10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2011

Commission File Number: 333-170143-07

RDA HOLDING CO.

(Exact name of registrant as specified in its charter)

Delaware	37-1537045
(State or other jurisdiction	(I.R.S. Employer
of incorporation or organization)	Identification No.)

750 Third Avenue
New York, New York 10017

(Address of principal executive offices) (Zip Code)

(646) 293-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§203.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer x	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.  Yes x  No o

As of May 11, 2011, there was no public trading market for the registrant’s common stock.  There were 26,005,866 shares of the registrant’s common stock, $0.001 par value per share, outstanding on May 11, 2011.

RDA Holding Co., and Subsidiaries

INDEX

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Unaudited Consolidated Financial Statements
	Unaudited Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and the periods February 20 to March 31, 2010 (Successor Company) and January 1 to February 19, 2010 (Predecessor Company)	2
	Unaudited Consolidated Balance Sheets as of March 31, 2011 and December 31, 2010 (Successor Company)	3
	Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and the periods February 20 to March 31, 2010 (Successor Company) and January 1 to February 19, 2010 (Predecessor Company)	4
	Unaudited Consolidated Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2011 (Successor Company)	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	42
Item 4.	Controls and Procedures	42
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 5.	Other Information	43
Item 6.	Exhibits	44

1

PART I – FINANCIAL INFORMATION

Item 1.  Unaudited Consolidated Financial Statements

RDA Holding Co., and Subsidiaries

Consolidated Statements of Operations

(in millions)

(unaudited)

	Successor Company						Predecessor Company
	Three months ended March 31, 2011			February 20 to March 31, 2010			January 1 to February 19, 2010
Revenue	$	326.0		$	156.2		$	257.7
Product, distribution and editorial expenses	154.8			63.9			112.9
Promotion, marketing and administrative expenses	228.5			89.9			155.1
Other operating items, net	4.6			5.2			14.0
Operating loss	(61.9		)	(2.8		)	(24.3		)
Interest expense	13.8			11.9			8.8
Loss on deconsolidation of subsidiary	—			—			49.7
Other expense, net	1.5			0.4			9.6
Loss before reorganization items, income taxes and discontinued operations	(77.2		)	(15.1		)	(92.4		)
Reorganization items	—			—			(1,906.6		)
(Loss) income before income taxes and discontinued operations	(77.2		)	(15.1		)	1,814.2
Income tax expense (benefit)	4.5			(1.9		)	54.0
(Loss) income from continuing operations	(81.7		)	(13.2		)	1,760.2
(Loss) income from discontinued operations, net of taxes	—			(0.6		)	33.4
Net (loss) income	$	(81.7	)	$	(13.8	)	$	1,793.6

See accompanying Notes to Consolidated Financial Statements

2

RDA Holding Co., and Subsidiaries

Consolidated Balance Sheets

(in millions, except share and per share amounts)

(unaudited)

	Successor Company
	March 31, 2011			December 31, 2010
Assets
Current assets:
Cash and cash equivalents	$	98.6		$	169.4
Restricted cash	5.1			4.5
Accounts receivable, net	192.4			237.2
Inventories	71.5			62.5
Prepaid and deferred promotion costs	33.7			33.5
Prepaid expenses and other current assets	146.8			122.0
Assets held for sale	—			7.4
Total current assets	548.1			636.5
Property and equipment, net	61.0			59.3
Restricted cash	8.5			8.4
Goodwill	690.3			672.4
Other intangible assets, net	447.9			451.4
Prepaid pension assets	169.8			166.0
Other noncurrent assets	41.9			34.8
Total assets	$	1,967.5		$	2,028.8
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	167.0		$	167.6
Accrued expenses	120.9			135.7
Income taxes payable	12.9			7.8
Unearned revenue	299.9			269.7
Other current liabilities	28.6			32.4
Total current liabilities	629.3			613.2
Long-term debt	511.1			510.7
Unearned revenue	104.8			94.3
Accrued pension	5.2			5.7
Postretirement and postemployment benefits other than pensions	12.2			12.9
Other noncurrent liabilities	202.8			199.4
Total liabilities	1,465.4			1,436.2
Common stock (Series A (voting) $0.001 par value: authorized - 39,000,000 shares; issued - 27,500,000 shares; outstanding - 26,005,866 and 27,500,000)	—			—
Treasury stock, at cost, 1,494,134 and zero shares	(43.3		)	—
Paid-in capital, including warrants	599.2			597.6
Accumulated deficit	(111.3		)	(29.6		)
Accumulated other comprehensive income	57.5			24.6
Total stockholders’ equity	502.1			592.6
Total liabilities and stockholders’ equity	$	1,967.5		$	2,028.8

See accompanying Notes to Consolidated Financial Statements

3

RDA Holding Co., and Subsidiaries

Consolidated Statements of Cash Flows

(in millions)

(unaudited)

	Successor Company						Predecessor Company
	Three months ended March 31, 2011			February 20 to March 31, 2010			January 1 to February 19, 2010
Cash flows from operating activities:
Net (loss) income	$	(81.7	)	$	(13.8	)	$	1,793.6
Adjustments to reconcile net (loss) income to operating cash flows:
Loss (income) from discontinued operations, net of taxes	—			0.6			(33.4		)
Depreciation and amortization	17.6			7.9			6.6
Provision (benefit) for deferred income taxes	0.6			(2.0		)	61.0
Amortization of bond discount	0.4			0.2			—
Amortization of debt issuance costs	0.7			4.7			3.8
Loss on deconsolidation of subsidiary	—			—			49.7
Non-cash loss in financing foreign exchange	—			—			6.3
Gain on settlement of pre-petition liabilities	—			—			(1,765.1		)
Revaluation of assets and liabilities in fresh start accounting	—			—			(163.1		)
Stock-based compensation expense	1.6			—			0.2
Net (gain) loss on sale or disposal of certain assets	(1.1		)	—			0.3
Changes in assets and liabilities, net of effects of dispositions:
Restricted cash	(0.4		)	13.9			(29.2		)
Accounts receivable, net	49.7			36.7			27.4
Inventories	(7.1		)	(0.9		)	1.5
Prepaid and deferred promotion costs	0.9			(4.4		)	5.8
Other assets	(28.0		)	(29.9		)	45.8
Unearned revenue	37.0			4.6			2.6
Income taxes	(1.2		)	(1.5		)	(8.6		)
Accounts payable and accrued expenses	(20.2		)	(64.3		)	(16.3		)
Other liabilities	(3.7		)	3.8			(4.5		)
Net change in cash due to continuing operating activities	(34.9		)	(44.4		)	(15.6		)
Net change in cash due to discontinued operating activities	—			(0.3		)	5.8
Net change in cash due to operating activities	$	(34.9	)	$	(44.7	)	$	(9.8	)

See accompanying Notes to Consolidated Financial Statements

4

RDA Holding Co., and Subsidiaries

Consolidated Statements of Cash Flows

(in millions)

(unaudited)

	Successor Company						Predecessor Company
	Three months ended March 31, 2011			February 20 to March 31, 2010			January 1 to February 19, 2010
Cash flows from investing activities:
Capital expenditures	$	(5.2	)	$	(0.6	)	$	(1.6	)
Purchases of intangible assets	—			—			(0.4		)
Proceeds from sale of a business	—			—			30.8
Proceeds from sale of assets	8.4			—			—
Investing restricted cash	—			21.0			(21.0		)
Loss of cash due to subsidiary deconsolidation	—			—			(16.5		)
Net change in cash due to investing activities	$	3.2		$	20.4		$	(8.7	)
Cash flows from financing activities:
Proceeds from borrowings	—			509.3			—
Debt payments	—			(555.3		)	—
Restricted cash	—			(509.3		)	509.3
Escrow liability	—			509.3			(509.3		)
Cash paid for financing fees	(0.2		)	(11.5		)	(9.5		)
Repurchase of Successor Company common stock	(43.3		)	—			—
Net change in cash due to financing activities	$	(43.5	)	$	(57.5	)	$	(9.5	)
Effect of exchange rate changes on cash and cash equivalents	4.4			1.6			0.2
Net change in cash and cash equivalents	(70.8		)	(80.2		)	(27.8		)
Cash and cash equivalents at beginning of period	169.4			269.6			297.4
Cash and cash equivalents at end of period	$	98.6		$	189.4		$	269.6
Supplemental information
Cash paid for interest	$	12.7		$	—		$	6.0
Cash paid for income taxes	$	4.0		$	1.2		$	1.3

See accompanying Notes to Consolidated Financial Statements

5

RDA Holding Co., and Subsidiaries

Consolidated Statement of Changes in Stockholders’ Equity

(in millions)

(unaudited)

	Successor Company
	Common Stock		Treasury Stock			Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income		Total
Balance at December 31, 2010	$	—	$	—		$	597.6	$	(29.6	)	$	24.6	$	592.6
Net loss	—		—			—		(81.7		)	—		(81.7		)
Other comprehensive income:
Translation gain	—		—			—		—			32.9		32.9
Total comprehensive loss													(48.8		)
Stock-based compensation expense	—		—			1.6		—			—		1.6
Repurchase of Successor Company common stock	—		(43.3		)	—		—			—		(43.3		)
Balance at March 31, 2011	$	—	$	(43.3	)	$	599.2	$	(111.3	)	$	57.5	$	502.1

See accompanying Notes to Consolidated Financial Statements

6

RDA Holding Co., and Subsidiaries

Notes to Consolidated Financial Statements

(in millions, except share and per share amounts)

(unaudited)

Note 1Organization and Summary of Significant Accounting Policies

Organization and Business

RDA Holding Co. is principally a holding company.  We conduct our operations primarily through our wholly-owned subsidiary, The Reader’s Digest Association, Inc. (“RDA”), and subsidiaries of RDA.  RDA Holding Co.’s primary asset is its sole ownership of all issued and outstanding shares of common stock of RDA.  References in the Notes to Consolidated Financial Statements to “we,” “us,” “our,” “HoldCo” and the “Company” are to RDA Holding Co., and subsidiaries.

RDA is a global multi-brand and multi-platform media and direct marketing company that educates, entertains and connects audiences around the world.  We are dedicated to providing our customers with the inspiration, ideas and tools that simplify and enrich lives.  RDA markets books, magazines, recorded music collections, home video products and other products.  We sell our products worldwide through direct marketing and other sales channels.

On April 24, 2011, the Company entered into a separation agreement with Mary G. Berner, then President and Chief Executive Officer (“CEO”).  The Board of Directors (“Board”) has named Thomas Williams to serve as President and CEO of the Company, effective April 25, 2011.  See Note 14, Subsequent Events, for further information.

On April 18, 2011, holders of a majority of the Company’s outstanding common stock removed seven of the eight members of our Board and filled all vacancies with new members.  This event caused an event of default on the Senior Credit Facility (as defined in Note 10, Debt), and accelerated the vesting of stock options and restricted stock unit awards.  See Note 14, Subsequent Events, for further information.

On February 28, 2011, the Company announced the final results of its share repurchase tender offer, which expired at 11:59 p.m., EST, on February 25, 2011.  The Company purchased 1,494,134 shares of common stock at a price of $29.00 per common share for a total cost of $43.3.  The shares of common stock accepted for purchase pursuant to the tender offer represented approximately 5.4% of the Company’s then outstanding shares of common stock.  The Company funded the repurchase of the shares using available cash.

Basis of Presentation

Our unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for interim financial information.  These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated December 31, 2010 financial statements and accompanying notes.

We typically generate our strongest revenue in the fourth calendar quarter due to consumer purchases during the holiday season.  Summer and fall are the most active promotional periods in our United States segment for our magazine and books and home entertainment businesses, in part due to the significant percentage of our revenue that result from holiday gifts.  These periods of increased promotions have a significant impact on our profitability during such periods.  Our international segments are also seasonal, with fluctuations in profits as a result of the timing of customer acquisition mailings (generally made in January and July, depressing first and third calendar quarter profits as a result), and revenue tends to be strongest in our fourth calendar quarter due to holiday consumer purchases.

As discussed in Note 2, Reorganization and Emergence from Chapter 11, the Company emerged from chapter 11 bankruptcy protection on February 19, 2010 (“Effective Date”), and adopted fresh start accounting in accordance with Accounting Standards Codification (“ASC”), Topic 852, Reorganizations (“ASC 852”).  The adoption of fresh start accounting resulted in our becoming a new entity for financial reporting purposes.  Accordingly, our consolidated financial statements on February 19, 2010 and subsequent periods are not comparable, in various material respects, to our consolidated financial statements prior to that date.

The Company, when used in reference to the period including and subsequent to February 20, 2010 (“Post Emergence”), refers to the “Successor Company”, and when used in reference to the period prior to February 20, 2010 (“Pre Emergence”), refers to the “Predecessor Company”.

Principles of Consolidation

The consolidated financial statements for the three months ended March 31, 2011 and the periods February 20 to March 31, 2010 (Successor Company) and January 1 to February 19, 2010 (Predecessor Company) include the consolidated accounts of RDA Holding Co., and its subsidiaries, all of which are wholly-owned.  All significant intercompany accounts and transactions have been eliminated.

7

Use of Estimates

These statements, in the opinion of management, have been prepared following the requirements of U.S. GAAP for interim reporting, applying certain assumptions and estimates, including all normal, recurring adjustments considered necessary to present such information fairly.  Operating results for any interim period are not necessarily indicative of the results for an entire year due to, among other things, the seasonality of our business.  In preparing the consolidated financial statements in conformity with U.S. GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures at the date of the financial statements and during the reporting period.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year presentation.  Such amounts include the Company’s reclassification of software to be sold or leased.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (“ASU 2010-06”), which represents an update to ASC 820, Fair Value Measurements and Disclosures.  ASU 2010-06 provides new disclosure guidance for Level 3 fair value measurement activity, requiring separate presentation of information about purchases, sales, issuances and settlements.  This update is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years.  The Company adopted this guidance effective January 1, 2011, and it did not have a material impact on our consolidated financial statements.

In September 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605)-Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”), which represents an update to ASC 605, Revenue Recognition.  ASU 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on the following: (i) vendor-specific objective evidence; (ii) third-party evidence; or (iii) estimated selling price.  This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method.  This update is effective prospectively for revenue arrangements entered into or materially modified for fiscal years beginning on or after June 15, 2010.  The Company adopted this guidance effective January 1, 2011, and it did not have a material impact on our consolidated financial statements.

Note 2Reorganization and Emergence from Chapter 11

Emergence from Reorganization Proceedings

On August 24, 2009 (“Petition Date”), RDA Holding Co., and substantially all of its United States subsidiaries (collectively, the “Debtors”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code in the United States Bankruptcy Court for the Southern District of New York (“Bankruptcy Court” or “Court”).  The chapter 11 Cases were jointly administered under the caption In re: The Reader’s Digest Association, Inc., et al., Case No. 09-23529 (“chapter 11 Cases”).  On January 19, 2010, the Bankruptcy Court entered an order confirming the Debtors’ Third Amended Proposed Joint Chapter 11 Plan of Reorganization (“Plan of Reorganization” or “Plan”).  The Plan became effective when all material conditions of our Plan were satisfied and the Debtors emerged from bankruptcy protection on February 19, 2010, the Effective Date.

Upon emergence from bankruptcy protection, the Company adopted “fresh start accounting” provisions of ASC 852.  Under fresh start accounting, a new reporting entity was deemed to have been created and all assets and liabilities were revalued to their fair values.  Accordingly, the consolidated financial statements for the reporting entity prior to February 19, 2010 are not comparable to the consolidated financial statements for the reporting entity subsequent to that date.

Discharge and Treatment of Claims

As of the Effective Date, the Debtors were discharged and released from all liabilities, claims and interests arising prior to the Petition Date in accordance with the provisions of the Plan.

8

Claims Resolution and Plan Distributions

The pre-petition claims of the Debtors were evidenced in the schedules of liabilities filed by the Debtors and proofs of claim filed by creditors by the deadline established by the Court (November 16, 2009 for most claims).  Claims that were not objected to by the deadline set forth in the Plan (180 days from the February 19, 2010 Effective Date) were deemed to be allowed claims.  Claims that were objected to were allowed or disallowed through a claims resolution process before the Bankruptcy Court.  Pursuant to objections filed by the Debtors, the Court has reduced, reclassified and/or disallowed claims for varying reasons, including claims that were duplicative, amended, without merit, misclassified or overstated.  Many other claims were resolved prior to the Effective Date through settlement or by Court order.  Except with respect to any late filed claims, the claims resolution process is complete, and we expect the chapter 11 Cases to be closed in the second quarter of 2011.

Note 3Other Operating Items, Net

Items included in other operating items, net consist of the following: (i) restructuring charges, representing the streamlining of our organizational structure; (ii) professional fees related to our exit from bankruptcy and the implementation of fresh start accounting; (iii) professional fees, contractual charges and other periodic costs related to the strategic repositioning of our businesses; and (iv) gain or loss on the disposal of assets. The table below reflects other operating items, net expenses:

	Successor Company					Predecessor Company
	Three months ended March 31, 2011			February 20 to March 31, 2010		January 1 to February 19, 2010
Restructuring charges	$	3.7		$	0.3	$	10.6
Professional fees associated with bankruptcy, fresh start accounting, reorganization and restructuring	2.0			4.9		3.1
Sale or disposal of certain assets	(1.1		)	—		0.3
Total	$	4.6		$	5.2	$	14.0

Restructuring Actions

Restructuring charges are recorded in accordance with ASC Topic 712, Compensation - Nonretirement Postemployment Benefits (“ASC 712”) or ASC Topic 420, Exit or Disposal Cost Obligations (“ASC 420”).  Employees terminated as a result of our restructuring activities were terminated under our pre-existing severance policy; therefore, we recognized severance amounts pursuant to ASC 712.  Severance charges represent the cost to separate employees from our operations to streamline the organization.  As such, severance amounts are recorded when a termination plan is developed and approved, including the identification of positions to be separated, and when payment is probable and estimable.  Other amounts related to restructuring actions, including charges to terminate contractual obligations in connection with streamlining activities, are recorded in accordance with ASC 420.

Effective April 2, 2009, our Reader’s Digest Association, Inc. Retirement Plan (“U.S. Qualified Pension Plan” or “Retirement Plan”) was amended to provide additional benefits to employees involuntarily terminated.  As a result, a portion of our severance obligation is being satisfied by payments from the U.S. Qualified Pension Plan.  See Note 11, Benefit Plans, for further information.

For the three months ended March 31, 2011, we recorded new restructuring activities of $3.7.  This was primarily related to $2.2 in severance, principally due to continued headcount reductions in our Europe and APLA regions.  Additionally, we recorded $0.9 in contractual charges related to the abandonment of one floor of our White Plains, New York facility, due to additional charges to ready the space for sublease and adjustments to our expected sublease income; along with $0.6 in contractual charges related to abandonment of leases in APLA and Canada.  Employee severance payments are expected to be substantially completed by the end of 2011.

For the period February 20 to March 31, 2010, we recorded new professional fees of $4.9 related to bankruptcy and fresh start accounting.  We also recorded new restructuring activities of $0.3, related to continuing our consolidation of functions across our United States business units.  Employee severance payments are expected to be substantially completed by the end of 2012.

During the period January 1 to February 19, 2010, we recorded new restructuring activities of $10.6, primarily related to severance in our international locations, principally France.  Employee severance payments are expected to be substantially completed by the end of 2011.

9

The table below reflects changes in our restructuring accruals, by type of initiative, for the Successor Company, for the three months ended March 31, 2011:

	Successor Company
	Severance												Contracts
	2011			2010									2011			2010
	Successor			Successor			Predecessor						Successor			Successor			Predecessor
	Company			Company			Company			Total			Company			Company			Company			Total			Grand
	Initiatives			Initiatives			Initiatives			Severance			Initiatives			Initiatives			Initiatives			Contracts			Total
Balance at December 31, 2010	$	—		$	8.9		$	3.6		$	12.5		$	—		$	4.8		$	—		$	4.8		$	17.3
Accruals, net	3.1			(0.4		)	(0.5		)	2.2			0.6			0.9			—			1.5			3.7
Spending	(0.8		)	(5.9		)	(0.9		)	(7.6		)	(0.3		)	(0.4		)	—			(0.7		)	(8.3		)
Balance at March 31, 2011	$	2.3		$	2.6		$	2.2		$	7.1		$	0.3		$	5.3		$	—		$	5.6		$	12.7
Cumulative Amounts
Predecessor Company’s liabilities assumed in fresh start accounting	$	—		$	—		$	14.5		$	14.5		$	—		$	—		$	0.3		$	0.3		$	14.8
Accruals, net	3.1			22.0			(5.2		)	19.9			0.6			5.7			(0.2		)	6.1			26.0
Spending	(0.8		)	(19.4		)	(7.1		)	(27.3		)	(0.3		)	(0.4		)	(0.1		)	(0.8		)	(28.1		)
Balance at March 31, 2011	$	2.3		$	2.6		$	2.2		$	7.1		$	0.3		$	5.3		$	—		$	5.6		$	12.7

The table below reflects changes in our restructuring accruals, by reportable segment, for the Successor Company, for the three months ended March 31, 2011:

	Successor Company
	Severance															Total			Contracts									Grand
	US			Europe			APLA			Canada			LED			Severance			US			APLA			Canada			Total
Balance at December 31, 2010	$	0.3		$	9.2		$	2.0		$	0.9		$	0.1		$	12.5		$	4.8		$	—		$	—		$	17.3
Accruals, net	(0.1		)	0.9			1.4			0.1			(0.1		)	2.2			0.9			0.5			0.1			3.7
Spending	(0.1		)	(5.6		)	(1.5		)	(0.4		)	—			(7.6		)	(0.4		)	(0.2		)	(0.1		)	(8.3		)
Balance at March 31, 2011	$	0.1		$	4.5		$	1.9		$	0.6		$	—		$	7.1		$	5.3		$	0.3		$	—		$	12.7
Cumulative Amounts
Predecessor Company’s liabilities assumed in fresh start accounting	$	1.3		$	11.3		$	1.3		$	0.4		$	0.2		$	14.5		$	—		$	0.3		$	—		$	14.8
Accruals, net	6.2			6.4			6.0			1.5			(0.2		)	19.9			5.7			0.3			0.1			26.0
Spending	(7.4		)	(13.2		)	(5.4		)	(1.3		)	—			(27.3		)	(0.4		)	(0.3		)	(0.1		)	(28.1		)
Balance at March 31, 2011	$	0.1		$	4.5		$	1.9		$	0.6		$	—		$	7.1		$	5.3		$	0.3		$	—		$	12.7

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Note 4Deconsolidation

Effective February 17, 2010, the Company deconsolidated RDA UK as a result of RDA UK filing for administration.  As of the aforementioned date, the United Kingdom High Court of Justice appointed an administrator who replaced management and the Board of Directors of RDA UK, and is responsible for any decision making regarding the day-to-day operations, assets, liabilities and capital of RDA UK.  As a result, we relinquished our controlling financial interest in RDA UK.  Therefore, in accordance with ASC Topic 810, Consolidation, the financial results of RDA UK are no longer included in our consolidated financial results for periods beginning after February 17, 2010.

We recognized a pre-tax loss of $49.7 as a result of deconsolidating RDA UK on February 17, 2010.  The loss recognized upon deconsolidation of RDA UK represents the difference between the carrying value of the former subsidiary immediately before deconsolidation and the estimated fair value of any retained noncontrolling investment in RDA UK, which was zero on February 17, 2010.

On April 9, 2010, the Company entered into a license agreement with a third party to publish the United Kingdom edition of Reader’s Digest magazine and sell other products under the Reader’s Digest brand.

Note 5Reorganization Items

In accordance with ASC 852, reorganization items are presented separately in the accompanying consolidated statements of operations and include expenses, gains and losses directly related to the Debtors’ reorganization proceedings.  A summary of reorganization items for the Pre Emergence period is shown below:

	Predecessor Company
	January 1 to February 19, 2010
Gain on settlement of pre-petition liabilities (a)	$	(1,765.1	)
Pre emergence gain on settlement of pre-petition liabilities (a)	(2.1		)
Revaluation of assets and liabilities (b)	(163.1		)
Professional fees directly related to reorganization (c)	13.6
Rejected leases (d)	7.2
Compensation and retention (e)	1.3
Other	1.6
Total reorganization items	$	(1,906.6	)

(a)The gain at emergence and pre emergence gain on settlement of pre-petition liabilities reflected amounts related to negotiated settlements of pre-petition obligations, pursuant to the Plan of Reorganization, upon and prior to emergence from bankruptcy.

(b)The revaluation of assets and liabilities related to fresh start accounting adjustments in accordance with ASC 852.

(c)Professional fees directly related to reorganization included fees associated with advisors to the Debtors, unsecured creditors and secured creditors.

(d)Rejected leases reflected amounts recorded to settle leases rejected by the Company and approved by the Bankruptcy Court.

(e)The compensation and retention reflected bonus accruals for incentive compensation plans established under the Plan of Reorganization, which were directly linked to the reorganization.

Post Emergence payments for reorganization items included $43.2 for the settlement of pre-petition liabilities and $19.2 for professional fees for the period February 20 to March 31, 2010.

Pre Emergence payments for reorganization items included $3.9 for the settlement of pre-petition liabilities and $8.4 for professional fees for the period January 1 to February 19, 2010.

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Note 6Income Tax

For the three months ended March 31, 2011, the Company recorded an income tax expense of $4.5.  For the periods February 20 to March 31, 2010 and January 1 to February 19, 2010, the Company recorded an income tax benefit of $1.9 and an income tax expense of $54.0, respectively.  The income tax expense for the three months ended March 31, 2011 predominately reflects the application of the Company’s estimated annual effective tax rate to the first quarter loss.  Our estimated annual effective tax rate benefit reflects projected foreign earnings in low tax jurisdictions, in excess of losses in higher rate jurisdictions.  The result is a negative annual effective tax rate, which when applied to the first quarter loss, creates a tax expense.  The income tax benefit in the period February 20 to March 31, 2010 reflected the establishment of a valuation allowance on certain tax assets and the continued tax impact of fresh start accounting.  The income tax expense in the period January 1 to February 19, 2010 is primarily related to the cancellation of indebtedness income resulting from emergence from bankruptcy and the tax impact of fresh start accounting.

We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and may not accurately anticipate actual outcomes.  The amount of unrecognized tax benefits, including interest from uncertain tax positions, at March 31, 2011 and December 31, 2010 are $24.2 and $22.6, respectively.

Note 7Discontinued Operations and Assets Held for Sale

In January 2011, we sold our French facility for $8.3, and recognized a gain on the sale of $1.1.  This asset was classified in assets held for sale in our December 31, 2010 consolidated balance sheet.

In January 2010, we sold CompassLearning, Inc. (“CompassLearning”), our educational software division, for a purchase price of $30.8.  We recognized a gain on the sale, net of taxes, of $30.8 for the period January 1 to February 19, 2010.  This business qualified as discontinued operations under ASC 360, Property, Plant and Equipment.  We reported the results of operations and consolidated financial position of this business in discontinued operations within the consolidated statements of operations, consolidated balance sheets and consolidated statements of cash flows for the periods February 20 to March 31, 2010 and January 1 to February 19, 2010.

The (loss) income from discontinued operations, net of taxes, for the periods February 20 to March 31, 2010 and January 1 to February 19, 2010 is as follows:

	Successor Company			Predecessor Company
	February 20 to March 31, 2010			January 1 to February 19, 2010
Revenue	$	—		$	2.6
(Loss) income from discontinued operations before income taxes	(0.6		)	1.0
Income tax benefit on discontinued operations	—			(1.6		)
(Loss) income from discontinued operations, net of taxes, before gain on sales	(0.6		)	2.6
Gain on sale of divested business, net of taxes	—			30.8
(Loss) income from discontinued operations, net of taxes	$	(0.6	)	$	33.4

The gain on the sale of the CompassLearning divested business, net of taxes was as follows:

	Predecessor Company
	January 1 to February 19, 2010
Sales price	$	30.8
Net tangible assets	(3.0		)
Associated intangible assets	0.6
Transaction costs	2.4
Gain on sale of divested business, net of taxes	$	30.8

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The tax expense resulting from the sale was fully offset by the reversal of the valuation allowance recorded on CompassLearning’s net operating loss carryforwards.

Note 8Accounts Receivable, Net

The components of accounts receivable, net are as follows:

	Successor Company
	March 31, 2011			December 31, 2010
Gross trade accounts receivable	$	348.1		$	410.1
Reserve for returns	(60.3		)	(68.1		)
Reserve for bad debts and allowances	(95.4		)	(104.8		)
Accounts receivable, net	$	192.4		$	237.2

Note 9Inventories

The components of inventories are as follows:

	Successor Company
	March 31, 2011		December 31, 2010
Raw materials	$	1.6	$	1.8
Work-in-progress	3.8		4.1
Finished goods	66.1		56.6
Inventories	$	71.5	$	62.5

Note 10Debt

The components of debt are as follows:

	Successor Company
	March 31, 2011			December 31, 2010
Senior Secured Notes	$	525.0		$	525.0
Discount on Senior Secured Notes	(13.9		)	(14.3		)
Long-term debt	$	511.1		$	510.7

Interest Expense

Interest expense attributable to our outstanding debt is $13.8 for the three months ended March 31, 2011, and was $11.9 for the periods February 20 to March 31, 2010 and $8.8 for January 1 to February 19, 2010, including the amortization of deferred financing fees and bond discount of $1.1, $4.9 and $3.8, respectively.  The weighted average interest rate on our borrowings for the three months ended March 31, 2011 is 9.5%.  The weighted average interest rate on our borrowings for the period February 20 to March 31, 2010 was 9.5% and January 1 to February 19, 2010 was 10.8%.

Since the Petition Date, we recorded post-petition interest on pre-petition obligations only to the extent that we believed the interest would have been paid during the chapter 11 proceedings or that it was probable that the interest would have been an allowed claim.  Had we recorded interest based on all of our pre-petition contractual obligations, interest expense would have increased by $18.1 for the period January 1 to February 19, 2010, including amortization of debt costs of $3.8.

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Senior Secured Notes

On February 11, 2010, RD Escrow Corporation, a subsidiary of RDA, entered into an Indenture (“Indenture”) with, RDA, RDA Holding Co., and substantially all of our existing wholly-owned direct and indirect domestic subsidiaries (collectively referred to as the “Guarantors”), Wells Fargo Bank, N.A., as Trustee, and Wilmington Trust FSB, as Collateral Agent, pursuant to which RDA issued the Floating Rate Senior Secured Notes due 2017 (“Senior Secured Notes”) in a private offering under the Securities Act of 1933.  We issued the Senior Secured Notes at 97% of their face value.  Financing fees of $16.0 related to the Senior Secured Notes were deferred and are amortized under the effective interest rate method over the life of the Senior Secured Notes.

In October 2010, RDA Holding Co. and its subsidiaries filed a Registration Statement on Form S-4 with the Securities and Exchange Commission (“SEC”), in connection with our offer to exchange up to $525.0 of our Senior Secured Notes for a like principal amount of Floating Rate Senior Secured Notes due 2017 (“Exchange Notes”).  We completed the exchange offer in March 2011.  The Exchange Notes are guaranteed by the Guarantors on a senior secured basis, with terms substantially identical in all material respects to the unregistered Senior Secured Notes, except that the Exchange Notes do not contain terms restricting their transfer.

The Senior Secured Notes mature on February 15, 2017.  The Senior Secured Notes bear interest at a rate per annum equal to LIBOR (as defined, subject to a three month LIBOR floor of 3.0%) plus 6.5%.  The LIBOR component of the interest rate will be reset quarterly and commenced on May 15, 2010.  Interest on the Senior Secured Notes will be payable on February 15, May 15, August 15 and November 15, as commenced on May 15, 2010, and began accruing from the issue date of the Senior Secured Notes.

The Senior Secured Notes are fully and unconditionally guaranteed on a senior secured basis, jointly and severally by RDA Holding Co., and by all of our existing and future wholly-owned direct and indirect domestic subsidiaries (other than Direct Holdings IP, L.L.C., an indirect bankruptcy remote subsidiary of RDA that holds our license to use the Time Life brand, and whose sole function is to license the brand to a guarantor).  The Senior Secured Notes are also fully and unconditionally guaranteed on a senior secured basis by our subsidiaries that guarantee our indebtedness or indebtedness of another guarantor.  Under certain circumstances, including the sale of subsidiary Guarantors and legal defeasance of the Senior Secured Notes, subsidiary Guarantors may be released from their guarantees without the consent of the holders of Senior Secured Notes.  The Senior Secured Notes are secured by a first priority security interest on substantially all of the assets of the Company and the Guarantors, including 100% of the capital stock of the Company and its domestic subsidiaries and 65% of the capital stock of its first-tier foreign subsidiaries, in each case subject to certain exceptions set forth in the Indenture and related documentation.

The Senior Secured Notes and guarantees are our general senior secured obligations and rank equally in right of payment with all of our and the Guarantors’ existing and future senior indebtedness but are, together with obligations under the Senior Credit Facility (as defined below) and any other secured obligations, effectively senior in right of payment to our existing and future unsecured obligations to the extent of the value of the collateral.

We may redeem, at our option, some or all of the Senior Secured Notes at any time on or after February 15, 2013, based on the redemption prices set forth in the Indenture, together with accrued and unpaid interest, if any, to the date of redemption.

At any time prior to February 15, 2013, we may redeem up to 35% of the original principal amount of the Senior Secured Notes with the proceeds of certain equity offerings at the redemption price set forth in the Indenture.  We may also, prior to February 15, 2013, redeem some or all of the Senior Secured Notes, in each case, at a price equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest, if any, plus a “make-whole” premium.

We may be required to make offers to repurchase some of the Senior Secured Notes from the proceeds of certain asset sales or from excess cash flow, as defined in our Indenture.  The offers would be at a purchase price in cash equal to 100% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest.

Upon the occurrence of a change of control (as defined in the Indenture) of RDA holders of the Senior Secured Notes have the right to require us to repurchase all or a portion of the Senior Secured Notes at a purchase price in cash equal to 101% of the principal amount of the Senior Secured Notes, plus accrued and unpaid interest.

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The Indenture, among other things, limits our ability and the ability of our restricted subsidiaries to: (i) incur, assume or guarantee additional indebtedness; (ii) issue redeemable stock and preferred stock; (iii) pay dividends or make distributions or redeem or repurchase capital stock; (iv) prepay, redeem or repurchase certain debt; (v) make loans and investments; (vi) incur liens; (vii) restrict dividends, loans or asset transfers from our subsidiaries; (viii) sell or otherwise dispose of assets, including capital stock of subsidiaries; (ix) consolidate or merge with or into, or sell substantially all of our assets to, another person; (x) enter into transactions with affiliates; and (xi) enter into new lines of business.  We were in compliance with our Indenture at March 31, 2011.

Senior Credit Facility

On February 19, 2010, the Company entered into a credit agreement with JPMorgan Chase Bank, N.A., as administrative agent; the Guarantors (which include us and are defined therein); J.P. Morgan Securities Inc., Banc of America Securities LLC, Credit Suisse Securities (U.S.A.) LLC and Goldman Sachs Credit Partners L.P., as joint lead arrangers and joint bookrunners; and JPMorgan Chase Bank, N.A., Bank of America, N.A., Credit Suisse AG and Goldman Sachs Credit Partners L.P., as lenders, providing for a three year revolving credit facility (“Senior Credit Facility”) of up to $50.0 with a $25.0 letter of credit sub-facility.  The proceeds of any revolving loans will be used for working capital and general corporate purposes.  Financing fees of $0.9 related to the Senior Credit Facility were deferred and are amortized under the effective interest rate method, over a life of three years.  On March 31, 2010, we entered into an amendment to the Senior Credit Facility to permit existing cash-collateralized letters of credit to be issued under the $25.0 letter of credit sub-facility of the Senior Credit Facility, thereby enabling the release of the related cash collateral.

Borrowings under the Senior Credit Facility are denominated in U.S. dollars and bear interest at a rate, at our option, of either (i) a base rate plus a margin of 3.0% per annum or (ii) a Eurodollar rate (not to be less than 2.0% per annum) plus a margin of 4.0% per annum.  In an event of default, we will be required to pay interest at an otherwise applicable rate plus 2.0% per annum.

We are required to pay a commitment fee of 1.0%, which will accrue on the unused portion of the commitments.  For issued but undrawn letters of credit, we are required to pay a fee of 4.0% per annum, payable quarterly.

As of March 31, 2011, there are no borrowings under the Senior Credit Facility.  The Senior Credit Facility is fully and unconditionally guaranteed on a first priority secured basis, jointly and severally by ourselves and by substantially all of our existing and future wholly-owned direct and indirect domestic subsidiaries.  The obligations and guaranty under the Senior Credit Facility are secured by a first priority security interest in the same collateral that secures the Senior Secured Notes.

The Senior Credit Facility contains substantially the same covenants and limitations as the Senior Secured Notes.  In addition, there is a financial covenant that limits our maximum allowed leverage ratio.  The Company was in compliance with all covenants at March 31, 2011.  See Note 14, Subsequent Events, for further information regarding compliance with covenants subsequent to March 31, 2011.

Letters of Credit

As of March 31, 2011 and December 31, 2010, there are $18.7 and $18.6, respectively, in standby letters of credit against our Senior Credit Facility which are serving as security, primarily related to real estate leases entered into by RDA, Direct Holdings, and Allrecipes.com, Inc.; certain contested tax liabilities in Russia; and as security for surety bonds related to sweepstakes promotions and customs duties.

As of March 31, 2011, there are no cash-collateralized letters of credit outstanding.

Fair Values

Based on market prices at March 31, 2011, the fair value of our $525.0 Senior Secured Notes is approximately $544.7.  Based on market prices at December 31, 2010, the fair value of our $525.0 Senior Secured Notes was approximately $519.8.  The Senior Secured Notes are fair valued based on Level 2 of the fair value hierarchy, based on quoted prices for our Senior Secured Notes in markets that are not active.

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Note 11Benefit Plans

We sponsor various pension and postretirement benefit plans, including those for certain employees in the United States and internationally.

Components of net periodic pension benefit are as follows:

	Successor Company						Predecessor Company
	Three months ended March 31, 2011			February 20 to March 31, 2010			January 1 to February 19, 2010
Service cost	$	1.1		$	0.6		$	1.1
Interest cost	6.1			3.0			5.4
Expected return on plan assets	(10.3		)	(5.5		)	(9.9		)
Amortization of net actuarial gain	—			—			0.4
Cost for special termination benefits (a)	0.5			—			0.6
Net periodic pension benefit	$	(2.6	)	$	(1.9	)	$	(2.4	)

(a)Cost for special termination benefits is included in other operating items, net in our consolidated statements of operations.

For the three months ended March 31, 2011, $0.9 was contributed to our international pension plans.  We contributed $0.1 to our international pension plans for each of the periods February 20 to March 31, 2010 and January 1 to February 19, 2010.

Our Retirement Plan in the United States is over funded; therefore, we did not make any contributions for the three months ended March 31, 2011 or for the periods February 20 to March 31, 2010 and January 1 to February 19, 2010.

We also sponsor certain postretirement benefit plans in the United States and Canada.  The table below details the components of our net periodic postretirement cost (benefit):

	Successor Company				Predecessor Company
	Three months ended March 31, 2011		February 20 to March 31, 2010		January 1 to February 19, 2010
Interest cost	$	0.2	$	0.1	$	0.1
Amortization of prior service credit	—		—		(0.2		)
Amortization of net actuarial gain	—		—		(0.2		)
Net periodic postretirement cost (benefit)	$	0.2	$	0.1	$	(0.3	)

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Note 12Segments

Reportable segments are based on our method of internal reporting.  We present our segment revenue as if the intercompany transactions were with third parties.  Revenue and expenses attributable to intercompany transactions are eliminated to reconcile our reportable segment amounts to consolidated amounts, as reported in our consolidated statements of operations.

Reportable Segment Financial Information:

	Successor Company						Predecessor Company
	Three months ended March 31, 2011			February 20 to March 31, 2010			January 1 to February 19, 2010
Revenue
United States	$	114.4		$	59.8		$	74.4
Europe (a)	121.9			52.9			92.4
Asia Pacific & Latin America	57.7			27.5			34.4
Canada	22.8			9.7			15.2
Lifestyle & Entertainment Direct	30.4			24.4			36.2
Other	5.5			2.7			5.7
Intercompany eliminations	(1.8		)	(0.2		)	(0.6		)
Fair value adjustments (b)	(24.9		)	(20.6		)	—
Total revenue	$	326.0		$	156.2		$	257.7
Operating (loss) income
United States	$	(1.9	)	$	6.1		$	3.0
Europe (a)	(11.6		)	7.0			(8.1		)
Asia Pacific & Latin America	1.8			3.7			0.2
Canada	0.8			(1.0		)	1.7
Lifestyle & Entertainment Direct	(5.1		)	2.2			6.1
Other	0.5			(0.2		)	1.9
Corporate unallocated	(24.3		)	(9.4		)	(15.1		)
Fair value adjustments (b)	(17.5		)	(6.0		)	—
Other operating items, net (c)	(4.6		)	(5.2		)	(14.0		)
Operating loss	$	(61.9	)	$	(2.8	)	$	(24.3	)

(a)Our Europe segment includes the results of RDA UK business prior to the deconsolidation on February 17, 2010.

(b)Fair value adjustments include the amortization of the fair value reduction to unearned revenue and related deferred cost accounts resulting from the application of fresh start accounting upon our emergence from bankruptcy.

(c)Items included in other operating items, net consist of the following:  (i) restructuring charges, representing the streamlining of our organizational structure; (ii) professional fees related to our exit from bankruptcy and the implementation of fresh start accounting; (iii) professional fees, contractual charges and other periodic costs related to the strategic repositioning of our businesses; and (iv) gain or loss on the disposal of assets.  See Note 3, Other Operating Items, Net.

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Note 13Guarantor and Non-Guarantor Financial Information

RDA Holding Co., and our domestic subsidiaries guarantee the Senior Secured Notes issued by RDA (collectively, the “Guarantor Subsidiaries”) jointly and severally, irrevocably and unconditionally.  The Guarantor Subsidiaries do not include foreign subsidiaries, domestic subsidiaries whose assets substantially consist of voting stock of one or more foreign subsidiaries, or non-wholly-owned subsidiaries (subject to certain limited exceptions such as in the event that such non-wholly-owned subsidiary guarantees debt issued in a capital markets transaction).  Our subsidiaries that are not Guarantor Subsidiaries (collectively, the “Non-Guarantor Subsidiaries”) are not guarantors of the Senior Secured Notes.

The following tables present consolidated condensed balance sheets as of March 31, 2011 and December 31, 2010 (Successor Company), for RDA Holding Co, (the parent) and RDA (the issuer), both of which are presented on a stand-alone basis; Guarantor Subsidiaries, on a combined basis; and Non-Guarantor Subsidiaries, on a combined basis.  The consolidated statements of operations and the consolidated condensed statements of cash flows for the same entities are presented for the Successor Company for the three months ended March 31, 2011 and the period February 20 to March 31, 2010; and for the Predecessor Company for the period January 1 to February 19, 2010.

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Consolidated statement of operations for the three months ended March 31, 2011 (Successor Company):

	Guarantor Parent HoldCo			Issuer Parent- RDA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	16.8		$	115.2		$	195.8		$	(1.8	)	$	326.0
Product, distribution and editorial expenses	—			11.0			58.1			87.5			(1.8		)	154.8
Promotion, marketing and administrative expenses	—			26.4			74.3			127.8			—			228.5
Other operating items, net	—			4.2			(1.5		)	1.9			—			4.6
Operating loss	—			(24.8		)	(15.7		)	(21.4		)	—			(61.9		)
Interest expense	—			13.8			—			—			—			13.8
Other (income) expense, net	—			(6.2		)	1.4			6.3			—			1.5
Loss (income) from investment in subsidiaries	81.7			47.6			(0.3		)	—			(129.0		)	—
Loss before income taxes	(81.7		)	(80.0		)	(16.8		)	(27.7		)	129.0			(77.2		)
Income tax expense	—			1.7			1.6			1.2			—			4.5
Net loss	$	(81.7	)	$	(81.7	)	$	(18.4	)	$	(28.9	)	$	129.0		$	(81.7	)

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Consolidated condensed balance sheet as of March 31, 2011 (Successor Company):

	Guarantor Parent HoldCo		Issuer Parent- RDA		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets	$	—	$	40.3	$	159.4	$	369.5	$	(21.1	)	$	548.1
Property and equipment, net	—		34.1		13.6		13.3		—			61.0
Restricted cash	—		1.6		—		6.9		—			8.5
Goodwill	—		—		329.3		361.0		—			690.3
Other intangible assets, net	—		—		186.5		261.4		—			447.9
Prepaid pension assets	—		140.3		—		29.5		—			169.8
Investments in subsidiaries	502.1		864.5		23.4		—		(1,390.0		)	—
Intercompany noncurrent receivables	—		104.5		—		—		(104.5		)	—
Other noncurrent assets	—		18.9		17.6		5.4		—			41.9
Total assets	$	502.1	$	1,204.2	$	729.8	$	1,047.0	$	(1,515.6	)	$	1,967.5
Liabilities and stockholders’ equity
Current liabilities	$	—	$	82.9	$	289.6	$	277.9	$	(21.1	)	$	629.3
Long-term debt	—		511.1		—		—		—			511.1
Unearned revenue	—		—		102.8		2.0		—			104.8
Accrued pension	—		—		—		5.2		—			5.2
Postretirement and postemployment benefits other than pensions	—		10.8		—		1.4		—			12.2
Intercompany noncurrent payables	—		—		11.8		92.7		(104.5		)	—
Other noncurrent liabilities	—		97.3		24.5		81.0		—			202.8
Total liabilities	—		702.1		428.7		460.2		(125.6		)	1,465.4
Stockholders’ equity	502.1		502.1		301.1		586.8		(1,390.0		)	502.1
Total liabilities and stockholders’ equity	$	502.1	$	1,204.2	$	729.8	$	1,047.0	$	(1,515.6	)	$	1,967.5

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Consolidated condensed statement of cash flows for the three months ended March 31, 2011 (Successor Company):

	Guarantor Parent HoldCo		Issuer Parent- RDA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net change in cash due to operating activities	$	—	$	—		$	1.2		$	(32.8	)	$	(3.3	)	$	(34.9	)
Net change in cash due to investing activities	—		(4.0		)	(0.8		)	8.0			—			3.2
Net change in cash due to financing activities	—		(43.5		)	—			—			—			(43.5		)
Effect of exchange rate changes on cash and cash equivalents	—		(1.5		)	—			2.6			3.3			4.4
Net change in cash and cash equivalents	—		(49.0		)	0.4			(22.2		)	—			(70.8		)
Cash and cash equivalents at beginning of the period	—		64.8			3.8			100.8			—			169.4
Cash and cash equivalents at end of the period	$	—	$	15.8		$	4.2		$	78.6		$	—		$	98.6

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Consolidated statement of operations for the period February 20 to March 31, 2010 (Successor Company):

	Guarantor Parent HoldCo			Issuer Parent-RDA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	6.5		$	63.4		$	86.8		$	(0.5	)	$	156.2
Product, distribution and editorial expenses	—			0.3			27.6			36.5			(0.5		)	63.9
Promotion, marketing and administrative expenses	—			11.7			33.0			45.2			—			89.9
Other operating items, net	—			4.0			(0.1		)	1.3			—			5.2
Operating (loss) income	—			(9.5		)	2.9			3.8			—			(2.8		)
Interest expense	—			10.9			—			1.0			—			11.9
Other (income) expense, net	—			(0.8		)	0.3			0.9			—			0.4
Loss (income) from investment in subsidiaries	13.8			(5.2		)	(0.1		)	—			(8.5		)	—
(Loss) income before income taxes and discontinued operations	(13.8		)	(14.4		)	2.7			1.9			8.5			(15.1		)
Income tax benefit	—			(0.6		)	(0.9		)	(0.4		)	—			(1.9		)
(Loss) income from continuing operations	(13.8		)	(13.8		)	3.6			2.3			8.5			(13.2		)
Loss from discontinued operations, net of taxes	—			—			(0.1		)	(0.5		)	—			(0.6		)
Net (loss) income	$	(13.8	)	$	(13.8	)	$	3.5		$	1.8		$	8.5		$	(13.8	)

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Consolidated statement of operations for the period January 1 to February 19, 2010 (Predecessor Company):

	Guarantor Parent HoldCo			Issuer Parent - RDA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Revenue	$	—		$	8.4		$	107.5		$	142.4		$	(0.6	)	$	257.7
Product, distribution and editorial expenses	—			2.6			50.0			60.9			(0.6		)	112.9
Promotion, marketing and administrative expenses	—			19.7			47.0			88.4			—			155.1
Other operating items, net	—			(2.0		)	2.9			13.1			—			14.0
Operating (loss) income	—			(11.9		)	7.6			(20.0		)	—			(24.3		)
Interest expense	—			7.9			—			0.9			—			8.8
Loss (gain) on deconsolidation of subsidiary	—			64.3			—			(14.6		)	—			49.7
Other expense (income), net	—			8.1			(11.0		)	12.5			—			9.6
Reorganization items	193.2			(1,801.5		)	(221.5		)	(76.8		)	—			(1,906.6		)
Income from investment in subsidiaries	(1,986.8		)	(206.9		)	(0.1		)	—			2,193.8			—
Income before income taxes and discontinued operations	1,793.6			1,916.2			240.2			58.0			(2,193.8		)	1,814.2
Income tax (benefit) expense	—			(70.6		)	90.8			33.8			—			54.0
Income from continuing operations	1,793.6			1,986.8			149.4			24.2			(2,193.8		)	1,760.2
Income from discontinued operations, net of taxes	—			—			32.8			0.6			—			33.4
Net income	$	1,793.6		$	1,986.8		$	182.2		$	24.8		$	(2,193.8	)	$	1,793.6

23

Consolidated condensed balance sheet as of December 31, 2010 (Successor Company):

	Guarantor Parent HoldCo		Issuer Parent- RDA		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminations			Consolidated
Assets
Current assets	$	—	$	103.6	$	464.1	$	384.4	$	(315.6	)	$	636.5
Property and equipment, net	—		32.4		13.4		13.5		—			59.3
Restricted cash	—		1.4		—		7.0		—			8.4
Goodwill	—		—		329.3		343.1		—			672.4
Other intangible assets, net	—		—		192.9		258.5		—			451.4
Prepaid pension assets	—		137.6		—		28.4		—			166.0
Investments in subsidiaries	592.6		1,189.1		23.1		—		(1,804.8		)	—
Intercompany noncurrent receivables	—		110.4		0.4		33.4		(144.2		)	—
Other noncurrent assets	—		19.5		10.8		4.5		—			34.8
Total assets	$	592.6	$	1,594.0	$	1,034.0	$	1,072.8	$	(2,264.6	)	$	2,028.8
Liabilities and stockholders’ equity
Current liabilities	$	—	$	369.4	$	271.6	$	287.8	$	(315.6	)	$	613.2
Long-term debt	—		510.7		—		—		—			510.7
Unearned revenue	—		—		92.3		2.0		—			94.3
Accrued pension	—		—		—		5.7		—			5.7
Postretirement and postemployment benefits other than pensions	—		11.5		—		1.4		—			12.9
Intercompany noncurrent payables	—		33.4		11.7		99.1		(144.2		)	—
Other noncurrent liabilities	—		76.4		43.9		79.1		—			199.4
Total liabilities	—		1,001.4		419.5		475.1		(459.8		)	1,436.2
Stockholders’ equity	592.6		592.6		614.5		597.7		(1,804.8		)	592.6
Total liabilities and stockholders’ equity	$	592.6	$	1,594.0	$	1,034.0	$	1,072.8	$	(2,264.6	)	$	2,028.8

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Consolidated condensed statement of cash flows for the period February 20 to March 31, 2010 (Successor Company):

	Guarantor Parent HoldCo		Issuer Parent- RDA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net change in cash due to continuing operating activities	$	—	$	(29.6	)	$	(21.9	)	$	3.7		$	3.4		$	(44.4	)
Net change in cash due to discontinued operating activities	—		—			—			(0.3		)	—			(0.3		)
Net change in cash due to operating activities	—		(29.6		)	(21.9		)	3.4			3.4			(44.7		)
Net change in cash due to investing activities	—		(0.1		)	20.9			(0.4		)	—			20.4
Net change in cash due to financing activities	—		(57.5		)	—			—			—			(57.5		)
Effect of exchange rate changes on cash and cash equivalents	—		(1.7		)	0.4			6.3			(3.4		)	1.6
Net change in cash and cash equivalents	—		(88.9		)	(0.6		)	9.3			—			(80.2		)
Cash and cash equivalents at beginning of the period	—		177.1			4.9			87.6			—			269.6
Cash and cash equivalents at end of the period	$	—	$	88.2		$	4.3		$	96.9		$	—		$	189.4

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Consolidated condensed statement of cash flows for the period January 1 to February 19, 2010 (Predecessor Company):

	Guarantor Parent HoldCo		Issuer Parent - RDA			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net change in cash due to continuing operating activities	$	—	$	(23.5	)	$	(9.6	)	$	9.5		$	8.0		$	(15.6	)
Net change in cash due to discontinued operating activities	—		3.4			(2.1		)	4.5			—			5.8
Net change in cash due to operating activities	—		(20.1		)	(11.7		)	14.0			8.0			(9.8		)
Net change in cash due to investing activities	—		(1.6		)	9.8			(16.9		)	—			(8.7		)
Net change in cash due to financing activities	—		(9.5		)	—			—			—			(9.5		)
Effect of exchange rate changes on cash and cash equivalents	—		3.1			—			5.1			(8.0		)	0.2
Net change in cash and cash equivalents	—		(28.1		)	(1.9		)	2.2			—			(27.8		)
Cash and cash equivalents at beginning of the period	—		205.1			6.9			85.4			—			297.4
Cash and cash equivalents at end of the period	$	—	$	177.0		$	5.0		$	87.6		$	—		$	269.6

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Note 14Subsequent Events

On April 18, 2011, holders of a majority of the Company’s outstanding common stock, acting by written consent and in accordance with the provisions of our certificate of incorporation and bylaws and the stockholders agreement to which the Company and the holders of its common stock are parties, removed seven of the eight members of the Board and filled all vacancies with new members (“Board Change”).

On April 24, 2011, the Company, acting at the direction of the Board and Mary G. Berner, the President and CEO of the Company, entered into a separation agreement whereby Ms. Berner agreed to step down as President and CEO effective April 25, 2011.  Ms. Berner also agreed to resign as a director, effective the same date.  Also on April 25, 2011, the Board appointed Thomas Williams, the Company’s Senior Vice President and Chief Financial Officer, to serve as President and CEO.  Mr. Williams was elected to the Board on May 2, 2011.

The Board Change constituted an event of default under the Senior Credit Facility among the Company, The Reader’s Digest Association, Inc., the several banks and other financial institutions from time to time party thereto (“Lenders”) and JPMorgan Chase Bank, N.A., as administrative agent (“Administration Agent”) for the Lenders.

On May 11, 2011, we entered into an amendment to the Senior Credit Facility with the Administration Agent and the Lenders under which the Lenders unanimously waived the event of default arising from the Board Change.  The Senior Credit Facility was modified by, among other things, the following items:

·the financial covenant contained in the Senior Credit Facility (which requires that we maintain a specified senior secured debt ratio that decreases quarter to quarter) was modified to (i) provide that the covenant is measured on a quarter end basis only (rather than daily, as originally required) and (ii) change the ratio that we will have to meet for the quarter ending September 30, 2011 to 4.25:1 (from 4.00:1);

·in order to be able to incur additional permitted secured debt, we must be in compliance with the financial covenant and not be in default under the Senior Credit Facility;

·the restricted payment covenant contained in the Senior Credit Facility was amended to further limit our ability to pay dividends on, or repurchase, our equity interests, by among other things imposing a requirement that we satisfy the financial covenant referred to above, on a pro forma basis, at the then-applicable level set forth in the covenant, less 0.50;

·the definition of “change of control” was amended such that the percentage of equity interests acquired by any person or group necessary to trigger a change of control (and thereby give rise to an event of default) was reduced from 50.0% to 35.0%;

·the limitation of the amount of restructuring charges that we can add back in the calculation of EBITDA, which is used in the financial covenant and several ratios, to $35.0 in 2011 and any subsequent twelve month period;

·a condition was imposed to borrowings or other extensions of credit under the Senior Credit Facility that our “net cash balance” (as defined therein) not exceed $125.0 after giving effect to such borrowing or extension of credit; and

·certain reporting covenants were modified.

The Board Change also constituted a “change of control” under the Company’s 2010 Equity Incentive Plan.  As a result, the vesting of stock options and restricted stock awards (“RSUs”) was accelerated.  We will recognize increased compensation expense, in the second quarter of 2011, related to this vesting event.

The Board Change did not constitute an event of default under the Indenture, nor did the event of default under the Senior Credit Facility trigger a cross-default under the Indenture.

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s discussion and analysis of the financial condition and results of operations (“MD&A”) of the Company is intended to provide a reader of our Consolidated Financial Statements with a narrative from management’s perspective on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.  This discussion is organized as follows:

·Overview

·Results of Operations

·Liquidity and Capital Resources

·Recent Accounting Pronouncements

This discussion should be read in conjunction with the Consolidated Financial Statements and related notes presented elsewhere in this report and with our December 31, 2010 Consolidated Financial Statements filed with the SEC on Form SP15D2 on March 9, 2011.  This discussion contains forward-looking statements about our markets, the demand for our products and services and our expectations regarding future results, as discussed in the section “Cautionary Note Regarding Forward-Looking Statements” below.  Certain amounts and percentages do not recalculate due to rounding.  Amounts are in millions, except share and per share amounts.

Any references in MD&A to “we,” “us,” “RDA,” “the Company” and “our” generally refer to RDA Holding Co. and its subsidiaries.

As discussed in Note 2, Reorganization and Emergence from Chapter 11, in the Notes to our March 31, 2011 Consolidated Financial Statements, we emerged from chapter 11 bankruptcy protection on February 19, 2010 (“Effective Date”), and adopted fresh start accounting in accordance with Accounting Standards Codification (“ASC”), Topic 852, Reorganizations (“ASC 852”).  In accordance with generally accepted accounting principles in the United States (“U.S. GAAP”), we were considered a new company upon our emergence from bankruptcy, with the periods prior to February 19, 2010 representing the predecessor company (“Predecessor Company”) and the periods after February 19, 2010 representing the successor company (“Successor Company”).  The period February 20 to March 31, 2010 includes the impact of the application of fresh start accounting upon our emergence from bankruptcy.  Accordingly, our consolidated financial statements on February 19, 2010 and subsequent periods are not comparable, in various material respects, to our consolidated financial statements prior to that date.

Cautionary Note Regarding Forward-Looking Statements

Certain statements in this MD&A and in future oral and written statements that we make, may be forward-looking.  These statements reflect our beliefs and expectations as to future events and trends affecting our business, consolidated financial condition and results of operations and discuss, among other things, anticipated future performance and future business plans.  Forward-looking statements are identified by such words and phrases as “prospects,” “outlook,” “believes,” “estimates,” “intends,” “may,” “will,” “should,” “anticipates,” “expects” or “plans,” or the negative or other similar expressions, or by discussion of trends and conditions, strategy or risks and uncertainties.

Forward-looking statements are necessarily subject to risks and uncertainties, many of which are outside our control or predict with accuracy and some of which we might not even anticipate, because they relate to events and depend on circumstances that may or may not occur in the future.  These could cause actual results to differ materially from our forward-looking statements.  We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity (including our expectations regarding the return of cash to shareholders) and the development of the industry in which we operate may differ materially from those made in or suggested by the forward-looking statements.  Although we believe that the expectations reflected in such forward-looking statements are based upon reasonable assumptions at the time made, we can give no assurance that our expectations will be achieved.  In addition, even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements, those results or developments may not be indicative of results or developments in subsequent periods.  Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements.  Readers are cautioned not to place undue reliance on these forward-looking statements.

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Important factors that may cause actual results to differ materially from forward-looking statements include, but are not limited to, the risks and uncertainties set forth in this MD&A and in the “Business” and “Risk Factors” sections contained in our Registration Statement on Form S-4 filed with the Securities and Exchange Commission, as declared effective on February 11, 2011 (“Form S-4”), and include the following:

·our degree of leverage and concerns about our financial viability;

·general economic and market conditions;

·increased competition and other factors affecting the media and publishing industries generally;

·our ability to anticipate, respond or adapt to trends in what the public finds appealing;

·the identification, completion or integration of acquisitions and other significant transactions;

·the ability to attract and retain new and younger customers and key personnel;

·changes in relationships with, or the financial condition of, key suppliers or vendors;

·further declines in advertising revenue or in media spending generally;

·a failure to maintain circulation levels in a cost-efficient manner;

·risks relating to the foreign countries where we transact business;

·a material deterioration in foreign exchange rates with respect to the U.S. dollar;

·our ability to fulfill our strategy of building our Internet and digital businesses;

·significant financial restrictions placed on us by the Indenture governing the Senior Secured Notes and our Senior Credit Facility (as defined below);

·lack of comparable financial data due to the restructuring of our business or the adoption of fresh start accounting;

·the impact of the recent changes to our Board of Directors (“Board”) and senior management;

·the post-emergence impact of the bankruptcy proceedings on our operations, including the impact on our ability to negotiate favorable terms with suppliers, customers, counterparties and others;

·      the application of tax laws resulting from our chapter 11 proceedings, which will have an adverse effect on our future cash tax obligations; and

·the risk factors set forth under the section titled “Risk Factors” in the Form S-4.

Any forward-looking statements that we make speak only as of the dates of such statements.  We assume no obligation to update or supplement any forward-looking statements that may become untrue because of subsequent events, whether because of new information, future events or otherwise except where expressly required by law.  Comparisons of results for current and any prior periods are not intended to express any future trends or indications of future performance, unless expressed as such, and should only be viewed as historical data.

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Overview

We are a global, multi-brand and multi-platform media and direct marketing company that educates, entertains and connects audiences around the world.  We are dedicated to providing our customers with inspiration, ideas and tools that simplify and enrich their lives.  We have two lines of business: branded communities and direct marketing.  Our branded communities businesses consist of our U.S. operations that are organized thematically according to the shared interests of our customers.  Our direct marketing businesses consist of our international and U.S. operations that are designed to leverage our direct marketing and database skills along with our global reach to sell to customers who purchase brands owned by us and brands owned and developed by third parties.  We have six reportable segments which operate our branded communities and direct marketing businesses: United States, Europe, Canada, Asia Pacific and Latin America (“APLA”), Lifestyle & Entertainment Direct (“LED”) and Other.  Our branded communities operate our United States and Other segments, while our direct marketing businesses operate our international (Europe, Canada and APLA) and LED segments.

Our revenue is generated through sales of books, home entertainment and non-published products, magazine subscriptions, newsstand sales and advertising.  Our branded communities generate revenue primarily through magazine subscription, newsstand and advertising revenue and, to a lesser extent through books, music and other home entertainment products.  Our promotions to customers in our branded communities businesses are based on specific customer interests.  Our direct marketing businesses generate revenue primarily through the sale of books, home entertainment and non-published products, along with magazine subscription and advertising.  Our promotions to customers in our direct marketing businesses are centered on sweepstakes, in our international markets, and other direct response mechanisms.

Financial Highlights

Total revenue for the three months ended March 31, 2011 was $326.0, of which the Europe, United States, APLA, LED and Canada segments contributed 34.6%, 32.4%, 16.4%, 8.6% and 6.5% respectively, excluding intercompany eliminations and fair value adjustments.  Our Other segment represents the remaining 1.5%.

For the three months ended March 31, 2011, excluding intercompany eliminations and fair value adjustments, the combined sales of books, music, other home entertainment products and other products contributed 62.1% of total revenue, while magazine subscriptions, newsstand sales and advertising contributed 37.9% of total revenue.

Board Change and Related Matters

On April 18, 2011, holders of a majority of the Company’s outstanding common stock, acting by written consent and in accordance with the provisions of the our certificate of incorporation and bylaws and the stockholders agreement to which the Company and the holders of its common stock are parties, removed seven of the eight members of the Board and filled all vacancies with new members (“Board Change”).  On April 24, 2011, the Company, acting at the direction of the Board and Mary G. Berner, the President and Chief Executive Officer of the Company, entered into a separation agreement whereby Ms. Berner agreed to step down as President and Chief Executive Officer (“CEO”) effective April 25, 2011 (“Separation Agreement”).  Ms. Berner also agreed to resign as a director, effective the same date.  Also as of April 25, 2011, the Board appointed Thomas Williams, the Company’s Senior Vice President and Chief Financial Officer, to serve as President and CEO.  Mr. Williams was elected to the Board on May 2, 2011 through action by written consent of holders of a majority of the Company’s outstanding common stock.

The Board Change constituted an event of default under the Company’s Revolving Credit and Guarantee Agreement, dated as of February 19, 2010 (“Senior Credit Facility”) among the Company, The Reader’s Digest Association, Inc., the several banks and other financial institutions from time to time party thereto (“Lenders”) and JPMorgan Chase Bank, N.A., as administrative agent (“Administration Agent”) for the Lenders.  On May 11, 2011, we obtained a waiver of this event of default and entered into an amendment to the Senior Credit Facility.  See “Liquidity and Capital Resources” for a description of the amendment.

The Board Change also constituted a “change of control” under the Company’s 2010 Equity Incentive Plan (“2010 Plan”).  As a result, the vesting of stock options and restricted stock awards (“RSUs”) was accelerated.

The Board Change did not constitute an event of default under the Floating Rate Senior Note Indenture dated as of February 11, 2010 (“Indenture”) governing the Company’s $525.0 Senior Secured Notes due 2017 (“Senior Secured Notes”), nor did the event of default under the Senior Credit Facility trigger a cross-default under the Indenture.

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The Separation Agreement implements the provisions of Ms. Berner’s Third Amended and Restated Employment Agreement, dated as of May 26, 2010, applicable to the termination of her employment by mutual consent of the parties.  Under the Separation Agreement, Ms. Berner will receive, among other things, (i) a severance payment equal to three times her annual base salary, and (ii) access to, and reimbursement for, certain health and welfare benefit costs and expenses for 25 months following her departure.

The Board Change and change in senior management were significant events for the Company, and it is difficult to predict with certainty what impact these changes will have on the Company’s operations and financial results.  In the short term, while we have resolved the event of default under the Senior Credit Facility created by the Board Change, in certain respects the amendment to the Senior Credit Facility will place further restriction on our ability to take certain actions, such as paying dividends, repurchasing our common stock, and prepaying other debt.  We also will need to fund the various unanticipated cash expenses arising as a result of the Board Change and senior management change, including funding the severance costs associated with the former CEO’s separation from the Company and costs associated with the accelerated vesting of RSUs and options under the 2010 Plan, as well as the legal and other professional fees incurred in connection with these events.  We will recognize increased stock-based compensation expense in the second quarter of 2011 in connection with the acceleration of vesting.

In the longer term, the Board and management, under the direction of Mr. Williams, our newly appointed CEO and President, are continuing to analyze the Company’s business, operations, financial condition, liquidity and prospects in order to refine the Company’s strategy and enhance operations.

Stock Repurchase

On February 28, 2011, the Company completed a share repurchase tender offer of common stock at a price of $29.00 per common share for a total cost of $43.3.  Refer to section, “Stock Repurchase and Dividends”, within our Liquidity and Capital Resources discussion below for further information.

Emergence from Chapter 11

As discussed in Note 2, Reorganization and Emergence from Chapter 11, in the Notes to our March 31, 2011 Consolidated Financial Statements, on August 24, 2009, we and substantially all of our United States subsidiaries (together, the “Debtors”), filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code in the Bankruptcy Court.  The chapter 11 Cases were jointly administered under the caption In re: The Reader’s Digest Association, Inc., et al., Case No. 09-23529 (“chapter 11 Cases”).  The filing was made to allow the Debtors to implement a restructuring pursuant to a pre-negotiated plan of reorganization aimed at improving the Company’s capital structure while leaving our operations largely intact.  In our chapter 11 proceedings, the Debtors continued to operate their businesses as debtors-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court.  On January 19, 2010, the court confirmed our Third Amended Proposed Joint Chapter 11 Plan of Reorganization (“Plan of Reorganization”) and we emerged from bankruptcy on February 19, 2010.  Except with respect to any late filed claims, the claims resolution process is complete, and we expect the chapter 11 Cases to be closed in the second quarter of 2011.

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Intercompany Eliminations, Corporate Unallocated Expenses and Other

We present our segment revenue and operating (losses) profits consistently with how we manage our operations and how our chief operating decision maker reviews our results.  Revenue and expenses attributable to intercompany transactions are included in the results of our reportable segments.  In addition to intercompany revenue and expenses, we separately report corporate unallocated expenses, which cover expenses that are not directly attributable to business unit performance.  Corporate unallocated expenses include the cost of corporate governance and other corporate-related expenses, as well as certain income and expenses associated with our U.S. pension plans and retiree healthcare benefits and stock and executive compensation programs that are not allocated to our reportable segments.  Our segments include employee bonus expense, assuming we have met and earned 100% of our targeted bonus to show our segments on a consistent basis.  Any adjustments to the actual payouts are recorded as an increase or decrease to corporate unallocated expenses.  Similarly, we separately report the effects of goodwill and other intangible asset impairment charges, certain fair value adjustments related to emergence from bankruptcy and other operating items, net, because our chief decision maker does not consider these items when assessing business unit performance.

Results of Operations

The discussion and analysis of our results of operations set forth below are based on our Consolidated Financial Statements.  In connection with our chapter 11 proceedings, there were significant professional advisory and legal expenditures, lower interest expense, asset dispositions, restructuring activities, contract terminations, rejections and claim assessments that significantly impacted our consolidated financial statements.  As a result, our historical financial performance is not likely to be indicative of our financial performance subsequent to our emergence from bankruptcy.  Additionally, as a result of our emergence from the chapter 11 proceedings, pursuant to fresh start accounting, our historical consolidated financial information is not comparable to financial information for periods following our emergence from our chapter 11 proceedings.  Most significantly, fresh start accounting required that the Company record its assets and liabilities at fair value upon emergence from chapter 11 proceedings.  These adjustments significantly affected the comparability of our results and included fair value adjustments to goodwill, other intangible assets, fixed assets, pensions and the reduction of a significant amount of unearned revenue.  These adjustments impacted our reported revenue, operating expenses (including changes in pension income or expense, depreciation, amortization, subscription revenue and product/promotion costs) and income tax provisions.  As the fair value adjustments to unearned revenue are amortized into revenue over the duration of our subscriptions, our reported revenue after our emergence from chapter 11 is lower than the amounts we would have otherwise reported.  However, with the exception of incremental depreciation as a result of fair value adjustments to our tangible assets, our chief operating decision maker does not consider the impact of these adjustments in the operating results, and therefore, these items are largely excluded from our segment results.  Other intangible asset amortization is reported within the corporate unallocated line.

We typically generate our strongest revenue in the fourth calendar quarter due to consumer purchases during the holiday season.  Summer and fall are the most active promotional periods in our United States segment for our magazine and books and home entertainment businesses, in part due to the significant percentage of our revenue that result from holiday gifts.  These periods of increased promotions have a significant impact on our profitability during such periods.  Our international segments are also seasonal, with fluctuations in profits as a result of the timing of customer acquisition mailings (generally made in January and July, depressing first and third calendar quarter profits as a result), and revenue tends to be strongest in our fourth calendar quarter due to holiday consumer purchases.

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Reportable segment financial information for the three months ended March 31, 2011 compared to the periods February 20 to March 31, 2010 and January 1 to February 19, 2010 (unaudited):

	Successor Company						Predecessor Company
	Three months ended March 31, 2011			February 20 to March 31, 2010			January 1 to February 19, 2010
Revenue
United States	$	114.4		$	59.8		$	74.4
Europe (a)	121.9			52.9			92.4
Asia Pacific & Latin America	57.7			27.5			34.4
Canada	22.8			9.7			15.2
Lifestyle & Entertainment Direct	30.4			24.4			36.2
Other	5.5			2.7			5.7
Subtotal	352.7			177.0			258.3
Intercompany eliminations	(1.8		)	(0.2		)	(0.6		)
Fair value adjustments (b)	(24.9		)	(20.6		)	—
Total revenue	$	326.0		$	156.2		$	257.7
Operating (loss) income
United States	$	(1.9	)	$	6.1		$	3.0
Europe (a)	(11.6		)	7.0			(8.1		)
Asia Pacific & Latin America	1.8			3.7			0.2
Canada	0.8			(1.0		)	1.7
Lifestyle & Entertainment Direct	(5.1		)	2.2			6.1
Other	0.5			(0.2		)	1.9
Subtotal	(15.5		)	17.8			4.8
Corporate unallocated	(24.3		)	(9.4		)	(15.1		)
Fair value adjustments (b)	(17.5		)	(6.0		)	—
Other operating items, net (c)	(4.6		)	(5.2		)	(14.0		)
Operating loss	(61.9		)	(2.8		)	(24.3		)
Interest expense	13.8			11.9			8.8
Loss on deconsolidation of subsidiary	—			—			49.7
Other expense, net	1.5			0.4			9.6
Reorganization items	—			—			(1,906.6		)
Income tax expense (benefit)	4.5			(1.9		)	54.0
(Loss) income from discontinued operations, net of taxes	—			(0.6		)	33.4
Net (loss) income	$	(81.7	)	$	(13.8	)	$	1,793.6

(a)Results in our Europe segment were impacted by the deconsolidation of RDA UK on February 17, 2010.  RDA UK contributed $13.3 in revenue and $2.6 in operating loss in the period January 1 to February 19, 2010, excluding the impact of foreign exchange translation.

(b)Fair value adjustments primarily consist of the amortization of the fair value reduction to unearned revenue and related deferred cost accounts.

(c)Other operating items, net consist of the following: (i) restructuring charges, representing costs incurred in the streamlining of our organizational structure; (ii) professional fees related to our exit from bankruptcy and the implementation of fresh start accounting; (iii) professional fees, contractual charges and other periodic costs related to the strategic repositioning of our businesses; and (iv) gain or loss on the disposal of assets.

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Revenue

Revenue is $326.0 for the three months ended March 31, 2011, compared to $156.2 for the period February 20 to March 31, 2010 and $257.7 for the period January 1 to February 19, 2010.  Our revenue includes the amortization of fair value adjustments which reduces our unearned revenue recorded at our emergence from bankruptcy on February 19, 2010 as a result of fresh start accounting.  The amortization of fair value adjustments to unearned revenue reduces revenue by $24.9 for the three months ended March 31, 2011 and $20.6 for the period February 20 to March 31, 2010.

Our revenue has trended lower, despite being positively impacted by movements in foreign currency rates against the U.S. dollar, principally because of a decrease in sales in our LED segment due to market maturity of its main fitness product; lower response rates and a lower active customer base across many of our international markets, together with the decision to close our Country Store Catalog product line and reduce the United States Reader’s Digest magazine circulation; declining renewals on certain magazines and book series, and fewer newsstand special issue publications and book offerings, in our United States segment; and the deconsolidation of RDA UK.

Product, Distribution and Editorial expenses

Product, distribution and editorial expenses are $154.8 for the three months ended March 31, 2011, compared to $63.9 for the period February 20 to March 31, 2010 and $112.9 for the period January 1 to February 19, 2010.  The negative trend in our product, distribution and editorial expenses is largely driven by sales volume declines, which includes the deconsolidation of RDA UK.

Promotion, Marketing and Administrative Expenses

Promotion, marketing and administrative expenses are $228.5 for the three months ended March 31, 2011, compared to $89.9 for the period February 20 to March 31, 2010 and $155.1 for the period January 1 to February 19, 2010.  Our promotion, marketing and administrative expenses trended lower as a result of the RDA UK deconsolidation and lower promotional spending in LED, due to product maturity of the Ab Circle Pro.  This is offset, in part, by increased promotional spending (primarily in Europe) driven by accelerating the timing of campaign mailings to the first quarter 2011.

Operating Loss

Operating loss is $61.9 for the three months ended March 31, 2011, compared to $2.8 for the period February 20 to March 31, 2010 and $24.3 for the period January 1 to February 19, 2010.

Operating results for our reportable segments are an operating loss of $15.5 for the three months ended March 31, 2011, compared to operating profit of $17.8 for the period February 20 to March 31, 2010 and operating profit of $4.8 for the period January 1 to February 19, 2010.  The benefits of foreign exchange movements had a minimal impact on our results for the periods.  The negative operating profit trend is the result of declining revenues, as described above, along with our plans to increase marketing investment spending and additional mailings (primarily in Europe) during the first quarter, in our efforts to maximize the impact of our promotions.  This increase in marketing investment was partially offset by headcount reduction initiatives, resulting, in part, from the consolidation of certain functions across several of our major regions.

Corporate unallocated is $24.3 for the three months ended March 31, 2011, compared to $9.4 for the period February 20 to March 31, 2010 and $15.1 for the period January 1 to February 19, 2010.  Our results are negatively impacted by the application of fresh start accounting and our emergence from bankruptcy; an increase in amortization of other intangible assets; lower U.S. pension income in 2011 due to a revised investment strategy executed in July 2010; and an increase in stock-based compensation expense, associated with new equity awards granted under the 2010 Plan.  This is mainly offset by a decrease in depreciation and occupancy costs associated with the facilities we exited in 2010, inventory write-offs and restructuring related bonuses in the prior periods, and a reduction in our current year bonus accrual to levels consistent with our expected results for 2011.

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Other operating items, net is $4.6 for the three months ended March 31, 2011, compared to $5.2 for the period February 20 to March 31, 2010 and $14.0 for the period January 1 to February 19, 2010.  The expense in the three months ended March 31, 2011 is primarily due to restructuring actions as part of our ongoing cost reduction initiatives, along with professional fees related to business redesign.  The expense in the period February 20 to March 31, 2010 was primarily attributable to severance charges associated with our global initiative to reduce headcount and overheads, along with professional fees associated with our chapter 11 Cases and the application of fresh start accounting incurred after our emergence from bankruptcy.  The expense in the period January 1 to February 19, 2010 was primarily attributable to severance charges associated with headcount reductions in certain of our international locations, primarily France, and professional fees associated with the administration filing of RDA UK.

Interest Expense

Interest expense is $13.8 for the three months ended March 31, 2011, compared to $11.9 for the period February 20 to March 31, 2010 and $8.8 for the period January 1 to February 19, 2010, and includes the amortization of deferred financing fees and bond discount of $1.1, $4.9 and $3.8, respectively.  The interest expense in the three months ended March 31, 2011 and the period February 20 to March 31, 2010 represents interest on our Senior Secured Notes.  In the period February 20 to March 31, 2010, we also incurred interest and financing fees related to our exit financing upon our emergence from bankruptcy.  The interest expense in the period January 1 to February 19, 2010 represents interest on our DIP Facility and German Term Loan (as defined in our December 31, 2010 Consolidated Financial Statements).  See Note 10, Debt, in the Notes to our March 31, 2011 Consolidated Financial Statements for further information.

Income Taxes

The Company recorded an income tax expense of $4.5 for the three months ended March 31, 2011, compared to an income tax benefit of $1.9 for the period ended February 20 to March 31, 2010 and an income tax expense of $54.0 for the period January 1 to February 19, 2010.  The income tax expense for the three months ended March 31, 2011 predominately reflects the application of the Company’s estimated annual effective tax rate to the first quarter loss.  Our estimated annual effective tax rate benefit reflects projected foreign earnings in low tax jurisdictions in excess of losses in higher rate jurisdictions.  The result is a negative effective tax rate, which, when applied to the first quarter loss, creates a tax expense.  The income tax benefit in the period February 20 to March 31, 2010 reflected the establishment of a valuation allowance on certain tax assets and the continued tax impact of fresh start accounting.  The income tax expense in the period January 1 to February 19, 2010 is primarily related to the cancellation of indebtedness income resulting from our emergence from bankruptcy and the tax impact of fresh start accounting.

Results of Operations: Reportable Segments

United States

Revenue in our United States segment is $114.4 for the three months ended March 31, 2011, compared to $59.8 for the period February 20 to March 31, 2010 and $74.4 for the period January 1 to February 19, 2010.  The negative revenue trend is primarily related to the sale of our Country Store Catalog product line in the third quarter of 2010; declining renewals on certain magazines and book series; reduction in the number of newsstand special issue publications and fewer single sale book offerings; and to a lesser extent, one less issue of our Simple & Delicious brand in the quarter ended March 31, 2011, due to timing; and a negative impact in the current quarter of a prior period non-cash benefit for undeliverable or suspended subscriptions.

Operating results in our United States segment is an operating loss of $1.9 for the three months ended March 31, 2011, compared to an operating profit of $6.1 for the period February 20 to March 31, 2010 and $3.0 for the period January 1 to February 19, 2010.  The negative operating profit trend is primarily driven by lower revenue described above; an increase in product costs and promotional efforts related to the redesign of our Every Day with Rachael Ray brand; and an increase in costs to maintain subscriber levels at Taste of Home and Every Day with Rachael Ray.  This is partially offset by overhead savings resulting from our headcount reductions in the second half of 2010, accomplished largely through the consolidation of certain functions across the United States.

Europe

Revenue in our Europe segment is $121.9 for the three months ended March 31, 2011, compared to $52.9 for the period February 20 to March 31, 2010 and $92.4 for the period January 1 to February 19, 2010.  Excluding the positive effect of foreign currency translation, our Europe segment experienced a negative revenue trend.  This trend is largely due to the deconsolidation of RDA UK; lower series performance and a lower active customer base; lower response rates to acquisition mailings; and certain timing differences on our mailings, most notably in Germany.

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Operating results in our Europe segment is an operating loss of $11.6 for the three months ended March 31, 2011, an operating profit of $7.0 for the period February 20 to March 31, 2010 and an operating loss of $8.1 for the period January 1 to February 19, 2010.  Excluding the positive effect of foreign currency translation, our Europe segment experienced a negative operating profit trend.  This operating profit trend is primarily due to increased promotion spending for the quarter, notably in France and Russia, where we increased our mailings to new prospects and we will now look to maximize our returns for these investments in the second half of the year. This is partially offset by the RDA UK deconsolidation and other cost reduction initiatives, primarily related to headcount, executed in the prior periods.

Asia Pacific & Latin America

Revenue in our APLA segment is $57.7 for the three months ended March 31, 2011, compared to $27.5 for the period February 20 to March 31, 2010 and $34.4 for the period January 1 to February 19, 2010.  Excluding the positive effect of foreign currency translation, our APLA segment experienced a negative revenue trend.  Revenue is negatively affected by a lower active customer base and softer response rates to our promotions across some of our books and home entertainment mailings; declining magazine renewal rates in our Australian market; lower advertising revenue in Asia; and the curtailment of the Australia Time Life direct response television business.

Operating profit in our APLA business segment is $1.8 for the three months ended March 31, 2011, compared to $3.7 for the period February 20 to March 31, 2010 and $0.2 for the period January 1 to February 19, 2010.  Excluding the positive effect of foreign currency translation, our APLA segment experienced a negative operating profit trend.  This is driven by the impact of the lower sales described above and is offset, in part, by overhead cost reductions, mainly related to the centralization of certain operation functions in the region.

Canada

Revenue in our Canada business segment is $22.8 for the three months ended March 31, 2011, compared to $9.7 for the period February 20 to March 31, 2010 and $15.2 for the period January 1 to February 19, 2010.  Excluding the positive effect of foreign currency translation, our Canada segment experienced a negative revenue trend.  This is the result of a lower active customer base and processing delays at the post office.  In addition, we experienced lower subscription revenue for our Reader’s Digest and Our Canada titles as a result of lower mail quantities and a decrease in renewal rates.

Operating profit within our Canada business segment is $0.8 for the three months ended March 31, 2011, compared to an operating loss of $1.0 for the period February 20 to March 31, 2010 and an operating profit of $1.7 for the period January 1 to February 19, 2010.  Excluding the positive effect of foreign currency translation, our Canada segment results are flat.  The revenue declines are offset by cost reduction initiatives.

Lifestyle & Entertainment Direct

Revenue in our LED segment is $30.4 for the three months ended March 31, 2011, compared to $24.4 for the period February 20 to March 31, 2010 and $36.2 for the period January 1 to February 19, 2010.  The negative revenue trend is primarily attributable to a decline in sales of our Ab Circle Pro fitness product, which launched in April 2009 and is now at the end of its life cycle.  In addition, revenue from our entertainment products decreased as a result of lower response rates to our promotional efforts in line with a general softness in the DRTV marketplace and the timing of new product introductions.

Operating results in our LED segment is an operating loss of $5.1 for the three months ended March 31, 2011, compared to an operating profit of $2.2 for the period February 20 to March 31, 2010 and an operating profit of $6.1 for the period January 1 to February 19, 2010.  The negative operating profit trend is primarily due to revenue declines described above and increased investments related to new product development initiatives.

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Other

Revenue in our Other reportable segment is $5.5 for the three months ended March 31, 2011, compared to $2.7 for the period February 20 to March 31, 2010 and $5.7 for the period January 1 to February 19, 2010.  The negative revenue trend is primarily due to a timing change, resulting in four less issues this quarter in comparison to prior periods, along with lower response rates and the exit of our custom publishing business.

Operating results in our Other reportable segment is an operating profit of $0.5 for the three months ended March 31, 2011, compared to an operating loss of $0.2 for the period February 20 to March 31, 2010 and an operating profit of $1.9 for the period January 1 to February 19, 2010.  The negative operating profit trend is principally due to lower revenue described above, offset in part by savings in promotional and overhead costs.

Liquidity and Capital Resources

Cash Flows

The consolidated statement of cash flows for the three months ended March 31, 2011 and the periods February 20 to March 31, 2010 and January 1 to February 19, 2010 is summarized below:

	Successor Company						Predecessor Company
	Three months ended March 31, 2011			February 20 to March 31, 2010			January 1 to February 19, 2010
Net change in cash due to:
Continuing operating activities	$	(34.9	)	$	(44.4	)	$	(15.6	)
Discontinued operating activities	—			(0.3		)	5.8
Operating activities	(34.9		)	(44.7		)	(9.8		)
Investing activities	3.2			20.4			(8.7		)
Financing activities	(43.5		)	(57.5		)	(9.5		)
Effect of exchange rate changes on cash and cash equivalents	4.4			1.6			0.2
Net change in cash and cash equivalents	(70.8		)	(80.2		)	(27.8		)
Cash and cash equivalents at beginning of period	169.4			269.6			297.4
Cash and cash equivalents at end of period	$	98.6		$	189.4		$	269.6

Overview

At March 31, 2011, we have $98.6 of cash and cash equivalents.  During the three months ended, there is a net decrease in cash of $70.8, which is primarily due to our February 2011 common stock repurchase, employee bonuses, increased promotional spending during our investment quarter, normal prepaid production costs and capital expenditures, partially offset by cash inflow related to the sale of certain assets.

During the period February 20 to March 31, 2010, there was a net decrease in cash of $80.2, which was primarily the result of payments of pre-petition bankruptcy liabilities; professional fees and other costs directly attributed to our reorganization; coupled with cash on hand used to pay a portion of our exit financing in excess of the proceeds from the Senior Secured Notes; employee bonuses; financing fees attributable to our exit financing, Senior Secured Notes offering and Senior Credit Facility; and capital expenditures.  The overall decrease was offset, in part, by operating cash flows generated by normal business operations, which did not include payments related to our chapter 11 bankruptcy filing, and funds released from escrow after our emergence from bankruptcy.

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During the period January 1 to February 19, 2010, there was a net decrease in cash of $27.8, which was primarily the result of payments of professional fees and other costs directly attributed to our bankruptcy, cash lost due to the deconsolidation of RDA UK and financing fees related to the Senior Secured Notes offering.  The decrease was offset, in part, by proceeds from the sale CompassLearning, which were partially held in escrow until our emergence from bankruptcy.

Cash flows from operating activities

Net cash used in operating activities is driven by our operating loss for the quarter and decreases in our working capital, which primarily consist of payment of employee bonuses, normal prepaid editorial and production costs, accumulation of inventory in preparation for second quarter mailings (primarily in Europe) and a prepayment on payroll, due to timing at quarter-end.  This was offset, in part, by the collection of accounts receivable on our fourth quarter sales and receipt of vendor rebates related to our outsourced relationships.

Net cash used by operating activities was $44.4 during the period February 20 to March 31, 2010 and $15.6 during the period January 1 to February 19, 2010.  The increased use of cash during the period February 20 to March 31, 2010 was the result of payments of pre-petition bankruptcy liabilities, professional fees associated with our reorganization, severance related to our global restructurings, stay bonuses tied to our bankruptcy bonus plans, bonuses paid under our annual incentive plans, professional fees associated with the RDA UK deconsolidation, professional fees in preparation of our administration proceedings and payments to vendors due to change of control.  The increased use of cash during the January 1 to February 19, 2010 period included payments of pre-petition liabilities and professional fees associated with our bankruptcy and reorganization.

Cash flows from investing activities

Net cash flows from investing activities is a source of cash of $3.2 during the three months ended March 31, 2011, due to the sale of certain assets, partially offset by normal capital expenditures and investments in new enterprise planning and reporting platforms.

Net cash flows from investing activities was a source of cash of $20.4 during the period February 20 to March 31, 2010 and a use of cash of $8.7 during the period January 1 to February 19, 2010.  During the period February 20 to March 31, 2010, the release of restricted cash related to the sale of CompassLearning was partially offset by normal capital expenditures.  During the period January 1 to February 19, 2010, cash lost as a result of the deconsolidation of RDA UK and normal capital expenditures were offset, in part, by the portion of proceeds from the sale of CompassLearning, which were not held in escrow.

Cash flows from financing activities

Net cash used in financing activities is $43.5 during the three months ended March 31, 2011, due to our February 2011 repurchase of common stock.  Refer to section, “Stock Repurchase and Dividends”, below for further information.

Net cash used in financing activities was $57.5 during the period February 20 to March 31, 2010.  We repaid the First Lien Term Loan of $150.0 and the Second Lien Term Loan of $300.0; and we purchased the German Term Loan from the lenders for a total of $105.3.  Funds for these transactions were provided by the release from escrow of the $509.3 sale proceeds of the Senior Secured Notes, which were issued at 97% of their face value, and cash on hand.  We also paid financing fees of $11.5, related to our Exit Financing and the Senior Secured Notes offering.

Net cash used in financing activities was $9.5 during the period January 1 to February 19, 2010.  Sale proceeds from the Senior Secured Notes, $509.3, were closed into escrow.  We paid financing fees of $9.5 related to the Senior Secured Notes offering.

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Debt

Our debt facilities at March 31, 2011 and December 31, 2010 include our Senior Secured Notes and Senior Credit Facility.  Refer to Note 10, Debt, in the Notes to our March 31, 2011 Consolidated Financial Statements for further information.

A summary of activity for the outstanding debt instruments is as follows:

Successor Company

·Senior Secured Notes and Indenture:  At March 31, 2011, $511.1, net of unamortized discount of $13.9, is outstanding under the Senior Secured Notes.  The Senior Secured Notes bear interest at a variable rate, which is reset quarterly, equal to LIBOR (subject to LIBOR floor of 3.0%) plus 6.5%.  The Indenture governing the Senior Secured Notes includes various covenants that, among other things, restrict certain payments by us, restrict our ability to merge with another entity, incur or guarantee debt and sell or transfer assets.  Refer to the “Sufficiency of capital resources” section below regarding compliance with the covenants.

·Senior Credit Facility:  In connection with the offering of the Senior Secured Notes, we entered into the Senior Credit Facility.  The Senior Credit Facility provides us with a three year revolving credit facility in an amount of up to $50.0 (with a $25.0 letter of credit sub-facility).  Generally, the revolving loans under the Senior Credit Facility bear interest at LIBOR (subject to a floor of 2.0%) plus 4.0%.  As of March 31, 2011, we have no borrowings outstanding and have $18.7 of standby letters of credit issued under the Senior Credit Facility.  The Senior Credit Facility includes various covenants that, among other things, restrict certain payments by us, restrict our ability to merge with another entity, incur or guarantee debt and sell or transfer assets.  These covenants also require us to meet a senior secured leverage ratio test.  Refer to the “Sufficiency of capital resources” section below regarding compliance with the covenants.

Sufficiency of capital resources

As noted above, the Board Change that occurred on April 18, 2011 triggered an event of default under the Senior Credit Facility.  Under the Senior Credit Facility, if any event of default occurs and is continuing, the Administrative Agent may, and at the request of the “required lenders” (as defined therein) shall, take any or all of the following actions: (i) terminate Lender’s commitments to make loans and letter-of-credit issuers’ obligations to make letter of credit extensions; (ii) declare the unpaid principal balance of all outstanding loans as well as interest and other amounts owed under the loan documents to be immediately due and payable; (iii) require the Company to cash collateralize any letter-of-credit obligations (in an amount equal to the amount outstanding); and (iv) exercise any other rights available under the loan documents (for example, remedial provisions under the security agreement including rights of secured parties under the UCC) or applicable law.

On May 11, 2011, we entered into an amendment to the Senior Credit Facility with the Agent and the Lenders (“Amendment and Waiver”) under which the “required lenders” waived the event of default arising from the Board Change.  The Senior Credit Facility was modified by, among other things, the following items:

·the financial covenant contained in the Senior Credit Facility (which requires that we maintain a specified senior secured debt ratio that decreases quarter to quarter) was modified to (i) provide that the covenant is measured on a quarter end basis only (rather than daily, as originally required) and (ii) change the ratio that we will have to meet for the quarter ending September 30, 2011 to 4.25:1 (from 4.00:1);

·in order to be able to incur additional permitted secured debt, we must be in compliance with the financial covenant and not be in default under the Senior Credit Facility;

·the restricted payment covenant contained in the Senior Credit Facility was amended to further limit our ability to pay dividends on, or repurchase, our equity interests, by among other things imposing a requirement that we satisfy the financial covenant referred to above, on a pro forma basis, at the then-applicable level set forth in the covenant, less 0.50;

·the definition of “change of control” was amended such that the percentage of equity interests acquired by any person or group necessary to trigger a change of control (and thereby give rise to an event of default) was reduced from 50.0% to 35.0%;

·the limitation of the amount of restructuring charges that we can add back in the calculation of EBITDA, which is used in the financial covenant and several ratios, to $35.0 in 2011 and any subsequent twelve-month period;

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·a condition was imposed to borrowings or other extensions of credit under the Senior Credit Facility that our “net cash balance” (as defined therein) not exceed $125.0 after giving effect to such borrowing or extension of credit; and

·certain reporting covenants were modified.

The Board Change did not constitute an event of default under the Indenture governing the Senior Secured Notes, nor did the event of default under the Senior Credit Facility trigger a cross-default under the Indenture.

After giving effect to the Amendment and Waiver, we anticipate that we will be in compliance with all covenants contained in the Senior Credit Facility and the Indenture. However, our ability to comply with the covenants in our debt agreements, particularly the financial covenant in our Senior Credit Facility, which requires us to meet a senior secured leverage ratio of 4:25:1 for the quarters ended June 30 and September 30, 2011 and decreasing thereafter, depends on our results of operations continuing in line with our expectations.  Adverse changes in operating performance or an unexpected event (such as the Board Change) could have an adverse impact on our financial performance and could cause us to fail to satisfy the financial covenant. Our results of operations also may be affected by any of the factors referred to above under “Cautionary Note Regarding Forward-Looking Statements”.  If we fail to meet the financial covenant in our Senior Credit Facility, we would have to either seek a waiver from the Lenders or identify another source of working capital funding.

Based on our current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash on hand, cash flow from operations and availability under the Senior Credit Facility are adequate for us to meet our working capital, capital expenditure, debt service and other funding requirements on a short and long-term basis.  However, if this is not sufficient, we may need to incur additional debt or issue additional debt or equity securities from time to time.  In addition, future internal growth opportunities, acquisitions, joint ventures or other similar transactions may require additional capital.

Capital available to media companies, in general, or to us, specifically, whether raised through the issuance of debt or equity securities, may be limited.  As a result, we may be unable to obtain sufficient financing on terms satisfactory to management or at all.

In addition to funding the above, other possible discretionary uses of funds could include stock repurchases, dividends, investments in our business to fund internal growth, business restructurings, and acquisitions that could enable or accelerate the execution of our strategy.  However, our ability to fund our working capital needs, debt payments and other obligations, and to comply with the financial covenants under our debt agreements depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions and other factors, many of which are beyond our control.

Our operating cash flows may be impacted by, among other things, the following items: (i) the global financial environment impact on our customers and the stability of the financial, foreign exchange, equity and credit markets, (ii) the ability or willingness of our vendors to supply products and services to us on favorable terms and (iii) rapid changes in the highly competitive market in which we operate.

Our primary sources of cash are revenue from non-magazine products (including single and series book sales, music, video and DVD products) and non-published products (including vitamins and related health products, jewelry, merchandise, wine, tours, mailing list rentals and royalty and license agreements).  Revenue from books, home entertainment and non-published products accounted for 62.1% of total revenue, excluding intercompany eliminations and fair value adjustments, for the three months ended March 31, 2011.  Our remaining sources of cash are subscription revenue, advertising revenue and newsstand revenue.  Our primary uses of cash are product and promotional costs, compensation, other benefits, services and supplies, interest and income taxes.

Customers across all our businesses have been delaying and reducing their expenditures in response to deteriorating macroeconomic and industry conditions and uncertainty, which have had a significant negative impact on the demand for our products, and therefore, the cash flows of our businesses.  Most of our revenue is based upon discretionary spending by consumers, which is influenced by general economic conditions and the availability of discretionary income.  In addition, our revenue from advertising has decreased as advertising budgets have scaled back and advertisers have shifted their advertising dollars to more directed platforms, including the internet.  We have initiated various measures to mitigate the impact on our cash flows during 2011 and intend to continue to develop our digital products and expand into digital communities.

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Stock Repurchase and Dividends

On February 28, 2011, the Company announced the final results of its share repurchase tender offer, which expired at 11:59 p.m., EST, on February 25, 2011.  The Company purchased 1,494,134 shares of common stock at a price of $29.00 per common share for a total cost of $43.3.  The shares of common stock accepted for purchase pursuant to the tender offer represented approximately 5.4% of the Company’s then outstanding shares of common stock.  The Company funded the repurchase of the shares using available cash.  As of March 31, 2011, the Company had approximately 26.0 million shares of common stock outstanding.  Any further dividends or repurchases in the future will be subject to the discretion of our Board and limitations in the document governing our Senior Secured Notes and Senior Credit Facility.

Collateral requirements

The Senior Secured Notes are secured by a first priority security interest on substantially all of the assets of the Company and the Guarantors, including 100% of the capital stock of the Company and its domestic subsidiaries and 65% of the capital stock of its first-tier foreign subsidiaries, in each case subject to certain exceptions set forth in the Indenture and related documentation.

As of March 31, 2011, excluding intercompany assets, our non-guarantor subsidiaries represented approximately 52.2% of our total assets.  The value of the collateral in the event of liquidation may be materially different from book value.

Recent Accounting Pronouncements

In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures (“ASU 2010-06”), which represents an update to ASC 820, Fair Value Measurements and Disclosures.  ASU 2010-06 provides new disclosure guidance for Level 3 fair value measurement activity, requiring separate presentation of information about purchases, sales, issuances and settlements.  This update is effective for fiscal years beginning after December 15, 2010 and for interim periods within those years.  The Company adopted this guidance effective January 1, 2011, and it did not have a material impact on our consolidated financial statements.

In September 2009, the FASB issued ASU No. 2009-13, Revenue Recognition (Topic 605)-Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”), which represents an update to ASC 605, Revenue Recognition.  ASU 2009-13 establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on the following: (i) vendor-specific objective evidence, (ii) third-party evidence or (iii) estimated selling price.  This guidance also eliminates the residual method of allocation and requires that arrangement consideration be allocated at the inception of the arrangement to all deliverables using the relative selling price method.  This update is effective prospectively for revenue arrangements entered into or materially modified for fiscal years beginning on or after June 15, 2010.  The Company adopted this guidance effective January 1, 2011, and it did not have a material impact on our consolidated financial statements.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Foreign currency exchange rate risk

The functional currency for our foreign operations is the local currency.  In the normal course of business, significantly all of the transactions of our foreign operations occur in local currencies.  However, on occasion, certain transactions are conducted in currencies that differ from the local currency.  Our earnings are sensitive to the impact of changes in foreign currency exchange rates on certain identifiable transactions.  We seek to manage this exposure in part through operational means, to the extent possible, by matching functional currency revenue and costs, and matching functional currency assets and liabilities.  Exchange rate gains or losses related to foreign currency transactions are recognized as transaction gains or losses in our consolidated statements of operations along with the underlying transactions.  As of March 31, 2011, our financial instruments consisted of short-term receivables and payables whose carrying value approximated fair value.

Interest rate risk

The Senior Secured Notes and our Senior Credit Facility provide for a variable rate of interest.  Both the Senior Secured Notes and the Senior Credit Facility are exposed to interest rate changes.  However, if LIBOR increases 1.0% from present levels there would be no change in annual interest expense because current LIBOR rates are well below the LIBOR floor on the Senior Secured Notes (3.0%) and Senior Credit Facility (2.0%).

Each quarter point change in LIBOR above 3.0% would result in a $1.3 change in our annual interest expense on the Senior Secured Notes.  Similarly, assuming all revolving loans are fully drawn, each quarter point change in LIBOR above 2.0% would result in a $0.1 change in annual interest expense on our indebtedness under our credit facility.

Item 4.  Controls and Procedures

The Company’s management evaluated, with the participation of the Chief Executive Officer and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered in this report.

There has been no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) in the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings

From time to time we may be involved in litigation relating to claims arising in the normal course of business.  As of the date of this report, there are no material pending legal proceedings to which the Company is a party or of which any of our property is the subject.

Item 1A.  Risk Factors

There have been no material changes to the risk factors disclosed in the section titled “Risk Factors” in our Registration Statement on Form S-4 filed with the Securities and Exchange Commission, as declared effective on February 11, 2011 and such risk factors are incorporated by reference herein.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following table sets forth information with respect to the Company’s repurchase of common stock during the quarter ended March 31, 2011:

Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January 1 to January 31, 2011	1,494,134	$	29.00	1,494,134	—
February 1 to February 28, 2011	—	—		—	—
March 1 to March 31, 2011	—	—		—	—
	1,494,134	$	29.00	1,494,134

For more information on the Company’s share repurchase tender offer, see Part I, Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, under the section “Stock Repurchase and Dividends.”

For more information on limitations upon the payment of dividends, see Note 10, Debt, in Part I, Item 1, Unaudited Consolidated Financial Statements, under the heading “Senior Secured Notes.”

Item 5.  Other Information

Disclosures made in this quarterly report on Form 10-Q with respect to the Second Amendment to the Senior Credit Facility entered into by the Company on May 11, 2011, including the full text of such amendment attached as Exhibit 10.3 to this quarterly report on Form 10-Q, are hereby incorporated by reference into this Item 5 of Part II.

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Item 6.  Exhibits

Exhibit  Number	Description
10.1	Separation Agreement by and among The Reader’s Digest Association, Inc., RDA Holding Co. and Mary G. Berner, dated April 24, 2011
10.2	Cooperation Agreement by and among The Reader’s Digest Association, Inc., RDA Holding Co. and Mary G. Berner, dated April 24, 2011
10.3	Second Amendment dated as of May 11, 2011 to the Revolving Credit and Guarantee Agreement, dated as of February 19, 2010, among RDA Holding Co., The Reader’s Digest Association, Inc., the subsidiary guarantors from time to time party thereto, JPMorgan Chase Bank, N.A., as Administrative Agent, and the lenders party thereto
31.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RDA HOLDING CO.
Dated: May 16, 2011	By:	/s/ Thomas Williams
		Thomas Williams
		President, Chief Executive Officer and Chief Financial Officer

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EX-10.1

Exhibit 10.1

SEPARATION AGREEMENT

SEPARATION AGREEMENT (this “Agreement”) dated as of April 24, 2011 (the “Effective Date”), by and among The Reader’s Digest Association, Inc., a Delaware corporation (the “Company”), RDA Holding Co., a Delaware corporation (“RDA Holding”), and Mary G. Berner (“Executive”).

WHEREAS, the Company and Executive entered into the Third Amended and Restated Employment Agreement dated as of May 26, 2010 (the “Employment Agreement”); and

WHEREAS, Executive’s employment with the Company shall terminate on April 25, 2011 (the “Termination Date”).

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as set forth below:

1.Termination.  Executive’s employment with the Company and its subsidiaries and Affiliates (as defined in the Employment Agreement) shall terminate on the Termination Date.  Upon the effectiveness of this Agreement, Executive shall be deemed to have resigned, effective as of the Termination Date, from the Board of Directors of RDA Holding (the “Board”) and any committees thereof and, if applicable, from the board of directors and any committees thereof of any subsidiary of RDA Holding or Affiliate to the extent Executive is then serving thereon, and will promptly execute any documentation upon the Company’s request to effectuate the same.

2.Separation Benefits and Accrued Rights.

(a)Separation Benefits.  The Company shall provide Executive with the following separation benefits pursuant to Section 4(c) of the Employment Agreement: (i) a severance payment equal to three (3) times Executive’s current Base Salary, which amount shall be paid, subject to the provisions of Section 9 hereof, in a lump-sum on the fifty third (53rd) day following the Termination Date; (ii) continuation of access to the Company’s life, health, dental and vision benefits for Executive and her dependents, for twenty-five (25) months following the Termination Date at the full cost therefor, which, in connection with the medical health, dental and vision, the parties acknowledge is the applicable COBRA rate therefor unless there is guidance to the contrary from the U.S. Treasury Department; and (iii) subject to the provisions of Section 9, hereof, monthly payments to Executive of an amount equal to the sum of (x) in the case of life insurance, the premiums due to maintain the then existing basic coverage that had been provided at employer cost while Executive was employed, (y) in the case of health, dental and vision coverage, the difference between such full cost and the active employee monthly contribution for such coverage and (z) an additional amount so that Executive is no worse off on an after tax basis than she would be as an employee receiving such coverages, for twenty-five (25) months following the Termination Date (provided that any such payments otherwise payable to Executive within the first fifty two (52) days following the Termination Date shall not be paid on the otherwise scheduled payment date but shall instead accumulate and be paid on the fifty third (53rd) day following the Termination Date, and provided further that the Company and Executive may, to and only to the extent permitted by Section 409A (as defined in Section 9(a) hereof), mutually agree to alter the mechanics of the payments hereunder) (collectively, the “Separation Benefits”).  Notwithstanding the foregoing, unless, on or prior to the fifty second (52nd) day following the Termination Date, Executive shall have signed the Release of Claims in

the form attached hereto as Exhibit A (the “Release of Claims”) and such Release of Claims shall have become effective in accordance with its terms, (1) no payment shall be paid or made available to Executive under clause (i) or (iii) of this Section 2(a), (2) the Company shall be relieved of all obligations to provide or make available any further benefits to Executive pursuant to clause (ii) of this Section 2(a), and (3) Executive shall be required to repay the Company, in cash, within five (5) business days after written demand is made therefor by the Company, an amount equal to the value of any payments or benefits received by Executive pursuant to clause (ii) of this Section 2(a).  Notwithstanding anything in this Agreement to the contrary, payment of any or all of the Separation Benefits is expressly contingent upon Executive’s continued substantial compliance with the terms and conditions of Sections 6, 7, 8 and 9 of the Employment Agreement; provided, that, Executive had received notice thereof and failed promptly to cure any such breach to the extent curable.  Executive recognizes that, except as expressly provided in this Agreement, any other agreements or side letters entered into simultaneously with or following the date hereof, or pursuant to the terms of Executive’s equity grant agreements, no compensation is owed to her after the Termination Date.

(b)Accrued Rights.  The Company shall pay to Executive any accrued but unpaid Base Salary, accrued but unused vacation time, unreimbursed business expenses, and any unpaid Annual Bonus (as defined in the Employment Agreement) for any completed performance period for the year prior to the year of termination (if any), and Executive shall be entitled to receive employee benefits pursuant to the terms of the benefit plans and programs applicable to terminated employees (collectively, the “Accrued Rights”).  The Accrued Rights shall be payable on their normal payment dates; provided that accrued but unused vacation time shall be paid within 30 days following the Termination Date.

(c)Amounts Due Under Plans.  Subject to the provisions hereof, the payment of any amounts accrued under any benefit plan, program or arrangement in which Executive participates shall be subject to the terms of the applicable plan, program or arrangement, and any elections Executive has made thereunder.

3.Stock Option and Restricted Stock Unit Awards.  The equity awards listed on Exhibit B hereto are fully vested and shall continue to be subject to the terms and conditions of the RDA Holding Co. 2010 Equity Incentive Plan (the “Equity Incentive Plan”) and the agreements pursuant to which such equity awards were granted and Executive’s rights thereunder shall not be released pursuant to the Release of Claims.  Any Shares (as defined under the Equity Incentive Plan) delivered to Executive pursuant to such equity awards, and except as otherwise agreed in writing, shall be subject to the terms and conditions of that certain Stockholders Agreement, dated as of February 19, 2010, by and among RDA Holding and the stockholders party thereto.

4.Parachute Payments and Excise Taxes.  The Company’s and Executive’s rights and obligations pursuant to Section 17 of the Employment Agreement shall survive and remain binding and enforceable, notwithstanding the termination of the Employment Agreement and Executive’s employment with the Company.

5.Indemnification and Insurance; Legal Expenses.  The Company’s and Executive’s rights and obligations pursuant to Section 19 of the Employment Agreement, that certain Indemnity Agreement between the Company and Executive dated May 23, 2007 and that certain Indemnity Agreement between RDA Holding and Executive dated August 16, 2009 shall survive and remain binding and enforceable, notwithstanding the termination of the Employment Agreement and Executive’s employment with the Company.

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6.Legal Fees.  The Company shall pay all reasonable attorneys’ fees and disbursements incurred by Executive in connection with matters related to negotiating this Agreement or any other agreements entered into simultaneously with this Agreement or otherwise in connection with this termination or the change in control of the Company, up to a maximum of $25,000.

7.Restrictive Covenants.  The parties acknowledge and agree that Sections 5-14 of the Employment Agreement shall survive and remain binding and enforceable, notwithstanding the termination of the Employment Agreement and Executive’s employment with the Company.

8.Withholding.  The Company may deduct and withhold from any amounts payable under this Agreement such Federal, state, local, foreign or other taxes as are required or permitted to be withheld pursuant to any applicable law or regulation.

9.Section 409A of the Code.

(a)It is intended that the provisions of this Agreement comply with Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations and Treasury guidance thereunder as in effect from time to time (collectively hereinafter, “Section 409A”). Section 409A, and all provisions of this Agreement shall be construed in a manner consistent with the requirements for avoiding taxes or penalties under Section 409A.  If any provision of this Agreement (or of any award of compensation, including equity compensation or benefits) would cause Executive to incur any additional tax or interest under Section 409A, the Company shall, after consulting with Executive, reform such provision to comply with Section 409A, provided that the Company agrees to maintain, to the maximum extent practicable, the original intent and economic benefit to Executive of the applicable provision without violating the provisions of Section 409A.  The Company shall timely amend any plan or program in which Executive participates to bring it in compliance with Section 409A.

(b)The parties intend that a “separation from service” (within the meaning of Section 409A) occur as of the Termination Date, and that the level of service provided by Executive with respect to any cooperation or consulting arrangement with the Company after the Termination Date will be twenty percent (20%) or less than the average level of service provided by the Executive to the Company prior to the Termination Date.  If Executive is deemed as of the Termination Date to be a “specified employee”, within the meaning of that term under Section 409A(a)(2)(B) of the Code and using the identification methodology selected by the Company from time to time (or if none, the default methodology), then with regard to any payment or the providing of any benefit made subject to this Section 9, and any other payment or the provision of any other benefit that is required to be delayed in compliance with Section 409A(a)(2)(B) of the Code, such payment or benefit shall not be made or provided prior to the earlier of (i) the expiration of the six-month period measured from the date of Executive’s separation from service or (ii) the date of Executive’s death.  On the first day of the seventh month following the date of Executive’s separation from service or, if earlier, on the date of her death, all payments delayed pursuant to this Section 9(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such delay) shall be paid or reimbursed to Executive in a lump sum, and any remaining payments and benefits due under this Agreement shall be paid or provided in accordance with the normal payment dates specified for them herein.

(c)If any action on the part of the Board relating to any award of compensation, including equity compensation or benefits, causes Executive to incur any additional tax or interest under Section 409A, the Company shall indemnify and hold harmless,

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on an after-tax basis, Executive from and against any accelerated or additional tax (including interest and penalties with respect thereto) that may be imposed on Executive by reason thereof; provided that Executive shall not compromise or settle any claim relating to Section 409A without the Company’s written consent. Any payment or reimbursement for taxes made pursuant this Section 9(c) shall be paid to Executive no later than the end of the calendar year next following the calendar year in which the applicable tax is paid by Executive.

(d)With regard to any provision herein that provides for reimbursement of expenses or in-kind benefits, except as permitted by Section 409A, (i) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other taxable year, provided that the foregoing clause (ii) shall not be violated with regard to expenses reimbursed under any arrangement covered by Section 105(b) of the Code solely because such expenses are subject to a limit related to the period the arrangement is in effect.

(e)If under this Agreement, an amount is paid in two or more installments, for purposes of Section 409A, each installment shall be treated as a separate payment.

10.Assignment.

(a)This Agreement is personal to Executive and without the prior written consent of the Company shall not be assignable by Executive, except for the assignment by will or the laws of descent and distribution of any accrued pecuniary interest of Executive, and any assignment in violation of this Agreement shall be void.

(b)This Agreement shall be binding on, and shall inure to the benefit of, the parties to it and their respective heirs, legal representatives, successors and permitted assigns (including, without limitation, in the event of Executive’s death, Executive’s estate and heirs in the case of any payments due to Executive hereunder).

(c)Executive acknowledges and agrees that all of Executive’s covenants and obligations to the Company, as well as the rights of the Company hereunder, shall run in favor of and shall be enforceable by the Company and its successors and assigns, provided that the successor or assignee is the successor to all or substantially all of the assets of the Company and such assignee or successor assumes the rights and duties of the Company as contained in this Agreement, either contractually or as a matter of law.

11.No Mitigation; No Offset.  Executive shall not be required to seek other employment or otherwise mitigate the amount of any payments to be made by the Company pursuant to this Agreement.  The payments provided pursuant to this Agreement shall not be reduced by any compensation earned by Executive as the result of employment by another employer after the termination of Executive’s employment or otherwise.  Except as specifically provided in this Agreement, the Company’s obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any setoff, counterclaim, recoupment, defense or other claim, right or action which the Company may have against Executive or others.

12.Governing Law.  This Agreement shall be deemed to be made in the State of New York, and the validity, interpretation, construction, and performance of this Agreement in all respects shall be governed by the laws of the State of New York without regard to its principles of

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conflicts of law.  No provision of this Agreement or any related document will be construed against or interpreted to the disadvantage of any party hereto by any court or other governmental or judicial authority by reason of such party having or being deemed to have structured or drafted such provision.

13.Consent to Jurisdiction.

(a)Except as otherwise specifically provided herein, Executive and the Company each hereby irrevocably submits to the exclusive jurisdiction of the United States District Court for the Southern District of New York (or, if subject matter jurisdiction in that court is not available, in any state court located within the Borough of Manhattan, New York) over any dispute arising out of or relating to this Agreement.  Except as otherwise specifically provided in this Agreement, the parties undertake not to commence any suit, action or proceeding arising out of or relating to this Agreement in a forum other than a forum described in this Section 13(a); provided, however, that nothing herein shall preclude the Company from bringing any suit, action or proceeding in any other court for the purposes of enforcing the provisions of this Section 13 or enforcing any judgment obtained by the Company.

(b)The agreement of the parties to the forum described in Section 13(a) is independent of the law that may be applied in any suit, action, or proceeding and the parties agree to such forum even if such forum may under applicable law choose to apply non-forum law.  The parties hereby waive, to the fullest extent permitted by applicable law, any objection which they now or hereafter have to personal jurisdiction or to the laying of venue of any such suit, action or proceeding brought in an applicable court described in Section 13(a), and the parties agree that they shall not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court.  The parties agree that, to the fullest extent permitted by applicable law, a final and non-appealable judgment in any suit, action or proceeding brought in any applicable court described in Section 13(a) shall be conclusive and binding upon the parties and may be enforced in any other jurisdiction.

(c)The parties hereto irrevocably consent to the service of any and all process in any suit, action or proceeding arising out of or relating to this Agreement by the mailing of copies of such process to such party at such party’s address specified herein.  In addition, Executive irrevocably appoints the General Counsel of the Company as Executive’s agent for service of process in connection with any suit, action or proceeding, who shall promptly advise Executive of any such service of process.

(d)The prevailing party in an action hereunder, as determined by the applicable court, shall be entitled to recover reasonable legal fees and related costs from the other party; provided, that, such fees and costs are incurred prior to the fifth anniversary of the Termination Date, and that in the event the Company is entitled to recover such fees and costs from Executive, the amount of such recovery shall be limited to $150,000.  In the event that Executive is entitled to recover such fees and costs all such amounts shall be paid to her within thirty (30) days after the award of such fees and costs by the applicable court.

14.Amendment; No Waiver.  No provisions of this Agreement may be amended, modified, waived or discharged except by a written document signed by Executive and a duly authorized officer of the Company.  The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.  No failure or delay by either party in exercising any right or power

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hereunder will operate as a waiver thereof, nor will any single or partial exercise of any such right or power, or any abandonment of any steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.

15.Severability.  If any term or provision of this Agreement is invalid, illegal or incapable of being enforced by any applicable law or public policy, all other conditions and provisions of this Agreement shall nonetheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated by this Agreement is not affected in any manner materially adverse to any party.  Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

16.Entire Agreement.  This Agreement (including the Exhibits hereto any other agreements or side letters entered into simultaneously with or following the date hereof) constitutes the entire agreement and understanding between the Company and Executive with respect to the subject matter hereof and supersedes all prior agreements and understandings (whether written or oral), between Executive and the Company, relating to such subject matter. None of the parties shall be liable or bound to any other party in any manner by any representations and warranties or covenants relating to such subject matter except as specifically set forth herein.

17.Survival.  The rights and obligations of the parties under the provisions of this Agreement shall survive, and remain binding and enforceable, notwithstanding the termination of any period of cooperation formally agreed to by the parties in writing or any settlement of the financial rights and obligations hereunder, to the extent necessary to preserve the intended benefits of such provisions.

18.Notices.  All notices or other communications required or permitted to be given hereunder shall be in writing and shall be delivered by hand or sent by facsimile or sent, postage prepaid, by registered, certified or express mail or overnight courier service and shall be deemed given when so delivered by hand or facsimile, or if mailed, three days after mailing (one business day in the case of express mail or overnight courier service) to the parties at the following addresses or facsimiles (or at such other address for a party as shall be specified by like notice):

If to the Company:	The Reader’s Digest Association, Inc.
	750 Third Avenue
	New York, New York 10017
	Attention: Board of Directors
	Fax: 914-244-5644
With a copy to:	The Reader’s Digest Association, Inc.
	44 South Broadway
	White Plains, New York 10601
	Attention: General Counsel
	Fax: 914-244-5644
If to Executive:	To the address last shown on the records of the Company

19.Headings and References.  The headings of this Agreement are inserted for convenience only and neither constitutes a part of this Agreement nor affect in any way the

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meaning or interpretation of this Agreement.  When a reference in this Agreement is made to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated.

20.Counterparts.  This Agreement may be executed in one or more counterparts (including via facsimile and electronic image scan (pdf)), each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

*        *        *        *

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IN WITNESS WHEREOF, this Agreement has been executed by the parties as of the date first written above.

THE READER’S DIGEST ASSOCIATION, INC.
By:	/s/ Thomas A. Williams
	Name: Thomas A. Williams
	Title: Chief Financial Officer
RDA HOLDING CO.
By:	/s/ Thomas A. Williams
	Name: Thomas A. Williams
	Title: Chief Financial Officer
MARY BERNER
By:	/s/ Mary Berner
	Mary Berner

Signature Page to Separation Agreement

EXHIBIT A

Release of Claims

I.Release.  For good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the undersigned, with the intention of binding herself, her heirs, executors, administrators and assigns, does hereby release and forever discharge The Readers’ Digest Association, Inc., a Delaware corporation (the “Company”), and its parents, subsidiaries, affiliates, predecessors, successors, and/or assigns, past, present, and future, together with its and their officers, directors, executives, agents, employees, and employee benefits plans (and the trustees, administrators, fiduciaries and insurers of such plans), past, present, and future (collectively, the “Released Parties”), from any and all claims, actions, causes of action, demands, rights, damages, debts, accounts, suits, expenses, attorneys’ fees and liabilities of whatever kind or nature in law, equity, or otherwise, whether now known or unknown (collectively, the “Claims”), which the undersigned now has, owns or holds, or has at any time heretofore had, owned or held against any Released Party, from the beginning of time to the date of the undersigned’s execution of this Release of Claims, including without limitation, any Claims arising out of or in any way connected with the undersigned’s employment relationship with the Company, its subsidiaries, predecessors or affiliated entities, or the termination thereof, under any Federal, state or local statute, rule, or regulation, or principle of common, tort or contract law, including but not limited to, the Family and Medical Leave Act of 1993, as amended (the “FMLA”), 29 U.S.C. §§ 2601 et seq., Title VII of the Civil Rights Act of 1964, as amended, 42 U.S.C. §§ 2000e et seq., the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. §§ 621 et seq., the Americans with Disabilities Act of 1990, as amended, 42 U.S.C. §§ 12101 et seq., the Worker Adjustment and Retraining Notification Act of 1988, as amended, 29 U.S.C. §§ 2101 et seq., the Employee Retirement Income Security Act of 1974, as amended, 29 U.S.C. §§ 1001 et seq., and all other Federal, state, or local statutes, regulations or laws; provided, however, that nothing herein shall release the Company of its obligations under that certain Separation Agreement, dated April 24, 2011, between the undersigned and the Company, with respect to the undersigned’s rights with regard to indemnification and directors and officers liability insurance, or the Cooperation Agreement of even date herewith.  Except as set forth in Section II below, the undersigned understands that, as a result of executing this Release of Claims, she will not have the right to assert that the Company or any other Released Party unlawfully terminated her employment or violated any of her rights in connection with her employment or otherwise.

The undersigned affirms that she is not presently party to any Claim, complaint or action against any Released Party in any forum or form and that she knows of no facts which may lead to any Claim, complaint or action being filed against any Released Party in any forum by the undersigned or by any agency, group, etc.  The undersigned furthermore affirms that she has no known workplace injuries or occupational diseases and has been provided and/or has not been denied any leave requested under the FMLA.  If any agency or court assumes jurisdiction of any such Claim, complaint or action against any Released Party on behalf of the undersigned, the undersigned hereby waives any right to individual monetary or other relief.

The undersigned further declares and represents that she has carefully read and fully understands the terms of this Release of Claims and that, through this document, she is hereby advised to consult with an attorney prior to executing this Release of Claims, that she may take up to and including twenty one (21) days from receipt of this Release of Claims, to consider whether to sign this Release of Claims, that she may revoke this Release of Claims within seven calendar days after signing it by delivering to the Company written notification of revocation (and that this Release of Claims shall not become effective or enforceable until the expiration of such revocation period), and that she knowingly and voluntarily, of her own free will, without any

duress, being fully informed and after due deliberate action, accepts the terms of and signs the same as her own free act.

II.Protected Rights.  The Company and the undersigned agree that nothing in this Release of Claims is intended to or shall be construed to affect, limit or otherwise interfere with any non-waivable right of the undersigned under any Federal, state or local law, including the right to file a charge or participate in an investigation or proceeding conducted by the Equal Employment Opportunity Commission (“EEOC”) or to exercise any other right that cannot be waived under applicable law.  The undersigned is releasing, however, her right to any monetary recovery or relief should the EEOC or any other agency pursue Claims on her behalf.  Further, should the EEOC or any other agency obtain monetary relief on her behalf, the undersigned assigns to the Company all rights to such relief.

III.Severability.  If any term or provision of this Release of Claims is invalid, illegal or incapable of being enforced by any applicable law or public policy, all other conditions and provisions of this Release of Claims shall nonetheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated by this Release of Claims is not affected in any manner materially adverse to any party.

IV.GOVERNING LAW.  THIS RELEASE OF CLAIMS SHALL BE DEEMED TO BE MADE IN THE STATE OF NEW YORK, AND THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS AGREEMENT IN ALL RESPECTS SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ITS PRINCIPLES OF CONFLICTS OF LAW.

Effective on the eighth calendar day following the date set forth below.

THE READER’S DIGEST ASSOCIATION, INC.
By:	/s/ Thomas A. Williams
	Name: Thomas A. Williams
	Title: Chief Financial Officer
MARY BERNER
	By:	/s/ Mary Berner
	Mary Berner
	Date Signed:		April 24, 2011

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EXHIBIT B

Equity Awards

Grant Date	Award	Exercise Price		Shares
June 7, 2010	Non-qualified Stock Option	$	17.42	531,715	*
June 7, 2010	Restricted Stock Units	N/A		261,890	**

* As reduced by net share exercise and withholding.

** As reduced by net share withholding.

EX-10.2

Exhibit 10.2

COOPERATION AGREEMENT

COOPERATION AGREEMENT (this “Cooperation Agreement”) dated as of April 24, 2011 (the “Effective Date”), by and among The Reader’s Digest Association, Inc., a Delaware corporation (the “Company”), RDA Holding Co., a Delaware corporation (“RDA Holding”), and Mary G. Berner (“Executive”).

WHEREAS, Executive will cease employment with the Company as its Chief Executive Officer on April 25, 2011 (the “Termination Date”); and

WHEREAS, the parties desire Executive cooperate with the Company for thirty (30) day period following the Termination Date (the “Cooperation Period”).

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, and intending to be legally bound hereby, the parties hereto agree as set forth below:

1.             Cooperation Period.  During the Cooperation Period, Executive shall make herself reasonably available to participate, if and when requested by the Board of Directors of RDA Holding, in the orderly transition of her responsibilities, including participating in meetings, phone calls or other communications with employees, suppliers, vendors, customers or business partners of the Company.

2.             Consideration.  In consideration of such cooperation and availability the Company shall pay Executive $91,667 (which amount is equal to one twelfth (1/12) of the annual base salary of Executive immediately prior to the Termination Date), less applicable withholding, payable within five (5) days following the end of the Cooperation Period.

3.             Incorporation by Reference.  Sections 9 — 20 of the Separation Agreement of even date herewith between the parties shall be included herein by reference as if fully set forth herein.

*          *          *          *

IN WITNESS WHEREOF, this Cooperation Agreement has been executed by the parties as of the date first written above.

THE READER’S DIGEST ASSOCIATION, INC.
By:	/s/ Thomas A. Williams
	Name: Thomas A. Williams
	Title: Chief Financial Officer
RDA HOLDING CO.
By:	/s/ Thomas A. Williams
	Name: Thomas A. Williams
	Title: Chief Financial Officer
MARY BERNER
By:	/s/ Mary Berner
	Mary Berner

Signature Page to Cooperation Agreement

EX-10.3

Exhibit 10.3

SECOND AMENDMENT

SECOND AMENDMENT, dated as of May 11, 2011 (this “Amendment”), to the Revolving Credit and Guarantee Agreement, dated as of February 19, 2010, as amended (the “Credit Agreement”), among RDA HOLDING CO. (“Holdings”), THE READER’S DIGEST ASSOCIATION, INC. (the “Borrower”), certain of the Borrower’s Subsidiaries (the “Guarantors”), the lenders from time to time party thereto (the “Lenders”) and JPMORGAN CHASE BANK, N.A., as administrative agent (the “Administrative Agent”).

W I T N E S S E T H:

WHEREAS, Holdings, the Borrower, the Guarantors, the Lenders and the Administrative Agent are parties to the Credit Agreement;

WHEREAS, the Borrower has requested certain amendments and waivers to the Credit Agreement as more fully set forth herein; and

WHEREAS, the Administrative Agent and the Lenders are willing to agree to such amendments and waivers but only on the terms and conditions contained in this Amendment.

NOW THEREFORE, in consideration of the premises and the mutual covenants hereinafter set forth, the parties hereto agree as follows:

1.             Defined Terms.  Unless otherwise defined herein, capitalized terms used herein which are defined in the Credit Agreement (as amended by this Amendment) are used herein as therein defined.

2.             Amendments to Section 1.01 (Defined Terms).  (a)  Section 1.01 of the Credit Agreement is amended by inserting the following definitions in appropriate alphabetical order:

“Alternate Currency” means each of Euros, Pounds Sterling, Rubles and any other currency other than Dollars approved by the relevant L/C Issuer in which a Letter of Credit is denominated at the request of the Borrower.

“Alternate Currency Overnight Rate” means, with respect to an Alternate Currency, the rate per annum determined by the relevant L/C Issuer to represent its cost of overnight or short-term funds in such currency (which determination shall be conclusive absent manifest error) plus the Applicable Rate then in effect with respect to Eurodollar Rate Loans.

“Calculation Date” means two Business Days prior to the last Business Day of each calendar month (or any other day selected by the Administrative Agent when an Event of Default has occurred and is continuing); provided, that the second Business Day preceding each issuance of any Letter of Credit denominated in an Alternate Currency shall also be a “Calculation Date”.  The Administrative Agent will notify the Borrower and the relevant L/C Issuer of the applicable amounts recalculated on each Calculation Date.

“Dollar Equivalent” means, on any date, with respect to any amount denominated in an Alternate Currency, the equivalent in Dollars that may be purchased with such currency at the Spot Exchange Rate (determined as of the most recent Calculation Date) with respect to such currency at such date.

“Euro” means the single currency of participating member states of the European Union.

“Net Cash Balance” means, at any time, the total cash balance (including cash, Cash Equivalents and restricted cash) of the Borrower and its Subsidiaries at such time, less their respective outstanding checks and drafts, wire transfer instructions and similar payment directions that have not, at such time, cleared the respective accounts of the Borrower and its Subsidiaries.

“Pound Sterling” means the currency of the United Kingdom.

“Ruble” means the currency of Russia.

“Second Amendment” means the Second Amendment to this Agreement, dated as of May 11, 2011.

“Second Amendment Effective Date” has the meaning specified in the Second Amendment.

“Spot Exchange Rate” means on any day (i) with respect to Euros, Pounds Sterling or Rubles the spot rate at which Dollars are offered on such day by JPMorgan Chase Bank in London for Euros, Pounds Sterling or Rubles, as the case may be, at approximately 11:00 a.m. (London time), for delivery two Business Days later and (ii) with respect to any other Alternate Currency, the spot rate at which Dollars are offered on such day by JPMorgan Chase Bank in the market where its foreign currency exchange operations are then being conducted for such Alternate Currency, at approximately 11:00 a.m. (local time), for delivery two Business Days later.

(b)   The definition of “Change of Control” is hereby amended by:

(i)            deleting “50%” and substituting in lieu thereof “35%” in clause (a) thereof; and

(ii)           deleting clause (e) thereof in its entirety and substituting in lieu thereof:

“(e)  the Disposition of all or substantially all of the assets of the Loan Parties other than any Disposition to which Section 7.04 applies, but only to the extent expressly permitted by Section 7.04 and so long as any requirements set forth therein are satisfied.”.

(c)   The definition of “Continuing Directors” is hereby amended by:

(i)            deleting the phrase “on the Emergence Date” and substituting in lieu thereof the phrase “on the Second Amendment Effective Date” in clause (1) thereof; and

(ii)           deleting the phrase “a majority” and substituting in lieu thereof the phrase “at least 75%” in clause (2) thereof.

(d)   The definition of “Default Rate” is hereby amended to read in its entirety as follows:

“Default Rate” means an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate applicable to Base Rate Loans plus (iii) 2.0% per annum; provided that with respect to the principal amount of any Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including the Applicable Rate) otherwise applicable to such Loan plus 2.0% per

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annum; provided, further, that with respect to reimbursement obligations for outstanding Letters of Credit (including any L/C Borrowing) denominated in an Alternate Currency, the Default Rate shall be an interest rate equal to the Alternate Currency Overnight Rate plus 2.0%, in each case to the fullest extent permitted by applicable Laws.

(e)   The definition of “EBITDA” is hereby amended by inserting the phrase “; provided that the aggregate amount of restructuring charges incurred during 2011 and thereafter added to EBITDA pursuant to this clause (e) or excluded in the calculation of Consolidated Net Income pursuant to clause (1) of the definition thereof shall not exceed $35,000,000 for any twelve-month period, and any restructuring charges incurred during any fiscal quarter of 2011 and thereafter shall be set forth in reasonable detail on a schedule provided to the Administrative Agent, as part of the Compliance Certificate with respect to such quarter required to be delivered pursuant to Section 6.02(b)” after the phrase “the Closing Date” in clause (e) thereof.

(f)    The definition of “L/C Obligations” is hereby amended by inserting the following parenthetical at the end of the definition, immediately following the word “Borrowings” and preceding the period:

“(in each case based on the Dollar Equivalent thereof with respect to Letters of Credit denominated in an Alternate Currency)”.

(g)   The definition of “Suspension Period” is hereby deleted in its entirety.

3.             Amendments to Section 2.03 (Letters of Credit).  (a)  Section 2.03(a)(i) of the Credit Agreement is hereby amended by inserting the words “or an Alternate Currency” in clause (A)(1), immediately following the word “Dollars” and preceding the words “for the account of the Borrower”.

(b)   Section 2.03(a)(i) of the Credit Agreement is hereby further amended by inserting, in the proviso immediately following clause (B), a comma and the words “in each case after having calculated the Dollar Equivalent of such Letter of Credit if it is to be denominated in an Alternate Currency”, immediately following the words “Letter of Credit Sublimit” and preceding the period.

(c)   Section 2.03(b) of the Credit Agreement is hereby amended by deleting the sentence in paragraph (i) that begins with the words, “In the case of a request for an initial issuance of a Letter of Credit” in its entirety and substituting in lieu thereof the following new sentence:

“In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail reasonably satisfactory to the relevant L/C Issuer:  (a) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (b) the amount thereof; (c) the currency in which such Letter of Credit shall be denominated; (d) the expiry date thereof; (e) the name and address of the beneficiary thereof; (f) the documents to be presented by such beneficiary in case of any drawing thereunder; (g) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; and (h) such other matters as the relevant L/C Issuer may reasonably request.”

(d)   Section 2.03(b) of the Credit Agreement is hereby further amended by deleting paragraph (ii) in its entirety and substituting in lieu thereof the following new paragraph (ii):

“Promptly after receipt of any Letter of Credit Application, the relevant L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower and, if not, such L/C

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Issuer will provide the Administrative Agent with a copy thereof.  Prior to the issuance or amendment of a requested Letter of Credit, the Administrative Agent shall calculate the Dollar Equivalent of such Letter of Credit if it is to be denominated in an Alternate Currency and shall notify the Borrower and such L/C Issuer of the aggregate Revolving Credit Exposure after giving effect to (i) the issuance or amendment of such Letter of Credit, (ii) the issuance or expiration of any other Letter of Credit that is to be issued or amended or will expire prior to the requested date of issuance or amendment of such Letter of Credit and (iii) the borrowing or repayment of any Revolving Loans that (based upon notices delivered to the Administrative Agent by the Borrower) are to be borrowed or repaid prior to the requested date of issuance or amendment of such Letter of Credit.  A Letter of Credit shall be issued or amended only if (and upon issuance or amendment of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension, (i) the L/C Obligations shall not exceed the Letter of Credit Sublimit and (ii) the amount of the aggregate Revolving Credit Exposure shall not exceed the aggregate Revolving Credit Commitments.  Upon receipt by the relevant L/C Issuer of confirmation from the Administrative Agent that the requested issuance or amendment is permitted in accordance with the terms hereof, then, subject to the terms and conditions hereof, such L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the Borrower or enter into the applicable amendment, as the case may be.  Immediately upon the issuance of each Letter of Credit, each Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the relevant L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Lender’s Pro Rata Share times (x) the amount of such Letter of Credit or (y) if such Letter of Credit is denominated in an Alternate Currency, the Dollar Equivalent of the amount of such Letter of Credit.”

(e)   Section 2.03(c) of the Credit Agreement is hereby amended by deleting paragraph (i) in its entirety and substituting in lieu thereof the following new paragraph (i):

“Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the relevant L/C Issuer shall notify promptly the Borrower and the Administrative Agent thereof.  The Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing, not later than 1:00 p.m. (New York time), on (A) if such Letter of Credit is denominated in Dollars, (i) the Business Day after the Borrower receives notice of such drawing, if such notice is received on such day prior to 11:00 a.m. (New York time), or (ii) if clause (i) above does not apply, the second Business Day following the day the Borrower receives notice of such drawing or (B) if such Letter of Credit is denominated in an Alternate Currency, three Business Days immediately following the day the Borrower receives notice of such drawing (each such date, an “Honor Date”).  Each such payment shall be made to such L/C Issuer in the currency in which such draft is payable (except that, in the case of any Letter of Credit denominated in an Alternate Currency, upon notice by such L/C Issuer to the Borrower, such payment shall be made in Dollars from and after the date on which the amount of such payment shall have been converted into Dollars at the Spot Exchange Rate on such date of conversion, which date of conversion shall be selected by such L/C Issuer and may be any Business Day after the date on which such payment is due) in immediately available funds.  In order to reimburse any such drawing, the Borrower shall have the option to request in accordance with Section 2.02 a Revolving Credit Borrowing of Base Rate Loans (“Refunding Loans”), without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans but subject to the amount of the unutilized portion of the Revolving Credit Commitments of the Lenders and the conditions set forth in Section 4.02.  If the Borrower fails to so reimburse such L/C Issuer by such time, the Administrative Agent shall promptly notify each Lender of the Honor Date, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and the amount of such Lender’s Pro Rata

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Share thereof in Dollars (based on the Dollar Equivalent of such amount with respect to Letters of Credit denominated in an Alternate Currency).  Any notice given by an L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.”.

(f)    Section 2.03(c) of the Credit Agreement is hereby further amended by inserting the following parenthetical immediately following the words “in Dollars” in each of paragraphs (ii) and (iii):

“(based on the Dollar Equivalent thereof with respect to Letters of Credit denominated in an Alternate Currency)”.

(g)   Section 2.03(h) of the Credit Agreement is hereby amended by inserting the following parenthetical immediately following the words “in Dollars”:

“(based on the Dollar Equivalent thereof with respect to Letters of Credit denominated in an Alternate Currency)”.

(h)   Section 2.03(i) of the Credit Agreement is hereby amended by deleting the sentence that begins with the words, “Such fronting fees shall be due and payable” in its entirety and substituting in lieu thereof the following new sentence:

“Such fronting fees shall be due and payable in Dollars (based on the Dollar Equivalent thereof with respect to Letters of Credit denominated in an Alternate Currency) on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand.”.

4.             Amendment to Section 2.04 (Prepayments).  Section 2.04(b) of the Credit Agreement is hereby amended by deleting paragraph (i) in its entirety and substituting in lieu thereof the following new paragraph (i):

“If for any reason (A) the aggregate Revolving Credit Exposures at any time exceed the aggregate Revolving Credit Commitments then in effect, the Borrower shall promptly prepay or cause to be promptly prepaid Revolving Credit Loans and/or Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess or (B) the L/C Obligations on any Calculation Date exceed the Letter of Credit Sublimit, the Borrower shall promptly Cash Collateralize the L/C Obligations in an aggregate amount equal to such excess.  If the Borrower is required to provide an amount of Cash Collateral in respect of L/C Obligations pursuant to this clause (i), such amount plus any accrued interest with respect to such amount shall be returned to the Borrower as and to the extent that, after giving effect to such return, the Borrower would remain in compliance with this clause (i) and no Event of Default shall have occurred and be continuing.”.

5.             Amendment to Section 2.09 (Computation of Interest and Fees).  Section 2.09 of the Credit Agreement is hereby amended by inserting the words “as soon as practicable, notify the Borrower of each determination of a rate for an amount owing in an Alternate Currency and shall,” immediately following the comma that follows the words “The Administrative Agent shall” in the last sentence of the paragraph.

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6.             Amendments to Section 4.02 (Conditions to All Credit Extensions).  Section 4.02 of the Credit Agreement is hereby amended by:

(a)   inserting the following new clause (f) therein:

“(f)  The Net Cash Balance as of the date of such Credit Extension shall not exceed $125,000,000 after giving effect to such Credit Extension, the intended application of proceeds of such Credit Extension and the intended use of cash on hand for any transaction contemplated by such application of proceeds (it being understood that (i) at the time of such Credit Extension, the Borrower shall describe in reasonable detail the intended application and use of such proceeds and cash on hand and (ii) to the extent such proceeds and cash on hand are not in fact so applied as intended within 15 days after the date of such Credit Extension, then the Borrower agrees to repay the Revolving Credit Loans within 5 Business Days thereafter by the amount by which the Net Cash Balance exceeds $125,000,000 at such time).”; and

(b)   deleting the word “and” after “(c)”, inserting a comma in lieu thereof and inserting the words “and (f)” after “(d)” in the final paragraph thereof.

7.             Amendments to Section 6.01 (Financial Statements).  Section 6.01 of the Credit Agreement is hereby amended by:

(a)   deleting the phrase “and consolidating (by region)” wherever it appears in clauses (a) and (b) thereof;

(b)   deleting the parenthetical “(in the case of the consolidated financial statements)” in clause (a) thereof; and

(c)   deleting the parenthetical “(other than the consolidating financial statements, which shall be substantially in the form delivered to the Administrative Agent prior to the Closing Date)” in clause (b) thereof.

8.             Amendments to Section 6.02 (Certificates; Other Information).  Section 6.02 of the Credit Agreement is hereby amended by:

(a)   deleting paragraph (c) in its entirety and substituting in lieu thereof the following new paragraph (c):

“simultaneously with the delivery of the financial statements referred to in Sections 6.01(a) and (b), a narrative discussion and analysis of the financial condition and results of operations of the Borrower and its Subsidiaries (including, without limitation, with respect to Dispositions, cost savings, facility closures, litigation, contingent liabilities and other matters as the Administrative Agent or any Lender through the Administrative Agent may from time to time reasonably request) for the applicable period and for the period from the beginning of the then current fiscal year to the end of such period; provided, however, that so long as (i) the obligations in Sections 6.01(a) and (b) are satisfied by furnishing the Borrower’s or Holdings’ (or any direct or indirect parent thereof), as applicable, Form 10-K or 10-Q, as applicable, filed with the SEC and (ii) such Form 10-K or 10-Q, as applicable, contains such narrative discussion and analysis, the obligations of this Section 6.02(c) shall be deemed satisfied;”and

6

(b)   deleting paragraph (d) in its entirety and substituting in lieu thereof the following new paragraph (d):

“(d)  promptly upon the incurrence thereof of any obligation permitted under Sections 7.02(b)(i)(B), (C) or (D) or upon the entering into of any treasury, depository, cash management, or automated clearing house services permitted under Section 7.02(b)(i)(E) notice of such event, which notice shall set forth the nature of such obligation or service, including (i) in the case of clauses (B) and (C), principal amount, maturity and interest rate, (ii) in the case of clause (D), the principal terms of the applicable Swap Contract, including notional amount, maturity and interest rate, if applicable (but not any ongoing requirement to provide mark-to-market valuations), and (iii) in the case of clause (E), the anticipated range of exposure and any material change thereto;”.

9.             Amendment to Section 7.01 (Limitation on Restricted Payments).  Section 7.01 of the Credit Agreement is hereby amended by deleting clause (c) thereof in its entirety and inserting in lieu thereof the following:

“(c)  Notwithstanding anything to the contrary in the foregoing, (i) Restricted Investments of assets and property constituting Collateral (other than cash and Cash Equivalents) made pursuant to Section 7.01(a) may only be made in Subsidiary Guarantors and (ii) the Borrower will not, and will not permit any Restricted Subsidiary to, directly or indirectly, (I) declare or pay any dividend or make any distribution (whether cash or noncash) on account of the Borrower’s Equity Interests; (II) purchase or redeem, defease or otherwise acquire or retire for value any Equity Interests of the Borrower or any direct or indirect parent of the Borrower, in the case of each of clauses (I) and (II) to or for the benefit of any holder of common Equity Interests of the Borrower or any direct or indirect parent of the Borrower, or (III) make any principal payment on, or redeem, repurchase, defease, otherwise acquire or retire for value or give any irrevocable notice of redemption with respect thereto in each case, prior to any scheduled repayment, sinking fund payment or maturity, any Indebtedness by means of (A) Section 7.01(a)(vii), (B) Section 7.01(b)(v), Section 7.01(b)(vi), Section 7.01(b)(viii), Section 7.01(b)(ix), Section 7.01(b)(x), Section 7.01(b)(xii), Section 7.01(b)(xiii), Section 7.01(b)(xiv) or Section 7.01(b)(xvi) or (C) clause (o) of the definition of “Permitted Investments,” unless in each case such Restricted Payment is otherwise in compliance with this Agreement and at the time of such Restricted Payment (x) the Consolidated Secured Debt Ratio (calculated without giving effect to clause (1)(e) of the definition of Consolidated Secured Debt Ratio) of the Borrower would have been no greater than 3.25 to 1.00 on a pro forma basis (it being understood that the amount calculated pursuant to clause (1) of the definition of Consolidated Secured Debt Ratio will be reduced by the Liquidity of the Borrower and its Restricted Subsidiaries in excess of $150.0 million for purposes of such calculation), (y) the Borrower and its Restricted Subsidiaries would have Liquidity of no less than $100.0 million on a pro forma basis and (z) the Senior Secured Leverage Ratio (calculated on a pro forma basis in accordance with the last sentence of Section 7.14) would have been no greater than the ratio set forth in Section 7.14 opposite the last day of the then current fiscal quarter less 0.50.”.

10.           Amendment to Section 7.02 (Limitation on incurrence of Indebtedness and issuance of Disqualified and Preferred Stock).  Section 7.02 of the Credit Agreement is hereby amended by inserting the new clause (h):

“(h)  Notwithstanding anything to the contrary in the foregoing, the incurrence (as defined in Section 7.02(a)) of (a) any Senior Secured Indebtedness under Section 7.02(b)(i)(B), (C), (D) or (E) or (b) Senior Secured Indebtedness in a principal amount greater than $5,000,000 under any other provision of this Section 7.02 shall only be permitted under this Section 7.02 to

7

the extent that, both immediately before and after giving pro forma effect to the incurrence of such Senior Secured Indebtedness (x) no Default or Event of Default shall have occurred and be continuing and (y) the Borrower shall be in compliance with in Section 7.14.”.

11.           Amendment to Section 7.14 (Financial Condition Covenant).  Section 7.14 of the Credit Agreement is hereby amended by deleting it in its entirety and inserting in lieu thereof the following:

“Section 7.14         Financial Condition Covenant.  The Borrower will not permit the Senior Secured Leverage Ratio as of any date set forth below to be greater than the ratio set forth below opposite such date:

Date	Senior Secured Leverage Ratio
March 31, 2010	4.50 : 1.00
June 30, 2010	4.50 : 1.00
September 30, 2010	4.50 : 1.00
December 31, 2010	4.50 : 1.00
March 31, 2011	4.25 : 1.00
June 30, 2011	4.25 : 1.00
September 30, 2011	4.25 : 1.00
December 31, 2011	4.00 : 1.00
March 31, 2012	3.75 : 1.00
June 30, 2012	3.75 : 1.00
September 30, 2012	3.75 : 1.00
December 31, 2012	3.75 : 1.00

For all purposes of determining pro forma compliance with this Section 7.14 on any day, the applicable ratio shall be the one in effect on the last day of the fiscal quarter in which such day falls (it being understood that the EBITDA used in determining such pro forma compliance will be the EBITDA for the most recently ended period for which financial statements have been or are required to have been delivered pursuant to Section 6.01(a) or (b)).”.

12.           Waiver.  The Lenders party hereto, constituting the Required Lenders, hereby waive any Event of Default that may have occurred pursuant to Section 8.01(j) prior to the Second Amendment Effective Date and the payment of any interest which accrued at the Default Rate pursuant to Section 2.07(b) as a result thereof prior to the Second Amendment Effective Date.

13.           Conditions to Effectiveness of this Amendment.  This Amendment shall become effective upon the date (the “Second Amendment Effective Date”) upon which:

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(a)   this Amendment shall have been executed and delivered by the Borrower, the Administrative Agent and the Required Lenders;

(b) each Lender that has provided its written consent to this Amendment on or prior to 5:00 p.m., New York City time, on May 11, 2011 shall have received an amendment fee (or the Administrative Agent shall have received such fee for the account of such Lender) in an amount equal to 0.25% of such Lender’s Revolving Credit Commitment; and

(c) the Administrative Agent shall have received all fees and expenses required to be paid under the Credit Agreement.

14.           Representation and Warranties.  To induce the Administrative Agent and the Lenders to enter into this Amendment, the Borrower hereby represents and warrants to the Administrative Agent and each Lender that:

(a)   As of the Second Amendment Effective Date, and after giving effect to this Amendment, each of the representations and warranties made by the Borrower in or pursuant to the Loan Documents is true and correct in all material respects as if made on and as of such date (it being understood and agreed that any representation or warranty that by its terms is made as of a specific date shall be required to be true and correct in all material respects only as of such specified date).

(b)   As of the Second Amendment Effective Date, and after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.

15.           Effect of Amendment.  (a)  This Amendment shall not constitute an amendment or waiver of or consent to any provision of the Credit Agreement or the other Loan Documents not expressly referred to herein and shall not be construed as an amendment, waiver or consent to any action on the part of the Borrower or any other Loan Party that would require an amendment, waiver or consent of the Administrative Agent or the Lenders except as expressly stated herein.  Except as expressly amended hereby, the provisions of the Credit Agreement and the other Loan Documents are and shall remain in full force and effect in accordance with its terms.

(b)   On and after the Second Amendment Effective Date, each reference in the Credit Agreement to “this Agreement”, “hereunder”, “hereof”, “herein”, or words of like import, and each reference to the Credit Agreement in any other Loan Document shall be deemed a reference to the Credit Agreement as amended hereby.  This Amendment shall constitute a “Loan Document” for all purposes of the Credit Agreement and the other Loan Documents.

16.           Counterparts.  This Amendment may be executed by one or more of the parties to this Amendment on any number of separate counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Delivery of an executed counterpart of a signature page by facsimile or by electronic mail in portable document format (.pdf) shall be effective as delivery of a manually executed counterpart.

17.           Severability.  Any provision of this Amendment which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

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18.           Integration.  This Amendment and the other Loan Documents represent the agreement of the Loan Parties, the Administrative Agent and the Lenders with respect to the subject matter hereof and thereof, and there are no promises, undertakings, representations or warranties by the Administrative Agent or any Lender relative to the subject matter hereof or thereof not expressly set forth or referred to herein or in the other Loan Documents.

19.           GOVERNING LAW.  THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

[The remainder of this page is intentionally left blank.]

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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

THE READER’S DIGEST ASSOCIATION, INC.
By:		/s/ Thomas A. Williams
	Name: Thomas A. Williams
	Title: President and Chief Executive Officer
RDA HOLDING CO.
By:		/s/ Thomas A. Williams
	Name: Thomas A. Williams
	Title: President and Chief Executive Officer

[Signature Page to Second Amendment to The Reader’s Digest Revolving Credit and Guarantee Agreement]

JPMORGAN CHASE BANK, N.A., as Administrative Agent and as a Lender
By:	/s/ Charles Holmes
	Name:	Charles K. Holmes
	Title:	Vice President

[Signature Page to Second Amendment to The Reader’s Digest Revolving Credit and Guarantee Agreement]

CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, as a Lender
By:	/s/ Mikhail Faybusovich
	Name:	Mikhail Faybusovich
	Title:	Director
By:	/s/ Vipul Dhadda
	Name:	Vipul Dhadda
	Title:	Associate

[Signature Page to Second Amendment to The Reader’s Digest Revolving Credit and Guarantee Agreement]

GOLDMAN SACHS CREDIT PARTNERS L.P., as a Lender
By:	/s/ Lauren Day
	Name:	Lauren Day
	Title:	Authorized Signatory

[Signature Page to Second Amendment to The Reader’s Digest Revolving Credit and Guarantee Agreement]

BANK OF AMERICA, N.A., as a Lender
By:	/s/ Mark Short
	Name:	Mark Short
	Title:	Director

[Signature Page to Second Amendment to The Reader’s Digest Revolving Credit and Guarantee Agreement]

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT TO

RULES 13a-14(a) and 15d-14(a)

I, Thomas Williams, certify that:

1.I have reviewed this quarterly report on Form 10-Q of RDA Holding Co.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: May 16, 2011	By:	/s/ Thomas Williams
		Thomas Williams
		President, Chief Executive Officer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

In connection with the Quarterly Report of The Reader’s Digest Association, Inc. (the “Company”) for the quarter ended March 31, 2011 (the “Report”), Thomas Williams, President, Chief Executive Officer and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: May 16, 2011	By:	/s/ Thomas Williams
		Thomas Williams
		President, Chief Executive Officer and Chief Financial Officer