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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, 1995 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 18, 1995, was
approximately $286,715,629, 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 18, 1995, 86,392,259 shares of the registrant's
Class A Nonvoting Common Stock and 21,716,057 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, 1995. 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 10, 1995. 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 1
Circulation 1
Advertising 2
Editorial 2
Production and Fulfillment 3
Licensed Editions 3
Books and Home Entertainment Products 4
Condensed Books 4
Series Books 4
General Books 4
Music 5
Video 5
Reader's Digest Young Families, Inc. 6
Production and Fulfillment 6
Direct Marketing Operations and Sweepstakes 7
Management Information Systems and List Enhancement 8
Special Interest Magazines 8
Other Businesses; Special Markets 9
Competition and Trademarks 10
Employees 10
Executive Officers of the Company 10
Additional Corporate Officers 12
ITEM 2. PROPERTIES 13
ITEM 3. LEGAL PROCEEDINGS 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 14
HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 14
ITEM 6. SELECTED FINANCIAL DATA 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 14
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 14
TABLE OF CONTENTS
(Continued)
Page
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE 15
REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION 15
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 15
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 15
SIGNATURES 19
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND 20
SCHEDULES
"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 preeminent global
leader in publishing and direct marketing, creating and
delivering products, including magazines, books, recorded music
collections, home videos and other products, that inform, enrich,
entertain and inspire.
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.
The Company's operations are reported in 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 15 to the Company's consolidated financial statements
appearing in the Company's 1995 Annual Report to Stockholders,
which note is incorporated herein by reference.
The Company's businesses are organized in four operating
groups. The organization of the Company's three geographic groups-
- -Reader's Digest Europe, Reader's Digest U.S.A. and Reader's
Digest Pacific--recognizes the distinct business needs and
strategies appropriate in different markets throughout the world.
The Company's fourth operating group--Special Markets--operates
the Company's school and youth group fundraising business and
focuses on developing new products and entering new marketing
channels. (Reported geographic results for the Special Markets
Group are included in the United States segment and reported
business segment results are included in the Other Businesses
segment.) For financial information by geographic area, see Note
15 to the Company's consolidated financial statements appearing
in the Company's 1995 Annual Report to Stockholders.
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)," "News From The
World Of Medicine(r)" and "The Verbal Edge(tm)." DeWitt and Lila
Wallace founded Reader's Digest magazine 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 $732.9 million in fiscal 1995, as compared
with $689.1 million in fiscal 1994 and $720.0 million in fiscal
1993. Reader's Digest is published in 47 editions and 18
languages. The Company began publication of a Polish edition in
May 1995 and over the next few years plans to launch several new
editions of Reader's Digest, with principal emphasis on Asia and
Latin America. The Company announced in September 1995 that it
will publish a new edition in Thailand beginning in April 1996.
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 94% 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.
Reader's Digest is truly a global magazine. Most of its
international editions have the largest paid circulation both in
the individual countries and in the regions in which they are
published. 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 Company maintains its circulation rate base through
annual subscription renewals and new subscriptions. The global
circulation rate base for Reader's Digest of 26,923,810 includes
a circulation rate base of 15,000,000 for the United States--
English language edition. 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. The largest percentage of subscriptions is sold between
July and December of each year. Subscriptions to Reader's Digest
may be canceled at any time and the unused subscription price is
refunded.
Worldwide revenues from circulation accounted for $571.7
million, or 78% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1995.
Advertising
In fiscal 1995, Reader's Digest carried 1,033 advertising
pages in its United States--English language edition and 13,082
advertising pages in its other editions. The estimated gross
advertising revenues for the United States--English edition were
$169.3 million and for the other editions were $126.3 million in
fiscal 1995. (Figures for the United States--English language
edition are as reported by Publishers Information Bureau, Inc.
("PIB") and for the other editions are based on data contained in
the LNA/Rome Report of Expenditures in International Media.
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.)
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 $161.3
million, or 22% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1995.
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.
A substantial portion of the selections in Reader's Digest
are original articles written by staff writers or free-lance
writers. The balance is selected from existing published
sources. All material is condensed by Reader's Digest editors.
The Company employs a professional staff to research and fact-
check all published pieces.
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, those 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
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 global suppliers of paper and
believes that those 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 by 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 Marketing 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.
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 (subject to Company approval of editorial
content). 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, recorded music collections and series and home video
products. See "Direct Marketing 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. Today, 15 editions of Condensed Books, published in 12
languages, are marketed in 23 countries. In fiscal 1995,
Condensed Books generated worldwide revenues of $392.1 million,
as compared with $363.9 million in fiscal 1994 and $352.3 million
in fiscal 1993.
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.
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.
Series Books
The Company markets two types of series books: reading
series and illustrated series. These book series may be open-
ended continuing series, or may consist of a limited number of
volumes. Series books are published in nine languages and
marketed in 18 countries. In fiscal 1995, series books generated
worldwide revenues of $236.6 million, as compared with $214.9
million in fiscal 1994 and $228.8 million in fiscal 1993.
Series marketed in the United States include Today's Best
Nonfiction(r), which consists of five volumes per year each
generally containing condensed versions of four contemporary
works of nonfiction and World's Best Reading, consisting of full-
length editions of classic works of literature, of which six
volumes are published each year. Today's Best Nonfiction is
published in 12 countries in three languages and World's Best
Reading is published in 12 countries in four languages. The
Company recently introduced in selected European markets the
Enhanced Reading Series, featuring condensations of existing
books enhanced with additional information and photographs.
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 10 countries outside of
the United States. Illustrated series are generally closed
ended.
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. General books are published in 12 languages
and are marketed in 31 countries. In fiscal 1995, general books
generated worldwide revenues of $816.5 million, as compared with
$755.2 million in fiscal 1994 and $826.4 million in fiscal 1993.
New general 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 the book.
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 stores, through third-party distributors.
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 Digestr and the Microsoftr Home
brand names. Under the agreement, the Company has global direct
mail rights and Microsoft Corporation has worldwide retail rights
to the product.
In March 1995, the Company entered into a worldwide
agreement with Dove Audio, Inc. ("Dove Audio") for direct
marketing rights to Dove Audio's library of audio books, which
currently numbers more than 800 titles. The agreement also
provides that the Company may authorize Dove Audio to create new
titles under the Reader's Digest brand using the content of the
Company's books.
In July 1995, the Company and Meredith Corporation
("Meredith) entered into an agreement forming a strategic
alliance that grants the Company certain exclusive direct
marketing rights with respect to books and other products, such
as music tapes and CDs, CD-ROMs and videotapes, published under
Meredith's Better Homes and Gardens(r) and Ladies' Home Journal(r)
trademarks. The agreement covers all such products bearing
Meredith's brands and any other products created by Meredith or
by the Company. The agreement also gives the Company direct
access to Meredith's 60-million-name consumer database. The term
of the strategic alliance will be approximately 16-1/2 years,
with a five-year renewal option. The Company will pay Meredith
royalties based on product sales and the use of Meredith's
database.
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, although they may include
selections from the Company's 16,000-selection library. The
collections span a broad range of musical styles. In certain
markets, the Company also sells music series, which are marketed
in the same manner as Condensed Books and series books. The
marketing strategy for music packages is similar to that for
general books. The Company markets music products in 21
countries, offering different music products in the various
international markets because of diverse tastes. In fiscal 1995,
music products generated worldwide revenues of $435.9 million, as
compared with $392.4 million in fiscal 1994 and $399.9 million in
fiscal 1993.
Video
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 continues to expand its video operations in the United
States and in international markets and is presently marketing
video products in the United States and 17 other countries. Most
of the Company's original video programs have been licensed to
cable television networks. The Company has also begun to sell
its home video products through retail establishments. In fiscal
1995, home video products generated worldwide revenues of $218.7
million, as compared with $173.9 million in fiscal 1994 and
$150.6 million in fiscal 1993.
Reader's Digest Young Families, Inc.
Reader's Digest Young Families, Inc., a wholly owned
subsidiary of the Company, creates and markets children's books
and home entertainment products. The subsidiary brings together
in one stand-alone operation the business of Joshua Morris
Publishing, Inc., a book publisher and packager acquired in 1991,
and the publishing imprint of Reader's Digest Kids(r). Reader's
Digest Young Families publishes books in 29 languages and is
introducing more than 45 titles for the fall 1995 season.
Beginning in fiscal 1996, Reader's Digest Young Families will be
operated as part of the Special Markets Group and its financial
results will be reported as part of the Special Markets Group.
In October 1994, Reader's Digest Young Families obtained
direct marketing rights from Children's Television Workshop to
create new books featuring Sesame Street licensed characters from
the popular children's television program. In addition, Reader's
Digest Young Families acquired from Western Publishing Company,
Inc. the direct marketing rights for four children's book series,
including the Sesame Street Book Club and Berenstain Bears Book
Club.
Production and Fulfillment
The various editions of Condensed Books are printed and
bound by third-party contractors. In September 1994, the Company
entered into a seven-year exclusive agreement for printing
Condensed Books distributed in the United States and Canada. 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, customer service 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 Marketing
Operations and Sweepstakes."
In all of the Company's direct marketing 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 marketing 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 Marketing 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 marketing 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. As part of its growth strategy, the
Company has begun to pursue increased distribution of its
products through direct response channels other than direct mail,
such as catalogs, clubs and direct response television.
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 $13.4 million for the
1995 edition and will total about $13.7 million for 1996.
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.
From time to time, the Company is involved in proceedings
concerning its direct marketing promotions. Also from time to
time, more restrictive laws or regulations governing sweepstakes
or direct marketing are considered in some jurisdictions,
principally in Europe. The Company does not believe that such
proceedings and proposed laws and regulations will have a
material adverse effect on the Company's direct marketing
business.
The Company is subject to postal rate increases, which
affect its product deliveries, promotional mailings and billings.
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. Because increased prices
(or increased delivery charges paid by customers) may have a
negative effect on sales, the Company may strategically determine
from time to time the extent, if any, to which these cost
increases are passed on to its customers.
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,
although these problems have not had a significant impact on the
Company.
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 increases 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 computerized 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 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
direct response lists in the United States. The Company's
international lists include a comparable number of households, in
the aggregate. Unlike many publishers, the Company does not rent
or sell its lists to third parties, although the Company's
special interest magazines do rent their subscription lists. As
part of the Company's marketing strategy to expand and enhance
its customer lists, the Company may from time to time engage in
limited exchanges of information from its customer lists.
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.
Special Interest Magazines
The Company publishes several special interest magazines
that it deems consistent with its image, editorial philosophy and
market expertise. Travel Holiday(r) magazine is a practical travel
magazine aimed at middle income travelers. The Family Handyman(r)
magazine provides instructions and guidance for "do-it-yourself"
home improvement projects. New Choices for Retirement Living(r)
magazine is aimed at active, mature readers and provides
information on entertainment, travel, health and leisure time
activities. American Health(r) magazine 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.
Each of these magazines publishes 10 issues per year. The
Company also publishes Moneywise magazine, a magazine devoted to
helping families manage their finances, in the United Kingdom.
The following table sets forth the circulation rate base of
each of the Company's United States special interest magazines at
June 30, 1995, as well as the number of advertising pages carried
and the advertising revenues (before deducting discounts and
commissions) for the fiscal years then ended. 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 1,000,000 500 $17,234,390
American Health 800,000 465 $13,611,041
Travel Holiday 600,000 531 $15,025,664
New Choices for
Retirement Living 600,000 448 $14,100,365
____________
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.
Moneywise had a circulation rate base of 132,500 as of the
end of fiscal 1995.
Of total revenues of $95.6 million for the Company's special
interest magazines in fiscal 1995, 61% was generated by
circulation revenues and 39% by advertising revenues.
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. This strategy
helps 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 special interest magazines to new
technologies. For example, The Family Handyman is available
through The CompuServe Information Service and Travel Holiday is
available through America Online and the Electronic Newsstand on
the Internet. The Company plans to launch a site on the World
Wide Web in fiscal 1996.
Other Businesses; Special Markets
The Company's wholly owned subsidiary, QSP, Inc. ("QSP") and
a Canadian affiliate, are in the business of assisting schools
and youth groups in the United States and Canada 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. In August 1995, a Canadian subsidiary of the Company
acquired the remaining 50% of the Company's Canadian affiliate
from another large Canadian publisher.
In some markets, the Company also sells other products by
direct response marketing, principally language courses
(consisting of written materials and cassettes) and globes.
Revenues from these activities are not material to the Company's
business.
The foregoing other businesses are operated as part of the
Company's Special Markets Group. Beginning in fiscal 1996,
Reader's Digest Young Families will also be operated as part of
that group and its financial results, which in fiscal 1995 are
reported in the United States geographic and Books and Home
Entertainment Products business segments, will be reported with
the Special Markets Group in the United States geographic and
Other Businesses business segments.
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 marketing 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 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 marketing. Because tests show that
consumers' responses to direct marketing promotions can be
adversely affected by the overall volume of direct marketing
promotions, the Company is also in competition with all other
direct marketers, regardless of whether the products being
offered are similar to the Company's products.
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, 1995, the Company employed approximately
6,200 persons worldwide. Approximately 2,000 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
James P. Schadt (57) Mr. Schadt is Chairman and Chief
Executive Officer of the Company.
He became Chairman on August 1, 1995
and became Chief Executive Officer
on August 1, 1994. 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
served as President of the Company
until September 8, 1995. 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.
Kenneth A. Gordon (58) Mr. Gordon was elected President and
Chief Operating Officer of the
Company and a member of the Board of
Directors on September 8, 1995. He
has been President, Reader's Digest
U.S.A. since July 1993. Mr. Gordon
was an Executive Vice President of
the Company from April 1995 to
September 1995, a Senior Vice
President from January 1994 to April
1995 and a Vice President prior
thereto. In addition, Mr. Gordon
was President, International Group
from October 1989 to June 1993. He
joined the Company in 1960.
Joseph M. Grecky (56) 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.
Heikki K. Helenius (53) 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.
Melvin R. Laird (73) 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.
Barbara J. Morgan (50) Mrs. Morgan has been Senior Vice
President and Editor-in-Chief, Books
and Home Entertainment since April
1995. She was Vice President and
Editor-in-Chief, Condensed Books
from August 1987 to April 1995. She
joined the Company in 1973.
Name and Age Positions and Offices With the
Company
Martin J. Pearson (48) 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.
Jack A. Smith (47) Mr. Smith has been Vice President,
Corporate Planning, Research and
Development since April 1995. He
joined the Company as Vice
President, Corporate Planning and
Development in June 1991 and was a
partner in the Consulting Services
Division at Marketing Corporation of
America prior thereto.
Paul A. Soden (51) Mr. Soden has been Senior Vice
President and General Counsel since
he joined the Company in February
1995. He became Secretary of the
Company in September 1995. Prior
thereto, he was Vice President,
General Counsel and Secretary for
Sterling Winthrop, Inc.
(pharmaceutical and consumer
products).
Kenneth Y. Tomlinson (51) Mr. Tomlinson, who joined the
Company in 1968, has been Editor-in-
Chief, Reader's Digest magazine
since December 1990. In addition,
he has been a Senior Vice President
of the Company since April 1995 and
was a Vice President prior thereto.
William H. Willis (44) 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 (facility
management services).
Stephen R. Wilson (48) Mr. Wilson joined the Company as
Executive Vice President and Chief
Financial Officer in April 1995. He
was Executive Vice President and
Chief Financial Officer of RJR
Nabisco Holdings Corp. (tobacco and
food products) and its wholly owned
subsidiary, RJR Nabisco, Inc. from
May 1993 to April 1995, and was
Senior Vice President, Corporate
Development prior thereto.
Additional Corporate Officers
Connie K. Beck Vice President and Associate General Counsel
Gregory G. Coleman Vice President and Publisher, U.S. Reader's Digest
and Special Interest Magazines
Peter J.C. Davenport Senior Vice President, Global Direct Marketing
Thomas M. Kenney Vice President and President, U.S. Magazine
Publishing
Bruce G. Koe Vice President, Global Operations
Milan Kofol Vice President and Treasurer
Marcia M. Lefkowitz Vice President, Marketing, Reader's Digest U.S.A.
Kenneth A. Nelson Vice President, Global Management Information
Systems
George S. Scimone Vice President and Controller
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
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. 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.
The Company leases approximately 10,000 square feet of
warehouse space in Brewster, New York. QSP leases approximately
163,000 square feet in Conyers, Georgia, 4,000 square feet in
Danbury, CT, 20,000 square feet in Stone Mountain, Georgia and
21,000 square feet in Ridgefield, Connecticut. Reader's Digest
Young Families leases approximately 36,000 square feet of office
space in Westport, Connecticut.
The Company owns approximately 1,613,900 square feet and
leases approximately 756,000 square feet of space outside the
United States that is utilized by the Company's international
operating subsidiaries principally as headquarters,
administrative and editorial offices and warehouse space. The
foregoing properties owned by the Company include 263,000 square
feet of space in Swindon, United Kingdom, in a building owned by
the Company on land leased by the Company through 2076.
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.
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.
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 a claimed school and youth group magazine fund
raising market. The suit was certified as a class action on July
1, 1994. Extensive depositions and discovery have taken place
and are expected to conclude before the end of 1995. While the
final outcome of this lawsuit cannot be determined with
certainty, management believes that the final outcome will not
have a material adverse effect on the Company's results of
operations or financial position and 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, 1995.
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
the Company's 1995 Annual Report to Stockholders is incorporated
herein 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 the Company's 1995 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 1995 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 35 of the Company's 1995 Annual Report to
Stockholders, together with the report thereon of KPMG Peat
Marwick LLP appearing on page 37, 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 10, 1995 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 10, 1995 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 10, 1995 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 10, 1995 is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) (1) Financial Statements
See the Index to Consolidated Financial Statements on
page 20 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 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 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 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) filed as Exhibit 10.1 to the registrant's Form 10-K
for the year ended June 30, 1994, is incorporated herein by
reference.*
10.2 The Reader's Digest Association, Inc. 1989 Key Employee Long
Term Incentive Plan filed as Exhibit 10.2 to 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 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) filed as
Exhibit 10.4 to the registrant's Form 10-K for the year
ended June 30, 1994, is incorporated herein by reference.*
10.5 The Reader's Digest Association, Inc. Severance Plan for
Senior Management (Amendment and Restatement as of July 8,
1994) filed as Exhibit 10.5 to the registrant's Form 10-K
for the year ended June 30, 1994, is incorporated herein by
reference.*
10.6 The Reader's Digest Association, Inc. Income Continuation
Plan for Senior Management (amended and restated) filed 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) filed as Exhibit 10.7 to the registrant's Form 10-K
for the year ended June 30, 1994, is incorporated herein by
reference.*
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.*
*Denotes a management contract or compensatory plan.
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 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.*
10.14 Supplemental Retirement Benefit Agreement dated as of
August 25, 1988 between the registrant and Joseph M.
Grecky.*
10.15 Supplemental Retirement Benefit Agreement dated as of
June 8, 1994 between the registrant and Martin J. Pearson.*
10.16 Supplemental Retirement Benefit Agreement dated as of
August 23, 1988 between the registrant and Kenneth Y.
Tomlinson.*
10.17 The Reader's Digest 1992 Executive Retirement Plan
(Amendment and Restatement as of September 8, 1995).*
10.18 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.*
10.19 Resolution of the Board of Directors of the registrant
adopted January 10, 1986 relating to compensation for former
members of the Board of Directors.*
10.20 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.*
10.21 Agreement dated as of February 17, 1995 between the
registrant and an executive officer filed as Exhibit 10.17
to the registrant's Form 10-Q for the quarter ended March
31, 1995, is incorporated by reference.*
*Denotes a management contract or compensatory plan.
13 Financial Review appearing at pages 20 through 36 of the
registrant's 1995 Annual Report to Stockholders, together
with the report thereon of KPMG Peat Marwick LLP appearing
on page 37 (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, 1995.
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)
Chairman and Chief Executive Officer
Date: September 26, 1995
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
James P. Schadt Chairman and Chief September 26, 1995
(James P. Schadt) Executive Officer and
a Director
Kenneth A. Gordon President and Chief September 26, 1995
(Kenneth A. Gordon) Operating Officer and
a Director
Melvin R. Laird Vice President and September 26, 1995
(Melvin R. Laird) Senior Counsellor and
a Director
Stephen R. Wilson Executive Vice September 26, 1995
(Stephen R. Wilson) President and
Chief Financial
Officer
George S. Scimone Vice President and September 26, 1995
(George S. Scimone) Controller
William G. Bowen Director September 26, 1995
(William G. Bowen)
Lynne V. Cheney Director September 26, 1995
(Lynne V. Cheney)
M. Christine DeVita Director September 26, 1995
(M. Christine DeVita)
James E. Preston Director September 26, 1995
(James E. Preston)
Robert G. Schwartz Director September 26, 1995
(Robert G. Schwartz)
Walter V. Shipley Director September 26, 1995
(Walter V. Shipley)
C.J. Silas Director September 26, 1995
(C.J. Silas)
THE READER'S DIGEST ASSOCIATION, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Page
Report of KPMG Peat Marwick LLP, Independent Auditors *
Financial Statements:
Consolidated Statements of Income--For the Years Ended June
30, 1995, 1994 and 1993 *
Consolidated Balance Sheets--June 30, 1995 and 1994 *
Consolidated Statements of Cash Flows--For the Years Ended
June 30, 1995, 1994 and 1993 *
Consolidated Statements of Changes in Stockholders' Equity--
For the Years Ended June 30, 1995, 1994 and 1993 *
Notes to Consolidated Financial Statements *
____________
*Incorporated by reference to the Company's 1995 Annual
Report to Stockholders. See Item 8 of the Annual Report on Form
10-K.