EXHIBIT 99.1
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 Reports Improved 4Q Revenues, Profits,
Earnings and Free Cash Flow; Operating Profits at RD North America
and RD International Grow by Double Digits
PLEASANTVILLE, N.Y., August 4, 2005 - The Reader's Digest
Association, Inc. (NYSE: RDA) today reported fourth quarter and
full-year results for its fiscal year ended June 30, 2005.
Highlights for the Fiscal 2005 fourth quarter:
- Revenues improve to $557 million, up 4 percent over last
year.
- Reported operating profits improve to $26 million from a
loss of $(13) million last year.
- Reported EPS improves to $0.11 per share from a loss of
$(0.06) per share last year.
- Free cash flow improves to $23 million, up 53 percent over
last year's quarter.
Summary of Consolidated Results
In millions, except per share data 4Q 2005 4Q 2004 FY 2005 FY 2004
Revenues $ 557 $ 536 $ 2,390 $ 2,388
Operating expenses (518) (517) (2,231) (2,240)
Deferred promotion amortization (12) -- (77) --
Deferred promotion charge -- (27) -- (27)
Goodwill charge -- -- (129) --
Other operating items, net -- (6) -- (15)
------- ------- ------- -------
Operating profit (loss) 26 (13) (48) 106
Other income and (expense), net (13) (5) (32) (40)
Income tax (provision) benefit (2) 12 (12) (17)
------- ------- ------- -------
Net income (loss) $ 11 $ (6) $ (91) $ 49
======= ======= ======= =======
Diluted earnings (loss) per share $0.11 $(0.06) $(0.95) $0.49
======= ======= ======= =======
Certain amounts may not recalculate due to rounding.
"I am pleased to report that fourth quarter Fiscal 2005
operating results were much stronger than the year-ago period,"
said Thomas O. Ryder, Chairman and Chief Executive Officer. "For
the fourth quarter, total company revenues increased over last
year and operating profits improved significantly, led by
double-digit percentage gains at both RD North America and RD
International. Results at Consumer Business Services were down
versus last year, although we saw improvement, notably at QSP,
which reported higher revenue and reduced losses. For the full
fiscal year, the underlying metrics of the business exceeded our
expectations. Operating profit margins improved at RD North
America and RD International, driving double-digit operating
profit growth at both segments and offsetting declines at CBS.
These results include incremental investment in new initiatives
including new magazine launches and expansion into new
countries. During the course of the year, the company generated
strong free cash flow of $144 million plus an additional $42
million from the sale-leaseback of its corporate headquarters.
Total debt outstanding was reduced to $559 million. This enabled
the company to refinance existing debt at lower rates, double the
quarterly dividend and initiate a $100 million share repurchase
program over two years."
Earnings Per Share Analysis
4Q 2005 4Q 2004 FY 2005 FY 2004
Reported EPS $0.11 $(0.06) $(0.95) $0.49
Includes:
Deferred promotion amortization (0.08) -- (0.50) --
Write-off deferred debt financing fees (0.05) (0.01) (0.05) (0.05)
Restructuring charges -- (0.04) -- (0.10)
Deferred promotion charge -- (0.18) -- (0.18)
Goodwill charge -- -- (1.32) --
In the Fiscal 2005 fourth quarter, RDA reported EPS of
$0.11, an improvement of $0.17 per share from a loss of $(0.06)
per share in the year-ago period. The reported Fiscal 2005
fourth quarter EPS of $0.11 included $(0.08) per share for the
amortization of previously deferred magazine promotion expense
and $(0.05) per share related to the write-off of deferred debt
financing fees. The reported Fiscal 2004 fourth quarter loss of
$(0.06) per share included $(0.18) per share from a deferred
promotion charge, and restructuring charges of $(0.04) per share.
Fourth quarter Fiscal 2005 revenues were $557 million, up 4
percent from $536 million in the prior-year period. Excluding
the favorable effects of foreign currency translation, revenues
increased by 1 percent. Reported operating profits were $26
million in the quarter, up approximately $40 million from a
reported operating loss of $(13) million in the Fiscal 2004
quarter. Factors contributing to the year-over-year variance in
reported results for the fourth quarter include:
- An $11 million improvement in profits at RD North America,
which grew by 67 percent over prior year. This increase in
profits would have been approximately 24 percent had
magazine promotion expense in Fiscal 2004 been accounted for
in the same manner as Fiscal 2005.
- A $6 million improvement in profits at RD International,
which grew by 30 percent over the prior year period. This
increase in profits would have been approximately 13 percent
had magazine promotion expense in Fiscal 2004 been accounted
for in the same manner as Fiscal 2005.
- A $(2) million increase in losses at Consumer Business
Services.
- Lower Corporate unallocated expenses, which decreased by $4
million.
- A $15 million favorable comparison of deferred magazine
promotion items: $(12) million amortization of previously
deferred promotion costs in fiscal 2005 versus a $(27)
million charge in the prior-year period.
- A $6 million improvement reflecting the absence of
restructuring charges in Fiscal 2005.
- $(9) million of increased expenses in Other Income and
(Expense), Net, reflecting the accelerated write-off of
deferred financing fees of $(7) million, lower
current-period interest expense, and a $6 million prior-year
gain on the sale of real estate in Hong Kong.
For full-year Fiscal 2005, EPS came in ahead of prior
third-quarter guidance, with a loss of $(0.95) per share.
(Please see "Guidance Reconciliation" table in back.) Results
included $(1.82) per share in special items: $(0.50) per share
related to the write-off of previously deferred magazine
promotion expense; and $(1.32) per share reported in the third
quarter to reduce Books Are Fun goodwill. In Fiscal 2004, RDA
reported earnings of $0.49 per share. Fiscal 2004 earnings
included $(0.18) per share related to a deferred magazine
promotion charge; and $(0.10) per share in restructuring
charges. Both Fiscal 2005 and Fiscal 2004 included a write-off
of deferred debt financing fees and a tax benefit of similar
amounts.
Fiscal 2005 revenues were $2.4 billion, which was flat with
the prior-year period. Excluding the favorable effects of
foreign currency translation, revenues declined by 3 percent.
RDA reported operating losses of $(48) million, versus operating
profits of $106 million in Fiscal 2004. Reported operating
profits included charges of $(206) million in Fiscal 2005 and
$(42) million in Fiscal 2004.
Factors contributing to the Fiscal 2005 variance in reported
results include:
- A $15 million improvement in profits at RD North America,
which grew by 19 percent.
- A $19 million improvement in profits at RD International,
which grew by 34 percent.
- A $(30) million decline in profits at Consumer Business
Services, down 50 percent.
- Lower Corporate unallocated expenses, which decreased by $6
million.
- Higher Other operating expenses, which increased by $(164)
million. In Fiscal 2005, results included a goodwill charge
at Books Are Fun ($129 million) and amortization related to
deferred promotion expense ($77 million). Fiscal 2004
results included a charge for the deferred promotion change
($27 million) and restructuring ($15 million).
- Improved Other Income and (Expense), Net, which decreased by
$8 million.
Fourth quarter Fiscal 2005 free cash flow (change in cash
before the change in total borrowings, dividends, share
repurchases, divestitures and acquisitions) was $23 million
versus $15 million in the year-ago period. For the full year,
free cash flow was $144 million, down from $172 million in Fiscal
2004. The company reduced its total debt outstanding to $559
million, down from $722 million at the close of Fiscal 2004. At
Fiscal 2005 year-end, cash on hand was $38 million, versus $50
million at the end of Fiscal 2004. The company doubled the
quarterly dividend beginning with the fiscal third quarter,
resulting in an incremental payout of $10 million in Fiscal 2005
relative to Fiscal 2004. The company also began to repurchase
shares in the fiscal fourth quarter.
Other Income/(Expense), Net
Other Income and (Expense), Net was $(13) million in the
Fiscal 2005 fourth quarter, compared with $(5) million in the
prior-year quarter. These amounts primarily consist of net
interest expense of $(15) million in this quarter versus $(11)
million in the year-ago period. Net interest expense in the
Fiscal 2005 quarter includes $(7) million from the write-off of
deferred debt financing fees in connection with RDA refinancing a
new five-year revolving credit facility, partially offset by $1
million in interest from a foreign tax refund. For the Fiscal
2004 quarter, Other Income and (Expense), Net included $(1)
million in costs associated with the repricing amendment to RDA's
term loans as well as a $6 million gain on the sale of real
estate in Hong Kong.
For the full year, Other Income and (Expense), Net was $(32)
million in Fiscal 2005 versus $(40) million the prior year.
These amounts include net interest expense of $(46) million in
Fiscal 2005 versus $(50) million in Fiscal 2004. For both Fiscal
2005 and Fiscal 2004, interest expense reflects $(7) million in
non-cash expenses related to refinancing activities. The
remaining variance is attributable to incremental proceeds from
asset sales in Fiscal 2005 versus Fiscal 2004.
Income Taxes
Income tax expense for the fourth quarter and the full year
Fiscal 2005 were $(2) million and $(12) million, respectively.
This compares to an income tax benefit of $13 million for the
fourth quarter Fiscal 2004 and a tax expense of $(17) million for
the full year Fiscal 2004. Both fiscal years recognized
favorable benefits from the resolution of certain federal, state
and foreign audits.
Share Repurchase Program
During the quarter, the company repurchased 410,000 shares
of its stock at a total cost of $7 million under the $100 million
share repurchase authorization announced in April 2005.
Outlook
The fourth quarter of Fiscal 2005 marked the close of a
two-year plan that was announced at the end of Fiscal 2003. The
goal of the plan was to achieve sustainable revenue and profit
growth by the end of Fiscal 2005 by stabilizing the core business
(RDNA and RDI), improving operating margins, and investing in new
business initiatives to drive long-term revenue and profit
growth. The first year of the plan focused on eliminating
unprofitable or marginally profitable parts of the business,
improving efficiency to drive higher operating margins, reducing
fixed costs, beginning to invest in a series of new growth
initiatives and lowering debt.
In Fiscal 2005, the company built on the successes of year
one of the plan by achieving its goal of stopping the significant
decline in revenues at RDNA and RDI, which helped drive
double-digit profit growth at RDNA, and surpass the goal of
mid-single-digit profit growth at RDI. "We are pleased with the
successes of our two-year plan, in particular with regard to the
turnaround in our core business," Ryder said. "Over the two-year
period, margins improved at both RDNA and RDI by close to three
percentage points, driving double-digit profit growth. More
encouraging, in Fiscal 2005 we stopped the decline of our active
customer base for the first time in several years. We finished
the year with a strong fourth quarter with consolidated revenue
growth and double-digit profit growth providing momentum as we
move into Fiscal 2006."
In Fiscal 2006, the company expects to shift its focus from
stabilization to growth. Revenues are expected to grow
low-to-mid-single digits on a currency-neutral basis and, despite
significant development spending on major new businesses, profits
are expected to grow in the mid-teens.
More specifically, the company is targeting:
1. Real revenue growth (on a currency-neutral basis) across all
business segments.
2. Significant investment in new initiatives, including new
magazine launches, continued geographic expansion, and a
new, scaleable home party business, Taste of Home
Entertaining. In aggregate, these investments are expected
to cost the company $20 million. The investment spending is
primarily loaded in the first half, which will skew profit
growth more towards the second half of Fiscal 2006.
3. Mid-to-high single-digit profit growth at RD International.
4. Mid-teens profit growth at RDNA (including a $21 million
increase in profits because of lower amortization expense)
reflecting substantial investment in major business
opportunities like the magazine, Every Day with Rachael Ray,
and the new home party business.
5. Increased revenues and profits at CBS, led by improvements
at both BAF and QSP.
6. Higher Corporate unallocated expense (non-cash) reflecting
lower pension income ($6 million) and expensing of stock
options ($8 million).
7. Other Income and Expense, Net to be in line with Fiscal 2005
on a reported basis with lower interest expense in Fiscal
2006 (due in part to the write-off of debt financing fees in
2005) offsetting one-time gains in Fiscal 2005.
8. The expected tax rate to return to the mid-30 percent range.
9. EPS in the range of $0.90 to $1.00.
These results are expected to produce free cash flow of $130
million to $140 million, which will be used to pay down debt, pay
dividends and repurchase shares.
Summarized below are Fiscal 2005 Q4 and full-year results by
segment:
Segment Information
Quarter 4 Full-Year
Better / Better /
In millions, except per share data FY 2005 FY 2004 (Worse) FY 2005 FY 2004 (Worse)
Revenues:
Reader's Digest North America $ 228 $ 217 $ 11 $ 917 $ 919 $ (2)
Reader's Digest International 252 239 13 1,012 970 42
Consumer Business Services 81 82 (1) 485 525 (40)
Intercompany eliminations (4) (2) (2) (24) (26) 2
------- ------- ------- ------- ------- -------
Total revenues $ 557 $ 536 $ 21 $ 2,390 $ 2,388 $ 2
======= ======= ======= ======= ======= =======
Operating profit (loss):
Reader's Digest North America $ 28 $ 17 $ 11 $ 91 $ 76 $ 15
Reader's Digest International 27 21 6 76 57 19
Consumer Business Services (9) (7) (2) 29 59 (30)
Corporate unallocated (7) (10) 3 (38) (44) 6
Deferred promotion amortization (12) -- (12) (77) -- (77)
Deferred promotion charge -- (27) 27 -- (27) 27
Goodwill charge -- -- -- (129) -- (129)
Other operating items, net -- (6) 6 -- (15) 15
------- ------- ------- ------- ------- -------
Total operating profit (loss) $ 26 $ (13) $ 39 $ (48) $ 106 $ (154)
======= ======= ======= ======= ======= =======
Certain amounts may not recalculate due to rounding.
Reader's Digest North America
In the fourth quarter of Fiscal 2005, revenues at RDNA were
$228 million, an improvement of 5 percent over the prior year,
and reported operating profits were $28 million, up 67 percent
over prior year. Revenue growth was driven by higher sales at
Reiman reflecting the addition of new magazines (including
Backyard Living, Cooking for 2, Birds & Blooms Extra, and RD
Specials), all launched in the past two and a half years, and new
annual books like "Contest Winning Recipes." US Books and Home
Entertainment (BHE) also had a very strong quarter with increased
sales of single sales books, reading and music series products
and trade titles like "The Reader's Digest DIY Manual." RD
Canada's business continued to increase revenues on the strength
of its growing customer base. And lastly, revenues improved at
The Family Handyman and American Woodworker on higher advertising
sales. The growth in operating profit was driven by higher
revenues as well as lower promotion costs and amortization
expense resulting from the change in accounting methodology.
Profit growth in the quarter was partly offset by increased
investment spending on new magazine launches.
For the full year, RDNA revenues were $917 million, flat
with the prior year, and profits improved by 19 percent to $91
million. Fiscal 2005 was the third consecutive year of profit
growth at RDNA. Improved results largely reflect stabilization
in most parts of the business following several years of revenue
declines, combined with the addition of new business initiatives
developed over the past two years to accelerate revenue and
profit growth over the long-term. During Fiscal 2005, RDNA made
significant progress stabilizing USRD circulation. Additionally,
US BHE profits have improved significantly reflecting the
elimination of unprofitable activities at Reader's Digest Young
Families, and the successful launch of new product offerings,
like the themed music players and the strong-selling book,
"Extraordinary Uses for Ordinary Things." These products are sold
via multiple outlets including trade, Books Are Fun, and
international markets around the world. As part of its new
initiatives, RDNA successfully launched six new magazine
concepts, which attracted new customers and contributed over $30
million in new revenues since Fiscal 2004.
Reader's Digest International
In the fourth quarter, RDI reported very strong results as
revenues of $252 million grew by 5 percent over last year and
operating profits improved by 30 percent to $27 million.
Excluding the effects of foreign currency translation, revenues
were flat and operating profits grew by 21 percent. The strong
fourth quarter performance helped drive equally impressive
full-year results, as reported revenues of $1,012 million grew by
four percent while operating profits improved by 34 percent to
$76 million. Excluding the effects of foreign currency
translation, revenues declined by 2 percent while operating
profits grew by 20 percent. Profits improved in most
international markets in both the quarter and full-year.
Included in the fourth quarter profit is a $3 million improvement
related to the change in magazine promotion expense had Fiscal
2004 been accounted for in a similar manner as Fiscal 2005. For
Fiscal 2005, profit growth was led by Germany, Switzerland, the
United Kingdom, Central Europe, Australia, France and Mexico.
Results for both the quarter and full-year reflect
significant progress with efforts that began roughly two years
ago to turnaround RDI by stabilizing the business and creating
sustainable revenue and profit growth. Fiscal 2005 represents
the second consecutive year of double-digit operating profit
growth at RDI as improved results have come through a combination
of stabilizing the base business while successfully launching a
series of new initiatives to attract new customers and add
incremental revenues and profit to the base business. To repair
the base business, much of the focus has been on reversing
declining trends in mature markets by strengthening product and
promotion flow, improving mail efficiency and execution,
consolidating operations and territories, and reducing operating
costs. These efforts have led to margins improving from 5
percent in Fiscal 2003 to almost 8 percent at the end of Fiscal
2005, stabilization of the active customer base (which has been
in decline for several years), and creation of a pipeline of
successful new products and promotions that can be used in
multiple markets around the world.
In addition to the achievements made in strengthening the
base business, RDI has been equally successful with investment in
new initiatives. These new initiatives have helped attract new
customers and develop new sources of revenues and profit to drive
long-term growth. The most successful of these efforts has been
in launching new markets. In late Fiscal 2004 and Fiscal 2005,
RDI launched four new markets (Romania, Croatia, Slovenia, and
Ukraine) by introducing book products like "Discovering the
Wonders of the World" and "Curing Everyday Ailments the Natural
Way" that have a proven track record of success in other markets
around the world. As a result, these new markets have achieved
profitability in the first year of launch and have contributed to
Fiscal 2005 revenues and profits, having together sold about 1
million books and 100,000 music products. Other encouraging new
initiatives include an English learning product called "English
in Twenty Minutes a Day," sold in seven markets.
Consumer Business Services
In the fourth quarter of Fiscal 2005, CBS reported revenues
of $81 million and an operating loss of $(9) million, compared
with revenues of $82 million and an operating loss of $(7)
million in the year ago period. Results reflect higher revenues
at QSP during the quarter, offset by lower sales at Books Are
Fun. Improved results at QSP reflect higher sales of World's
Finest Chocolate and increased magazine subscription sales in
Canada. The decline in BAF results reflect lower averages in
both schools and corporate fairs, and fewer corporate fairs
versus the Fiscal 2004 quarter. These declines were partly
offset by an increase in school events.
CBS had a challenging Fiscal 2005 as full-year revenues
declined by 8 percent to $485 million and operating profits fell
by 50 percent to $29 million versus a year ago. At BAF, revenues
declined by 8 percent driven by lower average sales per event in
the schools division and fewer events in the corporate and
business display divisions. The decline in events was
principally attributable to sales force turnover. During the
second half of Fiscal 2005, BAF developed several programs aimed
at reducing sales force turnover and accelerating recruitment on
new sales representatives. QSP launched several programs
designed to dramatically reduce sales force turnover, improve
account retention, and increase student participation.
Corporate Unallocated
Corporate unallocated expenses were $(7) million in the
quarter versus $(10) million in the year-ago quarter. This
category primarily reflects the company's cost of governance as
well as other centrally managed expenses. It also includes the
accounting for U.S. pension plans, post-retirement healthcare
costs, and executive compensation programs. For the Fiscal 2005
quarter, the $3 million favorable variance was primarily
attributable to higher pension income and lower headquarters
facilities costs, including a favorable settlement of prior
period property taxes.
For Full Year Fiscal 2005, Corporate unallocated expenses
were $(38) million, versus $(44) million in the prior year. The
full-year decrease was due to higher pension income, lower
post-retirement healthcare costs and additional compensation
expense from a greater mix of restricted stock versus stock
options.
Non-GAAP Financial Measures
The company publicly reports its financial information
in accordance with accounting principles generally accepted in
the United States (GAAP). To facilitate external analysis of the
company's operating performance, the company also presents
financial information that may be considered "non-GAAP financial
measures" under Regulation G and related reporting requirements
promulgated by the Securities and Exchange Commission. Non-GAAP
financial measures should be evaluated in conjunction with, and
are not a substitute for, GAAP financial measures. The following
non-GAAP financial measures included in this release are used by
the company in its internal analysis of the business:
- Free Cash Flow (change in cash before the change in total
borrowings, dividends, share repurchases, divestitures and
acquisitions) - Free cash flow is presented to provide
period-to-period cash flow trends generated by the business
before any discretionary, finance-related uses/sources of cash.
It is used by management to reconcile the change in net debt from
period to period. Certain amounts may not recalculate due to
rounding.
Reconciliation of Free Cash Flow, Three-month periods ended Twelve-month periods ended
June 30, June 30,
In millions
2005 2004 2005 2004
Reported change in cash per cash flow statement $ (11.0) $ (6.5) $ (12.6) $ (1.0)
(see Table 4)
Less:
Change in total borrowings, net (14.9) (15.2) (162.4) (144.5)
Dividends paid (10.1) (5.2) (30.5) (20.7)
Debt financing fees (1.8) (1.1) (2.3) (7.6)
Share repurchases (5.0) -- (5.0) --
Acquisition costs and divestitures:
Pleasantville facility sale proceeds, net (2.3) -- 42.1 --
Magazine divestures, net -- -- 1.3 --
Free Cash Flow Source $ 23.0 $ 15.0 $ 144.3 $ 171.8
======= ======= ======== ========
Certain amounts may not recalculate due to rounding.
- - Net Debt (total borrowings less cash and cash equivalents) -
Net debt is one of management's measures of leverage and is an
approximate measure of the company's debt less amounts the
company has the capacity to repay. The company typically manages
its cash and debt by using any "excess" cash (i.e., cash in
excess of a desired on-hand amount) to make principal payments on
its outstanding debt.
- - Previously Announced Fiscal 2005 Guidance (earnings per share
before the effects of the change in accounting for magazine
deferred promotion costs and special items, including
restructuring charges) - The Previously Announced Fiscal 2005
Guidance represented the company's full-year earnings-per-share
guidance announced July 29, 2004. At that time, the guidance was
provided excluding final resolution of the treatment of its
existing magazine deferred promotion asset (which was not
determinable at that time), and special items (including
restructuring charges). Subsequent to this date, the company
finalized the accounting for magazine deferred promotion costs.
The Previously Announced Fiscal 2005 Guidance is presented to
facilitate an understanding of the impact of the company's change
in magazine deferred promotion accounting on its guidance.
Management uses Fiscal 2005 Guidance to assess the company's
actual performance relative to its full-year expectations on a
per-share basis. During Fiscal 2005, special items identified to
date include the non-cash goodwill charge and the accelerated
amortization of deferred debt financing fees.
Guidance Reconciliation (full year)
Reconciliation of Previously Announced Fiscal EPS EPS
2005 Guidance Guidance Actual
Previously Announced Fiscal 2005 Guidance $ 0.77 - $0.87
Add:
Amortization of existing magazine deferred
promotion asset as of June 30, 2004 $(0.49)
Goodwill charge $(1.32)
Q4 FY05 write-off of deferred debt financing
fees $(0.04)
Loss per share $(1.08) - $(0.98) $(0.95)
================ ======
RDA will host a conference call with financial analysts to
discuss the company's fourth quarter and full-year Fiscal 2005
results on August 4, 2005 at 8:30 a.m. ET. The company invites
investors to listen to the webcast of the conference call at the
Investor Relations section of the company's Web site,
www.rd.com/investors. This will also include a reconciliation of
non-GAAP financial measures that may be disclosed on the
conference call or from time to time in other oral, webcast or
broadcast public announcements by the company.
The company reports business results in three segments:
Reader's Digest North America - Reader's Digest magazine in
the United States and Canada; Reiman Media Group, including
magazines Taste of Home, Light & Tasty, Quick Cooking, Backyard
Living, Cooking for 2, Birds & Blooms, Country, Country Woman,
Country Discoveries, Reminisce, and Farm & Ranch, as well as
books, cooking schools, country tours and other enterprises; The
Family Handyman, American Woodworker, Reader's Digest Large Print
Edition and U.S. Selecciones magazines; Reader's Digest Young
Families; Adult and Children's Trade Publishing; financial
services marketing alliances; and Select Editions, series and
general books, health and home books, and music and video
products in the United States and Canada.
Consumer Business Services - Books Are Fun, a display
marketer in North America selling books, gifts and other items;
and QSP, Inc. and QSP Canada, schools and youth fundraising
companies.
Reader's Digest International - Products sold in more than
60 countries outside the United States and Canada, including:
Select Editions, series and general books, music, video and
Reader's Digest Young Families products; Reader's Digest magazine
in 48 editions and 19 languages, Special Interest magazines in
the Czech Republic; The Family Handyman in Australia; Books Are
Fun operations in Mexico and Spain; and financial services
marketing partnerships and other initiatives in more than 30
countries.
The Reader's Digest Association, Inc. is a global
publisher and direct marketer of products that inform, enrich,
entertain and inspire people of all ages and cultures around the
world. 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.
Reader's Digest does not undertake to update any forward-looking
statements.
Table 1 of 4
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Statements of Operations
(In millions, except per share data)
(unaudited)
Three-month period ended Twelve-month period ended
June 30, 2005 and 2004 (A) June 30, 2005 and 2004
Fiscal Year Better/ Fiscal Year Better/
2005 2004 (Worse) 2005 2004 (Worse)
Revenues $556.8 $536.4 4% $2,389.7 $2,388.5 --
Product, distribution and editorial expenses (227.0) (219.6) (3%) (970.9) (972.9) --
Promotion, marketing and administrative expenses (303.6) (324.3) 6% (1,337.4) (1,294.5) (3%)
Goodwill charge (B) -- -- N/M (129.0) -- N/M
Other operating items, net (C) -- ($5.9) N/M -- (15.0) N/M
------ ------ --- -------- -------- ---
Operating profit (loss) 26.2 (13.4) N/M (47.6) 106.1 N/M
Other income and (expense), net (D) (13.4) (4.9) N/M (31.8) (40.0) 21%
------ ------ --- -------- -------- ---
Income (loss) before income tax 12.8 (18.3) N/M (79.4) 66.1 N/M
Income tax (provision) benefit (1.6) 12.5 N/M (11.5) (16.6) 31%
------ ------ --- -------- -------- ---
Net income (loss) $11.2 ($5.8) N/M ($90.9) $49.5 N/M
===== ===== === ======== ===== ===
Basic earnings (loss) per share:
Weighted average common shares outstanding 97.5 97.1 97.4 97.1
Basic earnings (loss) per share $0.11 ($0.06) N/M ($0.95) $0.50 N/M
===== ===== === ======== ===== ===
Diluted earnings (loss) per share:
Adjusted weighted average common shares outstanding 100.2 97.1 97.4 99.2
Diluted earnings (loss) per share $0.11 ($0.06) N/M ($0.95) $0.49 N/M
===== ===== === ======== ===== ===
Dividends per common share $0.10 $0.05 -- $0.30 $0.20 --
(A) RDA reports on a fiscal year beginning July 1. The three-month periods ended June 30, 2005 and 2004 are the
fourth fiscal quarters of fiscal year 2005 and fiscal year 2004, respectively. Operating results for any interim period
are not necessarily indicative of the results for an entire year.
(B) In accordance with Statement of Financial Accounting Standards (SFAS) No.142, Goodwill and Other Intangible
Assets, RDA conducted its annual recovery assessment for all reporting units during the quarter ended March 31, 2005.
The analysis resulted in a non-cash charge of $(129.0) million, or $(1.32) per share, to reduce the carrying amount of
Books Are Fun goodwill.
(C) Other operating items, net for the three-month period ended June 30, 2004 is comprised of restructuring
charges of $(5.9) million, or $(0.04) per share primarily for severance. For the twelve-month period ended June 30, 2004,
other operating items, net includes restructuring charges of $(15.0) million, or $(0.10) per share primarily for severance.
The charges were related to the company's cost-reduction program announced a year earlier.
(D) Other income and (expense), net for the three-month period ended June 30, 2005 includes $(7.3) million, or
$(0.05) per share, due to the write-off of deferred debt financing fees in connection with RDA refinancing a new five-year
revolving credit facility. For the three-month period ended June 30, 2004 other income and (expense), net includes $(0.8)
million in expenses associated with the repricing amendment to RDA's term loans as well as a $6.1 million, or $0.04 per
share, gain on the sale of real estate in Hong Kong. For the twelve-month period ended June 30, 2004, other income and
(expense), net includes $(7.3) million, or $(0.05) per share, $(6.5) million of which is due to the write-off of deferred debt
financing fees in connection with the partial retirement of RDA's term loans and related interest rate caps and an
additional $(0.8) million to carry out the aforementioned term loan repricing amendment.
N/M - Not meaningful.
Table 2 of 4
The Reader's Digest Association, Inc. and Subsidiaries
Revenues and Operating Profit (Loss) by Operating Segments
(In millions)
(unaudited)
Three-month period ended Twelve-month period ended
June 30, 2005 and 2004 (A) June 30, 2005 and 2004
Fiscal Year Fiscal Year
Restated (B) Better/ Restated (B) Better/
2005 2004 (Worse) 2005 2004 (Worse)
Revenues
Reader's Digest North America $228.1 $217.3 5% $917.3 $919.5 --
Reader's Digest International 252.4 239.5 5% 1,012.1 969.5 4%
Consumer Business Services 80.6 81.6 (1%) 485.1 525.1 (8%)
Intercompany eliminations (C) (4.3) (2.0) N/M (24.8) (25.6) 3%
------ ------ --- -------- -------- ----
Total Revenues $556.8 $536.4 4% $2,389.7 $2,388.5 --
====== ====== === ======== ======== ====
Operating profit (loss)
Reader's Digest North America $27.8 $16.6 67% $90.8 $76.0 19%
Reader's Digest International 26.9 20.7 30% 76.1 57.0 34%
Consumer Business Services (9.2) (7.2) (28%) 29.4 59.0 (50%)
Corporate unallocated (D) (6.9) (10.4) 34% (37.8) (43.7) 14%
------ ------ --- -------- -------- ----
$38.6 $19.7 96% $158.5 $148.3 7%
Deferred promotion amortization (E) (12.4) -- N/M (77.1) -- N/M
Deferred promotion charge (F) -- ($27.2) N/M -- ($27.2) N/M
Goodwill charge (G) -- -- N/M ($129.0) -- N/M
Other operating items, net (H) -- ($5.9) N/M -- ($15.0) N/M
------ ------ --- -------- -------- ----
Total operating profit (loss) $26.2 ($13.4) N/M ($47.6) $106.1 N/M
====== ====== === ======== ======== ====
(A) RDA reports on a fiscal year beginning July 1. The three-month periods ended June 30, 2005 and 2004 are the fourth fiscal
quarters of fiscal year 2005 and fiscal year 2004, respectively. Operating results for any interim period are not necessarily
indicative of the results for an entire year.
(B) The results for fiscal 2004 have been restated for the transfer of the Young Families, Financial Services and Trade Publishing
businesses from the Consumer Business Services segment to the Reader's Digest North America segment.
(C) In the normal course of business, the company's segments enter into transactions with one another. These intercompany
transactions are recorded by each segment at amounts as if the transactions were with third parties and, therefore, affect segment
performance. Operating segment revenues, above, are presented gross before intercompany eliminations. However, intercompany
revenues and associated expenses are eliminated in consolidation and are not reflected in the company's consolidated results.
(D) Corporate unallocated expenses include the cost of governance and other centrally managed expenses, as well as the accounting
for U.S. pension plans, post-retirement healthcare costs, and executive compensation programs which are not allocated to the
operating segments. Governance and centrally managed expenses include costs such as corporate finance and general management,
investor and public relations, legal, treasury, and any related information technology and facility costs utilized by these
departments.
(E) The deferred promotion amortization of $(12.4) million reflects the expensing of the deferred magazine promotion asset as of
June 30, 2004, and includes $(0.1) million from the effects of foreign exchange. For the twelve-month period ended June 30, 2005,
the total deferred promotion amortization is $(77.1) and includes $(0.6) million from the effects of foreign exchange.
(F) During the three-month period ended June 30, 2004, RDA reassessed its accounting treatment of magazine promotion costs in
response to changes in its business. As a result of these changes, RDA recorded a pre-tax charge of $(27.2) million for the
expensing of previously deferred magazine promotion costs. Such amount is included as a component of promotion, marketing and
administrative expenses on the income statements.
(G) RDA conducted its annual recovery assessment during the quarter ended March 31, 2005 which resulted in a non-cash charge
of $(129.0) million to reduce the carrying amount of Books Are Fun goodwill.
(H) Other operating items, net for the three-month period ended June 30, 2004 is comprised of restructuring charges of $(5.9)
million primarily for severance. For the twelve-month period ended June 30, 2004, other operating items, net includes restructuring
charges of $(15.0) million primarily for severance. The charges were related to the company's cost-reduction program announced a
year earlier.
N/M - Not meaningful.
Table 3 of 4
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
As of June 30, 2005 and June 30, 2004
(In millions)
(unaudited)
June 30, June 30,
2005 2004
Assets
Cash and cash equivalents $37.7 $50.3
Accounts receivable, net 233.9 229.0
Inventories 162.4 152.0
Prepaid and deferred promotion costs 53.8 106.9
Prepaid expenses and other current assets 144.9 152.1
-------- --------
Total current assets 632.7 690.3
Property, plant and equipment, net 119.3 155.8
Goodwill 880.9 1,009.5
Other intangible assets, net 137.8 173.9
Prepaid pension assets 307.9 291.9
Other noncurrent assets 109.8 121.3
-------- --------
Total assets $2,188.4 $2,442.7
======== ========
Liabilities and Stockholders' Equity
Loans and notes payable -- $83.9
Accounts payable 109.8 110.6
Accrued expenses 267.4 268.7
Income taxes payable 34.5 15.5
Unearned revenues 395.5 403.4
Other current liabilities 12.4 10.2
-------- --------
Total current liabilities 819.6 892.3
Long-term debt 559.2 637.7
Unearned revenues 133.0 129.3
Accrued pension 121.5 125.9
Postretirement and postemployment benefits other than pensions 117.1 119.5
Other noncurrent liabilities 84.4 74.9
-------- --------
Total liabilities 1,834.8 1,979.6
Capital stock 21.2 17.8
Paid-in capital 206.8 210.1
Retained earnings 1,209.0 1,330.4
Accumulated other comprehensive loss (84.1) (89.4)
Treasury stock, at cost (999.3) (1,005.8)
-------- --------
Total stockholders' equity 353.6 463.1
-------- --------
Total liabilities and stockholders' equity $2,188.4 $2,442.7
======== ========
Table 4 of 4
The Reader's Digest Association, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
(In millions)
(unaudited)
Three-month period ended Twelve-month period ended
June 30, (A) June 30, (B)
2005 2004 2005 2004
Cash flows from operating activities
Net income (loss) $11.2 ($5.8) ($90.9) $49.5
Depreciation and amortization 12.1 15.5 56.9 63.2
Magazine deferred promotion charge -- 27.2 -- 27.2
Asset impairments -- 0.3 -- 1.1
Goodwill charge -- -- 129.0 --
Amortization of debt issuance costs 7.3 2.8 10.3 12.1
Stock-based compensation 3.0 2.4 11.2 10.2
Net gain on marketable securities and sales of certain assets (1.7) (6.1) (14.3) (10.0)
Changes in current assets and liabilities, net of effects of acquisitions
and dispositions
Accounts receivable, net 26.3 27.2 3.6 34.1
Inventories 19.4 14.6 (7.7) 6.4
Unearned revenues (37.2) (37.4) (14.4) (14.3)
Accounts payable and accrued expenses (10.7) 8.8 (7.1) (6.8)
Other, net 17.7 (11.8) 85.3 10.2
Changes in noncurrent assets and liabilities, net of effects of
acquisitions and dispositions (21.9) (24.7) (22.9) (8.5)
------ ----- ------ ------
Net change in cash due to operating activities 25.5 13.0 139.0 174.4
------ ----- ------ ------
Cash flows from investing activities
Proceeds from maturities and sales of marketable securities and short-
term investments -- -- -- 0.8
Magazine divestitures -- -- 1.3 --
Proceeds from other long-term investments, net 2.6 -- 5.4 3.0
Proceeds from the sale of the Pleasantville facility (0.1) -- 46.7 --
Proceeds from sales of property, plant and equipment 4.8 6.5 16.1 7.1
Purchases of investments, marketable securities and licensing
agreements -- -- -- (1.3)
Capital expenditures (10.5) (3.8) (23.5) (16.1)
------ ----- ------ ------
Net change in cash due to investing activities (3.2) 2.7 46.0 (6.5)
------ ----- ------ ------
Cash flows from financing activities
Proceeds / (repayments) of revolving credit and short-term facilities,
net 251.2 44.6 214.6 43.9
Repayments of term loan (266.1) (60.9) (377.0) (488.4)
Proceeds from Senior Notes offering -- -- -- 300.0
Dividends paid (10.1) (5.2) (30.5) (20.7)
Cash paid for financing fees (1.8) -- (2.2) (7.6)
Proceeds from employee stock purchase plan and exercise of stock
options 3.3 1.1 4.7 2.5
Treasury stock repurchase (5.0) -- (5.0) --
Other, net (2.2) (0.1) (4.4) 0.5
------ ----- ------ ------
Net change in cash due to financing activities (30.7) (20.5) (199.8) (169.8)
------ ----- ------ ------
Effect of exchange rate changes on cash (2.6) (1.7) 2.2 0.9
------ ----- ------ ------
Net change in cash and cash equivalents (11.0) (6.5) (12.6) (1.0)
------ ----- ------ ------
Cash and cash equivalents at beginning of period 48.7 56.8 50.3 51.3
------ ----- ------ ------
Cash and cash equivalents at end of period $37.7 $50.3 $37.7 $50.3
===== ===== ====== ======
(A) RDA reports on a fiscal year beginning July 1. The three-month periods ended June 30, 2005 and 2004 are the fourth fiscal
quarters of fiscal year 2005 and fiscal year 2004, respectively. Operating results for any interim period are not necessarily
indicative of the results for an entire year.
(B) Amounts may not recalculate due to rounding