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Reader’s Digest Flails-in Third Quarter

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June 11 – 18, 2009 Edition

Reader’s Digest flails In Third Quarter

PLEASANTVILLE, NY (Authorlink News, June 11, 2009)–Reader’s Digest teeters on the edge of closing, affected by the failing economy and unfavorable exchange rates.

In its fiscal 2009 third-quarter report to the SEC, filed on May 15, Reader’s Digest Association said that “given the current global recessionary environment, we may not generate sufficient earnings or have sufficient liquidity to operate as a going concern. The extreme volatility in the financial, foreign exchange and credit markets globally has compounded the situation. . .”

The operating loss during the third quarter of fiscal 2009 decreased $527.7 to $535.9 as compared to $8.2 during the comparable period in fiscal 2008.

The company’s three business segments–Reader’s Digest United States, Reader’s Digest International and School & Education Services–reported a combined 16.7% loss in revenues for the third quarter of fiscal 2009. Revenues decreased $96.0 to $479.1 as compared to $575.1 during the 2008 period.

Adding to the company’s woes, lending institutions closed five of the company’s ten international lines of credit, though the accounts were paid in full. A sixth lending institution has now also lowered the amount of funds available on the company’s international credit line.

“. . .we have a number of initiatives underway and planned with a view of mitigating the effects of the current economic environment; however; there can be no assurances that our initiatives will be adequate,” the SEC report said.

The United States business segment revenues during the third quarter of fiscal 2009 decreased $18.6, or 10.3%, to $162.2, as compared to $180.8 during the comparable period in 2008. Lower revenues were mostly driven by our RD Community Affinity as a result of softening sales from our Children’s Publishing products, and Reader’s Digest magazine economy-driven reductions in advertising revenues, and a decrease in newsstand revenue, as well as a decline in subscription revenue due to fewer renewals.

The International business segment revenues during the third quarter of fiscal 2009 decreased $92.0, or 23.6%, to $298.4, as compared to $390.4 during the comparable period in fiscal 2008. Excluding the negative effect of foreign currency translation, the RD International business segment experienced a net decrease in revenues of $28.5, or 7.3%, during the third quarter of 2009.

RD’s School & Educational Services business segment revenues during the third quarter of fiscal 2009 also decreased $0.9, or 3.5%, to $24.5, as compared to $25.4 during the comparable period in fiscal 2008. The decrease was driven mainly by the combination of lower Weekly Reader Magazine circulation and the curtailment of several unprofitable business lines in prior periods.

U.S. operating profit during the third quarter decreased $6.2, or 44.6%, t $7.7, as compared to $13.9 during the third quarter of 2008.

International operating profit for that same period decreased $19.6, or 68.1%, to $9.2, as compared to $28.8 during the third quarter of fiscal 2008.

The School & Educational Services business segment operating profit during the third quarter of fiscal 2009 decreased $1.4, to an operating loss of $0.8, as compared to an operating profit of $0.6 during the comparable period in fiscal 2008.

NINE MONTHS

Revenues during the first nine months of fiscal 2009, ended March 31, decreased $144.6, or 8.0%, to $1,657.3, as compared to $1,801.9 during the first nine months of fiscal 2008.

The United States business segment revenues during the first nine months of fiscal 2009 decreased $51.6, or 8.5%, to $557.6, as compared to $609.2 during the first nine months of fiscal 2008. The decrease in revenue was principally driven by RD Community Affinity as a result of our Reader’s Digest Magazine’s planned reduction in rate base during fiscal 2008, economy-driven reduction in advertising revenues, softness in subscription and newsstand sales, lower Children’s Publishing book sales, as well as the absence of Young Families revenue due to the company’s decision to exit the product line during fiscal 2008.

OPERATING PROFIT (LOSS)

The operating loss during the first nine months of fiscal 2009 decreased $519.0, to $560.6, as compared to $41.6 during the comparable period in fiscal 2008.

Reader’s Digest plans to exit from several unprofitable non-core business units by the fourth quarter of 2009. Those include World Almanac Education Library Services (“WAELS”), the Company’s library wholesaling business; Gareth Stevens, the Company’s library publishing business; the Company’s Direct Holdings business in Europe (“Time-Life Europe”); the Company’s operations in Turkey; and the US edition of Selecciones magazine. WAELS and Gareth Stevens are part of the School & Educational Services business segment; Time-Life Europe and Turkey are part of our International business segment; and the US Selecciones is part of our United States Segment. Management has concluded that the WAELS, Time-Life Europe, and Turkey businesses will be shut down.

Reader’s Digest began in 1922 as a general-interest family magazine founded by Lila Bell Wallace and DeWitt Wallace. The Audit Bureau of Circulation says Reader’s Digest is till the best-selling consumer magazine in America, with a circulation of more than 8.1 million copies in the U.S., though circulating has been declining in recent years. The magazine also reaches another 40 million people in more than 70 countries, with 50 editions in 21 languages. According to Wikipedia, Ripplewood Holdings LLC acquired the Pleasantville, New York-based Reader’s Digest for $2.4 billion in 2006.