RD Reports Results; Sells U.K. HQ

-- Publishers Weekly, 2/15/1999

Reader's Digest may end up cutting more than the $350 million in expenses that it promised shareholders last year. RD chairman Thomas O. Ryder reported that the company is "slightly ahead of schedule" in its restructuring efforts; the company's 10-Q filing with the SEC noted that RD is reviewing additional re-engineering activities and that the publisher expects to record additional operating costs and impairment losses over the next 12 months. As a result of its actions, by the end of fiscal 2001, RD expects to reduce its cost base by "at least" $350 million and cut its revenues by $200 million.

For the quarter ended December 31, 1998, revenue in the books and home entertainment division fell 5% to $452.9 million, although operating profit reportedly "increased significantly." RD attributed the profit improvement to lower product and promotional costs resulting from lower mail quantities within individual mailings and the reduction in the number of mailings, which more than offset the decline in revenues. Termination of certain strategic alliances and unprofitable activities also cut costs.

For the first half of fiscal 1999, sales in the books and home entertainment group fell slightly, to $825.2 million from $828.5 million.

During the second quarter , RD took one-time charges of $51 million, composed primarily of severance costs associated with cutting more than 700 employees from its workforce. Approximately half of those jobs had been eliminated by the end of 1998; the company expects the remainder of the cuts to be completed by the end of 1999.

After the close of the quarter, RD announced that it sold its U.K. headquarters to a German real estate fund for approximately $99.7 million. RD will lease back about two-thirds of the 140,000-sq.-ft. building for its U.K. offices. The sale of the facility was one of RD's goals in restructuring the company.