Reader's Digest Posts Fourth-Quarter Loss

As anticipated, magazine publisher Reader's Digest Association Inc., yesterday posted a fiscal fourth-quarter loss because of several factors, including a soft economy, a weak advertising market, weakness in the direct mail industry and a restructuring charge.

Reader's Digest, Pleasantville, NY, reported a loss of $21.9 million for the three months that ended June 30, compared with year-earlier earnings of $17 million. Fourth-quarter revenue fell 3 percent to $544 million from $560 million in the year-ago quarter.

Also as anticipated, the company took a one-time charge of $60 million. Of this amount, $23 million was for severance related to the company's global re-engineering programs and the restructuring of its Books and Home Entertainment division in the United States.

The company is revamping this division, creating six business units built around entertainment, health, home, reading, trade publishing and young families. Reader's Digest has said that the new organization is designed to reduce risk, respond more quickly to opportunities and operate more profitably.

The remainder was for impairment write-downs for investments in BrandDirect Marketing, Schoolpop, WebMD, Walking magazine and

Reader's Digest said the downturn also was driven by changes to sweepstakes promotions related to the multistate agreement with attorneys general and other factors. In March, Reader's Digest agreed to pay $8.2 million to settle charges by several states and the District of Columbia that its sweepstakes campaigns misled consumers.

The company used sweepstakes to sell magazine subscriptions, books, audiotapes and videos. Many of its promotions offered prizes but did not clearly state that no purchase was necessary. Other marketers, such as Publishers Clearing House, also reached settlements with the states.

Reader's Digest said it is testing alternative approaches to the new requirements and is having success, but the new initiatives are not expected to be fully implemented until next year.

“We have come through two very tough quarters in which our business was significantly affected by the economy, sweepstakes changes and other factors,” said Thomas O. Ryder, chairman/CEO. “We made several important moves, notably reorganizing our BHE business in the United States and developing promotions that work with the new sweepstakes protocols.

“We think the first quarter of fiscal 2002 will be another difficult one,” he said. “At this point, we expect earnings from operations to be about breakeven, with some difficulty likely to continue into the second quarter. Because of uncertainty in the U.S. economy and some economies outside the United States, we cannot provide long-term visibility at this time.”

Last month the company said it expected to have a difficult quarter. It also announced several other moves last week to improve profitability, including speeding efforts to remove $150 million from its global cost base, including widespread cutbacks in its annual compensation.

In other company news, Jacqueline Leo was named vice president and U.S. editor in chief. Leo joins Reader's Digest from Meredith Interactive, where she served as vice president of editorial operations, sales and marketing.

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