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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, 1996 Commission file number: 1-10434
The Reader's Digest Association, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-1726769
(State or other jurisdiction of (I.R.S.
incorporation or organization) Employer
Identification No.)
Pleasantville, New York 10570
(Address of principal executive (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
Title of each class exchange
Class A Nonvoting Common Stock on which
par value $.01 per share registered
New York Stock
Exchange
Class B Voting Common Stock New York Stock
par value $.01 per share Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
______________
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The aggregate market value of registrant's voting stock held by
non-affiliates of registrant, at September 11, 1996, was
approximately $229,217,102, 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 11, 1996, 85,605,971 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, 1996. 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 8, 1996. 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 3
Condensed Books 3
Series Books 4
General Books 4
Music 5
Television and Video 5
Production and Fulfillment 5
Direct Marketing Operations and Sweepstakes 6
Management Information Systems and Customer List 7
Enhancement
Special Interest Magazines 8
QSP, Inc. 8
Competition and Trademarks 9
Employees 9
Executive Officers of the Company 10
ITEM 2. PROPERTIES 11
ITEM 3. LEGAL PROCEEDINGS 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 12
HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 12
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL 13
CONDITION AND RESULTS OF OPERATION
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 13
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL 13
DISCLOSURE
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE 13
REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION 13
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 14
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED 14
TRANSACTIONS
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 14
SIGNATURES 17
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS 18
"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. (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.
The Company 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 1996 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 operates the Company's
school and youth group fundraising business and focuses on
developing new products and entering new marketing channels. For
financial information by geographic area, see Note 15 to the
Company's consolidated financial statements appearing in the
Company's 1996 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 (registered mark),"
"Life In These United States (registered mark)," "Humor In
Uniform (registered mark)," "Campus Comedy (registered mark)" and
"All In A Day's Work (registered mark)," and other regular
features, including "Heroes For Today (registered mark)," "It
Pays To Enrich Your Word Power (registered mark)," "News From The
World Of Medicine (registered mark)" and "The Verbal Edge
(trademark)." DeWitt and Lila Wallace founded Reader's Digest
magazine in 1922. Today, Reader's Digest has a worldwide
circulation of approximately 27 million and approximately 100
million readers each month, generating revenues of $739.8 million
in fiscal 1996, as compared with $732.9 million in fiscal 1995
and $689.1 million in fiscal 1994. Reader's Digest is published
in 48 editions and 19 languages. The Company began publication of
a Thai edition in April 1996 and over the next few years plans to
launch several new editions of Reader's Digest, with principal
emphasis on Asia and Latin America.
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 English
language edition of Reader's Digest has the largest paid
circulation of any United States magazine, other than those
automatically distributed to all members of the American
Association of Retired Persons. Approximately 94% of the United
States paid circulation of Reader's Digest consists of
subscriptions. The balance consists of single copy sales at
newsstands and in supermarkets and similar establishments.
[END PAGE 1]
Reader's Digest is truly a global magazine. Many of its
international editions have the largest paid circulation for
general interest magazines both in the individual countries and
in the regions in which they are published. For most
international editions of Reader's Digest, subscriptions comprise
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 27.4 million
includes a circulation rate base of 15 million 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 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 $569.3
million, or 77% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1996.
Advertising
In fiscal 1996, Reader's Digest carried 1,098 advertising
pages in its United States--English language edition and 12,803
advertising pages in its other editions. 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, usually 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 $170.5
million, or 23% of the total revenues of Reader's Digest
magazine, in the fiscal year ended June 30, 1996.
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 mission of Reader's Digest is to
inform, enrich, entertain and inspire. The articles, book
section and features included in Reader's Digest cover a broad
range of contemporary issues and reflect an awareness of
traditional values.
A substantial portion of the selections in Reader's Digest
are original articles written by staff writers or free-lance
writers. The balance is selected from existing published
sources. All material is condensed by Reader's Digest editors.
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.
[END PAGE 2]
Production and Fulfillment
All editions of Reader's Digest are printed by independent
third parties. The United States edition, which was printed by
one printer at its location in New York State during fiscal 1996,
will be printed exclusively by another printer in Pennsylvania
under a 10-year contract, commencing in fiscal 1997. 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
"periodicals" 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 to 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 1996,
Condensed Books generated worldwide revenues of $370.4 million,
as compared with $392.1 million in fiscal 1995 and $363.9 million
in fiscal 1994.
[END PAGE 3]
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 1996, series books generated
worldwide revenues of $264.3 million, as compared with $236.6
million in fiscal 1995 and $214.9 million in fiscal 1994.
Reading series marketed in the United States include Today's
Best Nonfiction (registered mark), which consists of five volumes
per year each generally containing condensed versions of four
contemporary works of nonfiction and The 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 nine countries in three
languages and The World's Best Reading is published in seven
countries in three languages.
The Company markets illustrated series, which are generally
closed ended, in the United States and several other countries.
General Books
The Company's general books consist primarily of reference
books, cookbooks, "how-to" and "do-it-yourself" books, songbooks,
children's books and books on subjects such as history, travel,
religion, health, nature and the home. General books are
published in 14 languages and are marketed in 33 countries. In
fiscal 1996, general books generated worldwide revenues of $753.5
million, as compared with $808.7 million in fiscal 1995 and
$751.3 million in fiscal 1994.
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.
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 and content from other sources.
In July 1995, the Company and Meredith Corporation
("Meredith") entered into an agreement forming a strategic
alliance that grants the Company certain exclusive direct
[END PAGE 4]
marketing rights with respect to books and other products, such
as music cassettes and compact discs, CD-ROMs and videotapes,
published under Meredith's Better Homes and Gardens (registered
mark) and Ladies' Home Journal (registered mark) 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.
The Company is pursuing the use of electronic media and new
technologies, such as CD-ROM and computer on-line services.
Pursuant to an agreement with Microsoft Corporation to produce
original multimedia software for home computer users, a CD-ROM,
based on the Company's popular New Complete Do-it-Yourself
Manual, was completed in 1996 and is marketed by both companies
carrying both the Reader's Digest (registered mark) and the
Microsoft (registered mark) 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 and
newly commissioned material by a variety of artists, although
they may include selections from the Company's 17,000-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 28
countries, offering different music products in the various
international markets because of diverse tastes. In fiscal 1996,
music products generated worldwide revenues of $460.1 million, as
compared with $435.9 million in fiscal 1995 and $392.4 million in
fiscal 1994.
Television and Video
The Company's television and home video products are in
genres similar to its general books. Several original programs
have won awards of excellence, including four Emmy awards, and
have appeared on the Disney Channel and the Discovery Channel.
The Company continues to expand its video operations and to
develop its television business in the United States and in
international markets and is presently marketing video products
in the United States and 23 other countries. Most of the
Company's original programs have been licensed to cable
television networks. The Company has also begun to sell its home
video products through retail establishments. In fiscal 1996,
home video products generated worldwide revenues of $241.3
million, as compared with $218.7 million in fiscal 1995 and
$173.9 million in fiscal 1994.
In November 1995, the Company formed a five-year strategic
alliance with the Public Broadcasting Service ("PBS") to develop,
acquire, create and distribute television series, miniseries and
specials for initial broadcast on PBS. The programs will be
based on original editorial content from the Company, including
its existing product lines, as well as ideas and concepts
proposed by PBS, its affiliates and independent producers. PBS
has domestic television distribution and U.S. retail distribution
rights and the Company has worldwide direct marketing rights for
home videos, books and certain other home entertainment products
based on the television programs.
Production and Fulfillment
The various editions of Condensed Books are printed and
bound by third-party contractors. The Company is a party to an
[END PAGE 5]
exclusive agreement through 2002 for printing English language
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 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.
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, direct response television and telemarketing. Under a
September 1995 agreement, the Company and Avon Products, Inc.
("Avon") are testing door-to-door sales of Reader's Digest
magazine subscriptions and books to be offered by Avon
representatives in five countries outside of the United States.
Also, in August 1996, the Company entered into an agreement with
Spiegel Inc. to conduct a two-year test that will involve
development of jointly branded catalogs and the taking and
fulfillment by Spiegel Inc. of orders from a new Company catalog.
The Company is also working with software developers and
computer on-line services to adapt the editorial content and the
marketing methods of its magazines and books and home
entertainment products to new technologies. The Company plans to
launch a site on the World Wide Web in fiscal 1997.
To promote the sale of its products in the United States,
the Company usually offers a sweepstakes in its promotional
mailings. Prizes total about $14 million for the 1996 and 1997
[END PAGE 6]
editions of the sweepstakes. 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 Customer List Enhancement
The size and quality of the Company's computerized customer
list of current and prospective customers 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
corporate strategy and its marketing strategy to expand and
enhance its customer lists, the Company engages in limited
exchanges or transfers 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
in effect from time to time 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.
[END PAGE 7]
Special Interest Magazines
The Company publishes several special interest magazines
that it deems consistent with its image, editorial philosophy and
market expertise. The Family Handyman (registered mark) magazine
provides instructions and guidance for "do-it-yourself" home
improvement projects. New Choices: Living Even Better After 50
(registered mark) magazine is aimed at active, mature readers and
provides information on entertainment, travel, health and leisure
time activities. American Health (registered mark) magazine
provides helpful information on medicine, nutrition, psychology
and fitness and, beginning in fiscal 1997, focuses on these
issues as they relate to women. These magazines are sold by
subscription. The Family Handyman and American Health are also
sold on newsstands. 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 Company also published Travel Holiday (registered mark)
magazine in the United States until its sale in March 1996.
The following table sets forth the circulation rate base of
each of the Company's United States special interest magazines at
June 30, 1996, as well as the number of advertising pages carried
for the fiscal year ended June 30, 1996. Circulation rate base
data is as reported to ABC.
Number of
Circulation Advertising
Rate Base Pages
Carried
The Family Handyman 1,000,000 582
American Health 800,000 460
New Choices: Living Even Better After 50 600,000 400
Moneywise had a circulation rate base of 126,250 as of the end of
fiscal 1996.
Of total revenues of $91.9 million for the Company's special
interest magazines in fiscal 1996, 62% was generated by
circulation revenues and 38% 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.
QSP, Inc.
The Company's wholly owned subsidiaries, QSP, Inc. and
Quality Service Plan, Inc. ("QSP"), 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.
[END PAGE 8]
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, 1996 and 1995, respectively, the Company
employed approximately 6,300 and 6,900 persons worldwide;
approximately 2,200 and 2,600 were employed in the United States
and 4,100 and 4,300 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 (58) 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.
[END PAGE 9]
Melvin R. Laird (74) Mr. Laird has been a member of the
Board of Directors of the Company
since 1990. He has served as Senior
Counsellor for national and
international affairs since 1974 and
was elected to the additional
position of Vice President in 1989.
Mr. Laird joined the Company in
1974.
Robert J. Aubin (47) Mr. Aubin has been President,
Reader's Digest U.S.A. since
November 1995. He joined the
Company in September 1994 as
Managing Director of Reader's Digest
Canada. From May 1987 to August
1994, Mr. Aubin was Chief Executive
Officer of Delisle Foods, Ltd.
Glenda K. Burkhart (45) Ms. Burkhart has been Senior Vice
President, Strategic Planning and
Human Resources since joining the
Company in April 1996. Prior to
joining the Company, she was
Corporate Vice President-Human
Resources, Strategic Planning and
Corporate Marketing for Millipore
Corp. (purification systems for
pharmaceutical and semiconductor
markets), from November 1993 to
April 1996 and Partner/Consultant of
Mass-Burkhart (strategy and change
management consulting) from August
1991 to October 1993.
Richard A. Garvey (48) Mr. Garvey has been a Vice President
and Group President of the Company
since September 1996. He was
previously Vice President, Marketing
of LEGO Systems, Inc. (children's
educational and entertainment
products).
Betty J. Hudson (47) Ms. Hudson has been Senior Vice
President, Corporate Communications
since joining the Company in May
1996. Prior to joining the Company,
Ms. Hudson served as Executive
Producer of NBC Productions from May
1993 to May 1996, and Senior Vice
President, Corporate Communications
of NBC, Inc., from January 1989 to
April 1993.
Barbara J. Morgan (51) 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.
Martin J. Pearson (49) Mr. Pearson, who joined the Company
in August 1973, has been President,
Reader's Digest Europe since
November 1995. He served as
President, Reader's Digest Pacific
from July 1993 to November 1995 and
has been a 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.
[END PAGE 10]
Paul A. Soden (52) 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 of
Sterling Winthrop, Inc.
(pharmaceutical and consumer
products).
Christopher P. Willcox (49) Mr. Willcox has been Senior Vice
President and Editor in Chief of
Reader's Digest magazine since March
1996. He served as World-wide
Executive Editor from June 1994 to
March 1996, Executive Editor,
International from October 1991 to
June 1994 and Assistant Managing
Editor from 1990 to 1991. He joined
the Company in 1988.
William H. Willis (45) Mr. Willis has been President,
Reader's Digest Pacific since
November 1995. He was President,
Special Markets Group from January
1994 to November 1995. He has been
a Vice President of the Company
since he joined the Company in 1994.
Prior to joining the Company, Mr.
Willis was Executive Vice President
of Ogden Services Corporation
(facility management services).
Stephen R. Wilson (49) 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.
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 three 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. A subsidiary of the Company also leases 36,000 square
feet of office space in Westport, Connecticut.
QSP leases approximately 163,000 square feet in Conyers,
Georgia, 4,000 square feet in Danbury, Connecticut, 21,000 square
feet in Ridgefield, Connecticut.
[END PAGE 11]
The Company owns approximately 1,612,700 square feet and
leases approximately 691,100 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, England, 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 various
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.
During the third quarter of fiscal 1996, the Company's QSP,
Inc. subsidiary and the Company reached an agreement with the
plaintiffs to settle an antitrust class action lawsuit commenced
in December 1993 by the Roman Catholic Bishop of San Diego and
the Chino Unified School District. The agreement, which is
subject to final approval by the U.S. District Court for the
Southern District of California, provides for QSP, Inc. and the
Company to deliver up to $40 million in retail value of Company
products, coupons for discounts on QSP, Inc. programs, and cash.
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, 1996.
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 1996 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 1996 Annual Report to
Stockholders is incorporated herein by reference.
[END PAGE 12]
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 1996 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 19 through 28 of the Company's 1996 Annual Report to
Stockholders, together with the report thereon of KPMG Peat
Marwick LLP appearing on page 29, 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 "Proposal 1: Election of Directors" in the Proxy
Statement for the Annual Meeting of Stockholders of the Company
to be held on November 8, 1996 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 8, 1996 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 8, 1996 is
incorporated herein by reference.
[END PAGE 13]
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 8, 1996 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 18 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.*
[END PAGE 14]
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 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.*
10.9 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.*
10.10 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.*
10.11 Supplemental Retirement Benefit Agreement dated as of
June 8, 1994 between the registrant and Martin J. Pearson
filed as Exhibit 10.15 to the registrant's Form 10-K for the
year ended June 30, 1995 is incorporated herein by
reference.*
10.12 The Reader's Digest 1992 Executive Retirement Plan
(Amendment and Restatement as of September 8, 1995) filed as
Exhibit 10.17 to the registrant's Form 10-K for the year
ended June 30, 1995 is incorporated herein by reference.*
10.13 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.*
10.14 Resolution of the Board of Directors of the registrant
adopted January 10, 1986 relating to compensation for former
members of the Board of Directors filed as Exhibit 10.19 to
the registrant's Form 10-K for the year ended June 30, 1995
is incorporated herein by reference.*
10.15 Agreement dated as of August 22,1996 between the registrant
and Thomas M. Kenney.*
10.16 Agreement dated as of June 10, 1996 between the registrant
and Kenneth A. Gordon.*
10.17 The Reader's Digest Association, Inc. Executive Financial
Counseling Plan.*
10.18 Amendment No. 1 to The Reader's Digest Association, Inc.
Management Incentive Compensation Plan (effective as of
April 11, 1996) filed as Exhibit 10.1.1 to the registrant's
Form 10-Q for the quarter ended March 31, 1996, is incorporated
herein by reference.*
[END PAGE 15]
10.19 Amendment No. 1 to The Reader's Digest Association, Inc.
1994 Key Employee Long Term Incentive Plan
(effective as of April 11, 1996) filed as Exhibit 10.3.1
to the registrant's Form 10-Q for the quarter ended March 31,
1996, is incorporated herein by reference.*
10.20 Termination Agreement dated as of April 1, 1996 between
the registrant and James P. Schadt, filed as Exhibit 10.23
to the registrant's Form 10-Q for the quarter ended
March 31, 1996, is incorporated herein by reference.*
10.21 Termination Agreement dated as of April 1, 1996
between the registrant and Paul A. Soden,
filed as Exhibit 10.25 to the registrant's Form 10-Q for the
quarter ended March 31, 1996, is incorporated herein by
reference.*
10.22 Termination Agreement dated as of April 1, 1996 between
the registrant and Stephen R. Wilson, filed as Exhibit 10.26
to the registrant's Form 10-Q for the quarter ended
March 31, 1996, is incorporated herein by reference.
13 Financial information appearing at pages 14 through 30 of
the registrant's 1996 Annual Report to Stockholders,
together with the report thereon of KPMG Peat Marwick LLP
appearing on page 29 (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, 1996.
*Denotes a management contract or compensatory plan.
[END PAGE 16]
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, 1996
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, 1996
(James P. Schadt) Executive Officer and
a Director
MELVIN R. LAIRD Vice President and September 26, 1996
(Melvin R. Laird) Senior Counsellor and
a Director
STEPHEN R. WILSON Executive Vice President September 26, 1996
(Stephen R. Wilson) and Chief Financial
Officer
GEORGE S. SCIMONE Vice President and September 26, 1996
(George S. Scimone) Controller
WILLIAM G. BOWEN Director September 26, 1996
(William G. Bowen)
LYNNE V. CHENEY Director September 26, 1996
(Lynne V. Cheney)
M. CHRISTINE DEVITA Director September 26, 1996
(M. Christine DeVita)
JAMES E. PRESTON Director September 26, 1996
(James E. Preston)
ROBERT G. SCHWARTZ Director September 26, 1996
(Robert G. Schwartz)
WALTER V. SHIPLEY Director September 26, 1996
(Walter V. Shipley)
C.J. SILAS Director September 26, 1996
(C.J. Silas)
WILLIAM J. WHITE Director September 26, 1996
(William J. White)
[END PAGE 17]
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,
1996, 1995 and 1994 *
Consolidated Balance Sheets--June 30, 1996 and 1995 *
Consolidated Statements of Cash Flows--For the Years Ended June 30, *
1996, 1995 and 1994
Consolidated Statements of Changes in Stockholders' Equity--For the *
Years Ended June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements *
____________
*Incorporated by reference to the Company's 1996 Annual
Report to Stockholders. See Item 8 of the Annual Report on Form
10-K.
[END PAGE 18]