RDA Holding Co. Announces Results for the Second Quarter and Six Months Ended June 30, 2010

PLEASANTVILLE, N.Y., Aug. 5 /PRNewswire/ -- RDA Holding Co., parent company of The Reader's Digest Association, Inc. (together with its subsidiaries and affiliated entities, "RDA"), today reported results for the second quarter ended June 30, 2010.  

Mary Berner, President and Chief Executive Officer, commented, "Despite lower revenues, we generated an increase of $47 million, or over 38% percent, in our Consolidated Last Twelve Month EBITDA to $170 million as of June 30, 2010 compared with the same period last year.  We continue to be highly focused on executing our transition plan of aligning costs with revenues, stabilizing our existing revenues, and planning for future growth.  During the quarter, we executed a global headcount reduction of just over 10% which will begin to be reflected in our results in the second half of the year and which is expected to deliver $34 million in run rate savings over the next twelve months.  This represents demonstrable progress towards achieving our previously announced benchmark of 15% overhead expenses to revenues.   We are also making progress growing the percentage of our revenue derived from digital sources and products, which has doubled over the past year and is expected to double again by 2012. We have seen improving advertising sales in our Food & Entertaining affinity business, and believe that advertising continues to be an area of opportunity for the company, in print as well as digital. Finally, we have recently completed our strategic plan and identified the key initiatives that we anticipate will drive our company's future growth."

Second Quarter 2010 Highlights and Summary Results

• Revenues excluding the effects of fair value adjustments and the deconsolidation of the company's UK subsidiary decreased $34.8 million, or 7% percent, to $476.9 million as compared to $511.7 million in 2009. These revenues were lower principally due to the reduction in the rate base and frequency of Reader's Digest magazine in the US.  In addition, the company experienced modestly lower response rates in some international markets, partially offset by the elimination of several unprofitable or marginally profitable promotion campaigns and positive foreign currency exchange rates.
• Segment operating profit was $89.3 million compared with $88.7 million for the prior year period, while operating margin improved to 19 percent from 16 percent in the prior year period.  
• Consolidated EBITDA increased 7.6 percent to $76.8 million compared to Consolidated EBITDA of $71.4 million in the prior year quarter.
• Consolidated EBITDA for the last twelve months ended June 30, 2010 increased to $170 million from approximately $123 million in the comparable period of 2009.
• Cash and cash equivalents were $171.3 million as of June 30, 2010, up $53.6 million from a year ago.

Second Quarter 2010 Segment Results

The company's businesses are structured into four reportable segments: Reader's Digest United States, Reader's Digest International, Lifestyle & Entertainment Direct, and Other, which is comprised solely of the Weekly Reader business.

The Reader's Digest United States segment is comprised of two Branded Communities: 1) Reader's Digest Community and 2) US Affinities, which is comprised of Food & Entertaining, Home & Garden, Health and Wellness, as well as Allrecipes.com.

The Reader's Digest International segment is comprised of three Direct Marketing Units: 1) Europe, 2) Canada, Latin America (CALA) and 3) Asia Pacific (APAC).

Reader's Digest United States

In the second quarter, revenues for Reader's Digest United States decreased $5.6 million, or 3.1 percent, to $177.1 million as compared with $182.7 million during the three months ended June 30, 2009.  The majority of the decline was attributable to efforts initiated during the second half of calendar year 2009 to increase profitability.  These included a planned rate base reduction and a decrease in the frequency of Reader's Digest magazine issues, the closure and sale of unprofitable or marginally profitable product lines, the elimination of certain poorly performing special interest and seasonal publications, and the curtailment of promotional efforts on book and music sales.  The declines were offset in part by higher advertising revenues at Allrecipes.com, Taste of Home magazine and several other publications.

In the second quarter, operating profit for Reader's Digest United States increased by $1.2 million, or 3.2 percent, to an operating profit of $39.0 million as compared with an operating profit of $37.8 million during the three months ended June 30, 2009.  Increases were primarily driven by the strong performance of the company's retail book business combined with the discontinuation of Purpose Driven Connection in the previous year.

Reader's Digest International

In the second quarter, Reader's Digest International revenues decreased $58.4 million, or 19.2 percent, to $245.6 million, as compared with $304.0 million in the second quarter of 2009.  Excluding the positive effect of foreign currency translation of $3.8 million and the deconsolidation of the UK, Reader's Digest International experienced a net decrease of 9%, during the three months ended June 30, 2010 as compared with 2009. The decrease is largely the result of the planned elimination of marginally or unprofitable promotional campaigns in France, lower mail quantities and response rates in most international markets, including Germany, Central Europe, Canada, Australia and Asia partially offset by growth and expansion in Russia, Brazil and Argentina. In addition, lower renewal rates on magazine products, most notably in Canada, and an intentional reduction of licensed products across Australian and Asian markets also contributed to the decline.

Reader's Digest International operating profit for the three months ended June 30, 2010 decreased by $2.0 million, or 4.3 percent, to an operating profit of $45.0 million as compared with $47.0 million for the three months ended June 30, 2009.  Excluding the negative effect of foreign currency exchange rates of $0.5 million, Reader's Digest International experienced a net decrease in operating profit of $1.5 million, or 3.2%, for the three months ended June 30, 2010 as compared with 2009.  The decrease was mainly due to the loss and deconsolidation of the UK subsidiary, combined with the impact of the lower mail quantities and response rates as described above largely offset by lower promotional costs resulting from better priced marketing packages, improved profitability in France resulting from the initiatives described above, and the impact of headcount reductions and other cost savings initiatives.  

Lifestyle & Entertainment Direct (LED)

In the second quarter, LED revenue decreased $0.6 million, or 1.2%, to $49.8 million, as compared with $50.4 million during the three months ended June 30, 2009.  The decrease was attributable to a modest decline in sales of the segment's fitness products.  

Operating profit performance in the second quarter increased $2.7 million to an operating profit of $5.3 million, as compared with $2.6 million during the three months ended June 30, 2009.  The operating profit increase is principally due to the channel mix of fitness products, with higher cost DRTV sales being replaced by more profitable retail sales.  

Other

In the second quarter, Other segment (Weekly Reader) revenue decreased $1.8 million, or 22.8 percent, to $6.1 million, as compared with $7.9 million during the three months ended June 30, 2009.  The decrease in revenues was primarily driven by the elimination of an unprofitable catalog, and challenging state and local funding environments that adversely impacted customer educational budgets.  

Operating profit performance in the second quarter decreased $1.3 million to zero, as compared with an operating profit of $1.3 million during the three months ended June 30, 2009.  The operating profit decrease is principally due to lower revenues offset in part by savings in promotional costs.  

Corporate Unallocated

Corporate unallocated expenses for the three months ended June 30, 2010 were $38.4 million, compared with $7.6 million for the three months ended June 30, 2009.  The increase of $30.8 million was mainly driven by higher accrued employee bonuses of $22.3 million.  Last year, the company did not meet its target results which resulted in negligible bonuses paid in 2009.  In 2010, bonus accruals have been re-established to match the company's performance level.  We also re-established equity award plans which increased non-cash stock compensation expense by $3.8 million year over year.  

Second Quarter Product Results

In the second quarter, our contribution margin improved 3.3%. This improvement reflects continued progress to shift our focus and product mix to higher margin products. However, we also saw an increase in margins across all product categories.

Music and Video revenues continue to decline along with books, primarily due to lower response rates for these legacy products, most notably in the company's international direct marketing units.

Magazine circulation and advertising were down 8 million, or 4%, compared with the same period in the prior year period.  This decrease is primarily the result of decisions to cut the rate base and frequency of the U.S. version of Reader's Digest Magazine, partially offset by improvements in advertising at the U.S. Food and Entertaining division.

Revenues for non published products were down $1 million.  The decrease was attributable to a modest decline in sales or the company's Ab Circle Pro fitness product revenues.

Non-GAAP Financial Measures:

The company publicly reports its financial information in accordance with United States generally accepted accounting principles (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.

Consolidated EBITDA is equal to EBITDA plus/minus adjustments related to the following major items: (a)  purchase and fresh start accounting; (b)  asset impairment charges; (c) results of disposed and discontinued entities; (d) restructuring and reorganization costs; (e) non-cash gains and losses; and (f) other items, such as stock based compensation and prior owner management fees.

Conference Call

The company will host a conference call to discuss results for the second quarter of 2010 on Thursday, August 5, 2010 at 11 a.m. Eastern Time.

To listen to the conference call, please dial (800) 901-5231, or (617) 786-2961 internationally, and ask for Reader's Digest.  The pass code is "73334987."  

There will also be a PowerPoint presentation.  To access the presentation, tune Web browsers to this URL: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=71092&eventID=3255986.  

An audio replay of the call will be available within 24 hours and will be posted for seven days on www.rda.com (Investor Relations / Company Reports).

About The Reader's Digest Association, Inc.

RDA is a global multi-brand media and marketing company that educates, entertains and connects audiences around the world. The company builds multi-platform communities based on branded content. With offices in 43 countries, it reaches a customer base of 130 million in 78 countries. It publishes 90 magazines, including 50 editions of Reader's Digest, the world's largest-circulation magazine, operates 78 branded websites and sells 40 million books, music and video products across the world each year. Further information about the company can be found at www.rda.com.

Forward-looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and applicable federal securities laws that are based upon our current expectations and assumptions concerning future events, which are subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. The words "expect," "anticipate," "estimate," "forecast," "initiative," "objective," "plan," "goal," "project," "outlook," "priorities," "target," "intend," "evaluate," "pursue," "commence," "seek," "may," "would," "could," "should," "believe," "potential," "continue," or the negative of any of those words or similar expressions is intended to identify forward-looking statements. All statements contained in this press release, other than statements of historical fact, including, without limitation, statements about our plans, strategies, prospects and expectations regarding future events and our financial performance, are forward-looking statements that involve certain risks and uncertainties. While these statements represent the company's current judgment on what the future may hold, and the company believe these judgments are based upon reasonable assumptions, these statements are not guarantees of any events or financial results, and the company's actual results may differ materially. Important factors that could cause our actual results to be materially different from our expectations include, among others, the risk that the company continues to be affected by the global economy or subject to liquidity constraints, and the risk that the after-effects of the chapter 11 bankruptcy filing could have adverse impacts on the company's ability to maintain contracts, trade credit and other customer and vendor relationships. Accordingly, you should not place undue reliance on the forward-looking statements contained in this press release. These forward-looking statements speak only as of the date on which the statements were made. The company undertakes no obligation to update publicly or otherwise revise any forward-looking statements, except where expressly required by law.

SOURCE Reader's Digest Association