PLEASANTVILLE, N.Y., May 27 /PRNewswire/ -- RDA Holding Co., parent company of The Reader's Digest Association, Inc. (together with its subsidiaries and affiliated entities, "RDA"), today reported combined results for the first quarter ended March 31, 2010 compared with the prior year quarter. The results reflect the company's fresh start accounting subsequent to its emergence from pre-arranged chapter 11 restructuring on February 19, 2010. The company also reported results for the six months ended December 31, 2009, compared with the same period of 2008.

(Logo: http://www.newscom.com/cgi-bin/prnh/20090619/NY34961LOGO )

Concurrent with emergence from chapter 11, the company changed its fiscal year-end from June 30 to December 31, effective as of December 31, 2009. March 31, 2010 financial statements reflect the first calendar quarter of the company's new fiscal year. The company emerged from Chapter 11 as a new company as of February 19, 2010; however, to facilitate a more meaningful comparison between periods, the company has presented the combined results of the predecessor and successor companies for the first calendar quarter of 2010. For full GAAP results, please refer to the financial tables at the end of this press release.

"We emerged from the restructuring process having met our major goal - a stronger balance sheet with significantly lower debt," said Mary Berner, President and Chief Executive Officer. "We are pleased to have achieved consolidated cash EBITDA of $177.6 million for the twelve months ended December 31, 2009, which was at the high end of our expected range of $170-$180 million. In addition, we have continued on our path to improved profitability, as demonstrated by our increase in segment operating profit to $22.6 million for the combined first quarter, which was driven by strong increases in our Lifestyle & Entertainment Direct and U.S. businesses. We were able to achieve these improved results despite challenges posed by the global recession and having operated in Chapter 11 during much of this time. As we move forward, we are mindful of the ongoing challenging macroeconomic environment and, at the same time, are focused on executing our cost, cultural and growth initiatives quickly and efficiently."

Combined First Quarter 2010 Highlights

• RDA achieved cash upon emergence from Chapter 11 restructuring of $184 million, above guidance of $175 million, and cash was $189.4 million at the end of the combined first quarter.
• Consolidated cash EBITDA for the last twelve months ended March 31, 2010 was $167.4 million.
• Revenue decreased $46.8 million, or 10.2 percent, to $413.9 million, from $460.7 million in 2009, due partly to the effect of the fair value adjustment to unearned revenue recorded as a result of the company's emergence from bankruptcy on February 19, 2010, as well as challenging international macroeconomic headwinds and a planned rate base reduction and decrease in the frequency of issues published for Reader's Digest magazine.
• Excluding charges, segment operating profit for the combined quarter increased to $22.6 million, from $21.4 million in the first quarter of 2009.

                       Combined Predecessor /
                              Successor              Predecessor
                         ----------------------      -----------
                         Three months ended      Three months ended
                           March 31, 2010          March 31, 2009
                            ($ millions)            ($ millions)

    Reported Revenue                      413.9                 460.7
    Segment Operating
     Profit                                22.6                  21.4
    Reported Operating
     Profit                               (27.1)               (499.3)

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.

Cash 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.

Fresh Start Accounting

On January 19, 2010, the Bankruptcy Court confirmed the company's Third Amended Proposed Joint Chapter 11 Plan of Reorganization. The company satisfied all of the material conditions of the plan on February 19, 2010, which is the date the company's U.S. entities effectively emerged from bankruptcy. Upon the effective date of the company's emergence, we recorded the impact of the Plan of Reorganization and, as required under U.S. GAAP, applied fresh start accounting principles. The fresh start accounting principles assigned fair value to the assets and liabilities of the reorganized company.

Under fresh start accounting, the company's reorganization value was allocated to the company's assets based on their respective fair values in conformity with the purchase method of accounting for business combinations; any portion not attributed to specific tangible or identified intangible assets will be treated as an indefinite-lived intangible asset referred to as "reorganization value in excess of value of identifiable assets" and will be recorded on the company's balance sheet as goodwill. The most significant effects of the application of fresh start accounting on the company's financial statements are non cash adjustments and include:

• the write-down of the unearned revenue liability which reduces magazine revenues after emergence from chapter 11;
• an increase in depreciation and amortization expense prospectively as a consequence of the adjustment to the fair value of tangible and intangible assets; and,
• a reduction of pension income due to the write-off of unrealized gains on pension assets.

The company emerged from bankruptcy as a new company as of February 19, 2010, however, to facilitate a more meaningful comparison between periods, the company has presented the combined results of the predecessor and successor companies for the first calendar quarter of 2010. The company's emergence from chapter 11, the implementation of the Plan of Reorganization and the application of fresh start accounting principles will affect future reported results of operations and will make it difficult to compare the company's historical, pre-emergence results of operations with those that are reported in the future.

Discontinued Operations and Deconsolidation of RD UK

On January 26, 2010, the company sold CompassLearning Inc., its educational software division. The company has reported the results of operations and consolidated financial position of this business in discontinued operations within the consolidated statement of operations, consolidated balance sheets and consolidated statements of cash flows for all periods presented. All financial results in this press release are for continuing operations unless otherwise stated.

Additionally, on February 17, 2010, the company's non-debtor United Kingdom subsidiary, Reader's Digest Association Limited ("RDA UK"), filed for administration proceedings under United Kingdom insolvency laws, and the company has consequently deconsolidated RDA UK. During the three months ended March 31, 2010 the company reported a loss on the deconsolidation of RDA UK of $49.7 million.

Combined First Quarter Results

• Revenues for the combined quarter decreased $46.8 million, or 10.2 percent, to $413.9 million, from $460.7 million in the first quarter of 2009 due partly to the effect of the fair value adjustment to unearned revenue recorded at the company's emergence from bankruptcy on February 19, 2010 as well as challenging international macroeconomic headwinds and a planned rate base reduction and decrease in the frequency of issues published for Reader's Digest magazine. The company's United States segment revenue decreased 17.3 percent compared with the prior-year period, to $134.2 million. The International segment revenue was down 10.9 percent compared with the prior-year period, to $231.9 million. The Lifestyle & Entertainment Direct segment (LED) revenue increased by 79.1 percent over the prior year period, to $60.7 million. Other segment revenue was down 16.7 percent to $8.5 million.

• Operating loss for the combined quarter was $(27.1) million, which includes contractual charges related to strategic repositioning of the business and restructuring charges of $19.2 million, as compared with an operating loss of $(499.3) million for the prior year period. United States profit increased 19.5 percent to $9.2 million, compared with an operating profit of $7.7 million for the prior year period. International profit decreased 64 percent to $3.6 million compared with $10 million in the prior year period. LED profit increased to $8.2 million, from $1.9 million in the year ago quarter. Other decreased to $1.6 million, compared with $1.8 million in the prior year period.

• Segment operating profit for the combined quarter, which excludes contractual charges related to strategic repositioning of the business and restructuring charges of $19.2 million, was $22.6 million, compared with $21.4 million in the first quarter of 2009.

• Free Cash Flow for the last twelve months ended March 31, 2010 was $119.0 million.

• The company currently has $525 million borrowings in the form of Floating Rate Senior Secured Notes due 2017, as a result of a bond refinancing that will provide it with an estimated $30 million in cash interest expense savings annually versus its previously arranged exit financing. The company also has access to an additional $50 million of revolver credit.

• Consolidated cash EBITDA for the last twelve months ended March 31, 2010 was $167.4 million.

Combined First 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 (LED), and Other, which comprises the Weekly Reader business.

    Summary of reportable segment results

                          Predecessor/
                           Successor    Successor          Predecessor
                            Combined
                             Three-
                             months      February   January 1,      Three-
                              ended      20, 2010     2010 to       months
                           March 31,     to March    February    ended March
                              2010       31, 2010    19, 2010      31, 2009
                           ---------      --------  ----------   -----------
    Revenues
    Reader's Digest
     United States              $134.2       $59.8       $74.4        $162.2
    Reader's Digest
     International               231.9        89.9       142.0         260.3
    Lifestyle &
     Entertainment
     Direct                       60.7        24.5        36.2          33.9
    Other                          8.5         2.8         5.7          10.2
                                   ---         ---         ---          ----
      Subtotal                   435.3       177.0       258.3         466.6
    Intercompany
     eliminations                 (1.1)       (0.5)       (0.6)         (1.7)
    Fair value related
     adjustment (1)              (20.3)      (20.3)          -          (4.2)
      Total revenues            $413.9      $156.2      $257.7        $460.7
                                ======      ======      ======        ======

    Operating (loss) profit
    Reader's Digest
     United States                $9.2        $6.2        $3.0          $7.7
    Reader's Digest
     International                 3.6         9.8        (6.2)         10.0
    Lifestyle &
     Entertainment
     Direct                        8.2         2.1         6.1           1.9
    Other                          1.6        (0.3)        1.9           1.8
                                   ---        ----         ---           ---
      Subtotal                    22.6        17.8         4.8          21.4
    Impairment of
     assets (3)                      -           -           -        (496.9)
    Corporate
     unallocated                 (24.8)       (9.7)      (15.1)        (10.9)
    Other operating
     items, net (2)              (19.2)       (5.2)      (14.0)         (8.7)
    Fair value related
     adjustment (1)               (5.7)       (5.7)          -          (4.2)
      Operating loss            $(27.1)      $(2.8)     $(24.3)      $(499.3)
                                ======       =====      ======       =======

    (1) Fresh start and purchase accounting related fair value
    adjustments primarily include the fair value
          reduction to unearned revenue and related deferred cost accounts.
          These charges are not included in the
          segment results reviewed by our chief operating decision maker.

    (2) Other operating items, net consists of contractual charges
    related to the strategic repositioning of our
          business and restructuring charges.  Such items are not included in
          segment results reviewed by our chief
          operating decision maker.

    (3) Impairment of assets includes goodwill, intangible assets, and
    other asset impairment charges.

Reader's Digest United States

In the combined first quarter, revenues for Reader's Digest United States decreased $28.0 million, or 17.3 percent, to $134.2 million as compared with $162.2 million during the three months ended March 31, 2009. The majority of the decline was attributable to efforts we initiated during fiscal 2009 to increase its profitability. These efforts included a planned rate base reduction from 8 million to 5.5 million in January 2010 and a decrease in the frequency of issues for the Reader's Digest magazine from 12 to 10. The company also closed or sold unprofitable or marginally profitable product lines (Selecciones, Cooking for Two, Backyard Living, and Purpose Driven Connection) after fiscal 2009 and eliminated certain poorly performing special interest and seasonal publications during this period. The company was adversely affected by certain negative trends in the industry, continued reduced demand, and lower response rates on promotional efforts for several products. The decrease in demand resulted in lower book sales (primarily Home & Garden and general interest books), decreased renewals for Reader's Digest magazine, and lower sales across the company's trade publishing business. These declines were offset in part by advertising revenue increases in several of the company's Food & Entertaining affinity products (Allrecipes.com, Taste of Home, and Tasteofhome.com).

In the combined first quarter, operating profit for Reader's Digest United States increased by $1.5 million, or 19.5 percent, to an operating profit of $9.2 million as compared with an operating profit of $7.7 million during the three months ended March 31, 2009. Decreases related to the planned changes for Reader's Digest magazine mentioned above and international investment in Allrecipes.com were more than offset by lower costs across the majority of the company's US businesses, strong advertising performance described above and the discontinuance of investment in Purpose Driven Connection that launched in the first quarter of the prior year.

Reader's Digest International

In the combined first quarter, Reader's Digest International revenues decreased $28.4 million, or 10.9 percent, to $231.9 million, as compared with $260.3 million in the first quarter of 2009. Excluding the positive effect of foreign currency translation of $26.4 million, the International business segment experienced a net decrease in revenues of $54.8 million, or 21.1 percent, during the three months ended March 31, 2010 as compared with 2009. The decrease largely resulted from the deconsolidation of the company's United Kingdom subsidiary along with decreased book, music and video sales as a result of lower mailing quantities and poor response rates on promotions, most notably in Central Europe, Canada, Germany, the Netherlands and, to a lesser extent, in Australia and Asia. The company also initiated several actions that had the result of decreasing revenues, but increasing profitability, during the second half of the calendar year in 2009, including a reduction in mailing activity, especially to more marginally profitable customers, and a reduction in magazine issues.

Reader's Digest International operating profit for the three months ended March 31, 2010 decreased by $6.4 million, or 64 percent, to an operating profit of $3.6 million as compared with $10.0 million for the three months ended March 31, 2009. Excluding the positive effect of foreign currency exchange rates of $0.7 million, International's business segment experienced a net decrease in operating profit of $7.1 million, or 71 percent, for the three months ended March 31, 2010 as compared with 2009. The decrease was mainly due to the loss and deconsolidation of the company's subsidiary in the United Kingdom, combined with the impact of the lower sales described above. The decrease was offset in part by additional activity and better response in the Russia region.

Lifestyle & Entertainment Direct (LED)

In the combined first quarter, LED revenue increased $26.8 million, or 79.1 percent, to $60.7 million, as compared with $33.9 million during the three months ended March 31, 2009. The increase in revenues was driven principally by the strong sales of our fitness product offerings through direct TV campaigns and into retail outlets.

Operating profit performance in the combined first quarter increased $6.3 million to an operating profit of $8.2 million, as compared with $1.9 million during the three months ended March 31, 2009. The operating profit increase is principally due to the increase in revenues from fitness products as discussed above.

Other

In the combined first quarter, Other segment revenue decreased $1.7 million, or 16.7 percent, to $8.5 million, as compared with $10.2 million during the three months ended March 31, 2009. The decrease in revenues was primarily driven by lower periodical circulation and lower custom publishing sales within the company's Weekly Reader business.

Operating profit performance in the combined first quarter decreased $0.2 million to $1.6 million, as compared with an operating profit of $1.8 million during the three months ended March 31, 2009. The operating profit decrease is principally due to lower periodical and book sales within the company's Weekly Reader business as discussed above.

Corporate Unallocated:

Corporate unallocated expenses for the three months ended March 31, 2010 were $24.8 million, compared with $10.9 million for the three months ended March 31, 2009. The increase in expense was mainly attributable to accrued employee bonuses.

Predecessor Company Results for the Six Months Ended December 31, 2009

The company also today reported pre-emergence results for the six months ended December 31, 2009. The following represent the highlights:

• Revenues were $1,101.8 million, a decrease of $35.7 million, or 3.1 percent from the prior year period.
• Operating loss was $(5.8) million, improved from an operating loss of $(8.2) million in the prior year period.

Detailed financial statements for the six months ended December 31, 2009 can be found at the end of this press release.

Conference Call

The company will host a conference call to discuss results for the first quarter of 2010 and for the six months ended December 31, 2009, on Thursday, May 27, 2010 at 11 a.m. Eastern Time.

To listen to the conference call, please dial 1-212-287-1652 or, toll-free in the U.S., 1-800-369-1818, and ask for Reader's Digest. The leader is Tom Williams, and the pass code is "RDA." There will also be a PowerPoint presentation. To access the presentation, tune Web browsers to this URL: https://e-meetings.verizonbusiness.com/nc/join.php?i=PA7321740&p=LEADER&t=c

The conference number is PA7321740 and the audience pass code is "RDA". 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 44 countries, it reaches a customer base of 130 million in 78 countries. It publishes 92 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.

    IR Contact:
    John Mckeown, 914-242-4108, john.mckeown@rd.com

    Media Contacts:
    Rachel Rosenblatt, 212-850-5697, rachel.rosenblatt@fd.com
    David Press, 212-850-5743, david.press@fd.com

                          RDA Holding Co., and Subsidiaries
                        Consolidated Statements of Operations
                                    (in millions)
                                     (unaudited)

                        Predecessor/  Successor
                         Successor      Company      Predecessor Company
                        ------------   ---------     -------------------
                          Combined                               Three
                           Three       February    January      months
                           months       20, to       1, to       ended
                        ended March   March 31,    February   March 31,
                          31, 2010       2010      19, 2010      2009
                       ------------   ---------   --------   ----------

    Revenues                  $413.9      $156.2     $257.7       $460.7

    Product,
     distribution
     and editorial
     expenses                  176.8        63.9      112.9        199.4
    Promotion,
     marketing and
     administrative
     expenses                  245.0        89.9      155.1        254.9
    Goodwill and
     intangible
     asset
     impairment                    -           -          -        497.0
    Other operating
     items, net                 19.2         5.2       14.0          8.7
                                ----         ---       ----          ---
      Operating loss           (27.1)       (2.8)     (24.3)      (499.3)
    Interest expense            20.7        11.9        8.8         48.8
    Loss on
     deconsolidation
     of subsidiary              49.7           -       49.7            -
    Other expense
     (income), net              10.0         0.4        9.6         (0.5)
                                ----         ---        ---         ----
      Loss before
       reorganization
       items, income
       taxes and
       discontinued
       operations             (107.5)      (15.1)     (92.4)      (547.6)

    Reorganization
     items                  (1,906.6)          -  (1,906.6)            -
                            --------         ---   --------          ---
      (Loss) income
       before income
       taxes and
       discontinued
       operations            1,799.1       (15.1)   1,814.2       (547.6)

    Income tax
     (benefit)
     expense                    52.1        (1.9)      54.0       (112.6)
                                ----        ----       ----       ------
      (Loss) income
       from continuing
       operations
       before
       discontinued
       operations            1,747.0       (13.2)   1,760.2       (435.0)

    (Loss) income
     from
     discontinued
     operations, net
     of tax expense
     (benefit) of
     $0.0, $1.6, and
     ($1.3)                     32.8        (0.6)      33.4        (39.2)
      Net (loss)
       income               $1,779.8      $(13.8)  $1,793.6      $(474.2)
                            ========      ======   ========      =======

                          RDA Holding Co., and Subsidiaries
                             Consolidated Balance Sheets
                        (in millions, except per share data)
                                     (unaudited)

                                              Successor     Predecessor
                                               Company        Company
                                                ---------     -----------
                                             March 31,     December 31,
                                                     2010            2009
                                                     ----            ----
                                            (unaudited)
                                            -----------
    Assets
    Current assets:
      Cash and cash equivalents                    $189.4          $297.4
      Restricted cash                                23.3             8.8
      Accounts receivable, net                      174.0           248.9
      Inventories                                    84.8            89.4
      Prepaid and deferred promotion costs           31.2            35.5
      Prepaid expenses and other current
       assets                                       127.0           150.0
      Assets held for sale                              -            19.0
                                                      ---            ----
        Total current assets                        629.7           849.0
    Property, plant and equipment, net               58.2            59.4
    Restricted cash                                  18.9            19.1
    Goodwill                                        689.5           862.0
    Other intangible assets, net                    511.5           343.3
    Prepaid pension assets                          153.0           158.0
    Other noncurrent assets                          30.2            53.1
        Total assets                             $2,091.0        $2,343.9
                                                 ========        ========
    Liabilities and stockholders' equity
     (deficit)
    Current liabilities:
      Short-term debt                                  $-          $255.3
      Accounts payable                              180.5           174.4
      Accrued expenses                              161.4           149.6
      Income taxes payable                           14.5            23.1
      Unearned revenues                             228.3           366.6
      Other current liabilities                      64.8             7.5
      Liabilities held for sale                         -            21.5
                                                      ---            ----
        Total current liabilities                   649.5           998.0
    Long-term debt                                  509.5               -
    Unearned revenues                                97.5           146.3
    Accrued pension                                   6.6            42.3
    Post retirement and post employment
     benefits other than pensions                    15.6            16.1
    Other noncurrent liabilities                    226.4           185.7

    Liabilities subject to compromise                   -         2,673.6
                                                      ---         -------
        Total liabilities                        $1,505.1        $4,062.0
    Predecessor common stock (par value
     $1.00 per share, 100,000,000 shares
     authorized and 59,701,909 shares
     issued and outstanding                             -            59.7
    Successor common stock (Series A
     (voting) par value $0.001 per share,
     39,000,000 shares authorized,
     24,588,488 shares issued and
     outstanding and Series B (non-
     voting) par value $0.001 per share,
     3,000,000 shares authorized and
     2,911,512 shares issued and                        -               -
    Paid-in capital                                 589.9           671.3
    Accumulated deficit                             (13.8)       (2,305.9)
    Accumulated other comprehensive income
     (loss)                                           9.8          (143.2)
                                                      ---          ------
      Total stockholders' equity (deficit)          585.9        (1,718.1)
        Total liabilities and stockholders'
         equity (deficit)                        $2,091.0        $2,343.9
                                                 ========        ========

                        RDA Holding Co., and Subsidiaries
                      Consolidated Statements of Cash Flows
                                  (in millions)
                                   (unaudited)

                                Successor
                                  Company        Predecessor Company
                                 ---------       -------------------
                                 February
                                  20, to     January 1,    Three months
                                March 31,    to February    ended March
                                   2010        19, 2010       31, 2009
                                ---------   -----------    -------------
    Cash flows from
     operating activities:
     Net (loss) income              $(13.8)     $1,793.6         $(474.2)
     Adjustments to
      reconcile net (loss)
      income to operating
      cash flows:
        Loss (income) from
         discontinued
         operations                    0.6         (33.4)           39.2
        Depreciation and
         amortization                  7.9           6.6            17.4
        Amortization of bond
         discount                      0.2             -               -
        Loss on deconsolidation
         of subsidiary                   -          49.7               -
        Non-cash loss in
         financing foreign
         exchange                        -           6.3               -
        Impairment of goodwill
         and intangible assets           -             -           497.0
        Amortization of debt
         issuance costs                4.7           6.0             2.2
        Gain on settlement of
         debt                            -      (1,765.1)              -
    Revaluation of assets
     and liabilities in
     fresh start accounting              -        (163.1)              -
        Stock-based
         compensation                    -           0.2             1.0
        Net gain on sales of
         long-term assets                -           0.3               -
     Changes in assets and
      liabilities, net of
      effects of
      acquisitions and
      dispositions:
        Restricted cash               13.9         (29.2)              -
        Accounts receivable,
         net                          36.7          27.4            63.5
        Inventories                   (0.9)          1.5            (3.7)
        Prepaid and deferred
         promotion costs              (4.4)          5.8            (3.0)
        Other assets                 (29.9)         43.6           (30.0)
        Unearned revenues              4.6           2.6           (15.5)
        Income and deferred
         taxes                        (3.5)         52.4          (111.8)
        Accounts payable and
         accrued expenses            (64.3)        (16.3)          (24.5)
        Other liabilities              3.8          (4.5)           16.7
                                       ---          ----            ----
    Net change in cash due
     to continuing
     operating activities           $(44.4)       $(15.6)         $(25.7)
      Net change in cash due
       to discontinued
       operating activities           (0.3)          5.8           (16.3)
    Net change in cash due
     to operating
     activities                     $(44.7)        $(9.8)         $(42.0)
                                    ------         -----          ------
    Cash flows from
     investing activities:
      Purchase of intangible
       assets                            -          (0.4)           (0.1)
      Proceeds from the sale
       of a business                     -          30.8               -
      Investing restricted
       cash                           21.0         (21.0)              -
      Cash loss on
       deconsolidation of UK
       entities                          -         (16.5)              -
      Proceeds from life
       insurance settlements             -             -            12.5
      Proceeds from note
       receivable                        -             -             1.3
      Capital expenditures            (0.6)         (1.6)           (4.3)
    Net change in cash due
     to investing
     activities                      $20.4         $(8.7)           $9.4
                                     -----         -----            ----
    Net change in cash due
     to discontinued
     investing activities                -             -            (1.5)
    Net change in cash due
     to investing
     activities                      $20.4         $(8.7)           $7.9
                                     -----         -----            ----
    Cash flows from
     financing activities:
      Proceeds from
       borrowings                    509.3             -            88.1
      Debt payments                 (555.7)            -            (4.8)
      Restricted cash               (509.3)        509.3               -
      Escrow liability               509.3        (509.3)              -
      Short-term borrowings,
       net                               -             -           (17.7)
      Cash paid for financing
       fees                          (11.5)         (9.5)              -
    Net change in cash due
     to financing
     activities                     $(57.9)        $(9.5)          $65.6
                                    ------         -----           -----
      Effect of exchange rate
       fluctuations on cash
       and cash equivalents            2.0           0.2             1.0
      Net change in cash and
       cash equivalents              (80.2)        (27.8)           32.5
      Cash and cash
       equivalents at
       beginning of the
       period                        269.6         297.4            62.7
    Cash and cash
     equivalents at end of
     the period                     $189.4        $269.6           $95.2
                                    ======        ======           =====
    Supplemental
     information
      Cash paid for interest             -           3.6            46.1
      Cash paid for income
       taxes                           1.2           1.3            (2.0)

                      RDA Holding Co., and Subsidiaries
                    Consolidated Statements of Operations
                                (in millions)
                                 (unaudited)

                                                    Six months ended
                                                    ----------------
                                                      December 31,
                                                      ------------
                                                     2009          2008
                                                     ----          ----
                                                           (Unaudited)
    Revenue                                      $1,101.8      $1,137.5

    Product, distribution and editorial
     expenses                                       485.2         496.4
    Promotion, marketing and administrative
     expenses                                       557.6         628.2
    Impairment of assets                             61.2             -
    Other operating items, net                        3.6          21.1
                                                      ---          ----
      Operating (loss) income                        (5.8)         (8.2)

    Interest expense                                 45.8         103.9
    Other (income) expense, net                      (2.8)         (1.5)
                                                     ----          ----
      (Loss) income before reorganization
       items,  income taxes and discontinued
       operations                                   (48.8)       (110.6)

    Reorganization items                             58.2             -
                                                     ----           ---
      Loss before income taxes and
       discontinued operations                     (107.0)       (110.6)

    Income tax (benefit) expense                     (7.4)         12.8
                                                     ----          ----
      Loss from continuing operations               (99.6)       (123.4)

    Income (loss) from discontinued
     operations, net of tax expense
     (benefit) of $1.6 and $(15.9) for the
     six months ended December 31, 2009 and
     2008, and $(11.6), $(9.3) and $4.6 in
     fiscal 2009, 2008, and 2007,
     respectively                                     7.2         (90.5)
      Net loss                                     $(92.4)      $(213.9)
                                                   ======       =======

                      RDA Holding Co., and Subsidiaries
                    Consolidated Statements of Cash Flows
                                (in millions)
                                 (unaudited)

                                                     Six months ended
                                                       December 31,
                                                       2009           2008
                                                       ----           ----
                                                              (Unaudited)
    Cash flows from operating
     activities:
      Net loss                                       $(92.4)       $(213.9)
      Adjustments to reconcile net loss to
       operating cash flows:
        (Loss) income from discontinued
         operations, net of tax                        (7.2)          90.5
        Depreciation and amortization                  23.5           34.6
        (Benefit) provision for deferred
         income taxes                                 (16.3)           1.6
        Impairment of assets                           61.2              -
        Amortization of debt issuance costs             8.0            4.4
        Net (gain) loss on sale of certain
         assets                                        (0.6)             -
        Stock-based compensation                        0.6            1.1
        Loss on derivatives                               -              -
        Other                                          (0.4)             -
      Changes in assets and liabilities,
       net of effects of dispositions and
       acquisitions:
        Restricted cash                               (15.8)          (2.7)
        Accounts receivable, net                      (25.9)         (44.9)
        Inventories                                     9.3           (9.7)
        Prepaid and deferred promotion costs           17.3            9.8
        Other assets                                   11.2          (37.2)
        Unearned revenues                              33.1           77.8
        Income taxes                                    7.2          (13.1)
        Accounts payable and accrued
         expenses                                      92.3           (7.1)
        Other liabilities                             (72.2)          12.2
                                                      -----           ----
    Net change in cash due to continuing
     operating activities                              32.9          (96.6)
      Net change in cash due to
       discontinued operating activities                9.5          (39.0)
    Net change in cash due to operating
     activities                                       $42.4        $(135.6)
                                                      -----        -------
    Cash flows from investing
     activities:
      Capital expenditures                             (5.0)          (2.4)
      Purchases of intangible assets                   (0.2)             -
      Proceeds from sale of assets                      0.9              -
      Sale of businesses, net                             -          108.1
      Proceeds from note receivable                     6.8              -
    Net change in cash due to continuing
     investing activities                              $2.5         $105.7
                                                       ----         ------
      Net change in cash due to
       discontinued investing activities                  -           (1.9)
    Net change in cash due to investing
     activities                                        $2.5         $103.8
                                                       ----         ------
    Cash flows from financing
     activities:
      Proceeds from borrowings                            -          400.1
      Debt payments                                    (0.6)        (393.3)
      Short-term borrowings, net                      147.9           11.2
      Cash paid for financing fees                    (12.6)             -
    Net change in cash due to financing
     activities                                      $134.7          $18.0
                                                     ------          -----
      Effect of exchange rate changes on
       cash and cash equivalents                        0.1            3.0
                                                        ---            ---
      Net change in cash and cash
       equivalents                                    179.7          (10.8)
      Cash and cash equivalents at
       beginning of period                            117.7           73.5
    Cash and cash equivalents at end of
     period                                          $297.4          $62.7
                                                     ======          =====
    Supplemental information
      Cash paid for interest                           $6.9          $67.8
      Cash paid for income taxes                       $4.7          $15.4

    Summary of reportable segment results

                                         Six Months Ended December 31,
                                                  2009            2008
                                                  ----            ----
    Revenues
    Reader's Digest United States               $348.7          $395.4
    Reader's Digest International                602.0           661.2
    Lifestyle & Entertainment Direct             147.5            84.3
    Other                                         12.3            16.7
                                                  ----            ----
      Subtotal                                 1,110.5         1,157.6
    Intercompany eliminations                     (4.4)           (5.9)
    Purchase accounting adjustment
     (1)                                          (4.3)          (14.2)
      Total revenues                          $1,101.8        $1,137.5
                                              ========        ========

    Operating (profit) loss
    Reader's Digest United States                $44.2           $25.1
    Reader's Digest International                 29.0            20.1
    Lifestyle & Entertainment Direct              15.4            (1.3)
    Other                                          1.0             2.4
                                                   ---             ---
      Subtotal                                    89.6            46.3
    Impairment of assets (3)                     (61.2)              -
    Corporate unallocated                        (26.3)          (18.9)
    Other operating items, net (2)                (3.6)          (21.4)
    Purchase accounting adjustment
     (1)                                          (4.3)          (14.2)
                                                  ----           -----
      Operating (loss) profit                    $(5.8)          $(8.2)
                                                 =====           =====

    (1) Purchase accounting related fair value adjustments primarily
    include the fair value reduction to
          unearned revenue.  These charges are not included in the segment
          results reviewed by our chief
          operating decision maker.

    (2) Other operating items, net consists of contractual charges
    related to the strategic repositioning of
          our business and restructuring charges.  Such items are not included
          in segment results reviewed
          by our chief operating decision maker.

    (3) Impairment of assets includes goodwill, intangible assets, and
    other asset impairment charges.

SOURCE RDA Holding Co.