FOR IMMEDIATE RELEASE
The Reader's Digest Association, Inc.
Media: William Adler, (914) 244-7585, william.adler@rd.com
Investor Relations: Richard Clark, (914) 244-5425, richard.clark@rd.com
Reader's Digest Association Finalizes Accounting
for Magazine Promotion Costs
PLEASANTVILLE, N.Y., September 9, 2004 - The Reader's Digest Association,
Inc. (NYSE: RDA) today announced it has finalized the treatment of its
accounting for magazine promotion costs. As announced in its Fiscal 2004
earnings release on July 29, 2004, because of changes and new initiatives in
the business the company will begin expensing magazine direct-response
promotion costs as incurred, effective July 1, 2004; previously it had
deferred and amortized certain magazine promotion costs. The company
undertook a pre-clearance process with the Securities and Exchange Commission
as it relates to the treatment of the existing deferred balance. The company
has determined that, in connection with these changes, it will record a
one-time, non-cash charge of $(27) million, or $(0.17) per share, as of June
30, 2004, and amortize the remaining balance of $77 million during Fiscal
2005 to account for its existing promotion asset of $104 million.
After reflecting the $(27) million charge, the company reported
full-year Fiscal 2004 earnings of $0.49 per share. Since the charge and the
future amortization of the remaining deferred magazine promotion asset are
non-cash, this does not affect the company's cash flows. Details of the
company's results reflecting this charge and change to expensing magazine
promotion costs as incurred will be included in its Fiscal 2004 Form 10-K
filing.
In Fiscal 2005, the effect of these changes will result in: (1)
expense timing differences between quarters with no change in full-year
projected expense, and (2) non-cash charges of $77 million to amortize the
remaining balance. In its July 29 conference call, the company gave EPS
guidance in the range of $0.77 to $0.87, excluding any restructuring charges,
one-time items and the resolution of the treatment of its existing deferred
balance. The table below outlines, quarter by quarter, the anticipated
earnings per share impact on timing and amortization of the remaining
balance. A detailed explanation will be included in the company's quarterly
filings.
(Loss) Earnings per Diluted Share Qtr 1 Qtr 2 Qtr 3 Qtr 4 Full Year
Effect of expensing versus $(0.05) $(0.06) $ 0.05 $ 0.06 $ --
capitalizing magazine promotion
costs (timing)
Amortization of remaining $(0.16) $(0.17) $(0.08) $(0.08) $(0.49)
deferred magazine promotion asset
The Reader's Digest Association, Inc. (RDA) is a global publisher and
direct marketer of products that inform, enrich, entertain and inspire people
of all ages and cultures around the world. Its total revenues for the fiscal
year ended June 30, 2004 were $2.4 billion. Global headquarters are located
at Pleasantville, New York. The company's main Web site is www.rd.com.
This release may include "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements inherently involve risks and uncertainties that
could cause actual future results and occurrences to differ materially from
the forward-looking statements. The Reader's Digest Association, Inc.'s
filings with the Securities and Exchange Commission, including its reports on
Forms 10-K, 10-Q and 8-K, contain a discussion of additional factors that
could affect future results and occurrences. RDA does not undertake to
update any forward-looking statements.
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