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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, 1997
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
Identificati
on 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
par value $.01 per share New York Stock Exchange
Stock 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 August 29, 1997,
was approximately $164,280,722 based on the closing
price of registrant's Class B Voting Stock on the New York
Stock Exchange-Composite Transactions on such date.
As of August 29, 1997, 84,605,586 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, 1997. 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 December 12, 1997. 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
Books and Home Entertainment Products 3
Condensed Books 3
Series Books 3
General Books 4
Music 4
Television and Video 4
Production and Fulfillment 5
Direct Marketing Operations 5
Management Information Systems and Customer List 7
Enhancement
Special Interest Magazines 7
QSP, Inc. 8
Competition and Trademarks 8
Employees 8
Executive Officers of the Company 9
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 11
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY 11
HOLDERS
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 11
ITEM 6. SELECTED FINANCIAL DATA 11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 12
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 12
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE 12
REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION 12
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS on Form 8-K 13
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.
For fiscal 1997, 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 16 to the Company's
consolidated financial statements appearing in the Company's
1997 Annual Report to Stockholders, which Note is
incorporated herein by reference.
In fiscal 1997, the Company's businesses were 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 operated the Company's school and youth group
fundraising business and focused on developing new products
and entering new marketing channels. For financial
information by geographic area, see Note 16 to the Company's
consolidated financial statements appearing in the
Company's 1997 Annual Report to Stockholders, which Note
is incorporated herein by reference.
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," "Life In These United States," "Humor In
Uniform," and "All In A Day's Work," and other
regular features, including "Heroes For Today," "It
Pays To Enrich Your Word Power," "News From The World Of
Medicine," "Tales Out of School," "Virtual Hilarity," and
"The Verbal Edge." DeWitt and Lila Wallace founded Reader's
Digest magazine in 1922. Today, Reader's Digest has a
worldwide circulation of almost 28 million and approximately
100 million readers each month, generating revenues of
$729.2 million in fiscal 1997, as compared with $739.8
million in fiscal 1996 and $732.9 million in fiscal 1995.
Reader's Digest is published in 48 editions and 19 languages,
including a Slovak language edition that began publication in
July 1997. In addition, a Korean edition, an Indian
edition, a braille edition and a recorded edition are
published by third parties pursuant to licenses.
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 95% 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.
Reader's Digest is truly a global magazine. Many of its
international editions have the largest paid circulation
for monthly magazines both in the individual countries and
in the regions in which they are published. For most
international editions of Reader's Digest, subscriptions
comprise 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
27.7 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 useof sweepstakes entries.
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
$558.9 million, or 77% of the total revenues of
Reader's Digest magazine, in the fiscal year ended June 30,
1997.
Advertising
In fiscal 1997, Reader's Digest carried 13,484
advertising pages: 1,075 advertising pages in its United
States--English language edition and 12,409 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
$170.3 million, or 23% of the total revenues of
Reader's Digest magazine, in the fiscal year ended June 30,
1997.
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 factcheck 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
printed exclusively by one printer in Pennsylvania under a
10-year contract that commenced 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."
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.
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."
Condensed Books
Reader's Digest Condensed Books is a continuing series
of condensed versions of current popular fiction.
Condensation reduces the length of an existing text, while
retaining the author's style, integrity and purpose. Today,
16 editions of Condensed Books, published in 13 languages,
are marketed in 24 countries. In fiscal 1997, Condensed
Books generated worldwide revenues of $305.0 million, as
compared with $370.4 million in fiscal 1996 and $392.1
million in fiscal 1995.
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.
Series Books
The Company markets two types of series books:
reading series and illustrated series. These book series may
be openended 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 1997, series books
generated worldwide revenues of $209.5 million, as compared
with $264.3 million in fiscal 1996 and $236.6 million in
fiscal 1995.
Reading series marketed in the United States include
Today's Best Nonfictionr, 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 10 countries in
three languages and The World's Best Reading is published in
eight 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, children's books and books on subjects such as
history, travel, religion, health, nature and the home.
General books are published in 16 languages and are
marketed in 37 countries. In fiscal 1997, general books
generated worldwide revenues of $675.9 million, as compared
with $753.5 million in fiscal 1996 and $808.7 million in fiscal
1995.
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 its books for
retail sale in stores, through third-party distributors.
The Company has entered into strategic alliances with
third parties, such as Meredith Corporation and Dove
Audio, Inc., giving the Company direct marketing rights with
respect to books and other products created by those parties
or jointly with those parties or bearing their brands.
Music
The Company publishes recorded music packages on
cassettes and compact discs, which it sells principally by
direct mail. 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 17,000selection 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 32 countries,
offering different music products in the various international
markets because of diverse tastes.
In fiscal 1997, music products generated worldwide
revenues of $404.2 million, as compared with $460.1 million
in fiscal 1996 and $435.9 million in fiscal 1995.
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 five 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 principally by direct mail in the United States and
30 other countries. Most of the Company's original programs
have been licensed to cable television networks. The
Company also sells its home video products through
retail establishments. In fiscal 1997, home video products
generated worldwide revenues of $243.5 million, as compared
with $241.3 million in fiscal 1996 and $218.7 million in
fiscal 1995.
In November 1995, the Company formed a strategic
alliance with the Public Broadcasting Service ("PBS") to
develop, acquire, create and distribute television series,
miniseries and specials for initial broadcast on PBS. 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 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."
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. 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
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 direct
response television, telemarketing and the Internet, as well
as expanded direct marketing channels, such as catalogs and
clubs. 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 two 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 new Company catalogs.
The Company is adapting the editorial content and
the marketing methods of its magazines and books and
home entertainment products to new technologies, such as
computer online services. In 1997, the Company launched
Reader's Digest World, a World Wide Web site for shopping and
information about the Company's products.
To promote the sale of its products in the United
States, the Company usually offers a sweepstakes in its
promotional mailings. Prizes totaled about $15 million for the
1997 edition 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 and most international markets, delivery service
is generally satisfactory. Some international
jurisdictions, however, experience periodic work stoppages in
postal delivery service or less than adequate postal
efficiency, 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 over 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.
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.
Special Interest Magazines
The Company publishes several special interest
magazines that it deems consistent with its image, editorial
philosophy and market expertise. The Family Handymanr
magazine provides instructions and guidance for "do-it-
yourself" home improvement projects. New Choices: Living Even
Better After 50r magazine is aimed at active, mature
readers and provides information on entertainment, travel,
health and leisure time activities. American Health for
WomenTM magazine provides helpful information on medicine,
nutrition, psychology and fitness as those issues relate to
women. In 1997, the Company acquired Walkingr magazine,
which provides information on health and fitness for walking
enthusiasts. These magazines are sold by subscription and on
the newsstand. Like most magazines, the Company's special
interest magazines are highly dependent on advertising
revenue. Each of these magazines publishes 10 issues per
year, except Walking, which publishes six times 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, 1997, as well as the number of
advertising pages carried for the fiscal year ended June 30,
1997. Circulation rate base data is as reported to ABC.
Number of
Circulation Advertising
Rate Base Pages Carried
The Family Handyman 1,000,000 580
American Health for Women 900,000 461
New Choices: Living Even Better 600,000 486
After 50
Walking 625,000 327
Moneywise had a circulation rate base of 107,800 as of
the end of fiscal 1997 and carried 515 pages of advertising.
Of total revenues of $81.9 million for the Company's
special interest magazines in fiscal 1997, 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.
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.
Competition and Trademarks
Although Reader's Digest magazine is a unique and
wellestablished 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, 1997, the Company employed
approximately 5,900 persons worldwide; approximately 2,200 were
employed in the United States and 3,700 were employed
by the Company's international subsidiaries. The Company's
relationship with its employees is generally satisfactory.
Executive Officers of the Company
The following paragraphs set forth the name, age and
offices with the Company of each present executive
officer of the Company, the period during which each
executive officer has served as such and each executive
officer's business experience during the past five years:
Name and Age Positions and Offices With the Company
George V. Grune (68) Mr. Grune returned to the Company to
serve as Chairman of the Board
and ChiefExecutive Officer on
August 10, 1997, after having
previously served as Chairman of
the Board of the Company until
his retirement in August 1995
and as Chief Executive Officer
until August 1994. Mr.Grune first
joined the Company in 1960.
Melvin R. Laird (75) 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.
M. John Bohane (61) Mr. Bohane has been Senior Vice
President of the Company and
President, International
Operations since September 8,
1997. He first joined the Company
in 1964 and served in a number of
executive capacities, including
President, Direct Marketing Group,
until leaving the Company in July
1991. Prior to rejoining the
Company, Mr. Bohane served as
President and Chief Executive
Officer of Newfield Publications
from April 1994 to July 1995 and
as Vice President of Corporate
Database Marketing of Time-Warner,
Inc., from April 1992 to December
1993.
Peter J.C. Davenport (57) Mr. Davenport has been Senior
Vice President, Global Marketing of
the Company since September 8,
1997. He served as Senior
Vice President, Global Direct
Marketing from January 1994
until his retirement in March
1997 and as Vice President,
Global Direct Marketing from
September 1991 to January 1994.
Mr.Davenport first joined the
Company in 1958.
Richard A. Garvey (49) Mr. Garvey has been Senior Vice
President,Corporate Planning and
New Business Development since
September 8, 1997 and was a Vice
President and Group President,
Global Marketing and New Channels
of the Company from the time he
joined the Company in September
1996. He was previously Vice
President, Marketing of LEGO
Systems, Inc. (children's
educational and entertainment
products).
Marcia M. Lefkowitz (53) Ms. Lefkowitz has been a
Senior Vice President and
President of Reader's Digest U.S.A.
since September 8, 1997.Prior
thereto, Ms. Lefkowitz served as
the Company's Senior Consultant
for Marketing and Marketing
Systems Projects from
November 1995, as Vice
President, Marketing, Reader's
Digest U.S.A. from July 1993,
Vice President, MarketingSystems
from February 1993 and Vice
President, Global New Business
Development prior thereto. Ms.
Lefkowitz joined the Company in
1967.
Barbara J. Morgan (52) 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.
George S. Scimone (50) Mr. Scimone has been Vice President
and Chief Financial Officer of
the Company since September 8,
1997. Prior thereto, he was a
Vice President and President,
Reader's Digest U.S.A. from
November 1996 and Vice
President and Corporate Controller
from September 1995. Prior to
joining the Company, Mr.Scimone
was Business Chief Financial
Officer, Electrical Distribution
and Control of General Electric
Company.
Christopher P. Willcox (50) Mr.Willcox has beenSenior 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 June1994
and Assistant Managing Editor
from 1990 to 1991. He joined the
Company in 1988.
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 totaling approximately 52,000 square feet 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,
and 21,000 square feet in Ridgefield, Connecticut.
The Company owns approximately 1,613,200 square feet
and leases approximately 531,000 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 207,000 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.
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, 1997.
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 1997 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
1997 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 1997
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 18 through 29 of the Company's 1997 Annual Report
to Stockholders, together with the report thereon of KPMG
Peat Marwick LLP appearing on page 30, 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 December 12, 1997 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 December 12,
1997 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
December 12, 1997 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
December 12, 1997 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 17 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.*
*Denotes a management contract or compensatory plan.
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 October 10, 1996).*
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, filed as Exhibit 10.15 to
the registrant's Form 10-K for the year ended June 30,
1996, is incorporated herein by reference.*
10.16 Agreement dated as of June 10, 1996 between the
registrant and Kenneth A. Gordon, filed as Exhibit 10.16
to the registrant's Form 10-K for the year ended June 30,
1996, is incorporated herein by reference.*
10.17 The Reader's Digest Association, Inc. Executive
Financial Counseling Plan, filed as Exhibit 10.17
to the registrant's Form 10-K for the year ended June
30, 1996, is incorporated herein by reference.*
*Denotes a management contract or compensatory 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.*
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.*
10.23 Termination Agreement dated as of April 1, 1996 between
the registrant and Martin J. Pearson, filed as Exhibit
10.24 to the registrant's Form 10-Q for the quarter ended
December 31, 1996, is incorporated herein by reference.*
10.24 Agreement dated June 18, 1997 between the registrant and
James P. Schadt.*
10.25 Agreement dated as of August 1, 1997 between the
registrant and Martin J. Pearson.*
10.26 Agreement dated August 10, 1997 between the registrant
and James P. Schadt.*
10.27 US$400,000 Competitive Advance and Revolving Credit
Facility Agreement dated as of November 12, 1996 between
the registrant, the Borrowing Subsidiaries, The Chase
Manhattan Bank and J.P. Morgan Securities Inc., filed as
Exhibit 10.23 to the registrant's Form 10-Q for the
quarter ended December 31, 1996, is incorporated herein by
reference.
13 Financial information appearing at pages 12 through 31
of the registrant's 1997 Annual Report to
Stockholders, together with the report thereon of KPMG
Peat Marwick LLP appearing on page 30 (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.
*Denotes a management contract or compensatory plan.
(b) Reports on Form 8-K
During the three months ended June 30, 1997, the
Company filed the following report on Form 8-K:
Form 8-K dated April 23, 1997 containing a copy of
the Company's quarterly earnings news release for the
third fiscal quarter and a copy of the Company's news
release announcing its $400 million investment program
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: George V. Grune
(George V. Grune)
Chairman and Chief Executive Officer
Date: September 25, 1997
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
George V. Grune Chairman and Chief September 25, 1997
(George V. Grune) Executive Officer
and Director
Melvin R. Laird Vice President and September 25, 1997
(Melvin R. Laird) Senior Counsellor
and Director
George S. Scimone Vice President and September 25, 1997
(George S. Scimone) Chief Financial
Officer
John S. Gross Vice President and September 25, 1997
(John S. Gross) Controller
(Chief Accounting
Officer)
Lynne V. Cheney Director September 25, 1997
(Lynne V. Cheney)
M. Christine DeVita Director September 25, 1997
(M.Christine DeVita)
James E. Preston Director September 25, 1997
(James E. Preston)
Robert G. Schwartz Director September 25,1 997
(Robert G. Schwartz)
Walter V. Shipley Director September 25, 1997
(Walter V. Shipley)
C.J. Silas Director September 25, 1997
(C.J. Silas)
William J. White Director September 25, 1997
(William J. White)
THE READER'S DIGEST ASSOCIATION, INC.
INDEX TO CONSOLIDATED
FINANCIAL STATEMENTS
Report of KPMG Peat Marwick LLP, Independent Auditors*
Financial Statements:
Consolidated Statements of Income--For the Years Ended June
30, 1997, 1996 and 1995 *
Consolidated Balance Sheets--June 30, 1997 and 1996 *
Consolidated Statements of Cash Flows--For the Years Ended
June 30, 1997,1996 and 1995 *
Consolidated Statements of Changes in Stockholders' Equity--
For the Years Ended June 30, 1997, 1996 and 1995 *
Notes to Consolidated Financial Statements *
____________
*Incorporated by reference to the Company's 1997
Annual Report to Stockholders. See Item 8 of the Annual Report
on Form 10-K.