest Young Families publishes books in 25
languages and is introducing more than 40 titles for the fall
1994 season.
Production and Fulfillment
The various editions of Condensed Books are printed and
bound by third-party contractors, most of whom have had
longstanding relationships with the Company. The Company owns
the printing press and certain other equipment at the printing
facility for the United States edition of Condensed Books. The
Company solicits bids for the printing and binding of each
general book or book series. Production and manufacture of music
and video products is typically accomplished through third
parties.
The principal raw material necessary for the publication of
Condensed Books, series books and general books is paper. The
Company has a number of paper supply arrangements relating to
paper for Condensed Books. Paper for series books and general
books is purchased for each printing. The Company believes that
existing contractual and other available sources of paper provide
an adequate supply at competitive prices. Third parties arrange
for the acquisition of some of the necessary raw materials for
the manufacture of music and video products.
Fulfillment, warehousing and payment processing are
conducted principally by independent contractors. Most of the
Company's products are packaged and delivered to the Postal
Service directly by the printer or supplier. For information
about postal rates and service, see "Direct Mail Operations and
Sweepstakes."
In all of the Company's direct mail sales, a customer may
return any book or home entertainment product to the Company
either prior to payment or after payment for a refund. The
Company believes that its returned goods policy is essential to
its reputation and also elicits a greater number of orders, many
of which are not returned because of the generally high
satisfaction rate of consumers with the Company's products.
Nonetheless, this policy and a "first book free" policy for
Condensed Books and series books result in a significant amount
of returned goods.
Sales of the Company's books and home entertainment products
are seasonal to some extent. In the direct mail industry as a
whole, the winter months have traditionally had higher consumer
response than other times of the year. Sales are also higher
during the pre-Christmas season than in spring and summer.
Direct Mail Operations and Sweepstakes
The sale of magazine subscriptions, Condensed Books, series
books, general books, music and video products, as well as
certain other products, is accomplished principally through
direct mail solicitations to households on the Company's customer
lists, usually accompanied by sweepstakes entries and, in some
cases, premium merchandise offers. For many years the Company
has been acknowledged as a pioneer and innovator in the direct
mail industry. The Company was among the first to use
sweepstakes in conjunction with its mailings and to employ
certain information management techniques designed to increase
the accuracy of mailing lists and eliminate duplicate entries.
A typical Reader's Digest direct mail promotion includes
literature about the product being promoted, which may be
Reader's Digest magazine, Condensed Books, a book series, or an
individual book, music or video product, and also includes an
order form and a sweepstakes entry. Many promotions offer a
"premium," which is a small gift item, such as a road atlas, at
no additional charge, if the consumer purchases the product being
promoted. Some include an eye-catching item visible from the
outside of the envelope, such as a coin, a key or a miniature
license plate. Each of these devices helps to increase the
number of consumers who read the promotional material, which in
turn increases the "pull," or the number of orders received in
response to a mailing, according to the Company's research.
To promote the sale of its products in the United States,
the Company offers in its promotional mailings participation in
an annual sweepstakes, whose prizes totaled $12,000,000 for the
1994 edition and will total about $13,000,000 for 1995. The
grand prize is generally $5,000,000 payable in cash installments.
Prizes may be supplemented based on various criteria such as the
promptness of the response. A consumer need not order a product
to return a valid sweepstakes entry. Generally, each of the
Company's international subsidiaries sponsors its own
sweepstakes, the mechanics of which vary from jurisdiction to
jurisdiction, depending upon local law.
The Company has from time to time been party to
administrative proceedings or court actions with respect to its
direct mail practices and its use of sweepstakes. In the United
States, the Company is a party to consent decrees (the "Consent
Decrees") with the Federal Trade Commission, dating from the
early 1960's. The Company believes that many of the provisions
of the Consent Decrees represent the Federal Trade Commission's
current interpretation of applicable law, and as such, are
equally applicable to all direct mail companies and promotional
sweepstakes. The Company does not believe that the additional
requirements to which it is subject have an adverse effect on its
ability to compete with other direct mail marketers.
From time to time, the Company is involved in proceedings
concerning its direct mail promotions. Although existing laws
and regulations governing direct mail operations and sweepstakes
limit certain aspects of the Company's business, especially in
certain European jurisdictions, the Company believes that the
present regulatory restrictions in the jurisdictions in which it
operates do not prevent the Company from employing the direct
mail and promotion incentive tools necessary to its business.
The Company cannot predict, however, future laws or regulations
which may be enacted or implemented in the jurisdictions in which
it operates. More restrictive laws or regulations governing
sweepstakes or direct mail, which have been considered in some
jurisdictions, principally in Europe, could adversely affect the
business of the Company in those jurisdictions.
The Company is subject to postal rate increases that affect
its product deliveries, promotional mailings and billings. In
the United States, delivery charges are stated separately on
bills for Reader's Digest subscriptions, books and home
entertainment products. In many international jurisdictions,
however, delivery charges must be included in the price of the
product. Moreover, postal rate increases for promotional
mailings and billings can be recouped by the Company only
indirectly, mainly through price increases. Postage is one of
the Company's largest expenses in its promotional and billing
activities. In the past, the Company has had sufficient advance
notice of most increases in postal rates so that the higher rates
could be factored into the Company's pricing strategies and
operating plans. Increased prices (or increased delivery charges
paid by customers) may have a negative effect on sales. The
Company may, therefore, be unable to recover the full amount of
postal rate increases from its customers, particularly rate
increases for promotional mailings. The Company attempts to
contain postal expenses by the use of pre-sorting and other cost
saving measures.
The Company relies on postal delivery service in the
jurisdictions in which it operates for timely delivery of its
products and promotional mailings. In the United States,
delivery service is generally satisfactory. Some international
jurisdictions, however, experience periodic work stoppages in
postal delivery service or less than adequate postal efficiency.
The Company has from time to time experienced such problems in
several countries. Although these problems have not had a
significant impact on the Company, there can be no assurance that
generally favorable conditions will continue. Delayed delivery
of the Company's products may result in an increased rate of
subscription cancellations or reduced rate of renewals for
Reader's Digest magazine and a higher rate of returned goods for
books and home entertainment products. In addition, marketing
strategies depend on certain promotional mailings arriving at
consumers' homes on certain dates. Delayed delivery of
promotional mailings can significantly affect the pull of a given
mailing. The Company devotes substantial time to its relations
with postal authorities in the jurisdictions in which it
operates.
In some states in the United States and in some foreign
jurisdictions, some or all of the Company's products are subject
to sales tax or value added tax. Tax, like delivery, is
generally stated separately on bills where permitted by
applicable law. Nonetheless, tax increases or imposition of new
taxes will increase the total cost to the customer and thus may
have a negative effect on sales. Moreover, in jurisdictions
where applicable tax must be included in the purchase price, the
Company may be unable to fully recover from customers the amount
of any tax increase or new tax.
Management Information Systems and List Enhancement
The size and quality of the Company's customer list in each
country in which it operates contribute significantly to its
business and the Company is constantly striving to improve its
lists. The Company's lists contain, in addition to names and
addresses, demographic, promotional and purchase history data
accumulated about its customers, which the Company uses in its
product development and marketing efforts. The Company believes
that its United States list of about 50 million households, over
half the total number of households in the country, is one of the
largest mail response lists in the United States. The Company's
international lists include a comparable number of households, in
the aggregate. Approximately half of the households on the
United States list have purchased one or more products or
received services from the Company within the last two years.
Unlike many publishers, the Company does not rent or sell its
lists to third parties. The Company's special interest magazines
do rent their subscription lists.
The Company maintains all of its customer lists on computer.
The Company maintains extensive security at all of its data
sites, keeps backup copies of its customer lists off-site and
maintains fully operational backup data processing facilities.
The Company is making and will continue to make significant
investments in management information systems in order to improve
its operating efficiencies, increase the level of service
provided to its customer base and facilitate globalization of the
Company.
List management activity is limited in some international
subsidiaries because local jurisdictions, particularly in Europe,
have data protection laws or regulations prohibiting or limiting
the exchange of such information. Certain jurisdictions also
prohibit the retention of information, other than certain basic
facts, about noncurrent customers. Although data protection laws
may hinder the Company's list enhancement capacity, the Company
believes that current laws and regulations do not prevent the
Company from engaging in activities necessary to its business.
The Company cannot predict the scope of any future data
protection laws or their effect on the Company's business.
Special Interest Magazines
In fiscal 1987, the Company began a program to acquire
special interest magazines that the Company deems consistent with
its image, editorial philosophy and market expertise. Travel
Holiday(r) magazine (acquired in December 1986) is a practical
travel magazine aimed at middle income travelers. The Family
Handyman(r) magazine (acquired in December 1987) provides
instructions and guidance for "do-it-yourself" home improvement
projects. New Choices For Retirement Living(r) magazine (acquired
in January 1988) is aimed at active, mature readers and provides
information on entertainment, travel, health and leisure time
activities. American Health(r) magazine (acquired in February
1990) provides helpful information on medicine, nutrition,
psychology and fitness. These magazines are sold by
subscription. The Family Handyman and American Health are also
sold on newsstands. In addition, Travel Holiday is distributed
to members of a travel club, which also provides its members with
various other benefits, such as travel insurance. Like most
magazines, the Company's special interest magazines are highly
dependent on advertising revenue, and are therefore susceptible
to negative trends in the demand for advertising. Each of these
magazines publishes 10 issues per year. In fiscal 1990, the
Company expanded its special interest magazine business to the
United Kingdom, with the acquisition of Moneywise magazine, a
magazine devoted to helping families manage their finances.
The following table sets forth the circulation rate base of
each of the Company's United States special interest magazines as
of the end of each of the last five fiscal years, as well as the
number of advertising pages carried and the advertising revenues
(before deducting discounts and commissions) for those fiscal
years. Circulation rate base data is as reported to ABC and
advertising data is as reported by PIB.
Number of Gross
Circulation Advertising Advertising
Rate Base Pages Carried Revenues
The Family Handyman:
1994 1,000,000 508 $15,333,200
1993 1,000,000 467 12,982,200
1992 1,000,000 439 10,779,600
1991 1,000,000 441 11,230,800
1990 1,300,000 378 8,995,200
Travel Holiday:
1994 575,000 589 13,566,500
1993 550,000 521 10,507,700
1992 550,000 458 8,887,500
1991 550,000 450 8,098,900
1990 550,000 413 6,980,400
New Choices For Retirement Living:
1994 575,000 417 11,486,300
1993 575,000 384 10,179,800
1992 575,000 324 7,065,800
1991 575,000 323 6,757,300
1990 575,000 381 7,408,400
American Health:
1994 800,000 443 11,822,100
1993 800,000 433 10,144,100
1992 800,000 424 9,213,300
1991 800,000 295 5,904,700
1990 800,000 603 11,541,500
____________
(1) Gross advertising revenues are computed from basic one-
time rates and the number of advertising pages carried and,
therefore, exceed actual advertising revenues as included in
the Company's financial statements. Actual advertising
revenues reflect lower rates for multiple insertion, volume
discounts and cash discounts.
(2) The circulation rate base was reduced to 1,000,000
effective in January 1991.
(3) Acquired by the Company in February 1990.
Moneywise had a circulation rate base of 114,000, 100,000,
86,000, 86,000 and 45,000 as of the end of fiscal 1994, 1993,
1992, 1991 and 1990, respectively.
Of total revenues of $90,607,000 for the Company's special
interest magazines in fiscal 1994, 60% was generated by
circulation revenues and 40% by advertising revenues. At July 1,
1994, The Family Handyman had a cover price of $2.25 and a basic
annual subscription price of $19.97, Travel Holiday had a basic
annual subscription price of $12.97, New Choices For Retirement
Living had a basic annual subscription price of $18.97, and
American Health had a cover price of $1.95 and a basic annual
subscription price of $18.97.
Since acquiring each magazine, the Company has upgraded
editorial quality, effected changes in personnel, revised
marketing strategies and created a management infrastructure.
The U.S. magazines are promoted to the Company's U.S. customer
list and the Company's other products are promoted to each
magazine's customer list, as appropriate. The Company believes
that this strategy will help to expand the Company's customer
base for all of its products.
The Company is working with software developers and computer
on-line services to adapt its magazines to new technologies.
Within the past year, The Family Handyman has become available
through The CompuServe Information Service and Travel Holiday
became available through America Online and through the
Electronic Newsstand on the Internet.
The Company has made and continues to make expenditures in
its special interest magazines with a view toward long-term
growth. When appropriate, the Company will also discontinue
publication of a magazine. Although the Company does not have
any current plans with respect to any acquisitions of additional
magazines, it will make additional acquisitions if and when
appropriate magazines become available on terms the Company finds
satisfactory.
Other Businesses
In some markets, the Company also sells other products by
direct mail, principally language courses (consisting of written
materials and cassettes) and globes. Revenues from these
activities are not material to the Company's business.
The Company's wholly owned subsidiary, QSP, Inc. ("QSP"), is
in the business of assisting schools and youth groups in their
fundraising efforts. QSP's staff helps schools and youth groups
prepare fundraising campaigns in which participants sell magazine
subscriptions, music and video products, books, food and gifts.
QSP derives its revenue from a portion of the proceeds of each
sale. Several hundred publishers (including the Company) make
magazine subscriptions available to QSP at a substantial
discount. QSP also obtains discounted music products from a
large music publisher. Processing of magazine subscription
orders and payments is performed for QSP by an independent
contractor. The Company's Canadian subsidiary is a 50% owner of
a Canadian company which engages in Canada in the same type of
fundraising activities as QSP. The other 50% is owned by another
large Canadian publisher.
Competition and Trademarks
Although Reader's Digest magazine is a unique and well-
established institution in the magazine publishing industry, it
competes with other magazines for subscribers and with magazines
and all other media, including radio and television, for
advertising. The Company believes that the extensive and
longstanding international operations of Reader's Digest provide
the Company with a significant advantage over competitors seeking
to establish a global publication.
The Company owns numerous trademarks that it uses in its
business worldwide. Its two most important trademarks are
"Reader's Digest" and the "Pegasus" logo. The Company believes
that the name recognition, reputation and image that it has
developed in each of its markets significantly enhance customer
response to the Company's direct mail sales promotions.
Accordingly, trademarks are important to the Company's business
and the Company aggressively defends its trademarks.
The Company believes that its name, image and reputation, as
well as the quality of its customer lists, provide a significant
competitive advantage over many other direct mail marketers.
However, the Company's books and home entertainment products
business is in competition with companies selling similar
products at retail as well as by direct mail. Because tests show
that consumers' responses to direct mail promotions can be
adversely affected by the overall volume of direct mail
promotions, the Company is also in competition with all other
direct mail marketers, regardless of whether the products being
offered are similar to the Company's products. The Company
believes that it has greater resources than many of its direct
mail competitors, and that, consequently, it is better able to
withstand potential negative industry trends, such as postal rate
increases.
Each of the Company's special interest magazines is in
competition with other magazines of the same genre for readers
and advertising. Nearly all of the Company's products compete
with other products and services that utilize leisure activity
time or disposable income.
Employees
As of June 30, 1994, the Company employed approximately
6,700 persons worldwide. Approximately 2,500 were employed in
the United States and 4,200 were employed by the Company's
international subsidiaries. The Company's relationship with its
employees is generally satisfactory.
Executive Officers of the Company
The following paragraphs set forth the name, age and offices
with the Company of each present executive officer of the
Company, the period during which each executive officer has
served as such and each executive officer's business experience
during the past five years:
Name and Age Positions and Offices With the Company
George V. Grune (65) Mr. Grune is Chairman of the Board of the
Company. He served as Chairman and Chief
Executive Officer from 1984 through July
1994, when he retired as Chief Executive
Officer upon reaching age 65. Mr. Grune
has been a member of the Board of
Directors of the Company since 1976. He
joined the Company in 1960.
James P. Schadt (56) Mr. Schadt was elected Chief Executive
Officer of the Company effective August
1994 and continues as President. He
joined the Company as President and Chief
Operating Officer and was elected to the
Board of Directors of the Company in
September 1991. He was a member of the
board of directors of Cadbury Schweppes
plc of London and Chief Executive Officer
of its worldwide beverage business,
Cadbury Beverages, Inc., from 1986
through July 1991.
Melvin R. Laird (72) Mr. Laird has been a member of the Board
of Directors of the Company since 1990.
He has served as Senior Counsellor since
1974 and was elected to the additional
position of Vice President in 1989. Mr.
Laird joined the Company in 1974.
Kenneth A.H. Gordon (57) Mr. Gordon has been President, Reader's
Digest U.S.A., since July 1993. In
addition, having been a Vice President of
the Company since 1982, he became a
Senior Vice President in January 1994.
He was President, International Group
from October 1989 to June 1993. He
joined the Company in 1960.
Name and Age Positions and Offices With the Company
Heikki K. Helenius (52) Mr. Helenius has been President, Reader's
Digest Europe and Vice President of the
Company since July 1993. He was Vice
President, International Group from
January 1992 to June 1993 and was
Managing Director of the Company's
Finnish subsidiary prior thereto. Mr.
Helenius joined the Company in 1972.
Martin J. Pearson (47) Mr. Pearson, who joined the Company in
August 1973, has been President, Reader's
Digest Pacific and Vice President of the
Company since July 1993. He was Managing
Director of Reader's Digest Australia
from January 1990 to June 1993 and was
its Marketing Director prior thereto.
Peter J.C. Davenport (54) Mr. Davenport was named Senior Vice
President, Global Direct Marketing in
January 1994. He had been Vice
President, Global Direct Marketing since
September 1991 and Vice President and
Deputy Director, International Group
since 1988. Mr. Davenport joined the
Company in 1958.
Joseph M. Grecky (55) Mr. Grecky has been Senior Vice
President, Human Resources since January
1994. He had been Vice President, Human
Resources since he joined the Company in
1987.
Carole M. Howard (49) Mrs. Howard joined the Company in 1985 as
Vice President, Public Relations and
Communications Policy. She had worked
for AT&T for 18 years in various public
relations, advertising and marketing
positions.
Thomas M. Kenney (47) Mr. Kenney has been President, U.S.
Magazine Publishing since July 1993 and a
Vice President since he joined the
Company in October 1989 as President,
Magazine Publishing Group. From 1986
through September 1989, he was President
of Thomas Kenney & Company Inc., an
investment banking firm specializing in
magazine publishing companies.
Bruce G. Koe (51) Mr. Koe, who joined the Company in
October 1992 as Vice President, Global
Operations, was Vice President,
Diversified Products Group of Western
Publishing Company, Inc. from September
1990 to October 1992 and was Vice
President of Banta Corporation from
September 1986 to September 1990.
Marcia M. Lefkowitz (50) Ms. Lefkowitz has been Vice President,
Marketing, Reader's Digest U.S.A. since
July 1993. She served as Vice President,
Marketing Systems from February 1993 to
June 1993, Vice President, Global New
Business Development from August 1990 to
January 1993 and Vice President,
Corporate Planning and Development from
November 1988 to July 1990. Ms.
Lefkowitz joined the Company in 1967.
Name and Age Positions and Offices With the Company
Barbara J. Morgan (49) Mrs. Morgan has been Vice President and
Editor-in-Chief, Condensed Books since
August 1987. She joined the Company in
January 1973.
Kenneth A. Nelson (49) Mr. Nelson joined the Company as Vice
President, Management Information Systems
in November 1990. Since 1980, he had
served in a number of management
capacities for Mars, Inc.
John A. Pope, Jr. (61) Mr. Pope has been Vice President since
March 1984 and Editor-in-Chief, General
Books since September 1991. He joined
the Company in February 1968.
Anthony W. Ruggiero (53) Mr. Ruggiero was elected Senior Vice
President and Chief Financial Officer in
January 1994. He had been Vice President
and Chief Financial Officer since he
joined the Company in July 1990. From
1983 to 1989, he was Senior Vice
President and Chief Financial Officer and
a Director of Squibb Corp. and thereafter
served as Senior Vice President and
Controller of Bristol-Myers Squibb Co.
Kenneth Y. Tomlinson (50) Mr. Tomlinson, who joined the Company in
April 1968, has been Vice President since
1985 and Editor-in-Chief, Reader's Digest
magazine since December 1990.
William H. Willis (43) Mr. Willis has been President, Special
Markets Group and Vice President of the
Company since he joined the Company in
January 1994. He was previously
Executive Vice President, Marketing and
Sales of Ogden Services Corporation.
Additional Corporate Officers
Connie K. Beck Vice President, Corporate Secretary and
Associate General Counsel
Gregory G. Coleman Vice President and Publisher, U.S. Reader's
Digest and Special Interest Magazines
Milan Kofol Vice President and Treasurer
Joseph G. NeCastro Vice President and Controller
Jack A. Smith Vice President, Corporate Planning and
Development
Pursuant to the By-Laws of the Company, officers serve at
the pleasure of the Board of Directors. Officers of the Company
are elected annually to serve until their respective successors
are elected and qualified.
ITEM 2. PROPERTIES
United States Properties
The Company's headquarters and principal operating
facilities are situated on approximately 120 acres in Westchester
County, New York, much of which the Company acquired in 1940.
The site includes five principal buildings aggregating
approximately 697,000 square feet that house executive,
administrative, editorial and operational offices, and data
processing and other facilities. Joshua Morris Publishing, Inc.
also owns approximately 11,000 square feet of space in Wilton,
Connecticut.
The Company leases approximately 84,000 square feet of
warehouse space in Brewster, New York. QSP leases approximately
80,000 square feet in Conyers, Georgia, 48,000 square feet in
Pinola, Georgia, 20,000 square feet in Stone Mountain, Georgia
and 17,000 square feet in Ridgefield, Connecticut.
In New York City, the Company leases approximately 181,000
square feet of office space in a total of four buildings,
portions of which are used as editorial offices for its books and
home entertainment products business, as advertising sales
offices for Reader's Digest magazine and as offices for the
Company's special interest magazines.
The Company leases space for an editorial bureau,
advertising sales offices and other purposes in various cities in
the United States.
International Properties
The following table contains information about all operating
properties owned by the Company outside the United States and the
headquarters, in many cases including operating facilities, of
each of the Company's principal international operating
subsidiaries.
Principal Square
Location Use Footage
Owned:
Sydney, Australia Headquarters 93,200
Editorial Offices 20,000
Vienna, Austria Administrative Office 1,300
Montreal, Canada Headquarters 96,200
Editorial Offices 34,000
Lettershop 20,000
Helsinki, Finland Headquarters 40,000
Bagneux, France Headquarters 109,500
Montigny, France Lettershop & Warehouse 74,500
Stuttgart, Germany Headquarters 68,000
Editorial Offices 14,000
Hong Kong Headquarters 81,700
Milan, Italy Headquarters 152,000
Verona, Italy Warehouse 109,200
Mexico City, Mexico Headquarters 28,700
Amsterdam, The Netherlands Headquarters 43,300
Lisbon, Portugal Headquarters 58,000
Azeitao, Portugal Warehouse 62,000
Capetown, South Africa Headquarters 75,000
Swindon, United Kingdom Management Information
Systems, Fulfillment,
Warehouse and
Administrative
Offices 262,500
Total Owned Properties 1,443,100
__________________
(1) The Company owns the building at this facility and leases
the underlying land pursuant to a long-term lease expiring in 2076.
Principal Square
Location Use Footage
Leased Headquarters:
Brussels, Belgium Headquarters 20,700
Budapest, Hungary Headquarters 13,800
Kista, Sweden Headquarters 19,800
Zurich, Switzerland Headquarters 49,200
London, United Kingdom Headquarters 55,100
In addition, the Company leases various other office space,
warehouses and operational facilities throughout the world. All
international properties leased by the Company, including
headquarters, aggregate approximately 570,000 square feet.
General
The Company believes that its current facilities, together
with expansions and upgrading of facilities presently underway or
planned, are adequate to meet its present and reasonably
foreseeable needs. The Company also believes that adequate space
will be available to replace any leased facilities for which the
leases expire in the near future.
The Company also owns printing and related equipment located
at printing facilities not owned or leased by the Company. See
Item 1, "Business--Reader's Digest Magazine--Production and
Fulfillment" and "Business--Books and Home Entertainment Products-
- -Production and Fulfillment."
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are defendants in several
lawsuits and claims arising in the regular course of business.
Based on the opinions of management and counsel for such matters,
recoveries, if any, by plaintiffs and claimants would not
materially affect the financial position of the Company or its
results of operations.
Additionally, on December 21, 1993, the Roman Catholic
Bishop of San Diego and the Chino Unified School District
commenced a lawsuit in the U.S. District Court for the Southern
District of California against a subsidiary of the Company, QSP,
Inc., and the Company, alleging violation of the federal
antitrust laws and seeking treble damages in an unspecified
amount and certain injunctive relief. The complaint alleges that
QSP, Inc. is unlawfully monopolizing the school and youth group
magazine fund raising market. The suit was certified as a class
action on July 1, 1994. The Company believes that the suit is
without merit and, accordingly, no provision for loss has been
made in the Company's consolidated financial statements. The
Company intends to defend this action vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year ended June
30, 1994.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The information contained in Note 18 to the Company's
Consolidated Financial Statements in the Company's 1994 Annual
Report to Stockholders is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information contained under the caption "Selected
Financial Data" in the Company's 1994 Annual Report to
Stockholders is incorporated herein 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 the Company's 1994 Annual Report to
Stockholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements appearing on
pages 26 through 38 of the Company's 1994 Annual Report to
Stockholders, together with the report thereon of KPMG Peat
Marwick LLP appearing on page 39, are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors of the Company under
the caption "Election of Directors" in the Proxy Statement for
the Annual Meeting of Stockholders of the Company to be held on
November 11, 1994 is incorporated herein by reference.
Information with respect to executive officers of the Company
appears under the caption "Executive Officers of the Company" in
Item 1 of Part I hereof and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation under the
captions "Executive Compensation," "Report of the Compensation &
Nominating Committee" and "Performance Graph" in the Proxy
Statement for the Annual Meeting of Stockholders of the Company
to be held on November 11, 1994 is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information with respect to security ownership of certain
beneficial owners and management under the caption "Equity
Security Ownership" in the Proxy Statement for the Annual Meeting
of Stockholders of the Company to be held on November 11, 1994 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and
related transactions under the caption "Executive Compensation--
Miscellaneous" in the Proxy Statement for the Annual Meeting of
Stockholders of the Company to be held on November 11, 1994 is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) Financial Statements
Listed on the Index to Consolidated Financial Statements
and Schedules on page 27 of this Report.
(2) Financial Statement Schedules
Listed on the Index to Consolidated Financial Statements
and Schedules on page 27 of this Report.
(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 electronically as Exhibit 3.1.1
to the registrant's Form 10-K for the year ended June 30,
1993, is incorporated herein by reference.
3.1.2 Certificate of Amendment of the Certificate of
Incorporation of The Reader's Digest Association, Inc.
filed with the State of Delaware on February 22, 1991
filed electronically as Exhibit 3.1.2 to the registrant's
Form 10-K for the year ended June 30, 1993, is
incorporated herein by reference.
3.2 Amended and Restated By-Laws of The Reader's Digest
Association, Inc., effective February 22, 1991 filed
electronically as Exhibit 3.2 to the registrant's Form 10-
K for the year ended June 30, 1993, is incorporated
herein by reference.
10.1 The Reader's Digest Association, Inc. Management Incentive
Compensation Plan (Amendment and Restatement as of July
1, 1994).*
*Denotes a management contract or compensatory plan.
10.2 The Reader's Digest Association, Inc. 1989 Key Employee
Long Term Incentive Plan filed as Exhibit 10.2 to the
Registration Statement on Form S-1 (Registration No. 33-
32566) filed by registrant on December 19, 1989, is
incorporated herein by reference.*
10.3 The Reader's Digest Association, Inc. 1994 Key Employee
Long Term Incentive Plan filed electronically as Exhibit
10.17 to the registrant's Form 10-Q for the quarter ended
March 31, 1994, is incorporated herein by reference.*
10.4 The Reader's Digest Association, Inc. Deferred
Compensation Plan (Amendment and Restatement as of July
8, 1994).*
10.5 The Reader's Digest Association, Inc. Severance Plan for
Senior Management (Amendment and Restatement as of July
8, 1994).*
10.6 The Reader's Digest Association, Inc. Income Continuation
Plan for Senior Management (amended and restated) filed
electronically as Exhibit 10.5 to the registrant's Form
10-K for the year ended June 30, 1993, is incorporated
herein by reference.*
10.7 Excess Benefit Retirement Plan of The Reader's Digest
Association, Inc. (Amendment and Restatement as of July
1, 1994).*
10.8 Supplemental Retirement Agreement dated as of May 15, 1985
between the registrant and George V. Grune filed as
Exhibit 10.12 to the Registration Statement on Form S-1
(Registration No. 33-32566) filed by registrant on
December 19, 1989, is incorporated herein by reference.*
10.9 Supplemental Retirement Benefit Agreement dated as of
August 22, 1988 between the registrant and George V.
Grune filed as Exhibit 10.7 to the Registration Statement
on Form S-1 (Registration No. 33-32566) filed by
registrant on December 19, 1989, is incorporated herein
by reference.*
10.10 Supplemental Retirement Benefit Agreement dated as of
August 25, 1988 between the registrant and Kenneth A.
Gordon filed as Exhibit 10.10 to the Registration
Statement on Form S-1 (Registration No. 33-32566) filed
by registrant on December 19, 1989, is incorporated
herein by reference.*
10.11 Supplemental Retirement Benefit Agreement dated as of
December 12, 1989 between the registrant and Thomas M.
Kenney filed as Exhibit 10.21 to the registrant's Form 10-
K for the year ended June 30, 1991, is incorporated
herein by reference.*
10.12 Supplemental Retirement Benefit Agreement dated as of
August 16, 1990 between the registrant and Anthony W.
Ruggiero filed as Exhibit 10.22 to the registrant's Form
10-K for the year ended June 30, 1991, is incorporated
herein by reference.*
10.13 The Reader's Digest 1992 Executive Retirement Plan
(Amendment and Restatement as of July 1, 1994.*
10.14 The Reader's Digest Association, Inc. Deferred
Compensation Plan for Non--Employee Directors filed as
Exhibit 10.20 to the registrant's Form 10-K for the year
ended June 30, 1990, is incorporated herein by
reference.*
*Denotes a management contract or compensatory plan.
10.15 Agreement dated July 10, 1992 between the registrant and
George V. Grune filed as Exhibit 10.15 to the
registrant's Form 10-K for the year ended June 30, 1992,
is incorporated herein by reference.*
10.16 Supplemental Retirement Benefit Agreement dated as of
September 13, 1991 between the registrant and James P.
Schadt filed as Exhibit 10.16 to the registrant's Form 10-
K for the year ended June 30, 1993, is incorporated
herein by reference.*
13 Financial Review appearing at pages 22 through 38 of the
registrant's 1994 Annual Report to Stockholders, together
with the report thereon of KPMG Peat Marwick LLP
appearing on page 39 (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 registrant.
23 Consent of KPMG Peat Marwick LLP.
27 Financial Data Schedule.
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three months
ended June 30, 1994.
*Denotes a management contract or compensatory plan.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE READER'S DIGEST ASSOCIATION, INC.
By: James P. Schadt
(James P. Schadt)
President and Chief Executive Officer
Date: September 26, 1994
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
George V. Grune Chairman of the Board and September 26, 1994
(George V. Grune) a Director
James P. Schadt President and Chief September 26, 1994
(James P. Schadt) Executive Officer and a
Director
Melvin R. Laird Vice President and Senior September 26, 1994
(Melvin R. Laird) Counsellor and a Director
Anthony W. Ruggiero Senior Vice President and September 26, 1994
(Anthony W. Ruggiero) Chief
Financial Officer
Joseph G. NeCastro Vice President and September 26, 1994
(Joseph G. NeCastro) Controller
William G. Bowen Director September 26, 1994
(William G. Bowen)
Lynne V. Cheney Director September 26, 1994
(Lynne V. Cheney)
M. Christine DeVita Director September 26, 1994
(M. Christine DeVita)
James E. Preston Director September 26, 1994
(James E. Preston)
Robert G. Schwartz Director September 26, 1994
(Robert G. Schwartz)
Walter V. Shipley Director September 26, 1994
(Walter V. Shipley)
C.J. Silas Director September 26, 1994
(C.J. Silas)
THE READER'S DIGEST ASSOCIATION, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS AND SCHEDULES
Page
Report of KPMG Peat Marwick LLP, Independent Auditors *
Financial Statements:
Consolidated Statements of Income--For the Years Ended June
30, 1994, 1993
and 1992 *
Consolidated Balance Sheets--June 30, 1994 and 1993 *
Consolidated Statements of Cash Flows--For the Years Ended
June 30, 1994,
1993 and 1992 *
Consolidated Statements of Changes in Stockholders' Equity--
For the
Years Ended June 30, 1994, 1993 and 1992 *
Notes to Consolidated Financial Statements *
Report of KPMG Peat Marwick LLP, Independent Auditors 28
Schedules:
I Marketable Securities and Other Investments 29
II Amounts Receivable From Related Parties 30
VIII Valuation and Qualifying Accounts 31
IX Short-Term Borrowings 32
X Supplementary Income Statement Information 33
All schedules, except those set forth above, 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.
____________
*Incorporated by reference to the Company's 1994 Annual
Report to Stockholders. See Item 8 of the Annual Report on Form
10-K.
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors of The Reader's Digest
Association, Inc.:
Under date of September 7, 1994, we reported on the consolidated
balance sheets of The Reader's Digest Association, Inc. and
subsidiaries as of June 30, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year
period ended June 30, 1994, as contained in The Reader's Digest
Association, Inc. 1994 Annual Report to Stockholders. These
consolidated financial statements and our report thereon are
incorporated by reference in the Annual Report on Form 10-K. In
connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated
financial statement schedules as listed in the Index to
Consolidated Financial Statements and Schedules in the 1994
Annual Report on Form 10-K. These financial statement schedules
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statement schedules based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material
respects, the information set forth therein.
As discussed in the notes to consolidated financial statements,
the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits," and the
American Institute of Certified Public Accountants' Statement of
Position No. 93-7, "Reporting on Advertising Costs," effective
July 1, 1993 and the provisions of Financial Accounting Standards
Board's Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," effective June 30, 1994. As discussed in the notes
to consolidated financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," and
No. 109, "Accounting for Income Taxes," effective July 1, 1992.
KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
New York, New York
September 7, 1994
THE READER'S DIGEST ASSOCIATION, INC.
SCHEDULE I -- MARKETABLE SECURITIES AND OTHER INVESTMENTS
Year Ended June 30, 1994
(Dollars in Thousands)
No. of Market Amount at
Shares or Value of Which Security
Name of Each Issuer Principal Cost of Each Issue Issue is
and Title of Each Issue Amounts of Each at Balance Carried in the
Bonds and Issue Sheet Balance Sheet
Notes Date
Short-term investments:
Amounts held by United States entities:
Certificates of deposit $ 359 $ 359 $ 359 $ 359
U.S. Treasury Bills $198,000 198,651 199,893 199,893
$199,010 $200,252 $ 200,252
Amounts held by international entities:
Certificates of deposit $11,147 $ 11,147 $ 11,147 $ 11,147
Common stock 15,027 shs 40 55 55
$ 11,187 $11,202 $ 11,202
Total short-term investments $210,197 $211,454 $ 211,454
Long-term investments:
Amounts held by United States
entities:
Common stock:
CML Group 2,890,950 shs $ 2,309 $ 33,607 $ 33,607
Other 264,425 shs 990 1,224 1,224
Corporate Bonds $ 12,000 12,288 12,169 12,169
Government Bonds $ 228,000 231,994 218,382 218,382
State obligations $ 3,650 3,742 3,773 3,773
U.S. Treasury Bonds $ 101,000 102,631 102,889 102,889
$353,954 $372,044 $ 372,044
Amounts held by international entities:
Other $ 129 $ 129 $ 131 $ 131
Total long-term investments $ 354,083 $372,175 $372,175
THE READER'S DIGEST ASSOCIATION, INC.
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES
Years Ended June 30, 1994, 1993, and 1992
(Dollars in Thousands)
Balance at End
Deductions of Period
Balance at Effect of
Beginning Foreign Amounts Amounts Not
Name of Debtor of Period Additions Exchange Collected Written Current Current
Off
Year Ended June 30, 1994
Ralph Hancox $106 -- $(8) $ (2) -- -- $ 96
Heikki Helenius 100 $ -- -- (50) -- -- 50
Total $206 $ -- $(8) $ (52) -- -- $ 146
Year Ended June 30, 1993
Ralph Hancox $115 -- $(7) $ (2) -- -- $106
Heikki Helenius -- $ 100 -- -- -- -- 100
Total $115 $ 100 $(7) $ (2) -- -- $206
Year Ended June 30, 1992
Ralph Hancox $120 -- $(5) -- -- -- $115
Total $120 -- $(5) -- -- -- $115
________
(1) Due ninety days after termination
of employment and secured by a mortgage on real estate owned
by Mr. Hancox.
(2) Unsecured loan due September 30, 1995.
THE READER'S DIGEST ASSOCIATION, INC.
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
Years Ended June 30, 1994, 1993 and 1992
(Dollars in Thousands)
Additions Deductions
Balance at Charge Balance
Beginning to Costs Amounts at End of
Description of Period and Written Off Period
Expenses
Year Ended June 30, 1994
Deducted from Receivables:
Allowances for Returns and $198,406 $433,364 $(422,298) $209,472
Bad Debts
Year Ended June 30, 1993
Deducted from Receivables: $173,630 $486,520 $(461,744) $198,406
Allowances for Returns and
Bad Debts
Year Ended June 30, 1992
Deducted from Receivables: $126,852 $433,558 $(386,780) $173,630
Allowances for Returns and
Bad Debts
________
(1) Deductions include the effect of foreign exchange translation.
THE READER'S DIGEST ASSOCIATION, INC.
SCHEDULE IX -- SHORT-TERM BORROWINGS
Years Ended June 30, 1994, 1993 and 1992
(Dollars in Thousands)
Average Weighted
Weighted Maximum Amount Average
Average Amount Outstanding Interest
Category of Aggregate Balance At Interest Outstanding During Rate During
Short-Term Borrowings End of Rate During Period Period
Period Period
Year ended June 30, 1994
Bank Borrowings $ 0 0.0% $5,188 $ 1,716 20.9%
$ 0 $5,188 $ 1,716
Year ended June 30, 1993
Bank Borrowings $5,253 20.6% $5,912 $ 2,697 20.2%
$5,253 $5,912 $ 2,697
Year ended June 30, 1992
Bank Borrowings $ 128 11.6% $2,400 $ 385 11.7%
Notes Payable 6,258 8,389 6,288
$6,386 $10,789 $ 6,673
________
(1) Bank borrowings had various maturities ranging from
thirty days to one year.
(2) Notes payable were non-interest bearing.
(3) The average amount outstanding during the period is
the average of the month-end balances.
(4) The weighted average interest rate during the period is
computed by dividing the weighted average interest expense
by the weighted average balance outstanding.
THE READER'S DIGEST ASSOCIATION, INC.
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
Years Ended June 30, 1994, 1993 and 1992
(Dollars in Thousands)
Charged to Costs and Expenses
Item 1994 1993 1992
Royalties $72,490 $73,533 $64,449