Segments

9 Months Ended

Sep. 30, 2011

Segments

Segments

Note 17 Segments

Our reportable segments reflect the manner in which our chief operating decision maker reviews the business.  Driven by changes in the alignment of our management team and the manner in which our chief operating decision maker reviews the business, we modified our reporting structure during the three months ended September 30, 2011.  Our Chief Executive Officer acts as our chief operating decision maker.  This change realigned our United States and Canada operations to gain further efficiencies and formed a North America operating segment.   In addition, our Allrecipes business was moved out of the previously reported United States segment, reporting directly to our chief operating decision maker.  We recast our reportable segment results for previous periods to conform with the current presentation of our reportable segments.

Our businesses are now structured into the following six reportable segments: North America, Europe, APLA, LED, Allrecipes and Other (Weekly Reader Publishing Group) segments.  These segments operate under two lines of businesses: branded communities and direct marketing.  Our branded communities business is comprised of the North America, Allrecipes and Other segments, while our direct marketing business includes Europe, APLA and LED segments.  In addition to the reportable segments, we separately report corporate unallocated expenses, which are expenses not directly attributable to business unit performance.  Similarly, we separately report the effects of goodwill and intangible asset impairment charges, certain purchase accounting related fair value adjustments and other operating items, net because our chief operating decision maker does not factor these items when assessing business unit performance.

North America

This segment comprises our operations in the United States and Canada that publish and market various magazines, books and home entertainment products.  We are focusing on our master brands, which include Reader’s Digest, Taste of Home and The Family Handyman (collectively, “Master Brands”).  The businesses in this segment are structured around a branded community model that focuses on a multi-platform community of customers with like interests.  This community strategy allows us to promote our products, and our advertiser’s products, through multiple channels to a focused audience at an effective cost.  Resources in the North America segment are shared across our branded communities with centralized marketing and promotional efforts.  Growth opportunities in this segment include distributing and monetizing content across traditional and digital platforms.  They also include generating revenue through integrated advertising opportunities; better leveraging of special issue publications and smaller brand titles; and creating new revenue streams through innovative licensing and partnership agreements, such as the Humana partnership, entered into earlier this year.

Europe and Asia Pacific & Latin America

These segments include our direct marketing businesses operating outside of North America, that leverage our marketing, database and curation skills, along with our global reach, to build ongoing relationships with our customers by offering them selected branded and third party products and services that align with their interests.  These segments market products and services that address lifestyle needs across multiple communities including seniors, health, cooking, gardening, travel and hints and tips, among others.  These markets are managed by region.  Our most significant markets by revenue are Germany, Australia, Russia and Central Europe.  In contrast to our North America segment which principally relies on magazine revenue, our Europe and APLA segments derive a significant amount of their revenue from non-magazine sales, including the sale of books, entertainment, merchandise and financial services products sold through catalog, continuity and single product offerings across multiple marketing channels including direct mail, digital, telemarketing, free standing inserts, package inserts, door drops and direct response television campaigns.  Growth initiatives include diversifying beyond publishing to offer an expanded portfolio of products and services across targeted markets, growing digitally via sweepstakes, building out our business-to-business offerings and accelerating growth in our BRIC (Brazil, Russia, India, China) countries.

Lifestyle & Entertainment Direct

Our LED segment typically generates revenue through direct response television campaigns and retail channels.  Historically, revenue has been generated through the licensed promotions of music and video products.  The business has diversified its offerings and channels.  We are growing our distribution in the retail channel, through the acquisition of new content and the addition of new products lines, including actively expanding into household and wellness product lines.  Results are largely driven by the demand for our products and the customer response to promotional efforts.

Allrecipes

The Allrecipes global, multiplatform brand provides insight into the kitchens and cooking passions of home cooks throughout the world, with websites, mobile apps and eBooks serving cooks in multiple countries and languages.  Our primary revenue source in this segment is digital advertising, along with incremental revenue generated from licensing and digital consumer products.  Growth initiatives include expansion of our international websites, video and mobile advertising, along with paid memberships.

Other

Other is comprised of the results related to our Weekly Reader business.  Weekly Reader Publishing Group publishes classroom periodicals and other supplementary educational materials.

Intercompany eliminations and corporate unallocated expenses

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.  Accounting policies of our segments are the same as those described in Note 1, Organization and Summary of Significant Accounting Policies.  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 governance and centrally managed expenses; the accounting for RDA pension plans and postretirement healthcare costs; and stock and executive compensation programs, all of which are not allocated to the reportable segments and other costs that are not allocated to the reportable segments, such as the amortization of intangible assets.  Governance and centrally managed expenses include costs such as corporate finance and general management, public relations, legal, treasury and any related information technology and facility costs utilized by these departments.

Reportable Segment Financial Information:

	Successor Company
	Three months ended September 30,
	2011			2010
Revenue
North America	$	138.0		$	143.4
Europe	136.0			120.9
Asia Pacific & Latin America	65.2			59.9
Lifestyle & Entertainment Direct	18.2			30.9
Allrecipes	6.7			6.1
Other	2.8			3.7
Intercompany eliminations	(2.2		)	(1.2		)
Fair value adjustments (a)	(7.7		)	(21.9		)
Total revenue	$	357.0		$	341.8
Operating (loss) income
North America	$	(5.2	)	$	2.9
Europe	(4.8		)	(8.9		)
Asia Pacific & Latin America	3.5			(1.6		)
Lifestyle & Entertainment Direct	(5.1		)	(1.1		)
Allrecipes	0.1			(0.1		)
Other	(1.4		)	(0.9		)
Corporate unallocated	(25.1		)	(22.1		)
Fair value adjustments (a)	(3.9		)	(12.5		)
Impairment of assets	(11.2		)	(41.1		)
Other operating items, net (b)	(10.5		)	0.4
Operating loss	$	(63.6	)	$	(85.0	)

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

(b) 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 4, Other Operating Items, Net.

	Successor Company						Predecessor Company
	Nine months ended September 30, 2011			February 20 to September 30, 2010			January 1 to February 19, 2010
Revenue
North America	$	465.8		$	409.2		$	86.8
Europe	403.3			325.5			92.4
Asia Pacific & Latin America	182.1			153.0			34.4
Lifestyle & Entertainment Direct	57.1			105.1			36.2
Allrecipes	18.2			15.1			2.8
Other	13.0			12.5			5.7
Intercompany eliminations	(5.5		)	(3.1		)	(0.6		)
Fair value adjustments (a)	(41.6		)	(82.8		)	—
Total revenue	$	1,092.4		$	934.5		$	257.7
Operating income (loss)
North America	$	35.3		$	53.7		$	4.9
Europe	(2.7		)	28.7			(8.1		)
Asia Pacific & Latin America	6.7			9.4			0.2
Lifestyle & Entertainment Direct	(27.4		)	6.4			6.1
Allrecipes	(1.9		)	0.5			(0.2		)
Other	(0.8		)	(1.1		)	1.9
Corporate unallocated	(80.9		)	(70.3		)	(15.1		)
Fair value adjustments (a)	(26.5		)	(45.8		)	—
Impairment of assets	(267.9		)	(41.1		)	—
Other operating items, net (b)	(18.3		)	(32.9		)	(14.0		)
Operating loss	$	(384.4	)	$	(92.5	)	$	(24.3	)

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

(b) 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; (iv) gain or loss on the disposal of assets; and (v) pension curtailments.  See Note 4, Other Operating Items, Net.